J. THE CHARACTERISTICS OF MULTINATIONAL ENTERPRISES

J.4. Profitability: gross as a share of turnover

■ The share of gross operating surplus () in the outcome may suggest that offshoring in central turnover of foreign-controlled affiliates could be used Europe is motivated not only by low labour costs, but as one indicator of the profitability of foreign-owned by expectations of high profitability as well. However, investments in host countries. However, comparisons interpretations of differences based on this rather of the profitability of foreign affiliates should be simple indicator should be drawn carefully. interpreted with care, given differences in regulatory environments, rules, etc., in different countries. Previous research has shown the importance of transfer pricing in the observed profitability of affiliates of multinational companies in different countries. Source •OECD, AFA Database, January 2010. ■ In some countries, foreign affiliates are more “profitable” than firms under national control, but For further reading this observation is not valid for all countries. • OECD (1994), The Performance of Foreign Affiliates in OECD Countries, OECD, Paris. ■ Investments in Slovenia, Hungary and the Czech • OECD (2005), Measuring Globalisation: OECD Handbook on Republic yield profits that are higher in relation to Economic Globalisation Indicators, OECD, Paris, turnover than investments in other countries. This www.oecd.org/sti/measuring-globalisation.

Gross operating surplus

Gross operating surplus (GOS) is defined as: – gross value added (VA); • minus compensation payable to employees (W); • minus on production payable (T); • plus subsidies receivable (S) (SNA 1993, §7.80). Value added corresponds to the value of the output that a firm produces for itself, reduced by the value of . Employee compensation encompasses and salaries plus social security contributions payable by employers. Taxes on production include taxes payable by foreign affiliates in the affiliates’ host countries but not those paid by the parent company in the country of origin in respect of income received or distributed by the affiliate. Subsidies are payments without consideration that general government makes to business enterprises on the basis of the level of their production activities. Thus, GOS = VA – W – T + S. Gross operating surplus can take on negative values if VA < W + T – S. In addition, the ratio (GOS + W + T – S) / VA = 1.

178 OECD ECONOMIC GLOBALISATION INDICATORS © OECD 2010 J. THE CHARACTERISTICS OF MULTINATIONAL ENTERPRISES

J.4. Profitability: gross operating surplus as a share of turnover

Figure J.4.1. Gross operating surplus as a share of turnover of foreign affiliates and national firms in manufacturing, 2007

Affiliates under foreign control Firms controlled by the compiling countries

Slovenia (2004)

Hungary (2006)

Czech Republic

Spain (2006)

United Kingdom

Sweden

Austria (2003)

Estonia (2006)

Netherlands (2005)

Portugal (2006)

Finland

Slovak Republic (2006)

Italy (2005)

France

Canada (2005)

0246810121416 %

1 2 http://dx.doi.org/10.1787/844765218547

OECD ECONOMIC GLOBALISATION INDICATORS © OECD 2010 179 From: Measuring Globalisation: OECD Economic Globalisation Indicators 2010

Access the complete publication at: https://doi.org/10.1787/9789264084360-en

Please cite this chapter as:

OECD (2010), “Profitability: gross operating surplus as a share of turnover”, in Measuring Globalisation: OECD Economic Globalisation Indicators 2010, OECD Publishing, Paris.

DOI: https://doi.org/10.1787/9789264084360-72-en

This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of OECD member countries.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected].