‘Fantasy’ GDP surge brings international gaze back to tax regime

The transfer of corporate assets into Ireland by a handful of multinationals which led to a huge surge in Irish GDP runs the risk of putting the country’s tax regime back under the international spotlight, analysts have warned.

The CSO said the capital transfers led to “dramatic” revisions to its GDP numbers and means the economy here surged last year by 26.3%, up from its preliminary estimate of 7.8%.

The increase in assets on the national accounts, however, led to “no substantial” increase in the number of jobs and did not increase exports because some of the companies are involved in so-called contract manufacturing where the goods and services are made by plants located abroad.

An examination by the Irish Examiner of World Bank statistics could find no other country whose economy expanded by over 26% last year.

Ireland’s nearest rival was the West Bank and Gaza, which is rebuilding its war-damaged economy and where economic growth climbed 12.4% in 2015.

Uzbekistan posted the world’s third-largest increase, with GDP growing by 8%.

The Department of Finance told the Irish Examiner the revised level of GDP will lead to an increase in the amount Ireland pays into the EU budget, but by how much remains unknown.

The accounting manoeuvres will raise uncomfortable questions about the credibility of Ireland’s tax regime, analysts said.

Economist Jim Power said the surge of over 26% surge in GDP will attract the attention of observers abroad who will ask: “What in the name of God is going on in Ireland?”

“It sent a clear message about the artificial nature of some of what Ireland does. It raises the question of what a number of companies–probably no more than five–acted the way they did in 2015,” Mr Power said.

Alan McQuaid, chief economist at Merrion Capital, said Irish GDP figures were now “illusory and a fantasy” which will in terms of credibility for Ireland “bring a lot of unwelcome attention” on the corporate tax regime.

He said the GDP revisions risk stoking pay demands at home and may undermine Ireland’s negotiations with Brussels to offset the economic effects of Britain’s exit from the EU.

Seamus Coffey, an economist at UCC, said many of the asset transfers from tax havens were led by attempts to increase the transparency of how much and where corporates pay their taxes, under the OECD’s so-called Base Erosion and Profit Shifting—Beps—initiative.

Ireland has been an “unintended beneficiary” of the Beps process, Mr Coffey said, adding he believes the GDP revisions and asset transfers will have no bearing on the EU’s decision over whether Ireland struck a too-sweet tax deal with Apple.

“We are all trying to detect what the underlying growth was in 2015. It is very hard to decipher from this set of figures,” said Thomas Conefrey, chief economist and head of the secretariat at the tax and spend watchdog, the Irish Fiscal Advisory Council.

A Department of Finance spokesman said the surge in the level of GDP will lower the country’s net debt as measured in terms of GDP.

However, there is no increase in the so-called fiscal space of €1bn available in October’s budget for 2017, the Finance Department spokesman said.


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