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Understanding "Double Irish" Tax Avoidance

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posted on Nov, 19 2011 @ 09:57 AM
Some of you here may have heard of and understand this, but I just read about it for the first time and it alarmed me how blatantly dishonest this method is. Just another example of how the playing field is not level.

This is all from wiki but the sources they use appear to be legit.

The Double Irish Arrangement is a tax avoidance strategy that U.S. based multinational corporations use to lower their income tax liability. The idea is to use payments between related entities in a corporate structure to shift income from a higher-tax country to a lower-tax country. It relies on the fact that Irish tax law does not include U.S. transfer pricing rules.[1]

Typically, the company arranges for the rights to exploit intellectual property outside the United States to be owned by an offshore company. This is achieved by entering into a cost sharing agreement between the U.S. parent and the offshore company, in the terms of U.S. transfer pricing rules. The offshore company continues to receive all of the profits from exploitation of the rights outside the U.S., without paying U.S. tax on the profits unless and until they are remitted to the U.S.[2] It is called "The Double Irish" because it requires two Irish companies to complete the structure. The first Irish company is the offshore company which owns the valuable non-U.S. rights. This company is tax resident in a tax haven, such as Bermuda or the Cayman Islands. Irish tax law provides that a company is tax resident where its central management and control is located, not where it is incorporated, so that it is possible for the first Irish company not to be tax resident in Ireland. The first Irish company licenses the rights to a second Irish company, which is tax resident in Ireland, in return for substantial royalties or other fees. The second Irish company receives income from exploitation of the asset in countries outside the U.S., but its taxable profits are low because the royalties or fees paid to the first Irish company are deductible expenses. The remaining profits are taxed at the Irish rate of 12.5%. For companies whose ultimate ownership is located in the United States, the payments between the two related Irish companies might be non-tax-deferrable and subject to current taxation as Subpart F income under the Internal Revenue Service's Controlled Foreign Corporation regulations if the structure is not set up properly. This is avoided by organizing the second Irish company as a fully owned subsidiary of the first Irish company resident in the tax haven, and then making an entity classification election for the second Irish company to be disregarded as a separate entity from its owner, the first Irish company. The payments between the two Irish companies are then ignored for U.S. tax purposes.[1] [edit]

You can read the full wiki article here

The real kicker is the list of corporations known to use this method...

Major companies known to employ the Double Irish strategy are:

Eli Lilly and Company
Forest Laboratories
Oracle Corp
Pfizer Inc

No surprises here.
edit on 19-11-2011 by CREAM because: (no reason given)

edit- Too bad the good information doesn't interest people as much as pedophiles, war, or smearing something or the other lol...
edit on 19-11-2011 by CREAM because: (no reason given)

posted on Nov, 19 2011 @ 11:49 AM
reply to post by CREAM

Hello, CREAM.

I'm just getting started, it's morning here, and I ran across your thread. Thank you for the information. I had heard the term before but didn't know what it involved.

It made me wonder, since I have heard many people say that corporations don't pay taxes, they pass it on to other people, maybe we should change our corporate tax laws. I'm pretty sure that there will be tax loopholes in anything we can come up with, so what if we said no corporate taxes? Wouldn't that attract a lot of business and jobs to the US?

Just wondering, and I may be a little fuzzy, I haven't had my coffee yet.

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