“Double Irish Dutch Sandwich” is a
Tax Avoidance technique used by some of the US-based giants like Google, Apple,
and Microsoft.
Its name itself suggests that one
Dutch and two Irish entities are involved which are subsidiaries of the Parent
Corporation from the US.
The first Irish company is
resident in Bermuda for tax purposes by having management and control resident
in Bermuda. Thus, forming an Irish Bermudian (IB) Holding Co. This IB HoldCo. then
forms a Dutch HoldCo. in the Netherlands along with an Operating Company in
Ireland, the Irish OpsCo.
Let’s take the example of Google to
understand this.
Google licenses some of its IPR(
Intellectual Property Rights) to its IB HoldCo. with an agreement to receive a
royalty in return. This IB HodCo. sublicenses these rights to the Dutch HoldCo.
who, again sublicenses the rights to the Irish OpsCo. The Irish OpsCo then uses
these IPRs to earn business revenues from various operations which are based
outside the US on behalf of the parent company and pays little or no Irish
taxes because they are able to claim that revenue as income in Ireland. On the
other hand, they are able to claim a deduction of the royalties that it will
pay for the sublicense from the Dutch HoldCo. According to the Irish tax laws,
there is no withholding tax on that payment of royalty. The Dutch HoldCo does
pay tax on their net income which also includes the royalties received but gets
an offset by deductions for the royalties that it pays to the IB HoldCo under
the Dutch Law. After the IB HoldCo receives its royalties, it either pays back
to the parent company or keeps the income to itself to reinvest it further in non-US
operations of the parent company. Since it is a tax resident in Bermuda, it is
not subject to any corporate tax. Thus, allowing the US corporations to save
huge tax liabilities.
Thank You
Regards
Author- Harshala Gidh
Kautilya
IBS Mumbai
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