## Issue Note: Recording Uncompensated Asset Seizures in Macroeconomic Statistics ## Source details **Canonical URL:** [Issue Note: Recording Uncompensated Asset Seizures in Macroeconomic Statistics](https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/issue-note-recording-uncompensated-asset-seizures-in-macroeconomic-statistics.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bpm6/approved-guidance-notes/issue-note-recording-uncompensated-asset-seizures-in-macroeconomic-statistics.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bpm6/approved-guidance-notes/issue-note-recording-uncompensated-asset-seizures-in-macroeconomic-statistics.pdf.json) --- ### Summary of the issue - The current macroeconomic statistical manuals contain clear guidance on the treatment of asset seizures for entities directly involved, but not for entities indirectly involved (i.e., owners of entities whose assets have been seized). - Paragraph 9.11 of the Balance of Payments and International Investment Position Manual, sixth edition (BPM6) states: “Governments or other institutional units may take possession of the assets of other institutional units, including nonresident units, without full compensation for reasons other than the payment of taxes, fines, or similar levies. If the compensation falls substantially short of the values of the assets as shown in the balance sheet, the difference should be recorded in other changes in volume as an increase in assets for the institutional unit doing the seizing and a decrease in assets for the institutional unit losing the asset.” Similar guidance appears in paragraph 12.48 of the 2008 System of National Accounts, paragraph 10.62 of the Government Finance Statistics Manual 2014, and paragraph 5.21c of the Monetary and Financial Statistics Manual and Compilation Guide 2016. - The gap: manuals do not explicitly state whether the direct investor (owning directly or indirectly the seized entity) should record the resulting change in the value of its investment as an other change in volume or as an other price change. ### Case study and conceptual issues - Case study setup: - Company A (Country A) owns 100 percent of Company B (Country B). - Company B owns 100 percent of Company C (Country C) and Company D (Country D). - Company D is seized by the government of Country D with no compensation. - Country B should reduce the value of its direct investment equity asset in Country D to zero via other changes in volume. 2 - Conceptual considerations: - Argument for recording other changes in volume for Country A: Company D is, in effect, taken from the ultimate controlling parent (Company A), and consolidated financial-statement practice would reflect this as a volume change. - Counter-argument: Macroeconomic statistics are based on institutional units and residence; institutional units are never consolidated across economies. Treating an MNE group as a single statistical entity would violate fundamental macroeconomic-statistics principles. - Equity-side consistency issue: Other flows recorded by Company B on assets (e.g., loss of shares in Company D recorded as other changes in volume) do not automatically imply matching other-volume changes for Company B’s equity on the liability side. The number of shares in Company B remains the same, so recording an other volume change for Company B’s equity would be conceptually incorrect. Instead, the effect on Company B’s equity value should be recorded as an other price change. 3 - Multiple factors affecting enterprise value (exchange rates, market valuation, seizures) should be treated jointly as other price changes when they change the value of the enterprise rather than its count of assets. ### Implicit support in existing guidance - OECD BD4 paragraph 239 describes treatment of exchange rate changes along ownership chains and states: “A direct investment enterprise may have assets or liabilities expressed in a currency other than its local currency. Changes in exchange rates will have an impact on the value of the direct investment enterprise’s assets and/or liabilities. These changes are likely to impact on the market valuation of the direct investment enterprise itself. The change in the asset value of the direct investment enterprise to its direct investor is recorded as an ‘other price change.’” - BPM6 paragraph 9.32 notes: “In other cases of equity, there is no imputation of income or financial account transactions to the owners on account of retained earnings. The result is that the increase in the value of the equity caused by the accumulation of retained earnings is reflected in increased value in the IIP without a transaction and is, therefore, shown as a result of revaluation.” This supports treating flows not picked up in standard equity recording as revaluations (other price changes). ### Practical considerations for compilers - Disentangling types of other flows along long and complex ownership chains is extremely difficult in practice. - For portfolio investment equity (primarily listed equity), compilers typically use stock-exchange prices to calculate other price changes and, where applicable, exchange-rate changes—separating underlying causal factors at scale would be practically infeasible. ### Recommendation (official proposal) - The note recommends that uncompensated asset seizures should always be recorded via other price changes (as opposed to other changes in volume) for entities that are only indirectly impacted through their ownership of entities that have had their assets seized. - Proposed text to be included after paragraph 9.31 in the updated BPM (wording recommended): - Other flows will sometimes impact the value of an entity. For instance, the value of a direct investment enterprise may change due to exchange rate movements if it has external assets and liabilities denominated in foreign currencies. These changes should be recorded as exchange rate changes by the economy of the direct investment enterprise. - The value of a direct investment enterprise is also likely to change if its financial assets in a specific economy are seized with no compensation. These changes should be recorded as other changes in volume by the economy of the direct investment enterprise. - Conversely, the economy of the direct investor should record such changes in the value of (directly or indirectly owned) direct investment enterprises as other price changes. - The economy of an investor should only record exchange rate changes if there is a change in the equity value resulting directly from the currency denomination of the direct investment enterprise’s equity. - Similarly, it should only record other volume changes when there is change in the value of its equity holdings that is neither due to transactions nor due to revaluations (e.g., if the shares it holds in the direct investment enterprise have been seized). ### Outcome and institutional support - The IMF Committee on Balance of Payments Statistics and the Advisory Expert Group on National Accounts supported the recommendations in this Issue Note through written consultation. 10 --- _Source: https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/issue-note-recording-uncompensated-asset-seizures-in-macroeconomic-statistics.pdf_