US software group Cadence Design Systems has reported a pretax loss of $11.39 million (€8.04 million) for 2006 at its main Irish holding company, reversing profits of $364.76 million in the previous year.
The holding company in question - Castlewilder - paid out dividends of $451 million to its Californian parent in 2005 to take advantage of a once-off tax break for US groups on profits repatriated from their foreign subsidiaries. The company's accounts indicate that it did not pay any Irish corporation tax in 2005 or 2006.
Castlewilder is the immediate parent of 27 Cadence subsidiaries in Europe, Russia, Bermuda and Asia. Its ultimate parent in San José is disputing two tax claims from the US Internal Revenue Service (IRS) totalling $461 million, some $309 million of which relates to transfer pricing arrangements with an unnamed foreign subsidiary of the Cadence group.
Stating that Cadence was in a "quiet period" in advance of quarterly results tomorrow, a spokeswoman for the group would not comment when asked whether media reports linking dealings in its Irish operations to the tax claim were accurate.
The latest accounts for Castlewilder, whose registered office is at Spencer Dock in Dublin, show it took out an unsecured term loan from Banc of America Securities LLC for $160 million in December 2005 to part-finance its 2005 dividend, which was made under the American Jobs Creation Act.
After making quarterly payments on the loan last year totalling $32 million and an additional prepayment of $100 million, the holding company repaid the outstanding balance on the Banc of America loan last March.
In November 2003, the IRS found that Cadence had a tax deficiency of $143 million. Cadence said in its last quarterly report to the US Securities & Exchange Commission that "the most significant of the disputed adjustments" for the tax years 1997 through 1999 related to transfer pricing arrangements the group had with a foreign subsidiary.
The IRS made a tax claim for $324 million in respect of the 2000-2002 period last July, but reduced the claim to $318 million in November. Some $166 million of that claim was "primarily related to proposed adjustments to Cadence's transfer pricing arrangements that it had with foreign subsidiaries and to Cadence's deductions for foreign trade income".
