2. Concepts definitions and EGR's user needs ESTP Course on the EGR 3-4-5 December 2014 2. Concepts definitions and EGR's user needs

Content EGR concepts and definitions EGR users What EGR can offer to users

EGR concepts With the term "EGR" we indicate several concepts: A PROJECT: by EGR project we refer to the part of the ESBRs project for the realisation of the Vision 2020 THE ESSNET: ESSnets EGR worked with Eurostat A BUSINESS PROCESS: the EGR process includes concepts, methodology, and an organisation – network with MS AN INFORMATION SYSTEM: the EGR is made of four applications: EGR Core, EGR IS, EGR FATS and EGR IM – at Eurostat A NETWORK: the data exchanges between the central EGR and the NSIs, its rules, data structure, timing, guidelines AN OUTPUT: the EGR population frame (a file with MNEs and their constituent subsidiaries, characteristics, etc.) delivered to users

EGR concepts in versions 1 and 2 There are two versions of the EGR business process: Version 1.0 (current version) Version 2.0 (under development) The two versions differ in 4 main aspects: 1. Sources Version 1.0: 2 Commercial Data Providers checked by the NSIs Version 2.0: NSIs are authentic sources and CDP supplement only 2. Data flows between central EGR and NSIs Version 1.0: 4 data exchanges, starting from Eurostat side Version 2.0: 2 data exchanges, starting from the NSIs 3. Access to data from MS Version 1.0: only off line and batch processing Version 2.0: off line and on line, batch and on line processing 4. Coverage Version 1.0: largest 5000, then enlarged to 10000 MNEs Version 2.0: complete coverage

Poster: v2.0 in details

EGR version 2.0 Complete process divided into three main parts: INPUT DOMAIN THROUGHPUT DOMAIN OUTPUT DOMAIN The course structure follows this structure during the three days

EGR information System ORACLE DB Development done by an external IT company The specifications for the development are created by the ESSnet EGR The administration is done by Eurostat (G1 – Section BR) It contains confidential data It is located on a secure server For allowing the on line access, a special secure environment has been created

Main design principles in EGR 2.0 Authenticity of NSIs data Unique system of identification for all legal units Record based updating Live register / Master frames

Concept of authentic store Is the place where the original and latest version of a data element or a set of data elements is stored. Updating of data takes first place in the authentic store and then elsewhere. The data of authentic store are used as the 'truth‘ without additional investigation. Data defined/validated by an authentic store cannot be 'overwritten' by another source. Obligation on request to justify the data provided A 'validator' has the right to question the 'truth'

Implementation in EGR 2.0 (1) For the legal units resident in the EU the EGR shall be an exact copy of the national business registers NSIs have the possibility to send data from their national groups register on the truncated resident groups to the central EGR as ‘authentic’ and therefore that it should not be overwritten by other sources Some minimum quality requirement must be satisfied, such as comprehensiveness, accuracy, reliability, timeliness, punctuality and comparability

Implementation in EGR 2.0 (2) NSI can choose their role in the EGR: Authentic store NSIs (currently 22) Cover the complete population of resident incorporated legal units Partly authentic store NSIs (10) Cover only the known population of resident legal units belonging to multinational groups Other units can be added by commercial sources if needed during the treatment of the relationships

Unique identification EGR consolidates the several truncated groups received form the NSI authentic stores For the consolidation a unique identifier (LEID) is absolutely necessary for all legal units The EGR unique identifier is called LEID and it is issued by the EGR Identification Service The LEID has to be used for all data exchanges to and from the EGR and the national registers EGR Identification Service is an on line application integrated with the EGR core system

Record based date It means that the reference date is available per record and not per characteristic Rationale: NSIs send complete records as authentic store to the EGR. If an updated is necessary, even if per one single characteristics, only the NSI is responsible to send the updated record. Implications: the NSI is the sole responsible to ensure the consistency of all the characteristics at the reference date.

Live register / Master frames With EGR 2.0 we aim to have a live register that can be updated on line and continuously by NSI directly in the conolidation area, meaning before the frames are extracted. Two parellel years are accessible. Each year at a certain agreed date Master frames are extracted. They constitue the Master frame for coordinating statistical sampling and production. 'Frame methodology' is the set of rules and procedures agreed with the statistical producers defining the timetable and the quality required for the Master frames.

What are we aiming with the EGR? coordinated frame populations to derive consistent statistical output with an improved quality in measuring global activities of EU enterprises that are part of large MNEs, by delineating the correct statistical units

Information offered by the EGR Users of the EGR can see: Structure of control with all affiliates Ultimate Controlling Unit for O-I FATS Statistical data from other NSIs on the subsidiaries in EU NACE and employment of the groups and subsidiaries Shareholdings of at least 10% for FDI compilers Several identification numbers to merge the EGR subsidiaries with other available archives and registers

End use of the EGR FATS users intefrace – On line presentation EGR can be used in a coordinated manner by all EU statistical authorities for: Identifying survey populations (i.e. Inward and Outward FATS) Supporting EU sampling schemes Linking to other available data sources (admin. and/or statistical) Coordinating classifications (NACE, country of UCI, etc.) Tracking major events (Mergers, Acquisition, etc.) Grossing up … FATS users intefrace – On line presentation

Users of EGR Main users considered at the moment are: Inward FATS Outward FATS FDI In future: Foreign trade Global Value Chain International sourcing Etc…

FATS Recommendation Manual Inward FATS I and O FATS statistics are produced according to: Regulation (EC) No 716/2007 and the FATS Recommendation Manual Inward FATS statistics are produced by National Statistical Institutes Outward FATS statistics are produced either by National Statistical Institutes or by National Central Banks.

Inward FATS Foreign Affiliates Statistics (FATS) measure the commercial presence through affiliates in foreign markets. Inward FATS describe the overall activity of foreign affiliates resident in the compiling economy Inward FATS data are annual From 2008 data on NACE Rev. 2 is used and sections B to N are covered Data on section K of NACE Rev. 2 (financial sector) is provided only for a limited number of variables and not included in the Total business activity (BUS) aggregates. 

Inward FATS Inward FATS deliver information on the following subset of SBS characteristics of foreign affiliates: 11110 Number of enterprises (expressed in units) 12110 Turnover (millions of €) 12120 Production value (m€) 12150 Value added at factor cost (m€) 13110 Total purchases of goods and services (m€) 13120 Purchases of goods and services purchased for resale in the same condition as received (m€) 13310 Personnel costs (m€) 15110 Gross investment in tangible goods (m€) 16110 Number of persons employed (units) 16130 Number of employees on a voluntary basis or if 16110 is not available (units) 22110 Total intra-mural R&D expenditure (from 2003 onwards, biennial, m€) 22120 Total number of R&D personnel (from 2003 onwards, biennial, m€) Data refers to the calendar year, mostly corresponds to the fiscal year

Inward FATS UCI and misclassification errors: The main difficulty is the precise identification of the ultimate controlling institutional unit (UCI) Wrong attribution of UCI leads to a misclassification problem UCI is the "ultimate controlling institutional unit" FATS considers all affiliates that are controlled by a single investor or by a group of associated investors acting in concert with more than 50% of ordinary shares or voting power Other criteria may also be relevant for defining foreign control, (multiple minority ownership, joint ventures, and qualitative assessment determining control)

Inward FATS UCI and misclassification errors: The UCI provides the geographical breakdown of inward FATS data UCI concept compulsory from 2007 The concept of control is the same of ESA and the same as applied by the EGR for creating the group structures Some Member States take use direct and indirect links of control while others use only direct parent information Sometimes the UCI and the Global group head identified by the EGR may differ (special cases for UCI) Some rules, especially on natural person, still differ among MS and can create different vision on the groups

Outward FATS Outward FATS describe the activity of foreign affiliates abroad controlled by the compiling country The population of statistical units is composed of all foreign affiliates that are controlled by an institutional unit resident in the compiling country The population of reporting units contains all resident institutional units that control affiliates abroad The population of statistical units does not equal the population of reporting units in outward FATS. Outward FATS data are annual From 2008 data on NACE Rev. 2 is used and sections B to N are covered

Outward FATS Mandatory characteristics: Number of enterprises (ENT) Turnover (TUR) Number of persons employed (EMP) Voluntary characteristics: Value added at factor costs (VAC) Gross investments in tangible goods (GIT) Personnel costs (PEC) Data refers to the calendar year The control should be determined at the end of the reference year.

Outward FATS In outward FATS, data compilers are more frequently faced to misclassification and coverage errors. Misclassification errors may originate from consolidated data reporting (data for several affiliates reported as data for one single affiliate) or incorrect allocation of the foreign affiliates by partner or economic activity Coverage errors may result from the use of cut-off thresholds, not-covered branches, natural persons or indirectly controlled affiliates or from the time lag in updating registers. To reduce errors MS use information from annual reports of the companies, administrative data and direct contact with the reporting units

I – O FATS According to the FATS-Regulation, data providers send the data within 20 months of the end of the reference year. In future it is foreseen to shorten the data delivery to T + 18 Data are published by Eurostat around two years after the end of the reference year Revision on the data and frame error correction is done in some MS

EGR as frame population for FATS Definition: a frame population is a statistical datafile containing all the statistical units that are in scope for a certain statistical activity Different from a Target population EGR shall coordinate the populations for I and O FATS In one country Among different countries EGR shall assign the UCIs for all I and O FATS and for all MS EGR shall coordinate the quality activity of several actors EGR shall deliver population frames to start surveys EGR shall deliver population frames to produce final statistics EGR timing and reference year whill be based on users' needs

Foreign direct investment (FDI) Produced by National Central Banks according to Regulation (EC) No 184/2005 on Community statistics concerning balance of payments, international trade in services and foreign direct investment The methodological framework used is that of the OECD benchmark definition of foreign direct investment - third edition, which provides a detailed operational definition that is fully consistent with the IMF’s balance of payments manual (fifth edition).

Foreign direct investment (FDI) Foreign direct investment (FDI) is the category of international investment made by an entity resident in one economy (direct investor) to acquire a lasting interest in an enterprise operating in another economy (direct investment enterprise) The lasting interest exists if the direct investor acquires at least 10% of the voting power of the direct investment enterprise

Foreign direct investment (FDI) FDI statistics record: The initial direct investment and all subsequent investment made by the direct investor in the form of: equity capital loans reinvesting earnings Investment made through other affiliated enterprises of the same group of the direct investor should also be recorded according to the international methodology

Foreign direct investment (FDI) FDI statistics record separately: 1) Inward FDI (or FDI in the reporting economy), namely investment by foreigners in enterprises resident in the reporting economy 2) Outward FDI (or FDI abroad), namely investment by residents entities in affiliated enterprises abroad

Foreign direct investment (FDI) The statistical population is composed of: For Outward FDI: all direct investors For Inward FDI: all direct investment enterprises

Foreign direct investment (FDI) Foreign direct investor: A direct investor is an individual, an incorporated or unincorporated public or private enterprise, a government, a group of related individuals, or a group of related incorporated and/or unincorporated enterprises which have a direct investment enterprise operating in a country other than the country or countries of residence of the direct investor or investors.

Foreign direct investment (FDI) Direct investment enterprise A direct investment enterprise is an enterprise in which a foreign investor owns 10% or more of voting power or has an effective voice in the management of the enterprise Subsidiary: ownership > 50% or control. i) the foreign investor controls directly or indirectly (through another subsidiary) more than 50% of the shareholders' voting power, or ii) the foreign investor has anyway control over the enterprise, i.e. the right to appoint or remove a majority of the members of this enterprise's administrative, management or supervisory body. Associate: ownership between 10% and 50% and no control on enterprise. Branch: wholly or jointly owned unincorporated enterprise

Foreign direct investment (FDI) Indirect participation in direct investment enterprises all enterprises in which the direct investor has directly or indirectly a direct investment interest: a) indirectly participated enterprises should be included in FDI statistics in proportion to the indirect percent of equity held by the direct investor. The indirect percent of equity is obtained by multiplying the direct percent of equity held at each step of the chain linking the direct investor and the direct investment enterprise b) direct investment flows, income and stocks within a group of enterprises should be included in FDI statistics without consideration of the percent of equity directly held by these enterprises in each other

Foreign direct investment (FDI) FDI indicators: 1) FDI flows denote the new investment made during the period 2) FDI stocks (or positions) denote the value of the investment at the end of the period FDI stocks are recorded in the International Investment Position. Outward FDI stocks are recorded as assets of the reporting economy, Inward FDI stocks as liabilities 3) FDI income is the income accruing to direct investors during the period FDI income is recorded in the current account of the Balance of Payments 4) FDI intensity Average of inward and outward FDI flows divided by GDP

Foreign direct investment (FDI) Classification of FDI: By economic activity, the reference classification is NACE Rev. 1.1 (up to reference year 2009) and the NACE Rev.2 (from reference year 2008). By partner country or region Reference period: FDI stocks refer to the end of the recording period Flows and income refer to the recording period All data are annual

Thanks for your attention Questions? enrica.morganti@ec.europa.eu