Tax Avoidance and the Irish Balance of Payments

Contract manufacturing, also known as goods for processing, occurs when a firm in country A contracts a firm in country B to manufacture goods on its behalf and then send the goods on to country C for final sale. The subcontracting process (i.e. the actual production of the good in country B) is not considered a change of economic ownership and thus is not recorded in the balance of payments. Rather, any manufacturing inputs remain under country A’s ownership, country A’s payment to country B for the production is recorded as a service export from B to A, and the sale of the final good to country C is recorded as a goods export from A to C.