Overview of country consultation on recommendations of the AEG UN STATISTICS DIVISION Economic Statistics Branch National Accounts Section

Non-performing loans Loans should continue to be recorded at nominal value for both creditors and debtors. In addition, memorandum items should be shown at market value; these should be mandatory for at least financial institutions and government as creditors. More clarification is required in respect of: (i) the definition of which loans are non-performing; (ii) the exact nature of the memorandum items (iii) a worked example of the accounts showing the memorandum items; (iv) harmonization of terms used in various manuals; (v) the implications for the recording of FISIM; and (vi) whether similar treatment should be extended to other financial instruments (in particular trade credits). Agrees: 44 Disagrees: 3 Further clarification: 1

Originals and copies (a) Copies generated for issue under licenses to use represent new production, (b) When they display the characteristics of fixed assets, copies issued under license to use should be recorded as gross fixed capital formation. (c) When a license to reproduce is issued under terms similar to an operational lease, the payments made are treated as payments for services, and (d) When the holder of an original divests itself of part or all of the responsibility to issue and service copies under licenses to use by means of a license to reproduce, this constitutes the sale of the corresponding part of the asset. Having two possible treatments for licenses to reproduce could affect the classification of assets and the borderline between goods and services in trade figures. This should be brought to the attention of BOPCOM, and (e) Canberra II Group to recommend in which cases when payments for a license to use are made over several years represent the acquisition of an asset rather than a series of payments for services and the consequence for recording other transactions. Agrees: 36 Disagrees: 1 Further clarification: 1

Databases In the present SNA recommendation that “large” databases should be treated as fixed capital- the word “large” should be dropped. The AEG tentatively agreed that: all databases were candidates for treatment as fixed capital but requested the Canberra II group (i) to provide a definition of “database” and a definition showing exactly which databases should be included (or excluded) in fixed capital; (ii) to consider the distinction between creation and maintenance and the implication for the inclusion in fixed capital; and (iii) to add precision to the nature of employees to be included in the recommended means of valuing own account databases; and the AEG agreed to include a single category in the classification of assets for “software and databases” with a subsequent disaggregation into “software” and “databases“. Agrees: 39 Disagrees: - Further clarification: 1

Cost of ownership transfers - II Costs of ownership transfer on disposal of an asset should be written off over the period the asset is held. Installation and de-installation costs should be included in costs of ownership transfer if separately invoiced, and in the purchaser’s price of the asset otherwise. Terminal costs should be recorded as capital formation when they occur but the whole cost should be written off as consumption of fixed capital over the life of the asset, analogous to costs of ownership transfer on disposal. When this recommendation on terminal costs cannot be followed for lack of adequate data, these costs should still be recorded as GFCF but written off as CFC in the year of acquisition. Agrees: 38 Disagrees: 3 Further clarification: -

Government owned assets There was strong support in principle for including a return to capital, viewed as an opportunity cost, in the measurement of non-market output. In terms of the range of assets which could be covered, most participants favored including those assets in the generation of government output similar to those assets used in market production. A smaller number favored including roads and other infrastructure assets. Progressively fewer favored including assets such as city parks serving the community at large and land. It was agreed that these range of positions of the AEG should be sent to all countries seeking reactions on both conceptual and practical grounds. Agrees: 20 Reservations: 12 Disagrees: 14

Mineral exploration Change the item “mineral exploration” to “mineral exploration and evaluation” and to draw on the IASB coverage of this item to specify the SNA item, The description of the valuation of this item should be clarified to make clear that it is market production to be valued either at market prices, if purchased, or as the sum of costs plus mark-up, if produced on own-account, Maintain a distinction between mineral exploration and evaluation as a produced asset and the mineral deposit as non-produced assets, The preferred valuation for mineral deposits, market price, is seldom available. In default, the deposit should be valued as the present value of future receipts of resource rent; and In principle, payments by the extractor to the owner of the deposit are property income. However, when the owner is government and the payments are described as taxes, adhering to this principle introduces a discrepancy between taxes in the SNA and in government accounts. This needs further consideration. The question of attribution of the ownership of a deposit extracted by a unit not the legal owner is deferred to a future meeting when leases and licenses will be discussed more generally. Agrees: 35 Reservations: 1 Not clear: 1 Further clarification: 3

Land improvements GFCF of land improvements should be treated like other GFCF and result in a produced asset appearing separately in the balance sheet; The non-produced component of land should be valued at its present unimproved value; Here the value of land cannot be partitioned into an improved and unimproved part, adopt recommendations for land and associated structures as in para for balance sheets and para for rent and rentals; Costs of ownership transfer on land should be recorded as fixed assets and included with land improvements; The boundary between land improvements and structures should be re-examined with a view to moving some items such as major dykes, seawalls, etc. to structures; and The terms “Land Improvements” and “Unimproved Land” are to be reconsidered by the Canberra Group-II. Agrees: 36 Reservations: 1 Disagrees: 3

Holding companies, SPEs, trusts An SPE incorporated in an economic territory other than any of its owners should be treated as a separate institutional unit and resident in its country of incorporation. The AEG requested some indicative guidelines on the identification of SPEs across manuals, although an internationally standard definition of SPE is not available in light of the national diversity. This issue should be coordinated with TFHPSA. Agrees: 36 Not clear: 2 Further clarification: 4

Multiterritory enterprises The treatment of multi-territory enterprises in BPM5 should be extended to all kinds of activities, when formal separation is not possible. Units operating in zones of joint sovereignty or jurisdiction should be split between these in ways that still need to be specified. The broader question of multinational enterprises should be addressed by a task force, taking account of IASB recommendations and work in hand for the next ISI meeting. Agrees: 37 Further clarification: 4

Recognition of branches Physical presence is not required for a branch to be recognized; Being subject to income tax laws should replace paying income tax as an indicator of the existence of a branch; and All criteria should be considered as indicators for a separate branch but not all criteria have to be met. Even if the entity does not have a full set of accounts, if it engages in production, it should be treated as a branch. Agrees: 36

Change of economic ownership as term The AEG agreed to the proposed change in terminology by inserting the word “economic” but requested detailed clarification on the meaning of “economic ownership”. The implications for possible shared ownership of assets and the time at which change in ownership occurs (e.g., signing a contract) still need to be explored. Agrees: 28 Further clarification: 3

Application of accrual principles to debt arrears Time of recording and treatment of arrears should be harmonized in the various macro-economic statistics. No transactions should be imputed when a liability goes into arrears (i.e., the debt continues to be recorded in the original instrument). If the original contract provided for a change in the characteristics of a financial instrument when it goes into arrears, this change should be recorded as a reclassification in the other change in volume of assets account. If the contract is renegotiated, the consequences are to be recorded as new transactions. It was suggested that consideration of these issues should be included in the paper concerning non-performing loans which the IMF has agreed to prepare. Agrees: 44

Predominant centre of economic interest Harmonization of the definition of residence between BPM and SNA is essential; harmonization with other statistical systems (for instance, demographic, immigration and tourism statistics) is desirable but not to the point of compromising the integrity of the system. Where this is not possible, the different definitions need to be documented. The AEG agreed to adopt “predominant centre of economic interest” as a term. The AEG favored the one-year criterion rather than discretionary criteria, with the existing exceptions of students and patients and with clarifications of the situation of ships’ crews. The AEG supported the supplementary presentation on non-permanent workers proposed in the BPM Annotated Outline. Agrees: 47 Disagrees: 1

Thank You