## D.16 Treatment of Retained Earnings

## Source details

**Canonical URL:** [D.16 Treatment of Retained Earnings](https://www.imf.org/-/media/files/data/statistics/bpm6/ditt/ditt-d16-treatment-of-retained-earnings.pdf)

## Other formats

- [Markdown version](/-/media/files/data/statistics/bpm6/ditt/ditt-d16-treatment-of-retained-earnings.pdf.md)
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### Purpose and scope
- Guidance Note (GN) reflects on the treatment of retained earnings in direct investment, focusing on reinvestment of earnings (RIE) in direct investment enterprises (DIEs).
- Objective: present methodological and practical challenges for compilers and analysts dealing with RIE, including divergence between accounting and statistical definitions of income (net operating surplus) and need to impute RIE generated along the direct investment (DI) ownership chain.
- Survey structure: coordinated responses between national accounts and balance of payments compilers are recommended; questionnaire collects institutional contact details and asks whether responses concern National Accounts, Balance of Payments, or Both National Accounts and Balance of Payments.

### Conceptual issues and recommended clarifications
- Proposed revision to BPM6 paragraphs describing retained earnings and RIE:
  - Suggested wording: “Retained earnings of an enterprise show the net earnings from current production and primary and secondary income transaction that has not been distributed”.
  - Questionnaire asks agreement: Yes / No / Undecided.
- Recognition of earnings down the DI ownership chain:
  - Alternative A (status quo): recognition of all earnings generated down the DI ownership chain as primary income.
  - Questionnaire asks whether Alternative A is the best conceptual option: Yes / No / Undecided.
- Existing BPM6 guidance cited (exact text preserved):
  - Rein vestmen t o f earn in g s (paragraph 8.15): “It is th e co rresp o nding en try an d eq ual to rein vested earn in gs”.
  - Retain ed earn in g s (paragraph 11.34): “Retain ed earn in g s o f an en terp rise sh ows th e n et earn in g s fro m p ro d uction an d p rimary an d seco ndary in co me tran saction s befo re attributin g rein vested earn ings”.
  - Rein vested earn in g s (paragraph 11.40): “Th e rein vested earn in g s are th e d irect in vesto rs’ sh are o f th e retain ed earn in g s o f th e d irect in vestmen t en terp rise”.

### Practical issues and proposed presentations
- Alternative B presentation: recognize all earnings generated down the DI ownership chain as primary income but report indirect income separately to enhance transparency and comparability.
  - Questionnaire asks usefulness of Alternative B if current recording of primary income is maintained: Yes / No / Undecided.
- Proposal to clarify shortcomings and include examples:
  - Question whether to clarify shortcomings in current compilation of DI income as described in BPM6 and to include examples of RIE calculations either in updated BPM, BPM Compilation Guide, or Both BPM and BPM Compilation Guide.
  - Response scale: Strongly disagree / Disagree / Neutral / Agree / Strongly agree (for each of: In the updated BPM6; In the updated BPM6 Compilation Guide; Both, BPM and BPM Compilation Guide).

### Credit institutions and memorandum item proposal
- Proposal: include a memorandum item showing new obligatory provisions for bad loans in the reporting period to help interpret RIE statistics for credit institutions.
  - Questionnaire asks agreement: Yes / No / Undecided.

### Investment funds: RIE calculation and expenses treatment
- GN conclusion on investment funds:
  - If RIE should be applied to investment funds (institutional unit), it should be treated equally for all investment funds regardless of fund characteristics.
- Compilation of RIE and net income for funds:
  - Questionnaire asks whether RIE and net income should always be compiled regardless of the fund’s attributes: Yes / No / Undecided.
- Treatment of operating expenses for funds’ RIEs:
  - Explicit operating expenses: respondents asked if they agree with proposed treatment (choose all that apply): Yes / No / Undecided.
  - Implicit operating expenses: respondents asked if they agree with proposed treatment (check all that apply): Yes / No / Undecided.
- Practical implementation queries:
  - From a practical perspective, can institutions implement guidance on explicit fees? Yes / No / Undecided. If No, specify practical challenges.
  - From a practical perspective, can institutions implement guidance on implicit fees? Yes / No / Undecided. If No, specify practical challenges.

### Questionnaire administration and response guidance
- Respondents asked to provide institutional contact information: Country; Institution/Organization; Name; Position/Title; Email.
- Instruction: provide answers by clicking check boxes or typing in framed textboxes; textboxes automatically expand to fit text.
- Recommendation: coordinated answers between agencies responsible for national accounts and balance of payments (for example, National Statistics Office and Central Bank). If only one agency provides coordinated answer, indicate that in Question 2.
- Only one response expected even if survey reaches multiple contacts.
- Contact emails provided for questions: STABPM6Update@imf.org and sna@un.org.
- Printable version of questionnaire is available.

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/ditt/ditt-d16-treatment-of-retained-earnings.pdf_