Irish government prepared to deal with tax loophole

Irish government prepared to deal with tax loophole

According to The Wall Street Journal, the Irish government has agreed to phase out several tax structures that international internet companies use to save millions.

"Double Irish Dutch Sandwich"

Ireland was more or less forced to counter the continuing criticism by the Organisation for Economic Co-Operation and Development and the European Union on the Irish tax structures, which greatly benefit companies like Google, Facebook and Apple, will be slowly phased out.

 

Particularly the so-called "Double Irish Dutch Sandwich" construction is a huge annoyance for the OECD and the EU: an American company can sell its international rights to a subsidiary in Ireland, formally registered in a tax haven. That Irish company will then license its rights to a Dutch company (often a mailbox company) for a fixed fee. That Dutch company will then license those rights back to another Irish company. The goal is to minimize taxes and to funnel profits to tax havens and it is a profitable operation: Apple only paid 1.9 % taxes on its 37 billion dollar profit from outside the United States.

 

The Irish government is now under increased European pressure to change its tax policy. "All the signals we are getting are that it is happening this year," said Feargal O’Rourke, head of tax for pwc in Dublin. That will not happen overnight though as specialists believe it will consist of a transition period from 3 to 7 years. That way, companies can take the necessary steps to comply with new regulation. According to The Wall Street Journal, technological and pharmaceutical companies are already planning for the possible changes.

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