Wednesday, January 13, 2016

Apple's Double Irish Scam

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 pricingrules.[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..[2] In 2010 a law intended to counter such arrangements was passed,[where?]though existing arrangements were exempt and lawyers have said that this change will cause no significant problems for multinational firms.[3]
In 2013, the Irish government announced that companies which incorporate in Ireland must also be tax resident there. This counter-measure took effect in January 2015, for newly incorporated companies, and will take effect in 2020 for companies with existing operations in Ireland.[4] Irish Finance Minister Michael Noonan, during the presentation of his 2015 budget, said that he believed this would align Ireland's corporate tax regime with international best practice.[5]

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 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 theNetherlands, 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 part of the scheme is referred to as the "Dutch sandwich".[7][8] The Irish authorities never see the full revenues and hence cannot tax them, even at the low Irish corporate tax rates.

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