I’m interested in making sense of the massive gap between exports and imports of royalties and licences.
How do we interpret the high level of imports? Most of which are bought, according to the annual services inquiry, by the computer services industry (74% in 2006) with the rest split largely between R&D companies and wholesale trade companies (c. 10% each)
1. Are the royalties and licences being bought as inputs into production/ innovation? In which case it reflects a continuing dependence on international intellectual property and an ongoing weakness in innovation (particularly given the low level of exports of royalties etc)
2. Are they being bought as a way of repatriating profits? In which case, it may either point to high levels of transfer pricing in the sectors that are importing these royalties and licences, or may reflect improved performance of their international operations by indigenous companies that are then re-patriating profits. if we had data on purchases by sector and nationality of firm we could get some insight into this question, but I haven’t seen that anywhere.
The data do not seem to be publicly available in order to figure out which of the above is at work, and to what degree.
Any tips on additional data or evidence – or interpretations – welcome.
6 replies on “Royalties and Licences – a data question”
My understanding is that the U.S. tax authorities requires many U.S. MNCs in Ireland to enter agreements with them to remit a certain percentage of their turnover to their U.S. parents in the form of royalties for the use of the IP developed there, so as to avoid excessive transfer pricing.
There may be further data available from the Forfas Annual Business Survey of Economic Impact.
Always worth looking at US data to find out what’s really going in Ireland 🙂
On a quick search the US Bureau of Economic Analysis has its data on services trade including royalties/licences collected here.
The first article by Koncz and Flatness runs through the numbers, with Ireland getting a few mentions. Probably nothing broadly unfamiliar in all of this,
perhaps there are possibilities for special tabulations from this source?
These statistics are not published, precisely because of the interpretations you appear to seek to place upon them…… You could ask Bermuda, the Netherlands etc for stats to try a tie up but……..
De fack ov dee mather, dee Oirish arr fery cleverrrr ….. so other jurisdictions value what we can do for them.
Anyway there is going to be such an enormous disruption in the next few months, that this research is likely to have little relevance for a decade or so, with all due respect to your scholarship.
Speaking from experience in the technology/computer R&D and technology services area, I can say that typically these firms use huge amounts of third party IP and IT tools which after often expensive in terms of royalties or, in the case of tools, licence fees. Some kits in very specialised areas, such as silicon design, involve tens of thousands of dollars per anum, even for a relatively small number of ‘seats’.
This alone doesn’t prove anything and as you say more data would be required. But it says to me that certainly there is a substantial amount of the imports you mention which are, in fact, used as inputs for innovation and production.
Thanks for the tips and insights, Seán
It’s been my understanding that these royalties and licenses are at least in part driven by transfer pricing. Leaving out exports and imports for this segment of our trade alone paints a very different picture of Ireland’s services trade (i.e. surplus rather than deficit).
Leaving out inward and outward royalties and payments also better illuminates the growth of exports of a range of business services that may be the key to our future foreign earnings!