Adobe's Irish arm incurs $312m tax charge

THE MAIN Irish unit of US software group Adobe Systems incurred a $312 million (€211.9 million) charge after a tax examination of some of its affairs, new Companies Office filings reveal.

Adobe Software Trading Company, whose registered office is at Citywest in Dublin, also says in its latest annual accounts that its directors proposed paying a $100 million dividend to its California-based parent last February.

While a large number of American multinationals use Ireland’s comparatively low corporate tax rate and associated tax incentives to curb their US tax exposure, the Obama administration has unveiled far-reaching plans to clamp down on the practice.

The Dublin vehicle is Adobe’s intermediary holding company for subsidiaries mainly based in Europe, Africa and the Asia Pacific region.

“The principal activities of the company and group are research and development activities, and the licensing, production and distribution of computer software for markets outside of the United States of America, Canada and Mexico,” say its accounts.

Lodged in recent days, the document states that the tax examination centred on inter-company agreements made by the business, whose operating profit rose last year to $702.33 million from $229.87 million.

The restoration of a 35 per cent operating profit margin in the year to November 2008, which rose from 13 per cent, was attributed to payment exceptional tax charge in the prior year.

Although the accounts do not identify the tax authority concerned, the annual report for the Adobe’s parent company says that its income tax returns are subject to continual examination by the Internal Revenue Service (IRS) in the US and other tax authorities.

“These examinations are expected to focus on our inter-company transfer pricing practices as well as other matters,” says the report to the US Securities Exchange Commission.

The new accounts for the Irish unit say that “various inter-company agreements” are subject to to examinations by local tax authorities.

“Pursuant to one such examination, an adjustment was made which resulted in a charge to the company’s earnings in 2007 of $312,028,000.”

These accounts, for the year to November 2008, provide no further detail on the charge. Adobe's official spokeswoman did not respond to queries yesterday from The Irish Times.

While the parent company had revenues $3.58 billion in its last fiscal year, the accounts for the Irish unit show that revenues rose to $2.02 billion that year from $1.7 billion in the prior period.

The Irish business, whose consolidated balance sheet suggests it has accumulated profits of $1.51 billion, has investments in 29 subsidiaries around world in locations as diverse as Canada, Australia, China, Japan, Turkey, Brazil, South Africa and 10 EU states.

The holding company group employs 1,600 staff.

“The group is subject to continual examination of its income tax returns by domestic and foreign tax authorities,” say the accounts.