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Google to end use of ‘double Irish’ as tax loophole set to close

Google headquarters in Dublin, Ireland
Outside the Google European headquarters in Dublin, Ireland.
(Vincent Isore/IP3 / Getty Images)

Google has overhauled its global tax structure and consolidated all of its intellectual property holdings back to the U.S., signaling the winding down of a tax loophole estimated to have saved American companies hundreds of billions of dollars.

The internet search company said on Tuesday the move was designed to simplify its corporate tax arrangements and was in line with OECD efforts to limit international tax avoidance, as well as recent changes to U.S. and Irish laws.

Google’s actions came ahead of the close of the so-called double Irish tax loophole, which has been used by U.S. companies to channel international profits through Ireland and on to tax havens like Bermuda — putting them outside the U.S. tax net. That led American companies to amass more than $1 trillion offshore as of the end of 2017, when President Trump’s tax overhaul changed the treatment of overseas profits.

Ireland bowed to international pressure five years ago and agreed to close the scheme, which was popular with technology and pharmaceutical businesses, but companies that already used it were given until the end of 2020 to end the practice.

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Most companies acted well ahead of that deadline, replacing their double Irish arrangements with new structures that have the same benefits, said Ed Kleinbard, a tax law professor at USC. Google’s move was unusual in that it suggested the company had acted later than others, he added.

A lack of disclosure requirements means that little is known about how specific companies have adjusted their tax arrangements, said Chris Sanchirico, a law professor at the University of Pennsylvania. “Based on what we have been able to see in the past, there is no reason to think that planning [by multinationals] hasn’t already evolved several generations beyond the kind of classic double Irish that is now officially coming to an end.”

According to a report from the International Monetary Fund last year, one popular new avoidance arrangement involved companies injecting intellectual property into new subsidiaries in Ireland, known as IP onshoring.

Under double Irish arrangements, companies could place IP like patents and trademarks in separate subsidiaries that were legally based in Ireland, but not treated as domiciled there for tax purposes, as long as they were managed and controlled from abroad. That IP could then eventually be channeled through to tax havens like Bermuda.

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Google said by moving its IP from Bermuda to the U.S. it was reacting to changes in U.S. tax law designed to limit the ability of companies to cut their tax bills by holding intangible assets offshore.

The Trump administration’s tax legislation, passed two years ago, imposed new taxes on companies’ excess profits from IP held overseas, partly to encourage American businesses to bring it back to the U.S.

American companies have in the past taken advantage of favorable Irish tax arrangements to shift profits out of the U.S. tax net, even when their IP is held in the U.S. Apple, for instance, keeps its IP in the U.S., but has used a research and development cost-sharing arrangement with a subsidiary in Ireland that allowed it to ascribe a large part of its international profits to the unit. Because the subsidiary was managed from Apple’s headquarters in Cupertino, Calif., it did not fall into either the Irish or U.S. tax net.

The Apple structure had most of the same benefits of the double Irish, which came later, said Kleinbard.

The Financial Times Ltd. 2019. All Rights Reserved. FT and Financial Times are trademarks of the Financial Times Ltd. Not to be redistributed, copied or modified in any way.


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