Motorola could face an extra tax bill of $500 million (€409.06 million) following investigations by the US Internal Revenue Service (IRS) into its returns from 1996 to 2000, with a further probe for the years since then still under way.
In a filing with the Securities and Exchange Commission, the US mobile phone manufacturer said the IRS had in June completed an audit of its tax returns and had proposed that adjustments should be made for transfer pricing - the way in which different divisions price goods or services for sale to each other.
According to the IRS interpretation, which Motorola intends to "vigorously dispute through IRS and judicial procedures", the company should have reported $1.4 billion in additional income in 1996-2000, triggering the further tax charge.
Motorola's shares fell more than 5 per cent to $14.32 in early trading on the New York Stock Exchange.
Motorola said it did not expect the audit to hurt its financial position. However, the company said in its filing: "An unfavourable resolution could have a material adverse effect on the company's consolidated financial position, liquidity or results of operations in the period in which the matter is ultimately resolved."
Although the sum is potentially significant, Motorola's balance sheet has been improving. At the end of the second quarter it had net cash of $1.8 billion against net debt of $41 million at the end of 2003.
Motorola also generated $994 million of free cashflow in the quarter.
The figures did not include the proceeds from the recent listing of Freescale, its semiconductor division, which could generate up to $1 billion.
Motorola also provided an update on its protracted legal dispute with the Uzans, a Turkish family, regarding $2 billion loans made to Telsim, a Turkish wireless company, which were defaulted on.
Efforts to recover the money will depend on a ruling from the US Court of Appeals.
Until the court makes a decision, Motorola said "efforts to execute on its judgment against the Uzans are stayed and the previously begun efforts to liquidate Uzan assets in the US, the UK, France and Switzerland are halted".
Motorola expected the litigation to be "very lengthy in light of the Uzans' continued resistance to satisfy the judgment against them and their decision to violate various courts orders, including orders holding them in contempt of court.
"In addition, the Turkish government has asserted control over Telsim and certain other interests of the Uzans and this may make Motorola's collection efforts more difficult," it added.
