## Implementation Guidance Note (IGN) on Treatment of Negative Equity Positions

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---

### Purpose and scope
- The International Monetary Fund — Implementation Guidance Note (IGN) clarifies the treatment of negative equity positions in macroeconomic statistics, focusing on application of guidance from the Integrated Balance of Payments and International Investment Position Manual, seventh edition (BPM7) and the System of National Accounts 2025 (2025 SNA).
- The IGN builds on the Issue Note Treatment of Negative Equity Positions discussed at the joint February 2024 meeting of the IMF Committee on Balance of Payments Statistics (BOPCOM) and the Advisory Expert Group on National Accounts (AEG).
- The IGN explains operationalization of guidance in Box 7.1 of the pre-edited BPM7 and paragraphs 14.86–14.89 of the pre-edited 2025 SNA.

### Conceptual background and valuation methods
- When observed market values of equity are not available, an estimate is required. BPM7 and the 2025 SNA include three recommended methods for valuing unlisted equity:
  - Own funds at book value (OFBV) — calculated as the sum of paid-up capital, all reserves identified as equity, cumulated retained earnings, and any holding gains or losses included in own funds.
  - Recent transaction prices — provide direct market-based evidence when available.
  - Market capitalization proxies — e.g., applying price-to-book value (P/B) ratios from comparable listed companies.
- OFBV and similar methods can result in negative equity positions, particularly for distressed or loss-making units; such outcomes reflect economic reality and should be recorded consistently and transparently.
- The IGN aligns with BPM7, the 2025 SNA, and the Issue Note Treatment of Negative Equity Positions to provide a consistent recording framework.

### Recording rules and operational recommendations
- Unlimited liability entities:
  - Always record negative equity positions if valuation methods yield such results to reflect investors’ ultimate liability for all debts and obligations.
- Limited liability entities:
  - Default: record negative equity positions.
  - Adjust (reduce or eliminate) negative equity positions only where shareholders’ and their affiliates’ liability is strictly limited — i.e., shareholders would not incur direct economic losses beyond existing equity and are unlikely to assume new financial obligations due to absence of implicit guarantees or significant reputational risks.
- Practical ownership threshold:
  - It can generally be assumed that implicit guarantees or significant reputational risks exist when a shareholder’s ownership share is at least 10 percent.
  - Investors owning at least 10 percent: negative equity positions should not be reduced or eliminated unless demonstrable evidence shows no legally binding obligations beyond existing equity and a history of not assuming new financial obligations.
  - Investors owning less than 10 percent: typical practice is to set negative equity positions to zero, unless there is evidence that the investor would incur losses beyond the existing equity investment (e.g., loans or guarantees). The recorded negative equity position of each investor should nevertheless be limited to the value of its equity participation.
- Public corporations and central banks:
  - Negative equity positions should always be recorded in full, regardless of ownership structure, to avoid masking fiscal exposures or bailout risks.
- Consistency across investors:
  - If one investor’s equity position is adjusted, other shareholders should record negative equity positions only in proportion to their ownership shares; equity positions in the same corporation may therefore be valued differently across investors.
- Stock-flow accounting:
  - When negative equity positions are reduced or eliminated, adjustments should be recorded as other price changes in the revaluation account to preserve stock-flow consistency because the adjustment reflects a revaluation rather than a change in the volume of shares.
- Decision support:
  - A decision tree in the Annex provides case-by-case operational guidance fully aligned with the principles above.

### Illustrative examples and key recorded values
- Note: Examples are based on OFBV; principles apply when other valuation methods are used. Flows and positions are expressed in the reporting economy’s compilation currency; voting power is proportional to equity shares. Reinvested earnings and reinvestment of earnings apply only to FDI and investment fund contexts.

- Example 1 — Unlimited liability entity (Unit A1)
  - Ownership: Investor A1 (resident of Economy A) 50 percent; Investor B1 (resident of Economy B) 50 percent.
  - OFBV: opening –300; distributable income during period –100; OFBV at end of period –400.
  - Recorded equity liabilities (integrated balance sheet of Economy A) — entries:
    - Vis-à-vis Investor A1: Opening position –150; Transactions 0; Exchange rate changes 0; Other price changes –50; Other changes in volume 0; Closing position –200.
    - Vis-à-vis Investor B1: Opening position –150; Transactions –50; Exchange rate changes 0; Other price changes 0; Other changes in volume 0; Closing position –200.
  - Recording rationale:
    - Negative equity positions are recorded to reflect ongoing liability in unlimited liability entities.
    - Foreign investor’s share of distributable income recorded as reinvested earnings; corresponding financial transaction recorded as reinvestment of earnings.
    - For the domestic investor, change in OFBV recorded as a revaluation under other price changes.

- Example 2 — Limited liability entity (Unit A2)
  - Ownership: Investor A2 (resident of Economy A) 5 percent; Investor B2 (resident of Economy B) 15 percent; Investor C2 (resident of Economy C) 80 percent.
  - OFBV: opening 100; distributable income during period –200; OFBV in principle at end of period –100.
  - Initial recordings:
    - Vis-à-vis Investor A2: Opening position 5; Transactions 0; Exchange rate changes 0; Other price changes –5; Other changes in volume 0; Closing position 0.
    - Vis-à-vis Investor B2: Opening position 15; Transactions –30; Exchange rate changes 0; Other price changes 0; Other changes in volume 0; Closing position –15.
    - Vis-à-vis Investor C2: Opening position 80; Transactions –160; Exchange rate changes 0; Other price changes 0; Other changes in volume 0; Closing position –80.
  - Initial recording rationale:
    - Investors with ownership ≥10 percent (B2 and C2) record negative positions in full (reinvested earnings recorded for foreign investors in FDI context).
    - Investor A2 (<10 percent) has negative position set to zero; –5 recorded under other price changes to maintain stock-flow consistency.
  - Updated recordings based on additional information:
    - Compilers find: Investor A2 provided a loan of 3 to Unit A2; Investor B2 provided no loans/guarantees and has history of allowing FDI enterprises to go bankrupt; Investor C2 provided a loan of 25 and a loan guarantee of 30.
    - Updated entries:
      - Vis-à-vis Investor A2: Opening position 5; Transactions 0; Exchange rate changes 0; Other price changes –8; Other changes in volume 0; Closing position –3.
      - Vis-à-vis Investor B2: Opening position 15; Transactions –30; Exchange rate changes 0; Other price changes 15; Other changes in volume 0; Closing position 0.
      - Vis-à-vis Investor C2: Opening position 80; Transactions –160; Exchange rate changes 0; Other price changes 0; Other changes in volume 0; Closing position –80.
    - Updated rationale:
      - Investor A2’s closing position adjusted to –3 to reflect exposure from the loan of 3 (if loan had been 5 or higher, a closing position of –5 would have been recorded under equity).
      - Investor B2’s closing position adjusted to 0 due to absence of further exposures and historical behavior indicating it is unlikely to incur further losses.
      - Investor C2’s entries remain unchanged; full negative equity position recorded due to presumption of implicit guarantees and reputational risk associated with large ownership share despite loan and guarantee values.

- Example 3 — Public corporation (Unit A3)
  - Ownership: Government of Economy A 90 percent; Investor A3 (resident of Economy A) 5 percent; Investor B3 (resident of Economy B) 5 percent.
  - OFBV: opening –700; distributable income during period –200; OFBV at end of period –900.
  - Recorded equity liabilities:
    - Vis-à-vis government of Economy A: Opening position –630; Transactions 0; Exchange rate changes 0; Other price changes –180; Other changes in volume 0; Closing position –810.
    - Vis-à-vis Investor A3: Opening position –35; Transactions 0; Exchange rate changes 0; Other price changes –10; Other changes in volume 0; Closing position –45.
    - Vis-à-vis Investor B3: Opening position –35; Transactions 0; Exchange rate changes 0; Other price changes –10; Other changes in volume 0; Closing position –45.
  - Recording rationale:
    - Negative equity positions recorded in full to reflect fiscal exposure associated with public corporations; no negative positions eliminated even for shareholders below 10 percent.

- Example 4 — Central bank
  - Ownership: Government of Economy A 80 percent; retail investors from Economy A 15 percent; retail investors from Economy B 5 percent.
  - OFBV: opening –2,000; during period holding gains of 200 split evenly between exchange rate changes and other price changes (i.e., 100 and 100 respectively) and distributable income of 100; OFBV at end of period –1,700.
  - Recorded equity liabilities:
    - Vis-à-vis government of Economy A: Opening position –1,600; Transactions 0; Exchange rate changes 0; Other price changes 240; Other changes in volume 0; Closing position –1,360.
    - Vis-à-vis retail investors from Economy A: Opening position –300; Transactions 0; Exchange rate changes 0; Other price changes 45; Other changes in volume 0; Closing position –255.
    - Vis-à-vis retail investors from Economy B: Opening position –100; Transactions 0; Exchange rate changes 0; Other price changes 15; Other changes in volume 0; Closing position –85.
  - Recording rationale:
    - Negative equity positions recorded in full to reflect fiscal exposure associated with central banks.
    - Exchange rate changes on the asset side are recorded as other price changes on the liability side together with other changes in OFBV; no negative equity positions eliminated or reduced even for shareholders below 10 percent.

### Bankruptcy, dissolution, and specific investor types
- Bankruptcy and dissolution:
  - Until the legal process is finalized, negative equity positions should generally be recorded as indicated in prior sections.
  - If, during bankruptcy proceedings, an investor is expected to incur a smaller or larger loss than initially recorded, adjust the position through other price changes.
  - Once the enterprise is formally dissolved, set all equity positions in the enterprise to zero through other changes in volume because the holdings of shares have been extinguished.
- International organizations:
  - Often hold equity for policy or stabilization purposes.
  - Negative equity positions should generally be recorded in full, especially when an organization is expected to provide continued financial support or absorb losses.
  - Positions may be adjusted if there is strong evidence that the organization will not incur losses beyond its initial equity investment in the event of bankruptcy.
- Investment funds:
  - If a fund is structured to absorb losses (e.g., a development finance vehicle), record negative equity positions in full.
  - Negative positions may be set to zero if the investment fund has strictly limited liability.
- Individuals:
  - If the individual has limited liability and no explicit or implicit exposures beyond the initial equity investment, the negative position may be adjusted to zero.
  - Otherwise, record negative equity positions in the same manner as for other units.

### Imputed negative equity positions and reinvested earnings
- Imputed negative equity positions due to transfer pricing adjustments:
  - Negative equity positions can arise from adjustments to correct distorted transfer prices between affiliated enterprises.
  - Such “imputed” negative equity positions should be recorded with caution and only when there is strong evidence to support the adjustment.
  - The 10 percent ownership threshold is relevant for assessing implicit guarantees or reputational risk.
  - Do not set imputed negative equity positions to zero unless there is compelling justification: evidence that an investor and its affiliates have no legally binding economic obligations beyond the existing equity investment and a history of not assuming new financial obligations in cases of bankruptcy or termination of corporations in which they hold significant ownership of equity.
- Negative equity positions and reinvested earnings (FDI context):
  - When an investor’s negative equity position is set to zero:
    - Record reinvested earnings in the income account and corresponding reinvestment of earnings in the financial account as usual.
    - If reinvestment of earnings is not sufficient to bring the equity position into positive territory, record an offsetting entry under other price changes to preserve consistency between flows and stocks because the position remains zero.
    - If positive reinvestment of earnings is sufficient to move the equity position into positive territory, the offsetting adjustment under other price changes should only match the amount of the initial negative position to maintain stock-flow consistency.
  - Illustrative scenarios where the investor’s share of OFBV is –50 at the beginning of the period but is set to zero because of liability limitation:
    - Reinvestment of earnings of –20:
      - Opening position: 0 (–50 based on unadjusted OFBV)
      - Transactions: –20
      - Exchange rate changes: 0
      - Other price changes: 20
      - Other changes in volume: 0
      - Closing position: 0 (–70 based on unadjusted OFBV)
    - Reinvestment of earnings of 30:
      - Opening position: 0 (–50 based on unadjusted OFBV)
      - Transactions: 30
      - Exchange rate changes: 0
      - Other price changes: –30
      - Other changes in volume: 0
      - Closing position: 0 (–20 based on unadjusted OFBV)
    - Reinvestment of earnings of 70:
      - Opening position: 0 (–50 based on unadjusted OFBV)
      - Transactions: 70
      - Exchange rate changes: 0
      - Other price changes: –50
      - Other changes in volume: 0
      - Closing position: 20 (No OFBV adjustment necessary)

### Fellow enterprises, reverse investment, and compilers’ recommendations
- Fellow enterprises and reverse investment:
  - Negative equity positions between fellow enterprises are normally recorded without adjustment because fellow enterprises share a common immediate or indirect foreign direct investor and are considered affiliates.
  - Retain such positions unless there is a demonstrated history of the group not assuming new financial obligations in cases of bankruptcy or termination of the fellow enterprises.
  - For reverse equity investment (a unit holds less than a 10 percent ownership share in its parent corporation), the default approach is not to set a negative equity position in the parent corporation to zero because the units are affiliated.
- Recommendations for compilers:
  - ENSURE CONCEPTUAL CONSISTENCY
    - Align treatment of negative equity positions with BPM7 and the 2025 SNA, and the elaborations in this IGN to enhance quality, comparability, and coherence of macroeconomic statistics.
  - PROMOTE SYMMETRIC REPORTING
    - When feasible, exchange information with counterparts in partner economies to improve symmetry for cross-border negative equity positions and reduce discrepancies in global statistics.
  - ENHANCE TRANSPARENCY THROUGH SUPPLEMENTARY REPORTING
    - Show negative equity positions as supplementary “of which” items under the relevant equity asset and liability categories to improve transparency and facilitate analytical use, including fiscal risk assessments and financial stability monitoring.

### Annex: decision tree summary (treatment of negative equity positions)
- If the unit with a negative equity position is an unlimited liability entity, public corporation, or central bank:
  - Record negative equity positions in full for all investors.
- Otherwise, conduct an investor-level assessment:
  - Is the investor’s ownership share at least 10 percent (or is it a fellow enterprise or reverse investment)?
  - Is additional evidence on the investor’s and its affiliates’ liability available?
    - If yes, does the evidence (including historic precedent) indicate that the investor or its affiliates will assume new financial obligations on a voluntary basis in case of bankruptcy or termination?
      - If yes: record the investor’s negative equity position in full.
      - If no: adjust the investor’s negative equity position to zero through revaluations.
    - If no additional liability evidence is available:
      - If the investor’s ownership share is at least 10 percent (or affiliate status applies), default is to record the negative equity position in full unless compelling evidence supports adjustment.
- When assessing direct economic losses:
  - If the value of direct economic losses is larger than the absolute value of the negative equity position:
    - Adjust the investor’s negative equity position to zero through revaluations.
  - If not:
    - Record the investor’s negative equity position in full.
  - If direct economic losses exist beyond equity investment (e.g., related to loans or loan guarantees), adjust the negative equity position through revaluations to match these direct economic losses (with opposite sign).

### Global consultation questions
- 1) Do you have comments on the examples in this IGN and the proposed recordings?
- 2) Do you agree with the recommendations outlined in this IGN?

*Source: International Monetary Fund — Implementation Guidance Note (IGN) on Treatment of Negative Equity Positions (INTRODUCTION).*

### INTRODUCTION

### INTRODUCTION

### Purpose and scope
- The Implementation Guidance Note (IGN) clarifies the treatment of negative equity positions in macroeconomic statistics, focusing on application of guidance from the Integrated Balance of Payments and International Investment Position Manual, seventh edition (BPM7) and the System of National Accounts 2025 (2025 SNA).
- The IGN builds on the Issue Note Treatment of Negative Equity Positions discussed at the joint February 2024 meeting of the IMF Committee on Balance of Payments Statistics (BOPCOM) and the Advisory Expert Group on National Accounts (AEG).
- The IGN explains operationalization of guidance in Box 7.1 of the pre-edited BPM7 and paragraphs 14.86–14.89 of the pre-edited 2025 SNA.

### Conceptual background and valuation methods
- When observed market values of equity are not available, an estimate is required. BPM7 and the 2025 SNA include three recommended methods for valuing unlisted equity:
  - Own funds at book value (OFBV) — calculated as the sum of paid-up capital, all reserves identified as equity, cumulated retained earnings, and any holding gains or losses included in own funds.
  - Recent transaction prices — provide direct market-based evidence when available.
  - Market capitalization proxies — e.g., applying price-to-book value (P/B) ratios from comparable listed companies.
- OFBV and similar methods can result in negative equity positions, particularly for distressed or loss-making units; such outcomes reflect economic reality and should be recorded consistently and transparently.
- The IGN aligns with BPM7, the 2025 SNA, and the Issue Note Treatment of Negative Equity Positions to provide a consistent recording framework.

### Recording rules and operational recommendations
- Unlimited liability entities:
  - Always record negative equity positions if valuation methods yield such results to reflect investors’ ultimate liability for all debts and obligations.
- Limited liability entities:
  - Default: record negative equity positions.
  - Adjust (reduce or eliminate) negative equity positions only where shareholders’ and their affiliates’ liability is strictly limited — i.e., shareholders would not incur direct economic losses beyond existing equity and are unlikely to assume new financial obligations due to absence of implicit guarantees or significant reputational risks.
- Practical ownership threshold:
  - It can generally be assumed that implicit guarantees or significant reputational risks exist when a shareholder’s ownership share is at least 10 percent.
  - Investors owning at least 10 percent: negative equity positions should not be reduced or eliminated unless demonstrable evidence shows no legally binding obligations beyond existing equity and a history of not assuming new financial obligations.
  - Investors owning less than 10 percent: typical practice is to set negative equity positions to zero, unless there is evidence that the investor would incur losses beyond the existing equity investment (e.g., loans or guarantees). The recorded negative equity position of each investor should nevertheless be limited to the value of its equity participation.
- Public corporations and central banks:
  - Negative equity positions should always be recorded in full, regardless of ownership structure, to avoid masking fiscal exposures or bailout risks.
- Consistency across investors:
  - If one investor’s equity position is adjusted, other shareholders should record negative equity positions only in proportion to their ownership shares; equity positions in the same corporation may therefore be valued differently across investors.
- Stock-flow accounting:
  - When negative equity positions are reduced or eliminated, adjustments should be recorded as other price changes in the revaluation account to preserve stock-flow consistency because the adjustment reflects a revaluation rather than a change in the volume of shares.
- Decision support:
  - A decision tree in the Annex (not reproduced here) provides case-by-case operational guidance fully aligned with the principles above.

### Illustrative examples and key recorded values
- Note: Examples are based on OFBV; principles apply when other valuation methods are used. Flows and positions are expressed in the reporting economy’s compilation currency; voting power is proportional to equity shares. Reinvested earnings and reinvestment of earnings apply only to FDI and investment fund contexts.

- Example 1 — Unlimited liability entity (Unit A1)
  - Ownership: Investor A1 (resident of Economy A) 50 percent; Investor B1 (resident of Economy B) 50 percent.
  - OFBV: opening –300; distributable income during period –100; OFBV at end of period –400.
  - Recorded equity liabilities (integrated balance sheet of Economy A) — entries shown exactly as in Table 1:
    - Vis-à-vis Investor A1: Opening position –150; Transactions 0; Exchange rate changes 0; Other price changes –50; Other changes in volume 0; Closing position –200.
    - Vis-à-vis Investor B1: Opening position –150; Transactions –50; Exchange rate changes 0; Other price changes 0; Other changes in volume 0; Closing position –200.
  - Recording rationale:
    - Negative equity positions are recorded to reflect ongoing liability in unlimited liability entities.
    - Foreign investor’s share of distributable income recorded as reinvested earnings; corresponding financial transaction recorded as reinvestment of earnings.
    - For the domestic investor, change in OFBV recorded as a revaluation under other price changes.

- Example 2 — Limited liability entity (Unit A2)
  - Ownership: Investor A2 (resident of Economy A) 5 percent; Investor B2 (resident of Economy B) 15 percent; Investor C2 (resident of Economy C) 80 percent.
  - OFBV: opening 100; distributable income during period –200; OFBV in principle at end of period –100.
  - Initial recordings (Table 2A):
    - Vis-à-vis Investor A2: Opening position 5; Transactions 0; Exchange rate changes 0; Other price changes –5; Other changes in volume 0; Closing position 0.
    - Vis-à-vis Investor B2: Opening position 15; Transactions –30; Exchange rate changes 0; Other price changes 0; Other changes in volume 0; Closing position –15.
    - Vis-à-vis Investor C2: Opening position 80; Transactions –160; Exchange rate changes 0; Other price changes 0; Other changes in volume 0; Closing position –80.
  - Initial recording rationale:
    - Investors with ownership ≥10 percent (B2 and C2) record negative positions in full (reinvested earnings recorded for foreign investors in FDI context).
    - Investor A2 (<10 percent) has negative position set to zero; –5 recorded under other price changes to maintain stock-flow consistency.
  - Updated recordings based on additional information (Table 2B):
    - Compilers find: Investor A2 provided a loan of 3 to Unit A2; Investor B2 provided no loans/guarantees and has history of allowing FDI enterprises to go bankrupt; Investor C2 provided a loan of 25 and a loan guarantee of 30.
    - Table 2B entries:
      - Vis-à-vis Investor A2: Opening position 5; Transactions 0; Exchange rate changes 0; Other price changes –8; Other changes in volume 0; Closing position –3.
      - Vis-à-vis Investor B2: Opening position 15; Transactions –30; Exchange rate changes 0; Other price changes 15; Other changes in volume 0; Closing position 0.
      - Vis-à-vis Investor C2: Opening position 80; Transactions –160; Exchange rate changes 0; Other price changes 0; Other changes in volume 0; Closing position –80.
    - Updated rationale:
      - Investor A2’s closing position adjusted to –3 to reflect exposure from the loan of 3 (if loan had been 5 or higher, a closing position of –5 would have been recorded under equity).
      - Investor B2’s closing position adjusted to 0 due to absence of further exposures and historical behavior indicating it is unlikely to incur further losses.
      - Investor C2’s entries remain unchanged; full negative equity position recorded due to presumption of implicit guarantees and reputational risk associated with large ownership share despite loan and guarantee values.

- Example 3 — Public corporation (Unit A3)
  - Ownership: Government of Economy A 90 percent; Investor A3 (resident of Economy A) 5 percent; Investor B3 (resident of Economy B) 5 percent.
  - OFBV: opening –700; distributable income during period –200; OFBV at end of period –900.
  - Recorded equity liabilities (Table 3):
    - Vis-à-vis government of Economy A: Opening position –630; Transactions 0; Exchange rate changes 0; Other price changes –180; Other changes in volume 0; Closing position –810.
    - Vis-à-vis Investor A3: Opening position –35; Transactions 0; Exchange rate changes 0; Other price changes –10; Other changes in volume 0; Closing position –45.
    - Vis-à-vis Investor B3: Opening position –35; Transactions 0; Exchange rate changes 0; Other price changes –10; Other changes in volume 0; Closing position –45.
  - Recording rationale:
    - Negative equity positions recorded in full to reflect fiscal exposure associated with public corporations; no negative positions eliminated even for shareholders below 10 percent.

- Example 4 — Central bank
  - Ownership: Government of Economy A 80 percent; retail investors from Economy A 15 percent; retail investors from Economy B 5 percent.
  - OFBV: opening –2,000; during period holding gains of 200 split evenly between exchange rate changes and other price changes (i.e., 100 and 100 respectively) and distributable income of 100; OFBV at end of period –1,700.
  - Recorded equity liabilities (Table 4):
    - Vis-à-vis government of Economy A: Opening position –1,600; Transactions 0; Exchange rate changes 0; Other price changes 240; Other changes in volume 0; Closing position –1,360.
    - Vis-à-vis retail investors from Economy A: Opening position –300; Transactions 0; Exchange rate changes 0; Other price changes 45; Other changes in volume 0; Closing position –255.
    - Vis-à-vis retail investors from Economy B: Opening position –100; Transactions 0; Exchange rate changes 0; Other price changes 15; Other changes in volume 0; Closing position –85.
  - Recording rationale:
    - Negative equity positions recorded in full to reflect fiscal exposure associated with central banks.
    - Exchange rate changes on the asset side are recorded as other price changes on the liability side together with other changes in OFBV; no negative equity positions eliminated or reduced even for shareholders below 10 percent.

*Source: International Monetary Fund — Implementation Guidance Note (IGN) on Treatment of Negative Equity Positions (INTRODUCTION).*

### 34.      This section provides guidance on how to record and interpret negative equity positions in

### negative-equity-positions-ign - 34.      This section provides guidance on how to record and interpret negative equity positions in

### Overview
- Guidance is based on the Conceptual Background, as well as the general principles of BPM7 and the 2025 SNA.
- The section covers:
  - bankruptcy and dissolution;
  - recording implications for specific investor types;
  - imputed negative equity positions from transfer pricing adjustments;
  - interactions with reinvested earnings in FDI relationships;
  - treatment between fellow enterprises and reverse investment;
  - recommendations for compilers;
  - a decision tree for practical recording choices.

### Bankruptcy and dissolution
- Until the legal process is finalized, negative equity positions should generally be recorded as indicated in prior sections.
- If, during bankruptcy proceedings, an investor is expected to incur a smaller or larger loss than initially recorded, adjust the position through other price changes.
- Once the enterprise is formally dissolved, set all equity positions in the enterprise to zero through other changes in volume because the holdings of shares have been extinguished.

### Specific investor types
- General principle: apply the broad recording rules consistently, with attention to investor legal liability and evidence of likely loss absorption.

- International Organizations
  - Often hold equity for policy or stabilization purposes.
  - Negative equity positions should generally be recorded in full, especially when an organization is expected to provide continued financial support or absorb losses.
  - Positions may be adjusted if there is strong evidence that the organization will not incur losses beyond its initial equity investment in the event of bankruptcy.

- Investment Funds
  - Subject to the same principles as other investors.
  - If a fund is structured to absorb losses (e.g., a development finance vehicle), record negative equity positions in full.
  - Negative positions may be set to zero if the investment fund has strictly limited liability.

- Individuals
  - Same principles apply as for other investors.
  - If the individual has limited liability and no explicit or implicit exposures beyond the initial equity investment, the negative position may be adjusted to zero.
  - Otherwise, record negative equity positions in the same manner as for other units.

### Imputed negative equity positions due to transfer pricing adjustments
- Negative equity positions can arise from adjustments to correct distorted transfer prices between affiliated enterprises.
- Such “imputed” negative equity positions should be recorded with caution and only when there is strong evidence to support the adjustment.
- General principles for recording negative equity positions continue to apply.
- The 10 percent ownership threshold is relevant for assessing implicit guarantees or reputational risk.
- As a general rule, do not set imputed negative equity positions to zero unless there is compelling justification: specifically, evidence that an investor and its affiliates have no legally binding economic obligations beyond the existing equity investment and a history of not assuming new financial obligations in cases of bankruptcy or termination of corporations in which they hold significant ownership of equity.

### Negative equity positions and reinvested earnings
- When an investor’s negative equity position is set to zero:
  - Record reinvested earnings in the income account and corresponding reinvestment of earnings in the financial account as usual in FDI relationships.
  - If reinvestment of earnings is not sufficient to bring the equity position into positive territory, record an offsetting entry under other price changes to preserve consistency between flows and stocks because the position remains zero.
  - If positive reinvestment of earnings is sufficient to move the equity position into positive territory, the offsetting adjustment under other price changes should only match the amount of the initial negative position to maintain stock-flow consistency.
- Illustrative scenarios (as presented in Table 5) where the investor’s share of OFBV is –50 at the beginning of the period but is set to zero because of liability limitation:
  - Reinvestment of earnings of –20:
    - Opening position: 0 (–50 based on unadjusted OFBV)
    - Transactions: –20
    - Exchange rate changes: 0
    - Other price changes: 20
    - Other changes in volume: 0
    - Closing position: 0 (–70 based on unadjusted OFBV)
  - Reinvestment of earnings of 30:
    - Opening position: 0 (–50 based on unadjusted OFBV)
    - Transactions: 30
    - Exchange rate changes: 0
    - Other price changes: –30
    - Other changes in volume: 0
    - Closing position: 0 (–20 based on unadjusted OFBV)
  - Reinvestment of earnings of 70:
    - Opening position: 0 (–50 based on unadjusted OFBV)
    - Transactions: 70
    - Exchange rate changes: 0
    - Other price changes: –50
    - Other changes in volume: 0
    - Closing position: 20 (No OFBV adjustment necessary)

### Fellow enterprises and reverse investment
- Negative equity positions between fellow enterprises are normally recorded without adjustment because fellow enterprises share a common immediate or indirect foreign direct investor and are considered affiliates.
- Retain such positions unless there is a demonstrated history of the group not assuming new financial obligations in cases of bankruptcy or termination of the fellow enterprises.
- For reverse equity investment (a unit holds less than a 10 percent ownership share in its parent corporation), the default approach is not to set a negative equity position in the parent corporation to zero because the units are affiliated.

### Recommendations for compilers
- ENSURE CONCEPTUAL CONSISTENCY
  - Align treatment of negative equity positions with BPM7 and the 2025 SNA, and the elaborations in this IGN to enhance quality, comparability, and coherence of macroeconomic statistics.
- PROMOTE SYMMETRIC REPORTING
  - When feasible, exchange information with counterparts in partner economies to improve symmetry for cross-border negative equity positions and reduce discrepancies in global statistics.
- ENHANCE TRANSPARENCY THROUGH SUPPLEMENTARY REPORTING
  - Show negative equity positions as supplementary “of which” items under the relevant equity asset and liability categories to improve transparency and facilitate analytical use, including fiscal risk assessments and financial stability monitoring.

### Global consultation questions
- 1) Do you have comments on the examples in this IGN and the proposed recordings?
- 2) Do you agree with the recommendations outlined in this IGN?

### Annex: decision tree summary (treatment of negative equity positions)
- If the unit with a negative equity position is an unlimited liability entity, public corporation, or central bank:
  - Record negative equity positions in full for all investors.
- Otherwise, conduct an investor-level assessment:
  - Is the investor’s ownership share at least 10 percent (or is it a fellow enterprise or reverse investment)?
  - Is additional evidence on the investor’s and its affiliates’ liability available?
    - If yes, does the evidence (including historic precedent) indicate that the investor or its affiliates will assume new financial obligations on a voluntary basis in case of bankruptcy or termination?
      - If yes: record the investor’s negative equity position in full.
      - If no: adjust the investor’s negative equity position to zero through revaluations.
    - If no additional liability evidence is available:
      - If the investor’s ownership share is at least 10 percent (or affiliate status applies), default is to record the negative equity position in full unless compelling evidence supports adjustment.
- When assessing direct economic losses:
  - If the value of direct economic losses is larger than the absolute value of the negative equity position:
    - Adjust the investor’s negative equity position to zero through revaluations.
  - If not:
    - Record the investor’s negative equity position in full.
  - If direct economic losses exist beyond equity investment (e.g., related to loans or loan guarantees), adjust the negative equity position through revaluations to match these direct economic losses (with opposite sign).

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/implementation-support/negative-equity-positions-ign.pdf_