1: The Double Irish:-
For the double Irish, a parent company sets up two companies in Ireland. One of these Irish companies will own the non-U.S. rights to intellectual property; however this company would be a tax resident in countries like the Cayman Islands or Bermuda. Irish tax law allows a company to be a tax resident of another country if the central management and control is located in another country.
The company would then license the intellectual property rights to a second Irish company, which is a tax resident of Ireland, in return for substantial royalty payments.
The second company would receive income from the use of the licensed assets in countries outside the U.S. These taxable profits, currently taxed at the Irish rate of 12.5%, would be reduced by the royalty payments made to the first Irish company. But for this to work, the second Irish company must be a fully owned subsidiary of the first company, and then must make an election to be disregarded as a separate entity from its owner, which means the two companies are treated as a single company for tax purposes.
2: Add the Dutch Sandwich:-
The Dutch sandwich added to the Double Irish can further reduce a company’s tax liabilities. This strategy takes advantage of any agreement between Ireland and other European Union countries.
To set this up, the parent company sets up a third subsidiary in the Netherlands. This subsidiary is then sandwiched between the two Irish companies in the license and royalty transaction. Ireland doesn’t tax money being moved among European countries, and the Netherlands does not impose a withholding tax and only collects a small fee for the use of its tax system. This allows the royalty payments to be transferred to the first Irish company virtually tax free.
This explanation seems to appear in numerous places on the internet. I think it may have originated at taxtv.com