November 30, 2023

Warren, Whitehouse, Sanders Probe Accounting Giant KPMG’s Role Helping Microsoft Offshore Profits and Avoid Billions in Taxes

KPMG Designed Microsoft’s Tax Avoidance Scheme, IRS is Now Seeking $28.9 Billion in Unpaid Taxes

Text of Letter (PDF)

Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.) and Sheldon Whitehouse (D-R.I.), both members of the Senate Finance Committee, and Bernie Sanders (I-Vt.) sent a letter to accounting giant KPMG, questioning the firm’s role assisting Microsoft in its scheme to offshore profits and avoid billions of dollars in taxes. The letter comes after Microsoft disclosed last month that the Internal Revenue Service (IRS) was seeking $28.9 billion, plus penalties and interest, in unpaid taxes because the company had illegally allocated profits to a foreign subsidiary in Puerto Rico from 2004 to 2013. 

“Reports reveal that KPMG designed this ‘pure tax play’ for Microsoft, and implemented similar schemes for other large U.S. corporations. The IRS appears to be alleging that this KPMG-directed tax restructuring violated transfer pricing laws, which regulate the payments large corporations send to their related businesses,” wrote the senators. 

According to a 2020 ProPublica report, Microsoft sold its intellectual property (IP) rights to a tiny factory in Puerto Rico at an extreme – and illegal – discount, and then paid that subsidiary billions for the rights to use this IP. As a result, Microsoft reported extraordinary profits in Puerto Rico, where KPMG had secured the company a near-zero percent tax rate. From just 1999 to 2008, Microsoft’s foreign pretax income as a percentage of U.S. figures exploded from 10 percent to 88 percent, despite foreign revenue increasing only 24 percent during that same time period. 

The senators note that KPMG’s plan was so egregious that Microsoft executives did all they could to shield themselves from legal liability. Before a planning discussion with KPMG consultants, a Microsoft executive told employees that a meeting with KPMG had to be “a white board briefing” with “no handouts and no email.” KPMG created complex accounting models to make the transfer prices appear legitimate. Once the factory was up and running, a Microsoft executive explained that the structure was “a pure tax play” that let the company start “claiming the tax benefit as planned.”

“KPMG’s role in Microsoft’s tax evasion is deeply disturbing, indicating that KPMG helped Microsoft reward shareholders and executives, while depriving the federal government of billions in tax revenue needed to pay for health care, environmental protection, infrastructure, and more,” wrote the senators. “But it does not end there… the KPMG team boasted that they had ‘significant experience in assisting Fortune 50 companies in the migration of … company assets to new deferral structures’…. If true, KPMG clearly played a central role in the systematic offshoring of corporate profits, which has eroded the U.S. tax base and contributed to a sharp rise in economic inequality,” wrote the senators. 

Given these serious concerns, the senators are asking KPMG to provide Congress an explanation for its actions and its role in corporate tax avoidance. The senators are asking KPMG to answer a set of questions about its work with Microsoft and other companies that it worked with on transfer price practices or other cross-border issues by December 13, 2023. 

Senator Warren has led the fight to make giant corporations and the wealthy pay their fair share in taxes and strengthen the IRS’s ability to go after tax cheats: 

  • In November 2023, at a hearing of the Senate Finance Committee, Senator Warren called out efforts by lobbyists for giant corporations trying to extend three of the biggest corporate giveaways in the Trump tax cuts: bonus depreciation, R&D expensing, and looser limits on net interest deduction. Senator Warren called for Congress to stop rubber-stamping tax breaks like these for giant corporations and the ultra-wealthy and to end these Trump tax giveaways. 
  • In October 2023, Senator Warren sent a letter to Microsoft, raising concern over reports that the company may owe nearly $29 billion in taxes due to its tax evasion schemes. 
  • In October 2023, Senators Warren, Angus King (I-Maine), Richard Blumenthal (D-Conn.), Sanders, Whitehouse, Brian Schatz (D-Hawaii), and Gary Peters (D-Mich.) sent a letter to Secretary of the Treasury Janet Yellen and Internal Revenue Service (IRS) Commissioner Daniel Werfel, urging their agencies to swiftly implement their recently proposed tax reporting requirements for crypto brokers after the agencies’ two-year delay in proposing the rule.
  • In August 2023, Senators Warren, Bob Casey (D-Pa.),Blumenthal, and Sanders sent a letter to the Department of the Treasury and the Internal Revenue Service (IRS), urging them to quickly propose and implement strong rules that close loopholes exploited by crypto tax evaders.
  • In February 2023, at a hearing of the Senate Finance Committee, Senator Warren questioned Daniel Werfel, President Biden’s nominee to be Commissioner of the IRS about Republicans’ decades-long plan to rig our tax system and make it easier for billionaires and giant corporations to cheat their taxes, including by slashing IRS funding so it lacks the resources to take on wealthy tax cheats.
  • In September 2021, Senator Warren published a report revealing how massive corporations and America’s wealthiest households are using extraordinary loopholes and increasingly complex schemes to avoid paying their fair share in taxes.
  • In August 2021, Senators Warren, Whitehouse, and Sanders sent a letter to then-IRS Commissioner Charles P. Rettig regarding the importance of providing the resources the IRS needs to go after wealthy tax cheats and provide faster and better service to the majority of Americans who are paying their fair share
  • In July 2021, Senators Warren, Whitehouse, members of the Senate Committee on Finance, sent a letter to Finance Committee Chair Ron Wyden (D-Ore.) calling for an investigation into last month’s deeply troubling ProPublica report describing how the nation’s wealthiest individuals are using a series of legal tax loopholes to avoid paying their fair share of income taxes.
  • In May 2021, Senator Warren introduced Restoring the IRS Act of 2021, which would provide the IRS with the resources it needs to go after wealthy tax cheats and close the tax gap.
  • In March 2021, Senator Warren and Representatives Pramila Jayapal (D-Wash.) and Brendan Boyle (D-Pa.) introduced the Ultra-Millionaire Tax Act, legislation that includes robust anti-evasion and avoidance measures and would level the playing field and narrow the racial wealth gap by asking the wealthiest 100,000 households in America, or the top 0.05%, to pay their fair share.