The“‘Double Irish” is a method by which a U.S. parent company creates two Irish subsidiary companies. One Irish subsidiary is managed and controlled from Bermuda (or another low-tax jurisdiction), so the U.S. parent company avoids the 35 percent U.S. corporate tax rate. The 2007 paper, “Double Irish More Than Doubles the Tax Saving: Hybrid Structure Reduces Irish, U.S. and Worldwide Taxation” by Joseph B. Darby III and Kelsey Lemaster (see below), popularized the term “Double Irish,” but didn’t coin it. Jesse Drucker wrote about the “Double Irish” for Business Week in 2010, and Google’s use of the “Double Irish” made news in October 2010.
Another tax scheme (involving a different European country) is the “Dutch sandwich.”
Double Irish More Than Doubles the Tax Saving: Hybrid Structure Reduces Irish, U.S. and Worldwide Taxation
Practical US / International Tax Strategies
People: Joseph B. Darby III
Experience: Global | Tax
Related Offices: Boston
Kelsey Lemaster (Tyco Healthcare)
Some well-known U.S. software companies have made headlines in recent years by opening “operations centers” in Ireland, i.e., Irish affiliates that offer software and related services to customers in Euro[e and the Middle East. Ireland is an attractive venue for performing these functions because of the favorable interaction between the Irish corporate tax regime (with a maximum corporate tax rate of 12.5 percent on active business income) and the tax rules of the United States.
This article exmaines how U.S. software companied (and other U.S. companies with valuable intellectual property) can use Ireland as a center for manufacturing, distributing, and selling goods and services outside the United States, with particular focus on a business structure commonly known as the “Double Irish.”
The Double Irish Structure
Seeking to combine opportunities presented by the favorable irish tax regime and the U.S. entity classification rules, taxpayers and their advisers have developed a hy brid structure that allows software sales to be made through an Irish subsidiary to customers in non-U.S. jurisdictions while greatly reducing Irish, U.S. and worldwide taxation. Known informally as the “Double Irish,” this structure calls for a U.S. parent corporation to create two Irish subsidiaries, “Sub1” and “sub2.” Sub1 is a first-tier Irish subsidiary of the U.S. parent, organized under Irish law but managed and controlled from Bermuda (or some other low-tax jurisdiction). Sub2 is wholly-owned by Sub1 and is organized, managed and controlled in Ireland.
Companies Dodge $60 Billion in Taxes Even Tea Party Condemns
May 13, 2010, 3:40 PM EDT
By Jesse Drucker
‘The Double Irish’
On advice from Ernst & Young, Forest Laboratories Ireland reorganized that year, dropping the country from its name. The newly dubbed Forest Laboratories Holdings Ltd. established a registered office in Hamilton, Bermuda, declaring the island its tax residence. This unit took control of licensing the patents.
A second subsidiary in Ireland inherited the old name. It handled the manufacturing, sublicensing the rights to the patents, according to a corporate disclosure and an internal Forest flow chart tracing the arrangement that was reviewed by Bloomberg.
The change helped the Irish subsidiary cut its effective tax rate to 2.4 percent from 10.3 percent the year before the reorganization, according to its annual reports. It did so by deducting from its taxable income the fees that went to Bermuda, which has no corporate income tax. Charlie Perkins, a spokesman for Ernst & Young, one of the so-called Big Four accounting firms, declined to comment on its work for Forest.
International tax planners have a nickname for the type of structure the drugmaker adopted: the Double Irish.
“Double Irish More than Doubles the Tax Savings,” was the headline in a 2007 issue of the trade publication International Securitization & Finance Report over an article describing the model by a pair of U.S. tax attorneys, Joseph B. Darby III and Kelsey Lemaster.
International Tax Blog
May 20, 2010
Double Irish Structure - Time for a New Tax Penalty?
Jesse Drucker of Bloomberg recently published an article discussing a cross-border tax strategy known as the “Double Irish.” Under this structure, large U.S.-based multinational corporations set up manufacturing operations in Ireland, but record most of their profits in Bermuda.
According to the article, the profits of the Irish/Bermuda subsidiary are subject to an effective tax rate of 2.4%. The Irish subsidiary profits are often attributable to products sold in the U.S. With U.S. federal and state corporate income tax rates in the range of 40%, these multinationals substantially reduce their effective tax rates by shifting profits (and often jobs) outside the U.S.
With such a tax rate differential, multinationals put forth significant efforts into substantiating why their Irish/Bermuda operations should be so profitable. The profits are shifted to Ireland in related party transactions. The multinationals must apply the “arms-length” standard for transactions between related parties.
Mankato (MN) Free Press
Weird News: The ‘Double Irish’ tax dodge
By Chuck Shepherd
News of the Weird The Mankato Free Press
Fri Aug 27, 2010, 10:59 PM CDT
— It is common knowledge that American corporations avoid taxes by running U.S. profits through offshore “tax havens” like the Cayman Islands and Bermuda, but a May Bloomberg Business Week investigation traced the specific steps that the pharmaceutical company Forest Labs takes to short the U.S. Treasury. Although Forest’s anti-depressant Lexapro is sold only in the U.S., the company’s patent is held by an Irish subsidiary (and since 2005, shared with a Bermuda subsidiary in a tax-code hocus-pocus that insiders call the “Double Irish”), which allows the vast majority of the $2 billion Forest earns a year on Lexapro to be taxed at Ireland’s low rate (and at Bermuda’s rate of zero). Bloomberg estimates that the U.S. Treasury loses at least $60 billion annually by corporations’ “transfer pricing” — enough to pay for the entire Department of Homeland Security for a year.
Technology October 21, 2010, 8:00AM
The Tax Haven That’s Saving Google Billions
Google uses a complicated structure to send most of its overseas profits to tax havens, keeping its corporate rate at a super-low 2.4 percent
By Jesse Drucker
In Bermuda there’s no corporate income tax at all. Google’s profits travel to the island’s white sands via a convoluted route known to tax lawyers as the “Double Irish” and the “Dutch Sandwich.” In Google’s case, it generally works like this: When a company in Europe, the Middle East, or Africa purchases a search ad through Google, it sends the money to Google Ireland. The Irish government taxes corporate profits at 12.5 percent, but Google mostly escapes that tax because its earnings don’t stay in the Dublin office, which reported a pretax profit of less than 1 percent of revenues in 2008.
Irish law makes it difficult for Google to send the money directly to Bermuda without incurring a large tax hit, so the payment makes a brief detour through the Netherlands, since Ireland doesn’t tax certain payments to companies in other European Union states. Once the money is in the Netherlands, Google can take advantage of generous Dutch tax laws. Its subsidiary there, Google Netherlands Holdings, is just a shell (it has no employees) and passes on about 99.8 percent of what it collects to Bermuda. (The subsidiary managed in Bermuda is technically an Irish company, hence the “Double Irish” nickname.)
New York magazine - Daily Intel
Google Uses the ‘Double Irish’ and the ‘Dutch Sandwich’ to Avoid Billions in Taxes
10/21/10 at 11:37 AM
Over the past three years, reports Bloomberg, Google has managed to sidestep paying $3.1 billion, getting its tax rate to a shocking 2.4 percent, the lowest of the top five American tech companies. Corporate income-tax rate in the U.S. is 35 percent. Like Facebook and Microsoft, Google uses the tax law that lets companies move profits into and out of subsidiaries in Ireland, leveraging strategies known to lawyers as the “Double Irish” (because it relies on two Irish companies) and the “Dutch Sandwich” (because profits make a stopover in the Netherlands between Ireland and Bermuda or the Cayman Islands). Hey, it’s tax law — they have to sex it up somehow.
New York City • Banking/Finance/Insurance • (0) Comments • Friday, October 22, 2010 • Permalink