During 2021, the San Francisco-headquartered customer engagement technology provider Twilio nearly doubled the workforce of its international headquarters in Dublin to 229 employees. Their employer, Twilio Ireland Ltd, “is the principal international entity for Twilio outside the United States of America (USA) and it continues to develop and exploit Twilio’s intellectual property outside of the USA and Brazil, following the acquisition of certain intellectual property from Twilio IP Ltd on 30 December 2020,” its directors reported in the company’s latest filings.

The Currency revealed the 2020 transaction last year, detailing an unusual structure whereby Twilio Ireland acquired €1.6 billion worth of IP via Twilio ROW, a new subsidiary it had established in Bermuda. The Irish company, in return, owed the same amount in intercompany debt to its Bermuda subsidiary.

The move occurred 24 hours before a regulatory deadline to end so-called double Irish tax structures, whereby Twilio used to hold its international IP rights in Twilio IP Holding, an Irish-registered, Bermuda tax-resident company. Twilio IP Holding has now disclosed that “on 1 January 2021, the company became tax resident in the Republic of Ireland” – but only after transferring its intellectual property to Twilio Ireland via the Twilio ROW intercompany debt deal in Bermuda.

So, what has the new structure achieved after one year in operation?

In 2021, Twilio Ireland booked €87.6 million in revenue. While this was more than double the previous year’s figure, it accounted for less than 10 per cent of the group’s sales outside the US. The Irish-based workforce, too, represented just under one-tenth of Twilio’s international operations. This indicates the share of the group’s business outside the US and Brazil attributed to the intellectual property component located in Dublin.

As planned, Twilio Ireland began to amortise the “patents, trademarks and licences” in its IP portfolio last year, recording a €63.5 million charge. This was the largest single identifiable cost in its annual accounts. Amortisation of the €1.6 billion asset it acquired in December 2020 is scheduled to last in this way for 25 years.

This cost was part of a much larger “administrative expenses” line, which nearly tripled to €259.5 million last year and was not detailed. This is likely to include further payments for access to technology made directly to the US. The Irish company’s costs also include its role as “agent” of the group to source some of the telecommunications capacity needed to carry its mobile phone-based services, but again this was not detailed.

The bottom line is that Twilio Ireland went from a profitable position in 2020 to a €212.7 million pre-tax loss last year. 

“Unrecognised losses carried forward”

As a result, the company had to give up the tax benefit of its €63.5 million amortisation deduction from profits – for this year. Ireland’s Capital Allowance for Intangible Assets (CAIA) scheme allows deductibility only up to 80 per cent of trading profits in a given year, and Twilio Ireland was not profitable last year. As a result, the corresponding €8 million appears as a charge in its tax account, described as the “effect of capital allowances and depreciation”.

However, under Irish tax rules, this unused tax benefit can be carried forward indefinitely for use against future taxable profits. Between this and the effect of other undisclosed tax deductions carried forward, Twilio Ireland paid €65,709 in corporation tax last year but ended the year with €18.6 million worth of “unutilised losses carried forward”. This potential benefit, however, was qualified as “unrecognised”: “The company has note recognised a deferred tax asset on the basis that there is insufficient evidence of future taxable profits being available against which the losses or credits can be utilised,” its accounts noted.

On the debt side, the Irish company had not started to repay the  €1.6 million owed to its Bermuda subsidiary at the end of 2021. It also reported that this debt was “unsecured, interest-free and repayable on demand”. While the payment of interest to Bermuda would technically be allowable as tax-deductible expense under CAIA rules, Twilio does not seem to be going down that route – at least for the moment.

The amortisation of IP and the consolidation of other tax-deductible expenses in Ireland, however, appears as a central plank of Twilio’s global strategy when comparing accounts filed here with those reported to the New York Stock Exchange. While the revenue booked in Ireland represented less than 10 per cent of the group’s international sales last year, Twilio Ireland’s pre-tax loss was an exact match for the entire loss attributed to the “international” segment in the group’s consolidated accounts.

Meanwhile, as of December 31, last year, Twilio Ireland’s patents, trademarks and licences had a value of €1.5 billion net of amortisation to date. Extraordinarily, this was much higher than the total $1 billion net value reported by Twilio headquarters for similar amortisable intangible assets owned by the entire group. The Currency has contacted Twilio seeking an explanation for this discrepancy.