Double Irish Dutch Sandwich : How MLCs use it to avoid taxes?

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tax-avoidance
Courtesy: ipleaders.in



Utkarsh Agarwal



If there is something that has caused much of the nuisance in this world, although lesser than the pandemic, then it should be this nasty thing called "double Irish Dutch Sandwich". And no matter how many countries embrace communism (the chances of which are very thin), the difference between rich and poor will always get wider. What is it anyway? Let's find out.

What is Double Irish with A Dutch Sandwich?

It is a tax avoidance mechanism adopted by various Multi National Companies. The name is derived from setting up of two subsidiary companies in Ireland and another in Netherlands. The Irish tax mechanism mandates that a company can be a resident from the place of management rather than the place of incorporation if the company controlling it resides in a country that has double tax treaty with Ireland.
Hence, Subsidiary 1 will have its place of management in pure Tax Haven (like Mauritius). An MNC in India transfers intellectual property to subsidiary 1 (S1) in Ireland and S1 licenses these IPRs and Tech to subsidiary 2 (S2) (also incorporated in Ireland). S2 does the actual sales and transactions. It earns profits and gains which are then transferred to another subsidiary (S3) in Netherlands.  

Why a Dutch subsidiary?

 If S2 sends gains directly to S1, it will become liable for Irish Withholding Tax. But if it send dividend to a Dutch company i.e., S3, then according to EC directive 2003/49 interests and royalty payments made to a company in a member state by a company in another member state is tax free. Now, this tax free income is sent back to S2. 

YES, this is pure legal.

*the blog author doesn't encourage reader to indulge in any tax avoidance practice


Location: Unnamed Road, Korah Raghupura, Uttar Pradesh 202129, India

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