Microsoft's £23.5bn tax bill

Microsoft has been hit with a £23.5billion bill by the US Internal Revenue Service (IRS) in the latest twist in one of the biggest-ever corporate tax rows.

It centres on how Microsoft allocated profits across countries between 2004 and 2013.

Critics say the practice, known as transfer pricing, is used by big US firms to lower their tax bills by shifting profits to low-tax countries, so they pay less in developed nations.

Other tech giants including Amazon and Facebook have faced calls to pay more tax.

Microsoft will appeal against the findings of the IRS audit, which could take years, saying it has paid more than £54.5bn in tax in the US since 2004.

Hit hard: Microsoft will appeal against the findings of the IRS audit, which could take years

‘The main disagreement is the way Microsoft allocated profits during this time period among countries and jurisdictions,’ its head of worldwide tax and customs Daniel Goff said.

‘The IRS has established regulations that allow companies to use a specific arrangement for transfer pricing, called cost-sharing. Many large multinationals use cost-sharing because it reflects the global nature of their business.’

It said the bill could be cut by £8bn as it does not reflect laws passed by Donald Trump.

The company said: ‘We believe we have always followed IRS rules and paid taxes we owe in the US and around the world.’