# Dutch Sandwich

Part of a series on :
Taxation :
An aspect of fiscal policy :
Policies
Government revenue
Property tax equalization
Tax revenue
Non-tax revenue
Tax law
Tax bracket
Flat tax
Tax threshold
Exemption
Credit
Deduction
Tax shift
Tax cut
Tax holiday
Tax amnesty
Tax advantage
Tax incentive
Tax reform
Tax harmonization
Tax competition
Tax withholding
Double taxation
Representation
Unions
Medical savings account :
Economics
General Theory
Price effect
Excess burden
Tax incidence
Laffer curve
Optimal tax
Theories
Optimal capital income taxation
Distribution of Tax
Tax rate
Flat
Progressive
Regressive
Proportional :
Collection
Revenue service
Revenue stamp
Tax assessment
Taxable income
Tax lien
Tax refund
Tax shield
Tax residence
Tax preparation
Tax investigation
Tax shelter
Tax collector
Private tax collection
Tax farming :
Noncompliance
General
Tax avoidance
Repatriation tax avoidance
Tax evasion
Tax resistance
Tax shelter
Debtors' prison
Smuggling
Black market
Unreported employment
Corporate
Tax inversion
Transfer mispricing
Base erosion and profit shifting (BEPS)
Double Irish
Dutch Sandwich
Single Malt
CAIA
Locations
Tax havens
Corporate havens
Offshore financial centres (OFCs)
Offshore magic circle
Conduit and sink OFCs
Financial centres
Financial Secrecy Index
Major examples
Ireland as a tax haven
Ireland v. Commission
Leprechaun economics
Liechtenstein tax affair
Luxembourg Leaks
Offshore Leaks
Paradise Papers
Panama Papers
Swiss Leaks
United States as a tax haven
Panama as a tax haven :
Types
Direct
Indirect
Per unit
Ad valorem
Aviation
Airport improvement
Landing
Solidarity
Capital gains
Expatriation
Consumption
Departure
Hotel
Sales
Stamp
Television
Tourist
Value-added
Dividend
Environmental tax
Carbon
Eco-tariff
Landfill
Natural resources consumption
Severance
Steering
Stumpage
Excise
Alcohol
Cigarette
Fat
Meat
Sin
Sugary drink
Tobacco
General
Georgist
Gift
Gross receipts
Hypothecated
Income
Inheritance (estate)
Land value
Luxury
Payroll
Pigouvian
Property
Resource rent
Single
Surtax
Turnover
Use
User charge/fee
Congestion
Fuel
Road/GNSS
Toll
Vehicle miles traveled
Corporate profit
Excess profits
Windfall
Negative (income)
Wealth :
International
Financial transaction tax
ATTAC
Currency transaction tax
European Union Common Consolidated Corporate Tax Base (CCCTB)
Global minimum corporate tax rate
Robin Hood tax
Tobin tax
Spahn tax
Tax equalization
Tax treaty
Exchange of Information
Permanent establishment
Transfer pricing
European Union FTT
Foreign revenue rule :
Trade
Custom
Duty
Tariff
Import
Export
Tariff war
Free trade
Free-trade zone
Trade agreement
ATA Carnet :
Research
Academic
Mihir A. Desai
Dhammika Dharmapala
James R. Hines Jr.
Ronen Palan
Joel Slemrod
Gabriel Zucman
Advocacy groups
Institute on Taxation and Economic Policy (ITEP)
Oxfam (UK)
Tax Foundation (US)
Tax Justice Network (TJN)
Tax Policy Center (US) :
Religious
Church tax
Eight per thousand
Teind
Tithe
Fiscus Judaicus
Leibzoll
Temple tax
Tolerance tax
Jizya
Kharaj
Khums
Nisab
Zakat :
By country
All Countries
List of countries by tax rates
Tax revenue to GDP ratio
Tax rates in Europe
Individual Countries
Albania
Algeria
Argentina
Armenia
Australia
Azerbaijan
Bangladesh
Bhutan
Brazil
Bulgaria
BVI
Canada
China
Colombia
Croatia
Denmark
Finland
France
Germany
Greece
Hong Kong
Iceland
India
Indonesia
Iran
Ireland
Israel
Italy
Japan
Kazakhstan
Lithuania
Malta
Morocco
Namibia
Netherlands
New Zealand
Norway
Pakistan
Palestine
Peru
Philippines
Poland
Portugal
Russia
South Africa
Sri Lanka
Sweden
Switzerland
Taiwan
Tanzania
United Arab Emirates
United Kingdom
United States
Uruguay :
Business portal
Money portal :
vte :
Dutch Sandwich is a base erosion and profit shifting (BEPS) corporate tax tool, used mostly by U.S. multinationals to avoid incurring European Union withholding taxes on untaxed profits as they were being moved to non-EU tax havens (such as the Bermuda black hole). These untaxed profits could have originated from within the EU, or from outside the EU, but in most cases were routed to major EU corporate-focused tax havens, such as Ireland and Luxembourg, by the use of other BEPS tools. The Dutch Sandwich was often used with Irish BEPS tools such as the Double Irish, the Single Malt and the Capital Allowances for Intangible Assets ("CAIA") tools. In 2010, Ireland changed its tax-code to enable Irish BEPS tools to avoid such withholding taxes without needing a Dutch Sandwich.

## Explanation

The structure relies on the tax loophole that most EU countries will allow royalty payments be made to other EU countries without incurring withholding taxes. However, the Dutch tax code allows royalty payments to be made to several offshore tax havens (like Bermuda), without incurring Dutch withholding tax.
The method starts with a US parent company which will then create two Irish subsidiaries. Additionally, Ireland company 2 is a subsidiary of Ireland company 1. Ireland company 1 will be domiciled in Bermuda. Ireland company 2 is domiciled in Ireland. Ireland company 1 holds the company’s IP and licenses it to Ireland company 2. Ireland company 2 will then pay royalties to Ireland company 1, making the royalties tax-deductible for Ireland company 2 as it is accounted for as an expense. This means that Ireland company 2 is now only responsible for paying the Irish corporate tax on the remainder of their income at a rate of 12.5%. The Ireland company 2 will also file a check the box election in the US to be a “disregarded entity.”
The Dutch Sandwich therefore behaves like a "backdoor" out of the EU corporate tax system and into un-taxed non-EU offshore locations.
These royalty payments require the creation of intellectual property ("IP") licensing schemes, and therefore the Dutch sandwich is limited to specific sectors that are capable of generating substantial IP. This is most common in the technology, pharmaceutical, medical devices and specific industrial (who have patents) sectors.
Its creation is generally attributed to Joop Wijn (State Secretary of Economic Affairs in May 2003) after lobbying from U.S. tax lawyers from 2003 to 2006.
   [When] former venture-capital executive at ABN Amro Holding NV Joop Wijn becomes State Secretary of Economic Affairs in May 2003 [, ... it's] not long before the Wall Street Journal reports about his tour of the US, during which he pitches the new Netherlands tax policy to dozens of American tax lawyers, accountants, and corporate tax directors. In July 2005, he decides to abolish the provision that was meant to prevent tax dodging by American companies, in order to meet criticism from tax consultants.

## Impact

As of 2020, "The Netherlands is an extremely attractive jurisdiction in which to locate a royalty conduit companies", although a withholding tax on royalties was announced for 2021 "for cases where abuse is involved" after international pressure.
As of 2016, "Multinationals moved some €22bn in royalties and interest through the Netherlands in 2016 in order to avoid tax, according to a new report for the finance ministry". Usage of this tax avoidance structure, alone, produced 10% of the income reported by shell companies in the Netherlands.
The method had a substantial impact on the Irish economy as well. Apple, having used this tax tactic, avoided paying United States corporate tax by using the Double Irish with a Dutch Sandwich on roughly $110 billion worth of overseas profit. By transferring these profits to subsidiaries in Ireland, the taxes were paid on Ireland’s rate instead of companies where people purchased Apple products. This occurrence is a good counterargument for the moral usage of the loophole, as the Irish government lost $13 billion in taxes. The entire situation caused a slight dip into economic recession within Ireland. The European Commission ended up investigating the matter, as tax evasion and avoidance are extremely major topics on the international agenda.

## Double Irish

The Dutch Sandwich is most commonly associated with the double Irish BEPS tax structure, and Irish-based US technology multinationals such as Google.
The Double Irish is the largest BEPS tool in history, helping mostly US technology and life sciences multinationals shield up to US$100 billion per annum from taxation.
The Double Irish uses an Irish company (IRL2) that is legally incorporated in Ireland, and thus the US-tax code regards it as foreign, but is "managed and controlled" from, say, Bermuda (and thus the Irish tax code also regards it as foreign). The Dutch Sandwich, with the Dutch company as the "dutch slice" in the "sandwich", is used to move money to this Irish company (IRL2), without incurring Irish withholding tax.
In 2013, Bloomberg reported that lobbying by PricewaterhouseCoopers Irish Managing Partner Feargal O'Rourke, who Bloomberg labelled "grand architect" of the Double Irish, led to the Irish Government to relax the rules for making Irish royalty payments to non-EU companies (i.e. IRL2), without incurring Irish withholding tax. This removed the explicit need for the Dutch Sandwich, but there are still several conditions that will not suit all types of Double Irish structures, and thus several US multinationals in Ireland continued with the classic "Double Irish with a Dutch Sandwich" combination.
After pressure from the EU, the Double Irish BEPS tool was closed to new users in 2015, however, new Irish BEPS tools were created to replace it:
* Microsoft's and Allergan's Single Malt Irish BEPS tool;
* Apple's and Accenture's Capital Allowances for Intangible Assets (CAIA) Irish BEPS tool (made famous by leprechaun economics).

## Conduit OFC

The Dutch Sandwich has made Netherlands the largest of the top five global Conduit OFCs identified in a 2017 analysis published by Nature Research of offshore financial centres titled: "Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network". The five global Conduit OFCs (Netherlands, United Kingdom, Ireland, Singapore, and Switzerland) are countries not formally labeled "tax havens" by the EU/OCED, however, they are responsible for routing almost half the flows global corporate tax avoidance to the twenty-four Sink OFCs, without incurring tax in the Conduit OFC.
Conduit OFCs rely on major offices of large law and accounting firms to create legal vehicles, whereas Sink OFCs have smaller operations (e.g. branches of these larger firms). For example, Ireland has the BEPS tools to enable US IP-heavy multinationals to reroute global profits into Ireland, tax-free. The Netherlands then enables these Irish profits to get to a classical tax haven (e.g. the Cayman Islands or Jersey) without incurring EU withholding tax.