Page 113 - Special Topic Session (STS) - Volume 4

STS570 Nadim Ahmad et al.
particularly large in some countries, in Europe for example in Ireland,
Luxembourg and the Netherlands. In the latter country, the balance sheet total
of SPEs amounted to 600% of GDP at the end of 2016. Also, the related in-
and outflows of property income of SPEs in the Netherlands are very
substantial, amounting to 20-25% of GDP in the years 2010-2016, while flows
of imports and exports of services would add another 3-5%.
7. The background for the impact of the above issues on measurement
of national accounts is related to the residency criterion, one of the core
definitions or constructs of the international standards for compiling national
accounts, the 2008 System of National Accounts (2008 SNA). It delineates the
units that are part of the national economy, and, at least indirectly, defines all
macro-economic aggregates that can be derived from the system. In § 4.10 of
the 2008 SNA, the concept of residence is elaborated as follows: “The
residence of each institutional unit is the economic territory with which it has
the strongest connection, in other words, its centre of predominant economic
interest.” § 4.14 subsequently defines an institutional unit as having a centre
of predominant economic interest “when there exists, within the economic
territory, some location, dwelling, place of production, or other premises on
which or from which the unit engages and intends to continue engaging,
either indefinitely or over a finite but long period of time, in economic activities
and transactions on a significant scale.” For the period of time, one year is
taken as a, somewhat arbitrary, operational definition.
8. For corporations and non-profit institutions, the above residency
principle means that enterprises have a centre of economic interest in the
country in which they are legally constituted and registered. MNEs obviously
have centres of economic interest in quite a few countries. Even in the case in
which a legal entity is not created, a unit without separate legal status that
engages in substantial economic activities is considered a resident institutional
unit. Furthermore, in § 4.55 – 4.67, the 2008 SNA addresses the residency of
special purpose entities (SPEs), which are defined as having no employees and
no non-financial assets; having little physical presence beyond a “brass plate”;
always related to another corporation; and often resident in a country other
than the country of residence of the related corporation. Although such legal
units would normally not qualify as separate institutional units because they
may not perform any activities of economic substance and would be
consolidated with the related corporation, they are treated by convention as
separate units, if they are resident on the economic territory of another
country.
9. For MNEs, the above residency principles mean that the activities of
each group of units belonging to an MNE that are located on the economic
territory of a certain country are to be recorded as part of national economy
of that country. This even holds in the case that the relevant unit, or group of
units, has physical presence but no separate legal status (e.g. branches), only

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