How American Ultra Rich saved Tax worth 1 Trillion dollars? : Business Case Study

Summary

This video script delves into the intricate world of tax avoidance strategies, exemplified by the 'Double Irish Dutch Sandwich' tactic. It details how tech giants like Google, Apple, and Microsoft legally sidestep billions in taxes annually. The script explains the strategy's mechanics, involving a complex setup of companies in Ireland, the Netherlands, and tax havens like Bermuda. It also touches on the implications of such maneuvers and the Irish government's subsequent crackdown on this loophole. The video concludes with a call to action for viewers to explore investment opportunities and study materials on advanced tax strategies.

Takeaways

• 😣 Taxes can be a significant burden, especially for small businesses that have just turned profitable after incurring losses.
• 🤑 Major tech companies like Google, Apple, and Microsoft have been reported to save billions in taxes using sophisticated strategies.
• 🍔 The 'Double Irish Dutch Sandwich' is a tax avoidance strategy that involves a complex arrangement of companies in different jurisdictions to minimize tax liabilities.
• 🇮🇪 The strategy includes setting up an Irish subsidiary to take advantage of Ireland's lower corporate tax rate of 12.5% compared to the U.S. rate of 21%.
• 🇧🇲 A Bermuda-based holding company is used due to its zero percent tax rate, allowing profits to be shifted there to avoid taxes.
• 🇳🇱 The Dutch element involves creating a Dutch company to exploit a tax loophole that allows royalty payments to be made without withholding tax.
• 🚫 The U.S. Controlled Foreign Corporation (CFC) rules are designed to prevent U.S. companies from avoiding taxes by controlling foreign subsidiaries.
• 💡 The script explains how companies can legally exploit tax laws and international tax treaties to their advantage.
• 🔄 The 'Double Irish Dutch Sandwich' strategy was used by many multinational corporations to save substantial amounts on taxes.
• 🛑 The Irish government has since moved to close the loophole, ending the effectiveness of the 'Double Irish Dutch Sandwich' strategy.

Q & A

What is the 'Double Irish Dutch Sandwich' strategy mentioned in the script?

The 'Double Irish Dutch Sandwich' is a tax avoidance strategy used by multinational corporations to minimize their tax liabilities. It involves the use of two Irish companies and one Dutch company to shift profits to low-tax jurisdictions.

Why is the 'Double Irish Dutch Sandwich' strategy effective in reducing taxes?

This strategy is effective because it leverages differences in tax laws among countries, particularly the tax residency rules of the U.S., Ireland's low corporate tax rate, and the Netherlands' tax laws regarding royalty payments, to shift profits to tax havens like Bermuda where they are taxed at a minimal or zero rate.

How much did Google reportedly save using the 'Double Irish Dutch Sandwich' strategy in 2017?

Google reportedly saved 23 billion dollars in taxes using this strategy in 2017.

What is the role of the Dutch company in the 'Double Irish Dutch Sandwich' strategy?

The Dutch company acts as an intermediary in the strategy, receiving royalty payments from the Irish subsidiary without incurring withholding tax due to the Netherlands' tax laws, which then forwards these payments to the Bermuda-controlled company without additional tax implications.

What is the significance of Bermuda in the 'Double Irish Dutch Sandwich' strategy?

Bermuda is significant because it is a tax haven with a zero percent corporate tax rate. The Bermuda-controlled company is used to avoid paying taxes on the profits generated by the intellectual property rights sold to it by the Irish subsidiary.

How does the 'Controlled Foreign Corporation' (CFC) rule impact the 'Double Irish Dutch Sandwich' strategy?

The CFC rule requires U.S. companies to pay taxes on profits earned by their foreign subsidiaries if those subsidiaries are controlled by the U.S. parent company. The strategy circumvents this by ensuring that the Irish subsidiary is controlled by a non-U.S. entity, in this case, a company in Bermuda.

What is the Irish withholding tax structure, and how does it affect the strategy?

The Irish withholding tax structure requires Irish resident companies to withhold tax on certain payments made within the country, such as royalty payments. The strategy gets around this by routing royalty payments through a Dutch company to an Irish company controlled from Bermuda, avoiding the withholding tax.

Why did the Irish government decide to end the 'Double Irish Dutch Sandwich' strategy?

The Irish government decided to end the 'Double Irish Dutch Sandwich' strategy due to international pressure and the need to adhere to global tax standards, as it was seen as facilitating tax avoidance by multinational corporations.

What are some other companies that have used the 'Double Irish Dutch Sandwich' strategy?

Other companies that have reportedly used this strategy include Apple, Facebook, Pfizer, and Microsoft, among dozens of other billion-dollar multinational corporations.

How can one learn more about tax strategies like the 'Double Irish Dutch Sandwich'?

One can learn more about such tax strategies by studying materials provided in business and finance courses, as well as by following updates on tax law changes and international tax agreements.