Hi everybody regardless of how much money we make taxes are very very painful to all of us and more importantly if you're running a small company who just made your first year of profit after two years of incurring losses handing that money to the garment is something that you'll remember for a very long time because you know for sure.
That that money could be your savior next year when you again incur losses but while on one side there are people like you and me who sincerely pay their taxes on the other side there are companies like google microsoft and apple who used a genius tactic by which they saved thousands of crows of taxes every single year while google saved 23.
Billion dollars apple saved 78 billion dollars and microsoft saved 13.8 billion dollars in 2017 and 18. if you see that is more than two times the defense budget of india itself the question is what is this genius tax evasion strategy how do they escape the strict laws of taxation system and most importantly what are the study materials that will.
Help you understand these tax evasion strategies designed by the smartest minds in the world this video is brought to you by western but more on this at the end of the video the answer to this tax division strategy lies in something called double irish dutch sandwich no it's not a sandwich but a genius strategy by which google and microsoft.
Saved billions of dollars in taxes before that let's try to understand the basics using a simple example you see if you're a u.s resident corporation then you end up paying 21 percent of corporate taxes this is a source of federal income for the government so let's say google is your company based in the us which is a.
Software company that is into selling software to multinational corporates then while doing business google is u.s revenues for the fiscal year 2016 is 20 billion dollars remember you are only taxed on the profits you make so excluding the expenses the profit for google is stood at 2 billion now obviously you're extremely happy.
Until you realize that you have to pay 21 in corporate taxes to the government which is 420 million dollars now this leaves you with just 1.58 billion dollars but as it turns out you can actually save this entire 420 million dollars of your profit the question is how let's take the same company googly that is into selling software they now.
Set up an entity in ireland called irish googly for operating in the uk and this company is a direct subsidiary of the u.s based googly when this is done immediately google googly's tax rate drops from 21 to just 12.5 percent which is the irish corporate tax why because united states treats the company as an irish.
Corporation because the tax residency is based on the jurisdiction of incorporation according to u.s tax law as in you will be taxed on the basis of where your company is incorporated which in this case is ireland but this is where the first hurdle comes in as per irish tax laws if this irish corporation is.
Being controlled in another jurisdiction then the profits will only be taxed in that jurisdiction so since your irish googly is being controlled by the u.s googly then the tax applied will be that of the u.s so guess what although the parent company of irish googly is u.s googly the u.s googly cleverly sets up a special controlling company in bermuda.
Called bermuda googly why bermuda because in bermuda there is zero percent tax yes you heard that right zero percent so now since this company is managed and controlled from bermuda it is considered to be a resident in bermuda for irish tax purposes so now you are only paying tax in bermuda which is zero so you end.
Up paying no tax at all this is the reason why bermuda is called the tax heaven of the world so the job is done over here right 420 million dollars saved no hang on because this is where another catch comes in with something called the controlled foreign corporation rules because in short the united states authorities are not stupid.
Controlled foreign corporation rules or cfc state that if a u.s company's subsidy is being controlled by some other company in another country then again they will have to pay taxes in the us in this case since the irish google is an american company's subsidiary but is being controlled by a company in bermuda the taxes will again be applied.
By law so obviously this model also clearly doesn't serve the purpose but for twenty dollars is still a lot of money right well this is where the double irish dutch sandwich comes in as a name suggests there are two irish companies and one dutch company sandwiched between them so let's see how this exactly works.
Out the first thing that google needs to do is escape the cfc rules so this time they create an irish subsidy called omega ireland ventures which has a controlling presence in ireland itself so now the cfc rules do not apply anymore because the controlling company is in ireland itself but if done so omega will have to pay 12.5 percent.
Corporate tax on its profits as per irish corporate tax right so here's where omega then proceeds to create another irish subsidy omega properties and gives its controlling presence to bermuda now since this is an irish subsidy and not a u.s subsidy it has easily escaped the cfc rules and what googly does now.
Is that they sell all the intellectual property like patents brand names and copyrights to this company called omega properties so how many companies do we have three googly the parent company based out of the us omega airline ventures the ireland company controlled in ireland and then omega properties which is operating from ireland but is.
Controlled from bermuda now watch this very very carefully let's say omega ireland ventures works like a normal company and makes a total sales of 1 billion dollars and generates a profit of 200 million dollars the expenses over here will be 800 million and profits is 200 million here's where they bring an additional.
Expense which is the cost of patents and licenses for which they pay 200 million dollars to ireland properties why because they've used the intellectual property of ireland properties which means what this company generates zero profits hence no tax and since omega properties is being.
Controlled in bermuda it again incurs zero tax why if you remember as per irish tax laws if this irish entity or corporation is being controlled in another jurisdiction then the prophets will only be taxed in that jurisdiction but this is where another hurdle came up in the form of something called the.
Irish withholding tax structure wherein irish resident companies must withhold tax on dividends payments and other distributions that they make within the country so in simple words when omega ireland ventures makes a royalty payment to omega properties they will effectively have to withhold 20 as a part of withholding tax.
So just when you thought that omega had covered it all you actually incurred 20 tax but guess what here's where the dutch element comes into your sandwich you see there's actually a tax loophole which says that most of the european union countries will actually allow royalty payments to.
Another european union company without incurring this withholding tax so if you make royalty payment from an irish company to an irish company it will incur 20 tax but if you pay royalties to a netherlands company or vice versa there will be zero withholding tax in fact the dutch tax code even allowed.
Royalty payments to be made to several offshore tax havens like bermuda without actually incurring this withholding tax so guess what googly sets up another empty shell organization in the netherlands called omega dutch ventures and now the omega ireland ventures pays 200 million dollars of royalties to omega touch ventures without incurring.
Any tax and here's where the final stroke comes in omega dutch ventures then makes another 200 million dollars of royalty payment to omega properties and since this is also a transaction between two european union companies even this transaction will incur zero withholding tax now since omega properties is controlled.
From bermuda it again incurs the tax of bermuda's jurisdiction which in this case is zero dollars this is how the double irish dot sandwich strategy is used to save hundreds of millions of dollars in taxes now in case of google in 2017 according to reports google reportedly transferred 19.9 billion euros or roughly 22 billion.
Dollars through a dutch company which was then forwarded to an irish company in bermuda i'll attach a link for this in the description so that you understand this better and it's not just google but apple facebook pfizer microsoft and dozens of other billion dollar companies have used this strategy to save billions of dollars in taxes and.
The double irish dutch sandwich is the largest tax avoidance tool in history there are estimates that say that u.s multinationals built up an untaxed offshore reserves of one trillion us dollars from 2004 to 2018 but fortunately unfortunately the irish government came in and decided to put an end to this double irish dutch sandwich.
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Bonus you can now have a look at the study materials wherein you will find this and many other tax division strategies used by some of the most brilliant minds and some of the biggest organizations in the world that's all from my side for today guys if you learned something available please make sure to hit the like button in order to.
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