## Chapter 5. (2025 SNA)/Chapter 4 (BPM7): Residence, institutional units and sectors (revised title)

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### A. Scope and structure
- Concern: definition and description of institutional units, grouping into sectors and subsectors, and concept of residence because the total economy consists of the entire set of resident institutional units in macroeconomic statistics (paragraph 5.1).
- Chapter structure:
  - Section B: further guidance on corporations.
  - Section C: treatment of non-profit institutions.
  - Sections D–H: main institutional sectors and subsectors — non-financial corporations (D), financial corporations (E), general government (F), households (G), non-profit institutions serving households (H).
  - Remaining material: accounts for transactions and positions between residents and non-residents (rest of the world) and detailed guidance on economic territory and residence (section J).

### Institutional units — definition and core attributes
- Definition:
  - An institutional unit is an economic entity capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities (paragraph 5.2).
- Main attributes (paragraph 5.2):
  - Entitled to own goods or assets in its own right and able to exchange ownership.
  - Able to take economic decisions and engage in economic activities for which it is directly responsible and accountable at law.
  - Able to incur liabilities, take on obligations or future commitments, and enter into contracts.
  - Either a complete set of accounts exists for the unit, or it would be possible and meaningful to compile one.
- Two main types (paragraph 5.3):
  - Natural persons or groups of natural persons in the form of households.
  - Legal or social entities (corporations, non-profit institutions, government units).
- Households (paragraphs 5.4–5.6):
  - Defined as a single natural person with separate living accommodation or a group sharing the same living accommodation who pool some or all income and wealth and consume collectively (mainly housing and food).
  - Institutional households include long-stay groups in hospitals, retirement homes, convents, prisons.
  - Individual members of multiperson households are not separate institutional units; members of institutional households with little or no autonomy are also not separate units.
- Legal or social entities (paragraphs 5.6–5.8):
  - Corporations cover legally constituted corporations and also cooperatives, limited liability partnerships, notional resident units and quasi-corporations.
  - Non-profit institutions (NPIs) are entities that cannot be a source of income, profit or other financial gain for controllers; surpluses cannot be appropriated by controllers.
- Government units (paragraph 5.9):
  - Legal entities established by political processes with legislative, judicial or executive authority; principal functions include provision of goods and services financed by taxation or other incomes, redistribution via transfers, and non-market production.

### Establishments, enterprises, and unit distinctions (boxed text)
- Establishment:
  - An enterprise, or part of an enterprise, situated in a single location carrying out a single productive activity or where principal activity accounts for most value added; useful for production statistics but not always for financial transactions.
- Enterprise:
  - An institutional unit engaged in production; includes investment funds and corporations/trusts holding assets/liabilities on behalf of owners even if little production.
  - May be a corporation, nonprofit institution, or an unincorporated enterprise (the latter is a part of an institutional unit only in its capacity as a producer).
- Enterprise groups:
  - Global enterprise group: multinational enterprise and set of legal entities under the same ultimate controlling parent.
  - Local enterprise group: investor and legal entities under that investor resident in the reporting economy.
  - Local enterprise groups may be used for direct investment statistics; combining entities across institutional sectors requires care.

### Population and measurement (paragraphs 5.10–5.12)
- Population definition:
  - All natural persons resident in the economic territory at a given point in time using the SNA/BPM residence concept: strongest links establishing a centre of predominant economic interest (paragraph 5.10).
  - Operational criterion generally based on country of residence for one year or more (paragraph 5.10).
- Inclusion/exclusions (paragraph 5.11):
  - Natural persons resident for one year or more, regardless of citizenship, included.
  - Exception: foreign diplomatic personnel and defence personnel, together with their families, are included as part of the population of their home country.
  - “One-year rule”: usual residents living abroad for less than one year remain included; foreign visitors for less than one year are excluded.
- Measurement (paragraph 5.12):
  - Annual population typically estimated from less frequent censuses; between censuses use sample surveys and births, deaths and net migration data.

### Residence and economic territory — operational rules (paragraphs 5.13–5.18)
- Alignment:
  - Residence = economic territory with strongest connection (centre of predominant economic interest); SNA concept coincides with BPM6 (paragraph 5.13/5.10).
- Economic territory components (paragraphs 5.14–5.15):
  - Includes land area, airspace, territorial waters, fishing rights, fuels/minerals, islands, and territorial enclaves (embassies, consulates, military bases, scientific stations, information/immigration offices, aid agencies, central bank representative offices with diplomatic immunity).
  - Economic territory has physical location and legal jurisdiction dimensions to ensure single-territory residence for each institutional unit.
- Residence of affiliated enterprises and exceptions (paragraphs 5.15–5.16):
  - Each member of a group of affiliated enterprises is resident where it is located, not the head office economy.
  - Multiterritory enterprises operating seamlessly across territories may be treated as indivisible; if not possible to identify branches/parents, prorate total operations into territories.
- Operational definition (paragraph 5.17):
  - Residence exists when there is a location or premises in the territory on which or from which the unit engages and intends to continue engaging for one year or more in significant economic activities.
- Key consequences (paragraph 5.18, subpoints a–f):
  - a. Residence of individuals determined by household residence; all household members share same residence; members who acquire a centre of economic interest abroad for one year or more cease to be members of original household.
  - b. Unincorporated enterprises not quasi-corporations share residence with their owners.
  - c. Corporations and NPIs normally resident where legally constituted and registered; branches operating for one year or more without creating a subsidiary are quasi-corporations resident where located.
  - d. Owners of land, natural resources, buildings and long leases are deemed to have centre of economic interest in that territory; land and natural resources owned by residents.
  - e. Extraction of subsoil resources can only be undertaken by resident units; enterprise becomes resident when licences or leases are issued.
  - f. For many special purpose entities/vehicles with few location attributes, residence determined by place of incorporation.

### Sectoring and economic behaviour (chapter 26 excerpts)
- Purpose: institutional sectors group similar institutional units (corporations, NPIs, government, households) according to nature of economic activity (paragraphs 5.16–5.19).
- Three basic economic activities recorded: production, consumption, accumulation (paragraph 5.17).
- Roles:
  - Corporations (except central bank): production and/or accumulation, not final consumption.
  - Government and central bank: production, accumulation and final consumption on behalf of population.
  - Households: consumption and may engage in production and accumulation; unincorporated household producers remain part of household unit.
  - NPIs: diverse behaviour—some like corporations, some like government, some independent non-market producers.
- Market production:
  - Characterized by sales at economically significant prices that significantly affect supply and demand (paragraph 5.18).
- Corporations divided into financial and non-financial sectors due to special role of financial corporations (paragraph 5.19).
- Digitalization changes activity performance but not institutional classification; units classified by objectives, functions and behaviour (paragraph 5.26).

### Five-sector classification and allocation procedure (paragraphs 5.27–5.31)
- Five mutually exclusive institutional sectors for all resident institutional units (paragraph 5.28):
  - S11 Non-financial corporations;
  - S12 Financial corporations;
  - S13 General government;
  - S15 Nonprofit institutions serving households;
  - S14 Households.
- Three sequential questions for sector allocation (paragraphs 5.29–5.31):
  1. Is the unit a market or non-market producer? (majority of production at economically significant prices determines market status; central bank exception).
  2. For non-market units other than central bank, is the unit part of or controlled by government? Controlled units → general government; other non-market NPIs → NPISH.
  3. For market units (and central bank), are they primarily providing financial services or goods/other services? Allocate to financial corporations or non-financial corporations accordingly.
- NPIs allocated by production type (paragraph 5.35):
  - NPIs producing for market or non-market are allocated regardless of motivation or status of employees.

### Subsectoring recommendations and common breakdowns (paragraphs 5.36–5.42)
- Purpose: subsectoring enhances analytical usefulness; no single method optimal (paragraph 5.37).
- Recommended subsectors and breakdowns:
  - Corporations: public vs national private vs foreign-controlled; identify “Of which: Part of domestic multinational enterprise” and “Of which: Special purpose entities (SPEs)” where relevant (paragraph 5.38).
  - Households: minimum breakdowns by income and wealth deciles, and, if possible, top 5 per cent and top 1 per cent (paragraph 5.39).
  - Identification of NPIs within corporate and government subsectors to derive supplementary tables summarizing all NPI activities (paragraph 5.35).
- External-accounts classification aligns with SNA sectors but may reorder/group for BPM7 backward compatibility and economies with limited detail (paragraph 5.42).
- Selected exact sector and subsector labels preserved verbatim (Table 5.1/Table 4.1 excerpts), e.g.:
  - S1 Total economy; S11 Non-financial corporations (S1101 Public non-financial corporations; S1102 National private non-financial corporations; S1103 Foreign-controlled non-financial corporations; Of which: Special purpose entities (SPEs)); S12 Financial corporations (S121 Central bank; S122 Deposit-taking corporations, except the central bank; S123 Money market funds (MMFs); … S129 Pension funds); S13 General government; S14 Households; S15 Nonprofit institutions serving households.
- External-accounts labels preserved verbatim (Table 4.2 excerpts), e.g.:
  - Central bank / Monetary authorities; Deposit-taking corporations except the central bank (Of which SPEs); General government; Other financial corporations (OFCs); Money market funds (MMFs); … Households and nonprofit institutions serving households.
- Supplementary notes preserved verbatim:
  - “These items are supplementary (i.e., countries are encouraged to compile these breakdowns when they are relevant to their countries).”
  - “Supplementary ‘of which’ items may be provided for public corporations.”

### Transactions with non-residents and sector attribution (paragraphs 5.43–5.46)
- Financial instrument transactions between residents and non-residents raise sector attribution issues (paragraph 5.43):
  - For assets, sector attribution by creditor and transactor coincide because the economic owner (creditor) is party to change of ownership.
  - A claim on a resident debtor may change ownership among resident and non-resident creditors so the domestic sector of the debtor may not coincide with that of the transactor.
- Convention for financial account sector allocation (paragraph 5.44):
  - Sector of the debtor (issuer) determines classification of change of ownership, since original nature of liability is generally more significant than identity of resident seller.
- Rest of the world:
  - Accounts usually include a further account showing relationship with the rest of the world; transactions and positions with rest of the world are recorded as if rest of the world is a de facto sixth sector (paragraphs 7.8 / 5.37–5.45).
  - For external sector reporting, more disaggregated institutional sector breakdowns for transactions and positions with non-residents are followed (paragraph 5.46).

### Corporations, quasi-corporations, branches, and notional resident units (paragraphs 5.47–5.71)
- Broad SNA definition of corporation (paragraph 5.38 / 5.47):
  - Entities capable of generating profit, recognized as separate legal entities with limited liability, and set up for market production are treated as corporations; includes cooperatives, limited liability partnerships, notional resident units and quasi-corporations.
- Legally constituted corporations typical features (paragraphs 5.39–5.40 / 5.48–5.49):
  - Separate legal existence; market producer when selling at economically significant prices; fully responsible at law; shareholders collectively own equity; limited liability; control exercised via board; voting rights may be unequal.
- Quasi-corporations (paragraphs 5.42–5.45 / 5.51–5.54):
  - Unincorporated enterprises functioning as corporations can be treated as quasi-corporations if a complete set of accounts exists and they operate as separate units.
  - Three main kinds: unincorporated enterprises owned by government engaged in market production; household-owned enterprises run like private corporations; unincorporated enterprises belonging to non-resident units (branches).
  - Necessary condition: existence of complete set of accounts including balance sheet; income withdrawals treated as dividends.
  - Practical difficulties in treating household unincorporated enterprises as quasi-corporations noted; inability to meet institutional unit criteria prevents quasi-corporation treatment regardless of size.
- Branches and construction projects (paragraphs 5.57–5.61):
  - Branch identified when non-resident unit has substantial operations for one year or more and either complete accounts exist or it would be meaningful to compile them.
  - Major construction projects taking a year or more with local site office usually satisfy branch criteria; short-term projects may be treated as international trade in services.
- Notional resident units for immovable assets (paragraphs 5.49–5.65; 5.66–5.71):
  - When legal owner of land, natural resources, or buildings is non-resident, a notional resident unit is created to record the asset and rents; legal owner owns equity in the notional resident unit and receives property income abroad.
  - If substantial operations meet branch criteria, a branch is identified instead of creating a notional resident unit.
  - Notional resident unit for land is almost always a (foreign) direct investment enterprise except where non-resident voting power is below 10 percent.

### Multiterritory enterprises and proration (paragraphs 5.72–5.75)
- Multiterritory enterprises operate seamlessly over more than one economic territory with substantial activity in each but no separate accounts; examples: shipping lines, airlines, hydroelectric schemes on border rivers, pipelines, bridges, tunnels, undersea cables.
- Recommended treatment:
  - Prefer identifying separate institutional units for each economy; if infeasible, prorate total operations into individual economic territories.
  - Proration factors: equity shares, equal splits, operational factors (tonnages, wages); accepted taxation prorating formulas may be starting point.
  - Proration requires splitting all transactions and has complex implementation and implications; compilers should cooperate to ensure consistency and minimize burden.

### Groups of corporations, joint ventures, head offices, holding companies, SPEs, and captive financial institutions (paragraphs 5.76–5.93)
- Groups of corporations:
  - Each legally separate corporation remains a separate institutional unit regardless of group membership.
- Joint ventures:
  - A joint venture is a distinct unit with legal joint control if it maintains its own accounts; quasi-corporation status depends on whether it meets institutional unit criteria.
- Head offices vs holding companies (paragraphs 5.81–5.85):
  - Head office (ISIC Rev. 4 class 7010): exercises managerial control and is actively engaged in production; allocated to non-financial corporations unless most subsidiaries are financial corporations.
  - Holding company (ISIC Rev. 4 class 6420): holds assets of subsidiaries and does not undertake management; always allocated to financial corporations sector and treated as captive financial institutions.
  - Practical identification: head offices/holding companies indicated by at least 50 per cent of assets consisting of equity vis-à-vis subsidiaries; employment thresholds (e.g., employment of three or more persons) used as indicators.
- Special purpose entities (SPEs) macro definition (paragraph 5.86):
  - SPE resident in an economy is a formally registered legal entity with no or little employment up to maximum of five employees, no or little physical presence, no or little physical production, controlled by non-residents, established to obtain specific host-jurisdiction advantages, transacting almost entirely with non-residents and large part of balance sheet consisting of cross-border claims/liabilities.
  - Special purpose units/vehicles not controlled by non-residents but with SPE characteristics may be consolidated with resident parents unless autonomous.
  - Recommendation: where SPE presence is significant, identify SPEs as “of which” supplementary item; strongly recommended in external sector statistics for relevant subsectors (paragraphs 5.88–5.89).
- Captive financial institutions:
  - Provide financial services within limited groups or for a sponsor; demonstrable independence requires exercising substantive control over assets/liabilities and bearing associated risks/rewards; otherwise treated as artificial subsidiaries consolidated with parent (paragraphs 5.59–5.93).

### Trusts, funds, artificial subsidiaries, and special government units (paragraphs 5.94–5.111; 5.62–5.67; 5.100–5.102)
- Artificial subsidiaries and quasi-corporations created for tax/operational reasons often do not meet institutional unit criteria and are consolidated with parent unless resident in different economy (paragraphs 5.62–5.66).
- Special purpose units of general government:
  - Resident SPUs that function only passively for government and do not carry risks/rewards are treated as part of general government (paragraph 5.67 / 5.100).
  - Resident SPUs that act independently, acquire assets, incur liabilities and accept risk are separate institutional units and classified by principal activity (paragraph 5.67 / 5.100).
  - SPUs resident in a different country than controlling government (SPEs) are classified as separate institutional units in the economy where established; flows/positions between government and such SPEs recorded in government and rest of the world accounts (paragraphs 5.101–5.102).
- Trusts and similar funds (paragraphs 5.103–5.111):
  - Trustee may be legal owner but not economic owner; accumulated assets may be a separate fund.
  - Standard institutional unit criteria apply; pragmatic criterion: allocation of risks and rewards informs classification.
  - Outcomes:
    - Single-beneficiary trusts where beneficiary bears risks/rewards → assets assigned to beneficiary sector.
    - Multiple beneficiaries and trustee not exposed to risks/rewards → trust may be separate institutional unit.
    - Trusts/funds with restricted beneficiaries generally classified as S.127 Captive financial institutions and moneylenders; if open to public, classification as S.123 MMFs or S.124 Non-MMF investment funds possible.
  - Non-resident trusts with single beneficiaries always qualify as captive financial institutions (S.127).
  - Pension schemes set up as collective trusts treated similarly to other pension schemes.

### Ownership, control thresholds, and indicators (paragraphs 5.112–5.126; 5.122–5.124)
- Ownership vs control:
  - Ownership = shareholdings; control = ability to determine general corporate policy.
  - Control generally exists if investor owns more than 50 per cent of voting power; control may also exist with less than 50 per cent in dispersed voting contexts (paragraphs 5.112–5.115).
- Subsidiary and associate definitions:
  - Subsidiary: A is parent of B when A controls more than half of voting power or can appoint/remove majority directors (paragraphs 5.116–5.118).
  - Associate: A and its subsidiaries control between 10 per cent and 50 per cent of voting power in B (paragraphs 5.119–5.120).
- Government control indicators (paragraphs 5.122–5.124):
  - Care required: laws/regulations applicable to all units do not amount to control.
  - Eight key indicators for control assessment (5.124):
    - a. Ownership of majority of voting interest.
    - b. Control of the board or governing body.
    - c. Control of appointment/removal of key personnel.
    - d. Control of key committees.
    - e. Golden shares and options.
    - f. Regulation and control (distinguish regulation from control).
    - g. Control by a dominant customer.
    - h. Control attached to borrowing from government.
  - A single indicator may suffice; decisions based on totality of indicators are judgmental but should be consistent.
- Foreign control and balance of payments (paragraphs 5.125–5.126):
  - Non-resident control generally exists if non-resident owns more than 50 per cent of equity.
  - Corporations with foreign holdings of 10 per cent or more are foreign direct investment enterprises; corporations with 10–50 per cent foreign holdings represent significant influence.
  - All foreign controlled corporations are FDI enterprises; not all FDI enterprises are foreign controlled in the strict sense.

### NPIs, NPISHs, and NPIs engaged in market vs non-market production (paragraphs 5.127–5.133; 5.90–5.93)
- NPIs core characteristic:
  - NPIs cannot be a source of income, profit or financial gain for controllers; operating surpluses cannot be appropriated (5.127).
- NPIs origins and motives (5.128) and characteristics summary (5.129):
  - Legal entities usually with articles of association, no shareholders entitled to profits, direction by elected officers, may produce non-market goods/services for households.
- NPIs engaged in market production (5.132):
  - Market producers sell output at economically significant prices; NPIs charging fees based on production costs and sufficient to influence demand are market producers.
  - NPIs financed by donations may still be market producers if fees determined by production costs and affect demand.
- NPIs engaged mainly in non-market production:
  - Rely principally on funds other than sales receipts (subscriptions, transfers, property income) and cannot provide financial gain to controllers (5.90–5.91).
  - If controlled by government → included in general government; if not controlled by government → NPISHs (5.91–5.93).
- Indicators of government control for NPIs (five indicators, 5.92):
  - a. Appointment of officers.
  - b. Other provisions of enabling instrument.
  - c. Contractual agreements.
  - d. Degree of financing.
  - e. Risk exposure.
  - Single or multiple indicators can establish control.

### Non-financial corporations sector and subsectoring (paragraphs 5.94–5.98)
- Non-financial corporations include:
  - All resident non-financial corporations regardless of shareholder residence.
  - Branches of non-resident enterprises engaged in long-term non-financial production.
  - Resident NPIs that are market producers of goods or non-financial services.
- Subsectors use two criteria (5.96):
  - Separate NPIs from for-profit institutions (FPIs).
  - Control: public non-financial corporations; national private non-financial corporations; foreign-controlled non-financial corporations (with “Of which: Part of a domestic multinational enterprise” and “Of which: SPEs”).

### Financial corporations sector — composition and subsectoring (paragraphs 5.98–5.166; 5.101–5.166)
- Financial corporations comprise:
  - All resident financial corporations regardless of shareholder residence.
  - Branches of non-resident enterprises engaged in long-term financial activity.
  - Resident NPIs that are market producers of financial services.
- Financial corporations classes (5.101):
  - Financial intermediaries (incur liabilities on own account to acquire financial assets).
  - Financial auxiliaries (facilitate transactions without taking ownership).
  - Other financial corporations (assets/liabilities not traded on open markets).
- Subsector breakdowns (SNA and external accounts):
  - Nine subsectors in SNA/external statistics; external accounts arrange standard components into three subsectors for some presentations (central bank; deposit-taking corporations except the central bank; other financial corporations) (5.102; 5.146).
- Central bank (paragraphs 5.104–5.153):
  - Central bank always allocated to financial corporations sector even if primarily non-market producer; includes national central bank, currency boards, central monetary agencies, national agencies of centralized currency unions.
  - Economies without central banks treat central bank functions performed by general government as part of general government.
- Deposit-taking corporations except the central bank (paragraphs 5.105 / 5.155–5.157):
  - Principal activity: financial intermediation; typical entities include commercial banks, savings banks, post office giro institutions, rural credit banks, cooperative credit banks, electronic money institutions, traveler’s check companies, offshore banks.
  - Liabilities to residents typically included in broad money measures.
- Money market funds (MMFs) (paragraphs 5.107 / 5.158–5.159):
  - Collective investment schemes investing primarily in money market instruments; shares may be close substitutes for deposits; unit trusts investing in similar instruments are MMFs unless investors restricted.
- Non-MMF investment funds (paragraphs 5.108 / 5.160–5.166):
  - Invest predominantly in longer-term financial assets; can be open-ended or closed-ended; fund managers classified as financial auxiliaries.
  - Hedge funds, sovereign wealth funds, funds owning/renting dwellings treated as non-MMF investment funds or non-financial corporations depending on assets.
- Other financial intermediaries (paragraphs 5.109 / 5.169–5.170):
  - Include securitization vehicles, underwriters and dealers, central clearing counterparties, investment banks, bank restructuring agencies, specialized financiers.
- Financial auxiliaries (paragraphs 5.111 / 5.171–5.173):
  - Facilitate financial transactions without taking ownership; examples: brokers, investment advisers, managers of funds, stock exchanges (if not acting as principals), custodians, crypto exchanges that facilitate trading.
- Captive financial institutions and money lenders (paragraphs 5.113 / 5.174–5.175):
  - Provide financial services within a restricted group or with funds from a single sponsor; includes holding corporations that only own group subsidiaries’ assets, conduits, intragroup financiers, trusts holding assets for restricted beneficiaries.

### Insurance corporations, pension funds, and central government institutional issues (paragraphs 5.115–5.201)
- Insurance corporations (paragraphs 5.115; 5.176):
  - Provide life, accident, sickness, fire or other insurances and reinsurance; include captive insurance and deposit insurers/issuers of guarantees that act like insurers.
- Pension funds (paragraphs 5.116; 5.177):
  - Pension liabilities arise from employer or government schemes; pension fund subsector consists only of social insurance pension funds that are institutional units separate from the units that create them; see chapter 24 for more guidance.
- General government (paragraphs 5.117; 5.178–5.199):
  - Government units are legal entities with authority to raise funds (taxes), disburse funds, and borrow on own account; principal functions: collective services, individual services financed by taxation, transfers for redistribution, non-market production.
  - Government may create public corporations, NPIs it controls, or produce in establishments it owns; government establishments may be quasi-corporations if they meet three criteria: charge economically significant prices, operate like a corporation, and have complete accounts.
  - Social security schemes may be separate social security funds if organized and holding assets/ liabilities separately.
- Subsectors of general government:
  - Two common methods:
    - Method 1: Central government; State government; Local government; Social security funds (each of central, state, local subsectors includes NPIs government-controlled non-market producers but excludes social security funds at that level).
    - Method 2: Central government; State government; Local government (each includes NPIs government-controlled non-market producers and social security funds at that level).
  - Choice depends on size/importance and management arrangements of social security funds.
- Central government and monetary authority overlap (paragraph 5.201):
  - Central government units performing central banking functions and financially integrated with government are not separate institutional units; their monetary authority transactions recorded in government sector, but recommended to identify separately for tabulations linking to monetary and financial statistics.

### Households, unincorporated enterprises, subsectoring by income/wealth and reference person (paragraphs 5.149–5.165; 5.155–5.176; 5.221–5.231)
- Households defined as groups sharing living accommodation, pooling some or all income and wealth, consuming collectively (paragraphs 5.149–5.154).
- Institutional households: persons in long-stay institutions form separate institutional households; short-term residents remain members of original households.
- Unincorporated household enterprises:
  - Market enterprises range from single-person traders to large employers; partnerships with unlimited liability remain in household sector; partnerships behaving like corporations treated as quasi-corporations.
- Family trusts resident in same economy as beneficiaries:
  - Apply standard institutional unit criteria; single-beneficiary trusts consolidated with household; multiple-beneficiary trusts treated as separate institutional units or S.127 if restricted.
- Household subsectoring recommendations:
  - Use equivalized results (default “modified OECD scale”: 1 for household head; 0.5 for each additional household member 14+; 0.3 for each additional household member up to 13) for income analyses (paragraphs 5.158–5.159 / 5.221–5.226).
  - Wealth analysis: avoid equivalence scales for individual components of wealth; when joint analysis, use same equivalence scales for wealth as for income/consumption.
  - Standard breakdown targets: income and wealth decile groups; if possible, top 5% and top 1%.
- Alternative household subsectoring by largest source of income (paragraphs 5.160–5.161 / 5.227–5.228):
  - Categories: self-employment owners; recipients of property income; remuneration of household enterprises with paid employees (employers’ mixed income); owners without paid employees (own-account workers mixed income); compensation of employees; net current transfers (pensions and other transfers).
  - Allocation rule: household assigned to subsector by which category is largest for household as a whole.

### NPISHs, international organizations, central banks of currency unions, and rest of the world (paragraphs 5.166–5.176; 5.172–5.175; 5.243–5.247)
- NPISHs:
  - NPIs engaged in non-market production not controlled by government are NPISHs; types include associations of natural persons, charities, institutions providing collective services.
  - If NPISHs funded from abroad are significant, disaggregate into domestically funded and mainly funded from abroad (paragraph 5.237).
- Rest of the world:
  - Consists of all non-resident institutional units that enter into transactions with residents; not a sector requiring full accounts; accounts confined to transactions and positions with residents (paragraph 5.172).
  - International organizations are residents of an economic territory of their own and not resident in the countries where they are located (paragraph 5.241).
- Central banks of currency unions:
  - CUCB treated as special kind of international organization; resident in the currency area as a whole, non-resident in member countries individually (paragraphs 5.244–5.246).

### Joint administration zones, residence of persons and enterprises, and special cases (paragraphs 5.252–5.273)
- Joint administration/sovereignty zones:
  - Areas under effective economic control of two or more governments could be considered separate economic territory; compilers may prefer prorating enterprises between primary territories and should coordinate to avoid gaps/overlaps (paragraph 5.252).
- Residence of households and special categories:
  - Principal dwelling or intention to stay for one year or more determines household residence (paragraph 5.254).
  - Students, patients, crew, diplomats, international organization staff, cross-border/seasonal workers, highly mobile individuals, refugees — specific rules apply (paragraphs 5.257–5.265; 5.259–5.265).
- Residence of enterprises:
  - Enterprise resident where engaged in significant production from a location in the territory (paragraph 5.268).
  - Legal entities with little physical presence: resident under laws of incorporation/registration (paragraphs 5.271–5.272).
  - Production delivered from a base: residence determined by base of operations, not point of delivery (paragraph 5.273).

### Residence implications for external accounts and changes in residence (paragraphs 5.274–5.287)
- Table 4.4 summary of implications for external accounts (selected outcomes preserved):
  - Sales by enterprise to residents: resident enterprise → Not external transaction; nonresident enterprise → Imports of goods and services.
  - Purchases by enterprise from residents: resident enterprise → Not external transaction; nonresident enterprise → Exports of goods and services.
  - Remuneration of employees payable to residents of host economy: resident enterprise → Not external transaction if receivable; nonresident enterprise → Remuneration of employees.
  - Net operating surplus: resident enterprise → Not external transaction; nonresident enterprise → Dividends payable or reinvested earnings (direct investment enterprise).
  - Injections of funds by owners: resident enterprise → Direct investment liabilities of reporting economy (direct investment enterprise); nonresident enterprise → Not external transaction.
  - Resident unit’s financial claims on or liabilities to the enterprise: resident enterprise → Not included in external accounts; nonresident enterprise → Included in external accounts.
- Assets/liabilities held jointly by residents and non-residents:
  - Conventions suggested for allocation (e.g., emigrant workers’ deposits) and need for coordination with monetary/financial statistics and counterpart compilers (paragraphs 5.282–5.283).
- Changes in residence:
  - Change of residence of individuals or entities triggers reclassification; asset movements vs entity migration distinctions outlined; entity changing residence effects treated as other changes in volume (paragraphs 5.284–5.286).
- Alternatives to residence concept:
  - Ownership-based datasets (multinational enterprise group activities, consolidated banking statistics) complement residence-based statistics for globalization-related analysis (paragraph 5.287).

*Source: Chapter 5. (2025 SNA)/Chapter 4 (BPM7): Residence, institutional units and sectors (revised title), IMF draft chapter.*

### Chapter 5. (2025 SNA)/Chapter 4 (BPM7): Residence, institutional units and

### Chapter 5. (2025 SNA)/Chapter 4 (BPM7): Residence, institutional units and sectors (revised title)

### A. Introduction — overview and scope
- The chapter is concerned with the definition and description of institutional units, the grouping of institutional units into sectors and subsectors of the SNA, and the concept of residence because the total economy consists of the entire set of resident institutional units in macroeconomic statistics (paragraph 5.1).
- Structure of the chapter:
  - Section B: further guidance on corporations.
  - Section C: treatment of non-profit institutions.
  - Sections D–H: details on main institutional sectors and subsectors — non-financial corporations (D), financial corporations (E), general government (F), households (G), and non-profit institutions serving households (H).
  - Remaining material: accounts for transactions and positions between residents and non-residents (rest of the world) and detailed guidance on economic territory and residence (section J) (paragraph 5.1).

### Institutional units — definition and attributes (paragraphs 5.2–5.9)
- Definition:
  - An institutional unit is an economic entity capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities (paragraph 5.2).
- Main attributes of institutional units (paragraph 5.2):
  - a. Entitled to own goods or assets in its own right and able to exchange ownership in transactions with other institutional units.
  - b. Able to take economic decisions and engage in economic activities for which it is itself held directly responsible and accountable at law.
  - c. Able to incur liabilities on its own behalf, take on obligations or future commitments, and to enter into contracts.
  - d. Either a complete set of accounts, including a balance sheet of assets and liabilities, exists for the unit, or it would be possible and meaningful, from an economic viewpoint, to compile a complete set of accounts if required.
- Two main types of institutional units (paragraph 5.3):
  - Natural persons or groups of natural persons in the form of households.
  - Legal or social entities (corporations, non-profit institutions, government units).
- Households (paragraphs 5.4–5.6):
  - For the purposes of the SNA/macroeconomic statistics, a household consists of a single natural person having a separate living accommodation, or a group of natural persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, mainly housing and food (paragraph 5.4).
  - Institutional households include groups of natural persons staying in hospitals, retirement homes, convents, prisons, etc. for long periods of time (paragraph 5.4).
  - Individual members of multiperson households are not treated as separate institutional units because many assets, liabilities and collective consumption decisions cannot be allocated meaningfully on an individual basis; members of institutional households with little or no autonomy are also not treated as separate institutional units (paragraph 5.5).
- Legal or social entities (paragraph 5.6–5.8):
  - Legal or social entities are recognized by law or society independently of the natural persons or other entities that may own or control them and are responsible and accountable for the economic decisions or actions they take (paragraph 5.6).
  - The SNA/macroeconomic statistics use the term corporation to cover legally constituted corporations and also cooperatives, limited liability partnerships, notional resident units and quasi-corporations (paragraph 5.7).
  - Non-profit institutions (NPIs) are legal or social entities created for producing goods and services but whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control or finance them; any surpluses cannot be appropriated by those units (paragraph 5.8).
- Government units (paragraph 5.9):
  - Government units are legal entities established by political processes with legislative, judicial or executive authority; principal functions include provision of goods and services financed by taxation or other incomes, redistribution of income and wealth by means of transfers, and engagement in non-market production.

### Box: Establishments and enterprises — unit distinctions (boxed text)
- Establishments (box):
  - An establishment is an enterprise, or part of an enterprise, situated in a single location and in which only a single productive activity is carried out or in which the principal productive activity accounts for most of the value added.
  - Establishments are useful for production statistics; however, because establishments of a multi-establishment enterprise are part of the same legal entity, financial transactions and positions cannot always be attributed to a particular location or activity, so the institutional unit concept is appropriate for statistics covering financial transactions and positions (box).
- Enterprises (box):
  - An enterprise is defined as an institutional unit engaged in production. Investment funds and other corporations or trusts that hold assets and liabilities on behalf of groups of owners are also enterprises, even if engaged in little or no production.
  - An enterprise may be a corporation (including a quasi-corporation), a nonprofit institution, or an unincorporated enterprise. Corporate enterprises and nonprofit institutions are complete institutional units. An unincorporated enterprise refers to a part of an institutional unit—a household or government unit—only in its capacity as a producer of goods and services (box).
- Local and global enterprise groups (box):
  - Global enterprise group: the multinational enterprise and the set of legal entities—regardless of their economies of residence—that are under the control of the same ultimate controlling parent (also called a multinational enterprise group).
  - Local (territory-specific) enterprise group: an investor and the legal entities under that investor that are resident in the reporting economy.
  - Local enterprise groups may be used for compiling and presenting direct investment statistics; implications of combining entities in different institutional sectors need careful consideration (box).

### Population — definition and measurement (paragraphs 5.10–5.12)
- Population definition:
  - Population is defined as all natural persons who are resident in the economic territory at a given point in time, using the SNA/BPM concept of residence: natural persons are resident in the country where they have the strongest links establishing a centre of predominant economic interest (paragraph 5.10).
  - The criterion is generally based on country of residence for one year or more (paragraph 5.10).
- Inclusion and exclusions (paragraph 5.11):
  - Natural persons resident in a country for one year or more, regardless of citizenship, should be included in the population measure.
  - Exception: foreign diplomatic personnel and defence personnel, together with their families, are included as part of the population of their home country.
  - The “one-year rule” implies usual residents living abroad for less than one year remain included in the population, while foreign visitors in the country for less than one year are excluded (paragraph 5.11).
- Measurement:
  - Annual population is typically estimated from less frequent population censuses; censuses usually count people present on a specified night or who usually live in a dwelling. Between censuses, updated information is provided by sample-based surveys and by using births, deaths and net migration data (paragraph 5.12).

### Residence and economic territory — core definitions and operational rules (paragraphs 5.13–5.18 and subpoints)
- Residence and economic territory alignment:
  - The residence of each institutional unit is the economic territory with which it has the strongest connection, i.e., its centre of predominant economic interest. The concept of economic territory in the SNA coincides with that of the BPM6 and is consistent across macroeconomic statistics (paragraph 5.13/5.10).
  - Economic territory can be any geographic area or jurisdiction for which statistics are required; connection is determined by physical presence and being subject to the jurisdiction of the government of the territory (paragraph 5.13/5.10).
- Economic territory components (paragraphs 5.14–5.15):
  - Includes land area, airspace, territorial waters, including jurisdiction over fishing rights and rights to fuels or minerals; includes islands that belong to the territory.
  - Includes territorial enclaves in the rest of the world: clearly demarcated land areas (such as embassies, consulates, military bases, scientific stations, information or immigration offices, aid agencies, central bank representative offices with diplomatic immunity, etc.) located in other territories and used by governments that own or rent them for diplomatic, military, scientific, or other purposes with formal agreement of the host governments.
  - Economic territory has dimensions of physical location and legal jurisdiction; concepts are designed to ensure each institutional unit is a resident of a single economic territory (paragraphs 5.14–5.15).
- Residence of affiliated enterprises and special cases (paragraphs 5.15–5.16):
  - Each member of a group of affiliated enterprises is resident in the economy in which it is located rather than being attributed to the economy of the head office.
  - An institutional unit is generally resident in one and only one economic territory determined by its centre of predominant economic interest. Exceptions may be made for multiterritory enterprises that operate a seamless operation over more than one economic territory and cannot be broken up into separate branches because they are run as an indivisible operation with no separate accounts or decisions (examples: shipping lines, airlines, hydroelectric schemes on border rivers, pipelines, bridges, tunnels and undersea cables). If not possible to identify a parent or separate branches, total operations must be prorated into individual economic territories (paragraph 5.16).
- Operational definition of centre of predominant economic interest (paragraph 5.17):
  - Residence exists when there is some location, dwelling, place of production, or other premises in the economic territory 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.
  - Actual or intended location for one year or more is used as an operational definition to avoid uncertainty and facilitate international consistency (paragraph 5.17).
- Key consequences of the residence concept (paragraph 5.18, subpoints a–f):
  - a. Residence of individual natural persons is determined by that of the household of which they form part and not by place of work; all members of the same household have the same residence as the household itself; if they work and reside abroad for one year or more so that they acquire a centre of economic interest abroad, they cease to be members of their original households.
  - b. Unincorporated enterprises that are not quasi-corporations are not separate institutional units from their owners and therefore have the same residence as their owners.
  - c. Corporations and NPIs normally have a centre of economic interest in the economic territory in which they are legally constituted and registered; corporations may be resident in different economic territories from their shareholders; when a corporation or unincorporated enterprise maintains a branch, office or production site in another economic territory to engage in production for one year or more without creating a subsidiary, the branch, office or site is considered a quasi-corporation resident in the territory in which it is located.
  - d. Owners of land and other natural resources, buildings and immovable structures in an economic territory, or units holding long leases on either, are deemed always to have a centre of economic interest in that territory; all land and other natural resources, buildings and immovable structures are therefore owned by residents.
  - e. Extraction of subsoil resources can only be undertaken by resident institutional units; an enterprise that will undertake extraction is deemed to become resident when the requisite licences or leases are issued, if not before.
  - f. For entities such as many special purpose entities/vehicles that have few if any attributes of location, the location is determined by their place of incorporation (see paragraphs 5.86 and 5.87).

*Source: Chapter 5. (2025 SNA)/Chapter 4 (BPM7): Residence, institutional units and sectors (revised title), IMF draft chapter.*

### chapter 26

### Chapter 26

### Sectoring and economic behaviour
- Institutional sectors of the SNA/BPM group together similar kinds of institutional units: corporations, NPIs, government units and households (paragraphs 5.16–5.19).
- Institutional units are allocated to sectors according to the nature of the economic activity they undertake (paragraph 5.17).
- The three basic economic activities recorded in the SNA are production of goods and services, consumption to satisfy human wants or needs and accumulation of various forms of capital (paragraph 5.17).
- Corporations (except the central bank) undertake production and/or accumulation but do not undertake final consumption (paragraph 5.17).
- Government and the central bank undertake production, accumulation and final consumption on behalf of the population (paragraph 5.17).
- Households undertake consumption and may engage in production and accumulation; unincorporated household production units remain part of the household institutional unit (paragraphs 5.17, 5.24).
- NPIs are diverse: some behave like corporations, some are effectively part of government, and some undertake activities similar to government but independently of it (paragraph 5.17; 5.25).
- Market production is characterized by goods and services sold at economically significant prices; economically significant prices are those that have a significant effect on supply and demand and normally give producers incentives to adjust supply with the goal of making a profit or covering capital and other costs (paragraph 5.18).
- Corporations are divided into financial corporations and non-financial corporations because of the special role of financial corporations (paragraph 5.19).
- Digitalization (e.g., digital platforms, cloud computing, Fintech) changes how activities are performed but does not affect classification into institutional (sub)sectors and industries; units continue to be classified by economic objectives, functions and behaviour (paragraph 5.26).

### The total economy
- The total economy is defined as the entire set of resident institutional units (paragraph 5.27).
- Resident institutional units that make up the total economy are grouped into five mutually exclusive institutional sectors; the whole of each institutional unit must be classified to one sector (paragraph 5.27).
- A full sequence of economic accounts of the SNA may be constructed for a single institutional unit or a group of units; it is not possible to compile a full set of accounts for only part of a unit (paragraph 5.27).
- It is common practice to compile some accounts for sub-divisions of corporations based on type of production; however, the present focus is allocation of complete units to sectors (paragraph 5.27).

### Overview of institutional sectors (five-sector classification)
- All resident institutional units are allocated to one and only one of the following five institutional sectors (paragraph 5.28):
  - The non-financial corporations sector;
  - The financial corporations sector;
  - The general government sector;
  - The non-profit institutions serving households sector;
  - The households sector.
- Three sequential questions determine sectoral allocation for resident legal and social entities (paragraph 5.29–5.31):
  1. Is the unit a market or non-market producer? (Majority of production offered at economically significant prices determines market status. Exception: central bank is grouped with market producers of financial services despite predominantly non-market production.) (paragraph 5.29)
  2. For non-market units other than the central bank, is the unit part of, or controlled by, government? Units controlled by government are allocated to general government; other non-market NPIs are allocated to NPISH. (paragraph 5.30)
  3. For market units (and the central bank), are they primarily providing financial services or goods and other services? Market units (including market NPIs and the central bank) are allocated to non-financial corporations sector or financial corporations sector accordingly. The term “corporation” encompasses cooperatives, limited liability partnerships, notional resident units, quasi-corporations and legally constituted corporations (paragraph 5.31).
- Non-financial corporations sector:
  - Includes all resident non-financial corporations and NPIs engaged in market production of goods and non-financial services (examples: hospitals, schools or colleges charging fees that enable recovery of current production costs; trade associations financed by subscriptions) (paragraph 5.28; 5.32).
- Financial corporations sector:
  - Includes the central bank and all resident corporations whose principal activity is providing financial services (financial intermediation, insurance, pension fund services, activities that facilitate financial intermediation) (paragraph 5.29; 5.33).
  - Also includes NPIs engaged in market production of a financial nature (paragraph 5.33).
- General government sector:
  - Consists mainly of central, state and local government units together with social security funds imposed and controlled by those units (paragraph 5.30; 5.34).
  - Includes NPIs that are controlled by government and engaged in non-market production (paragraph 5.34).
- Non-profit institutions serving households (NPISHs):
  - Consists of all resident NPIs, except those controlled by government, that provide non-market goods or services to households or to the community at large (paragraph 5.35).
- Households sector:
  - Consists of all resident households, including institutional households made up of persons staying in hospitals, retirement homes, convents, prisons, etc. for long periods of time (paragraph 5.36).
  - Unincorporated enterprises owned by households are treated as part of the household unless accounts treat the activity as that of a quasi-corporation (paragraph 5.36).

### Subsectors and recommended breakdowns
- Each of the five institutional sectors may be divided into subsectors; no single subsectoring method is optimal for all purposes, so alternative subsectoring methods are recommended for certain sectors (paragraph 5.37).
- Subsectoring enhances usefulness of accounts for economic analysis and policy monitoring; examples include:
  - Dividing household sector into subsectors to observe distributional effects (paragraph 5.37).
  - Treating foreign-controlled corporations as subsectors of corporate sectors to analyze influence from abroad and impacts on income distribution and capital formation (paragraph 5.37).
- Public/domestic/foreign control breakdowns for corporations (common subsectoring, paragraph 5.38):
  - Identify non-financial corporations and financial corporations controlled by government (public corporations), nationally controlled private corporations, and foreign-controlled corporations.
  - Domestically controlled corporations can be split into public corporations (controlled by government) and national private corporations (paragraph 5.38).
  - “Of which” items may be included for domestically controlled public and private corporations that are part of a domestic multinational enterprise (ultimate controlling parent resident in same economy) (paragraph 5.38).
  - For countries where special purpose entities (SPEs) are significant, separate identification of SPEs as an “of which” item is recommended as supplementary information (paragraph 5.38).
- Breakdowns of households (distributional information):
  - Distributional information on household income, consumption, saving and wealth is highly relevant to well-being analysis (paragraph 5.39).
  - Recommended minimum breakdowns: household income and wealth deciles, and, if possible, also for the top 5 per cent and the top 1 per cent (paragraph 5.39).
  - Alternative supplementary breakdowns: by main source of income, household type, housing status, age of reference person (paragraph 5.39).
  - Further details are provided in paragraphs 5.221–231 and chapter 32 (paragraph 5.39).

### Non-profit institutions (NPIs) and NPIs as a category of interest
- The SNA assigns NPIs to sectors according to whether they produce for the market or not, regardless of motivation, status of employees or activity (paragraph 5.35).
- There is increasing interest in considering the full set of NPIs as evidence of “civil society”; it is recommended that NPIs within corporate and government sectors be identified in distinct subsectors so that supplementary tables summarizing all NPI activities can be derived easily (paragraph 5.35).

### Other subsectoring guidance and integration with external accounts
- Particular subsectors are suggested for general government, non-financial corporations, financial corporations and households; standard breakdowns are summarized in table 5.1 (2025 SNA)/Table 4.1 (BPM7) (paragraph 5.36; 5.41).
- Institutional sector classification in the external accounts follows the same sectors and subsectors as the SNA institutional sector classification, but with order and groupings to allow greater backward compatibility with the BPM7 classification and a shorter list of sectors for economies where full classification is not practical (paragraph 5.42).
- Full institutional sector detail is required for external accounts to be fully integrated with monetary, flow of funds, and other financial data; domestic and foreign controlled corporations may be identified separately on a supplementary basis (paragraph 5.42).

- Selected exact items and labels from the standard classification (Table 5.1 (2025 SNA)/Table 4.1 (BPM7)) include (verbatim labels preserved):
  - S1 Total economy
  - S11 Non-financial corporations
    - Classification based on control
      - S1101 Public non-financial corporations
        - Of which: Part of domestic multinational enterprise
      - S1102 National private non-financial corporations
        - Of which: Part of domestic multinational enterprise
      - S1103 Foreign-controlled non-financial corporations
        - Of which: Special purpose entities (SPEs)
  - S12 Financial corporations
    - Classification based on control
      - S1201 Public financial corporations
        - Of which: Part of domestic multinational enterprise
      - S1202 National private financial corporations
        - Of which: Part of domestic multinational enterprise
      - S1203 Foreign-controlled financial corporations
        - Of which: Special purpose entities (SPEs)
    - Classification based on type of financial services
      - S121 Central bank
      - S122 Deposit-taking corporations, except the central bank
      - S123 Money market funds (MMFs)
      - S124 Non-MMF investment funds
      - S125 Other financial intermediaries, except insurance corporations and pension funds
      - S126 Financial auxiliaries
      - S127 Captive financial institutions and money lenders
      - S128 Insurance corporations
      - S129 Pension funds
  - S13 General government (alternative breakdowns S1311–S1314; S1321–S1323 noted)
  - S14 Households
  - S15 Nonprofit institutions serving households
- External-accounts classification (Table 4.2 (BPM7)) labels preserved include:
  - Central bank / Monetary authorities
  - Deposit-taking corporations except the central bank (Of which SPEs)
  - General government
  - Other financial corporations (OFCs)
  - Money market funds (MMFs)
  - Non-MMF investment funds
  - Insurance corporations
  - Pension funds
  - Other financial intermediaries except insurance corporations and pension funds (Of which Central clearing counterparties)
  - Captive financial institutions and money lenders, and financial auxiliaries (Of which SPEs)
  - Nonfinancial corporations (NFCs) (Of which SPEs)
  - Households and nonprofit institutions serving households
  - Additional sectors for counterpart data: International organizations; International financial organizations; Central bank of currency union; Other international organizations
- Supplementary items and notes preserved verbatim:
  - “These items are supplementary (i.e., countries are encouraged to compile these breakdowns when they are relevant to their countries).”
  - “Supplementary ‘of which’ items may be provided for public corporations.”
  - Note on combining captive financial institutions and money lenders with financial auxiliaries to reduce compilation burden, while allowing separate identification where warranted; households and NPISH can be compiled separately where merited; data for CCPs and SPEs as “of which” items where relevant (final paragraph of table notes).

*Source: chapter 26, BPM7 draft chapter (bpm7-ch4 - chapter 26).*

### 5.43 Transactions in financial instruments between residents and non-residents raise particular issues concerning

### bpm7-ch4 - 5.43 Transactions in financial instruments between residents and non-residents raise particular issues concerning

### Transactions in financial instruments and sector attribution
- Paragraph 5.43: Transactions in financial instruments between residents and non-residents raise particular issues concerning attribution of institutional sector. The economic owner of the asset, the creditor, is invariably one party to any change of economic ownership of the asset. Therefore, for assets, sector attribution by creditor and by transactor coincide.
- Paragraph 5.43 (continued): A claim on a resident debtor, however, may change ownership between a resident creditor and a non-resident creditor so that the domestic sector of the debtor may not coincide with that of the transactor. For instance, the issuer may be a resident in one institutional sector, the seller a resident in another institutional sector, and the buyer a non-resident.

- Paragraph 5.44: Although the sector classification for liabilities is clearly according to the issuer, for the sector data in the financial account, there are both practical and analytical considerations over whether the sector allocation should be determined according to the issuer or the seller.
- Paragraph 5.44 (convention): By convention, the sector of the debtor is the one that determines the classification of the change of ownership that has occurred, because the original nature of the liability is generally considered more significant than the identity of the resident seller of the claim.
- Paragraph 5.44 (implication): The same issues apply for financial instruments issued by a resident that are sold by a non-resident holder to a resident buyer.

### The rest of the world and external sector reporting
- Paragraph 7.8 / 5.37–5.45: On occasion it is convenient to refer to non-resident households or corporations as units that are resident in the rest of the world. Whenever accounts are drawn up for institutional sectors, as well as an account for the total economy, a further account is shown presented showing the relationship with the rest of the world. In effect, therefore transactions and positions with the rest of the world are recorded as if the rest of the world is a de facto sixth sector.
- Paragraph 5.46: For the purpose of reporting external sector statistics data, more disaggregated institutional sector breakdowns for the transactions and positions with non-residents will be followed (see table 4.2).

### Corporations in the SNA/macroeconomic statistics — definition and types
- Paragraph 5.38 / 5.47: In the SNA In macroeconomic statistics, the term corporation is used more broadly than in just the legal sense. In general, all entities that are:
  - a. capable of generating a profit or other financial gain for their owners,
  - b. recognized at law as separate legal entities from their owners who enjoy limited liability,
  - c. set up for purposes of engaging in market production, through the selling of all or most of their goods and/or services at economically significant prices,
  are treated as corporations in the SNA, however they may describe themselves or whatever they may be called.
- Paragraph 5.38 / 5.47 (coverage): As well as legally constituted corporations the term corporations is used to include cooperatives, limited liability partnerships, notional resident units and quasi-corporations. Whenever the term corporation is used, the broader coverage rather than the narrow legal definition is intended unless otherwise stated.

### Legally constituted corporations — typical features relevant for SNA/macroeconomic statistics
- Paragraphs 5.39–5.40 / 5.48–5.49: Legally constituted corporations may be described by different names: corporations, incorporated enterprises, public limited companies, public corporations, private companies, joint-stock companies, limited liability companies, limited liability partnerships, and so on.
- Typical features:
  - a. A corporation is an entity created by process of law whose existence is recognized independently of the other institutional units that may own shares in its equity. A corporation may normally be expected to have a centre of predominant economic interest (that is, to be resident) in the country in which it is created and registered.
  - b. A corporation that is created for the purpose of producing goods or services for sale on the market does so at prices that are economically significant. This implies that it is a market producer.
  - c. A corporation is fully responsible and accountable at law for its own actions, obligations and contracts; it is subject to the tax regime of the country where it is resident in respect of its productive activities, income or assets.
  - d. Ownership of a corporation is vested in the shareholders collectively; income is usually distributed to shareholders in proportion to the value, or amounts, of the shares or other capital participations they own.
  - e. In the event of winding up, shareholders are entitled to a share in net worth remaining after assets sold and liabilities paid; shareholders are not liable to repay excess liabilities if corporation is bankrupt.
  - f. Control is ultimately exercised by shareholders collectively through a board of directors.
  - g. In practice, some shareholders may exert much more influence or control than others.
  - h. Voting rights of shareholders may not be equal; some shares may carry no voting rights while others carry exceptional rights.
  - i. Many shareholders with voting rights do not choose to exercise them, so a small organized minority may control policy and operations.

### Cooperatives, limited liability partnerships, and similar entities
- Paragraph 5.41 / 5.50: Cooperatives set up by producers for marketing collective output operate like corporations even if profits are not distributed strictly in proportion to shares. Partnerships whose members enjoy limited liability are separate legal entities that behave like corporations; partners are both shareholders and managers.

### Quasi-corporations — recognition and conditions
- Paragraphs 5.42–5.45 / 5.51–5.54: Some unincorporated enterprises function in all (or almost all) respects as if they were incorporated; these are quasi-corporations and are included with corporations in the non-financial and financial corporations sectors.
- Definition elements:
  - a. An unincorporated enterprise owned by a resident institutional unit that has sufficient information to compile a complete set of accounts and is operated as if it were a separate corporation and whose de facto relationship to its owner is that of a corporation to its shareholders, or
  - b. An unincorporated enterprise owned by a non-resident institutional unit that is deemed to be a resident institutional unit because it engages in a significant amount of production in the economic territory over a long or indefinite period of time.
- Three main kinds of quasi-corporations recognized:
  - a. Unincorporated enterprises owned by government units that are engaged in market production and that are operated in a similar way to publicly owned corporations;
  - b. Unincorporated enterprises, including unincorporated partnerships or trusts, owned by households that are operated as if they were privately owned corporations;
  - c. Unincorporated enterprises that belong to institutional units resident abroad, referred to as “branches”.

- Paragraph 5.44 / 5.53–5.55 (accounting and measurement): The existence of a complete set of accounts, including balance sheets, for the enterprise is a necessary condition for it to be treated as a quasi-corporation. A quasi-corporation must have its own value added, saving, assets, liabilities, and identifiable flows of income and capital with its owner. The amount of income withdrawn from a quasi-corporation is equivalent to dividend payments.

- Paragraph 5.45 / 5.56 (practical difficulties): Experience has shown countries have difficulty treating unincorporated enterprises owned by households as quasi-corporations; additional criteria such as size are not introduced. If an enterprise is not operated like a corporation and does not have a complete set of accounts of its own, it cannot and should not be treated as a quasi-corporation however large it may be.

- Paragraph 5.56: A quasi-corporation is also identified when preliminary expenses (including mining rights, license fees, site preparation, building permits, purchase taxes, local office expenses, and lawyers’ fees) are incurred by a non-resident unit prior to establishing a legal entity. Preparatory expenses are recorded in the economy of the future operations as being resident-to-resident transactions funded by a (foreign) direct investment inflow. If the project does not subsequently go into operation, the value of the direct investment is eliminated by an entry for other changes in the volume of assets or liabilities.

### Institutional units with cross-border elements — branches, construction projects, production from a base, mobile equipment, and multiterritory operations
- Branches (paragraphs 5.57–5.59 / 5.47–5.58):
  - When a non-resident unit has substantial operations over a significant period in an economic territory but no separate legal entity, a branch may be identified as an institutional unit. The operations of the branch should be excluded from the institutional unit of its head office in its home territory and the delineation of parent and branch should be made consistently in both economies.
  - A branch is identified when indications of substantial operations can be identified separately and either a complete set of accounts exists or it would be meaningful to compile them.
  - Factors tending to be present for branch recognition include:
    - a. Production based in the territory is undertaken or intended for one year or more in a territory other than that of its head office.
      - If production involves physical presence, operations should be physically located in that territory (indicators: purchasing or renting business premises, acquiring capital equipment, recruiting local staff).
      - If production does not involve physical presence (e.g., ownership of patents, “virtual manufacturing”, some banking, insurance, or other financial services), the operations should be recognized as being in the territory by virtue of registration or legal domicile of those operations in that territory.
    - b. The operations are recognized as being subject to the income tax system, if any, of the economy in which it is located even if it may have a tax-exempt status.

- Construction projects (paragraphs 5.60 / 5.48):
  - a. For major projects (such as bridges, dams, power stations) that take a year or more to complete and that are managed through a local site office, the operations would usually satisfy the criteria for identification of a branch in paragraphs 5.57 – 5.58, and so would not be classified as international trade in services.
  - b. In other cases, construction operations may not satisfy conditions for recognition as a branch (e.g., short-term project or one undertaken from the home territory). In those cases, the work provided to customers resident in the territory of those operations is classified as international trade in construction and included in services (an export of services by the home base and an import of services by the territory of operations).

- Production delivered from a base (paragraph 5.61): Activities such as consulting, maintenance, training, technical assistance, and health care may be provided by a branch or from a home base. If operations are substantial enough to satisfy the criteria in paragraphs 5.57–5.58, a branch would be recognized as a (foreign) direct investment enterprise; otherwise, operations give rise to international trade in services.

- Mobile equipment and multiterritory pipelines (paragraphs 5.62–5.63):
  - Mobile equipment (ships, aircraft, drilling platforms, railway rolling stock) operating across territories: branch criteria apply. A secondary base with long-term presence and its own accounts may satisfy branch definition; if not, activities are included in the economy where the operator is resident.
  - A multiterritory pipeline not operated by a separate legal entity in a territory would be recognized as a branch if there is substantial presence and availability of separate accounts. If not separate institutional units, possible arrangements include payment of rent to a notional unit owning the land or a long-term lease, or a multiterritory enterprise as discussed elsewhere.

- Paragraph 5.64: When a branch is identified, there are (foreign) direct investment inflows to the territory, but the provision of goods or services to customers in that territory is a resident-to-resident transaction. If operations are not substantial enough to qualify as a branch, the provision of goods or services to customers in that territory are imports of that territory.

### Notional resident units for land, natural resources, and buildings owned by non-residents
- Paragraphs 5.49–5.65: Immovable assets such as land and other natural resources, and buildings and structures are treated as being owned by resident units except when the legal owner is actually non-resident. In that circumstance, an artificial unit called a notional resident unit is created in the SNA for statistical purposes.
- Treatment and purpose:
  - The notional resident unit is recorded as owning the asset and receiving the rent or rentals that accrue to the asset.
  - The legal owner owns the equity in the notional resident unit and receives income from the notional resident unit in the form of property income paid abroad.
  - This treatment ensures the relevant non-financial assets are assets of the economy in whose territory they are located so the land appears in that economy’s national balance sheet.
  - Exception: land and buildings in extraterritorial enclaves of foreign governments (such as embassies, consulates and military bases) that are subject to the laws of the home territory and not those of the territory where they are physically situated.

*Source: BPM7 chapter 4 (IMF).*

### 5.66 A

### BPM7 Chapter 4 — Selected institutional unit treatments (extract)

### Notional resident units and ownership of land and natural resources
- Notional resident units may be created when a non-resident has a resource lease to use immovable assets such as land, subsoil assets, non-cultivated biological resources, water, and rights to use these assets through a lease or other permit over long periods (paragraphs 5.66 A–5.71).
- Operations of a notional resident unit include:
  - holding the asset;
  - paying associated expenses (such as insurance, repairs, and taxes);
  - collecting rent or rental on the asset;
  - other transactions associated with those functions (paragraph 5.67).
- If the non-resident owner uses the property, the notional resident unit:
  - generates rent (for unimproved land, mineral rights, etc.) or rental included in travel or operating leasing services (for land with buildings or other improvements);
  - records income payable in kind to the owner and is treated as incurring expenses and taxes (paragraph 5.67).
- Payments by the non-resident owner to meet losses arising from these costs are recorded as direct investment flows from the owner to the notional resident unit (paragraph 5.67).
- Branch identification:
  - When ownership of land and natural resources is associated with substantial operations meeting the requirements in paragraphs 5.57–5.58, a branch is identified and a notional resident unit is not created (paragraph 5.68).
  - A branch has a full set of accounts and records all operational transactions (paragraph 5.69).
- Quasi-corporations and shared ownership:
  - If several partners own land and management is separate from individual owners, a quasi-corporation may be identified and non-resident partners own a share in the quasi-corporation, obviating a separate notional resident unit (paragraph 5.70).
  - The notional resident unit for ownership of land is almost always a (foreign) direct investment enterprise, except where an individual non-resident’s voting power is below 10 percent (treated under other investment/other equity) (paragraph 5.70).
- Time-share accommodation arrangements may give rise to a notional resident unit (paragraph 5.71).

### Multiterritory enterprises and prorating operations
- Definition and examples:
  - Multiterritory enterprises operate seamlessly over more than one economic territory with substantial activity in each but no separate accounts or decisions; examples include shipping lines, airlines, hydroelectric schemes on border rivers, pipelines, bridges, tunnels, and undersea cables (paragraphs 5.72–5.73).
- Regulatory and taxation considerations:
  - Governments usually require separate entities or branches in each economic territory for regulation and taxation; multiterritory enterprises may be exempted but may have arrangements such as a formula for payment of taxation to respective authorities (paragraph 5.73).
- Recommended statistical treatment:
  - Preferably identify separate institutional units for each economy; if not feasible, prorate total operations of the enterprise into individual economic territories (paragraph 5.74).
  - Factors for prorating may include equity shares, equal splits, or operational factors such as tonnages or wages; accepted taxation prorating formulas should be a starting point (paragraph 5.74).
  - Proration requires splitting all transactions into each component economic territory and has complex implementation and implications for other statistics; compilers in each territory should cooperate to ensure consistency and minimize respondent and compilation burden (paragraph 5.75).

### Groups of corporations, joint ventures, and related unit definitions
- Groups of corporations:
  - Large corporate groups or conglomerates should not be treated as single institutional units; each corporation remains a separate institutional unit regardless of group membership because subsidiaries produce complete sets of accounts and are legally separate (paragraphs 5.76–5.77).
- Joint ventures:
  - A joint venture establishes a corporation, partnership, or other unit with legal joint control; it maintains its own accounting records and may enter contracts and raise finance in its own name (paragraph 5.78).
  - Whether a quasi-corporation is identified for a joint venture without separate legal status depends on parties’ arrangements and legal requirements; a joint venture is a quasi-corporation if it meets institutional unit requirements, particularly by having its own records (paragraph 5.79).
  - There is a risk of omission or double-counting of joint ventures due to ambiguous status; particular attention is required (paragraph 5.80).

### Head offices, holding companies, and identification criteria
- Two types:
  - Head office: exercises managerial control and is actively engaged in production; described in ISIC Rev. 4 section M class 7010; allocated to non-financial corporations sector unless most subsidiaries are financial corporations (paragraphs 5.81–5.82).
  - Holding company: holds assets of subsidiaries and does not undertake management activities; described in ISIC Rev. 4 section K class 6420; always allocated to financial corporations sector and treated as captive financial institutions (paragraph 5.82).
- Practical identification:
  - Use balance sheet structure to identify head offices and holding companies as entities having at least 50 per cent of their assets consisting of equity vis-à-vis their subsidiaries (paragraph 5.83).
  - Employment-based distinction when management-control information is unavailable:
    - Head offices are actively engaged in production; zero employment indicates not a head office.
    - Holding companies may have very few or no employed personnel.
    - Employment thresholds should consider national circumstances; as a general indication, employment of three or more persons, or employment exceeding the national legal minimum employment, is a first indicator for a unit being a head office (paragraph 5.84).
- Principles on institutional independence:
  - Standard institutional unit criteria always apply.
  - Head offices are always separate institutional units.
  - Holding companies owned by non-residents are always institutional units.
  - Holding companies with multiple parents or shareholders are sufficient to qualify as institutional units.
  - For holding companies wholly owned by a single resident unit, “no employees and no remuneration of employees” is not sufficient to conclude lack of institutional independence but is an indicator for further investigation (paragraph 5.85).

### Special purpose entities (SPEs) and related classifications
- Macro definition of SPEs (paragraph 5.86):
  - a. An SPE, resident in an economy, is a formally registered and/or incorporated legal entity recognized as an institutional unit, with no or little employment up to maximum of five employees, no or little physical presence, and no or little physical production in the host economy.
  - b. SPEs are directly or indirectly controlled by non-residents.
  - c. SPEs are established to obtain specific advantages provided by the host jurisdiction with objectives to (i) grant its owner(s) access to capital markets or sophisticated financial services; and/or (ii) isolate owner(s) from financial risks; and/or (iii) reduce regulatory and tax burden; and/or (iv) safeguard confidentiality of their transactions and owner(s).
  - d. SPEs transact almost entirely with non-residents and a large part of their financial balance sheet typically consists of cross-border claims and liabilities.
- Special purpose units/vehicles:
  - Some units incorporated in the same economy as their parents may satisfy the SPE criteria except for non-resident control; these are sometimes called “special purpose units/vehicles” and are typically consolidated with resident parents unless they operate autonomously and can be considered separate institutional units (paragraphs 5.87–5.56).
  - Residence of a unit lacking physical dimension is determined by the economic territory under whose laws the enterprise is incorporated or registered (paragraph following 5.56).
- Typical SPE features and operations:
  - Often no employees and no non-financial assets; little physical presence beyond registration; managed by employees of another corporation; pay fees for services and charge parents to cover costs; may incur liabilities on behalf of owners and receive investment income and holding gains (paragraphs 5.56–5.57).
- Statistical recommendations:
  - Where SPE presence is significant, separate identification of SPEs as an “of which” supplementary item is recommended (paragraph 5.88).
  - In external sector statistics, identifying SPEs as supplementary (“of which”) items for deposit-taking corporations, other financial corporations, and nonfinancial corporations sectors is strongly recommended where such units’ economic activity is significant (paragraph 5.89).
- Treatment in macro statistics:
  - Units with SPE characteristics are treated like any other institutional unit by allocation to sector and industry according to principal activity unless they fall into one of three categories: (a) Captive financial institutions, (b) Artificial subsidiaries of corporations, (c) Special purpose units of general government (paragraph 5.90).

### Captive financial institutions and related assessments
- Examples and scope:
  - Holding companies that simply own subsidiary assets are examples of captive financial institutions. Other units treated as captive financial institutions include units with SPE characteristics used for holding and managing wealth, holding assets for securitization, issuing debt securities, raising or borrowing funds on behalf of related companies (conduits), securitization vehicles, intra-group lending companies, captive factoring and invoicing companies, captive financial functions, leasing companies, etc. (paragraphs 5.59–5.91).
- Classification criteria:
  - Demonstrable independence is shown by exercising substantive control over assets and liabilities, carrying risks and reaping rewards associated with assets and liabilities; such units are classified in the financial corporations sector (paragraph 5.92).
  - Entities that cannot act independently and are passive holders of assets and liabilities are not treated as separate institutional units unless resident in an economy different from that of their parent; if resident in the same economy as the parent, they are treated as “artificial subsidiaries” (paragraph 5.93).

*Source: BPM7 Chapter 4 (selected paragraphs).*

### 5.94 More guidance on the treatment of trusts and similar types of funds which hold and manage financial and

### bpm7-ch4 - 5.94 More guidance on the treatment of trusts and similar types of funds which hold and manage financial and

### Artificial subsidiaries of corporations and quasi-corporations
- Paragraphs 5.62–5.66 discuss corporations created by parents to provide services, avoid taxes, minimize liabilities, or secure technical advantages (examples: subsidiaries that lease assets back to parent, nominal employers of staff, separate accounting units, favourable funding/regulatory treatments, “dormant” subsidiaries).
- Paragraph 5.64: Such entities typically do not satisfy the SNA definition of an institutional unit because they lack the ability to act independently from their parent and may be restricted in holding/ transacting assets; their output and prices are determined by the parent. They are generally consolidated with the parent.
- Paragraph 5.65: Passive SPEs (entities on “auto-pilot”) are consolidated with their parent unless resident in a different economy from the parent.
- Paragraph 5.65–5.66: Quasi-corporations such as partnerships or trusts set up by a parent for similar reasons are also treated as integral to the parent and consolidated with the parent unless resident in another country.
- Paragraph 5.66: Distinction between artificial subsidiaries and units undertaking only ancillary activities: ancillary activities (cleaning, payroll, IT) are limited in scope; such units generally will not satisfy institutional unit conditions but may sometimes be treated as separate establishments if analytically useful.

### Special purpose units of general government (SPUs / SPEs)
- Paragraph 5.67 / 5.100:
  - General government may set up special units with characteristics like captive financial institutions or artificial subsidiaries; these units often cannot act independently, are restricted in transactions, and do not carry risks/rewards of assets/liabilities they hold.
  - Resident special purpose units that function only passively for general government and carry out fiscal/quasi-fiscal activities do not satisfy institutional unit criteria and are treated as part of general government regardless of legal status.
  - Resident special purpose units that act independently, acquire assets and incur liabilities on their own behalf, and accept associated risk are treated as separate institutional units and classified according to principal activity.
- Paragraph 5.101:
  - Special purpose units resident in a different country than their controlling government (SPEs) are always classified as separate institutional units in the economy where established.
  - All flows and stock positions between general government and such SPEs should be recorded in the accounts for general government and the rest of the world when they occur.
- Paragraph 5.102:
  - If a government creates an SPE to borrow or incur outlays abroad for fiscal purposes, flows and stock positions should be imputed in the accounts of both government and the rest of the world to reflect fiscal activities undertaken by the SPE. (Cross-reference: chapter 30 / BPM7 chapter 8.)

### Trusts and similar types of funds
- Paragraph 5.103: Definition and role
  - Trusts: arrangements where a trustee holds property as nominal owner for beneficiaries; trustee holds, manages, and administers funds on behalf of the settlor; fiduciary duty to act in beneficiaries’ best interest; responsibilities include investment decisions, administration, distribution, and tax oversight.
- Paragraph 5.104: Types of trustees (listed)
  - Charitable trustees
  - Investment trustees
  - Successor trustees
  - Corporate trustees
  - Bankruptcy trustees
- Paragraph 5.105: Economic ownership
  - Trustee may be legal owner but not economic owner; accumulated assets constitute a separate fund not part of trustee’s assets; trustees typically not exposed to risks and rewards of assets.
- Paragraph 5.106–5.107: Institutional unit test and pragmatic criteria
  - Standard institutional unit criteria apply for trusts resident in the same economy as beneficiaries; trusts resident in a different economy than beneficiaries are always treated as separate institutional units.
  - Practical difficulty in assessing autonomy of decision may lead to using allocation of risks and rewards as pragmatic criterion:
    - If trustee/fund manager bears risks and rewards, trust lacks autonomy and fund manager may be a financial intermediary.
    - If beneficiary/beneficiaries bear risks and rewards:
      - Single beneficiary assuming all risks/rewards → accumulated assets assigned to sector of beneficiary/investor.
      - Multiple beneficiaries → decision process more complex; if trustee not exposed to risks/rewards and multiple beneficiaries bear risks/rewards → trust may be treated as a separate institutional unit.
  - Classification outcomes (paragraph 5.107):
    - Trusts/funds with multiple beneficiaries/investors generally classified as S.127 Captive financial institutions and moneylenders if beneficiaries/investors are restricted to a particular group and not open to the public.
    - If open to the public, trust/fund can be considered part of S.123 Money market funds or S.124 Non-MMF investment funds.
    - Non-resident trusts/funds with single beneficiaries/investors always qualify as captive financial institutions (S.127).
  - Reference: Decision tree for treatment of trusts and similar funds presented in figure 5.2 (2025 SNA).
- Paragraph 5.108: Government-created trusts
  - Government/public sector units may create trusts; trustees may be part of the public sector or not.
  - Trusts may be legally private while risks and rewards remain with government — requires case-by-case analysis and application of market/non-market test for sector classification.
- Paragraph 5.109–5.110: Other uses of “trust”
  - Family trusts that own corporations or undertake business activities may qualify as quasi-corporations and be classified as holding companies in S.127 or as part of non-financial corporations; apply quasi-corporation criteria (availability of accounts; operated as separate corporation).
  - Unit trusts or investment trusts are investment funds using a trust structure; treated similarly to other investment funds.
- Paragraph 5.111: Pension schemes
  - Pension schemes may be set up as collective trusts (e.g., funded employee pension schemes); treatment similar to other pension schemes (see chapter 24 for more guidance).

### Ownership and control of corporations (summary of key control thresholds and definitions)
- Paragraphs 5.112–5.115:
  - Ownership vs control: ownership = shareholdings; control = ability to determine general corporate policy (broadly: key financial and operating policies relating to strategic objectives).
  - Control is generally determined to exist if an investor owns more than 50 per cent of the voting power (i.e., more than half of equity); control may be direct or indirect.
  - It is possible for control to exist with less than 50 per cent when voting rights are dispersed, but no universal minimum below 50 per cent guarantees control; in practice, private control is determined by more than 50 per cent ownership of voting power.
  - Governments exercising control may require broader indicators of control (see paragraphs 5.121–5.124).
- Paragraphs 5.116–5.118 (subsidiaries):
  - Corporation B is a subsidiary of A when:
    - a. Corporation A controls more than half of shareholders’ voting power (i.e., more than half of equity) in B; or
    - b. Corporation A has the right to appoint/remove a majority of B’s directors.
  - Parent–subsidiary relationship is defined by control and is transitive (if C subsidiary of B and B subsidiary of A, then C is subsidiary of A).
- Paragraphs 5.119–5.120 (associates):
  - Corporation B is an associate of A when A and its subsidiaries control between 10 per cent and 50 per cent of shareholders’ voting power in B so that A has some influence over B’s corporate policy and management.
  - Influence over an associate is weaker than over a subsidiary and groups of associates may not be well defined.
- Paragraph 5.121 (public corporations):
  - A corporation is a public corporation if a government unit, another public corporation, or a combination controls the entity (control defined as ability to determine general corporate policy).

*Extracted from the chapter text (paragraphs 5.94–5.121) of the draft BPM7 / 2025 SNA guidance.*

### 5.122 Because  governments  exercise  sovereign  powers  through  legislation,  regulations,  orders  and  the

### bpm7-ch4 - 5.122 Because  governments  exercise  sovereign  powers  through  legislation,  regulations,  orders  and  the

### Government exercise of sovereign powers and corporate control (paragraphs 5.122–5.124)
- Because governments exercise sovereign powers through legislation, regulations, orders and the like, care must be applied in determining whether the exercise of such powers amounts to a determination of the general corporate policy of a particular corporation and therefore control of the corporation (5.122).
- Laws and regulations applicable to all units as a class or to a particular industry should not be viewed as amounting to control of these units (5.122).
- The ability to determine general corporate policy does not necessarily include direct control of day-to-day activities or professional, technical or scientific judgments, which are normally part of the corporation’s core competence (5.123).
- Example: professional or technical judgments by a corporation set up to certify aircraft airworthiness would not be considered controlled in respect of individual approvals and disapprovals, though broader operating and financial policies, including airworthiness criteria, may be determined by a government unit as part of corporate policy (5.123).

### Indicators normally used to assess control of corporations (paragraph 5.124)
- The following eight indicators will normally be the most important and likely factors to consider (5.124):
  - a. Ownership of the majority of the voting interest.
    - Owning a majority of shares will normally constitute control when decisions are made on a one-share one-vote basis.
    - Shares may be held directly or indirectly; shares owned by all other public entities should be aggregated.
    - If decisions are not made on a one-share one-vote basis, classification should be based on whether shares owned by other public entities provide a majority voice (5.124a).
  - b. Control of the board or other governing body.
    - Ability to appoint or remove a majority of the board or governing body as a result of legislation, regulation, contractual, or other arrangements will likely constitute control.
    - Even a right to veto proposed appointments can be a form of control if it influences choices.
    - If another body appoints directors, examine its composition for public influence.
    - If a government appoints the first set of directors but does not control replacement appointments, the body is part of the public sector only until the initial appointments expire (5.124b).
  - c. Control of the appointment and removal of key personnel.
    - Appointment of key executives (chief executive, chairperson, finance director) may be decisive where board control is weak.
    - Non-executive directors on key committees (e.g., remuneration committee) may be relevant (5.124c).
  - d. Control of key committees of the entity.
    - Subcommittees may determine key operating and financial policies; majority public sector membership on these subcommittees could constitute control (5.124d).
  - e. Golden shares and options.
    - A “golden share” may give residual rights to protect public interests (e.g., prevent sale of certain assets, appoint a special director).
    - A golden share alone is not indicative of control; if powers conferred allow the government to determine general corporate policy in current circumstances, the entity should be in the public sector from that date (5.124e).
    - Share purchase options available to a government may be similar in concept; assess whether exercise would give the government the ability to determine corporate policy (5.124e).
    - Entity status should be based on the government’s existing ability to determine corporate policy under normal conditions rather than exceptional circumstances (5.124e).
  - f. Regulation and control.
    - Distinguish regulation applying to all entities within a class or industry from control of an individual corporation.
    - Regulatory involvement (e.g., in price setting) does not necessarily imply ceding control of general corporate policy.
    - Choosing to operate in a highly regulated environment suggests the entity is not subject to control; regulation that effectively dictates how the entity performs its business could be a form of control (5.124f).
    - If an entity retains unilateral discretion regarding funding or commercial interactions with a public sector entity, it has the ultimate ability to determine its own corporate policy (5.124f).
  - g. Control by a dominant customer.
    - If all sales are to a single public sector customer or group of public sector customers, dominant influence is possible.
    - Presence of a minority private sector customer usually implies independent decision-making and absence of control.
    - If the corporation could not choose to deal with non-public sector clients because of public sector influence, public control is implied (5.124g).
  - h. Control attached to borrowing from the government.
    - Lenders often impose controls as loan conditions; if government-imposed controls exceed what would be typical for a healthy private sector borrower, control may be indicated.
    - Control may be implied if only the government was prepared to lend (5.124h).
- A single indicator may be sufficient to establish control; multiple indicators may collectively indicate control. Decisions based on the totality of indicators are judgmental but should be consistent across similar cases (5.124 concluding paragraph).

### Control by non-resident units and treatment in the balance of payments (paragraphs 5.81, 5.125–5.126)
- In general, a non-resident unit controls a resident corporation if the non-resident unit owns more than 50 per cent of the equity of the corporation (5.81).
- Branches of non-resident corporations are by their nature always under foreign control (5.81).
- Control may also be possible with a holding of less than half the equity if the non-resident unit can exercise powers such as control of the board, appointment/removal of key personnel, or control of key committees (5.81).
- Within the balance of payments, control is determined to exist through:
  - (i) an immediate (foreign) direct investment relationship where the direct investor owns more than 50 per cent of the voting power in the (foreign) direct investment corporation; or
  - (ii) an indirect (foreign) direct investment relationship arising from ownership of voting power in one direct investment corporation that owns voting power in another corporation(s) – indirectly through a chain of control (5.125).
- Distinction between control and influence:
  - Corporations where over 50 per cent of the equity is held by non-residents are considered controlled; those with between 10 and 50 per cent of equity held abroad represent a significant degree of influence (5.126).
  - All corporations with foreign holdings of 10 per cent or more are described as foreign direct investment enterprises and special treatment of their earnings is applied (5.126).
  - While all foreign controlled corporations are foreign direct investment enterprises, the reverse is not true (5.126).
    - Example: a publicly controlled corporation may still be a foreign direct investment enterprise if, in addition to government controlling half of the equity, a further 10 per cent is owned by a non-resident (5.126).

### Non-profit institutions (NPIs) in macroeconomic statistics (paragraphs 5.127–5.133)
- Definition and core characteristic:
  - NPIs are legal or social entities created for producing goods and services whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control or finance them (5.127).
  - Any operating surpluses cannot be appropriated by other institutional units; articles of association prevent controllers from claiming profits, and NPIs are frequently exempted from various kinds of taxes (5.127).
- Origins and motives:
  - NPIs may be created by households, corporations, or government; motives include providing services for benefit of controlling units, charitable/philanthropic/welfare reasons, providing health or education services for a fee but not for profit, or promoting interests of pressure groups in business or politics (5.128).
- Characteristics of NPIs (summary of main features, 5.129):
  - a. Most NPIs are legal entities recognized independently of their founders; the purpose is usually stated in articles of association. Some NPIs may be informal entities recognized by society without formal legal status (5.129a).
  - b. (text indicates production of non-market goods or services for households) (5.129b).
  - c. Many NPIs are controlled by associations whose members have equal rights, including equal votes on major decisions; members enjoy limited liability (5.129c).
  - d. There are no shareholders with a claim on profits or equity; members are not entitled to a share in profits or surplus, which are retained within the NPI (5.129d).
  - e. Direction is usually vested in officers or an executive committee elected by simple majority vote of members; these officers appoint paid managers (5.129e).
  - f. The term “non-profit institution” reflects that members are not permitted to gain financially from operations and cannot appropriate surpluses; it does not imply NPIs cannot make an operating surplus (5.129f).
- Tax treatment and production type:
  - NPIs may be subject to preferential tax treatment, possibly exemption from income tax, but this is not a determining factor in identification (5.130).
  - It is important to distinguish between NPIs engaged in market and non-market production, as this affects sector allocation; NPIs do not necessarily engage in non-market production (5.131).
- NPIs engaged in market production (5.132):
  - Market producers sell most or all output at prices that are economically significant (i.e., prices that have a significant influence on supply and demand).
  - Examples: schools, colleges, universities, clinics, hospitals constituted as NPIs are market producers when fees are based on production costs and sufficiently high to influence demand; production must generate an operating surplus or loss and surpluses must be retained (5.132).
  - NPIs can raise funds via donations and endowments that may enable them to charge fees below average costs; they remain market producers so long as fees are determined mainly by production costs and have significant impact on demand (5.132).
- Market NPIs serving enterprises (5.133):
  - Market NPIs serving enterprises are often created by associations of enterprises and include chambers of commerce, agricultural/manufacturing/trade associations, employers’ organizations, research/testing laboratories.
  - These NPIs are usually financed by contributions or subscriptions from controlling enterprises; subscriptions are treated as payments for services rendered and NPIs are classed as market producers.
  - When chambers of commerce or similar organizations intended for enterprises are controlled by government units, they are classified as non-market NPIs and allocated to the general government sector (5.133).

*Source: BPM7, chapter 4 (IMF).*

### 3. NPIs engaged in non-market production

### 3. NPIs engaged in non-market production

### Definition and principal finance of non-market NPIs
- Non-market producers are producers that provide most of their output to others free or at prices that are not economically significant. (5.90–5.91)
- NPIs engaged mainly in non-market production:
  - Are incapable of providing financial gain to the units that control or manage them.
  - Rely principally on funds other than receipts from sales to cover their costs of production or other activities. (5.90–5.91)
- Principal sources of finance may include:
  - Regular subscriptions paid by members of the association that controls them.
  - Transfers or donations from third parties, including government.
  - Property income. (5.90–5.91)

### Classification by control and sector allocation
- NPIs engaged mainly in non-market production are divided into two groups: those controlled by government and those that are not. (5.91–5.93)
  - NPIs controlled by government are included in the general government sector. (5.91–5.93)
  - NPIs not controlled by government are described as “non-profit institutions serving households” (NPISHs) and constitute a separate sector in the SNA macroeconomic statistics. (5.91–5.93)
- All NPIs allocated to the general government sector should retain their identity as NPIs in statistical records to facilitate analysis of the complete set of NPIs. (5.92–5.92)

### Indicators of government control (five indicators)
- Control of an NPI is defined as the ability to determine the general policy or programme of the NPI. (5.92–5.92)
- The five indicators to consider when determining whether an NPI is controlled by government are: (5.92–5.92)
  - a. The appointment of officers.  
    - The government may have the right to appoint the officers managing the NPI either under the NPI’s constitution, its articles of association or other enabling instrument. (5.92)
  - b. Other provisions of enabling instrument.  
    - The enabling instrument may contain provisions (beyond appointment rights) that allow government to determine significant aspects of the general policy or programme (e.g., specify or limit functions, objectives, require prior approval of budgets, veto appointments, prevent constitutional changes, dissolution, or termination without government approval). (5.92)
  - c. Contractual agreements.  
    - Existence of a contractual agreement between a government and an NPI may allow government to determine key aspects of the NPI’s general policy or programme. If the NPI remains ultimately able to determine its policy or programme to a significant extent (such as by reneging on the contract and accepting consequences, or by changing its constitution or dissolving itself without requiring government approval other than that required under general regulations), it would not be considered controlled by government. (5.92–5.92)
  - d. Degree of financing.  
    - An NPI that is mainly financed by government may be controlled by that government. Generally, if the NPI remains able to determine its policy or programme to a significant extent as described above, then it would not be considered controlled by government. (5.92)
  - e. Risk exposure.  
    - If a government openly allows itself to be exposed to all, or a large proportion of, the financial risks associated with an NPI’s activities, then the arrangement constitutes control. The criteria are the same as in the previous two indicators. (5.92)
- A single indicator could be sufficient to establish control in some cases; in other cases, a number of separate indicators may collectively indicate control. Decisions based on the totality of indicators will necessarily be judgmental. (5.92–5.92)

### Non-profit institutions serving households (NPISHs)
- NPISHs consist of non-market NPIs that are not controlled by government. (5.93–5.93)
- NPISHs provide goods and services to households free or at prices that are not economically significant. (5.93)
- Most goods and services provided by NPISHs represent individual consumption, but NPISHs may also provide collective services. (5.93)

### Linkages to corporate sectors: NPIs as market producers and subsectoring
- Non-financial corporations are corporations whose principal activity is the production of market goods or non-financial services. The non-financial corporations sector includes: (5.94–5.94)
  - a. All resident non-financial corporations (as understood in the SNA macroeconomic statistics and not just restricted to legally constituted corporations), regardless of the residence of their shareholders. (5.94)
  - b. Branches of non-resident enterprises engaged in non-financial production on the economic territory on a long-term basis. (5.94)
  - c. All resident NPIs that are market producers of goods or non-financial services. (5.94)
- Some non-financial corporations or quasi-corporations may have secondary financial activities (for example, producers or retailers providing consumer credit directly). Such units are classified in their entirety to the non-financial corporate sector provided their principal activity is non-financial. Sectors are groups of institutional units and the whole of each institutional unit must be classified to one sector even though the unit may be engaged in more than one type of economic activity. (5.95–5.95)

### Subsectors of the non-financial corporations sector
- Two classification criteria are used to subsector the non-financial corporations sector: (5.96–5.96)
  - Separate NPIs from other units in the sector (other units described as for profit institutions, FPIs). (5.96)
  - Control to show: (5.96)
    - a. Public non-financial corporations (Of which: public corporations which are part of a domestic multinational enterprise). (5.96)
    - b. National private non-financial corporations (Of which: national private corporations which are part of a domestic multinational enterprise). (5.96)
    - c. Foreign-controlled non-financial corporations. (5.96)
- The criteria for control of corporations and NPIs by government and non-resident units are described in detail elsewhere in the system. Corporations controlled by non-resident units are described as being foreign controlled. (5.96)
- Full subsectoring can be represented as a two-way table (table 4.15.2). Presentation depends on analytical and statistical considerations; some control categories may be empty or sparse for confidentiality reasons. It is recommended at the least to compile data for the left-most column based on control to monitor globalization’s impact on income generation and asset/liability accumulation. (5.97–5.97)
- Table 5.2 (2025 SNA) presents subsectors distinguishing NPIs and FPIs within public, private, and foreign-controlled categories and includes entries such as “Of which: Part of a domestic multinational enterprise” and “Of which: Special Purpose Entities (SPEs).” (5.98–5.98)

### Financial corporations sector: NPIs as market producers of financial services and subsectoring
- Financial corporations consist of all resident corporations principally engaged in providing financial services, including insurance and pension funding services. The central bank is also treated as a financial corporation. (5.98–5.98)
- The financial corporations sector comprises: (5.98–5.98)
  - a. All resident financial corporations (as understood in the SNA macroeconomic statistics and not just restricted to legally constituted corporations), regardless of the residence of their shareholders. (5.98)
  - b. Branches of non-resident enterprises that are engaged in financial activity on the economic territory on a long-term basis. (5.98)
  - c. All resident NPIs that are market producers of financial services. (5.98)
- Financial production is typically the result of financial intermediation, financial risk management, liquidity transformation or auxiliary financial activities. Because provision of financial services is typically strictly regulated, units providing financial services usually do not produce other goods and services and financial services are not typically provided as secondary production. (5.98–5.98)
- Financial innovation examples where non-financial enterprises undertake financial activity directly include producers/retailers providing consumer credit and enterprises raising funds by selling their own obligations on markets. Classification as non-financial requires that: (5.99–5.99)
  - a. The non-financial enterprise does not create a new institutional unit to carry out the financial activity. (5.99)
  - b. The financial activity remains secondary to the principal activity of the enterprise. (5.99)
- Financial corporations can be divided into three broad classes: financial intermediaries, financial auxiliaries, and other financial corporations. (5.101)
  - Financial intermediaries incur liabilities on their own account to acquire financial assets via market transactions and include insurance corporations and pension funds. (5.101)
  - Financial auxiliaries serve financial markets but do not take ownership of the financial assets/liabilities they handle. (5.101)
  - Other financial corporations provide financial services where most assets or liabilities are not available on open financial markets. (5.101)
- The financial corporations sector can be divided into nine subsectors in the SNA and external sector statistics; subsector 6 corresponds to financial auxiliaries; subsector 7 corresponds to other financial corporations. (5.102–5.102)
- In external accounts the nine subsectors are arranged so that: (5.146)
  - a. The standard components use three subsectors (central bank; deposit-taking corporations except the central bank; and the other seven subsectors combined as “other financial corporations”). (5.146)
  - b. The functional category classification of debt positions between affiliated financial intermediaries is defined in terms of the first five subsectors (central bank; deposit-taking corporations except the central bank; money market funds (MMFs); non-MMF investment funds; and other financial intermediaries except insurance corporations and pension funds). Such debt is excluded from direct investment. (5.146)
- The financial corporations sector can also be subsectored like the non-financial corporate sector to show NPIs vs FPIs and public vs national private vs foreign controlled units. A breakdown of the financial corporations sector into subsectors based on control is recommended. (5.148–5.148)
- The recommended activity-based breakdown may not capture developments such as non-bank financial intermediation; further breakdowns and supplementary items are encouraged. “Fintech” is defined as technology-enabled innovation in financial services that could materially affect provision of financial services; countries where fintech activities are significant are encouraged to compile further breakdowns of relevant subsectors as supplementary items. Identification of “of which” category for fintech companies within subsector classification is recommended in external accounts. (5.149–5.150)

### Central bank as a financial corporation subsector
- The central bank is the national financial institution that exercises control over key aspects of the financial system; principal functions generally include conducting monetary policy (issuing currency, regulating money supply and credit), managing international reserves and the payments system, promoting financial stability (including regulation and macroprudential supervision), and acting as banker to government. (5.104–5.151)
- Institutional units classified in the central bank subsector typically include: (5.151)
  - a. The national central bank (including where part of a system of central banks). (5.151)
  - b. Currency boards or independent currency authorities issuing national currency fully backed by foreign exchange reserves. (5.151)
  - c. Central monetary agencies of essentially public origin that keep a complete set of accounts but are not classified as part of central government. (5.151)
  - d. National agencies, including notional resident units, of centralized currency unions. (5.151)
- As long as the central bank is a separate institutional unit, it is always allocated to the financial corporations sector even if it is primarily a non-market producer. (5.151)
- If an institutional unit is mainly engaged in central banking activities, the entire unit is classified in the central bank subsector. Activities of regulation/supervision included in central bank subsector only when performed by the central bank as a separate institutional unit; if performed by separate affiliated units, those units are classified as financial auxiliaries. (5.152)
- Economies without central banks treat typical central banking activities performed by general government and not separable into specific institutional units as part of general government, not allocated to the central bank subsector. (5.153)

*International Monetary Fund, BPM7 Chapter 4.*

### 5.154 In  economies  in  which  some  central  banking  functions  are  performed  wholly  or  partly  outside  the  cen

### bpm7-ch4 - 5.154 In economies in which some central banking functions are performed wholly or partly outside the central bank

### Monetary authorities and supplementary data
- 5.154 In economies in which some central banking functions are performed wholly or partly outside the central bank, particularly holding reserve assets, consideration should be given to compiling supplementary data for the monetary authorities.

### Deposit-taking corporations except the central bank (subsector overview)
- 5.105 / 5.155 Deposit‐taking corporations except the central bank have financial intermediation as their principal activity; their liabilities (deposits or close substitutes) are typically included in measures of money broadly defined.
- 5.106 / 5.156 Typical entities classified in this subsector:
  - a. Commercial banks, “universal” banks, “all-purpose” banks;
  - b. Savings banks (including trustee savings banks and savings and loan associations);
  - c. Post office giro institutions, post banks, giro banks;
  - d. Rural credit banks, agricultural credit banks;
  - e. Cooperative credit banks, credit unions;
  - f. Electronic money institutions;
  - f.g. Specialized banks or other financial corporations if they take deposits or issue close substitutes for deposits.;
  - h. Traveler’s check companies that mainly engage in financial intermediation;
  - i. Offshore banks which are incorporated or registered in the country.
- 5.157 Liabilities of deposit-taking corporations to residents are typically included in measures of broad money. The money-issuing sector may be identified on a supplementary basis and consists of the central bank plus deposit-taking corporations plus other institutions that issue liabilities included in the definition of broad money (e.g., money market funds).

### Money market funds (MMFs)
- 5.107 / 5.158 Definition and characteristics:
  - MMFs are collective investment schemes that raise funds by issuing shares or units to the public.
  - Proceeds are invested primarily in money market instruments, MMF shares or units, transferable debt instruments with a residual maturity of not more than one year, bank deposits and instruments that pursue a rate of return that approaches the interest rates of money market instruments.
  - MMF shares can often be transferred by cheque or other means of direct third-party payment.
  - Because of the nature of the instruments the schemes invest in, their shares or units may be regarded as close substitutes for deposits.
- 5.159 Unit trusts or investment trusts primarily investing in similar instruments are also classified as MMFs, unless the investors are restricted to a particular group of entities.

### Non-MMF investment funds
- 5.108 / 5.160 Definition and characteristics:
  - Non-MMF investment funds raise funds by issuing shares or units to the public and invest predominantly in longer-term financial assets other than short-term assets, such as equity shares, bonds, mortgage loans, and non-financial assets (usually real estate).
  - Investment fund shares or units are generally not close substitutes for deposits and are not transferable by cheque or direct third-party payment.
  - Funds can be open-ended (repurchased or redeemed on request) or closed-ended (fixed share capital, traded on secondary markets).
  - Fund managers of investment funds are generally classified as financial auxiliaries (see paragraphs 5.171 – 5.173).
- 5.161 Hedge funds: heterogeneous collective investment schemes, typically involving high minimum investments, light regulation, and a wide range of investment strategies, via leverage.
- 5.162 Special purpose government funds (sovereign wealth funds) and trusts set up to manage wealth of a limited group of beneficiaries are more likely to be classified as captive financial institutions (see paragraphs 5.174 – 5.175).
- 5.163 Unit trusts or investment trusts investing in similar instruments as 5.160 are classified as non-MMF investment funds, unless investors are restricted.
- 5.164 Funds that own and rent out dwellings and/or commercial property are classified in the non-financial corporations sector (providers of rental and other real estate services), not as financial corporations. Investment funds primarily investing in debt and equity instruments of companies owning property qualify as non-MMF investment funds.
- 5.165 Investment funds investing directly in non-financial assets (crypto assets, gold and other valuable metals, high-end wines and whiskies) are classified as non-MMF investment funds because returns mainly relate to holding gains.
- 5.166 Fund-of-funds:
  - Distinguish “fettered” fund-of-funds (invest only in funds managed/administered by the same management company) versus “non-fettered” fund-of-funds (invest in any fund).
  - Non-fettered funds should be treated as separate institutional units.
  - Fettered fund-of-funds and individual funds typically share the same management company (classified in subsector S.126 Financial auxiliaries); consolidation is not automatic and depends on shareholder participation.
  - An analytically useful consolidation may occur when a fettered fund-of-funds invests in individual funds with no participation by third-party shareholders.
- 5.167 Asset management provided by commercial banks:
  - If risks and rewards are with the investor(s), assets should be consolidated with the investor’s accounts if they constitute a single institutional unit (e.g., managed accounts) or with a separate institutional unit classified as money-market funds or non-MMF investment funds, assuming separability of assets and liabilities.
- 5.168 Investment funds set up/owned by another institutional investor (e.g., a pension scheme) should be consolidated with the investor if the fund only serves a single investor, unless the fund clearly has autonomy of decision. Non-resident funds serving a single investor should be classified in subsector S.127 Captive financial institutions and money lenders. Autonomy of decision concerns the degree of independence in making investment policy decisions.

### Other financial intermediaries, except insurance corporations and pension funds (ICPFs)
- 5.109 / 5.169 Definition:
  - Financial corporations engaged in providing financial services by incurring liabilities other than currency, deposits or close substitutes on their own account to acquire financial assets by engaging in financial transactions on the market; transactions on both sides of the balance sheet are carried out in open markets.
- 5.110 / 5.170 Typical entities in this subsector:
  - a. Financial corporations engaged in the securitization of assets. Securitization involves raising funds by selling a security backed by specific assets or income streams; vehicles are included if legal owner of portfolio, issues securities sold to investors, and has or potentially has a full set of accounts. If portfolio is not transformed or vehicle does not bear market/credit risks, it can be combined with parent (same economy) or treated as a captive financial institution (different economy).
  - b. Underwriters, security and derivative dealers (operating on own account). Security brokers that arrange trades but do not purchase and hold securities on their own account are classified as financial auxiliaries (see paragraph 5.173 (b)).
  - c. Financial corporations engaged in lending, including finance associates of retailers (financial leasing, personal or commercial finance).
  - d. Central clearing counterparties that provide clearing and settlement transactions in securities and derivatives; clearing involves offsetting obligations/entitlements, settlement involves actual exchange of securities/derivatives and corresponding payments; central clearing counterparties mitigate counterparty risk.
  - e. Specialized financial corporations (investment banks) that assist other corporations in raising funds in equity and debt markets and provide strategic advisory services; they may also invest own funds in private equity, hedge funds, venture capital, and collateralized lending. If they take deposits or close substitutes they are classified as deposit-taking corporations.
  - f. Bank restructuring agencies.
  - g. Specialized financial corporations providing short-term financing for corporate mergers and takeovers; export/import finance; factoring services; venture capital and development capital firms.

### Financial auxiliaries
- 6 / 5.111 / 5.171 Definition:
  - Financial auxiliaries are financial corporations principally engaged in activities associated with transactions in financial assets and liabilities or with providing the regulatory context for these transactions, without taking ownership of the financial assets and liabilities being transacted.
- 5.172 Corporations facilitating financial transactions (central clearing counterparties, stock exchanges, derivative exchanges, repurchase agreement settlement institutions) are financial intermediaries if they act as principals; otherwise they are financial auxiliaries.
- 5.112 / 5.173 Typical entities classified as financial auxiliaries:
  - a. Insurance brokers, salvage and claims adjusters, insurance and pension consultants;
  - b. Loan brokers, securities brokers that arrange trades but do not purchase/hold securities on their own account, investment advisers (securities dealers that trade on own account are other financial intermediaries);
  - c. Flotation corporations that manage the issue of securities;
  - d. Corporations whose principal function is to guarantee, by endorsement, bills and similar instruments;
  - e. Corporations that arrange derivative and hedging instruments (without issuing them);
  - f. Corporations providing infrastructure for financial markets such as securities depository companies, custodians, clearing offices facilitating transactions without acting as counterparty (central clearing counterparties are intermediaries rather than auxiliaries);
  - g. Manager of pension funds, investment funds and other mutual funds (but not the funds they manage);
  - h. Stock exchanges, insurance exchanges, and commodity and derivative exchanges; crypto exchanges that facilitate buying and selling of different crypto assets;
  - i. Foreign exchange bureauxbureaus;
  - j. Non-profit institutions recognized as independent legal entities serving financial corporations;
  - k. Head offices of financial corporations principally engaged in controlling financial corporations or groups but not conducting the business of financial corporations themselves;
  - l. Central supervisory authorities of financial intermediaries and financial markets when they are separate institutional units;
  - m. Corporations primarily involved in operation of electronic payment mechanisms that do not incur liabilities against the instruments (if they do incur liabilities against the instruments, then they are other financial intermediaries except ICPFs);
  - n. Resident offices of foreign banks that do not accept deposits or extend credit on their own account.

### Captive financial institutions and money lenders
- 7 / 5.113 / 5.174 Definition:
  - Captive financial institutions and money lenders provide financial services where most assets or liabilities are not transacted on open financial markets; they transact within a limited group of units (such as subsidiaries) or provide loans from own funds provided by only one sponsor.
  - Distinguished from other financial intermediaries by serving a limited group for at least one side of their balance sheet.
- 5.114 / 5.175 Typical entities classified in this subsector:
  - a. Units such as trusts, estates, or agency accounts or brass plate companies where a restricted group of beneficiaries assumes the risks and rewards, or where a single beneficiary assuming the risks and rewards is resident in another country.
  - b. Holding corporations that hold only the assets (owning controlling-levels of equity) of a group of subsidiary corporations and whose principal activity is owning the group without providing other services (they do not administer or manage other units).
  - c. Special purpose units or conduits that qualify as institutional units and raise funds in open markets to be used by their parent corporation.
  - d. Units that provide financial services exclusively with own funds, or funds provided by a sponsor to a range of clients and incur the financial risk of debtor defaulting, including:
    - Moneylenders.
    - Corporations engaged in lending from funds received from a sponsor such as a government unit or non-profit institution (for example providing student loans, import/export loans).
    - Pawnshops that predominantly engage in lending.
  - e. Conduits, intragroup financiers, and treasury functions undertaken by a separate institutional unit; conduits raise funds on open markets for passing on to affiliated corporations and often have liabilities guaranteed by a parent company.
  - f. Trusts and similar wealth-holding entities that solely hold assets and liabilities, along with associated property income, for a restricted group of investors or beneficiaries; if a single beneficiary assumes risks and rewards, accumulated assets should be assigned to the sector of the beneficiary/investor unless the unit is resident in another economy than its beneficiary/investor.

*Source: BPM7 chapter excerpt (International Monetary Fund).*

### 8. Insurance corporations (ICs)

### 8. Insurance corporations (ICs)

### Definition and scope (paragraphs 5.115; 5.176)
- BPM7 defines insurance corporations as "incorporated, mutual and other entities whose principal function is to provide"
- Insurance corporations provide:
  - life, accident, sickness, fire or other forms of insurance to individual institutional units or groups of units; or
  - reinsurance services to other insurance corporations.
- Captive insurance is included: "an insurance company that serves only its owners."
- Deposit insurers, issuers of deposit guarantees and other issuers of standardized guarantees that are separate entities and act like insurers by charging premiums and have reserves, are classified as insurance corporations.
- Reference for additional recording guidance: chapter 24, 2025 SNA/Annex 8, BPM7.

### Pension funds (PFs) (paragraphs 5.116; 5.177)
- Pension liabilities arise when an employer or government obliges or encourages members of households to participate in a social insurance scheme that will provide income in retirement.
- Social insurance schemes may be organized by employers or by government, may be organized by insurance corporations on behalf of employees, or separate institutional units may be established to hold and manage the assets to be used to meet the pensions and to distribute the pensions.
- The pension fund subsector consists only of those social insurance pension funds that are institutional units separate from the units that create them.
- For additional details on the institutional unit test and classification and recording of pension schemes, see chapter 24.

### General government: Government units as institutional units (paragraphs 5.117; 5.178–5.179)
- Government units are legal entities established by political processes with legislative, judicial or executive authority over other institutional units within a given area.
- Principal functions of government units:
  - assume responsibility for provision of goods and services to the community or individual households and finance their provision out of taxation or other incomes;
  - redistribute income and wealth by means of transfers;
  - engage in non-market production.
- Institutional-unit requirements include:
  - authority to raise funds by collecting taxes or compulsory transfers from other institutional units;
  - ability to disburse some, or all, of such funds in pursuit of policy objectives;
  - ability to borrow funds on its own account.
- Three kinds of final outlays typically made by government units:
  - Actual or imputed expenditures on collective services (e.g., public administration, defence, law enforcement, public health) financed out of general taxation or other income.
  - Expenditures on goods or services free, or at prices not economically significant, to individual households (e.g., education, health) financed from taxation or other income.
  - Transfers paid to other institutional units, mostly households, to redistribute income or wealth.

### Government units as producers and quasi-corporations (paragraphs 5.119–5.124; 5.180–5.184)
- Governments choosing to intervene in production have three options:
  - create a public corporation whose policy (pricing and investment) it controls;
  - create an NPI that it controls;
  - produce goods or services itself in an establishment it owns that is not a separate legal entity.
- A government establishment (or group of establishments under common management) should be treated as a quasi-corporation if all three criteria hold:
  - the unit charges prices for its outputs that are economically significant;
  - the unit is operated and managed in a similar way to a corporation;
  - the unit has a complete set of accounts enabling operating surpluses, savings, assets and liabilities to be separately identified and measured.
- Quasi-corporations are market producers treated as separate institutional units from the government units that own them and are classified, sectored and subsectored like public corporations.
- To be a quasi-corporation the government must allow management considerable discretion over production management and the use of funds; quasi-corporations must be able to maintain their own working balances and business credit and finance some or all capital formation out of their own savings, depreciation reserves or borrowing.
- Producer units of government that cannot be treated as quasi-corporations remain part of the same institutional unit as the owner (general government sector) and are likely to be non-market producers (outputs supplied free or at prices not economically significant). An unincorporated government enterprise can, however, be a market producer (example: a bookshop within a museum).

### Social security schemes and social security funds (paragraphs 5.124–5.127; 5.185–5.187)
- Social security schemes are social insurance schemes imposed and controlled by government units covering the community as a whole or large sections and provide benefits in cash or in kind for old age, invalidity or death, survivors, sickness and maternity, work injury, unemployment, family allowance, health care, etc.
- There is not necessarily a direct link between the amount of contribution paid by an individual and the benefits received.
- When social security schemes are separately organized from other government activities, hold assets and liabilities separately, and engage in financial transactions on their own account, they qualify as social security funds (separate institutional units).
- Institutional arrangements differ by country; where social security schemes are closely integrated with other government finances, separate institutional-unit treatment may be questioned.
- Governments may deliberately vary amounts raised and paid out in social security contributions and benefits to achieve broader policy objectives (for example, to influence aggregate demand); regardless, so long as they remain separately constituted funds they must be treated as separate institutional units in the SNA macroeconomic statistics.

### The general government sector and subsectoring (paragraphs 5.127; 5.188–5.195; 5.128–5.133)
- The general government sector consists of:
  - all units of central, state or local government; and
  - all non-market NPIsproducers that are controlled by government units.
- The sector also includes social security funds, either as separate institutional units or as part of any or all of central, state or local government.
- The sector does not include public corporations, even when all equity is owned by government units, nor quasi-corporations owned and controlled by government units. Unincorporated enterprises owned by government units that are not quasi-corporations remain part of the general government sector.
- If a government uses an entity resident in another government’s economic territory to carry out fiscal (general government) activities, that entity is not included in the general government of either economy; such entities are treated as direct investment enterprises of the government that owns them and classified as separate institutional units in the economy where they are established.
- Two common methods of subsectoring general government:
  - Method 1:
    - Central government;
    - State government;
    - Local government;
    - Social security funds;
    - (Each of central, state and local subsectors includes NPIsgovernment controlled non-market producers but excludes social security funds at that level.)
  - Method 2:
    - Central government;
    - State government;
    - Local government;
    - (Each of central, state and local subsectors includes both NPIsgovernment controlled non-market producers and social security funds at that level.)
- NPIs should be shown as an "of which" heading under the appropriate level of government.
- Choice between methods depends mainly on the size or importance of social security funds within a country and on their management arrangements.
- In countries without an intermediate (state) level of government, the subsector "state government" need not be distinguished; where more than two levels below central government exist, lower levels should be aggregated with state or local government as appropriate.

### Central government subsector (paragraphs 5.134–5.139; 5.196–5.199; 5.200)
- The central government subsector consists of the institutional unit(s) making up central government plus those non-market NPIsproducers controlled by central government.
- Central government political authority extends over the entire territory; it has authority to impose taxes on all resident and non-resident units engaged in economic activities within the country.
- Central government responsibilities include national defence, maintenance of law and order, relations with foreign governments, and ensuring efficient functioning of social and economic systems via legislation and regulation.
- Central government provides collective services and may provide services primarily for individuals (e.g., education, health) and make transfers to households, NPIs, corporations and other government levels.
- Central government is often composed of a central group of departments or ministries forming a single institutional unit; departments may not be separate institutional units capable of owning assets or incurring liabilities independently.
- Agencies of central government with separate legal identity and substantial autonomy should be treated as separate institutional units if they maintain full accounts; they are part of the central government subsector if their services are non-market and they are controlled by central government.

*Source: BPM7 (chapter 4).*

### 5.201 In some countries, the central government may include units that engage in financial transactions

### bpm7-ch4 - 5.201 In some countries, the central government may include units that engage in financial transactions

### Central government and monetary authority functions (paragraph 5.201)
- Some central government units may carry out functions commonly performed by central banks, including:
  - issue of currency;
  - maintenance of international reserves;
  - operation of exchange stabilization funds;
  - transactions with the International Monetary Fund (IMF).
- If such units remain financially integrated with central government and under direct control and supervision of central government:
  - they cannot be treated as separate institutional units;
  - monetary authority functions carried out by central government are recorded in the government sector, not the financial corporations sector.
- Recommendation:
  - Transactions of central government agencies carrying out monetary authority and deposit-taking functions should be separately identified so they can be combined with those of the central bank and other deposit-taking corporations in special tabulations if desired (to provide links with BPM6BPM, the GFSM2001GFSM and the Monetary and Financial Statistics Manual (MSFMand Compilation Guide (MSFMCG)).

### State government subsector (paragraphs 5.140–5.146 / 5.202–5.208)
- Definition and scope:
  - The state government subsector consists of state governments that are separate institutional units plus those non-market NPIproducers controlled by state governments.
  - State governments exercise functions of government at a level below central government and above local government.
- Institutional unit criteria for state governments:
  - Ability to own assets, raise funds and incur liabilities on their own account;
  - Entitlement to spend or allocate taxes or other income according to their own policies (subject to national law), though some transfers from central government may be tied;
  - Ability to appoint their own officers independently of external administrative control.
- Treatment as agency versus separate unit:
  - A regional unit entirely dependent on central government funds and subject to central government dictation on spending should be treated as an agency of central government rather than a separate institutional unit.
- Other points:
  - State governments may own or control corporations similarly to central government;
  - Market-producing units controlled by state governments may be treated as quasi-corporations when operations and accounting justify this.

### Local government subsector (paragraphs 5.145–5.146 / 5.207–5.208)
- Definition and scope:
  - The local government subsector consists of local governments that are separate institutional units plus those non-market NPIproducers controlled by local governments.
  - Local government authority typically extends over the smallest administrative areas.
- Institutional unit criteria for local governments:
  - Ability to own assets, raise funds and incur liabilities by borrowing on their own account;
  - Some discretion over spending of such funds;
  - Ability to appoint their own officers independently of external administrative control.
- Service production and enterprise treatment:
  - Units supplying goods or services on a market basis (e.g., municipal theatres, museums, swimming pools) should be treated as quasi-corporations when appropriate accounting information is available and classified to the non-financial corporations sector;
  - Other market-supplying units may be treated as unincorporated enterprises within local government;
  - Units supplying non-market services such as education or health remain part of the local government unit.

### Social security funds and alternative subsectoring (paragraphs 5.147–5.148 / 5.209–5.210)
- The social security funds subsector consists of social security funds operating at all levels of government.
- Alternative subsectoring method:
  - Group social security funds operating at each level of government with the corresponding government units and government-controlled and financed non-market producers at that level.
  - Choice of method depends on:
    - Importance of social security funds in the country;
    - Extent to which they are managed independently of associated government units.
  - If social security management is closely integrated with government short- or medium-term economic policy (contributions and benefits adjusted for overall economic policy), distinguishing social security funds as a separate subsector is conceptually difficult.
  - The alternative grouping is the approach generally favoured in the GFSM 2001.

### Households as institutional units (paragraphs 5.149–5.154 / 5.211–5.216)
- Definition:
  - A household is a group of natural persons who share the same living accommodation, pool some or all of their income and wealth, and consume certain goods or services collectively (mainly housing and food).
  - Each member should have some claim on collective resources and some decisions affecting consumption or other economic activities must be taken for the household as a whole.
- Key residency and membership rules:
  - Domestic staff living on the same premises as their employer do not form part of the employer’s household (paragraph 5.151 / 5.213).
  - Persons living permanently in an institution with little or no autonomy form an institutional household (examples listed in paragraph 5.152 / 5.214: members of religious orders in monasteries, long-term patients in hospitals, prisoners serving long sentences, persons in retirement homes, persons in labour camps).
  - Persons in institutions for short periods, residential students, or short prison sentences remain members of their original households.
  - Residence of individuals is determined by their household’s residence, not place of work; individuals who work and reside abroad long enough to acquire a centre of economic interest abroad cease to be members of their original households.

### Unincorporated enterprises within households (paragraphs 5.155–5.157 / 5.217–5.219)
- Household unincorporated market enterprises:
  - Created to produce goods or services for sale or barter on the market; can range from single-person street traders to large enterprises with many employees.
  - Include unincorporated partnerships engaged in market production.
- Treatment criteria:
  - Partnerships with unlimited liability remain within the household sector (assets of the household at risk);
  - Unincorporated partnerships behaving like corporations (many partners, complete accounts) should be treated as quasi-corporations;
  - Partnerships with limited liability are treated as corporations.
  - An unincorporated enterprise can be treated as a corporation only if it is possible to separate all assets, including financial assets down to cash, into those belonging to the household as consumer and those belonging to the household as producer.

### Family trusts (paragraph 5.220 / 5.220)
- Treatment rules for trusts resident in the same economy as beneficiaries:
  - Apply standard institutional unit criteria.
  - Consolidate the trust with the household if there is a single beneficiary assuming the risks and rewards.
  - If multiple beneficiaries, treat the trust as a separate institutional unit and classify it in subsector S.127 Captive financial institutions and money lenders if the group of beneficiaries is restricted.
  - More details are provided in paragraphs 5.103–5.111.

### Subsectors of the household sector and subsectoring recommendations (paragraphs 5.158–5.159 / 5.221–5.226 and 5.160–5.161 / 5.227–5.228)
- General guidance:
  - The household sector consists of all resident households.
  - Multiple subsectoring methods may be adopted depending on user demand; the SNA should be applied flexibly.
  - Institutional households (e.g., institutional households listed above) are typically excluded from subgroup analyses and presented separately.
- Recommended standard subsectoring by income and wealth:
  - Use ‘equivalized’ results with equivalence scales to account for household size and composition.
  - Default equivalence scale suggested: the “modified OECD scale”, which assigns:
    - 1 to the household head;
    - 0.5 to each additional household member of 14 and above;
    - 0.3 to each additional household member up to 13.
  - For analysis of wealth:
    - Avoid equivalence scales when analyzing individual components of wealth and distribution of net wealth;
    - Complementary per capita analysis can control for different household structures;
    - For joint analysis of income, consumption and wealth, it is practical to use the same equivalence scales to adjust wealth as those used for income and consumption (treating wealth as a source of income streams).
  - Standard breakdown targets:
    - income and wealth decile groups;
    - if possible, results for the top 5% and the top 1%.
- Alternative subsectoring by main source of income (paragraphs 5.160–5.161 / 5.227–5.228):
  - Distinguish household types by largest source of income:
    - a. Income accruing to the owners from self-employment;
    - b. Income from (net) property income;
    - c. Remuneration of household unincorporated enterprises with paid employees (employers’ mixed income);
    - d. Incomes accruing to the owners of household unincorporated enterprises without paid employees (own-account workers mixed income);
    - e. Compensation of employees;
    - f. (Net) current transfers received, to be broken down into pension benefits and other (net) current transfers.
  - Allocation rule:
    - Households are allocated to subsectors according to which of the listed categories is the largest for the household as a whole, even if it does not exceed 50 percent of total household income.
    - When multiple incomes of a category occur in one household, classification is based on total household income within each category.
  - Resulting four subsectors described as:
    - a. Employers;
    - b. Own-account workers;
    - c. Employees;
    - d. Recipients of property and transfer incomes.

*Source: BPM7 chapter 4, International Monetary Fund (IMF).*

### 5.162 The fourth subsector,grouping households for which property and transfer incomes make up the largest source

### bpm7-ch4 - 5.162 The fourth subsector,grouping households for which property and transfer incomes make up the largest source

### Subsector definition and recommended breakdown
- Paragraph 5.162: The fourth subsector, grouping households for which property and transfer incomes make up the largest source of income, constitutes a heterogeneous group and it is recommended that it should be divided into three further subsectors when possible.
- The three recommended subsectors:
  - Recipients of property incomes;
  - Recipients of pensions;
  - 5.1 Recipients of other transfer incomesis .

### Subsectoring according to characteristics of a reference person
- Paragraph 5.1635.229: Other methods of subsectoring usually require a reference person to be identified for each household.
  - The reference person should be decided on grounds of economic importance rather than age or seniority.
  - The reference person should normally be the person with the largest income although the reference person could also be the person who makes the major decisions with regard to the consumption of the household.
- Paragraph 5.164: Once a reference person has been identified, households can be grouped by the reference person’s characteristics. Examples include:
  - Occupation of the reference person;
  - Industry, if any, in which the reference person works;
  - (Household composition examples listed in source)
    - a. Single less than 65 years old;
    - b. Single 65 and older;
    - c. Single with children living at home;
    - d. Two adults less than 65 without children living at home;
    - e. Two adults at least one 65 or older without children living at home;
    - f. Two adults with less than 3 children living at home;
    - g. Two adults with at least 3 children living at home; and
    - h. Other households.
  - Within the above household compositions, children are generally classified as up to 16 years and up to 24 years if they are the offspring of one of the household members and are still living at home. The classification of children may vary between countries dependent on national legislation.

- Paragraph 5.230: Alternative classification criteria by reference person characteristics:
  - a. By geographic region;
  - b. By housing status (e.g., rental, owner-occupied with mortgage, and owner-occupied without mortgage);
  - c. By the age of the reference person (e.g., 0-24, 25-34, 35-44, 45-54, 55-64, 65- 74, and 75+);
  - d. By labour market status of the reference person (e.g., unemployed, employee, employer, own account worker, unpaid family worker, member of producer’s cooperative, student, retired and not classified by status);
  - e. By highest level of educational attainment of the reference person (e.g., low, middle and high);
  - f. By disability status of the reference person;
  - g. By migratory status of the reference person;
  - c.h. By ethnicity of the reference person;
  - i. Qualifications or skills possessed by By degree of urbanisation; and
  - d.j. By gender of the reference person.
- Additional guidance: It is possible to group households according to the main income of the reference person if grouping on the basis of the largest household income is not feasible; the same income categories may be used as recommended for the household’s largest income.

### Subsectoring according to household size and location
- Paragraph 5.165: Households may be subsectored using criteria that apply to the household as a whole. Examples:
  - a. Size of the total income of the household;
  - b. Size of the household as measured by number of persons;
  - c. Type of area in which the household is located.
- The type-of-area criterion enables distinguishing households living in agricultural, urban or metropolitan areas, or households located in different geographical regions.
- Paragraph 5.231: Cross-sections combining the above groupings with subsectors by level of income and wealth are possible (e.g., breaking down labour market status groups by income decile or by income distribution within regions) and may provide insights into inequalities within subgroups; however, the quality of results at more granular levels should be assessed. Combining distributional results based on income and wealth with socio-demographic information can yield more detailed insights.

### Non-profit institutions serving households (NPISHs)
- Paragraphs 5.166–5.1715.232–5.235: NPIs engaged in market production are allocated to corporation sectors; NPIs engaged in non-market production but subject to government control are allocated to general government; remaining NPIs are non-profit institutions serving households (NPISHs). NPISHs provide goods and services free or at prices that are not economically significant.
- Types of NPISHs:
  - First type: Associations of natural persons providing goods or services primarily for members, usually financed by membership subscriptions or dues (e.g., professional or learned societies, political parties, trades unions, consumers’ associations, churches or religious societies, social, cultural, recreational or sports clubs). Religious institutions are treated as NPISHs even when mainly financed by government units if majority financing is not seen as empowering government control. Political parties in one-party systems controlled by government via finance are included in general government.
  - Second type: Charities, relief or aid agencies created for philanthropic purposes and providing goods or services on a non-market basis to households in need; resources mainly from donations or transfers (including from non-residents).
  - Third type: Institutions providing collective services (e.g., research institutions, environmental groups); less common.
- Paragraph 5.237: If the number or size of NPISHs funded from abroad is significant, disaggregate NPISHs into domestically funded and mainly funded from abroad.

### The rest of the world and international organizations
- Paragraph 5.1725.238: For SNAmacroeconomic statistics, the rest of the world consists of all non-resident institutional units that enter into transactions with resident units or have other economic links with resident units. The rest of the world is not a sector for which complete sets of accounts must be compiled; accounts are confined to transactions between residents and non-residents and economic relationships such as claims by residents on non-residents.
- The rest of the world includes institutional units physically located within a country’s geographic boundary that are non-resident (e.g., foreign enclaves such as embassies, consulates, military bases, and international organizations).

- Paragraphs 5.1735.239–5.1755.242: Characteristics and treatment of international organizations in SNAmacroeconomic statistics:
  - a. Members of an international organization are national states or other international organizations whose members are national states.
  - b. They are established by formal political agreements with the status of international treaties and their existence is recognized by law in member countries.
  - c. Because they are established by international agreement, they are accorded sovereign status and are not subject to local laws or regulations; they are not treated as resident institutional units of the countries in which they are located.
  - d.c. International organizations are created for various purposes including:
    - The provision of non-market services of a collective nature for the benefit of their members;
    - FinancialInternational financial organizations – these entities conduct financial intermediation at an international level, that is, channelling (i.e., channeling funds between lenders and borrowers in different countries
  - Paragraph 5.174 (fragmented in source): Examples include central banks to a group of economies (currency union central banks), IMF, World Bank Group, BIS, and regional development banks. Most other international organizations are financed wholly or partly by contributions (transfers) from their member countries; some provide non-market collective services (e.g., peacekeeping, education, science, research).
- Paragraph 5.240: International organizations may raise funds in other ways and may be global or regional. Agencies undertaking functions normally undertaken by general government (e.g., borrowing on financial markets) are classified as international organizations; identifying such agencies separately may be useful.
- Paragraph 5.241: International organizations are treated as not being resident in the territories in which they are located.
- Paragraph 5.1755.242: International organizations may be presented as an institutional sector in some cases: for a currency union or economic union they are residents of the union as a whole; they may be relevant when data by sector of counterparty are prepared. They may have substantial presence in some economies.

### Central banks of currency unions and currency union residence
- Paragraph 5.2434.176: Enterprises owned jointly by two or more governments are not treated as international organizations but like other enterprises; the distinction depends on market production.
- Paragraph 5.244: A currency union is a union to which two or more economies belong and that has a regional central decision-making body, commonly a currency union central bank (CUCB), endowed with the legal authority to conduct a single monetary policy and issue the single currency of the union.
- Paragraph 5.245: Distinction between centralized and decentralized currency unions:
  - Centralized model: CUCB owned by governments of member economies; single currency issued by CUCB; operations in each economy carried out by branches or agencies of the CUCB.
  - Decentralized model: CUCB plus currency union national central banks (CUNCBs); CUCB owned by CUNCBs; monetary policy decisions taken by CUCB decision-making body with coordination and implementation responsibilities for CUNCBs.
- Paragraph 5.246: The central bank of a currency union is treated as a special kind of international organization. Members are governments or national central banks of the countries in the currency union. The central bank is treated as non-resident in any member country but resident in the currency area as a whole.
- Paragraph 5.247: In centralized currency unions national agencies, including notional resident units, are treated as residents of their economies. Transactions between a national agency and resident units of the same member economy settled through accounts at the CUCB are recorded/imputed in the balance sheets of the national agency for statistical purposes and treated as transactions and positions between residents. This ensures national monetary activities are carried out by national agencies with their own assets and liabilities.

### Special issues: economic territory, residence, and changes
- Paragraph 5.248: The section provides detailed guidance on the concept of economic territory and elaborates residence for households and individuals, enterprises and production arrangements, government units, (regional) international organizations and NPISHs. It discusses treatment of assets and liabilities held by groups of residents and non-residents, changes in residence of institutional units, and alternatives to the residence concept.
- Paragraph 5.249 (International organizations): The economic territory of an international organization consists of territorial enclave(s) over which the organization has jurisdiction; each international organization is an economic territory in its own right and is not included in the scope of a country’s macroeconomic statistics.
- Paragraph 5.250 (Special zones): Separate physical or legal zones (e.g., free trade zone or offshore financial centre) should be included in the economic statistics of the economy. Separate data may be prepared for different subsets of the economy to support analysis where laws and policies differ and flows are not completely free between the zone and the rest of the economy.
- Paragraph 5.251 (Changes in economic territory): Circumstances changing the scope of an economic territory:
  - a. Passing of control of a geographic area from one government to another by mutual agreement or international decision: treated as a transaction; assets conveyed recorded as acquisition of land or equipment and buildings depending on separability; if payment involved, financial account entry for agreed amount; if no amount payable, a capital transfer; mutual exchanges shown on a gross basis. Exchange of territory may change residence of other institutional units and affect assets and liabilities.
  - b. Change in status by seizure: not by mutual agreement, not a transaction, reflected in other changes in volume account.
  - c. Merger of two or more economic territories into a single national government: seen as absorption or elimination and creation, resulting in entries in other changes in volume account (elimination of cross-border liabilities between previous territories and possible reclassifications).
  - d. Split of a single economic territory into two or more territories: not itself a transaction; associated flows (e.g., compensation) may qualify as transactions; entries in other changes in volume account for appearance of cross-border liabilities between separating economies.
- Metadata: When territorial changes occur, providing metadata is essential to assist users in understanding how territorial changes affect data.

*Source: BPM7 chapter 4 (paragraphs 5.162–5.251).*

### 5.252 In  some  cases,  areas  are  under  joint  administration  or  sovereignty,  that  is,  an  area  is  under  the 

### 5.252–5.273 Residence and economic territory: joint administration zones, households, and enterprises

### Joint administration or sovereignty zones
- Areas can be under the effective economic control of two or more governments and may be called joint administration or sovereignty zones (paragraph 5.252).
- Such zones often have laws that differ from the primary territories and "could be considered an economic territory in its own right" (paragraph 5.252).
- Because the number of enterprises in these zones typically is small, it may be preferred to split the enterprises in the zone between the primary territories rather than publish separate data for the zone (paragraph 5.252).
- Method for splitting:
  - Prorate on the basis of a relevant factor according to the circumstances, such as some operational indicator or equal proportions for each of the primary territories (paragraph 5.252).
  - Apply guidance appropriately to the economic circumstances faced (paragraph 5.252).
  - If enterprises that account for the vast majority, or all, of economic activity are effectively operated from the economy of just one sovereign authority, treat those enterprises as residents of that economy, show the other economy as recipient of its share of property income, taxes, and so on, and avoid most complexities of prorating (paragraph 5.252).
- Statistical compilers of each primary territory should consult with each other to adopt consistent methods with no gaps or overlaps; metadata and consultations can assist compilers in counterpart economies to ensure consistency of bilateral data (paragraph 5.252).

### Residence of households — definition and general principles
- A household is resident in the economic territory in which household members maintain or intend to maintain a dwelling or succession of dwellings treated and used by members as their principal dwelling (paragraph 5.254).
- Being present for one year or more in a territory or intending to do so is sufficient to qualify as having a principal dwelling there (paragraph 5.254).
- If uncertainty exists about the principal dwelling, it is identified from length of time spent there rather than factors such as presence of other family members, cost, size, or length of tenure (paragraph 5.254).
- Individuals who belong to the same household must be residents of the same territory; if a member ceases to reside in the territory where the household is resident, the individual ceases to be a member of that household (paragraph 5.255).
- Residence is determined on an individual basis, but use of households as the institutional unit remains compatible with that approach (paragraph 5.255).

### Residence of particular categories of household members
- Students (paragraph 5.257):
  - People who go abroad for full-time study generally continue to be resident in the territory where they were resident prior to studying abroad, even if the course exceeds a year.
  - Students become residents of the territory of study when they develop an intention to continue presence in the territory after completion of studies.
  - Residence of accompanying dependents is determined the same way as the persons they accompany.
  - From the resident economy perspective, tuition and other expenditure of students and accompanying persons in host economies are included in import of services (classified under travel in BPM).
- Patients (paragraph 5.258):
  - People who go abroad for medical treatment maintain their predominant centre of interest in the territory where they were resident before treatment, even if complex treatments take a year or more.
  - Residence of accompanying dependents is determined the same way as the persons they accompany.
  - From the resident economy perspective, expenditures of patients and accompanying persons in host economies are included in import of services (classified under travel in BPM).
- Crew of ships, aircraft, oil rigs, space stations, or similar mobile equipment (paragraph 5.259):
  - Treated as resident in their home base territory, determined from where they spend most time other than undertaking duties.
  - Home base is regarded as a stronger connection than location of the mobile equipment or its operator.
  - Expenditures of crew members in host economies are included in import of services (classified under travel in BPM).
- National diplomats, military personnel, and other civil servants employed abroad in government enclaves (paragraph 5.260):
  - Considered residents of the economic territory of the employing government; those enclaves form part of the economic territory of the employing government.
  - They remain residents of their home economies even if they live in dwellings outside the enclaves.
  - Their expenditure in host economies is included in imports of goods and services (classified under government goods and services n.i.e. in BPM).
  - Locally recruited staff are resident in the location of their principal dwelling (paragraph 5.260).
- International organization staff (paragraph 5.261):
  - Staff, including those with diplomatic status and military personnel, are resident in the territory of their principal dwelling.
  - Treatment differs from national diplomats because international organization staff tend to be paid from and directed by the organization, have longer postings, and are not treated as residents of the employing government by default.
- Cross-border, seasonal, and other short-term workers (paragraph 5.262):
  - No special treatment; residence determined according to principal dwelling criteria in paragraph 5.254.
  - Border workers cross from one territory to another to attend their place of employment; seasonal workers cross for particular periods such as harvest or tourist seasons; other short-term employment may occur for particular tasks.
- Highly mobile individuals (paragraphs 5.263–5.264):
  - For individuals without continuous actual or intended presence in any one territory for one year, the territory of the principal dwelling they maintain is the key consideration.
  - In cases of no principal dwelling, or two or more principal dwellings in different economies, residence is determined by the territory in which the predominant amount of time is spent in the year.
  - Individuals must be classified as residents of a single economy for statistical purposes, but compilers may provide supplementary data on groups of non-residents with significant links to the economy or residents who maintain significant links to other economies.
  - Classifying long-term guest workers as residents of the host economy is appropriate because their income and consumption in the host territory are not treated as international transactions; only amounts actually sent to the home economy are treated as such (paragraph 5.263).
- Refugees (paragraph 5.265):
  - No special treatment; recorded according to the same principles as migrants.
  - Residence changes to territory of refuge if they have stayed or intend to stay in place of refuge for one year or more, even if residence is involuntary or transient.
  - Awarding of special rights and protection for at least one year could be taken into account to assess intended duration of stay.

### Application of residence principles and implications
- Residence principles are generally applied to broad groups of people rather than specific individuals; intention to stay for one year or more is typically inferred from past patterns of similar groups (paragraph 5.266).
- Administrative data sources may vary from statistical definitions; if variations are significant, some adjustment may be made or the administrative definition may be considered an acceptable approximation (paragraph 5.266).
- Determination of residence affects how income, expenditure, and financial positions of households are treated in macroeconomic statistics (paragraph 5.267).
- Example implications (paragraph 5.267 and Table 4.3 summary):
  - A non-resident student studying in a territory is shown as a source of service credits for education, housing, food, other goods and services, and possibly transfer debits if the student receives a scholarship from the host economy.
  - For a resident student, these transactions would be out of scope of the external accounts.
  - The table summarizes selected effects of a household’s residence status on the statistics of the host economy (Table 4.3 of BPM7; paragraphs referenced).

### Residence of enterprises — general principles
- An enterprise is resident in an economic territory when it is engaged in a significant amount of production of goods or services from a location in the territory (paragraph 5.268).
- An enterprise may be a corporation or quasi-corporation, a non-profit institution, or an unincorporated enterprise (part of household sector) (paragraph 5.268).
- Enterprises are almost always connected to a single economy; taxation and legal requirements tend to result in separate legal entities for operations in each legal jurisdiction (paragraph 5.269).
- A single legal entity with substantial operations in two or more territories should be split into separate institutional units for statistical purposes (paragraph 5.269).
- The introduction of the term "centre of predominant economic interest" does not remove the need to split entities with substantial operations in two or more territories (paragraph 5.269).
- For quasi-corporations, it is generally required that production take place or be planned to take place in the territory over a period of a year or more to be identified; if production is undertaken over a shorter period, the unit is resident in the territory of production location (paragraph 5.270).

### Corporations with little or no physical presence (paragraphs 5.271–5.272)
- A legal entity is resident in the economic territory under whose laws the entity is incorporated or registered (paragraph 5.271).
- If it is a resident artificial subsidiary, combine with a parent resident in the same economy to form an institutional unit or, for some purposes, a local enterprise group; do not combine with entities resident in other economies (paragraph 5.271).
- If the corporation has substantial operations in another economy, a branch may be identified there (paragraph 5.271).
- Where a corporation has little or no physical presence (administration contracted out), sectors such as banking, insurance, investment funds (distinct from managers), securitization vehicles, and virtual manufacturing often operate this way (paragraph 5.271).
- If a single corporation is registered in several jurisdictions, use the jurisdiction of the laws that govern creation and continued existence of the entity as the criterion for residence; if no incorporation or registration, legal domicile is used (paragraph 5.272).
- Incorporation and registration indicate a substantial degree of connection to the economy; other connections (ownership, location of assets, managers, or administration) may be less clear-cut (paragraph 5.272).

### Production delivered from a base (paragraph 5.273)
- If an enterprise has a location used as a base to deliver services to other locations (e.g., transport, on-site repairs, short-term construction, business services), residence of the enterprise is determined from its base of operations rather than point of delivery or location of mobile equipment (paragraph 5.273).
- Activities at the point of delivery may constitute a branch if sufficiently substantial, in which case branch rules apply (paragraph 5.273).
- Example: An institutional unit that operates ships on the high seas has its residence determined by the criteria in paragraphs 5.267–5.272; the economy of residence is not necessarily where ships spend the most time or the territory of registration (paragraph 5.273).
- The enterprise that operates ships is not necessarily the same as the enterprise that owns them; residence of the owner is determined by the same criteria (paragraph 5.273).
- Flags of convenience do not determine the residence of the operator; a single shipping operator may have ships registered in several economies (paragraph 5.273).
- Enterprises that charter ships have residence determined by location of their own base of operations, not by flags or locations of particular ships (paragraph 5.273).
- The base of operations does not necessarily equate to the location from which the enterprise is managed; a company may be legally domiciled in one economy but managed from another (paragraph 5.273).

*Source: IMF Balance of Payments and International Investment Position Manual, 7th edition (BPM7), paragraphs 5.252–5.273.*

### 5.274 Table  4.4  provides  a  brief  summary  of  some  of  the  implications  for  the  external  accounts  of  whethe

### Residence and the External Accounts (BPM7: excerpts 5.274–5.287)

### Implications of enterprise residence for external accounts (Table 4.4 summary)
- The residence status of an enterprise owned by a nonresident affects whether flows and positions are recorded as external for the host economy:
  - Sales by enterprise to residents
    - Resident enterprise (e.g., long-term construction project): Not external transaction
    - Nonresident enterprise (e.g., short-term construction project): Imports of goods and services
  - Purchases by enterprise from residents
    - Resident enterprise: Not external transaction
    - Nonresident enterprise: Exports of goods and services
  - Remuneration of employees payable to residents of host economy
    - Resident enterprise: Not external transaction if receivable
    - Nonresident enterprise: Remuneration of employees
  - Remuneration of employees payable to residents of home economy
    - Resident enterprise: Remuneration of employees
    - Nonresident enterprise: Not transaction of host economy
  - Net operating surplus
    - Resident enterprise: Not external transaction
    - Nonresident enterprise: Dividends payable or reinvested earnings (enterprise is a direct investment enterprise)
  - Injections of funds by owners
    - Resident enterprise: Direct investment liabilities of the reporting economy (enterprise is a direct investment enterprise)
    - Nonresident enterprise: Not external transaction
  - A resident institutional unit’s financial claims on or liabilities to the enterprise
    - Resident enterprise: Not included in external accounts
    - Nonresident enterprise: Included in external accounts

### Residence of specific institutional units
- General government (paragraph 5.275)
  - Includes operations outside the home territory (embassies, consulates, military bases, other enclaves).
  - These operations are residents of their home territory rather than the host territory because of immunity and status under international law.
  - An entity created by a government under the laws of the host jurisdiction is an enterprise resident in the host economy and not part of general government in either economy.
  - Residence of employees of these operations is discussed elsewhere (paragraph 5.259).

- International organizations (paragraphs 5.276–5.278)
  - International organizations are resident in an economic territory of their own, not the territory where they are physically located.
  - This applies whether located in one territory or in two or more territories.
  - An international organization operating peacekeeping or interim administration remains classified as an international organization and non-resident in that territory, even if it undertakes general government functions.
  - A separately constituted pension fund of an international organization is treated as a financial corporation; its residence follows general principles (paragraphs 5.268–5.272).

- Regional international organizations (paragraph 5.279–5.280)
  - Regional organizations covering a group of economies (e.g., economic or currency unions) are residents of the region as a whole when statistics are prepared for that region.
  - When producing global or regional totals, international organizations are combined with national data.

- NPISHs (paragraph 5.281)
  - An NPISH has a centre of economic interest in the economy in which it was legally created and officially recognized.
  - Residence of most NPISHs is typically unambiguous.
  - NPISHs engaged in international charity or relief work may have substantial territorial operations amounting to branches; such branches are usually financed largely or entirely by current or capital transfers from abroad.
  - NPISHs are not international organizations.

### Assets and liabilities held by groups including residents and non-residents (paragraphs 5.282–5.283)
- Joint ownership situations (e.g., joint bank accounts or accounts usable by relatives in other territories) can create ambiguity in allocating financial assets between owners.
- Conventions that compilers may adopt:
  - Deposits of emigrant workers in their home economies freely usable by family members: can be treated as held by residents of the home economy.
  - Deposits of emigrant workers in the host economy freely usable by family members: can be treated as held by a resident of the host economy.
- Compilers may adopt alternative treatments if better information is available.
- It is important to recognize transfers at time of deposit or withdrawal depending on convention adopted, and to coordinate methods with compilers of monetary and financial statistics and counterpart economy compilers when values are significant.

### Changes in residence of institutional units (paragraphs 5.284–5.286)
- Change in residence of individuals (paragraph 5.284)
  - Households or individual household members can change territory of residence.
  - Movement of an individual may require leaving one household and joining another.
  - Change in residence by an owner of an asset or someone with a liability requires reclassification; no exchange occurs and thus no transaction is recorded (entries discussed in paragraphs 9.21–9.22).

- Assets moved between entities vs. entity changing residence (paragraph 5.285–5.286)
  - “Corporate migrations” often involve moving assets between related corporations in different economies (ownership of assets is moved), rather than the corporation itself changing residence (see paragraphs 8.19–8.22 on corporate inversion and other restructuring).
  - Rare cases exist where an entity itself changes residence without moving assets to another owner (e.g., exchanges of territory between governments or entity emigration/immigration allowed by law in some jurisdictions).
  - Effects on the IIP for an entity changing residence are treated as other changes in volume and recorded in the other changes in financial assets and liabilities account (discussed in paragraph 9.23).

### Alternatives to the residence concept (paragraph 5.287)
- Globalization increases entities’ connections to two or more economies; alternative datasets can complement residence-based statistics:
  - Data based on ownership (e.g., activities of multinational enterprise groups and consolidated banking statistics) provide additional information.
  - Consolidated banking statistics report banking groups and their global operations as a single entity allocated to the economy of the head office.
  - Alternative data can provide information such as on resident workers who send remittances abroad (see Appendix 5).

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_Source: https://www.imf.org/-/media/files/data/statistics/bmp7/draft-chapters/bpm7-ch4.pdf_