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Value added of US firms overseas as % of GDP highest in Ireland; US Employment of its Multinationals was 70% of total in 2006 down from 80% in 1988
By Finfacts Team
Nov 7, 2008 - 9:25:15 AM
The value added as percentage of GDP of US firms overseas was highest in Ireland in 2005 according to the US Bureau of Economic Analysis (BEA). Employment in the United States by US parent companies accounted for 70 percent of the worldwide employment of US MNCs in 2006, down from 71 percent in 2005 and 80 percent in 1988.
Worldwide employment by multinational companies (MNCs) increased 3.3 percent in 2006, to 31.3 million workers, following a 1.4-percent increase in 2005. Employment in the United States by parent companies increased 2.7 percent, to 21.9 million workers, following a 0.8-percent increase. The employment by parents accounted for almost one-fifth of total employment in private industries. Employment abroad by the majority-owned foreign affiliates of MNCs increased 4.7 percent, to 9.4 million workers, following a 3.0-percent increase.
Employment in the United States by majority-owned affiliates of foreign MNCs increased 1.8 percent in 2006, to 5.3 million workers, following an increase of 0.9 percent in 2005. The employment by affiliates accounted for 4.5 percent of total employment in private industries. Capital expenditures by these affiliates increased 20.2 percent in 2006, to $141.2 billion, following a 4.5 percent increase in 2005. Sales by affiliates increased 10.8 percent, to $2,764.4 billion, following an 8.8-percent increase.
The BEA figures show that the combined net profit of US corporations in Ireland doubled between 1999 and 2002 from $13.4 billion to $26.8 billion and was $48 billion in Ireland in 2005, compared with $37.01 billion in the UK and $74.06 billion in the Netherlands. US companies in Germany made net profits of $11.22 billion in 2005; French affiliates reported income of $9.52 billion and Italian operations made $8.58 billion.
Value added of foreign affiliates represents these firms’ contribution to a host country’s GDP. In 2005, the value added of affiliates accounted for 7.0 percent or more of the GDP of three of the main host countries: Ireland (18.5 percent), Singapore (15.0 percent), and Canada (9.5 percent). The relatively high MOFA (Majority-Owned Foreign Affiliates)shares of host-country GDP in these countries can be traced to some of the following factors: A common language with the United States, marketing and commercial legal systems similar to those in the United States, geographic proximity to the United States, the availability of a skilled work force, political stability, and low corporate tax rates.
The BEA says the large affiliate share for Ireland may also be related to US MNCs’ geographic allocation of their income from intellectual property rights (such as patents). A sizable share of the investment in Ireland is in industries, such as pharmaceuticals and software engineering, where intellectual property plays a major role. Affiliates in Ireland conduct substantial R&D work, but it appears that a significant portion of the intellectual property held by these affiliates originated as a result of parent-company activity in the United States, and the property rights were subsequently relocated to Ireland where the tax regime for patent royalties is favorable. The royalty income, much of which is for use of the patents in other countries, is treated as arising from sales of services and is counted as part of the value added of the affiliates that hold them.
The BEA says that although this treatment is in accordance with accepted guidelines for both financial and economic accounting, some have questioned whether the shifting of rights to intangible assets between the domestic and foreign units of multinational firms, without a commensurate shift in productive activity, should result in changes in the attribution of production by country.
Ireland has a tax exemption on patent income and two of Ireland's largest companies by revenue are owned by Microsoft. They have no staff; book billions in revenues; one of the Microsoft units pays tax to the Irish Exchequer; The other handles patent income from other overseas units and they operate from the offices of a Dublin law firm.
