Transcript EFTA/UNECE/SSCU Seminar “Economic Globalisation: A Challenge for Official Statistics" 3-6 July 2007, Kiev, Ukraine The Irish approach towards treatment of merchanting and related transactions by John Fitzpatrick,

EFTA/UNECE/SSCU Seminar
“Economic Globalisation: A Challenge for
Official Statistics"
3-6 July 2007, Kiev, Ukraine
The Irish approach towards treatment of merchanting and
related transactions
by
John Fitzpatrick, CSO, Ireland
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Previous Paper

Described the significance of FDIEs in Ireland

Examined some CSO statistical compilation issues:
»
»
»
»

structures
activities
trading and accounting practices
BoP/FDI reporting arrangements
CSO’s treatment of merchanting and related transactions
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Merchanting
Definition of merchanting (IMF’s BPM5 )
Merchanting is defined as the purchase of a good by a
resident trader from a non-resident and the subsequent
resale of the good to another non-resident, without the good
entering or leaving the economy of the merchanting trader.
The difference between the value of the good when acquired
and its value when sold is recorded as the value of the
(merchanting) service provided by the merchant trader
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CSO Considerations

Treatment of goods
» as per BPM5 recommendation

Treatment of associated services outsourced abroad
and delivered abroad
» treated in same way as merchanted goods

Treatment of services outsourced and delivered
abroad (i.e. services not associated with goods)
» treated in same way as merchanted goods
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CSO Approach

In the three scenarios:
» goods and services supplied not produced in Ireland
» sourced abroad
» delivered to a foreign third party customer by nonresident affiliates (or even by 3rd parties)

CSO approach involves modifications to IMF’s
definition of merchanting

Net treatment applies to all three
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Example 1: Goods and Associated
Services
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Transactions involved
B (FDIE in Ireland)
€2000m

Payment to Company E (in DE) for goods supplied to customers (C)

Payment to Company D (in FR) for services supplied to customers (C) €3500m

Receipts from Customers (C) for goods supplied
€2200m

Receipts from Customers (C) for services supplied
€3800m
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Recommended Recording Treatment

BPM5 and other international recommendations
» the transactions would (normally) be recorded in the BoP
statement under service imports and exports
» in the case of the goods element, only the net margin
(€0.2 billion) recorded as a merchanting service credit
» the related service transactions would appear gross under
services: a credit of €3.8 billion and a debit of €3.5 billion
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Recommended Recording Treatment
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CSO Recording Treatment
Both the goods and associated service elements
recorded on a net basis under merchanting
i.e. €0.5 billion recorded as a merchanting service credit
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CSO Rationale

To reduce potential for statistical distortion arising from
very large transactions in both goods and services
sourced and delivered abroad

Does not seem appropriate or meaningful to inflate the
services exports and imports data for such transactions

Such large aggregate flows in the statistics presented
are not compatible with employment levels in Ireland
Net recording by one compiler can lead to asymmetries counterpart compilers may have no option but to record the
transactions on a gross basis in their BoP statistics
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Example 2: Services Partly Supplied by
Affiliates Abroad
Payment of €300m for
services supplied to A
Country: IE
Company A
(FDIE)
Payment of €900m for
services supplied to B, C, D
Receipts of €500m for
Services provided by A
Foreign customers
of A
Receipts of €1,500m for
services provided by B, C and D
Fees €350m
paid to B, C
and D
Foreign customers
of B, C and D
Services provided by B, C and D
RoW
RoW
RoW
B (affiliate of A)
C (affiliate of A)
D (affiliate of A)
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Transactions involved
A (IE located entity)

Expenditure for direct services from abroad (3rd parties)
€300m

Receipts for services directly supplied abroad
€500m

Expenditure for services supplied (3rd parties) to affiliates (B,C,D)
€900m

Receipts for services supplied abroad by affiliates B,C,D

Commission fees paid to B,C,D
€1,500m
€350m
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Recommended Recording Treatment

BPM5 and other international recommendations
» Gross recording in the BoP statement under relevant
service imports and exports
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CSO Recording Treatment


All outsourced services delivered abroad recorded on a net
basis under merchanting i.e,. €250m
Other services recorded gross i.e, credit of €500m and debit
of €300m
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CSO Rationale

Rationale as stated before:
»
To reduce potential for statistical distortion arising from
very large transactions in services sourced and delivered
abroad
» Does not seem appropriate or meaningful to inflate the
services exports and imports data for such transactions
» Such large aggregate flows in the statistics presented
are not compatible with employment levels in Ireland
Can lead to asymmetries - counterpart compilers may have no option
but to record the transactions on a gross basis in their BoP statistics
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Concluding Remarks

CSO departure from international recommendations

Pragmatic statistical reasons for CSO approach

No clear rationale for gross treatment for outsourced services
recommended in current international standards

Merchanting treatment being addressed in the IMF’s BPM
revision but only for goods

Clear guidance needed on treatment of:
» ‘merchanted’ services
» booking by resident entity of receipts and expenditure of
affiliates abroad
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THE END
DISCUSSION
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