What is the Double Irish With A Dutch Sandwich
The double Irish with a Dutch sandwich is a tax avoidance technique employed by certain large corporations, involving the use of a combination of Irish and Dutch subsidiary companies to shift profits to low or no tax jurisdictions. The scheme involves sending profits first through one Irish company, then to a Dutch company, and finally to a second Irish company headquartered in a tax haven. This technique has made it possible for certain corporations to reduce their overall corporate tax rates dramatically.
BREAKING DOWN Double Irish With A Dutch Sandwich
The double Irish with a Dutch sandwich is just one of a class of similar international tax avoidance schemes. Each involves arranging transactions between subsidiary companies to take advantage of the idiosyncrasies of varied national tax codes. These techniques are most prominently used by tech companies, because these firms can easily shift large portions of profits to other countries by assigning intellectual property rights to subsidiaries abroad.
The double Irish with a Dutch sandwich is generally considered to be a very aggressive tax planning strategy. It is, however, famously used by some of the world's largest corporations, such as Google, Apple and Microsoft. In 2014, it came under heavy scrutiny, especially from the United States and the European Union, when it was discovered that this technique facilitated the transfer of several billion dollars annually tax-free to tax havens.
How it Works
The process involves two Irish companies, a Dutch company, and an offshore company located in a tax haven. The first Irish company is used to receive large royalties on goods, such as iPhones sold to U.S. consumers. The U.S. profits, and therefore taxes, are dramatically lowered, and the Irish taxes on the royalties are very low. Due to a loophole in Irish laws, the company can then transfer its profits tax-free to the offshore company, where they can remain untaxed for years.
The second Irish company is used for sales to European customers. It is also taxed at a low rate and can send its profits to the first Irish company using a Dutch company as an intermediary. If done right, there is no tax paid anywhere. The first Irish company now has all the money and can again send it onward to the tax haven company.
The End of the Double Irish With a Dutch Sandwich
Due largely to international pressure and the publicity surrounding Google's and Apple's use of the double Irish with a Dutch sandwich, the Irish finance minister, in the 2015 budget, passed measures to close the loopholes and effectively end the use of the double Irish with a Dutch sandwich for new tax plans. Companies with established structures will continue to benefit from the old system until 2020.