[This story, written with my colleague Kyung M. Song, is running in the print edition of The Seattle Times Sept. 21, 2012.]
Microsoft became Exhibit A for corporate-tax skirting Thursday during a U.S. Senate hearing on a widening practice that congressional investigators say allows multinational corporations to avoid billions of dollars in U.S. taxes annually by shifting profits offshore.
Microsoft and Hewlett-Packard (HP) were cited as two examples of companies that use aggressive tactics to dodge U.S. taxes by Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigations, which held the hearings in Washington, D.C.
Levin did not accuse the companies of doing anything illegal.
But he opened the five-hour hearing with a 30-minute dissection of the tactics he said Microsoft and HP have used to shield huge portions of their earnings — including profits from making and selling their products in the United States — out of reach of the Treasury Department.
Chiefly, Microsoft sold its intellectual-property rights to subsidiaries in Dublin, Singapore and Puerto Rico. But the revenue those entities booked from selling Microsoft products far exceeded what they paid to acquire the rights — differences that were taxed at lower foreign rates.
For instance, Microsoft’s regional operating center in Ireland paid $2.8 billion in 2011 for rights to sell Microsoft products in Europe, the Middle East and Africa. It then licensed those same rights to another Microsoft subsidiary operating in Ireland but headquartered in Bermuda.
Altogether, Microsoft avoided paying at least $6.5 billion in U.S. taxes over three years by using such maneuvers, according to the report.
[Continue reading the story here.]