Tax probe into Bermuda-based trio of Microsoft-linked entities

Three Bermuda Microsoft subsidiaries or affiliates are being investigated by another country for their various tax dealings on the island.

According to filings at Bermuda Supreme Court, Flat Island Company, RI Holdings, and Round Island One are all the subject of a tax inquiry.

The story is reported today by the Huffington Post and the trio of cases represent a rare glimpse into what is usually a secretive process.

Other countries can seek details of Bermuda-based financial entities under a Tax Information Exchange Agreement – or TIEA – agreement. Those applications, however, are almost never made public. It’s unclear which country made this request.

The existence of the cases was first uncovered by OffShoreAlert, a Miami-based publication run by David Marchant, who during the 1990s was a reporter in Bermuda. He credits a clerical lapse for the discovery of the inquiries.

“Each application was clearly entered into the cause book, and therefore the public domain, by mistake, as evidenced by the fact that as soon as OffShoreAlert publicized their existence, they were quickly removed,” Mr Marchant told us this morning.

He added: “I monitor Bermuda court filings on a weekly basis and I’ve done so for years. I cannot recall ever seeing TIEA-related applications before. I believe the standard is to file such things under seal.”

Offshore financial centres, Mr Marchant said, tend to “err on the side secrecy or privacy depending on how you would want to describe it”.

“Bermuda is business friendly. The tendency is to have as little in the public domain as possible, if it’s sensitive and this is clearly sensitive.”

The cases do not allege the Microsoft-linked entities have committed any wrongdoing. Whether the fact-finding inquiry will unearth malfeasance remains to be seen, according to Mr Marchant.

“This is just an evidence gathering process…if it determines there is tax evasion, there could be a criminal prosecution,” he said.