1. Chapter Dividends
GFS / EDP course 2014

2. 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

3. 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

4. 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' (ESA )
Not a fixed or predetermined income.
GFS / EDP course 2014

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. Thank you.