Key Takeaways
- Tax strategy shifting profits via Irish and Dutch subsidiaries.
- Exploits Irish residency and Dutch withholding tax treaties.
- Used by multinationals to reduce taxes near zero.
- Phased out by Ireland and OECD BEPS rules.
What is Double Irish With A Dutch Sandwich?
The Double Irish With A Dutch Sandwich is a complex tax avoidance structure used by multinational corporations to shift profits to low- or no-tax jurisdictions by exploiting Irish and Dutch tax laws. This strategy leverages the Irish tax residency rules combined with Dutch withholding tax exemptions to minimize corporate tax liabilities. It primarily involves routing royalties and intellectual property income through two Irish subsidiaries and a Dutch intermediary.
By using this setup, companies reduce their tax burden on foreign earnings, benefiting from Ireland’s low corporate tax rate and favorable tax treaties. This technique was widely used by major tech companies to optimize their global tax positions.
Key Characteristics
This tax strategy features a unique corporate structure designed to exploit cross-border tax rules:
- Two Irish Companies: One Irish company is tax resident in a tax haven, holding intellectual property, while the second is a fully Irish-resident entity that earns global revenues.
- Dutch Intermediary: A Dutch subsidiary acts as a conduit for royalty payments, benefiting from EU and bilateral treaties to avoid withholding taxes.
- IP Licensing: Intellectual property rights are transferred to the non-resident Irish company, enabling royalty income to be shifted with minimal taxation.
- Tax Residency Exploitation: The strategy exploits Ireland’s rules on tax residency and the U.S. classification of entities, such as C corporations, to create tax mismatches.
How It Works
The Double Irish With A Dutch Sandwich typically involves three entities: an Irish company managed from a tax haven that owns valuable intellectual property, a second Irish company that licenses this IP and handles sales, and a Dutch company acting as a tax-efficient intermediary. Royalties flow from the sales company to the Dutch conduit, then to the IP owner, effectively minimizing withholding and corporate taxes.
This routing reduces taxable income in Ireland to the corporate tax rate of 12.5% while deferring or eliminating tax on profits accumulated in the tax haven. The strategy takes advantage of tax treaties and hybrid entity rules, often involving the U.S. tax code’s treatment of foreign subsidiaries and the ability-to-pay taxation principle.
Examples and Use Cases
Several leading technology companies have historically used the Double Irish With A Dutch Sandwich to optimize their tax liabilities globally:
- Apple: Apple famously shifted billions in profits through Irish subsidiaries, reducing its effective tax rate far below U.S. corporate rates.
- Google: Google employed similar IP licensing structures to channel income through Ireland and the Netherlands, minimizing global taxes.
- Microsoft: Microsoft also utilized this approach to manage royalties and intellectual property revenues efficiently.
Important Considerations
The Double Irish With A Dutch Sandwich was phased out starting in 2015 due to international pressure and reforms led by the OECD’s Base Erosion and Profit Shifting (BEPS) initiative. Ireland now requires new companies to be tax resident domestically, closing the loophole that enabled this structure.
While legacy arrangements may still exist, companies must adapt to evolving tax laws and increased scrutiny from authorities like the IMF. Understanding the historical use of this strategy is essential for navigating current multinational tax compliance and planning.
Final Words
The Double Irish with a Dutch Sandwich remains a powerful tool for minimizing global tax liabilities by exploiting specific jurisdictional rules. To assess if this strategy fits your corporate structure, consult a tax professional to evaluate compliance risks and current regulatory changes.
Frequently Asked Questions
The Double Irish with a Dutch Sandwich is a tax avoidance strategy used by multinational companies to shift profits from high-tax countries to low- or no-tax jurisdictions. It involves routing royalties through two Irish subsidiaries and a Dutch intermediary to minimize corporate taxes on certain income streams.
The structure uses two Irish companies and one Dutch company: one Irish company holds intellectual property but is managed from a tax haven, another Irish company licenses the IP and earns revenue, and a Dutch company acts as a conduit for royalty payments. This setup exploits tax treaties and residency rules to reduce taxes significantly.
The Dutch subsidiary serves as an intermediary that receives royalty payments from the Irish company and passes them on to the Irish IP-holding company. This step avoids withholding taxes due to favorable Dutch-Irish tax treaties and EU rules on royalty and interest payments.
Major tech corporations like Apple, Google, and Microsoft have used this strategy to shift vast amounts of profits offshore. For example, Apple reportedly shifted around $110 billion in overseas profits through Irish subsidiaries, achieving near-zero effective tax rates.
Ireland closed the Double Irish loophole in 2015, with a full phase-out by 2020, requiring new companies to be Irish tax resident. Additionally, international efforts like OECD BEPS actions have curbed the use of this tax avoidance scheme.
This strategy allows companies to reduce their taxable income significantly by deducting royalties and shifting profits to low- or zero-tax jurisdictions. As a result, corporations pay little to no tax on large portions of their global profits.
It exploited mismatches between Irish tax residency rules, Dutch withholding tax exemptions, and U.S. tax regulations. Ireland treats the IP-holding company as foreign, the Netherlands allows tax-free outbound royalty payments, and the U.S. defers taxing foreign subsidiaries, enabling near-zero tax rates.
This tax strategy contributed to base erosion and profit shifting (BEPS), costing governments trillions in lost tax revenue. Its widespread use by multinational firms has driven international reforms to close loopholes and increase tax transparency.
