Ancillary units UNSD/NA/MR1 UN STATISTICS DIVISION Economic Statistics Branch National Accounts Section

Current SNA93: Definition of ancillary units/activities A productive activity undertaken with the sole purpose of producing one or more common type of service for intermediate consumption within the same enterprise is defined as an ancillary activity. These are supporting activities undertaken within an enterprise in order to create conditions within which the principal or secondary activities can be carried out. Examples of ancillary activities are: headquarter activity, keeping records, communication, purchasing of materials and equipment, personnel management, warehousing etc.

Current SNA93: Definition of ancillary corporations Ancillary corporation is defined as a subsidiary corporation, wholly owned by a parent corporation, whose productive activities are strictly confined to providing services to the parent corporation or other corporations owned by the same parent company. Most special purpose vehicles (SPVs) set up to serve a parent corporation are ancillary corporations according to the SNA principle.

Current SNA93 treatment of ancillary units/activities Output of ancillary activity is not recognized by the SNA. Its costs must be allocated to the main activities (i.e. establishments) it serves. Ancillary corporation is treated similar to an ancillary activity. Its output is not recognized by the SNA, its costs must be aggregated to main activities of the parent company it serves. Practically allocation of ancillary costs to different activities which it serves is rarely done. These costs are commonly allocated to the principal establishment in an enterprise. This distorts the costs and value added of that establishment. This also distorts the data on the region where that establishment is located.

Problem with SNA93 Output, value added of ancillary units are not recognized at regional levels by the system, but are added to the parent company which may be in another region and therefore it is not possible to compile properly regional GDP. Ancillary activity is not classified according to its own kind of activity but by the activity of the principal activity it serves. New York City may be shown as producing oil or automobiles simply because it has headquarters of oil and automobile companies. Difficult to get information for realistic assessment of the contribution and the role of ancillary activities in the economy.

Proposal change by Experts Group on Industrial Statistics Ancillary units at well specified location and with separate cost accounts should be treated as producer units, i.e. establishments. Ancillary units should be classified by their own activities. Output = Intermediate consumption + compensation of employees + consumption of fixed capital + imputed operating surplus (if necessary).

Allocation of ancillary costs Establishment 1Establishment 2Headquarter IC 1 = 100IC 2 = 30IC(H)= 30 IVA 1 = 100IVA 2 = 70Other part of VA(H)= 15 Output 1 = 200Output 2 = 100

Current SNA93 treatment GDP = 80+60=140 Establishment 1Establishment 2 Inputs of head quarter are allocated =IC = 120 Inputs of head quarter are allocated =IC = 40 VA 1 = 80VA 2 = 60 Output 1 = 200Output 2 = 100

New proposed treatment keeps GDP the same GDP = =140 Establishment 1 Establishment 2 Headquarter 3 IC 1 =100IC 2 = 30 Output of 3 is imputed as IC 2/3 output /3 output IC 3 = 30 Value addedVA 1 = 70VA 2 = 55VA 3 =15 OutputOutput 1 = 200Output 2 = 100Output 3 (imputed) = 45

Change in treatment of ancillary units helps regional accounts Ancillary units such as headquarters, warehousing, etc. located at locations different from the main establishment location will be treated as establishments. Given all establishments are used as statistical units for data collection, then production data can be compiled for specific location (or region). To set up gross regional product (GRP) or value added, it is necessary to do some adjustments at the national (or macro) level as data are not available at regional levels: To allocate data of some national activities such as public administration, army, security, national companies in banking, insurance, telecommunication, postal services and transportation, etc. to the region using some well-defined indicators. To allocate fisim and insurance services to the regional economies. To reconcile regional data using regional price indexes with national data using weighted national price indexes.

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