## d17-identifying-superdividends-and-establishing-the-borderline-between-dividends-and-withdrawal-of-e - SECTION I: THE ISSUE

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### Background
- The application of the superdividends concept to foreign direct investment (DI) based on the System of National Accounts, 2008 (2008 SNA)/the Balance of Payments Manual, sixth edition (BPM6) entails two major drawbacks:
  - (i) difficulties in operationalization likely leading to international inconsistencies, and
  - (ii) limited interpretability of the related reinvested earnings sub-item.
- The OECD Benchmark Definition of Foreign Direct Investment, fourth edition (BD4) omits the term “superdividends” and treats distributed profits differently, indicating a need to re-open the discussion for DI.
- 2008 SNA recommends comparing the ratio of dividends to distributable income over the recent past; excess over past practice is identified as superdividends.
- BPM6 paragraph 11.27 recommends identifying superdividends when payments are “disproportionately large relative to the recent levels of dividends and earnings” and states that excess should be excluded from dividends and shown as a withdrawal of equity.
- Practical operationalization issues:
  - Many affiliates have unsteady payment behaviour, complicating meaningful comparisons to recent patterns of dividends and risking erroneous labelling of dividends as superdividends.
  - New affiliates lack dividend history for comparison.
- Recording distributions out of accumulated reserves as withdrawals of equity (BPM6 paragraph 11.27) will increase reinvested earnings and may falsely suggest economies are more attractive for DI expansion than they are.
- BD4’s conceptual basis differs from 2008 SNA/BPM6, fostering divergent implementation across compilers.
- The original aim of superdividends—to align earnings and dividends paid—is not applicable to regular DI equity income, which tends to be distributed irregularly.

### Concerns and shortcomings of the current treatment
- Empirical research from the USA, Poland, Brazil, and Switzerland indicates the 2008 SNA assumption that enterprises “usually aims to have a smooth track record of dividend payments” (2008 SNA, paragraph 11.90) is invalid for intrafirm dividends for most direct investment enterprises.
- DI enterprises often follow irregular dividend patterns with long periods without dividend transactions; identifying superdividends relative to payment history makes superdividends the norm rather than the exception.
- Resulting issues:
  - Unintended classification leads to uncertainty among compilers and deviations from international requirements.
  - Compilers’ solutions vary greatly, producing asymmetries in the composition of reinvested earnings (RIE) between the income and financial accounts.
  - Identification of superdividends does not affect net current and net financial accounts but materially alters subitem composition (RIE and equity), potentially misrepresenting investment/divestment activity.
  - A distribution identified as a superdividend (and thus not displayed as negative reinvested earning) increases the reinvested earnings aggregate, creating the impression of reinvestment/expansion rather than repatriation of capital.

### Issues for discussion and proposed alternatives
- Three alternatives for treatment of superdividends paid between affiliated enterprises (for direct investment enterprises only):
  - Alternative 1 (A1): Maintain status quo but replace operationalization with a quantitative indicator (e.g., a “dividend in relation to recent equity ratio” as in OECD 2018 section 43).
    - Pros:
      - Maintains current view that superdividends may be exceptional distributions out of accumulated reserves or distributions due to sales of assets/extraordinary events.
    - Cons:
      - Any indicator is essentially arbitrary and may be outdated by changes in income distribution policy.
      - A new measure still may not clearly allocate distributions out of accumulated reserves as regular or exceptional.
      - National compilers remain obliged to micro-level analysis, straining staff, IT, and data capacity.
  - Alternative 2 (A2): Follow ESA 2010 rationale that distributions “in excess of their operational profit excluding holding gains/losses” are recorded as withdrawals of equity (instrument F.5) and not income—i.e., distributions from accumulated reserves are treated as withdrawal of equity and only current-period dividends are recorded as income.
    - Pros:
      - More accurate result than any arbitrary quantitative indicator.
  - Alternative 3 (A3): Discard the concept of superdividends for distributions from ordinary accumulated reserves for DI enterprises; treat distributions of accumulated reserves (earnings from previous periods) as ordinary dividends recorded under primary income. Exceptional payments are limited to distributions from sales of assets as defined in BPM6 CG paragraph 13.78(1).
    - Rationale:
      - Empirical evidence shows irregular DI distribution is typical; treating accumulated-reserve distributions as ordinary dividends avoids misclassifying regular payments as “exceptional.”
    - Advantages:
      - Leads more often to negative reinvested earnings when distributions exceed current-period earnings, correctly indicating divestment character.
      - Removes divergence between BPM6 and BD4 by aligning treatment.
      - Eliminates contradiction within BPM6 regarding dividends’ impact on reinvested earnings.
      - Narrows exceptional payments to sales-of-assets proceeds and renders the term “superdividends” unnecessary.
    - Potential inconsistencies:
      - Redefining withdrawal of equity and abolishing “superdividends” for DI enterprises may conflict with SNA income principles.
      - Recording distributions from accumulated reserves as dividends implies macro-statistical double recording (as reinvested earnings when earned and as dividends when paid), though DI total income remains equal to current period earnings plus net interest and national accounts key income data remain unaffected (shifts occur only within DI income sub-aggregates).

### DITT and BPTT responses and recommended approach
- The Direct Investment Task Team (DITT) agrees with recommending a revision of BPM6 regarding distributions out of accumulated reserves.
- Majority of DITT members support Alternative 3 (A3): regard distributions of accumulated reserves from ordinary earnings as ordinary dividends and record them in primary income.
  - One DITT member supporting A3 requested development of compilation guidance to identify exceptional payments from sales of assets, noting practical identification difficulties and a preference that exceptional payments be applied conservatively by DI compilers.
- Recommendation (DITT/BPTT consensus trend):
  - Regard earnings from non-operating activities (sales of fixed capital assets, liquidations of branches) as exceptional with corresponding distributions recorded as withdrawal of equity in the financial account, not under primary income.
  - Do not use the term “superdividends” for such exceptional distributions—use “dividend” only for operations recorded under primary income.
- BPTT largely agrees with revising BPM6 and a large majority supports A3, though some members raised concerns about potential contradiction with national accounting principles.
  - BPTT proposed submitting the guidance note (GN) to the Financial and Payments Task Team (FITT) and the Intersecretariat Working Group on National Accounts’ Advisory Expert Group (AEG) for holistic review and a commonly agreed proposal for public consultation.
  - Majority of BPTT members did not support an additional “of which” position in the financial account due to limited analytical value and confidentiality/response-burden concerns.
  - Disagreement remained on whether to retain or replace the term “superdividends”; one member proposed labeling the phenomenon “distributions of the proceeds from sales of assets,” referring to BPM6 CG 13.78(1).

### FITT and AEG consultation outcomes
- FITT:
  - Overall support to revise the BPM6 treatment of distributions out of accumulated reserves.
  - Majority expressed support for alternative A3.
  - One member favored A2 given substantial changes resulting from A3.
  - An additional “of which”-position and replacement of the term “superdividends” were overall rejected.
  - Majority saw no analytical value in an “of which”-position given expected confidentiality constraints.
  - Comments received from Armenia, Bank of International Settlement, United Kingdom, and South Africa.
- AEG:
  - Objections to A3 due to alleged deviations in the treatment of DI income from the status quo.
  - An additional “of which”-position was not favored because confidentiality constraints would lead to little analytical use.
  - AEG respondents stressed that the term “superdividend” should remain as it is considered the correct label.
  - Comments received from Costa Rica, Ireland, Netherlands, United Kingdom and the ECB.

### Conceptual clarification on A3 and consistency with National Accounts
- A3 would redefine the borderline between dividends and reinvested earnings for direct investment (DI) without changing total DI income numerically or conceptually.
- Key conceptual points:
  - DI income consists of dividends, interest, and reinvested earnings.
  - Reinvested earnings are most often calculated as a residual of total DI equity income minus dividends.
  - Under A3, if dividends increase, reinvested earnings decrease (ceteris paribus).
  - By convention in DI, all earnings that the direct investor has a claim on are considered distributed in the current period and then recorded as the portion distributed and the portion reinvested depending on the direct investor’s decision.
  - Therefore, the DI equity income definition remains unchanged and consistent with the National Accounts income concept even if DI dividends are measured differently from other dividends.

### Rejected alternatives and questions posed to the Committee
- Rejection rationales:
  - Alternative A1 rejected as status quo with an arbitrary quantitative indicator and difficult application.
  - Alternative A2 rejected for contradicting internal logic of DI income and for failing to show negative reinvested earnings when accumulated reserves are dissolved and distributed.
  - One member noted A2 and A3 could be alternatives, with A2 easier to implement relative to A3 if treatment of superdividends is reconsidered for other functional categories.
- Questions to the Committee:
  1. Taking into consideration the strengths and weaknesses of each proposed alternative, do you support alternative A3?
  2. Taking into consideration potential confidentiality constraints, do you consider an additional “of which”-position of withdrawal of equity to distinguish exceptional distributions from sales of assets in the financial account necessary in order to gain more analytical power?
  3. Given the misleading implication that superdividends might be part of the income as they are labeled dividends, but treated as withdrawal of equity, do you think there are needs to replace “superdividends” for DI or can the manuals alternatively simply refer to the treatment of distributions of the proceeds from the sales of assets?

### Current international standards for treatment (extracts)
- BPM6 (paragraph 11.27): Exceptional payments by corporations made out of accumulated reserves or sales of assets should not be treated as dividends; such exceptional payments, sometimes called superdividends, are treated as withdrawals of equity and recorded in the financial account. Exceptional nature normally determined as being disproportionately large relative to recent level of dividends and earnings.
- BPM6 Compilation Guide (13.78): Superdividends can be identified by characteristics:
  - (1) Often paid out of the proceeds from sales of fixed assets, operating units, or liquidations.
  - (2) Level of dividends declared is greatly in excess of previous dividends and trends in earnings (considering around the last five years).
- 2008 SNA (7.131 and 11.90): If level of dividends declared is greatly in excess of distributable income or recent averages, the excess should be treated as a financial transaction, specifically withdrawal of owners’ equity; such payments are sometimes referred to as “superdividends”. Withdrawals may take the form of proceeds from sales of fixed or other assets, transfers of fixed and other assets, and funds taken from accumulated retained earnings and reserves.

### Overview of advantages and disadvantages: A1 vs A2 vs A3 (summary)
- Alternative 1 (Pros):
  - A clear-cut quantitative criterion remains.
  - The “equity ratio” can be utilized for newly acquired affiliated enterprises.
  - Accumulated earnings could be viewed as a financial asset.
- Alternative 1 (Cons):
  - Risk of misinterpreting erroneously positive or too high reinvested earnings remains.
  - Specification of the criterion remains somewhat arbitrary.
  - A micro-analysis is still required.
- Alternative 2 (Pros):
  - Maintains concept of superdividends while eliminating ambiguity in operationalization.
  - No micro-analysis required.
  - Reduces risks of asymmetries from different interpretation of manuals.
- Alternative 2 (Cons):
  - Historical inconsistency: accumulated dividends will not equal accumulated earnings on current operating performance concept basis.
  - Risk of misinterpreting erroneously positive or too high reinvested earnings remains.
  - Case of negative reinvested earnings would degrade into an exception, only applied in case of negative profits of the direct investment enterprise (DIE).
  - Only meaningful at annual basis.
- Alternative 3 (Pros):
  - Intra-consistency of BPM6 by removing current contradiction and inter-consistency of BPM6 and BD4 by adopting coherent guidance.
  - Comprehensible compilation of disinvestments.
  - Meets compilers practical needs.
  - No micro-analysis required because needed classification is provided by the reporting entity.
  - Historical consistency: accumulated dividends will equal accumulated earnings on a current operating performance concept basis.
- Alternative 3 (Cons):
  - Distribution of extraordinary earnings in accumulated reserves need to be distinguished from distribution of ordinary earnings.
  - Inconsistencies with current SNA.
  - Accumulated earnings could be viewed as a financial asset.
- Note: A1’s impact depends on which indicator should be applied; A1 can approach A2 numerically the lower the share of extraordinary distributions.

### Chapters and paragraphs requiring updates to implement A3 (selected)
- Suggested manual adjustments:
  - BPM6: adjustment of 5., 8.23, 11.27, 11.30 to reflect that superdividends should not be applied to direct investment.
  - BPM6 Compilation Guide: deletion of 13.78.
  - 2008 SNA: adjustment of 7.132 to clarify that superdividends should not be applied to direct investment enterprises.
  - BD4: adjustment of 537.
- Specific textual suggestions:
  - Treat superdividends originating from sales of fixed assets and liquidations as withdrawals of equity and, in direct investment, displayed under an “of which”-position “sales of fixed assets”.
  - Indicate that identification based merely on quantitative grounds can be misleading due to irregular dividend patterns in direct investment; identification is best determined based on information provided by the reporting entity.
  - Amend 2008 SNA to exclude direct investment enterprises from the general treatment where appropriate.

### Numerical example comparing A1, A2, A3
- Scenario specified: Total income t = 1000, distributions from current period 1000, distributions from accumulated reserves 200.
- Values by alternative:
  - A1*:
    - Primary income (t): 1000
    - Income on equity: 1000
    - Dividends: 0
    - Reinvested earnings: 1000
    - Financial Account (t): -200
    - Equity: -200
    - Equity other than reinvestment of earnings: -1200
    - Reinvestment of earnings (financial account): 1000
    - Position (yearend t-1): 2000
    - Financial account transactions: -200
    - Position (yearend t): 1800
  - A1**:
    - Primary income (t): 1000
    - Income on equity: 1000
    - Dividends: 500
    - Reinvested earnings: 500
    - Financial Account (t): -200
    - Equity: -200
    - Equity other than reinvestment of earnings: -700
    - Reinvestment of earnings (financial account): 500
    - Position (yearend t-1): 2000
    - Financial account transactions: -200
    - Position (yearend t): 1800
  - A2:
    - Primary income (t): 1000
    - Income on equity: 1000
    - Dividends: 1000
    - Reinvested earnings: 0
    - Financial Account (t): -200
    - Equity: -200
    - Equity other than reinvestment of earnings: -200
    - Reinvestment of earnings (financial account): 0
    - Position (yearend t-1): 2000
    - Financial account transactions: -200
    - Position (yearend t): 1800
  - A3:
    - Primary income (t): 1000
    - Income on equity: 1000
    - Dividends: 1200
    - Reinvested earnings: -200
    - Financial Account (t): -200
    - Equity: -200
    - Equity other than reinvestment of earnings: 0
    - Reinvestment of earnings (financial account): -200
    - Position (yearend t-1): 2000
    - Financial account transactions: -200
    - Position (yearend t): 1800
- Footnote clarifications:
  - Impact depends on which indicator should be applied. To emphasize the arbitrary character of A1, the whole distribution in example A1* is considered “extraordinary” (high in terms of historical pattern of distribution policy on firm-level), in A1** 50%. The aim is to underline the impact of the decision, if a specific distribution is extraordinary or not, on the sub-aggregates within DI income: the lower the share of extraordinary distributions, the more A1 approaches A2 (numerically).

*Source: Direct Investment Task Team (DITT) guidance note and Balance of Payments Task Team (BPTT) consultation outcomes as presented in the GN.*

### SECTION I: THE ISSUE

### d17-identifying-superdividends-and-establishing-the-borderline-between-dividends-and-withdrawal-of-e - SECTION I: THE ISSUE

### Background
- The application of the superdividends concept to foreign direct investment (DI) as based on the System of National Accounts, 2008 (2008 SNA)/the Balance of Payments Manual, sixth edition (BPM6) entails two major drawbacks:
  - (i) difficulties in operationalization likely leading to international inconsistencies, and
  - (ii) limited interpretability of the related reinvested earnings sub-item.
- The OECD Benchmark Definition of Foreign Direct Investment, fourth edition (BD4) does not use the term “superdividends” and treats distributed profits differently, indicating the need to re-open the discussion for DI.
- The 2008 SNA recommends comparing the ratio of dividends to distributable income over the recent past; excess over past practice is identified as superdividends.
- BPM6 paragraph 11.27 recommends identifying superdividends when payments are “disproportionately large relative to the recent levels of dividends and earnings” and states that excess should be excluded from dividends and shown as a withdrawal of equity.
- Practical operationalization issues:
  - Many affiliates have unsteady payment behaviour, making meaningful comparison to recent patterns of dividends difficult, and risking that a significant share of dividends could be erroneously labelled as superdividends.
  - New affiliates lack dividend history for comparison.
- Both 2008 SNA (paragraph 7.130) and BPM6 (paragraph 11.27) note that dividends are not recorded on a strict accrual basis because corporations smooth dividend payments, sometimes paying out less than operating surplus and sometimes a little more.
- DI equity income comprises dividends and reinvested earnings; direct investor control implies income distribution policy should be reflected in reinvested earnings, but the current superdividends concept disturbs the relationship between distributed earnings and reinvestment of earnings.
  - Recording distributions out of accumulated reserves as withdrawals of equity (BPM6 paragraph 11.27) will increase reinvested earnings and may falsely suggest economies are more attractive for DI expansion than they are.
- BD4’s conceptual basis differs from 2008 SNA and BPM6: BD4 omits “superdividends” and its distributed earnings definition contrasts with 2008 SNA/BPM6 (see BD4 219 and OECD 2018 section 12), fostering divergent implementation across compilers.
- The original aim of superdividends—to align earnings and dividends paid—is not applicable to regular DI equity income, which tends to be distributed irregularly.

### Concerns and shortcomings of the current treatment
- The 2008 SNA assumes enterprises “usually aims to have a smooth track record of dividend payments” (2008 SNA, paragraph 11.90), but empirical research from the USA, Poland, Brazil, and Switzerland indicates this assumption is invalid for intrafirm dividends for most direct investment enterprises.
- DI enterprises often follow irregular dividend patterns with long periods without dividend transactions; therefore, identifying superdividends relative to payment history makes superdividends the norm rather than the exception.
- Resulting issues:
  - Unintended classification leads to uncertainty among compilers and deviations from international requirements.
  - Compilers’ solutions vary greatly, producing asymmetries in the composition of reinvested earnings (RIE) between the income and financial accounts.
  - Identification of superdividends does not affect net current and net financial accounts but materially alters subitem composition (RIE and equity), potentially misrepresenting investment/divestment activity (see numerical example in Annex).
  - A distribution identified as a superdividend (and thus not displayed as negative reinvested earning) increases the reinvested earnings aggregate, creating the impression of reinvestment/expansion rather than repatriation of capital.

### Issues for discussion and proposed alternatives
- Three alternatives were identified for treatment of superdividends paid between affiliated enterprises (for direct investment enterprises only):
  - Alternative 1 (A1): Maintain methodological status quo but replace operationalization with a quantitative indicator (e.g., a “dividend in relation to recent equity ratio” as in OECD 2018 section 43).
    - Pros:
      - Maintains current view that superdividends may be exceptional distributions out of accumulated reserves or distributions due to sales of assets/extraordinary events.
    - Cons:
      - Any indicator is essentially arbitrary and may be outdated by changes in income distribution policy.
      - A new measure still may not clearly allocate distributions out of accumulated reserves as regular or exceptional.
      - National compilers remain obliged to micro-level analysis, straining staff, IT, and data capacity.
  - Alternative 2 (A2): Follow ESA 2010 rationale that distributions “in excess of their operational profit excluding holding gains/losses” are recorded as withdrawals of equity (instrument F.5) and not income—i.e., distributions from accumulated reserves are treated as withdrawal of equity and only current-period dividends are recorded as income.
    - Pros:
      - More accurate result than any arbitrary quantitative indicator.
  - Alternative 3 (A3): Discard the concept of superdividends for distributions from ordinary accumulated reserves for DI enterprises; treat distributions of accumulated reserves (earnings from previous periods) as ordinary dividends recorded under primary income. Exceptional payments would be limited to distributions from sales of assets as defined in BPM6 CG paragraph 13.78(1).
    - Rationale:
      - Empirical evidence shows irregular DI distribution is typical; treating accumulated-reserve distributions as ordinary dividends avoids misclassifying regular payments as “exceptional.”
    - Advantages:
      - Leads more often to negative reinvested earnings when distributions exceed current-period earnings, correctly indicating divestment character.
      - Removes divergence between BPM6 (where such distributions are exceptional and withdrawal of equity) and BD4 (where they are ordinary dividends), aligning treatment.
      - Eliminates contradiction between BPM6 paragraph 11.27 and BPM6 paragraph 11.46/BD4 537 regarding dividends’ impact on reinvested earnings.
      - Makes the term “superdividends” unnecessary by narrowing exceptional payments to sales-of-assets proceeds and treating accumulated-reserve distributions as ordinary dividends.
    - Potential inconsistencies:
      - Redefining the scope of withdrawal of equity and abolishing “superdividends” for DI enterprises may conflict with SNA income principles.
      - Recording distributions from accumulated reserves as dividends implies macro-statistical double recording (as reinvested earnings when earned and as dividends when paid), though DI total income remains equal to current period earnings plus net interest and national accounts’ key income data would remain unaffected (shifts occur only within DI income sub-aggregates).

### DITT and BPTT responses and recommended approach
- The Direct Investment Task Team (DITT) agrees with recommending a revision of BPM6 regarding distributions out of accumulated reserves.
- Majority of DITT members support Alternative 3 (A3): regard distributions of accumulated reserves from ordinary earnings as ordinary dividends and record them in primary income.
  - One DITT member supporting A3 requested development of compilation guidance to identify exceptional payments from sales of assets, noting practical identification difficulties and preference that exceptional payments be applied conservatively by DI compilers.
- Recommendation: regard earnings from non-operating activities (sales of fixed capital assets, liquidations of branches) as exceptional with corresponding distributions recorded as withdrawal of equity in the financial account, not under primary income; do not use the term “superdividends” for such exceptional distributions—use “dividend” only for operations recorded under primary income. This follows A3.
- Some DITT members suggested introducing an “of which” position for withdrawal of equity to distinguish withdrawals of assets from exceptional distributions from sale proceeds, but noted confidentiality and response-burden concerns.
- The Balance of Payments Task Team (BPTT) largely agrees with revising BPM6 and a large majority supports A3, though some members raised concerns about potential contradiction with national accounting principles (see para. 15 and Annex III).
  - BPTT proposed submitting the guidance note (GN) to the Financial and Payments Task Team (FITT) and the Intersecretariat Working Group on National Accounts’ Advisory Expert Group (AEG) for holistic review and a commonly agreed proposal for public consultation.
  - Majority of BPTT members did not support an additional “of which” position in the financial account due to limited analytical value and confidentiality/response-burden concerns.
  - Disagreement remained on whether to retain or replace the term “superdividends”; one member proposed labeling the phenomenon “distributions of the proceeds from sales of assets,” referring to BPM6 CG 13.78(1).

*Source: Direct Investment Task Team (DITT) guidance note and Balance of Payments Task Team (BPTT) consultation outcomes as presented in the GN.*

### Annex II).

### Annex II). FITT and AEG consultation

### Consultation feedback from FITT and AEG
- FITT: overall support to revise the BPM6 treatment of distributions out of accumulated reserves.
  - Majority expressed support for alternative A3.
  - One member favored A2 given substantial changes resulting from A3.
  - An additional “of which”-position and replacement of the term “superdividends” were overall rejected.
  - Majority saw no analytical value in an “of which”-position given expected confidentiality constraints.
  - One member stressed semantic harmonization of the term “superdividends” and treatment recommended between the relevant manuals would be beneficial.
  - Comments received from Armenia, Bank of International Settlement, United Kingdom, and South Africa.
- AEG: objections to A3 due to alleged deviations in the treatment of DI income from the status quo.
  - An additional “of which”-position was not favored because confidentiality constraints would lead to little analytical use.
  - AEG respondents stressed that the term “superdividend” should remain as it is considered the correct label.
  - Comments received from Costa Rica, Ireland, Netherlands, United Kingdom and the ECB.

### Conceptual clarification on A3 and consistency with National Accounts
- A3 would redefine the borderline between dividends and reinvested earnings for direct investment (DI) without changing total DI income numerically or conceptually.
- Key conceptual points:
  - DI income consists of dividends, interest, and reinvested earnings.
  - Reinvested earnings are understood and most often calculated as a residual of total DI equity income minus dividends.
  - Under A3, if dividends increase, reinvested earnings decrease (ceteris paribus).
  - In contrast to portfolio investment, by convention all earnings that the direct investor has a claim on are considered distributed in the current period and then recorded as the portion distributed and the portion reinvested (the latter also being recorded as increase of equity in the financial account) depending on the decision of the direct investor.
  - Therefore, the DI equity income definition remains unchanged and consistent with the National Accounts income concept even if DI dividends are measured differently from other dividends.
- Footnotes referenced: GN F.2 addresses asymmetric treatment; OECD (2008), paragraph 199 referenced on reinvested earnings concept.

### Rejected alternatives and questions to the Committee
- Rejection rationales:
  - Alternative A1 rejected: represents the status quo; only changes the definition of the quantitative indicator and remains an arbitrary solution difficult to apply.
  - Alternative A2 rejected: contradicts internal logic of DI income; does not show negative reinvested earnings if accumulated reserves are dissolved and distributed; recording distributions of accumulated reserves as withdrawal of equity would allow negative reinvested earnings only in case of losses in the current period, giving no information on extent earnings have been reinvested over time.
  - One member noted A2 and A3 could be alternatives, with A2 easier to implement relative to A3 if treatment of superdividends is reconsidered for other functional categories.
- Questions posed to the Committee:
  1. Taking into consideration the strengths and weaknesses of each proposed alternative, do you support alternative A3?
  2. Taking into consideration potential confidentiality constraints, do you consider an additional “of which”-position of withdrawal of equity to distinguish exceptional distributions from sales of assets in the financial account necessary in order to gain more analytical power?
  3. Given the misleading implication that superdividends might be part of the income as they are labeled dividends, but treated as withdrawal of equity, do you think there are needs to replace “superdividends” for DI or can the manuals alternatively simply refer to the treatment of distributions of the proceeds from the sales of assets?

### Current international standards for treatment (extracts)
- BPM6 (paragraph 11.27): Exceptional payments by corporations made out of accumulated reserves or sales of assets should not be treated as dividends; such exceptional payments, sometimes called superdividends, are treated as withdrawals of equity and recorded in the financial account. Exceptional nature normally determined as being disproportionately large relative to recent level of dividends and earnings.
- BPM6 Compilation Guide (13.78): Superdividends can be identified by characteristics:
  - (1) Often paid out of the proceeds from sales of fixed assets, operating units, or liquidations.
  - (2) Level of dividends declared is greatly in excess of previous dividends and trends in earnings (considering around the last five years).
- 2008 SNA (7.131 and 11.90): If level of dividends declared is greatly in excess of distributable income or recent averages, the excess should be treated as a financial transaction, specifically withdrawal of owners’ equity; such payments are sometimes referred to as “superdividends”. Withdrawals may take the form of proceeds from sales of fixed or other assets, transfers of fixed and other assets, and funds taken from accumulated retained earnings and reserves.

### Overview of advantages and disadvantages: A1 vs A2 vs A3 (summary)
- Alternative 1 (Pros):
  - A clear-cut quantitative criterion remains.
  - The “equity ratio” can be utilized for newly acquired affiliated enterprises.
  - Accumulated earnings could be viewed as a financial asset.
- Alternative 1 (Cons):
  - Risk of misinterpreting erroneously positive or too high reinvested earnings remains.
  - Specification of the criterion remains somewhat arbitrary.
  - A micro-analysis is still required.
- Alternative 2 (Pros):
  - Maintains concept of superdividends while eliminating ambiguity in operationalization.
  - No micro-analysis required.
  - Reduces risks of asymmetries from different interpretation of manuals.
- Alternative 2 (Cons):
  - Historical inconsistency: accumulated dividends will not equal accumulated earnings on current operating performance concept basis.
  - Risk of misinterpreting erroneously positive or too high reinvested earnings remains.
  - Case of negative reinvested earnings would degrade into an exception, only applied in case of negative profits of the direct investment enterprise (DIE).
  - Only meaningful at annual basis.
- Alternative 3 (Pros):
  - Intra-consistency of BPM6 by removing current contradiction and inter-consistency of BPM6 and BD4 by adopting coherent guidance.
  - Comprehensible compilation of disinvestments.
  - Meets compilers practical needs.
  - No micro-analysis required because needed classification is provided by the reporting entity.
  - Historical consistency: accumulated dividends will equal accumulated earnings on a current operating performance concept basis.
- Alternative 3 (Cons):
  - Distribution of extraordinary earnings in accumulated reserves need to be distinguished from distribution of ordinary earnings.
  - Inconsistencies with current SNA.
  - Accumulated earnings could be viewed as a financial asset.
- Note: A1’s impact depends on which indicator should be applied; A1 can approach A2 numerically the lower the share of extraordinary distributions.

### Chapters and paragraphs requiring updates to implement A3
- Suggested statistical manual adjustments include:
  - BPM6: adjustment of 5., 8.23, 11.27, 11.30 to reflect that superdividends should not be applied to direct investment.
  - BPM6 Compilation Guide: deletion of 13.78.
  - 2008 SNA: adjustment of 7.132 to clarify that superdividends should not be applied to direct investment enterprises.
  - BD4: adjustment of 537.
- Specific suggested textual changes highlight:
  - Treat superdividends originating from sales of fixed assets and liquidations as withdrawals of equity and, in direct investment, displayed under an “of which”-position “sales of fixed assets”.
  - Indicate that identification based merely on quantitative grounds (e.g., dividend size compared to history) can be misleading due to irregular dividend patterns in direct investment; identification is best determined based on information provided by the reporting entity.
  - Amend 2008 SNA to exclude direct investment enterprises from the general treatment where appropriate.

### Numerical example comparing A1, A2, A3
- Scenario specified: Total income t = 1000, distributions from current period 1000, distributions from accumulated reserves 200.
- Table of values (A1*, A1**, A2, A3):
  - Primary income (t): 1000, 1000, 1000, 1000
  - Income on equity: 1000, 1000, 1000, 1000
  - Dividends: 0, 500, 1000, 1200
  - Reinvested earnings: 1000, 500, 0, -200
  - Financial Account (t): -200, -200, -200, -200
  - Equity: -200, -200, -200, -200
  - Equity other than reinvestment of earnings: -1200, -700, -200, 0
  - Reinvestment of earnings (financial account): 1000, 500, 0, -200
  - Change in direct investment position:
    - Position (yearend t-1): 2000, 2000, 2000, 2000
    - Financial account transactions: -200, -200, -200, -200
      - Equity other than reinvestment of earnings: -1200, -700, -200, 0
      - Reinvestment of earnings: 1000, 500, 0, -200
    - Other changes in volume and valuation: 0, 0, 0, 0
    - Position (yearend t): 1800, 1800, 1800, 1800
- Footnote clarifications:
  - */** Impact depends on which indicator should be applied. To emphasize the arbitrary character of A1, the whole distribution in example A1* is considered “extraordinary” (high in terms of historical pattern of distribution policy on firm-level), in A1** 50%. The aim of this assumption is to underline the impact of the decision, if a specific distribution is extraordinary or not, on the sub-aggregates within DI income: the lower the share of extraordinary distributions, the more A1 approaches A2 (numerically).

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/ditt/d17-identifying-superdividends-and-establishing-the-borderline-between-dividends-and-withdrawal-of-e.pdf_