Microsoft Avoids Paying $6B in Taxes: Senate Report

According to a new report, over the past three years Microsoft has used a series of complex financial maneuvers to avoid paying billions of dollars in U.S. taxes. The report is part of a United States Senate investigation.

A Senate committee memo indicates that Microsoft made transactions with subsidiary firms in other countries -- including Puerto Rico, Singapore, Bermuda, and even Ireland -- to save more than $6 billion it would otherwise have owed to the Internal Revenue Service (IRS).

Corporate Tax Tricks "Exact a Tremendous Cost"

The memo also indicates that major PC maker Hewlett-Packard (HP) used similar maneuvering. It engaged in several short-term internal loans that permitted the firm to use international resources domestically without paying the usual U.S. taxes.

Michigan Senator Carl Levin (D), who is chairing the Permanent Subcommittee on Investigations responsible for examining this kind of activity, says that Microsoft has done nothing illegal.

U.S. firms are allowed to operate in nations where the tax rate is substantially lower than the United States' nominal 35 per cent rate. (Source: digitaltrends.com)

However, Levin did note that such practices have a significant impact on the American people.

"These loopholes and abuses exact a tremendous cost," Levin said. "What these gimmicks do is shift the burden of taxes onto citizens and business who don't use armies of lawyers and accountants." (Source: heraldnet.com)

Microsoft: We're a Global Company

Microsoft is defending itself by claiming that, as an international firm, it must make these kinds of global transactions. In essence, Microsoft says it has made no effort to 'cheat' the system.

"Microsoft's tax results follow from its business, which is fundamentally a global business that requires us to operate in foreign markets in order to compete and grow," noted Microsoft corporate vice president, Bill Sample.

"In conducting our business at home and abroad, we abide by U.S. and foreign tax laws as written." (Source: heraldnet.com)

Microsoft and HP are just two among many large firms using these kinds of strategies. Levin admitted that the committee focused on these two firms as a way to show that such practices are widespread in the tech industry.