Bram de Boo & Tom van Venrooij

1. 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

2. 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.

3. 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 non-financial assets and are providing (IPP) related services.

4. 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.

5. Further examination of these 20 suspects leads to the following three categories of SPEs: • 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. • Those of which Income from financial assets exceed R&L receipts (Mosaic Global Netherlands); • 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). Sub-licences are not reported on these entity’s balance sheets.

6. 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.

7. 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?