If you’ve ever answered an online questionnaire, from customer feedback to employee satisfaction, you’ve probably used SurveyMonkey’s cloud-based services. The Silicon Valley firm first opened an Irish office in Ballsbridge in 2014, lured to Dublin by the IDA. In March 2019, it announced that it would use Irish data centres to host user information for European customers of its Enterprise business offering. 

We now know that it has based hundreds of millions’ worth of intellectual property (IP) in this country. And thanks to a remarkably transparent set of annual accounts filed by Grant Thornton on behalf of SurveyMonkey Europe Unlimited in the past few days, the full mechanics of the green jersey structure now used by countless US-based multinationals are clearly explained. 

SurveyMonkey Europe sells subscriptions to the firm’s online questionnaire service to customers outside the US. Until the end of 2018, it was part of a typical double Irish structure: its immediate parent was SurveyMonkey Global Holdings Unlimited, a company registered in Ireland but tax-resident in the Isle of Man. The holding company charged SurveyMonkey Europe for the use of the group’s technology and channelled the resulting income to the US in a tax-efficient manner. 

“It was only an economic right, ultimate legal ownership of the IP sits with SurveyMonkey, Inc” in the US, the company explains. The Irish-Manx holding intermediary “only had a beneficial interest being the ability to exploit the IP.”

“The IP was moved onshore”

As previously reported, this tax structure is no longer allowable following Irish and US tax reforms. On January 1, 2019, “the IP was moved onshore,” SurveyMonkey Europe reported. The Irish company bought “all economic rights associated with the non-US intellectual property and technology” from SurveyMonkey Global Holdings for $587 million, which it described as its fair value at the time. 

The company disclosed that it used the income approach, “specifically the multi-period excess earnings model”, to value the asset. This method is common for firms heavily dependent on one technology and consists of estimating the firm’s future cash flows, removing other contributing factors and discounting the remaining sum to present value.

In exchange, the Irish company issued a promissory note for the same amount to its immediate parent. This was apparent on its balance sheet on December 31, 2019, where debts to other group companies had grown to a total of $628 million from just a few million a year earlier.

The next day, January 1 this year, SurveyMonkey merged its Irish-Manx company into its Irish subsidiary, “including all assets and liabilities” (thereby extinguishing the debt between the two), in exchange for the issue of new shares in SurveyMonkey Europe to their next-level parent – another intermediary holding company in the Isle of Man called SurveyMonkey Canopy Ltd.

Accounts for the Irish company in 2019 show what happened after the IP asset was onshored to its balance sheet. There was no effect on revenue – sales continued to increase by 12 per cent year-on-year, reflecting the growth in SurveyMonkey’s international business and topping $100 million for the first time.

Below the top line, however, a lot of things had changed. The cost of sales in 2018 was $24 million – a close match for the $21 million in revenue recorded by the company’s Irish-Manx parent for the exploitation of IP in Ireland. In 2019, SurveyMonkey Europe’s cost of sales was divided by six.

Instead, the Irish company recorded two new operating expenses: 

• A $46 million charge among shared service costs “allocated by SurveyMonkey, Inc to the company for the use of the intellectual property asset” transferred at the start of the year;
• A $29 million amortisation expense, entirely attributable to the same intangible asset. 

The amortisation corresponds to the annual slice of the $587 million new IP rights, which the firm reported have a useful life of 20 years. 

The $46 million represents the Irish subsidiary’s participation within the group’s cost-sharing agreement, an amount rarely disclosed by technology multinationals. It is noticeably higher than the $21 million collected by its former parent in 2018 for access to IP. 

These new charges left SurveyMonkey Europe with a pre-tax loss of nearly $53 million in 2019, compared with a $2.5 million profit last year.  

How does this reflect on the company’s tax bill? As a loss-making entity, it could have been expected to book a tax credit, but the effect of disallowable expenses left it with just $107,495 to pay to the Revenue.

SurveyMonkey Europe also calculated the full effect the future amortisation of its new $587 million IP asset at the corporation tax rate of 12.5 per cent, resulting in a $72 million deferred tax asset. However, this does not appear on its balance sheet – the company immediately recorded an equivalent “valuation allowance” liability, a line used when there is a high chance that a company won’t realise the full value of an asset. 

This seems like a wise move, considering Irish tax law currently allows only up to 80 per cent of the value of an intangible asset to be amortised against taxable income. It may also reflect the fact that SurveyMonkey allows for future changes in the valuation of its IP and the projected income its value will be amortised against.

Siemens puts Mentor Irish unit through $2bn restructuring

Mentor Graphics is a B2C multinational tech company supplying design software to the manufacturers of electronic chips and boards, originally based in the US. Its Irish subsidiary Mentor Graphics Ireland employed 500 people at its Shannon office in Co Clare last year and acted as a holding company for 21 group subsidiaries around the world. Its immediate parent was Mentor Graphics Holdings, a company registered in Ireland and tax resident in the Cayman Islands, typical of the double Irish tax scheme.

Mentor Graphics Ireland had $834 million in revenue and posted an $87.8 million pre-tax loss in 2019. It had $1.6 billion in net assets on its balance sheet as of September 30, 2019 and held the wider group’s intellectual property rights outside the US and Japan. IP rights were governed by a cost-sharing agreement with the wider group since 2016.

Since then, however, there have been a number of changes. German-based Siemens acquired the entire Mentor Graphics group in 2017. Then in the past year, the Irish company reported the transfer of some IP rights to its US group parent, which then sold them on for $700 million. As of June, the share of this transaction to be potentially allocated to Mentor Graphics Ireland remained to be worked out.

Siemens has also been restructuring Mentor Graphic’s corporate structures to achieve “one legal entity per country”. Last month, directors of Mentor Graphics Ireland adopted a resolution reducing the Irish company’s capital by $2 billion and declared: “The purpose of the proposed reduction is to create realised profits for the company of USD $2,071,102,490 which, in turn, will, when applied against the company’s realised losses and taken together with the existing realised profits of the company will create total profits available for distribution of USD $1,629,368,611”.

Such a distribution would signify the repatriation of all the funds available on the Irish company’s balance sheet.

Further reading

How Twitter’s €1bn Irish subsidiary flipped a €6m tax bill into a €23m tax credit