Page 261 - Invited Paper Session (IPS) - Volume 1

IPS129 Claudia V. et al.
This paper outlines the agreed international definition of an SPE,
summarises key findings of the TFSPE, and presents experimental estimates of
UK inward FDI attributable to resident SPEs. The paper also outlines
considerations and challenges faced when producing these estimates, which
the author hopes will inform future discussions and work.

2. Methodology
SPE background and concepts
FDI refers to cross-border investment made by investors with the objective
of establishing a lasting interest in an enterprise in an economy other than
that of the investor.
An increasing globalised world with reduced capital controls, fewer
barriers to trade and investment, deregulation of markets and technological
progress have resulted in multinational enterprises becoming increasing
important for national and international economic stability and growth. The
increasing importance of multinationals have also led to many governments
adopting policies to attract direct investment into their economies for benefits
such as increasing productive capacity, job creation, knowledge and
technological transfers, and productivity.
Growth in multinationals’ international integration has also resulted in a
rapid increase in the complexity of their corporate structures in terms of how
they control investments, manage their risks, and exploit country specific
advantages. Country specific advantages may be economic – such as an
educated workforce or developed infrastructure – or financial, such as efficient
capital markets or preferable tax regimes.
Managing these increasingly complex corporate structures and
asymmetric financial, regulatory and tax regimes has led an increase in the use
of special purpose entities – legal entities set up with the specific purpose of
financial investments pass-through or holding overseas assets and liabilities
on behalf of a wider international group. These entities have little to no
physical presence in the economy they are based.
International manuals including the European System of Accounts, 2010;
the OECD’s Benchmark Definition of Foreign Direct Investment, fourth edition;
and the IMF’s Balance of Payments and International Investment Position
Manual, sixth edition all include definitions on SPEs and recommend national
statistical institutes separately identify FDI transactions and positions
undertaken by resident SPEs in their statistics. The motive behind such
recommendations is clear when FDI statistics are examined by partner country,
where financial centres and offshore islands often have substantial FDI values
relative to the size of their economies – reflecting the prevalence of SPEs.

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