Sen. Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations, didn't accuse the companies of acting illegally, though he said he was "highly dubious" that HP was in compliance with the tax law.
Such financial maneuvers "may be in your temporary interest as a corporation," Levin said at the hearing to Bill Sample, Microsoft's corporate vice president for worldwide tax. "It increases your profits and reduces your taxes, but there's a heavy cost to the United States," Levin said.
Levin and the panel's top Republican, Tom Coburn of Oklahoma, sent the memo to committee members.
Coburn described the moves as "properly legal tax avoidance" by companies taking advantage of a tax code that needs an overhaul.
"Our report is about the symptoms of the disease, not the real disease," he said at the hearing.
The report describes the ways companies can move profits outside the country and keep them there to avoid U.S. taxes. Representatives from Microsoft and HP testified at Thursday's hearing.
"We comply with U.S. and foreign tax laws," Sample said at the hearing. "That is not to say that the rules cannot be improved."
U.S.-based companies owe U.S. taxes on profits they earn around the world. They receive credits against that liability for taxes paid to foreign governments, and they don't have to pay U.S. taxes until they bring the money home.
Levin said investigators focused on Microsoft and HP to show patterns that are common among U.S. companies.
He attributed such tax avoidance in part to a lack of enforcement by the IRS, gaps in IRS regulations, and "loopholes" created by Congress.
The Senate memo emphasized HP's use of loans to tap its offshore cash.
The loans, the report said, are structured to comply with the letter of tax rules that allow short-term loans from subsidiaries in Belgium and the Cayman Islands to the parent company, though they provide a continuous tax-free stream of capital to the company.
HP has fully complied with U.S. tax law and the IRS has not raised concerns about the practices described in the memo, the company said in a statement.
"We are disappointed to see what appears to be a politically motivated attack on one of America's largest employers," it said.