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Microsoft, HP Under Scrutiny in Senate Tax Probe

A Senate subcommittee pointed the finger at Microsoft and Hewlett-Packard on Thursday in a report on how U.S. multinational corporations shift profits offshore to avoid taxation.

Tim Graham | The Image Bank | Getty Images

According to the report by the Senate's Permanent Subcommittee on Investigations, U.S. multinationals have dodged billions in taxes by shifting profits to low tax jurisdictions overseas.

The report was issued ahead of a hearing that will focus on “transfer pricing” and other loopholes. (Read More: Offshore Profits Come Under Senate Scrutiny.)

Practices at Microsoft and Hewlett-Packard will be in senators’ cross-hairs.

“From 2009 to 2011, 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,” according to the Senate report.

Officials at HP and Microsoft strongly denied any wrongdoing. In a written response to CNBC, Microsoft said the U.S. should reform and simplify its tax code.

“In conducting our business at home and abroad, we abide by U.S. and foreign tax laws,” Microsoft said. “That is not to say that the rules cannot be improved — to the contrary, we believe they can and should be.”

It continued, “U.S. international tax rules are outdated and not competitive with the tax systems of our major trading partners. We believe the U.S. should reform its tax rules to support the ability of worldwide American businesses to compete in global markets and invest in the U.S.”

The Senate report also examined practices at Hewlett-Packard. “Since at least 2008, HP has used billions of dollars of intercompany offshore loans to effectively repatriate untaxed foreign profits back to the U.S. to run U.S. operations, contrary to the intent of U.S. tax policy,” the report stated.

A spokesman for HP said it complies fully with tax law and said the IRS has never raised any concerns about the programs cited.

"We are disappointed to see what appears to be a politically motivated attack on one of America's largest employers," HP spokesman Michael Thacker said.

_ By CNBC's Eamon Javers. Reuters contributed to this report.

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