Consumer Activist Accuses Microsoft Of Avoiding Taxes

by Mike Godfrey, Tax-News.com, Washington

08 January 2002

Celebrated consumer activist Ralph Nader has accused technology behemoth Microsoft Corp of illegally avoiding taxes, according to a report in the Wall Street Journal on Monday.

The WSJ report states that Mr Nader and James Love, who is the director of Nader's Consumer Project on Technology, sent a letter to Microsoft Chairman Bill Gates on Friday, detailing the 'inappropriate and we believe unlawful device' being used to avoid taxes.

According to Messrs Nader and Love, the company's practice of not paying shareholder dividends allows the larger shareholders to pay taxes at a greatly reduced rate - were they to receive dividends they would likely be taxed at around 39%, whereas stock related gains on the sale of shares are subject to the much lower capital gains tax.

The Consumer Project on Technology believes that Microsoft should be subject to a relatively unknown section of the federal tax code known as the accumulated earnings tax, which is designed to prevent companies from hoarding excess cash in order to help their shareholders avoid taxes on dividend payments.

'It's a tax avoidance scheme for the big shareholders,' Mr Nader told the WSJ in a recent interview. 'This thing is out of control. Has any company in history ever accumulated so much cash?'

Microsoft has responded to the accusations, arguing that it 'works hard to comply with US Federal income tax rules', and that the tax code 'recognizes the need for companies to retain cash to fund their businesses, and [that] high tech companies commonly maintain significant cash balances to support their business objectives.'

According to the Wall Street Journal, it is thought to be very unlikely that the software giant will ever face the accumulated earnings tax, as the provisions are usually applied to closely held companies.

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