Is the Dutch sandwich legal in Europe?

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Technological multinationals have managed to avoid and evade taxes legally in Europe through aggressive tactics in tax planning such as Dutch Sandwich and Double Irish. 

The multinationals have managed to evade the payment of taxes correspondent to their countries of registration in order to pay them in other countries with lower tax rates, generally in offshore financial centers

Dutch Sandwich with a Double Irish 

If we talk about technological multinationals and their tax mathematics used to save on tax payment, we can not ignore the use of the two most frequent methods that in financial jargon are known as the Dutch sandwich and the Double Irish. Thanks to them, giants such as Apple, Google or Amazon, with a multimillion-dollar turnover, have managed to evade the payment of taxes that correspond to them according to the tax policy of the registration country to pay them in other countries with lower tax rates, generally in tax havens. However, it should be mentioned that the business structures born of the Dutch sandwich and the Irish double are purely legal, the technological multinationals only take advantage of the legal framework allowed by some European countries. Let's see, then, what both the Dutch sandwich and the Double Irish consist of. 

Double Irish  

The law of Ireland through a Double Irish allows the deduction as expenses those amounts that are invoiced from another Irish company, which in practice is located in a tax haven, since the regulations of this country also allow an Irish company to maintain its domicile in the country from which the control is exercised and not from which the activity is carried out. 

With this background, the dynamic is the following: the company based in the tax haven acquires international intellectual property rights from the US parent company (in the case of Google, Apple or Microsoft) while the company based in Ireland carries out the sale of the same, receiving all the income generated worldwide, to later transfer the benefits in the form of royalty payments to the Irish company based in a tax haven (the Bermuda Islands is one of the most common because Ireland maintains a special agreement with this jurisdiction). With this scheme, instead of paying 12.5% of corporation tax that Ireland establishes the companies manage to pay less than 3%

Dutch sandwich 

However, the tax engineering of the large multinationals to cut taxes does not include only the Double Irish, since it is still possible to adjust more the machinery with the Dutch sandwich. Continuing with the tax policy gaps or legal discrepancies of Ireland, it should be noted that its law also admits as exempt from corporate tax payments those expenses in respect of royalties that are paid to another European company. What do the multinationals do then? They create a third subsidiary in Holland and a fourth in another tax haven former Dutch colony (for example, the Netherlands Antilles) to take advantage of the agreements between Holland and its former colonies. At this point, the business structure would be the following: an Irish subsidiary based in Ireland, a second Irish subsidiary based in a tax haven, a Dutch subsidiary and a subsidiary in a second tax haven former Dutch colony. Then, the plan is to move to the Dutch subsidiary, which would charge for using the property rights sold by the subsidiary based in Ireland in the form of payment for royalties, the benefits that have not been transferred from Ireland to the tax haven, avoiding the payment of taxes in Ireland and in the Netherlands, and from the latter country take the capital to the second tax haven, where finally it will be taxed by a minimum tax rate. 

The result of the Dutch sandwich with a Double Irish

To get an idea with real figures of what the big multinationals, especially the technology and patenting sector in the United States can save in the payment of taxes through the employment of this network of business structures, such as the Dutch sandwich and the Double Irish, let's take the example of Google. In 2009, Google, thanks to its subsidiaries in Ireland, the Netherlands and Bermuda, paid in tax havens 172 million dollars in corporate taxes in, whereas if it had paid it in the United States, it would have had to pay about 675 million dollars. That is to say, in 2009 Google saved about 500 million dollars in taxation, a figure that is not insignificant and that clearly explains why the big companies make use of this lack of legal framework provided by certain countries of the European Union to pay less tax.