Special Purpose Entities Shed Light on the Drivers of Foreign Direct Investment
IMF Blog, March 25, 2022
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Bibliographic details
- Authors: Evrim Bese Goksu, Theo Bikoi, Padma Hurree Gobin
- Published: March 25, 2022
Summary and context
- Authors: Evrim Bese Goksu, Theo Bikoi, Padma Hurree Gobin
- Publication date: March 25, 2022
- Topic: Role of special purpose entities (SPEs) in shaping measured foreign direct investment (FDI) flows and positions.
What are Special Purpose Entities (SPEs)
- SPEs are legal entities set up to obtain specific advantages from a host economy.
- Characteristics:
- Little to no employment, physical presence, or production in the host economy.
- Often established to benefit from low taxes.
- Other motivations include easier access to capital markets, financial services, and skilled workforces.
- Implication: Because SPEs have little to no impact on the real economy, financial flows routed through them can distort the economic signals from FDI statistics.
New IMF SPE database: scope and methodology
- Coverage: Measures cross-border flows and positions of SPEs resident in 26 participating economies.
- Basis: Uses an international definition and reflects an internationally-agreed methodology endorsed by the IMF Committee on Balance of Payments Statistics in a 2018 report.
- Complementarity: Complements SPE statistics disseminated by the Organisation for Economic Co-operation and Development (OECD) and Eurostat for their member countries.
- Update plan: This database release will be followed by annual updates featuring increased country coverage, including for EU economies where reporting of SPE data will become mandatory this year.
Key empirical findings highlighted
- A large proportion of measured FDI can be flows passing through a country en route to a final destination; SPEs explain much of this phenomenon.
- Examples of FDI positions channeled through resident SPEs:
- Luxembourg: 45 times the size of its economy
- Mauritius: 30 times the size of its economy
- Bermuda: 28 times the size of its economy
Policy relevance and implications
- Transparency and comparability: The new database is a major step toward improving the transparency and comparability of external sector statistics by filling data gaps on SPE activity.
- Relevance to tax policy: Better SPE data can help understand prospective changes due to the new global corporate tax agreement.
- Statistical improvements: Direct measurement of flows from SPEs helps resolve distortions in measured FDI and provides a clearer picture of true economic activity.
Source: IMF Blog post “Special Purpose Entities Shed Light on the Drivers of Foreign Direct Investment”, March 25, 2022
Content in this bundle
- BOPCOM 18/03 - Final Report of the Task Force on Special Purpose Entities
- BOPCOM 20/26 - Special Purpose Entities: Guidelines for a Data Template
