Irish subsidiaries helped Microsoft reduce US tax bill by €1.87bn in 2011
THE CENTRAL role played by Ireland in an “aggressive” global structure created by Microsoft to save itself billions of dollars annually in US taxes is outlined in a memorandum prepared for a Senate committee in Washington.
The Senate Permanent Subcommittee on Investigations used the multinational technology company as a case study on how such companies are using global structures to avoid US taxes.
Using Irish subsidiaries, Microsoft “was able to reduce its 2011 US tax bill by $2.43 billion” (€1.87 billion), according to the memorandum, which formed the basis of a hearing held on Thursday afternoon in Washington.
The $2.43 billion US tax saving was achieved mostly through the avoidance of tax on royalty payments between Microsoft Ireland Operations Ltd (MIOL), and a subsidiary, Microsoft Ireland Research (MIR), which is in turn a subsidiary of a company called Round Island One.
The three companies have their registered addresses at 70 Sir John Rogerson’s Quay, Dublin, the offices of solicitors Matheson Ormsby Prentice. Round Island One is a Bermuda company, despite having its registered office here. It was incorporated in 2001.
MIOL paid a dividend of €4.9 billion in the period after June 2011, according to its most recent set of Irish accounts.
Up to now the financial details of MIR and Round Island One have been obscure, as they are unlimited companies and do not publish their accounts. However Microsoft gave the US Senate committee access to certain information and documents to allow it to produce its memorandum.
(It is now available on the committee’s website at hsgac.senate.gov/subcommittees/investigation.)
According to the memo, Microsoft began to create its international network of foreign entities in the 1990s, beginning with Ireland, but also creating centres in Singapore and Puerto Rico.
The Irish centre is responsible for retail sales in Europe, the Middle East and Africa (EMEA). The Singapore centre is responsible for Asia, while Puerto Rico is responsible for sales in north and south America, including the United States.
Last year, Microsoft spent $9.1 billion on research, $7.8 billion of that in the United States. It received $200 million in tax credits from the US government for conducting research in the jurisdiction. However, profit rights to the intellectual property (IP) that resulted from this research, mostly resides in “foreign tax havens”.
In order to transfer the IP abroad, Microsoft and its regional centres have agreements sharing the research costs. MIR paid 30 per cent of Microsoft’s 2011 global research bill and in exchange has the right to sell Microsoft products in EMEA.