Double Irish Dutch Sandwich: Apple's 0.005% Rate and Leprechaun Economics

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

Between 2004 and 2018, U.S. multinationals used the double Irish arrangement to build roughly $1 trillion in untaxed offshore reserves. The method: sell intellectual property at cost to a Bermuda subsidiary, license it to an Irish subsidiary that books foreign sales, then drain those profits back to Bermuda as royalties. Ireland judged tax residency by where a company was managed, so the Bermuda-run Irish company fell between systems, and a 1996 U.S. "check the box" rule let the IRS disregard it. Routing royalties through the Netherlands, the Dutch sandwich, avoided a 20% Irish withholding tax. Irish revenue rulings for Apple date to 1991, and PwC partner Feargal O'Rourke is called the scheme's modern architect.

Economist James R. Hines Jr. argued in 1994 that tax havens helped the U.S. Treasury, which helps explain Washington's tolerance. Under EU pressure, Ireland closed the double Irish to new users in 2014 with a grace period to 2020, and in 2016 the European Commission ruled Apple had received illegal state aid and ordered €13 billion repaid; Apple and Ireland disputed the ruling. Replacements followed: the Single Malt via Malta and the Capital Allowances for Intangible Assets scheme, the Green Jersey. Apple's 2015 restructuring lifted Irish GDP 33.4% in a year, which economists dubbed leprechaun economics.

• By 2010 the scheme was shielding $100 billion a year for companies including Google, Facebook, Microsoft and Pfizer.
• The EU calculated Apple's effective tax rate on European profits fell from 1% in 2003 to 0.005% in 2014.
• The Central Bank of Ireland introduced modified GNI, or GNI*, in 2017 because GDP was inflated by 62%.
• The 2017 Tax Cuts and Jobs Act's GILTI tax let firms blend high and low tax income, allowing effective rates of 0% to 2.5% via Ireland.
• Microsoft moved more than $52 billion of intellectual property into Ireland in 2019 alone.