Tech giants HP and Microsoft have hit back at a US Senate's permanent sub-committee claim that they used intellectual property, royalties and license fees in overseas tax havens to avoid paying billions in taxes.
The sub-committee, which had subpoenaed internal documents from the companies, said that from 2009 to 2011, Microsoft shifted $21bn (£12.95bn) offshore, saving up to $4.5bn in taxes on goods sold in the US.
It said the companies had employed aggressive transfer pricing, and shifted royalty revenue to units in low-tax nations, such as Singapore and Ireland.
But HP and Microsoft officials have denied any wrongdoing, saying tax officials had never objected to the structures and that there were valid reasons for tax planning.Speaking at a press conference, Democratic senator Carl Levin, chairman of the panel, said: 'The tax practices and gimmicks range from egregious to dubious validity.'
Fellow panel member, Republican senator Tom Coburn, blamed Congress.
'Tax avoidance is not illegal. Congress has created this situation,' he said, slamming both the complex tax code and the 35% corporate tax rate, one the highest in the world.
US companies are reported to have parked at least $1.5trn in profits overseas in a bid to avoid tax.
The panel has claimed that the high-tech industry is one of the biggest users of offshore entities to transfer intellectual property.
It said Hewlett-Packard funded US operations with intra-company loans, using an exception in the law for short-term loans, to avoid billions of dollars in taxes.
Levin said over 90% of HP's money was sitting offshore, set against some 65% of its revenues which were derived from outside the US.
In a statement made before the hearing, an HP spokesman said: 'We are disappointed to see what appears to be a politically motivated attack on one of America's largest employers.'
Lester Ezrati, HP's tax vice president, said the company used cash faster in the US for valid reasons including payments such as pensions had to be made with US cash.
Under US tax law, foreign profits are subject to US taxes when they are 'repatriated' into the country, most commonly in the guise of a dividend.
The panel claim that HP set up complicated short-term loans in 2008 to circumnavigate the rules.
Levin added that the report on transfer pricing 'mocks the notion that profits of U.S. multinationals are "locked-up" or "trapped" offshore'.
The sub-committee also rapped E&Y for approving HP's practices.