Double Irish-Dutch Tax Sandwich (Part 2 of 2)

Animated Example

Here is an example of how the Double Irish-Dutch Sandwich exploits these loopholes (note: enlarge illustration to click through slide show):

  1. A U.S. company licenses Ecommerce merchandise (downloadable books, music, apps)1 to an Irish subsidiary (IP Holder) with its managers located in a tax haven, thus shifting IP Holder’s tax residence to the tax haven.
  2. IP Holder then licenses the rights to sell the merchandise to a Dutch company (Dutch), wholly-owned by IP Holder.
  3. Dutch then sub-licenses the rights to sell the merchandise to Irish another wholly-owned subsidiary of IP Holder (IP Seller) with a tax residence and employees located in Ireland.
  4. IP Seller then sells the merchandise in every country except the U.S. IP.
  5. Seller receives revenues nominally taxable in Ireland, but then pays almost all the revenue to Dutch as tax-deductible royalty payments. The small profit remaining is taxed by Ireland at 12.5%. Because the royalty payment was made to the Dutch subsidiary, located in the Netherlands and a country within the EEC, there is no withholding tax imposed by Ireland.
  6. The Netherlands imposes a miniscule fee on the royalty income, and the income is then transferred to IP Holder in Bermuda (or other tax haven). Generally, the tax amount is negotiated with the Netherlands tax authorities.
  7. The profits are received in Bermuda, a tax-haven that imposes no income tax. The funds can be reinvested and grow tax-free, and will not be taxed by the U.S. until the money is actually sent back to the U.S. parent company.
  8. Often, the tax-haven company will have the legal status of an unlimited liability company, which means that the Irish companies are not required to disclose financial information, thereby shrouding their operations in secrecy, even though the company is incorporated in Ireland.
  9. The U.S. parent corporation generally treats its Irish subsidiary as a “disregarded entity” for U.S. tax purposes, so the Double Irish-Dutch Tax Sandwich is not visible on the U.S. parent’s tax return. As a result of this technique, hoards of cash sit offshore to the dismay of shareholders who want the funds distributed as dividends.

Of course, the big loser is the U.S. Treasury, because this artificial set of transactions robs it of billions in tax revenues.


Multinational corporations are successfully diverting billions of dollars into off-shore tax havens through gambits like the Double-Dutch Irish Tax Sandwich, and by doing so, robbing the Treasury of much-needed tax revenues.

Now there is talk that the corporations may be willing to repatriate the funds, provided they receive a special tax rate of 5% (instead of the 35% corporate tax rate).  Highway robbery? –you be the judge.


1.  This initial transfer is a taxable sale by the parent to the subsidiary under U.S. law, but the transfer invariably occurs before the parent becomes a public corporation, when its value is a fraction of the post-IPO valuation. Often, the parent capitalizes the subsidiary with the funds needed to pay back the parent.

There is usually a cost-sharing arrangement between the parent and subsidiary for future expenditures which effectively reduces the taxes paid by each party on income generated by the transfer of IP by 50% to 80%. Thus, for a minimal on-going cost, parent transfers the Ecommerce IP to its subsidiary, which then sells the IP worldwide and pays negligible taxes on its profits.

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