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OK so... wikipedia has a pretty good summary. You're right. I was wrong. There is no IP licensing payment from the US entity to Ireland. IP licensing happens

OK so... wikipedia has a pretty good summary. You're right. I was wrong. There is no IP licensing payment from the US entity to Ireland. IP licensing happens between 3rd party countries and Ireland. Irish tax law (to our great pride) gives IP licensing revenue tax exemption. It doesn't count as revenue for tax purposes. Once here, it can be transferred to a proper tax haven like Bermuda. Since its tax free, it doesn't matter that Ireland (like everyone) doesn't recognise the transaction to Bermuda as a legitimate expense. It didn't count as revenue anyway. I guess that invoicing to Ireland is neither here nor there, just more convenient when the money needs to come here anyway. Once the cash is in Bermuda, the game is done. The Bermuda company can hold it, buy shares, etc. This is why Apple (And MSFT) have moved all their IP to Ireland though. https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement Here's the good bit: Without such IP, if Microsoft charged a German end-customer, say $100, for Microsoft Office, a profit of circa $95 (as the cost to Microsoft for copies of Microsoft Office is small) would be realised in Germany, and German tax payable. With such IP, Microsoft can additionally charge Microsoft Germany $95 in IP royalty payments on each copy of Microsoft Office, ensuring that its German profits are zero. The $95 is paid to the location in which the IP is legally housed. Microsoft would prefer to house this IP in a tax haven; however, higher-tax locations like Germany do not sign full tax treaties with tax havens, and would not accept the IP charged from a tax haven as deductible against German taxation. The Double Irish fixes this problem.[8][9] The Double Irish enables the IP to be charged-out from Ireland, which has a large global network of full bilateral tax treaties.[g] The Double Irish enables the hypothetical $95, which was sent from Germany to Ireland, to be sent-on to a tax haven like Bermuda, without incurring any Irish taxation.

saddlerustle 5y ago
> Once the cash is in Bermuda, the game is done. The Bermuda company can hold it, buy shares, etc. A Bermuda subsidiary can't repurchase shares in the US parent company without booking those profits in the US.
- dalbasal 5y ago
  Then I suppose then I'm missing the last part of the trail. Enough tax study for me. No more.
  - saddlerustle 5y ago
    Broadly, the point of these tax structures for US companies isn't for the company to completely avoid paying US corporate tax, it's to - Avoid paying corporate tax at a higher rate than in the US, and - Defer paying corporate tax, often for decades, until theres a more favourable tax situation in the US, or a better opportunity to reinvest their capital comes up. At the end of the day the profits belong to the shareholders and the only way to return the money to shareholders is by paying US corporate tax. Shareholders usually don't mind these arrangements because the tax savings is often more than the cost of capital having the money sitting unproductively.
    - dalbasal 5y ago
      Avoiding paying more than the US rate doesn't require any of these shenanigans. They could just charge royalties to the US. Beyond that, the arrangement essentially turns corporate income tax into a corporate dividend/buyback tax. Dividends are always much lower than profits, and many companies don't do them at all. >> the only way to return the money to shareholders is by paying US corporate tax "Return" is somewhat ambiguous here. Shareholders already own those profits, and cash is reflected pretty directly in share prices. They don't necessarily have to "return" value this way. Many don't.. eg Berkshire. The parts that bother me most here is (a) all the wasted effort going into what is essentially a silly ritual. If we had to explain this to aliens, they'd bucket it into the same category that they use for whatever pharaonic priests. were up to. and (b) the unfairness. A small, unsophisticated company doesn't get to (eg) reinvest its profits tax free. If a farmer buys more land, its an investment. It isn't an expense. If Apple buys land, its effectively expensed.
      - saddlerustle 5y ago
        > Avoiding paying more than the US rate doesn't require any of these shenanigans. They could just charge royalties to the US. I'm not sure exactly what you mean by this > Dividends are always much lower than profits, and many companies don't do them at all. Dividends are lower than profits only for companies that have opportunities to reinvest profits into growth. For companies that don't, in principal, you'd expect dividends to be exactly profits. > Shareholders already own those profits, and cash is reflected pretty directly in share prices. They don't necessarily have to "return" value this way. There's large opportunity cost to shareholders for companies to hold onto cash, which is usually in low-risk investments, compared to how that shareholder would invest it themselves. That's what I mean by cost-of-capital. > Many don't.. eg Berkshire. This is a bit of a special case because Berkshires core business is making investment decisions (and doing so through a holding company is itself tax advantaged). When the day comes the value of Berkshire companies consistently underperforms the market, shareholders will absolutely demand Berkshire start distributing profits instead of making investment decisions on their behalf. > A small, unsophisticated company doesn't get to (eg) reinvest its profits tax free. It absolutely can reinvest its profits tax free! It just can't build up a long-term cash pile tax free.

saddlerustle 5y ago

> Once the cash is in Bermuda, the game is done. The Bermuda company can hold it, buy shares, etc. A Bermuda subsidiary can't repurchase shares in the US parent company without booking those profits in the US.

dalbasal 5y ago
Then I suppose then I'm missing the last part of the trail. Enough tax study for me. No more.
- saddlerustle 5y ago
  Broadly, the point of these tax structures for US companies isn't for the company to completely avoid paying US corporate tax, it's to - Avoid paying corporate tax at a higher rate than in the US, and - Defer paying corporate tax, often for decades, until theres a more favourable tax situation in the US, or a better opportunity to reinvest their capital comes up. At the end of the day the profits belong to the shareholders and the only way to return the money to shareholders is by paying US corporate tax. Shareholders usually don't mind these arrangements because the tax savings is often more than the cost of capital having the money sitting unproductively.
  - dalbasal 5y ago
    Avoiding paying more than the US rate doesn't require any of these shenanigans. They could just charge royalties to the US. Beyond that, the arrangement essentially turns corporate income tax into a corporate dividend/buyback tax. Dividends are always much lower than profits, and many companies don't do them at all. >> the only way to return the money to shareholders is by paying US corporate tax "Return" is somewhat ambiguous here. Shareholders already own those profits, and cash is reflected pretty directly in share prices. They don't necessarily have to "return" value this way. Many don't.. eg Berkshire. The parts that bother me most here is (a) all the wasted effort going into what is essentially a silly ritual. If we had to explain this to aliens, they'd bucket it into the same category that they use for whatever pharaonic priests. were up to. and (b) the unfairness. A small, unsophisticated company doesn't get to (eg) reinvest its profits tax free. If a farmer buys more land, its an investment. It isn't an expense. If Apple buys land, its effectively expensed.
    - saddlerustle 5y ago
      > Avoiding paying more than the US rate doesn't require any of these shenanigans. They could just charge royalties to the US. I'm not sure exactly what you mean by this > Dividends are always much lower than profits, and many companies don't do them at all. Dividends are lower than profits only for companies that have opportunities to reinvest profits into growth. For companies that don't, in principal, you'd expect dividends to be exactly profits. > Shareholders already own those profits, and cash is reflected pretty directly in share prices. They don't necessarily have to "return" value this way. There's large opportunity cost to shareholders for companies to hold onto cash, which is usually in low-risk investments, compared to how that shareholder would invest it themselves. That's what I mean by cost-of-capital. > Many don't.. eg Berkshire. This is a bit of a special case because Berkshires core business is making investment decisions (and doing so through a holding company is itself tax advantaged). When the day comes the value of Berkshire companies consistently underperforms the market, shareholders will absolutely demand Berkshire start distributing profits instead of making investment decisions on their behalf. > A small, unsophisticated company doesn't get to (eg) reinvest its profits tax free. It absolutely can reinvest its profits tax free! It just can't build up a long-term cash pile tax free.