Business Technology

Wednesday 13 December 2017

Google shares jump as profits rise defying economic crisis

Graeme Evans

INTERNET giant Google is continuing to defy the economic turmoil after reporting a big jump in profits for the three months to September.

The online search and advertising firm's third quarter net income figure rose 26pc to to 2.7 billion US dollars (€1.96 billion) after revenues climbed 33pc to 9.7 billion US dollars (€7.04 billion).

Shares lifted 6pc in after-hours trading on Wall Street last night as Google's figures countered expectations for a slight slowdown in the company's growth rate.

Chief executive Larry Page said it had been a "great quarter" for the firm, adding that its social network Google Plus now boasted more than 40 million users.

It is the second time that Mr Page has beaten analysts' forecasts since he replaced Eric Schimdt as chief executive six months ago.

Google would have made more money without heavy investment in new projects and staff numbers. The company added nearly 2,600 employees in the third quarter and looks set for the biggest expansion of its payroll in its 13-year history.

Google reported turnover in Ireland of more than €10bn last week but their Irish operation paid just over €5.6m in corporation tax last year, new accounts show.

According to accounts just filed, Google Ireland Limited made a pre-tax profit of €18.5m in 2010, nearly two-thirds less than a year earlier.

The fall in profit meant the company more than halved the amount of corporation tax it paid the State to only €5.6m, down from €5.9m in 2010.

Google routes most of its revenue out of Ireland in a legal tax scheme known as the "Double Irish".

Profit after tax fell to €1.7m compared to €30.2m in 2009 but turnover increased by €2.2bn to €10.1bn.

The rise in turnover was mainly offset by an increase in administrative expenses, which rose from €5.5bn to €7.2bn.

The administrative expenses were described in the accounts as "increase in headcount", "increase in sales" and "an increase in royalties paid as a result of increases in recorded turnover".

They are also said to be a key reason for Google paying so little in corporation tax to the exchequer, despite employing more than 2,000 people at its European HQ in Dublin.

They are said to be a key component in the company's tax scheme, which reportedly transfers profits from the Irish business to a tax haven in Bermuda, thus ensuring the company pays far less tax than it would ordinarily do.

Like a number of companies, Google is said to use the "Double Irish", a tax efficiency that allows profits from a multi-national to be routed through Ireland to a tax haven without being liable for corporation tax in Ireland. The scheme is completely legal and there is no suggestion whatsoever of impropriety in the scheme's use.

Under the tax scheme, Google licensed its intellectual property, such as the search function and advertising methods, to a subsidiary called Google Ireland Holdings (GIH).

This company, while domiciled in Ireland, reports that its management is centred in Bermuda, therefore exempting it from paying tax here.

In turn, Google Ireland Limited, which is the de facto Irish business, paid an estimated €7bn to GIH in royalties for the use of its intellectual property. Because these "administrative expenses" count as an expense against Google Ireland Limited, the company is not required to pay any corporation tax on it.

The vast majority of that €7bn is paid to GIH via a Google holding company in Holland, which prevents triggering a withholding tax in Ireland.

In 2009, €5.4bn of Google Ireland Limited's €5.5bn "administrative expenses", were put through the Double Irish scheme.

Worldwide, in 2010 the company reported net profit of $8.5bn (€6.3bn) on turnover of $29.3bn -- a ratio of 29pc. Google Ireland Limited has a ratio of 0.18pc.

Last year the 'Double Irish' scheme was publicised by Bloomberg News.

The company increased headcount by 126 during the year to just over 1,500 and is expected to increase its staff to more than 2,000 after purchasing the Montevetro office block from NAMA earlier this year.

It is one of the most desirable employers in the country, with pay and conditions that are generally regarded as exceptional, although long working hours are accepted.

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