London - Microsoft has secured a five-year deal with the British government to help whittle down the firm’s tax bill.

The US company has agreed with officials from HMRC how much money can be funnelled between its UK and Irish divisions.

The deal, which lasts until 2017, is likely to cause outrage among MPs.

Tax avoidance by multinationals is a major political issue, with Google and Amazon criticised as “immoral” for their arrangements.

Like many international competitors, Microsoft runs its British and European operations out of Ireland.

The British arm is then paid a fee for providing “marketing and support services to other group companies”.

Under the agreement, revealed in Microsoft’s accounts, this fee has been negotiated for a five-year period.

In the 12 months ending last June, the UK arm Microsoft Limited made pre-tax profits of £70m on revenues of £860m.

The tax bill was £18.8m, a rate of almost 27pc and down from £21.4m the previous year – largely due to distribution costs almost doubling from £98m to £190m.

But Microsoft’s British sales registered in Ireland were £1.9bn during 2012.

The group also revealed bosses entered into a deal over the amount charged to Ireland from the UK.

A statement in the accounts, released to Companies House last week, said: “In October 2012 Microsoft Limited entered into an advance pricing agreement with the respective tax authorities of the UK and the Republic of Ireland defining and agreeing the appropriate compensation to be paid to Microsoft Limited for services it renders to group companies.”

Microsoft subsequently claimed the firm was not involved in the discussions.

But two senior tax experts questioned this, saying companies are always included in negotiations.

Patrick Stevens, tax policy director at the Chartered Institute of Taxation, said: “There are always three parties involved: the company itself, and the tax authorities in each of the countries.”

When asked if a company was generally involved in the discussions he said “absolutely, because they have got to initiate it”.

Speaking about Advance Pricing Agreements in general, Bill Dodwell – head of tax policy at Deloitte – said: “In all cases the company will write to the tax authorities and set out how the business works and how it thinks the pricing has to be done.”

And a senior tax lawyer who asked to remain anonymous as he was talking about Microsoft specifically, said: “Somebody would have acted on their behalf.

“Most of these big companies have accountants to work on their behalf.”

A spokesman said: “Microsoft adheres carefully to the laws and regulations of every country in which we operate. In the UK, we have consistently paid all corporation tax demands.” - Daily Mail