Double Irish With A Dutch Sandwich

Definition

The Double Irish with a Dutch Sandwich is a tax avoidance technique used by some large corporations, involving the use of a combination of Irish and Dutch subsidiaries to shift profits to low or no-tax jurisdictions. This technique allows certain companies to significantly reduce their overall corporate tax rate.

Origin

This tax strategy originated in the 1980s and evolved with the expansion of globalization and multinational business operations. Ireland's low corporate tax rate and favorable tax policies attracted many multinationals, while the Netherlands' network of tax treaties provided additional tax advantages.

Categories and Features

The Double Irish with a Dutch Sandwich primarily involves two Irish companies and one Dutch company. The first Irish company holds intellectual property and collects royalties, while the second Irish company is a tax resident in a low or no-tax country. The Dutch company acts as an intermediary, helping to transfer funds to the second Irish company. The advantage of this structure is the effective reduction of tax liabilities, but it also faces complex legal and compliance challenges.

Case Studies

Google has been reported to use the Double Irish with a Dutch Sandwich structure to lower its global tax burden. By setting up subsidiaries in Ireland and using the Netherlands as a conduit, Google was able to shift a significant portion of its profits to low-tax regions like Bermuda. Another example is Apple, which, although using a slightly different structure, employed similar strategies to optimize taxes.

Common Issues

Investors might be concerned about the legal and reputational risks associated with this strategy. As governments worldwide increase scrutiny on tax avoidance practices, the sustainability of such structures is questioned. Additionally, public perception of corporate tax avoidance can negatively impact a company's brand image.