Double Irish arrangement

Concept and origin (1991) The Double Irish is an intellectual property–based BEPS tool. The Double Irish enables the IP to be charged-out from Ireland, which has a large global network of full bilateral tax treaties. The Double Irish enables the hypothetical $95, which was sent from Germany to Ireland, to be sent on to a tax haven such as Bermuda without incurring any Irish taxation. The techniques of using IP to relocate profits from higher-tax locations to low-tax locations are called base erosion and profit shifting (BEPS) tools. As with all Irish BEPS tools, the Irish subsidiary must conduct a "relevant trade" on the IP in Ireland. A "business plan" must be produced with Irish employment and salary levels that are acceptable to the Irish State during the period the BEPS tool is in operation. Despite these requirements, the effective tax rate (ETR) of the Double Irish is almost 0%, as the EU Commission discovered with Apple in 2016. which increased to US$106 billion by 2015. the Double Irish is the largest tax avoidance tool in history. In 2016, when the EU levied a €13 billion fine on Apple, the largest tax fine in history, Feargal O'Rourke, PwC tax partner in the IFSC (and son of Minister Mary O'Rourke, cousin of the 2008–2011 Irish Finance Minister Brian Lenihan Jnr) is regarded as its "grand architect". Basic structure (no Dutch sandwich) While there have been variations (e.g. Apple), the standard Double Irish arrangement, in simplified form, takes the following structure (note that the steps below initially exclude the Dutch sandwich component for simplicity, which is explained in the next section; Chart 1 includes the Dutch sandwich): This structure has a problem. The pre–TCJA US tax code allows foreign income to be left in foreign subsidiaries (deferring US taxes), but it will consider BER1 to be a controlled foreign corporation (or "CFC"), sheltering income from a related party transaction (i.e. IRL1). It will apply full US taxes to BER1 at 35%. However, if IRL1 sends the money to a new Dutch company DUT1 (or S), via another royalty payment scheme, no Irish withholding tax is payable as Ireland does not levy withholding tax on transfers within EU states. In addition, under the Dutch tax code DUT1 can send money to IRL2 (an Irish company 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) under another royalty scheme without incurring Dutch withholding tax, as the Dutch do not charge withholding tax on royalty payment schemes. Thus, with the addition of IRL2 and DUT1, we have the "Double Irish Dutch Sandwich" tax structure. Controversial closure (2015) The 2014–16 EU investigation into Apple in Ireland (see below), showed that the Double Irish existed as far back as 1991. Early US academic research in 1994 into US multinational use of tax havens identified profit shifting accounting techniques. US congressional investigations into the tax practices of US multinationals were aware of such BEPS tools for many years. However, the US did not try to force the closure of the Double Irish BEPS tool, instead it was the EU which forced Ireland to close the Double Irish to new schemes in October 2014. Nevertheless, existing users of the Double Irish BEPS tool (e.g. Apple, Google, Facebook, Microsoft, amongst many others), were given five more years until January 2020, before the tool would be fully shut-down to all users. This approach by successive US administrations is explained by an early insight that one of the most cited US academic researchers into tax havens, and corporate taxation, James R. Hines Jr., had in 1994. Hines realised in 1994, that: "low foreign tax rates [from tax havens] ultimately enhance U.S. tax collections". as would others, and it would guide US policy in this area for decades, including introducing the "check-the-box" rules in 1996, curtailing the 2000–10 OECD initiative on tax havens, and not signing the 2016 OECD anti-BEPS initiative. By September 2018, tax academics proved US multinationals were the largest users of BEPS tools, and that Ireland was the largest global BEPS hub. In December 2018, Seamus Coffey, the Chairman of the Irish Fiscal Advisory Council, told The Times in relation to the closure of the Double Irish that "A lot of emphasis has been put on residency rules and I think that emphasis has been misplaced and the changes didn't have that much [of an] effect". On 3 January 2019, The Guardian reported that Google avoided corporate taxes on US$23 billion of profits in 2017 by using the Double Irish with the Dutch sandwich extension. Apple's €13 billion EU fine (2016) , announcing Apple's €13 billion fine for Irish taxes avoided from 2004 to 2014 via an illegal "Double Irish" BEPS scheme By 2017, Apple was Ireland's largest company, and post leprechaun economics, accounted for over one quarter of Irish GDP growth. Apple's use of the Double Irish BEPS tool to achieve tax rates <1%, dates back to the late 1980s, and covered in the main financial media. On 29 August 2016 the European Commissioner for Competition concluded Apple had received illegal State aid from Ireland. The commission ordered Apple to pay €13 billion, plus interest, in unpaid Irish taxes on circa €111 billion of profits, for the ten-year period, 2004–2014. It was the largest corporate tax fine in history. Apple was not using the standard Double Irish arrangement of two Irish companies (IRL1 in Ireland, and IRL2 in Bermuda). Instead, Apple combined the functions of the two companies inside one Irish company (namely, Apple Sales International, or ASI), which was split into two internal "branches". The Irish Revenue issued private rulings to Apple in 1991 and 2007 regarding this hybrid-double Irish structure, which the EU Commission considered as illegal State aid. ==Single Malt==

reversed some of the benefits ex-Finance Minister Michael Noonan gave the CAIA BEPS tool for Apple in 2015, and promised to investigate the Single Malt BEPS tool. Concept and origin (2014) In an October 2013 interview, PwC tax partner Feargal O'Rourke (see above), In October 2014, as the EU forced the Irish State to close the Double Irish BEPS tool, The Irish media picked up the article, but when an Irish MEP notified the then Finance Minister, Michael Noonan, he was told to "put on the green jersey". Basic structure The Single Malt is also an IP–based BEPS tool, and as a small variation of the Double Irish, required little additional development, except choosing specific locations with the necessary specific wording in their Irish bilateral tax treaties (e.g. Malta and the UAE); thus the basic structure is almost identical to the Double Irish with often a Maltese company replacing BER1 in the earlier example. The report detailed Microsoft subsidiary LinkedIn, and Allergen's schemes and extracts from advisers to their clients. The then Irish Finance Minister Paschal Donohoe said that it would be investigated; however, questions were raised regarding the Irish State's policy of addressing corporate tax avoidance. In September 2018, The Irish Times revealed that US medical device manufacturer Teleflex, had created a new Single Malt scheme in July 2018, and had reduced their overall effective corporate tax rate to circa 3%. The same article quoted a spokesman from the Department of Finance (Ireland) saying they had not as yet taken any action regarding the Single Malt BEPS tool, but they were keeping the matter, "under consideration". however, the exact closure date of the Irish Single Malt BEPS tool with Malta was deferred until September 2019. On the same day that the closure was announced, The Irish Times reported that LinkedIn (Ireland), identified as a user of the Single Malt tool in 2017 (see above), had announced in filings that it had sold a major IP asset to its parent, Microsoft (Ireland). Earlier in July 2018, Ireland's Sunday Business Post, disclosed that Microsoft (Ireland) were preparing a restructure of their Irish BEPS tools into a CAIA (or Green Jersey) Irish tax structure. ==Capital Allowances for Intangible Assets (CAIA)==

Concept and origin (2009) The Double Irish and Single Malt BEPS tools enable Ireland to act as a confidential "Conduit OFC" rerouting untaxed profits to places like Bermuda (e.g. it must be confidential as higher-tax locations would not sign full tax treaties with locations like Bermuda), the Capital Allowances for Intangible Assets (CAIA) BEPS tool (also called the Green Jersey), enables Ireland to act as the terminus for the untaxed profits (e.g. Ireland becomes Bermuda, a "Sink OFC"). The CAIA uses the accepted tax concept of providing capital allowances for the purchase of assets. However, Ireland turns it into a BEPS tool by providing the allowances for the purchase of intangible assets, and especially intellectual property assets, and critically, where the owner of the intangible assets is a "connected party" (e.g. a Group subsidiary). For example, in Q1 2015, Apple used the CAIA tool when its Irish subsidiary purchased US$300 billion in intangible assets from an Apple subsidiary based in Jersey. The CAIA tool enabled Apple to write-off the US$300 billion price as a capital allowance against future Irish profits (e.g. the next US$300 billion of profits Apple books in Ireland are free of Irish tax). The CAIA capitalises the effect of the Double Irish or Single Malt BEPS tools, and behaves like a corporate tax inversion of a US multinational's non-US business. However, the CAIA is more powerful, as Apple demonstrated by effectively doubling the tax shield (e.g. to US$600 billion in allowances), via Irish interest relief on the intergroup virtual loans used to purchase the IP. In June 2009, the Irish State established the Commission on Taxation, to review Ireland's tax regime, and included Feargal O'Rourke, the "grand architect" of the Double Irish tool. The 2009 Finance Act, materially expanded the range of intangible assets attracting Irish capital allowances cover more esoteric intangibles such as types of general rights, general know-how, general goodwill, and the right to use software. The control is that the intangible assets must be acceptable under GAAP (older 2004 Irish GAAP is used), and auditable by an Irish IFSC accounting firm, like PwC or Ernst & Young. In the 2010 Finance Act, on the recommendation of the Department of Finance's Tax Strategy Group, the CAIA BEPS tool was upgraded, reducing the amortisation and "clawback" period from 15 to 10 years, and expanding the range of intangible assets to include "a broader definition of know-how". In the 2011 and 2012 Finance Acts, the Tax Strategy Group made additional amendments to the rules regarding the acquisition of intangible assets from "connected parties", and the "employment tax" users of the CAIA BEPS tool must pay. The 2012 Finance Act removed the minimum amortisation period for the acquired intangible assets, and reduced the "clawback" to 5 years for CAIA schemes set up after February 2013. The first known user of the CAIA BEPS tool was by Accenture, the first US corporate tax inversion to Ireland in 2009. Basic structure The CAIA follows the first three steps of the Double Irish, and Single Malt, basic structure (see above, except in this case the example is not a per-unit example, but for the entire sales of a block of intellectual property), namely: and author of the State's 2017 ''Review of Ireland's Corporation Tax Code'', showed Apple restructured ASI into the CAIA BEPS tool in Q1 2015. During Q1 2018, Coffey and international economists, Microsoft's Green Jersey (2018) In December 2017, the Irish Government accepted the recommendation of Coffey that corporation tax relief for the Irish CAIA BEPS tool be capped at 80% for new arrangements, to restore the CAIA's effective Irish corporate tax rate (ETR) back to 2.5%. This was enacted in the 2017 Finance Budget, but only for new CAIA BEPS schemes (e.g. Apple's 2015 CAIA scheme would not be affected). Given the dramatic take-up in the CAIA tool in 2015, when the cap lifted (e.g. the ETR was 0%), Irish commentators challenged Coffey's recommendation. He responded in a paper in late 2017. In July 2018, it was reported that Microsoft was preparing to execute another "Green Jersey" CAIA BEPS transaction. which, due to technical issues with the TCJA, makes the CAIA BEPS tool attractive to US multinationals. In July 2018, Coffey posted that Ireland could see a "boom" in the onshoring of US IP, via the CAIA BEPS tool, between now and 2020, when the Double Irish is fully closed. In May 2019, it was reported Microsoft moved $52.8bn of IP assets to Ireland. In January 2020, The Irish Times speculated that Google Inc., was also considering using the CAIA BEPS tool. ==Effect of BEPS tools on Ireland's economy==

In June 2018, academic tax researcher Gabriel Zucman (et alia) estimated Ireland was the world's largest BEPS hub, and also the world's largest tax haven. The concentration of BEPS activity impacted Ireland's economy in a number of ways: Distortion of Irish GDP/GNP An "artificially inflated GDP-per-capita statistic", is a feature of tax havens, due to the BEPS flows. However, in December 2017, Eurostat reported that Modified GNI* did not remove all of the distortions from Irish economic data. By September 2018, the Irish Central Statistics Office (CSO) reported that Irish GDP was 162% of Irish GNI* (e.g. BEPS tools artificially inflated Ireland's GDP by 62%). In contrast EU–28 2017 GDP was 100% of GNI. Irish public indebtedness changes dramatically depending on whether Debt-to-GDP, Debt-to-GNI* or Debt-per-Capita is used (Per-Capita removes all BEPS tool distortion). Concentration of US multinationals Tax academics show multinationals from countries with "territorial" tax systems make little use of tax havens like Ireland. Since the UK changed its tax regime to a "territorial" system in 2009–12, Ireland has failed to attract corporates from any other jurisdiction except the US, one of the last "worldwide" tax systems. By September 2018, US–controlled corporates were 25 of Ireland's 50 largest companies, paid 80% of Irish business taxes, and directly employed 25% of the Irish labour force, and created 57% of Irish value-add. The American-Ireland Chamber of Commerce estimated the value of US investment in Ireland in 2018 was €334 billion, exceeding Irish GDP (€291 billion in 2016), and exceeding the combined investment of US investment in the BRIC countries. The US multinational subsidiaries in Ireland, are not simply used for booking EU sales, in most cases, they handle the entire non-US business of the Group. Apart from US corporates, and legacy UK corporates (pre 2009–12), there are no foreign corporates in Ireland's top 50 firms. Academics say Ireland is more accurately described as a "US corporate tax haven", and a shield for non-US profits from the historic US "worldwide" tax system. which it defends as being the effective tax rate (ETR). Independent studies show that Ireland's aggregate effective corporate tax rate is between 2.2% to 4.5% (depending on assumptions made). This lower aggregate effective tax rate is consistent with the individual effective tax rates of US multinationals in Ireland, as well as the IP-based BEPS tools openly marketed by the main Irish tax-law firms, in the IFSC, with ETRs of 0–2.5% (see "effective tax rate"). ==Effect of the Tax Cuts and Jobs Act (TCJA)==

US corporate tax haven (to 2017) s who are US–controlled). Eurostat (2015). In June 2018, tax academics showed that Ireland had become the world's largest global BEPS hub, and turned the UK into one of the leading destinations for US corporate tax inversions (although Ireland is still the most popular). A similar case study was cited in the switch by Japan in 2009 from a full US "worldwide" tax system (e.g. very high domestic tax rate, partially mitigated by a controlled foreign corporation regime), to a full "territorial" tax system, with positive results. As discussed in , Hines had shown as early as 1994, that under the US "worldwide" tax system, US multinational use of tax havens and BEPS tools, had increased long-term US treasury returns. Academics point to these facts as the explanation for the extraordinary in Ireland's economy, and the equal failure of Ireland to attract non-US multinationals or any multinationals from "territorial" tax systems. While Ireland sometimes describes itself as a "global knowledge hub for selling into Europe", it is more accurately described as a US corporate tax haven for shielding non-US revenues from the historical US "worldwide" tax system. In March–April 2018, major US tax law firms showed that pre the TCJA, US multinationals with the IP needed to use Irish BEPS tools, would achieve effective Irish tax rates (ETR) of 0–2.5% versus 35% under the historical US system. However, post the TCJA, these multinationals can use their IP to achieve US ETRs, which net of the TCJA's 100% capital relief provisions, are similar to the ETRs they would achieve in Ireland when the TCJA's new GILTI provisions are taken into account (e.g. ETR of circa 11–12%). In Q1 2018, US multinationals like Pfizer announced in Q1 2018, a post-TCJA global tax rate for 2019 of circa 17%, which is close to the circa 15–16% 2019 tax rate announced by past US corporate tax inversions to Ireland, Eaton, Allergan, and Medtronic. Early implications for Ireland (2018) As the TCJA was being passed in December 2017, the new corporate tax provisions were recognised by the Irish media, as a challenge. Donald Trump had "singled out" Ireland in 2017 speeches promoting the TCJA, and Trump administration economic advisor, Stephen Moore, predicted "a flood of companies" would leave Ireland due to the TCJA. Leading US tax academic, Mihir A. Desai in a post–TCJA 26 December 2017 interview in the Harvard Business Review said that: "So, if you think about a lot of technology companies that are housed in Ireland and have massive operations there, they're not going to maybe need those in the same way, and those can be relocated back to the U.S. In December 2017, U.S technology firm Vantiv, the world's largest payment processing company, confirmed that it had abandoned its plan to execute a corporate tax inversion to Ireland. In March 2018, the Head of Life Sciences in Goldman Sachs, Jami Rubin, stated that: "Now that [US] corporate tax reform has passed, the advantages of being an inverted company are less obvious". However, in contrast, it was reported in May–July 2018, that US tax academics and tax economists were discovering material technical flaws in the TCJA that incentivise the US use of tax havens like Ireland. Of particular note was the exclusion from the GILTI tax of the first 10% of profits on overseas tangible assets, which incentivises investment in tangible assets abroad. However, a more serious concern, was the acceptance of capital allowances, both tangible and intangible, as deductible against GILTI taxation, which would enable US users of the CAIA BEPS tool to convert their Irish ETR of 0–2.5%, into a final US ETR of 0–2.5%. In May–July 2018, Google and Facebook announced large expansions of their Dublin office campuses in Ireland. A June 2018 IMF country report on Ireland, while noting the significant exposure of Ireland's economy to US corporates, concluded that the TCJA may not be as effective as Washington expects in addressing Ireland as a US corporate tax haven. In writing its report, the IMF conducted confidential anonymous interviews with Irish corporate tax experts. In July 2018, it was reported that Microsoft was preparing to execute Apple's "Green Jersey" CAIA BEPS transaction. posted that Ireland could see a "boom" in the onshoring of US IP, via the CAIA BEPS tool, between now and 2020, when the Double Irish is fully closed. ==Multinationals that used Irish BEPS tools==

This is not a comprehensive list as many US multinationals in Ireland use "unlimited liability companies" (ULCs), which do not file public accounts with the Irish CRO. Double Irish Major companies in Ireland known to employ the Double Irish BEPS tool, include: Single malt Major companies in Ireland known to employ the single-malt BEPS tool, include: • Microsoft (LinkedIn), using Malta • Allergan (Zeitiq), using Malta • Teleflex, using Malta • Abbott Laboratories, using Malta Capital allowances for intangible assets Major companies in Ireland known to employ the capital-allowances for intangible assets (CAIA) BEPS tool, include: • Apple Inc., started in 2015 with the leprechaun economics affair • Accenture, started in 2009 ==See also==