The Double Irish with a Dutch Sandwich (the Double Dutch) is one of the strategies that huge US multinational companies such as Google, Facebook and Apple use to reduce their tax liability. It is very ingenious, and very controversial. In this post, we’ll tell you all about what the strategy is and how it works.

Now, before we launch into it, it’s important to get one thing straight: Tax Avoidance is a legal way to reduce tax liability.

The fact that companies use the Double Dutch to avoid taxes they should ordinarily pay does not mean that it is illegal. In fact, it is quite legal because what they simply do is play by the rules enacted by the countries where they are expected to pay tax. But what the tax authorities weren’t counting on is that they’d get so good at playing with the rules.

In order to understand why companies use the Double Dutch, you need to also understand what their tax burden is, generally.


How much taxes are companies expected to pay?

Practically everywhere in the world, companies are required to pay a percentage of their profits as tax. The reasoning behind this is that the companies are expected to pay for the privilege of doing business in a country.

Company tax rates around the world vary though. In fact, in some countries, the tax rate is very little or zero. This is why countries like that are called “Tax Havens”, because doing business there is not so taxing.

The average company tax rate around the world is somewhere between 25% – 35%. In Nigeria, that rate is 30%, as provided under the Companies Income Tax Act. In the US, that tax rate was about 35% (it has now been reduced to 21%) and it is applicable to the worldwide income of US companies.

So, for many US companies, the question is: why cough up 35% of my profits when I can legally get away with paying much less? Dramatically enters the Double Dutch.

The Double Irish with a Dutch Sandwich: How it works

In order for the Double Dutch to work, there must be two basic structures: the “Double Irish” and the “Dutch Sandwich”. And then, there must be Intellectual Property (IP) rights involved.

It is important to note that the strategy often works best for huge tech companies because they can easily shift huge chunks of profit by assigning intellectual property rights to offshore subsidiaries. As such, the Double Dutch is essentially an IP-based tool.

The Double Irish

Ireland is a low tax paying regime. In fact, its tax rate, at 12.5%, is one of the lowest tax regimes in the world for active companies with trading income. This is why it’s not only big for tax avoidance, it also appears twice for this strategy.

The Double Irish means the scheme involves two Irish registered companies. Typically, one of the companies will be liable to tax in Ireland, while the other will be liable to tax elsewhere. How is this possible? Well, a weird quirk in the Irish Tax Code allows a company to be liable to tax elsewhere if it is “effectively managed” in another country.

Usually, the second Irish company will be “effectively managed” in some sunny tax haven where tax rates are either heavenly or non-existent. Now, for some sandwich.

The Dutch Sandwich

The Dutch Sandwich is also a company. This time, registered in the Netherlands. The essence of having a Dutch company in the mix is to take advantage of two things. First, payments transferred between European countries don’t get taxed. So, a payment from an Irish company to the Dutch company, which should ordinarily attract withholding tax, moves tax free. Second, the Netherlands does not charge withholding tax on royalty payments. This way, the company can avoid both corporate and withholding taxes.

So, the Dutch sandwich can help the company avoid taxes that would have otherwise applied to profits made by its Irish subsidiary.

Intellectual Property Rights

IP is significant here because, under OECD rules, companies can charge IP as an intangible asset to the end user.

This is big for companies using this strategy. Imagine I own a tech company – Life is Eazi Inc. that has patented some product. This means that Life is Eazi Inc. has the right to exclude others from using, making or selling the product for a period of time. If the patent is held by my Nigerian subsidiary, my Nigerian subsidiary can legally charge “royalty payments” on any of my products that is sold anywhere in the world.

So, if I sell a product in the US, ordinarily, the profit should be taxable there. But I can simply charge royalty payments on my subsidiary that sold the product and then it has to pay the money to my Nigerian subsidiary. Sweet unh?

How it all comes together

Now, let’s assume we’re Nefarious LLC, tech moguls with a product that sells like crazy, and we’re trying to save a few extra Naira on those taxes.

First thing we’d do is set up a company in Ireland but make it so that the effective management of the company is based in a Tax Haven, say Cayman Islands. As such, this company is Irish, but cannot be subject to Irish taxes because it is managed in the Cayman Islands. This is Company A.

In order to make the strategy work, we’ll transfer rights in the patent to our crazy product to Company A so they can legally collect all the profit from the product sales.

Next, we’ll set up another Irish company. This time around, the company is managed in Ireland and subject to Irish taxes. This is Company C. Right in the middle is the Dutch company, set up in the Netherlands. This is Company B.

So, we’ve created a product that is making mad waves around the world. Let’s say we create it for $5. Next thing we’d do is sell it to Company A for $5. Company A revalues it to $500 and in turn licenses it to Company B, which then licenses it to Company C.

Company C sells the product in the US and makes $500 on each. Ordinarily, this income would have been liable to tax in the US but then, Company C transfers that $500 to Company B as royalty payments on the license it was so graciously obliged. So, it posts no taxable profits.

As you already know, this money won’t get taxed in Ireland because payments between EU nations are tax exempt. Company B receives the money and then sends it over in the form of royalty payments to Company A, which is the real owner of the license.

Again, the money will not get taxed in the Netherlands because royalty payment schemes are tax exempt. When the money gets to Company A, it won’t get taxed either, because it is not resident for tax purposes in Ireland. It is only liable to taxes in Cayman Islands (which we know will impose little or zero taxes). Once the money gets to the Cayman Islands, it can be held there forever and ever.

One question that pops up though is: how do we now get our money? If we get a transfer from Company A, the money will automatically become liable to tax, as per the United States’ universal tax laws. So what we’ll do is get the money back as a loan from Company A.

This way, we can implement the money as we want and represent to the tax authorities that what we have is a loan that we must pay back. The end.

Don’t try this at … work

Well, there’s nothing left to try anyway. The EU got very interested in the Double Dutch back in 2014, especially on the back of reports that it has been used to shield more than $1 trillion dollars in taxable profit. So, Ireland had to close up the loopholes.

The only ones that will be enjoying the strategy for now are those companies that have been using it before 2014. They will be allowed to withdraw over a period that will end in 2020.


Opeoluwa Sanni is a keen thinker, orator and writer (most often in that order). He is a final year law student at the University of Ilorin and an unapologetic taxophile. His enduring interest in tax has led him into august fora of tax thought such as the CITN Annual Tax Conference. He has also participated, with distinction, at several Tax Competitions including the Youth Tax Summit 2017 and the National Tax Debate 2018. He can be found following Arsenal FC, when he’s not too busy thinking. 

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