Motorola To ‘Vigorously Dispute’ $500 Million Tax Demand From IRS

by Mike Godfrey, Tax-News.com, Washington

13 August 2004

Motorola, the world's second-largest mobile phone maker, is facing a potential $500 million tax bill after the Internal Revenue Service questioned the way in which it allocated profits among its operations in different countries during the 1990s.

According to the IRS, which recently completed an audit of the firm’s tax returns, the extra tax is owed as a result of proposed adjustments to transfer pricing arrangements for the period 1996 through 2000.

Transfer pricing involves the way in which different units of the same company price the goods and services they transfer between themselves, which can have an effect on the amount of tax the company pays.

Whilst Motorola has said the extra tax will not ultimately hurt the firm’s financial position, it may have a material effect on earnings during the period that the tax bill is paid. Nevertheless, the company has stated its intention to “vigorously dispute” the IRS claim that it should have reported an additional $1.4 billion in income in the period in question.

Motorola’s shares fell 5% on the back of the news in early New York trading yesterday.

Recommended