Pearse Doherty (Donegal, Sinn Fein)
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184. To ask the Minister for Finance when the inconsistency regarding the treatment of research and development in the State’s balance of payments, that is the way in which it is treated as intermediate consumption, will be rectified in view of its knock on impact on the State's EU contribution; and if he will make a statement on the matter. [45658/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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There are two types of R&D imports recorded in the Balance of Payments (BOP):

1. Direct acquisition of intellectual property patents, copyrights etc.

2. R&D services imports where an entity pays a foreign firm to conduct research on their behalf.

In the National Accounts both types of R&D imports are capitalised, that is, they are considered a use of profits rather than a cost. However, in the BOP standards the guidance is less clear and consequently only the direct acquisition of patents are capitalised with R&D services treated as intermediate consumption. In other words, R&D services are treated as a cost which in turn reduces profit outflows. As a result, profits generated in Ireland by foreign firms are higher in the National Accounts then in the BOP.

This inconsistency inflates Ireland’s GNP and Gross National Income (GNI) as both measures involve subtracting net factor outflows (calculated in the BOP) from GDP (calculated in the national accounts) although the extent of it is mitigated somewhat by reduced depreciation charges.  This inconsistency also inflates Ireland’s EU budget contribution as Member State contributions are based on inter alia their share of EU GNI.

The CSO is highlighting this ambiguity in the statistical standards at a forthcoming meeting in EUROSTAT where it is seeking clarification around the application of a harmonised approach across the standards in this specific case of imported R&D services.  

It is important to stress that, from a legal perspective, the CSO is compelled to produce existing economic statistics (GDP, GNP, GNI etc.) in accordance with internationally agreed methodologies (European System of Accounts 2010) and that our international obligations including the EU budget contribution will continue to be assessed on this basis.

The outcome of the EUROSTAT consultation will, it is hoped, resolve this inconsistency in treatment.