Microsoft accused of legally dodging millions in taxes

A U.S. Senate committee report accuses Microsoft of legally avoiding paying billions in taxes by taking advantage of “aggressive international tax maneuvers,” Bloomberg News reports.

Bloomberg says the company used transactions with subsidiaries in Puerto Rico, Ireland, Singapore and Bermuda to save at least $6.5 billion in taxes, according to the Senate report. It was issued ahead of a Senate hearing later Thursday.

Microsoft is not alone. In 2008, Hewlett-Packard Co. (HP) created a series of short-term internal loans that allowed the company to tap its offshore cash for domestic operations without paying taxes, according to the report.

Michigan Senator Carl Levin says while costly, Microsoft isn’t doing anything wrong.

“These loopholes and abuses exact a tremendous cost,” Levin told reporters at a briefing. “What these gimmicks do is shift the burden of taxes onto citizens and business who don’t use armies of lawyers and accountants.”

The panel is looking at ways to close the loopholes. Microsoft is among the companies testifying at Thursday’s hearing.

UPDATE: Microsoft has responded to the report with the following statement:

Microsoft has a complex business and we must comply with the complicated tax code of the United States, resulting in an exceedingly complex tax structure. That is why we’ve advocated for reforms to simplify the US tax code and make it more competitive with the rest of the world.
One of the business imperatives faced by Microsoft and many US-based businesses today is that we must operate in foreign markets in order to compete and succeed as a company. Foreign revenue growth helps support the growth of our U.S. operations, creating additional U.S. jobs and supporting an economic ripple effect that leads to greater growth in local communities. Our foreign growth has allowed Microsoft to increase our footprint in the U.S.

According to a recent study of Microsoft’s economic impact, we increased our employment by 13.2 percent in the United States from 2007 and 2009. Through our employment, compensation, and purchases of U.S. goods and services, Microsoft’s operations supported roughly 462,000 U.S. jobs. In Washington State specifically, Microsoft has been the single largest contributor to economic growth since 1990; our impact on the state accounted for 32.4 percent of the total gain in state employment.

To compete and grow, we operate a global business that requires us to operate in foreign markets. In conducting our business at home and abroad, we abide by U.S. and foreign tax laws. That is not to say that the rules cannot be improved–to the contrary, we believe they can and should be. US international tax rules are outdated and not competitive with the tax systems of our major trading partners. We believe the US should reform its tax rules to support the ability of worldwide American businesses to compete in global markets and invest in the US.