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Tech Giant Like HP, Microsoft, Apple, Google Dodging Taxes With Offshore Business

U.S. Senate’s Permanent Subcommittee on Investigations has found and later reported on Thursday, September 20 that the Hewlett-Packard Co., Microsoft Corp. and other multinational corporations have hoaxed $billions taxes by shifting profits offshore and taking advantage of weak, ambiguous sections of the tax code. Will the presented report be able to reduce dodging billions of dollars in taxes each year with potentially illegal schemes to move the company’s profits offshore?


Giant Companies Dodging Taxes In US

According to Senate investigations subcommittee’s report, most multinational companies pay a tax rate well below the 35% rate mandated by law. Some companies used loopholes tricks for which the U.S. government has been deprived of getting billions of dollars taxes. Microsoft used “aggressive” transactions to shift assets to subsidiaries in Puerto Rico, Ireland and Singapore, in part to avoid taxes. From 2009 to 2011, the software giant has dodged $4.5 billion taxes in U.S. through shifting its assets to Puerto Rico alone.

Senate investigations subcommittee also reported that Hewlett-Packard (HP) used complex offshore loan transactions which was equivalent to billions of dollars to avoid paying taxes while using the money to run its U.S. operations. In 2010, HP kept more than $17 billion in cash offshore. Besides, between 2009 and 2011, Apple avoided taxes on $34.5 billion and Google dodged a tax of $24 billion.

Sen. Carl Levin (D-Mich.), chairman of the Senate Permanent Subcommittee On Investigations, said in a hearing on Thursday, “Major U.S. corporations are increasingly earning their profits here but shipping them overseas to avoid paying the taxes they owe. Some multinationals use our current tax system to engage in gimmicks to avoid paying taxes they owe.” Levin described “a system used to shift billions of dollars of profit offshore and avoid billions in taxes.”

Here is the total specific findings of the Senate Investigations Subcommittee :

Tax Incentives to Shift Profits Offshore.  Current weaknesses in the tax code’s transfer pricing regulations, Subpart F, and Section 956, and in the Financial Accounting Standards Board’s (FASB) accounting standard, APB 23 relating to deferred tax liabilities on permanently or indefinitely invested foreign earnings, encourage and facilitate the shifting of intellectual property and profits offshore by multinational corporations headquartered in the United States.

Ambiguity in Accounting Standard APB 23.  Ambiguities in accounting standard APB 23 create the potential for companies to manage their earnings by avoiding reporting U.S. tax liabilities for foreign profits, thereby improving the appearance of their financial statements to shareholders and investors.  The financial reporting benefits of APB 23 encourage MNCs to move and keep their businesses and earnings offshore.

Aggressive Transfer Pricing.  Microsoft Corporation has used aggressive transfer pricing transactions to shift its intellectual property, a mobile asset, to subsidiaries in Puerto Rico, Ireland, and Singapore, which are low or no tax jurisdictions, in part to avoid or reduce its U.S. taxes on the profits generated by assets sold by its offshore entities.

Offshoring Profits. From 2009 to 2011, by transferring certain rights to its intellectual property to a Puerto Rican subsidiary, Microsoft was able to shift offshore nearly $21 billion, or almost half of its U.S. retail sales net revenue, saving up to $4.5 billion in taxes on goods sold in the United States, or just over $4 million in U.S. taxes each day.

Check-the-Box and the CFC Look-Through Rule Undermine Subpart F.  In FY2011,Microsoft Corporation excluded an additional $2 billion in U.S. taxes on passive income at its offshore subsidiaries, relying on the “check-the-box” regulations and the controlled foreign corporation (CFC) “look-through” rule, which have undermined the intent of the tax code’s Subpart F to prevent the shifting of passive CFC profits to tax havens to avoid U.S. tax.

Short Term Offshore Loans.  Since at least 2008,Hewlett Packard Co. has used billions of dollars of intercompany offshore loans to effectively repatriate untaxed foreign profits back to the United States to run their U.S. operations, contrary to the intent of U.S. tax policy.

Auditor Reliance.  H-P’s auditor, Ernst & Young, knew that the company had set up a structured loan program to obtain billions of dollars in continual, alternating loans each year from two offshore entities and used those offshore funds to run its U.S. operations, but continued to support H-P’s view that those offshore funds had not been repatriated to the United States and were not subject to taxation.

HP responded in this way : “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. 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.”

On the other side, Microsoft’s response was like this : “In conducting our business at home and abroad, we abide by U.S. and foreign tax laws. 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.”

Still now Apple and Google haven’t responded like Microsoft or HP.

Source : Senate
Thanks To : Huffington Post

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