1. 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

2. 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 …

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

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

5. Holding corporations Public Sector Holding Corporations
ESA 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 b covers the case where they can be classified to government

6. 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

7. 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.

8. 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

9. 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

10. 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

11. 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.

12. 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

13. 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

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

15. 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

16. SPEs
ESA 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. …”

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

18. 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 )

19. 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)

20. 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.

21. Market regulatory agencies
If they cannot be separated the principal activity is considered
ESA 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%.

22. 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 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

23. 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.

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