axes can be incredibly painful, especially if you're running a small company that just made its first year of profit after incurring losses. Handing over your hard-earned money to the government can leave a lasting impact, knowing it could be your savior during future losses.
On the other side, we have tech giants like Google, Microsoft, and Apple, who have employed a genius tactic to save massive amounts of taxes. In 2017-18, Google saved $23 billion, Apple saved $78 billion, and Microsoft saved $13.8 billion. That's more than double India's defense budget! But what is this genius tax evasion strategy? How do they escape strict taxation laws? And what study materials can help you understand these tactics used by the smartest minds?
The answer lies in something called the "Double Irish Dutch Sandwich" – no, it's not a sandwich but a brilliant strategy used by Google and Microsoft to save billions in taxes.
Let's break it down with a simple example. As a U.S. resident corporation, you pay a 21% corporate tax on profits. For instance, Google's U.S. revenues for 2016 were $20 billion, and after expenses, its profit stood at $2 billion. This means Google would have to pay $420 million in corporate taxes to the government.
But Google found a way to save this entire $420 million. They set up an entity in Ireland called "Irish Googly" to operate in the UK. Now, Irish Googly's tax rate drops to just 12.5%, significantly lower than the U.S. rate. But to avoid Controlled Foreign Corporation (CFC) rules, which would tax them in the U.S. again, they set up a company in Bermuda called "Bermuda Googly" with a 0% tax rate.
However, the CFC rules apply again, so they create another Irish subsidiary called "Omega Ireland Ventures" to control Irish Googly in Ireland. To escape the CFC rules, Omega Ireland Ventures creates another Irish subsidiary called "Omega Properties," which is controlled from Bermuda.
Now, Google sells its intellectual property (patents, brand names, copyrights) to Omega Properties, allowing them to show zero profits and pay no tax. But there's a 20% Irish withholding tax on royalty payments, which Google tries to avoid.
Enter the Dutch element of the sandwich – Google sets up "Omega Dutch Ventures" in the Netherlands. Now, when Omega Ireland Ventures pays royalties to Omega Dutch Ventures, it incurs no withholding tax. Finally, Omega Dutch Ventures pays royalties to Omega Properties, incurring zero withholding tax as well.
This complex structure allows Google to save millions in taxes. However, the Irish government decided to put an end to this strategy, closing the tax loophole.
While tech giants used these strategies in the past, you can still learn about these tactics from various study materials to gain a deeper understanding of the tax world.
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