A report in Xinhua, the official Chinese news agency, did not name Microsoft but said that a company whose name begins with "M” and with financial details identical to those of Microsoft had been penalized for transfer pricing.

Xinhua said that while Microsoft’s China-based businesses were officially loss making, the profits were being booked in offshore tax havens, adding that Microsoft had admitted to the tax evasion.
Microsoft contradicted much of the Xinhua article, instead saying it had agreed with Chinese authorities to pay $140m in taxes as a "bilateral advanced pricing agreement” rather than back taxes.
"In 2012, the tax authorities of China and the US agreed to a bilateral advanced pricing agreement with regards to Microsoft’s operations in China,” Microsoft said.
"The agreement is an acknowledgment by both countries that Microsoft’s profits are subject to the appropriate tax in China.
"While we cannot confirm that Microsoft is the company in question in a recent Xinhua report, China receives tax revenue from Microsoft consistent with the terms of the agreed advanced pricing agreement.”
The software group declined to clarify what period the tax payment covered, and refused to provide any further detail.