If you’ve never heard of a Double Irish Twist or Dutch Sandwich, you’d think we were talking about items on a menu at a European Cafe.
In reality, those terms refer to tax schemes major US companies employ to avoid trillions of U.S. taxes on foreign income. It is estimated that U.S. multinationals were holding more than $1 trillion in profits offshore via schemes such as the Double Irish and the Dutch Sandwich by the end of 2017.
How does it work?
This major tax avoidance scheme involves taking advantage of a loophole in the Irish tax code that allows companies like Amazon, Facebook, Apple, Netflix, Google, and Microsoft, to incorporate in Ireland while remaining tax resident in a tax haven elsewhere.
The scheme involves sending profits first through one Irish company, then to a Dutch company, and finally to a second Irish company headquartered in a tax haven. Google is one of the biggest culprits of tax avoidance using this scheme.
Here’s how they used it to their advantage:
In 2016, Google moved $19.2 billion to a Bermuda shell company – saving the company billions of dollars in taxes that year.
Google used two structures – the “Double Irish” and “Dutch Sandwich” – to shield the majority of its international profits from taxation. The setup involved shifting revenue from one Irish subsidiary to a Dutch company with no employees, and then on to a Bermuda shell company owned by another Ireland-registered company.
A recent study by Fair Tax Mark found that companies like Amazon, Facebook, Apple, Netflix, Google, and Microsoft collectively avoid $100 billion in taxes annually through the use of foreign tax shelters.
At a time when the corporate tax rate was 35% (now 21% after 2017 tax reform), Amazon, cited in the study as the biggest tax avoider, paid only about 12.7% in taxes.
As a result of all this tax avoidance, large corporations are parking a tremendous amount of cash offshore. It’s no small amount. The top 50 U.S. companies have $1.4 trillion in cash offshore.
And what do these companies do with the billions in taxes they save annually?
They funnel millions to their powerful PR departments into spinning public personas of social responsibility, caring for the environment, and generally doing good.
The reality is, the only good they’re doing is lining the pockets of their CEOs with their incentive-laden compensation plans that pay them tens of millions annually in bonuses for padding their companies’ bottom lines.
Most investors don’t think about the good to their local, state and national economies public companies they invest in are or are not doing, but maybe it’s time we dug deeper and asked what they’re doing to make your life and the lives of those in your community, state and country better.
Think of all the good those tax-avoiding companies could be doing with the taxes they should be paying on all those parked foreign profits.
If they paid their fair share of corporate taxes and banked their profits in the U.S., it would mean more available capital for hiring domestic workers, renting office space, building new corporate buildings, expanding operations, and more.
This additional influx of capital would not only involve direct investment in the company itself but also an indirect investment in local companies and communities that would benefit from the company’s expanded operations.
This influx of repatriated capital would result in a boon to local economies with local businesses providing manpower, services, and products to cater to the company’s needs.
This would directly result in more cash infused into the local economy to prop up area businesses and in increased local income and property taxes that could be funneled to local schools, the arts, community needs, infrastructure, etc. to improve the lives of residents.
U.S. investors pour their hard-earned wages into these companies in hopes of a better life for themselves and fellow Americans while CEOs like Musk, Bezos, and Musk could care less what happens to the average American.
Their PR departments may say otherwise, but we all know the truth. It’s all about profits for these companies and shirking their tax obligations is one big scheme they use to pad their wallets.
Wouldn’t you rather invest in a company you know will be investing locally or contributing to local, state, and US interests?
While millions of American children go hungry every day, why are these companies parking trillions in cash offshore to avoid paying their fair share?
Next time you’re faced with a decision on where to allocate your hard-earned investment capital, ask yourself, this: Who are these public companies looking out for? Americans?
Not only are they not looking out for Americans, but they’re stepping on the hands of the workers of this country who are expected to make up for federal, state and local budget deficits.
The whole point of a lower corporate tax rate is to encourage ingenuity and capitalism. That’s why the individual tax rate is higher.
The government wants to encourage more creators and entrepreneurs and fewer worker bees. But when those creators pay next to nothing in taxes, it defeats the whole purpose of the disparate tax rates. It’s suddenly a lot less fair when the corporation’s effective tax rate is less than 10%.
Think of all the good that foreign cash and the ensuing taxes could do if it was brought onshore:
- It could be creating American jobs.
- It could give American banks more reserves to lend to American companies.
- It could be used to strengthen the American infrastructure.
- It could reduce the government’s reliance on selling treasuries to foreign governments to pay for its expenses.
Asking public corporations to start paying their fair share may be asking too much – like asking a zebra to change its stripes. There’s a way for American investors to enact change without having to rely on large soulless corporations. They have the option to invest in local companies.
Consider investing in local, private companies who invest locally and who don’t use sophisticated offshore strategies to avoid paying taxes.
You can be assured that with these local, private companies your funds will be invested in the U.S. to benefit local economies and communities.
By investing locally, these companies provide housing, lift distressed communities, provide work for local workers and professionals and contribute to local, state, and federal budgets, and much more.
It’s not that big news that Google announced they’ll stop doing it because Ireland is ending the loophole for all companies by the end of 2020.
Investor, writer, speaker, and founder. Kyle Jones, key principal of TruePoint Capital, is accountable for investment decisions, asset management, and overseeing financial activities, operations, and investor relations. Kyle additionally is a Global Sales Leader for a large Fortune 100 technology company. Kyle received a Bachelor of Science degree from Texas State University – San Marcos.