Sector S.11 Non-financial corporations Sector Accounts 19 November 2012 Sector S.11 Non-financial corporations Alan Sebo (S.11) and Maria Piszczek (SPE) Statistics Netherlands, National accounts in practice

Contents 1. Introduction and definition 2. Survey and survey-method Sector Accounts 19 November 2012 Contents 1. Introduction and definition 2. Survey and survey-method Areas of attention Headoffice and topholding Multinationals and Special purpose entity (SPE) Summary S.11 . Statistics Netherlands, National accounts in practice

Introduction S.11 Non-financial corporations Sector Accounts 19 November 2012 Introduction S.11 Non-financial corporations S.12 Financial corporations S.13 Government S.14 Households S.15 Non-profit institutions serving households S. 2 Rest of the world . Statistics Netherlands, National accounts in practice

Definition ● Non-financial corporations: main activity Sector Accounts 19 November 2012 Definition ● Non-financial corporations: main activity Production of goods and non-financial services ● Legal separation between ownership and management ● Marketproducer Statistics Netherlands, National accounts in practice

Definition Private corporations, of which headoffices and holdings Sector Accounts 19 November 2012 Definition Private corporations, of which headoffices and holdings Co-operatives and partnerships recognised as independant legal entities Non-profit institutions or associations serving non-financial corporations Private and public quasi-corporations Statistics Netherlands, National accounts in practice

Definition Public non-financial corporations Sector Accounts 19 November 2012 Definition Public non-financial corporations National private non-financial corporations Foreign controlled non-financial corporations Statistics Netherlands, National accounts in practice

Definition Sectoraccounts: annual Sectoraccounts: quarterly 19 November 2012 Definition Sectoraccounts: annual Sectoraccounts: quarterly Statistics Netherlands, National accounts in practice

Survey on annual base Survey of large corporations Sector Accounts 19 November 2012 Survey on annual base Survey of large corporations Survey of small corporations Statistics Netherlands, National accounts in practice

Survey: quarterly base Sector Accounts 19 November 2012 Survey: quarterly base Statistic Finance of non-financial corporations on quarterly base (kSFO) Statistics Netherlands, National accounts in practice

Survey: quarterly base Sector Accounts 19 November 2012 Survey: quarterly base In near future: starting at first quarter of 2017 - One survey composed by Statistics Netherlands and The Dutch Central Bank: Kwartaalkubus Achieving full consistency between BOP and the ROW account Avoiding differences caused by using different sometimes inconsistent sources Statistics Netherlands, National accounts in practice

Sector Accounts 19 November 2012 Areas of attention Conversion from national (fiscal and commercial) data to ESA-standards Coördination of statistical survey Measuring of certain entities (SPEs) Statistics Netherlands, National accounts in practice

Conversion of national data to ESA-data Sector Accounts 19 November 2012 Conversion of national data to ESA-data ● Annual and quarterly financial reports are based on international of national accounting standards: IFRS, Dutch GAAP, US GAAP ● ESA/SNA transactions do not always match the accounting standards Statistics Netherlands, National accounts in practice

Coördination of statistical survey Sector Accounts 19 November 2012 Coördination of statistical survey Which kind of unit? Exhaustiveness Valuation Statistics Netherlands, National accounts in practice

Sector Accounts 19 November 2012 Headoffices Deconsolidation of holding corporations of enterprise groups into head offices, engaged in the management of the nfc- subsidiaries, and more narrowly defined holding companies For example: Royal Dutch Shell, deconsolidation into three parts: See diagram Dutch NA practice: Although ES95 also demands the deconsolidation of the HO and HC from the group During ESA95 no deconsolidation was made of headoffice and holdings. The level of the Dutch consolidation of an nfc was too high. I will explain it by showing you the RDS diagram Statistics Netherlands, National accounts in practice

Multinationals and SPEs Multinational is an enterprise with activities world wide No borders Different countries = different tax and legal regimes What kind of entities are in the structure of a multinational: Working companies Support activities Financing Different types of holdings companies

Multinationals: entities Sector Accounts 19 November 2012 Multinationals: entities What is their roll in an enterprise? Production Support Other What is the role of NACE class 6420 entity? 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.” Statistics Netherlands, National accounts in practice

Mutinationals: Special purpose entity Sector Accounts 19 November 2012 Mutinationals: Special purpose entity Holding company is an example of Special purpose entity “A special purpose entity (SPE) or vehicle (SPV) is usually a limited company or, a limited partnership, created to fulfill narrow, specific or temporary objectives, to isolate a financial risk, a specific taxation or a regulatory risk. There is no common definition of an SPE” If there is no common definition of SPE how do we recognize them? And why do we want to recognize SPEs? Statistics Netherlands, National accounts in practice

SPEs: characteristics Sector Accounts 19 November 2012 SPEs: characteristics Have no employees No non-financial assets May have little physical presence in their place of registration They are always related to another corporation (subsidiary) Are often resident in a territory other than the territory of residence of the related corporations (foreign parent is not a must!) Are commonly managed by employees of another corporation which may or may not be a related one. The unit pays fees for services rendered to it and in turn charges its parent or other related corporation a fee to cover these costs. Netherlands: SPE is a part of the structure of a non-financial corporation and without further action it will be recognised as such! This is the only production the unit is involved in though it will often incur liabilities on behalf of its owner and will usually receive investment income and holding gains on the assets it holds. Statistics Netherlands, National accounts in practice

Sector Accounts 19 November 2012 SPEs: types and sector They do not belong to one particular sector but may appear in all domestic sectors. Based on activities we recognize SPEs like: Royalty and licence company Operational or financial lease company Invoicing company Holding companies (financial, NACE Rev 2. 6420) All SPEs that are in the structure of a non-financial corporation have to be separately analyzed and allocated to the appropriate sector Statistics Netherlands, National accounts in practice

SPEs in multinational enterprise Sector Accounts 19 November 2012 SPEs in multinational enterprise Netherlands: SPEs of Dutch multinationals like holding companies SPEs of other multinationals The part of multinational enterprise that is located in the Netherlands will be profiled and enterprises (institutional units) will be located in the appropriate sector of the economy. Based on their activities (NACE). Exception: all holdings companies NACE class 6420 ale S.127 (captive financial institutions and money lenders) Statistics Netherlands, National accounts in practice

SPEs in multinational enterprise Royal Dutch Shell: Under the old guidelines Shell was one enterprise: S.11 New guidelines ‘cut’ Shell in at least three enterprises: - Head office S.11 Oil production S.11 Holding company S.127 Result: shift between the sectors BMW/Vodafone/Siemens/HSBC: Are all foreign multinationals with different activities in the Netherlands SPEs are part of their activities here

SPEs in National Accounts In the Netherlands all SPEs are allocated to the financial sector S.127 Gross >80% are holding companies Balances of the SPEs are 1,5 times the balances of non-financial corporations

S127 Captive Financial Institutions and money lenders Assets %S2 Liabilities AF5 (Equity and investment fund shares or units) 1.322.520 97% 1.299.315 99% AF4 (loans) 721.225 435.167 AF3 (debt securities) 65.916 100% 378.967 Total 2.169.736 2.148.330 S11 Non-financial corporations % S2 506.076 57% 814.441 63% 272.438 91% 512.002 30% 1.273.821 1.572.202

SPE: the way forward Carrying on with implementation definition holding company CFI Separating different types of SPEs in the sectors where they belong Introduction other methods to measure the production of the SPEs

Summary Survey and survey-method 2. Areas of attention Sector Accounts 19 November 2012 Summary Survey and survey-method 2. Areas of attention Headoffices and topholdings 4. Summary S.11 Multinationals and Special purpose entity (SPE) Statistics Netherlands, National accounts in practice

Exercise Sector Accounts 19 November 2012 Statistics Netherlands, National accounts in practice