Double Irish arrangement

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The double Irish arrangement was a tax strategy that some multinational corporations used to lower their corporate tax liability. The strategy has ceased to be available since 1 January 2015, though those already engaging in the arrangement have until 2020 to find another arrangement. The strategy used payments between related entities in a corporate structure to move income from a higher-tax country to a lower or no tax jurisdiction. It relies on the fact that Irish tax law does not include transfer pricing rules as does the United States[1] and those of many other jurisdictions. Specifically, Ireland has territorial taxation, and does not levy taxes on income booked in subsidiaries of Irish companies that are outside the state.

The double Irish tax structure was first used in the late 1980s by companies such as Apple Inc.[2] In 2010 Ireland passed a law intended to counter such arrangements, though existing arrangements were exempt and lawyers have said that this change will cause no significant problems for multinational firms.[3]

In 2013, the Irish government announced that companies which incorporate in Ireland must also be a tax resident there. This counter-measure took effect in January 2015, for newly incorporated companies, and will take effect in 2020 for companies with existing operations in Ireland.[4] Irish Finance Minister Michael Noonan, during the presentation of his 2015 budget, said that he believed this would align Ireland's corporate tax regime with international best practice.[5]


Typically, a company arranges for the rights to exploit intellectual property outside the United States to be owned by an offshore company, which then enters into a cost sharing agreement between the American parent, written strictly in terms of American transfer pricing rules. The offshore company continues to receive all of the profits from exploitation of the rights outside the American, but without paying American tax on the profits unless and until they are remitted to the United States of America.[6]

It is called double Irish because two Irish companies are used in the arrangement. One of these companies is tax resident in a tax haven, such as the Cayman Islands or Bermuda. Irish tax law currently provides that a company is tax resident where its central management and control is located, not where it is incorporated, so that it is possible for the first Irish company not to be tax resident in Ireland. This company is the offshore entity which owns the valuable non US rights that are then licensed to a second Irish company (and this one is tax resident in Ireland) in return for substantial royalties or other fees. The second Irish company receives income from the use of the asset in countries outside the United States, but its taxable profits are low because the royalties or fees paid to the first Irish company are tax-deductible expenses. The remaining profits are taxed at the Irish rate of 12.5%.

For companies whose ultimate ownership is located in the United States, the payments between the two related Irish companies might be non-tax-deferrable and subject to current taxation as Subpart F income under the Internal Revenue Service's controlled foreign corporation regulations if the structure is not set up properly. This is avoided by organizing the second Irish company as a fully owned subsidiary of the first Irish company resident in the tax haven, and then making an entity classification election for the second Irish company to be disregarded as a separate entity from its owner, the first Irish company. The payments between the two Irish companies are then ignored for American tax purposes.[1]

Dutch Sandwich[edit]

Example of a double Irish with a Dutch Sandwich:
  1. An advertiser pays for an ad in Germany.
  2. The ad agency sends money to its subsidiary in Ireland, which holds the intellectual property (IP).
  3. Tax payable in Ireland is 12.5 percent, but the Irish company pays a royalty to a Dutch subsidiary, for which it gets an Irish tax deduction.
  4. The Dutch company pays the money to yet another subsidiary in Ireland, with no withholding tax on inter-EU transactions.
  5. The last subsidiary, although it is in Ireland, pays no tax because it is controlled outside Ireland, in Bermuda or another tax haven.

Ireland does not levy a withholding tax on certain receipts from European Union member States. Revenues from sales of the products shipped by a second Irish company (the second in the double Irish) are first booked by a shell company in the Netherlands, taking advantage of generous Dutch tax laws. The remaining profits are transferred directly to Cayman Islands or Bermuda. This part of the scheme is referred to as the "Dutch Sandwich".[7][8] The Irish authorities never see the full revenues and hence cannot tax them, even at the low Irish corporate tax rates.


In 2010, the Obama administration was said to propose to tax excessive profits of offshore subsidiaries to curb tax avoidance in the United States.[9] A 2010 Irish law brought Irish transfer pricing rules into line with most of its trading partners requiring companies' intra-group transfer prices to be similar to those that would be charged to (or from) independent entities. The first deadline for corporate tax submissions under the new rules was September 2012.[3] However, companies such as Google, Oracle and FedEx are declaring fewer of their ongoing offshore subsidiaries in their public financial filings, which has the effect of reducing visibility of entities declared in known tax havens.[10]

In 2014, the Irish government announced that companies would no longer be able to incorporate in Ireland without also being tax resident there, a measure intended to counter arrangements similar to the double Irish.[4] Irish Finance Minister Michael Noonan addressed the "Double Irish" during the presentation of his 2015 budget. Under the new rules, companies not already operating in the country may not pursue the “Double Irish” scheme as of January 2015; those already engaging in the tax avoidance scheme have a five-year window until 2020 to find another arrangement.[11]

Under Finance Act 2015, a new system has been introduced whereby innovative companies who choose to incorporate in Ireland can now benefit from the introduction of the Knowledge Development Box (the “KDB”) in Ireland, the scheme is seen as a replacement for the “double-Irish” tax system which was recently closed. An effective tax rate of 6.25% can be obtained on qualifying profits generated in periods commencing on or after 1 January 2016.

In Summer of 2016 another dispute is flaring up between the European Commission and the US Treasury Department over Irish tax breaks, which in the EU may comprise a type of state aid.[12] U.S. Secretary of the Treasury Jacob J. Lew has issued a white paper referring to transfer pricing.[13] Separately EU Competition Commissioner Vestager is quoted by the press as clarifying that: “This is not about transfer pricing, it is about allocation of profits so it is different to the decisions on Starbucks and Fiat.” [14]

Companies using the arrangement[edit]

A number of major companies are known to employ the double Irish strategy, include:

Apple Inc issues[edit]

In 2004, Ireland was home to more than one-third of Apple's worldwide revenues, according to company filings. Robert Promm, Apple's controller in the mid-1990s, called the strategy "the worst-kept secret in Europe".[24] Using the strategy it could keep its tax cost to less than 1% of pre-tax earnings.

A Senate report on the company's offshore tax structure concluded in May 2013, Apple has held billions of dollars in profits in Irish subsidiaries to pay little or no taxes to any government by using an unusual global tax structure.[25] The main subsidiary, a holding company that includes Apple's retail stores throughout Europe, has not paid any corporate income tax in the last five years. "Apple has exploited a difference between Irish and U.S. tax residency rules," the report said.[26]

On August 30, 2016, after a three-year investigation, the EU's competition commissioner concluded that Apple had received "illegal state aid" from Ireland. The Commission ordered Apple to pay 13 billion euros ($14.5 billion), plus interest, in unpaid taxes.[27] The Irish government "unanimously" agreed to appeal the ruling, claiming there was no departure from the applicable Irish taxation law and that the Commission's action was an intrusion into Irish sovereignty (since national taxation policy is excluded from Union treaties).[28] Apple have also announced that they will appeal the Commission's findings.[29] The EU Commission ruling required Ireland to collect the €13bn from Apple and to hold the funds in escrow pending the outcome of the appeals by January 2017 and were criticised in May 2017 by the EU for taking too long in collecting the funds.[30]

See also[edit]


  1. ^ a b Joseph B. Darby III, International “Tax Planning: Double Irish More than Doubles the Tax Saving”, Practical US/International Tax Strategies 11(9), 15 May 2007
  2. ^ a b Charles Duhigg (28 April 2012). "How Apple Sidesteps Billions in Global Taxes". New York Times. Retrieved 29 April 2012. In the late 1980s, Apple was among the pioneers in creating a tax structure – known as the Double Irish – that allowed the company to move profits into tax havens around the world ... 
  3. ^ a b "Ireland boosting capacity to track transfer pricing". Reuters. 29 May 2013. 
  4. ^ a b Irish Budget abolishes corporate tax avoidance schemes, European Tribune; October 15th, 2013.
  5. ^ Dublin, Henry McDonald in. "Ireland to abolish controversial 'double Irish' tax arrangement". The Guardian. Retrieved 2015-07-09. 
  6. ^ Wiederhold, Gio: "Follow the Intellectual Property: How companies pay Programmers when they move the related IP rights to offshore taxhavens?"; Communications of the ACM, vol. 54 no. 1, January 2011, pp. 66–74.
  7. ^ "'Dutch Sandwich' saves Google and many other U.S. companies billions in taxes". MSNBC. 22 October 2010. 
  8. ^ "Man Making Ireland Tax Avoidance Hub Proves Local Hero"
  9. ^ a b c d e f Drucker, Jesse (21 October 2010). "Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes – Bloomberg". 
  10. ^ From Google to FedEx: The Incredible Vanishing Subsidiary
  11. ^ Erb, Kelly. "Ireland Declares 'Double Irish' Tax Scheme Dead". Retrieved 2015-05-24. 
  12. ^ Garside, Juliette. "Tax avoidance. War of words hots up between US and EU over tax avoidance". Retrieved 2016-08-25. 
  14. ^ Baker, Jennifer. "Apple cored —Apple must pay Ireland €13B in taxes, rules European Commission". Retrieved 2016-08-30. 
  15. ^ "Abbott Laboratories Irish subsidiary paid no tax on €1.8 billion profit". The Irish Times. 31 May 2013. 
  16. ^ "Abbott subsidiaries paid no tax on €2.9 billion profits". Sligo Today. 
  17. ^ a b c d e f g Chitum, Ryan (2007). "How 60 billion are lost in tax loopholes", Bloomberg.
  18. ^ "The Sharing Economy Doesn't Share the Wealth". Bloomberg News. 6 April 2016. Retrieved 7 April 2017. 
  19. ^ "Low Irish taxes boost Airbnb profits". EURACTIV. 22 July 2014. Retrieved 7 April 2017. 
  20. ^ "How Google saved $2 billion in income tax – Times of India". 11 December 2012. 
  21. ^ "IBM gooses its sales numbers thanks to overseas tax tricks". ARS Technica. 4 February 2014. 
  22. ^ "Corporate Tax 2014: Yahoo! joins "Double Irish Dutch Sandwich" club; IDA Ireland wants more members". FinFacts Ireland. 10 February 2014. 
  23. ^ "Medtronic's $43 Billion Covidien Buyout Is More Than Just A Tax Saving Deal". Forbes. 14 June 2014. 
  24. ^ CHARLES DUHIGG, DAVID KOCIENIEWSKI (April 28, 2012). "How Apple Sidesteps Billions in Taxes". The NY Times. Retrieved May 20, 2013. 
  25. ^ Levin, Carl; McCain, John (May 2013), Memorandum: Offshore profit shifting and the U.S. tax code - Part 2 (Apple Inc.) (PDF) (memorandum of the Permanent Subcommittee on Investigations), retrieved June 27, 2013 
  26. ^ "Senate Probe Finds Apple Used Unusual Tax Structure to Avoid Taxes". Reuters. Retrieved May 20, 2013. 
  27. ^ Kanter, James and Scott, Mark (August 30, 2016) Apple Must Pay Billions for Tax Breaks in Ireland, E.U. Orders The New York Times
  28. ^ Harry McGee. "Apple tax appeal: The three arguments Government to use". Irish Times. Retrieved 3 September 2016. 
  29. ^ Tim Cook. "A Message to the Apple Community in Europe". Retrieved 3 September 2016. 
  30. ^ "The EU says Ireland needs to hurry up and collect its €13 billion from Apple". The 20 May 2017. 

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