Sadly, the “Double Irish” and the “Dutch Sandwich” are not items at your favorite lunch spot. Instead, you'll find them on the menu of legal financial shenanigans available to multinational corporations. And for around a decade, major international corporations have taken advantage of these complicated shell companies and tax loopholes that allow them to minimize their tax burden in the United States, Ireland, the Netherlands, and elsewhere.

What companies are known to use this technique? Lots of entities you’ve heard of: Apple, Google, Amazon, Adobe, and Microsoft, to name a few. How beneficial is all this? Google’s overseas tax rate was 2.4 percent, the lowest of all American tech companies, as measured by market capitalization. This shifting move saves the company billions of dollars.

But on Monday, a British parliamentary committee chided executives from Amazon, Google, and even Starbucks for employing such tactics. Margaret Hodge, the public accounts committee chair, slammed Google’s northern European operations chief, saying, "We're not accusing you of being illegal, we are accusing you of being immoral.”

In 2011, Google had $4 billion worth of sales in the United Kingdom, while it only paid $5.4 million in UK corporate tax (slightly more than 0.1 percent). Similarly, Amazon made around $6 billion in the UK last year, and only paid about $1.5 million in British taxes (0.025 percent). Last month, French tax authorities charged Google France with avoiding taxes via Ireland and owing $1.3 billion in fines. In the same month, the Oireachtas (Irish parliament) discussed this issue as well.

Deputy Michael Noonan, who is also the Irish minister of finance, argued in favor of Ireland’s status quo, saying that the problem fundamentally lies with the American tax code. “US tax on profits of foreign subsidiaries with such arrangements is deferred indefinitely until the profits are repatriated by dividends or otherwise to the US parent company," he said. "That is a US arrangement, not an Irish one.”

These cases may be early warning signs that these complicated international tax avoidance schemes may be coming to an end, as government authorities try to mitigate this.

“I think that the basic element of corporate responsibility, your first responsibility is a citizen, and paying taxes is a pretty basic [part of citizenship],” Sheila Killian, a lecturer in accounting at the University of Limerick in Ireland, told Ars.

“I think generally companies should pay a fair amount of tax to whatever they’re making a profit from. They’re enjoying the benefits of a tax system. They’re using the street lights and police and all the rest. If they’re benefitting, they should pay a little tax.”

The Bermuda Triangle of taxation

Here’s how the Double Irish works: as Bloomberg reported in 2010, a company sells or licenses its foreign rights to intellectual property developed in the United States to a subsidiary in a country with lower tax rates. The result? Foreign profits that come from that tech—like the rights to Google’s search and advertising technology, effectively the keys to the kingdom—are now attributed to that offshore subsidiary rather than the Mountain View, California headquarters. The subsidiaries have to pay “arm’s length” prices for those rights, just like an outside company would.

As Bloomberg concluded: “Because the payments contribute to taxable income, the parent company has an incentive to set them as low as possible. Cutting the foreign subsidiary’s expenses effectively shifts profits overseas.”

So who does Google license its tech to? A fun little company called Google Ireland Holdings, headquartered in Bermuda. If that sounds shady, that’s because it is. It appears to not have any employees, and it does not exist beyond paperwork. Bermuda, of course, has zero corporate income tax. So as a Bermuda company, Google Ireland Holdings pays none.

Google Ireland Holdings, in turn, owns Google Ireland Limited, which employs 2,000 people in downtown Dublin. Google Ireland Limited reported a pretax income of less than one percent of sales in 2008 and paid $5.4 billion in royalties to Google Ireland Holdings. (French investigative news site OWNI.fr published Google Ireland Limited’s 2011 annual report and its Irish Registration Office documents earlier this year.)

This holding company based in Bermuda is owned by yet another Bermuda-based subsidiary, Google Bermuda Unlimited. It's managed by Conyers, Dill, and Pearman, a law firm specializing in such offshore transactions. That “unlimited” corporation means it is not required to disclose income statements, balance sheets, and other financial information.

But getting money, tax-free, from Ireland to Bermuda requires a stopover in the Netherlands (the "Dutch Sandwich" part), to Google Netherlands Holdings B.V. This entity, according to Bloomberg, “pays out about 99.8 percent of what it collects to the Bermuda entity, company filings show. The Amsterdam-based subsidiary lists no employees.”

Edward Kleinbard, a financial law professor at the University of Southern California, summarizes this arrangement nicely in a 2011 academic paper in the Florida Tax Review.

“Meanwhile, from a US tax point of view, neither Ireland Limited nor Google BV exists at all. The United States sees only an Irish (not Bermuda) company (Irish Holdings) with a Bermuda branch, where most of its net income comes to rest,” he wrote. “The end result is a near-zero rate of tax on income derived from customers in Europe, the Middle East, and Africa that is attributable to the high-value intangibles that encompass the bulk of Google’s economic factors of production, and a very low rate of tax on returns attributable to the services of Google’s Irish-based sales force.”

Are changes afoot?

What are some ways the United States and European Union governments could change local law to reduce the impact of such tactics?

One obvious one, says James Stewart, a professor of finance at Trinity College in Dublin, would be to make a slight change to Irish law.

“One of the tricks in using Ireland and Bermuda is that you have an Irish resident company, but located in Bermuda,” he told Ars. “You have a company which is not located where its legal address is. You could have a change saying that a company has to be domiciled where its operations are.”

In the case of Google, Google Ireland Holdings is an Irish company but is domiciled in Bermuda.

He added that pending legislation in Brussels would do a lot to reduce the current scheme. Most notable is the Common Consolidated Corporate Tax Base (PDF), which would harmonize corporate tax structure across the 27-member bloc—eliminating the "Dutch Sandwich."

“That could be a direct way of affecting Ireland,” Stewart added. “You can no longer pretend that your sales in France are attributed to Google Ireland.”

In the meantime, though, many experts hope this renewed attention will put pressure on governments to actually change the system.

“This current system is unbelievably inefficient—we penalize companies that are entirely domestic,” Kleinbard told Ars, noting that small businesses right here in America can’t use these creative accounting techniques.

“We’ve created a system that incentivizes people to subsidize international operations. We have a system that is quite distortive of economic behavior and it is distortive in ways that are inimical to the United States. We’d rather have jobs here than internationally.”