United States Senate Slams HP for Tax-Dodging

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Date: Tuesday September 25, 2012 08:34:12 am
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    United States Senate Slams HP for Tax-Dodging

    WASHINGTON – 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 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., chairman of 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 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.

    Many in both parties say they want to overhaul the entire tax code, but there are vast differences regarding how they would do so.

    http://www.cnbc.com/id/49105997
    Microsoft, HP skirted taxes via offshore units-Senate panel
    WASHINGTON (Reuters) – Technology giants Microsoft Corp and Hewlett-Packard Co used offshore units to shield billions of dollars from U.S. taxes by taking advantage of loopholes and stretching the limits of the tax code, a U.S. Senate panel said on Thursday.

    Describing tax avoidance as rampant in the technology sector, the Senate’s Permanent Subcommittee on Investigations said tech companies used intellectual property, royalties and license fees in tax havens such as the Cayman Islands to skirt U.S. taxes.

    The panel subpoenaed internal documents from the companies and interviewed Microsoft and HP officials to compile its report, and uses them as case studies.

    "The tax practices and gimmicks range from egregious to dubious validity," Senator Carl Levin, chairman of the panel, said at a news conference.

    Officials at HP and Microsoft strongly denied any wrongdoing.

    The investigative panel’s findings came hours ahead of a hearing Thursday, at which Levin is slated to reveal further details and to take testimony.

    Levin, a Democrat, has been investigating offshore tax evasion for years and often issues reports calling attention to the issue. But Senator Tom Coburn, the ranking Republican on the panel, also signed onto the report.

    U.S. companies have about $1.5 trillion in profits sitting offshore, and most say they are keeping it there to avoid U.S. tax. Of the top 10 companies with the biggest offshore cash balances, five are in the technology sector.

    "The high-tech industry is probably the No. 1 user of these offshore entities to transfer intellectual property," Levin said.

    The committee said that from 2009 to 2011, Microsoft shifted $21 billion offshore, almost half its U.S. retail sales revenue, saving up to $4.5 billion in taxes on goods sold in the United States.

    This was accomplished, the panel report said, by aggressive transfer pricing, where companies put values on intercompany movement of assets. Units are supposed to use a fair market price to value such transfers, but critics say they are undervalued to minimize tax.

    The report also said the software giant shifts royalty revenue to units in lower-tax nations such as Singapore and Ireland, avoiding billions of dollars of additional taxes in the U.S.

    In prepared testimony, Microsoft vice president for tax William Sample said all its units serve a purpose, though he acknowledges tax considerations come into play.

    "While the primary objective of our regional structure is to improve our competitiveness and efficiency in each of the three regions, we evaluated available tax incentives," also in its decisions.

    Witnesses set to testify also include a tax executive from Hewlett-Packard, a tax executive from Big Four accounting firm Ernst & Young, and senior officials from the U.S. Internal Revenue Service.

    SHORT TERM LOANS

    The panel said Hewlett-Packard funded U.S. operations with a stream of intercompany loans, using an exception in the law for short-term loans, to avoid billions of dollars in taxes.

    A spokesman for HP said it complies fully with tax law and said the IRS has never raised any concerns about the programs cited.

    "We are disappointed to see what appears to be a politically motivated attack on one of America’s largest employers," HP spokesman Michael Thacker said.

    The committee also criticized Ernst & Young, the firm’s audit, for blessing the practice.

    Under tax law, foreign profits are subject to U.S. tax when they are "repatriated" back to the United States, usually in the form of a dividend.

    Loans by the foreign units to a related U.S. entity are considered a dividend for tax purposes but there is an exception for loans that are repaid within 30 days, according to the committee’s tax experts.

    HP set up a complicated series of short term loans to these businesses that were continuous without gaps, to get around that provision, the panel found.

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