What secret corporate oversight accounts for massive, entirely unearned profits at major global software companies?

How Software Profits Cross Borders on Paper

A major software company can develop a product in one country, sell it around the world, and report much of the resulting profit somewhere else. A common mechanism is profit shifting: arranging internal payments so that income appears in a lower-tax jurisdiction.

The key asset is often intellectual property—the software, patents, brand, or other rights that generate revenue. A company may place ownership of those rights in an overseas subsidiary. Operating companies in other countries then pay that affiliate to use them, often through royalties or licensing fees. Those payments reduce the local companies’ reported profits while increasing the affiliate’s income.

Why Software Makes the Strategy Easier

A physical product must be made and shipped, so its costs and location are relatively visible. Software is different: once created, it can be copied and delivered digitally at low cost. Its value comes largely from intangible assets, which are harder to assign a single market price to—especially when one part of a company charges another for the right to use them.

That ambiguity gives multinational firms room to structure where intellectual property is held and how its value is divided among subsidiaries. Tax rules and enforcement differ across countries, and the details of those arrangements can be difficult for outsiders to see. The result may be a large gap between where customers and employees are located and where the company records its profits.

What “Unearned” Leaves Out

The profits are not necessarily imaginary: customers really do pay for software, and companies do invest in building and maintaining it. The controversy is over who gets credited with the income—and taxed on it. A licensing payment can reflect a real asset, but it can also shift taxable earnings away from the places where sales and business activity occur.

That distinction matters because tax authorities must decide whether related companies’ internal prices resemble what independent businesses would charge. When they cannot agree, disputes can stretch across borders. The same digital product can therefore generate real revenue while its taxable profit becomes a matter of corporate structure and international negotiation.