Dutch Sandwich

The "Dutch Sandwich" is a tax avoidance strategy used by multinational corporations to minimize their tax liabilities. It involves routing profits through a Dutch subsidiary to exploit favorable tax treaties and avoid higher taxes in their home countries. Typically, companies use this strategy in conjunction with the "Double Irish" structure, forming a complex network of entities in Ireland, the Netherlands, and tax havens like Bermuda or the Cayman Islands. The process begins with a company registering intellectual property (IP) rights in a tax haven. Then, the profits generated from using this IP are transferred to an Irish subsidiary, which subsequently channels them to a Dutch subsidiary. The Dutch subsidiary acts as a pass-through entity, avoiding withholding taxes due to lenient tax treaties between the Netherlands and other countries. Finally, the profits are sent to the tax haven, where no corporate tax is imposed. This arrangement effectively reduces the company’s global tax obligations, allowing it to retain more profits. While legal, the Dutch Sandwich has drawn significant criticism for depriving governments of tax revenue and contributing to global inequality. International efforts, such as the OECD’s Base Erosion and Profit Shifting (BEPS) project, have aimed to curb such practices by closing loopholes and fostering transparency. Additionally, the European Union and individual countries have tightened regulations to address tax avoidance schemes. As a result, the Netherlands has implemented changes to its tax laws to reduce its role as a conduit for these strategies. Despite these reforms, the Dutch Sandwich remains a symbol of the complex interplay between corporate tax planning and regulatory frameworks, highlighting the need for global cooperation in addressing tax avoidance.