Bertie Ahern
Question:8 Mr. B. Ahern asked the Taoiseach the adjustments, if any, that are made in economic growth statistics in order to counter the effects of transfer pricing by multinationals. [11578/96]
Written Answers. - Transfer Pricing.
Transfer pricing is a hidden internal practice within a multinational organisation and as such cannot be measured directly. If it exists, it would increase the profits of the multinational in Ireland, and thereby Gross Domestic Product which records the income generated from production activity in the country. However, as most of the profits of multinationals are remitted abroad, they are netted out in calculating Gross National Product which is a measure of the income actually accruing to Irish residents. Thus, any impact of transfer pricing has been largely removed in the calculation of GNP. For this reason, GNP is generally considered to be a better indicator of the economic well-being of this country. 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 total export sales relief to a 10 per cent rate of tax reduced the attraction of engaging in the practice. Second, most of the capital exporting countries have in recent years become more vigorous in the policing and detection of transfer pricing.
The Central Statistics Office recently announced that in this year's national accounts, it will introduce a new treatment of profits/retained earnings of multinationals. At present, only the profits remitted by foreign owned enterprises to their owners are netted out of GNP. As a result, their retained earnings remain part of Irish GNP. Under the new treatment all profits will be attributed to their foreign owners when earned i.e. on an accruals basis. Consequently, all the profits of multinational companies operating in this country will be removed from the Irish GNP. There will be counter-balancing adjustments, arising from the inclusion of overseas profits accruing to Irish residents, and preliminary estimates suggest that these changes will have little effect on the rate of GNP growth, as currently measured.
In an information note published on 29 May 1996, the CSO also outlined a number of other changes in methodology resulting from the implementation of new EU national accounting standards. It is estimated that the net effect of all changes, some of which are unrelated to the transactions of multinational enterprises, will be to increase GNP levels in aggregate. At the same time, GDP levels in recent years will decrease and the gap between GNP and GDP will be substantially reduced.