A new compliance report shows the disconnect between where it makes its money, and where it pays its taxes.

By Steve Dent July 3, 2026 7:01 am EST Frantic00/Getty Images

A new mandatory compliance report released by Microsoft shows how it declares profits in different European nations to reduce its tax bill, The New York Times reports. The document reveals that the software giant reports high income in regions where taxes are low and reduced profits in countries where rates are higher. Microsoft may be the first tech giant to submit such a report and it's likely that others follow the same tax-haven recipe.

Following pain caused by the global financial crisis of 2008, Europe passed a directive in 2021 requiring corporations to submit public country-by-country reports. The aim was glean insight on where companies claim to earn their money for tax purposes versus their actual economic activities.

Microsoft's report shows a clear disconnect between the two. For instance, the company said it earned nearly 40 percent of its global income ($196 billion) in tax-friendly Ireland, but just 0.5 percent in Germany, which is Europe's largest market but has a much higher tax rate. It also showed low profit margins in its two other big European markets, France and Italy.

Microsoft felt compelled to issue a blog post about the report, saying "some figures may look surprising at first." The company said that it follows all relevant laws in each country and the EU bloc as a whole. Microsoft also noted that it's subject to payroll, value-added and proprety taxes, on top of taxes on profits.

"Microsoft pays the taxes we owe in every country where we operate. We know there are strong views about whether companies are paying enough, and we believe providing this context leads to a more informed conversation," said the company's VP and deputy general counsel in Europe, Jeff Bullwinkel. Bullwinkel said that Microsoft had the second highest corporate tax bill in the world (after Apple) at $28.7 billion, including $6.3 billion in the EU. He also highlighted $176 billion and $89.2 billion in capital expenditures and R&D across all its markets, respectively.

Nonetheless, the company's use of tax shelters helped it avoid significant taxes that could have contributed to social programs in the nations where it makes the most money. In total, US companies avoided paying at least $40 billion from such havens, according to a separate report from the NYT.