Specific units Martin Kellaway National Accounts in Practice – Advanced course Luxembourg, 2-11 October 2017 THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

Content ESA 2010 contains guidance on specific units Groups and public sector holding companies Special purpose entities Government debt management agencies Market regulatory agencies acting on behalf of European Community etc …

Hospitals & schools ESA 2010 & MGDD guides on borderline cases:

Corporate groups “Each member of the group is treated as a separate institutional unit if it satisfies the definition of an institutional unit.” (ESA 2010 2.15) “Subsidiaries … deemed to be institutional units … even if they have partially surrendered some of their autonomy of decision to the central body.” (ESA 2010 20.37) So, classify each public enterprise subsidiary individually

Holding corporations Public Sector Holding Corporations ESA 2010 2.14 states that “Head offices and holding companies are institutional units” and guides their classification as S.11 or S.12, or as captive financial institutions (S.127). This is general guidance, however although not mentioned in chapter 2, ESA 2010 20.35b covers the case where they can be classified to government

Holding corporations Public Sector Holding Corporations Chapter 20 uses “Head offices” to mean “holding companies”, but if passive or acts as a government agent for public policy purposes (subsidies to subsidiaries, or privatisation or defeasance) classified to government MGDD further clarifies that HO needs to appoint directors of subsidiaries (not government) to be considered as managing these units

Social security funds Insurance: An activity where entities protect themselves against the negative financial consequences of uncertain events It can be split into social insurance and other Social insurance: Schemes that require or encourage participants to insure against certain social risks that could affect their welfare. Contributions need to be paid to qualify for benefits.

Social security funds Social insurance covers ‘social risks and needs’ Sickness Invalidity and disability Occupational accident or disease Old age; survivors (pensions) Maternity Family Promotion of employment Unemployment Housing Education General neediness

Social security funds Social security is a sub-set of social insurance Two types of social insurance schemes can be distinguished: - employment-related schemes (generally S.12) - social security schemes - government insurance schemes (S.13) Government as employer schemes are included in first type

Social security funds Social security covers: Entire population (or a large subset) obliged to participate Is imposed, controlled and financed by government, i.e., government decides on the contributions and benefits Generally no direct link between contributions and individual risk Can be funded or unfunded Social security units are classified in the social security funds sub-sector

Privatisation agencies Direct agents of government classified as S.13 If “holding company [sic] controlling and managing” subsidiaries, and minor part is privatisation/subsidy channelling; classify outside but re-route the minor part.

Defeasance Units with substantial problematical assets, principal activity resolution of those assets (‘bad banks’). If government has risk, classified in S.13 MGDD IV.5 has further detail

Financial Units engaged in financial activities Public sector units involved in financial activities → usually classified in the sector financial corporations S.12 MGDD states protection funds “for the financial sector” are S.126 when they are separate institutional units

Debt management agencies Government debt management agencies Institutional units acting on behalf of government S.13

SPEs What is a Special Purpose Entity (SPE)? Usually 'brass plate' entities No employees Restricted pre-agreed activity Often raising funds for 'parent' organisation For legal/tax reasons often in tax havens

SPEs ESA 2010 2.27 is very clear ”General government may also set up special units, with characteristics and functions similar to the captive financial institutions and artificial subsidiaries. Such units do not have the power to act independently and are restricted in the range of transactions they can engage in. They do not carry the risks and rewards associated with the assets and liabilities they hold. …”

SPEs Since some SPEs that operate on behalf of government are created abroad, ESA 2010 2.18d specifies that “residence is determined according to the economic territory under whose laws the enterprise [SPE] is incorporated or registered”.

SPEs “… Such units, if they are resident, shall be treated as an integral part of general government and not as separate units. If they are non-resident they shall be treated as separate units. Any transactions carried out by them abroad shall be reflected in corresponding transactions with government. Thus a unit that borrows abroad is then regarded as lending the same amount to general government, and on the same terms, as the original borrowing” (ESA 2010 2.27)

Market regulatory agencies Market regulatory agencies (usually agricultural and acting on behalf of the European Community) → if sole or principal activity is to buy, hold or sell agricultural products or other food → classified in sector S.11 (non-financial corporations)

Market regulatory agencies Agencies that only distribute subsidies classified in sector S.13 (sub-sector central government) If the agency has mixed activities (both distributing subsidies and buying/ selling/ holding agricultural products by intervention): best option is to partition into two separate institutional units, one classified as general government, the other a non-financial corporation.

Market regulatory agencies If they cannot be separated the principal activity is considered ESA 2010 20.54 guides it is classified in: →S.13 (general government) if the cost of the market regulatory activity is less than 80% of the total costs of the institutional unit; →S.11 (non-financial corporation) if the cost incurred in market regulation is more than 80%.

Joint ventures ESA 2010 20.49-20.52 introduces the subject Explains difference between a joint venture (qualifies as institutional unit) and a joint operation (no unit) ESA 2010 20.251 says “Normally, the percentage of ownership will be sufficient to determine control. If each owner owns an equal percentage of the joint venture, the other indicators of control must be considered” In practice, the rationale of a joint venture is that control is shared

Joint ventures ESA 2010 20.319-320 give further guidance A non-market joint venture between private and public sectors will be classified as S.13 general government “since its behaviour is that of a government unit”. A market joint venture between private and public sectors, with joint control, will be partitioned half to private sector and half to public corporations.

Supranational authorities Classified as S.2 (rest of the world) no matter their residence