Proposal for a COUNCIL REGULATION (EEC) on the statistical units for the observation and analysis of the production system in the European Community
Date: 1992-09-14
Institutions: European Commission
Subjects: EU statistics, European accounting system, committee (EU), economic activity, statistical method, statistical nomenclature

COMMISSION OF THE EUROPEAN  COMMUNITIES 

FK3U 

C0M(92) 353 final - SYN 418 

Brussels»  14 September 1992 

Proposal  for a 

COUNCIL  REGULATION (EEC) 

on the statistical  units for the observation and analysis of the 

production  system  in the European  Community 

(presented  by the Commission) 

EXPLANATORY MEMORANDUM 

The aim of the draft Regulation  is to establish a common  statistical 
language  for a selection of statistical units. The application of the 
definitions of these units is a determining  factor  in the coherence, 
convergence and hence the gradual  integration of the statistical  systems 
of the Member States. Once these units have been uniformly defined, they 
will no longer be subject to discussion  (with the resulting danger of 
divergent and  incompatible definitions) whenever new specific  legislation 
is drafted. 

These definitions constitute an addition to the NACE Rev. 1 Regulation 
(Council Regulation  (EEC) No 3037/90 published  in OJ No L 293 of 
24.10.90). The application of these definitions  for the observation and 
analysis of the production system will  lead to an  improvement  in the 
quality of  information on economic  activity  in the European Community. 

Whereas, at present, divergent definitions are used  in the various Member 
States, affecting the reliability of observations  and analysis, the 
application of the definitions  set out in this Regulation will lead to: 

the establishment of a uniform terminology; 
a restriction on the number of statistical units used; 
an improvement  in the compatibility of information through the use of 
complementary  surveys, which will reduce the reporting burden on 
enterprises; 
increased  transparency  by  facilitating observation; 
the development of harmonized  registers, which  is a determining 
factor  in creating  integrated  sampling bases at Community level; 
a reduction  in observation processing times  for transmission of the 
results to the Commission by establshing  identical units of 
observation  in all the Member States from the basic data collection 
stage onwards; 
the development of synergism, making savings at the same time. 

The proposal  for a Regulation  is in line with relevant  international 
guidelines. It takes account of the need to be able to adapt  statistical 
definitions to changes caused by socio-economic  and  technical 
developments affecting the production  system. It is a determining  factor 
in the quality of observations and analysis for the purposes of economic 
policy. 

_  y)  _ 

The precise  language used will  facilitate understanding  and clarify the 
many difficulties that arise when the same word  is applied  to different 
concepts that have sometimes evolved with time, cr v:hen a word changes 
meaning according to the context  in which  it is used or causes problems 
of equivalence  in different languages. 

ô.  These definitions are a determining  factor  in the development of a 
statistical  system  for the Community that  fulfils the widely-shared 
expectations of economic operators, the Commission, the National 
Statistical  Institutes and all those interested  in using  information 
relating to the observation and analysis of economic activity. 

7.  Establishing  uniform definitions of these statistical units at Community 
level with the participation of the Member States complies with the 
principle of subsidiarity. What is more, the application of these 
definitions at Member-State  level furthers the application of this 
principle by promoting  synergic effects, which are a determining  factor 
in the production of high-quality  statistical  information. 

/fd 

Proposal  for a Council  Regulation  (EEC) on  the statistical  units 
for  the observation  and  analysis of  the production  system  in  the 
European  Community 

THE COUNCIL  OF THE  EUROPEAN  COMMUNITIES, 

Having  regard  to  the  Treaty  establishing  the  European  Economic  Community,  and  in 
particular  Article  100a thereof. 

Having regard  to the proposal  from  the Commission, 

In cooperation  with the European  Parliament, 

Having  regard  to the opinion of the Economic and  Social  Committee, 

Whereas  the  functioning  of  the  internal  market  requires  statistical  standards  applicable  to  the 
identification  of  units  and  the  collection,  transmission  and  publication  of  national  and 
Community  statistics  in  order  to  make  reliable  and  comparable  information  available  to 
enterprises,  financial  institutions,  governments  and all other operators  in the Single  Market: 

Whereas  statistical  information  on  the  production  system  will  be  necessary  for  enterprises  in 
order  to  assess  their  competitiveness  and  be  useful  for  the  Community  insirutions  in  the 
prevention  of distortion  of  competition: 

Whereas  in  accordance  with  the  principle  of  subsidiarity  the  creation  of  common  statistical 
norms  that  permit  the  production  of  harmonized  data  is  an  action  which  can  only  be 
undertaken  efficiently  at  Community  level  and  that  they  will  be  applied  in each  Member  State 
under the authority  of the bodies and  insitutions  in charge of compiling  official  statistics: 

Whereas  only  if  the  Member  States  use  common  definitions  of  statistical  units  will  it  be 
possible to  provide  integrated  statistical  information  with  the  reliability,  speed,  flexibility  and 
degree of detail  required  for  the management of the internal  market: 

Whereas provision  should  be  made for  the  Member  States  to be  able,  in order  to  meet  specific 
requirements,  to  retain  or  introduce  other  statistical  units  for  the  observation  and  analysis  of 
the production  system; 

Whereas  the  choice  of  statistical  units  to  be  used  in  particular  enquiries  or  analyses  will  be 
determined  in specific texts: 

-  1 &-

Whereas  utilization  of  the  classification  of  economic  activities  in  :he  tfjropean  Communities 
(NACE  Rev.l)  provided  for  in Council  Regulation  (EEC)  No 3037/90l>  and  application  of  the 
European  System  of  Integrated  Economic  Accounts  (ESA)  require  standard  definitions  of 
statistical  units  for  registers,  surveys  and  the presentation  and  analysis of  statistics: 

Whereas  the  Committee  created  by  the  Council  Regulation  (EEC)  No  3037/90  is  comptetent 
for  "elaboration  of  guidelines  for  classifying  statistical  units  in  accordance  with  NACE  Rev.l" 
but that  the units  must be defined  elsewhere: 

Whereas  it  is vital  that the statistical  units  classified  according  to  the  NACE  Rev.l  are  defined 
in  the  same  way  in  all  Member  States  in  order  to  ensure  comparability  between  the 
corresponding  national  and  Community  statistics: 

Whereas  it  is desirable to limit  the number  of  statistical  units  used  for  the production  system: 

Whereas  the  international  comparability  of  economic  statistics  requires  that  the  Member  States 
and  the  Community 
linked  to  the 
descriptions  given  in  the  introduction  to  the  United  Nations  International  Standard  Industrial 
Classification  (ISIC Rev.3) and  the  United  Nations  System  of  National  Accounts  documents: 

institutions  use  statistical  units  which  are  directly 

Whereas  the  production  system  is  made  up  of  all  entities  involved  in  production  and  all 
economic  and  financial  operations  carried  out  by these  entities: 

Whereas  the  introduction  of  strict  application  of  these  units  throughout  the  Community 
requires  a transitional  period, 

HAS ADOPTED  THIS  REGULATION: 

Article 1 

A list  of  statistical  units  (hereinafter  referred  to  as  "statistical  u;  is  of  the  production 
system")  as  set  out  in the  annex  hereto  together  with  the  criteria  used,  the  definitions 
of the units and explanatory  notes  is hereby  established. 

X)  OJ  No L 293 of 24 October  1990, p. 1 

Article 2 

The  definitions  of  the  statistical  units  of  the  production  system  shall  be  used  by  the 
Member  States  and  the  Commission  to  identify  the  units  with  a  view  to  collecting, 
transmitting,  publishing  and  analysing  statistical  data  on  the  production  system, 
particularly  those connected  with  NACE Rev. 1. 

Article 3 

From  1  January  1993,  for  the  purposes  cited  in Article  2,  Member  States shall  use the 
definitions  refered  to  in  Article  1 for  statistics  relating  to  situations  subsequent  to that 
date. 

Article 4 

During  a  transitional  period  starting  on  1 January  1993  and  ending  on  31  December 
1994,  a Member  State  may,  for  statistics  relating  to that  period,  use statistical  units of 
the  production  system  other  than  those  provided  for  in  Article  1.  In  such  cases  the 
statistical  data  to  be  sent  to  the  Commission  during  the  transitional  period  shall  be 
adapted  and transmitted  to conform  as closely  as possible  to the requirements  set out in 
the annex  hereto. 

The  Commission  may,  under  exceptional  circumstances,  at  the  request  of  a  Member 
State and  for  duly  substantiated  technical  or  practical  reasons,  extend  the  transitional 
period  until  no later  than 31 December  1996. 

Article 5 

After  the  end  of  the  transitional  period  the  Commission  may,  pursuant  to  the 
procedure  laid  down  in  article  6  hereof,  authorise  a  Member  State  to  use  other 
statistical  units of the production  system. 

Article 6 

Measures  for  implementing  the  present  regulation,  including  those  for  adaptation  to 
economic  and  technical  developments  concerning  in  particular  the  statistical  units  of 
the production  system,  the criteria  used  and  the definitions  specified  in the annex, shall 
the  Statistical  Programme 
be  determined  by  the  Commission,  after  consulting 
Committee  instituted  by  Decision  89/382  EEC,  Euratom"'  in  accordance  with  the 
procedure set out  in Article 7. 

2)  OJ  No L  181 of 28 June  1989,  p.47 

Article 7 

The  Commission's  representative  shall  submit  to  the  Committee  a  draft  of  the 
measures  to  be  taken.  The  Committee  shall  deliver  its  opinion  on  the draft  within  a 
time limit  which  the Chairman  may lay down  according  to the urgency  of the matter,  if 
necessary  by taking  a vote. 

The  opinion  of  the  Committee  shall  be  recorded  in  the  minutes.  Each  Member  State 
shall  have the right  to ask  to have  its position  recorded  in the  minutes. 

The  Commission  shall  take  the  utmost  account  of  the  opinion  delivered  by  the 
Committee.  It shall  inform  the Committee of the manner  in which  its opinion  has been 
taken  into  account. 

Article 8 

The  statistical  units  of  the  production  system  mentioned  in  a  Community  legal  act 
governing  Community  statistics  shall  be  interpreted  in  accordance  with  the  concepts 
and terminology  of this  Regulation. 

Article 9 

This  Regulation  shall  enter  into  force  on  the  twentieth  day  following  that  of  its 
publication  in the Official  Journal  of the European  Communities. 

This  Regulation  shall  be binding  in  its entirety  and directly  applicable  in all  Member  States. 

Done at Luxembourg, 

(date) 

For  the Council 
President 

4-

ANNEX 

STATISTICAL UNITS OF THE PRODUCTION  SYSTEM  IN THE  EUROPEAN 
COMMUNITY 

Section  I : The list of  units 

The list of statistical  units of the production system  is as  follows 

the enterprise ; 

the institutional  unit ; 

the enterprise group ; 

the kind-of-activity  unit (KAU) ; 

the unit of  homogeneous  production  (UHP) ; 

the local  unit ; 

the local  kind-of-activity  unit  (local  KAU) ; 

the local  unit of homogeneous  production  (local  UHP). 

Section  II  : Criteria  used 

The  statistical  units  in  this  Regulation  are  defined  on  the  basis  of  three  criteria.  The 
relative  importance of these criteria  depends on the type of  unit  concerned. 

5-

A) 

Legal, accounting  or  organizational  criteria 

In order  to define  units  that  are  recognizable  and  identifiable  in  ù.t  economy,  legal  or 
In  some  cases,  legally  separate  units  must  be 
institutional  criteria  must  be  applied. 
grouped  together  as  they  are  not  sufficiently  autonomous  in  their  organization. 
In 
order  to  define  some  types  of  unit,  accounting  or  financial  criteria  also  have  to  be 
applied. 

To  constitute  the  enterprise  unit,  use  is  made  of  legal  units  that  exercise,  wholly  or 
partially,  a productive  activity. 

Legal  units  include: 

legal  persons  whose  existence  is  recognized  by  law  independently  of  the 
individuals or  institutions  which  may own them or  are members of  them, 

natural  persons  who are recogu.zed  as legal  units  in their  own  right. 

The  legal  unit  always  forms,  either  by  itself  or  sometimes  in  combination  with  other 
legal  units,  the legal  basis for  the statistical  unit  known  as the  "enterprise". 

B) 

Geographical  critera 

A unit  can  be geographically  identified.  A distinction  is made  between  local,  regional, 
national. Community  and  world-wide areas. 

The  local  level  here  means  the  territory  corresponding  to  the  "smallest  administrative 
area'*  :  the  "commune/gemeente"  in  Belgium,  the  "kommune"  in  Denmark,  the 
"Gemeinde"  in  Germany,  the  "demos"  in  Greece,  the  "municipio"  in  Spain,  the 
"commune"  in  France,  tie  "DED/ward"  in  Ireland,  the  "comune' 
in  Italy,  the 
"commune"  in  Luxembourg,  the  "gemeente"  in  the  Netherlands,  the  "concelho"  in 
Portugal  and the  "ward 

in the  United  Kingdom. 

The  regional  levels  are  defined  by  the  nomenclature  of  territorial  units  for  statistics 
(NUTS),  which distinguishes  three  levels  (I,  II, III). 

The observation  and  analytical  units are defined  in such  a way  as to  permit  data  first  to 
be determined  for  each  Member  State and these data to be combined  to give  figures  for 
the Community  as a whole or  for  larger  areas. 

The  rules  regarding  geographical  criteria  must  be  in order  to  permit  consolidation  and 
avoid  double counting  and omissions. 

6-

C) 

Activity  critera 

The economic  activity of  production  - hereinafter  referred  to  as  "activity"  - can be said 
to  take  place  when  resources  such  as  equipment,  labour,  manufacturing  techniques, 
information  networks  or  products  are  combined,  leading  to  the  creation  of  specific 
goods  or  services.  An  activity  is  characterized  by  an  input  of  products  (goods  or 
services),  a production  process  and  an output of  products. 

Activities are determined  by reference  to a specific  level  of  NACE Rev. 1. 

3. 

4. 

5. 

6. 

If  a  unit  carries  out  more  than  one  activity,  all  the  activities  which  are  not  ancillary 
activities  are  ranked  according  to  the  gross  value  added  at  factor  cost  which  they 
generate.  A distinction  is made between principal  activity  and  secondary  activities. 

If  no  value-added  figures  are  available,  other  criteria  must  be  used,  such  as 
employment,  payroll,  turnover,  assets,  etc.,  with  a  view  to  obtaining  the  closest 
possible  approximation  of  the  classification  which  would  have  been  obtained  on  the 
basis of value added. 

Units are classified  in terms of their  activities.  If one activity  accounts  for  over 50% of 
the  value  added  this  determines  the  classification  of  the  unit.  In  all  other  cases, 
classification  rules  must  be  observed.  Classification  is  carried  out  in  stages  from  the 
highest  level  of  aggregation  which  is  the  section  (one  letter),  down  to  the  class  (4 
digits)  via  the  division  (2  digits)  and  the  group  (3  digits).  The  classification  at  each 
level  must  be compatible  with  the previous  level.  The  Committee  set  up by the NACE 
Rev.l  Regulation  (Council  Regulation  (EEC)  No 3037/90)  has  competence  in this field 
(Article  8.e)). 

Principal  and  secondary  activities  are  backed  up  by  ancillary  activities,  such  as 
administration,  accounts,  data  processing,  process  monitoring,  purchasing,  sales  and 
marketing,  warehousing,  repairs,  transport,  renovation, etc. 
These  ancillary  activities  within  a unit  are  carried  out  in  order  to  permit  or  facilitate 
production  by  the  unit  of  goods  and  services  for  third  parties.  The  products  of 
ancillary  activities are not themselves supplied  to third  parties. 

The notion  of ancillary  activities  is developed  in section  IV B. 

-7 

Section  III  : Definitions  of  the statistical  units  of  the  production  system  and  explanatory 

notes specific  to each  unit. 

A)  Enterprise 

is  the  smallest  combination  of 

The  ENTERPRISE 
is  an 
organizational  unit  producing  goods  or  services,  which  benefits  from  a  certain 
degree of  autonomy  in  decision-making,  especially  for  the  allocation  of  its  current 
resources.  An  enterprise  carries  out  one  or  more  activities  at  one  or  more 
locations. 

legal  units 

that 

Explanatory  note 

The  enterprise  thus  defined  is  an  economic  entity  which  can  therefore,  under  certain 
circumstances,  correspond  to  a  grouping  of  several  legal  units.  Some  legal  units,  in 
fact,  perform  activities  exclusively  for  other  legal  units  and  their  existence  can only  be 
explained  by  administrative  factors  (e.g.  tax  reasons),  without  them  being  of  any 
economic  significance.  A large proportion  of the  legal  units  with  no persons  employed 
also  belongs  to  this  category.  In  many  cases,  the  activities  of  these  legal  units  should 
be seen  as  ancillary  activities  of  the  parent  legal  unit  they  serve,  to  which  they  belong 
and  to  which  they  ir.ust  be  attached  to  form  an 
"enterprise"  used  for  economic 
analysis. 

B) Institutional  unit 

The  INSTITUTIONAL  UNIT  is  an  elementary  economic  decision-making  centre 
characterized  by  uniformity  of  behaviour  and  decision-making  autonomy  in  the 
exercise  of 
is  regarded  as  constituting  an 
institutio  al  unit  if  it  has  decision-making  autonomy  in  respect  of  its  principal 
I* notion  md  keeps  a complete set  of  accounts. 

its  principal  function.  A  unit 

In  order  to  be  said  to  keep  a  complete  set  of  accounts,  a  unit  must  keep 
accounting  records  covering  all  its  economic  and  financial  transactions 
carried  out  during  the  accounting  period,  as  well  as  a  balance  sheet  of 
assets and  liabilities. 

In  order  to  be  said  to  have  autonomy  of  decision  in  respect  of  its  principal 
function,  a  unit  must  he  responsible  and  accountable  for  the  decisions  and 
actions  it  takes. 

Explanatory  notes 

In the  corporate  enterprises  sector,  the  enterprise  corresponds  to  the  institutional  unit 
used  in  the  ESA.  Similar  institutional  units  also  exist  in  the  general  government  and 
private  non-profit  institutions  sectors.  The  institutional  unit  in  the  households  sector 
covers all  the activities of households,  while the term  enterprise  is reserved  exclusively 
for  their production  activities. 

Applying  these  rules  leads  to  the  following  solutions  for  entities  which  do  not  clearly 
possess  both  characteristics  of an  institutional  unit. 

a) 

b) 

c) 

d) 

e) 

Households  always  enjoy  autonomy  of  decision  and  must  therefore  be 
institutional  units, even though they do not keep a complete set of accounts. 

Entities  which  do  not  keep  a  complete  set  of  accounts  are  combined  with  the 
institutional  units  in whose accounts their partial  accounts are  integrated. 

Entities which,  while keeping  a complete set of  accounts, have no autonomy of 
decision  in the exercise  of their  principal  function  are combined  with  the units 
which control  them. 

Entities  which  satisfy  the  definition  of  an  institutional  unit  are  treated  as such 
even  if they do not publish  their accounts. 

Entities  forming  part  of  a  group  of  enterprises  and  keeping  a complete  set  of 
accounts  are  deemed  to  be  institutional  units  even  if  they have surrendered,  in 
fact  if  not  in  law,  pan  of  their  autonomy  of  decision  to  the  central  body  (the 
holding  company)  responsible  for  the  group's  general  management.  The 
holding  company  itself  is  deemed  to  be  an  institutional  unit  distinct  from  the 
units which  it controls. 

3. 

The following  are deemed  to be institutional  units: 

units which have a complete set of accounts and autonomy of decision: 

private and public companies,  public corporations; 

cooperatives or partnerships  recognized  as independent  legal entities: 

public  enterprises  which  by  virtue  of  special  legislation  are  recognized  as 
independent  legal  entities: 

non-profit  institutions  recognized  as independent  legal entities: 

agencies of general  government. 

a) 

b) 

c) 

d) 

e) 

units  which  have  a  complete  set  of  accounts  and  which,  by  convention,  are 
deemed to have autonomy of decision: 

f) 

quasi-corporate  enterprises:  sole  proprietorships,  partnerships  and  public 
enterprises,  other  than  those  shown  under  a),  b)  and  c),  insofar  as  their 
economic  and  financial  behaviour  can  be  separated  from  that  of  their  owners 
and  resembles  that of  corporate  enterprises: 

units  which do  not  necessarily  keep  a  complete  set  of  accounts,  hut  which by 
convention are deemed to have autonomy of  decision: 

g) 

households. 

C)  Enterprise  group 

AN ENTERPRISE GROUP is  an association  of  enterprises  bound  together  by  legal 
and/or  financial  links.  A  group  of  enterprises  can  have  more  than  one  decision 
making  centre,  especially  for  policy  on  production,  sales,  profits,  etc. 
It  may 
centralize  certain  aspects  of  financial  management  and  taxation.  It  constitutes  an 
economic  entity  which  is  empowered  to  make choices,  particularly  concerning  the 
units which  it comprises. 

Explanatory  notes 

For certain  observations  and  analyses  it  is sometimes  useful  and  necessary  to study  the 
links  between  certain  enterprises  and  to  group  together  those  which  have  strong  ties 
with  each  other. 

A  number  of  exercices  are  underway  but  not  finished  concerning  the  concept  of  the 
group  of  enterprises.  It  is  defined  here  starting  from  the  concept  of  "accounting 
group"  as given  in the  7th  Council  Directive  (83/349/EEC,  OJ  L193 of  18 July  1983). 
This  Directive  came  into  force  for  the  first  time  for  consolidated  accounts  of  the 
financial  year  which  began  in  1990.  Council  Directive  90/605/EEC,  OJ  L  317  of  16 
November  1990, extended  the scope of  application  of the seventh  Directive. 

According  to  the  seventh  Directive,  a  group  is  presumed  to  exist  where  20%  of  the 
capital  or  voting  rights  are  held  or  controlled  by  another  enterprise.  Provisions 
regarding  the control  of the power  to appoint  directors  must be taken  into account. 
Behind  financial  (majority)  control,  the  aim  is  to  take  into  account  where  the  control 
really 

JS. 

-  10 

This  definition  as  it  stands  is  not  suitable  for  statistical  ar.aivsis  hecausj  "...'counting 
groups"  do  not  constitute  mutually  exclusive,  additive  groups  ot  enterprises.  A 
statistical  unit  known  as  "enterprise  group"  based  on  the  "accounting  group"  concept 
must  be defined  by  applying  the following  amendments: 

consider  accounting  groups  at the highest  consolidation  level  ("group  head"): 

include  in  "enterprise  group"  units  whose  accounts  are  entirely  integrated  in 
those of the consolidating  company; 

add  majority-controlled  units  whose  accounts  are  not  included  in  the  overall 
consolidation  by  virtue  of  application  of  one  of  the  criteria  allowed  by  the 
seventh  Directive,  i.e.  difference  in the type of activity  or  small  relative size; 

discount  temporary  links of  less than a year. 

An enterprise  group  is  a set  of  enterprises  controlled  by the  "group  head".  The  group 
head  is  a parent  legal  unit  which  is  not  controlled  either  directly  or  indirectly  by  any 
other  legal  unit.  The  subsidiary  enterprises  of  a subsidiary  enterprise  are  considered 
to  be  subsidiaries  of  the  parent  enterprise.  However  there  are  some  forms  of 
cooperative or  mutual  associations  where the parent enterprise  is actually  owned  by the 
units of the group. 

Enterprise  groups  are  often  bound  together  by  various  types  of  links  such  as 
ownership,  controlling  interest,  management,  etc.  These  units  are  often  linked  with 
units of  the same  "family"  from  several  different  generations.  The  "enterprise  group" 
unit  often  corresponds  to  a  conglomerate  bound  together  by  a  network  of  complex 
relationships  and  frequently  covers  a very  wide range of  activities.  Sub-groups  can be 
identified  within enterprise groups. 

It  is  useful  to  recognize  all  (majority  and  minority)  links  between  the  group  head  and 
the  controlled  enterprise  via  the  network  of  subsidiaries  and  sub-subsidiaries.  This 
allows the group's  entire organization  to be depicted. 

7. 

8. 

In  view  of  the  implications  of  the  different  accounting  directives,  an  attempt  should 
always  be  made  to  distinguish  between  basic  units  of  the  group  that  belong  to  "non-
financial enterprises"  and  those  which  must  be classified  as  "financial  institutions".  In 
the  case  of  the  latter,  a  distinction  must  be  drawn  between  units  that  are  "credit 
institutions"  and  those  that  are  "insurance  enterprises".  Some enterprise  groups  span 
the whole world,  but  need  to be analysed  for  the economic  territory  of the  Community 
and  for  that of each  Member State. 

The  "enterprise  group"  unit  is  particularly  useful  for  financial  analyses  and  for 
studying  company  strategies,  but  it  is  too  varied  in  nature  and  unstable  to  be  adopted 
as  the  central  unit  for  observation  and  analysis,  which  remains  the  enterprise.  It  is 
used  for  compiling  and  presenting  certain  information. 

-  11 

D) Kind-of-activity  unit 

The  KIND  OF  ACTIVITY  UNIT  (KAU)  groups  all  the  parts  of  an  enterprise 
contributing  to  the  performance  of  an  activity  at  class  level  (4  digits)  of  NACE 
Rev.l  and  corresponds  to  one  or  more  operational  subdivisions  of  the  enterprise. 
The  enterprise's  information  system  must  be  capable  of  indicating  or  calculating 
for  each  KAU  at 
least  the  value  of  production,  intermediate  consumption, 
manpower  costs,  the  operating  surplus  and  employment  and  gross  fixed  capital 
formation. 

Explanatory  notes 

The  KAU  was devised  as an  observation  unit  in order  to  improve  the  homogeneity of 
the results of statistical  surveys  by activity  and hence the international  comparability  of 
these  results,  since  at  the  level  of  the  enterprise  different  types  of  horizontal  and 
vertical  integration  can be observed  at  both  national  and  international  level.  An entity 
which  only  carries out  ancillary  activities  for  the  enterprise  to  which  it belongs  cannot 
be  considered  as  a  separate  KAU.  In  fact  the  "KAU"  corresponds  to  the  operational 
definition  given  in paragraph  96 of the introduction  to  ISIC  Rev.3. 

The  KAUs  falling  within  a particular  heading  in the  classification  system  can  produce 
products  outside the homogeneous  group,  on  account  of secondary  activities  connected 
with  them  which  cannot  be separately  identified  from  available  accounting  documents. 
Conversely,  the KAUs classified  under  a particular  heading  in the classification  system 
on  the  basis  of  a  principal  activity  do  not  produce  the  entire  output  of  homogeneous 
groups  of  specific  products  because  the  same  products  can  be  produced  in  secondary 
activities of KAUs falling  under  some other  classification  heading. 

The  internal  accounts  of  enterprises  (e.g.  p  )fit  or  cost  centres)  have  often  been 
developed  according  to criteria  that  are  close  L  the activity  concept.  They  enable the 
supply  of data at KAU  level, so that these can be observed. 

AH the  costs of  ancillary  activities  of  an  enterprise  must  be  allocated  to  the  principal 
and  secondary activities and thus to the KAUs observed  within the  enterprise. 

12-

E) Unit  of  homogeneous  production 

The  UNIT  OF  HOMOGENEOUS  PRODUCTION  (UHP)  is  characterized  by  a 
single  activity  which  is  identified  by  its  homogeneous  inputs,  production  process 
and  outputs.  The  products  which  constitute  the  inputs  and  outputs  are  themselves 
distinguished  by  their  physical  characteristics  and  the  extent  to  which  they  have 
been  processed  as  well  as  by  the  production  technique  used,  by  reference  to  a 
product  classification.  The  unit  of  homogeneous  production  may  correspond  to an 
institutional  unit  or  a  part  thereof;  on  the  other  hand,  it  can  never  belong  to  two 
different  institutional  units. 

Explanatory  notes 

For  a  clear  analysis  of  the  production  process,  the  ESA  has  adopted  units  of 
homogeneous  production  that  enable  the  technical/economic  relationships  to  be 
studied.  These  analytical  units  are  used  particularly  for  Input-Output  tables,  and  in 
practice  are  reconstituted  from  data  collected  for  the  observation  units,  since  they 
cannot  as a rule be directly  observed. 

Most  observation  units  are  engaged  in  a  combination  of  activities  at  the  same  time. 
They  may  be engaged  in a principal  activity,  some  secondary  activities  - i.e.  activities 
belonging  to  other  branches  -  and  some  ancillary  activities  such  as  administration, 
purchasing,  selling  to the trade,  storage,  repairs,  etc.  If an observation  unit  carries out 
a  principal  activity  as  well  as one  or  more  secondary  activities,  it  will  be  subdivided 
into the corresponding  number  of units of homogeneous  production,  and the  secondary 
activities  will  be  reclassified  under  different  headings  from  the principal  activity.  On 
the other  hand,  the  ancillary  activities  of  the  observation  unit  are  not  separated  from 
the principal  or secondary  activities they  serve. 

The  unit  of  homogeneous  production  is  defined  independently  of  the  location  of  the 
activity.  In  ISIC  Rev.3,  the  "unit  of  homogeneous  production"  is  defined  in  such  a 
way  as  to  correspond  to  the  local  UHP.  Paragraph  112  of  the  introduction  to  ISIC 
Rev.3 is governed  by paragraph  104. 

13 

F)  Local  unit 

The  LOCAL  UNIT  is  an  enterprise  or  part  thereof  (e.g.  a  workshop,  factory, 
warehouse,  office,  mine  or  depot)  situated  in  a  geographically  identified  place.  At 
or  from  this  place  economic  activity  is  carried  out  for  which  -  save  for  certain 
exceptions  -  one  or  more  persons  work  (even  if  only  part-time)  for  one  and  the 
same  enterprise. 

Explanatory  notes 

1. 

If a person  works  in more than one  place (maintenance or surveillance)  or  at home, the 
local  unit  is taken  to  be the  place  from  which  instructions  emanate  or  from  where  the 
work  is  organized. 
to  any 
local  unit.  However,  all  legal  units  that  serve  as  the  legal  basis  for  an  enterprise  or a 
part thereof  must have a local  unit  which  is the registered  office,  even  if  nobody  works 
there.  Moreover,  a local unit  can  comprise only  ancillary  activities. 

It  must  be  possible  to  specify  the  employment  attached 

A  geographically  identified  place  must  be  interpreted  on  a  strict  basis:  two  units 
belonging  to  the  same  enterprise  at  different 
locations  (even  within  the  smallest 
administrative  unit  of  the  Member  State)  must  be  regarded  as  two  local  units. 
However,  a single  local  unit  may  be spread  over  several  adjacent  administrative  areas, 
in which  case, by convention,  the postal  address  is the determining  factor. 

The  boundaries  ot  the  unit  are determined  by  the  boundaries  of  the  site,  which  means 
for  example that  a public  highway  running  through  does  not  interrupt  the  continuity  of 
the  boundaries.  The  definition 
is  similar  to  the  one  in  paragraph  101  of  the 
introduction  to  ISIC  Rev.3,  in  that  it  concerns  localization  in  the  strict  sense  of  the 
term,  but  differs  from  the definition  in  paragraph  102  in  that  this  strict  sense  may  not 
vary  according  to  the  statistics  under  consideration.  In  addition,  the  criterion  of 
persons  working  in the unit  is normally  applied. 

4. 

The  ESA-REG  (the regional  application  of  the  ESA)  uses the same definition  of  "local 
unit"  for  regional  accounts purposes. 

1 4-

G)  Local  kind-of-activity  unit 

The  LOCAL  KIND-OF-ACTIVITY  UNIT  (local  KAU)  is  the  part  of  a  KAU  which 
corresponds  to a  local  unit. 

Explanatory  notes 

Each  KAU  must have  at least  one local  KAU,  although  the  KAU  can  be  made up  of a 
grouping  of  parts  of  one or  more  local  units.  On  the  other  hand,  a  local  unit  may  in 
certain  circumstances  comprise solely  a group of ancillary  activities.  In this  instance, a 
supplementary  classification  of  the  local  unit  is possible.  Furthermore,  each  enterprise 
should  have at least one  "local  KAU". 

The  "local  KAU"  corresponds  to  the  operational  definition  of  the  "establishment"  as 
given  in paragraph  106 of the introduction  to ISIC  Rev.3. 

H) Local  unit  of  homogeneous  production 

The  LOCAL  UNIT  OF HOMOGENEOUS  PRODUCTION  (local  UHP)  is the  part  of 
a  unit  of  homogeneous  production  which  corresponds  to a  local  unit. 

15-

Section  IV  : Additional  explanatory  notes 

A) 

Government  and  non-profits  bodies 

1. 

In  the  case  of  general  government  bodies,  the  appropriate  statistical  unit  for  the 
collection  and  corr elation of  statistics  is very variable  (e.g. central  government,  social 
security  administr  lion,  or  local  government  of  the  region,  province,  department, 
county,  municipality,  metropolitan  area,  etc.).  These  various  bodies  collectively  plan, 
supervise  and  administer  the  finances  of  their  constituent  bodies  (which  can  be 
ministries,  directorates-general,  directorates,  bureaus,  agencies,  offices,  etc.).  As 
regards  the  type  of  activity,  however,  some  of  these  bodies,  particularly  local 
authorities, are likely to be much  more heterogeneous  than  corporate enterprises. 

The  activities  of  these  bodies  often  belong  to  Section  L  of  NACE  Rev.l  "Public 
administration  and  defence:  compulsory  social  security",  although  other  bodies  carry 
out  activities  which  basically  belong  to other  Sections,  including  "Education"  (Section 
M),  "Health  and  social  work"  (Section  N)  and  "Other  community,  social  and  personal 
service activities"  (Section  O). 

When  series  of  data  on  private-sector  entities  have  to  be  combined  with  data  on  these 
general  government  and  private  non-profit  institutions  classified  by  type  of  economic 
activity,  their  identification  and  classification  must  be carried  out  using  statistical  units 
corresponding  to entities  which  are closest  to the statistical  units defined  in the  private 
sector.  This  is why  all  the  criteria  used  in the private  sector  are  - by  analogy  - applied 
to general  .government bodies. The same applies to private  non-profit  institutions. 

16-

B) 

Ancillary  activities 

1. 

An activity  must be regarded  as ancillary  if  it satisfies  all  the following  conditions: 

a) 

b) 

c) 

it serves  only  the  unit  referred  to:  in other  words,  goods  or  services  produced 
must  not be sold on  the  market; 

a  comparable  activity  on  a  similar  scale  is  performed  in  similar  production 
units; 

it produces  services  or,  in  exceptional  cases,  non-durable  goods  which  do  not 
form  part of the unit's  end product  (e.g.  small  implements or  scaffolding); 

d) 

it contributes  to the current  costs of  the unit  itself,  i.e.  does  not  generate  gross 
fixed capital  formation. 

The  distinction  between  ancillary,  principal  and  secondary  activity  can  be  illustrated 
by  a few  examples. 

Production  of  small  implements  for  the  unit's  use  is  an  ancillary  activity  (in 
accordance with  all criteria). 

Own-account  transport  is normally  an  ancillary  activity  (in  accordance  with  all 
criteria). 

Sales of own  products  are an  ancillary  activity  because,  as  a general  rule,  it is 
not possible  to  produce  without  sales.  However,  if  it  is possible  to  identify  a 
retail  sales point  within  a production  enterprise  (direct  sales to end-user) which 
may  be,  for  example,  a local  unit,  this  sales  point  - exceptionally  and  for  the 
purposes of  certain  analyses  - may  be regarded  as  a kind-of-activity  unit.  This 
observation  unit  then  forms  the subject  of  a twofold  classification,  i.e.  in terms 
of the  (principal  or  secondary)  activity  it  performs  within  the enterprise  and  in 
terms of  its own  activity  (retail  sale). 

17 

Thus,  the  general  rule  is  that,  .nee  production  processes  a:j  not  usually  viable 
without  the  support  of  ancillary  activities,  these  ancillary  activities  should  not  be 
isolated  to  form  distinct  entities,  even  if  they  are  carried  out  by  a distinct  legal  entity 
or  at  a  distinct  place,  and  even  if  separate  accounts  are  kem.  Furthermore,  the 
ancillary  activity  is not taken  into account  when  classifying  the activity  of  the entity by 
which  the  ancillary  activities  are  carried  out.  The  best  example  of  an  entity  carrying 
out  ancillary  activities  is the central  administrative department  or  "registered  office". 

Having  regard  to  the  definition  in  paragraph  above,  the  following  activities  must  not 
be considered  as ancillary  activities. 

a) 

b) 

c) 

d) 

The production  of  goods  or  work  carried  out  which  forms  part  of fixed capital 
formation  -  in particular,  construction  work  for  own  account.  This  is  in  line 
with  the  method  used  in  NACE  Rev.l,  where  units  carrying  out  construction 
work  for  own  account  are  classified  under  the  building  industry  if  data  are 
available. 

Production,  a  significant  part  of  which  is  sold  commercially,  even  if  much  is 
used  as  consumption  in  connection  with  the  principal  activity  or  secondary 
activities. 

The  production  of  goods  which  subsequently  become  an  integral  part  of  the 
output  of  the  principal  or  secondary  activity  -  e.g.  production  of  boxes, 
containers,  etc.  by  a  department  of  an  enterprise  for  use  in  packing  its 
products. 

The production  of energy  (integrated  power  station  or  integrated  coking plant), 
even  where  this  is  consumed  in  its  entirety  in  the  principal  or  secondary 
activity  of the parent  unit. 

e) 

The purchase of goods  for  resale  in unaltered  state. 

f) 

Research  and  development.  These  activities  are  not  \  :y  widespread  and  do 
not  produce services  which  are used  in current  production. 

îese  cases,  if  separate  data  are  available  for  these  activities,  they  should  be 

In  all 
regaruvxl as distinct  activities  and subsequently  recognized  as  KAUs. 

-  18-

6. 

7. 

If  ancillary  activities  are  carried  out  tor  the  benefit  ot  a single  entity,  these  activities 
and  the  resources  they  use  will  constitute  an  integral  part  of  the  activities  and 
resources  of  that  unit.  However,  if  the  activities  of  the  statistical  unit  and  the 
corresponding  ancillary  activities  are  not  carried  out  in  the  same  geographical  area 
(defined  in terms of  the zones  delimited  for  the purposes  of  statistical  surveys),  it may 
be  desirable  to  collect  separate  supplementary  information  on  these  units  for  the 
categories  of  data  which  have  to  be  classified  in  terms  of  geographical  areas,  even  if 
the units only carry  out ancillary  activities. 

If ancillary  activities  are  carried  out  basically  for  the  benefit  of  two  or  more  kind-of-
activity  units, the cost  of  these  ancillary  activities  must  be spread  over  all  the  kind-of-
activity  units  which  they  support.  If  data  are  available  on  the  proportion  of  the  costs 
which  can  be  assigned  to  each  of  these  distinct  activities,  the  costs  should  be  broken 
down  accordingly.  However,  should  no  information  of  this  kind  be available,  the cost 
of  the  ancillary  activity  should  be  broken  down  over  the  principal  and  secondary 
activities  proportionately  to  the  value of  output  minus  intermediate  costs  excluding  the 
costs  of  the  ancillary  activities  themselves. 
If  this  method  proves  too  difficult  in 
practice,  the  cost  of  the  ancillary  activity  may  simply  be broken  down  proportionately 
to the value of output. 

If ancillary  activities  are organized  in  such  a way  as  to serve  two or  more entities  of a 
multi-unit  enterprise,  they  may  constitute  a  group  of  ancillary  activities  at  a  distinct 
location. 
In  this  case,  in  the  same  way  as  it  would  be  desirable  to  cover  certain 
activities  completely  even  if they  are  carried  out  independently  or by entities  which  are 
engaged  exclusively  in  ancillary  activities  (such  as  computer  services),  it  could  be 
useful  to  allow  for  supplementary  classifications.  For  this  purpose  these  ancillary 
entities  could  then  be  classified  according  to  their  own  activities  as  well  as  being 
classified  under the activity  of the unit  to which  they  belong. 

It  is  possible  that  an  activity  starts  out  as  ancillary  but  subsequently  begins  to  provide 
services  for  sale  to  other  entities.  An  activity  of  this  kind  may  develop  to  the  point 
where  it ceases to  be an  ancillary  activity  and  must  therefore  be regarded  as one of  the 
principal  or  secondary  activities  of  an  entity.  The  only  way  of  deciding  whether  a 
given  activity  should  be  regarded  as  an  ancillary  activity  or  a  principal  or  secondary 
activity  is to assess the role  it plays  in the enterprise as a whole. 

-  19 

C) 

Synoptic  table  by activity  and  location 

One or  more locations 

A single location 

One or  nufre activities 

Enterprise 

Local unit 

One single activity 

Institutional  unit 

KAU 

UHP 

Local  KAU 

Local  UHP 

- 2 0-

ISSN 0254-1475 

COM (92) 353 final 

DOCUMENTS 

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