Symantec, the embattled maker of Norton antivirus software, disclosed on Tuesday that it owes more than $900 million in back taxes as a result of its $10.25-billion acquisition of Veritas Software. Penalties and interest could bring the total close to $1 billion.
Symantec said that it intends to contest the claim.
|Symantec was founded in 1982 and now employs more than 15,500 people around the world.|
Symantec received a notice of deficiency on March 29th from the IRS (Internal Revenue Service) claiming the company owes additional taxes, plus interest and penalties, for the 2000 and 2001 tax years, based on an audit of Veritas, which it acquired last July.
The claim relates to transfer pricing in relation to a technology license agreement between Veritas and a foreign subsidiary in Ireland.
Veritas Software International established an EMEA Operations Support team in Shannon, Co. Clare in 1999. Phase 1 of the centre focused on the delivery of customer service solutions in Inventory and Fulfilment, Credit and Collections and Multilingual Order Processing. Phase 2 of the centre focuses on customer service and multilingual support.
In a separate tax audit, the IRS is claiming $100 million in back taxes relating again to transfer pricing matters between Symantec and its foreign subsidiary in Ireland.
Genevieve Haldeman, Symantec’s vice president of corporate communications, said that the tax issues related to two different tax audits on the pre-merger companies. She said that the IRS notices related to transfer pricing of intellectual property, in effect licensing technology from the Symantec parent company to its Irish affiliate to sell outside of the Americas.
“Effectively what the IRS is saying is that separately both Symantec and Veritas undervalued the technology license that was used in the international subsidiary,” she said. “They believe it should be valued at a higher rate, and given their valuation, we owe additional taxes.”
The tax bills are the latest in a raft of bad news since the December 2004 announced merger between Symantec and storage software maker Veritas. The stock price is down 40 per cent and the post-merger group is haemorrhaging senior management talent.
The tax charge of $1 billion from a cash balance of $2.84 billion would reduce it to $1.84 billion, or $1.68 per share compared to $2.59 per share at current earnings.
Irish Tax Haven
The Irish subsidiary Symantec Ltd booked a pre-tax profit of €253 million on turnover of €679 million, according to its latest available accounts to April 2004. The accounts also reveal that the Irish subsidiary paid a dividend of €110 million to its US parent. Symantec employs about 600 staff in Blanchardstown, Dublin.
US companies such as Symantec, use the zero Irish tax on royalty income and low corporate tax regime, to reduce their tax bill by boosting transfer pricing to other foreign subsidiaries coupled with royalty income transfers into Ireland.
Last November, The Wall Street Journal wrote that "a law firm's office on a quiet downtown street [in Dublin, Ireland ] houses an obscure subsidiary of Microsoft Corp. that helps the computer giant shave at least $500 million from its annual tax bill. The four-year-old subsidiary, Round Island One Ltd., has a thin roster of employees but controls more than $16 billion in Microsoft assets. Virtually unknown in Ireland, on paper it has quickly become one of the country's biggest companies, with gross profits of nearly $9 billion in 2004."
Ireland's low corporate tax rate of 12.5% on trading profits has been a magnet for multinational companies who are responsible for 90% of Irish exports and a significant contributor to the success of the modern Irish economy, commonly known as the Celtic Tiger.
In addition, an Irish tax exemption on patent income, has promoted the parking of US multinational company overseas profits in Ireland, through transfer pricing and other accounting measures. Ireland is the most profitable location of US multinationals and in the period 1998-2002, the profits of US companies with Irish facilities doubled.
The US Treasury Department is working on rules to halt a tax abuse involving US companies transferring intellectual property and patents to overseas tax havens, Treasury Secretary John Snow said in February.
"We feel the existing rules have not been effective at getting at this problem," Snow told the Senate Finance Committee.
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