OECD/Eurostat Task Force on Land and other non-financial assets - IPP Advisory Expert Group Luxembourg, 27-29 November 2018 Item 2a

Task Force on Land and other non-financial assets Co-chaired Eurostat/OECD Three stages of the Task Force: Land Inventories Intellectual property products

TOR - intellectual property products Final TOR was approved by NAWG/DMES in 2017 Participants: AT, BE, CZ, DE, DK, FR, HU, IE, IT, LT, LU, NL, NO, PL, SI, SE, UK, CAN, KOR, MEX, USA, ECB Three meetings 19-20 June 2017, Paris 12-13 February 2018, London 10-11 September 2018, Luxembourg

TOR (continued) Subjects covered: AN.1171 Research and development AN.1172 Software and databases AN.1179 Other intellectual property products Location of economic ownership Improve or update existing guidance where needed (e.g. TF reports on software, OECD Handbook on deriving capital measures of IPP) Current stage of work: Draft report being completed with TF member comments

Economic ownership of IPPs - options Review of current guidance Four options considered: With unit(s) that produced the IPP UNECE handbook approach (legal owner as default) Head office of an MNE group With unit(s) that uses the IPP Note: possible different treatment of affiliate and non-affiliate relations

Option 1 – with producer No recognition that there can be sales or purchases of R&D or software services between two institutional units. This in turn means that there should be no exports or imports of these types of services. Different rules depending on whether the units are affiliated or not? only unaffiliated exports and imports of R&D and software services should be recorded? Decision to continue to record it as the economic owner will require imputing revenue streams, and subsequent outward investment flows

Option 2 – UNECE decision tree Records a change in economic ownership when a financial transaction between two institutional units occurs. Stays close to business accounting, and therefore with regard to information that can be obtained from data sources. Can be disconnected from economic reality, for example when IPPs are legally owned by a Special Purpose Entity (SPE). Between unaffiliated units, will usually accurately reflect change in economic ownership. For affiliated units, this approach would imply that economic ownership only changes when an affiliate actually pays for the intellectual property rights (i.e. purchase of the original)

Option 3 – the HQ (or decision-making unit) Assumes that since the parent exercises some degree of control and ultimately receives the benefits and takes the risk, the parent is therefore always deemed the economic owner of the IPP (see De Haan and Haynes) Strong assumption that the parent explicitly pays for all R&D performed outside the country it is domiciled Need for imputations Identifying the actual decision making unit could be statistically challenging Movements of HQ and if this changes the decision making unit

Option 4 – unit using the IPP Assumes that the economic owner of the IPP is any unit that uses the IPP in the production of other goods and services Since IPPs are non-rivalrous and can be used in multiple locations simultaneously this may lead to a partitioning of the IPP asset among the different users. Part of the IPP assets would be allocated to unaffiliated units Economically, this brings together production and the asset needed for that production. But practical difficulties and doubts about allocating IPP assets to low-skill labour activities See ‘formulary apportionment’ approach

Economic ownership of IPPs – other issues SPE cases R&D surveys - breakdown of funding flows government exchange/transfer; Corporate affiliates/non-affiliates)

Follow-up Draft report being completed TF member comments Recommendations to be presented at EU Directors of Macroeconomic Statistics Report contains chapter on further issues to be explored, notably: Economic ownership of IPPs 'Other IPPs' / marketing assets Best practices on data collection