“Double Irish with a Dutch Sandwich”: The billion-dollar tax trick
What sounds like a tasty sandwich was a “dirty” tax trick that many major international corporations practiced until 2020. The “Double Irish with a Dutch Sandwich” helped companies save billions. Although the practice was morally questionable, it was legally legitimate. Find out how the tax trick worked and which companies benefited from it.
How did the “Double Irish with a Dutch Sandwich” strategy work?
“Double Irish with a Duch Sandwich” was a Tax Avoidance Model for Multinational Corporations, as a result of which little or no tax had to be paid on profits. The strategy owes its name to the fact that corporate profits were first channeled through an Irish company, then through a Dutch company and finally again through an Irish company before flowing back to the parent company.
In detail, it worked like this: A corporation founded a subsidiary in Ireland, but moved its headquarters to a tax haven, such as Bermuda, Cayman Islands or Seychelles. Foreign companies are not taxed here, as the mostly poor states want to attract investors. The Irish holding company then owned the IP rights for a product or service.
A Dutch holding company licensed the intellectual property from the Irish company and sold the product or service to customers in high-tax countries. The profits from these sales or license money then flowed back to the Irish holding company, which transferred them to the letterbox company in a tax haven.
Dutch tax law allows untaxed profits to be transferred to a tax haven without any withholding tax, so that a company based in the Netherlands was placed in the middle of this Irish “sandwich.” The highlight: corporations such as the letterbox company were not taxed in Ireland if they did not have their headquarters there.
It was therefore important to register the letterbox company in the Irish commercial register so that the profits from the licenses remained legally in Europe, but to move the tax seat to a tax haven.
Economists called the result of this transaction jumble “stateless income.” Critics saw this as tax trickery that was morally reprehensible and was to the detriment of the taxpaying population.
Which companies have benefited from this?
The tax trick was used primarily by technology companies, as these companies can easily shift large portions of their profits to other countries by ceding intellectual property rights to subsidiaries abroad. But other, internationally active companies also used the “sandwich.” These include: Amazon, Apple, Facebook (Meta), Google, IKEA and Starbucks.
Google was considered one of the “pioneers” of tax tricks in 2009. The company allegedly has Only 3.4 million euros in taxes in 2017 alone paid in the Netherlands, with a reported profit of 13.6 million euros. At the same time, according to the Dutch Chamber of Commerce, 19.9 billion euros were transferred to Bermuda and taxed there. After Information from Reuters Thanks to the trick, Google only paid a single-digit percentage of taxes on its profits made outside the USA for more than a decade.
Apple is another example of a company that has used this rule. In 2016, the iGroup avoided an estimated 8.5 billion dollars in taxes by using the Double Irish Dutch Sandwich. Facebook (Meta) has also used the tax trick. In 2018, the Group is said to have evaded taxes of 15.8 billion dollars in this way.
The “Double Irish with a Dutch Sandwich” is done
The tax trick was legal. But primarily due to international pressure and public interest, the Irish Minister of Finance adopted measures to close the loopholes in the 2015 budget. Since then, multinational companies can no longer be registered in Ireland without paying tax there. However, anyone who has already benefited has been granted a transition period until 2020.
In order to make tax tricks in the sense of tax solidarity more difficult for large international corporations in particular, the G7 and G20 countries on a global minimum tax of 15 percent in 2021 agreed. In addition to the minimum tax, it should also be ensured that companies with a profit margin of more than ten percent will in future pay taxes where they make their turnover, according to a joint statement by the G7. Profits in excess of this margin are to be taxed at 20 percent in the respective countries.
The Organization for Economic Cooperation and Development (OECD) expects 150 billion dollars of additional tax revenue worldwide as a result of the minimum tax alone. The so-called Market states could redistribute another 125 billion dollars Bring annually.
According to the Draft law that Germany also passed in November 2023 , internationally active companies will be subject to a global minimum tax of 15 percent from January 2024. They pay these on their profits — no matter where in the world they operate and where they generate these profits. The first part of this tax reform came into force almost unnoticed at the beginning of January and is intended to bring more tax justice and fair competition by preventing tax avoidance by large corporations and draining tax havens.
As a result, additional government tax revenue of 950 million euros is expected in this country from 2026; in 2027 and 2028, it should be 650 million and 420 million euros. However, Germany will probably only receive additional tax revenue from major digital companies with the second part of the reform. However, it is currently still a matter of the stars whether this will be implemented.
