Microsoft to pull operations out of Humacao, at a cost of 78 jobs, major tax revenues
By The Star Staff
Barely a year after its operations were the target of an IRS probe, Microsoft’s operations in Humacao will cease in September 2024, leaving 78 workers jobless and putting central government tax revenues at risk.
Economic Development and Commerce (DDEC) Secretary Manuel Cidre Miranda confirmed Thursday that about 90 days ago, company executives had a virtual meeting with DDEC and the Treasury Department, among others, to notify them of the intention to close their facilities in Puerto Rico, he said.
The move will reduce by more than $300 million the annual income received by the government from the 4% tax on foreign companies through Act 154.
Cidre said the decision was not disclosed until Thursday because there was a confidentiality agreement while the company was getting ready to make the news public. However, Humacao Mayor Reinaldo Vargas announced the closing.
The mayor said Humacao’s 1,200 municipal employees will be affected as of next year with the closure of Microsoft Operations Puerto Rico.
The southeastern municipality collects over $10 million in taxes from the company, an amount that it will no longer receive, forcing the municipal administration to evaluate the transition of its workers to private companies and layoffs.
The news comes a year after Microsoft’s firm in Puerto Rico became the target of an IRS probe because the company had shifted at least $39 billion in U.S. profits to the Humacao plant, where the company’s tax consultants, KPMG, had persuaded the U.S. territory’s government to give Microsoft a tax rate of nearly 0%.
The IRS contended that the company was avoiding the payment of taxes.
Through a tax scheme, Microsoft’s Puerto Rican subsidiary would produce all the tech giant’s CDs for the American market. Because it was the sole producer, it would buy the exclusive rights to Microsoft’s technology. Those licenses would entitle the Puerto Rican company to a share of Microsoft’s American profits.
The factory subsidiary would send the parent company about $31 billion over 10 years — and receive almost $70 billion in profits in return over the same period. Instead of being taxed in the U.S., where the rate was 35%, the $39 billion difference between those figures would be taxed in Puerto Rico at a rate near 0%.