Inside the world of business
Google enjoys Double Irish, Dutch Sandwich combo
THE LATEST quarterly filing for Google detailed how non-US profits at the multinational continued to be channelled through its Dublin-based subsidiary and are growing at a faster pace that the profits going through the US books.
Profit before income tax in the US was $3,579 million, $4,948 million, and $4,693 million respectively for 2009, 2010, and 2011, according to the quarterly filing.
Profit from foreign operations was $4,802 million, $5,848 million, and $7,633 million for 2009, 2010, and 2011.
As the filing itself put it, “substantially all of the income from foreign operations was earned by an Irish subsidiary”.
According to Bloomberg, Google has cut its worldwide tax bill by about $1 billion a year using strategies called the Double Irish and Dutch Sandwich, whereby it moves profits through companies in Ireland, the Netherlands and Bermuda.
The latest filing shows the company’s effective tax rate was 21 per cent in 2011, down from 22.2 per cent two years’ earlier. The channelling of profits through Ireland is part of the lowering rate.
The company’s two major tax jurisdications are Ireland and the US and, understandably given the sums involved, the authorities in both countries take their time scrutinising Google’s affairs.
The Internal Revenue Service in the US has yet to clear the 2007 to 2011 accounts, while our own Revenue Commissions are still examining Google’s accounts from 2003 through to 2011, according to the filing.
The provisions for foreign income tax for 2009, 2010 and 2011, respectively, were $148 million, $167 million, and $248 million. On the basis of those figures, Ireland is doing very well indeed from the search engine.
Google Ireland, the main Irish subsidiary in money terms, is an unlimited company and, therefore, is not obliged to file accounts here. It is in turn owned by two Google companies based in Bermuda. The quarterly filing shows Google had $24.8 billion in non-US earnings that it intended to permanently re-invest outside the US, and so would not be paying US income tax on.
It is currently refurbishing its Google Dock/Montevetro building in Barrow Street, Dublin, and a spokeswoman said the hiring of additional staff to inhabit the currently unused floors of that building, would depend on future demand for Google’s services.
Clearing runway for an Aer Lingus divvy?
It was a good day for our quoted airlines. Stellar results from Ryanair resulted in its share price nudging up by almost 1 per cent. The stock has been having had a good run.
Ryanair increased its profit guidance for the full year to €480 million although some analysts believe it will be higher. Joe Gill of Bloxham has pencilled in a surplus of €500 million.
Whatever the figure, it’s an impressive performance against a difficult economic backdrop in Europe and significant headwinds on fuel costs. Just last week, Barcelona-based Spanair became the latest airline to fall victim to the downturn.
Over at Aer Lingus, the share price soared by 9 per cent on foot of confirmation that it is in talks to resolve the thorny pension deficit issue.
This could involve freezing the scheme – jointly operated with the Dublin Airport Authority and SR Technics – and the purchase of sovereign annuities from the National Treasury Management Agency.
This would also involve the airline and the DAA setting up new schemes for their workers – an entirely sensible scenario.
Sorting out the €722 million pension deficit would clear a significant hurdle for the Government’s plan to sell its 25 per cent stake in Aer Lingus. It might also clear the runway for Aer Lingus to pay a dividend, something that Ryanair, its biggest shareholder, has wanted for some time.
With a divvy in its back pocket, might Ryanair be willing to sell its Aer Lingus shares along with the Government? This period might turn out to be pivotal one in the history of Aer Lingus and Irish aviation.
Investment banks keen to friend Facebook
If the reports are to be believed investment banks are rushing to become friends with Facebook. Whether this says more about how desperate banks are for fees or how hot the technology investment market is remains to be seen.
The ubiquitous social network could file documents to go public as soon as tomorrow in a move that would value the company at somewhere between $75-100 billion. That compares to Google’s valuation of $24.6 billion when it went public back in 2004. The financial newswires suggested Facebook is looking at raising $10 billion.
For a company that is understood to have had revenues of $3.8 billion last year in 2011 with an operating profit of $1.5 billion, a Facebook valuation above $75 billion would be an impressive multiple of earnings.
Although not at the frothy levels of 2000, 19 technology companies tapped the US public markets for $6.6 billion last year. That was the highest figure since 2000, the height of the dot com mania, when 101 businesses raised $11 billion.
Despite big names like LinkedIn, Groupon, Zynga, going to the markets last year their IPOs have had mixed results.
Facebook may be tempted to set its price at the lower end of the valuation range in a bid to attract investors and ensure the share rises on the first day. But in the case of LinkedIn, the underwriters have been accused of underpricing the shares.
Wall Street bankers typically look for fees of 7 per cent to underwrite an IPO that raises less than $500 million.
That falls to 2-3 per cent for large Silicon Valley deals but such is the clamour to get a part of Facebook, bankers are reported to be looking at taking just 1 per cent. While that would give them a cool $100 million it shows how desperate banks are to be involved in what looks set to be Silicon Valley’s largest every floatation.
TODAY
The Joint Committee on Communications, Natural Resources and Agriculture will meet with representatives from the Commission for Communications Regulation (Comreg) today at 2pm.
The CentralBbank due to publish the lastest data on bank credit and deposits
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