Modified gross national income


Modified gross national income, Modified GNI or GNI*, was created by the Central Bank of Ireland in February 2017 as a new way to measure the Irish economy, and Irish indebtedness, due to the increasing distortion that the base erosion and profit shifting tools of U.S. multinational tax schemes were having on Irish GNP and Irish GDP; the climax being the July 2016 leprechaun economics affair with Apple Inc.
While "distortion of GDP-per-capita" due to BEPS tools is a feature of tax havens, Ireland was the first to adjust its GDP metrics. Economists, including Eurostat, noted Irish Modified GNI is still distorted by Irish BEPS tools and U.S. multinational tax planning activities in Ireland ; and that Irish BEPS tools distort aggregate EU–28 data, and the EU–U.S. trade deficit.
In August 2018, the Central Statistics Office restated table of showed GDP was 162% of GNI*. Ireland's public differ dramatically depending on whether Debt-to-GDP, Debt-to-GNI* or Debt-per-Capita is used.

Original distortion

In February 1994, tax academic James R. Hines Jr., identified Ireland as one of seven major tax havens in his 1994 Hines–Rice paper, still the most cited paper in research on tax havens. Hines noted that the profit shifting tools of U.S. multinationals in corporate–focused tax havens distorted the national economic statistics of the haven as the scale of the profit shifting was disproportionate to haven's economy. An elevated GDP-per-capita became a "proxy indicator" of a tax haven.
In November 2005, the Wall Street Journal reported that U.S. technology and life sciences multinationals, were using an Irish base erosion and profit shifting tool called the double Irish, to minimise their corporate taxes. Designed by PwC tax partner, Feargal O'Rourke, the double Irish would become the largest BEPS tool in history, and would enable U.S. multinationals to accumulate over USD 1 trillion in untaxed offshore profits.
The accounting flows of BEPS tools can appear in national economic statistics, varying with each tool, but without contributing to the economy of the tax haven.
Subsequent U.S. Senate, and EU Commission investigations, into Apple's Irish tax structure, would show that starting in 2004, Apple's Irish subsidiary, Apple Sales International, would almost double the untaxed profits shifted through its double Irish BEPS tool every year, for a decade.
Year
ASI Profit
Shifted 		Average
€/$ rate		ASI Profit
Shifted 		Irish Corp.
Tax Rate		Irish Corp. Tax
Avoided
2004268.80521612.5%27
2005725.80458312.5%73
20061,180.79794012.5%117
20071,844.7311,34712.5%168
20083,127.6832,13612.5%267
20094,003.7192,87812.5%360
201012,095.7559,12812.5%1,141
201121,855.71915,70912.5%1,964
201235,877.77827,91512.5%3,489
201332,099.75324,17612.5%3,022
201434,229.75425,79312.5%3,224
Total147,304110,82113,853

From 2003–2007, research has shown that inflated Irish GDP from U.S. multinational BEPS tools, amplified the Irish Celtic Tiger period by stimulating Irish consumer optimism, who increased borrowing to OCED record levels; and global capital markets optimism about Ireland enabling Irish banks to borrow 180% of Irish deposits.
This unwound in the economic crisis as global capital markets, who had ignored Ireland's deteriorating credit metrics and distorted GDP data when Irish GDP was rising, withdrew and precipitated a Irish property and banking collapse in 2009–2012.
The 2009–2012 Irish economic collapse led to a transfer of indebtedness from the Irish private sector balance sheet, the most leveraged in the OECD with household debt-to-income at 190%, to the Irish public sector balance sheet, which was almost unleveraged pre-crisis. This was done via Irish bank bailouts and public deficit spending.

2009 Distortion restarts

During the Irish financial crisis from 2009–2012, two catalysts would restart the distortion of Irish economic statistics:
In 2010, Hines published a new list of 52 global tax havens, the Hines 2010 list, which ranked Ireland as the 3rd largest tax haven in the world.
By 2011, Eurostat showed that Ireland's ratio of GNI to GDP, had fallen to 80%. Only Luxembourg, who ranked 1st on Hines' 2010 list of global tax havens, was lower at 73%. Eurostat's GNI/GDP table showed EU GDP is equal to EU GNI for almost every EU country, and for the aggregate EU–27 average.
In 2013–2015 several large U.S. life sciences multinationals executed tax inversions to Ireland. Ireland became the largest recipient of U.S. corporate tax inversions in history. The Irish "Green Jersey" BEPS tool enabled U.S. multinationals to avoid almost all Irish corporate taxes, however, unlike other Irish BEPS tools, it registers fully in Irish economic statistics. In April 2016, the Obama Administration blocked the proposed USD 160 billion proposed Pfizer–Allergan Irish inversion.
A 2015 EU Commission report into Ireland's economic statistics, showed that from 2010 to 2015, almost 23% of Ireland's GDP was now represented by untaxed multinational net royalty payments, thus implying that Irish GDP was now circa 130% of Irish GNI. This analysis however did not capture the full effect of the "Green Jersey" BEPS tool as it uses capital allowances, rather than royalty payments, to execute the BEPS movement. The Irish media were also confused as to Ireland's state of indebtedness as Irish Debt-per-Capita diverged sharply from Irish Debt-to GDP.

2016 Distortion climax

By 2012–14, Apple's Irish subsidiary, ASI, was profit shifting circa USD 35 billion per annum through Ireland, equivalent to 20% of Irish GDP, via its hybrid–double Irish BEPS tool. However, this particular BEPS tool had a modest impact on Irish GDP data. In late 2014, to limit further exposure to fines from the EU Commission's investigation into Apple's Irish tax schemes, Apple closed its hybrid–double Irish BEPS tool, and decided to swap into the "Green Jersey" BEPS tool. In Q1 2015, Apple Ireland purchased circa USD 300 billion of virtual IP assets owned by Apple Jersey, executing the largest BEPS action in history.
The "Green Jersey" BEPS tool is recorded like a tax inversion in the Irish national accounts. Because Apple's IP was now on-shored in Ireland, all of ASI's circa USD 40 billion in profit shifting for 2015, appeared in 2015 Irish GDP and GNP, despite the fact that new BEPS tool would limit Apple's exposure to Irish corporation tax.
In July 2016, the Irish Central Statistice Office announced 2015 Irish economic growth rates of 26.3% and 18.7%, as a result of Apple's restructuring. The announcement led to ridicule, and was labelled by Noble Prize economist Paul Krugman as "leprechaun economics".
From July 2016 to July 2018, the Central Statistics Office refused to identify the source of leprechaun economics, and suppressed the release of other economic data to protect Apple's identity under the 1993 Central Statistics Act, in the manner of a "captured state", further damaging confidence in Ireland.
By early 2017, research in the Sloan School of Management in the Massachusetts Institute of Technology, using the limited data released by the Irish CSO, could conclude: While corporate inversions and aircraft leasing firms were credited for increasing Irish GDP, the impact may have been exaggerated. The same research noted that capital markets did not consider Irish macro economic statistics to be credible or meaningful, as evidenced by the lack of any reaction by the capital markets to Ireland's 26.3% GDP growth.
Where as the Obama Administration blocked the proposed USD 160 billion Pfizer-Allergan Irish inversion in 2016, Apple's larger USD 300 billion Irish inversion was ignored. It is not clear if this was due to the confusion caused by the Central Statistics Office in protecting Apple's identity for 2 years, or other reasons.

2017 GNI* response

In September 2016, as a direct result of the "leprechaun economics" affair, the Governor of the Central Bank of Ireland, Philip R. Lane, chaired a special cross-economic steering group, the Economic Statistics Review Group, of stakeholders, to recommend new economic statistics that would better represent the true position of the Irish economy.
In February 2017, a new metric, "Modified Gross National Income" was announced. The difference between GNI* and GNI is due to having to deal with two problems The retained earnings of re–domiciled firms in Ireland, and depreciation on foreign-owned capital assets located in Ireland, such as intellectual property.
The Central Statistics Office simplifies the definition of Irish modified GNI as follows:
In February 2017, the CSO stated they would continue to calculate and release Irish GDP and Irish GNP to meet their EU and other International statistical reporting commitments. In July 2017, the CSO estimated that 2016 Irish GNI* was 30% below Irish GDP, or that Irish GDP is 143% above Irish GNI*. The CSO also confirmed that Irish Net Public Debt-to-GNI* was 106%.
In December 2017, Eurostat noted that while GNI* was helpful, it was still being artificially inflated by BEPS flows, and the BEPS activities of certain types of contract manufacturing in particular; a view shared by several others. There have been several material revisions to Irish 2015 GDP in particular. Zucman also showed that Irish BEPS flows were becoming so large, that they were artificially exaggerating the scale of the EU–US trade deficit.
Another study published in June 2018 by the IMF called into question the economic data of all leading tax havens, and the artificial effect of their BEPS tools.

2018 Debt metrics

The issues post leprechaun economics, and "modified GNI", are captured on page 34 of the OECD 2018 Ireland survey:
There is concern Ireland repeats the mistakes of the "Celtic Tiger" era, and over-leverages again, against distorted Irish economic data. Given the transfer of Irish private sector debt to the Irish public balance sheet from the Irish 2009–2012 financial crisis, it will not be possible to bail out the Irish banking system again.
These two initiatives show Ireland's high public debt levels, and Ireland's high private sector debt levels, imply that on a "total debt" basis, Ireland is likey one of the most indebted of the EU–28 countries when benchmarked on a GNI*–type basis; hence the importance of a GNI* metric.

Irish GDP versus Modified GNI (2009–2018)

See 2018 related comment on talk page before you edit this line
The Central Statistics Office revised 2015 GDP higher in 2017, increasing Ireland's "leprechaun economics" 2015 GDP growth rate from 26.3% to 34.4%.
Eurostat show that GNI* is also still distorted by certain BEPS tools, and specifically contract manufacturing, which is a significant activity in Ireland.