Google putting an end to controversial Dutch, Irish tax scheme
The company however states it had already deserted the “Double Irish, Dutch Sandwich” back in 2017Europost
As of 2020 Google’s parent company Alphabet would no longer exercise an intellectual property licensing scheme called as the “Double Irish, Dutch Sandwich” - a technique to avoid taxes by using Irish and Dutch subsidiaries to shift profits to low or no tax jurisdiction areas, which had been allowing the California-based Alphabet Inc. and other big tech companies to delay paying off taxes in the United States.
The name comes from the strategy of moving money from an Irish subsidiary to a Dutch holding company, and then back to an Irish shell company located in Bermuda that has the rights to license Google intellectual property, thus the “Dutch sandwich” in between. Bermuda has no corporate income tax, making it a lucrative final stop to report income. The whole process effectively avoids paying US income tax and European withholding taxes on overseas profits, although some money is still paid to the Irish government. According to Reuters, Google has this way moved $23bn to Bermuda in 2017 alone using this tax avoidance strategy.
In 2014, facing mounting pressure from the EU and the US, Ireland closed these loopholes. Companies were given until 2020 to comply with the new regulations, which is why Google is just changing its tax structure now.
“We’re now simplifying our corporate structure and will license our IP (intellectual property) from the US, not Bermuda. Including all annual and one-time income taxes over the past ten years, our global effective tax rate has been over 23%, with more than 80% of that tax due in the US”, the spokesman said this week.
Meanwhile, in the US, the Trump administration has also tried to incentivise companies to return profits to the US by lowering the corporate tax rate from 35% to 21%. The Tax Cuts and Jobs Act of 2018 allowed companies to return money made overseas to the US without facing more US taxes. These changes could prove critical for Google, which is sitting on tens of billions in overseas earnings.
“A date of termination of the Company’s licensing activities has not yet been conﬁrmed by senior leadership, however, management expects that this termination will take place as of 31 December 2019 or during 2020”, the however said in its filing.