On January 20, 2023, Sundar Pichai, the chief executive of Google and its group parent Alphabet, announced 12,000 redundancies worldwide. His explanation was the same as that given by other Silicon Valley bosses making job cuts in the past year: “Over the past two years we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today,” he wrote to employees.

At the time, the 2022 annual accounts released to the Nasdaq Stock Market two weeks later were already on Pichai’s desk. They showed a slowdown in the breakneck revenue growth recorded during the pandemic, and a reversal of profit growth with operating margin falling from 30.5 to 26.5 per cent. Last year’s jump in global interest rates had also wiped $4.7 billion (€4.5 billion at the 1.04 exchange rate used in some group filings) off the book value of cash reserves the tech giant held as bonds. On the day of publication of Alphabet’s results, its share price fell by 6.5 per cent.

Financial information for 2022 is now available from Google’s 27 Irish subsidiaries. Analysis by The Currency shows that 12 of them recorded financial flows in the millions or more last year, with just a handful playing a significant role in terms of booking profits, paying tax and employing Irish-based staff. 

This results from several years of corporate restructuring that have seen the group dismantle its previous double Irish arrangement across Dublin, Bermuda and the Netherlands; integrate acquisitions like Fitbit, Nest and Pointy; and split the trade it conducts out of Ireland between three business units.

The largest company, Google Ireland, is now focused on advertising sales east of the Atlantic. It also owns data centres in Grange Castle outside Dublin, provides customer service across Europe and employs staff for its own needs and those of other Irish group companies.

Despite surrendering other business lines to sister companies, its revenue grew by nearly €8 billion to €72.6 billion last year. This was equivalent to more than one third of Google’s global advertising sales. When it comes to profit, however, figures moved in the opposite direction. Earnings fell by €848 million to just under €2 billion. In particular, Google Ireland booked a €1 billion provision “for ongoing legal matters relating to regulatory compliance inquiries that have been initiated by regulators”.

Last year was the first full period when a separate Irish company, Google Cloud EMEA, booked the business attached to data hosting and the paid-for versions of online tools like Workspace and Drive, after it began trading mid-2021. It generated €5.5 billion in revenue in 2022 but this was a much lower-margin business than advertising, returning just €108.3 million in pre-tax profit.

The third business unit, lodged in Dublin company Google Commerce, recorded the trade in physical electronic devices as well as transactions via the Play Store. Its revenue continued to grow rapidly to €2.7 billion, boosted by the integration of acquisitions like Fitbit and Nest where legacy structures continued to be hollowed out. Yet profit growth at Google Commerce was modest, adding just over €1 million to €21 million last year.

One significant Irish group company, Google Europe International Technology, holds the minority of intellectual property rights that were not transferred to the US when the group ended its use of the double Irish scheme. It collects royalties from other group companies and amortises the value of this IP against taxable profit, operating a mini green jersey structure for limited technology assets. This is different from rivals like Microsoft, who has chosen instead to maximise its intangible assets and taxable profits in Ireland.

Last year, its revenue declined by more than half to $2.4 billion after some of those royalty rights expired. Correspondingly, it could deduct $264 million in amortisation charges, compared with over $600 million in previous years. This left it with a pre-tax profit of $2.2 billion, half as much as in 2021. 

Profits down over 40 per cent

Google does not produce consolidated accounts for its Irish operations, but its new structure allows a clear reading of its business in this country. Revenue comes in through its three main customer-facing companies – Google Ireland, Google Cloud EMEA and Google Commerce – along with a small stream from Google Payments and residual turnover via subsidiaries under integration from previous acquisitions.

Together, they grew their revenue by 16.9 per cent in 2022, from €69.4 billion to €81.2 billion.

Other Dublin-based group companies conduct inter-company trade, such as Google Europe International Technology’s IP royalties or those providing data infrastructure. While they do not generate sales from outside customers, they book their own profits and should be included to get a full view of the earnings booked in Ireland. 

This combined profit from Google’s trading companies fell by 42.3 per cent, from €7.4 billion in 2021 to €4.3 billion last year.

This didn’t stop them from paying dividends back to their US parents. After minor distributions only in 2022, Google Ireland reported paying a €5 billion dividend to its Irish parent Google Europe, Middle East and Africa this year, which in turn distributed a corresponding $5.1 billion of this to the group’s Californian headquarters.

Meanwhile, Google Europe International Technology, which is held directly from the US, made its own distributions of $3.5 billion in 2022 and $1 billion this year. This brings the total dividends Irish companies paid to US parents in the past two years to €9.2 billion. This level of distribution reflects the profits accumulated in the pandemic years and cannot continue, as it amounts to more than twice the profits generated by Google in Ireland last year.

The importance of a multinational like Google to the Irish economy is reflected in the number of jobs it creates and the tax it pays in this country. On those two fronts, there have been signs that growth was stalling, too – though with a time lag.

Google’s Irish-based workforce has been employed by Google Ireland, gradually transferring some of its staff to Google Cloud EMEA, and a handful of people that have now moved from acquired Fitbit subsidiaries. Across those entities, the annual average number of direct employees rose from 4,386 in 2021 to 5,203 last year, pushing the group’s Irish payroll above €1 billion for the first time.

The group announced 240 redundancies in Dublin following Pichai’s January announcement, but this was reduced to under 200 after the consultation process. A smaller number of job losses among recruiters in the autumn did not make the threshold for collective consultation. A company spokesperson said in September: “We continue to invest in top engineering and technical talent while also meaningfully slowing the pace of our overall hiring.”

Overall, around 200 people have therefore lost their jobs at Google this year, bringing its staff back near the 5,000 mark – still higher than any previous time outside the brief 2022 peak. With temporary workers and outside contractors, over 9,000 people are understood to continue working at Google. 

It is on the tax front, however, that the slowdown has appeared most strikingly. In 2021, the 12 Google companies with any significant profits paid a combined €994.9 million in corporation tax. Last year, this fell by a quarter to €756 million. Yet this drop has not yet reflected the full reality of reduced profits. 

While the central company Google Ireland saw profit decline last year, its tax bill actually increased to €428.2 million as a result of non-deductible expenses, which were not detailed. Meanwhile, a subsidiary called Chronicle Security Holdings reported a $31.7 million tax charge after booking a once-off gain on the transfer of its cyber-security subsidiary to another group parent. These tax liabilities are unlikely to be repeated.

Google Europe International Technology, meanwhile, was the group’s largest taxpayer in Ireland in 2021, but its dwindling stock of intellectual property rights more than halved its tax bill to €268.2 million last year, in line with profits. The current trend is that this company will gradually contribute less and less as the group completes its repatriation of IP assets and associated taxable profits to the US.

Google Cloud EMEA, meanwhile, has yet to become a major taxpayer with just €15.4 million in corporation tax due in its first full year of operation. 

Halting the slide

Alphabet’s quarterly results to the end of September show that Google has halted the slide this year. Revenue kept growing, with the EMEA region run out of Dublin increasing its share by one percentage point. The group’s operating profit margin was exactly the same as this time last year, which points to a potential improvement by year-end, while it remains far from the 2021 high.

Investors have hailed the signs of improvements, pushing Alphabet’s share price well above the ground lost at the time of annual results in February.

If confirmed, this trend should result in the stabilisation of Google’s Irish operation into a slower-growing business focusing its recruitment on highly skilled workers. As for its corporation tax contribution, it remains to be seen whether the limited-profit functions it has been cementing in Ireland grow fast enough to make up for the end-of-life of residual, higher-profit intellectual property the group will finish working through in the coming years.

Further reading

If corporation tax were a burning platform, where would we jump, and how much would that hurt?