Page 116 - Special Topic Session (STS) - Volume 4

STS570 Nadim Ahmad et al.
country of the ultimate parent would be a logical alternative. Only the part of
value added with a physical presence, i.e. compensation of employees and
depreciation of non-IPP assets, possibly including a return on the investment,
would then remain in the countries in which the affiliates are located. Leaving
apart the relocation of IPPs and related depreciation, in a sense this treatment
would come down to an “upward shift” of distributed and reinvested earnings
from GNI to GDP.
16. From a conceptual point of view, the above treatment would also be
quite justifiable. IPPs are quite different from other types of fixed assets used
in the production of goods and services. Apart from having no physical and
local constraints, IPPs often concern the whole value chain, not a particular
part of the production process. Often, there is also no direct link to the
production process, and also no direct link between today’s stock of assets
and today’s production of goods and services. IPPs often concerns results from
R&D, design, trademarks, etc., and once implemented they are easily scalable.
As such, there are very good reasons to consider IPPs as corporate assets, of
which the ultimate parent is indeed the true economic owner.
17. One complication may relate to the determination of the residence of
the ultimate parent. This does not necessarily coincide with the country in
which the formal holding of the MNE is located. Here, one can also observe
the phenomenon of corporate inversions, by setting up a holding type of SPE
to minimise tax burden. Having such a legalistic approach to the residence of
a parent, in combination with the above proposals for the treatment of SPEs
and IPPs would potentially lead to far more dramatic shifts of output and value
added from one country to another. Instead, one will have to determine the
“true” residence of the parent, on the basis of the location of the centre of
economic decisions. This centre would typically coincide with the location
from where decisions are made on e.g. global arrangements of production,
R&D and other corporate investments, corporate finance, appointment at
senior management level, etc. It would therefore usually be the same location
as the one where the physical headquarters and the board of directors are
3
located.

4. Discussion and Conclusion
18. It is clear that all of the above options require, at least to some extent,
the exchange of individual data on MNEs across countries. In the current legal
circumstances, this is a major issue that would need to be resolved rather
urgently. Two possible ways forward can be distinguished: (i) a top-down
approach according to which data on MNEs are collected at the international

3 In some cases, two countries may share the headquarters of an MNE. Good examples are Royal
Dutch Shell and Unilever, which have part of their headquarters in the Netherlands and the
United Kingdom. In such cases, one may need to apply some proportionality rule.
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