Today, we will read about the ‘Double Irish Dutch Sandwich’ and how big giants such as Apple, Google etc. use it to avoid getting taxed heavily in the United States.
The historic Apple win where Apple successfully avoided paying $13 billion in taxes to Ireland’s government, substantiates the loopholes present in the system and how companies can unfairly save billions of dollars, if they play the part correctly.
The Double Irish Dutch Sandwich
The double Irish with a Dutch sandwich is a tax avoidance technique employed by large corporations, such as Google, Apple and Microsoft. This construction is called double Irish because two Irish companies are used in the arrangement. It involves the use of a combination of Irish and Dutch subsidiary companies to shift profits to low tax jurisdictions. One of the Irish companies is tax resident in a tax haven, such as the Cayman Islands or Bermuda. The double Irish with a Dutch sandwich’s essence is to send profits first through one Irish company, then to a Dutch company and finally to a second Irish company headquartered in a tax haven (the ultimate owner of the intellectual property).1
The Apple Case
In 2014, the European Commission announced an in-depth investigation into the books of the premium technology company ‘Apple’. After a deep investigation of two years the commission concluded that two tax rulings in 1991 and 2007 issued by Revenue to Apple had "substantially and artificially lowered the tax paid by Apple in Ireland since 1991." The commission alleged that Apple was getting selective tax treatment which is illegal under EU state aid rules. The company jointly with Ireland appealed against it.
Now on Wednesday, July 15, 2020, the 27 Member bloc’s second highest court on Wednesday ruled in favour of tech giant Apple holding that the holding company did not owe the Irish government €13bn (around Rs 1.1 lakh crore) in back taxes. This annulled the European Commission’s 2016 decision in which the commission determined that Ireland illegally subsidized Apple by allowing it to pay too little tax.2 The judges of European General Court (EGC) ruled that the Commission "did not succeed in showing to the requisite legal standard" that Apple had received tax advantages from Ireland, and ruled in favour of Apple.3 The General Court further added "The Commission was wrong to declare that [two Apple subsidiaries in Ireland] had been granted a selective economic advantage and, by extension, state aid." Establishing "selective advantage" is a key part of any state aid case, and it was necessary to show that Apple received a tax perk that would have been unavailable to other companies.”4
Why did Ireland refuse the money?
Ireland’s low corporate tax is a key feature of its economic policy. It is the second lowest in the EU, at 12.5%. It also has a lenient data protection regime. These factors have been instrumental in attracting large tech companies to the island, where American companies like Apple directly or indirectly account for about 20 percent of all jobs, according to a Bloomberg report.5 Moreover US-controlled multinationals are 25 or Ireland’s top 50 companies which pay over 80% of all Irish corporate taxes and directly employ 10 percent of the Irish labour force which rises to 23 percent when public sector, agriculture and finance jobs are excluded (and indirectly pay half of all Irish salary taxes); and are 57 percent of all non-farm OECD value-add in the Irish economy. In June 2018, the American–Ireland Chamber of Commerce estimated the value of US investment in Ireland was €334 billion, exceeding Irish GDP (€291 billion in 2016). In contrast, there are no non–US/non–UK foreign multinationals in Ireland's top 50 firms.3 Therefore, in an attempt to protect its image as an investment destination for the giants & maintain the employment of its citizens as well as the taxes received from these multinationals, the Irish Government jointly appealed with the company against the European Commission’s decision.
On 15 July 2020, the European General Court ruled that the Commission "did not succeed in showing to the requisite legal standard" that Apple had received tax advantages from Ireland, and ruled in favour of Apple.3
Next Steps
EU competition chief Margrethe Vestager has taken upon herself to continue to fight tax measures that are unfairly used by multinational companies. The competition chief in a press release stated “Today's judgment by the General Court annuls the Commission's August 2016 decision that Ireland granted illegal State aid to Apple through selective tax breaks. We will carefully study the judgment and reflect on possible next steps.” She further stated “The Commission will continue to look at aggressive tax planning measures under EU State aid rules to assess whether they result in illegal State aid. At the same time, State aid enforcement needs to go hand in hand with a change in corporate philosophies and the right legislation to address loopholes and ensure transparency. We have made a lot of progress already at national, European and global levels, and we need to continue to work together to succeed.”6
The statement clarifies that the competition chief would not stop with this defeat and continue to fight along these issues, which also play a key role in her campaign. Moreover, in 2018 Apple started allocating money in case it had to pay back $13 billion back to Ireland. The money is currently sitting in an escrow account.
Well, we should grab some chips and eye for the chief’s next steps for this is going to be a long and hard fight.
Sources:
Author:
Pragya Modi
An inquisitive person, can be found binge watching Suits.