What is the Double Irish With a Dutch Sandwich?
The double Irish with a Dutch sandwich is a sophisticated tax avoidance technique utilized by some of the world’s largest corporations. This strategy involves the use of a combination of Irish and Dutch subsidiary companies to shift profits to low or no-tax jurisdictions, significantly lowering corporate tax liabilities.
Key Points
- The double Irish with a Dutch sandwich is a tax avoidance strategy commonly used by large corporations.
- The technique involves routing profits through one Irish company, then to a Dutch company, and finally to a second Irish company based in a tax haven.
- Legislation passed in Ireland in 2015 put an end to this tax scheme for new tax plans, although existing structures could benefit until 2020.
Understanding the Double Irish With a Dutch Sandwich
The double Irish with a Dutch sandwich is part of a series of international tax avoidance schemes. These strategies typically involve intricate transactions between subsidiary companies across different jurisdictions, leveraging the peculiarities of national tax codes. Technology companies are particularly proficient in using these techniques, given their ability to shift significant profits to different countries by transferring intellectual property rights to foreign subsidiaries.
Aggressive tax planning strategies like the double Irish with a Dutch sandwich drew widespread attention in 2014. This came under scrutiny primarily from the U.S. and the European Union due to the scheme enabling corporations to transfer billions of dollars annually, tax-free, to tax havens. The adverse publicity and international pressure eventually led to legislative action against it.
Legislative Actions and their Significance
In response to international pressure and increased scrutiny, the Irish finance minister introduced multiple measures in the 2015 budget aimed at closing these loopholes. This legislation effectively terminated the use of this tax scheme for new tax plans from 2015 onwards. However, companies with pre-existing structures continued benefiting from it until the end of 2020.
How It Works: Steps Involved in the Double Irish With a Dutch Sandwich
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Initial Transfer to the First Irish Company: The first Irish company receives substantial royalties from sales made to U.S. consumers, thereby considerably lowering U.S. profits and tax liabilities. Thanks to low Irish taxes on royalties, the financial burden remains minimal.
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Transfer to an Offshore Company: Exploiting a loophole in Irish law, the company then transfers profits tax-free to an offshore company, where the funds can remain untaxed for an extended period.
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European Sales Through the Second Irish Company: Sales to European customers are processed via a second Irish company, which benefits from low tax rates as well. This company then transfers its profits to the first Irish company using a Dutch company as an intermediary, ensuring no tax is paid during this process.
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Final Transfer to the Tax Haven: The aggregated profits in the first Irish company are then sent to an offshore company in a tax haven, completing the process.
Exemplifying the Double Irish With a Dutch Sandwich
A well-documented case involves Google, which in 2017 transferred 19.9 billion euros (approximately $22 billion) through its Dutch subsidiary and then forwarded it to an Irish company operating in a tax haven like Bermuda. Since Bermuda has no corporate taxes, Google’s subsidiary in the Netherlands facilitated the transfer of substantial revenue to the Irish subsidiary in Bermuda, drastically reducing tax liabilities.
By understanding and scrutinizing strategies like the Double Irish With a Dutch Sandwich, stakeholders and policymakers can better navigate the complexities of international tax laws and push for fairer tax regulations.
Related Terms: tax haven, offshore company, corporate tax rates, intellectual property rights, aggressive tax planning.
