Irish tax savings add 4 per cent to Google profit

Google's Irish operations added approximately 8 US cent per share - just over 4 per cent - to profits for the first quarter of 2006 by helping to reduce the company's overall tax bill, according to analysts.

After its results were released late last week, analysts said the fact that Google's "effective tax rate" for the first quarter of 2006 was 27 per cent, as against an expected 30 per cent, added 8 US cent (€0.06) to its per share profit figure.

The multinational's Dublin-based European, Middle Eastern and African (EMEA) headquarters is known to play a key role in reducing the effective tax rate on its global earnings.

Bob Sanderson of the US firm American Technology Research told The Irish Times that Google's Irish subsidiary "definitely helped lower its effective tax rate".

He pointed out that income from Google's non-US markets grew strongly, especially in the UK, which had a 30 per cent quarter-over-quarter growth. Much of Google's non-US turnover goes through its Dublin headquarters, where it is subject to a 12.5 per cent tax rate.

Google's share price jumped after the internet search engine business published better-than-expected results for the first quarter of 2006. The California-based company said it had earned profits of $592.3 million, or $1.95 per share, during the first three months of the year.

Quarterly revenue surpassed $2 billion - a 79 per cent increase on last year - as advertisers shifted more and more of their spending to the internet.

International growth was particularly strong, representing 42 per cent of total turnover compared with 39 per cent in the first quarter of 2005. The more turnover that is non-US, the more the company can reduce its effective tax rate.

In addition to its Dublin EMEA headquarter, Google also has another company which receives royalty earnings from its non-US activities.

In December 2005 the company announced it was to create 700 new jobs in the Republic, bringing its total employment here to more than 1,000. The bulk of this employment is in its operations division and is not tax-driven, Google has said.

In its filings in the US last year Google stated that it had "significantly lowered" its tax bill for the first three quarters of 2005 thanks to its Irish operation. The effective tax rate had dropped from 39 per cent to 31 per cent during 2005, it said.

"This is primarily because proportionately more of our earnings in 2005 compared to 2004 are expected to be recognised by our Irish subsidiary, and such earnings are taxed at a lower statutory tax rate (12.5 per cent) than in the US (35 per cent)."

The filings accompanying Google's first-quarter results did not make any direct reference to the importance of its Irish operation to its tax rate, but did refer readers back to the statements made in the 2005 filings.

Google received advice on its Irish structures from Dublin law firm Matheson Ormsby Prentice, which has advised a number of US multinationals.