Some companies generate billions of dollars in sales and yet little tax goes to the tax authorities. By using tax-saving models, companies can easily avoid high tax expenses. Researchers have found that multinational companies shift 40 percent of their profits to tax havens. As a result, hundreds of billions of euros flow past the authorities in Europe and the USA alone every year.
A certain tax-saving model has made this possible over the years. The "Double Irish with a Dutch Sandwich" favours above all the American tech companies, such as GAFA. New legislative changes are to put a stop to this from 2020. The present study shows which legal foundations have made tax avoidance in the billions possible in the first place, how corporations have taken advantage of them and what financial effects this may have on the profitability of a company. Furthermore, it is examined which consequences currently valid legal changes have within the profit and loss account of a company.
Table of Contents
1. Introduction
2. Research question and reflection
2.1 Aim of the work
2.2 The current state of research
2.3 Structure and methodology
3. Tax saving models
3.1 Double Irish With a Dutch Sandwich
3.2 Legislative changes
4. Analysis of Google
4.1 Application of a tax saving scheme
4.2 Analysis and planning of P&L Statement
4.3 Examination of the effects
5. Evaluation and outlook
Objectives & Core Topics
This study aims to examine the "Double Irish with a Dutch Sandwich" tax-saving model by analyzing the legal foundations and the practical application by Google. The core objective is to calculate the potential tax savings for Google between 2017 and 2019 and to project the financial impact of recent legislative changes on the company's profit and loss account for the year 2020.
- The mechanics of the "Double Irish with a Dutch Sandwich" tax avoidance strategy.
- Evaluation of tax law changes impacting multinational corporations in Ireland.
- Quantitative analysis and forecasting of Google Ireland Ltd's P&L statements.
- Assessment of the economic impact on Ireland's GDP and national budget.
Excerpt from the Book
3.1 Double Irish With a Dutch Sandwich
The core element of tax avoidance via the "Double Irish with a Dutch Sandwich" are constructions by means of licensing agreements, which can reduce profits in a high-tax country. The licensee, who is a resident in a high-tax country, owes the licensor, who is a resident in a low-tax country or tax haven, a considerable license fee.11 The licensee thereby reduces his profit, which is correspondingly subject to a lower tax burden. The license fee then flows to a low-tax state with more favourable tax conditions.
In the case of the "Double Irish with a Dutch Sandwich" three companies, two Irish and one Dutch, are required for the application. First, the intellectual property licenses are transferred to the first Irish company, which then grants the licenses to the Dutch subsidiary. Then the Dutch subsidiary grants the licenses to the second Irish subsidiary. In addition, the Netherlands has a so-called "patent box" regulation, which provides for a very low tax burden of 5 percent on licensing income.12 This model gave rise to the name "Double Irish with a Dutch Sandwich", as the Dutch company, packaged like a sandwich, transfers pay to a low-tax country.
Since, under international tax law, permanent establishments are also largely treated as independent business units, they are taxed separately.13 As a result, group entities may transfer their profits to another country.
Tax avoidance strategies of this kind are easier to implement for large corporations than for small and medium-sized enterprises.14 Especially IT groups, which achieve their value through a high level of intellectual property and therefore have this value shifted within the group through licensing agreements, it is therefore easy to apply this model.15
Summary of Chapters
1. Introduction: This chapter provides an overview of how multinational corporations utilize tax-saving models to shift profits to tax havens and outlines the research objective regarding Google and recent legal changes.
2. Research question and reflection: This section defines the scope of the study, reviews the current state of academic research on group taxation, and describes the methodology used to analyze financial statements.
3. Tax saving models: This chapter explains the structural mechanics of the "Double Irish with a Dutch Sandwich" and provides context on the legislative countermeasures taken by the Irish government.
4. Analysis of Google: This chapter performs a detailed empirical application of the tax-saving model to Google's financial data, calculating potential savings and the projected impact of law changes on the company's P&L.
5. Evaluation and outlook: This final chapter synthesizes the study's findings, acknowledges the limitations of the analysis due to the lack of internal company data, and offers reflections on future corporate tax planning.
Keywords
Tax avoidance, Double Irish, Dutch Sandwich, Google, multinational corporations, P&L statement, license fees, intellectual property, tax law, financial planning, Ireland, tax havens, corporate taxation, profit shifting, legislative changes.
Frequently Asked Questions
What is the primary focus of this research paper?
The paper focuses on the "Double Irish with a Dutch Sandwich" tax avoidance model and evaluates how changes in tax laws, particularly those enforced in Ireland, impact the financial performance of multinational corporations like Google.
What are the central themes of the work?
The central themes include international tax law, corporate tax avoidance strategies, the utilization of licensing agreements for profit shifting, and the financial analysis of multinational technology companies.
What is the core research goal?
The goal is to determine how much tax Google potentially saved between 2017 and 2019 using specific structures and to forecast how 2020 legal changes affect the company's annual profit and loss account.
Which scientific methods are applied in this study?
The study employs a literature review to establish a theoretical basis and uses quantitative financial analysis based on data from "S&P Capital IQ" to model and project Google's tax scenarios.
What topics are discussed in the main body?
The main body covers the mechanics of the tax-saving model, the legislative environment in Ireland, a step-by-step analysis of Google's specific corporate structure, and the resulting financial effects on the company's P&L.
Which keywords characterize this publication?
Key terms include tax avoidance, profit shifting, Google, Double Irish, Dutch Sandwich, intellectual property, and corporate financial planning.
How does the "Dutch Sandwich" contribute to tax savings?
It utilizes Dutch "patent box" regulations and the lack of withholding tax on royalties in the Netherlands to move intellectual property licensing income to low-tax jurisdictions effectively.
What impact does this model have on Ireland's national economy?
The study indicates that Google's tax avoidance strategy has a significant measurable impact on Ireland's Gross Domestic Product (GDP) and the national budget balance when compared to the taxes that would otherwise be paid.
- Arbeit zitieren
- Felix-Sebastian Ament (Autor:in), 2020, Tax Avoidance Methods of Google. Influences of Changes in Law Using the Example of "Double Irish with a Dutch Sandwich", München, GRIN Verlag, https://www.grin.com/document/916285
