The farce of Ireland’s national accounts: let’s go plane watching!

Wow! Exports are up 34%; Investment is up 27%; imports are up 22%. Wham, bam, the economy grew by 26%. Sensational. Per capita income per person in employment has increased from a whopping 88k in 2010 to 130k in 2015. I’m sure you can feel the booming economy in your pocket? Of course you can’t, the national accounts are a sham.

So what’s really going on?

The increase in investment, although you can’t see it in the national accounts, is being driven by airline leasing. My hunch is that this has increased by about 110%. Airline companies of the world are effectively transferring their financial activities (as new aircraft machinery) into Ireland for tax purposes. As a student of mine nicely put it: imagine all those massive Boeing planes flying around the world, then imagine them in Ireland, and hundreds of people working on them. Where are they?

In truth. We couldn’t even fit these planes in Ireland. It’s just around 20 people managing a financial fund for tax avoidance purposes. Then using the generated money for profit redistribution. That’s what’s really go on.

The increase in exports, although more real, and somewhat more complicated, is a result of a similar dynamic. It’s large corporations transferring assets and IP patents into Ireland – with no real connection to employment – and then booking it as real investment, for tax purposes. There can be no doubt Ireland has an export-led economy, and this is being driven by US FDI. But these massive jumps in growth are not linked to real goods/services. They shouldn’t be in the GDP figures.

The 26.3% makes for a great media headline. But if the media want to go find this growth, they might as well go plane watching at Dublin airport. It’s a farce. There is simply no credibility to the national accounts. Most serious observers looking in at Ireland, know this. And this is what should really concern the government and civil servants.

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By Aidan Regan

I'm an Assistant Professor at the School of Politics and International Relations, University College Dublin (UCD), and Director of the Dublin European Research Institute (DEI). My research is primarily focused on comparative and international political economy.

40 replies on “The farce of Ireland’s national accounts: let’s go plane watching!”

Tax evasion is a crime. If you have any evidence of it please take it to the appropriate authorities.

Back to the numbers, the issue is that the CSO produce them in accordance with international standards. The problem is that these standards when applied correctly (and I assume they are) produce fluctuations which are economically meaningless.

It is long past time that the CSO started generating a statistic for Ireland which meaningfully reports on economic activity as it is conventionally understood.

“It’s just around 20 people managing a financial fund for tax evasion purposes.”

Try 700 directly and 1400 indirectly, and an aircraft leasing industry with decades of history in Ireland

Any idea where this leaves us vis-a-vis the fiscal pact? We’re closer to that magic 60% of GDP. Though presumably the increase in GDP will mean a 25% increase in our contribution to Europe.

Well done to the CSO, for producing the numbers the EU rules demanded.

In one moment of brilliance, the whole makey-uppy rules have been utterly discredited.

The very high-brow rules that were used to impose austerity, to derive 2 pack-6 pack-SGP rules etc etc , are just a load of painted lanes on top of a manure heap.

This is a great day for the CSO and for Europe.
Hopefully GDP and GNP are now dead ducks. They meant very little to the majority of citizens anyway. Good riddance to them.

Here is another Eurostat link that may help.

There is no point in shooting the messenger. Ireland is an aircraft carrier for enormous – relative to the overall size of the economy – volumes of mainly US corporate investment and this is reflected in the seemingly very odd figures that the conscientious staff of both the CSO and Eurostat produce. The latter’s calculations for the generality of EU countries do not throw up the same out of line results because other countries – with the possible exception of Luxembourg – do not share circumstances comparable to those pertaining in Ireland.

My initial reply got stuck in the ether.

However, in no way was I disparaging the good people of the CSO or most of the statisticians of Eurostat. But whoever (presumably within Eurostat, or at some higher level) decided not to change the rules in the face of accounting manipulation of the most egregious kind has a lot to answer for.

The production of GDP growth figures has been utterly discredited, with everybody from the minister for finance to the cat at number 10 Downing now having their own number for Ireland’s GDP, and all of the numbers have equivalent validity.

GDP is supposed to reflect economic activity, and economic activity is understood by most lay people to involve arms length transactions of substance giving rise to a exchange of value, not some nonsense cloud based accounting, designed to make a fool out of the ordinary tax paying citizens of the globe.

Either way, the use of Ireland as a soft touch for Enron-esque accounting and the worst excesses of multinational tax avoidance has now been laid bare.

The CSO has done Ireland a favour.

If Ireland’s GDP can rise by 26% in a year due to aircraft leasing and such-like activities, then presumably it can also fall by a similar amount. If that triggered a requirement for fiscal tightening under EZ rules, we would most certainly shoot the messenger.

The national accounts are not a “sham”, they are accurately describing an economy with very significant and volatile international components. This is, at least, reckless language.

But given that the author clearly hasn’t a clue about the Irish aircraft leasing industry he purports to be a deconstructor of (“20 people”), why not let him defame the CSO as lacking credibility?

Maybe flimsy and loose would be better terms. The “significant and volatile international components” drained away rather quickly in 2010 leaving the peasants to pony up.

Aidan plane spotting at Dublin Airport would not help. There are roughly 750 commercial passenger aircraft on the Irish register for April 2016. The number actually based at Irish airports and serving Irish traffic is only about 100. Ryanair registers all its 340 aircraft here but only 10% are based at Irish airports.
The ‘excess’ counted in the CSO capital stock figures is not just the c.650 difference between the register and the number actually in use here. Seamus Coffey informs me that the fleets of Irish-based leasing companies registered outside Ireland are also counted by the CSO, and their depreciation goes into the colossal and quite meaningless figures just released.
To be clear, a 777 costing up to $300 million which leaves Seattle for China and spends the rest of its life flying the Pacific will, if its financing is done through Dublin, get counted as part of the Irish capital stock. It need never visit Ireland or even Europe and need not be on the Irish register.
This would be hilarious if it did not have consequences, courtesy Eurostat and the fiscal rules.

It is a little stricter than this. It has to be operational leasing, not just financial leasing. So there is risk involved by the companies in question. The CSO did a release on this a mere 12 months ago. I had to use google to find it:

Otherwise those looking for clues as to what happened yesterday would be best to look at table 4 of the NIE which shows gross value added (aka output) in industry (€41bn in 2014) split into three sectors: chemicals (€16bn), computers (€3bn) and medical devices (€3bn). The CSO in its wisdom has decided that these sectors cannot even be shown in 2015 – just the aggregate which jumped to €81bn!

I am speculating, but this suggests that the change was concentrated in one sector of industry, potentially one firm, and the CSO fears that even showing the sectors would give it away.

Further clues are table 15 which shows the big jump in investment being in R&D, although table 16 is not so supportive of the one-firm theory – the increase in investment by sector of use is split between manufacturing products and other market services. However products of some firms these days are less tangibly goods or services than they would have been in the past.

Paul Krugman is having fun with “leprechaun economics”. It may catch on.

However, rules is rules!

The irony, of course, is that the stats make some sense in the case of the two countries in question. The Irish case is likely to be dismissed as an aberration. Even so, the rules still make little sense and, in terms of the tasks legislatively attributed to the Irish Fiscal Advisory Council, no sense at whatsoever cf. suggestions for improvement from Bruegel (shared by a cohort of Eurogroup ministers but unlikely to be acted upon).

In 2012 it was estimated that about half of world’s commercial aircraft fleet was managed from Ireland, according to IDA Ireland.

There were less than 1,000 direct jobs in aviation leasing and the more than 3,000 commercial aircraft managed from Dublin had a value of more than €80bn – about half Ireland’s then GDP. The number maybe about 4,000 today.

Most of these aircraft never enter Irish airspace.

The headline FDI data mask a reality that Ireland is a poor exporter with a low level of export firms.

Denmark with a population of 1 million higher than Ireland’s, has about 30,000 exporting firms. Ireland has over 4,000 including about 1,200 foreign-owned exporters. In 2014, the population ratio per exporting firm was 187 in Denmark; 236 in Germany; 550 in France and 1,150 in Ireland.

Not only does Ireland’s national statistics become an international joke, FDI distortions boosted by massive tax avoidance (half of services exports value is fake), mask the persistent underperformance of the indigenous international trading sector.

It may be useful to compare the GDP figures as initially published with the latest version to examine how the later is now €41.2bn higher.

Personal consumption is largely unchanged while government consumption is now €0.9bn lower, as is stock building ( €-1.5bn).

Capital formation has been revised up by €6.8bn,but the largest changes are in external trade; exports are now a massive €56.6bn above the initial figure, with imports some €20bn higher i.e. a net €36.4bn.

Merchandise exports as recorded in the monthly trade data (i.e. that leave Ireland) amounted to €112bn last year as against a merchandise export figure of €195.6bn in the national accounts. In others words we have “Irish’ merchandise exports of €83.4bn which are counted given the recently introduced ownership rule. We have no idea about the future scale of this trade and it is therefore possible that at some point they record a massive fall simply by virtue of a large multinational relocation.

Hi Dan
“which are counted given the recently introduced ownership rule” Is this new ownership rule the main reason for the 26% recorded growth?

So some aircraft leasing and perhaps inversion transactions used to fall outside our export figures but now must be included due to this rule?

Whose rule is that (presumibly Eurostat) and how was it approved?
Is it possible to try and get the rule changed based on the massive distortions it is causing in the Irish GDP/GNP stats?
Is this what the Governor of the central bank was getting at today?

@ Eamonn

The CSO released a guide to the new methodology here (

There are two issues. Under a new national accounts standard (ESA 2010, which replaced ESA95) spending by businesses on R&D (including software and patents) is now classed as investment (and referred to as intangibles), as opposed to a cost, and is captured in capital formation, alongside building and construction and spending on machinery and equipment. The new standard had to be adopted across the EU by September 2014 and the CSO brought it in for the Q1 2014 national accounts. They also revised past GDP, resulting in an uplift to previously published data. That was not unique to Ireland but 2015 saw a doubling of intangibles, from €11bn to €22bn, which may reflect multinationals simply shifting patents into Irish ownership.

The new accounts also included a new standard for the Balance of Payments as per IMF guidelines. Patents and copyrights that are bought from abroad ( as in Ireland’s case above) are now classed as a service import, so the positive effect on investment will be offset by higher imports.

Another change is that exports and imports now refer to a change of ownership, not a movement across borders. If an Irish company outsources to China and takes delivery there it is an Irish import and if sold on, an export, even if the goods never enter this island. In 2015 it appears firms relocating to Ireland had their (very large) sales classed as exports even though they were not made here.

So are the figures ‘real’. Yes in that they are in line with international standards but no in that they bear no resemblance to economic activity, such is the scale of multinational flows.

What’s remarkable is that despite all the international media attention, and all the public policy implications, very few Irish outlets are willing to critically discuss and analyse what has caused the complete distortion of the nation’s accounts: Ireland’s facilitation of global corporate tax avoidance.

Aidan, you make a pertinent point.

The 3 biggest disclosures on Ireland’s facilitation of massive tax avoidance were made by foreign media and a US Senate subcommittee:

1) In Nov 2005 The Wall Street Journal began a report from Dublin on Microsoft:

A law firm’s office on a quiet downtown street here houses an obscure subsidiary of Microsoft Corp. that helps the computer giant shave at least $500 million from its annual tax bill.

The four-year-old subsidiary, Round Island One Ltd., has a thin roster of employees but controls more than $16 billion in Microsoft assets. Virtually unknown in Ireland, on paper it has quickly become one of the country’s biggest companies, with gross profits of nearly $9 billion in 2004.

Ireland’s citizens may not have heard of Round Island One, but they benefit greatly from its presence. Last year the unit handed the government of this small country of four million citizens more than $300 million in taxes.

2) Bloomberg News reported in 2010:

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Google’s income shifting — involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” — helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries. [ ] The earnings wind up in island havens that levy no corporate income taxes at all. Companies that use the Double Irish arrangement avoid taxes at home and abroad as the U.S. government struggles to close a projected $1.4 trillion budget gap and European Union countries face a collective projected deficit of 868 billion euros.

3) In May 2013 the US Senate’s Permanent Subcommittee on Investigations revealed how Apple avoided using the Double Irish tax dodge by locating its offshore Irish shell companies onshore in Cork, Ireland.

In 1980, Apple created Apple Operations International, which acts as its primary offshore holding company but has not declared tax residency in any jurisdiction. Despite reporting net income of $30 billion over the four-year period 2009 to 2012, Apple Operations International paid no corporate income taxes to any national government during that period. Similarly, Apple Sales International, a second Irish affiliate, is the repository for Apple’s offshore intellectual property rights and the recipient of substantial income related to Apple worldwide sales, yet claims to be a tax resident nowhere and may be causing that income to go untaxed.

In addition, this case study examines how Apple Inc. transferred the economic rights to its intellectual property through a cost sharing agreement to two offshore affiliates in Ireland. One of those affiliates, Apple Sales International, buys Apple’s finished products from a manufacturer in China, re-sells them at a substantial markup to other Apple affiliates, and retains the resulting profits. Over a four-year period, from 2009 to 2012, this arrangement facilitated the shift of about $74 billion in worldwide profits away from the United States to an offshore entity with allegedly no tax residency and which may have paid little or no income taxes to any national government on the vast bulk of those funds. Additionally, the case study shows how Apple makes use of multiple U.S. tax loopholes, including the check-the-box rules, to shield offshore income otherwise taxable under Subpart F. Those loopholes have enabled Apple, over a four year period from 2009 to 2012, to defer paying U.S. taxes on $44 billion of offshore income, or more than $10 billion of offshore income per year. As a result, Apple has continued to build up its offshore cash holdings which now exceed $102 billion.

Apple had a foreign tax rate of 2% in 2012 in respect of profits on 65% of its sales revenues. This compared with an average OECD headline corporate tax rate of 25%.

In 2004 Finfacts reported that US affiliates in Ireland had doubled profits in the period 1999-2002 despite the bust.

In 1998 in response to pressure from the European Commission, the Irish Department of Finance warned about Irish offshore companies with “no connection with the country and some may be used for tax evasion, money laundering and fraud.”

President Clinton’s Treasury department in the spirit of reducing regulation, had inadvertently opened a huge loophole called ‘check-the-box’ for American companies to ramp up tax avoidance overseas.

Congress refused to rescind the measure at the insistence of the likes of General Electric and in Ireland the US companies succeeded in getting an exemption in a 1999 Finance Bill measure to clean-up the offshore company mess.

More recently, a measure was included in a budget at the request of the American Chamber in Ireland to allow US companies transfer patent funds (mainly profit shifting) directly to island tax havens without withholding tax i.e. no need to use the Amsterdam route.

What is even more disturbing is the big picture. Companies haven’t invested in business for over 5 years. SnP 500 revenues have been stagnant for 5 years. Earnings are now falling. Demand in the US is going nowhere. The Fed’s models are nonsense. Tax avoidance is all about EPS and buybacks. Which generate zero value. US capitalism is eating itself.
The whole system is a Ponzi.

The figures are pretty startling. But the development is not really news, just a bit more dramatic. Ireland, with Luxembourg, are outliers and the globe is not going to start turning in the other direction, either in terms of statistics or policy, because of them.

The positive side is that all “fiscal space” justifications for continued bad management of the state’s finances – simply defined as continuing to add to an already unjustified level of debt – are holed below the water line.

Aidan Regan says:
July 13, 2016 at 5:36 pm
We should write a paper together!

And where might you get that paper published? The Beano?


you didn’t think to mention the significant rise in corporation tax receipts which the Irish government receives in return for this stellar GDP growth?

No, I didn’t. But it’s worth discussing alright. I’m not inclined to celebrate the rents that come from Monopoly money. I mean, it’s hard to measure directly, but my hunch is that in the medium-run Ireland will probably lose more from reputational damage. But perhaps from a European perspective, if the EU can’t tax large footloose tax avoiders directly, they might as well welcome it via the increase in Ireland’s contribution to the EU budget.

“I mean, it’s hard to measure directly”

Well, MNC profits increase 22.3bn. Ireland corporation taxes increase 2.3bn. Ireland charges a corporation tax rate of 12.5%. I mean, its actually not that hard to guess a measure directly. And over the medium term, ie a few multiples of 2.3bn, i really don’t see how Ireland ends up losing out overall. People have been complaining about the corporation tax regime for a decade so far without any tangible negative impact on the Irish economy from this “reputation”.

I meant, it’s difficult to measure the reputational damage. There will be observable implications, and we’ll start seeing them soon. I mean, if you don’t mind being the laughing stock of the world, and are happy for Ireland to cream off a bit of rent from global corporate tax avoiders, then so be it. It’s a similar attitude held by a lot of tax avoiders in Athens and Napoli.

“The laughing stock of the world”

Can i build a few hospitals with that or service one third of the national debt? I’ll take the inconsequential and overstated derision in return. Why would we start seeing observable impact soon when we haven’t seen any over the last decade? What observable impact would you expect to see? Btw, the people in Athens and Napoli are tax EVADERS, not AVOIDERS. You really need to use the correct terminology in the correct context.

Monopoly money, rent seeking and redistributing the fruits through the provision of local goods. Yep, that’s a great model for an OECD country to adopt.

The local shop owner in Athens is a tax evader, and the multi-billion Pharma company is a tax avoider. What’s the difference? One has the capacity to employ an army of technical-economists, financial accountants and lawyers, the other doesn’t.

I went looking for a reference to a remark made, I think, by Ollie Rehn, at the height of the bust, that what was happening “was not a morality play” and came up with this!

The author of the addition to the lexicon of misleading references of the words “leprechaun economics” is, at least, right on this point.

The debate opening on this thread can never be resolved unless there is an understanding that this is the case. If not, the topic of FDI in Ireland has to be discussed under some other heading such as moral philosophy or, as that subject is generally known in Ireland, “ettics”.

I completely see your point. But I think it’s more related to distributional politics. Winners and losers. So I don’t think it’s related to morality, rather it’s a clash of interests.

When someone earning 60k per annum is being taxed at 40 per cent, paying rent, childcare, healthcare and other costs, with a disposable income of few quid at the end of the month, and maybe a few cent for savings, and then they see multi-billion firms, with the help of financial accountants, reducing taxes to almost nothing, and thereby accumulating wealth and power. To critique this is not morality. It’s, dare I say it, class politics.

Whether people choose to admit it or not, Ireland has run out of road on its ultra low corporate tax rate, embellished with further tax reducing capabilities in tax treaties etc.

There seems to be a refusal to recognise that some corrective action is even necessary, not only from an international reputation point of view, but also from an internal distribution point of view.
There is, even now, a further softening-up process going on, to ‘enable’ Ireland Inc to lower corporate taxes even further, using any Brexit inspired reductions as the immediate but very lame and self-serving excuse.

As pointed out by John Fitzgerald recently on TV, some of the FDI companies think the reductions have gone too far and damaged Ireland’s reputation.
But it has to be remembered that a significant amount of the political impetus for lower corporate taxes comes not from the FDI companies, though they will take whatever they get, but from Irish corporates, including the politically powerful banks; but also including the multitude of well connected accounting and legal companies, who in very recent years are now able to form ‘limited companies’.

The massive reduction of the corporation tax rates in the late 1990, courtesy McCreevy, piled money into the pockets of ‘Irish’ corporations, only to be used to pile into a failed property gamble. Many of the same ‘Irish’ companies would whinge and cringe at the very idea of an employer contribution to a compulsory employee pension scheme.

In relation to the technicalities of what might be changed, there was a very interesting Section 811 brought into being in the late 1980s. It is worth a read. The revenue have started to tax a few cases under this section in recent years, although I doubt that FDI companies will be challenged.

It will be a test of the independent revenue, as to whether the kind of deals outlined by Stephen Donnelly in the Dail recently, where a ‘variable and discretionary’ interest expense can be used to record a zero profit in one jurisdiction, transferring that interest to another jurisdiction (Luxembourg or where-ever) where that interest is tax free.
A number of Irish companies, particularly in the food business as far as I am aware, are very adept at using the Luxembourg interest shuffle.

PS There is even some possibility that the large increase in Irish Corporation revenues owes something to the revenue briefing on Section 811,

The Krugman quote that “economics is not a morality play”, linked to by DOCM above, may be true, but international tax arbitrage carried to extremes is an ‘immorality play’, and it is the less well off citizens of the various countries that are providing the entertainment, for the very wealthy but unappreciative audience being entertained.

Not being an economist, but having been compelled by events, like many, to take a belated interest in the topic of “economics”, I am all for adding the word political back to the word economy. I do not see how the two can be separated. But we have to stay within the bounds of applying democratic principles to the conduct of “social market economies”. (Which is what, incidentally, we are signed up to by the EU treaties). It seems to me that the debate often goes outside these boundaries. There can be no short cuts or mixing of genres. Distributional, or class, politics, for example, is a matter for individual nation states. It is the way the world is organised.

As to relations between states, these are not noted for being particularly civilised. In the matter of footloose corporate investment, I am all for better rules but see no reason why Ireland has to get ahead of the posse, such as it is, in the matter.

Until evidence emerges to the contrary, Ireland is abiding by such rules as exist, including having a totally independent statistical service, impervious to political influence, and also at EU level, the former being largely courtesy of the latter.

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