THE DOUBLE IRISH WITH A DUTCH SANDWICH: A DELICIOUS APPETIZING TAX AVOIDANCE SCHEME
“Double Irish with a Dutch Sandwich” sounds very fancy dish right ?
As the name suggests , its not what it sounds like. Its not a typical classy dish from Gordon Ramsay’s kitchen but its an appetizing international tax avoidance scheme used by large corporations around the world to avoid paying or reducing the corporate tax.
This Tax avoidance scheme structure is basically a tax loophole created due to a significant loophole in the Irish, U.S tax system(mostly shifting of incomes from high tax jurisdictions to tax havens) which is placed in between two Irish subsidiaries and a Dutch company , through which giant multinational corporations derived their profits using the loophole.
Ever thought how the multinational corporations like Google, Apple, and Facebook keep up being the richest companies in their respective sectors despite what so ever the rough economy or anything else. Well ! there are number of reasons to this but one of them is the reduction in their tax liabilities.
As the U.S tax mechanism does not imposes tax on the U.S, Companies that do not repatriate dividends from foreign subsidiaries, as a result most of these U.S companies place their subsidiaries in Ireland due to Ireland’s minimal tax rate policy.
So there are two basic concepts of income tax through which tax payers exploit the tax paying mechanism.
The first one is the territorial system where relying on source of income, the taxpayer are liable to pay tax on their income earned within the jurisdiction of the taxing state. The second one is a system based on residency, once a taxpayer is deemed to be a resident in the taxing state they will be liable to pay income tax on their worldwide income.
In order to determine the residency of a corporation , few states consider residency based on where the management and control of the company is located and few states consider residency based in the place of incorporation. Ireland in particular considers its tax residency by the place of management while U.S relies on the later part.
Well that’s the game folks. So lets just understand the whole of this “Double Irish with a Dutch Sandwich” in small bites through the Google case study.
Google’s parent company Alphabet is incorporated in US while all of their Intellectual property was licensed in Ireland , named Google Ireland Holdings, in spite of the fact that it was Google Ireland Holdings , the entire management of the company was placed in Bermuda, which was basically an affiliate . Bermuda however has a zero corporate tax policy, hidden to the authorities from years.
The Google Ireland Holdings in the Bermuda unit owned another company in Dublin as Google Ireland ltd , which employed around 2000 of employees and made some billion dollars every year by conducting their ads generating business . However the Google Ireland ltd passed on all of its income by the way through Google Ireland holdings, the Bermuda entity and as we already know Bermuda has this amazing zero corporate tax policy which successfully helped them in easy facilitation of their income.
This structure helped Google to avoid paying U.S income tax in European withholding taxes on overseas profits.
This is known as “Double Irish”, as the name suggests it includes two companies “Google Ireland holding” in Bermuda and “Google Ireland ltd” in Dublin. As both the companies being in Ireland , derived the Double Irish scheme .
Further in pursuant to the Irish law, Since the Irish law discharges the royalty payments to some of the European nations . All of the European profits were shifted from the Netherlands subsidiary to the Google Ireland Holdings in Bermuda .
Since the money was passed through a Dutch enterprise , Google Netherlands Holdings to the other subsidiary in Bermuda , that’s how it became the “Dutch Sandwich”.
And that’s how Google got served the “Double Irish with a Dutch Sandwich”.
Earlier this tax avoidance method was legal as , it was never discovered by the authorities how big corporations made advantages of national tax codes by the way through placing subsidiary companies around the world in tax havens. How ever now that such strategies are out in public and due to the pressure of European union and United States , Google has already generated a statement stating to scrap out this tax avoidance strategy and to license all of its Intellectual property in U.S . The Irish law too scrapped the Google Irish tax advantage in 2020.
