Peter van de Ven Head of National Accounts, OECD

1. The distinction and links between balance sheets of non-financial corporations in the sna and business accounting Peter van de Ven Head of National Accounts, OECD NBS-OECD Workshop on National Accounts Guangzhou, December 2 – 5, 2014

2. Introduction • Main data sources for compiling institutional sector accounts for corporations • Business Accounting Standards • Similarities and differences between SNA and business/tax accounting • Multinational enterprises

3. Data sources for corporations • Data sources may of course differ across countries • Supply and Use Tables: specific production statistics • For institutional sector accounts, data are needed from profit and loss accounts and balance sheets: • Specific surveys • General Statistics on Income and Finance • Specific statistics or information for certain groups of companies (e.g. hospitals, public corporations, etc.) • FDI and FATS • Annual reports of companies • More and more data used from administrative sources, e.g. tax data or registers with data from annual reports • Often combination of various sources

4. Business Accounting Standards • Sources usually based on business accounting standards and/or tax rules • Business Accounting Standards published by International Accounting Standards Board (IASB) gaining growing importance => International Financial Reporting Standards (IFRS): http://www.ifrs.org/IFRSs/Pages/IFRS.aspx(also available in Chinese) • Many countries (intend to) apply the relevant standards in law or otherwise, especially for larger corporations • Note: Development of International Public Sector Accounting Standards (IPSAS), but not yet that much applied

5. Similarities with SNA 2008 • Main principles the same as the SNA: • Economic substance takes precedence over legal form • Conceptually preferred approach versus practical possibilities • Both based on double entry bookkeeping: consistency between balance of non-financial transactions and balance of financial transactions (budget identity) => Jane Gleeson – White: “Double Entry” • Both based on accrual accounting, not cash accounting • Breakdowns of transactions and balance sheet positions rather similar

6. Main differences with SNA 2008 (1) • Definition of income: SNA 2008 excludes holding gains/losses from income, it also excludes capital transfers and other changes in the volume of assets from income • Provisions and contingent liabilities not recognised in the SNA 2008 • Asset boundary of the SNA 2008 is larger than usual practice in business accounting: SNA 2008 treats much more expenditures as investments, adding to the capital stock of non-financial assets, e.g. various intangible assets • Service lives of assets in business accounting usually based on tax rules

7. Main differences with SNA 2008 (2) • Valuation principles: • Business accounting: “historic valuation” of non-financial assets (assets valued at the original purchase price) • SNA 2008: “current replacement costs” or “opportunity costs” • Under inflationary conditions: • Operating surplus/ profits cf. SNA < Operating surplus cf. business accounting: withdrawals from inventories and depreciation in business accounting based on lower prices (note: service lives!) • Value of non-financial assets will also be smaller, also because service lives according to tax rules then to be shorter

8. Multinational Enterprises • For multinational enterprises (MNEs), data according to IFRS primarily available in a consolidated form • For purposes of taxes and also statistics, data are needed for the national part of the MNE => however, recording also influenced by IFRS and other business accounting standards • Additional difference between SNA and business accounting: reinvested earnings on foreign direct investment: • Undistributed profits of subsidiaries recorded as distributed income • In financial accounts: the relevant income is recorded as reinvestment in equity • Savings and net worth of subsidiaries basically equal to zero

9. Multinational Enterprises: allocation of Value Added to countries • Allocation of Value Added and profits by MNEs mainly driven by minimisation of global tax burden through: • Transfer pricing • Channelling funds through SPEs • Optimisation of recording economic ownership and use of IPPs • Optimisation of the organisation of global production arrangements • Economic rationale, but it hampers analysis and policy from an economic substance point of view • Lots of discussion, also in the area of national accounts => main conclusion: impossible to change the recording and impute alternative transactions • Note: may affect GDP, but does not have an impact on GNI (as a consequence of treatment reinvested earnings)

10. Multinational Enterprises: allocation of Value Added to countries Example of profit shifting affecting value added (and GDP), not affecting primary income (and GNI)

11. Multinational Enterprises: need for subsectoring • Breakdown of corporations by ownership/control: • Public corporations • National private corporations • Foreign controlled corporations • Can substantially add to the understanding of the behaviour of corporations and its impact on the domestic economy

12. Multinational Enterprises: more information More information, also on recording of global value chains, goods for processing, merchanting, etc., can be found at the following links: • “The Impact of Globalization on National Accounts”: http://www.unece.org/fileadmin/DAM/stats/publications/Guide_on_Impact_of_globalization_on_national_accounts__web_.pdf • “Task Force on Global Production”: http://www.unece.org/statistics/about-us/statstos/task-force-on-global-production.html

13. Thank you for your attention!