The False Economy: Transfer pricing in action.

Reported by The Irish Independent, 11th April 2009.

So, you sit there, the CEO of a global megacorp, looking at the 0.5% of your global workforce that exists in Ireland, noting that “they” produce 35% of your global turnover and increased “their” profitability by 73% in 2007. And you have to ask yourself the difficult question … if this is real, why bother employing and paying anyone anywhere else in the world?

And the simple answer is, you employ that other 99.5% to do all the work, to produce and sell your product because it is not real, it is just a tax dodge. And you pause to thank the accounting gods for transfer pricing.

The Knowledge Economy; knowing where to get the best tax breaks.

Blue Horseshoe

[deleted]

Thats pretty interesting.

Is this the norm amongst multinational? or is this one an exception?

It is one of the main reasons they are here.

how does this type of “wealth” get factored in to gdp? Does some of it also get in to gnp?

It is definitely in GDP, shouldn’t be in GNP. The exact amount is difficult to calculate, but if you look at a couple of organisations, such as Microsofts’ Round Island One, 2007 sales of €11bn and Flat Island € 2bn (here) on GDP of circa $250-260bn/say $255(here), using the same conversion rate in the indo article of 1.466 makes € 173bn.

There are plenty of other companies out there too.

A brief paper from KPMG here.

I used to work in a company which would ship entire finished goods in to Ireland in brown boxes.
On the “production line” here in Dublin the brown boxes were placed in printed “pretty” boxes, shrink wrapped and sent to European distributors.
The product was manufactured in Ireland but in small print on the outside of the box there was a disclaimer stating that the contents were built in other countries e.g. Singapore, Taiwan, China, Malaysia, etc…

GDP and GNP in most countries are usually fairly close, with Ireland there is a €31 billion divergence between our GNP/GDP numbers. I.e. Roughly 15% of our GDP number could be the result of transfer pricing.

finfacts.ie/irishfinancenews … 6410.shtml

Why don’t these companies move to eastern european member states where the corporation tax is even lower? I thought I read somewhere that one of the new accession states has a 0% corporation tax rate.

Cyprus and Bulgaria have 10% and are lowest in EU, then is Latvia with 15%. However it is not so relevant, the rules of applying tax are much more important. Diffrent rules could mean diffrent incomes across EU, which would affect effective taxing as much as actual tax rate.

It’s not quite that simple I’m afraid.

GDP would include the cash generated by foreign companies here, including TP activities, which is all then repatriated to their “homeland”, while ignoring the money brought home by Irish companies from their overseas operations (unless of course it was already part of a TP scheme). GNP will discount all the cash sent home from here, but will include profits from the foreign operations of Irish multinationals which is repatriated here.

So, removing all the foreign multinational contribution to the economy would put us at a figure below GNP.

Blue Horseshoe

Bertie once boasted that Ireland was the leading producer of software in the world and I am sure he had transfer pricing figures to back it up

were here…they closed their Irish Office last week - and yes all that profit was generated through the accounting department and not the software side

Yer a proper subversive git aint ya Blue?

.

Thanks BlueH

From American Chamber of Commerce:

amcham.ie/article.cfm?idarticle=461

Perhaps “Tranfer Pricing” is too concise a term. If we consider the US alone accounts for 83BN, other countries probably add another 30bn.

Any idea how this 83BN is treated with respect to GDP? If it’s simply added, then a good portion must also be in GNP.

It would be good to get a handle on what proportion of our GDP and GNP is due to over-declared revenues from multinationals(/Irish subsidiaries).

Im sure he meant “soft in the headware” and was mostly likely referring to the electorate having been voted in

This is still a bit muddy.

I get this definition on the methodology:

cso.ie/releasespublications/documents/economy/current/nie.pdf

I’m looking at the expenditure calculation. The numbers are shown on page 8 Table 5 of the linked pdf. <<warning: I’m guessing at what some of these headings mean. not that this will deter me :wink:, though corrections are welcome >>

The difference beween GDP and GNP seems to be “Net factor income from the rest of the world”.

Imports and Exports (items 83 & 84), both seem to have risen in tandem. However, I suspect these don’t offset each other as the building boom and personal consumption would have added to imports.

Looking at the annual changes in “Net factor income from the rest of the world”, are they enough to net out the brass-plate operations (such as Round Island One and Flat Island)? Would this suggest GNP as being a good measure may be wide of the mark?

or maybe its not as simple as summarising a group’s tax strategy by analysing the percentage of profit versus the percentage of employees in a given territory.

maybe the profit drivers of the business are something besides the “sales” employees located overseas? maybe the IP of the products is owned and developed in Ireland. maybe the IP is licenced out to its subs overseas and all the royalties are flowing back to Ireland. or maybe your right.

but in any case im sure the multinational is operating within the boundaries of the TP legislation in the US and other overseas territories.

timesonline.co.uk/tol/news/u … 122329.ece
Google avoiding over 100M sterling in UK tax each year through their Irish company and people aren’t happy about it.