Microsoft earns $802m tax-free in Irish subsidiary

An Irish subsidiary of Microsoft made a profit of $802.4 million (€682.4 million) in 2004 but paid no tax.

The company, Flat Island Company Ltd, holds the right to issue licences in respect of Microsoft software supplied in Europe, the Middle East and Africa. It in turn makes payments to MELLC, another, non-Irish element in Microsoft's global structure.

Flat Island receives royalty payments in return for the use of the software which it licenses. Turnover for the year to end June 2004 was $2 billion.

The company was incorporated in October 2002 and turnover for the period October 2002 to June 2003 was €878 million. Profits for that period were $86 million but again no tax was paid.

No dividends were paid up to the end of June 2004 and accumulated profits were $888.49 million. At end June 2004 the company was owed $1.74 billion from other Microsoft companies while it, in turn, owed $860 million to group companies.

The three directors, as per an annual return dated March 2005, were from the US and were all lawyers.

The registered offices of Flat Island are at Matheson Ormsby Prentice solicitors in Dublin. The three directors, Keith Dolliver, Benjamin Orndorff and John Seethoff, all with addresses in Washington State, were also directors of Round Island One Ltd, the Dublin-registered Microsoft company of which Flat Island is a subsidiary.

The Round One accounts say its principal activities are the production, development and marketing of software products, as well as treasury management.

Round Island and its subsidiaries made a profit of $3.52 billion in the year to end June 2004. The group paid $308 million in Irish corporation tax. It had assets of $16 billion.

The accounts state that Round Island and its subsidiaries "carry out ongoing research and development activities aimed at future software products and reflecting local languages and conventions in improving the quality and usability of Microsoft products" in the European, Middle Eastern and African markets.

Round Island's consolidated accounts show turnover for the year was $9.64 billion. The group paid a dividend of $1.3 billion and had retained profits at year's end of $2.22 billion.

The consolidated accounts show $1.7 billion was spent on research and development in 2004, on top of $1 billion one year earlier. The average number of persons employed by the group during the year was 1,991.

A breakdown of turnover by geographical area attributes $6.9 billion to the "rest of Europe", $1.8 billion to the UK, and $772 million to the "rest of the world".

The figure for the Republic is $132 million. During the year the group acquired a Microsoft R&D company in India, according to the accounts.

As well as the Irish companies, the Round Island group includes subsidiaries in the Netherlands, Italy, the UK, Germany, Israel and France. The Microsoft group is reportedly making savings of up to $500 million a year in taxes by way of its Round Island operation.