Main conclusions from the
Task Force on Head Offices,
Holding Companies and
SPEs
Frankfurt, 26-28 February 2013
Eurostat
Mandate: main issues
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How to interpret the criteria for distinguishing
institutional units, especially in relation to Head
Offices (HOs) and Holding Companies (HCs)?
How to distinguish between HOs and HCs?
=> important for sector classification
Typology and classification of HOs, HCs and
similar types of units (SPEs) more generally?
Eurostat
General principles
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Need for a consistent interpretation in relevant statistical standards
(SNA 2008, ESA 2010, BPM6, BDM4, etc.)
Need for a consistent treatment in Business Registers, business
statistics and macro-economic statistics (National Accounts,
Balance of Payments, FDI)
Need to arrive at internationally comparable recording
Desire to arrive at some consistency over time in the classification
of units
Further guidance not necessary/possible to cover all cases; need
to arrive at more detailed guidance that covers 80-90% of the
cases
Need to have relatively simple criteria and/or methods based on
(quickly) available and accessible information
Eurostat
Institutional Unit (IU) test
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For all units, the institutional unit test always applies
A resident unit owned by non-resident parent(s), without any links to other resident
units, is to be considered as an institutional unit by convention
Institutional Unit test for holding-type of units:
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No autonomy of decision is assumed, if the following criteria are met:
Parent (first known counterpart) determines the behaviour including day to day
business
No employees and wages => clear evidence of a unit being an “auto-pilot”
Two questions:
Wholly owned by one resident unit?
Having multiple parents/subsidiaries is a sufficient qualification for a unit to be
considered as an institutional unit?
Issue 1 (open): Holding with one resident subsidiary
Issue 2 (closed): Head Offices always to be considered as institutional units
Eurostat
Distinction between Holding Companies
and Head Offices
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Self-assessment of companies does not provide the preferred consistent
classification
Restrictive approach in distinguishing HCs from HOs (according to AEGrecommendation)
Indicators for recognising and distinguishing holding companies:
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HCs (and HOs) relate to units whose assets mainly consist of
(controlling levels of) equity or other financial relations with
subsidiaries => practical criterion: more than 50-80% of balance
sheet total
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HCs do not engage in management-type of activities
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Limited number of employees and amount of wages (note: type
of employees)
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Limited amount of (extra-company) sales of goods and services
Eurostat
Definition of SPEs
Benchmark Definition FDI/BPM6:
• A unit is considered as an SPE if it meets the following criteria:
(i) A legal entity
a) Formally registered with a national authority and
b) Subject to fiscal and other legal obligations of the economy in
which it is resident
(ii) Ultimately controlled by a non-resident parent, directly or indirectly
(iii) Has no or few employees, little or no production in the host economy
and little or no physical presence
(iv) Almost all its assets and liabilities represent investments in or from
other countries
(v) Its core business consist of group financing or holding activities
(channelling of funds) - Managing and directing local operations
plays only a minor role
Eurostat
Definition of SPEs
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Definition of SPEs as such not required for the compilation of National
Accounts => May however be relevant for certain types of analysis
Definition according to BDM4/BPM6 more precise:
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Limited to control by non-residents
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No limitation to financial assets
Criterion (iii) may need further clarification, especially in relation to
reference to “production”
Criterion (v) may be interpreted rather restrictively, as it seems to refer to
financial type of activities; furthermore, could the second part of point (v)
be removed
Issue of economic ownership of non-financial assets: may be quite
different from legal ownership (e.g. sale and lease back constructions)
Eurostat
Typology of HCs, HOs and similar
units
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It was agreed to include a section describing a maximum of 8-10 main
categories of SPE-type entities, not restricted to SPEs owned by nonresidents
For each type, the following element were included:
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Short description of the function
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Specific issues related to criteria to be used in the case of the
institutional unit test and/or criteria to be used for distinguishing
them from other types of SPEs
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Classification to industry
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Classification to institutional sector
Eurostat
Typology of HCs, HOs and similar
units
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The following types are considered:
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Holding companies
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Shell companies
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Units for holding and managing wealth of individuals and
families
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Securitisation companies
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Conduits
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Royalty and licensing companies
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Captive leasing companies
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Factoring and invoicing companies
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Captive insurance companies
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SPEs carrying out other financial functions
Eurostat
Conclusions (1)
• On institutional independence
• The standard criteria for an institutional unit should always be
applied – thus also for HOs and HC and similar SPE-type of
entities.
• Entities owned by non-residents – with no resident subsidiaries
– are always institutional units.
• For entities wholly owned by a single resident unit, ”no
employees and no compensation of employees” is a sufficient
criterion to reject it as an institutional unit.
• The Task Force tentatively agreed that having multiple
parents/shareholders is a sufficient qualification for a unit
being an institutional unit.
• Head offices are always to be considered as separate
institutional units.
• One open isssue: Entities owned by non-residents but…
Eurostat
Conclusions (2)
• On the identification of HOs and HCs
• For an entity to be considered as either a HO or a HC, at
least 50% of its assets must consist of equity and other
financial assets vis-à-vis its subsidiaries.
• Employment thresholds for the delineation between HOs
and HCs should be determined with respect to national
circumstances. In particular, national legislative
requirements for the number of employees of HCs should
be taken into account. In general, employment of three or
more persons is a first indicator for a unit being a head
office.
Eurostat
Conclusions (3)
• On SPE, three open issues
• The possibility of an SPE-type of entity having non-financial
assets.
• A further clarification on the economic ownership of nonfinancial assets in the case of certain SPE-type of entities.
• The calculation of output and value added for certain SPEtype of entities.
Eurostat
Open issue 1
• Concerning entities with non-resident parents (see SNA 2008,
para. 4.61) it was agreed that units with non-resident parent(s)
that in addition have no links to resident units are institutional
units by convention.
• But not agreement for the treatment of foreign owned entities
that own one or more resident subsidiaries was not agreed.
• Some Task Force members argued that in the case of a purely
passive holding without employees having an exclusive
relationship with one resident subsidiary, one should allow for a
downstream consolidation into the subsidiary.
• Others argued that the restriction “no links to resident units” was
inconsistent with, amongst others, para. 4.61 of the 2008 SNA.
They also argued that the international standards do not foresee
the possibility of consolidating or combining a “parent” into/with
its subsidiary
Eurostat
Open issue 2
• There was some discussion on the structure of the balance sheets
of SPEs. According to para. 4.56 of the 2008 SNA, “… [special
purpose entities] often have no employees and no non-financial
assets …”
• In other guides and manuals, there is no such restriction to the
holding of financial assets.
• In this respect, the Guide on the Impact of Globalization on
National Accounts notes that entities that hold intangible assets
such as intellectual property rights can be qualified as SPEs
because of their characteristics, such as no “physical presence”.
• The Task Force recommends dropping the restriction to financial
assets only. As this may be considered as a further clarification or
interpretation of the 2008 SNA, the guidance of the Advisory
Expert Group is sought on this issue.
Eurostat
Open issue 3
• There was also discussion on whether or not an SPE (or similar
type of entity) holding non-financial assets is the actual economic
owner of the relevant assets, and whether or not the assets
should be rerouted to its “original” owner that actually gets all the
related risks and rewards.
• Although there seems to be an economic rationale for imputing
transactions and positions to (better) reflect the economic
ownership of the assets, it would without any doubt lead to a
considerable number of imputations.
• The Task Force did not have the time and expertise to go through
this issue in more detail.
Eurostat
Open issue 4
• Some SPEs do engage in financial transactions on the market. As
such, they should be classified under sector S125. Here, market
values can be observed and the measurement of output and value
added following commonly applied approaches seems to be
feasible.
• Some SPEs may be engaged in holding non-financial assets that
provide services in the form of rents, royalties and licences.
Assuming no imputations related to economic ownership are
made, output can be estimated on the basis of the relevant
income.
Eurostat
Open issue 4
• But in quite a number of cases the SPEs merely acts as a link in
the transit of royalty and license fees on behalf of the parent
company. In these cases, the SPE does not seem to be the owner
of the intellectual property products, neither the legal owner nor
the economic owner, and a “net” approach, taking the difference
of receipts and payments, for the calculation of output seems to
be the appropriate approach.
• For the calculation of output and value added the guidance of the
Advisory Expert Group is sought, especially whether the above
rules of thumb does not provide enough clarity
Eurostat
THANK YOU FOR YOUR
ATTENTION¡
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