The Irish and Eurostat national accounts statisticians do have something to explain…
I read the rule book – and am not that sure anymore if the Irish GDP figures were calculated ‘according to the rules’. Due to the relocation of headquarters of the headquarters of some large multinational corporations the Irish statisticians mapped an increase of, especially, profit income of the Irish economy of 60 billion euro in two years. Which is a lot, for a country of 4 million people. Eurostat agrees, as it was, according to Eurostat, calculated according to the Eurostat rules. But was it? I don’t think so. According to the ESA 201o (the rule book) just relocating a headquarter (or a ‘centre of predominant economic interest’, as it’s called in the rule book), is not enough. The same for ‘transfer pricing’. It is also about where production actually takes place. An excerpt (article 2.07) from the rulebook, emphasis added:
“Centre of predominant economic interest indicates that a location exists within the economic territory of a country where a unit engages in economic activities and transactions on a significant scale, either indefinitely or over a finite but long period of time (a year or more). The ownership of land and buildings within the economic territory is deemed to be sufficient for the owner to have a centre of predominant economic interest there. Enterprises are almost always connected to only a single economy. Taxation and other legal requirements tend to result in the use of a separate legal entity for operations in each legal jurisdiction. In addition, a separate institutional unit is identified for statistical purposes where a single legal entity has substantial operations in two or more territories (e.g. for branches, land ownership, and multiterritory enterprises). As a result of splitting such legal entities, the residence of each of the subsequently identified enterprises is clear. Centre of predominant economic interest does not mean that entities with substantial operations in two or more territories should not be split.”
Which, in my mind, means that a situation as described by Colm McCarthy, “There were large transfers of intangible assets on to the books of companies based here last year, driven by tax features, including provisions in the US corporate tax code and its interaction with Ireland’s arrangements. This contributed to a huge, and utterly implausible, increase in the capital stock and hence in depreciation and GDP. This phantom increase in the capital stock does not reflect extra buildings and machinery actually brought into use in Ireland last year“, should be seen as what it is. Tax dodging. The income of the people actually working in the ‘centre of predominant economic interest’ has to be added to Irish GDP. The stock of foreign fixed capital owned by it – not. There are in this realm of course situations which are not black or white. This one is however as black or white as it can be.