Double+Irish


 * Introduction **

The so called Double Irish is a tax evasion scheme, mostly used by Multinational Companies selling intellectual property (IP). Google, Apple and Facebook are three of the companies that are well known for using the Double Irish arrangement. This tax evasion scheme makes Ireland into an Offshore Financial Center (OFC). In 2002 the International Monetary Fund (IMF) defined an OFC as “a jurisdiction in which international investment position assets, including as resident all entities that have legal domicile in that jurisdiction, are close to or more than 50 percent of GDP and in absolute terms more than $1 billion.”

Ireland uses territorial and not residential taxation, which means that a company can by resident in Ireland but if it's managed from another country the tax is decided by the managing country's tax degree. When it comes to the Double Irish, the managing country is Bermuda. Ireland and Bermuda has a contract that means that if a company that is residential in Ireland pays taxes to Bermuda, it doesn't have to pay taxes in Ireland. Ireland and USA has a similar contract, which makes the Double Irish especially attractive to U.S. Companies.

The core of the Double Irish is that it's based on subsidiary companies. For example, a U.S. Company can have two subsidiary companies in Ireland. The first subsidiary is a tax resident in Bermuda and therefore it pays taxes to Bermuda. The corporate tax in Bermuda is 0 %. The second subsidiary in Ireland is resident in Ireland but pays all income as royalties to the first subsidiary and therefore it escapes the Irish corporate tax of 12.5 %.

** The Dutch Sandwich ** It's hard to talk about the Double Irish without mentioning the Dutch Sandwich as well. The two schemes go together in order to lower the corporate tax even more. It forms a third subsidiary based in the Netherlands. Alex Faseruk, professor at the Memorial University in Canada with finance as expertise, and his colleague Andrew Thomas, say that the Dutch Sandwich is the “meat of the sandwich because it facilitates the transfer of funds between Sub 2 and Sub 1.” Apple is known for being the first company to use the "Double Irish With a Dutch Sandwich."

** Double Irish and The EU ** The European Union (EU) is aware of the existence of the Double Irish loophole. It has tried to regulate the way of taxation in the member states but it cannot interfere directly with a certain member state in order to stop a domestic ways of taxation. According to Steven A. Bank, professor of Business Law at UCLA School of Law in the US, the EU has especially had problems with Ireland as "the country has a long experience with reducing its corporate tax rate in an attempt to attract foreign direct investment, dating back to the late 1950s." Another problem for EU here is that one of the core values of EU is the European Comminuty Treaty’s guarantee of “free movement of goods, persons, services, and capital.” This guarantee ironically helps taxation schemes such as the Double Irish.