Double Irish arrangement

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The double Irish arrangement is a tax avoidance strategy that some multinational corporations use to lower their corporate tax liability. The strategy uses payments between related entities in a corporate structure to shift income from a higher-tax country to a lower-tax country. It relies on the fact that Irish tax law does not include US transfer pricing rules.[1] Specifically, Ireland has territorial taxation, and hence does not levy taxes on income booked in subsidiaries of Irish companies that are outside the state.

The double Irish tax structure was pioneered in the late 1980s by companies such as Apple Inc., according to Charles Duhigg of the New York Times.[2] However, various measures intended to counter such arrangements have been passed in Ireland as early as 2010.[3] In 2013, the Irish government announced that companies which incorporate in Ireland must also be tax resident there. This counter-measure is proposed to take effect in January 2015.[4]


Typically, the company arranges for the rights to exploit intellectual property outside the United States to be owned by an offshore company. This is achieved by entering into a cost sharing agreement between the US parent and the offshore company, written strictly in terms of US transfer pricing rules. The offshore company continues to receive all of the profits from exploitation of the rights outside the US, but without paying US tax on the profits unless and until they are remitted to the US.[5]

It is called double Irish because it requires two Irish companies to complete the structure. 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 US, 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 US 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 of Ireland, in Bermuda or another tax haven.

Ireland does not levy withholding tax on certain receipts from European Union member States. Revenues from sales of the products shipped by the second Irish company (the second in the double Irish) are first booked by a shell company in the Netherlands, taking advantage of generous tax laws there. Overcoming[clarification needed] the Irish tax system, the remaining profits are transferred directly to Cayman Islands or Bermuda. This entire scheme is referred to as the "Dutch sandwich".[6][7] 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.[8] A 2010 Irish law brought Ireland into line with most of its trading partners by introducing a formal regime 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]

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. It is proposed to take effect in January 2015.[4]

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.[9]

Companies using the arrangement[edit]

Major companies known to employ the double Irish strategy are:


  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. ^ 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.
  6. ^ "'Dutch Sandwich' saves Google and many other U.S. companies billions in taxes". MSNBC. 22 October 2010. 
  7. ^ "Man Making Ireland Tax Avoidance Hub Proves Local Hero"
  8. ^ a b c d e f Drucker, Jesse (21 October 2010). "Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes – Bloomberg". 
  9. ^ From Google to FedEx: The Incredible Vanishing Subsidiary
  10. ^ "Abbott Laboratories Irish subsidiary paid no tax on €1.8 billion profit". The Irish Times. 31 May 2013. 
  11. ^ "Abbott subsidiaries paid no tax on €2.9 billion profits". Slido Today. 
  12. ^ a b c d e f g Chitum, Ryan (2007). "How 60 billion are lost in tax loopholes", Bloomberg.
  13. ^ "How Google saved $2 billion in income tax – Times of India". 11 December 2012. 
  14. ^ "IBM gooses its sales numbers thanks to overseas tax tricks". ARS Technica. 4 February 2014. 
  15. ^ "Corporate Tax 2014: Yahoo! joins "Double Irish Dutch Sandwich" club; IDA Ireland wants more members". FinFacts Ireland. 10 February 2014. 

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