UPDATE 3-In split from SocGen, TCW's fortunes seen set to rise
By Greg Roumeliotis and Jessica Toonkel and Jennifer Ablan
DUBLIN May 24 Irish officials and business leaders like to trumpet their success in attracting U.S. investment as proof the country is on the road to recovery.
At a conference in Dublin on Friday the head of Ireland's largest bank gave small business leaders the "15-second elevator pitch" he gives to U.S. executives when he is in New York or Boston.
"I've mentioned to U.S. investors that U.S. companies have more capital invested in Ireland than they do in Brazil, Russia, India and China put together," said Richie Boucher, chief executive of Bank of Ireland.
"We have had a record year of FDI (foreign direct investment) in 2012."
The numbers are eye-catching. About $30 billion of net FDI flowed in to Ireland from the United States in 2011, the last year data is available. That is double the level at the peak of Ireland's boom and the equivalent of 6,670 euros for every man, woman and child in the country.
And yet in the real economy, the number of jobs in foreign-owned firms fell by 9 percent, according to state enterprise board Forfas. Total employment fell even more - 15 percent.
What the FDI figures help illustrate is how large international companies and funds use Ireland as a base to route their profits and investments to cut their tax bills.
This practice was laid bare this week when the U.S. Senate revealed that computer giant Apple had paid little or no tax on tens of billions of dollars in profits channelled through Irish subsidiaries.
"Ireland is a conduit for firms. One implication of that conduit is they are making billions here but just paying a tiny proportion in tax," said Jim Stewart, senior lecturer in finance, Trinity College Dublin.
Three main factors appear to be at work in the large jumps in Irish FDI; multinationals shifting income from units in other countries to Ireland - which counts on the export side of balance-of-payments figures; company takeovers; and inflows into Ireland's shadow banking sector.
"FDI figures are becoming more and more meaningless. They do not necessarily reflect real economic activity," said Chris Van Egeraat, an economist at the National University of Ireland Maynooth.
"You see exports growing and FDI growing in certain sectors, but you see unemployment growing in those sectors; that should ring some alarm bells about how we should interpret these FDI figures."
BENEFITS AND BRASSPLATES
Suffering from high unemployment for most of the 20th century and with strong ties to the United States due to generations of emigration, Ireland's governments have spent decades courting U.S. companies such as Dell, Intel and Pfizer with generous tax concessions and low rates.
The policy has yielded some real benefits, with multinationals accounting for almost one in every 10 jobs in Ireland. Every four multinational jobs Ireland attracts adds three more indirectly in the local economy, according to the state Industrial Development Agency (IDA), which is tasked with attracting foreign firms.
Prime Minister Enda Kenny is relying on the export-focused multinational sector to boost economic growth and ensure the country emerges from an EU-IMF bailout smoothly this year, after the country's debt levels quadrupled on the back of a property bubble and banking crash.
But foreign companies that relocate their headquarters to Ireland for tax purposes without really operating in the economy, known as brass-plate firms because their presence sometimes amounts to little more than a name on a door sign, are flattering the country's economic output figures and its balance of payments, often used as a measure of competitiveness.
Ireland had a current account surplus last year of 6.1 percent of gross national product (GNP), but this falls to 0.6 percent when foreign companies' retained profits are stripped out, according to research by the Economic and Social Research Institute (ESRI), an independent think-tank partly funded by the Irish government.
The ESRI does not say how many such redomiciled companies there are in Ireland, but the ESRI estimates their retained profits at 7.39 billion euros in 2012, equivalent to 5.5 percent of GNP.
Shire Pharmaceuticals and Beazley PLC are among companies to have moved their domicile to Ireland in recent years, both citing tax advantages among their reasons.
AMNESTIES AND SHADOWS
Ireland's FDI figures illustrate what a big impact corporate repatriations can have.
In 2005, for example, when the United States introduced a temporary tax amnesty on profits brought back from overseas subsidiaries - repatriated cash would otherwise attract 35 percent U.S. tax - a net $15 billion of U.S. FDI high-tailed it out of Ireland and back to the mother country.
Another big factor at play in the FDI figures is Ireland's shadow banking sector, investment firms and funding vehicles that operate out of Dublin's financial services centre, on the banks of the river Liffey.
These investment funds, money market funds and special purpose-style vehicles account for around 1.7 trillion euros of assets, more than 10 times the size of the domestic economy and greater than the traditional banking sector, which has assets of around 1.1 trillion euros, according to central bank statistics.
Some 32,700 people are employed in the Irish Financial Services Centre (IFSC), helping to administer over 1 trillion euros in hedge fund assets alone.
But many of the funding vehicles have no employees in Dublin; they are managed instead from another city, often London or New York, and based in Ireland to shrink their tax bills.
While Ireland's local banking sector has been decimated by a highly leveraged binge on property, the IFSC has gone from strength to strength, boosted by the global financial crisis, which has seen a big market in sales of distressed debt.
There were 704 financial vehicle corporations or special purpose vehicles operating in Ireland as of the first quarter of this year, nearly a quarter of the euro area total and the highest in the bloc, according to data from the European Central Bank.
"I say to those people who invest in the country from outside, you will never have a government as open to listening and working with business in the interests of employment and jobs and growing the economy," Kenny told the small business conference on Friday.
Despite that openness, Irish unemployment has been stuck above 14 percent for almost three years. (Additional reporting by Padraic Halpin; Editing by Will Waterman)
By Greg Roumeliotis and Jessica Toonkel and Jennifer Ablan
* Defendant's federal conviction was overturned in February
* Alternatives to Libor to be found for some contracts