26.6.2013   

EN

Official Journal of the European Union

L 174/1

REGULATION (EU) No 549/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 21 May 2013

on the European system of national and regional accounts in the European Union

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 338(1) thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Central Bank (1),

Acting in accordance with the ordinary legislative procedure (2),

Whereas:

(1)

Policymaking in the Union and monitoring of the economies of the Member States and of the economic and monetary union (EMU) require comparable, up-to-date and reliable information on the structure of the economy and the development of the economic situation of each Member State or region.

(2)

The Commission should play a part in the monitoring of the economies of the Member States and of the EMU and, in particular, report regularly to the Council on the progress made by Member States in fulfilling their obligations relating to the EMU.

(3)

Citizens of the Union need economic accounts as a basic tool for analysing the economic situation of a Member State or region. For the sake of comparability, such accounts should be drawn up on the basis of a single set of principles that are not open to differing interpretations. The information provided should be as precise, complete and timely as possible in order to ensure maximum transparency for all sectors.

(4)

The Commission should use aggregates of national and regional accounts for Union administrative purposes and, in particular, budgetary calculations.

(5)

In 1970 an administrative document entitled ‘European System of Integrated Economic Accounts(ESA)’ was published, covering the field governed by this Regulation. That document was drawn up solely by the Statistical Office of the European Communities on its responsibility alone and was the outcome of several years’ work, by that office together with Member States’ national statistical institutes, aimed at devising a system of national accounts to meet the requirements of the European Communities’ economic and social policy. It constituted the Community version of the United Nations System of National Accounts which had been used by the Communities up to that time. In order to update the original text a second edition of the document was published in 1979 (3).

(6)

Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (4) set up a system of national accounts to meet the requirements of the economic, social and regional policy of the Community. That system was broadly consistent with the then new System of National Accounts, which was adopted by the United Nations Statistical Commission in February 1993 (1993 SNA), so that the results in all member countries of the United Nations would be internationally comparable.

(7)

The 1993 SNA was updated in the form of a new System of National Accounts (2008 SNA) adopted by the United Nations Statistical Commission in February 2009 in order to bring national accounts more into line with the new economic environment, advances in methodological research, and the needs of users.

(8)

There is a need to revise the European System of Accounts set up by Regulation (EC) No 2223/96 (the ESA 95) in order to take into account the developments in the SNA so that the revised European System of Accounts, as established by this Regulation, constitutes a version of the 2008 SNA that is adapted to the structures of the Member States’ economies, and so that the data of the Union are comparable with those compiled by its main international partners.

(9)

For the purpose of setting up environmental economic accounts as satellite accounts to the revised European System of Accounts, Regulation (EU) No 691/2011 of the European Parliament and of the Council of 6 July 2011 on European environmental economic accounts (5) established a common framework for the collection, compilation, transmission and evaluation of European environmental economic accounts.

(10)

In the case of environmental and social accounts, the Communication from the Commission to the Council and the European Parliament of 20 August 2009, entitled ‘GDP and beyond — Measuring progress in a changing world’, should also be fully taken into account. There is a need to vigorously pursue methodological studies and data tests in particular on issues related to ‘GDP and beyond’ and the Europe 2020 strategy with the aim of developing a more comprehensive measurement approach for wellbeing and progress in order to support the promotion of smart, sustainable and inclusive growth. In this context, the issues of environmental externalities and social inequalities should be addressed. The issue of productivity changes should also be taken into account. This should allow data that complement GDP aggregates to be made available as soon as possible. The Commission should present in 2013, to the European Parliament and to the Council, a follow-up Communication on ‘GDP and beyond’ and, if appropriate, legislative proposals in 2014. Data on national and regional accounts should be seen as one means of pursuing those aims.

(11)

The possible use of new, automated and real-time collection methods should be explored.

(12)

The revised European System of Accounts set up by this Regulation (ESA 2010) includes a methodology, and a transmission programme which defines the accounts and tables that are to be provided by all Member States according to specified deadlines. The Commission should make those accounts and tables available to users on specific dates and, where relevant, according to a pre-announced release calendar, particularly with regard to monitoring economic convergence and achieving close coordination of the Member States’ economic policies.

(13)

A user-oriented approach to publishing data should be adopted, thus providing accessible and useful information to Union citizens and other stakeholders.

(14)

The ESA 2010 is gradually to replace all other systems as a reference framework of common standards, definitions, classifications and accounting rules for drawing up the accounts of the Member States for the purposes of the Union, so that results that are comparable between the Member States can be obtained.

(15)

In accordance with Regulation (EC) No 1059/2003 of the European Parliament and of the Council of 26 May 2003 on the establishment of a common classification of territorial units for statistics (NUTS) (6), all Member States’ statistics that are transmitted to the Commission and that are to be broken down by territorial units should use the NUTS classification. Consequently, in order to establish comparable regional statistics, the territorial units should be defined in accordance with the NUTS classification.

(16)

The transmission of data by the Member States, including the transmission of confidential data, is governed by the rules set out in Regulation (EC) No 223/2009 of the European Parliament and of the Council of 11 March 2009 on European statistics (7). Accordingly, measures that are taken in accordance with this Regulation should, therefore, also ensure the protection of confidential data and that no unlawful disclosure or non-statistical use occurs when European statistics are produced and disseminated.

(17)

A task force has been set up to further examine the issue of the treatment of financial intermediation services indirectly measured (FISIM) in national accounts, including the examination of a risk-adjusted method that excludes risk from FISIM calculations in order to reflect the expected future cost of realised risk. Taking into consideration the findings of the task force, it may be necessary to amend the methodology for the calculation and allocation of FISIM, by means of a delegated act, in order to provide improved results.

(18)

Research and development expenditure constitutes investment and should therefore be recorded as gross fixed capital formation. However, it is necessary to specify, by means of a delegated act, the format of the research and development expenditure data to be recorded as gross fixed capital formation when a sufficient level of confidence in the reliability and comparability of the data is reached through a test exercise based on the development of supplementary tables.

(19)

Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States (8) requires publication of relevant information on contingent liabilities with potentially large impacts on public budgets, including government guarantees, non-performing loans, and liabilities stemming from the operation of public corporations including the extent thereof. Those requirements necessitate additional publication to that required under this Regulation.

(20)

In June 2012, the Commission (Eurostat) established a Task Force on the implications of Directive 2011/85/EU for the collection and dissemination of fiscal data, which focused on the implementation of the requirements related to contingent liabilities and other relevant information which may indicate potentially large impacts on public budgets, including government guarantees, liabilities of public corporations, Public-Private Partnerships (PPPs), non-performing loans, and government participation in the capital of corporations. Fully implementing the work of that Task Force would contribute to the proper analysis of the underlying economic relationships of PPP contracts, including construction, availability and demand risks, as appropriate, and capture of implicit debts of off balance sheet PPPs, thereby fostering increased transparency and reliable debt statistics.

(21)

The Economic Policy Committee set up by Council Decision 74/122/EEC (9) (EPC) has been carrying out work in relation to the sustainability of pensions and pension reforms. The work of statisticians on the one hand and of experts on ageing populations working under the auspices of the EPC on the other hand should be closely coordinated, at both national and European levels, with respect to macroeconomic assumptions and other actuarial parameters in order to ensure consistency and cross-country comparability of the results as well as efficient communication to users and stakeholders of the data and information related to pensions. It should also be made clear that accrued-to-date pension entitlements in social insurance are not as such a measure of the sustainability of public finances.

(22)

Data and information on Member States’ contingent liabilities are provided in the context of the work related to the multilateral surveillance procedure in the Stability and Growth Pact. By July 2018, the Commission should issue a report evaluating whether those data should be made available in the context of the ESA 2010.

(23)

It is important to underline the significance of Member States’ regional accounts for the regional, economic and social cohesion policies of the Union as well as the analysis of economic interdependencies. Moreover, the need to increase the transparency of accounts at a regional level, including government accounts, is recognised. The Commission (Eurostat) should pay particular attention to the fiscal data of regions where Member States have autonomous regions or governments.

(24)

In order to amend Annex A of this Regulation with a view to ensuring its harmonised interpretation or international comparability, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union (TFEU) should be delegated to the Commission. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including with the European Statistical System Committee established under Regulation (EC) No 223/2009. Moreover, pursuant to Articles 127(4) and 282(5) TFEU, it is of importance that the Commission carry out during its preparatory work, where relevant, consultations with the European Central Bank in its fields of competence. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council.

(25)

Most statistical aggregates used in the economic governance framework of the Union, in particular the excessive deficit and the macroeconomic imbalances procedures, are defined by reference to the ESA. When providing data and reports under those procedures, the Commission should give appropriate information about the impact on the relevant aggregates of the ESA 2010 methodological changes introduced by delegated acts in accordance with the provisions of this Regulation.

(26)

The Commission will carry out an evaluation as to whether the data on Research and Development have reached a sufficient level of quality both in current prices and in volume terms for national accounts purposes before the end of May 2013, in close cooperation with the Member States, with a view to ensuring the reliability and comparability of the ESA Research and Development data.

(27)

Since the implementation of this Regulation will require major adaptations in the national statistical systems, derogations will be granted by the Commission to Member States. In particular, the transmission programme of national accounts data should take into consideration the fundamental political and statistical changes that have occurred in some Member States during the reference periods of the programme. The derogations granted by the Commission should be temporary and subject to review. The Commission should provide support to the Member States concerned in their efforts to ensure the required adaptations to their statistical systems so that those derogations can be discontinued as soon as possible.

(28)

Reducing transmission deadlines could add significant pressure and costs for respondents and national statistical institutes in the Union, with the risk of a lower quality of data being produced. A balance of advantages and disadvantages should, therefore, be considered when setting the data transmission deadlines.

(29)

In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (10).

(30)

Since the objective of this Regulation, namely the establishment of a revised European System of Accounts, cannot be sufficiently achieved by the Member States and can be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective.

(31)

The European Statistical System Committee has been consulted.

(32)

The Committee on Monetary, Financial and Balance of Payments Statistics set up by Council Decision 2006/856/EC of 13 November 2006 establishing a Committee on monetary, financial and balance of payments statistics (11) and the Gross National Income Committee (GNI Committee) set up by Council Regulation (EC, Euratom) No 1287/2003 of 15 July 2003 on the harmonisation of gross national income at market prices (GNI Regulation) (12) have been consulted,

HAVE ADOPTED THIS REGULATION:

Article 1

Subject matter

1.   This Regulation sets up the European System of Accounts 2010 (‘the ESA 2010’ or ‘the ESA’).

2.   The ESA 2010 provides for:

(a)

a methodology (Annex A) on common standards, definitions, classifications and accounting rules that shall be used for compiling accounts and tables on comparable bases for the purposes of the Union, together with results as required under Article 3;

(b)

a programme (Annex B) setting out the time limits by which Member States shall transmit to the Commission (Eurostat) the accounts and tables to be compiled in accordance with the methodology referred to in point (a).

3.   Without prejudice to Articles 5 and 10, this Regulation shall apply to all Union acts that refer to the ESA or its definitions.

4.   This Regulation does not oblige any Member State to use the ESA 2010 in compiling accounts for its own purposes.

Article 2

Methodology

1.   The methodology of the ESA 2010 referred to in point (a) of Article 1(2) is set out in Annex A.

2.   The Commission shall be empowered to adopt delegated acts in accordance with Article 7, concerning amendments to the ESA 2010 methodology in order to specify and improve its content for the purpose of ensuring a harmonised interpretation or to ensure international comparability provided that they do not change its underlying concepts, do not require additional resources for producers within the European Statistical System for their implementation, and do not cause a change in own resources.

3.   In the event of doubt regarding the correct implementation of the ESA 2010 accounting rules, the Member State concerned shall request clarification from the Commission (Eurostat). The Commission (Eurostat) shall act promptly both in examining the request and in communicating its advice on the requested clarification to the Member State concerned and all other Member States.

4.   Member States shall carry out the calculation and allocation of financial intermediation services indirectly measured (FISIM) in national accounts in accordance with the methodology described in Annex A. The Commission shall be empowered to adopt before 17 September 2013 delegated acts in accordance with Article 7 laying down a revised methodology for the calculation and allocation of FISIM. In exercising its power pursuant to this paragraph, the Commission shall ensure that such delegated acts do not impose a significant additional administrative burden on the Member States or on the respondent units.

5.   Research and development expenditure shall be recorded, by Member States, as gross fixed capital formation. The Commission shall be empowered to adopt delegated acts in accordance with Article 7 to ensure the reliability and comparability of the ESA 2010 data of the Member States on research and development. In exercising its power pursuant to this paragraph, the Commission shall ensure that such delegated acts do not impose a significant additional administrative burden on the Member States or on the respondent units.

Article 3

Transmission of data to the Commission

1.   The Member States shall transmit to the Commission (Eurostat) the accounts and tables set out in Annex B within the time limits specified therein for each table.

2.   Member States shall transmit to the Commission the data and metadata required by this Regulation in accordance with a specified interchange standard and other practical arrangements.

The data shall be transmitted or uploaded by electronic means to the single entry point for data at the Commission. The interchange standard and other practical arrangements for the transmission of the data shall be defined by the Commission by means of implementing acts. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 8(2).

Article 4

Quality assessment

1.   For the purpose of this Regulation, the quality criteria set out in Article 12(1) of Regulation (EC) No 223/2009 shall apply to the data to be transmitted in accordance with Article 3 of this Regulation.

2.   Member States shall provide the Commission (Eurostat) with a report on the quality of the data to be transmitted in accordance with Article 3.

3.   In applying the quality criteria referred to in paragraph 1 to the data covered by this Regulation, the modalities, structure, periodicity and assessment indicators of the quality reports shall be defined by the Commission by means of implementing acts. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 8(2).

4.   The Commission (Eurostat) shall assess the quality of the data transmitted.

Article 5

Date of application and of first transmission of data

1.   The ESA 2010 shall be applied for the first time to data established in accordance with Annex B to be transmitted from 1 September 2014.

2.   The data shall be transmitted to the Commission (Eurostat) in accordance with the time limits laid down in Annex B.

3.   In accordance with paragraph 1, until the first transmission of data based on the ESA 2010, Member States shall continue to send to the Commission (Eurostat) the accounts and tables established by applying the ESA 95.

4.   Without prejudice to Article 19 of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 implementing Decision 2007/436/EC, Euratom on the system of the European Communities own resources (13), the Commission and the Member State concerned shall check that this Regulation is being applied correctly and shall submit the outcome of those checks to the Committee referred to in Article 8(1) of this Regulation.

Article 6

Derogations

1.   In so far as a national statistical system necessitates major adaptations for the application of this Regulation, the Commission shall grant temporary derogations to Member States by means of implementing acts. Those derogations shall expire not later than 1 January 2020. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 8(2).

2.   The Commission shall grant a derogation pursuant to paragraph 1 only for a period sufficient to allow the Member State concerned to adapt its statistical system. The proportion of the Member State’s GDP within the Union or within the euro area shall not constitute in itself a justification for granting a derogation. Where appropriate, the Commission shall provide support to the Member States concerned in their efforts to ensure the required adaptations to their statistical system.

3.   For the purposes set out in paragraphs 1 and 2, the Member State concerned shall present a duly justified request to the Commission not later than 17 October 2013.

The Commission, after consulting the European Statistical System Committee, shall report to the European Parliament and the Council not later than 1 July 2018 on the application of the granted derogations in order to verify whether they are still justified.

Article 7

Exercise of the delegation

1.   The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article.

2.   The power to adopt delegated acts referred to in Article 2(2) and (5) shall be conferred on the Commission for a period of five years, from 16 July 2013. The power to adopt delegated acts referred to in Article 2(4) shall be conferred on the Commission for a period of two months from 16 July 2013. The Commission shall draw up a report in respect of the delegation of power not later than nine months before the end of the five-year period. The delegation of power shall be tacitly extended for periods of an identical duration, unless the European Parliament or the Council opposes such extension not later than three months before the end of each period.

3.   The delegation of power referred to in Article 2(2), (4) and (5) may be revoked at any time by the European Parliament or by the Council.

A decision to revoke shall put an end to the delegation of power specified in that Decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force.

4.   As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council.

5.   A delegated act adopted pursuant to Article 2(2), (4) and (5) shall enter into force only if no objection has been expressed either by the European Parliament or the Council within a period of three months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by three months at the initiative of the European Parliament or of the Council.

Article 8

Committee

1.   The Commission shall be assisted by the European Statistical System Committee established by Regulation (EC) No 223/2009. That committee is a committee within the meaning of Regulation (EU) No 182/2011.

2.   Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply.

Article 9

Cooperation with other committees

1.   On all matters falling within the competence of the Committee on Monetary, Financial and Balance of Payments Statistics established by Decision 2006/856/EC, the Commission shall request the opinion of that Committee in accordance with Article 2 of that Decision.

2.   The Commission shall communicate to the Gross National Income Committee (‘GNI Committee’) established by Regulation (EC, Euratom) No 1287/2003 any information concerning the implementation of this Regulation which is necessary for the performance of the GNI Committee’s duties.

Article 10

Transitional provisions

1.   For budgetary and own resources purposes, the European System of Accounts as referred to in Article 1(1) of Regulation (EC, Euratom) No 1287/2003 and the legal acts relating thereto, in particular Regulation (EC, Euratom) No 1150/2000 and Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax (14), shall continue to be the ESA 95 while Council Decision 2007/436/EC, Euratom of 7 June 2007 on the system of the European Communities’ own resources (15) remains in force.

2.   For the purpose of determination of the VAT-based own resource, and by way of exception to paragraph 1, the Member States may use data based on the ESA 2010 while Decision 2007/436/EC, Euratom remains in force, where the required detailed ESA 95 data are not available.

Article 11

Reporting on implicit liabilities

By 2014, the Commission shall submit a report to the European Parliament and to the Council containing existing information on PPPs and other implicit liabilities, including contingent liabilities, outside government.

By 2018, the Commission shall submit a further report to the European Parliament and to the Council assessing the extent to which the information on liabilities published by the Commission (Eurostat) represents the entirety of the implicit liabilities, including contingent liabilities, outside government.

Article 12

Review

By 1 July 2018 and every five years thereafter, the Commission shall submit a report on the application of this Regulation to the European Parliament and the Council.

The report shall evaluate, inter alia:

(a)

the quality of data on national and regional accounts;

(b)

the effectiveness of this Regulation and the monitoring process applied to the ESA 2010; and

(c)

the progress on contingent liabilities data and on the availability of ESA 2010 data.

Article 13

Entry into force

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Strasbourg, 21 May 2013.

For the European Parliament

The President

M. SCHULZ

For the Council

The President

L. CREIGHTON

(1)   OJ C 203, 9.7.2011, p. 3.

(2)  Position of the European Parliament of 13 March 2013 (not yet published in the Official Journal) and decision of the Council of 22 April 2013.

(3)  Commission (Eurostat), European System of Integrated Economic Accounts (ESA), second edition, Statistical Office of the European Communities, Luxembourg, 1979.

(4)   OJ L 310, 30.11.1996, p. 1.

(5)   OJ L 192, 22.7.2011, p. 1.

(6)   OJ L 154, 21.6.2003, p. 1.

(7)   OJ L 87, 31.3.2009, p. 164.

(8)   OJ L 306, 23.11.2011, p. 41.

(9)  Council Decision 74/122/EEC of 18 February 1974 setting up an Economic Policy Committee (OJ L 63, 5.3.1974, p. 21).

(10)   OJ L 55, 28.2.2011, p. 13.

(11)   OJ L 332, 30.11.2006, p. 21.

(12)   OJ L 181, 19.7.2003, p. 1.

(13)   OJ L 130, 31.5.2000, p. 1.

(14)   OJ L 155, 7.6.1989, p. 9.

(15)   OJ L 163, 23.6.2007, p. 17.

ANNEX A

CHAPTER 1

 GENERAL FEATURES AND BASIC PRINCIPLES 33
GENERAL FEATURES 33
Globalisation 35
USES OF THE ESA 2010 35
Framework for analysis and policy 35
Characteristics of the ESA 2010 concepts 37
Classification by sector 40
Satellite accounts 41
The ESA 2010 and the 2008 SNA 43
The ESA 2010 and the ESA 95 43
BASIC PRINCIPLES OF THE ESA 2010 AS A SYSTEM 44
Statistical units and their groupings 44
Institutional units and sectors 45
Local KAUs and industries 45
Resident and non-resident units; total economy and rest of the world 45
Flows and stocks 46
Flows 46
Transactions 46
Properties of transactions 46
Interactions versus intra-unit transactions 46
Monetary versus non-monetary transactions 46
Transactions with and without counterparts 47
Rearranged transactions 47
Rerouting 47
Partitioning 47
Recognising the principal party to a transaction 47
Borderline cases 48
Other changes in assets 48
Other changes in the volume of assets and liabilities 48
Holding gains and losses 48
Stocks 48
The system of accounts and the aggregates 49
Rules of accounting 49
Terminology for the two sides of the accounts 49
Double entry/quadruple entry 49
Valuation 49
Special valuations concerning products 50
Valuation at constant prices 50
Time of recording 50
Consolidation and netting 50
Consolidation 50
Netting 51
Accounts, balancing items and aggregates 51
The sequence of accounts 51
The goods and services account 51
The rest of the world account 51
Balancing items 52
Aggregates 54
GDP: a key aggregate 54
The input-output framework 54
Supply and use tables 55
Symmetric input-output tables 55

CHAPTER 2

 UNITS AND GROUPINGS OF UNITS 56
THE LIMITS OF THE NATIONAL ECONOMY 56
THE INSTITUTIONAL UNITS 58
Head offices and holding companies 59
Groups of corporations 59
Special purpose entities 60
Captive financial institutions 60
Artificial subsidiaries 60
Special purpose units of general government 61
THE INSTITUTIONAL SECTORS 61
Non-financial corporations (S.11) 65
Public non-financial corporations (S.11001) 66
National private non-financial corporations (S.11002) 66
Foreign controlled non-financial corporations (S.11003) 66
Financial corporations (S.12) 67
Financial intermediaries 67
Financial auxiliaries 68
Financial corporations other than financial intermediaries and financial auxiliaries 68
Institutional units included in the financial corporations sector 68
Subsectors of financial corporations 68
Combining subsectors of financial corporations 69
Subdividing subsectors of financial corporations into public, national private and foreign controlled financial corporations 69
Central bank (S.121) 70
Deposit-taking corporations except the central bank (S.122) 70
MMF (S.123) 71
Non-MMF investment funds (S.124) 71
Other financial intermediaries, except insurance corporations and pension funds (S.125) 72
Financial vehicle corporations engaged in securitisation transactions (FVC) 72
Security and derivative dealers, financial corporations engaged in lending and specialised financial corporations 72
Financial auxiliaries (S.126) 73
Captive financial institutions and money lenders (S.127) 73
Insurance corporations (S.128) 74
Pension funds (S.129) 75
General government (S.13) 76
Central government (excluding social security funds) (S.1311) 76
State government (excluding social security funds) (S.1312) 76
Local government (excluding social security funds) (S.1313) 77
Social security funds (S.1314) 77
Households (S.14) 77
Employers and own-account workers (S.141 and S.142) 78
Employees (S.143) 78
Recipients of property income (S.1441) 78
Recipients of pensions (S.1442) 78
Recipients of other transfers (S.1443) 78
Non-profit institutions serving households (S.15) 79
Rest of the world (S.2) 79
Sector classification of producer units for main standard legal forms of ownership 80
LOCAL KIND-OF-ACTIVITY UNITS AND INDUSTRIES 82
The local kind-of-activity unit 82
Industries 83
Classification of industries 83
UNITS OF HOMOGENEOUS PRODUCTION AND HOMOGENEOUS BRANCHES 83
The unit of homogeneous production 83
The homogeneous branch 83

CHAPTER 3

 TRANSACTIONS IN PRODUCTS AND NON-PRODUCED ASSETS 84
TRANSACTIONS IN PRODUCTS IN GENERAL 84
PRODUCTION AND OUTPUT 85
Principal, secondary and ancillary activities 86
Output (P.1) 87
Institutional units: distinction between market, for own final use and non-market 89
Time of recording and valuation of output 92
Products of agriculture, forestry and fishing (Section A) 93
Manufactured products (Section C); construction work (Section F) 93
Wholesale and retail trade services; repair services of motor vehicles and motorcycles (Section G) 93
Transportation and storage (Section H) 94
Accommodation and food services (Section I) 95
Financial and insurance services (Section K): output of the central bank 95
Financial and insurance services (Section K): financial services in general 95
Financial services provided for direct payment 95
Financial services paid for through loading interest charges 96
Financial services consisting of acquiring and disposing of financial assets and liabilities in financial markets 96
Financial services provided in insurance and pension schemes, where activity is financed by loading insurance contributions and from the income return on savings 96
Real estate services (Section L) 98
Professional, scientific and technical services (Section M); administrative and support services (Section N) 98
Public administration and defence services, compulsory social security services (Section O) 99
Education services (Section P); human health and social work services (Section Q) 99
Arts, entertainment and recreation services (Section R); Other services (Section S) 99
Private households as employers (Section T) 99
INTERMEDIATE CONSUMPTION (P.2) 99
Time of recording and valuation of intermediate consumption 101
FINAL CONSUMPTION (P.3, P.4) 101
Final consumption expenditure (P.3) 101
Actual final consumption (P.4) 103
Time of recording and valuation of final consumption expenditure 105
Time of recording and valuation of actual final consumption 106
GROSS CAPITAL FORMATION (P.5) 106
Gross fixed capital formation (P.51g) 106
Time of recording and valuation of gross fixed capital formation 109
Consumption of fixed capital (P.51c) 110
Changes in inventories (P.52) 110
Time of recording and valuation of changes in inventories 111
Acquisitions less disposals of valuables (P.53) 112
EXPORTS AND IMPORTS OF GOODS AND SERVICES (P.6 AND P.7) 113
Exports and imports of goods (P.61 and P.71) 113
Exports and imports of services (P.62 and P.72) 115
TRANSACTIONS IN EXISTING GOODS 118
ACQUISITIONS LESS DISPOSALS OF NON-PRODUCED ASSETS (NP) 119

CHAPTER 4

 DISTRIBUTIVE TRANSACTIONS 121
COMPENSATION OF EMPLOYEES (D.1) 121
Wages and salaries (D.11) 121
Wages and salaries in cash 121
Wages and salaries in kind 122
Employers' social contributions (D.12) 123
Employers' actual social contributions (D.121) 123
Employers' imputed social contributions (D.122) 124
TAXES ON PRODUCTION AND IMPORTS (D.2) 126
Taxes on products (D.21) 126
Value added type taxes (VAT) (D.211) 126
Taxes and duties on imports excluding VAT (D.212) 127
Taxes on products, except VAT and import taxes (D.214) 127
Other taxes on production (D.29) 128
Taxes on production and imports paid to the institutions of the European Union 128
Taxes on production and imports: time of recording and amounts to be recorded 129
SUBSIDIES (D.3) 129
Subsidies on products (D.31) 130
Import subsidies (D.311) 130
Other subsidies on products (D.319) 130
Other subsidies on production (D.39) 131
PROPERTY INCOME (D.4) 132
Interest (D.41) 133
Interest on deposits and loans 133
Interest on debt securities 133
Interest on bills and similar short-term instruments 133
Interest on bonds and debentures 133
Interest rate swaps and forward rate agreements 134
Interest on financial leases 134
Other interest 134
Time of recording 134
Distributed income of corporations (D.42) 135
Dividends (D.421) 135
Withdrawals from the income of quasi-corporations (D.422) 136
Reinvested earnings on foreign direct investment (D.43) 137
Other investment income (D.44) 137
Investment income attributable to insurance policy holders (D.441) 137
Investment income payable on pension entitlements (D.442) 138
Investment income attributable to collective investment fund shareholders (D.443) 138
Rent (D.45) 139
Rent on land 139
Rents on subsoil assets 139
CURRENT TAXES ON INCOME, WEALTH, ETC. (D.5) 139
Taxes on income (D.51) 139
Other current taxes (D.59) 140
SOCIAL CONTRIBUTIONS AND BENEFITS (D.6) 141
Net social contributions (D.61) 143
Employers' actual social contributions (D.611) 143
Employers' imputed social contributions (D.612) 144
Households' actual social contributions (D.613) 145
Households' social contribution supplements (D.614) 145
Social benefits other than social transfers in kind (D.62) 146
Social security benefits in cash (D.621) 146
Other social insurance benefits (D.622) 146
Social assistance benefits in cash (D.623) 146
Social transfers in kind (D.63) 147
Social transfers in kind — general government and NPISHs non-market production (D.631) 147
Social transfers in kind — market production purchased by general government and NPISHs (D.632) 147
OTHER CURRENT TRANSFERS (D.7) 148
Net non-life insurance premiums (D.71) 148
Non-life insurance claims (D.72) 149
Current transfers within general government (D.73) 150
Current international cooperation (D.74) 150
Miscellaneous current transfers (D.75) 151
Current transfers to NPISHs (D.751) 151
Current transfers between households (D.752) 151
Other miscellaneous current transfers (D.759) 151
Fines and penalties 151
Lotteries and gambling 152
Payments of compensation 152
VAT- and GNI-based EU own resources (D.76) 153
ADJUSTMENT FOR THE CHANGE IN PENSION ENTITLEMENTS (D.8) 153
CAPITAL TRANSFERS (D.9) 154
Capital taxes (D.91) 154
Investment grants (D.92) 155
Other capital transfers (D.99) 156
EMPLOYEE STOCK OPTIONS (ESOs) 157

CHAPTER 5

 FINANCIAL TRANSACTIONS 159
GENERAL FEATURES OF FINANCIAL TRANSACTIONS 159
Financial assets, financial claims, and liabilities 159
Contingent assets and contingent liabilities 159
Categories of financial assets and liabilities 160
Balance sheets, financial account, and other flows 161
Valuation 161
Net and gross recording 162
Consolidation 162
Netting 162
Accounting rules for financial transactions 163
A financial transaction with a current or a capital transfer as counterpart 163
A financial transaction with property income as counterpart 164
Time of recording 164
A from-whom-to-whom financial account 165
CLASSIFICATION OF FINANCIAL TRANSACTIONS BY CATEGORIES IN DETAIL 166
Monetary gold and special drawing rights (F.1) 166
Monetary gold (F.11) 166
SDRs (F.12) 167
Currency and deposits (F.2) 168
Currency (F.21) 168
Deposits (F.22 and F.29) 168
Transferable deposits (F.22) 168
Other deposits (F.29) 169
Debt securities (F.3) 169
Main features of debt securities 170
Classification by original maturity and currency 170
Classification by type of interest rate 170
Fixed interest rate debt securities 171
Variable interest rate debt securities 171
Mixed interest rate debt securities 171
Private placements 172
Securitisation 172
Covered bonds 172
Loans (F.4) 173
Main features of loans 173
Classification of loans by original maturity, currency, and purpose of lending 173
Distinction between transactions in loans and transactions in deposits 173
Distinction between transactions in loans and transactions in debt securities 173
Distinction between transactions in loans, trade credit and trade bills 174
Securities lending and repurchase agreements 174
Financial leases 175
Other types of loans 175
Financial assets excluded from the category of loans 175
Equity and investment fund shares or units (F.5) 176
Equity (F.51) 176
Depository receipts 176
Listed shares (F.511) 176
Unlisted shares (F.512) 176
Initial public offering, listing, de-listing, and share buy back 177
Financial assets excluded from equity securities 177
Other equity (F.519) 177
Valuation of transactions in equity 178
Investment fund shares or units (F.52) 178
MMF shares or units (F.521) 178
Non-MMF investment fund shares/units (F.522) 179
Valuation of transactions in investment fund shares or units 179
Insurance, pension and standardised guarantee schemes (F.6) 179
Non-life insurance technical reserves (F.61) 179
Life insurance and annuity entitlements (F.62) 179
Pension entitlements (F.63) 180
Contingent pension entitlements 180
Claims of pension funds on pension managers (F.64) 180
Entitlements to non-pension benefits (F.65) 181
Provisions for calls under standardised guarantees (F.66) 181
Standardised guarantees and one-off guarantees 181
Financial derivatives and employee stock options (F.7) 182
Financial derivatives (F.71) 182
Options 182
Forwards 182
Options vis-à-vis forwards 183
Swaps 183
Forward rate agreements (FRAs) 183
Credit derivatives 183
Credit default swaps 184
Financial instruments not included in financial derivatives 184
Employee stock options (F.72) 184
Valuation of transactions in financial derivatives and employee stock options 185
Other accounts receivable/payable (F.8) 185
Trade credits and advances (F.81) 186
Other accounts receivable/payable, excluding trade credits and advances (F.89) 186

ANNEX 5.1 —

CLASSIFICATION OF FINANCIAL TRANSACTIONS 187
Classification of financial transactions by category 187
Classification of financial transactions by negotiability 188
Structured securities 189
Classification of financial transactions by type of income 189
Classification of financial transactions by type of interest rate 189
Classification of financial transactions by maturity 190
Short-term and long-term maturity 190
Original maturity and remaining maturity 190
Classification of financial transactions by currency 190
Measures of money 190

CHAPTER 6

 OTHER FLOWS 191
INTRODUCTION 191
OTHER CHANGES IN ASSETS AND LIABILITIES 191
Other changes in the volume of assets and liabilities (K.1 to K.6) 191
Economic appearance of assets (K.1) 191
Economic disappearance of non-produced assets (K.2) 192
Catastrophic losses (K.3) 192
Uncompensated seizures (K.4) 193
Other changes in volume not elsewhere classified (K.5) 193
Changes in classification (K.6) 194
Changes in sector classification and institutional unit structure (K.61) 194
Changes in classification of assets and liabilities (K.62) 194
Nominal holding gains and losses (K.7) 195
Neutral holding gains and losses (K.71) 196
Real holding gains and losses (K.72) 196
Holding gains and losses by types of financial asset and liability 197
Monetary gold and SDRs (AF.1) 197
Currency and deposits (AF.2) 197
Debt securities (AF.3) 197
Loans (AF.4) 198
Equity and investment fund shares (AF.5) 198
Insurance, pension and standardised guarantee schemes (AF.6) 198
Financial derivatives and employee stock options (AF.7) 198
Other accounts receivable/payable (AF.8) 198
Assets denominated in foreign currency 199

CHAPTER 7

 BALANCE SHEETS 200
TYPES OF ASSETS AND LIABILITIES 201
Definition of an asset 201
EXCLUSIONS FROM THE ASSET AND LIABILITY BOUNDARY 201
CATEGORIES OF ASSETS AND LIABILITIES 201
Produced non-financial assets (AN.1) 201
Non-produced non-financial assets (AN.2) 202
Financial assets and liabilities (AF) 202
VALUATION OF ENTRIES IN THE BALANCE SHEETS 205
General valuation principles 205
NON-FINANCIAL ASSETS (AN) 206
Produced non-financial assets (AN.1) 206
Fixed assets (AN.11) 206
Intellectual property products (AN.117) 206
Costs of ownership transfer on non-produced assets (AN.116) 207
Inventories (AN.12) 207
Valuables (AN.13) 207
Non-produced non-financial assets (AN.2) 207
Natural resources (AN.21) 207
Land (AN.211) 207
Mineral and energy reserves (AN.212) 207
Other natural assets (AN.213, AN.214 and AN.215) 207
Contracts, leases and licences (AN.22) 208
Purchases less sales of goodwill and marketing assets (AN.23) 208
FINANCIAL ASSETS AND LIABILITIES (AF) 208
Monetary gold and SDRs (AF.1) 208
Currency and deposits (AF.2) 208
Debt securities (AF.3) 208
Loans (AF.4) 209
Equity and investment fund shares/units (AF.5) 209
Insurance, pension and standardised guarantee schemes (AF.6) 210
Financial derivatives and employee stock options (AF.7) 210
Other accounts receivable/payable (AF.8) 210
FINANCIAL BALANCE SHEETS 210
MEMORANDUM ITEMS 211
Consumer durables (AN.m) 211
Foreign direct investment (AF.m1) 211
Non-performing loans (AF.m2) 211
Recording of non-performing loans 212

ANNEX 7.1

SUMMARY OF EACH ASSET CATEGORY 213

ANNEX 7.2

A MAP OF ENTRIES FROM OPENING BALANCE SHEET TO CLOSING BALANCE SHEET 222

CHAPTER 8

 THE SEQUENCE OF ACCOUNTS 226
INTRODUCTION 226
The sequence of accounts 226
SEQUENCE OF ACCOUNTS 230
Current accounts 230
Production account (I) 230
Distribution and use of income accounts (II) 232
Primary distribution of income accounts (II.1) 232
Generation of income account (II.1.1) 232
Allocation of primary income account (II.1.2) 236
Entrepreneurial income account (II.1.2.1) 242
Allocation of other primary income account (II.1.2.2) 242
Secondary distribution of income account (II.2) 249
Redistribution of income in kind account (II.3) 249
Use of income account (II.4) 256
Use of disposable income account (II.4.1) 256
Use of adjusted disposable income account (II.4.2) 256
Accumulation accounts (III) 259
Capital account (III.1) 259
Change in net worth due to saving and capital transfers account (III.1.1) 259
Acquisitions of non-financial assets account (III.1.2) 259
Financial account (III.2) 259
Other changes in assets account (III.3) 268
Other changes in volume of assets account (III.3.1) 268
Revaluation account (III.3.2) 268
Neutral holding gains and losses account (III.3.2.1) 268
Real holding gains and losses account (III.3.2.2) 268
Balance sheets (IV) 282
Opening balance sheet (IV.1) 282
Changes in balance sheet (IV.2) 282
Closing balance sheet (IV.3) 282
REST OF THE WORLD ACCOUNTS (V) 290
Current accounts 290
External account of goods and services (V.I) 290
External account of primary incomes and current transfers (V.II) 290
External accumulation accounts (V.III) 290
Capital account (V.III.1) 290
Financial account (V.III.2) 291
Other changes in assets account (V.III.3) 291
Balance sheets (V.IV) 291
GOODS AND SERVICES ACCOUNT (0) 303
INTEGRATED ECONOMIC ACCOUNTS 303
AGGREGATES 315
Gross domestic product at market prices (GDP) 315
Operating surplus of the total economy 315
Mixed income of the total economy 315
Entrepreneurial income of the total economy 315
National income (at market prices) 315
National disposable income 315
Saving 316
Current external balance 316
Net lending (+) or borrowing (-) of the total economy 316
Net worth of the total economy 316
General government expenditure and revenue 316

CHAPTER 9

 SUPPLY AND USE TABLES AND THE INPUT-OUTPUT FRAMEWORK 318
INTRODUCTION 318
DESCRIPTION 322
STATISTICAL TOOL 322
TOOL FOR ANALYSIS 323
SUPPLY AND USE TABLES IN MORE DETAIL 323
Classifications 323
Valuation principles 325
Trade and transport margins 326
Taxes less subsidies on production and imports 328
Other basic concepts 330
Supplementary information 331
DATA SOURCES AND BALANCING 331
TOOL FOR ANALYSIS AND EXTENSIONS 332

CHAPTER 10

 PRICE AND VOLUME MEASURES 335
SCOPE OF PRICE AND VOLUME INDICES IN THE NATIONAL ACCOUNTS 336
The integrated system of price and volume indices 336
Other price and volume indices 337
GENERAL PRINCIPLES OF MEASURING PRICE AND VOLUME INDICES 337
Definition of prices and volumes of market products 337
Quality, price and homogeneous products 338
Prices and volume 339
New products 340
Principles for non-market services 341
Principles for value added and GDP 342
SPECIFIC PROBLEMS IN THE APPLICATION OF THE PRINCIPLES 343
Taxes and subsidies on products and imports 343
Other taxes and subsidies on production 344
Consumption of fixed capital 344
Compensation of employees 344
Stocks of produced fixed assets and inventories 344
MEASURES OF REAL INCOME FOR THE TOTAL ECONOMY 345
INTERSPATIAL PRICE AND VOLUME INDICES 346

CHAPTER 11

 POPULATION AND LABOUR INPUTS 347
TOTAL POPULATION 347
ECONOMICALLY ACTIVE POPULATION 348
EMPLOYMENT 348
Employees 349
Self-employed persons 349
Employment and residence 350
UNEMPLOYMENT 351
JOBS 351
Jobs and residence 352
THE NON-OBSERVED ECONOMY 352
TOTAL HOURS WORKED 352
Specifying hours actually worked 352
FULL-TIME EQUIVALENCE 354
EMPLOYEE LABOUR INPUT AT CONSTANT COMPENSATION 354
PRODUCTIVITY MEASURES 354

CHAPTER 12

 QUARTERLY NATIONAL ACCOUNTS 355
INTRODUCTION 355
SPECIFIC FEATURES OF QUARTERLY NATIONAL ACCOUNTS 356
Time of recording 356
Work-in-progress 356
Activities concentrated in specific periods within a year 357
Low-frequency payments 357
Flash estimates 357
Balancing and benchmarking of quarterly national accounts 357
Balancing 358
Consistency between quarterly and annual accounts — benchmarking 358
Chain-linked measures of price and volume changes 358
Seasonal and calendar adjustments 359
Sequence of compilation of seasonally adjusted chain-linked volume measures 360

CHAPTER 13

 REGIONAL ACCOUNTS 361
INTRODUCTION 361
REGIONAL TERRITORY 362
UNITS AND REGIONAL ACCOUNTS 362
Institutional units 362
Local kind-of-activity units and regional production activities by industry 363
METHODS OF REGIONALISATION 363
AGGREGATES FOR PRODUCTION ACTIVITIES 365
Gross value added and gross domestic product by region 365
The allocation of FISIM to user industries 365
Employment 365
Compensation of employees 365
Transition from regional GVA to regional GDP 365
Volume growth rates of regional GVA 366
REGIONAL HOUSEHOLD INCOME ACCOUNTS 366

CHAPTER 14

 FINANCIAL INTERMEDIATION SERVICES INDIRECTLY MEASURED (FISIM) 369
THE CONCEPT OF FISIM AND THE IMPACT OF THEIR USER ALLOCATION ON MAIN AGGREGATES 369
CALCULATION OF FISIM OUTPUT BY SECTORS S.122 AND S.125 370
Statistical data required 370
Reference rates 370
Internal reference rate 371
External reference rates 371
Detailed breakdown of FISIM by institutional sector 371
Breakdown into intermediate and final consumption of FISIM allocated to households 372
CALCULATION OF IMPORTS OF FISIM 373
FISIM IN VOLUME TERMS 373
CALCULATION OF FISIM BY INDUSTRY 374
THE OUTPUT OF THE CENTRAL BANK 374

CHAPTER 15

 CONTRACTS, LEASES AND LICENCES 375
INTRODUCTION 375
THE DISTINCTION BETWEEN OPERATING LEASES, RESOURCE LEASES AND FINANCIAL LEASES 375
Operating leases 377
Financial leases 377
Resource leases 378
Permits to use a natural resource 379
Permits to undertake specific activities 380
Public-private partnerships (PPPs) 382
Service concession contracts 382
Marketable operating leases (AN.221) 382
Entitlements to future goods and services on an exclusive basis (AN.224) 382

CHAPTER 16

 INSURANCE 383
INTRODUCTION 383
Direct insurance 383
Reinsurance 384
The units involved 385
OUTPUT OF DIRECT INSURANCE 385
Premiums earned 385
Premium supplements 386
Adjusted claims incurred and benefits due 386
Non-life insurance adjusted claims incurred 386
Life insurance benefits due 387
Insurance technical reserves 387
Defining insurance output 388
Non-life insurance 388
Life insurance 389
Reinsurance 389
TRANSACTIONS ASSOCIATED WITH NON-LIFE INSURANCE 389
Allocation of insurance output among users 389
Insurance services provided to and from the rest of the world 389
The accounting entries 390
TRANSACTIONS OF LIFE INSURANCE 392
TRANSACTIONS ASSOCIATED WITH REINSURANCE 394
TRANSACTIONS ASSOCIATED WITH INSURANCE AUXILIARIES 395
ANNUITIES 395
RECORDING NON-LIFE INSURANCE CLAIMS 396
Treatment of adjusted claims 396
Treatment of catastrophic losses 396

CHAPTER 17

 SOCIAL INSURANCE INCLUDING PENSIONS 397
INTRODUCTION 397
Social insurance schemes, social assistance and individual insurance policies 397
Social benefits 398
Social benefits provided by general government 399
Social benefits provided by other institutional units 399
Pensions and other forms of benefit 399
SOCIAL INSURANCE BENEFITS OTHER THAN PENSIONS 399
Social security schemes other than pension schemes 399
Other employment-related social insurance schemes 400
Recording of stocks and flows by type of non-pension social insurance scheme 400
Social security schemes 400
Other employment-related non-pension social insurance schemes 400
PENSIONS 401
Types of pension schemes 401
Social security pension schemes 402
Other employment-related pension schemes 402
Defined contribution schemes 403
Defined benefit schemes 403
Notional defined contribution schemes and hybrid schemes 403
Defined benefit schemes as compared to defined contribution schemes 403
Pension administrator, pension manager, pension fund and multi-employer pension scheme 404
Recording of stocks and flows by type of pension scheme in social insurance 405
Transactions for social security pension schemes 405
Transactions for other employment-related pension schemes 406
Transactions for defined contribution pension schemes 406
Other flows related to defined contribution pension schemes 408
Transactions for defined benefit pension schemes 409
SUPPLEMENTARY TABLE FOR ACCRUED-TO-DATE PENSION ENTITLEMENTS IN SOCIAL INSURANCE 412
Design of the supplementary table 412
The columns of the table 414
The rows of the table 415
Opening and closing balance sheets 416
Changes in pension entitlements due to transactions 416
Changes to pension entitlements due to other economic flows 418
Related indicators 419
Actuarial assumptions 420
Accrued-to-date entitlements 420
Discount rate 420
Wage growth 420
Demographic assumptions 421

CHAPTER 18

 REST OF THE WORLD ACCOUNTS 422
INTRODUCTION 422
ECONOMIC TERRITORY 423
Residence 423
INSTITUTIONAL UNITS 423
BRANCHES AS A TERM USED IN THE INTERNATIONAL ACCOUNTS OF THE BALANCE OF PAYMENTS 423
NOTIONAL RESIDENT UNITS 424
MULTI-TERRITORY ENTERPRISES 424
GEOGRAPHICAL BREAKDOWN 424
THE INTERNATIONAL ACCOUNTS OF THE BALANCE OF PAYMENTS 425
BALANCING ITEMS IN THE CURRENT ACCOUNTS OF THE INTERNATIONAL ACCOUNTS 425
THE ACCOUNTS FOR THE REST OF THE WORLD SECTOR AND THEIR RELATIONSHIP WITH THE INTERNATIONAL ACCOUNTS OF THE BALANCE OF PAYMENTS 426
The external account of goods and services 426
Valuation 429
Goods for processing 429
Merchanting 430
Goods under merchanting 430
Imports and exports of FISIM 431
The external account of primary and secondary income 432
The primary income account 433
Direct investment income 433
The secondary income (current transfers) account of the BPM6 433
The external capital account 434
The external financial account and international investment position (IIP) 435
BALANCE SHEETS FOR THE REST OF THE WORLD SECTOR 437

CHAPTER 19

 EUROPEAN ACCOUNTS 439
INTRODUCTION 439
FROM NATIONAL TO EUROPEAN ACCOUNTS 439
Conversion of data in different currencies 440
European institutions 440
The rest of the world account 441
Balancing of transactions 442
Price and volume measures 442
Balance sheets 442
‧From whom-to-whom‧ matrices 442

ANNEX 19.1. —

THE ACCOUNTS OF EUROPEAN INSTITUTIONS 443
Resources 443
Uses 444
Consolidation 444

CHAPTER 20

 THE GOVERNMENT ACCOUNTS 445
INTRODUCTION 445
DEFINING THE GENERAL GOVERNMENT SECTOR 445
Identification of units in the government 445
Government units 445
NPIs classified to the general government sector 446
Other units of general government 446
Public control 447
Market/non-market delineation 447
Notion of economically significant prices 447
Criteria of the purchaser of the output of a public producer 448
The output is sold primarily to corporations and households 448
The output is sold only to government 448
The output is sold to government and others 448
The market/non-market test 448
Financial intermediation and the government boundary 449
Borderline cases 449
Public head offices 449
Pension funds 449
Quasi-corporations 449
Restructuring agencies 450
Privatisation agencies 450
Defeasances structures 450
Special purpose entities 451
Joint ventures 451
Market regulatory agencies 451
Supranational authorities 452
The subsectors of general government 452
Central government 452
State government 452
Local government 453
Social security funds 453
THE GOVERNMENT FINANCE PRESENTATION OF STATISTICS 453
Framework 453
Revenue 455
Taxes and social contributions 455
Sales 455
Other revenue 458
Expenditure 458
Compensation of employees and intermediate consumption 458
Social benefits expenditure 459
Interest 459
Other current expenditure 459
Capital expenditure 459
Link with government final consumption expenditure (P.3) 460
Government expenditure by function (COFOG) 460
Balancing items 461
The net lending/net borrowing (B.9) 461
Changes in net worth due to saving and capital transfers (B.101) 461
Financing 461
Transactions in assets 462
Transactions in liabilities 463
Other economic flows 463
Revaluation account 463
Other changes in volume of assets account 464
Balance sheets 464
Consolidation 465
ACCOUNTING ISSUES RELATING TO GENERAL GOVERNMENT 466
Tax revenue 466
Character of tax revenue 466
Tax credits 467
Amounts to record 467
Amounts uncollectible 467
Time of recording 467
Accrual recording 467
Accrual recording of taxes 467
Interest 468
Discounted and zero-coupon bonds 469
Index-linked securities 469
Financial derivatives 469
Court decisions 469
Military expenditure 469
Relations of general government with public corporations 470
Equity investment in public corporations and distribution of earnings 470
Equity investment 470
Capital injections 470
Subsidies and capital injections 470
Rules applicable to particular circumstances 471
Fiscal operations 471
Public corporations distributions 471
Dividends versus withdrawal of equity 471
Taxes versus withdrawal of equity 472
Privatisation and nationalisation 472
Privatisation 472
Indirect privatisations 472
Nationalisation 472
Transactions with the central bank 473
Restructures, mergers, and reclassifications 473
Debt operations 473
Debt assumptions, debt cancellation and debt write-offs 473
Debt assumption and cancellation 473
Debt assumption involving a transfer of non-financial assets 474
Debt write-offs or write-downs 474
Other debt restructuring 475
Purchase of debt above the market value 475
Defeasances and bailouts 475
Debt guarantees 476
Derivatives-type guarantees 476
Standardised guarantees 477
One-off guarantees 477
Securitisation 477
Definition 477
Criteria for sale recognition 477
Recording of flows 478
Other issues 478
Pension obligations 478
Lump sum payments 478
Public-private partnerships 479
Scope of PPPs 479
Economic ownership and allocation of the asset 479
Accounting issues 480
Transactions with international and supranational organisations 481
Development assistance 482
THE PUBLIC SECTOR 483
Public sector control 483
Central banks 484
Public quasi-corporations 485
Special purpose entities and non-residents 485
Joint ventures 485

CHAPTER 21

 LINKS BETWEEN BUSINESS ACCOUNTS AND NATIONAL ACCOUNTS AND THE MEASUREMENT OF CORPORATE ACTIVITY 486
SOME SPECIFIC RULES AND METHODS OF BUSINESS ACCOUNTING 486
Time of recording 486
Double entry and quadruple entry accounting 486
Valuation 486
Income statement and balance sheet 487
NATIONAL ACCOUNTS AND BUSINESS ACCOUNTS: PRACTICAL ISSUES 487
THE TRANSITION FROM BUSINESS ACCOUNTS TO NATIONAL ACCOUNTS: THE EXAMPLE OF NON-FINANCIAL ENTERPRISES 488
Conceptual adjustments 488
Adjustments to achieve consistency with the accounts of other sectors 488
Examples of adjustments for exhaustiveness 488
SPECIFIC ISSUES 488
Holding gains/losses 488
Globalisation 489
Mergers and acquisitions 489

CHAPTER 22

 SATELLITE ACCOUNTS 490
INTRODUCTION 490
Functional classifications 493
MAJOR CHARACTERISTICS OF SATELLITE ACCOUNTS 496
Functional satellite accounts 496
Special sector accounts 499
Inclusion of non-monetary data 503
Extra detail and supplementary concepts 503
Different basic concepts 504
Use of modelling and inclusion of experimental results 504
Designing and compiling satellite accounts 505
NINE SPECIFIC SATELLITE ACCOUNTS 506
Agricultural accounts 507
Environmental accounts 507
Health accounts 518
Household production accounts 520
Labour accounts and SAM 523
Productivity and growth accounts 525
Research and development accounts 526
Social protection accounts 528
Tourism satellite accounts 531

CHAPTER 23

 CLASSIFICATIONS 533
INTRODUCTION 533
CLASSIFICATION OF INSTITUTIONAL SECTORS (S) 533
CLASSIFICATION OF TRANSACTIONS AND OTHER FLOWS 535
Transactions in products (P) 535
Transactions in non-produced non-financial assets (NP codes) 536
Distributive transactions (D) 537
Current transfers in cash and kind (D.5-D.8) 538
Transactions in financial assets and liabilities (F) 539
Other changes in assets (K) 541
CLASSIFICATION OF BALANCING ITEMS AND NET WORTH (B) 541
CLASSIFICATION OF BALANCE SHEET ENTRIES (L) 542
CLASSIFICATION OF ASSETS (A) 542
Non-financial assets (AN) 542
Financial assets (AF) 544
CLASSIFICATION OF SUPPLEMENTARY ITEMS 545
Non-performing loans 545
Capital services 546
Pensions table 546
Consumer durables 548
Foreign direct investment 548
Contingent positions 548
Currency and deposits 549
Classification of debt securities according to outstanding maturity 549
Listed and unlisted debt securities 549
Long-term loans with outstanding maturity of less than one year and long-term loans secured by mortgage 549
Listed and unlisted investment shares 550
Arrears in interest and repayments 550
Personal and total remittances 550
REGROUPING AND CODING OF INDUSTRIES (A) AND PRODUCTS (P) 550
CLASSIFICATION OF THE FUNCTIONS OF THE GOVERNMENT (COFOG) 565
CLASSIFICATION OF INDIVIDUAL CONSUMPTION BY PURPOSE (Coicop) 568
CLASSIFICATION OF THE PURPOSES OF NON-PROFIT INSTITUTIONS SERVING HOUSEHOLDS (COPNI) 570
CLASSIFICATION OF OUTLAYS OF PRODUCERS BY PURPOSE (COPP) 571

CHAPTER 24

 THE ACCOUNTS 573

Table 24.1

Account 0: Goods and services account 573

Table 24.2

Full sequence of accounts for the total economy 573

Table 24.3

Full sequence of accounts for non-financial corporations 593

Table 24.4

Full sequence of accounts for financial corporations 607

Table 24.5

Full sequence of accounts for general government 622

Table 24.6

Full sequence of accounts for households 638

Table 24.7

Full sequence of accounts for non-profit institutions serving households 654

 

CHAPTER 1

GENERAL FEATURES AND BASIC PRINCIPLES

GENERAL FEATURES

1.01

 The European System of Accounts (hereinafter referred to as ‧the ESA 2010‧ or ‧the ESA‧) is an internationally compatible accounting framework for a systematic and detailed description of a total economy (that is, a region, country or group of countries), its components and its relations with other total economies.

1.02

 The predecessor of the ESA 2010, the European System of Accounts 1995 (the ESA 95), was published in 1996 (1). The ESA 2010 methodology as set out in this Annex has the same structure as the ESA 95 publication for the first thirteen chapters, but then has eleven new chapters elaborating aspects of the system which reflect developments in measuring modern economies, or in the use of the ESA 95 in the European Union (the EU).

1.03

 The structure of this manual is as follows. Chapter 1 covers the basic features of the system in terms of concepts, and sets out the principles of the ESA and describes the fundamental statistical units and their groupings. It gives an overview of the sequence of accounts, and a brief description of key aggregates and the role of supply and use tables and the input-output framework. Chapter 2 describes the institutional units used in measuring the economy, and how these units are classified into sectors and other groups to allow analysis. Chapter 3 describes all transactions with regard to products (goods and services), as well as non-produced assets, in the system. Chapter 4 describes all the transactions in the economy which distribute and re-distribute income and wealth in the economy. Chapter 5 describes the financial transactions in the economy. Chapter 6 describes the changes that can occur to the value of assets through non-economic events or price changes. Chapter 7 describes balance sheets, and the asset and liability classification scheme. Chapter 8 sets out the sequence of accounts, and the balancing items associated with each account. Chapter 9 describes supply and use tables, and their role in reconciling the measures of income, output and expenditure in the economy. It also describes the input-output tables that can be derived from the supply and use tables. Chapter 10 describes the conceptual basis for the price and volume measures associated with the nominal values found in the accounts. Chapter 11 describes the population and labour market measures which can be used with measures of the national accounts in economic analysis. Chapter 12 gives a brief description of quarterly national accounts, and how they differ in emphasis from the annual accounts.

1.04

 Chapter 13 describes the purposes, concepts and compilation issues in drawing up a set of regional accounts. Chapter 14 covers the measurement of financial services provided by financial intermediaries and funded through net interest receipts, and reflects years of research and development by Member States in order to have a measure which is robust and harmonised across Member States. Chapter 15 on contracts, leases and licences is necessary to describe an area of increasing importance in the national accounts. Chapters 16 and 17 on insurance, social insurance and pensions describe how these arrangements are handled in the national accounts, as questions of redistribution become of increasing interest as populations age. Chapter 18 covers the rest of the world accounts, which are the national accounts equivalent to the accounts of the balance of payments measuring system. Chapter 19 on European Accounts is also new, covering aspects of the national accounts where European institutional and trading arrangements raise issues which require a harmonised approach. Chapter 20 describes the accounts for the government sector — an area of special interest as issues of fiscal prudence by Member States continue to be critical in the conduct of economic policy in the EU. Chapter 21 describes the links between business accounts and national accounts, an area of growing interest as multinational corporations become responsible for an increasing share in gross domestic product (GDP) for all countries. Chapter 22 describes the relationship of satellite accounts with the main national accounts. Chapters 23 and 24 are for reference purposes; Chapter 23 sets out the classifications used for sectors, activities and products in the ESA 2010, and Chapter 24 sets out the complete sequence of accounts for every sector.

1.05

 The structure of the ESA 2010 is consistent with the worldwide guidelines on national accounting set out in the System of National Accounts 2008 (2008 SNA), apart from certain differences in presentation and the higher degree of precision of some of the ESA 2010 concepts which are used for specific EU purposes. Those guidelines were produced under the joint responsibility of the United Nations (UN), the International Monetary Fund (IMF), the Statistical Office of the European Union (Eurostat), the Organisation for Economic Cooperation and Development (OECD) and the World Bank. The ESA 2010 is focused on the circumstances and data needs in the EU. Like the 2008 SNA, the ESA 2010 is harmonised with the concepts and classifications used in many other social and economic statistics (for example, statistics on employment, statistics on manufacturing and statistics on external trade). The ESA 2010 therefore serves as the central framework of reference for the social and economic statistics of the EU and its Member States.

1.06

 The ESA framework consists of two main sets of tables:

(a)

the institutional sector accounts;

(b)

the input-output framework, and the accounts by industry.

1.07

 The sector accounts provide, by institutional sector, a systematic description of the different stages of the economic process: production, generation of income, distribution of income, redistribution of income, use of income and financial and non-financial accumulation. The sector accounts also include balance sheets to describe the stocks of assets, liabilities and net worth at the beginning and the end of the accounting period.

1.08

 The input-output framework, through the supply and use tables, sets out in more detail the production process (cost structure, income generated and employment) and the flows of goods and services (output, imports, exports, final consumption, intermediate consumption and capital formation by product group). Two important accounting identities are reflected in this framework: the sum of incomes generated in an industry is equal to the value added produced by that industry; and, for any product or grouping of products, supply is equal to demand.

1.09

 The ESA 2010 encompasses concepts of population and employment. Such concepts are relevant for the sector accounts, the accounts by industry and the supply and use framework.

1.10

 The ESA 2010 is not restricted to annual national accounting, but applies also to quarterly and shorter or longer period accounts. It also applies to regional accounts.

1.11

 The ESA 2010 exists alongside the 2008 SNA because of the uses of national accounts measures in the EU. The Member States are responsible for the collection and presentation of their own national accounts to describe the economic situation of their countries. Member States also compile a set of accounts which are submitted to the Commission (Eurostat) as part of a regulatory data transmission programme, for key social, economic and fiscal policy uses in the Union. Those uses include determination of Member State monetary contributions to the EU budget via the ‧fourth resource‧, aid to regions of the EU through the structural funds programme and surveillance of Member States' economic performance in the framework of the excessive deficit procedure and of the Stability and Growth Pact.

1.12

 In order that levies and benefits are distributed according to measures compiled and presented in a strictly consistent manner, the economic statistics used for those purposes shall be compiled according to the same concepts and rules. The ESA 2010 is a regulation setting forth the rules, conventions, definitions and classifications to be applied in producing the national accounts in Member States which are to be part of the data transmission programme as set out in Annex B to this Regulation.

1.13

 Given the very large sums of money involved in the contributions and benefits system operated in the EU, it is essential that the measurement system be applied consistently in each Member State. In such circumstances, it is important to adopt a cautious approach to estimates which cannot be observed directly in the market place, avoiding the use of model-based procedures for the estimation of measures in the national accounts.

1.14

 The ESA 2010 concepts are in several instances more specific and precise than those of the 2008 SNA in order to ensure as much consistency as possible between Member States measures derived from the national accounts. This over-riding requirement for robust consistent estimates has resulted in the identification of a core set of national accounts in the EU. Where the level of consistency of measurement across Member States is insufficient, the latter estimates are generally included in so-called ‧non-core-accounts‧ covering supplementary tables and satellite accounts.

1.15

 An example of where it has been considered necessary to be cautious in the design of the ESA 2010 lies in the field of pension liabilities. The case for measuring these to assist in economic analyses is a strong one, but the critical requirement in the EU to produce accounts which are consistent across time and space has obliged a cautious approach.

Globalisation

1.16

 The increasingly global nature of economic activity has increased international trade in all its forms, and increased the challenges to countries of recording their domestic economies in the national accounts. Globalisation is the dynamic and multidimensional process whereby national resources become more internationally mobile, while national economies become increasingly interdependent. The feature of globalisation which potentially causes most measurement problems for national accounts is the increasing share of international transactions undertaken by multinational companies, where the transactions across borders are between parents, subsidiaries and affiliates. However other challenges exist, and a more exhaustive list of data issues is as follows:

(1)

transfer pricing between affiliated corporations (valuation of imports and exports);

(2)

the increase in toll processing, where goods are traded across international borders with no change in ownership (goods for processing), and merchanting;

(3)

international trading via the internet, both for corporations and households;

(4)

the trade and use of intellectual property assets across the world;

(5)

workers working abroad, and remitting significant amounts to the family in the domestic territory (workers' remittances, as part of personal transfers);

(6)

multinational corporations organising their business across national boundaries, to maximise production efficiency and minimise the global tax burden. This can give rise to artificial corporation structures which may not reflect the economic reality;

(7)

the use of off-shore financing vehicles (special purpose entities and other forms) to arrange finance for global activities;

(8)

re-exports of goods, and in the EU the transport of goods between Member States after entry into the Union (quasi transport);

(9)

increase in foreign direct investment relationships, and the need to identify and allocate direct investment flows.

1.17

 All of these increasingly common aspects of globalisation make the capture and accurate measurement of cross-border flows a growing challenge for national statisticians. Even with a comprehensive and robust collection and measurement system for the entries in the rest of the world sector (and thus also in the international accounts found in the balance of payments), globalisation will increase the need for extra efforts to maintain the quality of national accounts for all economies and groupings of economies.

USES OF THE ESA 2010

Framework for analysis and policy

1.18

 The ESA framework can be used to analyse and evaluate:

(a)

the structure of a total economy. Examples of types of measurement used are:

(1)

value added and employment by industry;

(2)

value added and employment by region;

(3)

income distributed by sector;

(4)

imports and exports by product group;

(5)

final consumption expenditure by functional heading and product group;

(6)

fixed capital formation and fixed capital stock by industry;

(7)

the composition of the stocks and flows of financial assets by type of asset and by sector;

(b)

specific parts or aspects of an economy. Examples are:

(1)

banking and finance in the national economy;

(2)

the role of government and its financial position;

(3)

the economy of a specific region (in comparison to that of the nation as a whole);

(4)

household saving and debt levels;

(c)

the development of an economy over time. Examples are:

(1)

the analysis of GDP growth rates;

(2)

the analysis of inflation;

(3)

the analysis of seasonal patterns in household expenditure on the basis of quarterly accounts;

(4)

the analysis of the changing importance of particular types of financial instruments over time, e.g. the increased importance of financial derivatives;

(5)

the comparison of the industrial structures of the national economy over the long term;

(d)

a total economy in relation to other economies. Examples are:

(1)

the comparison of the roles and size of government in the Member States of the EU;

(2)

the analysis of the interdependencies between the economies of the EU, taking into account Member States and their regions;

(3)

the analysis of the composition and destination of the exports of the EU;

(4)

the comparison of GDP growth rates or disposable income per capita in the EU and other developed economies.

1.19

 For the EU and its Member States, the figures from the ESA framework play a major role in formulating and monitoring their social and economic policies.

The following examples demonstrate uses of the ESA framework:

(a)

monitoring and guiding the euro area macroeconomic and monetary policymaking, and defining criteria of convergence for the economic and monetary union (EMU) in terms of national accounts figures (e.g. GDP growth rates);

(b)

defining criteria for the excessive deficit procedure: measures of government deficit and debt;

(c)

granting financial support to regions in the EU: the allocation of expenditure funds to regions uses regional accounts statistics;

(d)

determining the own resources of the EU budget. The latter depend on national accounts figures in three ways:

(1)

the total resources for the EU are determined as a percentage of the sum of Member States' gross national incomes (GNI);

(2)

the third own resource of the EU is the VAT own resource. The contributions by the Member States for this resource are largely determined by national accounts figures, because these figures are used to calculate the average VAT rate;

(3)

the relative sizes of the contributions by the Member States for the fourth own resource of the EU are based on their gross national income estimates. These estimates are the basis for the majority of Member States' payments.

Characteristics of the ESA 2010 concepts

1.20

 In order to establish a balance between data needs and data possibilities, the concepts in the ESA 2010 have several important characteristics. The characteristics are that the accounts are:

(a)

internationally compatible;

(b)

harmonised with other social and economic statistical systems;

(c)

consistent;

(d)

operational, meaning that they can be measured in practice;

(e)

different from most administrative concepts;

(f)

well-established and fixed over a long period;

(g)

focused on describing the economic process in monetary and readily observable terms;

(h)

capable of applying in different situations and for different purposes.

1.21

 The concepts in the ESA 2010 are internationally compatible because:

(a)

the concepts in the ESA 2010 are consistent with those in the worldwide guidelines on national accounting, i.e. the 2008 SNA;

(b)

for the Member States, the ESA 2010 is the standard for submitting national accounts data to all international organisations;

(c)

international compatibility of concepts is essential when comparing statistics for different countries.

1.22

 The concepts in the ESA 2010 are harmonised with those in other social and economic statistics because the ESA 2010 employs concepts and classifications (e.g. Statistical classification of economic activities in the European Union ‧NACE rev. 2‧ (2)) that are used for other social and economic statistics of Member States, e.g. in statistics on manufacturing, statistics on external trade and statistics on employment; conceptual differences have been kept to a minimum. Furthermore, the concepts and classifications in the ESA 2010 are harmonised with those of the United Nations.

This harmonisation with social and economic statistics helps the linkage to and comparison with these figures, so that the quality of the national accounts figures can be assured. Furthermore, the information contained in these specific statistics can be better related to the general statistics on the national economy.

1.23

 The shared concepts used throughout the national accounting framework and the other social and economic statistical systems enable consistent measures to be derived. For example, the following ratios can be calculated:

(a)

productivity figures, such as value added per hour worked (these figures require consistency between the concepts of value added and hours worked);

(b)

national disposable income per capita (this ratio requires consistency between the concepts of national disposable income and measures of population);

(c)

fixed capital formation as a percentage of fixed capital stock (this ratio requires consistency between the definitions of these flows and stocks);

(d)

government deficit and government debt as percentages of gross domestic product (these figures require consistency between the concepts of government deficit, government debt and gross domestic product).

The internal consistency of concepts allows estimates to be derived by residual, e.g. saving can be estimated as the difference between disposable income and final consumption expenditure.

1.24

 The concepts in the ESA 2010 are applied with data collection and measurement in mind. The operational character is revealed in several ways in the guidance for drawing up the accounts.

(a)

Activities or items are only described when significant in size. For example: own-account production of goods by households such as weaving cloth and the production of pottery shall not be recorded as production, because these are insignificant for EU countries.

(b)

Some concepts are accompanied by guidance on how to estimate them. For example, in defining consumption of fixed capital, reference is made to linear depreciation. For estimating fixed capital stock, the Perpetual Inventory Method is to be applied where direct information on the stock of fixed assets is missing. Another example is the valuation of own-account production: in principle, it is valued at basic prices, but if necessary the basic price valuation may be approximated by adding up the various costs involved.

(c)

Some conventions have been adopted. For example the collective services provided by government are all classified as final consumption expenditure.

1.25

 However, the data needed for national accounts statistics may not be easy to collect directly, as the underlying concepts usually diverge from the concepts underlying administrative data sources. Examples of the administrative sources are business accounts, records for various types of taxes (VAT, personal income tax, import levies, etc.), social security data and data from supervisory boards on banking and insurance. These administrative data serve as inputs for compiling the national accounts. In general, they are transformed in order to comply with the ESA.

The concepts in the ESA usually differ from their administrative counterparts in that:

(a)

administrative concepts differ between countries. As a consequence, international compatibility is not possible using administrative concepts;

(b)

administrative concepts change over time. As a consequence, comparisons over time are not possible through administrative concepts;

(c)

the concepts underlying administrative data sources are usually not consistent among different administrative systems. However, linking and comparing data, which is crucial for compiling national accounts figures, is only possible with a consistent set of concepts;

(d)

the administrative concepts are generally not optimal for economic analysis and the evaluation of economic policy.

1.26

 Nevertheless, administrative data sources meet the data needs of national accounts and other statistics very well, because:

(a)

concepts and classifications originally devised for statistical purposes are also adopted for administrative purposes, e.g. the classification of government expenditure by type;

(b)

administrative data sources explicitly take account of the (separate) data needs of statistics; this applies, for example, to the Intrastat system for providing information about deliveries of goods between Member States.

1.27

 The main concepts in the ESA are well-established and fixed over a long period, because:

(a)

they have been approved as the international standard for many years;

(b)

in the successive international guidelines on national accounting, very few of the underlying concepts change.

This conceptual continuity reduces the need to recalculate time series. Furthermore, it limits the vulnerability of the concepts to national and international political pressure. For these reasons, the national accounts figures have been able to serve as an objective database for economic policy and analysis.

1.28

 The concepts in the ESA 2010 are focused on describing the economic process in monetary and readily observable terms. Stocks and flows that are not readily observable in monetary terms, or that do not have a clear monetary counterpart, are not recorded in the ESA.

This principle has not been applied strictly, because account should also be taken of the requirement of consistency and the needs of users. For example, consistency requires that the value of collective services produced by government is recorded as output, because the payment of compensation of employees and the purchase of all kinds of goods and services by government are readily observable in monetary terms. Furthermore, for the purposes of economic analysis and policy, describing the collective services of government in relation to the rest of the national economy increases the usefulness of the national accounts as a whole.

1.29

 The scope of the concepts in the ESA can be illustrated by considering some important borderline issues.

The following shall be recorded within the production boundary of the ESA (see paragraphs 3.07 to 3.09):

(a)

production of individual and collective services by government;

(b)

own-account production of housing services by owner-occupiers;

(c)

production of goods for own final consumption, e.g. of agricultural products;

(d)

own-account construction, including that by households;

(e)

production of services by paid domestic staff;

(f)

breeding of fish in fish farms;

(g)

production forbidden by law, as long as all units involved in the transaction enter into it voluntarily;

(h)

production from which the revenues are not declared in full to the fiscal authorities, e.g. clandestine production of textiles.

1.30

 The following fall outside the production boundary, and shall not be recorded in the ESA:

(a)

domestic and personal services produced and consumed within the same household, e.g. cleaning, the preparation of meals or the care of sick or elderly people;

(b)

volunteer services that do not lead to the production of goods, e.g. care-taking and cleaning without payment;

(c)

natural breeding of fish in open seas.

1.31

 The ESA records all outputs that result from production within the production boundary. However, the outputs of ancillary activities shall not be recorded. All inputs consumed by an ancillary activity shall be treated as inputs to the activity it supports. If an establishment undertaking only ancillary activities is statistically observable, in that separate accounts for the production it undertakes are readily available, or if it is in a geographically different location from the establishments it serves, it has to be recorded as a separate unit and allocated to the industrial classification corresponding to its principal activity, in both national and regional accounts. In the absence of suitable basic data being available, the output of the ancillary activity may be estimated by summing costs.

1.32

 If activities are regarded as production and their output is recorded, then the concomitant income, employment, final consumption, etc. are also recorded. For example, as the own-account production of housing services by owner-occupiers is recorded as production, so the income and final consumption expenditure it generates for these owner-occupiers are also recorded. As there is, by definition, no labour input to the production of the services of owner-occupied dwellings, no employment is recorded. This maintains consistency with the system of labour statistics, where no employment is recorded for ownership of dwellings. The reverse holds when activities are not recorded as production: domestic services produced and consumed within the same household do not generate income and final consumption expenditure and no employment is involved.

1.33

 The ESA also lays down conventions, concerning:

(a)

valuation of government output;

(b)

valuation of the output of insurance services and financial intermediation services indirectly measured;

(c)

recording of the collective services provided by government as final consumption expenditure and not as intermediate consumption;

Classification by sector

1.34

 Sector accounts are created by allocating units to sectors and this enables transactions and balancing items of the accounts to be presented by sector. The presentation by sector reveals many key measures for economic and fiscal policy purposes. The main sectors are households, government, corporations (financial and non-financial), non-profit institutions serving households (NPISHs) and the rest of the world.

The distinction between market and non-market activity is an important one. An entity controlled by government, which is shown to be a market corporation, is classified in the corporation sector, outside the general government sector. Thus, the deficit and debt levels of the corporation will not be part of the general government deficit and debt.

1.35

 It is important that clear and robust criteria for allocating entities to sectors are set out.

The public sector consists of all institutional units resident in the economy that are controlled by government. The private sector consists of all other resident units.

Table 1.1 sets out the criteria used to distinguish between public and private sector, and in the public sector between the government sector and public corporations sector, and in the private sector between the NPISH sector and the private corporations sector.

Table 1.1

Criteria

Controlled by government

(public sector)

Privately controlled

(private sector)

Non-market output

General government

NPISH

Market output

Public corporations

Private corporations

1.36

 Control is defined as the ability to determine the general policy or programme of an institutional unit. Further details in relation to the definition of control are given in paragraphs 2.35 to 2.39.

1.37

 Differentiating between market and non-market, and so, for public sector entities, classifying them into the general government sector or the corporations sector, is decided by the following rule:

An activity shall be considered as a market activity when the corresponding goods and services are traded under the following conditions:

(1)

sellers act to maximise their profits in the long term, and do so by selling goods and services freely on the market to whoever is prepared to pay the asking price;

(2)

buyers act to maximise their utility given their limited resources, by buying according to which products best meet their needs at the offered price;

(3)

effective markets exist where sellers and buyers have access to, and information on, the market. An effective market can operate even if these conditions are not met perfectly.

1.38

 The detail in the conceptual framework of the ESA offers the opportunity for flexibility: some concepts are not explicitly present in the ESA but can nevertheless easily be derived from it. An example is the creation of new sectors by rearranging the subsectors defined in the ESA.

1.39

 Flexibility exists also through the possibility to introduce additional criteria that do not conflict with the logic of the system. For example, these criteria can allow subsector accounts to be drawn up by the scale of employment for producer units or the size of income for households. For employment, subclassification by level of education, age and gender can be introduced.

Satellite accounts

1.40

 For some data needs, separate satellite accounts should be drawn up.

Examples are:

(a)

social accounting matrices (SAMs);

(b)

the role of tourism in the national economy;

(c)

the analysis of the costs and financing of health care;

(d)

research and development recognised as capital formation of intellectual property;

(e)

recognition of human capital as assets in the national economy;

(f)

the analysis of the income and expenditure of households on the basis of micro-oriented concepts of income and expenditure;

(g)

the interaction between the environment and the economy;

(h)

production within households;

(i)

analysis of changes in welfare;

(j)

analysis of the differences between national accounts and business accounts figures and their influence on stock and exchange markets;

(k)

estimation of tax revenues.

1.41

 Satellite accounts serve such data needs by:

(a)

showing more detail where necessary and leaving out superfluous detail;

(b)

enlarging the scope of the accounting framework by adding non-monetary information, e.g. on pollution and environmental assets;

(c)

changing some basic concepts, e.g. by enlarging the concept of capital formation by including expenditure on education.

1.42

 A social accounting matrix (SAM) is a matrix presentation that elaborates the linkages between supply and use tables and the sector accounts. A SAM provides additional information on the level and composition of employment, via a subdivision of compensation of employees by type of person employed. This subdivision applies to both the use of labour by industry, as shown in the use tables, and the supply of labour by socio-economic subgroup, as shown in the allocation of primary income account for subsectors of the sector households. In this way, the supply and use of various categories of labour is shown systematically.

1.43

 In satellite accounts, all basic concepts and classifications of the central framework of the ESA 2010 shall be retained. Changes in the concepts shall only be introduced when this is the purpose of the satellite account. In such instances, the satellite account shall also contain a table showing the link between the major aggregates in the satellite account and those in the central framework. In this way, the central framework retains its role as a framework of reference and at the same time more specific needs are addressed.

1.44

 In general terms, the central framework does not include measures of stocks and flows that are not readily observable in monetary terms (or without a clear monetary counterpart). By their nature, the analysis of such stocks and flows is usually also well served by compiling statistics in non-monetary terms, e.g.:

(a)

production within households can be described in terms of hours allocated to the alternative uses;

(b)

education can be described in terms of type of education, the number of pupils, the average number of years of education before obtaining a diploma, etc.;

(c)

the effects of pollution can be described in terms of changes in the number of living species, the health of the trees in the forest, the volume of refuse, the amounts of carbon-monoxide and radiation, etc.

1.45

 Satellite accounts enable such statistics in non-monetary units to be linked to the national accounts in the central framework. Using the classifications employed in the central framework for such non-monetary statistics enables the link to be made, e.g. the classification by type of household or the classification by industry. In this way, a consistent extended framework is drawn up. This framework can then serve as a database for the analysis and evaluation of interactions between the variables in the central framework and those in the extended part.

1.46

 The central framework and its major aggregates do not describe changes in welfare. Extended accounts can be drawn up which include also the imputed monetary values of, for example:

(a)

domestic and personal services produced and consumed within the same household;

(b)

changes in leisure time;

(c)

amenities and disadvantages of urban life;

(d)

inequalities in the distribution of income over persons.

1.47

 The extended accounts can also reclassify the final expenditure on regrettable necessities (e.g. defence) as intermediate consumption, i.e. as not contributing to welfare. Similarly, the damage due to floods and other natural disasters may be classified as intermediate consumption, i.e. as a reduction in (absolute) welfare. In this way, one could try to construct a very rough and very imperfect indicator of changes in welfare. However, welfare has many dimensions, most of which are not best expressed in monetary terms. A better solution for measuring welfare is therefore to use, for each dimension, separate indicators and units of measurement. The indicators could be, for example, infant mortality, life expectancy, adult literacy and national income per capita. These indicators could be incorporated into a satellite account.

1.48

 In order to attain a consistent, internationally compatible framework, administrative concepts are not employed in the ESA. However, for all kinds of national purposes, obtaining figures based on administrative concepts can be very useful. For example, for estimating tax revenues, statistics of taxable income are required. Such statistics can be provided by making some modifications to the national accounts statistics.

1.49

 A similar approach could be taken for concepts used in national economic policy, e.g. for:

(a)

the concept of inflation used for increasing pensions, unemployment benefits or compensation of employees for civil servants;

(b)

the concepts of taxes, social contributions, government and the collective sector used in discussing the optimal size of the collective sector;

(c)

the concept of ‧strategic‧ sectors/industries used in national economic policy or the economic policy of the EU;

(d)

the concept of ‧business investments‧ used in national economic policy;

(e)

a table showing a complete recording of pensions.

Satellite accounts or supplementary tables can meet such data needs.

The ESA 2010 and the 2008 SNA

1.50

 The ESA 2010 is based on the concepts of the 2008 SNA, which provides guidelines on national accounting for all countries throughout the world. Nevertheless, there are several differences between the ESA 2010 and the 2008 SNA:

(a)

Differences in presentation:

(1)

In the ESA 2010 there are separate chapters on transactions in products, distributive transactions and financial transactions. In contrast, in the 2008 SNA these transactions are explained in chapters arranged by account, e.g. chapters on the production account, the primary distribution of income account, the capital account and the rest of the world account.

(2)

The ESA 2010 describes a concept by providing a definition and a listing of what is included and what is excluded. The 2008 SNA describes concepts usually in more general terms and explains the rationale behind the conventions adopted.

(b)

The ESA 2010 concepts are in several instances more specific and precise than those of the 2008 SNA:

(1)

The 2008 SNA does not contain specific criteria on the distinction between market, for own final use and non-market categorisation of output. The ESA has therefore introduced more detailed guidance to ensure a uniform approach.

(2)

The ESA 2010 assumes that several types of household production of goods, such as the weaving of cloth and the making of furniture, are not significant in Member States and therefore need not be recorded.

(3)

The ESA 2010 makes reference to institutional arrangements in the EU, such as the Intrastat system for recording intra-EU flows of goods and the contributions by the Member States to the EU.

(4)

The ESA 2010 contains EU-specific classifications, e.g. Classification of products by activity (CPA) (3) for products and NACE Rev. 2 for industries (both are harmonised with the corresponding UN classifications).

(5)

The ESA 2010 contains an additional classification for all external transactions: they are divided into those between residents of the EU and those with residents from outside the EU.

(6)

The ESA 2010 contains a rearrangement of the 2008 SNA subsectors for the financial corporations sector, to meet the needs of the European Monetary Union. The ESA 2010 can be more specific than the 2008 SNA, because the ESA 2010 primarily applies to the Member States. For the data needs in the Union, the ESA should also be more specific.

The ESA 2010 and the ESA 95

1.51

 The ESA 2010 differs in scope as well as in concepts from the ESA 95. Most of the differences correspond to differences between the 1993 SNA and the 2008 SNA. The major differences are:

(a)

the recognition of research and development as capital formation leading to assets of intellectual property. This change shall be recorded in a satellite account, and included in the core accounts when sufficient robustness and harmonisation of measures is observable amongst Member States;

(b)

expenditures on weapon systems that meet the general definition of assets have been classified as fixed capital formation, rather than intermediate expenditure;

(c)

the analytical concept of capital services has been introduced for market production, so that a supplementary table may be produced showing them as a component of value added;

(d)

the financial assets boundary has been expanded to include a wider coverage of financial derivative contracts;

(e)

new rules for recording pension entitlements. A supplementary table has been introduced into the accounts, to allow estimates to be recorded for all entitlements in social insurance, whether funded or unfunded. The full range of information required for a comprehensive analysis is provided in this table that shows the entitlements and associated flows for all private and public pension schemes, whether funded or unfunded, and including social security pension schemes;

(f)

the application of the rules on change of ownership of goods has been made universal, resulting in changes to the recording of merchanting, and goods sent for processing, both abroad and in the domestic economy. This results in goods sent for processing abroad being recorded on a net basis, as opposed to a gross basis in the 1993 SNA and the ESA 95. This change has significant implications for the recording of such activities in the supply and use framework;

(g)

more guidance is given on financial corporations in general, and special purpose entities (SPEs) in particular. The treatment of government controlled SPEs abroad has been changed to ensure that liabilities incurred by the SPEs are shown in the government accounts;

(h)

the treatment of super dividends paid by public corporations has been clarified, i.e. they are to be treated as exceptional payments and withdrawals from equity;

(i)

the principles for the treatment of public-private partnerships have been set out, and the treatment of restructuring agencies expanded;

(j)

transactions between government and public corporations, and with securitisation vehicles, have been clarified to improve the recording of items that could significantly affect government debt;

(k)

the treatment of loan guarantees has been clarified, and a new treatment introduced for standardised loan guarantees, such as export credit guarantees and student loans guarantees. The new treatment is that, to the extent of the likely call on the guarantees, a financial asset and liability are to be recognised in the accounts.

1.52

 The changes in the ESA 2010 in comparison with the ESA 95 are not restricted to conceptual changes. There are major differences in scope, with new chapters on satellite accounts, government accounts and the rest of the world accounts. There are also significant extensions to the chapters on quarterly accounts and regional accounts.

BASIC PRINCIPLES OF THE ESA 2010 AS A SYSTEM

1.53

 The main characteristics of the system are:

(a)

statistical units and their groupings;

(b)

flows and stocks;

(c)

the system of accounts and the aggregates;

(d)

the input-output framework.

Statistical units and their groupings

1.54

 The ESA 2010 system uses two types of unit and two corresponding ways of subdividing the economy, which are quite different and serve separate analytical purposes.

1.55

 The first purpose of describing income, expenditure and financial flows, and balance sheets, is met by grouping institutional units into sectors on the basis of their principal functions, behaviour and objectives.

1.56

 The second purpose of describing processes of production and for input-output analysis is met by the system grouping local kind-of-activity units (local KAUs) into industries on the basis of their type of activity. An activity is characterised by an input of products, a production process and an output of products.

Institutional units and sectors

1.57

 Institutional units are economic entities that are capable of owning goods and assets, of incurring liabilities and of engaging in economic activities and transactions with other units in their own right. For the purposes of the ESA 2010 system, the institutional units are grouped together into five mutually exclusive domestic institutional sectors:

(a)

non-financial corporations;

(b)

financial corporations;

(c)

general government;

(d)

households;

(e)

non-profit institutions serving households.

The five sectors together make up the total domestic economy. Each sector is also divided into subsectors. The ESA 2010 system enables a complete set of flow accounts and balance sheets to be compiled for each sector, and subsector, as well as for the total economy. Non-resident units can interact with these five domestic sectors, and the interactions are shown between the five domestic sectors and a sixth institutional sector: the rest of the world sector.

Local KAUs and industries

1.58

 When institutional units carry out more than one activity, they shall be partitioned with regard to the type of activity. Local KAUs enable this presentation to be made.

A local KAU groups all the parts of an institutional unit in its capacity as producer which are located in a single site or in closely located sites, and which contribute to the performance of an activity at the class level (four digits) of the NACE Rev. 2.

1.59

 Local KAUs are registered for each secondary activity; however, if the accounting documents necessary to separately describe such activities are not available, a local KAU will combine several secondary activities. The group of all local KAUs engaged on the same, or similar, kind-of-activity constitutes an industry.

An institutional unit comprises one or more local KAUs; a local KAU belongs to one and only one institutional unit.

1.60

 For analysis of the production process, use is made of an analytical unit of production. This unit is only observable when a local KAU produces one type of product, with no secondary activities. This unit is known as a unit of homogeneous production. Groupings of such units constitute homogeneous branches.

Resident and non-resident units; total economy and rest of the world

1.61

 The total economy is defined in terms of resident units. A unit is a resident unit of a country when it has a centre of predominant economic interest on the economic territory of that country — that is, when it engages for an extended period (one year or more) in economic activities on this territory. The institutional sectors referred to in paragraph 1.57 are groups of resident institutional units.

1.62

 Resident units engage in transactions with non-resident units (that is, units which are resident in other economies). These transactions are the external transactions of the economy and are grouped in the rest of the world account. So the rest of the world plays a role similar to that of an institutional sector, although non-resident units are included only in so far as they are engaged in transactions with resident institutional units.

1.63

 Notional resident units, treated in the ESA 2010 system as institutional units, are defined as:

(a)

those parts of non-resident units which have a centre of predominant economic interest (usually which engage in economic transactions for a year or more) on the economic territory of the country;

(b)

non-resident units in their capacity as owners of land or buildings on the economic territory of the country, but only in respect of transactions affecting such land or buildings.

Flows and stocks

1.64

 Two basic kinds of information are recorded: flows and stocks.

Flows refer to actions and effects of events that take place within a given period of time, while stocks refer to positions at a point of time.

Flows

1.65

 Flows reflect the creation, transformation, exchange, transfer or extinction of economic value. They involve changes in the value of an institutional unit's assets or liabilities. Economic flows are of two kinds: transactions, and other changes in assets.

Transactions appear in all accounts and tables where flows appear, except the other changes in volume of assets account and the revaluation account. Other changes in assets are recorded only in those two accounts.

Elementary transactions and other flows are grouped into a relatively small number of types according to their nature.

Transactions

1.66

 A transaction is an economic flow that is an interaction between institutional units by mutual agreement or an action within an institutional unit that it is useful to treat as a transaction, because the unit is operating in two different capacities. Transactions are split into four main groups:

(a)

transactions in products: which describe the origin (domestic output or imports) and use (intermediate consumption, final consumption, capital formation — covering consumption of fixed capital — or exports) of products;

(b)

distributive transactions: which describe how value added generated by production is distributed to labour, capital and government, and the redistribution of income and wealth (taxes on income and wealth and other transfers);

(c)

financial transactions: which describe the net acquisition of financial assets or the net incurrence of liabilities for each type of financial instrument. Such transactions occur both as counterparts of non-financial transactions, and as transactions involving only financial instruments;

(d)

transactions not included in the three groups above: acquisitions less disposals of non-produced non-financial assets.

Properties of transactions

Interactions versus intra-unit transactions

1.67

 Most transactions are interactions between two or more institutional units. However, the ESA 2010 system records some actions within institutional units as transactions. The purpose of recording these intra-unit transactions is to give a more analytically useful picture of output, final uses and costs.

1.68

 Consumption of fixed capital, which is recorded as a cost by the ESA 2010 system, is an intra-unit transaction. Most of the other intra-unit transactions are transactions in products, typically recorded when institutional units operating as both producers and final consumers, choose to consume some of the output they have produced. This is often the case for households and general government.

1.69

 All own-produced output used for final uses within the same institutional unit shall be recorded. Own-produced output used for intermediate consumption within the same institutional unit shall be recorded only when production and intermediate consumption take place in different local KAUs within the same institutional unit. Output produced and used as intermediate consumption within the same local KAU shall not be recorded.

Monetary versus non-monetary transactions

1.70

 Transactions are monetary transactions when the units involved make or receive payments, or incur liabilities or receive assets denominated in units of currency.

Transactions that do not involve the exchange of cash, or assets or liabilities denominated in units of currency, are non-monetary transactions. Intra-unit transactions are non-monetary transactions. Non-monetary transactions involving more than one institutional unit occur among transactions in products (barter of products), distributive transactions (remuneration in kind, transfers in kind, etc.) and other transactions (barter of non-produced non-financial assets). The ESA 2010 system records all transactions in monetary terms. The values to be recorded for non-monetary transactions must therefore be measured indirectly or otherwise estimated.

Transactions with and without counterparts

1.71

 Transactions involving more than one unit are of two kinds. They can be ‧something for something‧, i.e. requited transactions, or they can be ‧something for nothing‧, i.e. unrequited transactions. Requited transactions are exchanges between institutional units, i.e. provision of goods, services or assets in return for a counterpart, e.g. money. Unrequited transactions are payments in cash or in kind from one institutional unit to another without counterpart. Requited transactions occur in all four transaction groups, while unrequited transactions are mainly distributive transactions, for example, taxes, social assistance benefits or gifts. Such unrequited transactions are called transfers.

Rearranged transactions

1.72

 The transactions are recorded in the same way as they appear to the institutional units involved. However, some transactions are rearranged in order to bring out the underlying economic relationships more clearly. Transactions can be rearranged in three ways: rerouting, partitioning and recognising the principal party to a transaction.

Rerouting

1.73

 A transaction that appears to the units involved as taking place directly between units A and C may be recorded in the accounts as taking place indirectly through a third unit B. Thus, the single transaction between A and C is recorded as two transactions: one between A and B, and one between B and C. In this case the transaction is rerouted.

1.74

 An example of rerouting is the way in which employers' social contributions paid directly by employers to social insurance funds are recorded in the accounts. The system records these payments as two transactions: employers pay employers' social contributions to their employees, and employees pay the same contributions to social insurance funds. As with all rerouting, the purpose is to bring out the economic substance behind the transaction, which in this case is to show employers' social contributions as contributions paid for the benefit of employees.

1.75

 Another type of rerouting is that of transactions recorded as taking place between two or more institutional units, even though, according to the parties involved, no transaction takes place at all. An example is the treatment of property income earned on certain insurance funds, which is retained by insurance enterprises. The system records this property income as being paid by insurance enterprises to policyholders, who then pay the same amount back to the insurance enterprises as premium supplements.

Partitioning

1.76

 When a transaction appearing to the parties involved as a single transaction is recorded as two or more differently classified transactions, the transaction is partitioned. Partitioning does not imply including additional units in the transactions.

1.77

 The payment of non-life insurance premiums is a typical partitioned transaction. Although policyholders and insurers regard these payments as one transaction, the ESA 2010 system divides them into two quite different transactions: payments in return for non-life insurance services provided, and net non-life insurance premiums. Recording the sale of a product as the sale of the product and the sale of a trade margin is another example of partitioning.

Recognising the principal party to a transaction

1.78

 When a unit carries out a transaction on behalf of another unit (the principal) and is funded by that unit, the transaction is recorded exclusively in the accounts of the principal. As a rule, one should not go beyond this principle by trying, for instance, to allocate taxes or subsidies to ultimate payers or ultimate beneficiaries under the adoption of assumptions.

An example is the collection of taxes by one government unit on behalf of another. A tax is attributed to the government unit that exercises the authority to impose the tax (either as a principal or through the delegated authority of the principal) and has final discretion to set and vary the rate of the tax.

Borderline cases

1.79

 The definition of a transaction implies that an interaction between institutional units be by mutual agreement. When a transaction is undertaken by mutual agreement, the prior knowledge and consent of the institutional units is implied. The payments of taxes, fines and penalties are by mutual agreement, in that the payer is a citizen subject to the law of the land. However, uncompensated seizure of assets is not regarded as a transaction, even when imposed by law.

Illegal economic actions shall be considered as transactions when all units involved enter the actions by mutual agreement. Thus, purchases, sales or barters of illegal drugs or stolen property are transactions, while theft is not.

Other changes in assets

1.80

 Other changes in assets record changes that are not the result of transactions. They are either:

(a)

other changes in the volume of assets and liabilities; or

(b)

holding gains and losses.

Other changes in the volume of assets and liabilities

1.81

 Other changes in the volume of assets and liabilities records changes divided into three main categories:

(a)

normal appearance and disappearance of assets other than by transactions;

(b)

changes in assets and liabilities due to exceptional, unanticipated events which are not economic in nature;

(c)

changes in classification and structure.

1.82

 Examples of changes within the category referred to in point (a) of paragraph 1.81 are discovery or depletion of subsoil assets, and natural growth of non-cultivated biological resources. Examples of changes within the category referred to in point (b) of paragraph 1.81 are losses in assets due to natural disasters, war or severe acts of crime. Unilateral cancellation of debt and uncompensated seizure of assets also belong to category (b). An example of a change within the category referred to in point (c) of paragraph 1.81 is the reclassification of an institutional unit from one sector to another.

Holding gains and losses

1.83

 Holding gains and losses occur when there are changes in the prices of assets. They occur on all kinds of financial and non-financial assets, and on liabilities. Holding gains and losses accrue to the owners of assets and liabilities purely as a result of holding the assets or liabilities over time, without transforming them in any way.

1.84

 Holding gains and losses measured on the basis of current market prices are called nominal holding gains and losses. These may be decomposed into neutral holding gains and losses, reflecting changes in the general price level, and real holding gains and losses, reflecting changes in the prices of assets beyond that of the general price change.

Stocks

1.85

 Stocks are the holdings of assets and liabilities at a point in time. Stocks are recorded at the beginning and end of each accounting period. The accounts that show stocks are called balance sheets.

1.86

 Stocks are also recorded for population and employment. However, such stocks are recorded as mean values over the accounting period. Stocks are recorded for all assets within the system's boundaries; that is, for financial assets and liabilities and for non-financial assets, both produced and non-produced. However, the coverage is limited to those assets that are used in economic activity and that are subject to ownership rights.

1.87

 Thus, stocks are not recorded for assets such as human capital and natural resources that are not owned.

Within its boundaries, the ESA 2010 system is exhaustive in respect of both flows and stocks. This implies that all changes in stocks can be fully explained by recorded flows.

The system of accounts and the aggregates

Rules of accounting

1.88

 An account records changes in value accruing to a unit or sector according to the nature of the economic flows shown in the account. It is a table with two columns. The current accounts are those which show production, generation and allocation of income, distribution and redistribution of income, and its use. The accumulation accounts are the capital and financial accounts, and the other changes in volume accounts.

Terminology for the two sides of the accounts

1.89

 The ESA 2010 system shows ‧resources‧ on the right side of the current accounts where transactions appear which add to the economic value of a unit or a sector. The left side of the accounts shows ‧uses‧ — transactions that reduce the economic value. The right side of the accumulation accounts show ‧changes in liabilities and net worth‧ and the left side shows ‧changes in assets‧. Balance sheets are presented with ‧liabilities and net worth‧ (the difference between assets and liabilities) on the right side and ‧assets‧ on the left. Comparison of two successive balance sheets shows changes in liabilities and net worth and changes in assets.

1.90

 A distinction is made in the ESA between legal ownership and economic ownership. The criterion for recording the transfer of goods from one unit to another is that the economic ownership passes from one to the other. The legal owner is the unit entitled in law to the benefits of possession. However, a legal owner can contract with another unit for the latter to accept the risks and rewards of using the goods in production, in return for an agreed payment. The nature of the agreement is a financial lease, where the payments reflect only the placing of the asset at the disposal of the borrower by the provider. For example, when a bank legally owns a plane, but enters into a financial lease arrangement with an airline to operate the plane, then the airline is held to be the owner of the plane as far as transactions in the accounts are concerned. At the same time as the airline is shown as purchasing the plane, a loan is imputed from the bank to the airline reflecting the amounts due in the future for use of the plane.

Double entry/quadruple entry

1.91

 For a unit or sector, national accounting is based on the principle of double entry. Each transaction shall be recorded twice, once as a resource (or a change in liabilities) and once as a use (or a change in assets). The total of transactions recorded as resources or changes in liabilities and the total of transactions recorded as uses or changes in assets must be equal, thus permitting a check on the consistency of the accounts.

1.92

 National accounts — with all units and all sectors — shall be based on a principle of quadruple entry, since most transactions involve two institutional units. Each transaction shall be recorded twice by the two transactors involved. For example, a social benefit in cash paid by a government unit to a household is recorded in the accounts of government as a use under transfers and a negative acquisition of assets under currency and deposits; in the accounts of the households sector it is recorded as a resource under transfers and an acquisition of assets under currency and deposits.

1.93

 Transactions within a single unit (such as the consumption of output by the same unit that produced it) shall require only two entries, whose values have to be estimated.

Valuation

1.94

 With the exception of some variables concerning population and labour, the ESA 2010 system shows all flows and stocks in monetary terms. Flows and stocks shall be measured according to their exchange value, i.e. the value at which flows and stocks are in fact, or could be, exchanged for cash. Market prices are, thus, the ESA's reference for valuation.

1.95

 In the case of monetary transactions and cash holdings and liabilities, the values required are directly available. In most other cases, the best method of valuation is by reference to market prices for analogous goods, services or assets. This method is used for e.g. barter and the services of owner-occupied dwellings. When no market prices for analogous products are available, for instance in the case of non-market services produced by government, valuation is made by summing production costs. If there is no market price to refer to, and costs are not available, then flows and stocks may be valued at the discounted present value of expected future returns. This last method is only to be used as a last resort.

1.96

 Stocks are valued at current prices at the time to which the balance sheet relates, not at the time of production or acquisition of the goods or assets that form the stocks. It is necessary to value stocks at their estimated written-down current acquisition values or production costs.

Special valuations concerning products

1.97

 As a result of transport costs, trade margins and taxes less subsidies on products, the producer and the user of a given product usually perceive its value differently. In order to keep as close as possible to the views of the transactors, the ESA 2010 system records all uses at purchaser's prices, which include transport costs, trade margins and taxes less subsidies on products, while output is recorded at basic prices, which exclude those elements.

1.98

 Imports and exports of products shall be recorded at border values. Total imports and exports are valued at the exporter's customs frontier, or free on board (FOB). Foreign transport and insurance services between the importer's and the exporter's frontiers are not included in the value of goods but are recorded under services. As it may not be possible to obtain FOB values for detailed product breakdowns, the tables containing details on foreign trade show imports valued at the importer's customs frontier (CIF value). All transport and insurance services to the importer's frontier are included in the value of imported goods. As far as these services concern domestic services, a global FOB/CIF adjustment is made in this presentation.

Valuation at constant prices

1.99

 Valuation at constant prices means valuing the flows and stocks in an accounting period at the prices of a previous period. The purpose of valuation at constant prices is to decompose changes over time in the values of flows and stocks into changes in price and changes in volume. Flows and stocks at constant prices are described as being in volume terms.

1.100

 Many flows and stocks, e.g. income, do not have price and quantity dimensions of their own. However, the purchasing power of such variables can be obtained by deflating the current values with a suitable price index, e.g. the price index for final national uses, excluding changes in inventories. Deflated flows and stocks are also described as being in real terms. An example is real disposable income.

Time of recording

1.101

 Flows shall be recorded on an accrual basis; that is, when economic value is created, transformed or extinguished, or when claims and obligations arise, are transformed or are cancelled.

1.102

 Output is recorded when produced and not when paid for by a purchaser. The sale of an asset is recorded when the asset changes hands, not when the corresponding payment is made. Interest is recorded in the accounting period when it accrues, regardless of whether or not it is paid in that period. Recording on an accrual basis applies to all flows, monetary as well as non-monetary and intra-unit as well as flows between units.

1.103

 It may be necessary to relax this approach for taxes and other flows concerning general government, which are often recorded on a cash basis in government accounts. It may be difficult to carry out an exact transformation of such flows from cash basis to accrual basis, and so an approximate method may be used.

1.104

 As an exception to the general rules governing the recording of taxes and social contributions payable to the general government, they can either be recorded net of the part unlikely to be collected or, if this part is included, it is neutralised in the same accounting period by a capital transfer from the general government to the relevant sectors.

1.105

 Flows shall be recorded at the same point of time for all institutional units involved and in all accounts. Institutional units do not always apply the same accounting rules. Even when they do, differences in actual recording may occur for practical reasons such as delays in communication. Consequently, transactions may be recorded at different times by the transactors involved. Such discrepancies shall be eliminated by adjustments.

Consolidation and netting

Consolidation

1.106

 Consolidation refers to the elimination, from both uses and resources, of transactions that occur between units when units are grouped, and to the elimination of reciprocal financial assets and liabilities. This occurs commonly when the accounts of subsectors of general government are combined.

1.107

 As a matter of principle, flows and stocks between constituent units within subsectors or sectors must not be consolidated.

1.108

 However, consolidated accounts may be built up for complementary presentations and analyses. Information on the transactions of such (sub)sectors with other sectors and the corresponding ‧external‧ financial position may be more significant than overall gross figures.

1.109

 Moreover, the accounts and tables showing the creditor/debtor relationship provide a detailed picture of financing of the economy and are considered very useful for understanding the channels through which the financing surpluses move from final lenders to final borrowers.

Netting

1.110

 Individual units or sectors may have the same kind of transaction both as a use and as a resource (e.g. they both pay and receive interest) and the same kind of financial instrument both as an asset and as a liability. The approach in the ESA is gross recording, apart from the degree of netting which is inherent in the classifications themselves.

1.111

 Netting is implicit in various transaction categories, the most outstanding example being ‧changes in inventories‧, which underlines the analytically significant aspect of overall capital formation rather than tracking daily additions and withdrawals. Similarly, with few exceptions, the financial account and other changes in assets accounts record increases in assets and in liabilities on a net basis, bringing out the final consequences of those types of flows at the end of the accounting period.

Accounts, balancing items and aggregates

1.112

 For units or groups of units, different accounts record transactions which are connected to an aspect of economic life (for instance, production). For the production account, the transactions will not show a balance between uses and resources without the introduction of a balancing item. Similarly, a balancing item (net worth) must be introduced between the total of assets and the total of liabilities of an institutional unit or sector. Balancing items are meaningful measures of economic performance in themselves. When summed for the whole economy, they are significant aggregates.

The sequence of accounts

1.113

 The ESA 2010 system is built around a sequence of interconnected accounts. The full sequence of accounts for the institutional units and sectors is composed of current accounts, accumulation accounts and balance sheets.

1.114

 Current accounts deal with the production, generation, distribution and redistribution of income and the use of such income in the form of final consumption. Accumulation accounts cover changes in assets and liabilities and changes in net worth (the difference for any institutional unit or group of units between its assets and liabilities). Balance sheets present stocks of assets and liabilities and net worth.

1.115

 The sequence of accounts for local KAUs and industries is shortened to the first current accounts: production account and generation of income account, the balancing item of which is the operating surplus.

The goods and services account

1.116

 The goods and services account shows, for the economy as a whole or for groups of products, the total resources (output and imports) and uses of goods and services (intermediate consumption, final consumption, changes in inventories, gross fixed capital formation, acquisitions less disposals of valuables, and exports). This account is not an account in the same sense as the others in the sequence, and does not generate a balancing item which is passed on to the next account in the sequence. It is rather the presentation in table form of an accounting identity, according to which supply is equal to demand for all products and groups of products in the economy.

The rest of the world account

1.117

 The rest of the world account covers transactions between resident and non-resident institutional units and the related stocks of assets and liabilities.

As the rest of the world plays a role in the accounting structure similar to that of an institutional sector, the rest of the world account is established from the point of view of the rest of the world. A resource for the rest of the world is a use for the total economy and vice versa. If a balancing item is positive, it means a surplus of the rest of the world and a deficit of the total economy, and vice versa if the balancing item is negative.

The rest of the world account is unlike the other sector accounts in that it does not show all the accounting transactions in the rest of the world, but only those which have a counterparty in the domestic economy being measured.

Balancing items

1.118

 A balancing item is obtained by subtracting the total value of the entries on one side of an account from the total value on the other side.

Balancing items embody a great deal of information and include some of the most important entries in the accounts, as can be seen from the following examples of balancing items: value added, operating surplus, disposable income, saving, net lending/net borrowing.

The following diagram shows the sequence of accounts in flow form — each balancing item is shown in bold.

A diagram of the sequence of accounts

Image 1

Production account

Value added

Generation of income account

Operating surplus/mixed income

Allocation of primary income account

Balance of primary incomes

Secondary distribution of income account

Disposable income

Redistribution of income in kind account

Adjusted disposable income

The use of disposable income account

Saving

The use of adjusted disposable income account

Saving

Opening balance sheet Net worth

Capital account

Net lending (+)/borrowing (–)

Financial account

Net lending (+)/borrowing (–)

Other changes in volume account Changes in volume of assets

Revaluation account Nominal holding gains and losses

Closing balance sheet Net worth

1.119

 The first account in the sequence is the production account, which records the output and inputs of the production process, leaving value added as the balancing item.

1.120

 The value added is taken forward to the next account which is the generation of income account. Here the compensation of employees in the production process is recorded, as well as taxes due to government because of the production, so that the operating surplus (or mixed income from the self-employed of the households sector) can be derived as the balancing item for each sector. This step is necessary so that the amount of value added retained in the producing sector as operating surplus or mixed income can be measured.

1.121

 Then the value added, broken down between compensation of employees, taxes and operating surplus/mixed income, is taken forward with this breakdown to the allocation of primary income account. The breakdown allows the allocation of each factor income to the receiving sector, as opposed to the producing sector. For example, all compensation of employees is allocated between the households sector and the rest of the world sector, whereas operating surplus remains in the corporations sector where it was generated. Also recorded in this account are the property income flows into the sector, and those out of the sector, so that the balancing item is the balance of primary incomes flowing into the sector.

1.122

 The next account records redistribution of these incomes through transfers — the secondary distribution of income account. The major instruments of redistribution are government taxes on, and social benefits for, the households sector. The balancing item is disposable income.

1.123

 The main sequence of core accounts carries on to the use of disposable income account; an account relevant to the households sector, as it is here that household final expenditure is recorded, leaving household saving as the balancing item.

1.124

 At the same time a parallel account is created, the redistribution of income in kind account. This account has the specific purpose of showing social transfers in kind as an imputed transfer from government to the households sector, so that household income can rise by the value of individual government services. In the next account (use of adjusted disposable income account), the household use of disposable income is increased by the same amount, as if the households sector were buying the individual services provided by government. Those two imputations cancel out, so that the balancing item is saving, identical to saving in the main sequence of accounts.

1.125

 Saving is taken on to the capital account where it is used to fund capital formation, allowing for capital transfers in and out of the sectors. Underspend or overspend on the acquisition of real assets results in the balancing item net lending or borrowing. Net lending is a surplus loaned out, and net borrowing is the financing of a deficit.

1.126

 Finally, the financial accounts are met, where the detailed lending and borrowing of each sector is laid out so that a balancing item of net lending or borrowing is observed. This should exactly match the net lending/borrowing balancing item of the capital account, and any difference must be a measurement discrepancy between the real and financial recordings of economic activity.

1.127

 Considering the bottom row of the diagram, the left-hand account is the opening balance sheet, showing the level of all assets and liabilities, both real and financial, at the start of a specified period. The wealth of an economy is measured by its net worth (assets less liabilities) and this is shown at the bottom of the balance sheet.

1.128

 Moving from left to right from the opening balances, the various changes to assets and liabilities that occur in the period of account are recorded. The capital account and financial account show the changes due to transactions in real assets and financial assets and liabilities respectively. In the absence of other effects, this would enable the immediate calculation of the closing position, by adding the changes to the opening position.

1.129

 However, changes can occur outside the economic cycle of production and consumption, and such changes will affect the values of assets and liabilities at the closing period. One type of change is a change in volume of assets — real changes to fixed capital brought about by events which are not part of the economy. An example would be a catastrophic loss — a large earthquake, when a significant amount of assets were destroyed not through an economic transaction of exchange or transfer. This loss must be recorded in the other changes in volume account, to account for the lower level of assets than expected purely by looking at economic events. A second way in which assets (and liabilities) can change in value, other than as the result of an economic transaction, is through a change in price resulting in holding gains and losses in the stock of assets held. This change is recorded in the revaluation accounts. Allowing for these two extra effects on the values of the stock of assets and liabilities enables the closing balance sheet values to be estimated as the opening position adjusted for the changes in the flow accounts of the bottom row of the figure.

Aggregates

1.130

 The aggregates are composite values which measure the result of the activity of the total economy; for example, output, value added, disposable income, final consumption, saving, capital formation, etc. Although the calculation of the aggregates is not the sole purpose of the ESA, they are important as summary indicators for purposes of macroeconomic analysis and comparisons over time and space.

1.131

 Two types of aggregates are distinguished:

(a)

aggregates which refer directly to transactions in the ESA 2010 system, such as the output of goods and services, final consumption, gross fixed capital formation, compensation of employees, etc.;

(b)

aggregates which represent balancing items in the accounts, such as GDP at market prices, operating surplus of the total economy, GNI, national disposable income, saving, current external balance, and net worth of the total economy (national wealth).

1.132

 There are important uses for national accounts measures per head of population. For broad aggregates such as GDP or national income or household final consumption, the denominator commonly used is the total (resident) population. When subsectoring the accounts or part of the accounts of the households sector, data on the number of households and the number of persons belonging to each subsector are used.

GDP: a key aggregate

1.133

 GDP is one of the key aggregates in the ESA. GDP is a measure of the total economic activity taking place on an economic territory which leads to output meeting the final demands of the economy. There are three ways of measuring GDP at market prices:

(1)

the production approach, as the sum of the values added by all activities which produce goods and services, plus taxes less subsidies on products;

(2)

the expenditure approach, as the total of all final expenditures made in either consuming the final output of the economy, or in adding to wealth, plus exports less imports of goods and services;

(3)

the income approach, as the total of all incomes earned in the process of producing goods and services plus taxes on production and imports less subsidies.

1.134

 These three approaches to measuring GDP also reflect the different ways in which GDP can be considered in terms of components. Value added can be broken down by institutional sector, and by the type of activity or industry which is contributing to the total, e.g. agriculture, manufacturing, construction, services, etc.

Final expenditures can be broken down by type: household expenditure, NPISH final expenditure, government final expenditure, change in inventories, fixed capital formation and exports, less the cost of imports.

Total incomes earned can be broken down by type of income — compensation of employment, and operating surplus.

1.135

 In order to achieve the best estimate of GDP, it is good practice to feed the elements of these three approaches into a supply and use framework. This enables value added and income estimates by industry to be reconciled, and supply and demand for products to be balanced. This integrated approach ensures consistency between the components of GDP, and a better estimate of the level of GDP than from only one of the three approaches. By deducting consumption of fixed capital from GDP, net domestic product at market prices (NDP) is obtained.

The input-output framework

1.136

 The input-output (I-O) framework brings together components of Gross Value Added (GVA), industry inputs and outputs, product supply and demand, and the composition of uses and resources across institutional sectors for the economy. This framework breaks the economy down to display transactions of all goods and services between industries and final consumers for a single period (for example, a quarter or a year). Information may be presented in two ways:

(a)

supply and use tables;

(b)

symmetric input-output tables.

Supply and use tables

1.137

 Supply and use tables show the whole economy by industry (e.g. motor vehicles industry) and products (e.g. sports goods). The tables show links between components of GVA, industry inputs and outputs, and product supply and demand. Supply and use tables link different institutional sectors of the economy (e.g. public corporations) together with detail of imports and exports of goods and services, government expenditure, household and NPISHs expenditure and capital formation.

1.138

 Producing supply and use tables allows an examination of consistency and coherence of national accounts components within a single detailed framework and, by incorporating the components of the three approaches to measuring GDP (i.e. production, income and expenditure), enables a single estimate of GDP to be determined.

1.139

 When balanced in an integrated manner, supply and use tables also provide coherence and consistency in linking the components of the following three accounts:

(1)

goods and services account;

(2)

production account (by industry and by institutional sector); and

(3)

generation of income account (by industry and by institutional sector).

Symmetric input-output tables

1.140

 Symmetric input-output tables are derived from the data in supply and use tables and other additional sources to form the theoretical basis for subsequent analyses.

1.141

 These tables contain symmetric (product by product or industry by industry) tables, the Leontief Inverse and other diagnostic analyses such as output multipliers. These tables show separately the consumption of domestically produced and imported goods and services, providing a theoretical framework for further structural analysis of the economy, including the composition as well as the effect of changes in final demand on the economy.

(1)  Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (OJ L 310, 30.11.1996, p. 1).

(2)  Regulation (EC) No 1893/2006 of the European Parliament and of the Council of 20 December 2006 establishing the statistical classification of economic activities NACE Revision 2 (OJ L 393, 30.12.2006, p. 1).

(3)  Regulation (EC) No 451/2008 of the European Parliament and of the Council of 23 April 2008 establishing a new statistical classification of products by activity (CPA) (OJ L 145, 4.6.2008, p. 65).

 

CHAPTER 2

UNITS AND GROUPINGS OF UNITS

2.01

 The economy of a country is a system whereby institutions and people interact through exchanges and transfers of goods, services and means of payment (e.g. money) for the production and consumption of goods and services.

In the economy, the units interacting are economic entities that are capable of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities. They are known as institutional units.

Defining the units used in national accounts serves various purposes. First, units are the essential building blocks in defining economies in geographical terms, e.g. nations, regions, and nation groupings such as monetary or political unions. Second, they are the essential building blocks for grouping units into institutional sectors. Third, they are essential for defining which flows and stocks are recorded. Transactions between various parts of the same institutional unit are, in principle, not recorded in the national accounts.

2.02

 The units and groupings of units used in national accounts shall be defined with reference to the kind of economic analysis for which they are intended, and not in terms of the types of unit usually employed in statistical inquiries. The latter units (e.g. enterprises, holding companies, kind-of-activity units, local units, government departments, non-profit institutions, households, etc.) may not be satisfactory for the purposes of national accounts, since they are based on criteria of a legal, administrative or accounting nature.

Statisticians shall take into account the definitions of units of analysis as laid down in the ESA 2010, in order to ensure that, in the surveys in which data are collected, all the elements of information needed to compile data based on the units of analysis used in the ESA 2010 are gradually introduced.

2.03

 A feature of the ESA 2010 system is the use of types of unit corresponding to three ways of subdividing the economy:

(1)

to analyse flows and positions, it is essential to select units which make it possible to study behavioural relationships among economic agents;

(2)

to analyse the process of production, it is essential to select units that bring out relationships of a technico-economic nature, or that reflect local activities;

(3)

to allow regional analyses, units that reflect local kinds of activity are needed.

Institutional units are defined to meet the first of these objectives. Behavioural relationships, as described in point (1), require units reflecting all of their institutional economic activity.

The production processes, technico-economic relationships and regional analyses referred to in points (2) and (3) require units such as local KAUs. These units are described later in this chapter.

Before giving definitions of the units used in the ESA 2010, it is necessary to define the limits of the national economy.

THE LIMITS OF THE NATIONAL ECONOMY

2.04

 The units which constitute the economy of a country and whose flows and stocks are recorded in the ESA 2010 are those which are resident. An institutional unit is resident in a country when it has its centre of predominant economic interest in the economic territory of that country. Such units are known as resident units, irrespective of nationality, legal form or presence on the economic territory at the time they carry out a transaction.

2.05

 Economic territory consists of the following:

(a)

the area (geographic territory) under the effective administration and economic control of a single government;

(b)

any free zones, including bonded warehouses and factories under customs control;

(c)

the national air-space, territorial waters and the continental shelf lying in international waters, over which the country enjoys exclusive rights;

(d)

territorial enclaves, these being geographic territories situated in the rest of the world and used, under international treaties or agreements between states, by general government agencies of the country (such as embassies, consulates, military bases, scientific bases, etc.);

(e)

deposits of oil, natural gas, etc. in international waters outside the continental shelf of the country, worked by units resident in the territory as defined in points (a) to (d).

Fishing boats, other ships, floating platforms and aircraft are treated in the ESA as mobile equipment, whether owned and/or operated by units resident in the country, or owned by non-residents and operated by resident units. Transactions involving the ownership (gross fixed capital formation) and use (renting, insurance, etc.) of mobile equipment are attributed to the economy of the country of which the owner and/or operator respectively are residents. In cases of financial leasing, a change of ownership is assumed.

Economic territory may be an area larger or smaller than that defined above. An example of a larger area is a currency union such as the European Monetary Union; an example of a smaller area is a part of a country such as a region.

2.06

 Economic territory excludes extraterritorial enclaves.

Also excluded are the parts of the country's own geographic territory used by the following organisations:

(a)

general government agencies of other countries;

(b)

institutions and bodies of the European Union; and

(c)

international organisations under international treaties between states.

The territories used by the institutions and bodies of the European Union and international organisations are separate economic territories. A feature of such territories is that the only residents are the institutions.

2.07

 Centre of predominant economic interest indicates that a location exists within the economic territory of a country where a unit engages in economic activities and transactions on a significant scale, either indefinitely or over a finite but long period of time (a year or more). The ownership of land and buildings within the economic territory is deemed to be sufficient for the owner to have a centre of predominant economic interest there.

Enterprises are almost always connected to only a single economy. Taxation and other legal requirements tend to result in the use of a separate legal entity for operations in each legal jurisdiction. In addition, a separate institutional unit is identified for statistical purposes where a single legal entity has substantial operations in two or more territories (e.g. for branches, land ownership, and multi-territory enterprises). As a result of splitting such legal entities, the residence of each of the subsequently identified enterprises is clear. Centre of predominant economic interest does not mean that entities with substantial operations in two or more territories should not be split.

In the absence of any physical dimension to an enterprise, its residence is determined according to the economic territory under whose laws the enterprise is incorporated or registered.

2.08

 Units deemed to be residents of a country can be subdivided into:

(a)

units that are engaged in production, finance, insurance or redistribution, in respect of all their transactions except those relating to ownership of land and buildings;

(b)

units which are principally engaged in consumption, in respect of all their transactions except those relating to ownership of land and buildings;

(c)

all units in their capacity as owners of land and buildings with the exception of owners of extraterritorial enclaves which are part of the economic territory of other countries or are independent states.

2.09

 For units other than households, in respect of all their transactions except those relating to ownership of land and buildings, the following two cases may be distinguished:

(a)

activity is conducted exclusively on the economic territory of the country: units which carry out such activity are resident units of the country;

(b)

activity is conducted for a year or more on the economic territories of several countries: only that part of the unit that has a centre of predominant economic interest in the economic territory of the country is deemed to be a resident unit of that country.

A resident institutional unit may be a notional resident unit, in respect of the activity conducted in the country for a year or more by a unit which is resident in another country. When the activity is carried on for less than a year, the activity remains part of the activities of the producer institutional unit and no separate institutional unit is recognised. When the activity is insignificant, even though lasting longer than a year, and for the installation of equipment abroad, no separate unit is recognised and the activities are recorded as that of the producing institutional unit.

2.10

 Households, except in their capacity as owners of land and buildings, are resident units of the economic territory where they have a centre of predominant economic interest. They are resident irrespective of periods spent abroad of less than one year. They shall include, in particular, the following:

(a)

border workers, defined as people who cross the frontier daily to work in a neighbouring country;

(b)

seasonal workers, defined as people who leave the country for several months according to season, but less than a year, to work in another country;

(c)

tourists, patients, students, visiting officials, businessmen, salesmen, artists and crew members who travel abroad;

(d)

locally recruited staff working in the extraterritorial enclaves of foreign governments;

(e)

the staff of the institutions of the European Union and of civilian or military international organisations which have their headquarters in extraterritorial enclaves;

(f)

the official, civilian or military representatives of the government of the country (including their households) established in territorial enclaves.

Students are always treated as residents, irrespective of the length of their studies abroad.

2.11

 All units, in their capacity as owners of land and/or buildings forming part of the economic territory, are resident units or notional resident units of the country in which that land or those buildings in question are located.

THE INSTITUTIONAL UNITS

2.12

 Definition: an institutional unit is an economic entity characterised by decision-making autonomy in the exercise of its principal function. A resident unit is regarded as constituting an institutional unit in the economic territory where it has its centre of predominant economic interest if it has decision-making autonomy and either keeps a complete set of accounts, or is able to compile a complete set of accounts.

To have autonomy of decision in respect of its principal function, an entity must be:

(a)

entitled to own goods and assets in its own right; it will be able to exchange the ownership of goods and assets in transactions with other institutional units;

(b)

able to take economic decisions and engage in economic activities for which it is responsible and accountable at law;

(c)

able to incur liabilities on its own behalf, to take on other obligations or further commitments and to enter into contracts; and

(d)

able to draw up a complete set of accounts, comprised of accounting records covering all its transactions carried out during the accounting period, as well as a balance sheet of assets and liabilities.

2.13

 The following principles apply whenever an entity does not possess the characteristics of an institutional unit:

(a)

households are deemed to enjoy autonomy of decision in respect of their principal function and are, therefore, institutional units nonetheless, even though they do not keep a complete set of accounts;

(b)

entities which do not keep a complete set of accounts, and are not able to compile a complete set of accounts if required to do so, are not institutional units;

(c)

entities which, while keeping a complete set of accounts, have no autonomy of decision, are part of the units which control them;

(d)

entities do not need to publish accounts to be an institutional unit;

(e)

entities forming part of a group of units engaged in production and keeping a complete set of accounts are deemed to be institutional units even if they have partially surrendered their autonomy of decision to the central body (the head office) responsible for the general direction of the group; the head office itself is deemed to be an institutional unit distinct from the units which it controls;

(f)

quasi-corporations are entities which keep a complete set of accounts and have no legal status. They have an economic and financial behaviour that is different from that of their owners and similar to that of corporations. They are deemed to have autonomy of decision and are considered as distinct institutional units.

Head offices and holding companies

2.14

 Head offices and holding companies are institutional units. The two types are:

(a)

A head office is a unit that exercises managerial control over its subsidiaries. Head offices are allocated to the dominant non-financial corporations sector of their subsidiaries, unless all or most of their subsidiaries are financial corporations, in which case they are treated as financial auxiliaries (S.126) in the financial corporations sector.

Where there is a mixture of non-financial and financial subsidiaries, then the predominant share-by-value-added determines the sector classification.

Head offices are described under international standard industrial classification of all economic activities revision (ISIC Rev. 4), Section M, class 7010 (NACE Rev. 2, M 70.10) as follows:

This class includes the overseeing and managing of other units of the company or enterprise; undertaking strategic or organisational planning and decision-making role of the company or enterprise; exercising operational control and managing the day-to-day operation of their related units.

(b)

A holding company that holds the assets of subsidiary corporations but does not undertake any management activities is a captive financial institution (S.127) and classified as a financial corporation.

Holding companies are described under ISIC Rev.4, Section K, class 6420 (NACE Rev. 2, K 64.20) as follows:

This class includes the activities of holding companies, i.e. units that hold the assets (owning controlling-levels of equity) of a group of subsidiary corporations and whose principal activity is owning the group. The holding companies in this class do not provide any other service to the businesses in which the equity is held, i.e. they do not administer or manage other units.

Groups of corporations

2.15

 Large groups of corporations are created when a parent controls several subsidiaries, which may in turn control their own subsidiaries, and so on. Each member of the group is treated as a separate institutional unit if it satisfies the definition of an institutional unit.

2.16

 An advantage of not treating groups of corporations as single institutional units is that groups are not always stable over time, nor easily identifiable in practice. It can be difficult to obtain data on groups whose activities are not closely integrated. Many groups are too large and heterogeneous to be treated as single units, and their size and composition can change over time as a result of mergers and takeovers.

Special purpose entities

2.17

 A special purpose entity (SPE) or special purpose vehicle (SPV) is usually a limited company or a limited partnership, created to fulfil narrow, specific or temporary objectives and to isolate a financial risk, a specific taxation or a regulatory risk.

2.18

 There is no common definition of an SPE, but the following characteristics are typical:

(a)

they have no employees and no non-financial assets;

(b)

they have little physical presence beyond a ‧brass plate‧ or sign confirming their place of registration;

(c)

they are always related to another corporation, often as a subsidiary;

(d)

they are resident in a different territory from the territory of residence of the related corporations. In the absence of any physical presence an enterprise's residence is determined according to the economic territory under whose laws the enterprise is incorporated or registered;

(e)

they are managed by employees of another corporation which may or may not be a related one. The SPE pays fees for services provided to it and in turn charges its parent or other related corporation a fee to cover those costs. This is the only production the SPE is involved in, although it will often incur liabilities on behalf of its owner and will usually receive investment income and holding gains on the assets it holds.

2.19

 Whether a unit has all or none of these characteristics, and whether it is described as an SPE or some similar designation or not, it shall be treated in the same way as any other institutional unit by being allocated to sector and industry according to its principal activity unless the SPE has no independent rights of action.

2.20

 So captive financial institutions, artificial subsidiaries and special purpose units of general government with no independence of action are allocated to the sector of their controlling body. The exception occurs when they are non-resident, in which case they are recognised separately from their controlling body. But in the case of government, the activities of the subsidiary shall be reflected in the government accounts.

Captive financial institutions

2.21

 A holding company that simply owns the assets of subsidiaries is one example of a captive financial institution. Examples of other units that are also treated as captive financial institutions are units with the characteristics of SPEs as described above, including investment and pension funds and units used for holding and managing wealth for individuals or families, issuing debt securities on behalf of related companies (such a company may be called a conduit), and carrying out other financial functions.

2.22

 The degree of independence from its parent may be demonstrated by exercising some substantive control over its assets and liabilities to the extent of carrying the risks and reaping the rewards associated with the assets and liabilities. Such units are classified in the financial corporations sector.

2.23

 An entity of this type that cannot act independently of its parent and is simply a passive holder of assets and liabilities (sometimes described as being on autopilot) is not treated as a separate institutional unit unless it is resident in an economy different from that of its parent. If it is resident in the same economy as its parent, it is treated as an ‧artificial subsidiary‧ as described below.

Artificial subsidiaries

2.24

 A subsidiary, wholly owned by a parent corporation, may be created to provide services to the parent corporation, or other corporations in the same group, in order to avoid taxes, to minimise liabilities in the event of bankruptcy, or to secure other technical advantages under the tax or corporation legislation in force in a particular country.

2.25

 In general, such types of entities do not satisfy the definition of an institutional unit because they lack the ability to act independently from their parent corporation and may be subject to restrictions on their ability to hold or transact assets held on their balance sheets. Their level of output and the price they receive for it are determined by the parent that (possibly with other corporations in the same group) is their sole client. They are, thus, not treated as separate institutional units, but are treated as an integral part of the parent, and their accounts are consolidated with those of the parent, unless they are resident in an economic territory different from that where the parent is resident.

2.26

 A distinction must be made between artificial subsidiaries as just described and a unit undertaking only ancillary activities. Ancillary activities are limited in scope to the type of service functions that virtually all enterprises need to some extent or another such as cleaning premises, running the staff payroll or providing the information technology infrastructure for the enterprise (see Chapter 1, paragraph 1.31).

Special purpose units of general government

2.27

 General government may also set up special purpose units, with characteristics and functions similar to the captive financial institutions and artificial subsidiaries. Such units do not have the power to act independently and are restricted in the range of transactions they can engage in. They do not carry the risks and rewards associated with the assets and liabilities they hold. Such units, if they are resident, shall be treated as an integral part of general government and not as separate units. If they are non-resident, they shall be treated as separate units. Any transactions carried out by them abroad shall be reflected in corresponding transactions with government. Thus, a unit that borrows abroad is then regarded as lending the same amount to general government, and on the same terms, as the original borrowing.

2.28

 In summary, the accounts of SPEs with no independent rights of action are consolidated with the parent corporation, unless they are resident in a different economy from that of the parent. There is one exception to this general rule, and that is when a non-resident SPE is set up by government.

2.29

 Notional resident units shall be defined as:

(a)

those parts of non-resident units which have a centre of predominant economic interest (being, in most cases, units which engage in economic production for a year or more) on the economic territory of the country;

(b)

non-resident units in their capacity as owners of land and/or buildings on the economic territory of the country, but only in respect of transactions affecting such land or buildings.

Notional resident units, irrespective of only keeping partial accounts and irrespective of autonomy of decision, shall be treated as institutional units.

2.30

 The following shall be considered as institutional units:

(a)

units that have autonomy of decision and a complete set of accounts such as:

(1)

private and public corporations;

(2)

cooperatives or partnerships recognised as independent legal entities;

(3)

public producers which by virtue of special legislation are recognised as independent legal entities;

(4)

non-profit institutions recognised as independent legal entities; and

(5)

agencies of general government;

(b)

units which have a complete set of accounts and which are deemed to have autonomy of decision despite not having separate incorporation from their parent: quasi-corporations;

(c)

units which do not necessarily keep a complete set of accounts, but which are deemed to have autonomy of decision, namely:

(1)

households;

(2)

notional resident units.

THE INSTITUTIONAL SECTORS

2.31

 Macroeconomic analysis does not consider the actions of each institutional unit separately — it considers the aggregate activities of similar institutions. So units are combined into groups called institutional sectors, some of which are divided into subsectors.

Table 2.1 —   Sectors and subsectors

Sectors and subsectors

 

Public

National private

Foreign controlled

Non-financial corporations

S.11

S.11001

S.11002

S.11003

Financial corporations

S.12

 

 

 

Monetary financial institutions (MFIs)

Central bank

S.121

 

 

 

Other monetary financial institutions (OMFI)

Deposit-taking corporations except the central bank

S.122

S.12201

S.12202

S.12203

Money market funds (MMFs)

S.123

S.12301

S.12302

S.12303

Financial corporations except MFIs and Insurance corporations and pension funds (ICPFs)

Non-MMF investment funds

S.124

S.12401

S.12402

S.12403

Other financial intermediaries, except insurance corporations and pension funds

S.125

S.12501

S.12502

S.12503

Financial auxiliaries

S.126

S.12601

S.12602

S.12603

Captive financial institutions and money lenders

S.127

S.12701

S.12702

S.12703

ICPFs

Insurance corporations (IC)

S.128

S.12801

S.12802

S.12803

Pension funds (PF)

S.129

S.12901

S.12902

S.12903

General government

S.13

 

 

 

Central government (excluding social security funds)

S.1311

 

 

 

State government (excluding social security funds)

S.1312

 

 

 

Local government (excluding social security funds)

S.1313

 

 

 

Social security funds

S.1314

 

 

 

Households

S.14

 

 

 

Employers and own-account workers

S.141+S.142

 

 

 

Employees

S.143

 

 

 

Recipients of property and transfer income

S.144

 

 

 

Recipients of property income

S.1441

 

 

 

Recipients of pensions

S.1442

 

 

 

Recipients of other transfers

S.1443

 

 

 

Non-profit institutions serving households

S.15

 

 

 

Rest of the world

S.2

 

 

 

Member States and institutions and bodies of the European Union

S.21

 

 

 

Member States of the European Union

S.211

 

 

 

Institutions and bodies of the European Union

S.212

 

 

 

Non-member countries and international organisations non-resident in the European Union

S.22

 

 

 

2.32

 Each sector and subsector groups together the institutional units which have a similar type of economic behaviour.

Diagram 2.1 —   Allocation of units to sectors

Image 2

Is the unit resident?

No

Yes

RoW

Households

Is the unit a household?

Is the unit a non-market producer?

Does the unit produce financial services?

Is the unit controlled by government?

NPISH

General government

Non-financial corporations

Financial corporations

Is the unit controlled by general government?

Is the unit controlled by general government?

Public non-financial corporations

Private non-financial corporations

Private financial corporations

Public financial corporations

No

Yes

No

Yes

No

No

No

No

Yes

Yes

Yes

Yes

2.33

 The institutional units are grouped into sectors on the basis of the type of producer they are and depending on their principal activity and function, which are considered to be indicative of their economic behaviour.

2.34

 Diagram 2.1 shows how units are allocated to the main sectors. In order to determine the sector of a unit which is resident and not a household, according to the diagram, it is necessary to determine whether it is controlled by general government or not, and whether it is a market or a non-market producer.

2.35

 Control over a financial or non-financial corporation shall be defined as the ability to determine general corporate policy, for example by choosing appropriate directors if necessary.

2.36

 A single institutional unit (another corporation, a household, a non-profit institution or a government unit) secures control over a corporation or quasi-corporation by owning more than half the voting shares or otherwise controlling more than half the shareholders' voting power.

2.37

 In order to control more than half the shareholders' voting power, an institutional unit need not own any of the voting shares itself. A given corporation, corporation C, could be a subsidiary of another corporation B in which a third corporation A owns a majority of the voting shares. Corporation C is said to be subsidiary of corporation B when either corporation B controls more than half of the shareholders' voting power in corporation C or corporation B is a shareholder in C with the right to appoint or remove a majority of the directors of C.

2.38

 General government secures control over a corporation as a result of special legislation, decree or regulation which empowers the government to determine corporate policy. The following indicators are the main factors to consider in deciding whether a corporation is controlled by government:

(a)

government ownership of the majority of the voting interest;

(b)

government control of the board or governing body;

(c)

government control of the appointment and removal of key personnel;

(d)

government control of key committees in the entity;

(e)

government possession of a golden share;

(f)

special regulations;

(g)

government as a dominant customer;

(h)

borrowing from government.

A single indicator may be sufficient to establish control, but, in other cases, a number of separate indicators may collectively indicate control.

2.39

 For non-profit institutions recognised as independent legal entities, the five indicators of control to be considered are:

(a)

the appointment of officers;

(b)

the provisions of enabling instruments;

(c)

contractual agreements;

(d)

the degree of financing;

(e)

the degree of government risk exposure.

As with corporations, a single indicator may be sufficient to establish control in some cases, but, in other cases, a number of separate indicators may collectively indicate control.

2.40

 Differentiating between market and non-market, and so for public sector entities classification between the general government sector and the corporations sector, depends on the criteria set out in paragraph 1.37.

2.41

 A sector shall be divided into subsectors according to the criteria relevant to that sector; for example government can be split into central, state and local government and social security funds. This permits a more precise description of the economic behaviour of the units.

The accounts for sectors and subsectors record all the activities, whether principal or secondary, of the institutional units covered by the appropriate sector.

Each institutional unit belongs to only one sector or subsector.

2.42

 When the principal function of the institutional unit is to produce goods and services, the type of producer must be decided first, in order to allocate it to a sector.

2.43

 Table 2.2 shows the type of producer and the principal activities and functions that are characteristic of each sector:

Table 2.2 —   Type of producer and principal activities and functions classified by sector

Type of producer

Principal activity and function

Sector

Market producer

Production of market goods and non-financial services

Non-financial corporations (S.11)

Market producer

Financial intermediation including insurance

Auxiliary financial activities

Financial corporations (S.12)

Public non-market producer

Production and supply of non-market output for collective and individual consumption, and carrying out transactions intended to redistribute national income and wealth

General government (S.13)

Market producer or private producer for own final use

Consumption

Production of market output and output for own final use

Households (S.14)

As consumers

As entrepreneurs

Private non-market producer

Production and supply of non-market output for individual consumption

Non-profit institutions serving households (S.15)

2.44

 The rest of the world (S.2) sector refers to flows and positions between resident units and non-resident units — the non-resident units are not characterised by similar objectives and types of behaviour, but are only recognised through their flows and positions with resident units.

Non-financial corporations (S.11)

2.45

 Definition: the non-financial corporations sector (S.11) consists of institutional units which are independent legal entities and market producers, and whose principal activity is the production of goods and non-financial services. The non-financial corporations sector also includes non-financial quasi-corporations (see paragraph 2.13(f)).

2.46

 The institutional units covered are the following:

(a)

private and public corporations which are market producers principally engaged in the production of goods and non-financial services;

(b)

cooperatives and partnerships recognised as independent legal entities which are market producers principally engaged in the production of goods and non-financial services;

(c)

public producers which are recognised as independent legal entities and which are market producers principally engaged in the production of goods and non-financial services;

(d)

non-profit institutions or associations serving non-financial corporations, which are recognised as independent legal entities and which are market producers principally engaged in the production of goods and non-financial services;

(e)

head offices controlling a group of corporations which are market producers, where the preponderant type of activity of the group of corporations as a whole - measured on the basis of value added — is the production of goods and non-financial services;

(f)

SPEs whose principal activity is the provision of goods or non-financial services;

(g)

private and public quasi-corporations which are market producers principally engaged in the production of goods and non-financial services.

2.47

 Non-financial quasi-corporations are all entities which are market producers principally engaged in the production of goods and non-financial services and which meet the conditions qualifying them as quasi-corporations (see point (f) of paragraph 2.13).

Non-financial quasi-corporations must keep enough information to enable a complete set of accounts to be drawn up, and are operated as if they were corporations. The de facto relationship to their owner is that of a corporation to its shareholders.

Non-financial quasi-corporations owned by households, government units or non-profit institutions are grouped with non-financial corporations in the non-financial corporations sector, and not in the sector of their owner.

2.48

 The existence of a complete set of accounts, including balance sheets, is not a sufficient condition for market producers to be treated as institutional units such as quasi-corporations. Partnerships and public producers, other than those included under points (a), (b), (c) and (f) of paragraph 2.46 and sole proprietorships — even if they keep a complete set of accounts — are in general not distinct institutional units because they do not enjoy autonomy of decision, their management being under the control of the households, non-profit institutions or governments which own them.

2.49

 Non-financial corporations include notional resident units which are treated as quasi-corporations.

2.50

 The non-financial corporations sector is divided into three subsectors:

(a)

public non-financial corporations (S.11001);

(b)

national private non-financial corporations (S.11002);

(c)

foreign controlled non-financial corporations (S.11003).

2.51

 Definition: the public non-financial corporations subsector consists of all non-financial corporations, quasi-corporations and non-profit institutions, recognised as independent legal entities, that are market producers and are subject to control by government units.

2.52

 Public quasi-corporations are quasi-corporations owned directly by government units.

National private non-financial corporations (S.11002)

2.53

 Definition: the national private non-financial corporations subsector consists of all non-financial corporations, quasi-corporations and non-profit institutions which are recognised as independent legal entities and which are market producers, that are not controlled by government or by non-resident institutional units.

This subsector includes corporate and quasi-corporate direct foreign investment units not classified in the foreign controlled non-financial corporations subsector (S.11003).

Foreign controlled non-financial corporations (S.11003)

2.54

 Definition: the foreign controlled non-financial corporations subsector consists of all non-financial corporations and quasi-corporations that are controlled by non-resident institutional units.

This subsector includes:

(a)

all subsidiaries of non-resident corporations;

(b)

all corporations controlled by a non-resident institutional unit that is not itself a corporation; for example, a corporation which is controlled by a foreign government. It includes corporations controlled by a group of non-resident units acting in concert;

(c)

all branches or other unincorporated agencies of non-resident corporations or unincorporated producers which are notional resident units.

Financial corporations (S.12)

2.55

 Definition: the financial corporations sector (S.12) consists of institutional units which are independent legal entities and market producers, and whose principal activity is the production of financial services. Such institutional units comprise all corporations and quasi-corporations which are principally engaged in:

(a)

financial intermediation (financial intermediaries); and/or

(b)

auxiliary financial activities (financial auxiliaries).

Also included are institutional units providing financial services, where most of either their assets or their liabilities are not transacted on open markets.

2.56

 Financial intermediation is the activity in which an institutional unit acquires financial assets and incurs liabilities on its own account by engaging in financial transactions on the market. The assets and liabilities of financial intermediaries are transformed or repackaged in relation to, for example, maturity, scale, risk, etc. in the financial intermediation process.

Auxiliary financial activities are activities related to financial intermediation but which do not involve financial intermediation themselves.

Financial intermediaries

2.57

 The financial intermediation process channels funds between third parties with a surplus and those with a lack of funds. A financial intermediary does not only act as an agent for other institutional units, but places itself at risk by acquiring financial assets and incurring liabilities on its own account.

2.58

 In the financial intermediation process, all categories of liabilities may be involved with the exception of the liability category of other accounts payable (AF.8). The financial assets involved in the financial intermediation process may be classified in any category with the exception of the category of insurance, pension and standardised guarantee schemes (AF.6) but including the other accounts receivable category. Financial intermediaries may invest their funds in non-financial assets including real estate. In order to be considered a financial intermediary, a corporation should incur liabilities on the market and transform funds. Real estate corporations are not financial intermediaries.

2.59

 The function of insurance corporations and pension funds consists of the pooling of risks. The liabilities of such institutions are insurance, pension and standardised guarantee schemes (AF.6). The counterparts of liabilities are investments by the insurance corporations and pension funds, acting as financial intermediaries.

2.60

 Investment funds, hereinafter referred to as money market funds (MMFs) and non-money market funds (non-MMFs), primarily incur liabilities through the issue of investment fund shares or units (AF.52). They transform such funds by acquiring financial assets and/or real estate. Investment funds are classified as financial intermediaries. Any change in the value of their assets and liabilities other than their own shares is reflected in their own funds (see paragraph 7.07). Given that the amount of own funds equals the value of the investment fund's shares or units, any change in the value of the fund's assets and liabilities will be reflected in the market value of such shares or units. Investment funds investing in real estate are financial intermediaries.

2.61

 Financial intermediation is limited to acquiring assets and incurring liabilities with the general public or specified and relatively large sub-groups thereof. Where the activity is limited to small groups of persons or families, no financial intermediation takes place.

2.62

 Exceptions to the general limitation of financial intermediation to financial transactions on the market may exist. Examples are municipal credit and savings banks which rely on the municipality involved, or financial lease corporations that depend on a parent group of companies for acquiring funds or investing funds. Their lending or their acceptance of savings shall be independent of the municipality involved or the parent group, respectively, in classifying them as financial intermediaries.

Financial auxiliaries

2.63

 Auxiliary financial activities comprise auxiliary activities for realising transactions in financial assets and liabilities or the transformation or repackaging of funds. Financial auxiliaries do not put themselves at risk by acquiring financial assets or incurring liabilities. They facilitate financial intermediation. Head offices, all or most of the subsidiaries of which are financial corporations, are financial auxiliaries.

Financial corporations other than financial intermediaries and financial auxiliaries

2.64

 Other financial corporations other than financial intermediaries and financial auxiliaries are institutional units providing financial services, where most of either their assets or their liabilities are not transacted on open markets.

Institutional units included in the financial corporations sector

2.65

 The institutional units included in the financial corporations sector (S.12) are the following:

(a)

private or public corporations which are principally engaged in financial intermediation and/or in auxiliary financial activities;

(b)

cooperatives and partnerships recognised as independent legal entities which are principally engaged in financial intermediation and/or in auxiliary financial activities;

(c)

public producers recognised as legal entities, which are principally engaged in financial intermediation and/or in auxiliary financial activities;

(d)

non-profit institutions recognised as legal entities which are principally engaged in financial intermediation and/or in auxiliary financial activities, or which are serving financial corporations;

(e)

head offices when all or most of their subsidiaries are, as financial corporations, principally engaged in financial intermediation and/or financial auxiliary activities. These head offices are classified as financial auxiliaries (S.126);

(f)

holding companies, where the main role is the holding of assets of a group of subsidiary corporations. The make-up of the group can be financial or non-financial — this does not affect the classification of holding companies as captive financial institutions (S.127);

(g)

SPEs whose principal activity is the provision of financial services;

(h)

unincorporated investment funds comprising investment portfolios owned by the group of participants, and whose management is undertaken, in general, by other financial corporations. Such funds are institutional units, separate from the managing financial corporation;

(i)

unincorporated units principally engaged in financial intermediation and subject to regulation and supervision (in most cases classified as deposit-taking corporations except the central bank, insurance corporations or pension funds) are deemed to enjoy autonomy of decision and to have autonomous management independent of their owners; their economic and financial behaviour is similar to that of financial corporations. In this case they are treated as separate institutional units. Examples are branches of non-resident financial corporations.

Subsectors of financial corporations

2.66

 The financial corporations sector is subdivided into the following subsectors:

(a)

central bank (S.121);

(b)

deposit-taking corporations except the central bank (S.122);

(c)

money market funds (MMFs) (S.123);

(d)

non-MMF investment funds (S.124);

(e)

other financial intermediaries, except insurance corporations and pension funds (S.125);

(f)

financial auxiliaries (S.126);

(g)

captive financial institutions and money lenders (S.127);

(h)

insurance corporations (S.128); and

(i)

pension funds (S.129).

Combining subsectors of financial corporations

2.67

 Monetary financial institutions (MFIs) as defined by the ECB consist of all institutional units included in the central bank (S.121), deposit-taking corporations except the central bank (S.122) and MMF (S.123) subsectors.

2.68

 Other monetary financial institutions consist of those financial intermediaries through which the effects of the monetary policy of the central bank (S.121) are transmitted to the other entities of the economy. They are deposit-taking corporations except the central bank (S.122) and MMF (S.123).

2.69

 Financial intermediaries dealing with the pooling of risks are insurance corporations and pensions funds (ICPF). They consist of the insurance corporations (S.128) and pension funds (S.129) subsectors.

2.70

 Financial corporations except MFI and ICPF consist of the non-MMF investment funds (S.124), other financial intermediaries, except insurance corporations and pension funds (S.125), financial auxiliaries (S.126) and captive financial institutions and money lenders (S.127) subsectors.

Subdividing subsectors of financial corporations into public, national private and foreign controlled financial corporations

2.71

 With the exception of subsector S.121, each subsector is further subdivided into:

(a)

public financial corporations;

(b)

national private financial corporations; and

(c)

foreign controlled financial corporations.

The criteria for this subdivision are the same as for non-financial corporations (see paragraphs 2.51 to 2.54).

Table 2.3 —   Financial corporations sector and its subsectors

Sectors and subsectors

Public

National private

Foreign controlled

Financial corporations

S.12

 

 

 

Monetary financial institutions (MFI)

Central bank

S.121

 

 

 

Other monetary financial institutions (OMFI)

Deposit-taking corporations except the central bank

S.122

S.12201

S.12202

S.12203

MMF

S.123

S.12301

S.12302

S.12303

Financial corporations except MFI and ICPF

Non-MMF investment funds

S.124

S.12401

S.12402

S.12403

Other financial intermediaries, except insurance corporations and pension funds

S.125

S.12501

S.12502

S.12503

Financial auxiliaries

S.126

S.12601

S.12602

S.12603

Captive financial institutions and money lenders

S.127

S.12701

S.12702

S.12703

Insurance corporations and pension funds (ICPFs)

Insurance corporations (IC)

S.128

S.12801

S.12802

S.12803

Pension funds (PF)

S.129

S.12901

S.12902

S.12903

Central bank (S.121)

2.72

 Definition: the central bank subsector (S.121) consists of all financial corporations and quasi-corporations whose principal function is to issue currency, to maintain the internal and external value of the currency and to hold all or part of the international reserves of the country.

2.73

 The following financial intermediaries are classified in subsector S.121:

(a)

the national central bank, including when it is part of a European system of central banks;

(b)

central monetary agencies of essentially public origin (e.g. agencies managing foreign exchange or issuing currency) which keep a complete set of accounts and enjoy autonomy of decision in relation to central government. When these activities are performed either within central government or within the central bank, no separate institutional units exist.

2.74

 Subsector S.121 does not include agencies and bodies, other than the central bank, which regulate or supervise financial corporations or financial markets. They are classified in subsector S.126.

Deposit-taking corporations except the central bank (S.122)

2.75

 Definition: the deposit-taking corporations except the central bank subsector (S.122) includes all financial corporations and quasi-corporations, except those classified in the central bank and in the MMF subsectors, which are principally engaged in financial intermediation and whose business is to receive deposits and/or close substitutes for deposits from institutional units, hence not only from MFIs, and, for their own account, to grant loans and/or to make investments in securities.

2.76

 Deposit-taking corporations except the central bank cannot be described simply as ‧banks‧, because they may include some financial corporations which do not call themselves banks, or some financial corporations which are not permitted to do so in some countries, while some other financial corporations describing themselves as banks may not in fact be deposit-taking corporations. The following financial intermediaries are classified in sub-sector S.122:

(a)

commercial banks, ‧universal‧ banks, ‧all-purpose‧ banks;

(b)

savings banks (including trustee savings banks and savings banks and loan associations);

(c)

post office giro institutions, post banks, giro banks;

(d)

rural credit banks, agricultural credit banks;

(e)

cooperative credit banks, credit unions;

(f)

specialised banks (e.g. merchant banks, issuing houses, private banks); and

(g)

electronic money institutions principally engaged in financial intermediation.

2.77

 The following financial intermediaries are classified in subsector S.122 where it is their business to receive repayable funds from the public, whether in the form of deposits or in other forms such as the continuing issue of long-term debt securities:

(a)

corporations engaged in granting mortgages (including building societies, mortgage banks and mortgage credit institutions);

(b)

municipal credit institutions.

Otherwise, financial intermediaries are classified in subsector S.124.

2.78

 Subsector S.122 does not include:

(a)

head offices which oversee and manage other units of a group consisting predominantly of deposit-taking corporations except the central bank, but which are not deposit-taking corporations. Such head offices are classified in subsector S.126;

(b)

non-profit institutions recognised as independent legal entities serving deposit-taking corporations, but not engaged in financial intermediation. They are classified in subsector S.126; and

(c)

electronic money institutions not principally engaged in financial intermediation.

MMF (S.123)

2.79

 Definition: the MMF subsector (S.123) consists of all financial corporations and quasi-corporations, except those classified in the central bank and in the credit institutions subsectors, which are principally engaged in financial intermediation. Their business is to issue investment fund shares or units as close substitutes for deposits from institutional units, and, for their own account, to make investments primarily in money market fund shares/units, short-term debt securities, and/or deposits.

2.80

 The following financial intermediaries are classified in subsector S.123: investment funds including investment trusts, unit trusts and other collective investment schemes whose shares or units are close substitutes for deposits.

2.81

 Subsector S.123 does not include:

(a)

head offices which oversee and manage a group consisting predominantly of MMFs, but which are not MMFs themselves. They are classified in subsector S.126;

(b)

non-profit institutions recognised as independent legal entities serving MMFs, but not engaged in financial intermediation. They are classified in subsector S.126.

Non-MMF investment funds (S.124)

2.82

 Definition: the non-MMF investment funds subsector (S.124) consists of all collective investment schemes, except those classified in the MMF subsector, which are principally engaged in financial intermediation. Their business is to issue investment fund shares or units which are not close substitutes for deposits, and, on their own account, to make investments primarily in financial assets other than short-term financial assets and in non-financial assets (usually real estate).

2.83

 Non-MMF investment funds cover investment trusts, unit trusts and other collective investment schemes whose investment fund shares or units are not seen as close substitutes for deposits.

2.84

 The following financial intermediaries are classified in subsector S.124:

(a)

open-ended investment funds whose investment fund shares or units are, at the request of the holders, repurchased or redeemed directly or indirectly out of the undertaking's assets;

(b)

closed-ended investment funds with a fixed share capital, where investors entering or leaving the fund must buy or sell existing shares;

(c)

real estate investment funds;

(d)

investment funds investing in other funds (‧funds of funds‧);

(e)

hedge funds covering a range of collective investment schemes, involving high minimum investments, light regulation, and a range of investment strategies.

2.85

 Subsector S.124 does not include:

(a)

pension funds which are part of the pension funds subsector;

(b)

special purpose government funds, called sovereign wealth funds. A special purpose government fund is classified as captive financial institution if it is a financial corporation. The classification of a ‧special purpose government fund‧ either as part of general government sector or as part of the financial corporation sector shall be determined according to the criteria concerning special purpose units of general government set out in paragraph 2.27;

(c)

head offices which oversee and manage a group consisting predominantly of non-MMF investment funds, but which are not investment funds themselves. They are classified in subsector S.126;

(d)

non-profit institutions recognised as independent legal entities serving non-MMF investment funds, but not engaged in financial intermediation. They are classified in subsector S.126.

Other financial intermediaries, except insurance corporations and pension funds (S.125)

2.86

 Definition: the other financial intermediaries, except insurance corporations and pension funds subsector (S.125) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation by incurring liabilities in forms other than currency, deposits, or investment fund shares, or in relation to insurance, pension and standardised guarantee schemes from institutional units.

2.87

 Subsector S.125 includes financial intermediaries predominantly engaged in long-term financing. In most cases, this predominant maturity distinguishes that subsector from the OMFI subsectors (S.122 and S.123). Based on the non-existence of liabilities in the form of investment fund shares which are not seen as close substitutes for deposits or insurance, pension and standardised guarantee schemes, the borderline with the non-MMF investment funds (S.124), the insurance corporations (S.128), and the pension funds (S.129) subsectors can be determined.

2.88

 The other financial intermediaries, except insurance corporations and pension funds subsector (S.125) is further subdivided into subsectors consisting of financial vehicle corporations engaged in securitisation transactions (FVC), security and derivative dealers, financial corporations engaged in lending, and specialised financial corporations. This is shown in Table 2.4.

Table 2.4 —   Other financial intermediaries, except insurance corporations and pension funds subsector (S.125) and its subdivisions

Other financial intermediaries, except insurance corporations and pension funds

Financial vehicle corporations engaged in securitisation transactions (FVC);

Security and derivative dealers;

Financial corporations engaged in lending; and

Specialised financial corporations

2.89

 Subsector S.125 does not include non-profit institutions recognised as independent legal entities serving other financial intermediaries, but not engaged in financial intermediation. They are classified in subsector S.126.

Financial vehicle corporations engaged in securitisation transactions (FVC)

2.90

 Definition: financial vehicle corporations engaged in securitisation transactions (FVC) are undertakings carrying out securitisation transactions. FVC that satisfy the criteria of an institutional unit are classified in S.125, otherwise they are treated as an integral part of the parent.

Security and derivative dealers, financial corporations engaged in lending and specialised financial corporations

2.91

 Security and derivative dealers (on own account) are financial intermediaries on own account.

2.92

 Financial corporations engaged in lending include for example financial intermediaries engaged in:

(a)

financial leasing;

(b)

hire purchase and the provision of personal or commercial finance; or

(c)

factoring.

2.93

 Specialised financial corporations are financial intermediaries, for example:

(a)

venture and development capital companies;

(b)

export/import financing companies; or

(c)

financial intermediaries which acquire deposits and/or close substitutes for deposits, or incur loans vis-à-vis monetary financial institutions only; these financial intermediaries cover also central counterparty clearing houses (CCPs) carrying out inter-MFI repurchase agreement transactions.

2.94

 Head offices which oversee and manage a group of subsidiaries principally engaged in financial intermediation and/or in auxiliary financial activities are classified in subsector S.126.

Financial auxiliaries (S.126)

2.95

 Definition: the financial auxiliaries subsector (S.126) consists of all financial corporations and quasi-corporations which are principally engaged in activities closely related to financial intermediation but which are not financial intermediaries themselves.

2.96

 The following financial corporations and quasi-corporations are classified in subsector S.126:

(a)

insurance brokers, salvage and average administrators, insurance and pension consultants, etc.;

(b)

loan brokers, securities brokers, investment advisers, etc.;

(c)

flotation corporations that manage the issue of securities;

(d)

corporations whose principal function is to guarantee, by endorsement, bills and similar instruments;

(e)

corporations which arrange derivative and hedging instruments, such as swaps, options and futures (without issuing them);

(f)

corporations providing infrastructure for financial markets;

(g)

central supervisory authorities of financial intermediaries and financial markets when they are separate institutional units;

(h)

managers of pension funds, mutual funds, etc.;

(i)

corporations providing stock exchange and insurance exchange;

(j)

non-profit institutions recognised as independent legal entities serving financial corporations, but not engaged in financial intermediation (see point (d) of paragraph 2.46);

(k)

payment institutions (facilitating payments between buyer and seller).

2.97

 Subsector S.126 also includes head offices whose subsidiaries are all or mostly financial corporations.

Captive financial institutions and money lenders (S.127))

2.98

 Definition: the captive financial institutions and money lenders subsector (S.127) consists of all financial corporations and quasi-corporations which are neither engaged in financial intermediation nor in providing financial auxiliary services, and where most of either their assets or their liabilities are not transacted on open markets.

2.99

 In particular, the following financial corporations and quasi-corporations are classified in subsector S.127:

(a)

units as legal entities such as trusts, estates, agencies accounts or ‧brass plate‧ companies;

(b)

holding companies that hold controlling-levels of equity of a group of subsidiary corporations and whose principal activity is owning the group without providing any other service to the businesses in which the equity is held, that is, they do not administer or manage other units;

(c)

SPEs that qualify as institutional units and raise funds in open markets to be used by their parent corporation;

(d)

units which provide financial services exclusively with own funds, or funds provided by a sponsor, to a range of clients and incur the financial risk of the debtor defaulting. Examples are money lenders, corporations engaged in lending to students or for foreign trade from funds received from a sponsor such as a government unit or a non-profit institution, and pawnshops that predominantly engage in lending;

(e)

special purpose government funds, usually called sovereign wealth funds, if classified as financial corporations.

Insurance corporations (S.128)

2.100

 Definition: the insurance corporations subsector (S.128) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation as a consequence of the pooling of risks mainly in the form of direct insurance or reinsurance (see paragraph 2.59).

2.101

 Insurance corporations provide services of:

(a)

life and non-life insurance to individual units or groups of units;

(b)

reinsurance to other insurance corporations.

2.102

 Services of non-life insurance corporations may be provided in the form of insurance against the following:

(a)

fire (e.g. commercial and private property);

(b)

liability (casualty);

(c)

motor (own damage and third party liability);

(d)

marine, aviation and transport (including energy risks);

(e)

accident and health; or

(f)

financial insurance (provision of guarantees or surety bonds).

Financial insurance or credit insurance corporations, also called guarantee banks, provide guarantees or surety bonds to back securitisation and other credit products.

2.103

 Insurance corporations are mainly incorporated or mutual entities. Incorporated entities are owned by shareholders and many are listed on stock exchanges. Mutuals are owned by their policyholders and return their profits to the ‧with profits‧ or ‧participating‧ policyholders through dividends or bonuses. ‧Captive‧ insurers are normally owned by a non-financial corporation and mostly insure the risks of their shareholders.

Box 2.1 —   Types of insurance

Type of insurance

Sector/subsector

Direct insurance

Life insurance

Policyholder makes regular or one-off payments to an insurer in return for which the insurer guarantees to provide the policyholder with an agreed sum, or an annuity, at a given date or earlier.

Insurance corporations

Non-life insurance

Insurance to cover risks like accidents, sickness, fire, credit, etc.

Insurance corporations

Reinsurance

Insurance bought by an insurer to protect himself against an unexpectedly large number of claims or exceptionally heavy claims.

Insurance corporations

Social insurance

Social security

The participants are obliged by general government to insure against certain social risks.

Social security pensions

Social security funds

Other social security

Employment related social insurance other than social security

Employers can make it a condition of employment that employees insure against certain social risks.

Employment related pensions

Sector of employer, insurance corporations and pension funds or non-profit institutions serving households

Other employment related social insurance

2.104

 Subsector S.128 does not include:

(a)

institutional units which fulfil each of the two criteria listed in paragraph 2.117. They are classified in sub-sector S.1314;

(b)

head offices which oversee and manage a group consisting predominantly of insurance corporations, but which are not insurance corporations themselves. They are classified in sub-sector S.126;

(c)

non-profit institutions recognised as independent legal entities serving insurance corporations, but not engaged in financial intermediation. They are classified in subsector S.126.

Pension funds (S.129)

2.105

 Definition: the pension funds subsector (S.129) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation as the consequence of the pooling of social risks and needs of the insured persons (social insurance). Pension funds as social insurance schemes provide income in retirement, and often benefits for death and disability.

2.106

 Subsector S.129 consists of only those social insurance pension funds that are institutional units separate from the units that create them. Such autonomous funds have autonomy of decision and keep a complete set of accounts. Non-autonomous pension funds are not institutional units and remain part of the institutional unit that sets them up.

2.107

 Examples of participants in pension fund schemes include employees of a single enterprise or a group of enterprises, employees of a branch or industry, and persons having the same profession. The benefits included in the insurance contract can be:

(a)

paid after the death of the insured to the widow(er) and children;

(b)

paid after retirement; or

(c)

paid after the insured becomes disabled.

2.108

 In some countries, all those types of risks can be insured by life insurance corporations as well as through pension funds. In other countries, it is required that some of those classes of risks are insured through life insurance corporations. In contrast to life insurance corporations, pension funds are restricted by law to specified groups of employees and self-employed.

2.109

 Pension fund schemes may be organised by employers or by general government. They may also be organised by insurance corporations on behalf of employees; or separate institutional units may be established to hold and manage the assets to be used to meet the pension entitlements and to distribute the pensions.

2.110

 Subsector S.129 does not include:

(a)

institutional units which fulfil each of the two criteria listed in paragraph 2.117. They are classified in subsector S.1314;

(b)

head offices which oversee and manage a group consisting predominantly of pension funds, but which are not pension funds themselves. They are classified in subsector S.126;

(c)

non-profit institutions recognised as independent legal entities serving pension funds, but not engaged in financial intermediation. They are classified in subsector S.126.

General government (S.13)

2.111

 Definition: the general government sector (S.13) consists of institutional units which are non-market producers whose output is intended for individual and collective consumption, and are financed by compulsory payments made by units belonging to other sectors, and institutional units principally engaged in the redistribution of national income and wealth.

2.112

 The institutional units included in sector S.13 are for example the following:

(a)

general government units which exist through a legal process to have judicial authority over other units in the economic territory, and administer and finance a group of activities, principally providing non-market goods and services, intended for the benefit of the community;

(b)

a corporation or quasi-corporation which is a government unit, if its output is mainly non-market and a government unit controls it;

(c)

non-profit institutions recognised as independent legal entities which are non-market producers and which are controlled by general government;

(d)

autonomous pension funds, where there is a legal obligation to contribute, and where general government manages the funds with respect to the settlement and approval of contributions and benefits.

2.113

 The general government sector is divided into four subsectors:

(a)

central government (excluding social security funds) (S.1311);

(b)

state government (excluding social security funds) (S.1312);

(c)

local government (excluding social security funds) (S.1313);

(d)

social security funds (S.1314).

Central government (excluding social security funds) (S.1311)

2.114

 Definition: this subsector includes all administrative departments of the state and other central agencies whose competence extends normally over the whole economic territory, except for the administration of social security funds.

Included in subsector S.1311 are those non-profit institutions which are controlled by central government and whose competence extends over the whole economic territory.

Market regulatory organisations which are either exclusively or principally distributors of subsidies are classified in S.1311. Those organisations which are exclusively or principally engaged in buying, holding and selling agricultural or food products are classified in S.11.

State government (excluding social security funds) (S.1312)

2.115

 Definition: this subsector consists of those types of public administration which are separate institutional units exercising some of the functions of government, except for the administration of social security funds, at a level below that of central government and above that of the governmental institutional units existing at local level.

Included in subsector S.1312 are those non-profit institutions which are controlled by state governments and whose competence is restricted to the economic territories of the states.

Local government (excluding social security funds) (S.1313)

2.116

 Definition: this subsector includes those types of public administration whose competence extends to only a local part of the economic territory, apart from local agencies of social security funds.

Included in subsector S.1313 are those non-profit institutions which are controlled by local governments and whose competence is restricted to the economic territories of the local governments.

Social security funds (S.1314)

2.117

 Definition: the social security funds subsector includes central, state and local institutional units whose principal activity is to provide social benefits and which fulfil each of the following two criteria:

(a)

by law or by regulation certain groups of the population are obliged to participate in the scheme or to pay contributions; and

(b)

general government is responsible for the management of the institution in respect of the settlement or approval of the contributions and benefits independently from its role as supervisory body or employer.

There is usually no direct link between the amount of the contribution paid by an individual and the risk to which that individual is exposed.

Households (S.14)

2.118

 Definition: the households sector (S.14) consists of individuals or groups of individuals as consumers and as entrepreneurs producing market goods and non-financial and financial services (market producers) provided that the production of goods and services is not by separate entities treated as quasi-corporations. It also includes individuals or groups of individuals as producers of goods and non-financial services for exclusively own final use.

Households as consumers may be defined as small groups of persons who share the same living accommodation, who pool their income and wealth and who consume certain types of goods and services collectively, mainly housing and food.

The principal resources of households are the following:

(a)

the compensation of employees;

(b)

property income;

(c)

transfers from other sectors;

(d)

receipts from the disposal of market products; and

(e)

imputed receipts from the output of products for own final consumption.

2.119

 The households sector includes:

(a)

individuals or groups of individuals whose principal function is consumption;

(b)

persons living permanently in institutions who have little or no autonomy of action or decision in economic matters (e.g. members of religious orders living in monasteries, long-term patients in hospitals, prisoners serving long sentences, old persons living permanently in retirement homes). Such people are treated as a single institutional unit: a single household;

(c)

individuals or groups of individuals whose principal function is consumption and that produce goods and non-financial services for exclusively own final use; only two categories of services produced for own final consumption are included within the system: services of owner-occupied dwellings and domestic services produced by paid employees;

(d)

sole proprietorships and partnerships without legal status, other than those treated as quasi-corporations, and which are market producers; and

(e)

non-profit institutions serving households, which do not have independent legal status, or those which do but which are of only minor importance.

2.120

 In the ESA 2010, the households sector is subdivided into the following subsectors:

(a)

employers (S.141) and own-account workers (S.142);

(b)

employees (S.143);

(c)

recipients of property income (S.1441);

(d)

recipients of pensions (S.1442);

(e)

recipients of other transfers (S.1443).

2.121

 Households are allocated to subsectors according to the largest income category (employers' income, compensation of employees, etc.) of the household as a whole. When more than one income of a given category is received within the same household, the classification is based on the total household income within each category.

Employers and own-account workers (S.141 and S.142)

2.122

 Definition: the employers and own-account workers subsector consists of the group of households for which the (mixed) incomes (B.3) accruing to the owners of household unincorporated enterprises from their activity as producers of market goods and services with or without paid employees are the largest source of income for the household as a whole, even if it does not account for more than half of total household income.

Employees (S.143)

2.123

 Definition: the employees subsector consists of the group of households for which the income accruing from compensation of employees (D.1) is the largest source of income for the household as a whole.

Recipients of property income (S.1441)

2.124

 Definition: the recipients of property income subsector consists of the group of households for which property income (D.4) is the largest source of income for the household as a whole.

Recipients of pensions (S.1442)

2.125

 Definition: the recipients of pensions subsector consists of the group of households for which the income accruing from pensions is the largest source of income for the household as a whole.

Pension households are households whose largest source of income consists of retirement or other pensions, including pensions from previous employers.

Recipients of other transfers (S.1443)

2.126

 Definition: the recipients of other transfers subsector consists of the group of households for which the income accruing from other current transfers is the largest source of income for the household as a whole.

Other current transfers are all current transfers other than property income, pensions and income of persons living permanently in institutions.

2.127

 If information on the relative contributions of the sources of income of the household as a whole is not available for sectoring purposes, the income of the reference person is used for classifying purposes. The reference person of a household is the person with the largest income. If the latter information is not available, the income of the person who states that he/she is the reference person is used for subsectoring households.

2.128

 Other criteria for subsectoring households can be used, e.g. breakdown of households as entrepreneurs by activity: agricultural households and non-agricultural households.

Non-profit institutions serving households (S.15)

2.129

 Definition: the non-profit institutions serving households (NPISHs) sector (S.15) consists of non-profit institutions which are separate legal entities, which serve households and which are private non-market producers. Their principal resources are voluntary contributions in cash or in kind from households in their capacity as consumers, from payments made by general government and from property income.

2.130

 Where such institutions are not very important, they are not included in the NPISH sector, but in the households sector (S.14), as their transactions are indistinguishable from units in that sector. Non-market NPISHs controlled by general government are classified in the general government sector (S.13).

The NPISHs sector includes the following main kinds of NPISHs that provide non-market goods and services to households:

(a)

trade unions, professional or learned societies, consumers' associations, political parties, churches or religious societies (including those financed but not controlled by governments), and social, cultural, recreational and sports clubs; and

(b)

charities, relief and aid organisations financed by voluntary transfers in cash or in kind from other institutional units.

Sector S.15 includes charities, relief or aid agencies serving non-resident units and excludes entities where membership gives a right to a predetermined set of goods and services.

Rest of the world (S.2)

2.131

 Definition: the rest of the world sector (S.2) is a grouping of units without any characteristic functions and resources; it consists of non-resident units insofar as they are engaged in transactions with resident institutional units, or have other economic links with resident units. Its accounts provide an overall view of the economic relationships linking the national economy with the rest of the world. The institutions of the EU and international organisations are included.

2.132

 The rest of the world is not a sector for which complete sets of accounts have to be kept, but it is convenient to treat the rest of the world as a sector. Sectors are obtained by disaggregating the total economy to obtain more homogeneous groups of resident institutional units, which are similar in respect to their economic behaviour, objectives and functions. This is not the case for the rest of the world sector: for this sector, there are recorded the transactions and other flows of non-financial and financial corporations, non-profit institutions, households and general government with non-resident institutional units and other economic relationships between residents and non-residents, e.g. claims by residents on non-residents.

2.133

 The accounts for the rest of the world include only transactions carried out between resident institutional units and non-resident units, subject to the following exceptions:

(a)

the services of transport (up to the border of the exporting country) provided by resident units in respect of imported goods are shown in the rest of the world accounts with FOB imports, even though they are produced by resident units;

(b)

transactions in foreign assets between residents belonging to different sectors in the domestic economy are shown in the detailed financial accounts for the rest of the world. These transactions do not affect the country's financial position vis-à-vis the rest of the world; they affect the financial relationships of individual sectors with the rest of the world;

(c)

transactions in the country's liabilities between non-residents belonging to different geographical zones are shown in the geographical breakdown of the rest of the world accounts. Although these transactions do not affect the country's overall liability to the rest of the world, they affect its liabilities to different parts of the world.

2.134

 The rest of the world sector (S.2) is subdivided into:

(a)

Member States and institutions and bodies of the European Union (S.21):

(1)

Member States of the European Union (S.211);

(2)

Institutions and bodies of the European Union (S.212);

(b)

non-member countries and international organisations non-resident of EU (S.22).

Sector classification of producer units for main standard legal forms of ownership

2.135

 The following overview and paragraphs 2.31 to 2.44 summarise the principles underlying the classification of producer units into sectors, using the standard terminology for describing the main types of institutions.

2.136

 Private and public corporations which are market producers are classified as follows:

(a)

those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b)

those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations).

2.137

 Cooperatives and partnerships which are recognised as independent legal entities and are market producers are classified as follows:

(a)

those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b)

those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations).

2.138

 Public producers which by virtue of special legislation are recognised as independent legal entities and which are market producers are classified as follows:

(a)

those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b)

those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations).

2.139

 Public producers which are not recognised as independent legal entities and are market producers are classified as follows:

(a)

If they are quasi-corporations:

(1)

those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(2)

those principally engaged in financial intermediation and financial auxiliary activities: in sector S.12 (financial corporations).

(b)

If they are not quasi-corporations: in sector S.13 (general government), as they remain an integral part of the units which control them.

2.140

 Non-profit institutions (associations and foundations) recognised as independent legal entities are classified as follows:

(a)

those which are market producers and principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b)

those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations);

(c)

those which are non-market producers:

(1)

in sector S.13 (general government), if they are public producers controlled by general government;

(2)

in sector S.15 (non-profit institutions serving households), if they are private producers.

2.141

 Sole proprietorships and partnerships which are not recognised as independent legal entities and are market producers are classified as follows:

(a)

If they are quasi-corporations:

(1)

those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(2)

those principally engaged in financial intermediation and financial auxiliary activities: in sector S.12 (financial corporations).

(b)

If they are not quasi-corporations, they are classified in sector S.14 (households).

2.142

 Head offices are classified as follows:

(a)

in sector S.11 (non-financial corporations), if the preponderant type of activity of the group of corporations which are market producers as a whole is the production of goods and non-financial services (see point (e) of paragraph 2.46);

(b)

in sector S.12 (financial corporations), if the preponderant type of activity of the group of corporations as a whole is financial intermediation (see point (e) of paragraph 2.65).

Holding companies which are holders of assets of a group of subsidiary corporations are always treated as financial corporations. Holding companies hold the assets of a group of companies, but do not undertake any management activities with respect to the group.

2.143

 Table 2.5 shows in schematic form the various cases enumerated above.

Table 2.5 —   Sector classification of producer units for main standard legal forms of ownership

Type of producer

Standard legal description

Market producers (goods and non-financial services)

Market producers (financial intermediation)

Non-market producers

Public producers

Private producers

Private and public corporations

S.11 non-financial corporations

S.12 financial corporations

 

 

Cooperatives and partnerships recognised as independent legal entities

S.11 non-financial corporations

S.12 financial corporations

 

 

Public producers which by virtue of special legislation are recognised as independent legal entities

S.11 non-financial corporations

S.12 financial corporations

 

 

Public producers not recognised as independent legal entities

Those with the characteristics of quasi-corporations

S.11 non-financial corporations

S.12 financial corporations

 

 

The rest

 

 

S.13 general government

 

Non-profit institutions recognised as independent legal entities

S.11 non-financial corporations

S.12 financial corporations

S.13 general government

S.15 non-profit institutions serving households

Partnerships not recognised as independent legal entities

Sole proprietorships

Those with the characteristics of quasi-corporations

S.11 non-financial corporations

S.12 financial corporations

 

 

The rest

S.14 households

S.14 households

 

 

Head offices whose preponderant type of activity of the group of corporations controlled by them is the production of:

goods and non-financial services

S.11 non-financial corporations

 

 

 

financial services

 

S.12 financial corporations

 

 

LOCAL KIND-OF-ACTIVITY UNITS AND INDUSTRIES

2.144

 Most institutional units producing goods and services are engaged in a combination of activities at the same time. They may be engaged in a principal activity, some secondary activities and some ancillary activities.

2.145

 An activity occurs when resources such as equipment, labour, manufacturing techniques, information networks or products are combined, leading to the creation of specific goods or services. An activity is characterised by an input of products, a production process and an output of products.

Activities can be determined by reference to a specific level of NACE Rev. 2.

2.146

 If a unit carries out more than one activity, all the activities which are not ancillary activities (see Chapter 3, paragraph 3.12) are ranked according to the gross value added. On the basis of the preponderant gross value added generated, a distinction can then be made between principal activity and secondary activities.

2.147

 In order to analyse flows occurring in the process of production and in the use of goods and services, it is necessary to choose units which emphasise relationships of a technico-economic kind. This requirement means that institutional units must be partitioned into smaller and more homogeneous units with regard to the kind of production. Local kind-of-activity units are intended to meet this requirement as an operational approach.

The local kind-of-activity unit

2.148

 Definition: the local kind-of-activity unit (local KAU) is the part of a kind-of-activity unit (KAU) which corresponds to a local unit. The local KAU is called establishment in the 2008 SNA and ISIC Rev. 4. A KAU groups all the parts of an institutional unit in its capacity as producer contributing to the performance of an activity at class level (four digits) of the NACE Rev. 2 and corresponds to one or more operational subdivisions of the institutional unit. The institutional unit's information system must be capable of indicating or calculating for each local KAU at least the value of production, intermediate consumption, compensation of employees, the operating surplus and employment and gross fixed capital formation.

The local unit is an institutional unit, or part of an institutional unit, producing goods or services situated in a geographically identified place.

A local KAU may correspond to an institutional unit as producer; on the other hand, it can never belong to two different institutional units.

2.149

 If an institutional unit producing goods or services contains a principal activity and also one or several secondary activities, it is subdivided into the same number of KAUs, and the secondary activities are classified under different headings from the principal activity. The ancillary activities are not separated from the principal or secondary activities. But KAUs falling within a particular heading of the classification system can produce products outside the homogeneous group on account of secondary activities connected with them which cannot be separately identified from available accounting documents. Thus a KAU may carry out one or more secondary activities.

Industries

2.150

 Definition: an industry consists of a group of local KAUs engaged in the same, or similar, kind-of-activity. At the most detailed level of classification, an industry consists of all the local KAUs falling within a single class (four digits) of NACE Rev. 2 and which are therefore engaged in the same activity as defined in the NACE Rev. 2.

Industries comprise both local KAUs producing market goods and services and local KAUs producing non-market goods and services. An industry by definition consists of a group of local KAUs engaged in the same type of productive activity, irrespective of whether or not the institutional units to which they belong produce market or non-market output.

2.151

 Industries are classified in three categories:

(a)

industries producing market goods and services (market industries) and goods and services for own final use. Services for own final use are housing services produced by owner-occupiers, and domestic services produced by employing paid staff;

(b)

industries producing non-market goods and services of general government: non-market industries of general government;

(c)

industries producing non-market goods and services of non-profit institutions serving households: non-market industries of non-profit institutions serving households.

Classification of industries

2.152

 The classification used for grouping local KAUs into industries is the NACE Rev. 2.

UNITS OF HOMOGENEOUS PRODUCTION AND HOMOGENEOUS BRANCHES

2.153

 For analysis of the production process, the unit best suited to this analysis is the unit of homogeneous production. This unit has a unique activity defined by its inputs, process of production, and outputs.

The unit of homogeneous production

2.154

 Definition: a unit of homogeneous production carries out a unique activity which is identified by its inputs, process of production, and its outputs. The products which constitute the inputs and outputs are themselves distinguished by their physical characteristics, the extent to which they are processed and the technique of production used. They can be identified by a classification of products (classification of products by activity — CPA). The CPA is a product classification the elements of which are structured according to the industrial origin criterion, industrial origin being defined by NACE Rev. 2.

The homogeneous branch

2.155

 Definition: the homogeneous branch consists of a grouping of units of homogeneous production. The set of activities covered by a homogeneous branch is identified by reference to a product classification. The homogeneous branch produces those goods or services specified in the classification and only those products.

2.156

 Homogeneous branches are units designed for economic analysis. Units of homogeneous production cannot usually be observed directly; data collected from the units used in statistical enquiries have to be re-arranged to form homogeneous branches.

 

CHAPTER 3

TRANSACTIONS IN PRODUCTS AND NON-PRODUCED ASSETS

TRANSACTIONS IN PRODUCTS IN GENERAL

3.01

 Definition: products are all goods and services that are created within the production boundary. Production is defined in paragraph 3.07.

3.02

 The following main categories of transactions in products are distinguished in the ESA:

Transaction categories

Code

Output

P.1

Intermediate consumption

P.2

Final consumption expenditure

P.3

Actual final consumption

P.4

Gross capital formation

P.5

Exports of goods and services

P.6

Imports of goods and services

P.7

3.03

 Transactions in products are recorded as follows:

(a)

in the goods and services account, output and imports are recorded as resources and the other transactions in products are recorded as uses;

(b)

in the production account, output is recorded as a resource and intermediate consumption is recorded as a use; gross value added is the balancing item of these two transactions in products;

(c)

in the use of disposable income account, final consumption expenditure is recorded as a use;

(d)

in the use of adjusted disposable income account, actual final consumption is recorded as a use;

(e)

in the capital account, gross capital formation is recorded as a use (a change in non-financial assets);

(f)

in the external account of goods and services, imports of goods and services are recorded as a resource, and exports of goods and services are registered as uses.

Many major balancing items in the accounts, like value added, gross domestic product, national income and disposable income, are defined in terms of transactions in products. The definition of transactions in products defines those balancing items.

3.04

 In the supply table (see paragraph 1.136), output and imports are recorded as supplies. In the use table, intermediate consumption, gross capital formation, final consumption expenditure and exports are registered as uses. In the symmetric input-output table, output and imports are recorded as supplies and the other transactions in products as uses.

3.05

 Supplies of products are valued at basic prices (see paragraph 3.44). Uses of products are valued at purchasers' prices (see paragraph 3.06). For some types of supplies and uses, e.g. for imports and exports of goods, more specific valuation principles are used.

3.06

 Definition:

The purchaser's price is the price the purchaser pays for the products. The purchaser's price includes the following:

(a)

taxes less subsidies on the products (but excluding deductible taxes like VAT on the products);

(b)

transport charges paid separately by the purchaser to take delivery at the required time and place;

(c)

deductions for any discounts for bulk or off-peak-purchases from standard prices or charges.

The purchaser's price excludes the following:

(a)

interest or services charges added under credit arrangements;

(b)

extra charges incurred as a result of late payment, where late payment means failing to pay within the period stated at the time the purchases were made.

If the time of use does not coincide with the time of purchase, adjustments are made to the value to take account of the changes in price due to the lapsing of time (in a manner symmetrical with changes in the prices of the inventories). Such modifications are important if the prices of the products involved change significantly within a year.

PRODUCTION AND OUTPUT

3.07

 Definition: production is an activity carried out under the control, responsibility and management of an institutional unit that uses inputs of labour, capital and goods and services to produce outputs of goods and services.

Production does not cover natural processes which have no human involvement or direction, such as the unmanaged growth of fish stocks in international waters, but production does include fish farming.

3.08

 Production includes:

(a)

the production of all individual or collective goods and services that are supplied to units other than their producers;

(b)

the own-account production of all goods that are retained by their producers for their own final consumption or gross fixed capital formation.

Examples of own-account production for gross fixed capital formation are the production of fixed assets such as construction, the development of software and mineral exploration for own gross fixed capital formation. The concept of gross fixed capital formation is described in paragraphs 3.124-3.138.

Own-account production of goods by households pertains in general to:

(1)

own-account construction of dwellings;

(2)

the production and storage of agricultural products;

(3)

the processing of agricultural products, like the production of flour by milling, the preservation of fruit by drying and bottling, the production of dairy products like butter and cheese and the production of beer, wine and spirits;

(4)

the production of other primary products, like mining salt, cutting peat and carrying water;

(5)

other kinds of processing, like weaving cloth, the production of pottery and making furniture;

(c)

the own-account production of dwelling services by owner-occupiers;

(d)

domestic and personal services produced by employing paid domestic staff;

(e)

volunteer activities that result in goods. Examples of such activities are the construction of a dwelling, church or other building. Volunteer activities that do not result in goods, e.g. care-taking and cleaning without payment, are excluded.

The activities listed above in points (a) to (e) are included as production irrespective of being illegal or not-registered at tax, social security, statistical and other public authorities.

Own-account production of goods by households is recorded when this type of production is significant, i.e. when it is quantitatively important in relation to the total supply of that good in a country.

The only own-account production of goods by households included is the construction of dwellings, and the production, storage and processing of agricultural products.

3.09

 Production excludes the production of domestic and personal services that are produced and consumed within the same household. Examples of domestic services produced by households themselves that are excluded are:

(a)

cleaning, decoration and maintenance of the dwelling as far as these activities are also common for tenants;

(b)

cleaning, servicing and repair of household durables;

(c)

preparation and serving of meals;

(d)

care, training and instruction of children;

(e)

care of sick, infirm or old people; and

(f)

transportation of members of the household or their goods.

Domestic and personal services produced by employing paid domestic staff and the services of owner-occupied dwellings are included in production.

Principal, secondary and ancillary activities

3.10

 Definition: the principal activity of a local KAU is the activity where the value added of such activity exceeds that of any other activity carried out within the same unit. The classification of the principal activity is determined by reference to NACE rev. 2, first at the highest level of the classification and then at more detailed levels.

3.11

 Definition: a secondary activity is an activity carried out within a single local KAU in addition to the principal activity. The output of the secondary activity is a secondary product.

3.12

 Definition: an ancillary activity is an activity whose output is intended for use within an enterprise.

An ancillary activity is a supporting activity undertaken within an enterprise in order to enable the principal or secondary activities of local KAUs to be carried out. All inputs consumed by an ancillary activity — materials, labour, consumption of fixed capital, etc. — are treated as inputs into the principal or secondary activity which it supports.

Examples of ancillary activities are:

(a)

purchasing;

(b)

sales;

(c)

marketing;

(d)

accounting;

(e)

data processing;

(f)

transportation;

(g)

storage;

(h)

maintenance;

(i)

cleaning; and

(j)

security services.

Enterprises have a choice between engaging in ancillary activities and purchasing such services on the market from specialist service producers.

Own-account capital formation is not an ancillary activity.

3.13

 Ancillary activities are not isolated to form distinct entities or separated from the principal or secondary activities or entities they serve. Accordingly, ancillary activities must be integrated with the local KAU they serve.

Ancillary activities may be carried out in separate locations, located in a region other than the local KAU they serve. The strict application of the rule referred to in the first subparagraph for the geographical allocation of the ancillary activities would result in the underestimation of the aggregates in the regions where ancillary activities are concentrated. In accordance, therefore, with the principle of residence, ancillary activities have to be allocated to the region where they are situated; they remain in the same industry as the local KAU they serve.

Output (P.1)

3.14

 Definition: output is the total of products created during the accounting period.

Examples of output include the following:

(a)

the goods and services which one local KAU provides to a different local KAU belonging to the same institutional unit;

(b)

the goods produced by a local KAU that remain in inventories at the end of the period in which they are produced, whatever their subsequent use. Goods and services produced and consumed within the same accounting period and within the same local KAU are not separately identified. They are not recorded as part of the output or intermediate consumption of that local KAU.

3.15

 When an institutional unit contains more than one local KAU, the output of the institutional unit is the sum of the outputs of its component local KAUs, including outputs delivered between the component local KAUs.

3.16

 Three types of output are distinguished in the ESA 2010:

(a)

market output (P.11);

(b)

output produced for own final use (P.12);

(c)

non-market output (P.13).

This distinction is also applied to local KAUs and institutional units:

(a)

market producers;

(b)

producers for own final use;

(c)

non-market producers.

The distinction between market, for own final use and non-market is fundamental in view of the following:

(a)

it affects the valuation of output and related concepts, such as value added, gross domestic product and final consumption expenditure by the government and NPISH;

(b)

it affects the classification of institutional units by sector, e.g. which units are included in the sector general government and which are not.

The distinction determines the valuation principles to be applied to output. Market output and output produced for own final use are valued at basic prices. The total output of non-market producers is valued by summing the costs of production. The output of an institutional unit is valued as the sum of the outputs of its local KAUs and depends thus also on the distinction between market, for own final use and non-market.

The distinction is also used to classify institutional units by sector. Non-market producers are classified in the general government sector or the non-profit institutions serving households sector.

The distinctions are defined in a top-down way, i.e. the distinction is first defined for institutional units, then for local KAUs and then for their output.

At the product level output is classified as market output, output for own final use and non-market output according to the characteristics of the institutional unit and the local KAU that produce that output.

3.17

 Definition: market output consists of output that is disposed of on the market or intended to be disposed of on the market.

3.18

 Market output includes:

(a)

products sold at economically significant prices;

(b)

products bartered;

(c)

products used for payments in kind (including compensation of employees in kind and mixed income in kind);

(d)

products supplied by one local KAU to another within the same institutional unit to be used as intermediate inputs or for final uses;

(e)

products added to the inventories of finished goods and work-in-progress intended for one or other of the above uses (including natural growth of animal and vegetable products and uncompleted structures for which the buyer is unknown).

3.19

 Definition: economically significant prices are prices that have a substantial effect on the amounts of products that producers are willing to supply and on the amounts of products that purchasers wish to acquire. Such prices arise when both of the following conditions apply:

(a)

the producer has an incentive to adjust supply either with the goal of making a profit in the long run or, at a minimum, covering capital and other costs; and

(b)

consumers have the freedom to purchase or not purchase and make the choice on the basis of the prices charged.

Not economically significant prices are likely to be charged in order to raise some revenue or achieve some reduction in the excess demand that may occur when services are provided completely free.

The economically significant price of a product is defined in relation to the institutional unit and local KAU that has produced the output. For example, all the output of unincorporated enterprises owned by households sold to other institutional units is sold at economically significant prices; it is thus to be regarded as market output. For the output of other institutional units, the ability to undertake a market activity at economically significant prices will be checked notably through a quantitative criterion (the 50 % criterion), using the ratio of sales to production costs. To be a market producer, the unit shall cover at least 50 % of its costs by its sales over a sustained multi-year period.

3.20

 Definition: output produced for own final use consists of goods or services that are retained either for own final consumption or for capital formation by the same institutional unit.

3.21

 Products retained for own final consumption can only be produced by the households sector. Examples of products retained for own final consumption include:

(a)

agricultural products retained by farmers;

(b)

dwelling services produced by owner-occupiers;

(c)

household services produced by employing paid staff.

3.22

 Products used for own capital formation can be produced by any sector. Examples of such products are:

(a)

machine tools produced by engineering enterprises;

(b)

dwellings, or extensions to dwellings, produced by households;

(c)

own-account construction, including communal construction undertaken by groups of households;

(d)

own-account software;

(e)

own-account research and development. Expenditure on research and development is only to be recorded as fixed capital formation when a sufficiently high level of reliability and comparability of the estimates across the Member States has been achieved.

3.23

 Definition: non-market output is output that is provided to other units for free, or at prices that are not economically significant.

Non-market output (P.13) is subdivided into two items: ‧Payments for non-market output‧ (P.131), which consists of various fees and charges, and ‧Non-market output, other‧ (P.132), which is output provided for free.

Non-market output is produced for the following reasons.

(a)

It may be technically impossible to make individuals pay for collective services because their consumption of such services cannot be monitored and controlled. The production of collective services is organised by government units and financed out of funds other than receipts from sales, namely taxation or other government incomes.

(b)

Government units and NPISHs may also produce and supply goods or services to individual households for which they could charge but choose not to do so as a matter of social or economic policy. Examples are the provision of education or health services, for free or at prices that are not economically significant.

3.24

 Definition: market producers are local KAUs or institutional units the majority of output of which is market output.

If a local KAU or institutional unit is a market producer, its main output is by definition market output, as the concept of market output is defined after having applied the distinction market, for own final use and non-market output, to the local KAU and institutional unit that have produced that output.

3.25

 Definition: producers for own final use are local KAUs or institutional units the major part of the output of which is for own final use within the same institutional unit.

3.26

 Definition: non-market producers are local KAUs or institutional units the major part of the output of which is provided for free or at not economically significant prices.

Institutional units: distinction between market, for own final use and non-market

3.27

 For institutional units as producers, the distinction between market, for own final use and non-market is summarised in Table 3.1. The classification by sectors is also shown.

Table 3.1 —   The distinction between market producers, producers for own final use and non-market producers for institutional units

Type of institutional unit

Classification

Private or public?

 

NPI or not?

Market producer?

Type of producer

Sector(s)

1.

Private producers

1.1

Unincorporated enterprises owned by households (excluding quasi-corporate enterprises owned by households)

 

 

1.1 = Market or for own final use

Households

 

1.2

Other private producers (including quasi-corporate enterprises owned by households)

1.2.1

Private NPIs

1.2.1.1

Yes

1.2.1.1 = Market

Corporations

 

 

 

1.2.1.2

No

1.2.1.2 = Non-market

NPISH

 

 

1.2.2

Other private producers not NPI

 

1.2.2 = Market

Corporations

2.

Public producers

 

 

2.1

Yes

2.1 = Market

Corporations

 

 

 

2.2

No

2.2 = Non-market

General government

3.28

 Table 3.1 shows that, in order to determine whether an institutional unit should be classified as a market producer, a producer for own-final use or a non-market producer, several distinctions are made sequentially. The first distinction is between private and public producers. A public producer is a producer that is controlled by the general government, where control is as defined in paragraph 2.38.

3.29

 As Table 3.1 shows, private producers are found in all sectors except general government. In contrast, public producers are only found in the non-financial corporations sector, the financial corporations sector, and the general government sector.

3.30

 A specific category of private producers is that of unincorporated enterprises owned by households. These are market producers or producers for own final use. The latter occurs in case of the production of services of owner-occupied dwellings and the own-account production of goods. All unincorporated enterprises owned by households are classified to the households sector apart from quasi-corporate enterprises owned by households. These are market producers and classified in the non-financial corporations and financial corporations sectors.

3.31

 For other private producers, a distinction is made between private non-profit institutions and other private producers.

Definition: a private non-profit institution (NPI) is defined as a legal or social entity acting for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gains for the units that establish, control or finance them. Where their productive activities generate surpluses, such surpluses cannot be appropriated by other institutional units.

A private NPI is classified to the non-financial corporations and financial corporations sectors, if it is a market producer.

A private NPI is classified to the NPISH sector if it is a non-market producer, except when it is under the control of government. When a private NPI is controlled by government, then it is classified in the general government sector.

All other private producers that are not NPIs are market producers. They are classified in the non-financial corporations and financial corporations sectors.

3.32

 In distinguishing between market and non-market output and between market and non-market producers, several criteria are to be used. The market-non-market criteria in question (see paragraph 3.19 on the definition of economically significant prices) seek to assess the existence of market circumstances and sufficient market behaviour by the producer. According to the quantitative market-non-market criterion, products sold at economically significant prices should cover at least a majority of the production costs by sales.

3.33

 In applying this quantitative market-non-market criterion, sales and production costs are defined as follows.

(a)

Sales shall mean the sales excluding taxes on products but including all payments made by general government or the institutions of the Union and granted to any kind of producer in this type of activity, i.e. all payments linked to the volume or value of output are included, but payments to cover an overall deficit or settle debts are excluded.

This definition of sales corresponds to that of output at basic prices except that:

(1)

output at basic prices is only defined after it has been decided on whether the output is market or non-market: sales are only used in valuing market output; non-market output is valued at costs;

(2)

the payments made by general government to cover an overall deficit of public corporations and quasi-corporations constitute part of other subsidies on products as defined in point (c) of paragraph 4.35. As a consequence, market output at basic prices includes the payments made by general government to cover an overall deficit.

(b)

Sales exclude other sources of revenue like holding gains (though they could be a normal and expected part of business revenue), investment grants, other capital transfers (e.g. debt redemption) and the purchase of equity.

(c)

For the purpose of this criterion, production costs are equal to the sum of intermediate consumption, compensation of employees, consumption of fixed capital, other taxes on production plus costs of capital. Other subsidies on production are not deducted. To ensure consistency of the concepts ‧sales‧ and ‧production costs‧ when applying the quantitative market-non-market criterion, ‧production costs‧ shall exclude all costs incurred for own-account capital formation. For the sake of simplicity, the costs of capital may in general be approximated by the net actual interest payments. However, for producers of financial services, the interest charge is taken, i.e. a correction is made for financial intermediation services indirectly measured (FISIM).

The quantitative market-non-market criterion is applied by looking over a range of years. Minor fluctuations in the size of sales from one year to another do not require a reclassification of institutional units (and their local KAUs and output).

3.34

 Sales may consist of various elements. For example, in the case of health care services provided by a hospital, sales may correspond to:

(a)

purchases by employers to be recorded as income in kind paid to their employees and final consumption expenditure by these employees;

(b)

purchases by private insurance companies;

(c)

purchases by social security funds and general government to be classified as social benefits in kind;

(d)

purchases by households without reimbursement (final consumption expenditure).

Only other subsidies on production and gifts (e.g. from charities) received are not treated as sales.

Similarly, as an illustrative example, the sale of transport services by an enterprise may correspond to intermediate consumption by producers, income in kind provided by employers, social benefits in kind provided by the government and purchases by households without reimbursement.

3.35

 Private non-profit institutions serving businesses are a special case. They are usually financed by contributions or subscriptions from the group of businesses concerned. The subscriptions are treated not as transfers but as payments for services rendered, i.e. as sales. These NPIs are therefore market producers and are classified in the non-financial corporations or the financial corporations sector.

3.36

 In applying the criterion of comparing sales and production costs of private or public NPIs, including in sales, all the payments linked to volume of output may be misleading in some specific cases. This can be the case, for example, in relation to the financing of private and public schools. Payments by general government can be linked to the number of pupils but be the subject of negotiation with general government. In such a case, those payments are not recorded as sales, although they may have an explicit link with a measure of the volume of output, such as the number of pupils. This implies that a school mainly financed by such payments is a non-market producer.

3.37

 Public producers can be market producers or non-market producers. Market producers are classified in the non-financial and financial corporations sectors. If the institutional unit is a non-market producer, it is classified in the general government sector.

3.38

 Local KAUs as market producers and as producers for own final use cannot supply non-market output. Their output can thus only be recorded as market output or output for own final use and valued correspondingly (see paragraphs 3.42 to 3.53).

3.39

 Local KAUs as non-market producers can supply as secondary output market outputs and output for own final use. The output for own final use consists of own-account capital formation. The occurrence of market output should in principle be determined by applying the qualitative and quantitative market-non-market criteria to individual products. Such secondary market output by non-market producers might be the case for instance when government hospitals charge economically significant prices for some of their services.

3.40

 Other examples are sales of reproductions by government museums and sales of weather forecasts by meteorological institutes.

3.41

 Non-market producers may also have revenues from the sale of their non-market output at not economically significant prices, e.g. the museum's revenues from tickets for entrance. These revenues pertain to non-market output. However, if both types of revenues (revenues from tickets and those from the sale of posters and cards) are difficult to distinguish, they can all be treated as either revenues for market output or revenues from non-market output. The choice between these two alternative registrations should depend on the assumed relative importance of both types of revenues (from tickets versus those from the sale of posters and cards).

Time of recording and valuation of output

3.42

 Output is to be recorded and valued when it is generated by the production process.

3.43

 All output is to be valued at basic prices, but specific conventions hold for:

(a)

the valuation of non-market output;

(b)

the valuation of total output of a non-market producer (local KAU);

(c)

the valuation of the total output of an institutional unit of which a local KAU is a non-market producer.

3.44

 Definition: the basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output minus any tax (i.e. taxes on products) payable on that unit as a consequence of its production or sale, plus any subsidy (i.e. subsidies on products) receivable on that unit as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer. It also excludes holding gains and losses on financial and non-financial assets.

3.45

 Output for own final use (P.12) is valued at the basic prices of similar products sold on the market. This generates net operating surplus or mixed income for such output. An example is services of owner-occupied dwellings generating net operating surplus. If basic prices of similar products are not available, output for own final use should be valued at the costs of production plus a mark-up (except for non-market producers) for net operating surplus or mixed income.

3.46

 Additions to work-in-progress are valued at the current basic price of the finished product.

3.47

 In order to estimate in advance the value of output treated as work-in-progress, the value is based on the actual costs incurred, plus a mark-up (except for non-market producers) for the estimated operating surplus or mixed income. The provisional estimates are subsequently replaced by those obtained by distributing the actual value (once known) of the finished products, over the period of work-in-progress.

The value of the output of finished products is the sum of the values of:

(a)

finished products sold or bartered;

(b)

entries of finished products into inventories, less withdrawals;

(c)

finished products for own final use.

3.48

 For buildings and structures acquired in an incomplete state, a value is estimated based on costs to date, including a mark-up for operating surplus or mixed income. This mark-up results when the value can be estimated on the basis of the prices of similar buildings and structures. The amounts of stage payments may be used to approximate the values of gross fixed capital formation undertaken by the purchaser at each stage, assuming no advance payments or arrears.

Where the own-account construction of a structure is not completed within a single accounting period, the value of the output is estimated by the following method. The ratio of the costs incurred in the current period to the total costs over the whole time of construction is calculated. This ratio is applied to the estimate of total output at the current basic price. If it is not possible to estimate the value of the finished structure at current basic price, it is valued by its total costs of production plus a mark-up (except for non-market producers) for net operating surplus or mixed income. If some or all of the labour is provided free, as may happen with communal construction by households, an estimate of what the cost of paid labour would have been is included in the estimated total production costs using wage rates for similar labour inputs.

3.49

 The total output of a non-market producer (a local KAU) is valued at the total costs of production, i.e. the sum of:

(a)

intermediate consumption (P.2);

(b)

compensation of employees (D.1);

(c)

consumption of fixed capital (P.51c);

(d)

other taxes on production (D.29) less other subsidies on production (D.39).

Interest payments (excluding FISIM) are not included as costs of non-market production. The costs of non-market production also do not include an imputation for a net return on capital, nor an imputation for the rental value of the non-residential buildings owned and used in non-market production.

3.50

 The total output of an institutional unit is the sum of the total output of its constituent local KAUs. This applies also to institutional units that are non-market producers.

3.51

 In the absence of secondary market output by non-market producers, non-market output is valued at the costs of production. In the case of secondary market output by non-market producers, non-market output is valued as a residual item, i.e. as the total costs of production minus their revenues from market output.

3.52

 Market output by non-market producers is valued at basic prices. Total output of a non-market local KAU covering market, non-market and own final use output is valued by the sum of production costs. The value of its market output is given by its receipts from sales of market products, the value of its non-market output being obtained residually as the difference between the value of its total output and the sum of its market output and output for own final use. The value of its receipts from the sale of non-market goods or services at prices that are not economically significant does not figure in these calculations — they are part of the value of its non-market output.

3.53

 A list of exceptions and clarifications to the times of recording and the valuation of output follows, in the order of CPA sections.

Products of agriculture, forestry and fishing (Section A)

3.54

 The output of agricultural products is recorded as being produced continuously over the entire period of production (and not only when the crops are harvested or animals slaughtered).

Growing crops, standing timber and stocks of fish or animals reared for purposes of food are treated as inventories of work-in-progress during the process, and transformed into inventories of finished products when the process is completed.

Output excludes any changes in uncultivated biological resources, e.g. growth of animals, birds, fish living in the wild or uncultivated growth of forests.

Manufactured products (Section C); construction work (Section F)

3.55

 In the case of the construction of a building or other structure extending over several accounting periods, the output produced each period is treated as being sold to the purchaser at the end of the period, i.e. recorded as fixed capital formation by the purchaser rather than work-in-progress in the construction industry. The output is treated as being sold to the purchaser in stages. When the contract calls for stage payments, the value of the output may be approximated by the value of stage payments made each period. Where there is no certainty as to the ultimate purchaser, the incomplete output produced each period is recorded as work-in-progress.

Wholesale and retail trade services; repair services of motor vehicles and motorcycles (Section G)

3.56

 The output of wholesale and retail services is measured by the trade margins realised on the goods they purchase for resale.

Definition: a trade margin is the difference between the actual or imputed sale price realised on a good purchased for resale, and the price that would have to be paid by the distributor to replace the good at the time it is sold or otherwise disposed of.

Trade margins realised on some goods can be negative if their sale prices are marked down. Trade margins are negative on goods that are not sold, but instead go to waste or are stolen. Trade margins on goods given to employees as compensation in kind, or withdrawn for final consumption by owners, are equal to zero.

Holding gains and losses are not included in the trade margin.

The output of a wholesaler or retailer is given by the following identity:

 

the value of output =

 

the value of sales

 

plus the value of goods purchased for resale and used for intermediate consumption, compensation of employees in kind or mixed income in kind,

 

minus the value of goods purchased for resale,

 

plus the value of additions to inventories of goods for resale,

 

minus the value of goods withdrawn from inventories of goods for resale,

 

minus the value of recurrent losses due to normal rates of wastage, theft or accidental damage.

Transportation and storage (Section H)

3.57

 The output of transport services is measured by the value of the amounts receivable for transporting goods or persons. Transportation for own use within the local KAU is considered ancillary activity and is not separately identified and recorded.

3.58

 The output of storage services is measured as the value of an addition to work-in-progress. Increases in the price of goods while in inventories should not be regarded as work-in-progress and production, but be treated as holding gains. If the increase in value reflects a rise in price with no change in quality, then there is no further production during the period in addition to the costs of storage or the explicit purchase for a storage service. However, in three cases the increase in value is regarded as production:

(a)

the quality of the good may improve with the passage of time, e.g. in case of wine; only in cases where maturing is part of the regular production process, the increase of the quality of the good is regarded as production;

(b)

seasonal factors affecting the supply or demand for a specific good that lead to regular, predictable variations in price over the year, even though its physical qualities may not have changed;

(c)

the production process is sufficiently long that discounting factors are applied to work carried out significantly long before delivery.

3.59

 Most changes in prices of goods while in inventories are not additions to work-in-progress. In order to estimate the increase in the value of goods stored over and above the storage costs, use may be made of the expected increase in value over and above the general rate of inflation over a predetermined period. Any gain that occurs outside the predetermined period continues to be recorded as a holding gain or loss.

Storage services do not include any change in price due to holding financial assets, valuables or other non-financial assets like land and buildings.

3.60

 The output of travel agency services is measured as the value of service charges of agencies (fees or commission charges) and not by the full expenditures made by travellers to the travel agency, including charges for transport by third parties.

3.61

 The output of tour operator services is measured by the full expenditure made by travellers to the tour operator.

3.62

 Travel agency services and tour operator services are distinguished by the fact that travel agency services amount only to intermediation on behalf of the traveller, while tour operator services create a new product called a tour, which has various components of travel, accommodation and entertainment.

Accommodation and food services (Section I)

3.63

 The value of the output of the services of hotels, restaurants and cafes includes the value of the food, beverages, etc. consumed.

Financial and insurance services (Section K): output of the central bank

The central bank delivers the following services:

(a)

monetary policy services;

(b)

financial intermediation services;

(c)

supervisory services overseeing financial corporations.

The output of the central bank is measured as the sum of its costs.

Financial and insurance services (Section K): financial services in general

Financial services consist of the following services:

(a)

financial intermediation (including insurance and pension services);

(b)

services of financial auxiliaries; and

(c)

other financial services.

3.64

 Financial intermediation is financial risk management and liquidity transformation. Corporations engaged in these activities obtain funds for example by taking deposits, and issuing bills, bonds and other securities. The corporations use these funds as well as own funds to acquire financial assets by making loans to others and by purchasing bills, bonds or other securities. Financial intermediation includes insurance and pension services.

3.65

 Auxiliary financial activities facilitate risk management and liquidity transformation. Financial auxiliaries act on behalf of other units and do not put themselves at risk by incurring financial liabilities or by acquiring financial assets as part of an intermediation service.

3.66

 Other financial services include monitoring services such as monitoring the stock and bond market, security services such as safeguarding expensive jewellery and important documents, and trading services such as foreign exchange dealing and dealing in securities.

3.67

 Financial services are produced almost exclusively by financial institutions because of the stringent supervision of those services. For example, if a retailer wishes to offer credit facilities to its customers, the credit facilities are usually offered by a financial corporation subsidiary of the retailer or by another specialised financial institution.

3.68

 Financial services may be paid for directly or indirectly. Some transactions in financial assets may involve both direct charges and indirect charges. Financial services are provided and charged for in four main ways:

(a)

financial services provided for direct payment;

(b)

financial services paid for through loading interest charges;

(c)

financial services in acquiring and disposing of financial assets and liabilities in financial markets;

(d)

financial services provided in insurance and pension schemes, where the activity is financed by loading insurance contributions and from the income return on savings.

Financial services provided for direct payment

3.69

 These financial services are provided for explicit charges, covering a wide range of services that may be provided by different types of financial institutions. The following examples illustrate the nature of the services charged for directly:

(a)

banks charge households to arrange a mortgage, manage an investment portfolio, and administer an estate;

(b)

specialised institutions charge non-financial corporations for organising a takeover or for administering a restructuring of a group of corporations;

(c)

credit card companies charge units that accept credit cards usually a percentage of each sale;

(d)

a card holder is charged an explicit fee, usually each year, for holding the card.

Financial services paid for through loading interest charges

3.70

 For example, in financial intermediation, a financial institution like a bank accepts deposits from units wishing to receive interest on funds for which the unit has no immediate use and lends them to other units whose funds are insufficient to meet their needs. The bank thus provides a mechanism to allow the first unit to lend to the second. Each of the two parties pays a fee to the bank for the service provided: the unit lending funds pays by accepting a rate of interest lower than the ‧reference‧ rate of interest, while the unit borrowing funds pays by accepting a rate of interest higher than the ‧reference‧ rate of interest. The difference between the interest rate paid to banks by borrowers and the interest rate actually paid to depositors is a charge for FISIM.

3.71

 It is seldom the case that the amount of funds lent by a financial institution exactly matches the amount deposited with them. Some money may have been deposited but not yet loaned. Some loans may be financed by the bank's own funds and not from borrowed funds. Irrespective of the source of finance, a service is provided for the loans and deposits offered. FISIM are imputed for all loans and deposits. These indirect charges apply only to loans and deposits provided by, or deposited with, financial institutions.

3.72

 The reference rate lies between bank interest rates on deposits and loans. It does not correspond to an arithmetic average of the rates on loans or deposits. The rate prevailing for inter-bank borrowing and lending is a suitable choice. However, different reference rates are needed for each currency in which loans and deposits are denominated, especially when a non-resident financial institution is involved.

FISIM are described in detail in Chapter 14.

Financial services consisting of acquiring and disposing of financial assets and liabilities in financial markets

3.73

 When a financial institution offers a security (e.g. bill or bond) for sale, a service charge is levied. The purchase price (the ask price) is equal to the estimated market value of the security plus a margin. Another charge is levied when a security is sold, the price offered to the seller (the bid price) being equal to the market value minus a margin. Margins between buying and selling prices apply also to equities, investment fund shares and foreign currencies. These margins are for the provision of financial services.

Financial services provided in insurance and pension schemes, where activity is financed by loading insurance contributions and from the income return on savings

3.74

 The following financial services fall under this heading. Each of them results in a redistribution of funds.

(a)

Non-life insurance. Under a non-life insurance policy, the insurance company accepts a premium from a client and holds it until a claim is made or the period of the insurance expires. The insurance company invests the premium and the resulting property income is an extra source of funds. The property income represents income foregone by the client and is treated as an implicit supplement to the actual premium. The insurance company sets the level of the actual premiums to be such that the sum of the premiums plus the property income earned on them less the expected claims will leave a margin that the insurance company will retain as the output of the insurance company.

Non-life insurance output is calculated as:

 

total premiums earned

 

plus implicit premium supplements (equal to the property income earned on technical reserves)

 

less adjusted claims incurred.

The insurance corporation has at its disposal reserves consisting of unearned premiums (actual premiums relating to the next accounting period) and claims outstanding. Claims outstanding cover claims that have not yet been reported, have been reported but are not yet settled or have been reported and settled but are not yet paid. These reserves are called technical reserves and are used to generate investment income. Holding gains and losses are not income from investment of the insurance technical reserves. Insurance technical reserves may be invested in secondary activities of the insurance company, e.g. the letting of dwellings or offices. The net operating surplus on these secondary activities is income from the investment of insurance technical reserves.

The appropriate level of claims used in calculating output is called ‧adjusted claims‧ and these can be determined in two ways. The expectation method estimates the level of adjusted claims from a model based on the past pattern of claims payable by the corporation. The second method uses accounting information: adjusted claims are derived ex post as actual claims incurred plus the change in equalisation provisions, i.e. the funds set aside to meet unexpectedly large claims. Where the equalisation provisions are insufficient to bring adjusted claims back to a normal level, contributions from own funds are added to the measure of adjusted claims. A major feature of both methods is that unexpectedly large claims do not lead to volatile and negative estimates of output.

Changes in technical reserves and equalisation provisions in response to changes in financial regulation are recorded as other changes in the volume of assets; they are irrelevant for calculating output. If, due to lack of information, both methods for estimating adjusted claims are not possible, it may be necessary to estimate output instead by the sum of costs including an allowance for normal profits.

In case of with-profits insurance, the change in the reserves for with-profits insurance is deducted to obtain output.

(b)

A life insurance policy is a type of saving scheme. For a number of years, the policyholder pays premiums to the insurance corporation against a promise of benefits at some future date. These benefits may be expressed in terms of a formula related to the premiums paid or may be dependent on the level of success the insurance corporation has in investing the funds. The method of calculating output for life insurance follows the same general principles as for non-life insurance. However, because of the time intervals between the time when premiums are received and when benefits are paid, special allowances must be made for changes in the technical reserves. The output of life insurance is derived as:

 

premiums earned

 

plus premium supplements, less benefits due

 

less increases (plus decreases) in life insurance technical reserves.

Premiums are defined in exactly the same way for life insurance as for non-life insurance. Premium supplements are more significant for life insurance than for non-life insurance. Benefits are recorded as they are awarded or paid. There is no need under life insurance to derive an adjusted estimate of benefits since there is not the same unexpected volatility in the payment under a life policy. Life insurance technical reserves increase each year because of new premiums paid and new investment income allocated to the policyholders (but not withdrawn by them) and decrease because of benefits paid. It is thus possible to express the level of output of life insurance as the difference between the total investment income earned on the life insurance technical reserves less the part of this investment income actually allocated to the policy holders and added to the insurance technical reserves.

When this method is not feasible for data reasons or does not yield meaningful results, output of life insurance shall also be calculated as the sum of production costs plus an allowance for ‧normal profit‧.

(c)

The output of reinsurance is to be determined in exactly the same way as for non-life insurance, whether it is life or non-life policies that are being reinsured.

(d)

The output of running a social insurance scheme depends on the way in which it is organised. The following are examples of how such schemes are organised.

(1)

Social security schemes are social insurance schemes that cover the community at large, and are imposed and controlled by government. Their purpose is to provide benefits for citizens to meet the demands of old age, invalidity or death, sickness, work injury, unemployment, family and health care, etc. If separate units are distinguished, their output is determined in the same way as all non-market output as the sum of costs. If separate units are not distinguished, the output of social security is included with the output of the level of government at which it operates.

(2)

When an employer operates his own social insurance scheme, the value of the output is determined as the sum of costs including an estimate for a return to any fixed capital used in the operation of the scheme. The value of output is measured in the same way where the employer establishes a separate pension fund to manage the scheme.

(3)

Where an employer uses an insurance corporation to manage the scheme on his behalf, the value of the output is the fee charged by the insurance corporation.

(4)

For a multi-employer scheme, the value of output is measured as for life insurance policies: it is investment income received by the schemes less the amount added to reserves.

(e)

Measuring the output of standardised loan guarantee schemes depends on the type of producer involved. If a standardised loan guarantee scheme operates as a market producer, the value of output is calculated in the same way as non-life insurance. If the scheme operates as a non-market producer, the value of output is calculated as the sum of costs.

Real estate services (Section L)

3.75

 The output of services of owner-occupied dwellings is valued at the estimated value of rental that a tenant would pay for the same accommodation, taking into account factors such as location, neighbourhood amenities, etc., as well as the size and quality of the dwelling itself. For garages located separately from dwellings, which are used by the owner for final consumption purposes in connection with using the dwelling, a similar imputation is to be made. The rental value of owner-occupied dwellings abroad, e.g. holiday homes, should not be recorded as part of domestic production, but as imports of services and the corresponding net operating surplus as primary income received from the rest of the world. For owner-occupied dwellings owned by non-residents, analogous entries are made. In case of time-sharing apartments, a proportion of the service charge is recorded.

3.76

 To estimate the value of owner-occupied dwelling services, the stratification method is used. The stock of dwellings is stratified by location, nature of dwelling and other factors that affect the rental. Information about actual rentals from rented dwellings is used to obtain an estimate of the rental value of the total stock of dwellings. The average actual rental per stratum is applied to all dwellings in that particular stratum. If the information on rentals is derived from sample surveys, the grossing-up to total stock rentals relates to both a part of the rented and all owner-occupied dwellings. The detailed procedure to determine a rental per stratum is carried out for a base year and is then extrapolated to the later periods.

3.77

 The rental to be applied to owner-occupied dwellings in the stratification method is defined as the private market rental due for the right to use an unfurnished dwelling. The rentals for unfurnished dwellings from all private market contracts are used to determine imputed rentals. Private market rentals that are at a low level due to government regulation are included. If the information source is the tenant, the observed rental is corrected by adding any specific rental allowance, which is paid directly to the landlord. If the sample size for the observed rentals as defined above is not large enough, observed rentals for furnished dwellings may be used for imputation purposes, provided they are adjusted for the furniture element. Exceptionally, also increased rentals for public-owned dwellings may be used. Low rentals for dwellings let to relatives or to employees should not be used.

3.78

 The stratification method is used for grossing up to all rented dwellings. The average rental for imputation as described above may not be suitable for some segments of the rental market. For example, scaled-down rentals for furnished dwellings or increased public rentals are not appropriate for the respective actually rented dwellings. In this case, separate strata for actually rented furnished or social dwellings combined with appropriate average rentals are required.

3.79

 In the absence of a sufficiently large rental market, where accommodation is characteristic of owner-occupied dwellings, the user-cost method is applied for owner-occupied dwellings.

Under the user-cost method, the output of dwelling services is the sum of intermediate consumption, consumption of fixed capital, other taxes less subsidies on production and net operating surplus (NOS).

The NOS is measured by applying a constant real annual rate of return to the net value of the stock of owner-occupied dwellings at current prices (replacement costs).

3.80

 The output of real estate services of non-residential buildings is measured by the value of the rentals due.

Professional, scientific and technical services (Section M); Administrative and support services (Section N)

3.81

 The output of operating leasing services, such as renting out machinery or equipments, is measured by the value of the rental paid. Operating leasing is different from financial leasing: financial leasing is financing the acquisition of fixed assets, by making a loan from the lessor to the lessee. Financial leasing payments consist of repayments of principal and interest payments, with a small charge for direct services provided (see Chapter 15: Contracts, leases and licences).

3.82

 Research and development (R&D) is creative work undertaken on a systematic basis to increase the stock of knowledge, and use of this stock of knowledge for the purpose of discovering or developing new products, including improved versions or qualities of -existing products, or discovering or developing new or more efficient processes of production. R&D of a significant size relative to the principal activity is recorded as a secondary activity of the local KAU. A separate local KAU is distinguished for R&D where possible.

3.83

 The output of R&D services is measured as follows:

(a)

R&D by specialised commercial research laboratories or institutes is valued at the revenues from sales, contracts, commissions, fees, etc. in the usual way;

(b)

the output of R&D for use within the same enterprise is valued on the basis of the estimated basic prices that would be paid if the research were subcontracted. In the absence of a market for subcontracting R&D of a similar nature, it is valued as the sum of production costs plus a mark-up (except for non-market producers) for NOS or mixed income;

(c)

R&D by government units, universities and non-profit research institutes is valued as the sum of the costs of production. Revenues from the sale of R&D by non-market producers of R&D are to be recorded as revenues from secondary market output.

Expenditure on R&D is distinguished from that on education and training. Expenditure on R&D does not include the costs of developing software as a principal or secondary activity.

Public administration and defence services, compulsory social security services (Section O)

3.84

 Public administration, defence services and compulsory social security services are provided as non-market services and valued accordingly.

Education services (Section P); human health and social work services (Section Q)

3.85

 For education services and health services, a precise distinction is drawn between market and non-market producers and between their market and non-market output. For example, for some types of education and medical treatment, nominal fees can be levied by government institutions (or by other institutions due to specific subsidies), but for other education and special medical treatments they may charge commercial tariffs. Another example is that the same type of service (e.g. higher education) is provided by, on the one hand, the government and, on the other hand, commercial institutes.

Education and health services exclude R&D activities; health services exclude education in health care, e.g. by academic hospitals.

Arts, entertainment and recreation services (Section R); other services (Section S)

3.86

 The production of books, recordings, films, software, tapes, disks, etc. is a two-stage process and is measured accordingly:

(1)

the output from the production of originals — an intellectual property product — is measured by the price paid if sold, or, if not sold, by the basic price paid for similar originals, its production costs (including a mark-up for NOS) or the discounted value of the future receipts expected from using it in production;

(2)

the owner of this asset may use it directly or to produce copies in subsequent periods. If the owner has licensed other producers to make use of the original in production, the fees, commissions, royalties, etc. received from the licenses are the output of services. However, the sale of the original is negative fixed capital formation.

Private households as employers (Section T)

3.87

 The output of household services produced by employing paid staff is valued by the compensation of employees paid; this includes any compensation in kind such as food or accommodation.

INTERMEDIATE CONSUMPTION (P.2)

3.88

 Definition: intermediate consumption consists of goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services are either transformed or used up by the production process.

3.89

 Intermediate consumption includes the following cases:

(a)

goods and services used as inputs into ancillary activities. Common examples are purchasing, sales, marketing, accounting, data processing, transportation, storage, maintenance, security, etc. These goods and services are not distinguished from those consumed by the principal (or secondary) activities of a local KAU;

(b)

goods and services which are received from another local KAU of the same institutional unit;

(c)

rental of fixed assets, e.g. the operational leasing of machines, cars, software and entertainment originals;

(d)

fees for short-term contracts, leases and licences recorded as non-produced assets; this excludes the outright purchase of such non-produced assets;

(e)

the subscriptions, contributions or dues paid to non-profit business associations (see paragraph 3.35);

(f)

items not treated as gross capital formation, such as:

(1)

inexpensive tools used for common operations, such as saws, spades, knives, axes, hammers, screwdrivers, spanners, wrenches and other hand tools; small devices such as pocket calculators. All expenditure on such durables is recorded as intermediate consumption;

(2)

the regular maintenance and repair of fixed assets used in production;

(3)

services of staff training, market research and similar activities, purchased from an outside agency or provided by a separate local KAU of the same institutional unit;

(4)

expenditure on R&D will be treated as fixed capital formation when a sufficiently high level of reliability and comparability of the estimates by the Member States has been achieved;

(g)

expenditure by employees, reimbursed by the employer, on items necessary for the employers' production, like contractual obligations to purchase on own-account tools or safety-wear;

(h)

expenditure by employers which is to their own benefit as well as to that of their employees, because it is necessary for production. Examples are:

(1)

reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties;

(2)

providing amenities at the place of work.

A list of relevant expenditure is presented in the paragraphs on compensation of employees (D.1) (see paragraph 4.07);

(i)

non-life insurance service charges paid by local KAUs (see Chapter 16: Insurance). To record only the service charge as intermediate consumption, the premiums paid are discounted for, e.g. claims paid out and the net change in actuarial reserves. The net change in actuarial reserves shall be allocated to the local KAUs as a proportion of the premiums paid;

(j)

FISIM purchased by resident producers;

(k)

the non-market output of the central bank output should be entirely allocated to the intermediate consumption of other financial intermediaries.

3.90

 Intermediate consumption excludes:

(a)

items treated as gross capital formation, examples being:

(1)

valuables;

(2)

mineral exploration;

(3)

major improvements beyond those required to keep the fixed assets in good working order. Examples are renovation, reconstruction or enlargement;

(4)

software purchased outright or produced on own-account;

(5)

military weapons and the equipment to deliver them;

(b)

expenditure treated as the purchase of non-produced assets. Examples are long-term contracts, leases and licences (see Chapter 15);

(c)

expenditure by employers treated as wages and salaries in kind;

(d)

use by market or own-account producer units of collective services provided by government units (treated as collective consumption expenditure by government);

(e)

goods and services produced and consumed within the same accounting period and within the same local KAU (they are also not recorded as output);

(f)

payments for government licenses and fees that are treated as other taxes on production;

(g)

payments for licences for using natural resources (e.g. land) that are treated as rents, i.e. as a payment of property income.

Time of recording and valuation of intermediate consumption

3.91

 Products used for intermediate consumption are recorded and valued at the time they enter the process of production. They are valued at the purchasers' prices for similar goods or services at the time of use.

3.92

 Producer units do not record the use of goods in production directly. They record the purchases intended to be used as inputs less the increase in the amounts of such goods held in inventory.

FINAL CONSUMPTION (P.3, P.4)

3.93

 Two concepts of final consumption are used:

(a)

final consumption expenditure (P.3);

(b)

actual final consumption (P.4).

Final consumption expenditure is expenditure on goods and services used by households, NPISHs and government to satisfy individual and collective needs. In contrast, actual final consumption refers to its acquisition of consumption goods and services. The difference between these concepts lies in the treatment of certain goods and services financed by the government or NPISHs but supplied to households as social transfers in kind.

Final consumption expenditure (P.3)

3.94

 Definition: final consumption expenditure consists of expenditure incurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants or the collective needs of members of the community.

3.95

 Household final consumption expenditure includes the following examples:

(a)

services of owner-occupied dwellings;

(b)

income in kind, such as:

(1)

goods and services received as income in kind by employees;

(2)

goods or services produced as outputs of unincorporated enterprises owned by households that are retained for consumption by members of the household. Examples are food and other agricultural goods, housing services by owner-occupiers and household services produced by employing paid staff (servants, cooks, gardeners, chauffeurs, etc.);

(c)

items not treated as intermediate consumption, such as:

(1)

materials for small repairs to and interior decoration of dwellings of a kind carried out by tenants as well as owners;

(2)

materials for repairs and maintenance to consumer durables, including vehicles;

(d)

items not treated as capital formation, in particular consumer durables, that continue to perform their function in several accounting periods; this includes the transfer of ownership of some durables from an enterprise to a household;

(e)

financial services directly charged and the part of FISIM used for final consumption purposes by households;

(f)

insurance services by the amount of the implicit service charge;

(g)

pension funding services by the amount of the implicit service charge;

(h)

payments by households for licences, permits, etc. which are regarded as purchases of services (see paragraphs 4.79 and 4.80);

(i)

the purchase of output at not economically significant prices, e.g. entrance fees for a museum.

3.96

 Household final consumption expenditure excludes the following:

(a)

social transfers in kind, such as expenditures initially incurred by households but subsequently reimbursed by social security, e.g. some medical expenses;

(b)

items treated as intermediate consumption or gross capital formation, such as:

(1)

expenditures by households owning unincorporated enterprises when incurred for business purposes — e.g. on durable goods such as vehicles, furniture or electrical equipment (gross fixed capital formation), and also on non-durables such as fuel (treated as intermediate consumption);

(2)

expenditure that an owner-occupier incurs on the decoration, maintenance and repair of the dwelling not typically carried out by tenants (treated as intermediate consumption in producing housing services);

(3)

the purchase of dwellings (treated as gross fixed capital formation);

(4)

expenditure on valuables (treated as gross capital formation);

(c)

items treated as acquisitions of non-produced assets, in particular the purchase of land;

(d)

all those payments by households which are to be regarded as taxes (see paragraphs 4.79 and 4.80);

(e)

subscriptions, contributions and dues paid by households to NPISHs, such as trade unions, professional societies, consumers' associations, churches and social, cultural, recreational and sports clubs;

(f)

voluntary transfers in cash or in kind by households to charities and relief and aid organisations.

3.97

 Final consumption expenditure of NPISHs includes two separate categories:

(a)

the value of the goods and services produced by NPISHs other than own-account capital formation and other than expenditure made by households and other units;

(b)

expenditures by NPISHs on goods or services produced by market producers that are supplied — without any transformation — to households for their consumption as social transfers in kind.

3.98

 Final consumption expenditure (P.3) by government includes two categories of expenditures, similar to those by NPISHs:

(a)

the value of the goods and services produced by general government itself (P.1) other than own-account capital formation (corresponding to P.12), market output (P.11) and payments for non-market output (P.131);

(b)

purchases by general government of goods and services produced by market producers that are supplied to households, without any transformation, as social transfers in kind (D.632). General government pays for these goods and services that the sellers provide to households.

3.99

 Corporations do not make final consumption expenditures. Their purchases of goods and services as used by households for final consumption are either used for intermediate consumption or provided to employees as compensation of employees in kind, i.e. imputed household final consumption expenditure.

Actual final consumption (P.4)

3.100

 Definition: actual final consumption consists of the goods or services that are acquired by resident institutional units for the direct satisfaction of human needs, whether individual or collective.

3.101

 Definition: goods and services for individual consumption (‧individual goods and services‧) are goods and services acquired by a household and used to satisfy the needs and wants of members of that household. Individual goods and services have the following characteristics:

(a)

it is possible to observe and record the acquisition of the goods and services by an individual household or member thereof and also the time at which the acquisition took place;

(b)

the household has agreed to the provision of the goods and services and takes the action necessary to consume the goods and services, for example by attending a school or clinic;

(c)

the goods and services are such that their acquisition by one household or person, or by a group of persons, precludes its acquisition by other households or persons.

3.102

 Definition: collective services are services for collective consumption that are provided simultaneously to all members of the community or all members of a particular section of the community, such as all households living in a particular region. Collective services have the following characteristics:

(a)

they can be delivered simultaneously to every member of the community or to particular sections of the community, such as those in a particular region or locality;

(b)

the use of such services is usually passive and does not require the agreement or active participation of all the individuals concerned;

(c)

the provision of a collective service to one individual does not reduce the amount available to other in the same community or section of the community.

3.103

 All household final consumption expenditure is individual. All goods and services provided by NPISHs are treated as individual.

3.104

 For the goods and services provided by government units, the borderline between individual and collective goods and services is drawn on the basis of the classification of the functions of government (COFOG).

All government final consumption expenditure under each of the following headings is treated as expenditure on individual consumption:

(a)

7.1

Medical products, appliances and equipment

7.2

Outpatient services

7.3

Hospital services

7.4

Public health services;

(b)

8.1

Recreational and sporting services

8.2

Cultural services;

(c)

9.1

Pre-primary and primary education

9.2

Secondary education

9.3

Post-secondary non-tertiary education

9.4

Tertiary education

9.5

Education not definable by level

9.6

Subsidiary services to education;

(d)

10.1

Sickness and disability

10.2

Old age

10.3

Survivors

10.4

Family and children

10.5

Unemployment

10.6

Housing

10.7

Social exclusion not elsewhere included.

3.105

 Alternatively individual consumption expenditure of general government corresponds to division 14 of the classification of individual consumption by purpose (Coicop), which includes the following groups:

14.1

Housing (equivalent to COFOG group 10.6)

14.2

Health (equivalent to COFOG groups 7.1 to 7.4)

14.3

Recreation and culture (equivalent to COFOG groups 8.1 and 8.2)

14.4

Education (equivalent to COFOG groups 9.1 to 9.6)

14.5

Social protection (equivalent to COFOG groups 10.1 to 10.5 and group 10.7).

3.106

 Collective consumption expenditure is the remainder of the government final consumption expenditure.

It consists of the following COFOG groups:

(a)

general public services (division 1);

(b)

defence (division 2);

(c)

public order and safety (division 3);

(d)

economic affairs (division 4);

(e)

environmental protection (division 5);

(f)

housing and community amenities (division 6);

(g)

general administration, regulation, dissemination of general information and statistics (all divisions);

(h)

research and development (all divisions).

3.107

 The relationships between the various consumption concepts employed can be shown in Table 3.2.

Table 3.2 —   Sector making expenditure

 

Government

NPISHs

Households

Total acquisitions

Individual consumption

X (= Social transfers in kind

X (= Social transfers in kind)

X

Households actual individual final consumption

Collective consumption

X

0

0

Government's actual collective final consumption

Total

Government's final consumption expenditure

NPISHs final consumption expenditure

Households' final consumption expenditure

Actual final consumption = Total final consumption expenditure

X: applicable

0: not applicable

3.108

 Final consumption expenditure of NPISHs is all individual. Total actual final consumption is equal to the sum of households' actual final consumption and actual final consumption of general government.

3.109

 There are no social transfers in kind with the rest of the world (though there are such transfers in monetary terms). Total actual final consumption is equal to total final consumption expenditure.

Time of recording and valuation of final consumption expenditure

3.110

 Expenditure on a good is recorded at the time of change of ownership; expenditure on a service is recorded when the delivery of the service is completed.

3.111

 Expenditure on goods acquired under a hire purchase or similar credit agreement, and also under a financial lease, is recorded at the time the goods are delivered even if there is no change of ownership at this point.

3.112

 Own-account consumption is recorded when the output retained for own final consumption is produced.

3.113

 The final consumption expenditure of households is recorded at purchasers' prices. This is the price the purchaser actually pays for the products at the time of the purchase. A more detailed definition is in paragraph 3.06.

3.114

 Goods and services supplied as employee compensation in kind are valued at basic prices when produced by the employer and at the purchasers' prices of the employer when bought in by the employer.

3.115

 Retained goods or services for own consumption are valued at basic prices.

3.116

 Final consumption expenditures by general government or NPISHs on products produced by themselves are recorded at the time they are produced, which is also the time of delivery of such services by government or NPISHs. For the final consumption expenditure on goods and services supplied via market producers, the time of delivery is the time of recording.

3.117

 Final consumption expenditure (P.3) by general government or NPISHs is equal to the sum of their output (P.1), plus the expenditure on products supplied to households via market producers, part of social transfers in kind (D.632), minus the payments by other units, market output (P.11) and payments for non-market output (P.131), minus own-account capital formation (P.12).

Time of recording and valuation of actual final consumption

3.118

 Goods and services are acquired by institutional units when they become the new owners of the goods and when the delivery of services to them is completed.

3.119

 Acquisitions (actual final consumption) are valued at the purchasers' prices for the units that incur the expenditures.

3.120

 Transfers in kind other than social transfers in kind from government and NPISHs are treated as if they were transfers in cash. Accordingly, the values of the goods or services are recorded as expenditures by the institutional units or sectors that acquire them.

3.121

 The values of the two aggregates of final consumption expenditure and actual final consumption are the same. The goods and services acquired by resident households through social transfers in kind are valued at the same prices as those at which they are valued in the expenditure aggregates.

GROSS CAPITAL FORMATION (P.5)

3.122

 Gross capital formation consists of:

(a)

gross fixed capital formation (P.51g):

(1)

consumption of fixed capital (P.51c);

(2)

net fixed capital formation (P.51n);

(b)

changes in inventories (P.52);

(c)

acquisitions less disposals of valuables (P.53).

3.123

 Gross capital formation is measured gross of consumption of fixed capital. Net capital formation is calculated by deducting consumption of fixed capital from gross capital formation.

Gross fixed capital formation (P.51g)

3.124

 Definition: gross fixed capital formation (P.51) consists of resident producers' acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets realised by the productive activity of producer or institutional units. Fixed assets are produced assets used in production for more than one year.

3.125

 Gross fixed capital formation consists of both positive and negative values:

(a)

positive values:

(1)

new or existing fixed assets purchased;

(2)

fixed assets produced and retained for producers' own use (including own account production of fixed assets not yet completed or fully mature);

(3)

new or existing fixed assets acquired through barter;

(4)

new or existing fixed assets received as capital transfers in kind;

(5)

new or existing fixed assets acquired by the user under a financial lease;

(6)

major improvements to fixed assets and existing historic monuments;

(7)

natural growth of those natural assets that yield repeat products;

(b)

negative values, i.e. disposals of fixed assets recorded as negative acquisitions:

(1)

existing fixed assets sold;

(2)

existing fixed assets surrendered in barter;

(3)

existing fixed assets surrendered as capital transfers in kind.

3.126

 The disposals components of fixed assets exclude:

(a)

consumption of fixed capital (which includes anticipated normal accidental damage);

(b)

exceptional losses, such as those due to drought or other natural disasters, which are recorded as other change in the volume of assets.

3.127

 The following types of gross fixed capital formation are distinguished:

(1)

dwellings;

(2)

other buildings and structures; this includes major improvements to land;

(3)

machinery and equipment, such as ships, cars and computers;

(4)

weapons systems;

(5)

cultivated biological resources, e.g. trees and livestock;

(6)

costs of ownership transfer on non-produced assets, like land, contracts, leases and licences;

(7)

R&D, including the production of freely available R&D. Expenditure on R&D will only be treated as fixed capital formation when a high level of reliability and comparability of the estimates by the Member States has been achieved;

(8)

mineral exploration and evaluation;

(9)

computer software and databases;

(10)

entertainment, literary or artistic originals;

(11)

other intellectual property rights.

3.128

 Major improvements to land include:

(a)

reclamation of land from sea by the construction of dikes, sea walls or dams for this purpose;

(b)

clearance of forests, rocks, etc. to enable land to be used in production for the first time;

(c)

draining of marshes or the irrigation of deserts by the construction of dikes, ditches and irrigation channels; prevention of flooding or erosion by the sea or rivers by the construction of breakwaters, sea walls or flood barriers.

These activities may lead to the creation of substantial new structures such as sea walls, flood barriers and dams, but these structures are not used to produce other goods and services, but obtain more or better land, and it is the land, a non-produced asset, that is used in production. For example, a dam built to produce electricity serves a different purpose from a dam built to keep out the sea. Only the latter type of dam is classified as an improvement to land.

3.129

 Gross fixed capital formation includes the following borderline cases:

(a)

acquisitions of houseboats, barges, mobile homes and caravans used as residences of households and any associated structures such as garages;

(b)

structures and equipment used by the military;

(c)

light weapons and armoured vehicles used by non-military units;

(d)

changes in livestock used in production year after year, such as breeding stock, dairy cattle, sheep reared for wool and draught animals;

(e)

changes in trees that are cultivated year after year, such as fruit trees, vines, rubber trees, palm trees, etc.;

(f)

improvements to existing fixed assets beyond ordinary maintenance and repairs;

(g)

the acquisition of fixed assets by financial leasing;

(h)

terminal costs, i.e. large costs associated with disposal, e.g. decommissioning costs of nuclear power stations or clean up costs of landfill sites.

3.130

 Gross fixed capital formation excludes:

(a)

transactions included in intermediate consumption, like:

(1)

purchase of small tools for production purposes;

(2)

ordinary maintenance and repairs;

(3)

the acquisition of fixed assets to be used under an operational leasing contract (see also Chapter 15: Contracts, leases and licences). For the enterprise that is using the fixed asset, rentals are treated as intermediate consumption. For the owner of the asset, the cost of acquisition is recorded as gross fixed capital formation;

(b)

transactions recorded as changes in inventories:

(1)

animals raised for slaughter, including poultry;

(2)

trees grown for timber (work-in-progress);

(c)

machinery and equipment acquired by households for purposes of final consumption;

(d)

holding gains and losses on fixed assets;

(e)

catastrophic losses on fixed assets, e.g. destruction of cultivated assets and livestock by outbreaks of disease which is not normally covered by insurance, or damage due to abnormal flooding, wind damage or forest fires;

(f)

funds set aside or put in reserve without any commitment for the actual purchase or construction of a specific capital good, e.g. a government fund for infrastructure.

3.131

 Gross fixed capital formation in the form of improvements to existing fixed assets is recorded as acquisitions of new fixed assets of the same kind.

3.132

 Intellectual property products are the result of research and development, investigation or innovation leading to knowledge, use of which is restricted by law or other means of protection.

Examples of intellectual property assets are:

(a)

results of R&D;

(b)

results of mineral exploration, measured as the costs of actual test drilling, aerial or other surveys, transportation, etc.;

(c)

computer software and large databases to be used in production for more than one year;

(d)

entertainment, literary or artistic originals of manuscripts, models, films, sound recordings, etc.

3.133

 For both fixed assets and non-produced non-financial assets, the costs of ownership transfer incurred by their new owner consist of:

(a)

charges incurred in taking delivery of the asset (new or existing asset) at the required location and time, such as transport charges, installation charges, erection charges, etc.;

(b)

professional charges or commissions incurred, such as fees paid to surveyors, engineers, lawyers, valuers, etc., and commissions paid to estate agents, auctioneers, etc.;

(c)

taxes payable by the new owner on the transfer of ownership of the asset. These taxes are taxes on the services of intermediaries and any tax on the transfer of ownership but not taxes on the asset bought.

All these costs are to be recorded as gross fixed capital formation by the new owner.

Time of recording and valuation of gross fixed capital formation

3.134

 Gross fixed capital formation is recorded when the ownership of the fixed assets is transferred to the institutional unit that intends to use them in production.

This rule is modified for:

(a)

financial leasing, when a change of ownership from lessor to lessee is imputed;

(b)

own-account gross fixed capital formation, which is recorded when it is produced.

3.135

 Gross fixed capital formation is valued at purchasers' prices including installation charges and other costs of ownership transfer. When produced on own-account it is valued at the basic prices of similar fixed assets, and if such prices are not available, at the costs of production plus a mark-up (except for non-market producers) for net operating surplus or mixed income.

3.136

 Acquisitions of intellectual property products are valued in different ways:

(a)

for mineral exploration: by the costs of actual test drillings and borings, and the costs incurred to make it possible to carry out tests, such as aerial or other surveys;

(b)

for computer software: by purchasers' prices when purchased on the market, or at its estimated basic price, or if no basic price is available, at its costs of production plus a mark-up for net operating surplus (except for non-market producers) when developed in-house;

(c)

for entertainment, literary or artistic originals: valued at the price paid by the purchaser when it is sold, or if not sold, the following methods of estimation are acceptable:

(i)

at the basic price paid for similar originals;

(ii)

the sum of its production costs plus a mark-up (except for non-market producers) for net operating surplus; or

(iii)

the discounted value of expected receipts.

3.137

 Disposals of existing fixed assets by sale are valued at basic prices, deducting any costs of ownership transfer incurred by the seller.

3.138

 Costs of ownership transfer can apply to both produced assets, including fixed assets, and non-produced assets, such as land.

These costs are included in the purchasers' prices in the case of produced assets. They are separated from the purchases and sales themselves in the case of land and other non-produced assets, and recorded under a separate heading in the classification of gross fixed capital formation.

Consumption of fixed capital (P.51c)

3.139

 Definition: consumption of fixed capital (P.51c) is the decline in value of fixed assets owned, as a result of normal wear and tear and obsolescence. The estimate of decline in value includes a provision for losses of fixed assets as a result of accidental damage which can be insured against. Consumption of fixed capital covers anticipated terminal costs, such as the decommissioning costs of nuclear power stations or oil rigs or the cleanup costs of landfill sites. Such terminal costs are recorded as consumption of fixed capital at the end of the service life, when the terminal costs are recorded as gross fixed capital formation.

3.140

 Consumption of fixed capital shall be calculated for all fixed assets (except animals), including intellectual property rights, major improvements to land and costs of ownership transfers associated with non-produced assets.

3.141

 Consumption of fixed capital is different from the depreciation allowed for tax purposes or the depreciation shown in business accounts. Consumption of fixed capital is estimated on the basis of the stock of fixed assets and the expected average economic life of the different categories of those goods. For the calculation of the stock of fixed assets, the perpetual inventory method (PIM) is applied whenever direct information on the stock of fixed assets is missing. The stock of fixed assets is valued at the purchasers' prices of the current period.

3.142

 Losses of fixed assets occurring as a result of accidental damage which can be insured against are taken into account in calculating the average service life of the goods in question. For the economy as a whole the accidental damages within a given accounting period will be equal, or close, to the average. For individual units and groupings of units, actual and average accidental damage may differ. In this case, for sectors, any difference is recorded as other changes in volume of fixed assets.

3.143

 Consumption of fixed capital shall be calculated according to the ‧straight line‧ method, by which the value of a fixed asset is written off at a constant rate over the whole lifetime of the good.

3.144

 In some cases, the geometric depreciation method is used when the pattern of decline in the efficiency of a fixed asset requires it.

3.145

 In the system of accounts, consumption of fixed capital is recorded below each balancing item, which is shown gross and net. Recording ‧gross‧ means without deducting consumption of fixed capital, while recording ‧net‧ means after deducting consumption of fixed capital.

Changes in inventories (P.52)

3.146

 Definition: changes in inventories are measured by the value of the entries into inventories less the value of withdrawals and the value of any recurrent losses of goods held in inventories.

3.147

 Due to physical deterioration, or accidental damage or pilfering, recurrent losses may occur to all kinds of goods in inventories, such as:

(a)

losses of materials and supplies;

(b)

losses in the case of work-in-progress;

(c)

losses of finished goods;

(d)

losses of goods for resale (e.g. shoplifting).

3.148

 Inventories consist of the following categories:

(a)

materials and supplies:

materials and supplies consist of all products held in stock with the intention of using them as intermediate inputs in production; this includes products held in stock by the government. Items such as gold, diamonds, etc. are included when intended for industrial use or other production;

(b)

work-in-progress:

work-in-progress consists of output produced that is not yet finished. It is recorded in the inventories of its producer. Examples of the different forms it can take are the following:

(1)

growing crops;

(2)

maturing trees and livestock;

(3)

uncompleted structures (except those produced under a contract of sale agreed in advance or on own-account; both of these examples are treated as fixed capital formation);

(4)

uncompleted other fixed assets, e.g. ships and oil rigs;

(5)

partially completed research for a legal or consultant's dossier;

(6)

partially completed film productions;

(7)

partially completed computer programs.

Work-in-progress shall be recorded for any production process that is not finished at the end of the given period. This is significant in quarterly accounts, an example being agricultural crops not completing growth within a quarter of a year.

Reductions in work-in-progress take place when the production process is completed. At that point, all work-in-progress is transformed into a finished product;

(c)

finished goods:

finished goods as part of inventories consist of outputs that their producer does not intend to process further before supplying them to other institutional units;

(d)

goods for resale:

goods for resale are goods acquired for the purpose of reselling them unchanged from their present state.

Time of recording and valuation of changes in inventories

3.149

 The time of recording and the valuation of changes in inventories is consistent with those of other transactions in products. This applies in particular to intermediate consumption (e.g. for materials and supplies), output (e.g. work-in-progress and output from storage of agricultural products) and gross fixed capital formation (e.g. work-in-progress). If goods are processed abroad with a change of economic ownership, the goods are to be included in exports (and later in imports). The export is reflected in a concomitant reduction in inventories, and the corresponding later import is recorded as an increase in inventories, provided it is not sold or used at once.

3.150

 In measuring changes in inventories, goods entering inventories are valued at the time of entry, and goods being withdrawn are valued at the time of withdrawal.

3.151

 The prices used to value goods in changes in inventories are as follows:

(a)

output of finished goods transferred into the producer's inventories is valued as if they were sold at that time, at current basic prices;

(b)

additions to work-in-progress are valued in proportion to the estimated current basic price of the finished product;

(c)

reductions in work-in-progress due to work withdrawn from inventories when production is finished are valued at current basic prices of the unfinished product;

(d)

goods transferred out of inventories for sale are valued at basic prices;

(e)

goods for resale entering the inventories of wholesalers and retailers, etc. are valued at the actual or estimated purchasers' prices of the trader;

(f)

goods for resale withdrawn from inventories are valued at the purchasers' prices at which they can be replaced at the time they are withdrawn, and not at the price when they were acquired.

3.152

 Losses as a result of physical deterioration, insurable accidental damage or pilfering are recorded and valued as follows:

(a)

for materials and supplies: as materials and supplies actually withdrawn to be used up in production (intermediate consumption);

(b)

for work-in-progress: valued as deduction from the additions accruing to production carried out in the same period;

(c)

for finished goods and goods for resale: treated as withdrawals at the current price of undeteriorated goods.

3.153

 Where information is lacking, the following approximate methods for the estimation of change in inventories are used:

(a)

when changes in the volume of inventories are regular, an acceptable approximate method is to multiply the volume change of the inventories by the average prices for the period. Purchasers' prices are used for inventories held by users or by wholesalers or retailers; basic prices are used for inventories held by their producers;

(b)

when prices of the goods involved remain constant, fluctuations in the volume of inventories do not invalidate the approximation of estimating the change in inventories by multiplying the volume change by the average price;

(c)

if both the volume and the prices of the inventories change substantially within the accounting period, more sophisticated approximation methods are required. For example, quarterly valuation of the changes in inventories or the use of information about the distribution of the fluctuations within the accounting period (fluctuations may be largest at the end of the calendar year, during harvest time, etc.);

(d)

if information about the values at the beginning and end of the period are available (e.g. in case of wholesale or retail trade in which inventories often exist of many different products), but no separate information about prices and volumes, the changes in volume between the beginning and end of the period are estimated. One way of estimating the change in volumes is to estimate constant turn-over rates by type of product.

Seasonal changes in prices may reflect a change in quality, e.g. clearance prices or off-season prices for fruit and vegetables. These changes in quality are treated as changes in the volume.

Acquisitions less disposals of valuables (P.53)

3.154

 Definition: valuables are non-financial goods that are not used primarily for production or consumption, do not deteriorate (physically) over time under normal conditions and are acquired and held primarily as stores of value.

3.155

 Valuables include the following types of goods:

(a)

precious stones and metals, such as diamonds, non-monetary gold, platinum, silver, etc.;

(b)

antiques and other art objects, such as paintings, sculptures, etc.;

(c)

other valuables, such as jewellery fashioned out of precious stones and metals and collectors' items.

3.156

 Such types of goods are recorded as acquisition or disposal of valuables in the following examples:

(a)

the acquisition or disposal of non-monetary gold, silver, etc. by central banks and other financial intermediaries;

(b)

the acquisition or disposal of these goods by enterprises whose principal or secondary activity does not involve the production or trade in such types of goods. This acquisition or disposal is not included in the intermediate consumption or fixed capital formation of these enterprises;

(c)

the acquisition or disposal of such goods by households. Such acquisitions are not included in final consumption expenditure by households.

In the ESA, by convention also the following cases are recorded as acquisition or disposal of valuables:

(a)

the acquisition or disposal of these goods by jewellers and art dealers (following the general definition of valuables, the acquisition of these goods by jewellers and art dealers should be recorded as changes in inventories);

(b)

the acquisition or disposal of these goods by museums (following the general definition of valuables, the acquisition by a museum of these goods should be recorded as fixed capital formation).

This convention avoids frequent reclassification between the three main types of capital formation, i.e. between acquisition less disposal of valuables, fixed capital formation and changes in inventories, e.g. in the case of transactions of such goods between households and art dealers.

3.157

 The production of valuables is valued at basic prices. All other acquisitions of valuables are valued at the purchasers' prices paid for them, including any agents' fees or commissions. They include trade margins when bought from dealers. Disposals of valuables are valued at the prices received by sellers, after deducting any fees or commissions paid to agents or other intermediaries. Acquisitions less disposals of valuables between resident sectors cancel out, leaving only agents and dealers margins.

EXPORTS AND IMPORTS OF GOODS AND SERVICES (P.6 and P.7)

3.158

 Definition: exports of goods and services consist of transactions in goods and services (sales, barter, and gifts) from residents to non-residents.

3.159

 Definition: imports of goods and services consist of transactions in goods and services (purchases, barter, and gifts) from non-residents to residents.

3.160

 Exports and imports of goods and services do not include:

(a)

establishment trade, i.e.:

(1)

deliveries to non-residents by non-resident affiliates of resident enterprises, e.g. sales abroad by foreign affiliates of a multinational owned/controlled by residents;

(2)

deliveries to residents by resident affiliates of non-resident enterprises, e.g. sales by domestic affiliates of a foreign multinational;

(b)

primary income flows to or from the rest of the world, such as compensation of employees, interest and revenues from direct investment. The revenues from direct investment may include an indistinguishable part for the provision of various services, e.g. training of employees, management services and the use of patents and trademarks;

(c)

the cross-border sale or purchase of financial assets or non-produced assets, such as land.

3.161

 Imports and exports of goods and services are distinguished into:

(a)

intra-EU deliveries;

(b)

imports and exports outside the EU.

Both types are referred to as imports and exports.

Exports and imports of goods (P.61 and P.71)

3.162

 Imports and exports of goods occur when economic ownership of goods changes between residents and non-residents. This applies irrespective of corresponding physical movements of goods across frontiers.

3.163

 For deliveries between affiliated enterprises (branch or subsidiary, or foreign affiliate): a change of economic ownership is imputed whenever goods are delivered between affiliated enterprises. This applies only when the establishment receiving the goods assumes responsibility for making the decisions about the levels of supply and prices at which their output is delivered for the market.

3.164

 Exports of goods occur without the goods crossing the country's frontier in the following examples:

(a)

goods produced by resident units operating in international waters are sold directly to non-residents in foreign countries. Examples of such goods are oil, natural gas, fishery products, maritime's salvage;

(b)

transportation equipment or other movable equipment not tied to a fixed location;

(c)

goods after changing ownership, which are lost or destroyed before they have crossed the frontier of the exporting country;

(d)

merchanting, i.e. the purchase of a good by a resident from a non-resident and the subsequent resale of the good to another non-resident, without the good entering the merchant's economy.

Analogous cases occur for the imports of goods.

3.165

 Imports and exports of goods include transactions between residents and non-residents in the following:

(a)

non-monetary gold;

(b)

silver bullion, diamonds and other precious metals and stones;

(c)

paper money and coins not in circulation and unissued securities (valued as goods, not at face value);

(d)

electricity, gas and water;

(e)

livestock driven across frontiers;

(f)

parcel post;

(g)

government exports including goods financed by grants and loans;

(h)

goods transferred to or from the ownership of a buffer stock organisation;

(i)

goods delivered by a resident enterprise to its non-resident affiliates, except for goods for processing;

(j)

goods received by a resident enterprise from its non-resident affiliates, except for goods for processing;

(k)

smuggled goods or products not reported for taxes like import duties and VAT;

(l)

other unrecorded shipments, such as gifts and those of less than a stated minimum value.

3.166

 Imports and exports of goods exclude the following goods which nevertheless may cross the national frontier:

(a)

goods in transit through a country;

(b)

goods shipped to or from a country's own embassies, military bases or other enclaves inside the national frontiers of another country;

(c)

transportation equipment and other movable kinds of equipment which leave a country temporarily, without any change of economic ownership, e.g. construction equipment for installation or construction purposes abroad;

(d)

equipment and other goods which are sent abroad for processing, maintenance, servicing or repair; this applies also to goods processed to order abroad when a substantial physical change in the goods is involved;

(e)

other goods which leave a country temporarily, being generally returned within a year in their original state and without change of economic ownership.

Examples are goods sent abroad for exhibition and entertainment purposes, goods under an operating lease, including leases for several years and goods returned without being sold to a non-resident;

(f)

goods on consignment lost or destroyed after crossing a frontier before change of ownership occurs.

3.167

 Imports and exports of goods are recorded when the ownership of the goods is transferred. A change of ownership is considered to occur at the time the parties to the transaction record it in their books or accounts. This may not coincide with the various stages of the contractual process, such as:

(a)

the time of commitment (contract date);

(b)

the time of provision of goods and services and acquisition of a claim for payment (transfer date);

(c)

the time of settlement of that claim (payment date).

3.168

 Imports and exports of goods are to be valued free on board at the border of the exporting country (FOB). This value is:

(a)

the value of the goods at basic prices;

(b)

plus the related transport and distributive services up to that point of the border, including the cost of loading on to a carrier for onward transportation;

(c)

plus any taxes less subsidies on the goods exported; for intra-EU deliveries this includes VAT and other taxes on the goods paid in the exporting country.

In the supply and use and symmetric input-output tables, imports of goods for individual product groups are valued at the cost-insurance-freight (CIF) price at the border of the importing country.

3.169

 Definition: the CIF price is the price of a good delivered at the frontier of the importing country, or the price of a service delivered to a resident, before the payment of any import duties or other taxes on imports or trade and transport margins within the country.

3.170

 Proxies or substitute measures for the FOB value may be necessary under certain circumstances, such as:

(a)

barter of goods are valued at the basic prices that would have been received if the goods had been sold for cash;

(b)

transactions between affiliated enterprises: as a rule, actual transfer values are used. However, if they differ from market prices, they are replaced by an estimated market price equivalent;

(c)

goods transferred under a financial lease: the goods are valued on the basis of the purchasers' price paid by the lessor, and not by the cumulative value of the rental payments;

(d)

imports of goods estimated on the basis of customs data (for extra-EU trade) or Intrastat-information (for intra-EU trade). Both data sources do not apply FOB valuation; they use respectively the CIF value at the EU border and CIF values at the national border. As FOB-values are only used at the most aggregate level and CIF-values are used at the product group level, these modifications are applied at the most aggregate level, and the modification is known as the CIF/FOB adjustment;

(e)

imports and exports of goods estimated on the basis of survey information or various types of ad hoc information. In such instances, the total value of sales split out by product is obtained. The estimate is based on purchasers' prices and not on FOB values.

Exports and imports of services (P.62 and P.72)

3.171

 Definition: exports of services consist of all services rendered by residents to non-residents.

3.172

 Definition: imports of services consist of all services rendered by non-residents to residents.

3.173

 Exports of services include the following cases:

(a)

transportation of exported goods after they have left the frontier of the exporting country when provided by a resident carrier (cases 2 and 3 in Table 3.3);

(b)

transportation of imported goods by a resident carrier:

(1)

up to the frontier of the exporting country when goods are valued FOB to offset the transportation value included in the FOB-value (case 3 in Table 3.4);

(2)

up to the frontier of the importing country when goods are valued CIF to offset the transportation value included in the CIF-value (cases 3 and 2 CIF in Table 3.4);

(c)

transportation of goods by residents on behalf of non-residents which does not involve imports or exports of the goods (e.g. the transport of goods that do not leave the country as exports or the transport of goods outside the domestic territory);

(d)

passenger transportation on behalf of non-residents by resident carriers;

(e)

processing and repair activities on behalf of non-residents; these activities are to be recorded net, i.e. as an export of services excluding the value of the goods processed or repaired;

(f)

installation of equipment abroad when a project is of limited duration by its nature;

(g)

financial services provided by residents to non-residents including both the explicit and implicit service charge, like FISIM;

(h)

insurance services provided by residents to non-residents by the amount of the implicit service charge;

(i)

expenditure by non-resident tourists and business travellers. The expenditure is classified as services; for the purposes of the supply and use and symmetric input-output tables, a breakdown by component products is necessary;

(j)

expenditure by non-residents on health and education services provided by residents; this includes the provision of these services on the domestic territory as well as abroad;

(k)

services of owner-occupied holidays homes of non-residents (see paragraph 3.77);

(l)

royalties and license fees, receipts of which are associated with the authorised use of intellectual property rights, such as patents, copyrights, trademarks, industrial processes, franchises, etc., and with the use through licensing agreements of produced originals or prototypes, such as manuscripts, paintings, etc. paid by non-residents to residents.

3.174

 There is an equivalent import of service as a mirror image of the list of exports of services in paragraph 3.173, and only the following imports of services require further description.

3.175

 Imports of transport services include the following examples:

(a)

transportation of exported goods up to the frontier of the exporting country when provided by a non-resident carrier to offset the transportation value included in the FOB-value of the exported goods (case 4 in Table 3.3);

(b)

transportation of imported goods by a non-resident carrier:

(1)

from the frontier of the exporting country as a separate transportation service when imported goods are valued FOB (cases 4 and 5 FOB in Table 3.4);

(2)

from the frontier of the importing country as a separate transportation service when imported goods are valued CIF (in this case the value of the transportation service between the frontiers of the exporting and the importing country is already included in the CIF-value of the good; case 4 in Table 3.4);

(c)

transportation of goods by non-residents on behalf of residents which does not involve imports or exports of goods (e.g. transport of goods in transit or transport outside the domestic territory);

(d)

international or national passenger transportation on behalf of residents by non-resident carriers.

Imports of transport services do not include transportation of exported goods after they have left the frontier of the exporting country when provided by a non-resident carrier (cases 5 and 6 in Table 3.3). Exports of goods are valued FOB and all such transport services are thus to be regarded as transactions between non-residents, i.e. between a non-resident carrier and a non-resident importer. This applies when these transportation services are paid under export-CIF-contracts by the exporter.

3.176

 Imports in respect of direct purchases abroad by residents cover all purchases of goods and services made by residents while travelling abroad for business or personal purposes. Two categories must be distinguished because they require different treatment:

(a)

all business related expenditure by business travellers are intermediate consumption;

(b)

all other expenditure, whether by business travellers or other travellers, are household final consumption expenditure.

3.177

 Imports and exports of services are recorded at the time at which they are rendered. This time coincides with the time at which the services are produced. Imports of services are valued at purchasers' price and exports of services at basic prices.

Table 3.3 —   The treatment of transportation of exported goods

Domestic territory

Territory in-between

Territory of importing country

1.

 resident carrier

Image 3

2.

 resident carrier

Image 4

3.

 resident carrier

Image 5

4.

 non-resident carrier

Image 6

5.

 non-resident carrier

Image 7

6.

 non-resident carrier

Image 8

 

Exports of goods (FOB)

Exports of services

Imports of goods (CIF/FOB)

Imports of services

1.

x

—

—

—

2.

—

x

—

—

3.

—

x

—

—

4.

x

—

—

x

5.

—

—

—

—

6.

—

—

—

—

3.178

 Explanation of how to read this table: the first part of this table indicates that there are six possibilities of transportation of exported goods, depending on whether the carrier is resident or not and depending on where the transport takes place: from a place on the domestic territory to the national border, from the national border to the border of the importing country or from the border of the importing country to a place within the importing country. In the second part of this table, for each of these six possibilities, it is indicated whether the transportation costs are to be recorded as exports of goods, exports of services, imports of goods or imports of services.

Table 3.4 —   The treatment of transportation of imported goods

Domestic territory

Territory in between

Territory of exporting country

1.

 resident carrier

Image 9

2.

 resident carrier

Image 10

3.

 resident carrier

Image 11

4.

 non-resident carrier

Image 12

5.

 non-resident carrier

Image 13

6.

 non-resident carrier

Image 14

 

Valuation of imported goods

Imports of goods

Imports of services

Exports of goods (FOB)

Exports of services

1.

CIF/FOB

—

—

—

—

2.

FOB

CIF

—

x

—

—

—

—

—

x

3.

CIF/FOB

x

—

—

x

4.

CIF/FOB

—

x

—

—

5.

FOB

CIF

—

x

x

—

—

—

—

—

6.

CIF/FOB

x

—

—

—

3.179

 Explanation of how to read this table: the first part of this table indicates that there are six possibilities of transportation of imported goods, depending on whether the carrier is resident or not and depending on where the transport takes place: from a place in the exporting country to the border of this exporting country, from the border of the exporting country to the border of the importing country and from the national border to a place on the domestic territory. In the second part of this table, for each of these six possibilities, it is indicated whether the transportation costs are to be recorded as imports of goods, imports of services, exports of goods or exports of services. In some instances (cases 2 and 5), this recording depends on the valuation principle applied for imported goods. Note that the transition from valuation of imported goods at CIF to FOB consists of:

(a)

CIF/FOB adjustment, i.e. from 2 CIF to 2 FOB (reduces total imports and exports);

(b)

CIF/FOB reclassification, i.e. from 5 CIF to 5 FOB (leaves total imports and exports unchanged).

TRANSACTIONS IN EXISTING GOODS

3.180

 Definition: existing goods are goods that already have had a user (other than inventories).

3.181

 Existing goods include:

(a)

buildings and other fixed capital goods which have been sold by producer units to other units:

(1)

to be reused as such;

(2)

to be demolished or broken up; the resulting products becoming raw materials (e.g. scrap iron) used for the production of new goods (e.g. steel);

(b)

valuables sold from one unit to another;

(c)

consumer durables which have been sold by households to other units:

(1)

to be reused as such;

(2)

to be broken up and converted into demolition materials;

(d)

non-durable goods (e.g. waste paper, rags, old clothes, old bottles, etc.) which have been sold by any unit, either to be used again or to become raw material for the manufacture of new goods.

The transfer of existing goods is recorded as a negative expenditure (acquisition) for the seller and a positive expenditure (acquisition) for the purchaser.

3.182

 This definition of existing goods has the following consequences:

(a)

when the sale of an existing fixed asset or valuable takes place between two resident producers, the positive and negative values recorded for gross fixed capital formation cancel out for the economy as a whole except for the costs of ownership transfer;

(b)

when an existing immovable fixed asset (e.g. a building) is sold to a non-resident, the latter is treated as purchasing a financial asset, i.e. the equity of a notional resident unit. This notional resident unit is then deemed to purchase the fixed asset. The sale and purchase of the fixed asset take place between resident units;

(c)

when an existing movable fixed asset, such as a ship or aircraft, is exported, no positive gross fixed capital formation is recorded in the economy to offset the seller's negative gross fixed capital formation;

(d)

durable goods, such as vehicles, may be classified as fixed assets or as consumer durables depending upon the owner and the purpose for which they are used. If the ownership of such a good is transferred from an enterprise to a household to be used for final consumption, negative gross fixed capital formation is recorded for the enterprise and positive consumption expenditure for the household. Where ownership of such a good is transferred from a household to an enterprise, for the household negative final consumption expenditure is recorded and for the enterprise positive gross fixed capital formation is recorded;

(e)

transactions in existing valuables are to be recorded as the acquisition of a valuable (positive gross capital formation) by the purchaser and as the disposal of a valuable (negative gross capital formation) by the seller. In case of a transaction with the rest of the world, the import or export of a good is to be recorded. The sale of a valuable by a household is not to be recorded as negative final consumption expenditure;

(f)

when existing military durables are sold abroad by the government, this is recorded as an export of goods and as negative fixed capital formation by the government.

3.183

 Transactions in existing goods are recorded at the time of change of ownership. The valuation principles appropriate to the type of transactions in products involved are applied.

ACQUISITIONS LESS DISPOSALS OF NON-PRODUCED ASSETS (NP)

3.184

 Definition: non-produced assets consist of assets that have not been produced within the production boundary, and that may be used in the production of goods and services.

3.185

 Three categories of acquisition less disposals of non-produced assets are distinguished:

(a)

Acquisition less disposals of natural resources (NP.1);

(b)

Acquisition less disposals of contracts, leases and licenses (NP.2);

(c)

Purchases less sales of goodwill and marketing assets (NP.3).

3.186

 Natural resources shall comprise the following categories:

(a)

Land;

(b)

Mineral and energy reserves;

(c)

Non-cultivated biological resources;

(d)

Water resources;

(e)

Radio spectra;

(f)

Other natural resources.

Natural resources exclude the produced asset cultivated biological resources. The purchase or sale of cultivated biological resources is not recorded as acquisition less disposal of natural resources; it is recorded as fixed capital formation. Also, payments for the temporary use of natural resources are not recorded as acquisition of natural resources; they are recorded as rent, i.e. as property income (see Chapter 15: Contracts, leases and licences).

3.187

 Land is defined as the ground itself, including soil covering and associated surface water. The associated surface water includes any inland waters (reservoirs, lakes, rivers, etc.) over which ownership rights can be exercised.

3.188

 The following items are not included under the heading of land:

(a)

buildings or other structures on the land or through it (for example roads and tunnels);

(b)

vineyards, orchards, or other plantations of trees and growing crops, etc.;

(c)

subsoil assets;

(d)

non-cultivated biological resources;

(e)

water resources below the ground.

Items (a) and (b) are produced fixed assets, items (c), (d) and (e) are types of non-produced assets.

3.189

 Acquisitions and disposals of land and other natural resources are valued at current market prices prevailing at the time the acquisitions/disposals occur. Transactions in natural resources are recorded at the same value in the accounts of the purchaser and in those of the seller. This value excludes the costs of the transfer of ownership of the natural resource. These costs are treated as gross fixed capital formation.

3.190

 Contracts, leases and licenses as non-produced assets consist of the following classes:

(a)

marketable operating leases;

(b)

permits to use natural resources, e.g. fishing quota;

(c)

permits to undertake specific activities, e.g. emission permits and licences for a limited number of casinos or to operate taxis in a certain area;

(d)

entitlements to future goods and services on an exclusive basis, e.g. a footballer's contracts and a publisher's exclusive right to publish new works by a named author.

3.191

 Contracts, leases and licenses as a category of non-produced assets exclude the operating lease of such assets; payments for the operating lease are recorded as intermediate consumption.

The value of acquisitions and disposals of contracts, leases and licences excludes the associated costs of ownership transfer. The costs of ownership transfer are a component of gross fixed capital formation.

3.192

 Definition: the value of goodwill and marketing assets is the difference between the value paid for an enterprise as a ‧going concern‧ and the sum of its assets less the sum of its liabilities. To calculate the total value of assets less liabilities, each individual asset and liability is separately identified and valued.

3.193

 Goodwill is only recorded when its value is evidenced by a market transaction, for example by the sale of the whole corporation. Where identified marketing assets are sold individually and separately from the whole corporation, such sale is recorded under this item.

3.194

 Acquisitions less disposals of non-produced assets are recorded in the capital account of the sectors, the total economy and the rest of the world.

 

CHAPTER 4

DISTRIBUTIVE TRANSACTIONS

4.01

 Definition: distributive transactions are transactions whereby the value added generated by production is distributed to labour, capital and government, and transactions redistributing income and wealth.

A distinction is drawn between current and capital transfers, with capital transfers redistributing saving or wealth, rather than income.

COMPENSATION OF EMPLOYEES (D.1)

4.02

 Definition: compensation of employees (D.1) is defined as the total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during an accounting period.

Compensation of employees is made up of the following components:

(a)

wages and salaries (D.11):

—

wages and salaries in cash,

—

wages and salaries in kind;

(b)

employers' social contributions (D.12):

—

employers' actual social contributions (D.121):

—

employers' actual pension contributions (D.1211),

—

employers' actual non-pension contributions (D.1212),

—

employers' imputed social contributions (D.122):

—

employers' imputed pension contributions (D.1221),

—

employers' imputed non-pension contributions (D.1222).

Wages and salaries (D.11)

Wages and salaries in cash

4.03

 Wages and salaries in cash include social contributions, income taxes, and other payments payable by the employee, including those withheld by the employer and paid directly to social insurance schemes, tax authorities, etc. on behalf of the employee:

Wages and salaries in cash include the following kinds of remuneration:

(a)

basic wages and salaries payable at regular intervals;

(b)

enhanced payments, such as payments for overtime, night work, weekend work, disagreeable or hazardous circumstances;

(c)

cost of living allowances, local allowances and expatriation allowances;

(d)

bonuses or other exceptional payments linked to the overall performance of the enterprise made under incentive schemes; bonuses based on productivity or profits, Christmas and New Year bonuses excluding employee social benefits (see point (c) of paragraph 4.07); ‧13th to 14th month‧ pay also known as annual supplementary pay;

(e)

allowances for transport to and from work, excluding allowances or reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties (see point (a) of paragraph 4.07);

(f)

holiday pay for official holidays or annual holidays;

(g)

commissions, tips, attendance and directors' fees paid to employees;

(h)

payments made by employers to their employees under saving schemes;

(i)

exceptional payments to employees who leave the enterprise, where those payments are not linked to a collective agreement;

(j)

housing allowances paid in cash by employers to their employees.

Wages and salaries in kind

4.04

 Definition: wages and salaries in kind consist of goods and services, or other non-cash benefits, provided free of charge or at reduced prices by employers, that can be used by employees in their own time and at their own discretion, for the satisfaction of their own needs or wants or those of other members of their households.

4.05

 Examples of wages and salaries in kind are:

(a)

meals and drinks, including those consumed when travelling on business but excluding special meals or drinks necessitated by exceptional working conditions. Price reductions obtained in free or subsidised canteens, or obtained by luncheon vouchers, are included in wages and salaries in kind;

(b)

own account and purchased housing or accommodation services of a type that can be used by all members of the household to which the employee belongs;

(c)

uniforms or other forms of special clothing which employees choose to wear frequently outside of the workplace as well as at work;

(d)

the services of vehicles or other durables provided for the personal use of employees;

(e)

goods and services produced as outputs from the employer's own processes of production, such as free travel for the employees of railways or airlines, free coal for miners, or free food for employees in agriculture;

(f)

the provision of sports, recreation or holiday facilities for employees and their families;

(g)

transportation to and from work, except when organised in the employer's time; car parking when it would otherwise have to be paid for;

(h)

child care for the children of employees;

(i)

payments for the benefit of employees, made by employers to works councils or similar bodies;

(j)

bonus shares distributed to employees;

(k)

loans to employees at reduced rates of interest. The value of this benefit is estimated as the amount the employee would have to pay if interest at market conditions were charged, less the amount of interest actually paid. The benefit is recorded in wages and salaries in the generation of income account, and the corresponding imputed payment of interest from the employee to employer is recorded in the primary distribution of income account;

(l)

stock options, when an employer gives an employee the option to buy stocks or shares at a specified price at a future date (see paragraphs 4.168 to 4.178);

(m)

incomes generated by non-observed activities in corporate sectors and transferred to the employees participating in such activities for their private use.

4.06

 Goods and services given to employees as wages and salaries in kind are valued at basic prices when produced by the employer, and at purchasers' prices when purchased by the employer. When provided free, the whole value of the wages and salaries in kind is calculated according to the basic prices (or purchasers' prices of the employer when purchased by the employer) of the goods and services in question. This value is reduced by the amount paid by the employee when the goods and services are given at reduced prices rather than free of charge.

4.07

 Wages and salaries do not include the following:

(a)

expenditure by employers necessary for the employers' production process. Examples are the following:

(1)

allowances or reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties;

(2)

expenditure on providing amenities at the place of work, medical examinations required because of the nature of the work and supplying working clothes which are worn for work;

(3)

accommodation services at the place of work of a kind which cannot be used by the households to which the employees belong, for example cabins, dormitories, workers' hostels, and huts;

(4)

special meals or drinks necessitated by exceptional working conditions;

(5)

allowances paid to employees for the purchase of tools, equipment or special clothing needed for their work, or that part of their wages or salaries which, under their contracts of employment, employees are required to devote to such purchases. To the extent that employees who are required by their contract of employment to purchase tools, equipment, special clothing, etc., are not fully reimbursed, the remaining expenses they incur are deducted from the amounts they receive in wages and salaries and the employers' intermediate consumption increased accordingly.

Expenditure on goods and services that employers are obliged to provide to their employees in order for them to be able to carry out their work is treated as intermediate consumption by employers;

(b)

The amounts of wages and salaries which employers pay to their employees temporarily in the case of sickness, maternity, industrial injury, disability, etc. Such payments are treated as other social insurance non-pension benefits (D.6222), with the same amounts recorded under employers' imputed non-pension social contributions (D.1222);

(c)

other employment-related social insurance benefits, in the form of children's, spouses', family, education or other allowances in respect of dependants, and in the form of the provision of free medical services (other than those necessitated by the nature of the work) to employees or their families;

(d)

taxes payable by the employer on the wage and salary bill — for example, a payroll tax. Such taxes payable by enterprises are assessed either as a proportion of the wages and salaries paid or as a fixed amount per person employed. They are treated as other taxes on production;

(e)

payments to outworkers on piecework rates. When the income received by the outworker is a function of the value of the outputs from some process of production for which that person is responsible, however much or little work was put in, this kind of remuneration implies that the worker is self-employed.

Employers' social contributions (D.12)

4.08

 Definition: employers' social contributions are social contributions payable by employers to social security schemes or other employment-related social insurance schemes to secure social benefits for their employees.

An amount equal to the value of the social contributions incurred by employers in order to secure for their employees the entitlement to social benefits is recorded under compensation of employees. Employers' social contributions may be either actual or imputed.

Employers' actual social contributions (D.121)

4.09

 Definition: employers' actual social contributions (D.121) consist of the payments made by employers for the benefit of their employees to insurers (social security and other employment-related social insurance schemes). Such payments cover statutory, conventional, contractual and voluntary contributions in respect of insurance against social risks or needs.

Although paid directly by employers to the insurers, such employers' contributions are treated as a component of the compensation of employees. The employees are then recorded as paying the contributions to the insurers.

Employers' actual social contributions are comprised of two categories, the contributions related to pensions and the contributions for other benefits, which are recorded separately under the following headings:

(a)

Employers' actual pension contributions (D.1211);

(b)

Employers' actual non-pension contributions (D.1212).

Employers' actual non-pension contributions correspond to contributions related to social risks and needs other than pensions, such as sickness, maternity, industrial injury, disability, redundancy, etc. of their employees.

Employers' imputed social contributions (D.122)

4.10

 Definition: employers' imputed social contributions (D.122) represents the counterpart to other social insurance benefits (D.622) (less eventual employees' social contributions) paid directly by employers to their employees or former employees and other eligible persons without involving an insurance enterprise or autonomous pension fund, and without creating a special fund or segregated reserve for the purpose.

Employers' imputed social contributions are divided into two categories:

(a)

Employers' imputed pension contributions (D.1221)

Social insurance schemes in respect of pensions are classified as defined contribution schemes or defined benefit schemes.

A defined contribution scheme is one where the benefits are determined by the contributions made to the scheme and the return from the investment of the funds. At the time of retirement, it is the employee that takes on all risks regarding benefits payable. For such schemes there are no imputed contributions unless the employer operates the scheme himself. In that case, the costs of operating the scheme are treated as an imputed contribution payable to the employee as part of compensation of employees. This amount is also recorded as final consumption expenditure by households on financial services.

A defined benefit scheme is one where benefits payable to the members are determined by the rules of the scheme, i.e. by the use of a formula to determine the payment or a minimum payment. In a typical defined benefit scheme, both employer and employee make contributions, with the employee contribution compulsory, being a percentage of current salary. The costs of meeting the quoted benefits are the responsibility of the employer. It is the employer who takes the risk for providing the benefits.

Under a defined benefit scheme, there is an imputed contribution by the employer calculated according to the following calculation:

The imputed contribution by the employer is equal to

the increase in benefit due to current period of employment

less

the sum of the employer's actual contribution,

less

the sum of any contribution by the employee,

plus

the costs of operating the scheme.

Some schemes may be expressed as non-contributory because no actual contributions are made by either the employer or employee. Nevertheless, an imputed contribution by the employer is calculated and imputed as just described.

Where pension entitlements of schemes for government employees are not recorded in the core accounts, the government employers' imputed pension contributions are to be estimated on the basis of actuarial calculations. Where the actuarial calculations cannot obtain a sufficient level of reliability, and in such cases only, two other approaches are possible to estimate government employers' imputed pension contributions as follows:

(1)

on the basis of a reasonable percentage of wages and salaries paid to current employees; or

(2)

as equal to the difference between current benefits payable and actual contributions payable (by both employees and government as employer).

(b)

Employers' imputed non-pension contributions (D.1222)

The fact that certain social benefits are paid directly by employers, and not through the medium of social security funds or other insurers, does not prevent them from being recorded as social welfare benefits. Since the costs of such benefits form part of employers' labour costs, they are also included in the compensation of employees. Remuneration is therefore imputed for such employees equal in value to the amount of social contributions that is needed to secure the entitlements to the social benefits that they accumulate. Such amounts take into account any actual contributions made by the employer or employee and depend not only on the levels of the benefits currently payable but also on the ways in which employers' liabilities under such schemes are likely to evolve in the future as a result of factors such as expected changes in the numbers, age distribution and life expectancies of their present and previous employees. The values imputed for the contributions are based on the same kind of actuarial calculations that determine the levels of premiums charged by insurance enterprises.

In practice, however, it may be difficult to calculate precisely the amounts of such imputed contributions. The employer may make estimates itself, perhaps on the basis of the contributions paid into similar funded schemes, in order to calculate its likely liabilities in the future, and such estimates may be used when available. Another acceptable method is to use a reasonable percentage of wages and salaries paid to current employees. Otherwise, the only practical alternative is to use the unfunded non-pension benefits payable by the employer during the same accounting period as an estimate of the imputed remuneration that would be needed to cover the imputed contributions. The benefits actually paid in the current period provide an acceptable estimate of the contributions and associated imputed remuneration.

4.11

 In the accounts of the sectors, the costs of direct social benefits appear firstly among uses in the generation of income account, as a component of the compensation of employees, and secondly among uses in the secondary distribution of income account, as social benefits. In order to balance the latter account, it is assumed that the households of employees pay back to the employers' sectors the employers' imputed social contributions, which finance, together with eventual employees' social contributions, the direct social welfare benefits provided to them by those same employers. This notional circuit is similar to that for employers' actual social contributions, which pass through the accounts of households and are then deemed to be paid by them to the insurers.

4.12

 Time of recording of compensation of employees:

(a)

wages and salaries (D.11) are recorded in the period during which the work is done. However, ad hoc bonuses or other exceptional payments such as 13th month payments are recorded when they are due to be paid. The time of recording of stock options is spread over the period between the grant date and vesting date. If the data are inadequate, the value of the option is recorded at vesting date;

(b)

employers' actual social contributions (D.121) are recorded in the period during which the work is done;

(c)

employers' imputed social contributions (D.122) are recorded according to following categories:

(1)

Those representing the counterpart of compulsory direct social benefits are recorded in the period during which the work is done;

(2)

Those representing the counterpart of voluntary direct social benefits are recorded at the time these benefits are provided.

4.13

 The compensation of employees consists of the following components:

(a)

the compensation of resident employees by resident employers;

(b)

the compensation of resident employees by non-resident employers;

(c)

the compensation of non-resident employees by resident employers.

The items listed in points (a) to (c) are recorded as follows:

(1)

the compensation of resident and non-resident employees by resident employers groups together the items listed in points (a) and (c) and is recorded as uses in the generation of income account of the sectors and industries to which the employers belong;

(2)

the compensation of resident employees by resident and non-resident employers groups together the items listed in points (a) and (b) and is recorded as resources in the allocation of primary income account of households;

(3)

for the item referred to in point (b), compensation of resident employees by non-resident employers is recorded as uses in the external account of primary incomes and current transfers;

(4)

for the item referred to in point (c), compensation of non-resident employees by resident employers, is recorded as resources in the external account of primary incomes and current transfers.

TAXES ON PRODUCTION AND IMPORTS (D.2)

4.14

 Definition: taxes on production and imports (D.2) consist of compulsory, unrequited payments, in cash or in kind, which are levied by general government, or by the institutions of the European Union, in respect of the production and importation of goods and services, the employment of labour, the ownership or use of land, buildings or other assets used in production. Such taxes are payable irrespective of profits made.

4.15

 Taxes on production and imports are comprised of the following components:

(a)

taxes on products (D.21):

(1)

value added type taxes (VAT) (D.211);

(2)

taxes and duties on imports excluding VAT (D.212);

—

import duties (D.2121),

—

taxes on imports excluding VAT and duties (D.2122);

(3)

taxes on products, except VAT and import taxes (D.214);

(b)

other taxes on production (D.29).

Taxes on products (D.21)

4.16

 Definition: taxes on products (D.21) are taxes that are payable per unit of a given good or service produced or transacted. The tax may be a specific amount of money per unit of quantity of a good or service, or it may be calculated as a specified percentage of the price per unit or value of the goods and services produced or transacted. Taxes assessed on a product, irrespective of which institutional unit pays the tax, are included in taxes on products, unless specifically included under another heading.

Value added type taxes (VAT) (D.211)

4.17

 Definition: a value added type tax (VAT) is a tax on goods or services collected in stages by enterprises and which is ultimately charged in full to the final purchaser.

This heading comprises the value added tax which is collected by general government and which is applied to national and imported products, as well as other deductible taxes applied under similar rules to those governing VAT. All value added type taxes are hereinafter referred to as: VAT. The common feature of VAT is that producers are obliged to pay to the government only the difference between the VAT on their sales and the VAT on their purchases for intermediate consumption and gross fixed capital formation.

VAT is recorded net in the sense that:

(a)

outputs of goods and services and imports are valued excluding invoiced VAT;

(b)

purchases of goods and services are recorded inclusive of non-deductible VAT. VAT is recorded as being borne by purchasers, not sellers, and then only by those purchasers who are not able to deduct it. The greater part of VAT is recorded as being paid on final uses, mainly on household consumption.

For the total economy, VAT is equal to the difference between total invoiced VAT and total deductible VAT (see paragraph 4.27).

Taxes and duties on imports excluding VAT (D.212)

4.18

 Definition: taxes and duties on imports excluding VAT (D.212) comprise compulsory payments levied by general government or the institutions of the European Union on imported goods, excluding VAT, in order to admit them to free circulation on the economic territory, and on services provided to resident units by non-resident units.

The compulsory payments include:

(a)

import duties (D.2121): these consist of customs duties, or other import charges, payable according to customs tariff schedules on goods of a particular type when they enter for use in the economic territory of the country of utilisation;

(b)

taxes on imports, excluding VAT and import duties (D.2122).

This heading includes:

(1)

levies on imported agricultural products;

(2)

monetary compensatory amounts levied on imports;

(3)

excise duties and special taxes on certain imported products, provided such duties and taxes on similar products of domestic origin are paid by the producer branch itself;

(4)

general sales taxes payable on imports of goods and services;

(5)

taxes on specific services provided by non-resident enterprises to resident units within the economic territory;

(6)

profits of public enterprises exercising a monopoly over the imports of some goods or services, which are transferred to the state.

Net taxes and duties on imports excluding VAT are calculated by deducting import subsidies (D.311) from taxes and duties on imports excluding VAT (D.212).

Taxes on products, except VAT and import taxes (D.214)

4.19

 Definition: taxes on products, except VAT and import taxes (D.214) consist of taxes on goods and services that become payable as a result of the production, export, sale, transfer, leasing or delivery of those goods or services, or as a result of their use for own consumption or own capital formation.

4.20

 This heading includes, in particular:

(a)

excise duties and consumption taxes (other than those included in taxes and duties on imports);

(b)

stamp taxes on the sale of specific products, such as alcoholic beverages or tobacco, and on legal documents or cheques;

(c)

taxes on financial and capital transactions, payable on the purchase or sale of non-financial and financial assets, including foreign exchange. They become payable when the ownership of land or other assets changes, except as a result of capital transfers (mainly inheritances and gifts). They are treated as taxes on the services of intermediaries;

(d)

car registration taxes;

(e)

taxes on entertainment;

(f)

taxes on lotteries, gambling and betting, other than those on winnings;

(g)

taxes on insurance premiums;

(h)

other taxes on specific services: hotels or lodging, housing services, restaurants, transportation, communication, advertising;

(i)

general sales or turnover taxes (excluding VAT type taxes): these include manufacturers' wholesale and retail sales taxes, purchase taxes, turnover taxes;

(j)

profits of fiscal monopolies which are transferred to the state, except those exercising a monopoly over the imports of a given good or service (included in D.2122). Fiscal monopolies are public enterprises which have been granted a legal monopoly over the production or distribution of a particular kind of good or service in order to raise revenue and not in order to further the interests of public economic or social policy. When a public enterprise is granted monopoly powers as a matter of deliberate economic or social policy because of the special nature of the good or service or the technology of production — for example, public utilities, post offices and telecommunications, railways and so on — it is not considered as a fiscal monopoly;

(k)

export duties and monetary compensatory amounts collected on exports.

4.21

 Net taxes on products are obtained by deducting subsidies on products (D.31) from taxes on products (D.21).

Other taxes on production (D.29)

4.22

 Definition: other taxes on production (D.29) consist of all taxes that enterprises incur as a result of engaging in production, independent of the quantity or value of the goods and services produced or sold.

Other taxes on production may be payable on the land, fixed assets or labour employed in the production process or on certain activities or transactions.

4.23

 Other taxes on production (D.29) include the following:

(a)

taxes on the ownership or use of land, buildings, or other structures utilised by enterprises in production (including owner-occupiers of dwellings);

(b)

taxes on the use of fixed assets (for example vehicles, machinery and equipment) for purposes of production, irrespective of the assets being owned or rented;

(c)

taxes on the total wage bill and payroll taxes;

(d)

taxes on international transactions (for example travel abroad, foreign remittances, or similar transactions with non-residents) for purposes of production;

(e)

taxes paid by enterprises for business and professional licences, if those licences are granted automatically on payment of the amounts due. In this case, it is likely that they are simply a means of raising revenue, even though the government may provide a certificate, or authorisation, in return. However, if the government uses the issue of licences to exercise some proper regulatory function, for example, when the government carries out checks on the suitability or safety of the business premises, on the reliability or safety of the equipment employed, on the professional competence of the staff employed, or on the quality or standard of goods or services produced as a condition for granting such a licence, the payments are treated as purchases of services rendered, unless the amounts charged for the licences are out of all proportion to the costs of the checks carried out by the government;

(f)

taxes on pollution resulting from production activities. These consist of taxes levied on the emission or discharge into the environment of noxious gases, liquids or other harmful substances. They do not include payments made for the collection and disposal of waste or noxious substances by public authorities, which constitute intermediate consumption of enterprises;

(g)

under-compensation of VAT resulting from the flat-rate system, frequently found in agriculture.

4.24

 Other taxes on production exclude taxes on the personal use of vehicles etc. by households, which are recorded under current taxes on income, wealth, etc.

Taxes on production and imports paid to the institutions of the European Union

4.25

 The taxes on production and imports paid to the institutions of the European Union include the following taxes collected by national governments on behalf of the institutions of the European Union: receipts from the common agricultural policy: levies on imported agricultural products, monetary compensatory amounts levied on exports and imports, sugar production levies and the tax on isoglucose, co-responsibility taxes on milk and cereals; receipts from trade with third countries: customs duties levied on the basis of the Integrated Tariff of the European Communities (TARIC).

The taxes on production and imports paid to the Institutions of the European Union do not include the VAT-based third own resource which is included in other current transfers under the heading ‧VAT- and GNI-based EU own resources‧ (D.76) (see paragraph 4.140).

Taxes on production and imports: time of recording and amounts to be recorded

4.26

 Recording of taxes on production and imports: taxes on production and imports are recorded when the activities, transactions or other events occur which create the liabilities to pay taxes.

4.27

 Some economic activities, transactions or events, which generate an obligation to pay taxes, escape the notice of the tax authorities. Such activities, transactions or events do not give rise to financial assets or liabilities in the form of payables or receivables. The amounts recorded are only those evidenced by tax assessments, declarations or other instruments which create liabilities in the form of obligations to pay on the part of taxpayers. No imputations are made for taxes not evidenced by tax assessments.

Taxes recorded in the accounts are derived from two sources: amounts evidenced by assessments and declarations or cash receipts.

(a)

If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. An alternative treatment is that a capital transfer (D.995), as described in point (j) of paragraph 4.165, to the relevant sectors is recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of taxes.

(b)

If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activity took place to generate the tax liability. This adjustment is based on the average time difference between the activity and cash tax receipt.

4.28

 The total value of the taxes recorded includes interest charged on arrears of taxes due and fines imposed by taxation authorities where such interest and fines are not separately identifiable. The total value of taxes includes charges imposed in connection with the collection or recovery of taxes outstanding. The total value is reduced by the amount of any tax rebates made by general government as a matter of economic policy and any tax refunds made as a result of over-payments.

4.29

 In the system of accounts, taxes on production and imports (D.2) are recorded as follows:

(a)

on the uses side, in the generation of income account of the total economy;

(b)

on the resources side, in the allocation of primary income account of the general government sector and in the external account of primary incomes and current transfers.

Taxes on products are recorded as resources in the goods and services account of the total economy. This enables the resources of goods and services — valued exclusive of taxes on products — to be balanced with the uses, which are valued inclusive of such taxes.

Other taxes on production (D.29) are recorded as uses in the generation of income accounts of the industries or sectors which pay them.

SUBSIDIES (D.3)

4.30

 Definition: subsidies (D.3) are current unrequited payments which general government or the institutions of the European Union make to resident producers.

The following are examples of the objectives of giving subsidies:

(a)

influencing levels of production;

(b)

influencing the prices of products; or

(c)

influencing the remuneration of the factors of production.

Non-market producers can receive other subsidies on production only if those payments depend on general regulations applicable to both market and non-market producers.

Subsidies on products are not recorded in non-market output (P.13).

4.31

 Subsidies granted by the institutions of the European Union cover only current transfers made directly by them to resident producer units.

4.32

 Subsidies are classified into:

(a)

subsidies on products (D.31):

(1)

import subsidies (D.311);

(2)

other subsidies on products (D.319);

(b)

other subsidies on production (D.39).

Subsidies on products (D.31)

4.33

 Definition: subsidies on products (D.31) are subsidies payable per unit of a good or service produced or imported.

The amount of subsidies on products can be specified in the following ways:

(a)

a specific amount of money per unit of quantity of a good or service;

(b)

a specified percentage of the price per unit;

(c)

the difference between a specified target price and the market price paid by a buyer.

A subsidy on a product usually becomes payable when the good is produced, sold or imported, but it may also be payable in other circumstances such as when a good is transferred, leased, delivered or used for own consumption or own capital formation.

Subsidies on products only apply to market output (P.11) or to output for own final use (P.12).

Import subsidies (D.311)

4.34

 Definition: import subsidies (D.311) consists of subsidies on goods and services that become payable when the goods cross the frontier for use in the economic territory or when the services are delivered to resident institutional units.

Import subsidies include losses incurred as a matter of deliberate government policy by government trading organisations whose function is to purchase products from non-residents and then sell them at lower prices to residents.

Other subsidies on products (D.319)

4.35

 Other subsidies on products (D.319) include the following:

(a)

subsidies on products used domestically: these consist of subsidies payable to resident producers in respect of their production which is used or consumed within the economic territory;

(b)

losses of government trading organisations whose function is to buy the products of resident producers and then sell them at lower prices to residents or non-residents, when they are incurred as a matter of deliberate government economic or social policy;

(c)

subsidies to public corporations and quasi-corporations to compensate for persistent losses which they incur on their productive activities as a result of charging prices which are lower than their average costs of production as a matter of deliberate government or European economic and social policy;

(d)

direct subsidies on exports payable directly to resident producers when the goods leave the economic territory or the services are provided to non-residents — except repayments at the customs frontier of taxes on products previously paid and waiving of the taxes that would be due if the goods were to be sold or used inside the economic territory.

Other subsidies on production (D.39)

4.36

 Definition: other subsidies on production (D.39) consist of subsidies except subsidies on products which resident producer units may receive as a consequence of engaging in production.

For their non-market output, non-market producers can receive other subsidies on production only if those payments from general government depend on general regulations applicable to market and non-market producers as well.

4.37

 Other subsidies on production (D.39) include the following examples:

(a)

subsidies on payroll or work force i.e. subsidies payable on the total wage or salary bill, or total work force, or on the employment of particular types of persons such as physically handicapped persons or persons who have been unemployed for long periods, or on the costs of training schemes organised or financed by enterprises;

(b)

subsidies to reduce pollution: these consist of current subsidies intended to cover some or all of the costs of additional processing undertaken to reduce or eliminate the discharge of pollutants into the environment;

(c)

grants for interest relief made to resident producer units, even when they are intended to encourage capital formation. When a grant serves the dual purpose of financing both the amortisation of the debt and the payment of interest on it, and when it is not possible to apportion it between two elements, the whole of the grant is treated as an investment grant. Grants for interest relief are current transfers designed to lighten producers' operating costs. They are treated in the accounts as subsidies to the producers benefiting from them, even when the difference in the interest is paid directly by the government to the credit institution granting the loan;

(d)

over-compensation of VAT resulting from the flat-rate system, often for example found in agriculture.

4.38

 The following are not treated as subsidies (D.3):

(a)

current transfers from general government to households in their capacity as consumers. These are treated either as social benefits (D.62 or D.63) or as miscellaneous current transfers (D.75);

(b)

current transfers between different parts of general government in their capacity as producers of non-market goods and services, except other subsidies on production (D.39). Current transfers are recorded as current transfers within general government (D.73);

(c)

investment grants (D.92);

(d)

extraordinary payments into social insurance funds, in so far as such payments are designed to increase the actuarial reserves of these funds. Such payments are recorded as other capital transfers (D.99);

(e)

transfers made by general government to non-financial corporations and quasi-corporations to cover losses accumulated over several financial years, or exceptional losses due to factors outside the control of the enterprise, which are recorded as other capital transfers (D.99);

(f)

the cancellation of debts which producer units have incurred towards the government (resulting, for example, from loans advanced by a government agency to a non-financial enterprise which has accumulated trading losses over several financial years). Such transactions are treated in the accounts as other capital transfers (D.99);

(g)

payments made by general government or by the rest of the world for damage to, or losses of, capital goods as a result of acts of war, other political events or national disasters. They are recorded as other capital transfers (D.99);

(h)

shares and other equities in corporate enterprises purchased by general government, which are shown under the heading equity and investment fund shares (AF.5);

(i)

payments made by a general government agency which has assumed responsibility for abnormal pension charges affecting a public enterprise. These payments are recorded as miscellaneous current transfers (D.75);

(j)

payments made by general government to market producers to pay entirely, or in part, for goods and services that those market producers provide directly and individually to households in the context of social risks or needs (see paragraph 4.84), and to which the households have a right. These payments are included in individual consumption expenditure of general government (P.31) and subsequently in social transfers in kind — market production purchased by government and NPISHs (D.632) and actual individual consumption of households (P.41).

4.39

 Time of recording: subsidies (D.3) are recorded when the transaction or the event (production, sale, import, etc.) which gives rise to the subsidy occurs.

Particular cases are the following:

(a)

subsidies which take the form of the difference between the purchase price and the selling price charged by a government trading agency are recorded at the time the goods are bought by the agency;

(b)

subsidies intended to cover a loss incurred by a producer are recorded at the time the general government agency decides to cover the loss.

4.40

 Subsidies (D.3) are recorded as:

(a)

negative uses in the generation of income account of the total economy;

(b)

negative resources in the allocation of primary income account of the general government sector and in the external account of primary incomes and current transfers.

Subsidies on products are recorded as negative resources in the goods and services account of the total economy.

Other subsidies on production (D.39) are recorded as resources in the generation of income accounts of the industries or sectors which receive them.

Consequences of a system of multiple exchange rates on taxes on production and imports and on subsidies: multiple exchange rates are not currently applicable among the Member States. In such a system:

(a)

implicit taxes on imports are treated as taxes on imports excluding VAT and import duties (D.2122);

(b)

implicit taxes on exports are treated as taxes on products, except VAT and import taxes (D.214);

(c)

implicit subsidies on imports are treated as import subsidies (D.311);

(d)

implicit subsidies on exports are treated as other subsidies on products (D.319).

PROPERTY INCOME (D.4)

4.41

 Definition: property income (D.4) accrues when the owners of financial assets and natural resources put them at the disposal of other institutional units. The income payable for the use of financial assets is called investment income, while that payable for the use of a natural resource is called rent. Property income is the sum of investment income and rent.

Property incomes are classified as follows:

(a)

interest (D.41);

(b)

distributed income of corporations (D.42):

(1)

dividends (D.421);

(2)

withdrawals from income of quasi-corporations (D.422);

(c)

reinvested earnings on foreign direct investment (D.43);

(d)

other investment income (D.44):

(1)

investment income attributable to insurance policy holders (D.441);

(2)

investment income payable on pension entitlements (D.442);

(3)

investment income attributable to collective investment fund shareholders (D.443);

(e)

rents (D.45).

Interest (D.41)

4.42

 Definition: interest (D.41) is property income receivable by the owners of a financial asset for putting it at the disposal of another institutional unit. It applies to the following financial assets:

(a)

deposits (AF.2);

(b)

debt securities (AF.3);

(c)

loans (AF.4);

(d)

other accounts receivable (AF.8).

Income on SDR holdings and allocations and on unallocated gold accounts is treated as interest. The financial assets giving rise to interest are claims of creditors over debtors. Creditors lend funds to debtors that lead to the creation of one or other of the financial instruments listed above.

Interest on deposits and loans

4.43

 The amounts of interest on loans and deposits payable to and receivable from financial institutions include an adjustment for a margin that represents an implicit payment for the services provided by the financial institutions in providing loans and accepting deposits. The payment or receipt is divided into the service part and into the national accounts concept of interest. The actual payments or receipts to or from financial institutions, described as bank interest, need to be partitioned so that the national accounts concept of interest and the service charges may be recorded separately. The amounts of national accounts interest paid by borrowers to financial institutions is less than bank interest by the estimated values of the charges payable, while the amounts of national accounts interest receivable by depositors is higher than bank interest by the amount of the service charge payable. The values of the charges are recorded as sales of services in the production accounts of financial institutions and as uses in the accounts of their customers.

Interest on debt securities

4.44

 Interest on debt securities comprise interest on bills and similar short-term instruments, and interest on bonds and debentures.

Interest on bills and similar short-term instruments

4.45

 The difference between the face value and the price paid at the time of issue (i.e. the discount) is a measure of the interest payable over the life of the bill. The increase in the value of a bill due to the accumulation of accrued interest does not constitute a holding gain because it is due to an increase in the principal outstanding and not a change in the price of the asset. Other changes in the value of the bill are treated as holding gains/losses.

Interest on bonds and debentures

4.46

 Bonds and debentures are long-term securities that give the holder the unconditional right to a fixed or contractually determined variable money income in the form of coupon payments, or to a stated fixed sum on a specified date or dates when the security is redeemed, or both of these terms.

(a)

zero-coupon bonds: there are no coupon payments. The interest based on the difference between the redemption price and the issue price has to be distributed over the years to the maturity of the bond. The interest accruing each year is reinvested in the bond by its holder, thus counterpart entries equal to the value of the accrued interest are recorded in the financial account as the acquisition of more bond by the holder and as a further issue of more bond by the issuer or debtor (i.e. as a growth in the ‧volume‧ of the original bond);

(b)

other bonds, including deep-discounted bonds. The interest has two components:

(1)

the amount of the money income receivable from coupon payments each period;

(2)

the amount of interest accruing each period attributable to the difference between the redemption price and the issue price, calculated in the same way as for zero-coupon bonds;

(c)

index-linked securities:

(1)

the amounts of the coupon payments and/or the principal outstanding are linked to a general price index. The change in the value of the principal outstanding between the beginning and the end of a particular accounting period due to the movement in the relevant index is treated as interest accruing in that period, in addition to any interest due for payment in that period;

(2)

the amounts to be paid at maturity are linked to a narrow index that includes a holding gain motive. Interest accruals are to be determined by fixing the rate of accrual at the time of issue. Accordingly, interest is the difference between the issue price and the market expectation, at inception, of all payments that the debtor will have to make; this amount is recorded as interest accruing over the life of the instrument. This approach records as income the yield-to-maturity at issuance, which incorporates the results of the indexation that are foreseen at the moment the instrument was created. Any deviation of the underlying index from the originally expected path leads to holding gains or losses which will not normally cancel out over the life of the instrument.

The interest accruing as a result of the indexing is effectively reinvested in the security and must be recorded in the financial accounts of the holder and issuer.

Interest rate swaps and forward rate agreements

4.47

 Payment resulting from any kind of swap arrangement is recorded as a transaction in financial derivatives in the financial account, and not as interest recorded as property income. Transactions under forward rate agreements are recorded as transactions in financial derivatives in the financial account, and not recorded as property income.

Interest on financial leases

4.48

 A financial lease is a method of financing for example the purchase of machinery and equipment. The lessor purchases the equipment and the lessee contracts to pay rentals which enable the lessor, over the period of the contract, to recover his costs including the interest foregone on the money used to purchase the equipment.

The lessor is treated as making a loan to the lessee equal to the value of the purchaser's price paid for the asset, this loan being repaid over the period of the lease. The rental paid each period by the lessee is therefore treated as having two components: a repayment of principal and a payment of interest. The rate of interest on the imputed loan is determined by the total amount paid in rentals over the life of the lease in relationship to the purchaser's price of the asset. The share of the rental that represents interest declines over the duration of the lease as the principal is repaid. The initial loan by the lessee, together with the subsequent repayments of principal, is recorded in the financial accounts of the lessor and lessee. The interest payments are recorded as interest in the primary distribution of income account.

Other interest

4.49

 Other interest comprises the following:

(a)

interest charged on bank overdrafts;

(b)

extra interest paid on deposits left longer than originally agreed; and

(c)

payments determined by lottery, to bond holders.

Time of recording

4.50

 Interest is recorded on an accrual basis, that is, interest is recorded as accruing continuously over time to the creditor on the amount of principal outstanding. The interest accruing in each accounting period must be recorded whether or not it is actually paid or added to the principal outstanding. When it is not paid, the increase in the principal is recorded in the financial account as an acquisition of a financial asset by the creditor and an equal acquisition of a liability by the debtor.

4.51

 Interest is recorded before the deduction of taxes levied on it. Interest received and paid is recorded inclusive of grants for interest relief, irrespective of whether those grants are directly paid to financial institutions, or to beneficiaries (see paragraph 4.37).

The value of the services provided by financial intermediaries being allocated among different customers, the actual payments or receipts of interest to or from financial intermediaries are adjusted to eliminate the margins that represent the implicit charges made by financial intermediaries. The amounts of interest paid by borrowers to financial intermediaries must be reduced by the estimated values of the charges payable, and on the contrary the amounts of interest receivable by depositors must be increased. The values of the charges are treated as payments for services rendered by financial intermediaries to their customers and not as payments of interest.

4.52

 In the system of accounts, interest is recorded as:

(a)

resources and uses in the allocation of primary income account of the sectors;

(b)

resources and uses in the rest of the world account of primary incomes and current transfers.

Distributed income of corporations (D.42)

Dividends (D.421)

4.53

 Definition: dividends (D.421) are a form of property income to which owners of shares (AF.5) become entitled as a result of, for example, placing funds at the disposal of corporations.

Raising equity capital through the issue of shares is a way of raising funds. In contrast to loan capital, equity capital does not give rise to a liability that is fixed in monetary terms and it does not entitle the holders of shares of a corporation to a fixed or predetermined income. Dividends are all distributions of profits by corporations to their shareholders or owners.

4.54

 Dividends also include:

(a)

shares issued to shareholders in payment of the dividend for the financial year. Issues of bonus shares, which represent the capitalisation of own funds in the form of reserves and undistributed profits and give rise to new shares to shareholders in proportion for their holdings, are not included;

(b)

the income paid to general government by public enterprises which are recognised as independent legal entities not constituted as corporate enterprises;

(c)

incomes generated by non-observed activities and transferred to the owners of corporations who participate in such activities for their private use.

4.55

 Dividends (D.421) exclude super-dividends.

Super-dividends are dividends that are large relative to the recent level of dividends and earnings. In order to assess whether the dividends are large, the concept of distributable income is used. Distributable income of a corporation is equal to entrepreneurial income plus all current transfers receivable less all current transfers payable and less the adjustment for the change in pension entitlements. The ratio of dividends to distributable income over the recent past is used to assess the plausibility of the current level of dividends. If the level of dividends declared is greatly in excess, the dividends causing the excess are treated as financial transactions and classified as ‧super-dividends‧. Such super-dividends are treated as the withdrawal of owners' equity from the corporation (F.5). That treatment applies to corporations, whether incorporated or quasi-corporate and whether subject to foreign or domestic private control.

4.56

 In the case of public corporations, super-dividends are large and irregular payments or payments that exceed the entrepreneurial income of the relevant accounting period, which are funded from accumulated reserves or sales of assets. Super-dividends of public corporations are to be recorded as withdrawal of equity (F.5) for the difference between the payments and the entrepreneurial income of the relevant accounting period (see paragraph 20.206).

Interim dividends are described in paragraph 20.207.

4.57

 Time of recording: Although dividends represent a part of income that has been generated over a period, dividends are not recorded on an accrual basis. For a short period after a dividend is declared, but before it is actually payable, shares may be sold ‧ex dividend‧ meaning that the dividend is still payable to the owner at the date the dividend was declared and not to the owner on the date payable. A share sold ‧ex dividend‧ is therefore worth less than one sold without this constraint. The time of recording of dividends is the point in time at which the share price starts to be quoted on an ex-dividend basis and not at a price that includes the dividend.

Dividends are recorded as:

(a)

uses in the allocation of primary income account of the sectors in which the corporations are classified;

(b)

as resources in the allocation of primary income account of the sectors in which shareholders are classified;

(c)

as uses and resources in the rest of the world account of primary incomes and current transfers.

Withdrawals from the income of quasi-corporations (D.422)

4.58

 Definition: withdrawals from the income of quasi-corporations (D.422) are the amounts which entrepreneurs withdraw for their own use from the profits earned by the quasi-corporations which belong to them.

Such withdrawals are recorded before the deduction of current taxes on income, wealth, etc., which are deemed always to be paid by the owners of the businesses.

When a quasi-corporation makes a trading profit, the unit which owns it may choose to leave part or all of the profit in the business, especially for investment purposes. The income left in the business appears as saving by the quasi-corporation, and only the profits actually withdrawn by the owner units are recorded in the accounts under the heading withdrawals from the income of quasi-corporations.

4.59

 When profits are earned in the rest of the world by the branch-offices, agencies, etc. of resident enterprises, in so far as these branch-offices etc. are treated as non-resident units, retained earnings appear as reinvested earnings on foreign direct investment (D.43). Only the income actually transferred to the parent enterprise is treated in the accounts as withdrawals from the income of quasi-corporations received from the rest of the world. The same principles are applied to deal with the relations between branch-offices, agencies, etc. operating on the economic territory and the non-resident parent enterprise to which they belong.

4.60

 Withdrawals from the income of quasi-corporations include the net operating surplus received by residents as owners of land and buildings in the rest of the world, or by non-residents as owners of land or buildings on the economic territory concerned. In respect of transactions in land and buildings carried out on the economic territory of a country by non-resident units, notional resident units are created, in which the non-resident owners own the equity.

The rental value of owner-occupied dwellings abroad is registered as imports of services and the corresponding net operating surplus as primary income received from the rest of the world; the rental value of owner-occupied dwellings belonging to non-residents is registered as exports of services and the corresponding net operating surplus as primary income paid to the rest of the world.

Withdrawals from the income of quasi-corporations include incomes generated by non-observed activities of quasi-corporations that are transferred to the owners participating in such activities for their private use.

4.61

 Withdrawals from the income of quasi-corporations do not include amounts which their owners receive from:

(a)

the sale of existing fixed capital goods;

(b)

the sale of land and other non-produced assets;

(c)

withdrawals of equity.

Such amounts are treated as withdrawals from equity in the financial account as they amount to a partial or total liquidation equity in the quasi-corporation. If the quasi-corporation is owned by government, and if it runs a persistent operating deficit as a matter of deliberate government economic and social policy, any regular transfers of funds into the enterprise made by government to cover its losses are treated as subsidies.

4.62

 Time of recording: withdrawals from the income of quasi-corporations are recorded when they are made by the owners.

4.63

 In the system of accounts, withdrawals from the income of quasi-corporations appear as:

(a)

uses in the allocation of primary income account of the sectors in which the quasi-corporations are classified;

(b)

resources in the allocation of primary income account of the owner sectors;

(c)

uses and resources in the external account of primary incomes and current transfers.

Reinvested earnings on foreign direct investment (D.43)

4.64

 Definition: reinvested earnings on foreign direct investment (D.43) are equal to the operating surplus of the foreign direct investment enterprise

plus

any property incomes or current transfers receivable,

minus

any property incomes or current transfers payable, including actual remittances to foreign direct investors and any current taxes payable on the income, wealth, etc., of the foreign direct investment enterprise.

4.65

 A foreign direct investment enterprise is an incorporated or unincorporated enterprise in which an investor resident in another economy owns 10 % or more of the ordinary shares or voting power in an incorporated enterprise, or the equivalent for an unincorporated enterprise. Foreign direct investment enterprises comprise those entities that are identified as subsidiaries, associates and branches. A subsidiary is where the investor owns more than 50 %, an associate is where the investor owns 50 % or less, and a branch is a wholly or jointly owned unincorporated enterprise. The foreign direct investment relationship may be direct or indirect as a result of a chain of ownership. ‧Foreign direct investment enterprises‧ is a broader concept than ‧foreign controlled corporations‧.

4.66

 Actual distributions may be made from the entrepreneurial income of foreign direct investment enterprises in the form of dividends or withdrawals of income from quasi-corporations. In addition, retained earnings are treated as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested by them by means of additions to equity in the financial account. Reinvested earnings on foreign direct investment can be either positive or negative.

4.67

 Time of recording: reinvested earnings on foreign direct investment are recorded when they are earned.

In the system of accounts, reinvested earnings on foreign direct investment are recorded as:

(a)

uses and resources in the allocation of primary income account of the sectors;

(b)

uses and resources in the external account of primary incomes and current transfers.

Other investment income (D.44)

Investment income attributable to insurance policy holders (D.441)

4.68

 Definition: Investment income attributable to insurance policy holders corresponds to total primary incomes received from the investment of insurance technical reserves. The reserves are those where an insurance corporation recognises a corresponding liability to the policyholders.

Insurance technical reserves are invested by insurance enterprises in financial assets or land (from which net property income, i.e. after deducting any interest paid, is received) or in buildings (which generate net operating surpluses).

Investment income attributable to insurance policy holders is recorded separately between holders of non-life and life policies.

For non-life policies, the insurance corporation has a liability towards the policy holder of the amount of the premium deposited with the corporation but not yet earned, the value of any claims due but not yet paid and a reserve for claims not yet notified or notified but not yet settled. Set against this liability, the insurance corporation holds technical reserves. The investment income on these reserves is treated as income attributable to the policy holders, then distributed to the policy holders in the allocation of primary income account and paid back to the insurance corporation as a premium supplement in the secondary distribution of income account.

For an institutional unit operating a standardised loan guarantee scheme against fees, there could also be investment income earned on the reserves of the scheme and this must also be shown as being distributed to the units paying the fees (which may not be the same units which stand to benefit from the guarantees) and treated as supplementary fees in the secondary distribution of income account.

For life insurance policies and annuities, insurance corporations have liabilities towards the policy holders and annuitants equal to the present value of expected claims. Set against those liabilities, insurance corporations have funds belonging to the policy holders consisting of bonuses-declared-for-with-profits policies as well as provisions for both policy holders and annuitants of the payment of future bonuses and other claims. Those funds are invested in a range of financial and non-financial assets.

The bonuses declared to holders of life policies are recorded as investment income receivable by the policyholders and are treated as premium supplements paid by the policyholders to the insurance corporations.

The investment income attributable to life insurance policy holders is recorded as payable by the insurance company and receivable by households in the allocation of primary income account. Unlike the case of non-life insurance or pensions, the amount carries through to saving and is then recorded as a financial transaction, specifically an increase in the liabilities of life insurance corporations, in addition to new premiums less the service charge less benefits payable.

Investment income payable on pension entitlements (D.442)

4.69

 Pension entitlements arise from one of two different types of pension schemes. These are defined contribution schemes and defined benefit schemes.

A defined contribution scheme is one where contributions by both employers and employees are invested on behalf of the employees as future pensioners. No other source of funding of pensions is available and no other use is made of the funds. The investment income payable on defined contribution entitlements is equal to the investment income on the funds plus any income earned by renting land or buildings owned by the fund.

The characteristic of a defined benefit scheme is that a formula is used to determine the level of payments to be made to pensioners. This characteristic makes it possible to determine the level of entitlements as the present value of all future payments, calculated using actuarial assumptions about life lengths and economic assumptions about the interest or discount rate. The present value of the entitlements existing at the start of the year increases because the date when the entitlements become payable is one year nearer. This increase is regarded as investment income attributed to the pension holders in the case of defined benefit scheme. The amount of the increase is neither affected by whether the pension scheme actually has sufficient funds to meet all the obligations nor by the type of increase in the funds, whether it is investment income or holding gains, for example.

Investment income attributable to collective investment fund shareholders (D.443)

4.70

 Investment income attributable to collective investment fund shareholders, including mutual funds and unit trusts, consists of the following separate components:

—

dividends attributable to collective investment fund shareholders (D.4431),

—

retained earnings attributable to collective investment fund shareholders (D.4432).

The dividend component is recorded in exactly the same manner as dividends for individual corporations, as described above. The retained earnings component is recorded using the same principles as those described for foreign direct investment enterprises but is calculated excluding any reinvested earnings on foreign direct investment. The remaining retained earnings are attributed to the investment fund shareholders leaving the investment fund with no saving, and are re-injected into the fund by the investment fund shareholders in a transaction recorded in the financial account.

The property income received by mutual funds is recorded as shareholders' property income even if it is not distributed but reinvested on their behalf.

Shareholders indirectly pay out of their fund shares to management companies for managing their investments. This service charge is expenditure by shareholders, and not expenditure of funds.

Time of recording: other investment income is recorded when it accrues.

4.71

 In the system of accounts, other investment income is recorded as:

(a)

resources in the allocation of primary income account of policy and investment fund holders;

(b)

uses in the allocation of primary income account of the insurers, pension funds and investment funds;

(c)

resources and uses in the external account of primary incomes and current transfers.

Rent (D.45)

4.72

 Definition: rent is the income receivable by the owner of a natural resource for putting the natural resource at the disposal of another institutional unit.

There are two different types of resource rents: rent on land, and rent on subsoil resources. Resource rents on other natural resources such as radio spectra follow the same pattern.

The distinction between rent and rentals is that rent is a form of property income and rentals are payments for services. Rentals are payments made under an operating lease to use a fixed asset belonging to another unit. Rent is a payment made under a resource lease for access to a natural resource.

Rent on land

The rent received by a landowner from a tenant constitutes a form of property income. Rents on land also include the rents payable to the owners of inland waters and rivers for the right to exploit such waters for recreational or other purposes, including fishing.

A landowner pays land taxes and incurs maintenance expenses as a consequence of owning the land. Such taxes and expenses are treated as payable by the person entitled to use the land, who is deemed to deduct them from the rent that he would otherwise be obliged to pay to the landowner. Rent reduced in this way by taxes or other expenses for which the landowner is liable is called ‧after-tax rent‧.

4.73

 Rents on land do not include the rentals of buildings and of dwellings situated on it; those rentals are treated as the payment for a market service provided by the owner to the tenant of the building or dwelling, and are recorded in the accounts as the intermediate or final consumption of the tenant. If there is no objective basis on which to split the payment between rent on land and rental on the buildings situated on it, the whole amount is treated as rent when the value of the land is estimated to exceed the value of the buildings on it and as rental otherwise.

Rents on subsoil assets

4.74

 This heading includes the royalties that accrue to owners of deposits of minerals or fossil fuels (coal, oil or natural gas), whether private or government units, who grant leases to other institutional units permitting them to explore or to extract such deposits over a specified period of time.

4.75

 Time of recording of rents: rents are recorded in the period when payable.

4.76

 In the system of accounts, rents are recorded:

(a)

among resources and among uses in the allocation of primary income account of sectors;

(b)

among resources and among uses in the external account of primary incomes and current transfers.

CURRENT TAXES ON INCOME, WEALTH, ETC. (D.5)

4.77

 Definition: current taxes on income, wealth, etc. (D.5) cover all compulsory, unrequited payments, in cash or in kind, levied periodically by general government and by the rest of the world on the income and wealth of institutional units, and some periodic taxes which are assessed neither on that income nor that wealth.

Current taxes on income, wealth, etc. are divided into:

(a)

taxes on income (D.51);

(b)

other current taxes (D.59).

Taxes on income (D.51)

4.78

 Definition: taxes on income (D.51) consist of taxes on incomes, profits and capital gains. They are assessed on the actual or presumed incomes of individuals, households, corporations or NPIs. They include taxes assessed on holdings of property, land or real estate when these holdings are used as a basis for estimating the income of their owners.

Taxes on income include:

(a)

taxes on individual or household income, examples of which are income from employment, property, entrepreneurship, pensions, etc., and including taxes deducted by employers, for example pay-as-you-earn taxes. Taxes on the income of owners of unincorporated enterprises are included here;

(b)

taxes on the income or profits of corporations;

(c)

taxes on holding gains;

(d)

taxes on winnings from lotteries or gambling, payable on the amounts received by winners as distinct from taxes on the turnover of producers that organise gambling or lotteries which are treated as taxes on products.

Other current taxes (D.59)

4.79

 Other current taxes (D.59) includes:

(a)

current taxes on capital which consist of taxes payable on the ownership or use of land or buildings by owners, and current taxes on net wealth and on other assets, for example jewellery — except taxes mentioned in D.29 (which are paid by enterprises as a result of engaging in production) and those in D.51 (taxes on income);

(b)

poll taxes, levied per adult or per household, independently of income or wealth;

(c)

expenditure taxes, payable on the total expenditures of persons or households;

(d)

payments by households for licences to own or use for non-business purposes vehicles, boats or aircraft, or for licences for recreational hunting, shooting or fishing, etc. The distinction between taxes and purchases of services from government is defined according to the same criteria as those used in the case of payments made by enterprises namely, if the issue of licenses involves little or no work on the part of government, the licences being granted automatically on payment of the amounts due, it is likely that they are simply a device to raise revenue, even though the government may provide some kind of certificate, or authorisation, in return; in such cases their payment is treated as taxes. If, however, the government uses the issue of licences to organise some proper regulatory function (such as checking the competence, or qualifications, of the person concerned), the payments made are treated as purchases of services from government rather than payments of taxes, unless the payments are clearly out of all proportion to the cost of providing the services;

(e)

taxes on international transactions, for example travel abroad, foreign remittances, foreign investments, etc., except those payable by producers and import duties paid by households.

4.80

 Current taxes on income, wealth, etc. do not include:

(a)

inheritance taxes, death duties or taxes on gifts between living persons, which are deemed to be levied on the capital of the beneficiaries and are shown under the heading capital taxes (D.91);

(b)

occasional or exceptional levies on capital or wealth, which are recorded as capital taxes (D.91);

(c)

taxes on land, buildings or other assets owned or rented by enterprises and used by them for production, such taxes being treated as other taxes on production (D.29);

(d)

payments by households for licences other than licences for the use of vehicles, boats or aircraft, or licences for recreational hunting, shooting or fishing: driving or pilot's licences, firearm licences, and fees to government such as museum or library admissions, garbage disposal fees, payments for passports, airport fees, court fees etc. which are treated in most cases as purchases of services rendered by government, if they satisfy the criteria set out in point (d) of paragraph 4.79 to be recorded as services.

4.81

 The total value of the taxes includes interest charged on arrears of taxes due and fines imposed by taxation authorities if there is no data to estimate such interest and fines separately; it includes charges imposed in connection with the recovery and assessment of taxes outstanding, less the amount of any rebates made by general government as a matter of economic policy and any refunds made as a result of over-payments.

Subsidies and social benefits made available via the tax system in the form of tax credits and the incidence of linking payment systems with the tax collection system are increasing. Tax credits represent tax relief and so reduce the tax liability of the beneficiary.

If the tax credit system results in the beneficiary receiving the excess when the relief is greater than the liability, the tax credits system is a payable tax credit system. Under a payable tax credits system, payments can be awarded to non-taxpayers as well as taxpayers. Under a payable tax credits system, the whole amount of tax credits is recorded as government expenditure, and not as a reduction of tax revenue.

In contrast, some tax credit systems are non-payable tax credits systems where tax credits are limited to the size of the tax liability. Under a non-payable tax credits system, all tax credits are embedded in the tax system and reduce government tax revenue.

4.82

 Current taxes on income, wealth, etc. are recorded at the time when activities, transactions or other events occur which create the liabilities to pay.

However, some economic activities, transactions or events, which under tax legislation ought to impose on the units concerned the obligation to pay taxes, permanently escape the attention of tax authorities. It would be unrealistic to assume that such activities, transactions or events give rise to financial assets or liabilities in the form of payables or receivables. The amounts to be recorded are determined by the amounts due for payment only when evidenced by tax assessments, declarations or other instruments which create liabilities in the form of clear obligations to pay on the part of taxpayers. Missing taxes are not imputed if not evidenced by tax assessments.

Taxes recorded in the accounts are derived from two sources: amounts evidenced by assessments and declarations, and cash receipts.

(a)

If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors is recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of taxes;

(b)

If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activities, transactions or other events took place to generate the tax liability (or when the amount of tax was determined, in the case of some income taxes). This adjustment is based on the average time difference between the activities, transactions or other events (or the determination of the amount of tax) and cash tax receipt.

When retained at source by an employer, current taxes on income, wealth, etc. are included in wages and salaries even if the employer did not pass them on to the general government. The households sector is shown as paying the full amount to the general government sector. The amounts actually unpaid are neutralised under D.995 as a capital transfer from general government to the employers' sectors.

In some cases, the liability to pay income taxes can only be determined in a later accounting period than that in which the income accrues. Some flexibility is therefore needed concerning the point in time at which such taxes are recorded. Income taxes deducted at source, such as PAYE taxes and regular prepayments of income taxes, may be recorded in the periods in which they are paid and any final tax liability on income can be recorded in the period in which the liability is determined.

Current taxes on income, wealth, etc. are recorded as:

(a)

uses in the secondary distribution of income account of the sectors in which the taxpayers are classified;

(b)

resources in the secondary distribution of income account of general government;

(c)

uses and resources in the external account of primary incomes and current transfers.

SOCIAL CONTRIBUTIONS AND BENEFITS (D.6)

4.83

 Definition: social benefits are transfers to households, in cash or in kind, intended to relieve them from the financial burden of a number of risks or needs, made through collectively organised schemes, or outside such schemes by government units and NPISHs; they include payments from general government to producers which individually benefit households and which are made in the context of social risks or needs.

4.84

 The list of risks or needs which may give rise to social benefits is as follows:

(a)

sickness;

(b)

invalidity, disability;

(c)

occupational accident or disease;

(d)

old age;

(e)

survivors;

(f)

maternity;

(g)

family;

(h)

promotion of employment;

(i)

unemployment;

(j)

housing;

(k)

education;

(l)

general neediness.

In the case of housing, payments made by public authorities to tenants in order to reduce their rents are social benefits, with the exception of special benefits paid by public authorities in their capacity as employers.

4.85

 Social benefits include:

(a)

current and lump-sum transfers from schemes which receive contributions, cover the entire community or large sections of the community and are imposed and controlled by government units (social security schemes);

(b)

current and lump sum transfers from schemes organised by employers on behalf of their employees, ex-employees or dependants (other employment related social insurance schemes). Contributions may be made by employees and/or employers; they may also be made by self-employed persons;

(c)

current transfers from government units and NPISHs which are not conditional on previous payment of contributions and which are generally linked to an assessment of available income. Such transfers are commonly known as social assistance.

4.86

 Social benefits exclude:

(a)

insurance claims based on policies taken out solely on the own initiative of the insured, independently of his employer or government;

(b)

insurance claims on policies taken out with the sole purpose of obtaining a discount, even if those policies follow from a collective agreement.

4.87

 In order for an individual policy to be treated as part of a social insurance scheme, the eventualities or circumstances against which the participants are insured shall correspond to the risks or needs listed in paragraph 4.84, and, in addition, one or more of the following conditions shall be satisfied:

(a)

participation in the scheme is obligatory either by law or under the terms and conditions of employment of an employee or group of employees;

(b)

the scheme is a collective one operated for the benefit of a designated group of workers, whether employees, self-employed or non-employed, participation being restricted to members of that group;

(c)

an employer makes a contribution (actual or imputed) to the scheme on behalf of an employee, whether or not the employee also makes a contribution.

4.88

 Definition: social insurance schemes are schemes in which participants are obliged, or encouraged, by their employers or by general government, to take out insurance against certain eventualities or circumstances that may adversely affect their welfare or that of their dependants. In such schemes social contributions are paid by employees or others, or by employers on behalf of their employees, in order to secure entitlement to social insurance benefits, in the current or subsequent periods, for the employees or other contributors, their dependants or survivors.

Social insurance schemes are organised for groups of workers or are available by law to all workers or designated categories of workers, including non-employed persons as well as employees. They range from private schemes arranged for selected groups of workers employed by a single employer to social security schemes covering the entire labour force of a country. Participation in such schemes may be voluntary for the workers concerned, but it is more common for it to be obligatory. For example, participation in schemes organised by individual employers may be required by the terms and conditions of employment collectively agreed between employers and their employees.

4.89

 Two types of social insurance schemes may be distinguished:

(a)

The first consists of social security schemes covering the entire community, or large sections of the community, that are imposed, controlled and financed by government units. Pensions payable under such schemes may or may not be related to levels of salary of the beneficiary or history of employment. Non-pension benefits are less frequently linked to salary levels;

(b)

The second type consists of other employment related schemes. Such schemes derive from an employer-employee relationship in the provision of pension and possibly other entitlements that are part of the conditions of employment and where responsibility for the provision of benefits does not devolve to general government under social security provisions.

4.90

 Social insurance schemes organised by government units for their own employees as opposed to the working population at large are classified as other employment related schemes and not as social security schemes.

Net social contributions (D.61)

4.91

 Definition: net social contributions are the actual or imputed contributions made by households to social insurance schemes to make provision for social benefits to be paid. Net social contributions (D.61) consist of:

employers' actual social contributions (D.611)

plus

employers' imputed social contributions (D.612),

plus

households' actual social contributions (D.613),

plus

households' social contribution supplements (D.614),

less

social insurance scheme service charges (D.61SC).

The social insurance scheme service charges are the service fees charged by the units administering the schemes. They appear here as part of the calculation for net social contributions (D.61); they are not redistributive transactions but part of output and consumption expenditure.

Employers' actual social contributions (D.611)

4.92

 Employers' actual social contributions (D.611) correspond to flow D.121.

Employers' actual social contributions are paid by employers to social security schemes and other employment related social insurance schemes to secure social benefits for their employees.

As employers' actual social contributions are made for the benefit of their employees, their value is recorded as one of the components of compensation of employees together with wages and salaries in cash and in kind. The social contributions are then recorded as being paid by the employees as current transfers to the social security schemes, and other employment related social insurance schemes.

This heading is split into two categories:

(a)

employers' actual pension contributions (D.6111) corresponds to flow D.1211;

(b)

employers' actual non-pension contributions (D.6112) corresponds to flow D.1212.

4.93

 Payments of actual social contributions may be compulsory by virtue of a statute or regulation, or they may be paid as a result of collective agreements in a particular industry or agreements between employer and employees in a particular enterprise, or because they are written into the contract of employment itself. In certain cases, the contributions may be voluntary.

Such voluntary contributions cover:

(a)

social contributions which persons who are not legally obliged to contribute to a social security fund;

(b)

social contributions paid to insurance enterprises (or pension funds classified in the same sector) as part of supplementary insurance schemes organised by enterprises for the benefit of their employees and which the latter join voluntarily;

(c)

contributions to provident insurance schemes with membership open to employees or self-employed workers.

4.94

 Time of recording: employers' actual social contributions (D.611) are recorded at the time when the work that gives rise to the liability to pay the contributions is carried out.

4.95

 Social contributions payable to the general government sector recorded in the accounts are derived from two sources: amounts evidenced by assessments and declarations or cash receipts.

(a)

If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors could be recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of social contributions.

(b)

If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activity took place to generate the social contribution liability (or when the liability is created). This adjustment may be based on the average time difference between the activity (or the creation of the liability) and cash receipt.

When retained at source by the employer, social contributions payable to the general government sector are included in wages and salaries irrespective of whether the employer passed them to the general government. The households sector is then shown as paying the full amount to the general government sector. The amounts actually unpaid are neutralised under D.995 as a capital transfer from general government to the employers' sectors.

4.96

 Employers' actual social contributions are recorded as:

(a)

uses in the secondary distribution of income account of households;

(b)

uses in the external account of primary incomes and current transfers (in the case of non-resident households);

(c)

resources in the secondary distribution of income account of resident insurers or employers;

(d)

resources in the external account of primary incomes and current transfers (in the case of non-resident insurers or employers).

Employers' imputed social contributions (D.612)

4.97

 Definition: employers' imputed social contributions (D.612) represent the counterpart to social benefits (less eventual employees' social contributions) paid directly by employers (i.e. not linked to employers' actual contributions) to their employees or former employees and other eligible persons.

They correspond to flow D.122 as described under compensation of employees. Their value must be based on actuarial considerations, or on the basis of reasonable percentage of wages and salaries paid current employees or as equal to unfunded non-pension benefits payable by the enterprise during the same accounting period.

Employers' imputed social contributions D.612) is split into two categories:

(a)

employers' imputed pension contributions (D.6121). They correspond to flow D.1221;

(b)

employers' imputed non-pension contributions (D.6122). They correspond to flow D.1222.

4.98

 Time of recording: employers' imputed social contributions which represent the counterpart of compulsory direct social benefits are recorded in the period during which the work is done. Employers' imputed social contributions which represent the counterpart of voluntary direct social benefits are recorded at the time the benefits are provided.

4.99

 Employers' imputed social contributions are recorded as:

(a)

uses in the secondary distribution of income account of households and in the external account of primary incomes and current transfers;

(b)

resources in the secondary distribution of income account of the sectors to which the employers or resident insurers belong and in the external account of primary incomes and current transfers.

Households' actual social contributions (D.613)

4.100

 Definition: Households' actual social contributions are social contributions payable on their own behalf by employees, self-employed or non-employed persons to social insurance schemes.

Households' actual social contributions (D.613) are split into two categories:

(a)

households' actual pension contributions (D.6131);

(b)

households' actual non-pension contributions (D.6132).

Time of recording: households' actual social contributions are recorded on an accrual basis. For those in work, this is at the time when the work that gives rise to the liability to pay the contributions is carried out. For non-employed persons, this is at the time where the contributions are to be made.

In the system of accounts, households' actual social contributions are recorded:

(a)

among uses in the secondary distribution of income account of households and in the external account of primary incomes and current transfers;

(b)

among resources in the secondary distribution of income account of the sectors to which the employers belong and in the external account of primary incomes and current transfers.

Households' social contribution supplements (D.614)

4.101

 Definition: households' social contribution supplements consist of the property income earned during the accounting period on the stock of pension and non-pension entitlements.

This heading is split into two categories:

(a)

households' pension contribution supplements (D.6141);

(b)

households' non-pension contribution supplements (D.6142). The heading D.6142 corresponds to households' contributions supplements related to social risks and needs other than pensions, such as sickness, maternity, industrial injury, disability, redundancy, etc.

Households' social contribution supplements are included in property income payable by the administrators of pension funds to households in the allocation of primary income account (investment income payable on pension entitlements D.442).

As this income is retained by the administrators of pension funds in practice, it is treated in the secondary distribution of income account as being paid back by households to pension funds in the form of households' social contributions supplements.

Time of recording: households' social contribution supplements are recorded when they accrue.

Social benefits other than social transfers in kind (D.62)

4.102

 The heading D.62 is made up of three sub-headings:

 

Social security benefits in cash (D.621);

 

Other social insurance benefits (D.622);

 

Social assistance benefits in cash (D.623).

Social security benefits in cash (D.621)

4.103

 Definition: social security benefits in cash are social insurance benefits payable in cash to households by social security funds. Reimbursements are excluded and treated as social transfers in kind (D.632).

Such benefits are provided under social security schemes.

They may be split between:

—

social security pension benefits in cash (D.6211),

—

social security non-pension benefits in cash (D.6212).

Other social insurance benefits (D.622)

4.104

 Definition: other social insurance benefits correspond to benefits payable by employers in the context of other employment related social insurance schemes. Other employment-related social insurance benefits are social benefits (in cash or in kind) payable by social insurance schemes other than social security to contributors to the schemes, their dependants or their survivors.

They typically include:

(a)

the continued payment of normal, or reduced, wages during periods of absence from work as a result of ill health, accident, maternity, etc.;

(b)

the payment of family, education or other allowances in respect of dependants;

(c)

the payment of retirement or survivors' pensions to ex-employees or their survivors, and the payment of severance allowances to workers or their survivors in the event of redundancy, incapacity, accidental death, etc. (if linked to collective agreements);

(d)

general medical services not related to the employee's work;

(e)

convalescent and retirement homes.

Other social insurance benefits (D.622) may be split between:

—

other social insurance pension benefits (D.6221),

—

other social insurance non-pension benefits (D.6222).

Social assistance benefits in cash (D.623)

4.105

 Definition: social assistance benefits in cash are current transfers payable to households by government units or NPISHs to meet the same needs as social insurance benefits but which are not made under a social insurance scheme requiring participation usually by means of social contributions.

They therefore exclude all benefits paid by social security funds. Social assistance benefits may be payable in the following circumstances:

(a)

no social insurance scheme exists to cover the circumstances in question;

(b)

although a social insurance scheme, or schemes, may exist, the households in question do not participate and are not eligible for social insurance benefits;

(c)

social insurance benefits are deemed to be inadequate to cover the needs in question the social assistance benefits being paid in addition;

(d)

as a matter of general social policy.

Such benefits do not include current transfers paid in response to events or circumstances that are not normally covered by social insurance schemes (i.e. transfers made in response to natural disasters, recorded under other current transfers or under other capital transfers).

4.106

 Time of recording of social benefits other than social transfers in kind (D.62):

(a)

in cash, they are recorded when the claims on the benefits are established;

(b)

in kind, they are recorded at the time the services are provided, or at the time the changes of ownership of goods provided directly to households by non-market producers take place.

4.107

 Social benefits other than social transfers in kind (D.62) are recorded as:

(a)

uses in the secondary distribution of income account of the sectors granting the benefits;

(b)

uses in the external account of primary incomes and current transfers (in the case of benefits granted by the rest of the world);

(c)

resources in the secondary distribution of income account of households;

(d)

resources in the external account of primary incomes and current transfers (in the case of benefits granted to non-resident households).

Social transfers in kind (D.63)

4.108

 Definition: social transfers in kind (D.63) consist of individual goods and services provided for free or at prices that are not economically significant to individual households by government units and NPISHs, whether purchased on the market or produced as non-market output by government units or NPISHs. They are financed out of taxation, other government income or social security contributions, or out of donations and property income in the case of NPISHs.

Services provided for free, or at prices that are not economically significant, to households are described as individual services to distinguish them from collective services provided to the community as a whole, or large sections of the community, such as defence and street lighting. Individual services consist mainly of education and health services, although other kinds of services such as housing services, cultural and recreational services are also frequently provided.

4.109

 Social transfers in kind (D.63) are subdivided into:

 

Social transfers in kind — general government and NPISHs non-market production (D.631)

Definition: social transfers in kind — general government and NPISHs non-market production (D.631) are individual goods and services provided directly to the beneficiaries by non-market producers. Any payments made by the households themselves should be deducted.

 

Social transfers in kind — market production purchased by general government and NPISHs (D.632)

Definition: social transfers in kind — market production purchased by general government and NPISHs (D.632) are individual goods and services

(a)

in the form of reimbursements by social security funds of approved expenditures made by households on specific goods and services; or

(b)

provided directly to the beneficiaries by market producers from which general government purchases the corresponding goods and services.

Any payments made by the households themselves are to be deducted.

When a household purchases a good or service for which it is subsequently reimbursed, in part or in whole, by a social security fund, the household can be regarded as if it were acting on behalf of the social security fund. In effect, the household provides a short-term credit to the social security fund that is liquidated as soon as the household is reimbursed.

The amount of the expenditure reimbursed is recorded as being incurred directly by the social security fund at the time the household makes the purchase, while the only expenditure recorded for the household is the difference, if any, between the purchaser's price paid and the amount reimbursed. Thus, the amount of the expenditure reimbursed is not treated as a current transfer in cash from the social security funds to households.

4.110

 Examples of social transfers in kind (D.63) are medical or dental treatments, surgery, hospital accommodation, spectacles or contact lenses, medical appliances or equipment, and similar goods or services meeting social risks or needs.

Other examples not covered by a social insurance scheme are social housing, dwelling allowance, day nurseries, professional training, reductions on transport prices (provided that there is a social purpose), and similar goods and services in the context of social risks or needs. Outside the scope of social risks or needs, when government provides individual households with goods and services such as recreational, cultural or sport services for free or at prices which are not economically significant, these are treated as social transfers in kind — government and NPISHs non-market production (D.631).

4.111

 Time of recording: social transfers in kind (D.63) are recorded at the time the services are provided, or at the time the changes of ownership of goods provided directly to households by producers take place.

Social transfers in kind (D.63) are recorded:

(a)

among uses in the redistribution of income in kind account of the sectors granting the benefits;

(b)

among resources in the redistribution of income in kind account of households.

The consumption of the goods and services transferred is recorded in the use of adjusted disposable income account.

There are no social transfers in kind with the rest of the world (they are registered in D.62 social benefits other than social transfers in kind).

OTHER CURRENT TRANSFERS (D.7)

Net non-life insurance premiums (D.71)

4.112

 Definition: net non-life insurance premiums (D.71) are premiums payable under policies taken out by institutional units. The policies taken out by individual households are those taken out on their own initiative and for their own benefit, independently of their employers or government and outside any social insurance scheme. Net non-life insurance premiums comprise both the actual premiums payable by policy holders to obtain insurance cover during the accounting period (premiums earned) and the premium supplements payable out of the property income attributed to insurance policy holders, after deducting the service charges of insurance enterprises arranging the insurance.

Net non-life insurance premiums are the amounts available to provide cover against various events or accidents resulting in damage to goods or property, or harm to persons as a result of natural or human causes, examples being fires, floods, crashes, collisions, theft, violence, accidents, sickness, etc., or against financial losses resulting from events such as sickness, unemployment, accidents, etc.

Net non-life insurance premiums are split into two categories:

(a)

net non-life direct insurance premiums (D.711);

(b)

net non-life reinsurance premiums (D.712).

4.113

 Time of recording: net non-life insurance premiums are recorded when they are earned.

The insurance premiums from which the service charges are deducted are those parts of the total premiums, paid in the current period or previous periods, that cover risks outstanding in the current period.

Premiums earned in the current period must be distinguished from the premiums due for payment during the current period, which are likely to cover risks in future periods as well as the current period.

Net non-life insurance premiums are recorded as:

(a)

uses in the secondary distribution of income account of resident policy holders;

(b)

uses in the external account of primary incomes and current transfers (in the case of non-resident policy holders);

(c)

resources in the secondary distribution of income account of resident insurance enterprises;

(d)

resources in the external account of primary incomes and current transfers (in the case of non-resident insurance enterprises).

Non-life insurance claims (D.72)

4.114

 Definition: non-life insurance claims (D.72) are the claims due under contracts in respect of non-life insurance, that is, the amounts which insurance enterprises are obliged to pay in settlement of injuries or damage suffered by persons or goods (including fixed capital goods).

This heading is split into two categories:

(a)

non-life direct insurance claims (D.721);

(b)

non-life reinsurance claims (D.722).

4.115

 Non-life insurance claims does not include payments which constitute social benefits.

The settlement of a non-life insurance claim is treated as a transfer to the claimant. Such payments are treated as current transfers, even when large sums may be involved as a result of the accidental destruction of a fixed asset or serious personal injury to an individual.

Exceptionally large claims, e.g. in the wake of a disaster, may be treated not as current transfers but as capital transfers (see point (k) of paragraph 4.165).

The amounts received by claimants are usually not committed for any particular purpose, and goods or assets which have been damaged or destroyed need not necessarily be repaired or replaced.

Claims arise because of damage or injuries that the policy holders cause to the property or persons of third parties. In such cases, valid claims are recorded as being payable directly by the insurance enterprise to the injured parties and not indirectly via the policy holder.

4.116

 Net reinsurance premiums and claims are calculated in exactly the same manner as non-life insurance premiums and claims. As the reinsurance business is concentrated in a few countries, most reinsurance policies are with non-resident units.

Some units, especially government units, may provide a guarantee against a debtor defaulting in conditions that have the same characteristics as non-life insurance. This happens when many guarantees of the same sort are issued and it is possible to make a realistic estimate of the overall level of defaults. In such cases, the fees paid (and the property income earned on them) are treated in the same way as non-life insurance premiums and the calls under the standardised loans guarantees are treated in the same way as non-life insurance claims.

4.117

 Time of recording: non-life insurance claims are recorded at the time the accident or other event insured against occurs.

They are recorded as:

(a)

uses in the secondary distribution of income account of resident insurance enterprises;

(b)

uses in the external account of primary incomes and current transfers (in the case of non-resident insurance enterprises);

(c)

resources in the secondary distribution of income account of the beneficiary sectors;

(d)

resources in the external account of primary incomes and current transfers (in the case of non-resident beneficiaries).

Current transfers within general government (D.73)

4.118

 Definition: current transfers within general government (D.73) include transfers between the different subsectors of general government (central government, state government, local government and social security funds) with the exception of taxes, subsidies, investment grants and other capital transfers.

Current transfers within general government (D.73) do not include transactions on behalf of another unit; these are recorded only once in the accounts, in the resources of the beneficiary unit on whose behalf the transaction is made (see paragraph 1.78). This situation arises particularly when a government agency (e.g. a central government department) collects taxes which are automatically transferred, in total or in part, to another government agency (e.g. a local authority). In such cases, the tax receipts destined for the other government agency are shown as if they were collected directly by that agency and not as a current transfer within general government. The solution applies especially in the case of taxes destined for another government agency which take the form of additional rates superimposed on taxes levied by central government. Delays in remitting the taxes from the first to the second government unit give rise to entries under ‧other accounts receivable/payable‧ in the financial account.

Transfers of tax receipts which form part of a block transfer from central government to another government agency are included in current transfers within general government. Such transfers do not correspond to any specific category of taxes and they are not made automatically but mainly through certain funds (county and local authority funds) in accordance with scales of apportionment laid down by central government.

4.119

 Time of recording: current transfers within general government are recorded at the time the regulations in force stipulate they are to be made.

4.120

 Current transfers within general government are recorded as uses and resources in the secondary distribution of income account of the subsectors of general government. Current transfers within general government are flows internal to the general government sector, and do not appear in a consolidated account for the sector as a whole.

Current international cooperation (D.74)

4.121

 Definition: current international cooperation (D.74) includes all transfers in cash or in kind between general government and governments or international organisations in the rest of the world, except investment grants and other capital transfers.

4.122

 Heading D.74 covers:

(a)

the contributions of the government to international organisations (excluding taxes payable by member governments to supranational organisations);

(b)

current transfers which general government receive from the institutions or organisations referred to in point (a). Current transfers which the institutions of the European Union make directly to resident market producers are recorded as subsidies paid by the rest of the world;

(c)

current transfers between governments, either in cash (e.g. payments intended to finance the budget deficits of foreign countries or overseas territories) or in kind (e.g. counterpart of gifts of food, military equipment, emergency aid after natural disasters in the form of food, clothing, medicines, etc.);

(d)

wages and salaries paid by a government, an institution of the European Union or an international organisation, to advisers or technical assistance experts made available to developing countries.

Current international cooperation includes transfers between general government and international organisations located in the country, as international organisations are not treated as resident institutional units of the countries in which they are located.

4.123

 Time of recording: the time the regulations in force stipulate the transfers are to be made in the case of obligatory transfers, or the time the transfers are made in the case of voluntary transfers.

4.124

 Current international cooperation is recorded as:

(a)

uses and resources in the secondary distribution of income account of the general government sector;

(b)

uses and resources in the external account of primary incomes and current transfers.

Miscellaneous current transfers (D.75)

Current transfers to NPISHs (D.751)

4.125

 Definition: current transfers to NPISHs include all voluntary contributions (other than legacies), membership subscriptions and financial assistance which NPISHs receive from households (including non-resident households) and, to a lesser extent, from other units.

4.126

 Current transfers to NPISHs include the following:

(a)

regular subscriptions paid by households to trade unions and political, sporting, cultural, religious and similar organisations classified in the sector NPISHs;

(b)

voluntary contributions (other than legacies) from households, corporate enterprises and the rest of the world to NPISHs, including transfers in kind in the form of gifts of food, clothing, blankets, medicines, etc. to charities for distribution to resident or non-resident households. Such treatment applies to consumption goods, as transfers of large gifts (valuables treated as non-financial assets) are recorded in other capital transfers (D.99) (see point (e) of paragraph 4.165).

Gifts of unwanted or used articles from households are not recorded as transfers;

(c)

assistance and grants from general government, other than transfers made for the specific purpose of financing capital expenditure, which are shown under investment grants.

Excluded from current transfers to NPISHs are payments of membership dues or subscriptions to market NPIs serving businesses, such as chambers of commerce or trade associations, which are treated as payments for services provided.

4.127

 Time of recording: current transfers to NPISHs are recorded at the time they are made.

4.128

 Current transfers to NPISHs are recorded as:

(a)

uses in the secondary distribution of income account of the contributing sectors;

(b)

uses in the external account of primary incomes and current transfers;

(c)

resources in the secondary distribution of income account of the NPISHs sector.

Current transfers between households (D.752)

4.129

 Definition: current transfers between households (D.752) consist of all current transfers in cash or in kind made, or received, by resident households to, or from, other resident or non-resident households. In particular, they comprise remittances by emigrants or workers permanently settled abroad (or working abroad for a period of a year or longer) to members of their family living in their country of origin, or by parents to children in another location.

4.130

 Time of recording: current transfers between households are recorded at the time the transfers occur.

4.131

 Current transfers between households are recorded as:

(a)

uses and resources in the secondary distribution of income account of households;

(b)

uses and resources in the external account of primary incomes and current transfers.

Other miscellaneous current transfers (D.759)

Fines and penalties

4.132

 Definition: fines and penalties imposed on institutional units by courts of law or quasi-judicial bodies are treated as other miscellaneous current transfers (D.759).

4.133

 The following are not included in other miscellaneous current transfers (D.759):

(a)

fines and penalties imposed by tax authorities for the evasion or late payment of taxes, which cannot be distinguished from the taxes themselves and remain classified as taxes;

(b)

payments of fees to obtain licences, such payments being either taxes or payments for services provided by government units.

4.134

 Time of recording: fines and penalties are recorded at the time the liabilities arise.

Lotteries and gambling

4.135

 Definition: the amounts paid for lottery tickets or placed in bets consist of two elements: the payment of a service charge to the unit organising the lottery or gambling and a residual current transfer that is paid out to the winners.

The service charge may be substantial and cover taxes on the production of gambling services. The transfers are regarded in the system as taking place directly between those participating in the lottery or gambling, that is, between households. When non-resident households take part significant net transfers can arise between the households sector and the rest of the world.

Time of recording: residual current transfers are recorded at the time they are made.

Payments of compensation

4.136

 Definition: payments of compensation consist of current transfers paid by institutional units to other institutional units in compensation for injury to persons or damage to property, excluding payments of non-life insurance claims. Payments of compensation are compulsory payments awarded by a court of law, or voluntary payments agreed out of court. This heading covers voluntary payments made by government units or NPISHs in compensation for injuries or damage caused by natural disasters other than those classified as capital transfers.

4.137

 Time of recording: payments of compensation are recorded when they are made (voluntary payments) or when they are due (compulsory payments).

4.138

 Other forms of other miscellaneous current transfers:

(a)

current transfers from NPISHs to general government which are not taxes;

(b)

payments by general government to public enterprises classified as non-financial corporate and quasi-corporate enterprises intended to cover abnormal pension charges;

(c)

travelling fellowships and awards paid to resident or non-resident households by general government or NPISHs;

(d)

bonus payments on savings granted at intervals by general government to households in order to reward them for their saving during the period;

(e)

the refunds by households of expenditure incurred on their behalf by social welfare organisations;

(f)

current transfers from NPISHs to the rest of the world;

(g)

sponsoring by corporations if those payments cannot be regarded as purchases of advertising or other services (for instance, transfers for a good cause, or scholarships);

(h)

current transfers from general government to households in their capacity as consumers, if not recorded as social benefits;

(i)

the counterpart transfer from the central bank to MFIs (S.122 and S.125) to cover the intermediate consumption of the non-directly allocated part of the output of the central bank (see Chapter 14: FISIM).

4.139

 Time of recording: the transfers listed in 4.138 are recorded when they are made, except those from or to general government, which are recorded when they are due.

Other miscellaneous current transfers appear as:

(a)

resources and uses in the secondary distribution of income account of all sectors;

(b)

resources and uses in the external account of primary incomes and current transfers.

VAT- and GNI-based EU own resources (D.76)

4.140

 Definition: the VAT- and GNI-based third and fourth EU own resources (D.76) are current transfers paid by the general government of each Member State to the institutions of the European Union.

The VAT-based third EU own resource (D.761) and the GNI-based fourth EU own resource (D.762) are contributions to the budget of the Union institutions. The level of the contribution of each Member State is based on the levels of their VAT base and their GNI.

The heading D.76 also includes miscellaneous non-tax contributions of the government to the institutions of the European Union (D.763).

Time of recording: VAT- and GNI-based third and fourth own resources are recorded when they are due to be paid.

VAT- and GNI-based third and fourth own resources are recorded as:

(a)

uses in the secondary distribution of income account of general government;

(b)

resources in the external account of primary incomes and current transfers.

ADJUSTMENT FOR THE CHANGE IN PENSION ENTITLEMENTS (D.8)

4.141

 Definition: the adjustment for the change in pension entitlements (D.8) represents the adjustment needed to make appear in the saving of households the change in the pension entitlements on which households have a definite claim. The pension entitlement change comes from contributions and benefits recorded in the secondary distribution of income account.

4.142

 Since households are treated in the financial accounts and balance sheets of the system as owning the pension entitlements, an adjustment item is necessary to ensure that any excess of pension contributions over pension receipts does not affect household saving.

In order to neutralise this effect, an adjustment equal to:

the total value of actual and imputed social contributions in respect of pensions payable into pension schemes in which households have a definite claim

plus

the total value of contribution supplements payable out of property income attributed to pension schemes beneficiaries

minus

the value of associated service charges

minus

the total value of pensions paid out as social insurance benefits by pension schemes

is added to the disposable income, or adjusted disposable income, of households in the use of income accounts before arriving at saving.

In this way, the saving of households is the same as it would be had pension contributions and pension receipts not been recorded as current transfers in the secondary distribution of income account. This adjustment item is necessary in order to reconcile the saving of households with the change in their pension entitlements recorded in the financial account of the system. Opposite adjustments are, of course, needed in the use of income accounts of the units responsible for paying pensions.

4.143

 Time of recording: the adjustment is recorded according to the timing of the flows which compose it.

4.144

 The adjustment for the change in pension entitlements is recorded as:

(a)

uses in the use of income accounts of the sectors in which the units responsible for paying pensions are classified;

(b)

uses in the external account of primary incomes and current transfers (in the case of non-resident institutions);

(c)

resources in the use of income accounts of the households sector;

(d)

resources in the external account of primary incomes and current transfers (in the case of non-resident households).

CAPITAL TRANSFERS (D.9)

4.145

 Definition: capital transfers require the acquisition or disposal of an asset, or assets, by at least one of the parties to the transaction. Whether made in cash or in kind, they result in a commensurate change in the financial, or non-financial, assets shown in the balance sheets of one or both parties to the transaction.

4.146

 A capital transfer in kind consists of the transfer of ownership of an asset (other than inventories and cash), or the cancellation of a liability by a creditor, without any counterpart being received in return.

A capital transfer in cash consists of the transfer of cash that the first party has raised by disposing of an asset, or assets (other than inventories), or that the second party is expected, or required, to use for the acquisition of an asset, or assets (other than inventories). The second party, the recipient, is obliged to use the cash to acquire an asset, or assets, as a condition on which the transfer is made.

The transfer value of a non-financial asset is valued according to the estimated price at which the asset, whether new or used, could be sold on the market plus any transport, installation or other costs of ownership transfer incurred by the donor but excluding any such charges incurred by the recipient. Transfers of financial assets are valued in the same way as other acquisitions or disposals of financial assets or liabilities.

4.147

 Capital transfers include capital taxes (D.91), investment grants (D.92) and other capital transfers (D.99).

Capital taxes (D.91)

4.148

 Definition: capital taxes (D.91) consist of taxes levied at irregular and very infrequent intervals on the values of the assets or net worth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gifts between persons, or other transfers.

4.149

 Capital taxes (D.91) include:

(a)

taxes on capital transfers: inheritance taxes, death duties and taxes on gifts between persons, which are levied on the capital of the beneficiaries. Taxes on sales of assets are not included;

(b)

capital levies: occasional and exceptional levies on assets or net worth owned by institutional units. These include betterment levies, that is taxes on the increase in the value of agricultural land due to planning permission to develop the land for commercial or residential purposes.

Taxes on capital gains are not recorded as capital taxes, but as current taxes on income, wealth, etc.

4.150

 Taxes recorded in the accounts come from two sources: amounts evidenced by assessments and declarations, or cash receipts.

(a)

If assessments and declarations are used, the amounts are adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors is recorded equal to the same adjustment. The coefficients are estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They are specific to different types of taxes;

(b)

If cash receipts are used, they are time-adjusted so that the cash is attributed to when the activity took place to generate the tax liability, or if this is not known, when the amount of tax was determined. This adjustment is based on the average time difference between the activity (or the determination of the amount of tax) and cash tax receipt.

4.151

 Capital taxes are recorded as:

(a)

changes in liabilities and net worth (-) in the capital account of the sectors in which the taxpayers are classified;

(b)

changes in liabilities and net worth (+) in the capital account of general government;

(c)

changes in liabilities and net worth in the capital account of the rest of the world.

Investment grants (D.92)

4.152

 Definition: investment grants (D.92) consist of capital transfers in cash or in kind made by governments or by the rest of the world to other resident or non-resident institutional units to finance all or part of the costs of their acquiring fixed assets.

Investment grants made by the rest of the world include those paid directly by the institutions of the European Union (e.g. transfers made by the European Agriculture Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD)).

4.153

 Investment grants in kind consist of transfers of transport equipment, machinery and other equipment by governments to other resident or non-resident units and also the direct provision of buildings or other structures for resident or non-resident units.

4.154

 The value of capital formation carried out by general government for the benefit of other sectors of the economy is recorded as investment grants whenever the beneficiary is identifiable and becomes the owner of the capital. In such cases, the capital formation is recorded as changes in assets in the capital account of the beneficiary and is financed by an investment grant which is recorded as changes in liabilities and net worth in the same account.

4.155

 Investment grants (D.92) include both lump sum payments designed to finance capital formation during the same period, and instalment payments in respect of capital formation carried out during an earlier period. Those parts of the annual payments by general government to enterprises which represent the amortisation of debts of enterprises undertaken for the purpose of government capital formation projects are treated as investment grants.

4.156

 Grants for interest relief made by general government are excluded from investment grants. The assumption by public authorities of part of the interest charges is a current distributive transaction. Nevertheless, when a grant serves the dual purpose of financing the amortisation of the debt contracted and the payment of the interest on the capital borrowed, and when it is not possible to separate these two elements, the whole of the grant is treated in the accounts as an investment grant.

4.157

 Investment grants to non-financial corporate and quasi-corporate enterprises include, in addition to grants to private enterprises, capital grants to public enterprises recognised as institutional units, provided that the government department which makes the grant does not retain a claim against the public enterprise.

4.158

 Investment grants to the households sector include equipment and modernisation grants to businesses other than corporate or quasi-corporate enterprises and grants to households for the construction, purchase and improvement of dwellings.

4.159

 Investment grants to general government include payments (except grants for interest relief) made to subsectors of general government for the purpose of financing capital formation. Investment grants within general government are flows internal to the general government sector and do not appear in a consolidated account for the sector as whole. Examples of investment grants within general government are transfers from central government to local government for the specific purpose of financing their gross fixed capital formation. Transfers intended for various indeterminate purposes are recorded as current transfers within general government, even if they are used to cover expenditure on capital formation.

4.160

 Investment grants to non-profit institutions from general government and from the rest of the world are distinguished from current transfers to non-profit institutions by using the criteria set out in paragraph 4.159.

4.161

 Investment grants to the rest of the world are restricted to transfers with the specific objective of financing capital formation by non-resident units. They include, for example, unrequited transfers for the construction of bridges, roads, factories, hospitals or schools in developing countries, or for constructing buildings for international organisations. They may comprise instalment payments over a period of time as well as single payments. This heading also covers the supply of fixed capital goods free of charge or at a reduced value.

4.162

 Time of recording: investment grants in cash are recorded when the payment is due to be made. Investment grants in kind are recorded when the ownership of the asset is transferred.

4.163

 Investment grants are recorded as:

(a)

changes in liabilities and net worth (-) in the capital account of general government;

(b)

changes in liabilities and net worth (+) in the capital account of the sectors receiving the grants;

(c)

changes in liabilities and net worth in the capital account of the rest of the world.

Other capital transfers (D.99)

4.164

 Definition: other capital transfers (D.99) cover transfers other than investment grants and capital taxes which do not themselves redistribute income but redistribute saving or wealth among the different sectors or subsectors of the economy or the rest of the world. They can be made in cash or kind (cases of debt assumption or debt cancellation) and correspond to voluntary transfers of wealth.

4.165

 Other capital transfers (D.99) include the following transactions:

(a)

payments by general government or by the rest of the world to the owners of capital goods destroyed or damaged by acts of war, other political events or natural disasters (floods etc.);

(b)

transfers from general government to non-financial corporate and quasi-corporate enterprises to cover losses accumulated over several financial years or exceptional losses from causes beyond the control of the enterprise (even in the case of a capital injection);

(c)

transfers between subsectors of general government designed to cover unexpected expenditure or accumulated deficits. Such transfers between subsectors of general government are flows within the general government sector and do not appear in a consolidated account for the sector as a whole;

(d)

non-recurrent bonus payments on savings granted by general government to households to reward them for their savings carried out over a period of several years;

(e)

legacies, large gifts between persons, and donations between units belonging to different sectors, including legacies or large gifts to non-profit institutions (NPIs). Examples of gifts to NPIs are gifts to universities to cover the costs of building new residential colleges, libraries, laboratories, etc.;

(f)

the counterpart transaction of cancellation of debts by agreement between institutional units belonging to different sectors or subsectors (for example, the cancellation by the government of a debt owed to it by a foreign country; payments in fulfilment of guarantees which free defaulting debtors from their obligations) — except the particular case of taxes and social contributions payable to the general government sector (see point (j)). Such cancellations by mutual agreement are treated as a capital transfer from the creditor to the debtor equal to the value of the outstanding debt at the time of cancellation. Likewise the counterpart transaction of debt assumption, and of other similar transactions (activation of guarantees related to non-standardised guarantee schemes, or debt rescheduling where part of debt is extinguished or transferred), is another capital transfer. However, the following are excluded:

(1)

cancellation of financial claims against and assumption of liabilities from quasi-corporations by the owner of the quasi-corporation. This case is treated as a transaction in equity and investment fund shares (F.5);

(2)

debt cancellation against and debt assumption from a public corporation by government which disappears as an institutional unit in the system. This case is recorded in the other changes in the volume of assets account (K.5);

(3)

debt cancellation against and debt assumption from a public corporation by government as a part of an ongoing process of privatisation to be achieved in a short-term perspective. This case is treated as a transaction in equity and investment fund shares (F.5).

The writing-off of debt is not a transaction between institutional units and therefore is not recorded in either the capital account or the financial account. If the creditor decides such a write-off, it is recorded in the other changes in the volume of assets accounts of the creditor and the debtor. Provisions for bad debt are treated as book-keeping entries that are internal to the institutional producer unit and are not recorded except in the case of expected losses on non-performing loans, which are recorded as memorandum items in the balance sheets. The unilateral repudiation of debt by a debtor is also not a transaction and is not recorded;

(g)

that part of realised capital gains (or losses) which is redistributed to another sector, as, for example, capital gains redistributed by insurance companies to households. However, the counterpart transactions of transfers to general government of the proceeds of privatisation made indirectly (through a holding company for example) are recorded as financial transactions in equity and investment fund shares (F.5) and have no impact on the level of net lending/net borrowing of the general government;

(h)

major payments in compensation for damage or injuries not covered by insurance policies (except payments by general government or by the rest of the world described in point (a)). The payments are awarded by courts of law or settled out of court. Examples are payments of compensation for damage caused by major explosions, oil spillages, the side-effects of drugs, etc.;

(i)

extraordinary payments into social insurance funds made by employers (including government) or by government (as part of its social function), in so far as these payments are designed to increase the actuarial reserves of these funds. The accompanying adjustment from social insurance funds to households is also recorded as other capital transfers (D.99);

(j)

when taxes and social contributions payable to the general government sector are recorded on the basis of assessments and declarations, the part unlikely to be collected is neutralised in the same accounting period. This is done by recording an ‧other capital transfer‧ (D.99), as an entry under D.995, between general government and the relevant sectors. This D.995 flow is subdivided according to the coding of the different taxes and social contributions concerned;

(k)

insurance settlements in the wake of a catastrophe: following a catastrophe, the total value of the claims related to the catastrophe, as obtained from insurance industry information, is recorded as a capital transfer from the insurance corporations to the policy holders. When information on claims related to the catastrophe cannot be provided by the insurance industry, the catastrophe-related claims are estimated as the difference between the actual claims and the adjusted claims in the period of the catastrophe;

(l)

community built assets where responsibility for maintenance is then assumed by government.

4.166

 Time of recording is determined as follows:

(a)

other capital transfers in cash are recorded when the payment is due to be made;

(b)

other capital transfers in kind are recorded when the ownership of the asset is transferred or the liability cancelled by the creditor.

4.167

 Other capital transfers are shown among changes in liabilities and net worth in the capital account of sectors and of the rest of the world.

EMPLOYEE STOCK OPTIONS (ESOs)

4.168

 A particular form of income in kind is the practice of an employer giving an employee the option to buy stocks (shares) at a specified price at some future date. An ESO is similar to a financial derivative and the employee may choose not to exercise the option, either because the share price is now lower than the price at which he can exercise the option or because he has left the employ of that employer and so forfeits his option.

4.169

 Typically an employer informs his employees of the decision to make a stock option available at a given price (the strike price or exercise price) after a certain time under certain conditions (for example, that the employee is still in the enterprise's employ, or conditional on the performance of the enterprise). The time of recording of the employee stock option in the national accounts has to be carefully specified. The ‧grant date‧ is when the option is provided to the employee, the ‧vesting date‧ is the earliest date when the option can be exercised, and the ‧exercise date‧ is when the option is actually exercised (or lapses).

4.170

 The International Accounting Standards Board (IASB) accounting recommendations are that the enterprise derives a fair value for the options at grant date by taking the strike price of the shares at that time multiplied by the number of options expected to be exercisable at vesting date divided by the number of service years expected to be provided until the vesting date.

4.171

 In the ESA, if there is neither an observable market price nor an estimate made by the corporation in line with the recommendations just given, the valuation of the options may be estimated using a stock options pricing model. Such models aim to capture two effects in the value of the option. The first effect is a projection of the amount by which the market price of the shares in question will exceed the strike price at the vesting date. The second effect allows for the expectation that the price will rise further between the vesting date and exercise date.

4.172

 Before the option is exercised, the arrangement between the employer and employee has the nature of a financial derivative and is shown as such in the financial accounts of both parties.

4.173

 An estimate of the value of the ESO is to be made at grant date. This amount must be included as part of compensation of employees spread over the period between the grant date and vesting date, if possible. If this is not possible, the value of the option has to be recorded at vesting date.

4.174

 The costs of administering ESOs are borne by the employer and are treated as part of intermediate consumption just as any other administrative functions associated with compensation of employees.

4.175

 Although the value of the stock option is treated as income, there is no investment income associated with ESOs.

4.176

 In the financial account, the acquisition of ESOs by households matches the corresponding part of compensation of employees with a matching liability of the employer.

4.177

 In principle, any change in value between the grant date and vesting date is to be treated as part of compensation of employees while any change in value between vesting date and exercise date is not treated as compensation of employees but as a holding gain or loss. In practice, it is most unlikely that estimates of the costs of ESOs to the employers are revised between grant date and exercise date. For pragmatic reasons, therefore, the whole of the increase between grant date and exercise date is treated as a holding gain or loss. An increase in value of the share price above the strike price is a holding gain for the employee and a holding loss for the employer and vice versa.

4.178

 When an ESO is exercised, the entry in the balance sheet disappears and is replaced by the value of the stocks (shares) acquired. This change in classification takes place via transactions in the financial account and not via the other changes in the volume of assets account.

 

CHAPTER 5

FINANCIAL TRANSACTIONS

5.01

 Definition: financial transactions (F) are transactions in financial assets (AF) and liabilities between resident institutional units, and between them and non-resident institutional units.

5.02

 A financial transaction between institutional units is a simultaneous creation or liquidation of a financial asset and the counterpart liability, or a change in ownership of a financial asset, or an assumption of a liability.

GENERAL FEATURES OF FINANCIAL TRANSACTIONS

Financial assets, financial claims, and liabilities

5.03

 Definition: financial assets consist of all financial claims, equity and the gold bullion component of monetary gold.

5.04

 Financial assets are stores of value representing a benefit or series of benefits accruing to an economic owner by holding or using the assets over a period of time. They are a means of carrying forward values from one accounting period to another. Benefits are settled through payments, which are typically currency (AF.21) and transferable deposits (AF.22).

5.05

 Definition: a financial claim is the right of a creditor to receive a payment or series of payments from a debtor.

Financial claims are financial assets that have corresponding liabilities. Equity and investment fund shares or units (AF.5) are treated as a financial asset with a corresponding liability even though the claim of the holder on the corporation is not a fixed amount.

5.06

 Definition: liabilities are established when a debtor is obliged to provide a payment or a series of payments to a creditor.

5.07

 The gold bullion component of monetary gold, held by monetary authorities as a reserve asset, is treated as a financial asset even if a holder does not have claims on other designated units. There is no matching liability for gold bullion.

Contingent assets and contingent liabilities

5.08

 Definition: contingent assets and contingent liabilities are agreements whereby one party is obliged to provide a payment or series of payments to another unit only where certain specific conditions prevail.

As they do not give rise to unconditional obligations, contingent assets and contingent liabilities are not considered as financial assets and liabilities.

5.09

 Contingent assets and contingent liabilities include:

(a)

one-off guarantees of payment by third parties since payment is only required if the debtor defaults;

(b)

loan commitments providing a guarantee that funds will be made available but no financial asset exists until funds are actually advanced;

(c)

letters of credit which constitute promises to make a payment conditional upon the presentation of certain documents specified by a contract;

(d)

lines of credit which are promises to make loans to a specified customer up to a specified limit;

(e)

underwritten note issuance facilities (NIFs) providing a guarantee that a potential debtor will be able to sell short-term debt securities known as notes, and that the bank issuing the facility will take up any notes not sold on the market or will provide equivalent advances; and

(f)

pension entitlements under unfunded government defined benefit employer pension schemes or social security pension funds. Such pension entitlements are recorded in the supplementary table on accrued-to-date pension entitlements in social insurance, and not in the core accounts.

5.10

 Contingent assets and contingent liabilities do not include:

(a)

reserves of insurance, pension and standardised guarantee schemes (AF.6);

(b)

financial derivatives (AF.7) where the arrangements themselves have a market value because they are tradable or can be offset on the market.

5.11

 Although contingent assets and contingent liabilities are not recorded in the accounts, they are important for policy and analysis, and information on them needs to be collected and presented as supplementary data. Even though no payments may turn out to be due for contingent assets and contingent liabilities, a high level of contingencies may indicate an undesirable level of risk on the part of those units offering them.

Box 5.1 —   Treatment of guarantees in the system

B5.1.1.

 Definition: guarantees are arrangements whereby the guarantor undertakes to a lender that if a borrower defaults, the guarantor will make good the loss the lender would otherwise suffer.

Often a fee is payable for the provision of a guarantee.

B5.1.2.

 Three different types of guarantees are distinguished. These apply only to guarantees provided in the case of financial assets. No special treatment is proposed for guarantees in the form of manufacturers' warrantees or other forms of guarantee. The three types of guarantee are:

(a)

guarantees provided by means of a financial derivative, such as a credit default swap. Such derivatives are based on the risk of default of reference financial assets and are not linked to individual loans or debt securities;

(b)

standardised guarantees are issued in large numbers, usually for fairly small amounts. Examples are export credit guarantees or student loan guarantees. Even though the degree of probability of any one standardised guarantee being called is uncertain, the fact that there are many similar guarantees means that a reliable estimate of the number of calls under the guarantee can be made. Standardised guarantees are treated as giving rise to financial assets and not contingent assets;

(c)

one-off guarantees, where the associated risk cannot be calculated with any degree of accuracy, due to a lack of comparable cases. The granting of a one-off guarantee is considered a contingent asset or a contingent liability and is not recorded as a financial asset or a liability.

Categories of financial assets and liabilities

5.12

 Eight categories of financial assets are distinguished:

AF.1

Monetary gold and special drawing rights;

AF.2

Currency and deposits;

AF.3

Debt securities;

AF.4

Loans;

AF.5

Equity and investment fund shares or units;

AF.6

Insurance, pension and standardised guarantee schemes;

AF.7

Financial derivatives and employee stock options;

AF.8

Other accounts receivable/payable.

5.13

 Each financial asset has a counterpart liability, with the exception of the gold bullion component of monetary gold held by monetary authorities as a reserve asset classified in the category monetary gold and special drawing rights (F.1). With this exception, eight categories of liabilities are distinguished corresponding to the categories of the counterpart financial assets.

5.14

 The classification of financial transactions corresponds to the classification of financial assets and liabilities. Eight categories of financial transactions are distinguished relating to:

F.1

monetary gold and special drawing rights;

F.2

currency and deposits;

F.3

debt securities;

F.4

loans;

F.5

equity and investment fund shares or units;

F.6

insurance, pension and standardised guarantee schemes;

F.7

financial derivatives and employee stock options;

F.8

other accounts receivable/payable.

5.15

 Given the symmetry of financial claims and liabilities, the term ‧instrument‧ is used to relate to both the asset and the liability aspect of financial transactions. Its use does not imply an extension of the coverage of financial assets and liabilities by including off-balance sheet items which are sometimes described as financial instruments in monetary and financial statistics.

Balance sheets, financial account, and other flows

5.16

 The financial assets held and the liabilities outstanding at a particular point in time are recorded in the balance sheet. Financial transactions result in changes between opening and closing balance sheets. However, changes between the opening balance sheet and the closing balance sheet are also due to other flows, which are not interactions between institutional units by mutual agreement. Other flows related to financial assets and liabilities are broken down into revaluations in financial assets and liabilities, and changes in the volume of financial assets and liabilities not due to financial transactions. Revaluations are recorded in the revaluation account and changes in volume in the other changes in the volume of assets account.

5.17

 The financial account is the final account in the sequence of accounts that record transactions. The financial account does not have a balancing item that is carried forward to another account. The balancing item of the financial account, the net acquisitions of financial assets less net incurrence of liabilities, is net lending (+) or net borrowing (-) (B.9F).

5.18

 The balancing item of the financial account is conceptually identical to the balancing item of the capital account. In practice, a discrepancy is usually found between them because they are calculated on the basis of different statistical data.

Valuation

5.19

 Financial transactions are recorded at transaction values, that is, the values in national currency at which the financial assets and/or liabilities involved are created, liquidated, exchanged or assumed between institutional units, on the basis of commercial considerations.

5.20

 Financial transactions and their financial or non-financial counterpart transactions are recorded at the same transaction value. There are three possibilities:

(a)

the financial transaction gives rise to a payment in national currency: the transaction value is equal to the amount exchanged;

(b)

the financial transaction is a transaction in foreign currency and the counterpart transaction is not a transaction in national currency: the transaction value is equal to the amount in national currency at the market rate prevailing when the payment takes place; and

(c)

neither the financial transaction nor its counterpart transaction is a transaction in cash or via other means of payment: the transaction value is the current market value of the financial assets and/or liabilities involved.

5.21

 The transaction value refers to a specific financial transaction and its counterpart transaction. In concept, the transaction value is to be distinguished from a value based on a price quoted on the market, a fair market price, or any price that is intended to express the generality of prices for a class of similar financial assets and/or liabilities. However, in cases where the counterpart transaction of a financial transaction is, for example, a transfer and therefore the financial transaction may be undertaken other than for purely commercial considerations, the transaction value is identified with the current market value of the financial assets and/or liabilities involved.

5.22

 The transaction value does not include service charges, fees, commissions, or similar payments for services provided in carrying out the transactions; such items are to be recorded as payments for services. Taxes on financial transactions are also excluded and are treated as taxes on services within taxes on products. When a financial transaction involves a new issue of liabilities, the transaction value is equal to the amount of the liability incurred, excluding any prepaid interest. Similarly, when a liability is extinguished, the transaction value for both creditor and debtor must correspond to the reduction of the liability.

Net and gross recording

5.23

 Definition: net recording of financial transactions means that acquisitions of financial assets are shown net of disposals of financial assets, and that incurrences of liabilities are shown net of repayments of liabilities.

Financial transactions may be represented net across financial assets with different characteristics and with different debtors or creditors, provided they are within the same category or subcategory.

5.24

 Definition: gross recording of financial transactions means that acquisitions and disposals of financial assets are shown separately, as are incurrences and repayments of liabilities.

Gross recording of financial transactions shows the same amount of net lending and net borrowing as if financial transactions were recorded net.

Financial transactions are to be recorded gross in cases of detailed financial market analyses.

Consolidation

5.25

 Definition: consolidation in the financial account refers to the process of offsetting transactions in financial assets for a given group of institutional units against the counterpart transactions in liabilities for the same group of institutional units.

Consolidation can be performed at the level of the total economy, of institutional sectors, and of subsectors. The financial account of the rest of the world is consolidated by definition since only transactions of the non-resident institutional units with resident institutional units are recorded.

5.26

 Different levels of consolidation are appropriate for different types of analysis. For example, consolidation of the financial account for the total economy emphasises the economy's financial transactions with non-resident institutional units since all financial transactions between resident institutional units are netted on consolidation. Consolidation for sectors permits the tracing of overall financial transactions between sectors with net lending and those with net borrowing. Consolidation at the subsector level for financial corporations can provide much more detail on financial intermediation and allow, for example, the identification of monetary financial institutions' transactions with other financial corporations as well as with other resident sectors and with non-resident institutional units. Another area where consolidation can be instructive at the subsector level is within the general government sector, since transactions between the various subsectors of government are not eliminated.

5.27

 As a rule, the accounting entries in the ESA 2010 are not consolidated, as a consolidated financial account requires information on the counterpart grouping of institutional units. This requires financial transaction data on a from-whom-to-whom basis. For example, the compilation of consolidated general government liabilities requires a distinction to be made, among the holders of general government liabilities, between general government and other institutional units.

Netting

5.28

 Definition: netting is the consolidation at the level of a single institutional unit whereby accounting entries on both sides of the account for the same transaction item are offset against one another. Netting is to be avoided unless source data are lacking.

5.29

 Various degrees of netting can be distinguished as transactions in liabilities are subtracted from transactions in financial assets for the same financial asset category or subcategory.

5.30

 When a department of an institutional unit purchases bonds issued by another department of the same institutional unit, the financial account of the unit does not record the transaction as the acquisition of a claim by one department on another. The transaction is recorded as a redemption of liabilities rather than an acquisition of consolidating assets. Such financial instruments are viewed as netted. Netting is to be avoided if it is necessary to keep the financial instrument on both the asset side and the liability side to follow the legal presentation.

5.31

 Netting may be unavoidable for transactions of an institutional unit in financial derivatives, where separate data on transactions in assets and liabilities are usually not available. It is appropriate to net these transactions because the value of a position in financial derivatives may switch sign, i.e. to change from an asset to a liability position, as the value of the instrument ‧underlying‧ the derivative contract changes in relation to the price in the contract.

Accounting rules for financial transactions

5.32

 Quadruple-entry is an accounting practice in which each transaction involving two institutional units is recorded twice by each unit. For example businesses exchanging goods for cash will result in entries in both the production account and the financial account for each unit. Quadruple-entry accounting ensures symmetry of reporting by the institutional units involved, and so consistency in the accounts.

5.33

 A financial transaction always has a counterpart transaction. This counterpart may be another financial transaction or a non-financial transaction.

5.34

 Where a transaction and its counterpart are both financial transactions, they change the portfolio of financial assets and liabilities and they may change the totals of both financial assets and liabilities of the institutional units, but they do not change net lending/net borrowing or net worth.

5.35

 The counterpart of a financial transaction may be a non-financial transaction such as a transaction in products, a distributive transaction, or a transaction in non-financial non-produced assets. Where the counterpart transaction of a financial transaction is not a financial transaction, net lending/net borrowing of the institutional units will change.

A financial transaction with a current or a capital transfer as counterpart

5.36

 The counterpart transaction of a financial transaction may be a transfer. In this case, the financial transaction involves a change in ownership of a financial asset, or an assumption of a liability as debtor, known as debt assumption, or the simultaneous liquidation of a financial asset and the counterpart liability, known as debt cancellation or debt forgiveness. Debt assumption and debt cancellation are capital transfers (D.9) and recorded in the capital account.

5.37

 If the owner of a quasi-corporation assumes liabilities from or cancels financial claims against the quasi-corporation, the counterpart transaction of debt assumption or debt cancellation is a transaction in equity (F.51). However, if the operation is intended to cover accumulated losses or an exceptionally large loss, or is made in the context of persistent losses, then the operation is classified as a non-financial transaction — a capital transfer or a current transfer.

5.38

 If government cancels or assumes debt from a public corporation which disappears as an institutional unit in the system, no transaction is recorded in the capital account or the financial account. In this case a flow is recorded in the other changes in the volume of assets account.

5.39

 If government cancels or assumes debt from a public corporation as part of a process of privatisation to be achieved in the short term, the counterpart transaction is a transaction in equity (F.51) up to the total of privatisation receipts. In other words, the government, by cancelling or assuming debt of the public corporation, is considered to be temporarily increasing its equity in the corporation. Privatisation means the giving up of control over that public corporation by the disposal of equity. Such a cancellation of debt or debt assumption leads to an increase of the own funds of the public corporation, even in the absence of an issue of equity.

5.40

 The writing-off or writing-down of bad debts by creditors and the unilateral cancellation of a liability by a debtor, known as debt repudiation, are not transactions because they do not involve interactions between institutional units by mutual agreement. The writing-off or writing-down of bad debts by creditors is recorded in the other changes in the volume of assets account.

A financial transaction with property income as counterpart

5.41

 The counterpart transaction of a financial transaction may be property income.

5.42

 Interest (D.41) is receivable by creditors and payable by debtors of certain kinds of financial claims classified in the monetary gold and special drawing rights (AF.1), currency and deposits (AF.2), debt securities (AF.3), loans (AF.4) and other accounts receivable/payable (AF.8) categories.

5.43

 Interest is recorded as accruing continuously over time to the creditor on the amount of principal outstanding. The counterpart transaction of an entry in interest (D.41) is a financial transaction creating a financial claim of the creditor against the debtor. The accumulation of interest is recorded in the financial account with the financial instrument to which it relates. The effect of this financial transaction is that interest is reinvested. The actual payment of interest is not recorded as interest (D.41), but as a transaction in currency and deposits (F.2) matched by an equivalent repayment of the relevant asset reducing the net financial claim of the creditor against the debtor.

5.44

 When accrued interest is not paid when due, it gives rise to interest arrears. As it is the accrued interest which is recorded, interest arrears do not change the total of financial assets or liabilities.

5.45

 Income of corporations comprises dividends (D.421), withdrawals of income from quasi-corporations (D.422), reinvested earnings on foreign direct investment, (D.43) and retained earnings of domestic enterprises. The effect of the counterpart financial transaction in the case of reinvested earnings is that the property income is reinvested in the direct investment enterprise.

5.46

 Dividends are recorded as investment income at the time the shares start to be quoted ex-dividend. This also applies to withdrawals of income from quasi-corporations. A different recording is made for extraordinarily large dividends or withdrawals that are out of line with recent experience of the amount of income available for distribution to the owners of the corporation. Such excess distribution is recorded as a withdrawal of equity in the financial account and not as investment income.

5.47

 Property income receivable by investment funds, net of a part of management costs, and assigned to shareholders, even though it is not distributed, is recorded in property income with a counterpart entry in the financial account under investment fund shares or units. The effect is that the income assigned to shareholders but not distributed is treated as reinvested in the fund.

5.48

 Investment income is attributed to insurance policy holders (D.44), holders of pension entitlements, and holders of investment fund shares. Regardless of the amount actually distributed by the insurance corporation, pension fund or investment fund, the full amount of investment income received by the insurance corporation or fund is recorded as distributed to the policy holders or holders of shares. The amount not actually distributed is recorded in the financial account as reinvestment.

Time of recording

5.49

 Financial transactions and their counterpart transactions are recorded at the same point in time.

5.50

 When the counterpart of a financial transaction is a non-financial transaction, both are recorded at the time the non-financial transaction takes place. For example, when sales of goods or services give rise to a trade credit, this financial transaction is to be recorded when the entries are made in the relevant non-financial account, when the ownership of the goods is transferred or when the service is provided.

5.51

 When the counterpart of a financial transaction is a financial transaction, there are three possibilities:

(a)

both financial transactions are transactions in cash or other means of payment: they are recorded at the time the first payment is made;

(b)

only one of the two financial transactions is a transaction in cash or other means of payment: they are recorded at the time payment is made; and

(c)

neither of the two financial transactions is a transaction in cash or other means of payment: they are recorded at the time the first financial transaction takes place.

A from-whom-to-whom financial account

5.52

 The from-whom-to-whom financial account or the financial account by debtor/creditor is an extension of the non-consolidated financial account. It is a three dimensional presentation of financial transactions where both parties to a transaction are shown, as well as the nature of the financial instrument being transacted.

This presentation provides information on debtor/creditor relationships and is consistent with a from-whom-to-whom financial balance sheet. No information is provided on the institutional units to whom financial assets were sold or from whom financial assets were bought. This also applies to corresponding transactions in liabilities. The from-whom-to-whom financial account is also known as the flow of funds matrix.

5.53

 Based on the principle of quadruple-entry accounting a from-whom-to-whom financial account has three dimensions: the financial instrument category, the sector of the debtor, and the sector of the creditor. A from-whom-to-whom financial account requires three-dimensional tables covering the breakdowns by financial instrument, debtor and creditor. Such tables show the financial transactions cross-classified by debtor sector and creditor sector as shown in Table 5.1.

5.54

 The table for the financial instrument debt securities category shows that, as a result of transactions in the reference period, the debt securities acquired, net of disposals, by households and by non-profit institutions serving households (275) represent claims on non-financial corporations (65), financial corporations (43), general government (124), and the rest of the world (43). The table shows that, as a result of transactions in the reference period, non-financial corporations incurred, net of redemptions, liabilities in the form of debt securities of 147: their liabilities in this form to other non-financial corporations increased by 30, to financial corporations by 23, to general government by 5, to households and non-profit institutions serving households by 65 and to the rest of the world by 24. No debt securities were issued by households and non-profit institutions serving households. Because of the consolidated presentation of the rest of the world, no transactions are shown between non-resident institutional units. Similar tables can be compiled for all financial instrument categories.

Table 5.1 —   A from-whom-to-whom financial account for debt securities

Debtor sector

Creditor sector

Net incurrence of debt securities by

Non-financial corporations

Financial corporations

General government

Households and non-profit institutions serving households

National economy

Rest of the world

Total

Net acquisition of debt securities by

Non-financial corporations

30

11

67

 

108

34

142

Financial corporations

23

22

25

 

70

12

82

General government

5

2

6

 

13

19

32

Households and non-profit institutions serving households

65

43

124

 

232

43

275

National economy

123

78

222

 

423

108

531

Rest of the world

24

28

54

 

106

 

106

Total

147

106

276

 

529

108

637

5.55

 The from-whom-to-whom financial account allows analysis of who is financing whom, to what amount and by which financial asset. It provides the answers to questions such as:

(a)

What are the counterpart sectors for the financial assets acquired net, or for the liabilities incurred net by an institutional sector?

(b)

Which are the corporations with which the general government sector participates?

(c)

What amounts of debt securities do resident sectors and the rest of the world acquire (net of disposals), which have been issued (net of redemptions) by general government, financial or non-financial corporations, and the rest of the world?

CLASSIFICATION OF FINANCIAL TRANSACTIONS BY CATEGORIES IN DETAIL

The following definitions and descriptions are of financial instruments. When a transaction is being recorded, the code used is F. When the underlying stock level or position of an asset or liability is being recorded, then the coding is AF.

Monetary gold and special drawing rights (F.1)

5.56

 The monetary gold and special drawing rights (SDRs) (F.1) category consists of two subcategories:

(a)

monetary gold (F.11); and

(b)

special drawing rights (SDRs) (F.12).

Monetary gold (F.11)

5.57

 Definition: monetary gold is gold to which monetary authorities have title and which is held in reserve assets.

It includes gold bullion, and unallocated gold accounts with non-residents that give title to claim the delivery of gold.

5.58

 Monetary authorities include the central bank and central government institutions which carry out operations usually attributed to the central bank. Such operations include the issue of currency, maintenance and management of reserve assets and the operation of exchange stabilisation funds.

5.59

 Being subject to the effective control of monetary authorities means that:

(a)

the resident unit can transact in these claims on non-residents only on the terms specified by the monetary authorities or with their express approval;

(b)

the monetary authorities have access on demand to these claims on non-residents to meet balance of payments financing needs and other related purposes; and

(c)

there is a prior law or other binding arrangement confirming points (a) and (b) above.

5.60

 All monetary gold is included in reserve assets or is held by international financial organisations. Its components are:

(a)

gold bullion (including monetary gold held in allocated gold accounts); and

(b)

unallocated gold accounts with non-residents.

5.61

 Gold bullion included in monetary gold is the only financial asset for which there is no counterpart liability. It takes the form of coins, ingots, or bars with a purity of at least 995 parts per 1 000. Gold bullion not held as reserve assets is a non-financial asset and is included in non-monetary gold.

5.62

 Allocated gold accounts provide ownership of a specific piece of gold. The ownership of the gold remains with the entity placing it for safe custody. These accounts typically offer purchasing, storing, and selling facilities. When held as reserve assets, allocated gold accounts are classified as monetary gold, and so as a financial asset. When not held as reserve assets, allocated gold accounts represent ownership of a commodity, namely non-monetary gold.

5.63

 In contrast to allocated gold accounts, unallocated gold accounts represent a claim against the account operator to deliver gold. When held as reserve assets, unallocated gold accounts are classified as monetary gold, and so as a financial asset. Unallocated gold accounts not held as reserve assets are classified as deposits.

5.64

 Transactions in monetary gold consist predominantly of purchases and sales of monetary gold among monetary authorities or certain international financial organisations. There cannot be any transactions in monetary gold involving institutional units other than those. Purchases of monetary gold are recorded in the financial accounts of monetary authorities as an increase in financial assets and sales are recorded as a decrease in financial assets. The counterpart entries are recorded respectively as a decrease in financial assets or an increase in financial assets of the rest of the world.

5.65

 If monetary authorities add non-monetary gold to their holdings of monetary gold (for example, by purchasing gold on the market), or release monetary gold from their holdings for non-monetary purposes (for example, by selling it on the market), they are deemed to have monetised or demonetised gold, respectively. Monetisation or demonetisation of gold does not give rise to entries in the financial account, but to entries in the other changes in the volume of assets account as a change in classification of assets and liabilities, i.e. the reclassification of gold from a valuable (AN.13) to monetary gold (AF.11) (paragraphs 6.22-6.24). Demonetisation of gold is reclassification of monetary gold to a valuable.

5.66

 Deposits, loans, and securities denominated in gold are treated as financial assets other than monetary gold and are classified along with similar financial assets in foreign currency in the appropriate category. Gold swaps are forms of securities repurchase agreements (repos) involving either monetary gold or non-monetary gold. They imply the exchange of gold for a deposit with an agreement that the transaction will be reversed at an agreed future date at an agreed gold price. Following the general practice for the recording of reverse transactions, the gold taker will not record the gold on its balance sheet, while the gold provider will not remove the gold from its balance sheet. Gold swaps are recorded as collateralised loans by both parties, where the collateral is gold. Monetary gold swaps are undertaken between monetary authorities or between monetary authorities and other parties, while non-monetary gold swaps are similar transactions without the involvement of monetary authorities.

5.67

 Gold loans consist of the delivery of gold for a given time period. As for other reverse transactions, legal ownership of the gold is transferred, but the risks and benefits of changes in the gold price remain with the lender. Gold borrowers often use these transactions to cover their sales to third parties in periods of gold shortage. A fee, determined by the value of the underlying asset and the duration of the reverse transaction, is paid to the original owner for the use of the gold.

5.68

 Monetary gold is a financial asset; the fees for gold loans are accordingly payments for putting a financial asset at the disposal of another institutional unit. Fees associated with loans of monetary gold are treated as interest. This also applies as a simplifying convention to fees paid on loans of non-monetary gold.

SDRs (F.12)

5.69

 Definition: SDRs are international reserve assets created by the International Monetary Fund (IMF) and which are allocated to its members to supplement existing reserve assets.

5.70

 The SDR Department of the IMF manages reserve assets by allocating SDRs among member countries of the IMF and certain international agencies, collectively known as the participants.

5.71

 The creation of SDRs through their allocation, and extinguishing them through their cancellations, are transactions. Allocations of SDRs are recorded gross as acquisition of an asset in the financial accounts of the monetary authorities of the individual participant, and as an incurrence of a liability by the rest of the world.

5.72

 SDRs are held exclusively by official holders, which are central banks and certain international agencies, and are transferable among participants and other official holders. SDR holdings represent each holder's assured and unconditional right to obtain other reserve assets, especially foreign exchange, from other IMF members.

5.73

 SDRs are assets with matching liabilities but the assets represent claims on the participants collectively and not on the IMF. A participant may sell some or all of its SDR holdings to another participant and receive other reserve assets, particularly foreign exchange, in return.

Currency and deposits (F.2)

5.74

 Definition: currency and deposits are currency in circulation and deposits, both in national currency and in foreign currencies.

5.75

 There are three sub-categories of financial transaction in relation to currency and deposits:

(a)

currency (F.21);

(b)

transferable deposits (F.22); and

(c)

other deposits (F.29).

Currency (F.21)

5.76

 Definition: currency is notes and coins that are issued or authorised by monetary authorities.

5.77

 Currency includes:

(a)

notes and coins issued by resident monetary authorities as national currency in circulation held by residents and non-residents; and

(b)

notes and coins issued by non-resident monetary authorities as foreign currencies in circulation and held by residents.

5.78

 Currency does not include:

(a)

notes and coins that are not in circulation, for example, a central bank's stock of its own notes or emergency stockpiles of notes; and

(b)

commemorative coins that are not commonly used to make payments. They are classified as valuables.

Box 5.2 —   Currency issued by the Eurosystem

B5.2.1.

 Euro banknotes and coins issued by the Eurosystem are the domestic currency of the Member States in the euro area. Although treated as domestic currency, holdings of euro currency by residents of each participating Member State are liabilities of the resident national central bank only to the extent of its notional share in the total issue, based on its share in the capital of the ECB. A consequence is that, in the euro area, from a national perspective, part of residents' holdings of domestic currency may be a financial claim on non-residents.

B5.2.2.

 Currency issued by the Eurosystem includes notes and coins. Notes are issued by the Eurosystem; coins are issued by central governments in the euro area, although, by convention, they are treated as liabilities of the national central banks which as a counterpart hold a notional claim on general government. Euro banknotes and coins may be held by euro area residents or by non-residents of the euro area.

Deposits (F.22 and F.29)

5.79

 Definition: deposits are standardised, non-negotiable contracts with the public at large, offered by deposit-taking corporations and, in some cases, by central government as debtors, and allowing the placement and the later withdrawal of the principal amount by the creditor. Deposits usually involve the debtor giving back the full principal amount to the investor.

Transferable deposits (F.22)

5.80

 Definition: transferable deposits are deposits exchangeable for currency on demand, at par, and which are directly usable for making payments by cheque, draft, giro order, direct debit/credit, or other direct payment facilities, without penalty or restriction.

5.81

 Transferable deposits predominantly represent liabilities of resident deposit-taking corporations, in some cases of central government, and of non-resident institutional units. Transferable deposits include any of the following:

(a)

inter-bank positions between monetary financial institutions;

(b)

deposits held with the central bank by deposit-taking corporations in excess of the amount of reserves that they are obliged to hold, and which they are able to use without notice or restriction;

(c)

deposits which other monetary financial institutions incur vis-à-vis the central bank in the form of unallocated gold accounts which are not monetary gold, and also corresponding deposits in the form of precious metal accounts;

(d)

foreign currency deposits under swap arrangements;

(e)

the reserve position with the IMF forming the ‧reserve tranche‧, i.e. the SDR or foreign currency amounts that a member country may draw from the IMF at short notice, and other claims on the IMF that are readily available to the member country, including the reporting country's lending to the IMF under the general arrangements to borrow (GAB) and the new arrangements to borrow (NAB).

5.82

 Transferable deposit accounts may have overdraft facilities. If the account is overdrawn, the withdrawal to zero is the withdrawal of a deposit, and the amount of the overdraft is the granting of a loan.

5.83

 All resident sectors and the rest of the world may hold transferable deposits.

5.84

 Transferable deposits may be divided by currency into transferable deposits denominated in domestic currency and in foreign currencies.

Other deposits (F.29)

5.85

 Definition: other deposits are deposits other than transferable deposits. Other deposits cannot be used to make payments except on maturity or after an agreed period of notice, and they are not exchangeable for currency or for transferable deposits without some significant restriction or penalty.

5.86

 Other deposits include:

(a)

time deposits, which are deposits not immediately disposable, but disposable with an agreed maturity. Their availability is subject to a fixed term or they are redeemable at notice of withdrawal. They also include deposits with the central bank held by deposit-taking corporations as compulsory reserves to the extent that the depositors cannot use them without notice or restriction;

(b)

savings deposits, savings books, non-negotiable savings certificates or non-negotiable certificates of deposit;

(c)

deposits resulting from a savings scheme or contract. These deposits often involve an obligation on the part of the depositor to make regular payments over a given period, and the capital paid and interest accrued do not become available until a fixed term has elapsed. These deposits are sometimes combined with the issue, at the end of the savings period, of loans which are proportionate to the accumulated savings, for the purpose of buying or building a dwelling;

(d)

evidence of deposits issued by savings and loan associations, building societies, credit unions etc., sometimes called shares, which are redeemable on demand or at relatively short notice, but which are not transferable;

(e)

repayable margin payments related to financial derivatives which are liabilities of monetary financial institutions;

(f)

short-term repurchase agreements (repos) which are liabilities of monetary financial institutions; and

(g)

liabilities to the IMF that are components of international reserves and are not evidenced by loans; they consist of use of Fund credit within the IMF's General Resources Account. This item measures the amount of a member's currency with the IMF that the member is obligated to repurchase.

5.87

 Other deposits do not include negotiable certificates of deposit and negotiable savings certificates. They are classified under debt securities (AF.3).

5.88

 Other deposits may be divided by currency into other deposits denominated in domestic currency and other deposits denominated in foreign currencies.

Debt securities (F.3)

5.89

 Definition: debt securities are negotiable financial instruments serving as evidence of debt.

Main features of debt securities

5.90

 Debt securities have the following characteristics:

(a)

an issue date on which the debt security is issued;

(b)

an issue price at which investors buy the debt securities when first issued;

(c)

a redemption date or maturity date on which the final contractually scheduled repayment of the principal is due;

(d)

a redemption price or face value, which is the amount to be paid by the issuer to the holder at maturity;

(e)

an original maturity, which is the period from the issue date until the final contractually scheduled payment;

(f)

a remaining or residual maturity, which is the period from the reference date until the final contractually scheduled payment;

(g)

a coupon rate that the issuer pays to holders of the debt securities; the coupon may be fixed throughout the life of the debt security or vary with inflation, interest rates, or asset prices. Bills and zero-coupon debt securities offer no coupon interest;

(h)

coupon dates, on which the issuer pays the coupon to the securities' holders;

(i)

the issue price, redemption price, and coupon rate may be denominated (or settled) in either national currency or foreign currencies; and

(j)

the credit rating of debt securities, which assesses the credit worthiness of individual debt securities issues. Rating categories are assigned by recognised agencies.

With regard to point (c) in the first subparagraph, the maturity date may coincide with the conversion of a debt security into a share. In this context, convertibility means that the holder may exchange a debt security for the issuer's common equity. Exchangeability means that the holder may exchange the debt security for shares of a corporation other than the issuer. Perpetual securities, which have no stated maturity date, are classified as debt securities.

5.91

 Debt securities include financial assets and liabilities which may be described according to different classifications — by maturity, holding and issuing sector and subsector, currency, and type of interest rate.

Classification by original maturity and currency

5.92

 Transactions in debt securities are divided by original maturity into two subcategories:

(a)

short-term debt securities (F.31); and

(b)

long-term debt securities (F.32).

5.93

 Debt securities may be denominated in national currency or in foreign currencies. A further breakdown of debt securities denominated in various foreign currencies may be appropriate and will vary depending on the relative importance of the individual foreign currencies for an economy.

5.94

 Debt securities with both principal and coupon linked to a foreign currency are classified as denominated in that foreign currency.

Classification by type of interest rate

5.95

 Debt securities may be classified by type of interest rate. Three groups of debt securities are distinguished:

(a)

fixed interest rate debt securities;

(b)

variable interest rate debt securities; and

(c)

mixed interest rate debt securities.

Fixed interest rate debt securities

5.96

 Fixed interest rate debt securities cover:

(a)

plain debt securities, which are issued and redeemed at par value;

(b)

debt securities issued at discount or at premium to their par value. Examples are treasury bills, commercial paper, promissory notes, bill acceptances, bill endorsements, and certificates of deposit;

(c)

deep-discounted bonds having small interest payments and issued at a considerable discount to par value;

(d)

zero-coupon bonds, which are single-payment debt securities with no coupon payments. The bond is sold at a discount from par value, and the principal is repaid at maturity or sometimes redeemed in tranches. Zero-coupon bonds may be created from fixed rate debt securities by ‧stripping off‧ the coupons, that is, by separating the coupons from the final principal payment of the security and trading them independently;

(e)

Separate Trading of Registered Interest and Principal Securities (STRIPS), or stripped debt securities, which are securities whose interest and principal payment portions have been separated, or ‧stripped‧, and may then be sold separately;

(f)

perpetual, callable, and puttable debt securities, and debt securities with sinking fund provision;

(g)

convertible bonds, which may, at the option of the holder, be converted into the equity of the issuer, at which point they are classified as shares; and

(h)

exchangeable bonds, with an embedded option to exchange the security for a share in a corporation other than the issuer, usually a subsidiary or company in which the issuer owns a stake, at some future date and under agreed conditions.

5.97

 Fixed interest rate debt securities also include other debt securities like equity warrant bonds, subordinated bonds, non-participating preference shares that pay a fixed income but do not provide for participation in the distribution of the residual value of a corporation on dissolution, and stapled instruments.

Variable interest rate debt securities

5.98

 Variable interest rate debt securities have their interest and/or principal payments linked to:

(a)

a general price index for goods and services (such as the consumer price index);

(b)

an interest rate; or

(c)

an asset price.

5.99

 Variable interest rate debt securities are usually classified as long-term debt securities, unless they have an original maturity of one year or less.

5.100

 Inflation-linked and asset price-linked debt securities include those debt securities issued as inflation-linked bonds and as commodity-linked bonds. The coupons and/or the redemption value of a commodity-linked bond are linked to the price of a commodity. Debt securities, interest on which is linked to the credit rating of another borrower, are classified as index-linked debt securities, as credit ratings do not change in a continuous manner in response to market conditions.

5.101

 For interest rate-linked debt securities, the contractual nominal interest and/or the redemption value are variable in terms of national currency. At the date of issue, the issuer cannot know the value of interest and principal repayments.

Mixed interest rate debt securities

5.102

 Mixed interest rate debt securities have both a fixed and a variable coupon rate over their life and are classified as variable interest rate debt securities. They cover debt securities that have:

(a)

a fixed coupon and a variable coupon at the same time;

(b)

a fixed or a variable coupon until a reference point and then a variable or a fixed coupon from that reference point to the maturity date; or

(c)

coupon payments that are pre-fixed over the life of the debt securities, but are not constant over time. They are called stepped debt securities.

Private placements

5.103

 Debt securities also include private placements. Private placements involve an issuer selling debt securities directly to a small number of investors. The credit worthiness of the issuers of these debt securities are typically not assessed by credit rating agencies, and the securities are generally not resold or repriced, so the secondary market is shallow. However, most private placements meet the criterion of negotiability and are classified as debt securities.

Securitisation

5.104

 Definition: securitisation is the issuance of debt securities for which coupon or principal payments are backed by specified assets or by future income streams. A variety of assets or future income streams may be securitised including, among others, residential and commercial mortgage loans; consumer loans; corporate loans, government loans; insurance contracts; credit derivatives; and future revenue.

5.105

 Securitisation of assets or of future income streams is an important financial innovation that has led to the creation and extensive use of new financial corporations to facilitate the creation, marketing, and issuance of debt securities. Securitisation has been driven by different considerations. For corporations, these include: cheaper funding than is available through banking facilities; the reduction in regulatory capital requirements; the transfer of various types of risk like credit risk or insurance risk; and the diversification of funding sources.

5.106

 Securitisation schemes vary within and across debt securities markets. These schemes can be grouped into two broad types:

(a)

a financial corporation engaging in the securitisation of assets and a transfer of the assets providing collateral from the original holder, known as a true-sale; and

(b)

securitisation schemes involving a financial corporation engaged in the securitisation of assets and a transfer of credit risk only, using credit default swaps (CDS) — the original owner retains the assets, but passes on the credit risk. This is known as synthetic securitisation.

5.107

 With regard to the scheme referred to in point (a) of paragraph 5.106 a securitisation corporation is created to hold securitised assets or other assets that have been securitised by the original holder, and issue debt securities collateralised by those assets.

5.108

 It is essential to establish, in particular, whether the financial corporation engaged in the securitisation of assets actively manages its portfolio by issuing debt securities, rather than simply acting as a trust that passively manages assets or holds debt securities. Where the financial corporation is the legal owner of a portfolio of assets, issues debt securities that present an interest in the portfolio, has a full set of accounts, it is acting as a financial intermediary classified in other financial intermediaries. Financial corporations engaged in the securitisation of assets are distinguished from entities that are created solely to hold specific portfolios of financial assets and liabilities. These entities are combined with their parent corporation, if resident in the same country as the parent. However, as non-resident entities they are treated as separate institutional units and are classified as captive financial institutions.

5.109

 In the case of the securitisation scheme referred to in point (b) of paragraph 5.106, the original owner of the assets, or protection buyer, by means of credit default swaps (CDS), transfers the credit risk related to a pool of diversified reference assets to a securitisation corporation but retains the assets themselves. The proceeds from the issue of debt securities are placed in a deposit or in another safe investment such as AAA bonds, and the interest accrued on the deposit, together with the premium from the CDS, finances the interest on the debt securities issued. If a default occurs, the principal owed to the holders of the ABS is reduced — with junior tranches getting the first ‧hit‧ etc. Coupon and principal payments may also be redirected to the original collateral owner from investors in the debt securities to cover default losses.

5.110

 An asset-backed security (ABS) is a debt security whose principal and/or interest is solely payable from the cash flows produced by a specified pool of financial or non-financial assets.

Covered bonds

5.111

 Definition: covered bonds are debt securities issued by a financial corporation, or fully guaranteed by a financial corporation. In case of default of the issuing or guarantor financial corporation, bond holders have a priority claim on the cover pool, in addition to their ordinary claim on the financial corporation.

Loans (F.4)

5.112

 Definition: loans are created when creditors lend funds to debtors.

Main features of loans

5.113

 Loans are characterised by the following features:

(a)

the conditions governing a loan are either fixed by the financial corporation granting the loan or agreed by the lender and the borrower directly or through a broker;

(b)

the initiative to take out a loan normally lies with the borrower; and

(c)

a loan is an unconditional debt to the creditor which has to be repaid at maturity and which is interest-bearing.

5.114

 Loans can be financial assets or liabilities of all resident sectors and the rest of the world. Deposit taking corporations normally record short-term liabilities as deposits, not as loans.

Classification of loans by original maturity, currency, and purpose of lending

5.115

 Transactions in loans can be categorised into two types of original maturity:

(a)

short-term loans (F.41) with a short-term original maturity, including loans repayable on demand; and

(b)

long-term loans (F.42) with a long-term original maturity.

5.116

 For analytical purposes, loans may be subcategorised further as follows:

(a)

loans denominated in national currency; and

(b)

loans denominated in foreign currencies.

For households, a useful sub-categorisation is as follows:

(a)

loans for consumption;

(b)

loans for house purchases; and

(c)

other loans.

Distinction between transactions in loans and transactions in deposits

5.117

 The distinction between transactions in loans (F.4) and transactions in deposits (F.22) is that a debtor offers a standardised non-negotiable contract in the case of a loan, but not in the case of a deposit.

5.118

 Short-term loans granted to deposit taking corporations are classified as transferable deposits or as other deposits, and short-term loans accepted by institutional units other than deposit-taking corporations are classified as short-term loans.

5.119

 Placements of funds between deposit-taking corporations are always recorded as deposits.

Distinction between transactions in loans and transactions in debt securities

5.120

 The distinction between transactions in loans (F.4) and transactions in debt securities (F.3) is that loans are non-negotiable financial instruments while debt securities are negotiable financial instruments.

5.121

 In most cases, loans are evidenced by a single document and transactions in loans are carried out between one creditor and one debtor. By contrast, debt security issues consist of a large number of identical documents, each evidencing a round sum, which together form the total amount borrowed.

5.122

 A secondary market in loans exists. In cases where loans become negotiable on an organised market, they are to be reclassified from loans to debt securities, provided that there is evidence of secondary market trading, including the existence of market makers, and frequent quotation of the financial asset, such as provided by bid-offer spreads. An explicit conversion of the original loan is normally involved.

5.123

 Standardised loans are offered in most cases by financial corporations and they are often granted to households. Financial corporations determine the conditions and households may only choose either to accept or refuse. The conditions of non-standardised loans however are usually the result of negotiations between the creditor and the debtor. This is an important criterion which facilitates a distinction between non-standardised loans and debt securities. In the case of public security issues, the issue conditions are determined by the borrower, possibly after consulting the bank/lead-manager-bank. In the case of private security issues, however, the creditor and the debtor negotiate the issue conditions.

Distinction between transactions in loans, trade credit and trade bills

5.124

 Trade credit is credit extended directly by the suppliers of goods and services to their customers. Trade credit arises when payment for goods and services is not made at the same time as the change in ownership of a good or the provision of a service.

5.125

 Trade credit is distinguished from loans to finance trade, which are classified as loans. Trade bills drawn on a customer by the supplier of goods and services, which are subsequently discounted by the supplier with a financial corporation, become a claim by a third party on the customer.

Securities lending and repurchase agreements

5.126

 Definition: securities lending is the temporary transfer of securities by the lender to the borrower. The securities borrower may be required to provide assets as collateral to the securities lender in the form of cash or securities. Legal title passes on both sides of the transaction so that borrowed securities and collateral can be sold or ‧on-lent‧.

5.127

 Definition: a securities repurchase agreement is an arrangement involving the provision of securities like debt securities or shares in exchange for cash or other means of payment, with a commitment to repurchase the same or similar securities at a fixed price. The commitment to repurchase may be either on a specified future date or an ‧open‧ maturity.

5.128

 Securities lending with cash collateral and repurchase agreements (repos) are different terms for financial arrangements with the same economic effects, namely those of a secured loan, as both involve the provision of securities as collateral for a loan or a deposit, where a deposit-taking corporation sells the securities under such a financial arrangement. The different features of the two arrangements are shown in Table 5.2.

Table 5.2 —   Main features of securities lending and repurchase agreements

Feature

Securities lending

Repurchase agreements

Cash collateral

Without cash collateral

Specific securities

General collateral

Formal method of exchange

Lending of securities with an agreement by the borrower to deliver it back to the lender

Sale of securities and commitment to repurchase them under terms of master agreement

Form of exchange

Securities versus cash

Securities versus other collateral (if any)

Securities versus cash

Cash versus securities

Return is paid to the supplier of

Cash collateral (the securities borrower)

Securities (not collateral securities)

(the securities lender)

Cash

Cash

Return repayable as

Fee

Fee

Repo rate

Repo rate

5.129

 The securities provided under securities lending and repurchase agreements are treated as not having changed economic ownership because the lender is still the beneficiary of the income yield by the security, and subject to the risks or benefits of any change in the price of the security.

5.130

 Neither the supply and receipt of funds under a securities repurchase agreement, nor securities lending with cash collateral, involve any new issuance of debt securities. Such provision of funds to institutional units other than monetary financial institutions is treated as loans; for deposit taking corporations, it is treated as deposits.

5.131

 If a securities lending does not involve the supply of cash, that is, if there is an exchange of one security for another, or if one party supplies a security without collateral, there is no transaction in loans, deposits or securities.

5.132

 Marginal calls in cash under a repo are classified as loans.

5.133

 Gold swaps are similar to securities repurchase agreements except that the collateral is gold. They involve an exchange of gold for foreign exchange deposits with an agreement that the transaction be reversed at an agreed future date at an agreed gold price. The transaction is recorded as a collateralised loan or a deposit.

Financial leases

5.134

 Definition: a financial lease is a contract under which the lessor as legal owner of an asset conveys the risks and benefits of ownership of the asset to the lessee. Under a financial lease, the lessor is deemed to make, to the lessee, a loan with which the lessee acquires the asset. Thereafter the leased asset is shown on the balance sheet of the lessee and not the lessor; the corresponding loan is shown as an asset of the lessor and a liability of the lessee.

5.135

 Financial leases may be distinguished from other kinds of leases because the risks and rewards of ownership are transferred from the legal owner of the good to the user of the good. Other kinds of leases are (i) operating lease; and (ii) resource lease. Contracts, leases and licenses, as defined in Chapter 15, can be considered as leases as well.

Other types of loans

5.136

 The loans category includes the following:

(a)

overdrafts on transferable deposit accounts, where the amount overdrawn is not treated as a negative transferable deposit;

(b)

overdrafts on other current accounts, for example, intra-group balances between non-financial corporations and their subsidiaries, but excluding balances which are liabilities of monetary financial institutions classified in the deposit sub-categories;

(c)

financial claims of employees because of participation in the corporation's profit;

(d)

repayable margin payments related to financial derivatives which are liabilities of institutional units other than monetary financial institutions;

(e)

loans which are counterparts of bankers' acceptances;

(f)

mortgage loans;

(g)

consumer credit;

(h)

revolving credits;

(i)

instalment loans;

(j)

loans paid as a guarantee for fulfilling certain obligations;

(k)

deposit guarantees as financial claims of reinsurance corporations on ceding corporations;

(l)

financial claims on the IMF evidenced by loans in the General Resources Account, including lending under the General Arrangements to Borrow (GAB) and the New Arrangements to Borrow (NAB); and

(m)

liabilities to the IMF evidenced by IMF credit or Poverty Reduction and Growth Facility (PRGF) loans.

5.137

 The special case of non-performing loans is discussed in Chapter 7.

Financial assets excluded from the category of loans

5.138

 The category of loans does not include:

(a)

other accounts receivable/payable (AF.8), including trade credits and advances (AF.81); and

(b)

financial assets or liabilities arising from the ownership of immovable assets, such as land and structures, by non-residents. They are classified in other equity (AF.519).

Equity and investment fund shares or units (F.5)

5.139

 Definition: equity and investment fund shares or units are residual claims on the assets of the institutional units that issued the shares or units.

5.140

 Equity and investment fund shares are divided into two subcategories:

(a)

equity (F.51); and

(b)

investment fund shares or units (F.52).

Equity (F.51)

5.141

 Definition: equity is a financial asset that is a claim on the residual value of a corporation, after all other claims have been met.

5.142

 Ownership of equity in legal entities is usually evidenced by shares, stocks, depository receipts, participations, or similar documents. Shares and stocks have the same meaning.

Depository receipts

5.143

 Definition: depository receipts represent ownership of securities listed in other economies; ownership of the depository receipts is treated as direct ownership of the underlying securities. A depository issues receipts listed on one exchange that represent ownership of securities listed on another exchange. Depository receipts facilitate transactions in securities in economies other than their home listing. The underlying securities may be shares or debt securities.

5.144

 Equity is subcategorised into the following:

(a)

listed shares (F.511);

(b)

unlisted shares (F.512); and

(c)

other equity (F.519).

5.145

 Both listed shares and unlisted shares are negotiable, and described as equity securities.

Listed shares (F.511)

5.146

 Definition: listed shares are equity securities listed on an exchange. Such an exchange may be a recognised stock exchange or any other form of secondary market. Listed shares are also referred to as quoted shares. The existence of quoted prices of shares listed on an exchange means that current market prices are usually readily available.

Unlisted shares (F.512)

5.147

 Definition: unlisted shares are equity securities not listed on an exchange.

5.148

 Equity securities include shares issued by unlisted limited liability companies as follows:

(a)

capital shares which give the holders the status of joint owners and entitle them to a share in the total distributed profits and to a share in the net assets in the event of liquidation;

(b)

redeemed shares whose capital has been repaid but which are retained by holders who continue to be joint owners and to be entitled to a share in the profits left after dividends have been paid on the remaining registered capital and also to a share in any surplus which may be left on liquidation, i.e. the net assets less the remaining registered capital;

(c)

dividend shares, also called founders' shares, profits shares, and dividend shares, which are not part of the registered capital. Dividend shares do not give holders the status of joint owners — holders therefore do not have the right to a share in the repayment of the registered capital, the right to a return on this capital, the right to vote at shareholders' meetings, etc. Nevertheless, they entitle the holders to a proportion of any profits remaining after dividends have been paid on the registered capital and to a fraction of any surplus remaining on liquidation;

(d)

Participating preference shares or stocks, which entitle holders to participate in the distribution of the residual value of a corporation on dissolution. The holders have also the right to participate in, or receive, additional dividends over and above the fixed percentage dividend. The additional dividends are usually paid in proportion to any ordinary dividends declared. In the event of liquidation, participating preference shareholders have the right to a share of any remaining proceeds that ordinary shareholders receive, and receive back what they paid for their shares.

Initial public offering, listing, de-listing, and share buy back

5.149

 An initial public offering (IPO), also referred to simply as an ‧offering‧ or a ‧flotation‧, is when a corporation issues equity securities to the public for the first time. Such equity securities are often issued by smaller, younger corporations for financing reasons, or by large enterprises to become publicly traded. In an IPO the issuer may obtain the assistance of an underwriting entity, which helps to determine what type of equity security to issue, the best offering price and time to bring it to market.

5.150

 Listing refers to the corporation's shares being on the list of stocks that are officially traded on a stock exchange. Normally, the issuing corporation is the one that applies for a listing but in some countries the exchange can list a corporation, for instance because its stock is already being actively traded via informal channels. Initial listing requirements usually include a history of a few years of financial statements; a sufficient size of the amount being placed among the general public, both in absolute terms and as a percentage of the total outstanding stock; and an approved prospectus, usually including opinions from independent assessors. De-listing refers to the practice of removing the shares of a corporation from a stock exchange. This occurs when a corporation goes out of business, declares bankruptcy, no longer satisfies the listing rules of a stock exchange, or has become a quasi-corporation or unincorporated business, often as a result of a merger or acquisition. Listing is recorded as an issuance of listed shares, and as a redemption of unlisted shares, while de-listing is recorded as a redemption of listed shares, and an issuance of unlisted shares where appropriate.

5.151

 Corporations may buy back their own equity in a share repurchase, also known as a stock repurchase or a share buyback. A share buyback is recorded as a financial transaction, providing cash to the existing shareholders in exchange for a part of the corporation's outstanding equity. That is, cash is exchanged for a reduction in the number of shares outstanding. The corporation either retires the shares or keeps them as a ‧treasury stock‧, available for reissuance.

Financial assets excluded from equity securities

5.152

 Equity securities do not include:

(a)

shares offered for sale but not taken up on issue. They are not recorded;

(b)

debentures and loan stock convertible into shares. They are classified as debt securities (AF.3) up to the time when they are converted;

(c)

the equity of partners with unlimited liability in incorporated partnerships. They are classified as other equity;

(d)

government investments in the capital of international organisations which are legally constituted as corporations with share capital. They are classified as other equity (AF.519);

(e)

issues of bonus shares i.e. the issue without payment of new shares to shareholders in proportion to their holdings. Such an issue, which changes neither the liability of the corporation vis-à-vis the shareholders nor the proportion of the assets that each shareholder holds in the corporation, does not constitute a financial transaction. Share split issues are also not recorded.

Other equity (F.519)

5.153

 Definition: other equity comprises all forms of equity other than those classified in sub-categories listed shares (AF.511) and unlisted shares (AF.512).

5.154

 Other equity includes:

(a)

all forms of equity in corporations which are not shares, including the following:

(1)

the equity in incorporated partnerships subscribed by unlimited partners;

(2)

the equity in limited liability companies whose owners are partners and not shareholders;

(3)

the capital invested in ordinary or limited partnerships recognised as independent legal entities;

(4)

the capital invested in cooperative societies recognised as independent legal entities;

(b)

investment by general government in the capital of public corporations whose capital is not divided into shares and which by virtue of special legislation are recognised as independent legal entities;

(c)

investment by general government in the capital of the central bank;

(d)

government investments in the capital of international and supranational organisations, with the exception of the IMF, even if these are legally constituted as corporations with share capital (e.g. the European Investment Bank);

(e)

the financial resources of the ECB contributed by the national central banks;

(f)

capital invested in financial and non-financial quasi-corporations. The amount of such investments corresponds to new investments in cash or kind, less any capital withdrawals;

(g)

the financial claims that non-resident units have against notional resident units and vice versa.

Valuation of transactions in equity

5.155

 New shares are recorded at issue value, which is nominal value plus the issue premium.

5.156

 Transactions in shares in circulation are recorded at their transaction value. When the transaction value is not known, it is approximated by the stock exchange quotation or market price for listed shares and by the market-equivalent value for unlisted shares.

5.157

 Scrip dividend shares are shares valued at the price implied by the issuer's dividend proposal.

5.158

 Issues of bonus shares are not recorded. However, in cases where the issue of bonus shares involves changes in the total market value of the shares of a corporation, the changes in market value are recorded in the revaluation account.

5.159

 The transaction value of equity (F.51) is the amount of funds transferred by the owners to corporations or quasi-corporations. In some cases, funds can be transferred by assuming liabilities of the corporation or quasi-corporation.

Investment fund shares or units (F.52)

5.160

 Definition: investment fund shares are shares of an investment fund if the fund has a corporate structure. They are known as units if the fund is a trust. Investment funds are collective investment undertakings through which investors pool funds for investment in financial and/or non-financial assets.

5.161

 Investment funds are also called mutual funds, unit trusts, investment trusts, and undertakings for collective investments in transferable securities (UCITS); they may be open-ended, semi-open or closed-end funds.

5.162

 Investment fund shares may be listed or unlisted. When they are unlisted, they are usually repayable on request, at a value corresponding to their share in the own funds of the financial corporation. These own funds are revalued regularly on the basis of the market prices of their various components.

5.163

 Investment fund shares are subdivided into:

 

Money market fund (MMF) shares or units (F.521); and

 

Non-MMF investment fund shares /units (F.522).

MMF shares or units (F.521)

5.164

 Definition: MMF shares or units are shares issued by MMFs. MMF shares or units can be transferable and are often regarded as close substitutes for deposits.

Non-MMF investment fund shares/units (F.522)

5.165

 Definition: other investment fund shares or units other than MMF shares or units represent a claim on a portion of the value of an investment fund other than an MMF. These types of shares and units are issued by investment funds.

5.166

 Other unlisted investment fund shares or units other than MMF shares or units are usually repayable on request, at a value corresponding to their share in the own funds of the financial corporation. Such own funds are revalued regularly on the basis of the market prices of their various components.

Valuation of transactions in investment fund shares or units

5.167

 Transactions in investment fund shares or units include the value of net contributions to a fund.

Insurance, pension and standardised guarantee schemes (F.6)

5.168

 Insurance, pension and standardised guarantee schemes are divided into six subcategories:

(a)

non-life insurance technical reserves (F.61);

(b)

life insurance and annuity entitlements (F.62);

(c)

pension entitlements (F.63);

(d)

claims of pension funds on pension managers (F.64);

(e)

entitlements to non-pension benefits (F.65); and

(f)

provisions for calls under standardised guarantees (F.66).

Non-life insurance technical reserves (F.61)

5.169

 Definition: non-life insurance technical reserves are financial claims that non-life insurance policy holders have against non-life insurance corporations in respect of unearned premiums and claims incurred.

5.170

 Transactions in non-life insurance technical reserves for unearned premiums and claims incurred relate to risks like accidents, sickness, or fire, and also to reinsurance.

5.171

 Unearned premiums are premiums paid but not yet earned. Premiums are usually paid at the beginning of the period covered by the policy. On an accrual basis, the premiums are earned throughout the policy period, so that the initial payment involves a prepayment or advance.

5.172

 Claims outstanding are claims due but not yet settled, including cases where the amount is in dispute or the event leading to the claim has occurred but has not yet been reported. Claims due but not yet settled correspond to the reserves against outstanding insurance claims, which are amounts identified by insurance corporations to cover what they expect to pay out arising from events that have occurred but for which the claims are not yet settled.

5.173

 Other technical reserves, such as equalisation reserves, may be identified by insurers. However, these are only recognised as liabilities and corresponding assets when there is an event giving rise to a liability. Otherwise, equalisation reserves are internal accounting entries by the insurer representing saving to cover irregularly occurring events, and do not represent existing claims of policy holders.

Life insurance and annuity entitlements (F.62)

5.174

 Definition: life insurance and annuity entitlements consist of financial claims that life insurance policy holders and beneficiaries of annuities have against corporations providing life insurance.

5.175

 Life insurance and annuity entitlements are used to provide benefits to policy holders upon the expiry of the policy, or to compensate beneficiaries upon the death of policyholders, so they are kept separate from shareholders' funds. Reserves in the form of annuities are based on the actuarial calculation of the present value of the obligations to pay future income until the death of the beneficiaries.

5.176

 Transactions in life insurance and annuity entitlements consist of additions less reductions.

5.177

 Additions in terms of financial transactions consist of:

(a)

actual premiums earned during the current accounting period; and

(b)

premium supplements, corresponding to the income from the investment of the entitlements attributed to the policy holders after deduction of service charges.

5.178

 Reductions consist of:

(a)

amounts due to holders of endowment and similar insurance policies; and

(b)

payments due on policies that are surrendered before maturity.

5.179

 In the case of a group insurance taken out by a corporation on behalf of its employees, the employees, but not the employer, are the beneficiaries since they are considered to be the policy holders.

Pension entitlements (F.63)

5.180

 Definition: pension entitlements comprise financial claims that current employees and former employees hold against either:

(a)

their employers;

(b)

a scheme designated by the employer to pay pensions as part of a compensation agreement between the employer and the employee; or

(c)

an insurer.

5.181

 Transactions in pension entitlements consist of additions less reductions, which are to be distinguished from nominal holding gains or losses on the funds invested by pension funds.

5.182

 Additions in terms of financial transactions consist of:

(a)

actual contributions to pension schemes payable by employees, employers, self-employed persons or other institutional units on behalf of individuals or households with claims on the scheme, and earned during the current accounting period; and

(b)

contribution supplements corresponding to the income earned from the investment of the pension entitlements of the pension scheme attributed to participating households, after deduction of service charges during the period for managing the scheme.

5.183

 Reductions consist of:

(a)

social benefits equal to the amounts payable to retired persons or their dependants in the form of regular payments or other benefits; and

(b)

social benefits which consist of any lump sums payable to persons when they retire.

Contingent pension entitlements

5.184

 The pension entitlements category does not include contingent pension entitlements established by institutional units classified as unfunded government defined benefit employer pension schemes or as social security pension funds. Their transactions are not fully recorded and their other flows and stocks are not recorded in the core accounts, but in the supplementary table on accrued-to-date pension entitlements in social insurance. Contingent pension entitlements are not liabilities of the central government, state government, local government or social security funds subsectors and are not financial assets of the prospective beneficiaries.

Claims of pension funds on pension managers (F.64)

5.185

 An employer may contract with a third party to look after the pension funds for his employees. If the employer continues to determine the terms of the pension schemes and retains the responsibility for any deficit in funding as well as the right to retain any excess funding, the employer is described as the pension manager and the unit working under the direction of the pension manger is described as the pension administrator. If the agreement between the employer and the third party is such that the employer passes the risks and responsibilities for any deficit in funding to the third part in return for the right of the third party to retain any excess, the third party becomes the pension manager as well as the administrator.

5.186

 When the pension manager is a unit different from the administrator and the amount accruing to the pension fund falls below the increase in entitlements, a claim of the pension fund on the pension manager is recorded. Where the amount accruing to the pension fund exceeds the increase in entitlements, there is an amount payable by the pension fund to the pension manager.

Entitlements to non-pension benefits (F.65)

5.187

 The excess of net contributions over benefits represents an increase in the liability of the insurance scheme towards the beneficiaries. This item is shown as an adjustment in the use of income account. As an increase in a liability, it is also shown in the financial account. This item is likely to occur only rarely and, for pragmatic reasons, changes in such non-pension entitlements may be included with those for pensions.

Provisions for calls under standardised guarantees (F.66)

5.188

 Definition: provisions for calls under standardised guarantees are financial claims that holders of standardised guarantees have against institutional units providing them.

5.189

 Provisions relating to calls under standardised guarantees are prepayments of net fees and provisions to meet outstanding calls under standardised guarantees. Like provisions for prepaid insurance premiums and reserves, provisions for calls under standardised guarantees include unearned fees (premiums) and calls (claims) not yet settled.

5.190

 Standardised guarantees are guarantees that are issued in large numbers, usually for fairly small amounts, along identical lines. Such arrangements involve three parties: the borrower, the lender and the guarantor. Either the borrower or the lender may contract with the guarantor to repay the lender if the borrower defaults. Examples are export credit guarantees and student loan guarantees.

5.191

 Although it is not possible to establish the likelihood of any particular borrower defaulting, it is usual to estimate how many out of a batch of similar borrowers will default. Much like a non-life insurer, a guarantor working on commercial lines will expect all the fees paid, plus the property income earned on the fees and any reserves, to cover the expected defaults and associated costs and leave a profit. Accordingly a similar treatment to that of non-life insurance is adopted for such guarantees, described as standardised guarantees.

5.192

 Standardised guarantees cover guarantees on various financial instruments like deposits, debt securities, loans and trade credit. They are usually provided by a financial corporation, including but not confined to insurance corporations, but also by general government.

5.193

 When an institutional unit offers standardised guarantees, it charges fees and incurs liabilities to meet the call on the guarantee. The value of the liabilities in the accounts of the guarantor is equal to the present value of the expected calls under existing guarantees, net of any recoveries the guarantor expects to receive from the defaulting borrowers. The liability is called provisions for calls under standardised guarantees.

5.194

 A guarantee may cover a multi-year period. A fee may be payable annually or up-front. In principle, the fee represents charges earned in each year the guarantee holds, with the liability decreasing as the period gets shorter (assuming that the borrower repays in instalments). Thus recording follows that of annuities with the fee paid as the future liability decreases.

5.195

 The nature of a standardised guarantee scheme is that there are many guarantees of the same type, though not all for exactly the same time period nor all starting and finishing on the same dates.

5.196

 Net fees are calculated as fees receivable plus fee supplements (equal to the property income attributed to the unit paying the fee for the guarantee) less administration, etc. costs. Such net fees may be payable by any sector of the economy and are receivable by the sector in which the guarantor is classified. Calls under standardised guarantee schemes are payable by the guarantor and receivable by the lender of the financial instrument under guarantee, regardless of whether the fee was paid by the lender or the borrower. Financial transactions refer to the difference between the payment of fees for new guarantees and calls made under existing guarantees.

Standardised guarantees and one-off guarantees

5.197

 Standardised guarantees are distinguished from one-off guarantees according to two criteria:

(a)

standardised guarantees are characterised by often repeated transactions with similar features and pooling of risks; and

(b)

guarantors are able to estimate the average loss based on available statistics.

One-off guarantees are individual, and guarantors are not able to make a reliable estimate of the risk of calls. The granting of a one-off guarantee is a contingency and not recorded. Exceptions are certain guarantees provided by government and described in Chapter 20.

Financial derivatives and employee stock options (F.7)

5.198

 Financial derivatives and employee stock options are divided into two subcategories:

(a)

financial derivatives (F.71); and

(b)

employee stock options (F.72).

Financial derivatives (F.71)

5.199

 Definition: financial derivatives are financial instruments linked to a specified financial instrument or indicator or commodity, through which specific financial risks can be traded in financial markets in their own right. Financial derivatives meet the following conditions:

(a)

they are linked to a financial or non-financial asset, to a group of assets, or to an index;

(b)

they are either negotiable or can be offset on the market; and

(c)

no principal amount is advanced to be repaid.

5.200

 Financial derivatives are used for a number of purposes including risk management, hedging, arbitrage between markets, speculation and compensation of employees. Financial derivatives enable parties to trade specific financial risks such as interest rate risk, currency, equity and commodity price risk and credit risk, to other entities which are willing to take these risks, usually without trading in a primary asset. Accordingly, financial derivatives are referred to as secondary assets.

5.201

 The value of a financial derivative derives from the price of the underlying asset: the reference price. The reference price may relate to a financial or non-financial asset, an interest rate, an exchange rate, another derivative or a spread between two prices. The derivative contract may also refer to an index, a basket of prices or other items like emissions trading or weather conditions.

5.202

 Financial derivatives can be categorised by instrument such as options, forwards and credit derivatives, or by market risk as currency swaps, interest rate swaps, etc.

Options

5.203

 Definition: options are contracts which give the holder of the option the right, but not the obligation, to purchase from or sell to the issuer of the option an asset at a predetermined price within a given time span or on a given date.

The right to purchase is known as a call option, and the right to sell is known as a put option.

5.204

 The purchaser of the option pays a premium (the option price) for the commitment of the option writer to sell or purchase the specified amount of the underlying asset at the agreed price. The premium is a financial asset of the option holder and a liability of the option writer. The premium can be conceptually considered to include a service charge, which is to be recorded separately. However, in the absence of detailed data, assumptions should be avoided as much as possible when identifying the service element.

5.205

 Warrants are a form of options. They give the holder the right but not the obligation to purchase from the issuer of the warrant a certain number of shares or bonds under specified conditions for a specified period of time. There are also currency warrants based on the amount of one currency required to purchase another and cross-currency warrants tied to third currencies as well as index-, basket- and commodity-warrants.

5.206

 The warrant may be detachable and traded separately from the debt security. As a result, two separate financial instruments are recorded in principle, the warrant as a financial derivative and the bond as a debt security. Warrants with embedded derivatives are classified according to their primary characteristics.

Forwards

5.207

 Definition: forwards are financial contracts under which two parties agree to exchange a specified quantity of an underlying asset at an agreed price (the strike price) on a specified date.

5.208

 Futures are forward contracts traded on organised exchanges. Futures and other forward contracts are typically, but not always, settled by the payment of cash or the provision of some other financial asset rather than the delivery of the underlying asset, and, therefore, are valued and traded separately from the underlying item. Common forward-type contracts include swaps and forward rate agreements (FRAs).

Options vis-à-vis forwards

5.209

 Options can be contrasted with forwards in that:

(a)

at inception, there is usually no up-front payment for a forward contract and the derivative contract begins with zero value; in the case of an option, a premium is paid when the contract is taken out, and at inception the contract is valued at the amount of the premium;

(b)

as market prices, interest rates or exchange rates change during the life of a forward contract, the contract may take on a positive value for one party (as an asset) and a corresponding negative value (as a liability) for the other. Such positions may switch between the parties, depending on market developments in the underlying asset in relation to the strike price in the contract. This characteristic makes it impractical to identify transactions in assets separately from transactions in liabilities. Unlike other financial instruments, transactions in forwards are therefore normally reported net over assets and liabilities. In the case of an option, the buyer is always the creditor and the writer always the debtor;

(c)

at maturity, redemption is unconditional for a forward, whereas for an option it is determined by the buyer of the option. Some options are redeemed automatically when they are positive at maturity.

Swaps

5.210

 Definition: swaps are contractual arrangements between two parties who agree to exchange, over time and according to predetermined rules, streams of payment on an agreed notional amount of principal. The most common types are interest rate swaps, foreign exchange swaps and currency swaps.

5.211

 Interest rate swaps are an exchange of interest payments of different character on a notional amount of principal, which is never exchanged. Examples of the types of interest rate swapped are fixed rate, floating rate and rates denominated in a currency. Settlements are often made through net cash payments amounting to the current difference between the two interest rates stipulated in the contract applied to the agreed notional principal.

5.212

 Foreign exchange swaps are transactions in foreign currencies at a rate of exchange stated in the contract.

5.213

 Currency swaps involve an exchange of cash flows related to interest payments and an exchange of principal amounts at an agreed exchange rate at the end of the contract.

Forward rate agreements (FRAs)

5.214

 Definition: FRAs are contractual arrangements in which two parties, to protect themselves against interest rate changes, agree on an amount of interest to be paid, at a specified settlement date, on a notional amount of principal that is never exchanged. FRAs are settled by net cash payments in a similar way as interest rate swaps. The payments are related to the difference between the forward rate agreement rate and the prevailing market rate at the time of settlement.

Credit derivatives

5.215

 Definition: credit derivatives are financial derivatives the primary purpose of which is to trade credit risk.

Credit derivatives are designed for trading in loan and security default risk. Credit derivatives may take the form of forward-type or option-type contracts and, like other financial derivatives, are frequently drawn up under standard legal agreements which facilitate market valuation. Credit risk is transferred from the risk seller, who is buying protection, to the risk buyer, who is selling protection, in exchange for a premium.

5.216

 The risk buyer pays cash to the risk seller in the event of a default. A credit derivative may also be settled by the delivery of debt securities through the unit that has defaulted.

5.217

 Types of credit derivatives are credit default options, credit default swaps (CDS) and total return swaps. A CDS index as a traded credit derivative index reflects the development of CDS premiums.

Credit default swaps

5.218

 Definition: credit default swaps (CDS) are credit insurance contracts. They are intended to cover losses to the creditor (buyer of a CDS) when:

(a)

a credit event occurs in relation to a reference unit, rather than being associated to a particular debt security or loan. A credit event affecting the reference unit of concern may be a default, but also a failure to make a payment on any (qualifying) liability that has become due as in cases such as debt restructuring, breach of covenants, and others;

(b)

a particular debt instrument, typically a debt security or a loan, goes into default. As with swap contracts, the buyer of the CDS, (regarded as the risk seller), makes a series of premium payments to the seller of the CDS (regarded as the risk buyer).

5.219

 Where there is no default on the associated unit or the debt instrument, the risk seller continues paying premiums until the end of the contract. If there is a default, the risk buyer compensates the risk seller for the loss, and the risk seller ceases to pay premiums.

Financial instruments not included in financial derivatives

5.220

 Financial derivatives do not include:

(a)

the underlying instrument upon which the financial derivative is based;

(b)

structured debt securities that combine a debt security, or a basket of debt securities, with a financial derivative or a basket of financial derivatives, where the derivatives are inseparable from the debt security and the principal initially invested is large compared to the prospective returns from the embedded financial derivatives. Financial instruments where small principal amounts are invested relative to the prospective returns, and which are fully at risk, are classified as financial derivatives. Financial instruments where the debt security component and the financial derivative component are separable from each other are classified accordingly;

(c)

repayable margin payments related to financial derivatives are classified in other deposits or loans depending on the institutional units involved. However, non-repayable margin payments, reducing or eliminating the asset/liability positions which may emerge during the life of the contract, are treated as settlements under the contract, and classified as transactions in financial derivatives;

(d)

secondary instruments, which are not negotiable and cannot be offset on the market; and

(e)

gold swaps, which have the same nature as securities repurchase agreements.

Employee stock options (F.72)

5.221

 Definition: employee stock options are agreements made on a given date under which an employee has the right to purchase a given number of shares of the employer's stock at a stated price either at a stated time or within a period of time immediately following the vesting date.

The following terminology is used:

 

the date of the agreement is the ‧grant date‧;

 

the purchase price agreed is the ‧strike price‧;

 

the agreed first date of purchase is the ‧vesting date‧;

 

the period after the vesting date in which the purchase can be made is the ‧exercise period‧.

5.222

 Transactions in employee stock options are recorded in the financial account as the counterpart to the element of compensation of employees represented by the value of the stock option. The value of the option is spread over the period between the grant date and vesting date; if the detailed data are lacking, they are to be recorded at the vesting date. Thereafter, transactions are recorded at exercise date or, if they are tradable and are actually traded, between the vesting date and the end of the exercise period.

Valuation of transactions in financial derivatives and employee stock options

5.223

 Secondary trade in options and closing out options prior to delivery involve financial transactions. If an option proceeds to delivery, it may be exercised or not exercised. In cases where the option is exercised, there may be a payment from the option writer to the option holder equal to the difference between the prevailing market price of the underlying asset and the strike price, or, alternatively, there may be an acquisition or sale of the underlying financial or non-financial asset recorded at the prevailing market price and a counterpart payment between the option holder and the option writer equal to the strike price. The difference between the prevailing market price of the underlying asset and the strike price is in both cases equal to the liquidation value of the option, which is the option price on the terminal date. In cases where the option is not exercised, no transaction takes place. However, the option writer makes a holding gain and the option holder makes a holding loss (in both cases equal to the premium paid when the contract was taken out) to be recorded in the revaluation account.

5.224

 The transactions recorded for financial derivatives include any trading in the contracts as well as the net value of settlements made. There may also be the need to record transactions associated with the establishment of derivative contracts. However, in many cases, the two parties will enter into a derivative contract without any payment by one party to the other; in such cases the value of the transaction establishing the contract is nil and nothing is recorded in the financial account.

5.225

 Any explicit commissions paid or received from brokers or intermediaries for arranging options, futures, swaps, and other derivatives contracts are treated as payments for services in the appropriate accounts. The parties to a swap are not considered to be providing a service to each other, but any payment to a third party for arranging the swap is treated as payment for a service. Under a swap arrangement, where principal amounts are exchanged the corresponding flows are to be recorded as transactions in the underlying instrument; streams of other payments are to be recorded under the financial derivatives and employee stock options (F.7) category. While the premium paid to the seller of an option can conceptually be considered to include a service charge, in practice it is usually not possible to distinguish the service element. Therefore, the full price is to be recorded as acquisition of a financial asset by the buyer and as incurrence of a liability by the seller.

5.226

 Where contracts do not involve an exchange of principal, no transaction is recorded at inception. In both cases, implicitly, a financial derivative with a zero initial value is created at that point. Subsequently, the value of a swap will be equal to one of the following:

(a)

for principal amounts, the current market value of the difference between the expected future market values of the amounts to be re-exchanged and the amounts specified in the contract; and

(b)

for other payments, the current market value of the future streams specified in the contract.

5.227

 Changes in the value of the financial derivative over time are recorded in the revaluation account.

5.228

 Subsequent re-exchanges of principal will be governed by the terms and conditions of the swap contract and may imply financial assets being exchanged at a price different from the prevailing market price of such assets. The counterpart payment between the parties to the swap contract will be that specified within the contract. The difference between the market price and the contract price is then equal to the liquidation value of the asset/liability as it applies on the due date and is recorded as a transaction in financial derivatives and employee stock options (F.7). In total, transactions in financial derivatives and employee stock options must match the total revaluation gain or loss throughout the duration of the swap contract. This treatment is analogous to that set out with respect to options, which proceed to delivery.

5.229

 For an institutional unit, a swap or a forward rate agreement is recorded under the item financial derivatives and employee stock options on the assets side where it has a net asset value. Where the swap has a net liability value, it is also recorded on the asset side by convention to avoid flipping between the asset and the liability side. Accordingly, negative net payments increase the net value.

Other accounts receivable/payable (F.8)

5.230

 Definition: other accounts receivable/payable are financial assets and liabilities created as counterparts to transactions where there is a timing difference between these transactions and the corresponding payments.

5.231

 Other accounts receivable/payable include transactions in financial claims which stem from the early or late payment for transactions in goods or services, distributive transactions or financial transactions on the secondary market.

5.232

 Financial transactions in other accounts receivable/payable comprise:

(a)

Trade credits and advances (F.81); and

(b)

Other accounts receivable/payable, excluding trade credits and advances (F.89).

Trade credits and advances (F.81)

5.233

 Definition: trade credits and advances are financial claims arising from the direct extension of credit by the suppliers of goods and services to their customers, and advances for work that is in progress or is yet to be undertaken, in the form of prepayment by customers for goods and services not yet provided.

5.234

 Trade credits and advances arise when payment for goods or services is not made at the same time as the change in ownership of a good or provision of a service. If a payment is made prior to the change of ownership, there is an advance.

5.235

 FISIM accrued but not yet paid is included with the corresponding financial instrument, usually interest, and prepayment of insurance premiums is included in insurance technical reserves (F.61); in neither case is there an entry in trade credits and advances.

5.236

 The trade credits and advances subcategory includes:

(a)

financial claims relating to the delivery of goods or services where payment has not taken place;

(b)

trade credits accepted by factoring corporations except when regarded as a loan;

(c)

rent of buildings accruing over time; and

(d)

arrears concerning the payment of goods and services, when not evidenced by a loan.

5.237

 Trade credits are to be distinguished from trade finance in the form of trade bills, and credit provided by third parties to finance trade.

5.238

 Trade credits and advances do not include loans to finance trade credits. They are classified in loans.

5.239

 Trade credits and advances may be divided by original maturity into short-term and long-term trade credits and advances.

Other accounts receivable/payable, excluding trade credits and advances (F.89)

5.240

 Definition: other accounts receivable/payable are financial claims arising from timing differences between distributive transactions or financial transactions on the secondary market and the corresponding payments.

5.241

 Other accounts receivable/payable include financial claims created as a result of the timing difference between accrued transactions and payments made in respect of, for example:

(a)

wages and salaries;

(b)

taxes and social contributions;

(c)

dividends;

(d)

rent; and

(e)

purchase and sale of securities.

5.242

 Interest accrued and arrears are recorded with the financial asset or liability on which they accrue, and not as other accounts receivable/payable. If the interest accrued is not recorded as being reinvested in the financial asset, it is classified in other accounts receivable/payable.

5.243

 For securities lending and gold loan fees, which are treated as interest, the corresponding entries are included under other accounts receivable/payable, rather than with the instrument to which they relate.

5.244

 Other accounts receivable/payable do not include:

(a)

statistical discrepancies other than timing differences between transactions in goods and services, distributive transactions or financial transactions and the corresponding payments;

(b)

early or late payment in the creation of financial assets or the redemption of liabilities other than those classified in other accounts receivable/payable. These early or late payments are classified in the relevant instrument category;

(c)

the amounts of taxes and social contributions payable to the general government to be included under other accounts receivable/payable omits that part of these taxes and social contributions which is unlikely to be collected, and which therefore represents a general government claim of no value.

ANNEX 5.1

CLASSIFICATION OF FINANCIAL TRANSACTIONS

5.A1.01

 Financial transactions may be classified according to different criteria: by type of financial instrument, negotiability, type of income, maturity, currency and type of interest.

Classification of financial transactions by category

5.A1.02

 Financial transactions are classified in categories and subcategories as shown in Table 5.3. This classification of the transactions in financial assets and liabilities corresponds to the classification of financial assets and liabilities.

Table 5.3 —   Classification of financial transactions

Category

Code

Monetary gold and special drawing rights (SDRs)

F.1

 

 

Monetary gold

 

F.11

 

Special drawing rights (SDRs)

 

F.12

 

Currency and deposits

F.2

 

 

Currency

 

F.21

 

Transferable deposits

 

F.22

 

Other deposits

 

F.29

 

Debt securities

F.3

 

 

Short-term

 

F.31

 

Long-term

 

F.32

 

Loans

F.4

 

 

Short-term

 

F.41

 

Long-term

 

F.42

 

Equity and investment fund shares or units

F.5

 

 

Equity

 

F.51

 

Listed shares

 

 

F.511

Unlisted shares

 

 

F.512

Other equity

 

 

F.519

Investment fund shares or units

 

F.52

 

Money market fund shares or units (MMFs)

 

 

F.521

Non-MMF investment fund shares/units

 

 

F.522

Insurance, pension and standardised guaranteed schemes

F.6

 

 

Non-life insurance technical reserves

 

F.61

 

Life insurance and annuity entitlements

 

F.62

 

Pension entitlements

 

F.63

 

Claims of pension funds on pension managers

 

F.64

 

Entitlements to non-pension benefits

 

F.65

 

Provisions for calls under standardised guarantees

 

F.66

 

Financial derivatives and employee stock options

F.7

 

 

Financial derivatives other than employee stock options

 

F.71

 

Employee stock options

 

F.72

 

Other accounts receivable/payable

F.8

 

 

Trade credits and advances

 

F.81

 

Other accounts receivable/payable, excluding trade credits and advances

 

F.89

 

5.A1.03

 The classification of financial transactions and of financial assets and liabilities is based primarily on the liquidity, the negotiability and the legal characteristics of the financial instruments. The definitions of the categories are in general independent of the classification of institutional units. The classification of financial assets and liabilities can be further detailed by a cross-classification by institutional unit. An example is the cross-classification of transferable deposits between deposit taking corporations, other than the central bank, as inter-bank positions.

Classification of financial transactions by negotiability

5.A1.04

 Financial claims can be distinguished by whether they are negotiable or not. A claim is negotiable if its ownership is readily capable of being transferred from one unit to another by delivery or endorsement or of being offset in the case financial derivatives. While any financial instrument can be potentially traded, negotiable instruments are designed to be traded on an organised exchange or ‧over-the-counter‧, although actual trading is not a necessary condition for negotiability. Necessary conditions of negotiability are:

(a)

transferability or offsetability in the case of financial derivatives;

(b)

standardisation often evidenced by fungibility and eligibility of an ISIN code; and

(c)

that the holder of an asset does not retain the right of recourse against the previous holders.

5.A1.05

 Securities, financial derivatives and employee stock options (AF.7) are negotiable financial claims. Securities include debt securities (AF.3), listed shares (AF.511), unlisted shares (AF.512), and investment fund shares (AF.52). Financial derivatives and employee stock options are not classified as securities even if they are negotiable financial instruments. They are linked to specific financial or non-financial assets or indices through which financial risks can be traded in financial markets in their own right.

5.A1.06

 Monetary gold and SDRs (AF.1), currency and deposits (AF.2), loans (AF.4), other equity (AF.519), insurance, pension and standardised guarantee schemes (AF.6) and other accounts receivable/payable (AF.8) are not negotiable.

Structured securities

5.A1.07

 Structured securities typically combine a security, or a basket of securities, with a financial derivative, or a basket of financial derivatives. Financial instruments which are not structured securities are, for instance, structured deposits which combine characteristics of deposits and of financial derivatives. While debt securities typically involve payment at inception of a principal to be repaid, financial derivatives do not.

Classification of financial transactions by type of income

5.A1.08

 Financial transactions are classified by the type of income they generate. The linking of income with the corresponding financial assets and liabilities facilitates calculation of rates of return. Table 5.4 shows the detailed classification by transaction and by income type. While monetary gold and SDRs, deposits, debt securities, loans and other accounts receivable/payable accrue interest, equity pays predominantly dividends, reinvested earnings or withdrawals from income of quasi-corporations. Investment income is attributable to holders of investment fund shares and of insurance technical reserves. The remuneration related to the participation in a financial derivative is not recorded as income, because no principal amount is provided.

Table 5.4 —   Classification of financial transactions by type of income

Financial transactions

Code

Type of income

Code

Monetary gold and special drawing rights (SDRs)

F.1

Interest

D.41

Currency

F.21

None

 

Transferable deposits

F.22

Interest

D.41

Other deposits

F.29

Interest

D.41

Debt securities

F.3

Interest

D.41

Loans

F.4

Interest

D.41

Equity

F.51

Distributed income of corporations

D.42

Reinvested earnings

D.43

Listed and unlisted shares

F.511

Dividends

D.421

F.512

Reinvested earnings

D.43

Other equity

F.519

Withdrawals from income of quasi-corporations

D.422

Reinvested earnings

D.43

Dividends

D.421

Investment fund shares or units

F.52

Investment income attributable to investment fund shareholders

D.443

Insurance, pension and standardised guarantee schemes

F.6

Investment income attributable to insurance policy holders

D.441

Investment income payable on pension entitlements

D.442

Financial derivatives and employee stock options

F.7

None

 

Other accounts receivable/payable

F.8

Interest

D.41

Classification of financial transactions by type of interest rate

5.A1.09

 Financial assets and liabilities accruing interest may be broken down by the type of interest rate namely fixed, variable, or mixed interest rates.

5.A1.10

 For financial instruments with a fixed interest rate the contractual nominal interest payments are fixed in terms of the currency of denomination for the life of the financial instrument or for a certain number of years. At the date of inception, from the debtor's perspective, the timing and value of interest payments and principal repayments are known.

5.A1.11

 For financial instruments with a variable interest rate, interest and principal payments are linked to an interest rate, general price index for goods and services or asset price. The reference value fluctuates in response to market conditions.

5.A1.12

 Mixed interest rate financial instruments have both a fixed and a variable interest rate over their life and are classified as variable interest rate financial instruments.

Classification of financial transactions by maturity

5.A1.13

 For the analysis of interest rates, asset yields, liquidity or debt servicing capacity, a breakdown of financial assets and liabilities by a range of maturities may be required.

Short-term and long-term maturity

5.A1.14

 Definition: a financial asset or liability with short-term maturity is repayable on demand at the request of the creditor, or in one year or less. A financial asset or liability with long-term maturity is repayable at some date beyond one year, or has no stated maturity.

Original maturity and remaining maturity

5.A1.15

 Definition: the original maturity of financial assets or liabilities is defined as the period from the issue date until the final scheduled payment date. A remaining maturity of financial assets or of liabilities is defined as the period from the reference date until the date of the final scheduled payment.

5.A1.16

 The original maturity concept is helpful in understanding debt issuance activity. Therefore, debt securities and loans are split by original maturity into short-term and long-term debt securities and loans.

5.A1.17

 Remaining maturity is more relevant to analysis of debt positions and debt servicing capabilities.

Classification of financial transactions by currency

5.A1.18

 Many of the categories, subcategories and sub-positions of the financial assets and liabilities may be broken down by the currency in which they are denominated.

5.A1.19

 Financial assets or liabilities in foreign currency include financial assets or liabilities denominated in a currency basket, for example SDRs and financial assets or liabilities denominated in gold. A distinction between national currency and foreign currencies is particularly useful for currency and deposits (AF.2), debt securities (AF.3) and loans (AF.4).

5.A1.20

 The currency of settlement may be different from the currency of denomination. The currency of settlement refers to the currency into which the value of positions and flows of financial instruments such as securities are converted each time settlement occurs.

Measures of money

5.A1.21

 Monetary policy analysis may require measures of money such as M1, M2 and M3 to be identified in the financial account. Measures of money are not defined in the ESA 2010.

 

CHAPTER 6

OTHER FLOWS

INTRODUCTION

6.01

 Other flows are changes in the value of assets and liabilities that do not result from transactions. The reason that these flows are not transactions is linked to their not meeting one or more of the characteristics of transactions, for example, the institutional units involved may not be acting by mutual agreement, as in the case of an uncompensated seizure of assets, or the change may be due to a natural event such as an earthquake rather than a purely economic phenomenon. Alternatively, the value of an asset expressed in foreign currency may change as a result of an exchange rate change.

OTHER CHANGES IN ASSETS AND LIABILITIES

6.02

 Definition: other changes in assets and liabilities are economic flows, other than those that occur through transactions recorded in the capital and financial accounts, that change the value of assets and liabilities.

Two types of other changes are distinguished. The first consists of changes in the volume of assets and liabilities. The second is through nominal holding gains and losses.

Other changes in the volume of assets and liabilities (K.1 to K.6)

6.03

 In the capital account, produced and non-produced assets may enter and leave a sector through acquisitions and disposals of assets, consumption of fixed capital or additions to, withdrawals from and recurrent losses from inventories. In the financial account, financial assets and liabilities enter the system when a debtor accepts a future obligation to pay a creditor, and leave the system when this obligation has been fulfilled.

6.04

 Other changes in the volume of assets and liabilities include flows that allow assets and liabilities to enter or leave the accounts other than by transactions — for example, entrances and exits of the discovery, depletion and degradation of natural assets.

Other changes in the volume of assets and liabilities also include the effect of exceptional, unanticipated external events that are not economic in nature, and changes resulting from reclassification or restructuring of institutional units or assets and liabilities.

6.05

 Other changes in the volume of assets and liabilities cover six categories:

(a)

economic appearance of assets (K.1);

(b)

economic disappearance of non-produced assets (K.2);

(c)

catastrophic losses (K.3);

(d)

uncompensated seizures (K.4);

(e)

other changes in volume not elsewhere classified (K.5); and

(f)

changes in classification (K.6).

Economic appearance of assets (K.1)

6.06

 Economic appearance of assets is the increase in the volume of produced and non-produced assets that is not the result of production. Included are:

(a)

historic monuments, e.g. those structures or sites with special archaeological, historical or cultural significance, when their value is first recognised in the balance sheet;

(b)

valuables, such as precious stones, antiques and art objects, when the high value or artistic significance of an object not already recorded in the balance sheet is first recognised;

(c)

discoveries of exploitable subsoil resources such as proven reserves of coal, oil, natural gas, metallic or non-metallic minerals. This also covers the upwards reappraisals of the value of reserves when exploitation becomes economically viable as a result of technological progress or relative price changes;

(d)

natural growth of uncultivated biological resources, such as natural forests and the stock of fish, where the growth in such economic assets is not under the direct control, responsibility and management of an institutional unit and thus not treated as production;

(e)

transfers of other natural resources to economic activity: natural resources that change status to qualify as economic assets. Examples include the initial exploitation of virgin forests, transfer of land from a wild or waste state to land that can be put to economic use, land reclamation and initial charging for extraction of water. The natural resources may also acquire value due to economic activity in the vicinity, for example, land may be recognised as valuable because of a nearby development or creation of an access road. The cost of land improvements is recorded as gross fixed capital formation but any excess in the increase of value of the land over the value of the land improvements is recorded as economic appearance;

(f)

quality changes in natural assets due to changes in economic uses. Changes in quality are recorded as changes in volume. The quality changes recorded here occur as the counterpart of the changes in economic use that are shown as changes in classification (see paragraph 6.21). For example, the reclassification of cultivated land to land underlying buildings may result in an increase in value as well as a change in classification. In this case the asset is already within the asset boundary and it is the change in quality of the asset due to the change of economic use that is regarded as the appearance of an asset. Another example is the increase in value of dairy cattle when sent to slaughter earlier than expected;

(g)

initial appearance of value from granting transferable contracts, leases, licences or permits. The value in such contracts, leases, licences or permits represents an asset when the value of the entitlement they give exceeds the fees payable and the holder can realise this by transferring them to others; and

(h)

changes in the value of goodwill and marketing assets, which materialises when institutional units are sold at prices that exceed their own funds (see paragraph 7.07); the excess of purchase price over own funds is referred to as purchased goodwill and marketing assets. Goodwill not evidenced by a sale/purchase is not considered as an economic asset.

Economic disappearance of non-produced assets (K.2)

6.07

 Economic disappearance of non-produced non-financial assets includes:

(a)

depletion of natural resources, which covers the reduction of the value of deposits of subsoil assets, and the depletion of uncultivated biological resources included in the asset boundary (see point (e) of paragraph 6.06) as a result of harvesting, forest clearance or use beyond sustainable levels of extraction. Many of the possible entries here are the opposite of the entries described in points (c) to (f) of paragraph 6.06;

(b)

other economic disappearance of non-produced assets, which covers:

(i)

the writing-down of the value of purchased goodwill and marketing assets; and

(ii)

the expiration of the advantages given by transferable contracts, leases, licences and permits.

Catastrophic losses (K.3)

6.08

 Catastrophic losses recorded as other changes in volume result from large-scale, discrete and recognisable events that destroy economic assets.

6.09

 Such events include major earthquakes, volcanic eruptions, tidal waves, exceptionally severe hurricanes, drought and other natural disasters; acts of war, riots and other political events; and technological accidents such as major toxic spills or release of radioactive particles into the air. Examples of such events are:

(a)

deterioration in the quality of land caused by abnormal flooding or wind damage;

(b)

destruction of cultivated assets by drought or outbreak of disease;

(c)

destruction of buildings, equipment or valuables in forest fires or earthquakes; and

(d)

accidental destruction of currency or bearer securities as a result of natural catastrophes or political events, or destruction of evidence of ownership.

Uncompensated seizures (K.4)

6.10

 Uncompensated seizures occur when governments or other institutional units take possession of the assets of other institutional units, including non-resident units, without full compensation, for reasons other than the payment of taxes, fines or similar levies. The seizure of property related to criminal activity is considered to be a fine. The uncompensated part of such unilateral seizures is recorded as other change in volume.

6.11

 Foreclosures and repossessions of assets by creditors are not recorded as uncompensated seizures because, either explicitly or by general understanding, the agreement between the parties provides for this avenue of recourse.

Other changes in volume not elsewhere classified (K.5)

6.12

 Other changes in volume not elsewhere classified (K.5) are the effects of unexpected events on the economic value of assets.

6.13

 Examples of other changes in volume not elsewhere classified of non-financial assets include:

(a)

unforeseen obsolescence. Assumptions used in deriving consumption of fixed capital will not cover unforeseen obsolescence in fixed assets. The amount included for their expected obsolescence may fall short of the actual obsolescence. Entries must, therefore, be made for the decline in the value of the fixed assets resulting from, for example, the introduction of improved technology;

(b)

differences between allowances included in consumption of fixed capital for normal damage and actual losses. Consumption of fixed capital does not cover unforeseen damage, and the amount estimated for normally expected damage may fall short or exceed the actual damage. Adjustments must, therefore, be made for the unforeseen decline or increase in the value of the fixed assets due to such events. The losses adjusted for here are not sufficiently large to be considered catastrophic;

(c)

degradation of fixed assets not accounted for in consumption of fixed capital. This covers the decline in the value of fixed assets from, for example, the unforeseen effects of acidity in air and rain on building surfaces or vehicle bodies;

(d)

abandonment of production facilities before completion or being brought into economic use;

(e)

exceptional losses in inventories (e.g. from fire damage, robberies, or insect infestation of grain stores) that are not considered as catastrophic losses.

6.14

 Examples of other changes in volume not elsewhere classified concerning financial assets and liabilities include:

(a)

losses of currency or bearer securities for reasons (such as fire damage or theft) that are not considered catastrophic, and currency withdrawn from circulation that is no longer exchangeable, excluding amounts where there has been a change in classification from currency to valuables;

(b)

changes in financial claims resulting from write-offs. These are excluded from the financial account because there is no mutual agreement between the parties. Specifically, a creditor may decide that a financial claim can no longer be collected, for example because of bankruptcy or liquidation, and removes the claim from their balance sheet. The creditor's recognition that the claim is uncollectable is recorded as other changes in the volume of assets. The corresponding liability must also be removed from the balance sheet of the debtor to maintain balance in the accounts of the total economy. An exception to this general principle is made for taxes and social contributions payable to general government (see point (d) of paragraph 6.15);

(c)

changes of life insurance, annuity entitlements and pension entitlements due to changes in demographic assumptions;

(d)

provisions for calls under standardised guarantee schemes when the expected calls exceed the expected receipts and recoveries.

6.15

 Other changes in volume not elsewhere classified exclude:

(a)

changes in financial claims resulting from write-downs that reflect the actual market values of tradable financial claims: these are accounted for in the revaluation account;

(b)

cancellation of debt by mutual agreement between debtor and creditor (debt cancellation or debt forgiveness): this is recorded as a transaction between the creditor and the debtor (see point (f) of paragraph 4.165);

(c)

debt repudiation: the unilateral cancellation of a liability by a debtor is not recognised;

(d)

taxes and social contributions payable to general government that general government unilaterally recognises as unlikely to be collected (see paragraphs 1.57, 4.27 and 4.82).

Changes in classification (K.6)

6.16

 Changes in classification comprise changes in sector classification and institutional unit structure, and changes in classification of assets and liabilities.

Changes in sector classification and institutional unit structure (K.61)

6.17

 Reclassifying an institutional unit from one sector to another transfers its entire balance sheet, e.g. if an institutional unit classified in the households sector becomes financially distinct from its owner, it may qualify as a quasi-corporation and be reclassified in the non-financial corporations sector.

6.18

 Changes in sector classification transfer the entire balance sheet from one sector or subsector to another. The transfer may result in consolidation or deconsolidation of assets and liabilities, which is also included in this category.

6.19

 Changes in structure of institutional units cover appearance and disappearance of certain financial assets and liabilities arising from corporate restructuring. When a corporation disappears as an independent legal entity because it is absorbed by one or more corporations, all financial assets and liabilities, including shares and other equity that existed between that corporation and those that absorbed it, disappear from the system. However, the purchase of shares and other equity of a corporation as part of a merger is recorded as a financial transaction between the purchasing corporation and its previous owners. The replacement of existing shares by shares in the purchasing corporation, or a new corporation, is recorded as redemptions of shares accompanied by the issue of new shares. Financial assets and liabilities that existed between the absorbed corporation and third parties remain unchanged and pass to the absorbing corporation.

6.20

 Symmetrically, when a corporation is legally split up into two or more institutional units, the appearance of financial assets and liabilities is recorded as changes in sector classification and structure.

Changes in classification of assets and liabilities (K.62)

6.21

 Changes in classification of assets and liabilities occur where assets and liabilities appear under one category in the opening balance sheet and another in the closing balance sheet. Examples include changes in land use and conversions of dwellings to commercial use or vice versa. In the case of land, both entries (a negative entry for the old category, a positive one for the new category) are made with the same value. Any change in land value resulting from this change in use is recorded as a volume change rather than a revaluation and, hence, as an economic appearance of assets or economic disappearance of non-produced assets.

6.22

 Appearance or disappearance of monetary gold held in the form of gold bullion cannot be created by a financial transaction but enters or leaves the system through other changes in the volume of assets.

6.23

 A special case of a change in classification occurs for gold bullion. Gold bullion can be a financial asset known as monetary gold, or a valuable known as non-monetary gold, depending on the holder and the motivation for the holding. Monetisation is the change in the classification of gold bullion from non-monetary to monetary. Demonetisation is the change in the classification of gold bullion from monetary to non-monetary.

6.24

 Operations in relation to gold bullion are recorded as follows.

(a)

When a monetary authority sells gold bullion that is a reserve asset to a non-resident institutional unit that is not a monetary authority or to a resident institutional unit, a transaction in non-monetary gold is recorded. Demonetisation of gold as a change in the classification of gold bullion from monetary to non-monetary occurs immediately before the transaction and is recorded as other changes in the volume of assets of the monetary authority.

(b)

When a monetary authority purchases gold bullion from a non-resident or a resident institutional unit for its reserve assets and that gold is not already a reserve asset, a transaction in non-monetary gold is recorded. Monetisation of gold as a change in the classification of gold bullion from non-monetary to monetary occurs immediately after the transaction and is recorded as other changes in the volume of assets of the monetary authority.

(c)

When buyer and seller are monetary authorities of different economies and both hold the gold bullion as part of their reserve assets, there is a transaction in gold bullion, which is recorded in the financial account.

(d)

In other cases, gold bullion is non-monetary at all times and transactions in non-monetary gold are recorded.

The above cases relating to a monetary authority also apply to an international financial organisation.

6.25

 Changes in classification of assets and liabilities do not include the conversion of debt securities into shares, which is recorded as two financial transactions.

Nominal holding gains and losses (K.7)

6.26

 The revaluation account records the nominal holding gains and losses accruing during an accounting period to the owners of assets and liabilities, reflecting changes in the level and structure of their prices. Nominal holding gains and losses (K.7) comprise neutral holding gains and losses (K.71) and real holding gains and losses (K.72).

6.27

 Definition: the nominal holding gains and losses (K.7) that relate to an asset are the increases or decreases in the asset's value accruing to its economic owner as a result of increases or decreases in its price. The nominal holding gains and losses that relate to a financial liability are the decreases or increases in the liability's valuation as a result of decreases or increases to its price.

6.28

 A holding gain arises from an increase in the value of an asset or from a decrease in the value of a liability. A holding loss arises from a decrease in the value of an asset or an increase in the value of a liability.

6.29

 The nominal holding gains and losses recorded in the revaluation account are those accruing on assets or liabilities, whether realised or not. A holding gain is said to be realised when the asset in question is sold, redeemed, used or otherwise disposed of, or the liability repaid. An unrealised gain is one accruing on an asset that is still owned or a liability that is still outstanding at the end of the accounting period. A realised gain is usually understood as the gain realised over the entire period over which the asset is owned or liability outstanding whether this period coincides with the accounting period or not. However, as holding gains and losses are recorded on an accruals basis, the distinction between realised and unrealised gains and losses, although useful for some purposes, does not appear in the classifications and accounts.

6.30

 Holding gains and losses include the gains and losses on all kinds of non-financial assets, financial assets and liabilities. Thus, holding gains and losses on inventories of all kinds of goods held by producers, including work-in-progress, are also covered.

6.31

 Nominal holding gains and losses may accrue on assets held or liabilities incurred for any length of time during the accounting period and not merely on assets or liabilities that appear in the opening and/or closing balance sheets. The nominal holding gains and losses accruing to the owner of a particular asset or liability, or given quantity of a specific type of asset or liability, between two points of time is defined as ‧the current value of that asset or liability at the later point of time minus the current value of that asset or liability at the earlier point of time‧, assuming that the asset or liability itself does not change, qualitatively or quantitatively, during that time.

6.32

 The nominal holding gain (G) accruing on a given quantity q of some asset between times o and t can be expressed as follows:
Formula
,

where po and pt are the prices of the asset at times o and t respectively. For financial assets and liabilities with fixed current values in the national currency, po and pt are unity by definition and the nominal holding gain are always zero.

6.33

 To calculate nominal holding gains and losses, acquisitions and disposals of assets must be valued in the same way they are recorded in the capital and financial accounts and stocks of assets must be valued in the same way they are recorded in the balance sheet. In the case of fixed assets, the value of an acquisition is the amount paid by the purchaser to the producer, or seller, plus the associated costs of ownership transfer incurred by the purchaser. The value of a disposal of an existing fixed asset is the amount received by the seller from the purchaser minus the costs of ownership transfer incurred by the seller.

6.34

 An exception to the case described in paragraph 6.33 is where the price paid differs from the market value of the asset. In this case, a capital transfer is imputed for the difference between the price paid and the market value and the acquisition is recorded at market value. This particularly occurs in transactions involving non-market sectors.

6.35

 Four different situations leading to nominal holding gains and losses are distinguished:

(a)

an asset held throughout the accounting period: the nominal holding gain accruing during the accounting period is equal to the closing balance sheet value minus the opening balance sheet value minus any consumption of fixed capital in the accounting period. These values are the estimated values of the assets if they were to be acquired at the times the balance sheets are drawn up. The nominal gain is unrealised;

(b)

an asset held at the beginning of the period that is sold during the period: the nominal holding gain accruing is equal to the value at disposal minus the opening balance sheet value minus any consumption of fixed capital in the accounting period that occurs prior to the sale. The nominal gain is realised;

(c)

an asset acquired during the period and still held at the end of the period: the nominal holding gain accruing is equal to the closing balance sheet value minus the value at acquisition minus any consumption of fixed capital in the accounting period. The nominal gain is unrealised; and

(d)

an asset acquired and disposed of during the accounting period: the nominal holding gain accruing is equal to the value at disposal minus the value at acquisition minus any consumption of fixed capital in the accounting period between acquisition and disposal. The nominal gain is realised.

6.36

 The nominal holding gains and losses included are those accruing on assets and liabilities, whether realised or not. They are recorded in the revaluation account of the sectors involved, the total economy and the rest of the world.

Neutral holding gains and losses (K.71)

6.37

 Definition: the neutral holding gains and losses (K.71) relate to assets and liabilities and are the value of the holding gains and losses that accrue if the price of the asset or liability changes over time in the same proportion as the general price level.

6.38

 Neutral holding gains and losses are identified to facilitate the derivation of real holding gains and losses, which redistribute real purchasing power between sectors.

6.39

 Let the general price index be denoted by r. The neutral holding gain (NG) on a given quantity q of an asset between times o and t is then given by the following expression:
Formula
,

where po × q is the current value of the asset at time o and rt/ro the factor of the change in the general price index between times o and t. The same term rt/ro is applied to all assets and liabilities.

6.40

 The general price index to be applied for the calculation of neutral holding gains and losses is a price index for final expenditure.

6.41

 Neutral holding gains and losses are recorded in the neutral holding gains and losses account, which is a subaccount of the revaluation account of the sectors, the total economy and the rest of the world.

Real holding gains and losses (K.72)

6.42

 Definition: the real holding gains and losses (K.72) relate to an asset or liability and are the difference between the nominal and the neutral holding gains and losses on that asset.

6.43

 The real holding gain (RG) on a given quantity q of an asset between times o and t is given by:

 

Formula

 

or

Formula
.

6.44

 The values of the real holding gains and losses on assets and liabilities thus depend on the movements of their prices over the period in question, relative to movements of other prices, on average, as measured by the general price index.

6.45

 Real holding gains and losses are recorded in the real holding gains and losses account, which is a subaccount of the revaluation account.

Holding gains and losses by types of financial asset and liability

Monetary gold and SDRs (AF.1)

6.46

 As the price of monetary gold is usually quoted in US dollars, the value of monetary gold is subject to nominal holding gains and losses through changes in the exchange rate as well as the price of the gold itself.

6.47

 As the SDRs represent a basket of currencies, its value in national currency terms, and so the value of the holding gains and losses, varies with the exchange rates of the currencies in the basket against the national currency.

Currency and deposits (AF.2)

6.48

 The current values of currency and deposits denominated in national currency remain constant over time. The ‧price‧ of such an asset is always unity while the quantity is given by the number of units of the currency in which they are denominated. The nominal holding gains and losses on such assets are always zero. For this reason, the difference between the values of the opening and closing stocks of such assets is, with the exception of other changes in volume, entirely accounted for by the values of the transactions in the assets. This is a rare case where it is normally possible to deduce the transactions from the changes in balance sheet figures.

6.49

 The interest accruing on deposits is recorded in the financial account as being simultaneously reinvested as deposits.

6.50

 Holdings of foreign currency and deposits denominated in other currencies will register nominal holding gains and losses due to changes in exchange rates.

6.51

 In order to calculate the neutral and real holding gains and losses on assets of fixed current value, data on the times and values of transactions are needed as well as the opening and closing balance sheet values. Suppose, for example, a deposit is made and withdrawn within the accounting period while the general price level is rising. The neutral gain on the deposit is positive and the real gain negative, the amount depending upon the length of time the deposit is outstanding and the rate of inflation. It is impossible to record such real losses without data on the value of the transactions during the accounting period and the times at which they are made.

6.52

 In general, it may be inferred that if the total absolute value of the positive and negative transactions is large in relation to the opening and closing balance sheet levels, approximate estimates of the neutral and real holding gains and losses on financial assets and liabilities with fixed current values derived from balance sheet data alone may not be very satisfactory. Even recording the values of financial transactions on a gross basis, i.e. recording deposits made and withdrawn separately as distinct from the total value of deposits minus withdrawals, may not be sufficient without information on the timing of the deposits.

Debt securities (AF.3)

6.53

 When a long-term debt security, such as a bond, is issued at premium or discount, including deep discounted and zero coupon bonds, the difference between its issue price and its face or redemption value when it matures measures interest that the issuer is obliged to pay over the life of the debt security. Such interest is recorded as property income payable by the issuer of the long-term debt security and receivable by the holder of the debt security, in addition to any coupon interest actually paid by the issuer at specified intervals over the life of the debt security.

6.54

 The interest accruing is recorded in the financial account as being simultaneously reinvested in the debt security by the holder of the debt security. It is therefore recorded in the financial account as the acquisition of an asset, which is added to the existing asset. Thus the gradual increase in the market value of a long-term debt security that is attributable to the accumulation of accrued reinvested interest reflects a growth in the principal outstanding — that is, in the size of the asset. It is essentially a quantum or volume increase and not a price increase. It does not generate any holding gain for the holder of the long-term debt security or a holding loss for the issuer. Debt securities change qualitatively over time as they approach maturity and it is essential to recognise that increases in their values due to the accumulation of accrued interest are not price changes and do not generate holding gains.

6.55

 The prices of fixed-interest long-term debt securities also change, however, when the market rates of interest change, the prices varying inversely with the interest rate movements. The impact of a given interest rate change on the price of an individual long-term debt security is lower the closer the security is to maturity. Changes in prices of long-term debt securities that are attributable to changes in market rates of interest constitute price and not quantum changes. They, therefore, generate nominal holding gains and losses for both the issuers and the holders of the debt securities. An increase in interest rates generates a nominal holding gain for the issuer of the debt security and an equal nominal holding loss for the holder, and vice versa in the case of a fall in interest rates.

6.56

 Variable interest rate debt securities have their coupon or principal payments linked to a general price index for goods and services, such as the consumer price index, an interest rate such as the Euribor, the Libor or a bond yield, or an asset price.

When the amounts of the coupon payments and/or the principal outstanding are linked to a general or broad price index, the change in the value of the principal outstanding between the beginning and the end of a particular accounting period due to the movement in the relevant index is treated as interest accruing in that period, in addition to any interest due for payment in that period.

When indexation of the amounts to be paid at maturity includes a holding gain motive, typically indexation based on a single, narrowly defined item, any deviation of the underlying index from the originally expected path leads to holding gains or losses, which will not normally cancel out over the life of the instrument.

6.57

 Nominal holding gains and losses may accrue on short-term debt securities in the same way as for long-term debt securities. However, as short-term debt securities have much shorter times to maturity, the holding gains generated by interest rate changes are generally much smaller than on long-term debt securities with the same face values.

Loans (AF.4)

6.58

 The same situation as for currency and deposits applies for loans that are not traded. However, when an existing loan is sold to another institutional unit, the write-down of the loan, which is the difference between the redemption price and the transaction price, is recorded under the revaluation account of the seller and the purchaser at the time of transaction.

Equity and investment fund shares (AF.5)

6.59

 Bonus shares increase the number of shares and the nominal value of the shares issued but do not by themselves alter the market value of the totality of shares. This also applies for a stock dividend which is a pro-rata distribution of additional shares of a corporation's stock to owners of the common stock. Bonus shares and stock dividends do not enter the accounts at all. However, such issues are designed to improve the liquidity of the shares on the market and hence the total market value of shares issued may rise as a result: any such change is recorded as a nominal holding gain.

Insurance, pension and standardised guarantee schemes (AF.6)

6.60

 When the reserves and entitlements for insurance, pension and standardised guarantee schemes are denominated in national currency, there are no nominal holding gains and losses, just as there are none for currency or deposits and loans. The assets used by the financial institutions to meet the commitments are subject to holding gains and losses.

6.61

 The liabilities to policy holders and beneficiaries change as a result of transactions, other volume changes and revaluations. Revaluations are due to changes of key model assumptions in the actuarial calculations. Those assumptions are the discount rate, the wage rate and the inflation rate.

Financial derivatives and employee stock options (AF.7)

6.62

 The value of financial derivatives may change as a result of changes in the value of the underlying instrument, changes in the volatility of the price of the underlying instrument, or approaching the date of execution or maturity. All such changes in value to financial derivatives and employee stock options are to be regarded as price changes and recorded as a revaluation.

Other accounts receivable/payable (AF.8)

6.63

 The same situation as for domestic currency, deposits and loans applies for other accounts receivable/payable, which are not traded. However, when an existing trade credit is sold to another institutional unit the difference between the redemption price and the transaction price is recorded as revaluation at the time of transaction. Nonetheless, as trade credit generally has a short-term nature, the sale of a trade credit might imply the creation of a new financial instrument.

Assets denominated in foreign currency

6.64

 The value of assets and liabilities denominated in foreign currency is measured by their current market value in foreign currency converted into national currency at the current exchange rate. Nominal holding gains and losses may therefore occur from both changes in the price of the asset and the exchange rate. The total value of the nominal holding gains and losses accruing over the accounting period is calculated by subtracting the value of transactions and other volume changes from the difference between the opening and closing balance sheet values. For this purpose, transactions in assets and liabilities denominated in foreign currency are converted into the national currency using the exchange rates at the time the transactions occur, while the opening and closing balance sheet values are converted using the exchange rates prevailing at the dates to which the balance sheets relate. This implies that the total value of the transactions as net acquisitions — acquisitions less disposals — expressed in foreign currency is, in effect, converted by a weighted average exchange rate in which the weights are given the values of transactions conducted on different dates.

 

CHAPTER 7

BALANCE SHEETS

7.01.

 Definition: a balance sheet is a statement, drawn up for a particular point in time, of the values of assets economically owned and of liabilities owed by an institutional unit or group of units.

7.02

 The balancing item of a balance sheet is called net worth (B.90). The stock of the assets and liabilities recorded in the balance sheet are valued at the appropriate prices, which are usually the market prices prevailing on the date to which the balance sheet relates, but for some categories at their nominal values. A balance sheet is drawn up for resident institutional sectors and subsectors, the total national economy and the rest of the world.

7.03

 The balance sheet completes the sequence of accounts, showing the ultimate effect of the entries in the production, distribution and use of income, and accumulation accounts on the stock of wealth of an economy.

7.04

 For institutional sectors the balancing item on the balance sheet is net worth.

7.05

 For the total national economy the balancing item is often referred to as national wealth — the total value of non-financial assets, and net financial assets with respect to the rest of the world.

7.06

 The rest of the world balance sheet is compiled in the same manner as the balance sheets of the resident institutional sectors and subsectors. It consists entirely of positions in financial assets and liabilities of non-residents vis-à-vis residents. In the BPM6 the corresponding balance sheet drawn from the viewpoint of residents vis-à-vis non-residents is called the international investment position (IIP).

7.07

 Own funds are defined as the sum of net worth (B.90) plus the value of equity and investment fund shares (AF.5) as liabilities in the balance sheet.

7.08

 For the non-financial corporations and financial corporations sectors and subsectors, own funds is an analytically meaningful indicator similar to net worth.

7.09

 The net worth of corporations will usually be different from the value of their shares and other equity issued. Quasi-corporations' net worth is zero because the value of their owner's equity is assumed to be equal to its assets less its non-equity liabilities. The net worth of resident direct investment enterprises, which are branches of non-resident enterprises and treated as quasi-corporations, is therefore also zero.

7.10

 The balancing item of financial assets and liabilities is called financial net worth (BF.90).

7.11

 A balance sheet relates to the value of assets and liabilities at a particular moment of time. Balance sheets are compiled at the beginning and end of an accounting period; the opening balance sheet at the beginning of the period is the same as the closing balance sheet recorded at the end of the preceding period.

7.12

 A basic accounting identity links the value of the stock of a specific type of an asset as shown in the opening balance sheet and the closing balance sheet as follows:

the value of the stock of a specific type of asset in the opening balance sheet

plus

transactions

the total value of that asset acquired in transactions that take place during the accounting period

minus

the total value of that asset disposed of in transactions that take place during the accounting period

minus

consumption of fixed capital (if applicable)

plus

other changes in the volume of assets

other positive changes in volume affecting that asset

minus

other negative changes in volume affecting that asset

plus

revaluations

the value of nominal holding gains accruing during the period resulting from changes in the price of that asset

minus

the value of nominal holding losses accruing during the period resulting from changes in the price of that asset

equals the value of the stock of that asset in the closing balance sheet.

A table can also be drawn up, which links the value of the stock of a specific type of a liability in the opening balance sheet and the closing balance sheet.

7.13

 The accounting links between the opening balance sheet and the closing balance sheet via transactions, other changes in the volume of assets and liabilities, and holding gains and losses are shown schematically in Annex 7.2.

TYPES OF ASSETS AND LIABILITIES

Definition of an asset

7.14

 The assets recorded in the balance sheets are economic assets.

7.15

 Definition: an economic asset is a store of value representing the benefits accruing to the economic owner by holding or using the entity over a period of time. It is a means of carrying forward value from one accounting period to another.

7.16

 The economic benefits consist of primary incomes such as operating surplus, where the economic owner uses the asset, or property income, where the economic owner lets others use it. The benefits are derived from the use of the asset and the value, including holding gains and losses, that is realised by disposing of the asset or terminating it.

7.17

 The economic owner of an asset is not necessarily the legal owner. The economic owner is the institutional unit entitled to claim the benefits associated with the use of the asset by virtue of accepting the associated risks.

7.18

 An overview of the classification and coverage of economic assets is given in Table 7.1. The detailed definition of each asset category is set out in Annex 7.1.

EXCLUSIONS FROM THE ASSET AND LIABILITY BOUNDARY

7.19

 Excluded from the asset and liability boundary are:

(a)

human capital;

(b)

natural assets that are not considered as economic assets (e.g. air, river water);

(c)

consumer durables; and

(d)

contingent assets and liabilities, which are not financial assets and liabilities (see paragraph 7.31).

CATEGORIES OF ASSETS AND LIABILITIES

7.20

 Two main categories of entries in the balance sheets are distinguished: non-financial assets (denoted as AN) and financial assets and liabilities (denoted as AF).

7.21

 Non-financial assets are divided into produced non-financial assets (denoted as AN.1) and non-produced non-financial assets (denoted as AN.2).

Produced non-financial assets (AN.1)

7.22

 Definition: produced non-financial assets (AN.1) are outputs from production processes.

7.23

 The classification of produced non-financial assets (AN.1) is designed to distinguish among assets on the basis of their role in production. It consists of: fixed assets which are used repeatedly or continuously in production for more than one year; inventories which are used up in production as intermediate consumption, sold or otherwise disposed of; and valuables. Valuables are not used primarily for production or consumption, but are instead acquired and held primarily as stores of value.

Non-produced non-financial assets (AN.2)

7.24

 Definition: non-produced non-financial assets (AN.2) are economic assets that come into existence other than through processes of production. They consist of natural assets, contracts, leases, licences, permits, and goodwill and marketing assets.

7.25

 The classification of non-produced assets is designed to distinguish assets on the basis of how they come into existence. Some of these assets exist naturally, while others, which are known as constructs of society, come into existence by legal or accounting actions.

7.26

 The choice of which natural assets to include in the balance sheet is determined, in compliance with the general definition of an economic asset, by whether the assets are subject to effective economic ownership and are capable of bringing economic benefits to their owners, given the existing technology, knowledge, economic opportunities, available resources, and set of relative prices. Natural assets where ownership rights have not been established, such as open seas or air, are excluded.

7.27

 Contracts, leases, licences and permits are regarded as non-financial assets only when a legal agreement confers economic benefits on the holder in excess of amounts payable under the agreement, and the holder can legally and practically realise such benefits by transferring them to others.

Financial assets and liabilities (AF)

7.28

 Definition: financial assets (AF) are economic assets, comprising all financial claims, equity and the gold bullion component of monetary gold (paragraph 5.03). Liabilities are established when debtors are obliged to provide a payment or a series of payments to creditors (paragraph 5.06).

7.29

 Financial assets are stores of value representing a benefit or series of benefits accruing to the economic owner through holding or using the assets over a period of time. They are a means of carrying forward value from one accounting period to another. Benefits are exchanged through means of payments (paragraph 5.04).

7.30

 Each financial asset has a counterpart liability, with the exception of the gold bullion component of monetary gold, which is classified in the monetary gold and special drawing rights (AF.1) category.

7.31

 Contingent assets and contingent liabilities are agreements whereby one party is obliged to provide a payment or series of payments to another unit only if certain specific conditions prevail (paragraph 5.08). They are not financial assets and liabilities.

7.32

 The classification of financial assets and liabilities corresponds to the classification of financial transactions (paragraph 5.14). The definitions of the categories and subcategories of financial assets and liabilities and the supplementary explanations are provided in Chapter 5 and not repeated here but Annex 7.1 contains a summary of all assets and liabilities defined in the system.

Table 7.1 —   Classification of assets

AN.

NON-FINANCIAL ASSETS (AN.1 + AN.2)

AN.1

Produced non-financial assets

AN.11

Fixed assets (1)

AN.111

Dwellings

AN.112

Other buildings and structures

AN.1121

Buildings other than dwellings

AN.1122

Other structures

AN.1123

Land improvements

AN.113

Machinery and equipment

AN.1131

Transport equipment

AN.1132

ICT equipment

AN.1139

Other machinery and equipment

AN.114

Weapons systems

AN.115

Cultivated biological resources

AN.1151

Animal resources yielding repeat products

AN.1152

Tree, crop and plant resources yielding repeat products

AN.117

Intellectual property products

AN.1171

Research and development

AN.1172

Mineral exploration and evaluation

AN.1173

Computer software and databases

AN.11731

Computer software

AN.11732

Databases

AN.1174

Entertainment, literary or artistic originals

AN.1179

Other intellectual property products

AN.12

Inventories

AN.121

Materials and supplies

AN.122

Work-in-progress

AN.1221

Work-in-progress on cultivated biological assets

AN.1222

Other work-in-progress

AN.123

Finished goods

AN.124

Military inventories

AN.125

Goods for resale

AN.13

Valuables

AN.131

Precious metals and stones

AN.132

Antiques and other art objects

AN.133

Other valuables

AN.2

Non-produced non-financial assets

AN.21

Natural resources

AN.211

Land

AN.2111

Land underlying buildings and structures

AN.2112

Land under cultivation

AN.2113

Recreational land and associated surface water

AN.2119

Other land and associated surface water

AN.212

Mineral and energy reserves

AN.213

Non-cultivated biological resources

AN.214

Water resources

AN.215

Other natural resources

AN.2151

Radio spectra

AN.2159

Other

AN.22

Contracts, leases and licences

AN.221

Marketable operating leases

AN.222

Permits to use natural resources

AN.223

Permits to undertake specific activities

AN.224

Entitlement to future goods and services on an exclusive basis

AN.23

Purchases less sales of goodwill and marketing assets

AF

FINANCIAL ASSETS (2) (AF.1 + AF.2 + AF.3 + AF.4 + AF.5 + AF.6 + AF.7 + AF.8)

AF.1

Monetary gold and special drawing rights (SDRs)

AF.11

Monetary gold

AF.12

Special drawing rights (SDRs)

AF.2

Currency and deposits

AF.21

Currency

AF.22

Transferable deposits

AF.29

Other deposits

AF.3

Debt securities

AF.31

Short-term

AF.32

Long-term

AF.4

Loans

AF.41

Short-term

AF.42

Long-term

AF.5

Equity and investment fund shares or units

AF.51

Equity

AF.511

Listed shares

AF.512

Unlisted shares

AF.519

Other equity

AF.52

Investment fund shares or units

AF.521

MMF shares/units

AF.522

Non-MMF investment fund shares/units

AF.6

Insurance, pension and standardised guarantee schemes

AF.61

Non-life insurance technical reserves

AF.62

Life insurance and annuity entitlements

AF.63

Pension entitlements

AF.64

Claims of pension funds on pension managers

AF.65

Entitlements to non-pension benefits

AF.66

Provisions for calls under standardised guarantees

AF.7

Financial derivatives and employee stock options

AF.71

Financial derivatives

AF.72

Employee stock options

AF.8

Other accounts receivable/payable

AF.81

Trade credits and advances

AF.89

Other accounts receivable/payable, excluding trade credit and advances

VALUATION OF ENTRIES IN THE BALANCE SHEETS

General valuation principles

7.33

 Each item in the balance sheet is valued as if it were being acquired on the date to which the balance sheet relates. Assets and liabilities are valued at market prices on the date to which the balance sheet relates.

7.34

 The values recorded should reflect prices observable on the market on the date to which the balance sheet relates. When there are no observable market prices, which may be the case if there is a market but no assets have recently been sold on it, estimates should be made of what the price would be if the assets were acquired on the market on the date to which the balance sheet relates.

7.35

 Market prices are usually available for many financial assets and liabilities, existing real estate (buildings and other structures plus the underlying land), existing transport equipment, crops and livestock, as well as for newly produced fixed assets and inventories.

7.36

 Non-financial assets produced on own-account should be valued at basic prices or, if basic prices are not available, at the basic prices of similar goods, or, if this is not possible, at cost.

7.37

 In addition to observed market prices, estimates based on observed prices or costs incurred, values of non-financial assets may be estimated by:

(a)

revaluing and accumulating acquisitions less disposals over the assets' lifetimes; or

(b)

the present value, i.e. the discounted value, of future economic benefits.

7.38

 Market valuation is the key principle for valuing positions (and transactions) in financial instruments. Financial instruments are identical to financial claims. They are financial assets that have corresponding liabilities. The market value is that at which financial assets are acquired or disposed of, between willing parties, on the basis of commercial considerations only, excluding commissions, fees and taxes. In determining market values, trading parties also take account of accrued interest.

7.39

 Nominal valuation reflects the sum of funds originally advanced, plus any subsequent advances, less any repayments, plus any accrued interest. Nominal value is not the same as face value.

(a)

The nominal value in domestic currency of a financial instrument denominated in foreign currency includes holdings gains or losses arising from movements in exchange rates.

The value of financial instruments denominated in foreign currency should be converted into the national currency at the market exchange rate prevailing on the date to which the balance sheet relates. This rate should be the mid-point between the buying and the selling spot rates for currency transactions.

(b)

For financial instruments like debt securities linked to a narrow index, the nominal value can also include holding gains or losses arising from movements in the index.

(c)

At any specific point in time, the market value of a financial instrument may deviate from its nominal value due to revaluations arising from market price changes. Movements in market prices arise from general market conditions, such as changes in the market rate of interest, specific circumstances, such as changes in the perceived creditworthiness of the issuer of a debt security, and changes in general market liquidity and in market liquidity that is specific to that debt security.

(d)

Thus, the following basic equation applies to positions:

market value = nominal value + revaluations arising from market price changes.

7.40

 For some non-financial assets, the revalued initial acquisition price reduces to zero over the asset's expected life. The value of such an asset, at any particular point of time, is given by its current acquisition price less the accumulated value of such reductions.

7.41

 Most fixed assets can be recorded in balance sheets at current purchasers' prices reduced for the accumulated consumption of fixed capital; this is known as the written-down replacement cost. The sum of the reduced values of all fixed assets still in use is described as the net capital stock. The gross capital stock includes the values of the accumulated consumption of fixed capital.

NON-FINANCIAL ASSETS (AN)

Produced non-financial assets (AN.1)

Fixed assets (AN.11)

7.42

 Fixed assets are recorded at market prices if possible (or basic prices in the case of own-account production of new assets) or, if not possible, then at purchasers' prices at acquisition reduced by the accumulated consumption of fixed capital. The purchasers' costs of transferring ownership of fixed assets, appropriately reduced through consumption of fixed capital over the period the purchaser expects to hold the economic asset, are included in the balance sheet value.

Intellectual property products (AN.117)

7.43

 Mineral exploration and evaluation (category AN.1172) are valued either on the basis of the accumulated amounts paid to other institutional units conducting the exploration and evaluation, or on the basis of the costs incurred for exploration undertaken on own-account. That part of exploration undertaken in the past that has not yet been fully reduced should be revalued at the prices and costs of the current period.

7.44

 Originals of intellectual property products, such as computer software and entertainment, literary or artistic originals should be valued at the acquisition price when traded on markets. The initial value is estimated by summing their costs of production, appropriately revalued to the prices of the current period. If it is not possible to establish the value by this method, the present value of expected future receipts arising from using the asset is estimated.

Costs of ownership transfer on non-produced assets (AN.116)

7.45

 The costs of ownership transfer on non-produced assets other than land are shown separately in the capital account, and treated as gross fixed capital formation, but in the balance sheets such costs are incorporated in the value of the asset to which they relate even though the asset is non-produced. Thus, there are no costs of ownership transfer shown separately in the balance sheets. The costs of ownership transfer on financial assets are treated as intermediate consumption, where the assets are acquired by corporations or government, final consumption where the assets are acquired by households and exports of services where the assets are acquired by non-residents.

Inventories (AN.12)

7.46

 Inventories should be valued at prices prevailing on the date to which the balance sheet relates, and not at the prices at which the products were valued when they entered inventory.

7.47

 Inventories of materials and supplies are valued at purchasers' prices, and inventories of finished goods and work-in-progress are valued at basic prices. Inventories of goods intended for resale without further processing by distributors are valued at the prices prevailing on the date to which the balance sheet relates, excluding any transportation costs incurred by the wholesalers or retailers. For inventories of work-in-progress, the value of the closing balance sheet is estimated by applying the fraction of the total production cost incurred by the end of the period to the basic price of a similar finished product on the date to which the balance sheet relates. If the basic price of the finished products is unavailable, it is estimated by the value of the production cost with a mark-up for expected net operating surplus or estimated net mixed income.

7.48

 Single-use crops (except timber) under cultivation and livestock raised for slaughter can be valued by reference to the prices of such products on the markets. Standing timber is valued by discounting the future proceeds of selling the timber at current prices after deducting the expenses of bringing the timber to maturity, felling, etc.

Valuables (AN.13)

7.49

 Valuables such as works of art, antiques, jewellery, precious stones, non-monetary gold and other metals are valued at current prices. If organised markets exist for these assets, they should be valued at the actual or estimated prices they would fetch, excluding any agents' fees or commissions, if sold on the market on the date to which the balance sheet relates. Otherwise, they should be valued at acquisition prices, revalued to the current price level.

Non-produced non-financial assets (AN.2)

Natural resources (AN.21)

Land (AN.211)

7.50

 In the balance sheet land is valued at its current market price. Any expenditure on land improvements is recorded as gross fixed capital formation and the additional value it provides is excluded from the value of land shown in the balance sheet and is instead shown in a separate asset category for land improvement (AN.1123).

7.51

 Land is valued at the estimated price achieved if sold on the market, excluding the costs involved in transferring ownership for a future sale. When a transfer does occur, it is recorded by convention as gross fixed capital formation and the costs are excluded from the AN.211 land value recorded in the balance sheet and instead recorded as an AN.1123 asset. This is reduced to zero through consumption of fixed capital over the period that the new owner expects to use the land.

7.52

 If the value of the land cannot be separated from that of buildings or other structures situated on it, the combined assets are classified together in the category of the asset that has the greater value.

Mineral and energy reserves (AN.212)

7.53

 Reserves of mineral deposits located on or below the earth's surface, that are economically exploitable given current technology and relative prices, are valued at the present value of expected net returns resulting from their commercial exploitation of the assets.

Other natural assets (AN.213, AN.214 and AN.215)

7.54

 Observed market prices for non-cultivated biological resources (AN.213), water resources (AN.214) and other natural resources (AN.215) are unlikely to be available, so they are usually valued at the present value of future returns expected from them.

Contracts, leases and licences (AN.22)

7.55

 Definition: contracts, leases and licences are recorded as assets when the following conditions are met:

(a)

the terms of the contract, lease or licence specify a price for the use of an asset or provision of a service that differs from the prevailing market price; and

(b)

one party to the contract can realise the price difference.

The contracts, leases and licences can be valued by taking market information from the transfers of the instruments conferring the rights, or estimated as the present value of expected future returns at the balance sheet date compared to the situation when the legal agreement starts.

7.56

 The category covers assets that may arise from marketable operating leases, licences to use natural resources, permits to undertake specific activities and entitlements to future goods and services on an exclusive basis.

7.57

 The value of the asset is equal to the net present value of the excess of the prevailing price over that fixed in the agreement. Other things being equal, this will decline as the period of the agreement expires. Changes in the value of the asset due to changes in the prevailing price are recorded as nominal holding gains and losses.

7.58

 Marketable operating lease assets are only recorded as assets when lessees exercise their rights to realise the price difference.

Purchases less sales of goodwill and marketing assets (AN.23)

7.59

 The balance sheet value of goodwill and marketing assets is the excess of the price paid at the time an institutional unit is sold, over the value recorded for its own funds, revalued for any subsequent reductions as the initial value is written down as an economic disappearance of non-produced assets (K.2). The rate of write down is in accordance with commercial accounting standards.

7.60

 Marketing assets consist of items such as brand names, mastheads, trademarks, logos and domain names.

FINANCIAL ASSETS AND LIABILITIES (AF)

7.61

 Financial assets and liabilities as negotiable financial instruments such as debt securities, equity securities, investment fund shares or units and financial derivatives, are valued at market value. Financial instruments that are non-negotiable are valued at nominal value (see paragraphs 7.38 and 7.39). The counterpart financial assets and liabilities have the same values in the balance sheet. The values should exclude commissions, fees and taxes. Commissions, fees and taxes are recorded as services provided in carrying out the transactions.

Monetary gold and SDRs (AF.1)

7.62

 Monetary gold (AF.11) is to be valued at the price established in organised gold markets.

7.63

 The value of SDRs (AF.12) is determined daily by the IMF and the rates against domestic currencies are obtainable from foreign exchange markets.

Currency and deposits (AF.2)

7.64

 For currency (banknotes and coins — AF.21), the valuation is the nominal value of the currency.

7.65

 For deposits (AF.22, AF.29), the values recorded in the balance sheet are nominal values.

7.66

 Currency and deposits in foreign currency are converted to domestic currency at the mid-point of the bid and offer spot exchange rates prevailing on the balance sheet date.

Debt securities (AF.3)

7.67

 Debt securities are recorded at market value.

7.68

 Short-term debt securities (AF.31) are valued at market value. If market values are not available then, provided there are no conditions of high inflation or high nominal interest rates, the market value can be approximated by the nominal value for:

(a)

short-term debt securities issued at par; and

(b)

short-term discounted debt securities.

7.69

 Long-term debt securities (AF.32) are valued at market value, whether they are bonds on which interest is paid regularly or deep-discounted or zero-coupon bonds on which little or no interest is paid.

Loans (AF.4)

7.70

 The values to be recorded in the balance sheets of both creditors and debtors are the nominal values irrespective of whether the loans are performing or non-performing.

Equity and investment fund shares/units (AF.5)

7.71

 Listed shares (AF.511) are valued at their market values. The same value is adopted for both the asset side and the liability side, although shares and other equity are not, legally, a liability of the issuer, but an ownership right to a share in the liquidation value of a corporation, where the liquidation value is not known in advance.

7.72

 Listed shares are valued at a representative mid-market price observed on the stock exchange or other organised financial markets.

7.73

 The values of unlisted shares (AF.512), which are not traded on organised markets, should be estimated with reference to either:

(a)

the values of quoted shares where appropriate;

(b)

the value of own funds; or

(c)

discounting forecast profits by applying an appropriate market price to earnings ratio to the smoothed recent earnings of the institutional unit.

However, these estimates will take into account differences between listed and unlisted shares, notably their liquidity and consider the net worth accumulated over the life of the corporation and its branch of business.

7.74

 The estimation method applied depends on the basic statistics available. It may take into account, for example, data on merger activities involving unlisted shares. If the value of unlisted corporations' own funds moves similarly, on average and in proportion to their nominal capital, to that of similar corporations with listed shares, then the balance sheet value can be calculated using a ratio. This ratio compares the value of own funds of unlisted corporations to that of listed corporations:

value of unlisted shares = market price of similar listed shares × (own funds of unlisted corporations)/(own funds of similar listed corporations).

7.75

 The ratio of share price to own funds may vary with the branch of business. It is preferable to calculate the current price of unlisted shares branch by branch. There may be other differences between listed and unlisted corporations, which can have an effect on the estimation method.

7.76

 Other equity (AF.519) is equity that is not in the form of securities. It can include equity in quasi-corporations (such as branches, trusts, limited liability and other partnerships), public corporations, unincorporated funds and notional units (including notional resident units created to reflect non-resident ownership of real estate and natural resources). The ownership of international organisations not in the form of shares is classified as other equity.

7.77

 Quasi-corporations' other equity is valued according to their own funds, since their net worth is by convention equal to zero. For other units the most appropriate valuation method from the methods used for unlisted shares should be taken.

7.78

 Corporations that issue shares or units may additionally have other equity.

7.79

 Investment fund shares or units (AF.52) are valued at market price if they are listed. If unlisted the market value may be estimated as described for unlisted shares. If they are redeemable by the fund itself they are valued at their redemption value.

Insurance, pension and standardised guarantee schemes (AF.6)

7.80

 The amounts recorded for non-life insurance technical reserves (AF.61) cover premiums paid but not earned plus the amounts set aside to meet outstanding claims. The latter represent the present value of amounts expected to be paid out in settlement of claims, including disputed claims and an allowance for claims to cover incidents that have occurred but not yet been reported.

7.81

 The amounts recorded for life insurance and annuity entitlements (AF.62) represent the reserves needed to meet all expected future claims.

7.82

 The amounts recorded for pension entitlements (AF.63) depend on the type of pension scheme.

7.83

 In a defined benefit pension scheme the level of pension benefits promised to participating employees is determined by a formula agreed in advance. The liability of a defined benefit pension scheme is equal to the present value of the promised benefits.

7.84

 In a defined contribution scheme the benefits paid are dependent on the performance of the assets acquired by the pension scheme. The liability of a defined contribution scheme is the current market value of the funds' assets. The funds' net worth is always zero.

7.85

 The value recorded for provisions for calls under standardised guarantees (AF.66) is the expected level of claims less the value of any expected recoveries.

Financial derivatives and employee stock options (AF.7)

7.86

 Financial derivatives (AF.71) should be included in the balance sheets at their market value. If market price data are unavailable, for example in the case of over the counter options they should be valued at either the amount required to buy out or to offset the contract or the amount of premium payable.

7.87

 For options, the writer of the option is considered to have incurred a counterpart liability representing the cost of buying out the rights of the option holder.

7.88

 The market value of options and forwards can switch between positive (asset) and negative (liability) positions depending on price movements in the underlying items and thus they can switch being assets and liabilities for the writers and holders. Some options and forwards operate on margin payments, where profits or losses are settled daily; in these cases the balance sheet value will be zero.

7.89

 Employee stock options (AF.72) are valued by reference to the fair value of the equity granted. The fair value is measured at grant date using the market value of equivalent traded options or, if unavailable, using an option pricing model.

Other accounts receivable/payable (AF.8)

7.90

 Trade credits and advances (AF.81) and other accounts receivable/payable excluding trade credits and advances (AF.89), which arise due to timing differences between distributive transactions, such as taxes, social contributions, dividends, rents, wages and salaries, and financial transactions, are valued, for both creditors and debtors, at nominal value. Any amounts of taxes and social contributions payable under AF.89 should exclude the amounts unlikely to be collected since they represent a government claim with no value.

FINANCIAL BALANCE SHEETS

7.91

 The financial balance sheet shows, on its left side, financial assets and, on its right side, liabilities. The balancing item of the financial balance sheet is financial net worth (BF.90).

7.92

 The financial balance sheet of a resident sector or a subsector may be consolidated or non-consolidated. The non-consolidated financial balance sheet shows all the financial assets and liabilities of the institutional units classified in the sector or subsector, including those where the corresponding asset or liability is held within that sector or subsector. The consolidated financial balance sheet eliminates the financial assets and liabilities that have counterparts in the same sector or subsector. The financial balance sheet of the rest of the world is consolidated by definition. As a rule, the accounting entries in the System are not consolidated. Therefore, the financial balance sheet of a resident sector or subsector is to be presented on a non-consolidated basis.

7.93

 The from-whom-to-whom financial balance sheet (the balance sheet by debtor/creditor) is an extension of the financial balance sheet, showing in addition a breakdown of financial assets by debtor sector and a breakdown of liabilities by creditor sector. Therefore, it provides information on debtor/creditor relationships and is consistent with the financial account by debtor/creditor.

MEMORANDUM ITEMS

7.94

 In order to show items of more specialised analytic interest for particular sectors, three types of memorandum items are included as supporting items to the balance sheets:

(a)

consumer durables (AN.m);

(b)

foreign direct investment (AF.m1);

(c)

non-performing loans (AF.m2).

7.95

 Definition: consumer durables are durable goods used by households repeatedly over periods of time of more than one year for final consumption. They are included in the balance sheets as memorandum items. They are excluded from the main balance sheet because they are recorded as uses in the households sector's use of income account as being consumed in the period of account, and not gradually used up.

7.96

 The stocks of consumer durables held by households as final consumers — transport equipment (AN.1131) and other machinery and equipment (AN.1139) — are valued at market prices in the memorandum item, net of the equivalent accumulated charges for consumption of fixed capital. A full list of the subgroups and items of consumer durables is given in Chapter 23.

7.97

 Durable goods, such as vehicles, are classified as either fixed assets or as consumer durables depending on the sector classification of the owner and the purpose for which they are used. For example, a vehicle may be used partly by a quasi-corporation for production and partly by a household for final consumption. The values shown in the balance sheet for the non-financial corporations sector (S.11) should reflect the proportion of the use that is attributable to the quasi-corporation. A similar example exists for employers (including own-account workers) subsector (S.141 + S.142). The proportion attributed to the households sector (S.14) as final consumers should be recorded in the memorandum item, net of the equivalent accumulated charges for consumption of fixed capital.

Foreign direct investment (AF.m1)

7.98

 Financial assets and liabilities that constitute direct investment are recorded according to the nature of the investment in the categories loans (AF.4), equity and investment fund shares/units (AF.5) or other accounts receivable/payable (AF.8). The amount of direct investment included within each of these categories is recorded as a separate memorandum item.

Non-performing loans (AF.m2)

7.99

 Loans are recorded in the balance sheet at nominal value.

7.100

 Certain loans that have not been serviced for some time are included as a memorandum item to the balance sheet of the creditor. Such loans are termed non-performing loans.

7.101

 Definition: a loan is non-performing when (a) payments of interest or principal are 90 days or more past their due date; (b) interest payable of 90 days or more has been capitalised, refinanced, or delayed by agreement; or (c) payments are less than 90 days overdue, but there are other good reasons (such as a debtor filing for bankruptcy) to doubt that payments will be made in full.

7.102

 This definition of a non-performing loan is to be interpreted taking into account national conventions on when a loan is deemed to be non-performing. Once a loan is classified as non-performing, it (or any replacement loans) should remain classified as such until payments are received or the principal is written off on this or subsequent loans that replace the original.

7.103

 Two memorandum items are required for non-performing loans:

(a)

the nominal value of such loans, as recorded in the main balance sheet; and

(b)

the market equivalent value of such loans.

7.104

 The closest approximation to market equivalent value is fair value, which is ‧the value that approximates to the value that would arise from a market transaction between two parties‧. Fair value can be established using transactions in comparable instruments, or using the discounted present value of cash flows; which may be available from the balance sheet of the creditor. In the absence of fair value data, the memorandum item will have to use a second-best approach and show nominal value less expected loan losses.

Recording of non-performing loans

7.105

 The non-performing loans of the general government and financial corporations sectors must be recorded as memorandum items, along with other sectors that have significant amounts. If significant, the loans to or from the rest of the world, are also recorded as memorandum items.

7.106

 The following table describes the positions and flows that are recorded for non-performing loans to show a more complete picture on stocks, transactions, reclassifications and write-offs.

7.107

 The example shows an outstanding amount of loans at nominal value of 1 000 at t-1, of which 500 are performing and 500 are non-performing. The majority of the non-performing loans, 400, is covered by loan loss provisions, while 100 are not. The second part of the table provides detailed supplementary information on the market equivalent value of the non-performing loans. It is derived as the difference between the nominal value and the loan loss provisions. At t-1, it is assumed to be 375. During the period from t-1 to t, parts of the loans are reclassified from performing or not yet covered to non-performing or vice versa, or written off. The flows are shown in the corresponding columns of the table. For the loan loss provisions the nominal values and the market equivalent values are also presented.

7.108

 The assessments on loan loss provisions have to be made in the framework of the accounting standards, the legal status and the taxation rules applicable to the units, which might lead to rather heterogeneous results in terms of amounts and duration of loan loss provisions. This makes it difficult to record non-performing loans in the main accounts and leads to their recording as a memorandum item. It is preferable instead to provide market equivalent values as memorandum items in addition to the nominal values of loans, performing and non-performing.

Recording of non-performing loans

Positions

Stock

Transaction

Reclassification

Write-off

Stock

t-1

period t-1 to t

t

Nominal value

Loans

1 000

200

0

–90

1 110

Performing loans

500

200

–50

 

650

Non-performing loans

500

 

50

–90

460

Covered by loan loss provisions

400

 

70

–90

380

Not yet covered by loan loss provisions

100

 

–20

 

80

Market equivalent value

Non-performing loans

375

 

24

–51

348

= Nominal value

500

 

50

–90

460

– Loan loss provisions

125

 

26

–39

112

o/w not yet covered

100

 

–20

 

80

ANNEX 7.1

SUMMARY OF EACH ASSET CATEGORY

Classification of assets

Summary

Non-financial assets (AN)

Non-financial items over which ownership rights are enforced by institutional units, individually or collectively, and from which economic benefits may be derived by their owners by holding, using or allowing others to use them over a period of time. Consists of fixed assets, inventories, valuables, constructs of society and intellectual property products.

Produced non-financial assets (AN.1)

Non-financial assets that are outputs from production processes. Produced non-financial assets consist of fixed assets, inventories and valuables, as defined below.

Fixed assets (AN.11)

Produced non-financial assets that are used repeatedly or continuously in production processes for more than one year. Fixed assets consist of dwellings, other buildings and structures, machinery and equipment, weapons systems, cultivated biological resources, and intellectual property products, as defined below.

Dwellings (AN.111)

Buildings that are used entirely or primarily as residences, including any associated structures, such as garages, and all permanent fixtures customarily installed in residences. Houseboats, barges, mobile homes and caravans used as principal residences of households are also included, as are public monuments (see AN.1121) identified primarily as dwellings. Costs of site clearance and preparation are also included.

Examples include residential buildings, such as one- and two-dwelling buildings and other residential buildings intended for non-transient occupancy.

Uncompleted dwellings are included to the extent that the ultimate user is deemed to have taken ownership, either because the construction is on own-account or as evidenced by the existence of a contract of sale/purchase. Dwellings acquired for military personnel are included because they are used, as are dwellings acquired by civilian units, for the production of housing services.

The value of dwellings is net of the value of land underlying dwellings, which is included in land (AN.211) if separately classified.

Other buildings and structures (AN.112)

Other buildings and structures consist of buildings other than dwellings, other structures and land improvements, as defined below.

Uncompleted buildings and structures are included to the extent that the ultimate user is deemed to have taken ownership, either because the construction is for own use or as evidenced by the existence of a contract of sale/purchase. Buildings and structures acquired for military purposes are included.

The value of other buildings and structures is net of the value of land underlying them, which is included in land (AN.211) if separately classified.

Buildings other than dwellings (AN.1121)

Buildings other than dwellings, including fixtures, facilities and equipment that are integral parts of the associated structures and costs of site clearance and preparation. Public monuments (see AN.1122) identified primarily as non-residential buildings are also included.

Public monuments are identifiable because of particular historical, national, regional, local, religious or symbolic significance. They are described as public because they are accessible to the general public, not due to public sector ownership. Visitors are often charged for admission to them. Consumption of fixed capital on new monuments, or on major improvements to existing monuments, should be calculated on the assumption of appropriately long service lives.

Other examples of buildings other than dwellings include warehouse and industrial buildings, commercial buildings, buildings for public entertainment, hotels, restaurants, educational buildings, health buildings.

Other structures (AN.1122)

Structures other than residential structures, including the costs of the streets, sewers and site clearance and preparation. Also included are public monuments not classified as dwellings or buildings other than dwellings; shafts, tunnels and other structures associated with mining mineral and energy reserves; and the construction of sea-walls, dykes and flood barriers intended to improve land adjacent but not integral to them.

Examples include highways, streets, roads, railways and airfield runways; bridges, elevated highways, tunnels and subways; waterways, harbours, dams and other waterworks; long-distance pipelines, communication and power lines; local pipelines and cables, ancillary works; constructions for mining and manufacture; and constructions for sport and recreation.

Land improvements (AN.1123)

The value of actions that lead to major improvements in the quantity, quality or productivity of land, or prevent its deterioration.

Examples include the increase in asset value arising from land clearance, land contouring, creation of wells and watering holes.

Also includes the costs of transfer of ownership of land, which have yet to be written off.

Machinery and equipment (AN.113)

Transport equipment, information and communication technologies (ICT) equipment, and other machinery and equipment, as defined below, other than that acquired by households for final consumption.

Tools that are relatively inexpensive and purchased at a relatively steady rate, such as hand tools, may be excluded. Also excluded are machinery and equipment integral to buildings, which are included in dwellings and non-residential buildings.

Uncompleted machinery and equipment is excluded, unless produced for own use, because the ultimate user is deemed to take ownership only on delivery of the asset. Machinery and equipment other than weapons systems acquired for military purposes are included.

Machinery and equipment such as vehicles, furniture, kitchen equipment, computers, communications equipment, etc., that are acquired by households for final consumption are not treated as an asset. They are instead included in the memorandum item consumer durables in the balance sheet for households. Houseboats, barges, mobile homes and caravans used by households as principal residences are included in dwellings.

Transport equipment (AN.1131)

Equipment for moving people and objects. Examples include products other than parts included in Classification of Products by Activity 2008 (CPA 2008) division 29: motor vehicles, trailers and semi-trailers, and division 30: other transport equipment.

ICT equipment (AN.1132)

Information and communication technologies (ICT) equipment: devices using electronic controls and the electronic components used in the devices. Examples are products within CPA 2008 groups 261: electronic equipment and boards, and 262 computers and peripheral equipment.

Other machinery and equipment (AN.1139)

Machinery and equipment not elsewhere classified. Examples include products other than parts, installation, repair and maintenance services included in CPA 2008 division 26: computer, electronic and optical products (except groups 261 and 262), division 27: electrical equipment, division 28: machinery and equipment n.e.c., division 31: furniture, and division 32: other manufactured goods.

Weapons systems (AN.114)

Vehicles and other equipment such as warships, submarines, military aircraft, tanks, missile carriers and launchers etc. Most single-use weapons they deliver are recorded as military inventories (see AN.124) but others, such as ballistic missiles with highly destructive capability, that are judged to provide ongoing deterrence against aggressors are classified as fixed assets.

Cultivated biological resources (AN.115)

Livestock for breeding, dairy, draught, etc. and vineyards, orchards and other plantations of trees yielding repeat products that are under the direct control, responsibility and management of institutional units, as defined below.

Immature cultivated assets are excluded unless produced for own use.

Animal resources yielding repeat products (AN.1151)

Animals whose natural growth and regeneration are under the direct control, responsibility and management of institutional units. They include breeding stocks (including fish and poultry), dairy cattle, draught animals, sheep or other animals used for wool production and animals used for transportation, racing or entertainment.

Tree, crop and plant resources yielding repeat products (AN.1152)

Trees (including vines and shrubs) cultivated for products they yield year after year, including those cultivated for fruits and nuts, for sap and resin and for bark and leaf products, whose natural growth and regeneration are under the direct control, responsibility and management of institutional units.

Intellectual property products (AN.117)

Fixed assets that consist of the results of research and development, mineral exploration and evaluation, computer software and databases, entertainment, literary or artistic originals and other intellectual property products, as defined below, intended to be used for more than one year.

Research and development (AN.1171)

Consists of the value of expenditure on creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and use of this stock of knowledge to devise new applications.

The value is determined in terms of the economic benefits expected in the future. Unless the value can be reasonably estimated it is, by convention, valued as the sum of the costs, including those of unsuccessful research and development. Research and development that will not provide a benefit to the owner is not classified as an asset and is instead recorded as intermediate consumption.

Mineral exploration and evaluation (AN.1172)

The value of expenditure on exploration for petroleum and natural gas and for non-petroleum deposits and subsequent evaluation of the discoveries made. This expenditure includes pre-licence costs, licence and acquisition costs, appraisal costs and the costs of actual test drilling and boring, as well as the costs of aerial and other surveys, transportation costs, etc, incurred to make it possible to carry out the tests.

Computer software (AN.11731)

Computer programs, program descriptions and supporting materials for both systems and applications software. Included are the initial development and subsequent extensions of software as well as acquisition of copies that are classified as AN.11731 assets.

Databases (AN.11732)

Files of data organised to permit resource-effective access and use of the data. For databases created exclusively for own use the valuation is estimated by costs, which should exclude those for the database management system and the acquisition of the data.

Entertainment, literary or artistic originals (AN.1174)

Original films, sound recordings, manuscripts, tapes, models, etc., on which drama performances, radio and television programmes, musical performances, sporting events, literary and artistic output, etc. are recorded or embodied. Included are works produced on own-account. In some cases, such as films, there may be multiple originals.

Other intellectual property products (AN.1179)

New information, specialised knowledge, etc., not elsewhere classified, whose use in production is restricted to the units that have established ownership rights over them or to other units licensed by such units.

Inventories (AN.12)

Produced assets that consist of goods and services that came into existence in the current period or in an earlier period held for sale, use in production or other use at a later date. They consist of materials and supplies, work-in-progress, finished goods and goods for resale, as defined below.

Included are all inventories held by government, including, but not limited to, inventories of strategic materials, grains and other commodities of special importance to the nation.

Materials and supplies (AN.121)

Goods that their owners intend to use as intermediate inputs to their own production processes, not to resell.

Work-in-progress (AN.122)

Goods and services that are partially complete but that are not usually turned over to other units without further processing or that are not mature, and whose production process will be continued in a subsequent period by the same producer. Excluded are partially complete structures for which the ultimate owner is deemed to have taken ownership, either because the production is for own use or as evidenced by the existence of a contract of sale/purchase.

Category AN.122 consists of work-in-progress on cultivated assets and other work-in-progress, as defined below.

Work-in-progress on cultivated biological assets (AN.1221)

Livestock raised for products yielded only on slaughter, such as fowl and fish raised commercially, trees and other vegetation yielding once-only products on destruction and immature cultivated assets yielding repeat products.

Other work-in-progress (AN.1222)

Goods other than cultivated assets and services that have been partially processed, fabricated or assembled by the producer but that are not usually sold, shipped or turned over to others without further processing.

Finished goods (AN.123)

Goods that are ready for sale or shipment by the producer.

Military inventories (AN.124)

Ammunition, missiles, rockets, bombs and other single-use military items delivered by weapons or weapons systems. Excludes some types of missiles with highly destructive capability (see AN.114).

Goods for resale (AN.125)

Goods acquired by enterprises, such as wholesalers and retailers, for the purpose of reselling them without further processing (that is, not transformed other than by presenting them in ways that are attractive to the customer).

Valuables (AN.13)

Produced assets that are not used primarily for production or consumption, that are expected to appreciate or at least not to decline in real value, that do not deteriorate over time under normal conditions and that are acquired and held primarily as stores of value. Valuables consist of precious metals and stones, antiques and other art objects and other valuables, as defined below.

Precious metals and stones (AN.131)

Precious metals and stones that are not held by enterprises for use as inputs to processes of production.

Antiques and other art objects (AN.132)

Paintings, sculptures, etc., recognised as works of art and antiques.

Other valuables (AN.133)

Valuables not elsewhere classified, such as collections and jewellery of significant value fashioned out of precious stones and metals.

Non-produced non-financial assets (AN.2)

Non-financial assets that come into existence other than through processes of production. Non-produced assets consist of natural resources, contracts, leases and licences, and goodwill and marketing assets, as defined below.

Natural resources (AN.21)

Non-produced assets that naturally occur and over which ownership may be enforced and transferred. Environmental assets over which ownership rights have not, or cannot, be enforced, such as open seas or air, are excluded. Consists of land, mineral and energy reserves, non-cultivated biological resources, water resources and other natural resources, as defined below.

Land (AN.211)

The ground, including the soil covering and any associated surface waters, over which ownership rights are enforced. Excluded are any buildings or other structures situated on it or running through it, cultivated crops, trees and animals; subsoil assets, non-cultivated biological resources and water resources below the ground.

Mineral and energy reserves (AN.212)

Proven reserves of mineral deposits located on or below the earth's surface that are economically exploitable, given current technology and relative prices. Ownership rights to the subsoil assets are usually separable from those to the land itself. Category AN.212 consists of known reserves of coal, oil, gas or other fuels, metallic ores, and non-metallic minerals.

Non-cultivated biological resources (AN.213)

Animal, tree, crop and plant resources that yield both once-only and repeat products over which ownership rights are enforced but for which natural growth and/or regeneration is not under the direct control, responsibility and management of institutional units. Examples are virgin forests and fisheries within the territory of the country. Only those resources that are currently, or are likely soon to be, exploitable for economic purposes should be included.

Water resources (AN.214)

Aquifers and other groundwater resources to the extent that their scarcity leads to the enforcement of ownership and/or use rights, market valuation and some measure of economic control.

Other natural resources (AN.215)

This covers the electromagnetic radio spectrum (AN.2151) and other natural resources (AN.2159) not elsewhere classified.

Radio spectra (AN.2151)

The electromagnetic spectrum. The leases or licences to use the spectrum are classified elsewhere (AN.222) if they meet the definition to be an asset.

Other (AN.2159)

Other natural resources not elsewhere classified.

Contracts, leases and licences (AN.22)

Contractual agreements to undertake activities where the agreement confers economic benefits to the holder in excess of the fees payable and the holder can realise those benefits legally and practically.

The asset recorded in category AN.22 represents the realisable potential holding gain value when the market price for the use of an asset or provision of a service exceeds the price prevailing in the contract, lease or licence, or the price that would be achieved in the absence of a contract, lease or licence. Contracts, leases and licences consist of assets that may arise from marketable operating leases, permits to use natural resources, permits to undertake specific activities, and entitlements to future goods and services on an exclusive basis.

Marketable operating leases (AN.221)

Third-party property rights relating to non-financial assets other than natural resources, where the lease confers economic benefits to the holder in excess of the fees payable and the holder can realise those benefits legally and practically, through transferring them.

The asset recorded in category AN.221 is the value to the holder of transferring the rights to use the underlying asset, i.e., the excess of the transfer price realisable over the amount payable to the permit issuer.

Examples include where a tenant in a building has a fixed rental but the market rate of the rental is higher. If the tenant is able to realise the price difference through subletting, then the rights to realise the value represent a marketable operating lease asset.

Permits to use natural resources (AN.222)

Licences, permits and leases to use natural resources for a limited time that does not fully use up the economic value of the asset, where the agreement confers economic benefits to the holder in excess of the fees payable and the holder can realise those benefits legally and practically, for example through transferring them.

The natural resource continues to be recorded on the balance sheet of the owner and a separate asset, representing the value to the holder of transferring the rights to use the resource, is recognised as a permit to use natural resources. The asset recorded is the value to the holder of transferring the rights to use, i.e., the excess of the transfer price above the amount payable to the permit issuer.

Examples include where a tenant of land has a fixed rent but the market rate of the rent is higher. If the tenant is able to realise the price difference through subletting, then the rights to realise the value represents an asset.

Permits to undertake specific activities (AN.223)

Transferable permits, other than to use natural resources or use an asset belonging to the permit issuer, that restrict the number of units engaging in an activity and allow the holders to earn near-monopoly profits.

The asset recorded is the value to the holder of transferring the rights to use, i.e., the excess of the transfer price above the amount payable to the permit issuer. The permit holder must legally and in practice be able to transfer the permit rights to a third party.

Entitlement to future goods and services on an exclusive basis (AN.224)

Transferable contractual rights to the exclusive use of goods or services.

One party has a contract to purchase goods or services at a fixed price from a second party and is, legally and in practice, able to transfer the obligation of the second party to a third party.

Examples include the transferable value of a football player under contract to a football club and the transferable value of exclusive rights to publishing literary works or musical performances.

The asset recorded in AN.224 is the value to the holder of transferring the entitlement.

Purchases less sales of goodwill and marketing assets (AN.23)

The difference between the value paid for an institutional unit as a going concern and the sum of its assets, less the sum of its liabilities, for each item that has been separately identified and valued. The value of goodwill, therefore, includes anything of long-term benefit that has not been separately identified as an asset, as well as the value of the fact that the group of assets is used jointly and is not simply a collection of separable assets. Category AN.23 also includes identified marketing assets, such as brand names, mastheads, trademarks, logos and domain names, when sold individually and separately from a whole corporation.

Financial assets and liabilities (AF)

Financial assets are economic assets comprising financial claims, equity and the gold bullion component of monetary gold. Financial assets are stores of value representing benefits accruing to the economic owner by holding them over a period of time. They are means of carrying forward values from one accounting period to another. Benefits or series of benefits are exchanged by means of payment.

Means of payment consist of monetary gold, special drawing rights, currency and transferable deposits.

Financial claims, also called financial instruments, are financial assets that have corresponding liabilities.

Liabilities are established when debtors are obliged to provide payments or series of payments to creditors.

Monetary gold and SDRs (AF.1)

The financial assets classified in this category have counterpart liabilities in the system except the gold bullion component of monetary gold.

Monetary gold (AF.11)

Gold for which monetary authorities, or others who are subject to the effective control of the monetary authorities, have title and which is held as a reserve asset. It includes gold bullion (including monetary gold held in allocated gold accounts) and unallocated gold accounts with non-residents that give title to claim the delivery of gold.

Special drawing rights (SDRs) (AF.12)

International reserve assets created by the International Monetary Fund (IMF) and allocated to its members to supplement existing reserve assets.

Currency and deposits (AF.2)

Currency in circulation and deposits, both in national and foreign currencies.

Currency (AF.21)

Currency is notes and coins that are issued or authorised by monetary authorities.

Transferable deposits (AF.22)

Deposits exchangeable for currency on demand at par and which are directly usable for making payments by cheque, draft, giro order, direct debit/credit, or other direct payment facility, without penalty or restriction.

Inter-bank positions (AF.221)

Transferable deposits between banks.

Other transferable deposits (AF.229)

Transferable deposits other than inter-bank positions.

Other deposits (AF.29)

Other deposits are deposits other than transferable deposits. Other deposits cannot be used to make payments except on maturity or after an agreed period of notice, and they are not exchangeable for currency or for transferable deposits without some significant restriction or penalty.

Debt securities (AF.3)

Negotiable financial instruments serving as evidence of debt. Negotiability refers to the fact that its legal ownership is readily capable of being transferred from one owner to another by delivery or endorsement. To qualify as negotiable, a debt security must be designed for potential trading on an organised exchange or in the over-the-counter market, though demonstration of actual trading is not required.

Short-term debt securities (AF.31)

Debt securities, the original maturity of which is one year or less and debt securities repayable on demand of the creditor.

Long-term debt securities (AF.32)

Debt securities, the original maturity of which is more than one year or of no stated maturity.

Loans (AF.4)

Financial assets created when creditors lend funds to debtors, either directly or through brokers, which are either evidenced by non-negotiable documents or not evidenced by documents.

Short-term loans (AF.41)

Loans the original maturity of which is one year or less and loans repayable on demand of the creditor.

Long-term loans (AF.42)

Loans the original maturity of which is more than one year or no stated maturity.

Equity and investment fund shares or units (AF.5)

Financial assets that represent property rights on corporations or quasi-corporations. Such financial assets generally entitle the holders to a share in the profits of the corporations or quasi-corporations, and to a share in their net assets in the event of liquidation.

Equity (AF.51)

Financial assets that acknowledge claims on the residual value of a corporation or quasi-corporation, after the claims of all creditors have been met.

Listed shares (AF.511)

Equity securities listed on an exchange. Such an exchange may be a recognised stock exchange or any other form of a secondary market. Listed shares are also referred to as quoted shares. The existence of quoted prices of shares listed on an exchange means that current market prices are usually readily available.

Unlisted shares (AF.512)

Equity securities with prices that are not listed on a recognised stock exchange or other form of secondary market.

Other equity (AF.519)

All forms of equity other than those classified in subcategories AF.511 and AF.512.

Investment funds shares/units (AF.52)

Shares, if a corporate structure is used, or units, if a trust structure is used. They are issued by investment funds, which are collective investment undertakings through which investors pool funds for investment in financial and/or non-financial assets.

Money market fund shares/units (AF.521)

Money market fund shares or units are issued by money market funds which are investment funds that invest only or primarily in short-term debt securities such as treasury bills, certificates of deposit, and commercial paper and also in long-term debt securities with a residual short-term maturity. Money market fund shares or units may be transferable and are often regarded as close substitutes for deposits.

Non-MMF investment fund shares/units (AF. 522)

Investment fund shares or units other than money market funds or units represent a claim on a portion of the value of an investment fund other than a money market fund. Investment fund shares or units other than money market fund shares or units are issued by investment funds that invest in a range of assets including debt securities, equity, commodity-linked investments, real estate, shares in other investment funds and structured assets.

Insurance, pension and standardised guarantee schemes (AF.6)

Financial assets of policy holders or beneficiaries and liabilities of insurers, pension funds, or issuers of standardised guarantees.

Non-life insurance technical reserves (AF.61)

Financial assets representing policy holders' claims against non-life insurance companies in the form of unearned premiums paid and claims incurred.

Life insurance and annuity entitlements (AF.62)

Financial assets representing policy and annuity holders' claims against the technical reserves of corporations providing life insurance.

Pension entitlements (AF.63)

Financial assets that both existing and future pensioners hold against either their pension manager, i.e. their employer(s), a scheme designated by the employer(s) to pay pensions as part of a compensation agreement between the employer and employee or a life (or a non-life) insurer.

Claims of pension funds on pension managers (AF.64)

Financial assets representing the claims of pension funds on their pension manager for any deficit, and financial assets representing the claims of the pension manager on the pension funds for any excess, e.g. where the investment income exceeds the increase in entitlements and the difference is payable to the pension manager.

Entitlements to non-pension benefits (AF.65)

The excess of net contributions over benefits as an increase in the liability of the insurance scheme towards the beneficiaries.

Provisions for calls under standardised guarantees (AF.66)

Financial assets that holders of standardised guarantees have against corporations providing standardised guarantees.

Financial derivatives and employee stock options (AF.7)

Financial assets linked to a financial asset, a non-financial asset or an index, through which specific financial risks can be traded in financial markets in their own right.

Financial derivatives (AF.71)

Financial assets such as options, forwards and credit derivatives.

Options (AF.711), both tradable and over-the-counter (OTC), are contracts which give the holder of the option the right, but not the obligation, to purchase from (a call option) or to sell to (a put option) the issuer of the option (the option writer) a financial asset or a non-financial asset (the underlying instrument) at a predetermined price (the strike price) within a given time span (American option) or on a given date (European option). Based on these basic strategies many combined strategies have been developed like bear call/put spreads, bull call/put spreads or butterfly options spreads. From these types of options exotic options have been derived with complex payment structures.

Forwards (AF.712) are unconditional financial contracts under which two counterparties agree to exchange a specified quantity of an underlying asset (financial or non-financial) at an agreed contract price (the strike price) on a specified date.

Credit derivatives take the form of forward-type and option-type contracts whose primary purpose is to trade credit risk. They are designed for trading in loan and security default risk. Like other financial derivatives they are frequently drawn up under standard master legal agreements and involve collateral and margining procedures, which allow for a means to make a market valuation. The transfer of credit risks takes place between the risk seller (security taker) and the risk buyer (security seller) based on a premium. In the event of a credit default the risk buyer pays cash to the risk seller.

Employee stock options (AF.72)

Financial assets in the form of agreements made on a given date (the ‧grant‧ date) under which an employee may purchase a given number of shares of the employer's stock at a stated price (the ‧strike‧ price) either at a stated time (the ‧vesting‧ date) or within a period of time (the ‧exercise‧ period) immediately following the vesting date.

Other accounts receivable/payable (AF.8)

Financial assets that are created as a counterpart of a financial or a non-financial transaction in cases where there is a timing difference between this transaction and the corresponding payment.

Trade credits and advances (AF.81)

Financial assets arising from the direct extension of credit by suppliers of goods and services to their customers and advances for work that is in progress or is yet to be undertaken and in the form of prepayment by customers for goods and services not yet provided.

Other accounts receivable/payable, excluding trade credits and advances (AF.89)

Financial assets which arise from timing differences between distributive transactions or financial transactions on the secondary market and the corresponding payment.

Memorandum items

The system has three memorandum items that show assets not separately identified in the central framework that are of more specialised analytic interest.

Consumer durables (AN.m)

Durable goods acquired by households for final consumption (i.e., items that are not used by households as stores of value or by unincorporated enterprises owned by households for purposes of production).

Foreign direct investment (AF.m1)

Foreign direct investment involves a long-term relationship reflecting a lasting interest by a resident institutional unit in one economy (the ‧direct investor‧) in an institutional unit resident in another economy. The direct investor's purpose is to exert a significant degree of influence on the management of the unit they have invested in.

Non-performing loans (AF.m2)

A loan is non-performing when payments of interest or principal are at least 90 days overdue, or interest payments equal to 90 days or more have been capitalised, refinanced, or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons (such as a debtor filing for bankruptcy) to doubt that payments will be made in full.

ANNEX 7.2

A MAP OF ENTRIES FROM OPENING BALANCE SHEET TO CLOSING BALANCE SHEET

Annex 7.2 presents a map from the opening balance sheet to the closing balance sheet, showing the detail for each asset category with regard to the different ways in which the balance sheet value changes: through transactions or other changes in the volume of assets and holding gains and losses.

Classification of assets, liabilities and net worth

IV.1

Opening balance sheet

III.1 and III.2

Transactions

III.3.1

Other changes in volume

III.3.2

Holding gains and losses

IV.3

Closing balance sheet

III.3.2.1

Neutral holding gains and losses

III.3.2.2

Real holding gains and losses

Non-financial assets

AN

P.5, NP

K.1, K.2, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN

Produced non-financial assets

AN.1

P.5

K.1, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.1

Fixed assets (3)

AN.11

P.51g, P.51c

K.1, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.11

Dwellings

AN.111

P.51g, P.51c

K.1, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.111

Other buildings and structures

AN.112

P.51g, P.51c

K.1, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.112

Machinery and equipment

AN.113

P.51g, P.51c

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.113

Weapons systems

AN.114

P.51g, P.51c

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.114

Cultivated biological resources

AN.115

P.51g, P.51c

K.1, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.115

Intellectual property products

AN.117

P.51g, P.51c

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.117

Inventories by type of inventory

AN.12

P.52

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.12

Valuables

AN.13

P.53

K.1, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.13

Non-produced non-financial assets

AN.2

NP

K.1, K.21, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.2

Natural resources

AN.21

NP.1

K.1, K.21, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.21

Land

AN.211

NP.1

K.1, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.211

Mineral and energy reserves

AN.212

NP.1

K.1, K.21, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.212

Non-cultivated biological resources

AN.213

NP.1

K.1, K.21, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.213

Water resources

AN.214

NP.1

K.1, K.21, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.214

Other natural resources

AN.215

NP.1

K.1, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.215

Radio spectra

AN.2151

NP.1

K.1, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.2151

Other

AN.2159

NP.1

K.1, K.21, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.2159

Contracts, leases and licences

AN.22

NP.2

K.1, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.22

Purchases less sales of goodwill and marketing assets

AN.23

NP.3

K.1, K.22, K.3, K.4, K.5, K.61, K.62

K.71

K.72

AN.23

Financial assets/liabilities (4)

AF

F

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AF

Monetary gold and SDRs

AF.1

F.1

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AF.1

Currency and deposits

AF.2

F.2

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AF.2

Debt securities

AF.3

F.3

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AF.3

Loans

AF.4

F.4

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AF.4

Equity and investment fund shares/units

AF.5

F.5

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AF.5

Insurance, pension and standardised guarantees schemes

AF.6

F.6

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AF.6

Financial derivatives and employee stock options

AF.7

F.7

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AF.7

Other accounts receivable/payable

AF.8

F.8

K.3, K.4, K.5, K.61, K.62

K.71

K.72

AF.8

Net worth

B.90

B.101

B.102

B.1031

B.1032

B.90


Balancing items

B.10

Changes in net worth

B.101

Changes in net worth due to saving and capital transfers

B.102

Changes in net worth due to other changes in volume of assets

B.103

Changes in net worth due to nominal holding gains and losses

B.1031

Changes in net worth due to neutral holding gains and losses

B.1032

Changes in net worth due to real holding gains and losses

B.90

Net worth

Transactions in financial assets and liabilities

F

Transactions in financial assets and liabilities

F.1

Monetary gold and SDRs

F.2

Currency and deposits

F.3

Debt securities

F.4

Loans

F.5

Equity and investment fund shares/units

F.6

Insurance, pension and standardised guarantees

F.7

Financial derivatives and employee stock options

F.8

Other accounts receivable/payable

Transactions in goods and services

P.5

Gross capital formation

P.51g

Gross fixed capital formation

P.51c

Consumption of fixed capital (–)

P.511

Acquisitions less disposals of fixed assets

P.5111

Acquisitions of new fixed assets

P.5112

Acquisitions of existing fixed assets

P.5113

Disposals of existing fixed assets

P.512

Costs of ownership transfer on non-produced assets

P.52

Changes in inventories

P.53

Acquisitions less disposals of valuables

Other accumulation entries

NP

Acquisitions less disposals of non-produced assets

NP.1

Acquisitions less disposals of natural resources

NP.2

Acquisitions less disposals of contracts, leases and licences

NP.3

Purchases less sales of goodwill and marketing assets

K.1

Economic appearance of assets

K.2

Economic disappearance of non-produced assets

K.21

Depletion of natural resources

K.22

Other economic disappearance of non-produced assets

K.3

Catastrophic losses

K.4

Uncompensated seizures

K.5

Other changes in volume n.e.c.

K.6

Changes in classification

K.61

Changes in sector classification and structure

K.62

Changes in classification of assets and liabilities

K.7

Nominal holding gains and losses

K.71

Neutral holding gains and losses

K.72

Real holding gains and losses

(1)  Memorandum item AN.m: consumer durables.

(2)  Memorandum items AF.m1: foreign direct investment; AF.m2: non-performing loans.

(3)  Memorandum item: AN.m: consumer durables.

(4)  Memorandum items: AF.m1: foreign direct investment; AF.m2: non-performing loans.

 

CHAPTER 8

THE SEQUENCE OF ACCOUNTS

INTRODUCTION

8.01

 This Chapter sets out the details of the accounts and balance sheets in the sequence of accounts of the national accounts. It also sets out the interactions of the domestic economy with the rest of the world in the same sequence. The goods and services account is also described, reflecting the accounting identity underlying the supply and use of goods and services. Finally it presents the integrated set of economic accounts where each sector is shown in the same account with an aggregated form of account entries.

The sequence of accounts

8.02

 The ESA records flows and stocks in an ordered set of accounts describing the economic cycle from production and the generation of income, through its distribution and redistribution, and its use for final consumption. Finally the ESA records the use of what is left in the form of saving to provide for the accumulation of assets, both non-financial and financial.

8.03

 Each of the accounts shows resources and uses, which are brought to a balance by the introduction of a balancing item, usually on the uses' side of the account. The balancing item is taken forward to the next account as the first entry on the resources side.

The structured recording of transactions according to a logical analysis of economic life provides the aggregates required for the study of an institutional sector or subsector, or the total economy. The breakdown of the accounts is designed to reveal the most significant economic information, and the balancing item of each account is a key element in the information revealed.

8.04

 The accounts are grouped in three categories:

(a)

current accounts cover production and the associated generation, distribution and redistribution of income and its use in the form of final consumption. The income not directly used for final consumption is revealed in the balancing item saving, which is taken forward to the accumulation accounts as the first entry on the resources side of the capital account;

(b)

accumulation accounts analyse changes in the assets and liabilities of the units and enable changes in net worth (the difference between assets and liabilities) to be recorded;

(c)

balance sheets show the total assets and liabilities at the beginning and the end of the accounting period, together with the net worth. The flows for each asset and liability item recorded in the accumulation accounts are seen again in the changes in balance sheets account.

8.05

 The sequence of accounts applies to institutional units, institutional sectors and subsectors, and the total economy.

8.06

 The balancing items are established both gross and net. They are gross if calculated before deduction of consumption of fixed capital, and net if calculated after this deduction. It is more significant to express income balancing items in net terms, as consumption of capital is a call on disposable income which must be met if the capital stock of the economy is to be maintained.

8.07

 The accounts are presented in two ways:

(a)

in the form of integrated economic accounts, showing the accounts for all the institutional sectors, the total economy and the rest of the world in a single table;

(b)

in the form of a sequence of accounts, giving more detailed information. The tables showing the presentation of each account are given in the section of this Chapter entitled ‧Sequence of accounts‧.

8.08

 Table 8.1 shows a synoptic presentation of the accounts, balancing items and main aggregates: The code for the main aggregates is not shown in the table, but is the same as the code for the balancing items, but with the addition of an asterisk after the number. For example for the Balance of primary incomes, the code is B.5g and the equivalent code of the main aggregate gross national income is B.5*g.

8.09

 The balancing items are shown in the table in their gross form, and indicated as such by the use of ‧g‧ in the code. For each such code there is a net form, where the estimate for capital consumption has been deducted. For example, value added, gross has a code of B.1g, and the net equivalent (value added, net) where capital consumption has been deducted, is B.1n.

Table 8.1 —   Synoptic presentation of the accounts, balancing items and main aggregates

Accounts

Balancing items

Main aggregates

Full sequence of accounts for institutional sectors

Current accounts

I.

Production account

I.

Production account

 

 

 

 

B.1g

Value added, gross

Gross domestic product (GDP)

 

II.

Distribution and use of income accounts

II.1

Primary distribution of income accounts

II.1.1

Generation of income account

 

 

B.2g B.3g

Operating surplus, gross Mixed income, gross

 

 

 

 

 

 

II.1.2

Allocation of primary income account

II.1.2.1

Entrepreneurial income account

B.4g

Entrepreneurial income, gross

 

 

 

 

 

 

 

 

II.1.2.2

Allocation of other primary income account

B.5g

Balance of primary incomes, gross

Gross national income (GNI)

 

 

 

II.2

Secondary distribution of income account

 

 

 

 

B.6g

Disposable income, gross

Gross national disposable income

 

 

 

II.3

Redistribution of income in kind account

 

 

 

 

B.7g

Adjusted disposable income, gross

 

 

 

 

II.4

Use of income account

II.4.1

Use of disposable income account

 

 

B.8g

Saving, gross

Gross national saving

 

 

 

 

 

II.4.2

Use of adjusted disposable income account

 

 

 

 

 

Accumulation accounts

III.

Accumulation accounts

III.1

Capital account

III.1.1

Change in net worth due to saving and capital transfers account

 

 

B.101

Change in net worth due to saving and capital transfers

 

 

 

 

 

 

III.1.2

Acquisition of non-financial assets account

 

 

B.9

Net lending/net borrowing

 

 

 

 

III.2

Financial account

 

 

 

 

B.9

Net lending/net borrowing

 

 

 

 

III.3

Other changes in assets account

III.3.1

Other changes in volume of assets account

 

 

B.102

Changes in net worth, due to other changes in volume of assets

 

 

 

 

 

 

III.3.2

Revaluation accounts

 

 

B.103

Changes in net worth due to nominal holding gains/losses

 

 

 

 

 

 

 

 

III.3.2.1

Neutral holding gains/losses account

B.1031

Changes in net worth due to neutral holding gains/losses

 

 

 

 

 

 

 

 

III.3.2.2

Real holding gains/losses account

B.1032

Changes in net worth due to real holding gains/losses

 

Balance sheets

IV.

Balance sheets

IV.1

Opening balance sheet

 

 

 

B.90

Net worth

National worth

 

 

 

IV.2

Changes in balance sheet

 

 

 

B.10

Changes in net worth, total

Changes in national worth

 

 

 

IV.3

Closing balance sheet

 

 

 

B.90

Net worth

National worth


Table 8.1 —   Synoptic presentation of the accounts, balancing items and main aggregates (continued)

Accounts

Balancing items

Main aggregates

Transaction accounts

 

0.

Goods and services account

Rest of the world account (external transactions account)

 

 

 

Current account

V.

Rest of the world account

V.I

External account of goods and services

 

 

 

 

B.11

External balance of goods and services

External balance of goods and services

 

 

 

V.II

External account of primary income and current transfers

 

 

 

 

B.12

Current external balance

Current external balance

Accumulation accounts

 

 

V.III

External accumulation accounts

V.III.1

Capital account

V.III.1.1

Changes in net worth due to current external balance and capital transfers account

B.101

Changes in net worth due to current external balance and capital transfers

 

 

 

 

 

 

 

 

V.III.1.2

Acquisition of non-financial assets account

B.9

Net lending/net borrowing

 

 

 

 

 

 

V.III.2

Financial account

 

 

B.9

Net lending/net borrowing

Net lending/net borrowing

 

 

 

 

 

V.III.3

Other changes in assets account

V.III.3.1

Other changes in volume of assets account

B.102

Changes in net worth, due to other changes in volume of assets

 

 

 

 

 

 

 

 

V.III.3.2

Revaluation accounts

B.103

Changes in net worth, due to nominal holding gains/losses

 

Balance sheets

 

 

V.IV

External assets and liabilities account

V.IV.1

Opening balance sheet

 

 

B.90

Net worth

Net external financial position

 

 

 

 

 

V.IV.2

Changes in balance sheet

 

 

B.10

Changes in net worth

 

 

 

 

 

 

V.IV.3

Closing balance sheet

 

 

B.90

Net worth

Net external financial position

SEQUENCE OF ACCOUNTS

Current accounts

Production account (I)

8.10

 The production account (I) shows the transactions relating to the production process. It is drawn up for institutional sectors and for industries. Its resources include output and its uses include intermediate consumption.

8.11

 The production account reveals one of the most important balancing items in the system — value added, or the value generated by any unit engaged in a production activity — and a vital aggregate: gross domestic product. Value added is economically significant for both institutional sectors and industries.

8.12

 Value added (the balancing item of the account) may be calculated before or after allowing for the consumption of fixed capital, i.e. gross or net. Given that output is valued at basic prices and intermediate consumption at purchasers' prices, value added does not include taxes less subsidies on products.

8.13

 The production account at the level of the total economy includes in resources, in addition to the output of goods and services, taxes less subsidies on products. It thus enables gross domestic product (at market prices) to be obtained as a balancing item. The code for this key aggregate balancing item, value added at whole economy level adjusted to be at market prices, is B.1*g and this is GDP at market prices. Net domestic product (NDP) code is B.1*n.

8.14

 Financial intermediation services indirectly measured (FISIM) are allocated to users as costs. This requires part of interest payments to financial intermediaries to be reclassified as payments for services, and allocated as output of the financial intermediation producers. An equivalent value is identified as consumption of users. The value of GDP is affected by the amount of FISIM allocated to final consumption, exports and imports.

Table 8.2 —   Account I: production account

Uses

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

3 604

3 604

 

 

 

 

 

 

 

P.1

Output

3 077

3 077

 

 

 

 

 

 

 

P.11

Market output

147

147

 

 

 

 

 

 

 

P.12

Output for own final use

380

380

 

 

 

 

 

 

 

P.13

Non-market output

1 883

 

 

1 883

17

115

222

52

1 477

P.2

Intermediate consumption

133

133

 

 

 

 

 

 

 

D.21-D.31

Taxes less subsidies on products

1 854

 

 

1 854

15

155

126

94

1 331

B.1g/B.1*g

Value added, gross/gross domestic product

222

 

 

222

3

23

27

12

157

P.51c

Consumption of fixed capital

1 632

 

 

1 632

12

132

99

82

1 174

B.1n/B.1*n

Value added, net/net domestic product


Resources

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

P.1

Output

2 808

146

348

270

32

3 604

 

 

3 604

P.11

Market output

2 808

146

0

123

0

3 077

 

 

3 077

P.12

Output for own final use

0

0

0

147

0

147

 

 

147

P.13

Non-market output

 

 

348

 

32

380

 

 

380

P.2

Intermediate consumption

 

 

 

 

 

 

 

1 883

1 883

D.21-D.31

Taxes less subsidies on products

 

 

 

 

 

133

 

 

133

B.1g/B.1*g

Value added, gross/gross domestic product

 

 

 

 

 

 

 

 

 

P.51c

Consumption of fixed capital

 

 

 

 

 

 

 

 

 

B.1n/B.1*n

Value added, net/net domestic product

 

 

 

 

 

 

 

 

 

Distribution and use of income accounts (II)

8.15

 Distribution and use of income are analysed in four stages: primary distribution, secondary distribution, redistribution in kind and use of income.

The first stage concerns the generation of income resulting directly from the production process and its distribution between the production factors (labour, capital) and general government (via taxes on production and imports, and subsidies). It enables the operating surplus (or mixed income in the case of households) and primary income to be determined.

The second stage traces redistribution of income via transfers, other than social transfers in kind and capital transfers. This yields the disposable income as the balancing item.

For the third stage, individual services provided by government and NPISHs to society are treated as part of household final consumption, and a corresponding income imputed to households. This is achieved through two accounts with adjusted items. An account is introduced called the redistribution of income in kind account, which shows in the resources the imputed extra income for households, and a corresponding use for government and NPISHs as the imputed transfer from these sectors. This gives a balancing item called the adjusted disposable income, which is identical to disposal income at the whole economy level, but different for the sectors of households, government and NPISHs.

In the fourth stage, the disposable income is taken forward to the next account, the use of disposable income account and this shows how the income is consumed, leaving saving as the balancing item. When individual services are recognised as consumption by households through the redistribution of income in kind account, the use of adjusted disposable income account shows how this measure of adjusted disposable income is spent by households on the social transfers in kind received from government and NPISHs, by adding the value of the social transfers in kind to household final consumption to give a measure called actual final consumption. The consumption for government and NPISHs is reduced by an equal and opposite amount, so that when saving is calculated for the government, NPISHs and households sectors, the adjusted treatment gives the same balancing item of saving for each sector as the standard treatment.

Primary distribution of income accounts (II.1)

Generation of income account (II.1.1)

The layout of the generation of income account by institutional sector is shown in Table 8.3.

8.16

 The generation of income account is also presented by industries, in the columns of the supply and use tables.

8.17

 The generation of income account presents the transactions of primary income from the point of view of the source sectors, rather than the destination sectors.

8.18

 It shows how value added covers compensation of employees and other taxes (less subsidies) on production. The balancing item is operating surplus, which is the surplus (or deficit) on production activities before account has been taken of the interest, rents or charges which the production unit:

(a)

must pay on financial assets or on natural resources — which it has borrowed or rented;

(b)

must receive on financial assets or on natural resources of which it is the owner.

8.19

 In the case of unincorporated enterprises in the households sector, the balancing item of the generation of income account implicitly contains an element corresponding to remuneration for work carried out by the owner or members of the family. This income from self-employment has characteristics of wages and salaries, and characteristics of profit due to work carried out as an entrepreneur. This income, neither strictly wages nor profits alone, is referred to as ‧mixed income‧.

8.20

 In the case of own account production of housing services by owner-occupier households, the balancing item of the generation of income account is operating surplus (and not mixed income).

Table 8.3 —   Account II.1.1: generation of income account

Uses

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.1g/B.1*g

Value added, gross/gross domestic product

 

 

 

 

 

 

 

 

 

B.1n/B.1*n

Value added, net/net domestic product

1 150

 

 

1 150

11

11

98

44

986

D.1

Compensation of employees

950

 

 

950

6

11

63

29

841

D.11

Wages and salaries

200

 

 

200

5

0

55

5

145

D.12

Employers' social contributions

181

 

 

181

4

0

51

4

132

D.121

Employers' actual social contributions

168

 

 

168

4

0

48

4

122

D.1211

Employers' actual pension contributions

13

 

 

13

0

0

3

0

10

D.1212

Employers' actual non-pension contributions

19

 

 

19

1

0

4

1

13

D.122

Employers' imputed social contributions

18

 

 

18

1

0

4

1

12

D.1221

Employers' imputed pension contributions

1

 

 

1

0

0

0

0

1

D.1222

Employers' imputed non-pension contributions

235

 

0

235

 

 

 

 

 

D.2

Taxes on production and imports

141

 

0

141

 

 

 

 

 

D.21

Taxes on products

121

 

0

121

 

 

 

 

 

D.211

Value added type taxes (VAT)

17

 

0

17

 

 

 

 

 

D.212

Taxes and duties on imports excluding VAT

17

 

0

17

 

 

 

 

 

D.2121

Import duties

0

 

0

0

 

 

 

 

 

D.2122

Taxes on imports excluding VAT and duties

3

 

0

3

 

 

 

 

 

D.214

Taxes on products except VAT and import taxes

94

 

0

94

1

0

1

4

88

D.29

Other taxes on production

–44

 

0

–44

 

 

 

 

 

D.3

Subsidies

–8

 

0

–8

 

 

 

 

 

D.31

Subsidies on products

0

 

0

0

 

 

 

 

 

D.311

Import subsidies

–8

 

0

–8

 

 

 

 

 

D.319

Other subsidies on products

–36

 

0

–36

0

–1

0

0

–35

D.39

Other subsidies on production

452

 

 

452

3

84

27

46

292

B.2g

Operating surplus, gross

61

 

 

61

 

61

 

 

 

B.3g

Mixed income, gross

214

 

 

214

3

15

27

12

157

P.51c1

Consumption of fixed capital on gross operating surplus

8

 

 

8

 

8

 

 

 

P.51c2

Consumption of fixed capital on gross mixed income

238

 

 

238

0

69

0

34

135

B.2n

Operating surplus, net

53

 

 

53

 

53

 

 

 

B.3n

Mixed income, net


Table 8.3 —   Account II.1.1: generation of income account (continued)

Resources

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

B.1g/B.1*g

Value added, gross/gross domestic product

1 331

94

126

155

15

1 854

 

 

1 854

B.1n/B.1*n

Value added, net/net domestic product

1 174

82

99

132

12

1 632

 

 

1 632

D.1

Compensation of employees

 

 

 

 

 

 

 

 

 

D.11

Wages and salaries

 

 

 

 

 

 

 

 

 

D.12

Employers' social contributions

 

 

 

 

 

 

 

 

 

D.121

Employers' actual social contributions

 

 

 

 

 

 

 

 

 

D.1211

Employers' actual pension contributions

 

 

 

 

 

 

 

 

 

D.1212

Employers' actual non-pension contributions

 

 

 

 

 

 

 

 

 

D.122

Employers' imputed social contributions

 

 

 

 

 

 

 

 

 

D.1221

Employers' imputed pension contributions

 

 

 

 

 

 

 

 

 

D.1222

Employers' imputed non-pension contributions

 

 

 

 

 

 

 

 

 

D.2

Taxes on production and imports

 

 

 

 

 

 

 

0

 

D.21

Taxes on products

 

 

 

 

 

 

 

0

 

D.211

Value added type taxes (VAT)

 

 

 

 

 

 

 

0

 

D.212

Taxes and duties on imports excluding VAT

 

 

 

 

 

 

 

0

 

D.2121

Import duties

 

 

 

 

 

 

 

0

 

D.2122

Taxes on imports excluding VAT and duties

 

 

 

 

 

 

 

0

 

D.214

Taxes on products except VAT and import taxes

 

 

 

 

 

 

 

0

 

D.29

Other taxes on production

 

 

 

 

 

 

 

0

 

D.3

Subsidies

 

 

 

 

 

 

 

0

 

D.31

Subsidies on products

 

 

 

 

 

 

 

0

 

D.311

Import subsidies

 

 

 

 

 

 

 

0

 

D.319

Other subsidies on products

 

 

 

 

 

 

 

0

 

D.39

Other subsidies on production

 

 

 

 

 

 

 

0

 

B.2g

Operating surplus, gross

 

 

 

 

 

 

 

 

 

B.3g

Mixed income, gross

 

 

 

 

 

 

 

 

 

B.2n

Operating surplus, net

 

 

 

 

 

 

 

 

 

B.3n

Mixed income, net

 

 

 

 

 

 

 

 

 

Allocation of primary income account (II.1.2)

8.21

 Unlike the generation of income account, the allocation of primary income treats resident units and institutional sectors as recipients rather than producers of primary income.

8.22

 ‧Primary income‧ is the income which resident units receive by virtue of their direct participation in the production process, and the income receivable by the owner of a financial asset or a natural resource in return for providing funds to, or putting the natural resource at the disposal of, another institutional unit.

8.23

 For the households sector, compensation of employees (D.1) as a resource in the allocation of primary income account is not the same as the D.1 entry as a use, in the generation of income account. In the household generation of income account, the use entry shows how much is paid to staff employed in the household business. In the households sector allocation of primary income account, the entry in the resources side shows all the compensation from employment earned by the households sector working as an employee in business, the government etc. So the entry in the allocation account for households is much bigger than the entry in the households sector generation account.

8.24

 The allocation of primary income account (II.1.2) can be calculated only for the institutional sectors and subsectors because, in the case of industries, it is impossible to break down certain flows connected with financing (capital loans and borrowings) and assets.

8.25

 The allocation of primary income account is broken down into an entrepreneurial income account (II.1.2.1) and an allocation of other primary income account (II.1.2.2).

Table 8.4 —   Account II.1.2: allocation of primary income account

Uses

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.2g

Operating surplus, gross

 

 

 

 

 

 

 

 

 

B.3g

Mixed income, gross

 

 

 

 

 

 

 

 

 

B.2n

Operating surplus, net

 

 

 

 

 

 

 

 

 

B.3n

Mixed income, net

6

 

6

 

 

 

 

 

 

D.1

Compensation of employees

6

 

6

 

 

 

 

 

 

D.11

Wages and salaries

0

 

0

 

 

 

 

 

 

D.12

Employers' social contributions

0

 

0

 

 

 

 

 

 

D.121

Employers' actual social contributions

0

 

0

 

 

 

 

 

 

D.1211

Employers' actual pension contributions

0

 

0

 

 

 

 

 

 

D.1212

Employers' actual non-pension contributions

0

 

0

 

 

 

 

 

 

D.122

Employers' imputed social contributions

0

 

0

 

 

 

 

 

 

D.1221

Employers' imputed pension contributions

0

 

0

 

 

 

 

 

 

D.1222

Employers' imputed non-pension contributions

0

 

 

 

 

 

 

 

 

D.2

Taxes on production and imports

0

 

 

 

 

 

 

 

 

D.21

Taxes on products

0

 

 

 

 

 

 

 

 

D.211

Value added type taxes (VAT)

0

 

 

 

 

 

 

 

 

D.212

Taxes and duties on imports excluding VAT

0

 

 

 

 

 

 

 

 

D.2121

Import duties

0

 

 

 

 

 

 

 

 

D.2122

Taxes on imports excluding VAT and duties

0

 

 

 

 

 

 

 

 

D.214

Taxes on products except VAT and import taxes

0

 

 

 

 

 

 

 

 

D.29

Other taxes on production

0

 

 

 

 

 

 

 

 

D.3

Subsidies

0

 

 

 

 

 

 

 

 

D.31

Subsidies on products

0

 

 

 

 

 

 

 

 

D.311

Import subsidies

0

 

 

 

 

 

 

 

 

D.319

Other subsidies on products

0

 

 

 

 

 

 

 

 

D.39

Other subsidies on production

435

 

44

391

6

41

42

168

134

D.4

Property income

230

 

13

217

6

14

35

106

56

D.41

Interest

79

 

17

62

0

 

 

15

47

D.42

Distributed income of corporations

67

 

13

54

 

 

 

15

39

D.421

Dividends

12

 

4

8

 

 

 

0

8

D.422

Withdrawals from income of quasi-corporations

14

 

14

0

 

 

 

0

0

D.43

Reinvested earnings on foreign direct investment

47

 

0

47

 

 

 

47

 

D.44

Other investment income

25

 

0

25

 

 

 

25

 

D.441

Investment income attributable to insurance policy holders

8

 

0

8

 

 

 

8

 

D.442

Investment income payable on pension entitlements

14

 

0

14

 

 

 

14

 

D.443

Investment income attributable to collective investment fund shareholders

6

 

0

6

 

 

 

6

 

D.4431

Dividends attributable to collective investment fund shareholders

8

 

0

8

 

 

 

8

 

D.4432

Retained earnings attributable to collective investment fund shareholders

653

 

 

65

0

27

7

0

31

D.45

Rent

1 864

 

 

1 864

4

1 381

198

27

254

B.5g/B.5*g

Balance of primary incomes, gross/national income, gross

1 642

 

 

1 642

1

1 358

171

15

97

B.5n/B.5*n

Balance of primary incomes, net/national income, net


Table 8.4 —   Account II.1.2: allocation of primary income (continued)

Resources

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

B.2g

Operating surplus, gross

292

46

27

84

3

452

 

 

452

B.3g

Mixed income, gross

 

 

 

61

 

61

 

 

61

B.2n

Operating surplus, net

135

34

0

69

0

238

 

 

238

B.3n

Mixed income, net

 

 

 

53

 

53

 

 

53

D.1

Compensation of employees

 

 

 

1 154

 

1 154

2

 

1 156

D.11

Wages and salaries

 

 

 

954

 

954

2

 

956

D.12

Employers' social contributions

 

 

 

200

 

200

0

 

200

D.121

Employers' actual social contributions

 

 

 

181

 

181

0

 

181

D.1211

Employers' actual pension contributions

 

 

 

168

 

168

0

 

168

D.1212

Employers' actual non-pension contributions

 

 

 

13

 

13

0

 

13

D.122

Employers' imputed social contributions

 

 

 

19

 

19

0

 

19

D.1221

Employers' imputed pension contributions

 

 

 

18

 

18

0

 

18

D.1222

Employers' imputed non-pension contributions

 

 

 

1

 

1

0

 

1

D.2

Taxes on production and imports

 

 

235

 

 

235

 

 

235

D.21

Taxes on products

 

 

141

 

 

141

 

 

141

D.211

Value added type taxes (VAT)

 

 

121

 

 

121

 

 

121

D.212

Taxes and duties on imports excluding VAT

 

 

17

 

 

17

 

 

17

D.2121

Import duties

 

 

17

 

 

17

 

 

17

D.2122

Taxes on imports excluding VAT and duties

 

 

0

 

 

0

 

 

0

D.214

Taxes on products except VAT and import taxes

 

 

3

 

 

3

 

 

3

D.29

Other taxes on production

 

 

94

 

 

94

 

 

94

D.3

Subsidies

 

 

–44

 

 

–44

 

 

–44

D.31

Subsidies on products

 

 

–8

 

 

–8

 

 

–8

D.311

Import subsidies

 

 

0

 

 

0

 

 

0

D.319

Other subsidies on products

 

 

–8

 

 

–8

 

 

–8

D.39

Other subsidies on production

 

 

–36

 

 

–36

 

 

–36

D.4

Property income

96

149

22

123

7

397

38

 

435

D.41

Interest

33

106

14

49

7

209

21

 

230

D.42

Distributed income of corporations

10

25

7

20

0

62

17

 

79

D.421

Dividends

10

25

5

13

0

53

14

 

67

D.422

Withdrawals from income of quasi-corporations

 

 

2

7

 

9

3

 

12

D.43

Reinvested earnings on foreign direct investment

4

7

0

3

0

14

0

 

14

D.44

Other investment income

8

8

1

30

0

47

0

 

47

D.441

Investment income attributable to insurance policy holders

5

0

0

20

0

25

0

 

25

D.442

Investment income payable on pension entitlements

 

 

 

8

 

8

0

 

8

D.443

Investment income attributable to collective investment fund shareholders

3

8

1

2

0

14

0

 

14

D.4431

Dividends attributable to collective investment fund shareholders

1

3

0

2

0

6

0

 

6

D.4432

Retained earnings attributable to collective investment fund shareholders

2

5

1

0

0

8

0

 

8

D.45

Rent

41

3

0

21

0

65

 

 

65

B.5g/B.5*g

Balance of primary incomes, gross/national income, gross

 

 

 

 

 

 

 

 

 

B.5n/B.5*n

Balance of primary incomes, net/national income, net

 

 

 

 

 

 

 

 

 

Entrepreneurial income account (II.1.2.1)

8.26

 The purpose of the entrepreneurial income account is to determine a balancing item corresponding to the concept of current profit before distribution and income tax, as normally used in business accounting.

8.27

 In the case of general government and non-profit institutions serving households, this account concerns only their market activities.

8.28

 Entrepreneurial income corresponds to the operating surplus or mixed income (on the resources side):

plus

property income receivable in connection with financial and other assets belonging to the enterprise (on the resources side),

minus

interest on debts payable by the enterprise, other investment income payable, and rents payable on land and other natural resources rented by the enterprise (on the uses side).

Property income payable in the form of dividends, withdrawals of income from quasi-corporations, or reinvested earnings on foreign direct investment, is not deducted from entrepreneurial income.

Allocation of other primary income account (II.1.2.2)

8.29

 The purpose of the allocation of other primary income account is to return from the concept of entrepreneurial income to the concept of primary income. It therefore contains the elements of primary income not included in the entrepreneurial income account:

(a)

in the case of corporations, distributed dividends, withdrawals of income from quasi-corporations, and reinvested earnings on foreign direct investment (on the uses side);

(b)

in the case of households:

(1)

property income payable, excluding rents and interest payable in connection with the entrepreneurial activity (on the uses side);

(2)

compensation of employees (on the resources side);

(3)

property income receivable, excluding that receivable in connection with the activity of the enterprise (on the resources side);

(c)

in the case of general government:

(1)

property income payable, excluding that payable in connection with market activities (on the uses side);

(2)

taxes on production and imports less subsidies (on the resources side);

(3)

property income receivable, excluding that receivable in connection with market activities (on the resources side).

Table 8.5 —   Account II.1.2.1: entrepreneurial income

Uses

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.2g

Operating surplus, gross

 

 

 

 

 

 

 

 

 

B.3g

Mixed income, gross

 

 

 

 

 

 

 

 

 

B.2n

Operating surplus, net

 

 

 

 

 

 

 

 

 

B.3n

Mixed income, net

240

 

 

240

 

 

 

153

87

D.4

Property income

162

 

 

162

 

 

 

106

56

D.41

Interest

 

 

 

 

 

 

 

 

 

D.42

Distributed income of corporations

 

 

 

 

 

 

 

 

 

D.421

Dividends

 

 

 

 

 

 

 

 

 

D.422

Withdrawals from income of quasi-corporations

 

 

 

 

 

 

 

 

 

D.43

Reinvested earnings on foreign direct investment

47

 

 

47

 

 

 

47

 

D.44

Other investment income

25

 

 

25

 

 

 

25

 

D.441

Investment income attributable to insurance policy holders

8

 

 

8

 

 

 

8

 

D.442

Investment income payable on pension entitlements

14

 

 

14

 

 

 

14

 

D.443

Investment income attributable to collective investment fund shareholders

31

 

 

31

 

 

 

0

31

D.45

Rent

343

 

 

343

 

 

 

42

301

B.4g

Entrepreneurial income, gross

174

 

 

174

 

 

 

30

144

B.4n

Entrepreneurial income, net


Table 8.5 —   Account II.1.2.1: entrepreneurial income (continued)

Resources

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

B.2g

Operating surplus, gross

292

46

27

84

3

452

 

 

452

B.3g

Mixed income, gross

 

 

 

61

 

61

 

 

61

B.2n

Operating surplus, net

135

34

0

69

0

238

 

 

238

B.3n

Mixed income, net

 

 

 

53

 

53

 

 

53

D.4

Property income

96

149

 

 

 

245

 

 

245

D.41

Interest

33

106

 

 

 

139

 

 

139

D.42

Distributed income of corporations

10

25

 

 

 

35

 

 

35

D.421

Dividends

10

25

 

 

 

35

 

 

35

D.422

Withdrawals from income of quasi-corporations

 

 

 

 

 

0

 

 

0

D.43

Reinvested earnings on foreign direct investment

4

7

 

 

 

11

 

 

11

D.44

Other investment income

8

8

 

 

 

16

 

 

16

D.441

Investment income attributable to insurance policy holders

5

 

 

 

 

5

 

 

5

D.442

Investment income payable on pension entitlements

 

 

 

 

 

0

 

 

0

D.443

Investment income attributable to collective investment fund shareholders

3

8

 

 

 

11

 

 

11

D.45

Rent

41

3

 

 

 

44

 

 

44

B.4g

Entrepreneurial income. gross

 

 

 

 

 

 

 

 

 

B.4n

Entrepreneurial income, net

 

 

 

 

 

 

 

 

 


Table 8.5 —   Account II.1.2.2: allocation of other primary income

Uses

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.4g

Entrepreneurial income, gross

 

 

 

 

 

 

 

 

 

B.4n

Entrepreneurial income, net

6

 

6

 

 

 

 

 

 

D.1

Compensation of employees

6

 

6

 

 

 

 

 

 

D.11

Wages and salaries

 

 

 

 

 

 

 

 

 

D.12

Employers' social contributions

 

 

 

 

 

 

 

 

 

D.121

Employers' actual social contributions

 

 

 

 

 

 

 

 

 

D.122

Employers' imputed social contributions

 

 

 

 

 

 

 

 

 

D.2

Taxes on production and imports

 

 

 

 

 

 

 

 

 

D.21

Taxes on products

 

 

 

 

 

 

 

 

 

D.211

Value added type taxes (VAT)

 

 

 

 

 

 

 

 

 

D.212

Taxes and duties on imports excluding VAT

 

 

 

 

 

 

 

 

 

D.2121

Import duties

 

 

 

 

 

 

 

 

 

D.2122

Taxes on imports excluding VAT and duties

 

 

 

 

 

 

 

 

 

D.214

Taxes on products except VAT and import taxes

 

 

 

 

 

 

 

 

 

D.29

Other taxes on production

 

 

 

 

 

 

 

 

 

D.3

Subsidies

 

 

 

 

 

 

 

 

 

D.31

Subsidies on products

 

 

 

 

 

 

 

 

 

D.311

Import subsidies

 

 

 

 

 

 

 

 

 

D.319

Other subsidies on products

 

 

 

 

 

 

 

 

 

D.39

Other subsidies on production

214

 

63

151

6

41

42

15

47

D.4

Property income

68

 

13

55

6

14

35

 

 

D.41

Interest

98

 

36

62

 

 

 

15

47

D.42

Distributed income of corporations

54

 

0

54

 

 

 

15

39

D.421

Dividends

44

 

36

8

 

 

 

 

8

D.422

Withdrawals from income of quasi-corporations

14

 

14

0

 

 

 

 

 

D.43

Reinvested earnings on foreign direct investment

 

 

 

 

 

 

 

 

 

D.44

Other investment income

 

 

 

 

 

 

 

 

 

D.441

Investment income attributable to insurance policy holders

 

 

 

 

 

 

 

 

 

D.442

Investment income payable on pension entitlements

 

 

 

 

 

 

 

 

 

D.443

Investment income attributable to collective investment fund shareholders

34

 

 

34

0

27

7

 

 

D.45

Rent

1 864

 

 

1 864

4

1 381

198

27

254

B.5g/B.5*g

Balance of primary incomes, gross/national income, gross

1 642

 

 

1 642

1

1 358

171

15

97

B.5n/B.5*n

Balance of primary incomes, net/national income, net


Table 8.5 —   Account II.1.2.2: allocation of other primary income (continued)

Resources

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

B.4g

Entrepreneurial income. Gross

301

42

 

 

 

343

 

 

343

B.4n

Entrepreneurial income, net

144

30

 

 

 

174

 

 

174

D.1

Compensation of employees

 

 

 

1 154

 

1 154

2

 

1 156

D.11

Wages and salaries

 

 

 

954

 

954

2

 

956

D.12

Employers' social contributions

 

 

 

200

 

200

 

 

200

D.121

Employers' actual social contributions

 

 

 

181

 

181

 

 

181

D.122

Employers' imputed social contributions

 

 

 

19

 

19

 

 

19

D.2

Taxes on production and imports

 

 

235

 

 

235

 

 

235

D.21

Taxes on products

 

 

141

 

 

141

 

 

141

D.211

Value added type taxes (VAT)

 

 

121

 

 

121

 

 

121

D.212

Taxes and duties on imports excluding VAT

 

 

17

 

 

17

 

 

17

D.2121

Import duties

 

 

17

 

 

17

 

 

17

D.2122

Taxes on imports excluding VAT and duties

 

 

0

 

 

0

 

 

0

D.214

Taxes on products except VAT and import taxes

 

 

3

 

 

3

 

 

3

D.29

Other taxes on production

 

 

94

 

 

94

 

 

94

D.3

Subsidies

 

 

–44

 

 

–44

 

 

–44

D.31

Subsidies on products

 

 

–8

 

 

–8

 

 

–8

D.311

Import subsidies

 

 

0

 

 

0

 

 

0

D.319

Other subsidies on products

 

 

–8

 

 

–8

 

 

–8

D.39

Other subsidies on production

 

 

–36

 

 

–36

 

 

–36

D.4

Property income

 

 

22

123

7

152

38

 

190

D.41

Interest

 

 

14

49

7

70

21

 

91

D.42

Distributed income of corporations

 

 

7

20

0

27

17

 

44

D.421

Dividends

 

 

5

13

0

18

14

 

32

D.422

Withdrawals from income of quasi-corporations

 

 

2

7

0

9

3

 

12

D.43

Reinvested earnings on foreign direct investment

 

 

0

3

0

3

0

 

3

D.44

Other investment income

 

 

1

30

0

31

0

 

31

D.441

Investment income attributable to insurance policy holders

 

 

0

20

0

20

0

 

20

D.442

Investment income payable on pension entitlements

 

 

0

8

0

8

0

 

8

D.443

Investment income attributable to collective investment fund shareholders

 

 

1

2

0

3

0

 

3

D.45

Rent

 

 

0

21

0

21

 

 

21

B.5g/B.5*g

Balance of primary incomes, gross/national income, gross

 

 

 

 

 

 

 

 

 

B.5n/B.5*n

Balance of primary incomes, net/national income, net

 

 

 

 

 

 

 

 

 

Secondary distribution of income account (II.2)

8.30

 The secondary distribution of income account shows how the balance of the primary income of an institutional sector is allocated by redistribution: current taxes on income, wealth etc., social contributions and benefits (excluding social transfers in kind) and other current transfers.

8.31

 The balancing item of the account is disposable income, which reflects current transactions and is the amount available for final consumption or saving.

8.32

 Social contributions are recorded on the uses side of the secondary distribution of income account of households and on the resources side of the secondary distribution of income account of the institutional sectors responsible for management of social insurance. When payable by employers for their employees, they are first included under compensation of employees, on the uses side of the employers' generation of income account, since they form part of wage costs; they are also recorded, as compensation of employees, on the resources side of the households' allocation of primary income account, since they correspond to benefits to households.

The social contributions shown on the uses side of the secondary distribution of income account of households are net of the service charges of the pension funds and other insurance companies, all or part of whose resources are made up of actual social contributions.

An adjustment item is shown in the table for the social insurance scheme service charges. Net social contributions (D.61) are recorded net of these charges, but, as it is difficult to apportion them across the components of D.61, those contributions are shown gross of these charges in the table. So D.61 is the sum of its components, less this adjustment item.

Redistribution of income in kind account (II.3)

8.33

 The redistribution of income in kind account gives a broader picture of households' income by including the flows corresponding to the use of individual goods and services which these households receive free of charge from government and NPISHs, i.e. social transfers in kind. This facilitates comparisons over time when there are differences or changes in economic and social conditions, and supplements the analysis of the role of general government in the redistribution of income.

8.34

 Social transfers in kind are recorded on the resources side of the redistribution of income in kind account in the case of households, and on the uses side in the case of general government and non-profit institutions serving households.

8.35

 The balancing item in the redistribution of income in kind account is adjusted disposable income, and this is the first entry on the resources side of the use of adjusted disposable income account (II.4.2).

Table 8.6 —   Account II.2: Secondary distribution of income account

Uses

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.5g/B.5*g

Balance of primary incomes, gross/National income, gross

 

 

 

 

 

 

 

 

 

B.5n/B.5*n

Balance of primary incomes, net/National income, net

1 229

 

17

1 212

7

582

248

277

98

 

Current transfers

213

 

1

212

0

178

0

10

24

D.5

Current taxes on income, wealth, etc.

204

 

1

203

0

176

0

7

20

D.51

Taxes on income

9

 

 

9

0

2

0

3

4

D.59

Other current taxes

333

 

0

333

 

333

 

 

 

D.61

Net social contributions

181

 

0

181

 

181

 

 

 

D.611

Employers' actual social contributions

168

 

0

168

 

168

 

 

 

D.6111

Employers' actual pension contributions

13

 

0

13

 

13

 

 

 

D.6112

Employers' actual non-pension contributions

19

 

0

19

 

19

 

 

 

D.612

Employers' imputed social contributions

18

 

0

18

 

18

 

 

 

D.6121

Employers' imputed pension contributions

1

 

0

1

 

1

 

 

 

D.6122

Employers' imputed non-pension contributions

129

 

0

129

 

129

 

 

 

D.613

Households' actual social contributions

115

 

0

115

 

115

 

 

 

D.6131

Households' actual pension contributions

14

 

0

14

 

14

 

 

 

D.6132

Households' actual non-pension contributions

10

 

0

10

 

10

 

 

 

D.614

Households' social contribution supplements

8

 

0

8

 

8

 

 

 

D.6141

Households' pension contribution supplements

2

 

0

2

 

2

 

 

 

D.6142

Households' non-pension contribution supplements

–6

 

0

–6

 

–6

 

 

 

D.61SC

Social insurance scheme service charges

384

 

0

384

5

0

112

205

62

D.62

Social benefits other than social transfers in kind

53

 

0

53

 

 

53

 

 

D.621

Social security benefits in cash

45

 

0

45

 

 

45

 

 

D.6211

Social security pension benefits in cash

8

 

0

8

 

 

8

 

 

D.6212

Social security non-pension benefits in cash

279

 

0

279

5

0

7

205

62

D.622

Other social insurance benefits

250

 

0

250

3

0

5

193

49

D.6221

Other social insurance pension benefits

29

 

0

29

2

0

2

12

13

D.6222

Other social insurance non-pension benefits

52

 

 

52

 

 

52

 

 

D.623

Social assistance benefits in cash

299

 

16

283

2

71

136

62

12

D.7

Other current transfers

58

 

2

56

0

31

4

13

8

D.71

Net non-life insurance premiums

44

 

1

43

0

31

4

0

8

D.711

Net non-life direct insurance premiums

14

 

1

13

 

 

 

13

 

D.712

Net non-life reinsurance premiums

60

 

12

48

 

 

 

48

 

D.72

Non-life insurance claims

45

 

0

45

 

 

 

45

 

D.721

Non-life direct insurance claims

15

 

12

3

 

 

 

3

 

D.722

Non-life reinsurance claims

96

 

0

96

 

 

96

 

 

D.73

Current transfers within general government

23

 

1

22

 

 

22

 

 

D.74

Current international cooperation

53

 

1

52

2

40

5

1

4

D.75

Miscellaneous current transfers

36

 

0

36

0

29

5

1

1

D.751

Current transfers to NPISHs

8

 

1

7

 

7

 

 

 

D.752

Current transfers between households

9

 

0

9

2

4

0

0

3

D.759

Other miscellaneous current transfers

9

 

 

9

 

 

9

 

 

D.76

VAT- and GNI-based EU own resources

1 826

 

 

1 826

37

1 219

317

25

228

B.6g

Disposable income, gross

1 604

 

 

1 604

34

1 196

290

13

71

B.6n

Disposable income, net


Table 8.6 —   Account II.2: secondary distribution of income account (continued)

Resources

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

B.5g/B.5*g

Balance of primary incomes, gross/national income, gross

254

27

198

1 381

4

1 864

 

 

1 864

B.5n/B.5*n

Balance of primary incomes, net/national income, net

97

15

171

1 358

1

1 642

 

 

1 642

 

Current transfers

72

275

367

420

40

1 174

55

 

1 229

D.5

Current taxes on income, wealth, etc.

 

 

213

 

 

213

0

 

213

D.51

Taxes on income

 

 

204

 

 

204

0

 

204

D.59

Other current taxes

 

 

9

 

 

9

 

 

9

D.61

Net social contributions

66

212

50

0

5

333

0

 

333

D.611

Employers' actual social contributions

31

109

38

0

3

181

0

 

181

D.6111

Employers' actual pension contributions

27

104

35

0

2

168

0

 

168

D.6112

Employers' actual non-pension contributions

4

5

3

0

1

13

0

 

13

D.612

Employers' imputed social contributions

12

2

4

0

1

19

0

 

19

D.6121

Employers' imputed pension contributions

12

1

4

0

1

18

0

 

18

D.6122

Employers' imputed non-pension contributions

0

1

0

0

0

1

0

 

1

D.613

Households' actual social contributions

25

94

9

0

1

129

0

 

129

D.6131

Households' actual pension contributions

19

90

6

0

0

115

0

 

115

D.6132

Households' actual non-pension contributions

6

4

3

0

1

14

0

 

14

D.614

Households' social contribution supplements

 

10

 

 

 

10

0

 

10

D.6141

Households' pension contribution supplements

 

8

 

 

 

8

0

 

8

D.6142

Households' non-pension contribution supplements

 

2

 

 

 

2

0

 

2

D.61SC

Social insurance scheme service charges

2

3

 

1

 

6

0

 

6

D.62

Social benefits other than social transfers in kind

 

 

 

384

 

384

0

 

384

D.621

Social security benefits in cash

 

 

 

53

 

53

0

 

53

D.6211

Social security pension benefits in cash

 

 

 

45

 

45

0

 

45

D.6212

Social security non-pension benefits in cash

 

 

 

8

 

8

0

 

8

D.622

Other social insurance benefits

 

 

 

279

 

279

0

 

279

D.6221

Other social insurance pension benefits

 

 

 

250

 

250

0

 

250

D.6222

Other social insurance non-pension benefits

 

 

 

29

 

29

0

 

29

D.623

Social assistance benefits in cash

 

 

 

52

 

52

0

 

52

D.7

Other current transfers

6

62

104

36

36

244

55

 

299

D.71

Net non-life insurance premiums

 

47

 

 

 

47

11

 

58

D.711

Net non-life direct insurance premiums

 

44

 

 

 

44

 

 

44

D.712

Net non-life reinsurance premiums

 

3

 

 

 

3

11

 

14

D.72

Non-life insurance claims

6

15

1

35

0

57

3

 

60

D.721

Non-life direct insurance claims

6

 

1

35

 

42

3

 

45

D.722

Non-life reinsurance claims

 

15

 

 

 

15

0

 

15

D.73

Current transfers within general government

 

 

96

 

 

96

0

 

96

D.74

Current international cooperation

 

 

1

 

 

1

22

 

23

D.75

Miscellaneous current transfers

0

0

6

1

36

43

10

 

53

D.751

Current transfers to NPISHs

 

 

 

 

36

36

 

 

36

D.752

Current transfers between households

 

 

 

1

 

1

7

 

8

D.759

Other miscellaneous current transfers

 

 

6

 

 

6

3

 

9

D.76

VAT- and GNI-based EU own resources

 

 

 

 

 

 

9

 

9

B.6g

Disposable income, gross

 

 

 

 

 

 

 

 

 

B.6n

Disposable income, net

 

 

 

 

 

 

 

 

 

Table 8.7 —   Account II.3: redistribution of income in kind account

Uses

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.6g

Disposable income, gross

 

 

 

 

 

 

 

 

 

B.6n

Disposable income, net

215

 

 

215

31

 

184

 

 

D.63

Social transfers in kind

211

 

 

211

31

 

180

 

 

D.631

Social transfers in kind — non-market production

4

 

 

4

 

 

4

 

 

D.632

Social transfers in kind — purchased market production

1 826

 

 

1 826

6

1 434

133

25

228

B.7g

Adjusted disposable income, gross

1 604

 

 

1 604

3

1 411

106

13

71

B.7n

Adjusted disposable income, net


Resources

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

B.6g

Disposable income, gross

228

25

317

1 219

37

1 826

 

 

1 826

B.6n

Disposable income, net

71

13

290

1 196

34

1 604

 

 

1 604

D.63

Social transfers in kind

 

 

 

215

 

215

 

 

215

D.631

Social transfers in kind — non-market production

 

 

 

211

 

211

 

 

211

D.632

Social transfers in kind — purchased market production

 

 

 

4

 

4

 

 

4

B.7g

Adjusted disposable income, gross

 

 

 

 

 

 

 

 

 

B.7n

Adjusted disposable income, net

 

 

 

 

 

 

 

 

 

Use of income account (II.4)

8.36

 For the institutional sectors with final consumption, the use of income account shows how disposable income (or adjusted disposable income) is divided between final consumption expenditure (or actual final consumption) and saving.

8.37

 In the system, only government, NPISHs and households have final consumption. In addition, the use of income account includes, for households and for pension funds, an adjustment item (D.8 — adjustment for the change in pension entitlements) which relates to the way that transactions between households and pension funds are recorded. This is explained in the chapter on distributive transactions, paragraph 4.141.

Use of disposable income account (II.4.1)

8.38

 The use of disposable income account includes the concept of final consumption expenditure financed by the various sectors concerned: households, general government, and non-profit institutions serving households.

8.39

 The balancing item in the use of disposable income account is saving.

Use of adjusted disposable income account (II.4.2)

8.40

 This account links with the redistribution of income in kind account (II.3). The use of adjusted disposable income account includes the concept of actual final consumption, which corresponds to the value of goods and services actually at the disposal of households for final consumption, even if their acquisition is financed by general government or non-profit institutions serving households.

Consequently, the actual final consumption of general government and NPISHs corresponds only to collective final consumption.

8.41

 At the level of the total economy, final consumption expenditure and actual final consumption are equal; it is only the distribution over the institutional sectors which differs. The same is true of disposable income and adjusted disposable income.

8.42

 Saving is the balancing item in both versions of the use of income account. Its value is identical for all sectors, regardless of whether it is obtained by subtracting final consumption expenditure from disposable income, or by subtracting actual final consumption from adjusted disposable income.

8.43

 Saving is the (positive or negative) amount resulting from current transactions which establishes the link with accumulation. If saving is positive, non-spent income is used for the acquisition of assets or for paying off liabilities. If saving is negative, certain assets are liquidated or certain liabilities increase.

Table 8.8 —   Account II.4.1: use of disposable income account

Uses

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.6g

Disposable income, gross

 

 

 

 

 

 

 

 

 

B.6n

Disposable income, net

1 399

 

 

1 399

32

1 015

352

 

 

P.3

Final consumption expenditure

1 230

 

 

1 230

31

1 015

184

 

 

P.31

Individual consumption expenditure

169

 

 

169

1

 

168

 

 

P.32

Collective consumption expenditure

11

 

0

11

0

 

0

11

0

D.8

Adjustment for the change in pension entitlements

427

 

 

427

5

215

–35

14

228

B.8g

Saving, gross

205

 

 

205

2

192

–62

2

71

B.8n

Saving, net

–13

 

–13

 

 

 

 

 

 

B.12

Current external balance


Resources

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

B.6g

Disposable income, gross

228

25

317

1 219

37

1 826

 

 

1 826

B.6n

Disposable income, net

71

13

290

1 196

34

1 604

 

 

1 604

P.3

Final consumption expenditure

 

 

 

 

 

 

 

1 399

1 399

P.31

Individual consumption expenditure

 

 

 

 

 

 

 

1 230

1 230

P.32

Collective consumption expenditure

 

 

 

 

 

 

 

169

169

D.8

Adjustment for the change in pension entitlements

 

 

 

11

 

11

0

 

11

B.8g

Saving, gross

 

 

 

 

 

 

 

 

 

B.8n

Saving, net

 

 

 

 

 

 

 

 

 

B.12

Current external balance

 

 

 

 

 

 

 

 

 

Table 8.9 —   Account II.4.2: use of adjusted disposable income account

Uses

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.7g

Adjusted disposable income, gross

 

 

 

 

 

 

 

 

 

B.7n

Adjusted disposable income, net

1 399

 

 

1 399

1

1 230

168

 

 

P.4

Actual final consumption

1 230

 

 

1 230

 

1 230

 

 

 

P.41

Actual individual consumption

169

 

 

169

1

 

168

 

 

P.42

Actual collective consumption

11

 

0

11

0

 

0

11

0

D.8

Adjustment for the change in pension entitlements

427

 

 

427

5

215

–35

14

228

B.8g

Saving, gross

205

 

 

205

2

192

–62

2

71

B.8n

Saving, net

–13

 

–13

 

 

 

 

 

 

B.12

Current external balance


Resources

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

B.7g

Adjusted disposable income, gross

228

25

133

1 434

6

1 826

 

 

1 826

B.7n

Adjusted disposable income, net

71

13

106

1 411

3

1 604

 

 

1 604

P.4

Actual final consumption

 

 

 

 

 

 

 

1 399

1 399

P.41

Actual individual consumption

 

 

 

 

 

 

 

1 230

1 230

P.42

Actual collective consumption

 

 

 

 

 

 

 

169

169

D.8

Adjustment for the change in pension entitlements

 

 

 

11

 

11

0

 

11

B.8g

Saving, gross

 

 

 

 

 

 

 

 

 

B.8n

Saving, net

 

 

 

 

 

 

 

 

 

B.12

Current external balance

 

 

 

 

 

 

 

 

 

Accumulation accounts (III)

8.44

 The accumulation accounts are flow accounts. They record the various causes of changes in the assets and liabilities of units and the change in their net worth.

8.45

 Changes in assets are recorded on the left-hand side of the accounts (plus or minus), changes in liabilities and net worth on the right-hand side (plus or minus).

Capital account (III.1)

8.46

 The capital account records acquisitions less disposals of non-financial assets by resident units and measures the change in net worth due to saving (final balancing item in the current accounts) and capital transfers.

8.47

 The capital account makes it possible to determine the extent to which acquisitions less disposals of non-financial assets have been financed out of saving and by capital transfers. It shows a net lending corresponding to the amount available to a unit or sector for financing, directly or indirectly, other units or sectors, or a net borrowing corresponding to the amount which a unit or sector is obliged to borrow from other units or sectors.

Change in net worth due to saving and capital transfers account (III.1.1)

8.48

 This account makes it possible to determine the change in net worth due to saving and capital transfers, which corresponds to net saving plus capital transfers receivable, minus capital transfers payable.

Acquisitions of non-financial assets account (III.1.2)

8.49

 This account records acquisitions less disposals of non-financial assets in order to return from the concept of change in net worth due to saving and capital transfers to net lending or borrowing.

Financial account (III.2)

8.50

 The financial account records, by type of financial instrument, the changes in the financial assets and liabilities that compose net lending or borrowing. As these should match the financial surplus or deficit balancing items of the capital account, carried forward to this account as the first entry on the changes in liabilities and net worth side, there is no balancing item in this account.

8.51

 The classification of assets and liabilities used in the financial account is identical to that used in the balance sheets.

Table 8.10 —   Account III.1.1: change in net worth due to saving and capital transfers account

Changes in assets

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.8n

Saving, net

 

 

 

 

 

 

 

 

 

B.12

Current external balance

 

 

 

 

 

 

 

 

 

D.9r

Capital transfers, receivable

 

 

 

 

 

 

 

 

 

D.91r

Capital taxes, receivable

 

 

 

 

 

 

 

 

 

D.92r

Investment grants, receivable

 

 

 

 

 

 

 

 

 

D.99r

Other capital transfers, receivable

 

 

 

 

 

 

 

 

 

D.9p

Capital transfers, payable

 

 

 

 

 

 

 

 

 

D.91p

Capital taxes, payable

 

 

 

 

 

 

 

 

 

D.92p

Investment grants, payable

 

 

 

 

 

 

 

 

 

D.99p

Other capital transfers, payable

192

 

–29

221

20

236

–81

–16

62

B.101

Changes in net worth due to saving and capital transfers


Changes in liabilities and net worth

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

B.8n

Saving, net

71

2

–62

192

2

205

 

 

205

B.12

Current external balance

 

 

 

 

 

 

–13

 

–13

D.9r

Capital transfers, receivable

33

0

6

23

0

62

4

 

66

D.91r

Capital taxes, receivable

 

 

2

 

 

2

 

 

2

D.92r

Investment grants, receivable

23

0

0

0

0

23

4

 

27

D.99r

Other capital transfers, receivable

10

 

4

23

 

37

 

 

37

D.9p

Capital transfers, payable

–16

–7

–34

–5

–3

–65

–1

 

–66

D.91p

Capital taxes, payable

0

0

0

–2

0

–2

0

 

–2

D.92p

Investment grants, payable

 

 

–27

 

 

–27

 

 

–27

D.99p

Other capital transfers, payable

–16

–7

–7

–3

–3

–36

–1

 

–37

B.101

Changes in net worth due to saving and capital transfers

88

–5

–90

210

–1

202

–10

 

192

Table 8.11 —   Account III.1.2: acquisition of non-financial assets account

Changes in assets

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.101

Changes in net worth due to saving and capital transfers

414

 

 

414

5

55

38

8

308

P.5g

Gross capital formation

192

 

 

192

2

32

11

–4

151

P.5n

Net capital formation

376

 

 

376

5

48

35

8

280

P.51g

Gross fixed capital formation

359

 

 

359

5

48

35

8

263

P.511

Acquisitions less disposals of fixed assets

358

 

 

358

5

45

38

8

262

P.5111

Acquisitions of new fixed assets

9

 

 

9

1

3

0

0

5

P.5112

Acquisitions of existing fixed assets

–8

 

 

–8

–1

0

–3

 

–4

P.5113

Disposal of existing fixed assets

17

 

 

17

 

 

 

 

17

P.512

Costs of ownership transfer on non-produced assets

– 222

 

 

– 222

–3

–23

–27

–12

– 157

P.51c

Consumption of fixed capital

28

 

 

28

0

2

0

0

26

P.52

Changes in inventories

10

 

 

10

0

5

3

0

2

P.53

Acquisitions less disposals of valuables

0

 

 

0

1

4

2

0

–7

NP

Acquisitions less disposals of non-produced assets

0

 

 

0

1

3

2

0

–6

NP.1

Acquisitions less disposals of natural resources

0

 

0

0

0

1

0

0

–1

NP.2

Acquisitions less disposals of contracts, leases and licences

0

 

0

0

 

 

 

0

0

NP.3

Purchases less sales of goodwill and marketing assets

0

 

–10

10

–4

174

– 103

–1

–56

B.9

Net lending (+) net borrowing (–)


Table 8.11 —   Account III.1.2: acquisition of non-financial assets account (continued)

Changes in liabilities and net worth

 

 

S.11

S.12

S.13

S.14

S.15

S.1

Corresponding entries of the

 

 

 

 

 

 

 

 

 

 

 

Transactions and balancing items

Non-financial corporations

Financial corporations

General government

Households

NPISHs

Total economy

Rest of the world account

Goods and services account

Total

B.101

Changes in net worth due to saving and capital transfers

88

–5

–90

210

–1

202

–10

 

192

P.5g

Gross capital formation

 

 

 

 

 

 

 

414

414

P.5n

Net capital formation

 

 

 

 

 

 

 

192

192

P.51g

Gross fixed capital formation

 

 

 

 

 

 

 

376

376

P.511

Acquisitions less disposals of fixed assets

 

 

 

 

 

 

 

359

359

P.5111

Acquisitions of new fixed assets

 

 

 

 

 

 

 

358

358

P.5112

Acquisitions of existing fixed assets

 

 

 

 

 

 

 

9

9

P.5113

Disposal of existing fixed assets

 

 

 

 

 

 

 

–8

–8

P.512

Costs of ownership transfer on non-produced assets

 

 

 

 

 

 

 

17

17

P.51c

Consumption of fixed capital

 

 

 

 

 

 

 

– 222

– 222

P.52

Changes in inventories

 

 

 

 

 

 

 

28

28

P.53

Acquisitions less disposals of valuables

 

 

 

 

 

 

 

10

10

NP

Acquisitions less disposals of non-produced assets

 

 

 

 

 

 

 

0

0

NP.1

Acquisitions less disposals of natural resources

 

 

 

 

 

 

 

0

0

NP.2

Acquisitions less disposals of contracts, leases and licences

 

 

 

 

 

 

 

 

 

NP.3

Purchases less sales of goodwill and marketing assets

 

 

 

 

 

 

 

 

 

B.9

Net lending (+) net borrowing (–)

 

 

 

 

 

 

 

 

 


Table 8.12 —   Account III.2: financial account

Changes in assets

 

Corresponding entries of the

S.1

S.15

S.14

S.13

S.12

S.11

 

 

 

 

 

 

 

 

 

 

 

Total

Goods and Services account

Rest of the world account

Total economy

NPISHs

Households

General government

Financial corporations

Non-financial corporations

 

Transactions and balancing items

 

 

 

 

 

 

 

 

 

B.9

Net lending (+)/net borrowing (–)

483

 

47

436

2

189

–10

172

83

F

Net acquisition of financial assets

0

 

1

–1

 

 

 

–1

 

F.1

Monetary gold and SDRs

0

 

1

–1

 

 

 

–1

 

F.11

Monetary gold

0

 

0

0

 

 

 

0

 

F.12

SDRs

100

 

11

89

2

64

–26

10

39

F.2

Currency and deposits

36

 

3

33

1

10

2

15

5

F.21

Currency

28

 

2

26

1

27

–27

–5

30

F.22

Transferable deposits

–5

 

 

–5

 

 

 

–5

 

F.221

Inter-bank positions

33

 

2

31

1

27

–27

0

30

F.229

Other transferable deposits

36

 

6

30

0

27

–1

0

4

F.29

Other deposits

95

 

9

86

–1

10

4

66

7

F.3

Debt securities

29

 

2

27

0

3

1

13

10

F.31

Short-term

66

 

7

59

–1

7

3

53

–3

F.32

Long-term

82

 

4

78

0

3

3

53

19

F.4

Loans

25

 

3

22

0

3

1

4

14

F.41

Short-term

57

 

1

56

0

0

2

49

5

F.42

Long-term

119

 

12

107

0

66

3

28

10

F.5

Equity and investment fund shares

103

 

12

91

0

53

3

25

10

F.51

Equity

87

 

10

77

0

48

1

23

5

F.511

Listed shares

9

 

2

7

0

2

1

1

3

F.512

Unlisted shares

7

 

0

7

0

3

1

1

2

F.519

Other equity

16

 

0

16

0

13

0

3

0

F.52

Investment fund shares/units

7

 

0

7

0

5

0

2

0

F.521

Money market fund shares/units

9

 

0

9

0

8

0

1

0

F.522

Non-MMF investment fund shares/units

48

 

0

48

0

39

1

7

1

F.6

Insurance, pension and standardised guarantee schemes

7

 

0

7

0

4

0

2

1

F.61

Non-life insurance technical reserves

22

 

0

22

0

22

0

0

0

F.62

Life insurance and annuity entitlements

11

 

0

11

 

11

 

 

 

F.63

Pension entitlements

3

 

0

3

 

 

 

3

 

F.64

Claim of pension funds on pension managers

2

 

0

2

 

2

 

 

 

F.65

Entitlements to non-pension benefits

3

 

0

3

0

0

1

2

0

F.66

Provisions for calls under standardised guarantees

14

 

0

14

0

3

0

8

3

F.7

Financial derivatives and employee stock options

12

 

0

12

0

1

0

8

3

F.71

Financial derivatives

5

 

0

5

0

1

0

3

1

F.711

Options

7

 

0

7

0

0

0

5

2

F.712

Forwards

2

 

 

2

 

2

 

 

0

F.72

Employee stock options

25

 

10

15

1

4

5

1

4

F.8

Other accounts receivable/payable

15

 

8

7

 

3

1

 

3

F.81

Trade credits and advances

10

 

2

8

1

1

4