Desk profiling – Hands-on ESTP Course Desk profiling – Hands-on Profiling Methodology and practical aspects Levente Szekely Eurostat

Business Registers (National Business Registers – NBRs) repository of SUs in every Member State all ENTs contributing to GDP all their LEUs all their Local Units (LOU) all their significant KAUs EGs aside from data identifying these SUs (IDs, names, dates, address, etc.) and the links between them, it contains 5 economic variables, at most: Net Turnover (EGs, ENTs) Total Assets (EGs) No. of employees (ENTs, LOUs) No. of persons employed (EGs, ENTs, LOUs) NACE code (div. (2-digit) level for EGs, class (4-digit) level for ENTs, LOUs)

EuroGroups Register (EGR) limited scope [planned in FRIBS] all multinational EGs contributing to GDP of MSs their constituent ENTs their constituent LEUs part of the EGR data is duplicate of data from National BRs (NBRs), rest is only stored in EGR commercial data sources (BvD, DnB) also feed the EGR – duplicates are removed currently the EGR holds apx. 46.800 EGs and 611.000 LEUs (mainly resident in EU+EFTA, but not only) quality could be improved profiling has shown that there are a number of LEUs missing and/or wrongfully included a number of LEUs have either no Turnover, or no Empl., or no NACE code

Profiling method proposed and developed by the ESSnet on Profiling (MEETS Programme) main objective is to achieve the consistent delineation of all ENTs (consistency both at national and at European level and across the SU spectrum) expected result is a significant improvement in the quality of the EGR and NBRs scoping if SU is fully domestic (resident in one country, only) - NSI free to do whatever it chooses, as long as it satisfies [R 696/1993] and the operational rules otherwise (GEGs): if GEG is large and complex >>> intensive profiling ("Eurostat list") if GEG is smaller or simpler >>> choice of intensive or light profiling if GEG small (only a few LEUs) and simple >>> automatic procedures methodology will gradually be internalized by Eurostat

Profiling – generic multinational group

Rolls Royce in 2013 UK NO EU+EFTA DE IT US Rolls-Royce Marine GEN SE ES EL PL FI NL DK Country CTY Code No. of LEUs   United Kingdom UK 111 United States US 7 Norway NO 17 India IN 4 Germany DE 12 Hong Kong HK 3 Italy IT 6 Brazil BR 2 Denmark DK Canada CA Netherlands NL Australia AU 1 Poland PL China CN Spain ES New Zealand NZ Finland FI South Korea KR Greece EL Turkey TR Luxembourg LU Total rest of world 23 Sweden SE Total EU+EFTA 158

Scoping of profiling (curve of concentration EU+EFTA countries) 1 ENT = 1 LEU (treat as before) Light + Automatic profiling Intensive profiling Sources&Data: EGR frame 2013. LFS for 2013 employment. NA for 2013 output. (entire economy) Total Prv Sect empl: 125,8m (FT+PT; Empl+Self-empl). Total output: 26,8*1012 (tr) EUR.

Concepts widely used in profiling methodology significant – information is significant if its omission or misstatement could influence decisions that are based on it reasonable – rational, logical, fair impracticable – a requirement which cannot be applied after making every reasonable effort to do so control – able to tell other entity what to do (specifics depend significantly on the definition – see in IFRS 10) statistical units (already covered) IFRS – International Financial Reporting Standards (will be covered)

Intensive Profiling method for largest and most complex GEGs (and DEGs) 2 separate roles GDC NSI (NSI of the GEG's Global Decision Center) partnering NSIs (other countries where the GEG has subsidiaries) resource-intensive (especially for the initial (1st time) profiling) requires a lot of preparation (a thorough light (desk) profiling of the case) requires direct contact with GDC of the GEG requires close cooperation of GDC NSI and partnering NSIs and agreement cost/benefit quite clearly positive only if a significant number of EGs (mostly GEGs, but also DEGs) are profiled intensively a number of other economic variables would also be collected through the process Interactive Profiling Tool (IPT) - should help in coordination aspects and in smoothing the work process

Intensive profiling workload distribution per country

Difficult questions in intensive profiling TEN vs ENT TEN = ENT with very few exceptions (see profiling paper decision points) see flowchart in said paper on how to proceed (incl. "special rule") Non-EU GEGs where GDC is outside of EU+EFTA (case no.4 – see pres. on SUs) if there is a "local GDC" in EU+EFTA – it will determine the GDC NSI otherwise, any NSI interested can apply to become GDC NSI if we have a GDC NSI – it can decide between intensive and light profiling (decision should be mainly based on data collectability) otherwise, every NSI free to choose appropriate method to profile its own downstream part of the GEG what to do with HOs, HCs, SPEs follow operational rules and be pragmatic (usually they will be within the consolidation perimeter; if not, you can safely leave them out and treat them as separate ENTs (stand-alone LEUs))

Difficult questions in intensive profiling (continued) NACE allocation and loss of detail (profiling serves the BRs, but all levels should remain and there is a need to pick the right one: KAU/ENT/EG) in case where the reporting period of the GEG is not the same as the calendar year – time-apportioning (linear scale, unless other is reasonably better – e.g. case of retail groups) acquisitions/disposals/mergers/demergers/other significant GEG changes should be solved by the GEG itself (through the annual report and the new numbers) – no need for special continuity rules – it likely triggers a full re-profiling case (new delineations of GENs/TENs, etc.) in case of smaller EGs – the EGR's continuity rules should be applied

Timeframe of profiling process some assessments were exaggerated difficult to give general rule (assessment on a case-by-case basis) obvious relationships (referring to the time it takes): initial profiling > re-profiling intensive profiling > desk profiling > automatic profiling profiling workload increases with size & complexity of group and with number of groups to be profiled (workload distrib. unequal among MSs) more and improved cooperation and IPT should reduce time timing is crucial (when group is able/willing to give data) for profiling to be cost-beneficial: initial intensive profiling for large & complex group should take no more than 9 months  the rest even less, according to relationships above 10 days rule in response from partnering NSIs (as in the Methodology) should be respected

Desk profiling and Automatic procedures for simplest groups only a few LEUs, usually just 2 only a few activities, usually just 2 (productive & ancillary) simplifying assumptions easy way to treat this part of the population (impact low in the aggregate) Desk profiling 1st phase of intensive profiling also stand-alone process for any group in-between the scope for intensive profiling and the automatic treatment no contact with group, use only available information (e.g. annual report, admin data sources, other statistics)

Desk profiling – as part of intensive profiling 1st phase of intensive profiling of large and complex GEGs scope of it is defined by "Eurostat list" main objective is to understand operations of the GEG and delineate group structure (GDC, list of LEUs, links, GENs, TENs) preparatory for direct contact with GDC and for partnering NSIs partnering NSIs have an active role (shaping group structure) aim is to have a structure which best serves the needs of all involved NSIs, while data collection for it from the GDC is possible  it is likely a problem if GEG = GEN is suggested

Desk profiling – as stand-alone process to be used for smaller and simpler EGs (GEGs & DEGs), where group data is available in public sources (annual reports, filed financial statements, registries, databases, other statistics) scope of it is indirectly limited by: "Eurostat list"  all intensive very small groups (less than 10 LEUs, no more than 2 activities)  automatic procedures data collectability should be the most important decisional factor for EGs in-between the two above boundaries: if data not available – reclassify (into intensive or automatic) otherwise – decide how far the delineation can go  no problem to have EG = ENT aim is to collect as many data on the enterprises, as is practicable partnering NSIs have a passive role (confirming group structure)

Admin data sources Deliverable 1.2 of the ESSnet on Admin Data http://www.cros-portal.eu/sites/default/files//SGA%202011_Deliverable_1.2.doc http://essnet.admindata.eu/Document/GetFile?objectId=6016 EGR IS & EGR FATS https://webgate.ec.europa.eu/egr-is/welcome https://webgate.ec.europa.eu/egr/login ESMA – Access to regulated information https://www.esma.europa.eu/page/oams SEC’s EDGAR database (EGs with GDC in the US) https://www.sec.gov/edgar/searchedgar/companysearch.html FSA’s EDINET database (EGs with GDC in Japan) http://disclosure.edinet-fsa.go.jp/EKW0EZ1001.html

Admin data sources (continued) Regulation 223/2009 on European statistics Article 17a “1. In order to reduce the burden on respondents, the NSIs, other national authorities as referred to in Article 4, and the Commission (Eurostat) shall have the right to access and use, promptly and free of charge, all administrative records and to integrate those administrative records with statistics, to the extent necessary for the development, production and dissemination of European statistics, which are determined in the European Statistical Programme in accordance with Article 1.” should you have any issues with obtaining access to admin data sources, let us know ASAP

Confidentiality and public data Reg.223/2009 – Article 25 "Data obtained from sources lawfully available to the public and which remain available to the public according to national legislation shall not be considered confidential for the purpose of dissemination of statistics obtained from those data." refer back to the admin data sources enumerated – most of them are publicly available (free or paid for) following data are by (legal) definition public and therefore not confidential: statute (constitutive doc., incl. amendments), identity of management and those exercising control, amount of capital subscribed, accounting documents (as per Accounting Directive), registered office (incl. changes), winding-up, liquidation of any limited liability company (foreseen as list of LEUs per MS) – Directive 2009/101/EC (LLCs disclosure directive)

Confidentiality and public data (continued) following data are by (legal) definition public and therefore not confidential: data related to branches opened in other MSs as where the company is resident (name, address, activities, name and legal form of company opening the branch, identity of management of branch, closure, winding-up, liquidation, accounting documents) – Directive 89/666/EC (“Eleventh” Council Directive on disclosure requirements for branches) documents related to the cross-border mergers of limited liability companies – Directive 2005/56/EC on cross-border mergers annual reports and other periodic financial reports, reports on payments to governments, major shareholdings, information on issuance, disposal, etc. of financial assets trading on a regulated market – Directive 2004/109/EC (Transparency directive) beneficial ownership (ultimate controlling natural person(s)) including interest (%) in any legal entity and company (including trusts) in every MS – Directive 2015/849/EU (anti-fraud and anti-money-laundering) [latest by mid-2017]

For later questions or comments: ESTAT-Profiling@ec.europa.eu