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
In economics, tax incidence or tax burden is the effect of a particular tax on the distribution of economic welfare. The introduction of a tax drives a wedge between the price consumers pay and the price producers receive for a product, which imposes an economic burden on both producers and consumers; the concept was brought to attention by the French Physiocrats, in particular François Quesnay, who argued that the incidence of all taxation falls on landowners and is at the expense of land rent. Tax incidence is said to "fall" upon the group that bears the burden of, or has to pay, the tax; the key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. The theory of tax incidence has a number of practical results. For example, United States Social Security payroll taxes are paid half by the employee and half by the employer. However, some economists think that the worker bears the entire burden of the tax because the employer passes the tax on in the form of lower wages.
The tax incidence is thus said to fall on the employee. However, it could well be argued that in some cases the incidence of the tax falls on the employer; this is because both the price elasticity of demand and price elasticity of supply effect upon whom the incidence of the tax falls. Price controls such as the minimum wage which sets a price floor and market distortions such as subsidies or welfare payments complicate the analysis. Imagine a $1 tax on every barrel of apples a farmer produces. If the farmer is able to pass the entire tax on to consumers by raising the price by $1, the product is price inelastic to the consumer. In this example, consumers bear the entire burden of the tax--the tax incidence falls on consumers. On the other hand, if the apple farmer is unable to raise prices because the product is price elastic, the farmer has to bear the burden of the tax or face decreased revenues--the tax incidence falls on the farmer. If the apple farmer can raise prices by an amount less than $1 consumers and the farmer are sharing the tax burden.
When the tax incidence falls on the farmer, this burden will flow back to owners of the relevant factors of production, including agricultural land and employee wages. Where the tax incidence falls depends on the price elasticity of demand and price elasticity of supply. Tax incidence falls upon the group that responds least to price. If the demand curve is inelastic relative to the supply curve the tax will be disproportionately borne by the buyer rather than the seller. If the demand curve is elastic relative to the supply curve, the tax will be borne disproportionately by the seller. If PED = PES the tax burden is split between buyer and seller. Tax incidence can be calculated using the pass-through fraction; the pass-through fraction for buyers is PES/. So if PED for apples is -0.4 and PES is 0.5 the pass-through fraction to buyer would be calculated as follows: PES/ = 0.5/ = 0.5/0.9 = 56%. 56% of any tax increase would be "paid" by the buyer. From the perspective of the seller, the formula is -PED/ = -/ = 0.4∕.9 = 44% Because the producer is inelastic, they will produce the same quantity no matter the price.
Because the consumer is elastic, the consumer is sensitive to price. A small increase in price leads to a large drop in the quantity demanded; the imposition of the tax causes the market price to increase from P without tax to P with tax and the quantity demanded to fall from Q without tax to Q with tax. Because the consumer is elastic, the quantity change is significant; because the producer is inelastic, the price doesn't change much. The producer is unable to pass the tax onto the consumer and the tax incidence falls on the producer. In this example, the tax is collected from the producer and the producer bears the tax burden; this is known as back shifting. If, in contrast to the previous example, the consumer is inelastic, they will demand the same quantity no matter the price; because the producer is elastic, the producer is sensitive to price. A small drop in price leads to a large drop in the quantity produced; the imposition of the tax causes the market price to increase from P without tax to P with tax and the quantity demanded to fall from Q without tax to Q with tax.
Because the consumer is inelastic, the quantity doesn't change much. Because the consumer is inelastic and the producer is elastic, the price changes dramatically; the change in price is large. The producer is able to pass the entire value of the tax onto the consumer. Though the tax is being collected from the producer the consumer is bearing the tax burden; the tax incidence is falling on the consumer, known as forward shifting. Most markets fall between these two extremes, the incidence of tax is shared between producers and consumers in varying proportions. In this example, the consumers pay more than the producers, but not all of the tax; the area paid by consumers is obvious as the change in equilibrium price. The supply and demand for a good is intertwined with the markets for the factors of production and for alternate goods and services that might be produced or consumed. Although legislators might be seeking to tax the apple industry, in reality it could turn out to be truck drivers who are hardest hit, if apple companies shift towa
A corporate haven, corporate tax haven, or multinational tax haven, is a jurisdiction that multinational corporations find attractive for establishing subsidiaries or incorporation of regional or main company headquarters due to favourable tax regimes, and/or favourable secrecy laws, and/or favourable regulatory regimes. Modern corporate tax havens, differ from traditional corporate tax havens, in their ability to maintain OECD compliance, while using OECD–whitelisted § IP–based BEPS tools and § Debt–based BEPS tools, which don't file public accounts, to enable the corporate to avoid taxes, not just in the corporate haven, but in all operating countries that have tax treaties with the haven. While the "headline" corporate tax rate in corporate havens is always above zero, the "effective" tax rate of multinational corporations, net of the BEPS tools, is closer to zero. Estimates of lost annual taxes to corporate havens range from $100 to $250 billion. To increase respectability, access to tax treaties, some havens like Singapore and Ireland require corporates to have a "substantive presence", equating to an "§ Employment tax" of circa 2–3% of profits shielded via the haven.
In § Corporate tax haven lists, CORPNET's "Orbis connections", ranks the Netherlands, U. K. Switzerland and Singapore as the world's key corporate tax havens, while Zucman's "quantum of funds" ranks Ireland as the largest global corporate tax haven. In § Proxy tests, Ireland is the largest recipient of U. S. tax inversions. Ireland's double Irish BEPS tool is credited with the largest build-up of untaxed corporate offshore cash in history. Luxembourg and Hong Kong and the Caribbean "triad", have elements of corporate tax havens, but of traditional tax havens. Unlike traditional tax havens, modern corporate tax havens reject they have anything to do with near-zero effective tax rates, due to their need to encourage jurisdictions to enter into bilateral tax treaties which accept the haven's BEPS tools. CORPNET show each corporate tax haven is connected with specific traditional tax havens. Corporate tax havens promote themselves as "knowledge economies", IP as a "new economy" asset, rather than a tax management tool, encoded into their statute books as their primary BEPS tool.
This perceived respectability encourages corporates to use havens as regional headquarters. Smaller corporate havens meet the IMF–definition of an offshore financial centre, as the untaxed accounting flows from the BEPS tools, artificially distorts the economic statistics of the haven; the distortion can lead to over-leverage in the haven's economy, making them prone to severe credit cycles. Modern corporate tax havens, such as Ireland, the Netherlands and the U. K. are different from traditional "offshore" tax havens like the Cayman Islands or Jersey. Corporate havens offer the ability to reroute untaxed profits from higher-tax jurisdictions back to the haven; this makes modern corporate tax havens more potent than more traditional tax havens, who have more limited tax treaties, due to their acknowledged status. Tax academics identify that extracting untaxed profits from higher-tax jurisdictions requires several components: Once the untaxed funds are rerouted back to the corporate tax haven, additional BEPS tools shield against paying taxes in the haven.
It is important these BEPS tools are complex and obtuse so that the higher-tax jurisdictions do not feel the corporate haven is a traditional tax haven. These complex BEPS tools have interesting labels: Building the tools requires advanced legal and accounting skills that can create the BEPS tools in a manner, acceptable to major global jurisdictions and that can be encoded into bilateral tax-treaties, do not look like "tax haven" type activity. Most modern corporate tax havens therefore come from established financial centres where advanced skills are in-situ for financial structuring. In addition to being able to create the tools, the haven needs the respectability to use them. Large high-tax jurisdictions like Germany do not accept IP–based BEPS tools from Bermuda but do from Ireland. Australia accepts limited IP–based BEPS tools from Hong Kong but accepts the full range from Singapore. Tax academics identify a number of elements corporate havens employ in supporting respectability: Whereas traditional tax havens market themselves as such, modern corporate tax havens deny any association with tax haven activities.
This is to ensure that other higher-tax jurisdictions, from which the corporate's main income and profits derive, will sign bilateral tax-treaties with the haven, to avoid being black-listed. This issue has caused debate on what constitutes a tax haven, with the OECD most focused on transparency (the key issue of tr