Royalty and Licencing Special Purpose Entities (R&L SPEs) in the Netherlands Bram de Boo & Tom van Venrooij 9th AEG Meeting 8-10 September 2014, Washington DC Starting point of the paper The paper is drafted on request of the ISWGNA (and not the TFGP) – Point of reference is the work done by the MUNA and HC-HO-SPE Task Forces – Highlights some of the specific features encountered in the Netherlands: ‐ The Netherlands have quite a long history of establishing tax agreements with a wide range of countries. ‐ Which has led to the presence of a various kinds of SPEs. Background 2001 national accounts revision: – All SPEs (financing, holding, R&L) classified under ‘other financial institutions’ (ESA 1995, S.123) – Limited data sources (BoP Survey, small SPEs sample), this situation improved in more recent years – Practical solution for GFCF estimations 2010 national accounts revision: – Given new guidance R&L SPEs must be classified under the non-financial corporations (S.11) as they hold nonfinancial assets and are providing (IPP) related services. 3 Sector classification of R&L SPEs – MUNA/HC-HO-SPE: SPEs owning non-financial assets should be classified under S.11, however, ‐ Ownership is not well understood; ‐ SPE’s may own financial and non-financial assets – Statistics Netherland uses the following two criteria: ‐ Ownership follows reported balance sheet positions (legal ownership) ‐ Primary activity follows the dominance of reported (R&L) revenues – Out of 14,000 SPEs identified in the Netherlands, only 20 report substantive R&L imports and exports. 4 Further examination of these 20 suspects leads to the following three categories of SPEs: 1. Those reporting R&L flows but no ownership of IPPs (Google Netherlands Holding). ‐ The company balance sheets do not report IPPs or trademarks or other forms of intangible assets; ‐ R&L inflows equal outflows. 2. Those of which Income from financial assets exceed R&L receipts (Mosaic Global Netherlands); 3. Those reporting IPP ownership and R&L turnover (U2L). Conclusions: Suspected R&L SPEs are predominantly involved in re-allocating R&L from on country to another (i.e. the Double Irish/Bermuda structure). 5 Sub-licences are not reported on these entity’s balance sheets. Solutions taken by Statistics Netherlands – Ultimately all R&L SPE suspects are classified as financial entities, i.e. their activities are considered to be similar to invoicing or holding SPEs; – A net recording is used for ‘re-exports’ of R&L; – Output is measured by the sum of costs; – Requires in some cases a downward adjustment in reported intra-company flows. 6 Suggested points for discussion by the EAG: – Does the AEG support the suggested classification of those SPEs mainly engaged in the re-routing of R&L services as financial corporations? – Does the AEG support the pragmatic approach in which balance sheet information is being considered crucial in determining economic ownership of intellectual property? – Does the recording of significant receipts of royalties, however without the observation any of IPPs or brand names ownership imply that maybe the observed unit ought to be categorised as a R&L SPE? If so, what additional decision rules can be formulated to properly assist national accounts compilers? 7