Vol. 465 No. 4
3 Mr. D. Wallace asked the Taoiseach his understanding of the net impact of transfer pricing in our annual international trading balance; and the percentage of total 1995 exports which were due to foreign-owned companies. [9302/96]
Transfer pricing is a hidden internal practice within a multinational organisation and cannot as such be measured directly. It is not possible, therefore, to assess the impact, if any, of transfer pricing either on the merchandise trade balance or on the services trade balance presented in the CSO's balance of payments statistics. However, there are a number of factors which suggest that the practice of transfer pricing, to the extent that it exists, is declining in Ireland. First, the move from export sales relief to a 10 per cent rate of tax reduced the attraction of engaging in the practice and, second, most of the capital exporting countries have in recent years become more vigorous in their policing and detection of transfer pricing.
To the extent that transfer pricing may exist and impact on Ireland's international trade balance, its effect is essentially removed in the current account of the balance of payments through the repatriation of profits, as well as royalty, dividend and interest outflows.
Indications from the annual Census of Industrial Production are that 70 per cent-80 per cent of manufactured exports are accounted for by foreign-owned companies.
Will the Minister agree that the practice of transfer pricing requires closer scrutiny and, if so, what steps does he propose to take to deal with the matter?
As I stated, the level of transfer pricing has been reduced considerably through policing, vigilance and international co-operation. The move from export sales relief to a 10 per cent rate of tax is a further deterrent. In recent years most capital exporting countries have tightened up their policing arrangements, are more vigilant and have put more punitive sanctions in place. There is a considerable level of vigilance in this area.
Will the Minister give the figures in monetary terms and indicate the level of dependency on foreign companies in the United Kingdom and other EU countries?
I do not have the figures but all the indications are that the level of transfer pricing has diminished considerably. Two of the deterrents are increased vigilance and the 10 per cent tax rate. There is less likelihood of transfer pricing now.
I am seeking elementary information on export figures. Will the Minister investigate the matter further and come back to me on it?
All the indications are that there are few distortions in terms of our export figures. The trade figures are accurate to within a precision decimal point, so to speak, and the degree of transfer pricing is minimal.
The Minister has not answered my question. I have asked for figures but unfortunately the Minister has not given them to me. Will he pursue this matter and come back to me with accurate information, particularly on the monetary aspect?
I do not have the figures but I will ask the Department if a mechanism can be put in place.
Given the substantial State funding allocated to multinationals which set up here, will the Minister agree that there is a need for more vigilance in this area than that set out in his reply?
I am not trying to conceal the complexity of the issue. The objective of people engaged in this activity is to maximise the global distribution of their profits to minimise the overall company tax bill. This was the practice but all the evidence is that it no longer exists to any great extent. There are deterrents. In addition, the authorities both here and on the international stage are rigorously policing their respective domestic arrangements to ensure it is kept to the minimum.
I take the Deputy's point about the multinationals, but we have to acknowledge the contribution they have made to the economy. There is not a solitary county in the country which does not have a multinational. I can list seven or eight in my own county. One should not begrudge them the grant aid they have been given in view of the substantial number of jobs created.
To take up the final point made by the Minister of State, as a Cork Deputy, there is no one who recognises the contribution the multinationals have made more than I do — the more we have the better — but I am also conscious of the contribution indigenous industries have made. We tend to lose sight of this when projecting annual export figures.
The Deputy is making a speech.
It is unsatisfactory that information is not available——
This is not the time for speech-making.
The Minister of State said there is not much evidence of transfer pricing. How does he explain the gap between GNP and GDP which in the Irish economy is £5 billion annually or 14 per cent? The norm within the OECD is 4 per cent. Has the study group considering this issue within the Taoiseach's Department completed its report?
We are going into some detail worthy of separate questions.
If export values are overstated, profits should be inflated by an equal amount, which would increase the value of GDP. Since the companies that may engage in transfer pricing tend to be foreign owned most of the higher profits would be remitted abroad and netted out in arriving at the figure for GNP, in other words, the income accruing to residents. Thus, any impact of transfer pricing would be removed in the calculation of GNP.
It is my information that there is an interim report, the details of which I will communicate to the Deputy in due course.
