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Microsoft IRS transfer pricing case dismissed

Microsoft and the Internal Revenue Service (IRS) have agreed to end their battle over documents used in transfer pricing audits of the tech company.

On February 24, the Internal Revenue Service (IRS) and Microsoft reached an agreement which resulted in the dismissal of the Freedom of Information Act (FOIA) lawsuit over documents used by the tax authority in transfer pricing audits of Microsoft.

The IRS has now made available the files that Microsoft requested. Both parties have agreed to cover their own costs and expenses relating to the lawsuit.

“Counsel for the [IRS] has produced the records sought by [Microsoft] in its Freedom of Information Act request, and as a result, the petition is now moot,” read the notice.

Dispute timeline

On September 22 2014, Microsoft sent a FOIA request for information on a contract between the IRS and Quinn Emanuel Urquhart & Sullivan (QEUS). QEUS was hired by the IRS, at a cost of more than $2 million, to assist in auditing Microsoft’s federal income tax returns from 2004 to 2009.

As per FOIA requirements, government agencies must respond to the request within 20 business days of receiving the letter.

On October 23 2014, Microsoft still had not heard back from the IRS and sent another letter.

The IRS responded saying they could not meet the deadline and wanted to extend it by 10 days. Microsoft said the extended deadline was unnecessary.

In October 2014, the IRS issued Microsoft with a summons, requesting more information about the company’s transfer pricing arrangements in Bermuda and Puerto Rico.

Microsoft sued the IRS in November 2014 for failing to respond to its deadline for delivering information on the contract with QEUS.

In a statement, Microsoft said: “Government agencies, funded by citizens, have an obligation of transparency under the Freedom of Information Act”.

On January 15 2015, the IRS asked for the lawsuit to be dismissed, stating that Microsoft’s requests were unreasonable and that the company had failed to describe the exact records they were asking for. The IRS also alleged that they had already sent 176 pages of documents before the deadline and that an extension was justified.

Neither the IRS nor Microsoft were willing to comment on the conclusion of the dispute.

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