## Treatment of Special Purpose Entities and Residency

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---

### Introduction: role of MNEs and SPEs
- Multinational Enterprises (MNEs) extensively use Special Purpose Entities (SPEs) to manage intellectual property rights, research and development, trade, and other activities as part of group-wide financial and profit-maximization strategies.
- SPE structures aim to maximize company-wide global after-tax profits, not necessarily profits in each jurisdiction in which the MNE operates.
- SPEs have impacted international trade in goods and services, direct investment, and other financial flows and positions; identifying changes in ownership of goods, nonfinancial assets, and financial assets and liabilities for global MNE activities that use SPEs is challenging and can produce distortions in macroeconomic aggregates.
- Measurement challenges for national compilers are documented (see Annex III in the guidance note).

### Committee-endorsed SPE definition (context of ESS) and operational guidance
- The Committee endorsed a definition for SPEs in the context of cross-border statistics at its October 2018 meeting; the IMF presented Operational Guidelines at the October 2020 Committee meeting to assist compilers in operationalizing the definition and identifying resident SPEs.
- Committee-endorsed definition (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 5 employees;
  - no or little physical presence;
  - no or little physical production in the host economy;
  - directly or indirectly controlled by nonresidents;
  - established to obtain specific advantages provided by the host jurisdiction with an objective to:
    - grant owner(s) access to capital markets or sophisticated financial services; and/or
    - isolate owner(s) from financial risks; and/or
    - reduce regulatory and tax burden; and/or
    - safeguard confidentiality of their transactions and owner(s);
  - transact almost entirely with nonresidents and a large part of their financial balance sheet typically consists of cross-border claims and liabilities.
- The definition is accompanied by a decision tree (Annex IV) and a typology determining institutional sector classification (Annex V); the typology is illustrative, not exhaustive or prescriptive, and may be updated more frequently.

### Options considered for statistical treatment of SPEs
- Option I — Change core SNA/BPM framework:
  - Consolidate SPEs with their parents, irrespective of SPE residence (i.e., not treating SPEs with nonresident parents as separate institutional units).
  - Rationale: SPEs are legal units controlled by parents with no independent decision-making.
  - Outcome: GZTT consultation showed no preference for this approach.
- Option II — No change to core framework; provide supplemental information:
  - Separately identify SPEs by increasing granularity and providing supplementary data within the SNA framework using the institutional sector accounts (ISAs).
  - Proposal: add an “of which” supplementary category within nonfinancial and financial corporations’ institutional sector to separately identify foreign-controlled resident SPEs (aligns with BPM6 and BD4 recommendations and IMF data collection plans).
  - Does not change the core conceptual framework.
- Option III — Extension via alternative/nationality-based presentations:
  - Adopt nationality-based presentation as an alternative concept without departing from the core SNA/BPM framework (e.g., reclassify SPEs from countries of legal incorporation to countries of their parents).
  - Rationale: provide users information on pass-through effects and consolidate pass-through funds by nationality of an MNE.
  - Practical considerations: implementation would require DI owners to record all balance sheet positions and transactions for SPEs; careful consideration by national compilers is needed.

### GZTT and AEG recommendations; harmonization across macro datasets
- GZTT consultation preferred Option II: separately identify SPEs as an “of which” category within the ISAs in the SNA.
- GZTT proposes identifying the same units within the ISAs as the ESS target population (SPEs with foreign parents) to link ISAs with international accounts breakdowns and provide a complete picture of the economy.
- “Of which” identification proposed as encouraged (non-mandatory) to be included at:
  - S.12x (financial corporations)
  - S.11x (nonfinancial corporations)
  - (Reference: 2008 SNA, Annex I)
- Emphasis: create an “of which” category at the institutional sector level, not to combine all SPEs into one subsector; allows separate identification between financial and nonfinancial corporations without requiring subsector presentation (e.g., S127 or S128).
- AEG unanimously agreed: no change to the residency principle in the SNA and BPM frameworks; SPEs with nonresident parents remain resident in their location economy.
- AEG and DITT supported aligning SPE definition in the SNA to be based on direct or indirect foreign control (align with ESS), while requesting clearer operational guidance.
- AEG agreed that nationality-based consolidated presentations can be developed as voluntary extensions to the core framework.

### Treatment of resident-controlled entities that meet SPE criteria except foreign control
- Entities that meet all ESS SPE criteria except nonresident parentage (for example, households owning incorporated entities or securitization vehicles set up by resident entities):
  - Are not considered SPEs for the purpose of separate identification in the ISAs according to the GZTT proposals.
  - Incorporated entities owned by households are separate institutional units from the household (BPM6, paragraph 4.14).
  - Family trusts are owned by households (2008 SNA paragraph 24.75); some trusts may be treated as quasi-corporations and included in financial corporations’ sector as captive financial institutions.
- GZTT recommends using the term SPEs only for entities with direct and indirect foreign control; captive financial institutions wholly owned and controlled solely by resident parents should not be treated/referred to as SPEs.
- Resident-controlled affiliates should be referred to by typology (conduits, captives, etc.) within their institutional sector and not classified as SPEs in the “of which” SPE category.

### IMF data collection initiative and reporting guidance
- From the external sector perspective, the IMF launched an international data collection to separately identify cross-border transactions and positions for resident SPEs within the balance of payments and IIP based on a separate reporting template.
  - The IMF data collection recognizes SPE engagement beyond direct investment, including portfolio investment, financial derivatives, or other investment operations.
  - A separate line for net merchanting by SPEs is included where goods transactions are relevant (merchanting SPEs).
  - Services reporting includes four distinct components where SPEs can be relevant: transport, financial services, charges for the use of intellectual property, and other business services.
  - The template encourages DI data to be disaggregated by the residency of the ultimate controlling parent to assist in compiling supplemental statistics on ultimate income recipients (the template does not collect geographical breakdowns).
- Timeline and guidance:
  - IMF data collection targets the release of 2020 annual data by end of 2021.
  - IMF released the Special Purpose Entities: Guidelines for a Data Template at the October 2020 Committee meeting to assist compilers in implementing a national data collection framework.
  - At this stage, IMF is prioritizing initiating international data collection only for resident SPEs, while recognizing the rationale for collecting separate data on nonresident SPEs could be revisited once data collection is more widespread.

### Measurement challenges, empirical findings, and user needs
- Residence and institutional unit tests:
  - The presence of a nonresident owner is a sufficient condition in passing the institutional unit test.
  - For units with few or no attributes of physical presence, residence is determined by place of legal incorporation or registration (2008 SNA paragraph 4.15(f); BPM6 paragraph 4.134).
  - SPEs are located in the economic territory under whose legal jurisdiction they are incorporated or registered (2008 SNA paragraph 4.56; BPM6 paragraph 4.50) and are recognized as separate institutional units when incorporated in a different economy from their parent.
- Macroeconomic implications:
  - SPEs generally have few or no employees and little or no physical presence (2008 SNA paragraph 4.56; BPM6 paragraph 4.50), so their contribution to GDP in host countries is expected to be small; nonetheless, nonfinancial SPEs have increased intra-MNE transactions that can artificially depict production and income in host economies.
  - Cross-border activities of SPEs tend to involve large financial stocks and flows and large income flows, complicating interpretation of meaningful flows.
- Empirical evidence (selected findings):
  - Net DI inflows and outflows are highly correlated, suggesting measured DI gross flows may reflect flows through rather than flows to the country (Blanchard and Acalin, 2016).
  - Lack of adequate cross-border statistics on SPEs hampered assessment of retrenchment in cross-border capital flows during the global financial crisis (Milesi-Ferretti and Tille, 2011).
  - Strong SPE presence in certain economies motivates decoupling genuine DI from SPE-associated flows and stocks (Damgaard and Elkjaer, 2017).
- User guidance:
  - IMF encourages compilers to avoid consolidating cross-border transactions of SPEs with resident immediate parent but subject to indirect foreign control, to the extent possible, while avoiding double counting.
  - Separate identification of SPEs permits a clearer view of pass-through funds, but not all pass-through capital can be captured by identifying and separating SPEs; pass-through capital also occurs outside SPEs through near SPEs or other entities.
  - One proposed approach: further disaggregate institutional sectors into foreign-controlled and non-foreign-controlled entities to identify pass-through activities irrespective of statistical status (SPE, near SPE, or non-SPE). This aligns with G20 DGI-2 Recommendation 8 on ISAs.

### Practical aspects, challenges, and consolidation rules
- Practical implementation difficulties include:
  - Data compilation costs and potential non-comparability of macroeconomic aggregates across countries if not universally adopted.
  - Legal, administrative, and technical obstacles to data sharing; confidentiality and international data exchange are significant challenges.
  - Extending the SNA/BPM core framework to reclassify SPEs to parent economies on a supplemental basis would raise country-specific implementation issues, potentially causing extensive data exchange, imputations, asymmetries, and possible degradation of data quality if not properly managed.
- Identification nuances:
  - Layering can occur (resident SPE established by another resident SPE) or mixed groups of SPEs and non-SPEs; Annex 7 of BD4 assists compilers to identify SPEs in mixed groups.
  - SPEs owned and directly controlled by residents in the same economy (even if indirectly controlled by nonresidents) would not meet the statistical definition of an institutional unit and their accounts would be consolidated with resident owners; cross-border transactions of such SPEs would be consolidated with the resident parent and not recorded as SPE cross-border flows.
  - BD4 nuance: for resident chains of entities, compilers should consider whether assets in resident entities are really relevant to the domestic economy; if not, such enterprises would be considered potential SPEs.

### Annex IV decision tree (logical identification tests for ESS)
- Sequential tests (answer flow indicates SPE vs Not SPE):
  - Does the entity have little or no physical presence and physical production in the host economy? Yes → continue; No → Not an SPE
  - Does the entity have no or up to five employees? Yes → continue; No → Not an SPE
  - Is the entity formally registered and/or incorporated resident institutional unit? Yes → continue; No → Not an SPE
  - Is the entity directly or indirectly controlled by nonresident(s)? Yes → continue; No → Not an SPE
  - Is the entity established with one or more of the four objectives in the definition? Yes → continue; No → Not an SPE
  - Does the entity transact almost entirely with nonresidents? Yes → The entity is an SPE; No → Not an SPE

### Annex V typology of SPEs for ESS (categories and illustrative types)
- Category I: Corporate Groups’ Captive Financial Entities (S127 examples)
  - 1.1 Conduits
  - 1.2 Holding companies (Passive holding corporations)
  - 1.3 Holding financial assets for securitization
  - 1.4 Intra group lending companies
  - 1.5 Captive factoring and invoicing companies
  - 1.6 Captive financial leasing companies
  - 1.7 Other captive financial companies
- Category II: Specialized Financial Entities (S125, S11 examples)
  - 2.1 Captive insurance companies (S128)
  - 2.2 Securitization vehicles/Financial vehicle corporations (S125)
  - 2.3 Holding financial and non financial assets (including real estate) for related companies (S11 and S125)
  - 2.4 Companies carrying out other financial functions (S125)
- Category III: Corporate Groups’ Nonfinancial Entities (S11 examples)
  - 3.1 Ancillary companies
  - 3.2 Operational leasing companies
  - 3.3 Merchanting companies
  - 3.4 Royalty and licensing companies
  - 3.5 Legal ownership of intangible assets
- Category IV: Wealth management entities (S11 and S127)
  - 4.1 Companies holding/managing wealth and real estate for individuals and families
- Category V: Government Owned Financial Entities (S11, S12, or S15)
  - 5.1 SPEs owned by governments for fiscal purposes
- Category VI: Other structures (S11 or S12)
  - 6.1 Shell companies
  - 6.2 Shelf companies
- Note: Types listed may be SPEs, but not all entities of the types listed are necessarily SPEs; the decision tree and definition guide classification.

### Annex VI — DGI-2 Institutional Sector Accounts guidance and ISA template headings
- DGI-2 recommendation 8 requires all G20 economies compile and disseminate ISAs on a quarterly and annual frequency based on the internationally agreed template.
- Template classification headings (selected):
  - Nonfinancial Corporations: Domestically controlled non-financial corporations; Foreign-controlled nonfinancial corporations; Total; Public nonfinancial corporations; National private nonfinancial corporations; Public nonfinancial corporations which are part of domestic multinationals; National private nonfinancial corporations which are part of domestic multinationals; SPEs (S11 S11DO S11001 S110011 S11002 S110021 S11003)
  - Financial Corporations: Domestically controlled financial corporations; Foreign-controlled financial corporations; Total; Public financial corporations; National private financial corporations; Public financial corporations which are part of domestic multinationals; National private financial corporations which are part of domestic multinationals; SPEs (S12 S12DO S12001 S120011 S12002 S120021 S12003)
- The template indicates target and encouraged breakdowns where applicable.

*International Monetary Fund Guidance Note on the Treatment of Special Purpose Entities and Residency (GZTT / Committee recommendations).*

### SECTION I: INTRODUCTION TO THE ISSUE

### g4-treatment-of-special-purpose-entities-and-residency - SECTION I: INTRODUCTION TO THE ISSUE

### Role of MNEs and SPEs
- Multinational Enterprises (MNEs) are central to statistical challenges related to globalization due to their multifaceted economic activities and extensive use of Special Purpose Entities (SPEs).
- SPEs are used beyond investment or pass-through activities and are increasingly set up to manage intellectual property rights, research and development, trade, and other activities as part of MNEs’ group-wide financial and profit-maximization strategies.
- The aim of SPE structures is to maximize company-wide global after-tax profits, not necessarily profits in each jurisdiction in which the MNE operates.

### Impacts on macroeconomic statistics
- SPEs have impacted international trade in goods and services, direct investment, and other financial flows and positions.
- Identification of changes in ownership of goods, nonfinancial assets, and financial assets and liabilities for global MNE activities that use SPEs is challenging and can produce distortions in macroeconomic aggregates.
- Measurement challenges for national compilers are documented (see Annex III in the guidance note).

### Need for separate identification and definitional issues
- Including and separately identifying SPE activities in macroeconomic statistics is crucial for policy analysis.
- The 2008 SNA, BPM6, MFSMCG, and BD4 have all paid attention to SPEs but acknowledge that there is no internationally agreed standard definition of SPEs (2008 SNA paragraph 4.55; BPM6 paragraph 4.50).
- Neither the 2008 SNA nor BPM6 have formally made SPEs an identified component of the accounts, or an institutional sector or subsector.
- The residence of an SPE is of critical importance to its statistical treatment (2008 SNA paragraphs 4.61 and 4.69 referenced for institutional unit/residence criteria).

### Existing guidance, recent developments, and data collection
- Since 2008 SNA and BPM6, additional guidance from UNECE (“The Impact of Globalization on National Accounts” (2011), “Guide to Measuring Global Production” (2015)), the IMF Committee on Balance of Payments Statistics, and the ECB-Eurostat-OECD Task Force (final report on Head Offices, Holding Companies, and SPEs (2013)) has discussed SPE challenges and typologies.
- The IMF Committee endorsed a definition for SPEs in the context of cross-border statistics at its October 2018 meeting and decided that the IMF will undertake data collection for resident SPEs (Committee endorsement, October 2018).
- The IMF presented Operational Guidelines accompanying the SPE definition at the October 2020 Committee meeting to assist compilers in operationalizing the definition and identifying resident SPEs.
- Eurostat and the OECD currently collect SPE-related cross-border data only for direct investment; the IMF disseminates external sector statistics (ESS) without a separate distinction of SPEs, though economies reporting cross-border transactions or positions on resident SPEs embed those activities within balance of payments, IIP, CDIS, or CPIS components.

### Committee-endorsed SPE definition (context of ESS)
- 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 5 employees;
  - no or little physical presence;
  - no or little physical production in the host economy.
- SPEs are directly or indirectly controlled by nonresidents.
- SPEs are established to obtain specific advantages provided by the host jurisdiction with an objective to:
  - grant owner(s) access to capital markets or sophisticated financial services; and/or
  - isolate owner(s) from financial risks; and/or
  - reduce regulatory and tax burden; and/or
  - safeguard confidentiality of their transactions and owner(s).
- SPEs transact almost entirely with nonresidents and a large part of their financial balance sheet typically consists of cross-border claims and liabilities.
- The definition is accompanied by a decision tree (flow chart, Annex IV) and a typology determining institutional sector classification (Annex V); the typology is illustrative, not exhaustive or prescriptive, and may be updated more frequently.

### Options considered for statistical treatment of SPEs
- Option I — Change core SNA/BPM framework:
  - Proposes consolidating SPEs with their parents, irrespective of SPE residence (i.e., not treating SPEs with nonresident parents as separate institutional units).
  - Rationale: SPEs are legal units controlled by parents with no independent decision-making.
  - Outcome: GZTT consultation showed no preference for this approach.
- Option II — No change to core framework; provide supplemental information:
  - Proposes separately identifying SPEs by increasing granularity and providing supplementary data within the SNA framework using the institutional sector accounts (ISAs).
  - Proposal: add an “of which” supplementary category within nonfinancial and financial corporations’ institutional sector to separately identify foreign-controlled resident SPEs (aligns with BPM6 and BD4 recommendations and IMF data collection plans).
  - This approach does not change the core conceptual framework.
- Option III — Extension via alternative/nationality-based presentations:
  - Considers adopting nationality-based presentation as an alternative concept without departing from the core SNA/BPM framework (e.g., reclassify SPEs from countries of legal incorporation to countries of their parents).
  - Rationale: provide users with information on pass-through effects and consolidate pass-through funds by nationality of an MNE to show who makes decisions, reaps benefits, and bears risks.
  - Practical considerations: implementation would require DI owners to record all balance sheet positions and transactions for SPEs; careful consideration by national compilers is needed.

### Discussion over the definition and classification
- The GZTT acknowledged the Committee-endorsed SPE definition as suitable for identifying SPEs that are part of MNEs for national accounts purposes and noted that the accompanying decision tree and typology improve precision and clarity.
- The typology indicates that SPEs may be classified across various subsectors, including:
  - captive financial institutions and money lenders subsector (S127),
  - other financial intermediaries (S125) (e.g., factoring companies),
  - insurance corporations (S128) (e.g., captive insurance companies),
  - nonfinancial corporations sector (S11) (e.g., operational leasing companies).
- The typology links balance of payments classifications with SNA institutional sectors and assists in determining institutional sector, activity classification, and input data requirements for compilation.

*Prepared by Ms. Padma Hurree-Gobin and Ms. Jennifer Ribarsky (GZTT Secretariat, IMF) under the supervision of Messrs. Michael Connolly and Brank Vitas (co-Chairs of the GZTT).*

### 20.      The benefit of a common definition of SPE is relevant in the context of data

### g4-treatment-of-special-purpose-entities-and-residency - 20.      The benefit of a common definition of SPE is relevant in the context of data

### Definition, residence, and institutional unit test
- The element of direct or indirect control from a nonresident serves well in the definition for SPEs when it comes to cross-border statistics.
- The presence of a nonresident owner is a sufficient condition in passing the institutional unit test.
- The 2008 SNA states that entities are institutional units when resident in a different economic territory from the related enterprises.
- The ESS SPE definition covers SPEs as part of enterprise groups, or belonging to nonresident owners, but does not explicitly acknowledge SPEs used in domestic-to-domestic relationships (for instance SPEs owned by households or other resident entities).

### Resident-controlled entities that meet SPE criteria except foreign control
- Certain entities meet all ESS SPE criteria except nonresident parentage; examples include:
  - Households owning incorporated entities that satisfy the SPE description, barring the foreign control factor.
  - Securitization vehicles set up by resident entities that have autonomy of decision and isolate parents from (financial) risks.
- Incorporated entities owned by households are separate institutional units from the household (BPM6, paragraph 4.14).
- Family trusts are owned by households (2008 SNA paragraph 24.75); some trusts may be owned collectively by households possibly including nonresident households and should be treated as quasi-corporations and included in the financial corporations’ sector as captive financial institutions.
- For assessing independence of action, an entity having some control over assets and liabilities or bearing risk and reaping rewards can suffice (2008 SNA, paragraph 4.60).
- Key features for securitization vehicles: control exercised on the parent’s behalf by a third party; independence of action implied by design to isolate parent from financial risks.

### Committee considerations and harmonization across macro datasets
- The existence of SPEs with resident parents challenges definitions meaningful solely for ESS purposes; the proposed typology implies resident parents are a possibility.
- The Committee discussed harmonizing statistical definition and treatment of SPEs across all macroeconomic datasets, particularly coordinating with national accounts.
- The TFSPE final report acknowledged that ESS-focused principles for SPEs may be adapted/refocused for other macroeconomic datasets, including national accounts.

### Recommended conceptual approach (GZTT proposals)
- GZTT consultation preferred Option II: separately identify SPEs as an “of which” category within the ISAs in the SNA.
- ESS is already moving toward collecting data on resident SPEs meeting the Committee-endorsed TFSPE definition, meaning the target population are SPEs with foreign parents. GZTT proposes identifying the same units within the ISAs to link ISAs with international accounts breakdowns and provide a complete picture of the economy.
- The “of which” identification is proposed as encouraged (non-mandatory) and to be included at:
  - S.12x (financial corporations)
  - S.11x (nonfinancial corporations)
  - (Reference: 2008 SNA, Annex I)
- Emphasis: create an “of which” category at the institutional sector level, not to combine all SPEs into one subsector; allows separate identification between financial and nonfinancial corporations without requiring subsector presentation (e.g., S127 or S128).
- For SPEs created by MNEs or nonresident parents, institutional independence and control should be determined using standard SNA criteria for an institutional unit and the definition of control as defined in the context of MNEs.
- Entities displaying all SPE elements except attribution to nonresident ownership/control: GZTT proposes these entities are not considered SPEs for the purpose of separate identification in the ISAs.
- GZTT recommends using the term SPEs only for entities with direct and indirect foreign control; captive financial institutions wholly owned and controlled solely by resident parents should not be treated/referred to as SPEs.
- Resident-controlled affiliates should be referred to by typology (conduits, captives, etc.) within their institutional sector and not classified as SPEs in the “of which” SPE category.
- The GZTT prioritized more detailed ISAs with breakdowns by control (foreign controlled corporations, domestic MNEs (i.e., parents), purely domestic companies) over more detailed presentation solely on SPEs. The extended supply and use table breakdown (domestic MNEs, other domestic firms, foreign controlled affiliates) is highlighted as a possible priority depending on analytical and policy needs.

### Proposed supplemental alternative: reclassification by parent economy
- An alternative viable option: supplemental presentation reclassifying SPEs from their countries of legal incorporation to the countries of their parents.
- This supplemental approach is intended for countries where SPEs are important, or where resident MNEs set up many foreign SPEs.
- The complementary nationality-based presentation would be a complement to, not a substitute for, residency-based statistics; it organizes statistics according to the location of the entity that ultimately controls SPEs.
- Conceptual benefit: better measure financial integration between economies and complement global allocation of production, income, assets and liabilities under current standards.
- Under this alternative, the SPE would no longer be an institutional unit; consolidated presentation with operating entities would aim to distinguish the compiling economy from the rest of the world when economic residence and legal residence of MNE subsidiaries do not overlap.
- Practical consensus: constructing full-sequence supplemental statistics is resource intensive and ambitious; feasible only for some countries and may require extensive data exchange.

### Practical aspects, challenges, and IMF initiatives
- Confidentiality and international data exchange are significant challenges; any departure from current standards would have practical impacts on compiling statistics.
- Practical implementation difficulties include data compilation costs, potential non-comparability of macroeconomic aggregates across countries if not universally adopted, and legal/administrative/technical obstacles to data sharing.
- Rassier’s proposal for supplemental data breaking the full sequence of accounts into SPEs and operating entities is conceptually valuable but hard to implement in practice; some members note that countries already treating SPEs as separate institutional units may have developed data sources aligned with the proposed split.
- Extending the SNA/BPM core framework to reclassify SPEs to parent economies on a supplemental basis would raise country-specific implementation issues, potentially causing extensive data exchange, imputations, asymmetries, and possible degradation of data quality if not properly managed.
- Data sharing agreements and handling of confidentiality are priorities to support any supplemental approach.
- From the external sector perspective, the IMF launched an international data collection to separately identify cross-border transactions and positions for resident SPEs within the balance of payments and IIP based on a separate reporting template.
  - The IMF data collection recognizes SPE engagement beyond direct investment, including portfolio investment, financial derivatives, or other investment operations.
  - A separate line for net merchanting by SPEs is included where goods transactions are relevant (merchanting SPEs).
  - Services reporting includes four distinct components where SPEs can be relevant: transport, financial services, charges for the use of intellectual property, and other business services.
  - The template encourages DI data to be disaggregated by the residency of the ultimate controlling parent to assist in compiling supplemental statistics on ultimate income recipients (the template does not collect geographical breakdowns).
- Timeline and guidance:
  - The IMF data collection targets the release of 2020 annual data by end of 2021.
  - The IMF, at its October 2020 Committee meeting, released the Special Purpose Entities: Guidelines for a Data Template to assist compilers in implementing a national data collection framework.
  - At this stage, the IMF is prioritizing initiating international data collection only for resident SPEs, while recognizing the rationale for collecting separate data on nonresident SPEs could be revisited once data collection is more widespread.
- Identification nuances and consolidation rules:
  - Layering can occur (resident SPE established by another resident SPE) or mixed groups of SPEs and non-SPEs; Annex 7 of BD4 assists compilers to identify SPEs in mixed groups.
  - SPEs owned and directly controlled by residents in the same economy (even if indirectly controlled by nonresidents) would not meet the statistical definition of an institutional unit and their accounts would be consolidated with resident owners; cross-border transactions of such SPEs would be consolidated with the resident parent and not recorded as SPE cross-border flows.
  - BD4 nuance: for resident chains of entities, compilers should consider whether assets in resident entities are really relevant to the domestic economy; if not, such enterprises would be considered potential SPEs.

*Source: International Monetary Fund Guidance Note on the Treatment of Special Purpose Entities and Residency (GZTT / Committee recommendations).*

### 40.      From a user needs perspective, the IMF is encouraging compilers to avoid consolidating

### Treatment of Special Purpose Entities and Residency

### User guidance on consolidating SPEs
- The IMF is encouraging compilers to avoid consolidating the cross-border transactions of SPEs with resident immediate parent but subject to indirect foreign control, to the extent possible, while avoiding double counting.
- This guidance is intended only to identify separately SPEs transactions or positions from cross-border statistics and should not be viewed as an exception to the rule of establishing an institutional unit as laid out in the SNA.
- IMF’s data collection on resident SPEs is expected to begin in 2021.

### Identification of pass-through capital and scope beyond SPEs
- Separate identification of SPEs permits a clearer view of pass-through funds, but:
  - Not all pass-through capital can be captured by identifying and separating SPEs.
  - Pass-through capital also occurs outside SPEs, captured through near SPEs or other entities.
- One approach proposed:
  - Further disaggregate institutional sectors into foreign-controlled and non-foreign controlled entities to identify pass-through activities irrespective of statistical status (SPE, near SPE, or non-SPE).
- This recommendation aligns with the G20 DGI-2 Recommendation 8 on ISAs and is represented in the GN on MNEs and in Annex VI.

### Changes recommended to the 2008 SNA and other statistical domains (Section VI outcomes)
- The AEG and Committee unanimously agreed to:
  - Adopt the SPEs definition, based on the Committee’s recent work, in both BPM7 and 2025 SNA.
  - Leave the core BPM and SNA framework unchanged and integrate the proposed breakdown of SPEs within the ISAs for countries for which SPEs are significant.
  - Drop the term “foreign controlled” before SPEs given that the definition in the context of ESS already contains foreign control as one of its elements.
  - Present SPEs data on a nationality basis consolidated with the parent entity as an extension to the core framework, on a voluntary initiative.
- The editors will elaborate which parts of the 2008 SNA and BPM6 need to be changed.

### Rejected alternatives and rationale
- The GZTT rejected Option I (changing current standards to consolidate SPEs with their nonresident parents) because:
  - Insufficient progress on international data exchange.
  - Practical and legal problems of international data exchange remain valid (Moulton and van de Ven, 2018).
  - Modifying the conceptual core might hinder progress toward IMF data collection on resident SPEs.
  - Supplemental information can be presented without changing the core framework.

### Residence vs nationality and supplemental presentations
- The nationality concept will be discussed during the current update process.
- The Balance of Payments Task Team will discuss managing the duality approach—residence/nationality within the BPM framework.
- DITT proposes development of supplemental presentations of direct investment (DI) statistics by ultimate host economy and ultimate investing economy (nationality approach).
- DITT’s GN on Activities of MNE statistics identifies the nationality of resident units that are foreign-owned and provides data on nonresident units controlled by residents.
- These supplemental statistics are intended to enhance interpretability and usefulness and are not substitutes for residence-based indicators.

### Outcomes of AEG discussion and DITT consultation (summary points)
- AEG unanimous agreement: no change to the residency principle in the SNA and BPM frameworks; SPEs with nonresident parents remain resident in their location economy.
- AEG strongly supported Option II: leave core framework unchanged and separately identify SPEs as a sub-sector using ISAs, adding an “of which” category for foreign-controlled SPEs within nonfinancial and financial corporations.
- AEG agreed with aligning SPE definition in the SNA to be based on direct or indirect foreign control (align with ESS), but requested clearer operational guidance.
- AEG supported complementary statistics for countries with information on nonresident SPEs to consolidate these as supplementary information, while noting practical difficulties in identification and data collection.
- AEG supported separately identifying cross-border transactions or positions of SPEs with immediate resident parents for ESS where possible.
- DITT broadly agreed to harmonize SPE definition on direct or indirect foreign control for separate identification in ISAs and to respect the residency principle in 2008 SNA and BPM6.
- DITT emphasized that any complementary nationality-based presentation must be clearly outside the core framework and would involve major implications and challenges requiring international cooperation.
- DITT favored separately identifying SPEs cross-border transactions or positions that have immediate resident parents within ESS and not consolidating them with non-SPE resident entities, subject to practical implementation challenges.

### Measurement challenges (key points)
- Macroeconomic aggregates are compiled following the residence concept: residence is the economic territory of a unit’s center of predominant economic interest (2008 SNA paragraphs 4.10–4.15; BPM6 paragraphs 4.113–4.144).
- For units with few or no attributes of physical presence, residence is determined by place of legal incorporation or registration (2008 SNA paragraph 4.15(f); BPM6 paragraph 4.134).
- SPEs are located in the economic territory under whose legal jurisdiction they are incorporated or registered (2008 SNA paragraph 4.56; BPM6 paragraph 4.50) and are recognized as separate institutional units when incorporated in a different economy from their parent.
- SPEs generally have few or no employees and little or no physical presence (2008 SNA paragraph 4.56; BPM6 paragraph 4.50), so their contribution to GDP in host countries is expected to be small; nonetheless, the emergence of nonfinancial SPEs has increased intra-MNE transactions that artificially depict production and income in host economies.
- Cross-border activities of SPEs tend to involve large financial stocks and flows and large income flows, complicating interpretation of meaningful flows.
- Empirical findings:
  - Net DI inflows and outflows are highly correlated, suggesting measured DI gross flows may reflect flows through rather than flows to the country (Blanchard and Acalin, 2016).
  - Lack of adequate cross-border statistics on SPEs hampered assessment of retrenchment in cross-border capital flows during the global financial crisis (Milesi-Ferretti and Tille, 2011).
  - Strong SPE presence in certain economies motivates decoupling genuine DI from SPE-associated flows and stocks (Damgaard and Elkjaer, 2017).

*International Monetary Fund guidance note on the treatment of Special Purpose Entities and residency.*

### 5.      The availability of balance of payments and international investment position statistics

### g4-treatment-of-special-purpose-entities-and-residency - 5.      The availability of balance of payments and international investment position statistics

### Availability of BOP and IIP statistics with and without SPEs
- The availability of balance of payments and international investment position statistics with and without SPEs would provide a better geographic distribution of DI for economies.
- In SPEs host jurisdictions, with SPEs included in cross-border statistics, it can appear they are receiving substantial investment from countries when those investors are just passing capital ultimately directed to third countries.
- Excluding SPEs can provide a better geographic distribution of DI for economies that host a significant number of them because with SPEs included it can appear they are receiving investment from countries whose investors are just passing capital ultimately directed to third countries through SPEs.
- The significant role of SPEs as intermediate steps towards DI and portfolio investment positions is evidenced in the IMF’s Coordinated Direct Investment Survey (CDIS) and Coordinated Portfolio Investment Survey (CPIS) data—see Annex III.

### Identification of SPEs within macroeconomic accounts and policy analysis
- The ability to identify SPEs within a general comprehensive reporting frame for the compilation of macroeconomic accounts would better support policy analysis.
- Several macroeconomic analyses such as productivity and employment assessments would benefit by the ability to separately report SPEs in the macroeconomic framework.
- Some important SPEs host jurisdictions with a significant SPE population do provide separate accounts for SPEs within the macro-economic framework.

### Empirical evidence from CDIS and CPIS (as of December 2019)
- CDIS findings:
  - The latest CDIS data, as at December 2019, show that both large and small economies in which SPEs have traditionally been located are among the main originators and recipients of DI investment.
  - Countries like Ireland, Luxembourg, and Netherlands are portrayed as origin and destination for DI, while for the most part they only have an intermediating role (Figures 1a and 1b).
- CPIS findings:
  - CPIS-derived liabilities reveal the same picture.
  - The latest CPIS data as of end December 2019 show that the top ten investor and investee economies include major SPE-hosts like Luxembourg, Cayman Islands, and the Netherlands (Figures 2a and 2b).
- Sources cited in the analysis:
  - IMF’s Coordinated Direct Investment Survey
  - IMF’s Coordinated Portfolio Investment Survey

### Annex IV — Decision tree to identify SPEs for ESS (logical tests)
- Sequential identification questions (answer flow indicates SPE vs Not SPE):
  - Does the entity have little or no physical presence and physical production in the host economy? Yes → continue; No → Not an SPE
  - Does the entity have no or up to five employees? Yes → continue; No → Not an SPE
  - Is the entity formally registered and/or incorporated resident institutional unit? Yes → continue; No → Not an SPE
  - Is the entity directly or indirectly controlled by nonresident(s)? Yes → continue; No → Not an SPE
  - Is the entity established with one or more of the four objectives in the definition? Yes → continue; No → Not an SPE
  - Does the entity transact almost entirely with nonresidents? Yes → The entity is an SPE; No → Not an SPE
- Nonresident unit classification applies where appropriate in the decision flow.

### Annex V — Typology of SPEs for ESS (categories and types)
- Note: The types listed may be SPEs, but not all entities of the types listed are necessarily SPEs. The definition and the decision tree should assist compilers in determining which entities are SPEs.
- Category I: Corporate Groups’ Captive Financial Entities
  - 1.1 Conduits — Raising or borrowing funds, often from unrelated enterprises, and remitting those funds to its parent or to another related enterprise. Typically, do not transact on the open markets on the asset side. (Para 4.59; Para 4.51; Para 4.86; S127)
  - 1.2 Holding companies — Owning a controlling level of equity in subsidiaries, without actively directing them (Passive holding corporations). (Para 4.59; Para 4.51; Para 4.81; S127)
  - 1.3 Holding financial assets for securitization. (Para 4.51; S127)
  - 1.4 Intra group lending companies — Loan funding from and to intra group companies. (Para 4.51; S127)
  - 1.5 Captive factoring and invoicing companies — Concentrating sales claims and invoicing sales. (S127)
  - 1.6 Captive financial leasing companies — Engaging in lease-in lease-out agreements or as a financial intermediary in a chain of vehicles in which the end vehicle is involved in the leasing of equipment or fixed assets. (Para 4.83; S127)
  - 1.7 Other captive financial companies — Dealing with financial needs of a group, such as financing particular projects and loan origination. (Para 4.87; S127)
- Category II: Specialized Financial Entities
  - 2.1 Captive insurance companies — Providing insurance to group enterprises. (Para 4.88; S128)
  - 2.2 Securitization vehicles/Financial vehicle corporations — Carrying out securitization transactions to isolate payment obligations of the undertaking from those of the originator, or the insurance or reinsurance undertaking; repackaging. (Para 4.59; Para 4.51; Para 4.77; S125)
  - 2.3 Holding financial and non financial assets (including real estate) for related companies — Holding assets with goals of capital appreciation, interest/dividend income, and other income. (S11 and S125)
  - 2.4 Companies carrying out other financial functions — Performing factoring, invoicing on open markets, financial leasing on open markets, and other financial assets management. (Para 4.51; Para 4.76; S125)
- Category III: Corporate Groups’ Nonfinancial Entities
  - 3.1 Ancillary companies — Registered or incorporated companies providing ancillary services that are not resident in the same economy as its parent. (Para 4.51; S11)
  - 3.2 Operational leasing companies — Holding fixed assets, such as planes, vessels, and machinery, for the purpose of leasing them out. (S11)
  - 3.3 Merchanting companies — Purchasing goods from a nonresident and re-selling the goods to another nonresident (merchanting companies have ownership of the goods traded). (S11)
  - 3.4 Royalty and licensing companies — Concentrating group receipts concerning royalties and similar flows received from intellectual property rights and trademarks; regarded as independent royalty and licensing company for group flows. (S11)
  - 3.5 Legal ownership of intangible assets — Holding intangible assets for a related company or group of companies. (S11)
- Category IV: Wealth management entities
  - 4.1 Companies holding/managing wealth and real estate for individuals and families — Managing family trust funds, foundations, personal holding companies. (Para 4.59; Para 24.75; S11 and S127)
- Category V: Government Owned Financial Entities
  - 5.1 SPEs owned by governments for fiscal purposes — Raising or borrowing funds on behalf of a nonresident general government. (Para 8.24; S11, S12, or S15)
- Category VI: Other structures
  - 6.1 Shell companies — Passing-through funds between nonresidents with no operations in the economic territory of incorporation; do not have employees, are not traded, can be kept dormant. (Para 4.50; S11 or S12)
  - 6.2 Shelf companies — Empty corporation, registered in advance, minimum assets and liabilities. (Para 4.50; S11 or S12)
- Sources for typology: Joint ESCB/ESS Task Force on Foreign Direct Investment, Frankfurt Meeting, May 2017; Drawn from BPM6, TFSPE Secretariat; Institutional sectors based on Annex 1 in the 2008 SNA.

### Annex VI — G20 Data Gaps Initiative-2 (DGI-2) Institutional Sector Accounts (Financial and Nonfinancial Corporations)
- DGI-2 recommendation 8 requires all G20 economies compile and disseminate ISAs on a quarterly and annual frequency based on the internationally agreed template.
- The template provides minimum and encouraged breakdowns by sector and instrument.
- Nonfinancial Corporations classification headings in the template include:
  - Domestically controlled non-financial corporations; Foreign-controlled nonfinancial corporations; Total; Public nonfinancial corporations; National private nonfinancial corporations; Public nonfinancial corporations which are part of domestic multinationals; National private nonfinancial corporations which are part of domestic multinationals; SPEs (S11 S11DO S11001 S110011 S11002 S110021 S11003)
- Financial Corporations classification headings in the template include:
  - Domestically controlled financial corporations; Foreign-controlled financial corporations; Total; Public financial corporations; National private financial corporations; Public financial corporations which are part of domestic multinationals; National private financial corporations which are part of domestic multinationals; SPEs (S12 S12DO S12001 S120011 S12002 S120021 S12003)
- The template indicates target and encouraged breakdowns where applicable.

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/g4-treatment-of-special-purpose-entities-and-residency.pdf_