Reuters reports that both Hewlett-Packard and Microsoft are refuting claims that they use offshore units and loopholes to prevent Uncle Sam from yanking taxes from their billions of dollars in profits.
The claims were made by the Senate's Permanent Subcommittee on Investigations which claims that tax avoidance is running rampant in the technology sector. Tech companies like Microsoft and HP have reportedly stashed away their intellectual properties, royalties and licensing fees in "overseas tax havens" to skirt government taxes.
The report arrives after the panel subpoenaed internal documents from the two companies, and interviewed their top officials. "The tax practices and gimmicks range from egregious to dubious validity," said Democratic Senator Carl Levin, chairman of the panel during a news conference.
Senator Tom Coburn, the top Republican on the panel, admitted that tax avoidance is not illegal. But he also blamed Congress for creating the situation, referring to complex tax code and a hefty 35-percent corporate tax rate. Very few companies pay that rate, he said.
Now here's the shocker. Microsoft reportedly shifted $21 billion to offshore accounts from 2009 to 2011, almost half of its U.S.-based retail sales revenue. Thus, the Redmond company saved up to $4.5 billion USD in taxes on goods that were sold here in the States. The company has even moved royalty revenue of units to low-tax nations to avoid paying billions to the U.S.
It gets even better. Levin told Reuters that the Redmond company legally established one Microsoft Singapore unit in Bermuda unmanned. Wanting to know why, Levin asked Microsoft's tax vice president, William Sample, if this office was established merely to cut its tax bill. Sample confirmed with a "yes, that is correct."
The report goes on to reveal that HP avoided paying millions of dollars in taxes by using an exception in the law for short-term loans. The company reportedly funded its U.S.-based operation through intra-company loans. Now more than 90-percent of HP's cash is sitting offshore, and one document even suggests that HP has slipped cash into the States without paying the appropriate taxes.
"We are disappointed to see what appears to be a politically motivated attack on one of America's largest employers," HP spokesman Michael Thacker said before the hearing.
To read the full report, head here.
