The US tax authorities have deepened their scrutiny of the Californian software multinational Synopsys, whose activities in Ireland led to a claim last year for $477 million (€375.9 million) in back taxes.
The US internal revenue service (IRS) claim - which "relates primarily" to the Irish business, according to Synopsys - followed a tax assessment for the fiscal years 2000 and 2001. In accounts newly-filed with the Companies Office, Synopsys reveals it took dividends totalling $424 million its Irish units last year, up from $48.96 million. At the same time, the combined pretax profits at the company's three Irish subsidiaries declined to $133 million from $247 million.
Based in Blanchardstown, west Dublin, Synopsys has been in Ireland since 1999. More than 10 per cent of company's global revenues come from Intel, the computer chip company that has a significant manufacturing operation in Leixlip, Co Kildare. Synopsys is strongly disputing the tax claim for 2000 and 2001, but it said in a filing last week to the securities and exchange commission (SEC) in the US that the IRS had started an examination of its federal tax returns for 2002, 2003 and 2004.
The company's chief spokeswoman at its headquarters in Mountain View, California, described the latest IRS examination as a "standard audit". She said it would "not be appropriate to draw a parallel" between the latest audit and the examination that led to the 2000-2001 claim.
Synopsys has said the tax dispute could take years to resolve. While the firm believes the IRS assessment is "inconsistent with applicable tax laws", its ultimate liability will be much greater than the disputed $476.8 million if the claim is upheld because that sum is subject to interest.
The $477 million tax claim relates to transfer-pricing transactions between the parent company and its Irish business. The IRS did not claim the money until June 2005, so there is a strong possibility that Synopsys continued to use the same transfer pricing arrangements in 2002-2004, the period in question in the latest IRS examination of its tax returns. The possibility of another adverse IRS ruling would increase if the first claim was upheld and if the transfer pricing arrangements at issue were continued.
The firm's spokeswoman said she was unable to provide information about its dividend payments last year from two of its Irish-registered units. In the year to October 2005, a holding company called Synopsys Ireland Ltd paid $360 million. In addition, a research and development company called Synopsys International Old Ltd paid dividends of $64 million. Another company called Synopsys International Ltd did not pay any dividends.
Many US groups in Ireland increased their dividend payments last year to take advantage of a once-off tax concession introduced by US president Bush to encourage US firms to repatriate more profits to their home units.
