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Microsoft Irish subsidiary makes $314.73bn profit

Forget Seattle, Microsoft 'Round Island One' lives in Bermuda

Updated A subsidiary of Microsoft in Ireland that is "resident" in Bermuda for tax purposes has reported a whopping $314.73bn in profit.

Registered in Dublin, Ireland, Microsoft Round Island One recorded $13.6bn in revenue for the 2020 financial year. That was up from $9.9bn a year earlier.

The British island territory, famous for its pink sands, is incidentally not round. Perhaps it's an in-joke among, er, residents.

From 2019 to 2020, the Microsoft subsidiary's profit after tax increased from $9.93bn to $314.73bn "reflecting the gain made upon the liquidation of two subsidiaries," according to documents shared by The Guardian.

The Irish Times, which published the story in May, said the companies sold by Microsoft Round Island One were Microsoft Luxembourg USA Mobile Sarl and MACS Holdings Ltd.

The surplus and assets transferred from the liquidated subsidiaries amounted to $301bn of the profit, and are not taxable under common global tax principles because they are considered an “unrealised gain”*.

Microsoft has said almost all of the remainder of the amount - an operating profit of $13.6bn - was a dividend from an Irish tax-resident company which had been taxed in full in Ireland.

Although the Irish subsidiary paid dividends of $24.6bn, it did not pay tax to the Irish government.

The Guardian said the main purpose of Microsoft Round Island One was to collect licence fees for the use of copyrighted Microsoft software around the world. The financial statement stated the principal activity was the "holding of investments in group companies."

In a statement to the Guardian, a spokesperson for Microsoft said: "Microsoft has been operating and investing in Ireland for over 35 years and is a long time 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."

The profit from the subsidiary is actually more than Microsoft Corp - the parent firm's - total revenue. In July last year, the Redmond giant said in its annual results for 2020 that revenue was $143.0bn, up 14 per cent on the year before. Net income was $44.3bn, up 13 per cent.

The relationship between the Irish authorities, tax and mega tech corporations has at times been strained.

In February, the European Commission published a summary of the grounds it intends to pursue in an appeal against a General Court of the European Union decision which ruled Apple had not received unlawful state aid from Ireland that had allowed it to swerve nearly €13bn in back taxes. ®

Updated to add on 29 June 2021:

* This article has been updated to reflect that $301bn of the profit recorded in the company’s annual financial statement was a transfer of assets resulting from an internal reorganisation - making them “unrealised gains” that would not usually be taxed.

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