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BMC Software loses $13 million Tax Court decision to IRS

By Patrick Temple-West

WASHINGTON (Reuters) - Computer software provider BMC Software Inc on Wednesday lost a $13 million tax dispute with the Internal Revenue Service in a first-of-its-kind U.S. Tax Court decision stemming from 2004's controversial corporate income tax repatriation holiday.

In a decision that could have implications for other companies in similar disputes with the IRS, the Tax Court said BMC owes taxes on a portion of its foreign profits brought into the United States under the 2004 tax break.

Houston, Texas-based BMC could not immediately be reached for comment on Wednesday. A lawyer representing the company in Tax Court declined to comment.

In 2004, President George W. Bush signed into law a repatriation holiday that allowed multinational U.S. businesses to bring foreign profits into the United States at a 5.25 percent tax rate, rather than the then current 35 percent rate.

In 2005, BMC repatriated $717.2 million.

At around the same time, BMC was fighting with the IRS over its transfer pricing practices. Transfer pricing is an area of frequent dispute involving how multinationals move and price capital and assets among units in different countries.

BMC settled its transfer-pricing dispute with the IRS. But the settlement boosted its domestic profits subject to the full corporate income tax, while reducing the amount of profits the company could repatriate at the holiday tax rate.

This prompted the IRS to increase BMC's tax bill, which the company fought. BMC argued its transfer-pricing settlements had no connection to the repatriations, a point the IRS rejected. The Tax Court ruled in favor of the tax-collecting agency.

Last week, BMC was taken private by an investor group that includes Bain Capital LLC, Golden Gate Capital, Insight Venture Partners LLC and GIC Special Investments Pte Ltd, a unit of state-owned Government of Singapore Investment Corp Pte Ltd.

Analog Devices Inc, a Massachusetts-based circuit-maker, has a similar dispute over $26 million pending with the IRS. A trial is scheduled for November 4 in Boston.

The case is Tax Court No. 015675-11 BMC Software Inc. v Commissioner of Internal Revenue.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh and Andre Grenon)

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