Microsoft was fined €561m by Brussels on Wednesday over its failure to offer Windows users a choice of internet browser in breach of a high-profile competition agreement with European regulators.
The rare penalty came as it was reported that the US software group was also fighting Danish tax authorities over a claim of up to $1bn, including penalties for late payment of taxes, that reach back nearly a decade.
The European fine represents an unprecedented penalty against a company for failing to stick to a voluntary pact with antitrust regulators, and had been seen as a test of how vigorously Joaquín Almunia, EU competition commissioner, would seek to enforce such settlements.
Mr Almunia said the big fine imposed for the “serious breach” was designed to “punish and deter” others who enter settlements with Brussels. “They must do what they committed to do or face the consequences,” he said.
Microsoft admitted last year that it had failed to live up to a deal reached with Brussels in 2009 to end a long-running investigation. As part of the settlement, it had promised to offer buyers of new PCs in Europe a choice of internet browser, rather than making its own IE browser the default choice.
However, the company later admitted that it failed to display the ballot screen offering the choice of browsers to many customers, and blamed the lapse on a technical error associated with a 2011 software upgrade.
The failure prevented an estimated 15m Europeans being given the choice of browsers, as Brussels had intended. The breach of commitments was brought to the attention of the commission by a rival, rather than the trustee monitoring the implementation of the settlement.
Mr Almunia said those monitoring arrangements were a “touch naive”. The lessons from the case will have implications for other settlements, including the pending deal with Google over its search business.
Although Microsoft has already paid about €1.6bn in fines in Europe over antitrust issues in the past decade, the penalty for failing to keep its word in a voluntary agreement marks a new low point.
The black eye from the lapse was severe enough to be cited by the company’s board as one of the reasons for giving Steve Ballmer, the chief executive, only half the bonus he would otherwise have been due last year.
Responding to the fine on Wednesday, Microsoft said: “We take full responsibility for the technical error that caused this problem and have apologised for it. We provided the commission with a complete and candid assessment of the situation, and we have taken steps to strengthen our software development and other processes to help avoid this mistake – or anything similar – in the future.”
Meanwhile, Danish authorities are pushing the company over a $1bn tax claim related to its purchase of Navision, a Danish business applications software company, in 2003. The dispute, which was first reported in the Danish press this week, relates to the valuation of intellectual property that Microsoft acquired as part of the $1.3bn deal, according to a person familiar with the dispute.
The international tax arrangements used by big tech companies to reduce their tax bills have become a political hot topic in Europe given fiscal pressures in the region, although the Danish case predates most of the arrangements that have come under public scrutiny.
The authorities are claiming that Microsoft should have attributed a higher value to Navision’s intellectual property after the acquisition, something that would have led to a higher tax payment than the one it made at the time, according to the person familiar with the case.
Microsoft has contended that the Danish claim was not lodged until several years after the acquisition, by which time Microsoft had rewritten much of the Navision software and increased the value of the IP from its own resources, this person added.
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