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Double Irish Dutch Sandwich Tax Avoidance Explained

Updated: Jan 10, 2021

The Double Irish with Dutch Sandwich is one of the most popular tax avoidance schemes as it is used by the biggest tech companies such as Apple, Facebook, Google, Microsoft, etc., taking profit from legal mismatches and loopholes. The name of the scheme comes from setting up two Irish subsidiaries and one Dutch company in the middle of the tax structure.

How does the scheme work? first, it is necessary to point out that the U.S tax system does not tax the U.S, Companies who do not repatriate dividends from foreign subsidiaries (Tax Cuts and Jobs Act), hence a US company sets up two Irish companies, Subsidiary 1 and Subsidiary 2.

Why are the foreign subsidiaries set up in Ireland? Because pursuant to the Irish tax system a company can be tax resident by place of management, not country of incorporation if the company is controlled by another company residing in a country that has a double tax treaty with Ireland.

Subsidiary 1 will have its place of management in a pure tax haven (0% on income tax) to avoid being an Irish tax resident, and Subsidiary 2 will be a tax resident in Ireland and will carry trade and bring profit (income) from sales.

Now that we have the 2 Irish companies set up, the U.S. company grants a license to Subsidiary 1 to exploit certain intellectual property, and Subsidiary 1 will license said intellectual property to Subsidiary 2 who will generate real profit from real sales.

If Subsidiary 2 sends the resulting dividends directly to Subsidiary 1, as you might have guessed, the income could be liable for Irish withholding tax, and there is where and why the Dutch subsidiary comes in.

To avoid the Irish withholding tax on dividends, we set up a Dutch Subsidiary and Subsidiary 2 will send the dividends from sales directly to the Dutch Subsidiary, and the Dutch Subsidiary will send the dividends tax-free to Subsidiary 1. But why is it tax-free? Because under EC Directive 2003/49 interests and royalty payments made by a company in a member state to a company in another member state are tax-free.

Is this legal? Yes.

About the author: Jean Franco Fernández Clark. Corporate and International Tax Lawyer from Nicaragua, Central America. Speaks English, Spanish, French, Italian, Russian. 学习普通话

Jean Franco Fernández Clark

This article is not intended by any means to be a tax or legal counsel, and information herein contained may be inaccurate or incomplete. This article is based on personal experience.


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