This is a famous tax avoidance strategy adopted by renowned multinationals like Apple, Google etc. This unique arrangement will leave you amazed and it is also very informative. Please read the detailed report to know more.

1. Research paper
Report on the topic
DOUBLE IRISH ARRANGEMENT WITH DUTCH SANDWICH
Submitted by
Samyak Chaudhary

2. INTRODUCTION
It is always considered to increase your profit margin by the method of saving taxes is quite risky yet
essential, even in todays time where technology has enables transactions to be quicker and intangible
objects to be easily transferred. When companies are earning millions as profits, then they seek these
options.
Double Irish with Dutch sandwich is just one of a class of similar international tax avoidance schemes.
The prime focus is to analyze the Double Irish and Dutch Sandwich tax structures used by large
multinational enterprises and any other inferences that can be made from these. These structures
enable companies to shift significant profits to offshore tax havens through the use of wholly owned
subsidiaries in Ireland and the Netherlands. This report is just an attempt to understand the
arrangement. Hence, we have tried to explain this in the simplest way as we can. As far as our own
interpretation is concerned, the priority of this report is to mention some alternatives available to
undertake these strategies, the ways they are being monitored and analyzing the ethical nature of them,
rather than coming out with groundbreaking innovative ideas to undertake them. The strategies
explained ignore many practical problems that companies actually face who are involved in these
arrangements and the later part of the report deals with our own interpretations.

3. EXPLAINATION
As per the actual process is concerned, the proper name assigned to this strategy is “Double Irish with
Dutch sandwich”. The question is how does a Dutch company get sandwiched between the 2 Irish ones?
The fact to be kept in mind that large corporations follow this so the dealing are in billions. Now, these
companies, first through one Irish company, then to a Dutch company and finally to a second Irish
company headquartered in a tax haven, shift their profits. And large companies have indeed reduced
their taxable income by dramatic figures.
Nations can be really stubborn and irrational in terms of determining national tax codes. That is why
smarter people take advantage of this. Companies form subsidiaries in different land, and make
transactions between them, where they might pay in terms of the profit margin. It can be easily
understood from here on that income once shifted to a low tax zone will still be white, so technically,
legal.
These techniques are most prominently used by tech companies because these firms can easily shift
large portions of profits to other countries by assigning intellectual property rights to subsidiaries
abroad. Hence, we found all the examples to be tech companies indeed! (Google, Amazon, Apple etc.)
Why intellectual property? Because they are intangible so no real commodity transferred hence no costs
associated, therefore only payments need to be made. Now, paying the subsidiaries to enable them to
be licensed
PRIME FACTORS
The basis of this arrangement is the Irish law. It has a feature that companies based outside Ireland can
be registered as an Irish company. This can be a reason of why Ireland is chosen as a destination. Other
factors include a low corporate tax rate, favorable tax treaties that limit the tax on transactions
between subsidiaries, and a well-educated and English speaking workforce.1
1. John Sokatch “Transfer-Pricing with Sofware Allows for Effective Circumvention of Subpart F Income:
Google’s ‘Sandwich’ Costs Taxpayers Millions” (2011) 45 Int’l Law 725 at 732.

4. PROCEDURE
The process goes like this that assuming A is a major tech company. It will set up a subsidiary in Ireland
named B, which will further go on to set another subsidiary named C also in Ireland. At this position,
company incorporated in Ireland will be treated as resident in Ireland for tax purposes.1
For a company to be an exception to this, it has to be a relevant company, that means, it is
ultimately controlled by persons resident in the EU or in a country with which Ireland has concluded a
double taxation treaty.2
US has a double-taxation treaty with Ireland3
, hence subsidiary B can be
exempted from being called a resident company even though it is incorporated in Ireland. Now,
subsidiary B makes themselves a tax resident of some other small nation like Cayman Island or Bermuda
but B will own all the nine US rights to intellectual property(as being a subsidiary of the US company).
The transaction takes place in this form that A will give for eg. Copyrights to B and B will give royalty fees
in return. After that, The B will then license the intellectual property rights to C in return for some
substantial royalty payments. C will then receive income from the use of the licensed assets in countries
outside the US. The transfer of the rights means that when subsidiary receives rights then it is enables to
receive all income from sales and use of the intellectual property outside of A’s home state and it
will go to C. Subsidiary C will then pay substantial royalties and licence fees to Subsidiary B for their
use of the intellectual property. This essentially transmits the majority of income to Subsidiary B,
where it can sit tax free in an offshore tax haven like Bermuda.
1. Finance Act 1999, s 23A(1)(a) (Ireland).
2. www.revenue.ie/en/about/foi/s16/income-tax-capital-gains-tax-corporation-tax/part-02/02-02-03.pdf
3. https://books.google.co.in/books?id=O4w5iDPFQMIC&pg=PA1231&lpg=PA1231&dq=Convention+Between+the+Government+of+Ir
eland+and+Government+of+the+United+States+of+America+for+the+Avoidance+of+Double+Taxation+and+the+Prevention+of+Fisc
al+Evasion+With+Respect+to+Taxes+on+Income+and+Capital+Gains,+Ireland-
United+States+%28signed+28+July+1997%29.&source=bl&ots=cBxcq1HaaX&sig=__HUgKFr4Sy7Iuz8lg1iDNKou8A&hl=en&sa=X&ei=S
mEIVezQKc2LuASi44GICQ&ved=0CCMQ6AEwAQ#v=onepage&q=Convention%20Between%20the%20Government%20of%20Ireland
%20and%20Government%20of%20the%20United%20States%20of%20America%20for%20the%20Avoidance%20of%20Double%20Ta
xation%20and%20the%20Prevention%20of%20Fiscal%20Evasion%20With%20Respect%20to%20Taxes%20on%20Income%20and%2
0Capital%20Gains%2C%20Ireland-United%20States%20(signed%2028%20July%201997).&f=false

5. These taxable profits would then be taxed at the prevailing Irish tax rate of 12.5% will be reduced by the
royalty payments of the first Irish company. However, this may not work if C is not considered as a fully
owned subsidiary of B. Hence, B and C can be treated as a single company for tax purposes.
Now, the Dutch sandwich or the introduction of a Dutch can further reduce the company’s tax liabilities
as A can set up a 3rd
subsidiary in Netherlands, lets say D, and bring it between the license and royalty
transaction process of B and C.
The factor here is that Ireland does not tax money being transferred among the EU neither Netherlands
levy any such tax and only charges a small amount of fee for using its tax system. This allows the royalty
payments to be transferred to the first Irish company virtually tax free except of the fee charged.
Source: www.businessinsider.com

6. Now the company set up in Netherlands can be a shell company. As the Irish subsidiary can continue its
operations, the Dutch one being in the middle can do nothing hence can save costs. But, the inference
made from this shell structure is that the Dutch division of A will not be productive which is not good for
Dutch economy and would be unfair as the Irish ones may be employing people but Dutch one would
not be.
What alternatively can be done is that US Company can directly transfer the IP to the Caribbean
entity and pay royalties directly to them. But the problem to this is that if they just incorporated in
the Caribbean and kept all their employees in the US, they would effectively have most of their
profits taxed in the US. Along with that a subsidiary requires large levels of employment which
would not have been possible in small island nations.
The company A makes a million dollar. Now, while intellectual property is being transferred, fair price
needs to be decided which is based on transfer pricing i.e. pricing within the subsidiaries which will be
fair but can be changed hence necessary be low. Profit margin going out of the home country due to this
and overseas profits ultimately ending up with the subsidiary in the tax haven will lead to the profit
portion in haven to be not taxed and hence company saves on the overall taxable income.
GOVERNMENT INTERVENTION
Ireland has announced that beginning in 2015, companies will have to be a tax resident to be
incorporated in Ireland, so the Double Irish tax strategy will no longer work quite as well as it has
because an Irish entity will no longer be able to be incorporated in a Caribbean nation. Still the
12.5% tax rate in Ireland will be better than the US tax rate. So companies can open a new venture
in Ireland and have less tax.
CONCLUSION
In short, companies transfer IP to Irish subsidiary and then transfer the royalties earned to an
Caribbean entity because Caribbean nations are tax havens!
The whole learning experience of this strategy was amazing as many facts were known during the
process worth knowing. Subsequently, we understand that many Indian companies or other
worldwide businesses can opt for tax saving strategies emerging from loopholes in law structure
but this particular strategy or any similar one could not have been utilized by any company of
nation other than US as the prime factor can be inferred as the exception of the US-Irish agreement
therefore this case has turned out to be specific.
We conclude with this strategy that measures to stop this arrangement are in the right direction.
However, considering this to be unethical is not appropriate as we consider it to be a mere utilization of
a loophole in law. Another argument that whether the companies following this earlier should be
penalized or re-taxed is not right as it is similar to the situations of arbitrage where flaws in laws govern
the actions.

7. References
1. https://www.youtube.com/watch?v=sYOQs575Qaw
2. https://www.youtube.com/watch?v=EFKGmmm-j5M
3. http://www.businessinsider.in/A-Popular-Irish-Corporate-Tax-Loophole-Is-Now-Dead-Here-Are-
Three-Other-Loopholes/articleshow/44816350.cms
4. www.revenue.ie
5. www.citizensinformation.ie
6. books.google.co.in
7. http://researcharchive.vuw.ac.nz/xmlui/bitstream/handle/10063/3252/thesis.pdf?sequence=2
8. http://www.investopedia.com/terms/d/double-irish-with-a-dutch-sandwich.asp
9. http://arstechnica.com/business/2013/10/to-reduce-its-tax-burden-google-expands-use-of-the-
double-irish/
10. https://www.youtube.com/watch?v=nHC_BEqN0qY