Global Manufacturing: International
Transactions in IPPs and Goods for
Processing
OECD National Accounts Working Party Meeting
Paris December 2010
Contact: nadim.ahmad@oecd.org
Background
• UNECE lead Publication on:
– The Impact of Globalisation on the National
Accounts.
• Steering Group recognised that further guidanceresearch needed on global manufacturing.
• Two related papers produced for NAWP
– Conceptual: transfers of IPPS within MNEs
– Practical: measuring goods for processing
Trade in IPPs within MNES
• An item for the research agenda/clarification?
• Increasing tendency for MNEs to transfer IPPs to
SPEs low tax jurisdictions.
• Because IPPs are produced assets, this results in
value-added shifting across economies but little
change in GNI.
• Considerable changes to productivity can also
occur.
Trade in IPPs within MNES
• Key issue raised by such transfers however is
whether the accounts should record associated
transfers of value-added, which may only reflect
administrative changes in the MNE.
• Although the asset may have legally changed
hands, the key question is has economic
ownership also changed?
• Important to note that this is not an issue
about payments incorrectly classified as PI
that should be rerouted and where the
revised EBOPS classification should help.
The research question?
• If company A, the producer and sole user of an
IPP, transfers ownership of the IPP, for tax
purposes, to a specially created shell subsidiary
in a low-tax jurisdiction to whom it subsequently
pays annual licence fees for use, and receives
all of the post-tax income from the subsidiary,
does it make sense that gross value-added in A
falls and B rises; despite the fact everything else
has remained equal?
Economic Ownership
• Paragraph 10.5 of the 2008 SNA defines legal and
economic ownership. It says:
• The legal owner of entities such as goods and services,
natural resources, financial assets and liabilities is the
institutional unit entitled in law and sustainable under the
law to claim the benefits associated with the entities. By
contrast, the economic owner of entities such as goods
and services, natural resources, financial assets and
liabilities is the institutional unit entitled to claim the
benefits associated with the use of the entity in question
in the course of an economic activity by virtue of
accepting the associated risks.
Financial leases
• 17.304. A financial lease is one where the lessor
as legal owner of an asset passes the economic
ownership to the lessee who then accepts the
operating risks and receives the economic
benefits from using the asset in a productive
activity…... One indicator of a financial lease is
that it is the responsibility of the economic owner
to provide any necessary repair and
maintenance of the asset. …….
Argument
• Impute a transfer of ownership back to the
parent and reroute payments of services
by the parent to the SPE as property
income flows.
• But not always clear when this should
occur and further guidance is needed. E.g.
the paper illustrates the example of an
author. But becomes more complicated in
cases where the ‘ SPE’ engages in some
transforming production.
Until then....
• Prudent to leave flows as they are for now.
.... But with the proviso that where there
are flows in services there is also an
underlying asset recorded on the balance
sheet.
Goods for Processing
• Not insignificant criticism of 2008 SNA
recommendation; particularly with regards
to IO analysis.
• Paper elaborates on these criticisms and
argues that they are perhaps misplaced;
especially in the context of goods sent for
processing where in the 1993 SNA ‘no’
imputations are made for domestic
processing services, creating asymmetries
.
Goods for Processing
• However, clear that further guidance is
needed, particularly in delineating between
merchanting and goods for processing,
where the margin may be blurred in
practice e.g. where IPPs owned by the
‘merchanter’ or ‘principal’ are
embodied/installed.
• And in providing practical advice for
dealing with customs data.
Going forward
• UNECE led steering group has
recommended that these issues should fall
under the umbrella of further research on
global manufacturing.
• The format and timing of the vehicle to
take forward the work will require further
consideration.