WASHINGTON (AP) — Microsoft Corp., the Hewlett-Packard Co. and other multinational corporations have avoided billions in U.S. taxes by shifting profits offshore and taking advantage of weak, ambiguous sections of the tax code, Senate investigators said Thursday.
Microsoft used “aggressive” transactions to shift assets to subsidiaries in Puerto Rico, Ireland and Singapore, in part to avoid taxes, said the report by the Senate Permanent Subcommittee on Investigations.
In one example, the report said that the Washington state-based software giant saved $4.5 billion in taxes from 2009 to 2011 by shifting assets to Puerto Rico, a U.S. commonwealth that offers numerous tax breaks to businesses.
The report, released at a subcommittee hearing, also said that since at least 2008, HP has used complex offshore loan transactions worth billions of dollars to avoid paying taxes while using the money to run its U.S. operations. The mammoth high tech company has its headquarters in Palo Alto, Calif.
“The bottom line of our investigation is that some multinationals use our current tax system to engage in shams and gimmicks to avoid paying the taxes they owe,” said Sen. Carl Levin, D-Mich., who chairs the subcommittee.
Executives of both companies said they have complied with American tax laws.
The report was released weeks before presidential and congressional elections in which one of the noisiest partisan clashes is over whether — and how — to raise revenues to help reduce federal deficits.
Many Democrats have complained that the government is missing out on collecting billions of dollars because companies are stashing profits abroad, thus avoiding taxes.
Republicans want to cut the corporate tax rate of 35 percent and ease the tax burden on money that U.S. companies make abroad, which they say would encourage them to invest at home.
President Barack Obama has proposed using the tax code to encourage companies to move jobs back to the U.S. and discourage them from shifting jobs abroad. Many in both parties say they want to overhaul the entire tax code, but there are vast differences in how they would do so.
The investigators’ report, based in part on material subpoenaed from multinational companies, said more than 1,000 such companies reported having more than $1.5 trillion overseas. U.S.-based companies can avoid taxes on much money earned abroad by asserting that they have invested those funds offshore or plan to do so.