Google Ireland Holdings Ltd - a subsidiary of the US internet search company - spent $120.5 million (€102.5 million) on research and development in its first full year of operation, according to accounts just filed.
A spokesman for the US multinational said Google Ireland Holdings Ltd was "in effect a start-up" in 2004 and invested heavily in research and development. "Google Ireland Holdings Ltd expects its revenue to exceed expenditure in the coming years," he said.
The company owns some of Google's intellectual property and is part of a structure that saves its parent millions in tax.
The accounts filed in Dublin show it made a loss of $46.65 million (€39.7 million) in 2004. It received royalty income of $388.55 million. The spokesman said he could not elaborate on the issues of research and development, and royalty payments, for competitive reasons.
Google Ireland Holdings was incorporated in April 2003 and received its first royalty payments in 2004. It receives royalty payments from Google's operations in Europe, the Middle East and Africa. Google Ireland Ltd is the operating company for these activities.
Royalty payments on intellectual property developed in Ireland are not subject to Irish tax.
The Google Ireland accounts for 2004 show it employed an average of 152 people during 2004. The Google Ireland Holdings accounts do not mention the number of employees it had in 2004. The Google spokesman said Google now employs approximately 500 people in Ireland but did not know how many of these are employed by Google Ireland Holdings.
Google Ireland Ltd has its registered offices at the Google headquarters in Dublin, on Barrow Street. Google Ireland Holdings Ltd has its registered offices at 30 Herbert Street, the address of Matheson Ormsby Prentice, solicitors (Mops). Dublin-based Mops has offices in a number of locations abroad, including Palo Alto, California.
Its website states that partner Don McAleese was recently involved in, among other matters, "advising one of the world's largest internet search engine companies on the establishment and running of its Irish operations".
Mr McAleese resigned as a director of Google Ireland Ltd early in 2004.
Mops is also solicitors to Round Island One Ltd, the Dublin company that helps Microsoft reduce its global tax bill by up to $500 million annually.
The huge R&D spend recorded on the Google Ireland Holdings 2004 accounts meant it made a loss that year of $46.65 million. However it expects to soon become profitable and may already be profitable.
Google Inc's quarterly filings in the US began recording a reduced effective tax rate from the first quarter of this year and attributed the change to Ireland.
"Our effective tax rate beginning in the first quarter of 2005, and for the foreseeable future thereafter, is expected to be significantly lower than our effective tax rate of 39 per cent in 2004," the company said when filing its 2004 results. The change was attributed to its new Irish subsidiary.
In its second and third quarter filings this year the effective tax rate was 31 per cent. The change could save the company approximately €100 million a year in taxes.
Google Inc's operation in Dublin is its largest outside the US. Its spokesman said the royalty payments arrangement is considered good tax practice by multinationals and is the way a lot of multinationals structure their operations.
He said Google's operations outside the US were growing.
The US Treasury Department and the US Internal Revenue Service are said to be looking at how US multinationals are moving intellectual property to Dublin and making related tax savings.
