Microsoft used transactions with its subsidiaries in Puerto Rico, Ireland, and Singapore to save on its tax bill
A US Senate subcommittee said that Microsoft and HP used offshore units to avoid paying billions of dollars in taxes.
The report found that Microsoft used transactions with its subsidiaries in Puerto Rico, Ireland, and Singapore to save about $6.5bn in taxes.
According to the report, HP used a series of short-term internal loans which enabled the firm to tap its offshore cash for domestic operations without paying taxes.
The committee said that from 2009 and 2011, Microsoft moved $21bn offshore which is about half its US retail sales revenue, saving up to $4.5bn in taxes on goods sold in the country.
Microsoft said that in conducting our business at home and abroad, we abide by US 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," Microsoft said.
"US international tax rules are outdated and not competitive with the tax systems of our major trading partners."
HP said that it has complied fully with all applicable provisions of the US Internal Revenue Code and auditor Ernst & Young has consistently reviewed and approved the accuracy of its financials.
US based firms have an option to avoid taxes on money earned abroad by asserting that they have invested those funds offshore or plan to do so.