Beginning in 2008, in reaction to proposed changes to corporate tax rate changes in the United Kingdom and the United States, a number of multinational corporations relocated their group headquarters to Ireland.
Conducting little or no real activity in Ireland, these companies hold substantial investments overseas. By locating their headquarters in Ireland, the profits of these PLC’s are paid to them in Ireland, even though under double taxation agreements their tax liability arises in other jurisdictions. These profit inflows are retained in Ireland with a corresponding outflow only arising when a dividend is paid to the foreign owner.
The statistical treatment regarding profit inflows and outflows is adhered to. A direct investor is entitled, in proportion to its equity share, to the income generated by its subsidiaries, associates and branches, irrespective whether the income is distributed in the form of dividends (or branch profits) or retained as reinvested earnings. (Reinvested earnings are calculated as the difference between the company’s earnings and distributed dividends.) Profits of the overseas subsidiaries are recorded as ‘direct investment – income on equity – inflows’. The effect of these profits on the Primary Income1 of the Irish Balance of Payments is shown in Table 1 below.
|Table 1 Net Income of Redomiciled PLCs||€ million|
Users often refer to Primary Income as ‘repatriated profits’ of multinationals based in Ireland. This group of PLCs reduce that outflow in the Balance of Payments as shown in Figure 1.
|Primary Income||Excluding Redomiciled PLC Income|
The foreign assets of these enterprises are classified as ‘Direct Investment Abroad’ in the International Investment Position (IIP) statistics. These PLCs have had a significant effect on the stock of Irish FDI abroad, as shown in Figure 2.
|Total Redomiciled PLCs||Remainder of FDI|
As none of the shareholders own more than 10% of the equity in these companies, their liabilities are classified in the IIP as ‘Portfolio Investment – Equity’. Proportionally they have a smaller impact on this sub-heading as Portfolio Investment liabilities are dominated by investment funds. Redomiciled PLCs data, compared to Ireland's total Portfolio liability, is shown in Figure 3.
|Redomiciled PLC Liabilities||Portfolio Investment Liabilities|
1‘Primary Income’ less ‘Other Primary Income’ equals ‘Net Factor Income’ in the National Accounts.