Unlimited number of ways to reduce company tax bill

IN THE case of many multinationals it is unclear where the money goes, or what, if any, tax is paid on it, because the companies use set-ups that are not required to publish accounts. The unlimited company in Ireland is one example.

Adobe headquarters in California. The company employs 120 people in Dublin, 1% of its global workforce; three are engaged in software R&D.

A close examination of one company that does publish accounts — Adobe Systems, one of the world’s largest software groups — gives a detailed insight into one way the centralised permanent establishment (PE) arrangement works.

Adobe markets products to create image-rich content such as the ubiquitous PDF format document. The US is the company’s main centre for research and development, and it operates large R&D facilities in Canada, Germany, Japan, and India. However, the firm also has an office at a business park landscaped with miniature waterfalls, sculpted shrubbery, trimmed lawns, and rockeries on the outskirts of Dublin.

Adobe said this office is too small to be included in the list of owned or leased “principal properties” that it must disclose in its annual filings. It houses two subsidiaries: Adobe Software Trading Ltd, and Adobe Systems Software Ltd. According to Irish corporate filings, Adobe employs 120 people in Dublin, around 1% of its global workforce; three are engaged in software R&D.

Yet Adobe’s Irish operation generated 80% of its non-US income in recent years — more than $500m (€378m) annually in 2010 and 2011. Adobe paid only about $3m a year in Irish income taxes on that profit, as most of it was earned by one of the subsidiaries, Adobe Software Trading Co Ltd — Irish-registered but which its accounts say is “not subject to Irish corporation tax”.

Adobe declined to answer any detailed questions about its tax affairs but added it “seeks to pay the lowest level of taxes owed under the law”. It said it paid “the lawful amount of tax owed” in the countries where it operates and believed in “a fair system of taxation”.

Adobe’s units around the world do have a tax residence in each of their markets, but not as sellers of software. Instead they are “service providers” to the second Dublin subsidiary, Adobe Systems Software. Such an arrangement — where firms in the main markets only declare profit on a support function — is known as the “service PE” model.

Regulatory filings show Adobe has managed an average tax rate on its overseas income of less than 7% in the past three years, which is a fraction of the rates in its main markets.

The Revenue Commissioners declined to comment.

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