US Senate probes HP and Microsoft over potential tax dodging

The Senate Permanent Subcommittee on Investigations has accused Microsoft and Hewlett-Packard (HP) of offshore tax avoidance.

Subcommittee chairman Carl Levin accused both Microsoft and HP of avoiding payment of billions in taxes by storing profits overseas. The senator believes that the two companies used "loopholes and gimmicks" to avoid paying large quantities of US taxes.

"Major US corporations are increasingly earning their profits here but shipping them overseas to avoid paying the taxes they owe," said Michigan democratic Senator Levin.

"At a time when we face such difficult budget choices, and when American families are facing a tax increase and cuts in critical programmes from education to health care to food inspections to national defence, these offshore schemes are unacceptable."

A recent senatorial report showed that $1.5 trillion of corporate taxes go unpaid because companies shift profits overseas.

Levin says the technology sector suffers from widespread tax avoidance. The senator contends that technology firms take advantage of tax-free patent licensing fees by shuffling licences to off-shore tax havens,

"The high-tech industry is probably the number one user of these offshore entities to transfer intellectual property," Levin continued.

Microsoft reportedly saved $4.5bn in taxes by shuffling its intellectual property rights fees to Puerto Rico, which offers companies strong tax incentives.

HP stands accused of avoiding tax payments by sending profits to shell companies overseas and then loaning that money back to itself to avoid paying a tax on profits.

Senator Levin makes it clear that nothing the corporations did was illegal. However, he hopes the Subcommittee's investigation sheds light on the firm's actions and will lead to a closing of the tax code loopholes.

"For more than a century, American markets have been the envy of investors across the world," Levine said.

"We must continue to examine the regulations and structure that has been put in place to ensure that today's equity market is fair for all and has the right protections in place to prevent technical glitches from causing a collapse."

This isn't the first time a technology firm has been brought up on tax issues. US telecoms firm Sprint was charged with seven years of tax evasion by New York State last April.