IBM seeks to reduce tax rate through Netherlands subsidiary to increase profits

International Business Machines Corp. announced that its tax rate has been reduced to a two-decade low with some help from a tax strategy that sends profits through a Dutch subsidiary.

The company was facilitated to gradually reduce its tax rate over 20 years by an approach, which involves routing almost all sales in Europe, the Middle East, Africa, Asia and some of the Americas through its Netherlands unit. At the same time, pre-tax income increased fourfold. In 2013, the rate fell to its lowest level for at least a decade, raising earnings above analysts estimates.

International Business Machines Corp. is attempting to reach 20 dollars a share in adjusted earnings by 2015, compared to $11.67 in 2010.

However, the fact that seven consecutive quarters of declining revenue were posted by the company, makes this goal even more difficult than it is. In order to stay focused on the target, International Business Machines has sold some assets, bought back shares and dismissed and furloughed some of its employees. Its subsidiary based in the Netherlands, which is also one of the most important havens for multinational companies looking for ways to legally reduce their tax rates, played a less prominent but still a vital part in the process.

Netherlandss policies and extensive network of tax treaties are known to be found quite attractive by some of the worlds largest companies, such as Google Inc., Yahoo! Inc. and Cisco systems Inc., which have used Dutch subsidiaries in order to cut taxes.

As reported by Bloomberg, offshore tax strategies, like the one IBM has used recently, are coming under increased audit and analysis, especially considering the fact that such tax-avoidance techniques have become the subject of some hearings in the U.S. Senate and the U.K. Parliament.

One of the analysts working for Edward Jones & Co. – Josh Olson, said for Bloomberg: “Theyve got a lot of ways to beat earnings and they definitely take advantage of it. Its part of how IBM operates.”

Michael Fay, who is a spokesman of International Business Machines Corp. refused to make any comments on the tax structure of the company.

International Business Machines Corp.s shares fell 2.14% on Monday to settle at $172.90, and its one-year change is -15.73%. The 21 analysts offering 12-month price targets for CNNMoney have a median target of $190.00, with a high estimate of $235.00 and a low estimate of $160.00. The median estimate represents a 7.54% increase from the last closing price.