According to a Senate investigations subcommittee, Microsoft Corp., Hewlett-Packard Co. and other multinational corporations took advantage of an ambiguous U.S. tax code to avoid paying billions of dollars in taxes.
"The committee memo, released in advance of a 2 p.m. hearing in Washington today, said Microsoft used transactions with subsidiaries in Puerto Rico, Ireland, Singapore and Bermuda to save at least $6.5 billion in taxes. In 2008, Hewlett-Packard Co. created a series of short-term internal loans that allowed the company to tap its offshore cash for domestic operations without paying taxes, according to the memo.
"Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations, didn't accuse the companies of acting illegally."
"Major U.S. corporations are increasingly earning their profits here but shipping them overseas to avoid paying the taxes they owe," Levin, of Michigan, said in a statement. "At a time when we face such difficult budget choices, and when American families are facing a tax increase and cuts in critical programs from education to health care to food inspections to national defense, these offshore schemes are unacceptable."
William J. Sample, a Microsoft vice president appeared before the committee, and defended his company.
"Microsoft complies with the tax rules in each jurisdiction in which it operates and pays billions of dollars each year in total taxes, including U.S. federal, state, and local taxes and foreign taxes," Sample said according to his prepared remarks.
But, he added, Microsoft believes the U.S. tax code should be simplified.
"In our view, the U.S. international tax rules are outdated and are not competitive with the tax systems of our major trading partners," Sample said. "These rules all too often provide a disincentive for U.S. investment. The U.S. now has the highest corporate tax rate among OECD countries and, unlike our major trading partners, taxes the worldwide income of its domestic corporations."
According to CNN, the report also found that HP keeps most of its cash in foreign currency.
"For example, in 2009, Hewlett-Packard held $12.5 billion in foreign cash, but only $800 million in the United States," CNN reports. "It only pays taxes on the U.S. portion, while tapping a series of ongoing 'short-term' loans that, taken together, stretched for 30 straight months, according to the panel."
HP spokesman Howard Clabo told CNN that his company complies with all the laws and said they were "disappointed to see what appears to be a politically motivated attack on one of America's largest employers."