Chapter 11.8 Dividends GFS / EDP course 2014

Overview MGDD reference ESA2010 definition Treatment in national accounts Property income vs. withdrawal of equity ('Super-dividends' and 'smoothing of dividends') Time of recording ('Interim dividends') Reporting of distributions in the EDP questionnaire (Tables 10: 10.1 & 10.2) GFS / EDP course 2014

MGDD dividend rules MGDD chapters: Designed to: Part of ESA2010 III.5 (Dividends, super-dividends, interim dividends) IV.2 (Payments between Central Bank and government) Designed to: Determine the economic nature of payments made by public corporations to shareholders Harmonize treatment of distributions (D.421 & D.422) Avoid recording by governments dividends from loss-making corporations to reduce deficits Part of ESA2010 GFS / EDP course 2014

Dividend – ESA2010 definition ESA2010 code D.421 Part of distributed income of corporations (D.42) 'A form of property income to which owners of shares become entitled as a result of for example placing funds at the disposal of corporations' (ESA2010 4.53) Not a fixed or predetermined income. GFS / EDP course 2014

Income to be distributed (1) ESA2010 para 4.55 Distributable income is calculated as: The balancing item Entrepreneurial income (B.4)* Plus all current transfers receivable Less all current transfers payable Less the adjustment for the change in pension entitlements *Entrepreneurial income (B4) is equal to operating surplus (B2) plus property income receivable (interest/rent/dividends), less property income payable (interest/rent, i.e. excl. dividends) GFS / EDP course 2014

Income to be distributed (2) Does not include the proceeds of sales of assets nor the revaluation gains Includes dividends receivable Does not include dividends payable Includes net interest Proxy: the operating profit in business accounts Not correct categories: EBIT/EBITDA/gross profit/ net profit GFS / EDP course 2014

Dividends vs. withdrawal of equity Super-dividends Payments that exceed the distributable income of the year Funded from: Reserves accumulated more than one year earlier Sale of assets Recorded as withdrawal of equity (F5) “Super-dividend” test to be applied to all sizable and large and irregular (potentially out of proportion to the usual rate of return of corporation) payments Partitioning of distributions (D421 vs. F5). GFS / EDP course 2014

Dividends smoothing A distribution payment (and recording of related government revenue) can be postponed by one year The postponement has to be approved by the General Assembly of the corporation The payment can be made only from a dedicated reserve for distribution (set up exclusively for the purpose) GFS / EDP course 2014

Time of recording of dividends Quoted shares (ESA2010 para 4.57): dividends are to be recorded when the share price starts to be quoted on an ex-dividend basis and not at a price that includes the dividend Unquoted shares (MGDDIII.5.2.2, para 10): dividends are recorded when they are to be paid Cf. ESA95: Dividend are to be recorded at the time they are due to be paid as determined by the corporation (?) Payment to shareholders made before the final annual result of the corporation is known (Interim dividends) Examples: Distribution for a given year in December? Regular monthly payments? GFS / EDP course 2014

Interim dividends To the extent that they can be related to the accrued income of the corporation they are recorded as property income ('super-dividend test for interim dividends', partitioning, if necessary) MGDD: evidence from the corporation's infra-annual accounts (at least for two quarters) that it is making sufficient profits to be able to fund the dividend and that the level of the interim dividend is in line with its distribution policy for prior years. If these conditions are not met, the interim payment is considered a financial advance (F.89; 'other account payable' for S13; ESA2010 para 5.240/5.241), until the annual result is determined (the super-dividend test to be conducted again). GFS / EDP course 2014

Practical implementation Regular monitoring of distributions paid to government: Amounts involved, Super-dividend test, Distributions by central banks, Concept of distributable income used, Aggregated data vs. individual transactions, Outliers/ extraordinary amounts checked, Main contributors identified, Complicated relations possible Special provisions, Dividend payments vs. liquidation of a company or a capital injection carried out in the same accounting period. GFS / EDP course 2014

Reporting distributions in EDP quest. T10 Table 10.1 Block II on Earnings and distributions Data for consolidated general and central government Distributions recorded as non-financial transactions Dividends Withdrawal from income of quasi-corporations Other non-financial transactions Distributions recorded as financial transactions (super-dividends) Included also in the line 13 of block I (Capital injections): 'Disposals of equity acquired by the public sector' (I.I.2.5 & I.I.2.5a) By counterpart: public corporation (line 2, 5-9), NCB Table 10.2 Large operations of distributions (a threshold: 0.01% of GDP) By individual corporation GFS / EDP course 2014

Thank you.