Double Irish Tax Sandwich

Twitter’s upcoming IPO has brought increased attention to the company and its international tax affairs.  Twitter’s SEC filings have brought to light a number of Irish and Dutch subsidiaries, so it appears the company may follow Apple and Google’s lead in adopting a Double Irish Tax Sandwich structure, also known as a “Double Irish,” and perhaps add a “Dutch Slice” as well.

How Are Double Irish Sandwich Structures Established?

The Double Irish Sandwich Structure is an international tax strategy that allows U.S. companies to pay very little tax on income from foreign customers for as long as the income is not brought back to the U.S.  The basic Double Irish Sandwich Structure involves the following steps:

(1)    Have the U.S. company incorporate an Irish subsidiary (S1), but locate the management and control of the subsidiary in Bermuda.  The IRS will treat the company as located in Ireland because of the place of incorporation, while the Irish tax authorities will treat the company as located in Bermuda because of its location of management and control.

(2)    The U.S. company then sells its IP to S1 at an arm’s length price (there may be some U.S. tax payable at this point, so it is best to do this step before the IP appreciates in value).

(3)    Have S1 incorporate an Irish subsidiary (S2), which will be managed and controlled in Ireland.

(4)    Make a “check-the-box” election in the U.S. for S2.  For U.S. tax purposes, transactions between S1 and S2 will be ignored.  This is a crucial step to avoid having foreign income taxable in the U.S.

(5)    S1 licenses the IP to S2 in return for a royalty payment.  S2 then makes the sales to the foreign consumers. 

How Does the Double Irish Sandwich Structure Work?

S2 generates income on sales to non-U.S. customers, however the income is reduced by the royalty payment to S1.  Any remaining income in S2 is taxed at Ireland’s low corporate tax rate of 12.5%.  S1 now has substantial income; however, this is not subject to tax in Bermuda or Ireland.

For U.S. tax purposes, certain foreign company income is taxed under the Controlled Foreign Company (“CFC”) rules.  The CFC rules tax active income from the provision of services to a related party; however, because S2 is disregarded for U.S. tax purposes, all the activities of S1 and S2 are combined.  When looked at together, S1 and S2 are providing services to foreign, unrelated parties only, so none of the income is charged to U.S. tax.

Add a Dutch Slice to the Double Irish Sandwich Structure

Some schemes also include a Dutch company, which sits between S1 and S2 (sometimes referred to as a “Dutch Slice” because of the Dutch company’s position in the middle of the tax sandwich).  In this scheme, S1 grants a license to Dutch Co (D1) in exchange for a royalty, and D1 in turn grants a license to S2 in exchange for a royalty.  This extra step is important because Ireland charges a withholding tax on royalty payments to Bermudan companies, but not to Dutch companies.  The Netherlands has no withholding tax on royalties, so paying royalties from Ireland to the Netherlands, and then to Bermuda, incurs no withholding tax.

The Dutch Slice is not always necessary.  In 2010, the Irish tax authorities issued a Statement of Practice (CT/01/10) which declared an intention to allow Irish companies to make royalty payments to non-EU companies with no withholding tax as long as certain conditions are met.  One of these conditions is that the payment is not part of a conduit scheme whereby the royalty payment represents a substantial part of the income.  This could pose a problem in some Double Irish Sandwich Structures, so many companies still use the Dutch Slice to avoid withholding tax on the royalty payment from S2 to S1.


Google and Apple in particular have received a lot of attention, both in the press and in Congressional Committees, for their use of the Double Irish Sandwich Structure. For the time being, Twitter is unlikely to receive the same level of attention, namely because it has no profits on which to avoid tax. However, the future benefits to the company are substantial.  Twitter will be able to minimize tax liabilities not just in the U.S. but in other large markets, such as the U.K. and Europe.  In addition, by organizing the structure early, Twitter can transfer its IP offshore while the value is still relatively low to further reduce U.S. tax payable.

Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.


Roger Royse

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City.
Read My Full Bio | Contact Me