Page 251 - Invited Paper Session (IPS) - Volume 1

IPS152 Ryan N.

Special purpose entities and pass-through equity:
A Micro-Analysis with BEA Data
Ryan Noonan
U.S. Bureau of Economic Analysis

Abstract
Special purpose entities (SPEs), legal entities with little or no employment or
physical presence, play an important role in the global financial system.
Financial transactions and direct investment positions recorded in
macroeconomic statistics often reflect the flow of funds between business
enterprises resident in one country and affiliated SPEs resident elsewhere.
These statistics tend to record large direct investment equity positions in
countries that host relatively more SPEs, irrespective of whether the equity
passes through those countries to be used for production in other countries.
Using firm-level survey data collected by the Bureau of Economic Analysis
(BEA), this paper provides a summary of BEA’s efforts to (i) identify SPEs in U.S.
international economic statistics, (ii) measure the value of pass-through equity
in affiliates, and (iii) understand the relationship between SPEs and pass-
through equity. Preliminary results show that SPEs play a much larger role in
U.S. direct investment abroad than in foreign direct investment in the United
States and that SPEs account for a large amount of pass-through activity.

Keywords
Multinational enterprises, globalization, direct investment

1. Introduction
Special purpose entities (SPEs) play an important role in the global
financial system. Increasingly complex multinational enterprise (MNE)
structures use SPEs, legal entities with no or little employment or physical
presence, to gain the benefits of varied legal and tax systems around the
world. The impact of SPEs on economic statistics is difficult to assess and poses
a challenge to national governments, international organizations, and other
data users seeking to understand the global economy. Financial transactions
and foreign direct investment (FDI) positions recorded in macroeconomic
statistics often include the flow of funds between business enterprises resident
in one country, affiliated SPEs resident elsewhere, and indirectly controlled
affiliates in a third location. Because the purpose of many SPEs is to hold funds
or securities that support production in other countries, these statistics tend
to record large FDI equity positions in countries that host relatively more SPEs,

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