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News : Irish Economy Last Updated: Feb 15, 2015 - 6:29 AM


FDI 2008- 2012: Netherlands, Luxembourg, Ireland data require caution; Irish FDI jobs fall
By Michael Hennigan, Finfacts founder and editor
Oct 5, 2013 - 10:32 AM

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Swirling clouds of blue and green lit the Atlantic Ocean west of Ireland on June 2, 2006, when the Moderate Resolution Imaging Spectroradiometer (MODIS) on NASA’s Aqua satellite captured this image. The ocean is normally black in true-color, photo-like satellite images such as this one, but a large phytoplankton bloom lent the water its brilliant blue and green hues. Phytoplankton are microscopic plants that grow in the sunlit surface waters of the ocean. When enough of the plants grow in one place, the bloom can be seen from space.

FDI 2008- 2012: At the end of 2012, the Netherlands and Luxembourg had booked FDI (foreign direct investment) of $5.8tn by the end of 2012 - - more than the US, UK and Germany combined - - according to data [pdf] from the Organisation for Economic Cooperation and Development OECD). Ireland's outward investment value more than doubled between 2008 and 2012, growing from $169bn to $356bn during a period of deep recession. While jobs in American firms in Ireland rose since 2007, overall jobs in foreign firms fell.

Last month when Bono, the lead singer of U2, the Irish rock group, had appealed to oil companies and other resources groups for transparency on payments to governments in Africa, we suggested that many of these companies avail of Dutch tax haven facilities just like U2.

The Dutch government has announced a number of reforms including renegotiation of tax treaties with developing countries.

The Netherlands had FDI stock of $3.5tn by the end of last year with stocks of $3.5tn, though just $573bn ended up in the “real” Dutch economy while Luxembourg had booked $2.28tn in FDI, while just $122bn entered the real economy.

Most of the FDI in the two countries is routed through special purpose entities and holding companies owned by foreign entities, with the purpose of avoiding tax.

For example, in 2012, the Netherlands had an outward stock of $4.3tn at the end of 2012. The country hosts 23,000 foreign-owned letter-box companies.

Data for Ireland published on Friday [pdf] by the Central Statistic Office (CSO) show the value of inward investment stock at €258bn ($318bn) and outward stock at €288bn ($356bn).

The OECD's data for outward stock is in line with the CSO's but the OECD's value on inward stock is $30bn less at $298bn.

The CSO said on outward investment: "The rise between the end of 2011 and the end of 2012 was mainly due to increased investment in enterprises located in Central American Offshore countries (€13bn) and enterprises located in Europe (€10bn) mainly the Netherlands and Luxembourg (€5bn respectively)"

These 'investments' in Cayman Islands, Bermuda and in two of Europe's key countries for tax haven activities, likely reflect activities of foreign-owned companies that are technically Irish because of the location of headquarters in Ireland.

On Irish inflows, 73% of the total of €30bn relates to retained earnings, which includes cash that is technically retained outside the US either in the overseas branches of US banks and in some cases actually in the US.

So a total of €30bn does not mean that this amount is like a typical business investment.

As we noted during the week, the American Chamber of Commerce in Ireland claim that "in the past half decade, US firms have invested more capital in Ireland than in the previous half century" was misleading as most of the Irish FDI related data - - inflows, outflows, profitability, sales revenues, exports -- are all highly impacted by tax avoidance strategies, which the chamber ignored.

On key metric is employment: while full-time permanent jobs rose by 3,300 in American firms in Ireland in the period 2008-2012, overall in the foreign-owned sector job numbers were down 3,700.

SEE Finfacts articles:

Top 5 US tech firms held $515bn in cash at end June 2013 - - over $100bn of Apple's $147bn cash hoard is estimated to be 'overseas' (even though part of it is in banks in the US, according to the US Senate Permanent Subcommitte on Investigations last May)

US Chamber's investment data into Ireland misleading; 3,300 jobs added since 2007

US company profits per Irish employee at $970,000; Tax paid in Ireland at $25,000

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