Category: Microsoft

"As the people who build the technologies that Microsoft profits from, we refuse to be complicit."

Corporations that contract with President Donald Trump's immigration agencies faced harsh rebuke this week both from within their ranks and from outside critics over their complicity with the Trump administration's separation of families at the U.S.-Mexico border.

More than 100 employees at Microsoft demanded that the company stop providing support to Immigration and Customs Enforcement (ICE).

"We request that Microsoft cancel its contracts with ICE, and with other clients who directly enable ICE," wrote the workers. "As the people who build the technologies that Microsoft profits from, we refuse to be complicit."

Microsoft has previously told employees that its work with ICE does not support the Trump administration's zero tolerance immigration policy under which thousands of children have been separated from their families—packed into detention centers for children as young as a few months old or sent all over the country in the foster care system.

The employees made clear that such an assurance "does not go far enough."

"We believe that Microsoft must take an ethical stand, and put children and families above profits," said the employees, noting that the company has a $19.4 million contract with ICE. "We also call on Microsoft to draft, publicize and enforce a clear policy stating that neither Microsoft nor its contractors will work with clients who​ ​violate international human rights law​."

In January, Microsoft announced a new partnership with ICE through its Azure Government computing program. The program's capabilities include facial recognition software, leading to concerns among critics that the company could be directly participating in the apprehension of immigrants.

In CEO Satya Nadella's response to his employees' letter, he said only that Microsoft is "supporting legacy mail, calendar, messaging, and document management workloads" for ICE.

Regardless of the exact nature of Microsoft's work with the agency, the letter noted, the company is "providing the technical undergirding in support of an agency that is actively enforcing this inhumane policy."

Meanwhile, partnerships forged by defense and intelligence contractors with the Health and Human Services Department (HHS)—which is charged with caring for children who arrive in the U.S. without adults as well as those who have been forcibly separated from their parents and guardians—have come under attack in recent days.

As Common Dreams reported last week, General Dynamics and MVM, Inc. have won multi-million dollar contracts with the department to oversee the detention centers where more and more children have been sent in recent weeks, and to transport children throughout Texas.

General Dynamics' involvement in the zero tolerance policy provoked condemnation from peace activists in Maine, home of the corporation's subsidiary, Bath Iron Works.

"It is a real sign that [General Dynamics] is willing to do just about anything to make [money]," peace activist Bruce Gagnon told the Bangor Daily News. "Ethics do not matter to this mega-corporation at all."

Organizers of the online boycott campaign Grab Your Wallet have urged supporters to contact both General Dynamics and MVM.

In an attempt to evade the long arm of U.S. intelligence that could mark a sea change in internet privacy, Microsoft has announced plans to build two new data centers in Germany that will store user information in a secure network and not allow access to anyone—including the U.S. government and Microsoft staff themselves—without explicit approval by the user or a “data trustee.”

If permission is granted by the user or the trustee, Microsoft would still be required to operate under their supervision.

In this case, the trustee is T-Systems, a subsidiary of German conglomerate Deutsche Telekom. By stationing its data servers in Frankfurt am Main and Magdeburg, Microsoft will be placing user data under German privacy protections, which are some of the strictest in Europe.

The move comes amid growing public outcry over government eavesdropping in the wake of Edward Snowden’s 2013 revelations that exposed National Security Agency (NSA) mass surveillance at home and abroad. And it may help address new privacy concerns arising just weeks after the U.S. Senate passed the controversial Cybersecurity Information Sharing Act (CISA), which supporters say would make it easier for tech companies to respond to security breaches—but which opponents say is nothing more than a government surveillance bill in disguise.

Microsoft, which publicly opposed CISA, has been in an ongoing legal battle with the Department of Justice (DOJ) after the company in December 2013 refused to hand over emails from a drug trafficking suspect stored on servers in Dublin, Ireland. Microsoft told DOJ officials they would have to get a warrant from an Irish court.

With that case still underway, the company’s initiative signals that it may be looking for a whole new approach to privacy.

The implications of the move are significant, even if they are not necessary fail-safe. As The Verge writes:

It’s an approach that’s comparable to Apple’s use of encryption that even the iPhone-maker can’t break — theoretically taking away the option of government authorities forcing the company to give up users’ data. However, none of these tactics are ever completely secure. For example, the Snowden revelations showed that despite Europe’s outward desire for data sovereignty, many local spy agencies still funneled European citizens’ data to the NSA.

Paul Miller, an analyst for Forrester, notes that although Microsoft is confident in the security of German servers, this arrangement has yet to be tested in the courts. “To be sure, we must wait for the first legal challenge. And the appeal. And the counter-appeal,” said Miller.

More importantly, though, Microsoft’s decision could end up affecting more than just its own users. If the German trustee model becomes a recognized standard for data security, then customers of other cloud computing firms like Google and Amazon could demand similar arrangements. EU officials might also be emboldened by the move. Last month, the EU Court of Justice invalidated the longstanding Safe Harbor treaty allowing US companies to send data on European citizens back to America. The treaty is currently being renegotiated, and Microsoft’s support for the data trustee model could feed into these debates.

The data centers—which are connected to each other by a private network that will operate separately from the internet—are aimed at organizations working with sensitive information, such as health or finances.

“These locally deployed versions of Microsoft’s commercial cloud services adhere to German data handling regulations and customers will be able to view how and where data is processed,” the company stated on Wednesday.

Microsoft Corp. is currently sitting on almost $29.6 billion it would owe in U.S. taxes if it repatriated the $92.9 billion of earnings it is keeping offshore, according to disclosures in the company’s most recent annual filings with the Securities and Exchange Commission. The amount of money that Microsoft is keeping offshore represents a significant spike from prior years, and the levies the company would owe amount to almost the entire two-year operating budget of the company’s home state of Washington.

The company says it has “not provided deferred U.S. income taxes” because it says the earnings were generated from its “non-U.S. subsidiaries” and then “reinvested outside the U.S.” Tax experts, however, say that details of the filing suggest the company is using tax shelters to dodge the taxes it owes as a company domiciled in the United States.

In response to a request for comment, a Microsoft spokesperson referred International Business Times to 2012 U.S. Senate testimony from William J. Sample, the company’s corporate vp for worldwide tax. He said: “Microsoft’s tax results follow from its business, which is fundamentally a global business that requires us to operate in foreign markets in order to compete and grow. In conducting our business at home and abroad, we abide by U.S. and foreign tax laws as written. That is not to say that the rules cannot be improved — to the contrary, we believe they can and should be.”

The disclosure in Microsoft’s SEC filing lands amid an intensifying debate over the fairness of U.S.-based multinational corporations using offshore subsidiaries and so-called “inversions” to avoid paying American taxes. Such maneuvers — although often legal — threaten to signficantly reduce U.S. corporate tax receipts during an era marked by government budget deficits.

White House officials have called the tactics an affront to “economic patriotism” and President Obama himself has derided “a small but growing group of big corporations that are fleeing the country to get out of paying taxes.” In a July speech, he said such firms are “declaring their base someplace else even though most of their operations are here.”

“I don’t care if it’s legal; it’s wrong,” Obama said. Meanwhile, Democratic lawmakers have been pushing legislation they say would discourage U.S. companies from avoiding taxes through offshore subsidiaries. The proposals are being promoted in advance of the 2014 elections, as polling suggests the issue could be a winner for the party. In Illinois, the issue has already taken center stage in the state’s tightly contested gubernatorial campaign.

Because Microsoft has not declared itself a subsidiary of a foreign company, the firm has not technically engaged in an inversion. However, according to a 2012 U.S. Senate investigation, the company has in recent years used its offshore subsidiaries to substantially reduce its tax bills.

That probe uncovered details of how those subsidiaries are used. In its report, the Senate’s Permanent Subcommittee on Investigations described what it called Microsoft’s “complex web of interrelated foreign entities to facilitate international sales and reduce U.S. and foreign tax.” The panel’s report noted that “despite the [company’s] research largely occurring in the United States and generating U.S. tax credits, profit rights to the intellectual property are largely located in foreign tax havens.” The report discovered that through those tax havens, “Microsoft was able to shift offshore nearly $21 billion (in a 3-year period), or almost half of its U.S. retail sales net revenue, saving up to $4.5 billion in taxes on goods sold in the United States, or just over $4 million in U.S. taxes each day.”

U.S. Sen. Carl Levin, D-Mich., said at the time: “Microsoft U.S. avoids U.S. taxes on 47 cents of each dollar of sales revenue it receives from selling its own products right here in this country. The product is developed here. It is sold here, to customers here. And yet Microsoft pays no taxes here on nearly half the income.”

Apple and General Electric, which also employ offshore subsidiaries, are the only U.S.-based companies that have more money offshore than Microsoft, according to data compiled by Citizens for Tax Justice. In all, a May report by CTJ found that “American Fortune 500 corporations are likely saving about $550 billion by holding nearly $2 trillion of ‘permanently reinvested’ profits offshore.” The report also found that “28 these corporations reveal that they have paid an income tax rate of 10 percent or less to the governments of the countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens.”

Microsoft’s use of the offshore subsidiary tactics has exploded in the last five years, with the amount of Microsoft earnings shifted offshore jumping 516 percent since 2008, according to SEC filings.

According to Microsoft’s filings, if the company repatriates the $92.9 billion it is holding offshore, it would face a 31.9 percent U.S. corporate tax rate. U.S. law generally permits companies to deduct the foreign corporate taxes they’ve already paid from the U.S.’s official 35 percent corporate tax rate. According to CTJ’s Richard Phillips, that means Microsoft’s disclosure implies the company is paying just 3.1 percent in the locales where it is currently holding the cash. Phillips says such an extremely low rate strongly suggests the firm is keeping the earnings not just in relatively low-tax locales like Ireland, Singapore and others the company has disclosed, but also in smaller countries like Bermuda that are considered true tax havens.

According to a Wall Street Journal report in 2012 about companies reducing transparency about their subsidiaries, Microsoft “once disclosed more than 100 subsidiaries [but] reported just 13 in its 2003 annual report and 11 in its 2012 report.”