Google is ending the ol' "Double Irish, Dutch Sandwich" tax elimination strategy
New New Year's Resolution... Stop using a sketchy international scheme with a charming name to sneak out of US taxes. Instead of going to the gym more, Google's parent company Alphabet will end its "Double Irish, Dutch Sandwich" tax minimization strategy in 2020 — they saved billions and only paid a single-digit tax rate on money earned outside the US through this ~~structure~~ loophole.
It sounds like a bar order, and reads like a Spring Break itinerary... but it's actually a perfectly legal travel route for money that won't trigger US income taxes or Europe's witholding taxes — and those happen to be most of Google's profits abroad. Here's how the cash moves:
- The $$$ earned abroad is funneled to an Irish subsidiary ➡️ then moved to a Dutch holding company ➡️ then sent to an Irish shell company in Bermuda
- That Bermuda part is key because the island has no corporate income tax — So that's where Google reports the income earned internationally.
- $25B of Google's money made this voyage last year, up from $23B in 2017.
Tax policy can move economies... It isn't just that the corporate tax rate for US companies has been cut from 35% to 21%. The Tax Cuts and Jobs Act of 2017 now lets American companies bring back cash they made/hoarded abroad without paying additional US taxes. Now Google can bring back its billions in overseas cash to potentially invest in the US — or return to shareholders as dividends.