Korea May Not Eat Apple’s Double Irish with a Dutch Sandwich Tax Strategy

Apple employs a popular tax reduction scheme called a Double Irish with a Dutch Sandwich.  The scheme is legal under Korean law.  Some media sources, in Korea, have been engaging in a relentless assault on Apple, possibly, motivated by issues that Samsung is having in courts abroad.  I worry that Korea will, again, harm its reputation abroad by engaging in some reactionary measures against Apple and other foreign competitors of Korean conglomerates.  The Lone Star fiasco has done its damage and another handling of a matter in such a fashion may, again, damage the image of Korea as foreign-capital friendly nation.

The Double Irish with a Dutch Sandwich is a well-known strategy to reduce the tax liabilities of companies headquartered in nations with high corporate tax rates.  The strategy has allowed Apple to pay low corporate taxes in the United States and most of the countries that it operates in through this strategy.  

How to make a Double Irish with a Dutch Sandwich.

Ingredients for Double Irish

1. Irish Company with a tax residence in Bermuda
2. Irish Company with a tax residence in Ireland
3. High Corporate Tax Nation 

Ingredients for a Dutch Sandwich

1. Irish Company with a tax residence in Bermuda (Top Slice of Bread)
2. Dutch Company (Slice of Cheese)
3. Irish Company with a tax residence in Ireland (Bottom Slice of Bread)
4. High Corporate Tax Nation Company

Basic Recipe for a Double Irish with a Dutch Sandwich
You won’t find this one in Starbucks.

1. Irish Company with tax residence in Ireland wholly owns the Irish Company with tax residence in Bermuda.
2. Transfer IP from High Corporate Tax Nation Company to Irish Company with a tax residence in Bermuda.  No transfer price concerns under Irish Tax Law.  Have a cost sharing relationship between the two companies.  Irish Company with tax residence in Bermuda does not have a tax residence in Ireland, since Irish Tax Law specifies that a company’s tax home is where a company’s management resides – not the place of incorporation.
3. Sub license the IP held by the Irish Company with a tax residence in Bermuda to the Irish Company with tax residence in Ireland in exchange for royalties.  No transfer price concerns under Irish Tax Law.  Now we have some deductible expenses and taxes under the Irish 12.5% corporate tax rate. 
4. Irish Company with tax residence in Bermuda licenses the IP to a Dutch Company in exchange for royalties. No transfer price issues under Irish Law and exclusion under Irish law for withholding taxes for Dutch companies.  Book the production costs within the Dutch company.
5. Irish Company with tax residence in Ireland sub licenses the IP to companies outside of Ireland.

A detailed article on this tax structure can be found at: The U.S. Companies & Their Use of The Double Irish Dutch Sandwich

Get a tax lawyer to do this to avoid the Subpart F Income (Controlled Foreign Corporations) and please don’t look for one in Starbucks.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team for an international law firm. He is the only non-Korean to have worked as an attorney for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty.

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