Danish Gov't Shakes Down Intel

As if it weren't enough that Intel Corp. (Nasdaq: INTC) paid way too much for certain bubble startups, the company now faces a possible tax bill from those days. Just in time for April 15, too!

The Danish government is demanding 3.6 billion Denmark kroners (US$641 million) in back taxes and interest from Intel, related to the 2000 acquisition of GIGA A/S, according to several media reports, including one from Politiken.

Intel bought GIGA, which made OC192 chips, for DKK9.4 billion ($1.7 billion, at today's exchange rate), cash, in 2000. It's a lot for a little chip company, but optical networking was big, and Intel didn't have Sonet expertise. The buy was just part of a massive push Intel made to get into 10-Gbit/s telecom networking, the high end at the time. (See Intel To Acquire Optical Chipmaker, Intel Swaggers Into OC192 Market, and Intel's 10-Gig Shopping Spree.)

What the Danish government is peeved about is a 2002 deal where Intel moved GIGA's product rights and intellectual property to an "affiliated company," as the report puts it, for just DKK1.9 billion ($338 million).

The Danes say that deal was well below market price and let Intel effectively transfer DKK2.5 billion ($446 million) worth of profits out of Denmark.

It's apparently part of a tax sweep by Danish regulators, who see this kind of maneuver as a ploy to avoid paying Denmark's relatively high taxes.

Intel's particular case has been going on for a while: A company spokesman tells Light Reading that the whole thing was disclosed in late 2007. "It's not unusual for us to have audits underway" in various parts of the world, he said. [Ed. note: Really?! What fun!]

Intel is cooperating with the Danish tax authorities, he added.

Intel has about $11.8 billion in cash, but that doesn't mean $641 million is just pocket change. It's a fair bet the company is going to fight this one.

As for all that 10-Gbit/s telecom expertise, Intel wound up selling it for scrap. Some of the chip products went to Cortina for $115 million in 2006, although that deal centered on Intel's other big purchase, Level One Communications. (See Intel Hands Off to Cortina.)

— Craig Matsumoto, West Coast Editor, Light Reading