An Irish subsidiary of Microsoft recorded a profit of $315bn (£222bn) last year.
The profit generated by Microsoft Round Island One is equal to nearly three-quarters of Ireland’s gross domestic product – even though the company has no employees.
The subsidiary, which is resident for tax purposes in Bermuda and collects licence fees for the 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.
The company’s profits jumped from just under $10bn in the previous year and compare with Ireland’s 2020 GDP of €357bn ($433bn).
The majority of the profit - $301.1bn - related to the surplus and assets transferred from two liquidated subsidiaries, Microsoft Luxembourg USA Mobile SARL and MACS Holdings Limited, which the Guardian understands is not taxable under common global tax principles as an “unrealised gain”.
Microsoft 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.
News of the wealth gained by Microsoft Round Island One comes as finance ministers attempt to hammer out an agreement to tackle multinational tax avoidance in London on Friday, ahead of the G7 meeting in Cornwall 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, Cyprus, which like Ireland has a 12.5% corporate tax rate, threatened to veto the EU’s adoption of Joe Biden’s proposal on Thursday.
Microsoft Round Island One, the registered address of which is at an office of the law firm Matheson in Dublin, states in its accounts that it has “no employees other than the directors”.
In the tax statement, the company 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.
The US Senate 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.
Carl Levin, who chaired 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.”
Microsoft, Amazon, Facebook, the Google owner Alphabet, Netflix and Apple have been accused of paying $96bn less in tax over the past decade than the figures they cited in annual financial reports would seem to entail.
The companies paid $219bn in income tax, just 3.6% of their total revenue of more than $6tn. Income tax is paid on profits, but researchers said the “Silicon Six” were deliberately shifting income to low-tax jurisdictions in order to pay less tax.
This article was amended on 16 June 2021 to clarify that $301bn of the profit recorded in the company’s annual financial statement was a transfer of assets resulting from an internal reorganisation and that such “unrealised gains” would not normally be taxed. The article has been corrected and revised accordingly, including the addition of Microsoft’s position on the operating profit.
