Image caption The Senate panel said Microsoft had reduced its tax bill by $4.5bn

The US Senate has criticised Microsoft and Hewlett-Packard for their use of tax avoidance schemes, which it says is rampant in the tech sector.

The Senate's Permanent Subcommittee on Investigations said the companies used places such as the Cayman Islands so they did not have to pay US taxes.

The chairman of the panel said their practices ranged from "egregious to dubious validity".

Microsoft and HP denied any wrongdoing.

Carl Levin has been investigating offshore tax havens for years.

He said the industry was probably the number one user of these offshore entities to transfer intellectual property.

Five of the top 10 companies with the biggest offshore cash balances are in the technology sector.

Low-tax nations

The committee said that between 2009 and 2011, Microsoft moved $21bn (£13bn) offshore, almost half its US retail sales revenue.

The panel said the moved saved it up to $4.5bn in taxes on goods sold within the US.

It also said the company moves royalty revenue to divisions in lower-tax nations, including Singapore and the Republic of Ireland.

Microsoft's vice president for tax, William Sample, said the main reasons for moving operations outside of the US was not tax, although he admitted they came into consideration: "While the primary objective of our regional structure is to improve our competitiveness and efficiency in each of the three regions, we evaluated available tax incentives."

The panel said Hewlett-Packard funded US operations with inter-company loans, using an exception in the law for short-term loans, to avoid billions of dollars in taxes.

A spokesman for Hewlett-Packard said that the company complied fully with tax law adding that the Internal Revenue Service had never raised any concerns about the systems cited by the Senate panel.

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

The top Republican on the panel, Senator Tom Coburn, signed off the new report, but blamed Congress for the tax system that made such activities possible: "Tax avoidance is not illegal. Congress has created this situation."

US corporation tax is one of the highest in the world at 35%. However, companies typically pay far less, thanks to numerous deductions and exemptions.