Facebook sets up Irish subsidiary

Facebook is moving all its non-US revenues from its credits business – understood to comprise mainly games credits – to a new Irish subsidiary, according to accounts just filed.

Facebook Payments International Ltd was incorporated in March 2011; accounts just filed for its operations up to December 31st, 2011, show it did not trade during that period.

However, the accounts say the company was established with the intention of “transitioning the Facebook credits business from Facebook Ireland Ltd in 2012. The entity will be responsible for all revenue and related costs of the credits business of Facebook outside of the US.”

Targeted adverts

Facebook Ireland Ltd bills third-party customers for targeted advertisements on its website but also earns income from a credits system. Its revenue jumped to more than €1 billion during 2011, from just €229 million in 2010. Despite this huge revenue jump, it lost €18.37 million in 2011 before taxation, having made €1.9 million the previous year.

The main reason was the corresponding leap in charges it had to pay to its immediate parent, Facebook Ireland Holdings, an unlimited company owned by Facebook entities in the Cayman Islands.

Facebook Payments International is owned by Facebook Ireland Holdings and has its registered office at 5-7 Hanover Quay, Dublin 2.

Filings to the Securities and Exchange Commission in the US by Facebook show that it derives a substantial amount of its revenue from games credits by way of arrangements it has with Zynga, another multinational with important elements of its global structure based in Ireland.

Substantial payments

Zynga Game Ireland Ltd reported a pre-tax profit of $4.8 million on revenues of $369 million, with the relatively small profit arising after substantial royalty and other payments were made to other Zynga subsidiaries.

It paid royalties of $191 million to Zynga Game International Ltd, a Zynga subsidiary with its registered address at the offices of AL Goodbody on North Wall Quay, Dublin. It licences the right to Zynga games to the non-US market.

Despite having revenues of $191 million in 2011, it reported a pre-tax loss of $35 million. The company had no employees. It paid royalties of $50 million to its US parent and contributed to research and development costs of $174 million, the accounts say.