Senate probe: Microsoft, HP avoid offshore taxes

Sep 20, 2012, 11:08 PM

Associated Press

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.

“I can assure the committee that HP takes seriously its obligations to accurately follow accounting principle and to pay taxes that it owes,” Lester D. Ezrati, HP’s senior vice president for taxes, told the panel.

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.

“Many of these don’t look great but they’re legal,” Sen. Tom Coburn of Oklahoma, the subcommittee’s top Republican, said of the practices the report detailed. He said the findings call “blatantly and honestly for tax reform in this country.”

The report also said that Ernst & Young, HP’s auditor

The report said ways that companies reduce their tax liabilities include:

_Selling or licensing assets developed in the U.S. to offshore subsidiaries for less than they are worth, in effect minimizing the U.S. parent company’s tax bill and shifting profits to lower-tax jurisdictions. The report said Microsoft sold some intellectual property rights to subsidiaries in Ireland and Singapore for billions of dollars less than those subsidiaries earned from the assets _ in effect shielding that money from U.S. taxes.

_Government regulations, weak IRS enforcement and short-term laws that let multinational companies skirt requirements that they pay taxes on royalties, interest or dividend income earned abroad by subsidiaries. A 1997 Treasury Department rule letting companies decide the type of legal entity they want to be for tax liability purposes, which “opened the floodgates” for such firms to avoid taxation, Levin said. He said in 2009 through 2011, Apple Inc. avoided $35 billion taxes on such earnings, Google $24 billion and Microsoft $21 billion.

_Though U.S. based companies are supposed to pay taxes on money they borrow from a foreign subsidiary, U.S. tax laws allow exceptions, including for loans repaid within 30 days. Levin said HP used such loans to fund its U.S. payroll and repurchase its own stock.

Levin said some multinationals “have effectively and systematically been bringing those offshore profits back by the billions for years through loan schemes like the one described here, and doing so without paying taxes.”

Microsoft operates in foreign markets “in order to compete and succeed as a company,” William J. Sample, the company’s vice president for worldwide tax, told the subcommittee. He said while 52 percent of its revenue comes from the U.S., its foreign revenue is growing faster than those earned at home.

Sample said the company has made “very limited use” of tax code provisions that allow companies to avoid paying taxes on loans from foreign subsidiaries and some other transactions.

“Microsoft’s tax results follow from its global business,” Sample told the senators. “In conducting our business at home and abroad, we comply with U.S. and foreign tax laws.”

(Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

United States News

Florida Governor Ron DeSantis answers questions from the media during a press conference at Christo...
Associated Press

DeSantis signs bill expanding school voucher program

TALLAHASSEE, Fla. (AP) — Florida Gov. Ron DeSantis on Monday signed legislation to allow all K-12 students in the state to get taxpayer-funded vouchers for private schools, continuing a focus on education as he prepares to launch an expected Republican presidential campaign. The law expands Florida’s voucher system by eliminating income eligibility limits on the […]
14 hours ago
Associated Press

2 fishermen caught cheating at Ohio tournament plead guilty

CLEVELAND (AP) — Two men accused of stuffing fish with lead weights and fish fillets in an attempt to win thousands of dollars in an Ohio fishing tournament last fall pleaded guilty Monday to charges including cheating. The cheating allegations surfaced in September when Lake Erie Walleye Trail tournament Director Jason Fischer became suspicious when […]
14 hours ago
FILE - Anthony Broadwater, center, gazes upward, Nov. 22, 2021, in Syracuse, N.Y., after Judge Gord...
Associated Press

NY to pay $5.5M to man exonerated in Alice Sebold rape case

SYRACUSE, N.Y. (AP) — A man who spent 16 years in prison after he was wrongfully convicted of raping writer Alice Sebold when she was a Syracuse University student has settled a lawsuit against New York state for $5.5 million, his lawyers said Monday. The settlement comes after Anthony Broadwater’s conviction for raping Sebold in […]
14 hours ago
FILE - A Kia that was damaged after being stolen sits at an auto repair shop in Milwaukee on Jan. 2...
Associated Press

St. Louis sues Kia, Hyundai over rash of car thefts

ST. LOUIS (AP) — A federal lawsuit filed Monday by the city of St. Louis accuses automakers Kia and Hyundai of failing to install industry-standard anti-theft technology, resulting in thousands of vehicle thefts in the Missouri city. The lawsuit seeks damages in excess of $75,000 plus punitive damages. St. Louis joins several other cities that […]
14 hours ago
FILE - South Dakota Gov. Kristi Noem takes part in a panel discussion during a Republican Governors...
Associated Press

South Dakota gov’s veto of cryptocurrency regulations upheld

South Dakota’s House failed Monday to override Gov. Kristi Noem’s recent veto of a bill that would have created government regulations for the use of cryptocurrency in the state. The bill had passed smoothly throughout the legislature, and Noem’s veto of last week was upheld on a 36-30 vote. Proponents had argued the bill would […]
14 hours ago
Associated Press

Officials: No sign of contamination in Philadelphia water

PHILADELPHIA (AP) — Philadelphia water officials say they are monitoring water quality closely and have seen no sign of contamination following a chemical spill into the Delaware River in a neighboring county. Bucks County health officials said Sunday that a leak late Friday evening at the Trinseo Altuglas chemical facility in Bristol Township spilled between […]
14 hours ago

Sponsored Articles

(Desert Institute for Spine Care photo)...

Why DISC is world renowned for back and neck pain treatments

Fifty percent of Americans and 90% of people at least 50 years old have some level of degenerative disc disease.
(Photo via MLB's Arizona Fall League / Twitter)...
Arizona Fall League

Top prospects to watch at this year’s Arizona Fall League

One of the most exciting elements of the MLB offseason is the Arizona Fall League, which began its 30th season Monday.
Quantum Fiber

Stream 4K and more with powerful, high-speed fiber internet

Picking which streaming services to subscribe to are difficult choices, and there is no room for internet that cannot handle increased demands.
Senate probe: Microsoft, HP avoid offshore taxes