The US Internal Revenue Service (IRS) is seeking almost half a billion euro in back tax from a US multinational with operations in Ireland, writes Colm Keena, Public Affairs Correspondent.
Synopsys Inc, which designs software used in making computer chips, was told earlier this year that it owes $476.8 million (€406.2 million), plus interest, arising from transactions between the parent and an Irish subsidiary.
The IRS told the company the adjustment related primarily to "transfer pricing transactions" in 2001. Transfer prices are the prices charged by the company on items sold within the group, and it is possible for companies to use transfer pricing to record profits in countries with low tax rates.
The Republic's corporate tax rate of 12.5 per cent is one of the lowest in Europe, while the US rate is 35 per cent.
A report this week from the National Competitiveness Council will trenchantly defend the Republic's corporate tax regime, which is the cause of friction with other EU states. It will argue that the revenues generated have allowed other tax rates to fall and funded much-needed investment.
The NCC, which reports annually to the Taoiseach, will recommend that these policies be reinforced, according to a draft seen by The Irish Times.
The claim against Synopsys "relates primarily to the establishment of our Irish subsidiary, which sells products outside North America", acting chief financial officer with Synopsys Rex Jackson told investors recently.
Synopsys Inc's Irish operation, Synopsys Ireland Ltd, is located in Blanchardstown Corporate Park, Dublin, and began trading in November 1999. In August 2000 it acquired Synopsys's subsidiaries in Europe and Asia Pacific and became the headquarters for the company's operations throughout Europe and Asia.
Its most recent set of accounts, for 2004, show it made a profit after tax of $152 million. The group as a whole reported profit after tax of $74 million in that year.
Mr Jackson told investors that the IRS, in claiming that Synopsys had undervalued the transaction involving the Irish subsidiary, "has asserted theories we strongly believe are inconsistent with the applicable law".
Transfer pricing by multinationals is just one of a number of activities of concern to the US authorities. The IRS and the Treasury Department have also been looking at the movement of intellectual property such as patents from the US to lower tax locations such as Ireland, which can also allow multinationals cut their global tax bills.
In September a US tax court ruled in favour of technology company Xilinx in relation to dealings between it and its Irish subsidiary, Xilinx Ireland, in the late 1990s, which had been contested by the IRS.