By Andrew Lambe, 22nd February 2011.
So far in 2011, Ireland continues to attract the cream of foreign direct investment, due to its pro-business attitude and environment, its status as the only english-speaking eurozone member, and its ultra-competitive corporate tax rate of 12.5%.
Up to the 14th February 2011, figures show that new company incorporations in Ireland have risen almost 10% on the same period in 2010. Despite Ireland’s well publicised banking crises, there is never a better time to start or expand a company into Ireland. Lost competitiveness has been re-gained with interest – Property rents, salaries and business costs are down more than 20% in most cases, with taxation and incentives as good as ever.
What is the ‘Dutch Sandwich’ or the ‘Double-Irish’
The ‘Dutch Sandwich’ or the ‘Double-Irish’ is a method of tax planning used by Google in Ireland, which enabled Google to slash its tax bill by €2.2 billion and cut its overseas tax rate to 2.4 per cent.
Under a deal approved in 2006 by the US tax authorities, Google licenses the rights to its search and advertising technology for the Europe, Middle East and Africa region to Google Ireland Holdings. This has been an unlimited liability company since 2006, meaning under Irish rules it is not required to disclose income statements or balance sheets.
That licensee in turn owns Google Ireland Limited, which employs almost 2,000 people in central Dublin. The Dublin subsidiary sells advertising worldwide and was credited by Google with 88% of its $12.5 billion in non-U.S. sales in 2009.
Allocating the revenue to Ireland helps Google avoid taxes in the U.S., where most of its technology was developed. The arrangement also reduces the company’s liabilities in relatively high-tax European countries where many of its customers are located.
The profits don’t stay with the Dublin subsidiary, which reported pre-tax income of less than 1% of sales in 2008, according to records. That’s largely because it paid $5.4 billion in royalties to Google Ireland Holdings, which has its “effective centre of management” in Bermuda, according to company filings.
Tax planners call such an arrangement a Double Irish because it relies on two Irish companies. One pays royalties to use intellectual property, generating expenses that reduce Irish taxable income. The second collects the royalties in a tax haven like Bermuda, avoiding Irish taxes.
To steer clear of an Irish withholding tax, payments from Google’s Dublin unit don’t go directly to Bermuda. A brief detour to the Netherlands avoids that liability, because Irish tax law exempts certain royalties to companies in other EU- member nations. The fees first go to a Dutch unit, Google Netherlands Holdings B.V., which pays out about 99.8% of what it collects to the Bermuda entity, company filings show. The Amsterdam-based subsidiary lists no employees.
It’s not only the large multi-nationals who can avail of such effective tax planning such as the ‘Dutch Sandwich’. Discerning entrepreneurs from all over the globe have established companies in Ireland to avail of low corporation taxes, which can even be as low as 0% for the first 3 years for New Companies set up in 2011 (once they have employees)