Tax Avoidance

Last updated: September 2014



Tax avoidance by internet companies


Many of the companies covered in this report are using aggressive tax-avoidance strategies. One of the most interesting is known as the “Double Irish Dutch Sandwich”. Here’s how the IMF describes how it works:[1]

A multinational company, headquartered in the United States, wants to avoid paying the headline rate of corporation tax in the UK. They start by booking the sale of UK products to a subsidiary located in Ireland.

Photo credit: William Murphy


The company also owns a subsidiary in the UK but argues that this part of their business does not sell products, rather it provides, for example marketing and supporting services to the company’s business for a fee.

Now the multinational’s problem is to get taxable profit out of Ireland and into a still-lower-tax jurisdiction. To this end the company sets up a subsidiary in a tax haven, for example Bermuda. This subsidiary is also said to be the owner of all the company’s foreign intellectual rights. In this way the profits collected by the Irish subsidiary can be routed to Bermuda as payment of royalties.

The problem now is that the United States might use its Controlled Foreign Companies (CFC) rules to tax the subsidiary located in the tax haven.

Irish law has fixed this bug. The company sets up another subsidiary in Ireland. This second Irish firm, although registered in Ireland, is administered by the subsidiary located in the tax haven. This is enough to be considered double “tax resident” according Irish law. The United States will treat this subsidiary as an Irish company (not subject to CFC rules), while Ireland will treat this subsidiary as resident in Bermuda, so that it will pay no corporation tax. This technique is known as a “Double Irish”.

However if those payments from the Irish unit went directly to Bermuda, they would be subject to Irish cross-border withholding taxes, because Ireland doesn’t have a tax treaty with Bermuda. So the company moves those payments through another subsidiary, located in the Netherlands, a country that has a tax treaty with Bermuda. This tactic is known as a “Dutch Sandwich.”

Hence the “Double Irish Dutch Sandwich” is served, a delicious meal for companies but indigestible to the public good.



Spotlight on Google


In 2012 the UK was Google’s second biggest market, worth almost £3bn. However Google paid just £11.5m in corporation tax in the UK (0.4% of its sales in England) because the sales are billed by Google Ireland Ltd, the Dublin-based subsidiary whose name appears on invoices to most non-US clients.

Photo credit: Ian Burt

This Irish subsidiary also paid low corporation tax (£14m) because it channelled £7bn in royalties, through ‘Google Netherlands Holding Bv’, (the Dutch company in between), to Google Ireland Holdings, the Irish/Bermuda resident company which owns the intellectual property that Google Ireland Ltd is licensed to sell.

Thanks to this and other low tax strategies, Google Inc paid foreign taxes of £221m in 2012 on over £7bn in overseas profit. This is equivalent to a tax rate of less than 5 per cent.[2]

In December 2012, Google chairman Eric Schmidt defended Google’s schemes to avoid tax. He said that the company paid taxes “in the legally prescribed ways.” and that such schemes were legitimate. “I am very proud of the structure that we set up... It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”[3]


More on Google >


How the companies rated on tax in our guides to:

Email providers

Search engines

Social networks

Web browsers

Mobile phone operating systems


Ethical Consumer worst ratings for likely use of tax avoidance strategies:

  • Apple Inc (Apple Safari, Apple iCloud, iPhone operating system)
  • Avant Force (Avant browser)
  • Google Inc (Chrome, Gmail, Google, Google+, Orkut, YouTube)
  • Microsoft Corporation (Internet Explorer, Outlook, Windows Phone Operating System, Bing, MSN, Skype)
  • AOL Inc (AOL)
  • IAC (Excite email, Ask Jeeves)
  • Ybrant Digital (Lycos email, Lycos search engine)
  • Yahoo! Inc (Yahoo! Mail, Yahoo!, Flickr, Tumblr)
  • Dropbox Inc (Dropbox)
  • Facebook Inc (Facebook, Instagram, Whatsapp)
  • LinkedIn Corporation (LinkedIn, SlideShare)
  • Twitter Inc (Twitter, Vine)


Ethical Consumer middle ratings likely use of tax avoidance strategies:
United Internet AG (1&1, GMX email)


The companies with no marks in the Anti-Social Finance column scored best for tax avoidance in our guides.



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1 International Monetary Fund, Fiscal Monitor – Taxing Times, October 2013  
2 Michael Hennigan, Google’s Irish-Dutch sandwich grew to €8.8bn in 2012,, 11 October 2013