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IPS307 Tjeerd Jellema et al.
distinct from their nominal parent. They are considered separate institutional
units classified as other financial intermediaries (S125).
Finally, it may be necessary to draw a distinction between jurisdictions
and economic territories. It may be the case, say in countries with a federal
structure, or countries that have off shore locations as part of their economic
territory, that there are differences between the various jurisdictions within an
economic territory to create sufficient incentives for the creation of SPEs and
SPE like entities. An example would be the island of Madeira that is part of the
economic territory of Portugal, and a rather more prominent example would
be the state of Delaware in the USA, which hosts very many of the financing
and asset holding subsidiaries for large multinational corporations.

3. SPEs, country specialization and Europe
With pervasive globalization worldwide, implying a geographical
specialisation of business functions related to the production and distribution
of goods and services by large multinational corporations has been
accompanied by a geographical specialisation of corporate financial functions.
Off-shore jurisdictions are used by both corporations and private persons in
order to optimize their tax liabilities. The European experience deviates. The
economic weight of a single market and the attraction of a single currency
provides to non-European multinationals ample incentive to establish
subsidiaries there. A highly sophisticated financial sector is able to provide
specialized financing products. Where national law prevails however countries
have incentives to specialize to attract investors. MNE’s likewise specialize by
fragmenting their different business functions across EU member states. As a
result the burden of statistically observing SPEs falls mostly on a limited
number of European countries specialized in hosting them.
An ECB stocktaking on the presence and characteristics of SPEs by end-
2016 [ECB (2017)] established that 16 out of the 22 responding EU countries
report the presence of SPEs, and that 11 countries claim to comprehensively
cover SPEs in the context of ESS. Most do so in the context of FDI, but a
significant number also reports SPEs engaging in both, portfolio (PI) and other
investment (OI) categories. Likewise, 9 countries report SPEs having non-
financial assets on the balance sheet. As regards the sector classification, 14
countries report SPEs to be mostly classified as captive financial institutions
(S127), yet countries also identify SPEs in the subsector other financial
intermediation (S125), Insurance corporations (S128) and non-financial
corporations (S11). There are several countries that are a priori suspected to
have significant SPE populations, these are CY, IE, NL, MT, LU in the euro area
and HU and GB in the other EU). In the remainder of this paper we refer to
these as SPE concentrating countries. These countries typically show a larger
financial balance vis-àvis the rest of the world in relation to GDP. One

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