Double Irish Dutch Sandwich Tax Avoidance: Definition & Explanation

KEY TAKEAWAYS

• The “Double Irish Dutch Sandwich” is a tax avoidance technique.
• It relies on shifting profits to low-tax jurisdictions and using foreign shell companies to route money back to the primary company.
• This is done in a way that takes advantage of gaps and mismatches in tax rules.
• Google and Apple are among the companies that use the Double Irish Dutch Sandwich technique.
• The technique has come under scrutiny in recent years as governments have sought to crack down on corporate tax avoidance.

What Is The Double Irish With A Dutch Sandwich?

The Double Irish Dutch Sandwich, as mentioned above, gets its name from the fact that it involves using two Irish companies and one Dutch company to minimize taxes.

The strategy works as follows: an Irish holding company owns the IP rights to a product or service. A Dutch holding company then licenses the IP from the Irish company. 

The Dutch company sells the product or service to customers in high-tax countries. The profits from these sales are routed back to the Irish holding company, which pays little or no tax on them because of Ireland’s low corporate tax rate.

These smart tax avoidance techniques allow companies to avoid paying taxable income on their profits. This is legal in both Ireland and the United States. In addition, by using the Netherlands as a transit point, companies can also avoid paying taxes in other European countries.

If you’re interested in learning more about the double Irish Dutch sandwich and other tax avoidance schemes, keep reading.

How Does Double Irish With A Dutch Sandwich Structure Work?

The double Irish Dutch sandwich is a tax avoidance scheme used by multinational companies. Under this scheme, a company sets up two subsidiaries in Ireland: a holding and operating Irish company.

The holding company registers in a tax haven, which allows it to avoid paying taxes on its profits. The operating company then transfers its profits to the holding company through a series of transactions to lower taxes.

The holding company sends the profits to a Dutch or Irish subsidiary. It then transfers the money to a bank account in the Bahamas, where it is effectively tax-free.

By using this scheme, companies can avoid paying taxes on their profits in both Ireland and the United States. In addition, by using the Netherlands as a transit point, companies can also avoid paying taxes in other European countries.

These Irish tax loopholes are legal. But they have come under increasing scrutiny in recent years.

One of the main pros is that it allows companies to avoid paying taxes on their profits in both Ireland and the United States. By using the Netherlands as a transit point, companies can also avoid paying taxable income in other European countries.

However, there are a few cons as well. One of the biggest is that it has come under increasing scrutiny as governments have clamped down on tax avoidance.

Another con is that it can be complex and time-consuming to set up. This is because there are a few requirements that companies need to meet in order to use the scheme.

Finally, there is also the risk that the scheme could get challenged by the IRS or other tax authorities. If this happens, companies might have to pay back taxes, interest, and penalties.

Despite the risks, the double Irish Dutch sandwich offers advantageous taxation rules. This is because it can be an effective way to minimize money in taxes paid.

Double Irish With A Dutch Sandwich Requirements

There are a few requirements that companies need to meet in order to use the double Irish Dutch sandwich scheme.

First, a company must have two subsidiaries in Ireland: an Irish holding company and an Irish operating company.

Second, the holding company must register in a tax haven. This allows the company to avoid paying Irish taxes on its profits.

Third, the operating company must transfer its profits to the holding company via transactions to minimize taxes.

Fourth, the holding company must send the profits to Dutch subsidiary companies. It then transfers the money to a bank account in the Bahamas, where it is effectively tax-free.

By meeting these requirements, companies can avoid paying taxes on their profits in both Ireland and the United States. By using the Netherlands as a transit point, companies can avoid paying taxable income in European foreign countries.

Double Irish With A Dutch Sandwich Examples

There are a few well-known examples of companies that have used the double Irish Dutch sandwich scheme to avoid paying taxes. In fact, some of the largest corporations have used ultra-low tax countries to reduce their tax burden.

Google is one of the most well-known examples of a company that has used this scheme. In 2017, it was estimated that Google had avoided $3.7 billion in taxes using the double Irish Dutch sandwich scheme.

Apple is another example of a company that has used this scheme. In 2016, it was estimated that Apple had avoided $8.5 billion in taxes using the double Irish Dutch sandwich scheme.

Facebook is also an example of a company that has used this scheme. In 2018, it was estimated that Facebook had avoided $15.8 billion in taxes using the double Irish Dutch sandwich scheme.

Summary

The Double Irish Dutch Sandwich is just one of many tax avoidance strategies that multinational corporations use to minimize their taxes. Others include the use of shell companies and tax havens, as well as transfer pricing schemes.

By using these strategies, corporations can avoid paying billions of dollars in taxes every year. This puts a strain on government budgets and gives corporations an unfair advantage over smaller businesses that don’t have the same tax-avoidance options available to them.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.