Microsoft is shifting a disproportionate amount of its profits to subsidiaries in three low-tax jurisdictions, and HP is using constant short-term loans from its overseas subsidiaries to avoid paying taxes on earnings coming back into the U.S., said Senator Carl Levin, chairman of the investigations subcommittee of the Senate Homeland Security and Governmental Affairs Committee.

"It is highly dubious that some of these practices comply with existing [tax regulations] or existing law," Levin, a Michigan Democrat, said at a subcommittee hearing.

Microsoft and HP are not alone in massaging the U.S. tax law, Levin said, but a long-term subcommittee investigation has focused on the two companies. Efforts by corporations to lower their U.S. tax burden may not be illegal in many cases, but the practices of HP and Microsoft raise "serious questions," he said.

Many multinational corporations based in the U.S. "use complex structures, dubious transactions, and legal fictions to shift the profits from those products overseas, avoiding the taxes to help support our security, stability and productivity," Levin added.

Representatives of both companies defended their tax practices, saying they comply with U.S. law. Senator Tom Coburn, a Republican from Oklahoma, blamed Congress for a complicated tax code full of legal loopholes and for a high corporate tax rate.