Page 112 - Special Topic Session (STS) - Volume 4

STS570 Nadim Ahmad et al.
2. The impact of globalisation on the measurement agenda of national
accounts
5. On 12 July 2016, the statistical and economic policy community was
shocked. The Irish Central Statistics Office published its latest national
accounts data for 2015, revealing that real GDP growth was up 26.3% from
2014 (and up 32.4% in current prices). Commentators raised questions about
the reliability of the numbers and about the conceptual basis for the
measurement of GDP. Some quotes: “Ireland’s Economists Left Speechless by
26% Growth Figure” (Bloomberg); “Why GDP growth of 26% a year is mad”
(Economist); “It’s complete bullshit, it’s Alice in Wonderland economics” (Colm
McCarthy, University College Dublin). The main reason for the particularly high
Irish GDP growth rates lies in the fact that in recent years, attracted in large
part by low corporation tax rates, a number of large multinational corporations
have relocated their economic activities, and more specifically their underlying
intellectual property, to Ireland. As a result, sales (production) generated from
the use of intellectual property now contribute to Irish GDP rather than to
other countries’ GDP. Given the size of these companies, the boost to GDP
growth has been correspondingly large.
6. There is ample evidence that the national allocation of value added
and profits by MNEs is, for a significant part, driven by minimisation of global
tax burden, through mechanisms such as transfer pricing, channelling funds
through Special Purpose Entities (SPEs), “optimisation” of the recording of the
economic ownership and use of intellectual property products, and the
allocation of costs related to corporate services more generally. Lipsey (2010)
shows that the ratio of profits to compensation of employees of affiliates that
are majority-owned by US MNEs ranges from 0.579 for affiliates in Europe to
2
11.709 for affiliates in the Other Western Hemisphere. Although it is clear that
there is an economic rationale behind all of this, it hampers the analysis from
an economic substance point of view, certainly when it comes to analysing
national parts of MNEs. Bruner et al. (2018) find a 1.5 percent and 3.5 percent
increase in measured U.S. GDP and operating surplus, respectively, if profits of
UN MNEs would be allocated proportionally to compensation of employees
and domestic sales. De Haan and Haynes (2018) show how, by using the
“double Irish with a Dutch sandwich” construction, almost EUR 15 billion of
revenues of Google/Alphabet disappear in the Bermuda triangle, and are left
unaccounted for in World GDP. Using this construction, revenues are
channelled through SPEs in Ireland and the Netherlands, and ultimately end
up in a SPE registered in Bermuda. The presence of these SPE-type of units is

2 Barbados, Bermuda, British Islands and Carribean (British Antilles, British Virgin Islands,
Cayman Islands and Montserrat), Western Hemisphere n.e.c. (Anguilla, Antigua and Barbuda,
Aruba, Bahamas, Cuba, Dominica, French Islands (Caribbean), Grenada, Haiti, Jamaica,
Netherlands Antilles, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and
Tobago, British Islands (Atlantic)).
101 | I S I W S C 2 0 1 9