Reports of the double Irish's death are greatly exaggerated.

• Author: Pesta, Michael

Ireland currently faces escalating pressure from the international community to scale back its business-friendly tax policies. For example, in a report published in late 2014, the European Commission accused Ireland of providing transfer-pricing rulings so beneficial that they rose to the level of unlawful state aid to Apple Inc. Additionally, the Organisation for Economic Co-operation and Development's (OECD's) Base Erosion and Profit Shifting (BEPS) project continues to gain momentum toward greater international tax law uniformity. In response, Ireland's finance minister announced changes to the residency rules for corporations in Ireland.

Approximately 1,100 multinational companies operate in Ireland; many of them use a technique known as the Double Irish to save on taxes. For U.S.-based multinationals, the Double Irish structure is particularly helpful because of the difference between U.S. and Irish tax law regarding tax residency. In the United States, a corporation is treated as a tax resident in the country under whose laws it was formed. However, Ireland treats certain corporations as tax resident in the country where central management and control is located. This difference allows a U.S.-based multinational group to incorporate a company under the laws of Ireland while structuring operations such that it is considered a tax-haven resident under Irish tax law.

The Double Irish structure involves two Irish companies, one of which is the subsidiary of the other. The Irish subsidiary company is a tax resident in Ireland under both U.S. and Irish law. However, another mismatch is created through an entity-classification election, commonly known as a check-the-box election under U.S. tax law, to be a disregarded entity (DRE), while remaining a corporation under Irish tax law (i.e., a hybrid entity).

The Irish parent company (IPCo) often purchases foreign intellectual property (IP) rights from its U.S. parent through a platform contribution transaction and then co-develops future IP through a cost-sharing agreement--both mechanisms described and allowed under the U.S. tax rules. IPCo then licenses the IP to its Irish resident subsidiary (OpCo), which is typically responsible for worldwide business activities in all territories outside the United States. Of Co pays a royalty to IPCo, which reduces the taxable profits in Ireland. But the royalty payment is disregarded for U.S. tax purposes because of the check-the-box election to make...