We already knew Google was one of the few technology multinationals that had chosen to move high-value offshored intellectual property back to the US rather than land it in Ireland once the double Irish tax scheme came to an end in recent years.

The acquisition of Fitbit now shows that the Silicon Valley giant is also moving existing intangible assets out of this country as global tax rules become clearer for the future – with implications for the Irish Exchequer.

The accounts filed by Google subsidiaries in Ireland in recent days made headlines because of the €218.2 million in “adjustments for corporation tax of prior periods” and associated €127.3 million in interest Google Ireland Ltd paid here last year, apparently in settlement for the double Irish era. 

This may not be the end of it – Google Ireland, after all, was just the Dublin-based half of the group’s double Irish, booking advertising sales across the world and employing thousands of staff here. The other half was Google Ireland Holdings Ltd, a company that owned intangible assets supporting the group’s international business (patents, software licences, goodwill and trade names) until 2019. It charged the Dublin office billions for their use – via the Netherlands – and generated the lion’s share of profits from this arrangement, but did not pay tax because it was tax resident in Bermuda. 

Google Ireland Holdings changed its tax residency to Ireland at the start of this year and has since reported a new $648 million tax liability “which has arisen as a result of tax legislation introduced in 2019 which the company is subject to due to the nature of its principal activity up to November 2019.  The amount is due for payment in 2021.” The legislation in question was not identified.

A Google subsidiary paid over €300m in Irish corporation tax last year – its business is about to end

While Google has repatriated the bulk of non-American intangible assets in its double Irish structure to the US, a portion of its intellectual property has been located in Ireland for the best part of a decade. The so-called green jersey structure, used by many firms in replacement of the double Irish, has run in parallel to it at Google since 2012.

A dedicated subsidiary, Google Europe International Technology Unltd, was formed in Dublin at the end of 2009. Its first published accounts, for 2017, show that it has been paying tax in Ireland. Its business is “the licensing, development, defense and exploitation of intellectual property rights. Turnover is generated from royalty income for providing intellectual property rights to other group undertakings”. It has no employees. 

Last year, Google Europe International Technology’s revenue increased from $3.2 billion to $3.5 billion. After an annual amortisation charge of $603 million, its pre-tax profit was $2.9 billion, leaving it with an Irish tax bill of $363.9 million. Year after year, this company’s tax charge has been broadly in line with that of the group’s main trading company here, Google Ireland – except for the once-off “adjustment” declared by Google Ireland for 2020 above. 

Google Europe International Technology, however, is coming to the end of a cycle. Last week, it reported that its intangible assets (described as “licenses”) had a remaining amortisation period of two years from the end of 2020. As they are amortised over 10 years, this means that these intellectual property assets were brought to Ireland in 2012, at a valuation of around $6 billion.

Once this period expires in the coming months, Google Europe International Technology will no longer be able to write $603 million in annual amortisation charges off its profits under Ireland’s generous capital allowances for intangible assets scheme.

It remains to be seen whether the group then decides to keep this subsidiary in Ireland – along with the hundreds of millions of euros in corporation tax receipts it has been paying to the state.

Last week, the four companies registered in Dublin by Fitbit also filed accounts – for the first time since Google acquired the US fitness device maker at the start of this year.

As previously reported, the two firms had adopted different structures prior to their merger to replace the double Irish. Google had repatriated its intangible assets to the US, where profits from such immaterial exports have enjoyed a tax regime broadly in line with Ireland’s 12.5 per cent rate. This foreign-derived intangible income (FDII) scheme was part of the reform introduced by the Trump administration in 2017.

New tax rules following a global agreement brokered by the OECD this year will increase the rate on these profits to 15 per cent, but how exactly the US will apply this to multinationals headquartered on its soil depends on legislation still awaiting Senate approval in Washington.

Since giving up those intangibles in November 2019, Bermuda-resident Google Ireland Holdings has been largely gutted. The group has fully repatriated its past accumulated profits, of which $55.7 billion were stashed in government bonds at its peak in 2017, and the company has lost ownership of dozens of group subsidiaries. Google Ireland Holdings remains the immediate parent company of a number of non-EU subsidiaries, from the UK to Asia.

Fitbit, which had a similar Bermuda-resident, Irish-registered company to hold its international intellectual property (IP) licence, instead moved it to Ireland in a $346 million transaction in November 2018. The fitness wristwatch company immediately began to amortise it against the sales it books outside the Americas. 

Once Google’s parent Alphabet closed the acquisition of Fitbit on January 14, 2021 it set out to reverse this Irish IP onshoring. In August, Fitbit International Ltd sold its intellectual property licence for $407.2 million to its parent company, which sold it on to another unidentified Alphabet entity outside Ireland – presumably in the US. On that occasion, the value of this intangible asset doubled from where it stood after amortisation in the previous three years.

Just like Google Ireland, the trading company Fitbit International finally left the old Bermuda-resident structure to become a subsidiary of Google Europe, Middle East and Africa Unltd – a new Irish holding company controlled directly from the US and established by Google in 2019 to own its main interests here. 

Non-American sales will remain booked at Fitbit International’s office, manned by 73 employees on Dublin’s Baggot St – but instead of amortising its own IP here, the Irish company will now pay royalties to a related company in the US, splitting any resulting taxable profit between the two jurisdictions.

This is in line with the policy of Google as a whole. The portion of profits associated with the functions performed by its Dublin workforce, such as marketing and sales to European countries, are taxable in Ireland, but the underlying technology and brand are now located in the US.

Click on the map below to download the map of the group’s Irish structure.

Click image to enlarge map

Not that this has arisen yet for Fitbit – the Irish subsidiary of the wearable gadget maker, just like its US parent, was loss-making up until its acquisition by Google. In 2020, Fitbit International posted an operating loss of $203.2 million out of $448 million in sales. Some of these were paper losses intended to shift profits overseas through the amortisation of its IP in Ireland as detailed above, but this accounted for $56.3 million only.

As it cleaned up its balance sheet towards the end of last year prior to the Google deal, Fitbit International received a $364.1 million capital contribution from its parent to finish paying for the acquisition of its IP, but the company still saw most of its valuation erased by a $257.8 million impairment amid falling revenue and mounting losses. 

Google has reinjected a fresh $175 million in Fitbit International since taking it over this year, booking a resulting $313.6 million valuation when the Irish company transferred to Google EMEA in August. 

It is unclear whether the data giant acquired loss-making Fitbit with the intention of turning it around, or simply as a new channel to acquire ever more information about each user’s lifestyle and health and to display content directly on their wrist. If Fitbit ever returns a taxable profit outside America, however, it will now be split between Ireland and the US.

None of this means that Google as a group is scaling back its operations in Ireland – quite the contrary. The latest filings reveal that a new Dublin-based subsidiary, Google Cloud EMEA Ltd, is becoming the group’s regional sales entity for Europe, the Middle East and Africa. It will now book revenue from growing paid-for cloud services such as Google Workspace and Classroom, which have seen their usage explode during the pandemic.