The US business software maker, Workday Inc (NYSE:WDAY), has shifted a chunk of its intellectual property to Ireland in a move to cut its tax bill. With a current valuation of $15.6bn, the rival to software giants SAP AG (ADR) (NYSE:SAP) and Oracle Corporation (NYSE:ORCL) joins a host of other US corporations that are taking advantage of Ireland’s tax regime to reduce their tax obligations.
The company announced that Workday International had been created to ‘hold, license and exploit intellectual property rights’. But it’s a move that will come as a shock to few. Workday bought the Irish firm Cape Clear Software back in 2008, setting up a European HQ in Dublin, so it was only a matter of time before it looked at the gains to be made through the country’s tax laws.
Turning tax dollars into expansion funds
Workday Inc (NYSE:WDAY) wouldn’t comment on the new corporate structure, but Annrai O’Toole, the former chief of Cape Clear, now Workday’s European chief technology officer, said the company was investing heavily in Ireland and expanding the workforce there. The Dublin office already has 150 staff, making it the company’s biggest operation outside of California.
“We are doing some of the core development on the Workday products in Dublin. The company is growing and will keep growing,” he said.
Workday Inc (NYSE:WDAY)’s HR and finance software is hosted in the ‘cloud’ and sold to customers as a service. Major customers currently include Nissan Motor Co., Ltd. (ADR) (OTCMKTS:NSANY) (TYO:7201) and pharmaceutical firm, Sanofi SA (ADR) (NYSE:SNY) (EPA:SAN). SaaS (Software as a Service) applications are growing fast in popularity throughout the business world and new clients are being added to the company’s portfolio on a regular basis.
“There has been a seismic shift in enterprise IT,” said O’Toole. “The business benefits of our proposition are huge.”
Workday Inc (NYSE:WDAY) didn’t acquire Cape Clear simply for the tax benefits. The Irish firm’s ‘middleware’, software, which is used to connect disparate IT systems, has become a core component in Workday’s products.
Where next for Workday?
Set up in 2005 by Forbes 400 member, Dave Duffield, and Aneel Bhusri, formerly of PeopleSoft, Workday Inc (NYSE:WDAY)’s valuation has risen quickly since floating on the Nasdaq in 2012 at $28. A six million share offering in January was snapped up by investors at $89 a share. Not bad at all for Aneel Bhusri’s – his 5% stake is now worth a cool $1 billion.
With intellectual rights based in Ireland, Workday Inc (NYSE:WDAY) can now take advantage of the attractive corporate tax rate and royalty arrangements with international subsidiaries. A company spokesperson said it was ‘confident of increased shareholder value through enhancement of financial investments’ through Ireland.
However, the firm is currently trading at about 34 times its sales, one of the highest valuations in the cloud computing sector, and will have to grow quickly into its valuation with few setbacks. If sentiment turns, the share price could fall quickly.
For now though, the figures are optimistic. Although the firm made a loss of $47.5m in the third quarter, those results were well ahead of expectations. Workday Inc (NYSE:WDAY) has won a raft of new contracts and fourth quarter revenue is expected to come in ahead of Wall Street estimates. Right now, the biggest threat to Workday probably won’t come from SAP AG (ADR) (NYSE:SAP) and Oracle Corporation (NYSE:ORCL), but from another start-up with a new offering.