Offshore financial centre
An Offshore Financial Centre or OFC is defined as a country or jurisdiction that provides financial services to nonresidents on a scale, incommensurate with the size and the financing of its domestic economy. "Offshore" does not refer to the location of the OFC, but to the fact that the largest users of the OFC are nonresident. The IMF lists OFCs as a third class of financial centre, with International Financial Centres, Regional Financial Centres. During April–June 2000, the FSF–IMF produced the first list of 42–46 OFCs using a qualitative approach. In April 2007, the IMF produced a revised quantitative-based list of 22 OFCs, in June 2018, another revised quantitative-based list of 8 major OFCs, who are responsible for 85% of OFC financial flows; the removal of currency and capital controls, the early driver for the creation and use of many OFCs in the 1960s and 1970s, saw taxation and/or regulatory regimes become the main reasons for using OFCs from the 1980s. Progress from 2000 onwards from IMF–OECD–FATF initiatives on common standards, regulatory compliance, banking transparency, has weakened the regulatory attraction of OFCs.
Academics now consider the activities of OFCs to be synonymous with tax havens, with a particular focus on corporate tax planning BEPS tools, tax-neutral asset structuring vehicles, shadow banking/asset securitization. Research in 2013–14, showed OFCs harboured 8–10% of global wealth in tax-neutral structures, act as hubs for U. S. multinationals, in particular, to avoid corporate taxes via base erosion and profit shifting tools. A study in July 2017, Conduit and Sink OFCs, split the understanding of an OFC into 24 Sink OFCs, 5 Conduit OFCs. In June 2018, research showed that OFCs had become the dominant locations for corporate tax avoidance BEPS schemes, costing US$200 billion in lost annual tax revenues. A June 2018 joint-IMF study showed much of the FDI from OFCs, into higher-tax countries, originated from higher-tax countries; the definition of an offshore financial centre dates back to academic papers by Dufry & McGiddy, McCarthy regarding locations that are: Cities, areas or countries which have made a conscious effort to attract offshore banking business, i.e. non-resident foreign currency denominated business, by allowing free entry and by adopting a flexible attitude where taxes and regulation are concerned.”
An April 2007 review of the historical definition of an OFC by the IMF, summarised the 1978–2000 academic work regarding the attributes that define an OFC, into the following four main attributes, which still remain relevant: In April 2000, the term rose to prominence when the Financial Stability Forum, concerned about OFCs on global financial stability, produced a report listing 42 OFCs. The FSF used a qualitative approach to defining OFCs, noting that: Offshore financial centres are not defined, but they can be characterised as jurisdictions that attract a high level of non-resident activity and volumes of non-resident business exceeds the volume of domestic business. In June 2000, the IMF accepted the FSF's recommendation to investigate the impact of OFCs on global financial stability. On the 23 June 2000, the IMF published a working paper on OFCs which expanded the FSF list to 46 OFCs, but split into three Groups based on the level of co-operation and adherence to international standards by the OFC.
The IMF paper categorised OFCs as a third type of financial centre, listed them in order of importance: International Financial Centre, Regional Financial Centres and Offshore Financial Centres. The April 2007 IMF paper used a quantitative proxy text for the above definition: More it can be considered that the ratio of net financial services exports to GDP could be an indicator of the OFC status of a country or jurisdiction; this approach produced a revised list of 22 OFCs, the list had a strong correlation with the original list of 46 OFCs from the IMF's June 2000 paper. The revised list was much shorter than the original IMF list as it only focused on OFCs where the national economic accounts produced breakdowns of net financial services exports data. By September 2007, the definition of an OFC from the most cited academic paper on OFCs, showed a strong correlation with the FSF–IMF definitions of an OFC: Offshore financial centers are jurisdictions that overs
Dutch Sandwich is a base erosion and profit shifting corporate tax tool, used by U. S. multinationals to avoid incurring EU withholding taxes on untaxed profits as they were being moved to non-EU tax havens. These untaxed profits could have originated from within the EU, or from outside the EU, but in most cases were routed to major EU corporate-focused tax havens, such as Ireland and Luxembourg, by the use of other BEPS tools; the Dutch Sandwich was used with Irish BEPS tools such as the Double Irish, the Single Malt and the Capital Allowances for Intangible Assets tools. In 2010, Ireland changed its tax-code to enable Irish BEPS tools to avoid such withholding taxes without needing a Dutch Sandwich; the structure relies on the tax loophole that most EU countries will allow royalty payments be made to other EU countries without incurring withholding taxes. However, the Dutch tax code allows royalty payments to be made to several offshore tax havens, without incurring Dutch withholding tax; the Dutch Sandwich therefore behaves like a "backdoor" out of the EU corporate tax system and into un-taxed non-EU offshore locations.
These royalty payments require the creation of intellectual property licensing schemes, therefore the Dutch sandwich is limited to specific sectors that are capable of generating substantial IP. This is most common in the technology, medical devices and specific industrials sectors, its creation is attributed to Joop Wijn after lobbying from U. S. tax lawyers from 2003–2006. Former venture-capital executive at ABN Amro Holding NV Joop Wijn becomes State Secretary of Economic Affairs in May 2003 not long before the Wall Street Journal reports about his tour of the US, during which he pitches the new Netherlands tax policy to dozens of American tax lawyers and corporate tax directors. In July 2005, he decides to abolish the provision, meant to prevent tax dodging by American companies, in order to meet criticism from tax consultants; the Dutch Sandwich is most associated with the double Irish BEPS tax structure, Irish-based US technology multinationals such as Google. The Double Irish is the largest BEPS tool in history, helping US technology and life sciences multinationals shield up to US$100 billion per annum from taxation.
The Double Irish uses an Irish company, incorporated in Ireland, thus the US-tax code regards it as foreign, but is "managed and controlled" from, Bermuda. The Dutch Sandwich, with the Dutch company as the "dutch slice" in the "sandwich", is used to move money to this Irish company, without incurring Irish withholding tax. In 2013, Bloomberg reported that lobbying by PriceWaterhouseCoopers Irish Managing Partner Feargal O'Rourke, who Bloomberg labelled "grand architect" of the Double Irish, led to the Irish Government to relax the rules for making Irish royalty payments to non-EU companies, without incurring Irish withholding tax; this removed the explicit need for the Dutch Sandwich, but there are still several conditions that will not suit all types of Double Irish structures, thus several US multinationals in Ireland continued with the classic "Double Irish with a Dutch Sandwich" combination. After pressure from the EU, the Double Irish BEPS tool was closed to new users in 2015, new Irish BEPS tools were created to replace it: Microsoft's and Allergan's Single Malt Irish BEPS tool.
The Dutch Sandwich has made Netherlands the largest of the top five global Conduit OFCs identified in a 2017 analysis published by Nature of offshore financial centres titled: "Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network". The five global Conduit OFCs are countries not formally labeled "tax havens" by the EU/OCED, they are responsible for routing half the flows global corporate tax avoidance to the twenty-four Sink OFCs, without incurring tax in the Conduit OFC. Conduit OFCs rely on major offices of large law and accounting firms to create legal vehicles, where as Sink OFCs have smaller operations. For example, Ireland has the BEPS tools to enable US IP-heavy multinationals to reroute global profits into Ireland, tax-free; the Netherlands enables these Irish profits to get to a classical tax haven without incurring EU withholding tax. Tax exporting Tax inversion Tax haven Conduit and Sink OFCs Bermuda Black Hole Irish Financial Services Centre Feargal O'Rourke ABC What is a Double Irish with a Dutch Sandwich
Tax resistance is the refusal to pay tax because of opposition to the government, imposing the tax, or to government policy, or as opposition to taxation in itself. Tax resistance is a form of direct action and, if in violation of the tax regulations a form of civil disobedience. Examples of tax resistance campaigns include those advocating home rule, such as the Salt March led by Mahatma Gandhi, those promoting women's suffrage, such as the Women's Tax Resistance League. War tax resistance is the refusal to pay some or all taxes that pay for war, may be practiced by conscientious objectors, pacifists, or those protesting against a particular war. Tax resisters are distinct from "tax protesters," who deny that the legal obligation to pay taxes exists or applies to them. Tax resisters may accept that some law commands them to pay taxes but they still choose to resist taxation; the earliest and most widespread forms of taxation were the corvée and tithe, both of which can be traced back to the beginning of civilization.
The corvée was state-imposed forced labour on peasants too poor to pay other forms of taxation. Low taxes helped the Roman aristocracy increase their wealth, which equalled or exceeded the revenues of the central government. An emperor sometimes replenished his treasury by confiscating the estates of the "super-rich", but in the period, the resistance of the wealthy to paying taxes was one of the factors contributing to the collapse of the Empire; because some believe taxation is oppressive, governments have always struggled with tax noncompliance and resistance. Indeed, it has been suggested that tax resistance played a significant role in the collapse of several empires, including the Egyptian, Roman and Aztec. Reports of collective tax refusal include Zealots resisting the Roman poll tax during the 1st century AD, culminating in the First Jewish–Roman War. Other historic events that originated as tax revolts include the Magna Carta, the American Revolution and the French Revolution. War tax resisters highlight the relationship between income tax and war.
In Britain income tax was introduced in 1799, to pay for weapons and equipment in preparation for the Napoleonic wars, whilst the US federal government imposed their first income tax in the Revenue Act of 1861 to help pay for the American Civil War. Tax resisters aims. For example, Henry David Thoreau and William Lloyd Garrison drew inspiration from the American Revolution and the stubborn pacifism of the Quakers; some tax resisters refuse to pay tax because their conscience will not allow them to fund war, whilst others resist tax as part of a campaign to overthrow the government. Tax resisters have been violent revolutionaries like John Adams and pacifist nonresistants like John Woolman. Leo Tolstoy, a Christian anarchist, urged government leaders to change their attitude to war and citizens to taxes: If only each King and President understood that his work of directing armies is not an honourable and important duty, as his flatterers persuade him it is, but a bad and shameful act of preparation for murder — and if each private individual understood that the payment of taxes wherewith to hire and equip soldiers, above all, army-service itself, are not matters of indifference, but are bad and shameful actions by which he not only permits but participates in murder — this power of Emperors and Presidents, which now arouses our indignation, which causes them to be murdered, would disappear of itself.
As an example of the numerous tax resistance methods, below are some of the legal and illegal techniques used by war tax resisters: A resister may lower their tax payments by using legal tax avoidance techniques. Some taxpayers include protest letters along with their tax forms. Others pay in a protesting form — for instance, by writing their cheque on a toilet seat or a mock-up of a missile. Others pay in a way that creates inconvenience for the collector — for instance, by paying the entire amount in low-denomination coins; this last method is less effective in countries where small coins are legal tender only in limited amounts, allowing the tax authority to reject such payments. Other tax resisters change their lifestyles. For instance. For example, UK citizens pay no income tax. In the US the equivalent tax-free annual income is the sum of the standard deduction and personal exemption, though many deductions and credits allow people to earn much more than this and still avoid income tax. Opposition to war has led some, such as Ammon Hennacy and Ellen Thomas, to a form of tax resistance in which they reduce their income below the tax threshold by taking up a simple living lifestyle.
These individuals believe that their government is engaged in immoral, unethical or destructive activities such as war, paying taxes funds these activities. These methods differ from tax evasion in that they stay within the tax laws, they differ from tax avoidance in that the goal is to pay as little tax as possible rather than to keep as much post-tax income as possible. A resister may decide to reduce their tax paid thro
Tax law or revenue law is an area of legal study which deals with the constitutional, common-law, tax treaty, regulatory rules that constitute the law applicable to taxation. Primary taxation issues facing the governments world over include. Taxation of capital gains versus labor income. Ecotax refers to taxes intended to promote environmentally friendly activities via economic incentives. Tax evasion and avoidance leading to reduced government revenue. Due to an Inefficient tax system in many underdeveloped countries, the majority of small businesses are not taxed. In law schools, "tax law" is a area of specialist study. U. S. law schools require 30 semester credit hours of required courses, 60 hours or more of electives and a combined total of at least 90 credit hours completed. Law students must choose available courses on which to focus before graduation with the J. D. degree in the United States. This freedom allows law students to take many tax courses such as federal taxation and gift tax, estates and successions before completing the Juris Doctor and taking the bar exam in a particular U.
S. state. Master of Laws programs are offered in Canada, United States, United Kingdom, Netherlands and an increasing number of countries. Many of these programs focus on international taxation. In the United States, most LL. M. Programs require that the candidate be a graduate of an American Bar Association-accredited law school. In other countries a graduate law degree is sufficient for admission to LL. M. in Taxation law programs. The Master of Laws program is an advanced legal study. General Requirements J. D. or First degree in law. An English proficiency test score for students with a native language besides English; the Juris Doctor program is offered by only a number of countries. These include, United States, Canada, Hong Kong, Philippines and the United Kingdom; the courses vary in duration of years and whether or not further training is required, depending on which country the program is in. General Requirements A bachelor's degree. Law School Admission Test - Required for law school admission in United States, Canada and a growing number of countries.
Credit requirements. A list of tax faculty ranked by publication downloads is maintained by Paul Caron at TaxProf Blog. AfricaTaxation in South Africa Taxation in TanzaniaAmericasTaxation in Argentina Taxation in Canada Taxation in Colombia Taxation in the British Virgin Islands Taxation in Peru Taxation in the United StatesAsiaTaxation in China Taxation in India Taxation in Iran Taxation in the Palestinian territories Taxation in the People's Republic of ChinaEuropeTaxation in the European Union Taxation in Azerbaijan Taxation in Bulgaria Taxation in France Taxation in Germany Taxation in the Republic of Ireland Taxation in the Netherlands Taxation in Poland Taxation in Portugal Taxation in Russia Taxes in Spain Taxation in the United KingdomOceaniaTaxation in Australia Taxation in New Zealand Corporate law Corporate tax
Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax, payable by means that are within the law. Tax sheltering is similar, although unlike tax avoidance tax sheltering is not legal. Tax havens are jurisdictions. While forms of tax avoidance which use tax laws in ways not intended by governments may be considered legal, it is never considered moral in the court of public opinion and in journalism. Many corporations and businesses which take part in the practice experience a backlash, either from their active customers or online. Conversely, benefiting from tax laws in ways which were intended by governments is sometimes referred to as "tax planning"; the World Bank's World Development Report 2019 on the future of work supports increased government efforts to curb tax avoidance as part of a new social contract focused on human capital investments and expanded social protection. Tax mitigation, "tax aggressive", "aggressive tax avoidance" or "tax neutral" schemes refer to multi-territory schemes that fall into the grey area between commonplace and well-accepted tax avoidance and evasion, but are viewed as unethical if they are involved in profit-shifting from high-tax to low-tax territories and territories recognised as tax havens.
Since 1995, trillions of dollars have been transferred from OECD and developing countries into tax havens using these schemes. Laws known as a General Anti-Avoidance Rule statutes which prohibit "tax aggressive" avoidance have been passed in several developed countries including Canada, New Zealand, South Africa, Hong Kong and the United Kingdom. In addition, judicial doctrines have accomplished the similar purpose, notably in the United States through the "business purpose" and "economic substance" doctrines established in Gregory v. Helvering and in the UK through the Ramsay case. Though the specifics may vary according to jurisdiction, these rules invalidate tax avoidance, technically legal but not for a business purpose or in violation of the spirit of the tax code. Related terms for tax avoidance include tax sheltering; the term avoidance has been used in the tax regulations of some jurisdictions to distinguish tax avoidance foreseen by the legislators from tax avoidance which exploits loopholes in the law such as like-kind exchanges.
The United States Supreme Court has stated that "The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." Tax evasion, on the other hand, is the general term for efforts by individuals, corporations and other entities to evade taxes by illegal means. Both tax evasion and some forms of tax avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that are unfavorable to a state's tax system. An anti-avoidance measure is a rule that prevents the reduction of tax by legal arrangements, where those arrangements are put in place purely to reduce tax, would not otherwise be regarded as a reasonable course of action. A company may choose to avoid taxes by establishing their company or subsidiaries in an offshore jurisdiction. Individuals may avoid tax by moving their tax residence to a tax haven, such as Monaco, or by becoming a perpetual traveler, they may reduce their tax by moving to a country with lower tax rates.
However, a small number of countries tax their citizens on their worldwide income regardless of where they reside. As of 2012, only the United States and Eritrea have such a practice, whilst Finland, Hungary and Spain apply it in limited circumstances. In cases such as the US, taxation cannot be avoided by transferring assets or moving abroad; the United States is unlike all other countries in that its citizens and permanent residents are subject to U. S. federal income tax on their worldwide income if they reside temporarily or permanently outside the United States. U. S. citizens therefore cannot avoid U. S. taxes by emigrating from the U. S. According to Forbes magazine some citizens choose to give up their United States citizenship rather than be subject to the U. S. tax system. S. citizens who reside outside the U. S. may be able to exclude some salaried income earned overseas from income in computing the U. S. federal income tax. The 2015 limit on the amount that can be excluded is US$100,800.
In addition, taxpayers can deduct certain foreign housing amounts. They may be entitled to exclude from income the value of meals and lodging provided by their employer; some American parents don’t register their children’s birth abroad with American authorities, because they do not want their children to be required to report all earnings to the IRS and pay American taxes for their entire lives if they never visit the United States. Most countries impose taxes on income earned or gains realized within that country regardless of the country of residence of the person or firm. Most countries have entered into bilateral double taxation treaties with many other countries to avoid taxing nonresidents twice—once where the income is earned and again in the country of residence —however, there are few double-taxation treaties with countries regarded as tax havens. To avoid tax, it is not enough to move one's assets to a
Tax evasion is the illegal evasion of taxes by individuals and trusts. Tax evasion entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts earned, or overstating deductions. Tax evasion is an activity associated with the informal economy. One measure of the extent of tax evasion is the amount of unreported income, the difference between the amount of income that should be reported to the tax authorities and the actual amount reported. In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden. Both tax evasion and avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that intend to subvert a state's tax system, although such classification of tax avoidance is not indisputable, given that avoidance is lawful, within self-creating systems. In 1968, Nobel laureate economist Gary Becker first theorized the economics of crime, on the basis of which authors M.
G. Allingham and A. Sandmo produced, in 1972, an economic model of tax evasion; this model deals with the evasion of income tax, the main source of tax revenue in developed countries. According to the authors, the level of evasion of income tax depends on the detection probability and the level of punishment provided by law; the literature's theoretical models are elegant in their effort to identify the variables to affect non-compliance. Alternative specifications, yield conflicting results concerning both the signs and magnitudes of variables believed to affect tax evasion. Empirical work is required to resolve the theoretical ambiguities. Income tax evasion appears to be positively influenced by the tax rate, the unemployment rate, the level of income and dissatisfaction with government; the U. S. Tax Reform Act of 1986 appears to have reduced tax evasion in the United States. In a 2017 study Alstadsæter et al. concluded based on random stratified audits and leaked data that occurrence of tax evasion rises as amount of wealth rises and that the richest are about 10 times more than average people to engage in tax avoidance.
Customs duties are an important source of revenue in developing countries. Importers purport to evade customs duty by under-invoicing and misdeclaration of quantity and product-description; when there is ad valorem import duty, the tax base can be reduced through underinvoicing. Misdeclaration of quantity is more relevant for products with specific duty. Production description is changed to match a H. S. Code commensurate with a lower rate of duty. Smuggling is exportation of foreign products by illegal means. Smuggling is resorted to for total evasion of customs duties, as well as for the importation of contraband. A smuggler does not have to pay any customs duty since smuggled products are not routed through customs-tax compliant customs ports, are therefore not subjected to declaration and, by extension, to the payment of duties and taxes. During the second half of the 20th century, value-added tax emerged as a modern form of consumption tax throughout the world, with the notable exception of the United States.
Producers who collect VAT from consumers may evade tax by under-reporting the amount of sales. The US has no broad-based consumption tax at the federal level, no state collects VAT. Canada uses both a VAT at sales taxes at the provincial level. In addition, most jurisdictions which levy a VAT or sales tax legally require their residents to report and pay the tax on items purchased in another jurisdiction; this means that consumers who purchase something in a lower-taxed or untaxed jurisdiction with the intention of avoiding VAT or sales tax in their home jurisdiction are technically breaking the law in most cases. This is prevalent in federal countries like the US and Canada where sub-national jurisdictions charge varying rates of VAT or sales tax. In liberal democracies, a fundamental problem with inhibiting evasion of local sales taxes is that liberal democracies, by their nature, have few border controls between their internal jurisdictions. Therefore, it is not cost-effective to enforce tax collection on low-value goods carried in private vehicles from one jurisdiction to another with a different tax rate.
However, sub-national governments will seek to collect sales tax on high-value items such as cars. Dennis Kozlowski is a notable figure for his alleged evasion of sales tax. What started as an investigation into Kozlowski's failure to declare art purchases for the purpose of evading New York state sales taxes led to Kozlowski's conviction and incarceration on more serious charges related to the misappropriation of funds during his tenure as CEO of Tyco International; the level of evasion depends on a number of factors, including the amount of money a person or a corporation possesses. Efforts to evade income tax decline when the amounts involved are lower; the level of evasion depends on the efficiency of the tax administration. Corruption by tax officials make it difficult to control evasion. Tax administrations use various means to reduce evasion and increase the level of enforcement: for example, privatization of tax enforcement or tax farming. In 2011 HMRC, the UK tax collection agency, stated that it would continue to crack down on tax evasion, with the goal of collecting £18 billion in revenue before 2015.
In 2010, HMRC began a voluntary amnesty program that targeted middle-
Double Irish arrangement
The Double Irish is a base erosion and profit shifting corporate tax tool, used by US multinationals since the late 1980s, to avoid corporate taxation on most non–U. S. Profits, it is the largest tax avoidance tool in history and by 2010, was shielding US$100 billion annually in US multinational foreign profits from taxation, was the main tool by which US multinationals built up untaxed offshore reserves of US$1 trillion from 2004 to 2018. Traditionally, it was used with the Dutch Sandwich BEPS tool. Despite US knowledge about the Double Irish for a decade, it was the EU who forced Ireland to close the scheme in October 2014, starting January 2015. However, users of existing schemes, such as Apple, Google and Pfizer, were given until January 2020 to close them. At the announcement of the closure it was known that Ireland had replacement BEPS tools, the Single Malt, the Capital Allowances for Intangible Assets: US tax academics showed as far back as 1994, that US multinational use of tax havens and BEPS tools had maximised long-term US exchequer receipts.
They showed that multinationals from "territorial" tax systems, which all but a handful of countries follow, did not use BEPS tools, or tax havens, including those that had switched, such as Japan, the UK. By 2018, non–US tax academics showed US multinationals were the largest users of BEPS tools and Ireland was the largest global BEPS hub or tax haven, they showed Ireland was exclusively a US corporate tax haven, that US multinationals represented the largest component of the Irish economy, that Ireland had failed to attract multinationals from "territorial" tax systems. US tax academics advocated the US switch to a "territorial" tax system in the December 2017 Tax Cuts and Jobs Act, as a result, forecast the demise of Irish BEPS tools, Ireland as aUS corporate tax haven. However, by mid–2018, other tax academics, including the IMF, noted technical flaws in the TCJA had increased the attractiveness of Ireland's BEPS tools, the CAIA BEPS tool in particular, which post-TCJA, delivered a total effective tax rate of 0–3% on profits that can be repatriated to the US without incurring any additional US taxation.
In July 2018, one of Ireland's leading tax economists forecasted a "boom" in the use of the Irish CAIA BEPS tool, as US multinationals close existing Double Irish BEPS schemes before the 2020 deadline. Under OECD rules, corporations with intellectual property, which are technology and life sciences firms, can turn this into an intangible asset on their balance sheet, charge it out as a tax-deductible royalty payment to end-customers. Without such IP, if Microsoft charged a German end-customer, say $100, for Microsoft Office, a profit of circa $95 would be realised in Germany, German tax payable. With such IP, Microsoft can additionally charge Microsoft Germany $95 in IP royalty payments on each copy of Microsoft Office, ensuring that its German profits are zero; the $95 is paid to the location in which the IP is housed. Microsoft would prefer to house this IP in a tax haven, higher-tax locations like Germany do not sign full tax treaties with tax havens, would not accept the IP charged from a tax haven as deductible against German taxation.
The Double Irish fixes this problem. The Double Irish enables the IP to be charged-out from Ireland, which has a large global network of full bilateral tax treaties; the Double Irish enables the hypothetical $95, sent from Germany to Ireland, to be sent-on to a tax haven like Bermuda, without incurring any Irish taxation. The techniques of using IP to relocate profits from higher-tax locations to low-tax locations are called base erosion and profit shifting tools. There are many types of BEPS tools, however, IP-based BEPS tools are the largest group; the Double Irish is an IP–based BEPS tool. As with all Irish BEPS tools, the Irish subsidiary must conduct a "relevant trade" on the IP in Ireland. A "business plan" must be produced with Irish employment and salary levels that are acceptable to the Irish State during the period the BEPS tool is in operation. Despite these requirements, the effective tax rate of the Double Irish is 0%, as the EU Commission discovered with Apple in 2016. Most major U.
S. technology and life sciences multinationals have been identified as using the Double Irish. By 2010, US$95 billion of U. S. profits were shifted annually to Ireland, which increased to US$106 billion by 2015. As the BEPS tool with which U. S. multinationals built up untaxed offshore reserves of circa US$1 trillion from 2004 to 2017, the Double Irish is the largest tax avoidance tool in history. In 2016, when the EU levied a €13 billion fine on Apple, the largest tax fine in history, it only covered the period 2004–14, during which Apple shielded €111 billion in profits from U. S tax; the earliest recorded versions of the Double Irish-type BEPS tools are by Apple in the late 1980s, the EU discovered Irish Revenue tax rulings on the Double Irish for Apple in 1991. Irish State documents released to the Irish national archives in December 2018 showed that Fine Gael ministers in 1984 sought legal advice on how U. S. corporations could avoid taxes by operating from Ireland. The former Irish Taoiseach, John Bruton, wrote to the Finance Minister, Alan Dukes saying: "In order to retain the maximum tax advantage, US corporations will wish to locate FSCs in a country where they will have to pay little or no tax.
Therefore unless FSCs are given favourable tax treatment in Ireland, the