Page 114 - Special Topic Session (STS) - Volume 4

STS570 Nadim Ahmad et al.
performs ancillary activities for the corporation at large, as well as in the case
of an SPE with legal status but hardly any physical presence.
10. Another complication in the recording of cross-border transactions of
MNEs, and consequently also in the allocation of economies activities to
national economies, concerns the application of the principle of economic
ownership. In national accounts, transactions between units are based on the
principle of change in economic ownership. In § 3.26 of the 2008 SNA,
economic ownership is defined as follows: “The economic owner of entities
such as goods and services, natural resources, financial assets and liabilities is
the institutional unit entitled to claim the benefits associated with the use of
the entity in question in the course of an economic activity by virtue of
accepting the associated risks.” The change in economic ownership depends,
of course, on the delineation of institutional units in the SNA. An institutional
unit, the unit for recording and classifying units in national accounts, is defined
as a unit that is capable of owning assets, incurring liabilities, and engaging in
economic activities and in transactions with other entities. It is also able to
make economic decisions for which it is itself held to be directly responsible
and legally accountable. The institutional unit generally consists of a legal unit
or a limited group of legal units. Enterprise groups, in which a parent
corporation controls several subsidiaries, are not to be considered as a single
institutional unit (see § 4.51 – 4.52 of the 2008 SNA). A change in economic
ownership would therefore typically coincide with a financial transaction
between two institutional units and would therefore coincide with a change in
legal ownership. But there are clear exceptions to this rule.
11. The principle of economic ownership is not necessarily straightforward
within MNEs. All affiliates of an enterprise group are to some degree
controlled by their parent, whereby the case of multinational enterprise
groups has the added complication of having non-autonomous affiliates
which are considered as institutional units by convention, simply because they
are resident in an economic territory that is different from the parent’s.
Transactions between units of an MNE, or the absence of such transactions as
recorded in business accounts, may therefore be at odds with the principle of
economic ownership. On the other hand, in practice there may be no
alternative to following business accounting, unless one performs a detailed
and resource-demanding analysis of individual transactions of the relevant
enterprise groups.
12. To add yet another layer of complexity, as noted before, modern
economies are more and more knowledge based, in that the competitive edge
of an enterprise and a country is often driven by the ownership on intellectual
property products (IPPs), the use of which is neither physically nor locally
constrained. Determining the economic ownership of IPPs, and therefore the
allocation of the output and the use of these assets, is already challenging in
a more traditional environment of MNEs owning a group of affiliated entities

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