Friday, April 29, 2022

Ireland in the Country-By-Country Reports of US MNEs

The IRS have published the latest update of their aggregate statistics compiled from the country-by-country reports filed with it by US MNEs.  The latest figures cover 2019.  The data are useful but have some limitations. Here we will look at some of the aggregate outcomes for Ireland and compare some to other countries.

The headline figures for Ireland are:

IRS CbCR Ireland Aggregates 2019

There are 632 reporting groups in the IRS data.  In total, they reported that they had around 163,000 employees in Ireland (2018: 151,000).

Some of the financial outcomes are immense. The companies report $735 billion of revenue, $55 billion of profit and $10 billion of tax. In 2018, these were $690 billion, $50 billion and $8 billion.

This might seem to imply an effective tax rate in 2019 of 18 per cent but the figures in the above table include entities that were loss making.  This pulls down the overall profit figure while having limited impact on the tax figure. When restricted to entities with positive profits an average tax rate of 13 per cent is found.

There is also a useful breakdown by economic sector with outcomes for 2019 shown below.

IRS CbCR Ireland by Sector 2019

Manufacturing has the largest figure for employment (72,000).  There are also significant levels of employment in the sector encompassing Wholesale and retail trade, transportation and warehousing and in the Information sector.

When looking at tax payments, 2019 marks the first year when payments from the Information sector exceeded those from Manufacturing.  Between them, those two sectors they accounted for 90 per cent of the corporate tax paid by Irish entities in the CbC reports of US MNEs.  Payments in 2019 from US firms in the Manufacturing sector came to $4.1 billion and in the Information sector they were $4.6 billion.

The growth in the income tax paid (on cash basis) in the last few years has been extraordinary. 

IRS CbCR Tax Paid by Sector Ireland 2016-2019

The IRS CbCR data go back to 2016. In that year the total tax paid (on cash basis) for entities in Ireland was $4.3 billion.  The $10 billion figure for 2019 was more than double that and given what we have seen with Irish Corporation Tax receipts since then the figures in subsequent IRS updates will be even higher.

It is also worth putting the payments in Ireland in the context of the tax payments made by US MNEs in other countries.  Here are the 2019 figures for the EU27.

IRS CbCR for the EU27 Tax Payments 2019

In 2019, US MNEs paid more corporate tax in Ireland than in any other EU country.  Indeed, the payments in Ireland were the third-highest in the world, trailing only the US itself (obviously) and the UK.

In total, the US MNEs in the IRS data paid $329 billion of corporate tax in 2019.  Of that, $204 billion was paid to the US. The next largest recipient was the UK with receipts of $10.6 billion.  In third spot is Ireland at $10.0 billion.  There aren’t many things Ireland comes third in the world at, but tax receipts from US MNEs is one of them.

The nominal figures don’t give a sense of the relative importance of the tax receipts from US MNEs to each country.  Here are the receipts of the EU27 but scaled to each counties Gross National Income (GNI).

IRS CbCR for the EU27 Tax Payments to GNI 2019

Using GNI*, the corporate tax payments of US MNEs were equivalent to just over four per cent of Ireland’s national income.  This is double the level of the second-highest and eight times that of the third-highest.

We can also do a quick comparison of profits, assets, employment and effective cash tax rates in the US, Ireland and some selected jurisdictions.  The US continues to tolerate “stateless entities” so these are also included in the below table.

IRS CbCR Average Tax Rates Selected Jurisdictions 2019

The total share in the bottom panel shows that these jurisdictions cover a large share of the activities in the US MNEs in the IRS CbCR data, though it should be noted that the coverage of the table is “limited to reporting entities with positive profit before income tax”.  This is to get average cash tax rates that better reflect the tax burden on profits.

The largest amounts are understandably in the US itself with more than half of profits, tax, assets and employment recorded there. 

The selected ten jurisdictions, including Ireland, account for one-fifth of profit but only eight per cent of tax, five per cent of assets and just two per cent of employment.  The profit/employment mismatch is most evident for The Cayman Islands, Bermuda and Barbados.  These jurisdictions are also those with the lowest average cash tax rates (all below one per cent).

In aggregate, the companies and entities in this data faced an average cash tax rate of 11.8 per cent in 2018.  In Ireland, the average cash tax rate was 13.0 per cent, which was by far the highest of the selected ten jurisdictions.  Singapore was next highest at 5.6 per cent.

To conclude here is a comparison of the employment figures for the EU27 in the IRS data.  It takes the number of employees for each country and puts it as a share of that country’s population.

IRS CbCR Employees as Share of Population EU27 2019

For the Eu27 as a whole, the MNEs in the IRS data report that they has 2.65 million employees in 2029.  That is equivalent to 0.6 per cent of the population of the EU27 on January 1st of 2019 (446 million).

The national shares range from 3.3 per cent in Ireland (163,000 in population of 4.9 million) to 0.1 per cent in Latvia (1,800 in population of 1.9 million).

Thursday, April 7, 2022

The Household Sector in 2021

The CSO have published the Q4 2021 Non-Financial Institutional Sector Accounts.  These give preliminary full-year figures for 2021 though revisions are likely as fuller National Income and Expenditure results become available later in the year.  However, the biggest of these are likely to be in the corporate sectors so here we will focus on the household sector.

First, the current account. 

Household Sector Current Account 2018-2021

As with 2020, the COVID-19 pandemic had a big impact on the figures for 2021.  This is perhaps most visible on the bottom line – the household gross savings rate.  The gross savings of the household sector jumped from the near €12 billion it had been in 2018 and 2019 to €31.5 billion in 2020 and this continued into 2021 when the household sector finished with €27.2 billion available for wealth generation.  The rest of the table shows how this amount arose.

The starting figure here is Gross Domestic Product which for the household sector is a combination of the mixed income of the self employed (mixed because it arises from a combination of their labour effort and the capital they employ) and gross operating surplus (which for the household sector arises from owning housing assets with the imputed rent of owner-occupiers being the most significant amount). 

It will be later in the year before the split of this is provided but it could be that of the €36 billion total there will be €20-22 billion of rents (actual plus imputed) and €14-16 billion of self-employed earnings. The subsidies on production received are mainly those that go to agriculture.

Compensation of employees increased by 8.2 per cent in 2021, reaching €109.1 billion.  Of this, around one-quarter (€26.0 billion) was paid by the general government sector, while around two-thirds (€69.7 billion) arose from the non-financial corporate sector.  This will be mainly private sector enterprises but will also include publicly-owned NFCs such as the ESB.

The increase in income taxes was even greater rising by 18.3 per cent and exceeding €30 billion for the first time.  Social contributions also increased.  Of those, €16 billion were paid to the government sector.  This includes PRSI (both employees’ and employers’ PRSI with these included in the earlier item compensation of employees) and the pension contributions of public sector workers.

Social benefits paid to the household sector increased in 2020 – as part of the public health measures introduced in response to the pandemic – and most of this was continued in 2021, with social benefits paid by the government sector coming in at €30 billion in 2021.

All told, the household sector had an estimated €128 billion of disposable income in 2021.  Due to caution and closures nominal consumption remained below 2019 levels with household final consumption expenditure put at €102.5 billion for 2021.  This will include the imputed spending of the owner-occupier rents included as income earlier in the table.

With the addition of net pensions savings (the difference between private pension contributions and benefits from private pensions), this gives the gross savings amount of €27.2 billion.  We can turn to the capital account to see what the household sector did with this.

Household Sector Capital Account 2018-2021

And the answer is not a lot.  Once capital transactions are accounted for the bottom line of the capital account shows that there was still €21.1 billion left for the household sector to use.  This unspent amount will go on the financial balance sheet.  It could be kept in cash(!), put on deposit, used to repay loans or to purchase other financial assets.

As set out in a previous post, the Irish household sector has a low investment rate, where the reference is to investment in capital goods.  As the table shows, the gross capital formation of the household sector has been in or around €6 billion for each of the last four years.  The main investment item of the household sector is housing – either improvements or extensions to existing dwellings or the acquisition of new dwellings.

The purchase of a second-hand dwelling from another household is not capital formation as it is just a change of ownership of existing capital (even if it switches from being a rental to owner-occupier property).  It could be capital formation for the household sector if it is purchased from a non-household entity (such as a local authority or investment fund). But most household capital formation is extensions or new builds.

The anemic level of capital formation by the household sector is illustrated by looking at the line for net capital formation.  This is capital formation after depreciation (consumption of fixed capital).  In the format of the table above this would be expected to be a negative number, i.e. a spending item, however this doesn’t hold for the latest figures for 2019 and 2020.  In those years, household capital formation wasn’t even enough to cover depreciation and it wouldn’t take a huge revision for there to have been a similar outcome in 2021.

So what did we do with the €21 billion that wasn’t used for consumption or investment spending?  It will be later in the year before the CSO update the financial accounts in the ISAs but we can get the insight we need from the quarterly accounts published by the Central Bank, with latest figures covering Q3 2021.  There are two key items for the household sector: on the asset side it is currency and deposits and on the liability side it is loans.

Household Sector Loans and Deposits 2002-2021 Q3 CB Data

For the first three quarters of 2021, the Central Bank data shows a €15 billion rise in the deposits of the household sector.  Loan liabilities were essentially unchanged over the period.  The latest figures show the household sector to have €180 billion of currency and deposits and €128 billion of loans which is an incredible reversal of the position of just 15 years earlier. But maybe now we need a little more spending.