Page 426 - Invited Paper Session (IPS) - Volume 2

IPS307 Tjeerd Jellema et al.
A key aspect of the definition follows from the observation that SPEs are by
necessity legal entities registered/incorporated in the economy to be
recognized as institutional units, yet do not have a physical presence to speak
of, do not engage in physical production, and have no or little employment.
These elements of the definition are mutually reinforcing. Physical
presence, output and employment are grounds for an entity to be considered
a resident unit per sé.
The second element in the definition, states that the entity is under control by
non-residents. A foreign parent is considered in BPM6 as a sufficient condition
for an entity to be recognized as an institutional unit [IMF 2009]. This part of
the definition does not preclude the possibility of resident direct or indirect
control, if the entity would pass the institutional unit test in BPM6. IMF 2018
considered this possibility not relevant from the viewpoint of the ESS. The
formulation used in IMF 2018 is borrowed from the FDI literature, extends the
concept of a direct foreign parent to direct and indirect control (i.e. a majority
vote in the shareholders meeting). It allows the FDI concept of subsidiary to
match the SPE definition.
A novelty in the definition is that it integrates four sets of reasons why an
entity can be considered to possess a ‘special purpose’, rather than referring
to it in supporting text. This is also the most difficult part to operationalise,
because it is as much a criterion describing the particularities of the jurisdiction
of the host economy as it is an aspect of the entities themselves. These four
reasons are helpful in the identification of SPEs by also scrutinizing whether
specific host countries would fulfil the necessary conditions for hosting SPEs.
The final part of the definition again references relevance for ESS by
formulating a requirement that a significant part of the balance sheet of the
entity is vis-à-vis non-residents. This may prove to be too limiting and seems
inspired by the FDI background of earlier work on identifying SPEs. It
presupposes that the balance sheet consists mostly of financial instruments,
specifically intra-group positions captured in FDI, however, is well know that
SPEs also have assets or liabilities where the residence or the issuer/holder
cannot a-priori be restricted to non-residents, such as tradable securities,
and non-financial assets (intangibles, mobile equipment).
The IMF TF-SPE definition has unresolved issues, acknowledged in the
report. Chief among whom is the treatment of entities that by convention or
otherwise are recognised as institutional units irrespective of the economic
territory of residence of the parent entity. For instance, legal entities
established and controlled by households are considered separate
institutional units from the household, up to and including household trusts.
Likewise securitization vehicles (or special purpose vehicles) are not only
considered specific financial instruments, but are also legal entities that are

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