‘Double Irish with Dutch Sandwich’ – Although this phrase gives the impression of belonging to a restaurant, it is in reality a tax evasion technique wherein corporate entities shift profits to an Irish company followed by a Dutch company and then back to an Irish company. This strategy is effective in saving substantially on taxes since much of the profits have been siphoned into countries which are no-tax or low-tax zones. Is it then difficult to imagine as to why multinationals like Google Inc (NASDAQ:GOOGL), Amazon.com Inc (NASDAQ:AMZN) and Apple have been using it for years to avoid paying heavy taxes?
But now that this aspect has come under the scanner courtesy of Paris-based OECD, acronym for Organization for Economic Cooperation and Development, most of the leading global corporate firms like Microsoft, Google Inc (NASDAQ:GOOGL) and Starbucks have been issued warnings as regards their tax evasion policies. While many of the suggestions that strongly recommend drastic alteration in existing tax structures are still under discussion, the draft will be finalized over the weekend with G-20 nations presiding on it.
While Google Inc (NASDAQ:GOOGL) and Amazon have stated that they have been meticulous in paying their taxes, international search engine Google Inc (NASDAQ:GOOGL) has been found to skirt taxes by channeling as many as $8 billion out of Asian and European markets to a firm in Bermuda. By doing so, not only does the company escape from paying taxes on profits accrued in these continents but is able to save most of it owing to Bermuda being a no-tax zone. So far this operation has been regarded as legal because it comes under the clause wherein companies cannot be taxed twice on the same profit.
British telecom provider Vodafone Group Plc (LON:VOD) is also likely to be affected since its policy of purchasing equipment in tax havens is also likely to be modified. So far Vodafone Group Plc (LON:VOD) has been procuring majority of its equipment in Luxembourg via a subsidiary wherein a tax rule exempts the company to pay anything on profits made by the satellite company.
Global retailer Amazon.com Inc (NASDAQ:AMZN) is another well known name which will take a hit since the rules that allow American giants to accrue large amounts in countries but not subject it to tax assessment have been proposed for change. Courtesy of this rule, Amazon.com Inc (AMZN) channeled as much as $15 billion Euros in 2013 to Luxembourg and earned massive profits.
Likewise tech companies like Adobe Systems, Ebay and Apple Inc (NASDAQ:AAPL) have been found guilty of siphoning 75% of their revenues into low-tax zones like Ireland and Switzerland rather than declare them with the country.
OECD, on its part, has decided to put its plan into action as per its secretary-general Angel Gurria –
“Our recommendations constitute the building blocks for an internationally agreed and co-ordinated response to corporate tax planning strategies that exploit the gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favourable tax treatment.”
This article has been written by Vinita Basu.