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Microsoft Hit with Tax Charge of $13.8 Billion But Beats Expectations

Microsoft posted a loss of $6.3 billion for its fiscal second quarter, but without a $13.8 billion charge reflecting a tax payment related to overseas funds of the company, it showed a $7.5 billion profit, which was better than expectations on Wall Street.

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The software behemoth holds approximately $132.1 billion overseas, which is the second-largest amount of any corporation in the U.S., trailing only the $246 billion held by Apple.

The new tax law passed by Congress in December and signed into law by President Donald Trump gives companies a big incentive to bring large holdings that are now overseas back into the U.S. through a mandate of a one-time corporate rate of just 15.5% on money overseas.

That rate is far lower than the 35% previous rate, which companies were able to defer until they repatriate the income to the United States. Some of the funds overseas, the ones held in real estate as well as other physical properties are taxed now at 8% which is even lower than before.

While Microsoft has accounted for the entire charge for tax in the most recently ended quarter, it will pay that bill over a period of time, with companies having eight years to pay it in full.

CFO Amy Hood did not say the amount of cash Microsoft would be bringing back to the states, or when that would happen.

Apple said earlier in January that it was planning to repatriate the majority of its cash and would pay taxes of $38 billion. It will use some of the monies to build a new campus. Apple also is planning to pay employees bonuses of $2,500 citing the new tax law.

Microsoft has not repatriated a large sum of money since the tax repatriation holiday of 2004. At that time, the company gave its shareholders a one-off dividend of $3 a share and increased its dividend for the quarter.

Microsoft usually issued corporate bonds rather than paying the tax rate of 35% to repatriate money.

The company beat expectations by analysts for its results for the quarter, posting $28.9 billion in revenue, an increase of 12% compared to the same period one year ago. Adjusted per share earnings, which did not include the tax charge, were 96 cents.

Analysts on Wall Street were expecting Microsoft to have earnings of 86 cents per share on $28.38 billion in revenue.