(1)

Section C, Part 6.1, is replaced by the following:

‘6.1.   Foreign direct investment

Foreign Direct investment is associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. Following international standards (and in particular BPM6), the direct or indirect ownership of 10 % or more of the voting power of an enterprise resident in one economy by an investor resident in another economy is evidence of such a relationship. Based on this criterion, a foreign direct investment relationship can exist between a number of related enterprises, regardless of whether the linkage involves a single or a number of chains. It can extend to a direct investment enterprise's subsidiaries, sub-subsidiaries and associates. Once the foreign direct investment is established, all subsequent financial flows/holdings between the related entities are recorded as foreign direct investment transactions/positions.

Equity capital comprises equity in branches as well as all shares in subsidiaries and associates. Reinvested earnings consist of the offsetting entry to the direct investor's share of earnings not distributed as dividends by subsidiaries or associates, and earnings of branches not remitted to the direct investor and that are recorded under “investment income” (as referred to in part 3.2.3 of Section A).

Foreign direct investment equity and debt are further disaggregated according to the type of relationship between entities and according to the direction of the investment. Three types of foreign direct investment relationships can be distinguished as follows:

With regard to the valuation of foreign direct investment positions, the equity stocks listed in stock exchanges are valued at market prices. Conversely, in the case of unlisted direct investment companies, equity stocks are valued on the basis of book values using a common definition comprising the following accounting items:

For equity shares of unlisted companies, the transactions recorded in the financial account may differ from the own funds at book value recorded in the IIP. Such differences are recorded as revaluations due to other price changes.

In order to increase the consistency in the valuation of assets and liabilities where the valuation method provided for above may lead to distortions in the net international investment position of the Member States, equity stocks in unlisted direct investment companies can alternatively be valued by Member States according to one of the other valuation methods mentioned in paragraph 7.16 of the BPM6, if at least one of the following cases applies:

If an alternative method is applied for valuing equity stocks in unlisted direct investment companies, the IIP compiler is encouraged to inform the compiler in the counterpart country of the alternative method and to cooperate with this compiler to minimise the risk of bilateral asymmetric recording. This information should be transmitted within the ESCB in the framework of existing arrangements, as well as published in the ECB’s publication “European Union balance of payments and international investment position statistical sources and methods” (as described in Annex V).

It is recommended as a best practice that all Member States should start compiling foreign direct investment equity stocks and reinvested earnings, on the basis of the results of foreign direct investment surveys to be collected at least annually (*1).

(*1)  The following unacceptable practices should be abandoned: (i) leaving the choice of the valuation criterion to reporting agents (market values or book values); (ii) the application of a perpetual inventory method/accumulation of BOP flows to compile stocks.’."