Source: EURLEX
Language: en
Format: md

**Council of the**
**European Union**

**Interinstitutional File:**

**2014/0194 (COD)**

**"I" ITEM NOTE**

**Brussels, 17 February 2016**
**(OR. en)**

**6000/16**

**ECOFIN 85**
**STATIS 4**
**UEM 35**
**COMER 10**
**CODEC 149**

From: General Secretariat of the Council

To: Permanent Representatives Committee (Part 2)

Subject: Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND
OF THE COUNCIL amending Regulation (EC) No 184/2005 on Community
statistics concerning balance of payments, international trade in services
and foreign direct investment as regards conferring of delegated and
implementing powers upon the Commission for the adoption of certain

measures

(First reading) (Legislative deliberation)

              - Confirmation of the final compromise text with a view to agreement

I. INTRODUCTION

1. On 26 June 2014, the Commission presented a proposal, based on Article 338 (1) TFEU, for a

Regulation of the European Parliament and of the Council amending Regulation (EC) No

184/2005 on Community statistics concerning balance of payments, international trade in

services and foreign direct investment as regards conferring of delegated and implementing

powers upon the Commission for the adoption of certain measures [1] .

**1** 5520/14

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2. On 5 December 2014, the European Central Bank delivered its opinion based on Articles

127(4) and 282(5) TFEU [2] .

3. On 27 May 2015, the Permanent Representatives Committee approved the Council's General

Approach [3] .

4. On 25 June 2015, the European Parliament Committee on Economic and Monetary Affairs

adopted its report on the proposal, and decided to open interinstitutional negotiations on the

basis of that report.

5. In the second half of 2015, the Luxembourg Presidency met with the European Parliament

during two Trilogue meetings. On 14 December 2015, the co-legislators reached a provisional

agreement subject to technical adjustment of the final text.

6. On that basis [4], the Presidency consulted Member States within a written procedure that ended

on 11 January 2016. That consultation showed that Member States supported the provisional

agreement subject to a number of linguistic revisions. After consultation of the European

Parliament, the Presidency suggests that those modifications be introduced during the lawyer

linguists' revision of the text [5] .

II. COMPROMISE TEXT

7. In the Presidency's opinion, the compromise reached with the European Parliament safeguards

the main elements of the Council's general approach, in particular on the delimitation of the

Commission's empowerment to adopt delegated acts on certain requirements listed in Annex I

in data flows. Furthermore, the modalities, structure and periodicity of quality reports on data

falling under the scope of the regulation will be decided by means of implementing acts.

**2** 16663/14 + ADD1
**3** 6638/15 + 9120/15
**4** 15528/1/15 REV1
**5** Subject to European Parliament agreement, the Commission quality assessment report will sent
not only to the European Parliament but also to the Council (Article 4 paragraph 4).

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8. On the possible extension of the scope to cover foreign direct data flows as suggested by the

European Parliament, the text provides that the Union may provide financial assistance to

pilot studies instituted to establish conditions and methodology for the introduction of such

data flows. The possible introduction of foreign direct data flows in the scope of the

regulation will follow the Ordinary Legislative Procedure.

9. On that basis, the Permanent Representatives Committee is invited to approve the text set out

in the annex to the present document.

III. CONCLUSION

10. Should the Committee approve the agreed text as set out in the Addendum, the formal

procedure requires that a letter be sent by the Chair of the Permanent Representatives

Committee to the European Parliament stating that an agreement at first reading can be

reached should the European Parliament agree to adopt the text, resulting from the 14

December 2015 Trilogue.

Accordingly, with a view to preparing the way for the final adoption of the Regulation in

accordance with Article 294 TFEU, the Committee is invited to:

   - endorse the text of the draft Regulation in the Annex to this Note;

   - mandate its Chair to send a letter the Chair of the European Parliament Committee on

Economic and Monetary Affairs stating that should the European Parliament adopt its

position at first reading in the form set out in the compromise contained in the Annex to

the letter (subject to revision by the legal linguists of both institutions), the Council

would approve the European Parliament’s position and the act shall be adopted in the

wording which corresponds to the European Parliament’s position.

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**ANNEX**

**PE-CONS No/YY - 2014/0194(COD)**

_**Compromise text**_

_Proposal for a_ **REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE**

**COUNCIL**

**of**

**amending Regulation (EC) No 184/2005 on Community statistics concerning balance of**

**payments, international trade in services and foreign direct investment** ▌

**(Text with EEA relevance)**

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article

338(1) thereof,

Having regard to the proposal from the European Commission,

_**Having regard to the opinion of the European Central Bank;**_

After transmission of the draft legislative act to the national Parliaments,

Acting in accordance with the ordinary legislative procedure,

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Whereas:

(1) As a consequence of the entry into force of the Treaty on the Functioning of the European

Union (“the Treaty”), the powers conferred upon the Commission should be aligned to

Articles 290 and 291 of the Treaty.

    - _**Balance of payments, international trade in services and foreign direct investment**_

_**statistics of high quality and comparability are essential for those responsible for public**_

_**policy in the Union, for researchers and all European citizens. The Commission**_

_**(Eurostat) should take all necessary measures to allow easy and user-friendly online**_

_**access to data series as well as to provide users with an intuitive presentation of the data.**_

    - _**European statistics concerning the balance of payments, international trade in**_

_**services and foreign direct investment are of vital importance for informed economic**_

_**policy making and accurate economic forecasting.**_

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(2) In view of the adoption of Regulation (EU) No 182/2011 **[6]**, the Commission has committed

itself **[7]** to reviewing, in the light of the criteria laid down in the Treaty, legislative acts

which currently contain references to the regulatory procedure with scrutiny.

(3) The Commission should have the power to adopt delegated acts under Article 290 of the

TFEU to supplement or amend certain non-essential elements of particular legislative acts,

notably to take account of economic ▌ and technical developments. The Commission

should ensure that these delegated acts do not impose a significant additional ▌ burden on

Member States or on the respondent units _**, other than what is necessary for the purposes**_

_**of this Regulation, nor change the applicable underlying conceptual framework**_ .

**6** Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16
February 2011 laying down the rules and general principles concerning mechanisms for
control by Member States of the Commission’s exercise of implementing powers (OJ L 55,
28.2.2011, p. 13).
**7** OJ L 55, 28.2.2011, p. 19.

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(4) Regulation (EC) No 184/2005 **[8]** concerning balance of payments (BOP), international trade

in services (ITS) and foreign direct investment (FDI) contains references to the regulatory

procedure with scrutiny and should therefore be reviewed in the light of the criteria laid

down in the Treaty.

(5) In the context of aligning Regulation (EC) No 184/2005 to the new rules of the Treaty,

implementing powers currently conferred upon the Commission should be provided for by

conferring powers on the Commission to adopt delegated and implementing acts.

**8** Regulation (EC) No 184/2005 of the European Parliament and of the Council of 12 January
2005 on Community statistics concerning balance of payments, international trade in
services and foreign direct investment (OJ L 35, 8.2.2005, p. 23).

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(6) The power to adopt acts in accordance with Article 290 of the Treaty should be delegated

to the Commission when, for reasons of economic and technical changes, _**geographical**_

_**breakdown levels, institutional sectors breakdown levels and economic activity**_

_**breakdown levels set out in Tables 6, 7 and 8 of Annex I need to be updated, provided**_

_**that such updates neither affect the reporting burden nor change the underlying**_

_**conceptual framework, as well as certain requirements of data flows**_ _**in Annex I**_ _**need to**_

_**be eliminated or reduced, provided that such elimination or reduction does not reduce**_

_**the quality of statistics produced in accordance with this Regulation.**_

    - _**The delegated acts should also cover the extension of deadline for the report on the**_

_**findings of the studies on FDI by ultimate ownership concept and distinguishing**_

_**greenfield FDI transactions from takeovers.**_

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(7) It is of particular importance that the Commission carry out appropriate consultations

during its preparatory work, including at expert level. The Commission, when preparing

and drawing-up delegated acts, should ensure simultaneous, timely and appropriate

transmission of relevant documents to the European Parliament and the Council.

(8) _**In order to**_ ensure uniform conditions for the implementation of Regulation (EC) No

184/2005, implementing powers should be conferred on the Commission with a view to ▌

harmonising the _**modalities, structure**_ and periodicity of the quality reports. Those powers

should be exercised in accordance with Regulation (EU) No 182/2011.

(9) The Balance of Payments Committee (BOP Committee) referred to in Article 11 of

Regulation (EC) No 184/2005 provide advice to and assist the Commission in exercising

of its implementing powers.

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(10) Under the strategy for a new European Statistical System (ESS) structure intended to

improve coordination and partnership in a clear pyramid structure within the ESS, the

European Statistical System Committee (ESSC), established by Regulation (EC) No

223/2009 **[9]**, should have an advisory role and assist the Commission in exercising its

implementing powers.

(11) To that effect, Regulation (EC) No 184/2005 should be amended with the references to the

BOP Committeee being replaced by a reference to the ESSC.

**9** Regulation (EC) No 223/2009 of the European Parliament and of the Council of 11 March
2009 on European statistics (OJ L 87, 31.3.2009, p. 164).

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**(** 12) The existing good operative cooperation between the National Central Banks (NCBs) and

the National Statistical Institutes _**(NSIs)**_ and between Eurostat and the European Central

Bank is an asset that should be continued and further developed in the light of improving

the overall _**consistency**_ and quality of _**macroeconomic statistics, such as**_ balance of

payments statistics, financial statistics, government finance ▌ statistics and national

accounts. The _**NSIs and**_ NCBs would continue to be closely involved in the preparation of

all the decisions related to BOP, ITS and FDI via their participation in the relevant ▌

expert _**groups**_ responsible for BOP, ITS and FDI. The ▌ cooperation between the ESS and

ESCB is coordinated _**at strategic level**_ in the European Statistical Forum, established via a

Memorandum of Understanding on the cooperation between the members of the European

Statistical System and the members of the European System of Central Banks [▌] signed on

24 April 2013.

▌

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_**(13)**_ _**In order to further strengthen cooperation between the ESS and ESCB, the Commission**_

_**should request the opinion of the Committee on Monetary, Financial and Balance of**_

_**Payments Statistics (CMFB) set up by Council Decision 2006/856/EC**_ _[10]_ _**, on all matters**_

_**falling within its competences as referred to in Decision 2006/856/EC.**_

    - _**Pursuant to Articles 127(4) and 282(5) of the Treaty, the European Central Bank**_

_**(ECB) should be consulted on any proposed Union act in its fields of competence.**_

_**(14)**_ _**Member States should provide the necessary data to produce European statistics on time,**_

_**in the appropriate form and of the requisite quality with regard to balance of payments,**_

_**international trade in services and foreign direct investment.**_

_**(15)**_ _**Since the adoption of the Regulation, international capital flows have both intensified**_

_**and gained in complexity. The increased use of special purpose vehicles and legal**_

_**constructions for channelling capital flows have made it more difficult to monitor such**_

_**flows in order to ensure their adequate traceability and to avoid double or multiple**_

_**accounting.**_

_**10**_ _**Council Decision 2006/856/EC of 13 November 2006 establishing a Committee on**_
_**Monetary, Financial and Balance of Payments Statistics*/EC**_

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_**(16)**_ _**The provisions of Regulation (EC) No 184/2005 should therefore be updated so as to**_

_**improve transparency and granularity concerning BOP, ITS and FDI.**_

    - _**In order to collect the appropriate information required pursuant to this Regulation,**_

_**Member States should use all relevant and appropriate sources, including administrative**_

_**data sources such as business registers or the EuroGroups Register (EGR).**_

_**Transparency could also be enhanced by taking advantage of recent innovations, such**_

_**as the global legal entity identifier (GLEI), as well as the registries of ultimate ownership**_

_**established in the framework of the Anti-Money Laundering Directive.**_

_**(17)**_ _**In order to develop foreign direct investment statistics according to the concept of**_

_**ultimate ownership and distinguishing greenfield foreign direct investments from FDI**_

_**resulting in takeovers, which for a given period mostly do not lead to an increase of the**_

_**gross capital formation in the Member States, the appropriate methodology in these**_

_**domains should be developed and enhanced, in collaboration with relevant stakeholders**_

_**such as OECD, IMF and UNCTAD.**_

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_**(18)**_ _**Pilot studies should establish the conditions including the methodological framework for**_

_**introducing new data collections on annual FDI statistics, the cost of the related data**_

_**collections, the quality of the statistics, as well as the cross-country comparability. The**_

_**result of these studies should be subject of a Report of the Commission to the European**_

_**Parliament and Council.**_

_**(19)**_ _**In order to ensure the quality of statistical data provided by Member States, the**_

_**Commission should use the appropriate prerogatives and powers provided for in Article**_

_**12 of Regulation (EC) No 223/2009.**_

(20) Regulation (EC) No 184/2005 should therefore be amended accordingly,

HAVE ADOPTED THIS REGULATION:

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_Article 1_

Regulation (EC) No 184/2005 is amended as follows:

- (1) In Article 2, the following paragraph is added:

‘3. The Commission shall be empowered to adopt delegated acts in accordance with

Article 10, when, for reasons of economic and technical changes, _**geographical**_

_**breakdown levels, institutional sectors breakdown levels and economic activity**_

_**breakdown levels set out in Tables 6, 7 and 8 of Annex I need to be updated**_

_**provided that such updates and specifications neither affect the reporting burden**_

_**nor change the underlying conceptual framework.**_

       - _**The Commission shall be empowered to adopt delegated acts in accordance with**_

_**Article 10 whenever certain requirements of data flows**_ in Annex I _**need to be**_

_**eliminated or reduced, provided that such elimination or reduction does not reduce**_

_**the quality of statistics produced in accordance with this Regulation.’**_

▌

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- _**(2) Article 4**_ _**is replaced by the following:**_

    - _**‘Article 4**_

_**Quality criteria and reports**_

_**1.**_ _**For the purpose of this Regulation, the quality criteria set out in Article 12(1) of**_

_**Regulation (EC) No 223/2009**_ (*) _**shall apply to the data to be transmitted in**_

_**accordance with Article 5 of this Regulation.**_

_**2.**_ _**Member States shall provide the Commission (Eurostat) with a report on the**_

_**quality of the data transmitted (hereinafter referred to as ‘quality report’).**_

_**3.**_ _**In applying the quality criteria referred to in paragraph 1 to the data covered by**_

_**this Regulation, the modalities, structure and periodicity of the quality reports shall**_

_**be defined by the Commission**_ _**by means of implementing acts.* Those**_

_**implementing acts shall be adopted in accordance with the examination procedure**_

_**referred to in Article 11(2).**_

_**________________**_

_**This part of the text will be reviewed at the JL level in order to avoid having**_
_**inconsistencies or overlapping text.**_

(*)Regulation (EC) No 223/2009 of the European Parliament and of the Council of 11 March 2009

on European statistics (OJ L 87, 31.3.2009, p. 164).

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_**4.**_ _**The Commission (Eurostat) shall assess the quality of the data transmitted, on the**_

_**basis of appropriate analysis of the quality reports referred to in paragraph 2, and**_

_**shall prepare and publish a report on the quality of European statistics covered by**_

_**this Regulation.**_

_**5.**_ _**Member States shall communicate to the Commission (Eurostat) major**_

_**methodological or other changes that would influence the data transmitted, not**_

_**later than three months after any such change becomes applicable. The**_

_**Commission shall notify the European Parliament and the other Member States of**_

_**any such communication.**_

       - _*****_ Those _**implementing**_ acts shall be adopted in accordance with the examination

procedure referred to in Article 11(2).

       - On the _**basis**_ of the quality reports, the quality of the data transmitted shall be

assessed by the Commission with the assistance of the European Statistical System

Committee referred to in Article 11(1).

       - This _**assessment**_ of the Commission shall be sent to the European Parliament _**and**_

_**Council****_ for information.

_**________________**_

_*****_ _**This part of the text will be reviewed at the JL level in order to avoid having**_
_**inconsistencies or overlapping text.**_

_******_ _**Subject to EP agreement.’.**_

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- _**(3) Article 5 is replaced by the following:**_

    - _**‘Article 5**_

_**Data Flows**_

_**1.**_ _**The statistics to be produced shall be grouped for transmission to the Commission**_

_**(Eurostat) according to the following data flows:**_

_**(a)**_ _**balance of payments monthly statistics;**_

_**(b)**_ _**balance of payments quarterly statistics;**_

_**(c)**_ _**international trade in services;**_

_**(d)**_ _**foreign direct investment (FDI) flows;**_

_**(e)**_ _**FDI positions.**_

_**2.**_ _**The Commission (Eurostat) and Member States, in cooperation with the relevant**_

_**international partners, shall develop the appropriate methodology for compiling**_

_**FDI statistics on an ultimate ownership concept in addition to immediate**_

_**counterpart principle and distinguishing greenfield FDI transactions from**_

_**takeovers.**_

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_**3.**_ _**By 24 months after the entry into force of this Regulation, the Commission**_

_**(Eurostat) shall institute pilot studies to be carried out by Member States related to**_

_**annual FDI statistics on an ultimate ownership concept and distinguishing**_

_**greenfield FDI transactions from takeovers. The purpose of such studies shall be**_

_**to establish the conditions, including the methodological framework required for**_

_**introducing these new data collections on annual FDI statistics, and assess the**_

_**costs of the related data collections and the implied statistical quality as well as**_

_**allowing assessing the cross country comparability.**_

_**4.**_ _**In order to facilitate carrying out the studies referred to in paragraph 3 of this**_

_**article, the Union may provide financial support to the Member States in the form**_

_**of grants according to Regulation (EU, EURATOM) No 966/2012.**_

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_**5.**_ _**By 36 months after the entry into force of this Regulation, the Commission**_

_**(Eurostat) shall prepare a report on the findings of the studies on FDI by ultimate**_

_**ownership concept and distinguishing greenfield FDI transactions from takeovers**_

_**referred to in paragraph 3. This report shall be forwarded to the European**_

_**Parliament and to the Council and if appropriate shall identify the remaining**_

_**conditions which need to be fulfilled in order to develop the methodology referred**_

_**to in paragraph 2.**_

       - _**The Commission shall be empowered to adopt delegated acts in accordance with**_

_**article 10 in order to extend by 12 months the reporting deadline laid down in the**_

_**preceding sub-paragraph, if the Commission’s assessment of the pilot studies**_

_**referred therein establishes that identification of remaining conditions, as referred**_

_**to in the preceding sub-paragraph, is appropriate.**_

_**6.**_ _**No later than 12 months from issuing of the reports specified in paragraph 5, the**_

_**Commission shall, where appropriate, depending in particular on the assessment**_

_**by the Commission of the result of the pilot studies referred to in paragraph 3,**_

_**make a proposal for amendments to this Regulation for defining the**_

_**methodological and data requirements for annual FDI statistics on an ultimate**_

_**ownership concept and distinguishing greenfield FDI transactions from**_

_**takeovers.’ .**_

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- (4) Article 10 is replaced by the following:

    - _‘Article 10_

_Exercise of delegated powers_

1. The power to adopt delegated acts is conferred on the Commission subject to the

conditions laid down in this Article.

2. When exercising the powers delegated in Article 2(3) _**and Article 5(5)**_, the

Commission shall ensure that the delegated acts do not impose a significant

additional ▌ burden on _**the**_ Member States and on the respondents.

       - _**In addition, the Commission shall duly justify the actions provided for in those**_

_**delegated acts, considering where appropriate cost-effectiveness, including the**_

_**burden on respondents and the production costs in accordance with Article 14(3)**_

_**of Regulation (EC) No 223/2009.**_

       - _**The Commission shall follow its usual practice and carry out consultations with**_

_**experts, including Member States' experts, before adopting those delegated acts.**_

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3. The power to adopt _**delegated**_ acts referred to in Article 2(3) _**and Article 5(5)**_ shall

be conferred on the Commission for _**a**_ period of _**5 years**_ from [Publication office:

please insert the exact date of the entry into force of the amending Regulation].

       - _**The Commission shall draw up a report in respect of the delegation of power no**_

_**later than nine months before the end of the five-year period. The delegation of**_

_**power shall be tacitly extended for periods of an identical duration unless the**_

_**European Parliament or the Council opposes such extension no later than three**_

_**months before the end of each period.**_

4. The delegation of power referred to in Article 2(3 _**) and Article 5 (5**_ ), may be revoked

at any time by the European Parliament or by the Council.

       - A decision to revoke shall put an end to the delegation of the power specified in

that decision. It shall take effect the day following the publication of the decision in

the Official Journal of the European Union or at a later date specified therein. It shall

not affect the validity of any delegated acts already in force.

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5. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to

the European Parliament and to the Council.

6. A delegated act adopted pursuant to Article 2(3) _**and Article 5(5)**_, shall enter into

force only if no objection has been expressed either by the European Parliament or

the Council within a period of _**three**_ months of notification of that act to the

European Parliament and the Council or if, before the expiry of that period, the

European Parliament and the Council have both informed the Commission that they

will not object. That period shall be extended by _**three**_ months at the initiative of the

European Parliament or the Council.’.

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- (5) Article 11 is replaced by the following:

    - ‘ _Article 11_

_Committee_

1. The Commission shall be assisted by the European Statistical System Committee

established by Regulation (EC) No 223/2009). That committee shall be a committee

within the meaning of Regulation (EU) No 182/2011 (*).

2. Where reference is made to this paragraph, Article 5 of Regulation (EU) No

182/2011 shall apply.’.

▌

(*)Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February

2011 laying down the rules and general principles concerning mechanisms for control by Member

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States of the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13).

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- _**(6) Article**_ _**12 is replaced by the following:**_

    - _**‘Article 12**_

_**Reports on implementation**_

    - _**By 28 February 2018 and every five years thereafter, the Commission shall submit a**_

_**report to the European Parliament and the Council on the implementation of this**_

_**Regulation.**_

    - _**In particular, the report shall:**_

_**(a)**_ _**evaluate the quality of data on balance of payments, international trade in services**_

_**and foreign direct investment.**_

_**(b)**_ _**assess the benefits accruing to the Union, the Member States and the providers and**_

_**users of statistical information of the statistics produced in relation to the costs;**_

_**(c)**_ _**identify areas for potential improvement and amendments considered necessary in**_

_**the light of the results obtained.’.**_

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- _**(7) The following Article is added:**_

    - _**‘Article 12a**_

_**Cooperation with other committees**_

    - _**On all matters falling within the competence of the Committee on Monetary,**_

_**Financial and Balance of Payments Statistics established by Decision 2006/856/EC, the**_

_**Commission shall request the opinion of that Committee in accordance with that**_

_**Decision.’.**_

- _**(8) Article 9 of basic Regulation to be replaced by the following:**_

    - _**‘Article 9**_

_**Dissemination**_

_**1.**_ _**The Commission (Eurostat) shall disseminate the European statistics produced**_

_**pursuant to this Regulation, with a periodicity similar to that specified in Annex I.**_

_**These statistics shall be made available on the Commission (Eurostat) website.**_

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_**2.**_ _**In accordance with Article 18 of Regulation (EC) No 223/2009, and without**_

_**prejudice to protecting statistical confidentiality, Member States and the**_

_**Commission (Eurostat) shall ensure dissemination of data and metadata required**_

_**by this Regulation as well as the precise methodology used for their compilation.’.**_

_Article_ _**3**_

This Regulation shall enter into force on the twentieth day following that of its publication in the

Official Journal of the European Union.

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

Done at Brussels,

_For the European Parliament_ _For the Council_

_The President_

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Deadline T+9 months

Periodicity annual

1. ANNEX

_Amendment_ **

_**(4d) In Annex I, Table 4.1 is amended as follows:**_

Table 4

Foreign direct investments transactions (including income)

Table 4.1 Direct Investment Financial Transactions

|First reference period 2013|Col2|Col3|Col4|
|---|---|---|---|
||Net|Net acquisition<br>of financial|Net incurrence of<br>liabilities|
|ALL RESIDENT UNITS<br>Direct investment abroad (DIA) - Transactions<br>DIA Equity other than reinvested earnings<br>DIA Equity other than reinvested earnings (excluding equity between fellow<br>enterprises)<br>DIA Equity other than reinvested earnings between fellow enterprises (UCP is<br>resident in the reporting country)<br>DIA Reinvestment of earnings<br>DIA Debt instruments|<br> <br>Geo<br>6 <br>Geo<br>5 <br>Geo<br>5 <br>Geo<br>5 <br>Geo<br>5 <br>Geo<br>5|<br> <br>**Geo**<br>**6***<br>Geo<br>5 <br>Geo<br>5 <br>Geo<br>5 <br>Geo<br>5 <br>Geo<br>5|<br> <br>**Geo**<br>**6***<br>Geo<br>5 <br>Geo<br>5 <br>Geo<br>5 <br> <br> <br>Geo<br>5|

            - **Geo 6** : Geo 6 in bold, mandatory from 2015 and onwards. **The JL will introduce an article for the

corresponding modifications of Annex I and Annex II (along the lines: " Annex I and II to Regulation

(EC) No 184/2005 is amended in accordance with the Annex to this Regulation.").

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.DIA Debt instruments (excluding debt between fellow enterprises) Geo 5 Geo 5 Geo 5

DIA Debt instruments between fellows (UCP is resident in the reporting country) Geo 5 Geo 5 Geo 5

Geo 6 **Geo** **6*** **Geo** **6***

Direct investment in the reporting economy (DIRE) - Transactions

DIRE Equity other than reinvested earnings Geo 5 Geo 5 Geo 5

DIRE Equity other than reinvested earnings (excluding equity between fellow
enterprises)

DIRE Equity other than reinvested earnings between fellow enterprises (UCP is
not resident in the reporting country)

Geo 5 Geo 5 Geo 5

Geo 5 Geo 5 Geo 5

Of which: UCP is resident in other euro area country Geo 5

UCP is resident in the EU but outside euro area Geo 5

UCP is resident outside the EU Geo 5

DIRE Reinvestment of earnings Geo 5 Geo 5

DIRE Debt instruments Geo 5 Geo 5 Geo 5

DIRE Debt instruments (excluding debt between fellow enterprises) Geo 5 Geo 5 Geo 5

DIRE Debt instruments between fellows (UCP is not resident in the reporting
country)

Geo 5 Geo 5 Geo 5

Of which: UCP is resident in other euro area country Geo 5

UCP is resident in the EU but outside euro area Geo 5

UCP is resident outside the EU Geo 5

            - **Geo 6** : Geo 6 in bold, mandatory from 2015 and onwards. **The JL will introduce an article for the

corresponding modifications of Annex I and Annex II. (along the lines: " Annex I and II to Regulation

(EC) No 184/2005 is amended in accordance with the Annex to this Regulation.")

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(1) Mandatory from reference year 2015 onwards

- **Geo 6** : Geo 6 in bold, mandatory from 2015 and onwards. **The JL will introduce an article for the corresponding modifications of

Annex I and Annex II. (along the lines: " Annex I and II to Regulation (EC) No 184/2005 is amended in accordance with the Annex

to this Regulation.")

_Amendment_

_**(4e) In Annex I, Table 4.2 is amended as follows:6**_

Table 4.2 Direct Investment Income

Deadline: T+9 months

Periodicity: annual

|First reference period: 2013|Col2|Col3|Col4|
|---|---|---|---|
||Balance|Credit|Debit|
|ALL RESIDENT UNITS<br>Direct investment abroad (DIA) - Income<br>DIA Dividends<br>DIA Dividends (excluding dividends between fellow enterprises)<br>DIA Dividends between fellow enterprises (UCP is resident in the<br>reporting country)<br>DIA Reinvested earnings<br>DIA Income on debt|<br>Geo 6<br>Geo 5<br>Geo 5<br>Geo 5<br>Geo 5<br>Geo 5|<br>**Geo 6***<br>Geo 5<br>Geo 5<br>Geo 5<br>Geo 5<br>Geo 5|<br>**Geo 6***<br>Geo 5<br>Geo 5<br>Geo 5<br> <br>Geo 5|

            - **Geo 6** : Geo 6 in bold, mandatory from 2015 and onwards. **The JL will introduce an article for the

corresponding modifications of Annex I and Annex II (along the lines: " Annex I and II to Regulation

(EC) No 184/2005 is amended in accordance with the Annex to this Regulation.").

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DIA Income on debt (excluding income on debt between fellow
Geo 5 Geo 5 Geo 5
enterprises)

DIA Income on debt between fellows (UCP is resident in the
Geo 5 Geo 5 Geo 5
reporting country)

Direct investment in the reporting economy (DIRE) - Income Geo 6 **Geo 6*** **Geo 6***

DIRE Dividends Geo 5 Geo 5 Geo 5

DIRE Dividends (excluding dividends between fellow enterprises) Geo 5 Geo 5 Geo 5

DIRE Dividends between fellow enterprises (UCP is not resident in
Geo 5 Geo 5 Geo 5
the reporting country)

Of which: UCP is resident in other euro area country Geo 5

UCP is resident in the EU but outside euro area Geo 5

UCP is resident outside the EU Geo 5

              - **Geo 6** : Geo 6 in bold, mandatory from 2015 and onwards. **The JL will introduce an article for

the corresponding modifications of Annex I and Annex II.

(1) Mandatory from reference year 2015 onwards.

              - **Geo 6** : Geo 6 in bold, mandatory from 2015 and onwards. **The JL will introduce an article for

the corresponding modifications of Annex I and Annex II. (along the lines: " Annex I and II to

Regulation (EC) No 184/2005 is amended in accordance with the Annex to this Regulation.").

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Deadline: T+9 months

Periodicity: annual First

reference period: 2013

ALL RESIDENT UNITS

_Amendment_

_**(4f) In Annex I, Table 5.1 is amended as follows:**_

Table 5

Foreign direct investments positions

Table 5.1 - Direct Investment Positions

Net Assets Liabilities

Direct investment abroad (DIA) Geo 6 **Geo 6** **Geo 6**

DIA Equity Geo 5 Geo 5 Geo 5

DIA Equity (excluding equity between fellow enterprises) Geo 5 Geo 5 Geo 5

DIA Equity between fellow enterprises (UCP is resident in
the reporting country)

Geo 5 Geo 5 Geo 5

DIA Debt instruments Geo 5 Geo 5 Geo 5

DIA Debt instruments (excluding debt between fellow
enterprises)

DIA Debt instruments between fellows (UCP is resident in
the reporting country)

Geo 5 Geo 5 Geo 5

Geo 5 Geo 5 Geo 5

Direct investment in the reporting economy (DIRE) Geo 6 **Geo 6*** **Geo 6***

DIRE Equity Geo 5 Geo 5 Geo 5

              - **Geo 6** : Geo 6 in bold, mandatory from 2015 and onwards. **The JL will introduce an article for

the corresponding modifications of Annex I and Annex II . (along the lines: " Annex I and II to

Regulation (EC) No 184/2005 is amended in accordance with the Annex to this Regulation.")

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DIRE Equity (excluding equity between fellow enterprises) Geo 5 Geo 5 Geo 5

DIRE Equity between fellow enterprises (UCP is not resident
in the reporting country)

Geo 5 Geo 5 Geo 5

Of which: UCP is resident in other euro area country Geo 5

UCP is resident in the EU but outside euro area Geo 5

UCP is resident outside the EU Geo 5

DIRE Debt instruments Geo 5 Geo 5 Geo 5

DIRE Debt instruments (excluding debt between fellow
enterprises)

DIRE Debt instruments between fellows (UCP is not resident
in the reporting country)

Geo 5 Geo 5 Geo 5

Geo 5 Geo 5 Geo 5

Of which: UCP is resident in other euro area country Geo 5

UCP is resident in the EU but outside euro area Geo 5

UCP is resident outside the EU Geo 5

RESIDENT SPECIAL PURPOSE ENTITIES

Direct investment abroad (DIA) Geo 5 Geo 5 Geo 5

Direct investment in the reporting economy (DIRE) Geo 5 Geo 5 Geo 5

              - **Geo 6** : Geo 6 in bold, mandatory from 2015 and onwards. **The JL will introduce an article for

the corresponding modifications of Annex I and Annex II (along the lines: " Annex I and II to

Regulation (EC) No 184/2005 is amended in accordance with the Annex to this Regulation.").

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**Regulation (EC) No 184/2005** **OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL**

**of 12 January 2005**

**on Community statistics concerning balance of payments, international trade in services and**
**foreign direct investment*****

*** The text parts in strike trough will be deleted at the JL level.

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ANNEX II

DEFINITIONS

The following definitions are based on the IMF Balance of Payments and International Investment
Positions Manual, Sixth Edition. (BPM6), the European System of Accounts, the Manual on
Statistics on International Trade in Services 2010, the OECD Benchmark Definition of Foreign
Direct Investment (BD4).

A.  CURRENT ACCOUNT

The current account shows flows of goods, services, primary and secondary income between
residents and non-residents.

1.  GOODS

This component covers moveable goods for which a change of ownership occurs between residents
and non-residents.

1.1.  General merchandise on a balance of payments basis

General merchandise on a balance of payments (BOP) basis covers goods for which a change of
economic ownership occurs between a resident and a non-resident and that are not included in
other specific categories, such as goods under merchanting (see 1.2) and nonmonetary gold (see
1.3), or as part of a service. General merchandise should be measured at market value on a free on
board (FOB) basis. In the countries’ contribution to the compilation of Union aggregates, imports
and exports of goods in quasi-transit trade have to be included and, for intra-Union trade, the
partner country should be defined according to the consignment principle.

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1.2.  Net exports of goods under merchanting

Merchanting is defined as the purchase of goods by a resident (of the compiling economy) from a
non-resident, combined with the subsequent resale of the same goods to another non-resident
without the goods being present in the compiling economy. Net exports of goods under
merchanting represent the difference between sales over purchases of goods for merchanting. This
item includes merchants’ margins, holding gains and losses, and changes in inventories of goods
under merchanting.

1.2.1.The goods acquired under merchanting are shown as a negative export/credit of the economy
of the merchant.

1.2.2.The sale of goods is shown under goods sold under merchanting as a positive export/credit of
the economy of the merchant.

1.3.  Nonmonetary gold

Nonmonetary gold covers all gold other than monetary gold. Monetary gold is owned by monetary
authorities and held as a Reserve asset (see 6.5.1). Nonmonetary gold can be in the form of bullion
(i.e. coins, ingots, or bars with a purity of at least 995 parts per 1 000, including such gold held in
allocated gold accounts), gold powder, and gold in other unwrought or semi-manufactured forms.

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1.4.  Branding - Quasi-transit trade adjustment

Quasi-transit trade is a term used to define goods imported into a Member State, cleared through
customs for free circulation within the Union (and submitted to import duties) by an entity that is
not considered as a resident institutional unit, and are then dispatched to another Member State.
Branding must be recorded by the Member States affected by the ‘quasi-transit trade’ to report the
gap between the value of General merchandise declared when the goods are initially imported from
a third country and their value when dispatched to another Member State. The geographical
breakdown should be compiled on the basis of the country of residence of the parent enterprise
controlling the company that manages the customs procedure related to these goods in the reporting

economy.

2.  SERVICES

Services are the result of a production activity that changes the conditions of the consuming units,
or facilitates the exchange of products or financial assets. Services are not generally separate items
over which ownership rights can be established and cannot generally be separated from their
production.

2.1.  Manufacturing services on physical inputs owned by others

Manufacturing services on physical inputs owned by others covers processing, assembly, labelling,
packing, and so forth undertaken by enterprises that do not own the goods concerned. The
manufacturing is undertaken by an entity that receives a fee from the owner. Since the ownership
of the goods does not change, no general merchandise transaction is recorded between the
processor and the owner. The value of fees charged for manufacturing on physical inputs owned by
others is not necessarily the same as the difference between the value of goods sent for processing
and the value of goods after processing. Excluded are the assembly of prefabricated construction
(included in Construction) and labelling and packaging incidental to transport (included in
Transport).

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2.2.  Maintenance and repair services not included elsewhere

Maintenance and repair services not included elsewhere cover maintenance and repair work by
residents on goods that are owned by non-residents (and vice versa). The repairs may be performed
at the site of the repairer or elsewhere. The value of maintenance and repairs includes any parts or
materials supplied by the repairer and included in the charges. Parts and materials charged
separately should be included in general merchandise. Repairs and maintenance on ships, aircraft,
and other transport equipment are included in this item. Cleaning of transport equipment is
excluded as it is included in Transport services. Construction maintenance and repairs are excluded
as they are included under Construction. Maintenance and repairs of computers are excluded as
they are included under Computer services.

2.3.  Transport

Transport is the process of carriage of people and objects from one location to another as well as
related supporting and auxiliary services. Transport also includes postal and courier services.
Transport services are recorded in balance of payments when provided by residents of one
economy for the benefit of those of another. Transport can be classified according to:

(a) mode of transport, namely sea, air, or other. ‘Other’ may be further broken down into rail, road,
internal waterway, pipeline, and space transport, as well as electricity transmission;

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(b) what is carried, namely passengers or freight or other (which covers supporting and auxiliary
services like loading and unloading of containers, storage and warehousing, packing and
repackaging, cleaning of transport equipment performed in ports and airports).

2.3.1.  Sea transport

Cover all transportation services by sea. A breakdown is required for Passenger sea transport,
Freight sea transport and Other sea transport.

2.3.2.  Air transport

Cover all transportation services provided by air. A breakdown is required for Passenger air
transport, Freight air transport and Other air transport.

2.3.3.  Other modes of transport

Cover all transportation services not provided by sea or air. A breakdown is required for Passenger,
Freight and Other. An extended classification for Other transport is required as follows:

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2.3.3.1. Space transport includes satellite launches undertaken by commercial enterprises for the
owners of the satellites (such as telecommunication enterprises) and other operations performed by
operators of space equipment, such as transport of goods and people for scientific experiments.
Also included is space passenger transport and payments made by an economy in order to have its
residents included on the space vehicles of another economy.

2.3.3.2. Rail transport covers transport by trains. A further sub-division between Passenger rail,
Freight rail and Other is required.

2.3.3.3. Road transport covers transport by lorries, trucks, buses and coaches. A further subdivision between Passenger road transport, Freight road transport and Other road transport is
required.

2.3.3.4. Inland waterway transport relates to international transportation on rivers, canals and
lakes. Included are waterways that are internal to one country and those that are shared among two
or more countries. A further sub-division between Passenger inland waterway Transport, Freight
inland waterway transport and Other inland waterway transport is required.

2.3.3.5. Pipeline transport covers international transport of goods in pipelines, such as the transport
of petroleum and related products, water and gas. Excluded are distribution services, typically from
substations to the consumer (included in Other business services n.i.e.) and the value of the
products transported (included in General merchandise).

2.3.3.6. Electricity transmission comprises services for transmission of electric energy at high
voltage over an interconnected group of lines and associated equipment between points of supply
and the points at which it is transformed to low voltage for delivery to consumers or delivery to
other electric systems. Included are charges for the transmission of electricity when this is separate
from the production and distribution process. The provision of electricity itself is excluded. Also
excluded are distribution services of electricity (included in Other business services, Other business
services n.i.e.).

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2.3.3.7. Other supporting and auxiliary transport services cover all other transportation services
that cannot be allocated to any of the components of transportation services described above.

2.3.4.  Postal and courier services

Postal and courier services cover the pick-up, transport, and delivery of letters, newspapers,
periodicals, brochures, other printed matter, parcels, and packages, including post office counter
and mailbox rental services.

2.4.  Travel

Travel credits cover goods and services for own use or to give away, acquired from an economy by
non-residents during visits to that economy. Travel debits cover goods and services for own use or
to give away, acquired from other economies by residents during visits to these other economies.
Travel includes local transport (i.e. transport within the economy being visited and provided by a
resident of that economy), but excludes international transport (which is included in Passenger
transport). Also excluded are goods purchased by a traveller for resale in the traveller’s own
economy or in any other economy. Travel is divided in two main sub-components: Business travel
and Personal travel.

2.4.1.  Business travel

Business travel covers the acquisition of goods and services by business travellers. Also includes
the acquisition of goods and services for personal use by seasonal, border and other workers who
are not resident in the economy in which they are employed. Business travel is further
disaggregated into Acquisition of goods and services by border and seasonal or other short-term
workers and Other business travel.

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2.4.1.1.Acquisition of goods and services by border, seasonal, and other short-term workers
includes the acquisition of goods and services for personal use by seasonal, border and other
workers, who are not resident in the economy in which they are employed and whose employer is
resident in that economy.

2.4.1.2.Other business travel covers all Business travel expenditure not made by border workers
and seasonal or other short-term workers.

2.4.2.  Personal travel

Personal travel covers goods and services acquired by travellers going abroad for purposes other
than business, such as holidays, participation in recreational and cultural activities, visits with
friends and relations, pilgrimage, and education- and health-related purposes. Personal travel is
divided in three sub-components: Health-related expenditure, Education-related expenditure and
Other personal travel).

2.4.2.1.Health-related expenditure is defined as the total expenditure by those travelling for
medical reasons.

2.4.2.2.Education-related expenditure is defined as the total expenditure by students.

2.4.2.3.Other personal travel covers all Personal travel not included in Health-related expenditure
or Education-related expenditure.

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2.5.  Construction

Construction covers the creation, renovation, repair, or extension of fixed assets in the form of
buildings, land improvements of an engineering nature, and other engineering constructions
(including roads, bridges, dams, etc). It includes related installation and assembly work, site
preparation and general construction, specialised services such as painting, plumbing, and
demolition, and management of construction projects. The construction contracts covered in
international trade in services are generally of a short-term nature. A large-scale construction
project contracted by a non-resident enterprise that takes a year or more to be completed will
usually give rise to a resident branch.

Construction can be disaggregated into Construction abroad and Construction in the compiling

economy.

2.5.1.  Construction abroad

Construction abroad comprises the construction services provided to non-residents by enterprises
resident in the compiling economy (credit/exports) and the goods and services purchased in the
host economy by these enterprises (debit/imports).

2.5.2.  Construction in the compiling economy

Construction in the compiling economy comprises construction services provided to residents of
the compiling economy by non-resident construction enterprises (debit) and the goods and services
purchased in the compiling economy by these non-resident enterprises (credit).

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2.6.  Insurance and pension services

Insurance and pension services comprises: Direct insurance, Reinsurance, Auxiliary insurance
services, Pension and standardised guarantee services. Direct insurance is further broken down in
Life, Freight and Other direct insurance. Pension and standardised guarantees are further broken
down into pension services and standardised guarantee services. These services are estimated or
valued by the charges included in total premiums rather than by the total value of the premiums.

2.6.1.  Life insurance

Holders of life insurance policies make regular payments to an insurer (there may be just a single
payment), in return for which the insurer guarantees to pay the policy holder an agreed minimum
sum or an annuity, at a given date or at the death of the policy holder, if this occurs earlier. Term
life insurance, where benefits are provided in the case of death but in no other circumstances, is
excluded here and included in Other direct insurance.

2.6.2.  Freight insurance

Freight insurance services relate to insurance provided on goods that are in the process of being
exported or imported, on a basis that is consistent with the measurement of goods f.o.b. and freight
transportation.

2.6.3.  Other direct insurance

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Other direct insurance covers all other forms of casualty insurance. Included are term life
insurance; accident and health insurance (unless these are provided as part of government social
security schemes); marine, aviation and other transport insurance; fire and other property damage;
pecuniary loss insurance; general liability insurance; and other insurance, such as travel insurance
and insurance related to loans and credit cards.

2.6.4.  Reinsurance

Reinsurance is the process of subcontracting parts of the insurance risk, often to specialised
operators, in return for a proportionate share of the premium income. Reinsurance transactions may
relate to packages that mix several types of risks.

2.6.5.  Auxiliary insurance services

Comprise transactions that are closely related to insurance and pension fund operations. Included
are agents’ commissions, insurance brokering and agency services, insurance and pension
consultancy services, evaluation and adjustment services, actuarial services, salvage administration
services, and regulatory and monitoring services on indemnities and recovery services.

2.6.6.  Pension services

Pension services cover the services provided by funds established to provide income on retirement
and benefits for death or disability, for specific groups of employees by the government or by
insurance corporations on behalf of employees.

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2.6.7.  Standardised guarantee services

Standardised guarantee services are services related to standardised guarantee schemes. They are
arrangements where one party (the guarantor) undertakes to cover the losses of the lender in the
event that the borrower defaults. Examples include export credit and student loan guarantees.

2.7.  Financial services

Financial services cover intermediary and auxiliary services, except insurance and pension fund
services, usually provided by banks or other financial corporations.

2.7.1.  Explicitly charged and other financial services

Services are charged for by explicit charges in the case of many financial services and require no
special calculation. They include fees for deposit-taking and lending, fees for one-off guarantees,
early or late repayment fees or penalties, account charges, fees related to letters of credit, credit
card services, commissions and charges related to financial leasing, factoring, underwriting, and
clearing of payments. Also included are financial advisory services, custody of financial assets or
bullion, financial asset management, monitoring services, liquidity provision services, risk
assumption services other than insurance, merger and acquisition services, credit rating services,
stock exchange services and trust services. Dealers in financial instruments may charge, in full or
part, for their services by having a spread between their buying and selling prices. Margins on
buying and selling transactions are included in explicitly charged and other financial services.

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2.7.2.  Financial intermediation services indirectly measured (FISIM)

Actual interest can be considered as including both an income element and a charge for a service.
Lenders and deposit-takers operate by providing rates of interest to their depositors that are lower
than the rates that they charge to their borrowers. The resulting interest margins are used by the
financial corporations to defray their expenses and to provide an operating surplus. By convention,
these indirect charges in respect of interest apply only to loans and deposits and only when those
loans and deposits are provided by, or deposited with, financial corporations.

2.8.  Charges for the use of intellectual property not included elsewhere

Charges for the use of intellectual property not included elsewhere include:

(a) Charges for the use of proprietary rights (such as patents, trademarks, copyrights, industrial
processes and designs including trade secrets and franchises). These rights can arise from research
and development, as well as from marketing; and

(b) Charges for licences to reproduce or distribute intellectual property embodied in produced
originals or prototypes (such as copyrights on books and manuscripts, computer software,
cinematographic works and sound recordings) and related rights (such as for live performances and
television, cable, or satellite broadcast).

2.9.  Telecommunication, computer and information services

Computer and telecommunication services are defined in terms of the nature of the service, not the
method of delivery.

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2.9.1.  Telecommunications services

Telecommunications services encompass the transmission of sound, images or other information
by telephone, telex, telegram, radio and television cable and broadcasting, satellite, electronic mail,
facsimile services etc., including business network services, teleconferencing and support services.
They do not include the value of the information transported. Also included are mobile
telecommunication services, Internet backbone services and on-line access services, including
provision of access to the Internet. Excluded are installation services for telephone network
equipment as they are included in Construction and database services (included in Information
services).

2.9.2.  Computer services

Consist of hardware and/or software-related services and data-processing services. Also included
are hardware and software consultancy and implementation services; maintenance and repair of
computers and peripheral equipment; disaster recovery services, provision of advice and assistance
on matters related to the management of computer resources; analysis, design and programming of
systems ready to use (including web page development and design), and technical consultancy
related to software; licences to use non-customised software; development, production, supply and
documentation of customised software, including operating systems made on order for specific
users; systems maintenance and other support services, such as training provided as part of
consultancy; data-processing services, such as data entry, tabulation and processing on a timesharing basis; web page hosting services (i.e., the provision of server space on the Internet to host
clients’ web pages); and computer facilities management. Excluded are charges for licences to
reproduce and/or distribute software which are included in Charges for the use of intellectual
property. Leasing of computers without an operator is included in Operating leasing.

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2.9.3.  Information services

Comprises: News agency services and Other information services.

2.9.3.1.News agency services include the provision of news, photographs, and feature articles to
the media.

2.9.3.2.Other information services include database services (database conception, data storage and
the dissemination of data and databases, including directories and mailing lists), both online and
through magnetic, optical or printed media; and web search portals (search engine services that find
internet addresses for clients who input keyword queries). Also included are direct, non-bulk
subscriptions to newspapers and periodicals, whether by mail, electronic transmission or other
means; other online content provision services; and library and archive services. Bulk newspapers
and periodicals are included under general merchandise. Downloaded content that is not software
(included in Computer services) or audio and video (included in Audiovisual and related services)
is included in information services.

2.10.  Other business services

This includes: Research and development services, Professional and management consulting
services, Technical, trade-related, and Other business services.

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2.10.1.  Research and development services

Research and development services consist of services that are associated with basic research,
applied research, and experimental development of new products and processes. In principle, such
activities in the physical sciences, social sciences, and humanities are covered within this category,
including the development of operating systems that represent technological advances. Also
included is commercial research related to electronics, pharmaceuticals, and biotechnology.

This comprises: 1) Work undertaken on a systematic basis to increase the stock of knowledge and
2) Other research and development services.

2.10.1.1.Work undertaken on a systematic basis to increase the stock of knowledge comprise: a)
Provision of customised and non-customised research & development services and b) Sale of
proprietary rights arising from research & development.

2.10.1.1.a. Provision of customised and non-customised research and development services covers
the provision of research and development services that are made-to order (customised) and
development of non-customised research and development, excluding sales of proprietary rights
(included in 2.10.1.1.b), and sales related to licences to reproduce or use (included in Charges for
the use of intellectual property).

2.10.1.1.b. Sale of proprietary rights arising from research and development comprises Patents,
Copyrights arising from research and development, Industrial processes and designs (including
trade secrets).

2.10.1.2.Other research and development services include other product/process development
activities.

2.10.2.  Professional and management consulting services

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Professional and management consulting services include: 1) Legal services, accounting,
management consulting, managerial services, and public relations services; and 2) Advertising,
market research, and public opinion polling services.

2.10.2.1.Legal, accounting, management consulting, and public relations comprises:

a) Legal services; b) Accounting, auditing, bookkeeping and tax consulting services; c) Business
and management consulting and public relations services.

2.10.2.1.a. Legal services cover legal advisory and representation services in any legal, judicial
and statutory procedures; drafting services of legal documentation and instruments; certification
consultancy; and escrow and settlement services.

2.10.2.1.b. Accounting, auditing, bookkeeping and tax consultancy services covers the recording
of commercial transactions for businesses and others; examination services of accounting records
and financial statements; business tax planning and consulting; and preparation of tax documents.

2.10.2.1.c. Business and management consulting and public relations services covers advisory,
guidance and operational assistance services provided to businesses for business policy and
strategy and the overall planning, structuring and control of an organisation. Included are
management fees, management auditing; market management, human resources, production
management and project management consulting; and advisory, guidance and operational services
related to improving the image of the clients and their relations with the general public and other
institutions.

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2.10.2.2.Advertising, market research and public opinion polling covers the design, creation and
marketing of advertisements by advertising agencies; media placement, including the purchase and
sale of advertising space; exhibition services provided by trade fairs; the promotion of products
abroad; market research; telemarketing; and public opinion polling on various issues.

2.10.3.  Technical, trade-related, and other business services

These comprise: 1) Architectural, engineering, scientific and other technical services, 2) Waste
treatment and de-pollution, agricultural and mining services, 3) Operating leasing services, 4)
Trade-related services and 5) Other business services n.i.e.

2.10.3.1.  Architectural, engineering, scientific and other technical services

Comprise: a) Architectural services, b) Engineering services, c) Scientific and other technical
services.

2.10.3.1.a. Architectural services include transactions related to the design of buildings.

2.10.3.1.b. Engineering services include the design, development and utilisation of machines,
materials, instruments, structures, processes and systems. Services of this type involve the
provision of designs, plans and studies related to engineering projects. Mining engineering is
excluded (included in Services incidental to mining, and oil and gas extraction).

2.10.3.1.c. Scientific and other technical services include surveying; cartography; product testing
and certification; and technical inspection services.

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2.10.3.2.  Waste treatment and de-pollution, agricultural and mining services

Comprise: a) Waste treatment and de-pollution, b) Services incidental to agriculture, forestry and
fishing, c) Services incidental to mining, and oil and gas extraction

2.10.3.2.a. Waste treatment and de-pollution include waste collection and disposal, remediation,
sanitation, and other environmental protection services. They also include environmental services,
such as production of carbon offsets or carbon sequestration that are not classified under any more
specific category.

2.10.3.2.b. Services incidental to agriculture, forestry and fishing include agricultural services that
are incidental to agriculture, such as the provision of agricultural machinery with crew, harvesting,
treatment of crops, pest control, animal boarding, animal care, and breeding services. Services in
hunting, trapping, forestry and logging, and fishing are also included here, as are veterinary
services.

2.10.3.2.c. Services incidental to mining, and oil and gas extraction include mining services
provided at oil and gas fields, including drilling, derrick building, repair and dismantling services,
and oil and gas well casing cementing. Services incidental to mineral prospecting and exploration,
as well as mining engineering and geological surveying, are also included here.

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2.10.3.3.  Operating leasing services

Operating leasing is the activity of renting out produced assets under arrangements that provide use
of a tangible asset to the lessee, but do not involve the transfer of the bulk of risks and rewards of
ownership to the lessee. Operating leasing may be called rental in case of items such as buildings
or equipment. Operating leasing services cover leasing (rental) and charters, without crew, of ships,
aircraft, and transport equipment. Also included are operating lease payments relating to other
types of equipment without an operator, including computers and telecommunications equipment.
Licence payments for the right to use intangible assets, such as software, intellectual property, and
so forth are included under specific headings (Computer services, Charges for the use of
intellectual property n.i.e. etc.) rather than operating leasing. Excluded from operating leasing
services are leasing of telecommunications lines or capacity (included in Telecommunications
services); rental of ships and aircraft with crew (included in Transport services); and rentals
incidental to travel (included in Travel).

2.10.3.4.  Trade-related services

Trade-related services cover commissions on goods and service transactions payable to merchants,
commodity brokers, dealers, auctioneers, and commission agents. Excluded from trade-related
services are franchising fees (included in Charges for the use of intellectual property n.i.e.);
brokerage on financial instruments (included in Financial services); insurance brokerage (included
in Auxiliary insurance services)and transport-related charges, such as agency commissions
(included in Transport).

2.10.3.5.  Other business services not included elsewhere

Other business services include distribution services related to water, steam, gas or other petroleum
products, and air-conditioning supply, where these are identified separately from transmission
services; placement of personnel, security, and investigative services; translation and interpretation;
photographic services; publishing; building cleaning; and real estate services.

2.11.  Personal, cultural and recreational services

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These include Audiovisual and related services and Other personal, cultural and recreational
service.

2.11.1.  Audiovisual and related services

Can be further broken down in Audiovisual services and Artistic related services. Comprise
services and associated fees related to the production of motion pictures (on film or videotape),
radio and television programmes (live or on tape) and musical recordings. Included are rentals of
audiovisual and related products and access to encrypted television channels (such as cable or
satellite services); mass-produced audio-visual products purchased or sold for perpetual use that are
delivered electronically (downloaded); fees received by performing artists (actors, musicians,
dancers), authors, composers etc. Excluded are charges or licences to reproduce and/or distribute
audiovisual products (included in Charges for the use of intellectual property n.i.e.).

2.11.2.  Other personal, cultural and recreational services

Comprise: a) Education services, b) Health services, c) Heritage and recreational services and d)
Other personal services.

2.11.2.a. Education services comprises services supplied between residents and non-residents
relating to education, such as correspondence courses and education via television or the Internet,
as well as by teachers etc. who supply services directly in host economies.

2.11.2.b. Health services comprises services provided by doctors, nurses and paramedical and
similar personnel, as well as laboratory and similar services, whether rendered remotely or on-site.
Excluded is all expenditure by travellers on education and health (included in Travel).

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2.11.2.c. Heritage and recreational services includes services associated with museums and other
cultural, sporting, gambling and recreational activities, except those involving persons outside their
economy of residence (included in Travel).

2.11.2.d. Other personal services includes social services, domestic services etc.

2.12.  Government goods and services not included elsewhere

This is a residual category covering government transactions (including those of international
organisations) in goods and services that it is not possible to classify under other items. Included
are all transactions (in both goods and services) by enclaves such as embassies, consulates, military
bases and international organisations with residents of economies in which the enclaves are
located. Excluded are transactions of the enclaves with residents of the home economies.
Depending on the government unit undertaking the transaction, this item can be further broken
down into goods and services transacted by Embassies and consulates, Military units and agencies
and Other government goods and services not included elsewhere.

3.  PRIMARY INCOME

Primary income represents the return that accrues to institutional units for their contribution to the
production process, or for the provision of financial assets or from renting natural resources to
other institutional units. It comprises Compensation of employees, Investment income and Other
primary income.

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3.1.  Compensation of employees (D1)

Compensation of employees is recorded when the employer (the producing unit) and the employee
are resident in different economies. For the economy where the producing units are resident,
compensation of employees is the total remuneration (including contributions paid by employers to
social security schemes or to private insurance or pension funds), in cash or in kind, payable by
resident enterprises to non-resident employees in return for work done by the latter during the
accounting period. For the economy where the individuals are resident, compensation is the total
remuneration, in cash or in kind, receivable by them from non-resident enterprises in return for
work done during the accounting period. It is important to establish whether an employer-employee
relationship exists; if not, the payment constitutes a purchase of services.

3.2.  Investment income

Investment income is derived from a resident’s ownership of an external financial asset (credit) and
symmetrically, income derived from a non-resident’s ownership of a domestic financial asset
(debit). Investment income includes income on equity (Dividends, Withdrawals from income of
quasi-corporations, Reinvested earnings) and on debt (Interest), and investment income attributable
to policyholders in insurance, pension schemes, and standardised guarantee schemes.

In balance of payments, investment income is also classified according to the function of the
underlying investment, as Direct investment, Portfolio investment, Other investment and Reserve
assets, and further detailed according to the type of investment. For the definitions of investment by
function, see the financial account.

Where they are separately identifiable, gains and losses on (capital) holdings are not classified as
income on investments, but as changes in the value of investments due to market price
developments. Net flows associated with interest rate derivatives are recorded solely under
financial derivatives in the financial account.

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3.2.1.  Interest (D41)

Interest is a form of investment income that is receivable by the owners of certain kinds of financial
assets, namely deposits (AF2), debt securities (AF3), loans (AF4), and other accounts receivable
(AF8), for putting the financial assets at the disposal of another institutional unit. Income on special
drawing rights (SDR) holdings and SDR allocations is also included in interest. The primary
income account records ‘pure interest’ by eliminating the FISIM component from ‘actual interest’.
Interest income is recorded on an accrual basis.

3.2.2.  Distributed income of corporations (D42)

3.2.2.1.  Dividends (D421)

Dividends are the distributed earnings allocated to the owners of equity shares (AF5) for placing
funds at the disposal of corporations. Dividends are recorded at the moment the shares go exdividend.

3.2.2.2.  Withdrawals from income of quasi-corporations (D422)

Withdrawals from the income of quasi-corporations (unincorporated enterprises that behave as if
they were corporations, e.g. branches, notional resident units for land and other natural resources
owned by non-residents, joint ventures, trusts, etc.) are the amounts that owners of quasicorporations withdraw for their own use from the profits earned by the quasi-corporations that
belong to them. Withdrawals from the income of quasi-corporations are recorded as occurring
when they actually took place.

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3.2.3.  Reinvested earnings on foreign direct investment (D43)

Reinvested earnings (RIE) represent the direct investors’ proportion, in terms of equity held, of the
earnings that foreign subsidiaries, associates and branches do not distribute as dividends. They are
defined as the direct investor’s share of the total consolidated profits earned by the direct
investment enterprise in the reference period (after allowing for tax, interest and depreciation), less
dividends due for payment in the reference period, even if these dividends relate to profits earned
in previous periods.

Reinvested earnings are recorded in the period in which the retained earnings accrue.

3.2.4.  Income of investment fund shares (D443)

Investment income attributable to collective investment fund shareholders, including mutual funds
and unit trusts, is composed of two separate items: Dividends (D4431), and Reinvested earnings
(D4432).

Earnings from investment funds can be viewed as being passed on to their shareholders (or unit
holders) as they are earned in the form of investment income on their equity. Investment funds earn
income by investing the money received from shareholders. Shareholders’ income from investment
funds is defined as the investment income earned on the fund’s investment portfolio after deducting
operating expenses. The net earnings of investment funds after deducting the operating expenses
belong to shareholders. Where only a part of the net earnings is distributed to shareholders as
dividends, the retained earnings should be treated as if they were distributed to the shareholders
and then deemed reinvested.

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3.2.5.  Investment income attributable to policyholders in insurance, pension schemes and
standardised guarantee schemes

To define this item, we look separately at its components, not part of the BoP data request.

3.2.5.1.

Investment income attributable to insurance policy holders (D441) corresponds to the total primary
incomes received from the investment of insurance technical reserves. The reserves are those for
which the insurance corporation recognises a corresponding liability to the policyholders.

3.2.5.2. Investment income payable on Pension entitlements (D442)

Pension entitlements arise from either defined contribution schemes or defined benefit schemes.

3.3.  Other primary income

Classified according to the institutional sector of the compiling economy (General government or
Other sectors) and include the following components: Taxes on production and imports, Subsidies
and Rent.

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3.3.1.  Taxes on production and imports (D2)

Include the following components:

3.3.1.1. Taxes on products (D21) are payable per unit of some good or service produced or traded
cross-border. Examples include value-added tax, import duties, excise duties and consumption

taxes.

3.3.1.2. Other taxes on production (D29) consist of all taxes that enterprises incur as a result of
engaging in production, and include taxes paid for business and professional licences.

3.3.2.  Subsidies (D3)

Include the following components:

3.3.2.1. Subsidies on products (D31) are payable per unit of a good or service produced.

3.3.2.2. Other subsidies on production (D39) consist of subsidies except subsidies on products that
resident producer units may receive as a consequence of engaging in production.

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3.3.3.  Rent (D45)

Rent covers income receivable for putting natural resources at the disposal of a non-resident
institutional unit. Examples of rent include amounts payable for the use of land extracting mineral
deposits and other subsoil assets, and for fishing, forestry, and grazing rights. The regular payments
made by the lessees of natural resources, such as subsoil assets, are often described as royalties, but
they are classified as rents.

4.  SECONDARY INCOME

The secondary income account shows current transfers between residents and non-residents. A
transfer is an entry that corresponds to the provision of a good, service, financial asset, or other
non-produced asset by an institutional unit to another institutional unit where there is no
corresponding return of an item of economic value. Current transfers consist of all transfers that are
not capital transfers.

Current transfers are classified according to the institutional sector making or receiving the transfer
in the compiling economy (General government or Other sectors).

General government current transfers comprise Current taxes on income, wealth etc, Social
contributions, Social benefits, Current international cooperation, Miscellaneous current transfers,
VAT and GNI-based Union own resources.

Other sectors current transfers comprise Current taxes on income, wealth etc, Social contributions,
Social benefits, Miscellaneous current transfers, Net non-life insurance premiums, Non-life
insurance claims and Adjustments for the changes in pension entitlements. Miscellaneous current
transfers (D75) include Personal transfer between resident and non-resident households (Of which:
Workers’ remittances)

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4.1.  Current taxes on income, wealth etc (D5)

Current taxes on income, wealth etc., in the international accounts consists mainly of taxes levied
on the income earned by non-residents from the provision of their labour or financial assets. Taxes
on capital gains arising from assets of non-residents are also included. Taxes on income and capital
gains from financial assets are generally payable by Other sectors (individuals, corporations and
non-profit institutions) and receivable by General government.

4.2.  Social contributions (D61)

Social contributions are the actual or imputed contributions made by households to social insurance
schemes to make provision for social benefits to be paid.

4.3.  Social benefits (D62+D63)

Social benefits include benefits payable under social security and pension schemes. They include
pensions and non pension benefits from events or circumstances such as sickness, unemployment,
housing and education, and may be in cash or in kind.

4.4.  Net non-life insurance premiums (D71)

Non-life insurance premiums consist of both the gross premiums payable by policyholders to
obtain insurance during the accounting period (premiums earned) and the premium supplements
payable out of the investment income attributable to insurance policyholders, after deducting the
service charges of insurance enterprises arranging the insurance. The service charges constitute
purchases of services by the policyholders and are recorded as insurance services. Net premiums on
standardised guarantees are included under this item.

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4.5.  Non-life insurance claims (D72)

Non-life insurance claims are the amounts payable in settlement of claims that become due during
the current accounting period. Claims become due at the moment when the eventuality occurs that
gives rise to a valid claim. Claims payable under standardised guarantees are recorded under this
item.

4.6.  Current international cooperation (D74)

Current international cooperation consists of current transfers in cash or in kind between the
governments of different countries or between governments and international organisations. Part of
current international cooperation is vis-à-vis the Union Institutions.

4.7.  Miscellaneous current transfers (D75)

Miscellaneous current transfers, in cash or in kind, include: Current transfers to Non profit
institutions serving households (D751), Current transfers between households (D752), Other
miscellaneous current transfers (D759) including fines and penalties, part of the payments for
lottery tickets and gambling, payments of compensation and other.

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4.7.1.  Personal transfers between resident and non-resident households

Personal transfers between resident and non-resident households consist of all current transfers in
cash or in kind made or received by resident households to or from non-resident households.
Personal transfers include as ‘of which’Workers’ remittances

4.7.1.1.  Workers’ remittances

Workers’ remittances consist of personal transfers made by migrants resident and employed in new
economies to non-resident households. Persons who work for and stay in new economies for less
than a year are considered non-residents and their remuneration is recorded under compensation of
employees.

4.8.  VAT and GNI-based Union own resources (D76)

The VAT and GNI-based third and fourth Union own resources are current transfers paid by the
general government of each Member State to the Union Institutions.

4.9.  Adjustment for change in pension entitlements (D8)

The adjustment for the change in pension entitlements is necessary to reconcile the treatment of
pensions as current transfers with the treatment of pension entitlements as financial assets. After
the adjustment, the current account balance is the same as it would have been if social contributions
and pension receipts were not recorded as current transfers.

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B.  CAPITAL ACCOUNT

The capital account covers the Acquisition/disposal of non-produced non-financial assets and
Capital transfers.

5.1.  Gross acquisitions and disposals of non-produced non-financial assets

Non-produced, non-financial assets consist of: (a) natural resources, (b) contracts, leases, and
licenses, and (c) marketing assets (brand names, trademarks) and goodwill. Acquisition and
disposals of non-produced, non-financial assets are recorded separately on a gross basis, rather than
netted. Only the purchase/sale of such assets, but not their use, is to be recorded in this item of the
capital account.

5.2.  Capital transfers (D9)

Capital transfers consist of (i) transfers of ownership of fixed assets, (ii) transfers of funds linked
to, or conditional upon, the acquisition or disposal of fixed assets and (iii) the cancellation, without
any consideration being received in return, of liabilities by creditors. Capital transfers may be in
cash or in kind (such as debt forgiveness). The distinction between current and capital transfers, in
practice, rests in the use of the transfer by the recipient country. Capital transfers are classified
according to the institutional sector making or receiving the transfer in the compiling economy
(General government or Other sectors).

Capital transfers include: Capital taxes, Investment grants and Other capital transfers.

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5.2.1.  Capital taxes (D91)

Capital taxes consist of taxes levied at irregular and infrequent intervals on the values of the assets
or net worth owned by institutional units or on the values of assets transferred between institutional
units. These include inheritance taxes and taxes on gifts between persons levied on the capital of
the beneficiaries.

5.2.2.  Investment grants (D92)

Investment grants consist of capital transfers, in cash or in kind, made to finance all or part of the
costs of acquiring fixed assets. The recipients are obliged to use investment grants received in cash
for purposes of gross fixed capital formation, and the grants are often tied to specific investment
projects, such as large construction projects.

5.2.3.  Other capital transfers (D99)

These include major non-recurrent payments in compensation for extensive damage or serious
injuries not covered by insurance policies, large gifts, legacies and donations, including those to
non-profit institutions. This category includes Debt forgiveness.

5.2.3.1.  Debt forgiveness

Debt forgiveness is the voluntary cancellation of all, or part, of a debt obligation within a
contractual agreement between a creditor and a debtor.

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C.  FINANCIAL ACCOUNT AND INTERNATIONAL INVESTMENT POSITION

In general, the Financial account records transactions that involve financial assets and liabilities
that have taken place between residents and non-residents. The financial account shows
transactions in net terms: net acquisitions of financial assets correspond to acquisitions of assets
less reductions in assets.

The International investment position (IIP) shows, at the end of each quarter, the value of financial
assets of residents of an economy that are claims on non-residents, and the liabilities of residents of
an economy to non-residents, plus gold bullion held as reserve assets. The difference between the
assets and liabilities is the net position in the IIP and represents either a net claim on or a net
liability to the rest of the world.

The value of the IIP at the end of a period results from positions at the end of the previous period,
transactions in the current period, and other changes that arise from reasons other than transactions
between residents and non-residents, that may be attributed to other changes in volume and
revaluations (due to changes in exchange rates or prices).

According to the functional subdivision cross-border financial transactions and positions are
classified as Direct investment, Portfolio investment, Financial derivatives (other than reserves)
and employee stock options, Other investment, and Reserve assets. Cross-border financial
transactions and positions are further classified by type of instrument and institutional sector, as
defined in Table 7.

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Market prices are the basis for the valuation of transactions and positions. Nominal valuation is
used for positions in nonnegotiable instruments, namely loans, deposits, and other accounts
receivable/payable. However, any transactions in these instruments are valued at market prices. To
account for the inconsistency between the market valuation of transactions and nominal valuation
of positions, the seller records Revaluations due to other price changes during the period in which
the sale occurs, equal to the difference between the nominal and the transaction value, whilst the
buyer records an opposite amount as Revaluations due to other price changes.

The financial account of the balance of payments and the international investment position include
offsetting entries for accrued income on the instruments classified in the respective functional
categories.

6.1.  Direct investment

Direct investment is associated with a resident in one economy (direct investor) having control or a
significant degree of influence on the management of an enterprise that is resident in another
economy (direct investment enterprise). Following the international standards, the direct or indirect
ownership of 10 % or more of the voting power of an enterprise resident in one economy by an
investor resident in another economy is evidence of such a relationship. Based on this criterion, a
direct investment relationship can exist between a number of related enterprises, regardless of
whether the linkage involves a single or a number of chains. It can extend to a direct investment
enterprise’s subsidiaries, sub-subsidiaries and associates. Once the direct investment is established,
all subsequent financial flows/holdings between the related entities are recorded as direct
investment transactions/positions.

Equity capital comprises equity in branches as well as all shares in subsidiaries and associates.
Reinvested earnings consist of the offsetting entry to the direct investor’s share of earnings not
distributed as dividends by subsidiaries or associates, and earnings of branches not remitted to the
direct investor and which are recorded under Investment income (see 3.2.3).

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Direct investment equity and Debt are further disaggregated according to the type of relationship
between entities and according to the direction of the investment. Three types of direct investment
relationships can be distinguished:

(a) Direct investors’ investment in direct investment enterprises. This category includes investment
flows (and stocks) from the direct investor to its direct investment enterprises (regardless of
whether it is directly or indirectly controlled or influenced);

(b) Reverse investment. This type of relationship covers investment flows (and stocks) from the
direct investment enterprises to the direct investor;

(c) Between fellow enterprises. This covers flows (and stocks) between enterprises that do not
control or influence each other, but that are both under the control or influence of the same direct
investor.

6.2.  Portfolio investment

Portfolio investment includes transactions and positions involving debt or equity securities, other
than those included in direct investment or reserve assets. Portfolio investment includes Equity
securities, Investment fund shares and Debt securities, unless they are categorised either as direct
investment or as reserve assets. Transactions as repurchase agreements and securities lending are
excluded from portfolio investment.

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6.2.1.  Equity securities (F51/AF51)

Equity consists of all instruments representing claims on the residual value of a corporation or
quasi-corporation, after the claims of all creditors have been met. In contrast to debt, equity does
not generally provide the owner with a right to a predetermined amount or an amount determined
according to a fixed formula. Equity securities consist of Listed and Unlisted shares.

Listed shares (F511/AF511) are equity securities listed on a recognised stock exchange or any
other form of secondary market. Unlisted shares (F512/AF512) are equity securities not listed on
an exchange.

6.2.2.  Investment fund shares (F52/AF52)

Investment fund shares are issued by investment funds. They are known as ‘units’ if the fund is a
trust. Investment funds are collective investment undertakings through which the investors pool
funds for investment in financial and/or non-financial assets. Investment fund shares have a
specialised role in financial intermediation as a kind of collective investment in other assets, so
they are identified separately from other equity shares. Additionally, the treatment of their income
differs, because reinvested earnings have to be imputed.

6.2.3.  Debt securities (F3/AF3)

Debt securities are negotiable instruments serving as evidence of a debt. They include bills, bonds,
notes, negotiable certificates of deposit, commercial paper, debentures, asset-backed securities,
money market instruments, and similar instruments normally traded in the financial markets.
Transactions and positions in debt securities are divided by original maturity into Short-term and
Long-term.

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6.2.3.1.  Short-term debt securities (F31/AF31)

Short-term debt securities are payable on demand or issued with an initial maturity of one year or
less. They generally give the holder the unconditional right to receive a stated, fixed sum of money
on a specified date. These instruments are usually traded, at a discount, in organised markets; the
discount depends on the interest rate and the time remaining to maturity.

6.2.3.2.  Long-term debt securities (F32/AF32)

Long-term debt securities are issued with an initial maturity of more than one year or with no stated
maturity (other than on demand, which is included in short-term). They generally give the holder
(a) the unconditional right to a fixed monetary income or contractually-determined variable
monetary income (payment of interest being independent from the earnings of the debtor) and (b)
the unconditional right to a fixed sum in repayment of principal on a specified date or dates.

The recording of transactions in balance of payments takes place when the creditors or debtors
enter the claim or liability in their books. Transactions are recorded at the effective price received
or paid, less commission and expenses. Thus, in the case of securities with coupons, the interest
accrued from the last payment of interest is included and, in the case of securities issued at
discount, the interest accumulated since the issue is included. Inclusion of interest accrued is
required for both the financial account of the balance of payments and for the international
investment position; these recordings need to have offsetting entries in their respective income

accounts.

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6.3.  Financial derivatives (other than reserves) and employee stock options (F7/AF7)

A financial derivative contract is a financial instrument that is linked to another specific financial
instrument or indicator or commodity and through which specific financial risks (such as interest
rate risk, foreign exchange risk, equity and commodity price risks, credit risk, and so on) can be
traded in their own right in financial markets. This category is identified separately from other
categories because it relates to risk transfer, rather than supply of funds or other resources. Unlike
other functional categories, no primary income accrues on financial derivatives. Net flows
associated with interest rate derivatives are recorded as financial derivatives, not as investment
income. Transactions and positions in financial derivatives are treated separately from the values of
any underlying items to which they are linked. In the case of options, the full premium (i.e. the
purchase/sale price of the options and the implied service charge) is recorded. Repayable margin
payments consist of cash or other collateral deposited to protect counterparty against default risk.
They are classified as deposits under other investment (if the debtor’s liabilities are included in
broad money) or in other accounts receivable/payable. Non-repayable margin payments (also
known as variation margin) reduce the financial liability created through a derivative; therefore
they are classified as transactions in financial derivatives.

Employee stock options are options to buy the equity of a company offered to employees of the
company as a form of remuneration. If a stock option granted to employees can be traded on
financial markets without restriction, it is classified as a financial derivative.

6.4.  Other investment

Other investment is a residual category that includes positions and transactions other than those
included in direct investment, portfolio investment, financial derivatives and employee stock
options or reserve assets. To the extent that the following classes of financial assets and liabilities
are not included under direct investment or reserve assets, other investment includes: (a) Other
equity; (b) Currency and deposits; (c) Loans (including use of IMF credit and loans from the IMF);
(d) Insurance, pension and standardised guarantee schemes; (e) Trade credit and advances; (f)
Other accounts receivable/payable; and (g) SDR allocations (SDR holdings are included in reserve
assets).

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For loans, deposits, and other accounts receivable/payable sold at a discount, the transaction values
recorded in the financial account may differ from the nominal values recorded in the IIP. Such
differences are recorded as Revaluations due to other price changes.

6.4.1.  Other equity (F519/AF519)

Other equity includes equity not in the form of securities, therefore not included in portfolio
investment. Participation in the capital of some international organisations is not in the form of
securities and thus is classified as Other equity.

6.4.2.  Currency and deposits (F2/AF2)

Currency and deposits include currency in circulation and deposits. Deposits are standardised, nonnegotiable contracts generally offered by deposit-taking institutions, allowing the placement and
the later withdrawal of a variable amount of money by the creditor. Deposits usually involve a
guarantee by the debtor to return the principal amount to the investor.

The distinction between Loans and Currency and deposits depends on the nature of the borrower.
This implies that, on the assets side, money granted by the resident money-holding sector to nonresident banks is to be classified as Deposits and money granted by the resident money-holding
sector to non-resident non-banks (i.e. institutional units other than banks) is to be classified as
Loans. On the liabilities side, money taken by resident non-banks, i.e. non-monetary financial
institutions (non-MFIs) is always to be classified as Loans. Finally, this distinction implies that all
transactions involving resident MFIs and non-resident banks are to be classified as Deposits.

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6.4.3.  Loans (F4/AF4)

Loans are financial assets that are (a) created when a creditor lends funds directly to a debtor, and
(b) evidenced by documents that are not negotiable. This category includes all loans, including
mortgages, financial leases and repo-type operations. All repo-type operations, i.e. repurchase
agreements, sell/buy-back operations and securities lending (with exchange of cash as collateral),
are treated as collateralised loans, not as outright purchases/sales of securities, and are recorded
under Other investment, within the resident sector that carries out the operation. This treatment,
which is also in line with the accounting practice of banks and other financial corporations, is
intended to more accurately reflect the economic rationale behind these financial instruments.

6.4.4.  Insurance, pension schemes, and standardised guarantee schemes (F6/AF6)

This includes the following: (a) Non-life insurance technical reserves (F61); (b) Life insurance and
annuity entitlements (F62); (c) Pension entitlements, claims of pension funds on pension managers,
and entitlements to non pension funds (F63+F64+F65); and (d) Provisions for calls under
standardised guarantees (F66).

6.4.5.  Trade credit and advances (F81/AF81)

Trade credit and advances are financial claims arising from the direct extension of credit by the
suppliers of goods and services to their customers, and advances for work that is in progress or is
yet to be undertaken, in the form of prepayment by customers for goods and services not yet
provided. Trade credit and advances arise when payment for goods or services is not made at the
same time as the change in ownership of a good or provision of a service.

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6.4.6.  Other accounts receivable/payable (F89/AF89)

This category consists of accounts receivable or payable other than those included in trade credit
and advances or other instruments. It comprises financial assets and liabilities created as
counterparts to transactions where there is a timing difference between these transactions and the
corresponding payments. It includes liabilities for taxes, purchase and sale of securities, securities
lending fees, gold loan fees, wages and salaries, dividends, and social contributions that have
accrued but have not yet been paid.

6.4.7.  Special drawing rights (SDR) allocations (F12/AF12)

The allocation of SDRs to IMF members is shown as a liability incurred by the recipient under
SDRs in Other investment, with a corresponding entry under SDRs in Reserve assets.

6.5.  Reserve assets

Reserve assets are those external assets that are readily available to and controlled by monetary
authorities for meeting balance of payments financing needs, for intervention in exchange markets
to manage the currency exchange rate, and for other related purposes (such as maintaining
confidence in the currency and the economy, or serving as a basis for foreign borrowing). Reserve
assets must be foreign currency assets, claims vis-à-vis non-residents and assets that actually exist.
Potential assets are excluded. Underlying the concept of reserve assets are the notions of ‘control’
and ‘availability for use’ by the monetary authorities.

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6.5.1.  Monetary gold (F11/AF11)

Monetary gold is gold to which the monetary authorities (or others who are subject to the effective
control of the monetary authorities) have title and is held as reserve assets. It includes Gold bullion
and Unallocated gold accounts with non-residents that give title to claim the delivery of gold.

6.5.1.1.Gold bullion takes the form of coins, ingots, or bars with a purity of at least 995 parts per 1
000, including such gold bullion held in allocated gold accounts.

6.5.1.2.Unallocated gold accounts represent a claim against the account operator to deliver gold.
For these accounts, the account provider holds title to a reserve base of physical (allocated) gold
and issues claims to account holders denominated in gold. Unallocated gold accounts not classified
as monetary gold are included as Currency and deposits in Other investment.

6.5.2.  Special drawing rights (F12/AF12)

Special drawing rights (SDR) are international reserve assets created by the IMF and allocated to
members to supplement existing official reserves. SDRs are held only by the monetary authorities
of IMF members and by a limited number of international financial institutions that are authorised
holders.

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6.5.3.  Reserve position in the IMF

This is the sum of (a) the ‘reserve tranche,’ that is, the foreign currency (including SDRs) amounts
that a member country may draw from the IMF at short notice; and (b) any indebtedness of the
IMF (under a loan agreement) in the General Resources Account that is readily available to the
member country.

6.5.4.  Other reserve assets

These comprise: Currency and deposits, Securities, Financial derivatives and Other claims.
Deposits refer to those available on demand. Securities include liquid and marketable equity and
debt securities issued by non-residents, including investment funds shares or units. Financial
derivatives are recorded in reserve assets only if the derivatives pertaining to the management of
the reserve assets are integral to the valuation of such assets. Other claims include loans to nonresident non-banks, long-term loans to an IMF Trust account and other financial assets not included
previously but that meet the reserve assets definition.

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