Irish Sandwich Disease

“Dutch disease” refers to the economic phenomenon where a country experiences a spike in revenue from natural resources—like oil—which leads to a stronger currency and a subsequent decline in other sectors, such as manufacturing. The sudden influx of wealth can distort the economy, causing long-term damage to its structure.

A “Dutch Sandwich” in the context of taxation, is a well-known tax avoidance strategy where companies route profits through the Netherlands to reduce their tax liabilities. By exploiting the differences in tax laws between countries, corporations can create a “sandwich” of entities to lower their overall tax burden.

Irish Sandwich Disease (newly coined!) is what happens when a country implements a tax strategy like the Dutch Sandwich and ends up suffering from the economic effects of Dutch disease as a result.

Take Ireland, for example. We had our own version of the “Dutch Sandwich,” where companies would establish an Irish company owned by a non-resident company, often based in a tax haven like Bermuda. This evolved into the “Double Irish,” where firms structured their operations through multiple companies, with an Irish entity in the middle to shift profits and minimize taxes.

Ireland is now being forcibly back paid taxes by Apple, to the tune of €13 billion in additional government revenue. On top of that, Ireland’s corporation tax may rise, given the global push to increase the minimum corporate tax rate to 15%, along with the expiration of tax credits/offsets that multinational companies had previously used to lower their liabilities.

So, Ireland has this extra money. But here’s the issue: many of Ireland’s biggest challenges—housing, infrastructure—are not inherently money problems. Instead, they stem from either a lack of state expertise and know-how, or excessive rigidity in our systems (e.g., planning regulations) that prevent flexibility and responsiveness to market needs.

Still, when there’s a sudden influx of cash, the natural instinct is to treat every issue as a “money problem.” The temptation will be to throw money at these challenges, even if it may only drive up prices without actually solving the root issues.

And so, corporate tax is the new oil, and Ireland is at risk of Irish Sandwich Disease.

With thanks to my friend Niall for some thoughts on this.