Microsoft as a one-percenter: Senate charges it legally evaded paying billions in taxes

A U.S. Senate committee has charged that Microsoft used legal off-shore tax maneuvers to avoid paying billions in taxes for the last three years. The company apparently did nothing illegal, but this certainly won't endear it to consumers, many of whom are still struggling in a tough economy.

A Bloomberg report says that according to the Senate committee report:

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. created a series of short-term internal loans that allowed the company to tap its offshore cash for domestic operations without paying taxes.

Later this afternoon, at 2 pm. there will be a hearing about it. Although the report concludes there was no illegality, Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations had this to say at a briefing today:

"These loopholes and abuses exact a tremendous cost. What these gimmicks do is shift the burden of taxes onto citizens and business who don't use armies of lawyers and accountants."

Bloomberg notes that 

The gap between the 35 percent U.S. corporate tax rate and lower tax rates in the rest of the world gives companies an incentive to book profits outside of the U.S. Levin said technology companies can easily move intangible assets such as patents outside of the U.S. with intra-company transactions at low prices.

Levin noted that Microsoft wasn't alone in its actions. He said:

"The high-tech industry is probably the number-one user of these offshore entities to transfer intellectual property."

The timing on this couldn't have been worse for Microsoft. It ties into a presidential campaign fought in large part over whether the rich and powerful pay their fair share of taxes, and in which one candidate is accused of using overseas shelters to avoid paying taxes and hide wealth. It also comes just before the release of Windows 8, a time when Microsoft wants no distractions.

Did Microsoft do anything illegal in using off-shore subsidiaries to avoid paying billions in taxes? No. Did it do something wrong? Absolutely. Congress should close the loopholes that allow the company to avoid paying its fair share of taxes. And Microsoft should donate the money it avoided paying in taxes to a good cause. if they need advice on how and where to donate it, philanthropist Bill Gates likely has some good ideas about that.

Copyright © 2012 IDG Communications, Inc.

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