Citing accounts filed with the Companies Office, the Irish Independent reported yesterday that Microsoft Ireland increased its sales by EUR225 ($287 million) last year, with turnover in the year to the end of June 2005 reaching EUR8.3 billion.

The report stated that the company paid EUR237 million to the Irish state in taxes last year - slightly lower than in the previous year - and paid an effective tax rate of 9.9% by taking advantage of manufacturing tax relief and adjustments from the previous year. The headline corporate tax rate in Ireland is 12.5%.

Ireland's low rate of corporate tax has been successful in attracting large numbers of foreign companies, particularly from America. However, the US government has grown concerned that American firms are setting up Irish subsidiaries to help avoid domestic taxes.

Speaking before the Senate Finance Committee last February, then US Treasury Secretary, John Snow confirmed that the government would be taking action to prevent US multinationals from reducing their tax bills by billions of dollars using subsidiaries located in low tax jurisdictions.

During the hearing, Microsoft was singled out as one company that was taking advantage of Ireland's low corporate tax rate to reduce its overall tax bill. According to reports, last year Microsoft reported $9 billion (or 22% of its gross profits) through its Irish subsidiary.

The US Treasury has pledged to limit the amount by which US tax bills can be reduced in cost-sharing arrangements such as that employed by Microsoft.