THE controversial "Double Irish" tax scheme is one of the world's best known accountancy tricks, but few know exactly how it works.
The scheme, which dozens of firms use to legally avoid billions of dollars in corporation tax, takes advantage of a quirk in Irish tax law that allows a company based abroad to be registered as an Irish company. For example, a company based in a tax haven such as Bermuda can be an "Irish" company.
Ireland also has generous laws on "transfer pricing", which allow a big company to move profits from one country to another, usually for tax purposes.
Those loopholes allow businesses to funnel profits through Ireland and on to tax havens in a completely legal manner. Google is one of the best known proponents of the Double Irish scheme.
In Google's case, an Irish subsidiary collects revenues from ads sold in countries like the UK and France. That Irish unit in turn pays royalties to another Irish subsidiary, whose legal residence for tax purposes is in Bermuda. The scheme involves two Irish companies, hence the Double Irish nickname.
Companies can lower their tax bill even further by moving their profits through Holland before sending them on to a tax haven. That method has also acquired a catchy nickname – the Dutch Sandwich.