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Is MicroSkype a giant tax dodge?

Why did Microsoft pay £5 billion to buy Skype? Theories abound. The most logical reason - to make money - is complicated by the fact that Skype has never really worked out a way to do that. Did Microsoft want to bolster its mobile OS, Windows Phone, with a video-calling solution to rival Apple's FaceTime and Google's Talk? Sure, but a simple licensing deal with Skype would have done that. As Microsoft are promising not to remove the service from other devices, they're not really getting any advantages from owning the service they couldn't just get from making a deal with it.

But what's this? A financial analyst, Larry Elkin, has calculated that spending £5 billion on buying Skype might have saved Microsoft £2.6 billion in taxes. That's half the company free! All Microsoft has to do is keep Skype's value flat and sell it in a year, and it's done very nicely, thank you very much.

The details are a bit complicated, so we'll let CNET explain:

Elkin reckons Microsoft is sitting on a giant pile of cash from selling Windows and doing business in overseas markets, and it needs to do something with that stockpile of spondooliks. Publically traded companies have to redistribute leftover loot to shareholders, and bringing those surplus simoleons into the US would see a vast chunk carved off by the taxman -- less than 65 per cent and potentially as little as 45 per cent would reach shareholders.

Skype is officially from Luxembourg, so buying it keeps the Microsoft money overseas. If Skype makes money, Microsoft is quids in -- or Euros in, or whatever they use in Luxembourger shops. If Skype doesn't make money, Microsoft has still avoided a hefty tax bill.

Those buggers - they're smarter than they look.

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