Senate report: Microsoft used loopholes to avoid billions in taxes

Senate report: Microsoft used loopholes to avoid billions in taxes
Microsoft CEO Steve Ballmer speaks at a Microsoft event in San Francisco, Monday, July 16, 2012. (AP Photo/Jeff Chiu)

SEATTLE – A new congressional investigation claims Microsoft has been able to avoid paying $6.5-billion in taxes since 2009 thanks to the complicated tax structure in the U.S.

Today Sen. Carl Levin, Democrat of Michigan, released the findings from the Senate Permanent Subcommittee on Investigations report.  The investigation reveals a number of tax loopholes allegedly used by Microsoft and other major U.S. companies to avoid paying billions in taxes.   Specifically the report finds that among other things Microsoft used subsidiaries in Puerto Rico, Ireland, and Singapore, which are low or no tax jurisdictions.

“Major U.S. corporations are increasingly earning their profits here but shipping them overseas to avoid paying the taxes they owe,” said Sen. Carl Levin, D-Mich., the subcommittee chairman.  “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.”

The investigation also showed how Microsoft reportedly transferred the U.S. rights to intellectual property offshore.

“And then bought back a portion of those rights to make U.S. sales, a gimmick it used to avoid U.S. taxes on 47 percent of the revenue from Microsoft products developed and sold in the United States,” the report concluded.

Nothing Microsoft is alleged to have done in the report is illegal under the existing U.S. tax code.

Microsoft issued a statement in response today saying that it wants congress to reform tax law.

“Microsoft has a complex business and we must comply with the complicated tax code of the United States, resulting in an exceedingly complex tax structure,” said Microsoft in a statement cited by Geekwire.com. “That is why we’ve advocated for reforms to simplify the US tax code and make it more competitive with the rest of the world.”

Hewlett-Packard was also highlighted in the report for having reportedly used a tax loophole to avoid paying U.S. taxes on billions of dollars in offshore income that was then returned to the United States to run its domestic operation.

“Hewlett-Packard obtained the offshore cash by directing two of its offshore subsidiaries to provide serial, alternating loans to its U.S. operations.  With the apparent support of its auditor, Ernst & Young, Hewlett-Packard characterized the ongoing lending as occasional short-term loans which are exempt from U.S. taxation under the tax code,” said a statement from Sen. Levin’s office.

Sen. Levin is highlighting Microsoft and HP as part of an on-going reform campaign aimed at U.S. tax law.