Microsoft Irish subsidiary paid zero corporate tax on £220bn profit last year
Microsoft Round Island One is ‘tax resident’ in Bermuda, with no employees except directors
An Irish subsidiary of Microsoft made a profit of $315bn (£222bn) last year but paid no corporation tax, as it is “resident” for tax purposes in Bermuda.
The profit generated by the company, Microsoft Round Island One, is equal to nearly three-quarters of Ireland’s entire gross domestic product (GDP) – even though it has zero employees.
The subsidiary, which collects licence fees for use of copyrighted Microsoft software around the world, recorded an annual profit of $314.7bn in the year to the end of June 2020, according to accounts filed at the Irish Companies Registration Office. Its profits jumped from just under $10bn the previous year and compare with Ireland’s 2020 GDP of €357bn ($437bn).
The revelation of how much money Microsoft has saved by routing via Ireland comes as finance ministers from around the world attempt to hammer out an agreement to tackle multinational tax avoidance in London on Friday, ahead of the G7 meeting in Cornwall later this month.
The US has proposed tackling the issue of profit shifting to low-tax countries by introducing a global minimum 15% corporate tax rate on multinational company profits in all jurisdictions. It is expected to be endorsed in principle by the finance ministers of the world’s seven largest economies at the G7 meeting. However, on Thursday, Cyprus, which like Ireland has a 12.5% corporate tax rate, threatened to veto the EU’s adoption of President Joe Biden’s proposal.
Politicians on both sides of Irish Sea attacked Microsoft for “unashamedly and blatantly refus[ing] to pay tax” and said the case highlighted why urgent coordinated international action was needed to tackle the epidemic of “unethical, immoral and unjustifiable” tax avoidance by multinational firms.
Microsoft Round Island One, whose registered address is at an office of the law firm Matheson, on the River Liffey in central Dublin, states in its accounts that it has “no employees other than the directors”. In its tax statement it says: “As the company is tax resident in Bermuda, no tax is chargeable on income.” Bermuda does not levy corporation tax.
The company paid a $24.5bn dividend to Microsoft Corporation during the financial year, followed by a further special dividend of $30.5bn.
Margaret Hodge, a Labour MP who has long campaigned against tax avoidance, said: “It is unsurprising – yet still shocking – that massively wealthy global corporations openly, unashamedly, and blatantly refuse to pay tax on the profits they make in the countries where they undertake business.
“It is arrogant behaviour from large organisations like Microsoft that demonstrate how vital and necessary President Biden’s global corporate tax plan is. The UK must unreservedly grasp this opportunity to embrace Biden’s proposals.”
Ged Nash, finance spokesperson for Ireland’s opposition Labour party, described Microsoft’s use of Ireland’s lax tax laws as “extraordinary”.
“A system that allows arrangements like this to exist is unethical, immoral and unjustifiable and needs to change radically,” he said. “This does not sit well with Irish citizens and it does not sit well with me. This should galvanise Ireland and the international community behind the global demand for significant corporate tax reform.”
Nash said Microsoft had been a good employer in Ireland, but this should not give the company licence to exploit arcane tax structures. “Reputationally this is very, very damaging for Ireland.”
The US Senate has previously investigated Microsoft and Ireland over the use of Microsoft Round Island One and other Irish subsidiaries in order to reduce taxes that might otherwise be due in the US or elsewhere.
A former senator, Carl Levin, who was chairman of the permanent subcommittee on investigations, said in 2012 that Microsoft and other tech companies were “probably the number one user of these offshore entities to transfer intellectual property”. The committee said Microsoft began in the 1990s to establish a “complex web of interrelated foreign entities to facilitate international sales and reduce” tax.
A spokesperson for the company said: “Microsoft has been operating and investing in Ireland for over 35 years and is a longtime taxpayer, employer and contributor to the economy. Our organisational and tax structure reflects our complex global business. We are fully compliant with all local laws and regulations in the countries where we operate.”
Paul Monaghan, chief executive of the tax transparency campaign group the Fair Tax Foundation, said: “The tax aggression being displayed by Microsoft, and facilitated by Ireland, is beyond belief.
“We have here a holding company that has posted $314.7bn in profits, which is a number not far short of Ireland’s entire national gross domestic product. Despite shareholder dividends of $55bn being paid out, not one cent in tax has been paid.
“This race to the bottom on tax competitiveness is truly distasteful, not least at a time when countries across the globe are trying to rebuild their public services post-Covid. It is no longer tenable for a decent and responsible nation state to stand up and proclaim its democratic right to produce CFCs or lead additives, and beggar the impact on the rest of the world. The same goes for the enablement of tax avoidance and evasion, which are toxic pollutants of the world’s financial systems.”
Conor O’Neill, of Christian Aid Ireland, said the revelations about Microsoft’s tax affairs shone a fresh spotlight on Irish tax policy that “has been designed precisely to facilitate this kind of avoidance”.
“Successive [Irish] governments have taken a whack-a-mole approach to reform: if one scheme shuts down, another opens up to replace it. Extensive tax breaks and allowances still enable some of the most profitable companies in the world to funnel profits through Ireland and shelter them from tax, and the fundamental policy of facilitating avoidance remains.”
O’Neill said the known tax avoidance costs developing countries more than $400bn a year, money that is badly needed for investment in healthcare and education. “For comparison, this is more than twice the yearly total given in official overseas aid across the world,” he said. “Ireland’s role is doubly disappointing for this reason - our hard-earned reputation as a voice for global justice and development is badly undermined by it.”
Justin Thacker, director of Church Action for Tax Justice, said: “The way big multinationals engage in tax dodging globally is a moral and social scandal. Over 10,000 people are still dying daily from Covid across the globe. Yet our largest firms continue to dodge the taxes they owe. That money could be used to solve this pandemic in every country in the world. So if we truly want to build back better, we could begin by fixing our global tax system to ensure that everyone pays their fair share.”
The giant US tech firms known as the Silicon Six – Microsoft, Amazon, Facebook, Google’s owner, Alphabet, Netflix and Apple – have been accused of paying $96bn less in tax over the past decade than the figures they cite in their annual financial reports would seem to entail.
The Guardian reported this week that the companies paid $219bn in income tax over the past decade, which works out at 3.6% of their total revenue of more than $6tn. Income tax is paid on profits, but the researchers said the Silicon Six companies were deliberately shifting income to low-tax jurisdictions in order to pay less tax.