Profits at Microsoft’s Irish division fell last year, despite an increase in turnover, accounts for the company showed.

Pretax profit for the year to June 30th last fell by almost 22 per cent to just under €772 million, down from almost €987 million a year earlier.

The accounts, filed by Microsoft Ireland Operations Limited (MIOL) and seen by The Irish Times , show a dramatic drop in the dividend paid by the Irish operation to its US parent company from €4.95 billion in 2012 to €502 million last year.

The decline in pre-tax profits came despite a 9.5 per cent rise in revenue from €13.7 billion in 2012 to just over €15 billion last year.

About €122 million came from sales in the State, with €11 billion generated from the rest of Europe. However, the company saw its cost of sales rise to €1.7 billion, with administrative expenses rising to €12.5 billion from €11.1 billion a year earlier.

It is understood that the increase in the cost of sales reflects in part Microsoft’s move to become a service and devices company, following its launch of its Surface tablets and Windows Phone.

Microsoft launched its Windows 8 operating system in October 2012, with its Surface tablets following in Ireland in February 2013. That helped to lift revenue at the Irish business, helped by an improving economic climate.

Cloud clout
A further contributor to revenue was Microsoft's cloud services, which have formed an important part of the company's global strategy in recent years, and under new chief executive Satya Nadella, look set to continue to do so.

The elevated administrative costs in the accounts are understood to be due to a reclassification, which also saw distribution costs reduced significantly into the financial statement.

The Irish division paid more than €98 million in tax in Ireland in the fiscal 2012/13 year, down from more than €132 million the previous year. It paid an average of about 12.5 per cent in corporation tax to the exchequer.

Profit after tax amounted to almost €673 million, compared with €879 million a year earlier.

In the accounts, MIOL said a number of tax audits in European countries were ongoing, which could affect its financial results, but it believed its operations were fully compliant with all tax rules and regulations.

Legal action
Microsoft is also facing legal action from Motorola over intellectual property rights prior to the year-end covered in the accounts.

MIOL currently employs just over 700 people. It is only part of the company’s Irish operations. Microsoft also has a research and development division based in Dublin, and a software licensing division.

Microsoft is seeking to move its Irish staff into a campus-style Irish headquarters, since it has only a few years left to run on its leases in two adjoining buildings known as the Atrium.

A decision on where this will be located has not yet been finalised, but it is believed that Microsoft wants to stay in the vicinity of its current location in Sandyford, south Dublin.

It has also announced plans to expand its data centre facilities in Dublin.