| 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


© Copyright 2011 by Finfacts.com

Top of Page

Irish Economy
Latest Headlines
Irish Economy: Data confirms jobs in foreign-owned exporting firms in 2013 below 2000 level
Irish Economy 2014: Department of Finance wants tax rises; Noonan wants tax cuts
OECD BEPS Project: Ireland should embrace corporate tax reform
Irish Economy 2014: Goodbody hails “A Jobs Friendly Recovery”; Wants austerity to stay
Irish Economy: Budget deficit was 7.2% in 2013
Irish Economy 2014: Merchandise exports up 1% in February
Irish Economy 2014: Reliable sectoral jobs data missing for first time in 60 years
Irish Economy 2014: ESRI says growth will remain strong in 2014 and 2015
Rise in Irish jobs vacancies in first quarter
Irish Economy 2014: Consumer sentiment slightly down in March
Irish Corporate Tax: Government begins publicity offensive on tax with irrelevant paper
Irish Economy 2014: Bord Gáis Energy Index rises 1% in March; Up 41% from start 2010
Irish Economy 2014: Ibec forecasts robust growth in tax-related services exports
Irish Economy 2014: Industrial production up; Services dip contrary to PMI
Irish Economy 2014: Central Bank expects GDP to grow 2% this year
Irish Economy 2014: Claim IFSC firms employ 35,700 - official data at 23,300
Irish pension managed funds returned 1.9% in Q1 2014
Alexion Pharma International Trading of US to add 200 jobs in West Dublin
Corporate Tax: OECD's Saint-Amans says "Double Irish Dutch" sandwich tax scheme will be axed
Irish Economy 2014: Services PMI accelerates in March but official data more muted
Irish Economy 2014: Q1 Exchequer Returns income tax up €4m on target despite jobs growth
Irish Economy 2014: Numbers on Live Register/ activation programs in March at 22% of workforce
Irish pension managed funds index up only 0.12% in March 2014
Ireland is high cost business location; Labour, electricity, business service costs, rising
Irish Economy 2014: Manufacturing PMI rises in March; Misses impact of drugs patent cliff
New Irish startups at average of 127 per day in Q1 2014 -- reality check?
Irish Economy 2014: Retail sales volume dipped in February
Annual money laundering in Ireland at least €3bn
Ibec begins PR campaign for income tax cuts
Corporate Tax Reform: OECD says Ireland/ India top global ICT services exporters
Corporate Tax 2014: Irish tax partner forecasts influx of foreign firms to cut tax burdens; Really?
Average Irish land price in 2013 fell to €9,400 an acre & €23,200 per hectare
Irish Economy 2014: Merchandise exports fell in January
Corporate Tax & Ireland as Doormat: Enda Kenny offers personal support service for US business
Irish adjusted GNP in 2013 estimated at 1% compared with official level of 3.4%
Irish Economy 2014: Consumer prices fell in year to February
Irish Economy 2014: GDP shrunk in 2013; Tax-related services exports up €4bn
Recovery proceeds in advanced economies; Mixed in emerging economies
Irish Economy 2014: Energy index falls 5% in February helped by high winds, mild weather
Occupancy rate for Dublin hotels back to 2007 levels; Real room rates remain low