Dear Commons Community,
Technology giants Microsoft Corp and Hewlett-Packard Co used offshore units to shield billions of dollars from U.S. taxes by taking advantage of loopholes and stretching the limits of the tax code, a U.S. Senate panel led by Senator Carl Levin said on Thursday.
Describing tax avoidance as rampant in the technology sector, the Senate’s Permanent Subcommittee on Investigations said tech companies used intellectual property, royalties and license fees in tax havens such as the Cayman Islands to skirt U.S. taxes.
“The panel subpoenaed internal documents from the companies and interviewed Microsoft and HP officials to compile its report, and uses them as case studies.
“The tax practices and gimmicks range from egregious to dubious validity,” Sen. Carl Levin, chairman of the panel, said at a news conference.
Officials at HP and Microsoft strongly denied any wrongdoing.
The investigative panel’s findings came hours ahead of a hearing Thursday, at which Levin is slated to reveal further details and to take testimony.
Levin, a Democrat, has been investigating offshore tax evasion for years and often issues reports calling attention to the issue. But Senator Tom Coburn, the ranking Republican on the panel, also signed onto the report.
U.S. companies have about $1.5 trillion in profits sitting offshore, and most say they are keeping it there to avoid U.S. tax. Of the top 10 companies with the biggest offshore cash balances, five are in the technology sector.
“The high-tech industry is probably the No. 1 user of these offshore entities to transfer intellectual property,” Levin said.
The committee said that from 2009 to 2011, Microsoft shifted $21 billion offshore, almost half its U.S. retail sales revenue, saving up to $4.5 billion in taxes on goods sold in the United States.
This was accomplished, the panel report said, by aggressive transfer pricing, where companies put values on intercompany movement of assets. Units are supposed to use a fair market price to value such transfers, but critics say they are undervalued to minimize tax.
The report also said the software giant shifts royalty revenue to units in lower-tax nations such as Singapore and Ireland, avoiding billions of dollars of additional taxes in the U.S.
Sen. Carl Levin is accusing tech giants Microsoft and Hewlett Packard of using complex, legally questionable strategies to avoid paying billions of dollars in U.S. taxes.
The companies say they’re not doing anything wrong – and a top committee Republican says the real problem is the tax code that Congress created.”
It is incredible that companies like Microsoft are allowed to operate this way. Maybe the Bill and Melinda Gates Foundation should start a new grant program focusing on ethics and reforming corporate America.