HP and Microsoft are accused of dodging taxes

MICROSOFT AND HEWLETT-PACKARD will be investigated by the US Senate Permanent Subcommittee on Investigations over allegations that they have avoided paying taxes in the US.

Subcommittee chairman Carl Levin contends that both Microsoft and HP avoided paying billions in taxes by storing profits overseas. The senator believes that the two companies used "loopholes and gimmicks" to avoid paying large amounts of US corporate income taxes.

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

"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."

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 licenses to offshore 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 the US Commonwealth of 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 taxes on profits.

Senator Levin made it clear that nothing the corporations did was illegal. However, he hopes the Subcommittee's investigation will shed light on the firms' actions and lead to closing of the tax code loopholes being used to avoid tax payments.

"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 that a US technology firm has been brought up on tax issues. US telecom Sprint was charged with seven years of tax evasion by New York State last April. µ

This article was originally published on V3.