American multinational corporations have something in common with Republican presidential nominee Mitt Romney, aside from being people, too: They both keep a lot of their income overseas to cut their tax bills.
Companies such as Microsoft and Apple quietly dodge billions of dollars in taxes each year with potentially illegal schemes to move their profits offshore, according to a Senate subcommittee report released on Thursday.
"Some multinationals use our current tax system to engage in gimmicks to avoid paying taxes they owe," Sen. Carl Levin (D-Mich.), chairman of the Senate Permanent Subcommittee On Investigations, said in a hearing on Thursday. Levin described "a system used to shift billions of dollars of profit offshore and avoid billions in taxes."
Microsoft, Apple, Google and Hewlett-Packard were among the companies Levin singled out for criticism over their tax-avoidance practices, but they are not alone. Most multinational companies pay a tax rate well below the 35 percent ratemandated by law. Some avoid paying taxes altogether, or even get the government to pay them money. These loopholes cost the U.S. government billions of dollars in revenue that could be used to help close the budget deficit.
Using complex schemes to shift U.S. revenue overseas, Microsoft was able to avoid paying taxes on $21 billion in revenue between 2009 and 2011, amounting to about half its total U.S. sales, according to the subcommittee report. The company avoided paying $4.5 billion in taxes, or about $4 million per day, during that time, according to the report.
Using similar schemes, Levin said, Apple avoided taxes on $34.5 billion between 2009 and 2011, and Google has dodged taxes on $24 billion.
Hewlett-Packard, meanwhile, used a series of constantly revolving short-term loans between itself and its subsidiaries that have helped it avoid paying billions of dollars in taxes since at least 2008, according to Levin. Though he didn't say how much money H-P has avoided paying, Levin did say that H-P has kept billions of dollars in cash offshore -- more than $17 billion in 2010, for example -- that it would then "lend" to its U.S. parent company in a steady stream.
"HP has complied fully with all applicable provisions of the U.S. Internal Revenue Code and auditor Ernst & Young has consistently reviewed and approved the accuracy of HP’s financials," Hewlett-Packard responded in a statement emailed to the Huffington Post. "HP has always had an extremely productive and professional relationship with the IRS, who has permanent offices at two of our facilities and has been continually auditing HP since the filing of our 1962 tax return. They have never raised any concerns about these programs. We are disappointed to see what appears to be a politically motivated attack on one of America’s largest employers.”
Apple and Google did not immediately return requests for comment. A Microsoft representative was scheduled to address the subcommittee later on Thursday.
"In conducting our business at home and abroad, we abide by U.S. and foreign tax laws," Microsoft said in a statement emailed to the Huffington Post. "That is not to say that the rules cannot be improved -- to the contrary, we believe they can and should be. U.S. international tax rules are outdated and not competitive with the tax systems of our major trading partners."
The ranking Republican on the subcommittee, Tom Coburn (R-Okla.), defended the companies, saying they were following the letter of the law to avoid what he called onerous tax rates and an overly complex tax code.
"This is perfectly legal tax avoidance," Coburn said, arguing that the 35 percent corporate tax rate mandated by law is twice that of the average rate around the world. "They take advantage of every loophole we have created in the tax system. There is nothing heinous in that. Nothing illegal in that."
Levin responded that he wasn't sure, but it seemed "highly dubious" that Hewlett-Packard's revolving loan program, for example, "complies with current tax law." He also blamed the IRS for lax enforcement of that law.
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