“Double Irish” and “Dutch Sandwich” sound like dishes, but they refer to international tax avoidance structures combining Irish and Dutch companies. They attracted attention as part of Google's tax strategy.

The point was not simply to establish a company in a low-tax country.It combined intellectual property royalties, corporate tax residence, withholding taxes on cross-border payments, and U.S. taxation of foreign subsidiaries.That combination was central.

Why Were Two Irish Companies Needed?

The original memorandum began with the question, “Why are three companies needed?” The first point is thatthe country of incorporation and the country of tax residence were not necessarily the same..

A typical structure combined an Irish operating company with an intellectual property holding company incorporated in Ireland but managed and controlled from Bermuda or elsewhere. Ireland's residence rules at the time could allow the latter to be treated as nonresident. The key to the Double Irish was the legal form of two Irish companies with different tax treatment.

The operating company supplied services to overseas customers and paid intellectual property royalties from its revenue. Deductible royalties reduced its taxable income. If the recipient also faced little tax, the group's overall burden fell.

Royalties could not simply be set at any desired amount. Intellectual property ownership and transfer pricing remained relevant. Actual business activity, contracts, and asset valuation were still necessary.

Why Insert a Dutch Company?

Even if the operating company's corporation tax was reduced, withholding tax on outbound royalties could offset the benefit. The structure therefore routed payments through a Dutch company instead of paying the intellectual property holding company directly from the Irish operating company.

Placing a Dutch company between two Irish companies gives the Dutch Sandwich its name. The diagram simplifies royalty flows and does not show all shareholding relationships, the U.S. parent, or intellectual property transfer agreements.

What About U.S. Taxation?

Another issue arose at the U.S. parent level. Even if income moved to foreign subsidiaries, U.S. Subpart F controlled foreign company rules could trigger taxation before dividends were received.

The relevant mechanism was check-the-box, which allows certain entities to elect their U.S. federal tax classification.Entities treated as separate companies in one country may in some cases be treated as disregarded from their owners for U.S. tax purposes,which changes the treatment of intercompany royalties.

Check-the-box does not allow every company to freely choose whether to be taxed. Entity type, ownership, and other conditions apply. Tax deferral under the U.S. system at the time also differs from permanent exemption. The structure is best understood as using differences in how countries' tax laws characterize the same transactions.

International Tax Issues Illustrated by This Structure

When customers, sales staff, contracting companies, and intellectual property owners are in different countries, determining which country may tax which profits becomes difficult.

The issue lies in aspects that are hard to see by reading each country's law separately:the points where national tax systems interact.An expense is deductible in one country while the corresponding income is barely taxed elsewhere. Repeated effects can produce a large difference in total tax burden.

Thus, this is not simply a story of saving tax by forming a company abroad. Understanding international taxation requires examining payment taxes, corporate residence, income attribution, and parent-level income inclusion, as well as headline tax rates.