1. Main conclusions from the Task Force on Head Offices, Holding Companies and SPEs Frankfurt, February 2013

2. Mandate: main issues
How to interpret the criteria for distinguishing institutional units, especially in relation to Head Offices (HOs) and Holding Companies (HCs)?
How to distinguish between HOs and HCs? => important for sector classification
Typology and classification of HOs, HCs and similar types of units (SPEs) more generally?

3. General principles
Need for a consistent interpretation in relevant statistical standards (SNA 2008, ESA 2010, BPM6, BDM4, etc.)
Need for a consistent treatment in Business Registers, business statistics and macro-economic statistics (National Accounts, Balance of Payments, FDI)
Need to arrive at internationally comparable recording
Desire to arrive at some consistency over time in the classification of units
Further guidance not necessary/possible to cover all cases; need to arrive at more detailed guidance that covers 80-90% of the cases
Need to have relatively simple criteria and/or methods based on (quickly) available and accessible information

4. Institutional Unit (IU) test
For all units, the institutional unit test always applies
A resident unit owned by non-resident parent(s), without any links to other resident units, is to be considered as an institutional unit by convention
Institutional Unit test for holding-type of units:
No autonomy of decision is assumed, if the following criteria are met:
Parent (first known counterpart) determines the behaviour including day to day business
No employees and wages => clear evidence of a unit being an “auto-pilot”
Two questions:
Wholly owned by one resident unit?
Having multiple parents/subsidiaries is a sufficient qualification for a unit to be considered as an institutional unit?
Issue 1 (open): Holding with one resident subsidiary
Issue 2 (closed): Head Offices always to be considered as institutional units

5. Distinction between Holding Companies and Head Offices
Self-assessment of companies does not provide the preferred consistent classification
Restrictive approach in distinguishing HCs from HOs (according to AEG-recommendation)
Indicators for recognising and distinguishing holding companies:
HCs (and HOs) relate to units whose assets mainly consist of (controlling levels of) equity or other financial relations with subsidiaries => practical criterion: more than 50-80% of balance sheet total
HCs do not engage in management-type of activities
Limited number of employees and amount of wages (note: type of employees)
Limited amount of (extra-company) sales of goods and services

6. Definition of SPEs Benchmark Definition FDI/BPM6:
A unit is considered as an SPE if it meets the following criteria:
(i)  A legal entity
Formally registered with a national authority and
Subject to fiscal and other legal obligations of the economy in which it is resident
(ii)  Ultimately controlled by a non-resident parent, directly or indirectly
(iii)  Has no or few employees, little or no production in the host economy and little or no physical presence
(iv)  Almost all its assets and liabilities represent investments in or from other countries
(v)  Its core business consist of group financing or holding activities (channelling of funds) - Managing and directing local operations plays only a minor role

7. Definition of SPEs
Definition of SPEs as such not required for the compilation of National Accounts => May however be relevant for certain types of analysis
Definition according to BDM4/BPM6 more precise:
Limited to control by non-residents
No limitation to financial assets
Criterion (iii) may need further clarification, especially in relation to reference to “production”
Criterion (v) may be interpreted rather restrictively, as it seems to refer to financial type of activities; furthermore, could the second part of point (v) be removed
Issue of economic ownership of non-financial assets: may be quite different from legal ownership (e.g. sale and lease back constructions)

8. Typology of HCs, HOs and similar units
It was agreed to include a section describing a maximum of 8-10 main categories of SPE-type entities, not restricted to SPEs owned by non-residents
For each type, the following element were included:
Short description of the function
Specific issues related to criteria to be used in the case of the institutional unit test and/or criteria to be used for distinguishing them from other types of SPEs
Classification to industry
Classification to institutional sector

9. Typology of HCs, HOs and similar units
The following types are considered:
Holding companies
Shell companies
Units for holding and managing wealth of individuals and families
Securitisation companies
Conduits
Royalty and licensing companies
Captive leasing companies
Factoring and invoicing companies
Captive insurance companies
SPEs carrying out other financial functions

10. Conclusions (1) On institutional independence
The standard criteria for an institutional unit should always be applied – thus also for HOs and HC and similar SPE-type of entities.
Entities owned by non-residents – with no resident subsidiaries – are always institutional units.
For entities wholly owned by a single resident unit, ”no employees and no compensation of employees” is a sufficient criterion to reject it as an institutional unit.
The Task Force tentatively agreed that having multiple parents/shareholders is a sufficient qualification for a unit being an institutional unit.
Head offices are always to be considered as separate institutional units.
One open isssue: Entities owned by non-residents but…

11. Conclusions (2) On the identification of HOs and HCs
For an entity to be considered as either a HO or a HC, at least 50% of its assets must consist of equity and other financial assets vis-à-vis its subsidiaries.
Employment thresholds for the delineation between HOs and HCs should be determined with respect to national circumstances. In particular, national legislative requirements for the number of employees of HCs should be taken into account. In general, employment of three or more persons is a first indicator for a unit being a head office.

12. Conclusions (3) On SPE, three open issues
The possibility of an SPE-type of entity having non-financial assets.
A further clarification on the economic ownership of non-financial assets in the case of certain SPE-type of entities.
The calculation of output and value added for certain SPE-type of entities.

13. Open issue 1
Concerning entities with non-resident parents (see SNA 2008, para. 4.61) it was agreed that units with non-resident parent(s) that in addition have no links to resident units are institutional units by convention.
But not agreement for the treatment of foreign owned entities that own one or more resident subsidiaries was not agreed.
Some Task Force members argued that in the case of a purely passive holding without employees having an exclusive relationship with one resident subsidiary, one should allow for a downstream consolidation into the subsidiary.
Others argued that the restriction “no links to resident units” was inconsistent with, amongst others, para of the 2008 SNA. They also argued that the international standards do not foresee the possibility of consolidating or combining a “parent” into/with its subsidiary

14. Open issue 2
There was some discussion on the structure of the balance sheets of SPEs. According to para of the 2008 SNA, “… [special purpose entities] often have no employees and no non-financial assets …”
In other guides and manuals, there is no such restriction to the holding of financial assets.
In this respect, the Guide on the Impact of Globalization on National Accounts notes that entities that hold intangible assets such as intellectual property rights can be qualified as SPEs because of their characteristics, such as no “physical presence”.
The Task Force recommends dropping the restriction to financial assets only. As this may be considered as a further clarification or interpretation of the 2008 SNA, the guidance of the Advisory Expert Group is sought on this issue.

15. Open issue 3
There was also discussion on whether or not an SPE (or similar type of entity) holding non-financial assets is the actual economic owner of the relevant assets, and whether or not the assets should be rerouted to its “original” owner that actually gets all the related risks and rewards.
Although there seems to be an economic rationale for imputing transactions and positions to (better) reflect the economic ownership of the assets, it would without any doubt lead to a considerable number of imputations.
The Task Force did not have the time and expertise to go through this issue in more detail.

16. Open issue 4
Some SPEs do engage in financial transactions on the market. As such, they should be classified under sector S125. Here, market values can be observed and the measurement of output and value added following commonly applied approaches seems to be feasible.
Some SPEs may be engaged in holding non-financial assets that provide services in the form of rents, royalties and licences. Assuming no imputations related to economic ownership are made, output can be estimated on the basis of the relevant income.

17. Open issue 4
But in quite a number of cases the SPEs merely acts as a link in the transit of royalty and license fees on behalf of the parent company. In these cases, the SPE does not seem to be the owner of the intellectual property products, neither the legal owner nor the economic owner, and a “net” approach, taking the difference of receipts and payments, for the calculation of output seems to be the appropriate approach.
For the calculation of output and value added the guidance of the Advisory Expert Group is sought, especially whether the above rules of thumb does not provide enough clarity

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