Microsoft Used Offshore Subsidiaries To Avoid $6.5 Billion In American Taxes

Microsoft used subsidiaries in offshore tax havens to dodge billions of dollars in American taxes over the last three years, according to a memo from the Senate Permanent Committee on Investigations.

The committee’s top members, Sens. Carl Levin (D-MI) and Tom Coburn (R-OK), released the memo ahead of an afternoon hearing today. The memo outlines Microsoft’s use of subsidiary companies in foreign countries that allowed it to avoid $6.5 billion in American taxes, Bloomberg reports:

The report, released in advance of a 2 p.m. hearing in Washington today, said Microsoft used transactions with subsidiaries in Puerto Rico, Ireland, Singapore and Bermuda to save at least $6.5 billion in taxes. 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.

Use of such tax havens is prevalent among America’s biggest companies, including those in the tech sector. Apple, one of Microsoft’s chief competitors, used its own schemes to avoid more than $2.4 billion in American taxes last year. “The high-tech industry is probably the number-one user of these offshore entities to transfer intellectual property,” Levin said.

Like Apple, Microsoft was a member of the WinAmerica coalition that pushed Congress for a temporary holiday from the tax corporations pay when they bring overseas profits back to the U.S. The coalition ultimately disbanded after its lobbying efforts failed.

Those schemes come at a cost to other businesses and taxpayers. In 2009, offshore tax havens cost the average individual taxpayer $434, according to the California Public Interest Research Group. Citizens for Tax Justice, meanwhile, found that making up the lost revenue would have required an extra $2,116 from each American small business.