KEY POINTS

  • Multinational companies like Google are reportedly taking advantage of controversial tax loopholes outside the US to avoid paying billions of taxes
  • A new report claims that the use of Double Irish and Dutch Sandwich may no longer be allowed in 2020
  • Ireland already closed its tax loopholes and gave multinational companies an ultimatum until 2020 to comply with its new tax regulations

The period of search engine giant Google utilizing a couple of controversial loopholes to save billions of dollars in taxes on ad revenue outside the US is ending, according to Reuters. Next year, Google could no longer use the Double Irish and Dutch Sandwich loopholes that enabled the company and several other firms to move money from Ireland to Bermuda and the Netherlands, saving billions from taxes. This is because regulations targeting changing how companies avoid taxes will take effect both in Ireland and the US.

In the past, multinational companies and organizations like Google could use a network of affiliate organizations based in Ireland, Bermuda, and the Netherlands to collect and hold money made overseas courtesy of the lax Irish tax laws. The term Double Irish and Dutch Sandwich are based on the strategy of moving money from a subsidiary in Ireland to a Dutch holding company and back to the Irish shell company situated in Bermuda that possesses the right to license the search engine giant’s intellectual property, thus the term Dutch Sandwich. There is no corporate income tax in Bermuda, which makes it a lucrative final destination to report income.

The entire process effectively allows companies to avoid paying US income tax as well as European withholding taxes on profits earned overseas. In 2014, Ireland closed these loopholes after receiving pressure from the US and the EU. Companies were given the ultimatum of until 2020 to comply with the new regulations.

It is for this reason that the search engine giant is changing its tax structure just now. Google is still using the tax scheme to funnel money around the world until the deadline, according to Reuters. In 2017 alone, the search engine giant moved $23 billion to Bermuda using this Double Irish and Dutch Sandwich strategy, adds the report.

“We’re now simplifying our corporate structure and will license our IP from the US, not Bermuda,” says a Google spokesperson via The Verge. “Including all annual and one-time income taxes over the past ten years, our global effective tax rate has been over 23%, with more than 80% of that tax due in the US.”