| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : Irish Economy Last Updated: Oct 14, 2013 - 4:26 AM


IMF explains “Double Irish Dutch Sandwich” tax avoidance
By Michael Hennigan, Finfacts founder and editor
Oct 11, 2013 - 3:25 AM

Email this article
 Printer friendly page

The IMF (International Monetary Fund) says that so many companies exploit complex avoidance schemes, and so many countries offer devices that make them possible, that examples are invidious. Nonetheless, the “Double Irish Dutch Sandwich,” an avoidance scheme popularly associated with Google, gives a useful flavour of the practical complexities.

  • Here’s how it works (Figure 5.1 above): Multinational Firm X, headquartered in the United States, has an opportunity to make profit in (say) the United Kingdom from a product that it can for the most part deliver remotely. But the tax rate in the United Kingdom is fairly high. So . . .
  • It sells the product directly from Ireland through Firm B, with a United Kingdom firm Y providing services to customers and being reimbursed on a cost basis by B. This leaves little taxable profit in the United Kingdom.

Now the multinational’s problem is to get taxable profit out of Ireland and into a still-lower-tax jurisdiction.

  • For this, the first step is to transfer the patent from which the value of the service is derived to Firm H in (say) Bermuda, where the tax rate is zero. This transfer of intellectual property is made at an early stage in development, when its value is very low (so that no taxable gain arises in the United States).
  • Two problems must be overcome in getting the money from B to H. First, the United States might use its CFC rules to bring H immediately into tax*.
  • To avoid this, another company, A, is created in Ireland, managed by H, and headquarters “checks the box” on A and B for U.S. tax purposes. This means that, if properly arranged, the United States will treat A and B as a single Irish company, not subject to CFC (controlled foreign corporation)rules, while Ireland will treat A as resident in Bermuda, so that it will pay no corporation tax. The next problem is to get the money from B to H, while avoiding paying cross-border withholding taxes. This is fixed by setting up a conduit company S in the Netherlands: payments from B to S and from S to A benefit from the absence of withholding on nonportfolio payments between EU companies, and those from A to H benefit from the absence of withholding under domestic Dutch law.

This clever arrangement combines several of the tricks of the trade: direct sales, contract production, treaty shopping, hybrid mismatch, and transfer pricing rules.

*The United States will charge tax when the money is paid as dividends to the parent—but that can be delayed by simply not paying any such dividends. At present, one estimate (cited in Kleinbard, 2013) is that nearly US$2tn is left overseas by US companies.

The IMF says that assessing how much revenue is at stake is hard. For the United States (where the issue has been most closely studied), an upper estimate of the loss from tax planning by multinationals is about US$60 billion each year - - about one-quarter of all revenue from the corporate income tax (Gravelle, 2013). In some cases, the revenue at stake is very substantial: IMF technical assistance has come across cases in developing countries in which revenue lost through such devices is about 20% of all tax revenue.

Fiscal Monitor report, Oct 2013 [pdf]

Finfacts reports:

Top 5 US tech firms held $515bn in cash at end June 2013 - - over $100bn of Apple's $147bn cash hoard is estimated to be 'overseas' (even though part of it is in banks in the US, according to the US Senate Permanent Subcommitte on Investigations last May)

US company profits per Irish employee at $970,000; Tax paid in Ireland at $25,000

Google's Irish-Dutch sandwich grew to €8.8bn in 2012

 

Check out our subscription service, Finfacts Premium , at a low annual charge of €25

Related Articles
403 Forbidden

Forbidden

Execute access is denied.


© Copyright 2011 by Finfacts.com

Top of Page

Irish Economy
Latest Headlines
Irish Economy 2014: Live Register + Public Scheme numbers at 452,000 in September
Irish manufacturing PMI eased slightly in September
European Commission: Apple given special tax deals by Ireland
Irish Economy: Davy foresees big bounce-back in coming years; European Commission has doubts
Irish Economy: Retail sales fell in August; Ex-cars up 0.3%
Apple's foreign tax rate tumbled after 2007 Irish 'advanced opinion'
Low pay in expensive Ireland; Labour productivity rockets?
Irish firms over-dependent on banks; Slow to adopt newer financial products
America and Ireland have highest percentages of low-paying jobs in developed world
Focus on Irish food industry's bigger potential than chemicals or high tech
Irish Budget 2015: Nevin Institute calls for maximum €800m change; Rise in public investment
Government in search of new strategy for Dublin's offshore financial centre
Global Financial Centres: Dublin tumbles to 70 rank from 13 in 2008; Time for Bruton to go?
G20 finance ministers reaffirm commitment to tax reform; Ibec takes Finfacts' advice
Irish Budget 2015: Fiscal advisory council says keep the champagne on ice
Irish Economy 2014: Exports fell, imports rose in July
Irish Economy 2014: GDP up 1.5% in Q2; GNP up 0.6% - personal spending weak
OECD & Tax: Everything grand in Ireland's Republic of Spin?
OECD to publish first proposals on tax avoidance; Big tech on backfoot
Irish mainstream media in times of boom and bust
Irish Economy 2014: Annual consumer price inflation up 0.4% in August
Overseas trips to Ireland rose 12.3% in period April to June 2014
Kenny opens new Guinness brewhouse in Dublin
Irish Economy: Bruton announces 26 jobs from Australia trade mission
Irish Budget 2015: Ibec back in boomtime mode; McKinsey warns of FDI challenges
Bord Gáis Irish Energy Index unchanged in August - up 28% from December 2009
Irish Economy: Drugs production up 38.4% in July; Not material for growth
Consumers warned about counterfeit clothes and scam websites
The idiot/ eejit's guide to distorted Irish national economic data
Irish pension managed funds delivered further positive returns during August
Irish manufacturing PMI at 42-month high; Official data up 3.4% since 2010
Irish Economy: Cars boost retail sales in July; Ex-cars sales dip
Irish economic performance since 1922 and Scottish independence
Ireland: Recovery on track but fantasy economics endure
Net emigration by Irish nationals at 124,000 in 2009-2014
Q1 2011-Q2 2014: Irish employee jobs up 21,000; 130,000 part-timers seeking full-time work
Irish Economy: Job numbers & workforce fell in H1 2014; Finfacts proved right
Irish Economy: In 4 years to Q2 2014 average hourly earnings fell by 1.5%
Irish Budget 2015 & Economy: More demand for tax cuts
At least one fifth of Irish SMEs have direct exposure to property debt