In his budget announcement at the end of 2014, then Minister for Finance Michael Noonan promised a rule change “to ensure that Irish registered companies cannot be ‘stateless’ in terms of their place of tax residency”. The move was in response to growing pressure from Washington and Brussels on the Irish-registered corporate structure that had allowed subsidiaries of Apple to declare no tax residency for many years.

The Finance Act 2014 duly amended the Irish tax code and, on the face of it, actually went further than Noonan had promised, stating that “a company which is incorporated in the State shall be regarded for the purposes of the Tax Acts and the Capital Gains Tax Acts as resident in the State”. Not only was an Irish company no longer allowed to be tax-resident nowhere at all – it was also apparently banned from being tax-resident in another jurisdiction.

In the US, the Trump administration then took its own measures at the end of 2017 to tackle the most aggressive tax avoidance schemes of multinationals, imposing a “global intangible low-tax income” (GILTI) top-up. As previously reported, the many US groups that used offshore intellectual property holding companies in low-tax jurisdictions to surface large profits in the Caribbean or the Channel Islands at zero tax have since been subject to a new test. 

If those multinationals report profits over and beyond a proportion of their bricks-and-mortar assets outside the US, like stores or manufacturing plants, then they must pay a minimum level of tax on such “intangible income”. If the combination of countries where they operate, including Ireland, levy less than the equivalent of 13 per cent in corporation tax, then the US tax authority will charge them the difference at headquarters level. 

These combined reforms have led some US-based multinationals, such as Microsoft, to move intellectual property to Irish tax-resident companies, amortising it against international sales here and submitting the resulting profit to Ireland’s 12.5 per cent corporation tax rate. Once they blended this with the smaller tax bills incurred by their local marketing subsidiaries in high-tax market countries such as those in continental Europe, they more or less match the GILTI test and pay little or no additional tax in the US.

Others like Google and Facebook have chosen to repatriate their intellectual property to the US, where profits from intellectual property-heavy exports now enjoy a separate, similar reduced rate of 13.1 per cent.

Multinationals, along with their lawyers and accountants, however, did not give up the advantages of the double Irish easily.

The Irish tax residency rule for Irish-registered companies in the Finance Act 2014 came with a caveat: If a tax treaty allowed an Irish company to be resident in another country, then that remained allowed. None of the zero-corporation-tax jurisdictions used until then in double Irish structures, from Bermuda to Jersey, had such treaties with Ireland – but Malta did. 

Soon, Christian Aid, a group campaigning against poverty, noticed that a number of US corporations operating in Ireland were setting up Maltese subsidiaries and began to raise the alarm in a 2017 publication. “You have the 2014 legislation ending the double Irish, but of course, it excludes countries we have a bilateral tax treaty with. So then you shop around, you say, okay, Malta looks like a good fit,” recalls Christian Aid’s head of policy Conor O’Neill. “The research that we did in 2017 and 2018 highlighted the problem again, in a different kind of form.”

At the core of the new, so-called single malt structure was a combination of Irish and Maltese tax rules that left a portion of profits potentially exempt from any tax. On the one hand, an Irish-resident company making payments to another Irish-incorporated, but Maltese-resident company (for example for use of its intellectual property) could deduct those payments from income taxable in Ireland. But the receiving company, which was resident but not incorporated in Malta, could under certain conditions exempt the corresponding income from Maltese corporation tax.

The publication commissioned by Christian Aid from researcher Mike Lewis detailed the risk of tax avoidance, showing that companies including Microsoft’s subsidiary LinkedIn and Allergan’s subsidiary Zeltiq were putting structures in place to exploit the single malt loophole. 

Paschal Donohoe had by then replaced Michael Noonan as minister for finance. He pledged to tackle the loophole and, one year after Christian Aid’s initial revelations, the tax authorities of Ireland and Malta updated their tax treaty.

Their November 2018 Competent Authority Agreement (CAA) clarified that, in line with an international agreement brokered by the OECD that both countries were in the process of ratifying at the time, income transferred between companies resident in Ireland and Malta would indeed be subject to tax in either country.

Donohoe said at the time: “While I am confident that US tax reform has already significantly reduced the concerns around the single malt structure, I had asked officials to examine any further bilateral action that may be needed. I am pleased that this agreement has been reached which should eliminate any remaining concerns about such structures.”

The minister was right that the risk of multi-million-euro profits ending up being taxed nowhere had been averted. There was, however, another caveat.

The CAA applies for the purposes of the treaty between Ireland and Malta specifically, in circumstances where:

• “there is no double taxation to be avoided, and
• it is reasonable to conclude that an opportunity for double non-taxation would otherwise arise”.

In response to questions from The Currency, a Revenue spokesperson confirmed that, in those specific circumstances leaving profits fully exempt from tax only, an Irish-incorporated but Malta-managed company would be treated as Irish-resident and “fully chargeable to corporation tax in Ireland”.

Nowhere, however, does the CAA say that such a company is restricted from receiving payments in a classic double Irish structure and having the resulting profit taxed in Malta. This was clearly confirmed by the Revenue spokesperson:

“The CAA prevents double non-taxation of payments in circumstances where payments are paid to a Maltese company but are neither received in Malta nor subject to tax in Malta. The CAA does not apply – nor was it intended to apply – to an Irish-incorporated but Maltese-resident company:

“(a) that does receive the payments concerned in Malta and 

“(b) where those payments are subject to tax in Malta. There is not double non-taxation where the payments concerned are received in Malta and are subject to tax in Malta.”

Asked specifically in a first question whether a double Irish structure remains legal where an Irish-resident company makes payments to an Irish-incorporated, Malta-resident company and resulting profits are taxed in Malta at local conditions, and in a second question whether Revenue was aware of any issues or conducting any investigations into its use by corporations, the spokesperson added:

“Revenue is strongly committed to identifying and challenging tax avoidance, including schemes that would seek to rely on Ireland’s double-taxation conventions. While Revenue cannot comment directly or indirectly on the arrangements of a specific taxpayer, the purpose of the Ireland-Malta CAA is to prevent the arrangements described in the CAA and the structure you describe in question 1 is not such an arrangement.”

The Currency asked similar questions of the Department of Finance and received an identical answer. In addition, we asked whether there were any plans to make such structures illegal and the Department did not answer.

It’s official: The double Irish is alive and well, and it lives in Malta. You could call it the double malt.

Yesterday, we followed the money trail that led from €1 billion worth of international rapid diagnostic sales by an Irish subsidiary of Abbott Laboratories, boosted by Covid-19 demand in 2020, to €473 million in profits subject to a current tax charge of under €18 million in Malta for that year.

We can now explore the corporate structure established by the US pharmaceutical giant to take advantage of the loopholes left open by successive changes in tax rules, as well as intellectual property asset treatment specific to Malta.

After completing the acquisition of the rapid diagnostics manufacturer Alere and its Irish subsidiary in Ballybrit, Co Galway in October 2017, Abbott maintained its existing holding structure via Switzerland for another year. During 2018, its Irish unit reported securing €1.7 million in “employment grants” from the IDA.

Then in February 2019, the new owner launched a complex corporate restructuring.

Abbott incorporated a Russian doll-like series of new companies in Ireland. Abbott Rapid Diagnostics International Holdco Unltd sat at the top. It owned Abbott Rapid Diagnostics International Unltd, which in turn owned Abbott Rapid Diagnostics International Subsidiary Unltd.

For the sake of clarity, we will shorten their respective names from now on to “Holdco”, “International”, and “Subsidiary”. All four shared some common features: They had no employees until International reported its first recruit in 2020 and, although registered in Ireland, they have been resident in Malta.

Their constitutions drafted by lawyers at Matheson in Dublin ensure this. For example, the constitution of the business’s central intellectual property (IP) unit Abbott Rapid Diagnostics International included the following rules:

• “No person resident in the [Irish] State may be appointed as director or alternate director of the Company. The office of director will be immediately vacated if such director becomes resident in the State.”
• “The directors may not exercise any powers of the Company or take any action on behalf of the Company in the State.”
• “All meetings of the directors shall be held in Malta,” whether they involved the full board or select committees, and “any purpoted meetings held in the State shall be invalid”.
• Remote meetings were allowed as long as they were “initiated by the chairperson of the meeting from a location in Malta”.
• “All annual general meetings of the Company or extraordinary general meetings of it shall be held in Malta.”

One month later, the four Irish-incorporated, Maltese-resident companies swung into action. On March 28, 2019, the Swiss holding entity previously used by Alere transferred assets valued at €453.3 million down the new structure. After the transaction, International became the central profit centre for Abbott’s rapid diagnostics business outside the US. 

Its largest initial asset was the Ballybrit-based Irish trading subsidiary Abbott Rapid DX International Ltd (“Rapid DX”), valued at €286 million. International also acquired ownership of a Hong Kong group company, Inverness Medical Innovations, worth €74 million. 

Then there was intellectual property (IP). First, the March 2019 transaction included the transfer of “economic ownership of intellectual property valued at €94,130,000” from Switzerland to International, the company reported. 

From here on, IP transactions become more complex because Abbott took advantage of a Maltese tax rule allowing companies to book two different values for the same asset. It was summarised as follows by KPMG in a document on the taxation of cross-border mergers and acquisitions in Malta published before the establishment of Abbott’s double malt structure:

“On a cross-border merger, a Maltese surviving company may elect an acquisition cost of fair market value at the time of acquisition in cases where the assets were previously situated outside Malta and owned by a merging company that was not domiciled and/or resident in Malta before the merger. This stepped-up value is the tax base value for all tax purposes in Malta, including tax depreciation/amortization and eventual sale. The election must be made in the year following the year in which the merger occurs.”

International used this option to acquire IP from its newly acquired subsidiary in Hong Kong. The Irish-incorporated, Malta-resident company reported: “The Company purchased intellectual property from Inverness Medical Innovations Hong Kong Limited for €12,557,000. The consideration for this intellectual property was €172,779,000, the difference between this and the carrying value of €160,222,000 was taken to merger reserves.”

Another step-up IP transaction took place between Rapid DX in Ireland and Malta-resident Subsidiary. In this case, International provided Subsidiary with a €331 million capital contribution. Subsidiary used these funds to purchase IP with a book value of €14 million from Rapid DX. Rapid DX recorded the €317 million increase in value as a gain on the sale of this IP.

Those transactions were entirely circular. Rapid DX subsequently paid a €490 million dividend to International, which in turn distributed €159 million to Holdco. All gains generated through the revaluation of various IP assets were compensated by distributions elsewhere. 

By mid-2019, however, International and Subsidiary owned IP assets acquired at significant stepped-up values. While these new, multi-hundred-million-euro valuations did not appear on the intangibles item of their balance sheet, it was reported elsewhere – in their tax accounts.

As tax residents in Malta, both IP holding companies booked future tax credits based on the large amortisation charges they expected to offset against profits over the seven to ten years’ useful lives of patents, trademarks, core technologies, manufacturing know-how and associated customer relationships.

These deferred tax assets saw large swings between 2019 and 2020 because new legislation establishing so-called “fiscal units” in Malta was just coming into force. The Maltese authorities announced the change in January 2019, weeks before Abbott established its double malt structure. It became applicable to tax assessments filed from the following year.

Until then, the standard rate of corporation tax in Malta was 35 per cent, but multinationals were entitled to a subsequent refund equivalent to 30 per cent under certain conditions. New fiscal units allow groups of Malta tax-resident companies, such as those incorporated in Ireland by Abbott Rapid Diagnostics, to consolidate their tax returns and claim the ultimate 5 per cent rate upfront. 

In 2019, International and Subsidiary were still formally taxed at 35 per cent. They both applied this rate to the stepped-up value of the intellectual property they had just acquired to reflect the tax savings they expected for the coming years as they amortised it against future profits. 

International wiped €56 million off its 2019 tax account in respect of the “difference in cost of intangible asset for accounting and tax purposes”, equivalent to 35 per cent of the €160 million increase in the value of the IP it had acquired from Hong Kong.

Meanwhile, Subsidiary created a deferred tax asset worth €103 million. This was made up of €111 million due to the “difference in cost of intangible assets for accounting and tax purposes”, reduced by a €39 million “charge on migration of business residency” – a possible exit tax imposed by Ireland in application of EU anti-tax avoidance rules on the gain made when the IP changed its tax residency from Ballybrit to Malta, according to analysis by Christian Aid. The figures certainly correspond to the application of Malta’s 35 per cent tax rate, net of Ireland’s 12.5 per cent, to the €317 million increase in IP value reported during that transaction.

One year later, however, all of Abbot Rapid Diagnostics’s Maltese-resident companies had elected to form a fiscal unit. Under new rules, their headline tax rate had dropped to 5 per cent. They reflected by reverting 30 per cent worth of tax credits they had booked in 2019. 

International’s 2020 accounts show a €43 million “adjustment in respect of change in tax rate to 5 per cent (2019: 35 per cent)” related to intangible assets. Subsidiary, meanwhile, wrote down its deferred tax asset by €79 million for the same reason.

Then under fiscal unit rules, they consolidated their remaining tax credits into the accounts of their top holding company in Malta. As a result, Holdco reported a $19 million deferred tax asset at the end of 2020. The sum was equivalent to €15.5 million and represented the amount the group expects to shave off its already low Maltese tax bills in the coming years as it continues to amortise the stepped-up value of its IP against profits.

While 2020 is the latest year for which company filings provide this level of detail, post-balance sheet notes and Abbot’s group results at the global level show that its rapid diagnostics division has continued to use its double malt structure actively since then.

In December 2020, International acquired a fresh tranche of IP. The company reported: “The Intellectual Property valuation ($352,500,000), which represents the fair market value of the Intellectual Property, included the future value of customer relationships and technology IP within the business. As this transaction did not qualify as a business combination under FRS101 accounting guidelines, intangible assets ($135,600,000) within the transaction were identified and recorded. The residual or difference was then treated as a deemed distribution of €176,915,000 / $216,900,000 in 2020.”

It was not clear where International acquired the IP from or how the €177 million difference between its book and fair value would impact on the company’s tax liabilities and Abbott did not reply to The Currency’s questions about this transaction.

At the time of writing, the World Intellectual Property Organisation’s records showed that International owned 52 patents and 171 trademarks valid in various markets around the world, while Subsidiary held another 55 trademarks.

Abbott has also continued to make changes to the holding structure of its double malt companies. On November 30, 2020, Holdco and the entire structure under its ownership were placed into a new holding company, Abbot Holdings Universal, which is incorporated in Bermuda.

In addition, in recent months, the group inserted two new Maltese intermediary holding companies between Holdco and International. Abbott Rapid Diagnostics Holdings Ltd and its subsidiary Abbott Rapid Diagnostics Global Ltd were incorporated in Malta on October 6, 2021 and became the parents of International on December 1 last. To this date, they have not registered a presence in Ireland.

In the intervening time, the group also incorporated an additional Irish subsidiary in September 2020 called Abbott Rapid Diagnostics International Investments Unltd – then struck it off the companies’ register last December, “having never traded” nor ever filed accounts. Its constitution included the same provisions ensuring Maltese tax residency as its sister companies.

Abbott did not respond when asked by The Currency for the purpose of this short-lived subsidiary or that of the two new Maltese intermediary layers in its corporate structure. Instead, a spokesperson provided a statement published yesterday.

With this new structure in place, however, the US multinational began to extract profits from the Covid-19 testing bonanza channelled through Ireland and Malta. At some point last year, according to its latest filing, International paid out a €1 billion dividend.

Further reading in the double malt series

Part one: How a pandemic boost to a multinational’s Irish sales left a half-billion profit taxed at 4%

Part three: How Microchip, Tencent and Lufthansa cut their tax bills via Ireland and Malta

Part four: “Structures like these siphon revenue from some of the poorest countries in the world”