A COMMITTEE of the United States Senate has criticised Microsoft over what it describes as their “dubious” practice of channelling their profits through international subsidiaries – including Ireland.

A memo published by the Senate’s Permanent Subcommittee on Investigations casts doubt on the extent of the company’s operations in the likes of Singapore and Ireland, all but accusing them of using those operations simply to avoid paying tax in the US.

The committee said Microsoft had moved about $21 billion (€16.1 billion) – half of its US sales revenue – to its overseas arms between 2009 and 2011, finding that the software giant had cut about $6.5 billion off its worldwide tax bill in doing so.

Committee chairman Carl Levin, a Democrat, said Microsoft Ireland had paid $2.8 billion to its US parent company last year in exchange for the licence to use its intellectual property, but had taken in $9 billion in exchange.

A similar arrangement in Singapore – where Microsoft Singapore paid $1.2 billion to licence intellectual property, but made $3 billion in doing so – meant that between the two countries, Microsoft had shifted $8 billion in income to its overseas subsidiaries.

“Yet, over 85 per cent of Microsoft’s research and development is conducted in the United States,” Levin said.

Microsoft vice-president Bill Sample told the committee that Microsoft complied with tax rules in each jurisdiction it operated in, but argued that the US tax code needed to be simplified if the US was to stop losing tax income to overseas rivals.

“These rules all too often provide a disincentive for US investment. The US now has the highest corporate tax rate among OECD countries and, unlike our major trading partners, taxes the worldwide income of its domestic corporations,” he testified.

Microsoft’s Irish subsidiary, Microsoft Ireland Operations Ltd, paid €76.5 million in corporation tax for the 2011 year, having turned an operating profit of €557 million – slightly above the headline corporate tax rate of 12.5 per cent.

Microsoft employs about 1,200 full-time staff and 700 full-time contractors at its base in Sandyford. The Irish company sells Microsoft software – including the Windows operating system – in over 100 countries worldwide.