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Earlier this summer, Microsoft announced it would finance its purchase of the professional social networking site LinkedIn by borrowing $26 billion, rather than dipping into its substantial hoard of offshore cash. The ratings agency Moody’s subsequently placed the company under review for a downgrade.

And just last week after Microsoft released its annual report, Moody’s warned that “[t]he long term rating could be downgraded if… the company undertakes additional large, debt funded acquisitions … without a substantial increase in cash balances.” This appears to be a long-winded way of telling Microsoft not to try the LinkedIn strategy again.

Stern warnings from credit rating agencies are generally not shrugged off lightly. Yet Microsoft has a straightforward, if crass, reason for ignoring Moody’s advice: tax avoidance. The company, over the years, has declared $124 billion of its profits to be “permanently reinvested” overseas, much of which appears to have been untaxed. As long as the company keeps these profits offshore, they will stay tax free—but repatriating the profits to (for example) pay for a domestic acquisition would require the company to pay federal income taxes on this income. Microsoft’s executives and tax attorneys appear to have decided it makes more sense to borrow the money domestically than to give up the tax-free status of some of its foreign cash.

How do we know that much of Microsoft’s off-shore cash is tax-free? The company’s latest annual report, released last week, discloses that it has $124 billion in permanently reinvested offshore profits, an astonishing $15.7 billion jump over the $108.3 billion it reported last year. The company says that the unpaid U.S. income tax on repatriation of these profits would be $39.3 billion. Since the tax due on repatriation is 35 percent less whatever has already been paid to foreign governments ($39.3 billion is 31.7 percent of $124 billion), Microsoft has paid an effective income tax rate of just 3.3 percent on its offshore cash. This is a clear indicator that most of its offshore cash is in zero-rate tax havens.

Paradoxically, even though Microsoft is telling the IRS this income is abroad—and staying abroad—much of it likely never left the United States. The U.S. Senate Permanent Subcommittee on Investigations has estimated that more than 75 percent of Microsoft’s so-called offshore cash is in U.S. bank accounts. This means that even though the company can’t invest this cash domestically in ways that create U.S. jobs, it can still enjoy the protections of U.S. banks without paying taxes on profits stashed in these banks.

It shouldn’t take a public scolding from a ratings agency to make corporate leaders stop subverting the U.S. tax system. The choice made by Fortune 500 corporations to hold their cash offshore for tax purposes has real, and damaging, fiscal consequences for our nation. The $39 billion in federal income taxes that Microsoft has not paid on its offshore stash would be more than enough to cover the cost of the Pell Grant program next year, for example. Fortune 500 companies collectively are avoiding up to $695 billion in taxes by stashing profits offshore. Congress, rather than the Moody’s rating agency, should hold corporations accountable and do away with gaping loopholes that allow such egregious tax avoidance. Ending the indefinite deferral of U.S. tax on foreign corporate income would take away the perverse incentive for companies like Microsoft to borrow billions domestically while sitting on far larger troves of unused “foreign” cash.