Thursday, September 25, 2014

Double Irish and a Dutch Sandwich

United States based companies are becoming more and more efficient at evading the (somewhat) hefty 35% corporate tax rate.  This article specifically mentions how Apple and other tech companies can enormously lower their taxed profits (from intellectual property created in the U.S.) by establishing subsidiary firms in Ireland.  Unfortunately the author doesn't go into more specifics about this strategy, however, it's one that Apple pioneered and one that many other multinational technology firms followed.  It's extremely complex, however, I'll offer a consolidated explanation. 

This tax evading strategy is known as a "double Irish with a Dutch sandwich," where multinational firms establish two Irish subsidiary firms (the bread); one located in Ireland and one based in Ireland, yet located in a tax haven such as the Cayman Islands, which is given certain intellectual property rights (mainly specific to technology firms).  Next, a Dutch subsidiary (due to hospitable tax laws in the Netherlands), is established (meat of the "sandwich") and profits are then routed through (in order) the Irish, Dutch, and end in the Irish based subsidiary located in the Cayman Islands.  The end result is a much lower corporate tax levied on these multinational parent companies.  

Similar strategies used by U.S. multinational corporations take place in Switzerland and Luxembourg.  

Do you think this strategy (and others like it) should be allowable or is it a blatant disregard for law?

Should the U.S. lower the corporate tax rate to provide a disincentive for this strategy or make stricter policy to simply outlaw it? 


2 comments:

  1. I personally find the US corporate tax rate to be ridiculously high. I don't blame corporations for trying to escape to other countries to try to lighten their tax burden. I think the United States needs to lower the corporate tax rate to not only prevent US corporations from leaving, but also possibly attract foreign companies. However, if nothing changes, I think corporations should have the ability to leave despite being "economically unpatriotic".

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  2. I also think that the US corporate tax rate is very high. It seems to me that these corporations have found a "loop hole" in the system that allows them to pay less taxes. I also wouldn't be surprised if this "loop hole" by the government was left open thanks to lobbyists. If the large corporations can pay to have these loop holes kept open, why would anyone do anything to change? The corporations are happy, they pay less taxes, and government officials get the backing of these companies. I don't know for sure that this is what is happening, but it wouldn't surprise me.

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