Microsoft Avoided Billions in Taxes: Senate Memo

Memo also cites Hewlett-Packard’s use of internal loans to tap offshore cash.

A U.S. Senate committee memo said Microsoft Corp. used aggressive international tax maneuvers to avoid billions of dollars in taxes over the past three years.

The committee memo, released for a hearing today in Washington, said Microsoft used transactions with subsidiaries in Puerto Rico, Ireland, Singapore and Bermuda to save at least $6.5 billion in taxes. The committee also revealed that Hewlett- Packard Co. has used 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 memo.

Hard to Value

Those intangible assets are hard to value, and disputes about the correct price for such intra-company transactions are common. When foreign subsidiaries in low-tax countries pay too little, either up front or over time, they can get annual profits paid to them out of proportion to what they paid.

Fiscal Calendars

IRS rules allow companies to take loans from foreign subsidiaries without tax consequences within a given fiscal quarter. The Belgian and Cayman subsidiaries have different fiscal calendars.

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