The "Double Irish with a Dutch Sandwich" is a tax optimization strategy primarily used by multinational companies, particularly in the technology sector, to reduce their overall tax burden. This method allowed these companies to shift profits to low-tax or no-tax jurisdictions while complying with international tax laws.
How the "Double Irish with a Dutch Sandwich" Works
Double Irish:
Creation of Two Companies in Ireland: The strategy begins with the creation of two subsidiaries in Ireland. One of these subsidiaries is tax resident in Ireland, while the other is registered in Ireland but tax resident in a tax haven, often Bermuda.
Intellectual Property (IP): The first Irish company (resident in the tax haven) holds the intellectual property (patents, trademarks, etc.) of the multinational. This company then grants a license to the second Irish company (resident in Ireland) to use this IP.
Payment of Royalties: The second Irish company pays high royalties to the first for the use of the IP, thereby reducing the taxable profits of the Irish-resident company (which is subject to an Irish corporate tax rate of 12.5%).
Dutch Sandwich:
Dutch Subsidiary: To avoid withholding taxes on cross-border payments in Ireland, the second Irish company transfers the royalties to an intermediary company in the Netherlands. The Netherlands has tax treaties that allow these funds to be transferred with little or no tax.
Final Transfer to the Tax Haven: From the Dutch company, the funds are then transferred to the first Irish company (resident in the tax haven), where they are subject to little or no taxation.
Benefits and Criticism
Benefits for Companies: This strategy allowed companies to significantly reduce their effective global tax rate, sometimes to as low as 0%.
Criticism: This practice was heavily criticized for allowing large companies to avoid paying their fair share of taxes. It also created unfair competition against companies that could not use such strategies.
Reforms and End of the Strategy
Due to international pressure and tax reforms implemented by the European Union and the OECD, Ireland announced in 2014 that it would gradually phase out the possibility of using the "Double Irish" by 2020. Companies therefore had to find other ways to optimize their taxes, often by restructuring their international corporate structures.
The "Double Irish with a Dutch Sandwich" is an example of the complexity and sophistication of tax strategies used by multinational companies to maximize their post-tax profits. Although this strategy has been largely neutralized, it remains an emblematic case in the debates on corporate taxation at the global level.
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