Ballmer Says Tax Would Move Microsoft Jobs Offshore

Obama's decisive victory this week over Republican rival John McCain in the U.S. presidential elections has been broadly hailed by technology leaders as potentially beneficial to the country's technology and communications industries.

"I have a lot of faith in our system and our electoral process, and I think President-elect Obama understands that there's a deep set of economic issues, and I have confidence in his leadership," Ballmer said on the Australian Broadcasting Corporation's Lateline program, in response to a question on how he thought Obama's win would help Corporate America.

Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.

“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”

Obama on May 4 proposed outlawing or restricting about $190 billion in tax breaks for offshore companies over the next decade. Such business groups as the National Foreign Trade Council, the U.S. Chamber of Commerce and the Business Roundtable have denounced the proposed overhaul.

U.S. tax rules let companies defer paying corporate rates as high as 35 percent on most types of foreign profits as long as that money remains invested overseas. Obama says he wants to end such incentives to keep foreign profits tax-deferred so that companies would invest them in the U.S.

Microsoft reported an overall effective tax rate of 26 percent for 2008 in its last annual report. “Our effective tax rates are less than the statutory tax rate due to foreign earnings taxed at lower rates,” the report said.

Barry Bosworth, an economist in Washington at the Brookings Institution research center, said many software companies such as Microsoft have exploited tax and trade rules in the U.S. and other countries to achieve a low overall tax rate.

Ireland Subsidiary

Typically, he said, a company like Microsoft develops a product like Windows in the United States and deducts those costs against U.S. income. It then transfers the technology to a subsidiary in Ireland, where corporate tax rates are lower, without charging licensing fees. The company then assigns its foreign sales to the Irish subsidiary so it doesn’t have to claim the income in the United States.

“What Microsoft wants to do is deduct the cost at a high tax rate and report the profits at a low tax rate,” Bosworth said. “Relative to where they are now, the administration’s proposals are less favorable, so there will be some rebalancing on their part.”