Madam, - Cliff Taylor's comparison of the economic output of the Republic and Northern Ireland (Business This Week, October 24th) was somewhat misleading. The figures for industrial output, labour productivity and sales per employee in the Republic, while statistically accurate, give a false impression. This is due to transfer pricing, based on the fact that, unlike the North, the Republic is a tax haven for many international companies.
For example, a US pharmaceutical company can spend a lot of money over a number of years developing and marketing a drug. It then sets up a subsidiary company to manufacture it in Ireland. This plant sells the product back to the parent at whatever price will maximise the after-tax profit internationally. With such tax being very low in Ireland, it pays to set the price very high, when compared with direct manufacturing costs.
The large gross profits are then repatriated to the US to offset the development costs and reward the shareholders, with tax paid in the country of origin. This artificially inflates output, production, and export figures for its Irish plant.
All this is perfectly legal and provides employment for many Irish citizens, but comparing figures for the two parts of this island without mentioning this factor fails to give a true picture. - Yours, etc.,
BRIAN CROWLEY,
Leinster Square,
Dublin 6.