Chipmaker Altera is in trouble with the US taxman after apparently doing a Jimmy Carr and shunting income out of the country to avoid tax.
The dispute demonstrates how multinational companies allocate assets and money globally to avoid tax. According to Reuters, other tech companies will be watching the Altera case in case they can make a buck or two shifting their cash off-shore.
The US taxman wants $27 million in tax payments which it claims that between 2004 through 2007 Altera wrongly booked for employee stock-based compensation in the United States where the expenses were tax deductible.
The taxman thinks that Altera should split its employee costs between its US parent and its Cayman Islands unit so that it would lose the US tax deductibility of employee costs allocated to the Caymans.
However Altera is challenging the IRS rules claiming that the were impossible to follow.
Most tech companies are following the rules, which were written in 2003, and splitting employee costs with foreign subsidiaries, forgoing potential tax benefits.
But many IT companies think that if Altera wins its case they will do some major surgery to their tax arrangements.