On Monday, Danish Radio DR, citing unidentified sources, reported that Denmark is demanding US$1 billion in back taxes from software giant Microsoft; with investigations underway in the country to ascertain whether Microsoft used certain techniques to save itself billions in taxes.

According to DR, negotiations are currently going on between the Danish tax authority and Microsoft over unpaid taxes rooted in Microsoft's 2002 acquisition of Danish software firm Navision, in a $1.3 billion cash and stock deal.

Going by the DR report, the Danish tax authority has claimed that rights to Navision's successful business planning software - which was first renamed Microsoft Business Solutions; but later changed to Microsoft Dynamics NAV - were sold by Microsoft to its subsidiary in Ireland, in a transaction below market value.

Since the subsidiary is owned by other Microsoft firms in Caribbean tax havens, the Danish tax authority claims that Microsoft's move to sell Navision's enterprise resource planning and accounting divisions to its subsidiary underscores that Navision's profits have effectively been shifted overseas, away from the higher rates prevailing in Denmark.

With the case marking one of the biggest tax cases in Denmark's history, DR has reported that the tax authority in the country is claiming 5.8 billion crowns in back taxes from Microsoft, as well as interest from sales of Dynamics NAV.