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Main conclusions from the Task Force on Head Offices, Holding Companies and SPEs Frankfurt, 26-28 February 2013


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Title: Main conclusions from the Task Force on Head Offices, Holding Companies and SPEs Frankfurt, 26-28 February 2013

Main conclusions from the Task Force on Head
Offices, Holding Companies and SPEs Frankfurt,
26-28 February 2013
Mandate main issues
  • 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?
    gt important for sector classification
  • Typology and classification of HOs, HCs and
    similar types of units (SPEs) more generally?

General principles
  • 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
  • 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

Institutional Unit (IU) test
  • For all units, the institutional unit test always
  • 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
  • Institutional Unit test for holding-type of
  • 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 gt 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
  • Issue 2 (closed) Head Offices always to be
    considered as institutional units

Distinction between Holding Companies and Head
  • Self-assessment of companies does not provide the
    preferred consistent classification
  • Restrictive approach in distinguishing HCs from
    HOs (according to AEG-recommendation)
  • Indicators for recognising and distinguishing
    holding companies
  • HCs (and HOs) relate to units whose assets mainly
    consist of (controlling levels of) equity or
    other financial relations with subsidiaries gt
    practical criterion more than 50-80 of balance
    sheet total
  • HCs do not engage in management-type of
  • Limited number of employees and amount of wages
    (note type of employees)
  • Limited amount of (extra-company) sales of goods
    and services

Definition of SPEs
  • Benchmark Definition FDI/BPM6
  • A unit is considered as an SPE if it meets the
    following criteria
  • (i)  A legal entity
  • Formally registered with a national authority and
  • 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

Definition of SPEs
  • Definition of SPEs as such not required for the
    compilation of National Accounts gt May however
    be relevant for certain types of analysis
  • Definition according to BDM4/BPM6 more precise
  • Limited to control by non-residents
  • No limitation to financial assets
  • Criterion (iii) may need further clarification,
    especially in relation to reference to
  • 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

Typology of HCs, HOs and similar units
  • 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
  • For each type, the following element were
  • Short description of the function
  • 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
  • Classification to industry
  • Classification to institutional sector

Typology of HCs, HOs and similar units
  • The following types are considered
  • Holding companies
  • Shell companies
  • Units for holding and managing wealth of
    individuals and families
  • Securitisation companies
  • Conduits
  • Royalty and licensing companies
  • Captive leasing companies
  • Factoring and invoicing companies
  • Captive insurance companies
  • SPEs carrying out other financial functions

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
  • 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
  • Head offices are always to be considered as
    separate institutional units.
  • One open isssue Entities owned by non-residents

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
  • 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.

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 non-financial assets in the case of certain
    SPE-type of entities.
  • The calculation of output and value added for
    certain SPE-type of entities.

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

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
  • 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

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
  • 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

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.

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