updated 02:02 pm EDT, Tue May 15, 2012
Company fails to convince court of innocence
A US Tax Court judge has ruled against HP in a lengthy legal case that centers around $190 million in tax payouts to the Internal Revenue Service. The agency years ago disputed the company's tax returns, accusing the company of exaggerating deductions through a complex series of international investments, known as foreign tax credit generation, to slash tax payouts in the US.
The scheme was said to utilize a Dutch tax shelter, known as Foppingadreef, that was engineered by a division of American International Group and financed by a number of European banks, according to a Reuters report. HP allegedly used derivative trades to inflate its capital losses and bolster foreign tax credits.
Judge Joseph Goeke ruled that HP's investment in the tax shelter "is more appropriately characterized as debt, rather than equity, for Federal income tax purposes."
After selling its stake in Foppingadreef, HP posted a $15.5 million capital loss and claimed $178 million in savings from foreign tax credits. The court found that both deductions are not allowed, and the company is not entitled to receive a refund for its payments.