2 December 2012    |    Uncategorized

How the “Dutch sandwich” works for Google


The (Australian) Minister’s explanation of Google’s tax affairs is as follows: 


“While the day-to-day dealings of Australian firms advertising on Google might be with Google Australia, under the fine print of contracts Australian firms sign with Google, they are actually buying their advertising from an Irish subsidiary of Google.

It is then argued that the source of this income – and therefore the taxing rights under our tax treaty – would be with Ireland rather than Australia. Despite Ireland’s relatively low company tax rate of 12.5 per cent, we have just started to build the sandwich.

The next step is to route a royalty payment from the Irish operating subsidiary of Google to a Dutch subsidiary of Google, which is then paid back to a second Irish holding company subsidiary of Google that is controlled in Bermuda, which has no corporate tax.

The first Irish subsidiary receives a tax deduction for the royalty payment to the Dutch subsidiary, substantially reducing the income subject to the 12.5 per cent Irish company tax rate.

Under Dutch law, and because EU member countries do not charge withholding taxes on transfers within the EU, the transfers to and from the Netherlands are essentially tax free.

And under Irish tax law, the second Irish resident subsidiary is not taxed on the royalty payment because it is controlled by managers elsewhere.

The profits from the sale of advertising to an Australian firm then sit in a tax-free jurisdiction – possibly indefinitely.”




Simple: that’s how some of the big corporations can easily avoid tax, by the use of perfectly legal tax devices.  Each tax device is structured by the national Government for good economic reasons, but tie them all together and you have unexpected tax losses.  Everywhere.

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