Google saves millions in taxes thanks to its Irish operation

Google, the US internet search engine company, is using a network of Irish companies to save millions in taxes

Google, the US internet search engine company, is using a network of Irish companies to save millions in taxes. Colm Keena, Public Affairs Correspondent, reports

Documents Google had lodged with the US regulatory authorities say it has "significantly lowered" its tax bill for the first three quarters of 2005 thanks to its Irish operation.

The filings indicate the multinational's effective tax rate has dropped from 39 per cent to 31 per cent, indicating it is saving approximately €100 million a year in taxes via its Irish business.

"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)," according to the document.


The company warns, however, that if future turnover at its Irish subsidiary is not as proportionately high as expected, then the multinational's effective tax rate may increase.

Recent filings in the Companies Registration Office in Dublin show that Google has two Irish-based operations, one of which, Google Ireland Holdings Ltd, received $388.55 million (€330.5 million) in royalty payments in 2004, its first year in operation.

Royalty payments for intellectual property developed in Ireland are not subject to Irish tax, so the multinational may end up paying relatively little in Irish tax on this income.

The royalty payments were made by another part of the Google company structure that is involved in the sale of advertisements on the internet, the firm's main income source. This company, Google Ireland Ltd, is the Dublin-based operating firm for Google's activities in Europe, the Middle East and Africa.

A Google spokesman said Google's Dublin subsidiaries "comply with good corporate governance and normal tax rules, acting independently and at 'arm's length' when negotiating with each other. This is a standard structure".

An effect of the arrangement is that Google Ireland, the operating company, made an after-tax profit of only €2.74 million on a turnover of €603 million. It had operating expenses of €359 million which are understood to include the royalty payments to the other Irish company. Google Ireland paid Irish corporation tax of €1.6 million.

Earlier this month the Wall Street Journal reported that an Irish subsidiary of Microsoft was helping it reduce its tax bill by at least $500 million annually. The hitherto unknown subsidiary, Round Island One Ltd, made an after-tax profit of $3.8 billion in 2004, and paid $324 million in Irish corporate tax.