Microsoft's Round Island One unit is Ireland's most profitable company, taking advantage of a tax rate that's half the European Union (EU...

Share story

Microsoft’s Round Island One unit is Ireland’s most profitable company, taking advantage of a tax rate that’s half the European Union (EU) average.

The unit, which manages Microsoft’s European operations, reported a pretax profit of $3.84 billion in 2004, according to Dublin-based BusinessPro, a provider of Irish business information. Round Island One is one of five U.S.-owned companies in the top 10 of the survey.

Ireland uses a 12.5 percent tax on earnings to attract overseas investment from companies such as Microsoft and Intel. That compares with an EU average of 25 percent.

The country, which opposes proposals to harmonize EU tax rates, also offers tax breaks on research-and-development spending.

Most Read Stories

Unlimited Digital Access. $1 for 4 weeks.

“It’s normal for a company to structure its business in such a way as to pay all due taxes, but not more than required by law,” Microsoft Ireland said. “We are regularly audited by major tax jurisdictions, which ensure the company is complying with all rules and regulations.”

Successive Irish governments slashed the corporate tax rate to 12.5 from 47 percent in 1988 to lure foreign investment. That has increased the Irish treasury’s tax take.

Ireland’s corporate-tax revenue last year climbed to $6.34 billion, or 15 percent of the total amount of taxes collected, from $505.8 million, or 4.6 percent, in 1988.

The IRS is concerned about the way some U.S. companies structure their tax arrangements in Ireland to take advantage of the lower rate, The Wall Street Journal reported on Nov. 7, citing an unidentified spokesman at the agency.

Irish Finance Minister Brian Cowen said in October that changing the country’s tax rate is “non-negotiable.”

“Microsoft pays all due taxes, as required by law, worldwide,” the company said. “Subsidiaries are fully subject to tax in the jurisdictions in which they operate.”