CELEX: 51992PC0353
Language: en
Date: 1992-09-14
Title: Proposal for a COUNCIL REGULATION (EEC) on the statistical units for the observation and analysis of the production system in the European Community

COMMISSION OF THE EUROPEAN COMMUNITIES
FK3U
                                                  C0M(92) 353 final - SYN 418
                                                  Brussels» 14 September 1992
                                  Proposal for a
                             COUNCIL REGULATION (EEC)
        on the statistical units for the observation and analysis of the
                   production system in the European Community
                          (presented by the Commission)
 ---pagebreak---                          EXPLANATORY MEMORANDUM
The aim of the draft Regulation is to establish a common statistical
language for a selection of statistical units. The application of the
definitions of these units is a determining factor in the coherence,
convergence and hence the gradual integration of the statistical systems
of the Member States. Once these units have been uniformly defined, they
will no longer be subject to discussion (with the resulting danger of
divergent and incompatible definitions) whenever new specific legislation
is drafted.
These definitions constitute an addition to the NACE Rev. 1 Regulation
 (Council Regulation (EEC) No 3037/90 published in OJ No L 293 of
24.10.90). The application of these definitions for the observation and
analysis of the production system will lead to an improvement in the
quality of information on economic activity in the European Community.
Whereas, at present, divergent definitions are used in the various Member
States, affecting the reliability of observations and analysis, the
 application of the definitions set out in this Regulation will lead to:
      the establishment of a uniform terminology;
      a restriction on the number of statistical units used;
      an improvement in the compatibility of information through the use of
      complementary surveys, which will reduce the reporting burden on
      enterprises;
      increased transparency by facilitating observation;
      the development of harmonized registers, which is a determining
      factor in creating integrated sampling bases at Community level;
      a reduction in observation processing times for transmission of the
      results to the Commission by establshing identical units of
      observation in all the Member States from the basic data collection
      stage onwards;
      the development of synergism, making savings at the same time.
 The proposal for a Regulation is in line with relevant international
 guidelines. It takes account of the need to be able to adapt statistical
 definitions to changes caused by socio-economic and technical
 developments affecting the production system. It is a determining factor
  in the quality of observations and analysis for the purposes of economic
 policy.
                               _ y) _
 ---pagebreak---    The precise language used will facilitate understanding and clarify the
   many difficulties that arise when the same word is applied to different
   concepts that have sometimes evolved with time, cr v:hen a word changes
   meaning according to the context in which it is used or causes problems
   of equivalence in different languages.
ô. These definitions are a determining factor in the development of a
   statistical system for the Community that fulfils the widely-shared
   expectations of economic operators, the Commission, the National
   Statistical Institutes and all those interested in using information
   relating to the observation and analysis of economic activity.
7. Establishing uniform definitions of these statistical units at Community
    level with the participation of the Member States complies with the
   principle of subsidiarity. What is more, the application of these
   definitions at Member-State level furthers the application of this
   principle by promoting synergic effects, which are a determining factor
    in the production of high-quality statistical information.
                                      /fd
 ---pagebreak---                Proposal for a Council Regulation (EEC) on the statistical units
               for the observation and analysis of the production system in the
                                      European Community
THE COUNCIL OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Economic Community, and in
particular Article 100a thereof.
Having regard to the proposal from the Commission,
In cooperation with the European Parliament,
Having regard to the opinion of the Economic and Social Committee,
Whereas the functioning of the internal market requires statistical standards applicable to the
identification of units and the collection, transmission and publication of national and
Community statistics in order to make reliable and comparable information available to
enterprises, financial institutions, governments and all other operators in the Single Market:
Whereas statistical information on the production system will be necessary for enterprises in
order to assess their competitiveness and be useful for the Community insirutions in the
prevention of distortion of competition:
Whereas in accordance with the principle of subsidiarity the creation of common statistical
norms that permit the production of harmonized data is an action which can only be
undertaken efficiently at Community level and that they will be applied in each Member State
under the authority of the bodies and insitutions in charge of compiling official statistics:
Whereas only if the Member States use common definitions of statistical units will it be
possible to provide integrated statistical information with the reliability, speed, flexibility and
degree of detail required for the management of the internal market:
Whereas provision should be made for the Member States to be able, in order to meet specific
requirements, to retain or introduce other statistical units for the observation and analysis of
the production system;
Whereas the choice of statistical units to be used in particular enquiries or analyses will be
determined in specific texts:
                                        - 1&-
 ---pagebreak--- Whereas utilization of the classification of economic activities in :he tfjropean Communities
(NACE Rev.l) provided for in Council Regulation (EEC) No 3037/90l> and application of the
European System of Integrated Economic Accounts (ESA) require standard definitions of
statistical units for registers, surveys and the presentation and analysis of statistics:
Whereas the Committee created by the Council Regulation (EEC) No 3037/90 is comptetent
for "elaboration of guidelines for classifying statistical units in accordance with NACE Rev.l"
but that the units must be defined elsewhere:
Whereas it is vital that the statistical units classified according to the NACE Rev.l are defined
in the same way in all Member States in order to ensure comparability between the
corresponding national and Community statistics:
Whereas it is desirable to limit the number of statistical units used for the production system:
Whereas the international comparability of economic statistics requires that the Member States
and the Community institutions use statistical units which are directly linked to the
descriptions given in the introduction to the United Nations International Standard Industrial
Classification (ISIC Rev.3) and the United Nations System of National Accounts documents:
Whereas the production system is made up of all entities involved in production and all
economic and financial operations carried out by these entities:
Whereas the introduction of strict application of these units throughout the Community
requires a transitional period,
 HAS ADOPTED THIS REGULATION:
                                                 Article 1
          A list of statistical units (hereinafter referred to as "statistical u; is of the production
          system") as set out in the annex hereto together with the criteria used, the definitions
          of the units and explanatory notes is hereby established.
 X)
       OJ No L 293 of 24 October 1990, p. 1
 ---pagebreak---                                            Article 2
     The definitions of the statistical units of the production system shall be used by the
     Member States and the Commission to identify the units with a view to collecting,
     transmitting, publishing and analysing statistical data on the production system,
     particularly those connected with NACE Rev. 1.
                                           Article 3
     From 1 January 1993, for the purposes cited in Article 2, Member States shall use the
     definitions refered to in Article 1 for statistics relating to situations subsequent to that
     date.
                                           Article 4
     During a transitional period starting on 1 January 1993 and ending on 31 December
     1994, a Member State may, for statistics relating to that period, use statistical units of
     the production system other than those provided for in Article 1. In such cases the
     statistical data to be sent to the Commission during the transitional period shall be
     adapted and transmitted to conform as closely as possible to the requirements set out in
     the annex hereto.
     The Commission may, under exceptional circumstances, at the request of a Member
     State and for duly substantiated technical or practical reasons, extend the transitional
     period until no later than 31 December 1996.
                                           Article 5
     After the end of the transitional period the Commission may, pursuant to the
     procedure laid down in article 6 hereof, authorise a Member State to use other
     statistical units of the production system.
                                           Article 6
     Measures for implementing the present regulation, including those for adaptation to
     economic and technical developments concerning in particular the statistical units of
     the production system, the criteria used and the definitions specified in the annex, shall
     be determined by the Commission, after consulting the Statistical Programme
     Committee instituted by Decision 89/382 EEC, Euratom"' in accordance with the
      procedure set out in Article 7.
2)
   OJ No L 181 of 28 June 1989, p.47
 ---pagebreak---                                              Article 7
       The Commission's representative shall submit to the Committee a draft of the
       measures to be taken. The Committee shall deliver its opinion on the draft within a
       time limit which the Chairman may lay down according to the urgency of the matter, if
       necessary by taking a vote.
       The opinion of the Committee shall be recorded in the minutes. Each Member State
       shall have the right to ask to have its position recorded in the minutes.
       The Commission shall take the utmost account of the opinion delivered by the
       Committee. It shall inform the Committee of the manner in which its opinion has been
       taken into account.
                                             Article 8
       The statistical units of the production system mentioned in a Community legal act
       governing Community statistics shall be interpreted in accordance with the concepts
       and terminology of this Regulation.
                                             Article 9
       This Regulation shall enter into force on the twentieth day following that of its
        publication in the Official Journal of the European Communities.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Luxembourg,             (date)
                                                                           For the Council
                                                                           President
                                        4-
 ---pagebreak---                                        ANNEX
STATISTICAL UNITS OF THE PRODUCTION SYSTEM IN THE EUROPEAN
                                    COMMUNITY
                             Section I : The list of units
  The list of statistical units of the production system is as follows
           the enterprise ;
           the institutional unit ;
           the enterprise group ;
           the kind-of-activity unit (KAU) ;
           the unit of homogeneous production (UHP) ;
           the local unit ;
           the local kind-of-activity unit (local KAU) ;
           the local unit of homogeneous production (local UHP).
                              Section II : Criteria used
  The statistical units in this Regulation are defined on the basis of three criteria. The
  relative importance of these criteria depends on the type of unit concerned.
                                    5-
 ---pagebreak--- A) Legal, accounting or organizational criteria
   In order to define units that are recognizable and identifiable in ù.t economy, legal  or
   institutional criteria must be applied. In some cases, legally separate units must     be
   grouped together as they are not sufficiently autonomous in their organization.        In
   order to define some types of unit, accounting or financial criteria also have to      be
   applied.
   To constitute the enterprise unit, use is made of legal units that exercise, wholly or
   partially, a productive activity.
   Legal units include:
             legal persons whose existence is recognized by law independently of the
             individuals or institutions which may own them or are members of them,
             natural persons who are recogu.zed as legal units in their own right.
   The legal unit always forms, either by itself or sometimes in combination with other
    legal units, the legal basis for the statistical unit known as the "enterprise".
B) Geographical critera
    A unit can be geographically identified. A distinction is made between local, regional,
    national. Community and world-wide areas.
    The local level here means the territory corresponding to the "smallest administrative
    area'* : the "commune/gemeente" in Belgium, the "kommune" in Denmark, the
     "Gemeinde" in Germany, the "demos" in Greece, the "municipio" in Spain, the
     "commune" in France, tie "DED/ward" in Ireland, the "comune' in Italy, the
     "commune" in Luxembourg, the "gemeente" in the Netherlands, the "concelho" in
     Portugal and the "ward in the United Kingdom.
    The regional levels are defined by the nomenclature of territorial units for statistics
     (NUTS), which distinguishes three levels (I, II, III).
    The observation and analytical units are defined in such a way as to permit data first to
     be determined for each Member State and these data to be combined to give figures for
    the Community as a whole or for larger areas.
    The rules regarding geographical criteria must be in order to permit consolidation and
    avoid double counting and omissions.
                                      6-
 ---pagebreak--- C) Activity critera
   The economic activity of production - hereinafter referred to as "activity" - can be said
   to take place when resources such as equipment, labour, manufacturing techniques,
   information networks or products are combined, leading to the creation of specific
   goods or services. An activity is characterized by an input of products (goods or
   services), a production process and an output of products.
   Activities are determined by reference to a specific level of NACE Rev. 1.
3. If a unit carries out more than one activity, all the activities which are not ancillary
   activities are ranked according to the gross value added at factor cost which they
   generate. A distinction is made between principal activity and secondary activities.
4. If no value-added figures are available, other criteria must be used, such as
   employment, payroll, turnover, assets, etc., with a view to obtaining the closest
   possible approximation of the classification which would have been obtained on the
   basis of value added.
5. Units are classified in terms of their activities. If one activity accounts for over 50% of
   the value added this determines the classification of the unit. In all other cases,
    classification rules must be observed. Classification is carried out in stages from the
   highest level of aggregation which is the section (one letter), down to the class (4
   digits) via the division (2 digits) and the group (3 digits). The classification at each
    level must be compatible with the previous level. The Committee set up by the NACE
    Rev.l Regulation (Council Regulation (EEC) No 3037/90) has competence in this field
    (Article 8.e)).
6.  Principal and secondary activities are backed up by ancillary activities, such as
    administration, accounts, data processing, process monitoring, purchasing, sales and
    marketing, warehousing, repairs, transport, renovation, etc.
   These ancillary activities within a unit are carried out in order to permit or facilitate
    production by the unit of goods and services for third parties. The products of
    ancillary activities are not themselves supplied to third parties.
    The notion of ancillary activities is developed in section IV B.
                                    -7
 ---pagebreak--- Section III : Definitions of the statistical units of the production system and explanatory
                                           notes specific to each unit.
                                         A) Enterprise
       The ENTERPRISE is the smallest combination of legal units that is an
       organizational unit producing goods or services, which benefits from a certain
       degree of autonomy in decision-making, especially for the allocation of its current
       resources. An enterprise carries out one or more activities at one or more
       locations.
       Explanatory note
       The enterprise thus defined is an economic entity which can therefore, under certain
       circumstances, correspond to a grouping of several legal units. Some legal units, in
       fact, perform activities exclusively for other legal units and their existence can only be
       explained by administrative factors (e.g. tax reasons), without them being of any
       economic significance. A large proportion of the legal units with no persons employed
       also belongs to this category. In many cases, the activities of these legal units should
       be seen as ancillary activities of the parent legal unit they serve, to which they belong
       and to which they ir.ust be attached to form an "enterprise" used for economic
       analysis.
                                      B) Institutional unit
       The INSTITUTIONAL UNIT is an elementary economic decision-making centre
       characterized by uniformity of behaviour and decision-making autonomy in the
       exercise of its principal function.          A unit is regarded as constituting an
       institutio al unit if it has decision-making autonomy in respect of its principal
       I* notion md keeps a complete set of accounts.
                In order to be said to keep a complete set of accounts, a unit must keep
                accounting records covering all its economic and financial transactions
                carried out during the accounting period, as well as a balance sheet of
                assets and liabilities.
                In order to be said to have autonomy of decision in respect of its principal
                function, a unit must he responsible and accountable for the decisions and
                actions it takes.
 ---pagebreak--- Explanatory notes
       In the corporate enterprises sector, the enterprise corresponds to the institutional unit
       used in the ESA. Similar institutional units also exist in the general government and
       private non-profit institutions sectors. The institutional unit in the households sector
       covers all the activities of households, while the term enterprise is reserved exclusively
       for their production activities.
       Applying these rules leads to the following solutions for entities which do not clearly
       possess both characteristics of an institutional unit.
       a)       Households always enjoy autonomy of decision and must therefore be
                institutional units, even though they do not keep a complete set of accounts.
       b)       Entities which do not keep a complete set of accounts are combined with the
                institutional units in whose accounts their partial accounts are integrated.
       c)       Entities which, while keeping a complete set of accounts, have no autonomy of
                decision in the exercise of their principal function are combined with the units
                which control them.
       d)       Entities which satisfy the definition of an institutional unit are treated as such
                even if they do not publish their accounts.
       e)       Entities forming part of a group of enterprises and keeping a complete set of
                accounts are deemed to be institutional units even if they have surrendered, in
                fact if not in law, pan of their autonomy of decision to the central body (the
                holding company) responsible for the group's general management. The
                holding company itself is deemed to be an institutional unit distinct from the
                units which it controls.
3.      The following are deemed to be institutional units:
                 units which have a complete set of accounts and autonomy of decision:
        a)       private and public companies, public corporations;
        b)       cooperatives or partnerships recognized as independent legal entities:
        c)       public enterprises which by virtue of special legislation are recognized as
                 independent legal entities:
        d)       non-profit institutions recognized as independent legal entities:
        e)       agencies of general government.
 ---pagebreak---          units which have a complete set of accounts and which, by convention, are
         deemed to have autonomy of decision:
f)       quasi-corporate enterprises: sole proprietorships, partnerships and public
         enterprises, other than those shown under a), b) and c), insofar as their
         economic and financial behaviour can be separated from that of their owners
         and resembles that of corporate enterprises:
         units which do not necessarily keep a complete set of accounts, hut which by
         convention are deemed to have autonomy of decision:
g)       households.
                              C) Enterprise group
AN ENTERPRISE GROUP is an association of enterprises bound together by legal
and/or financial links. A group of enterprises can have more than one decision-
making centre, especially for policy on production, sales, profits, etc. It may
centralize certain aspects of financial management and taxation. It constitutes an
economic entity which is empowered to make choices, particularly concerning the
units which it comprises.
 Explanatory notes
 For certain observations and analyses it is sometimes useful and necessary to study the
 links between certain enterprises and to group together those which have strong ties
with each other.
 A number of exercices are underway but not finished concerning the concept of the
group of enterprises. It is defined here starting from the concept of "accounting
 group" as given in the 7th Council Directive (83/349/EEC, OJ L193 of 18 July 1983).
 This Directive came into force for the first time for consolidated accounts of the
 financial year which began in 1990. Council Directive 90/605/EEC, OJ L 317 of 16
 November 1990, extended the scope of application of the seventh Directive.
 According to the seventh Directive, a group is presumed to exist where 20% of the
 capital or voting rights are held or controlled by another enterprise. Provisions
 regarding the control of the power to appoint directors must be taken into account.
  Behind financial (majority) control, the aim is to take into account where the control
 really JS.
                              - 10
 ---pagebreak---    This definition as it stands is not suitable for statistical ar.aivsis hecausj "...'counting
   groups" do not constitute mutually exclusive, additive groups ot enterprises. A
   statistical unit known as "enterprise group" based on the "accounting group" concept
   must be defined by applying the following amendments:
             consider accounting groups at the highest consolidation level ("group head"):
             include in "enterprise group" units whose accounts are entirely integrated in
             those of the consolidating company;
             add majority-controlled units whose accounts are not included in the overall
             consolidation by virtue of application of one of the criteria allowed by the
             seventh Directive, i.e. difference in the type of activity or small relative size;
             discount temporary links of less than a year.
   An enterprise group is a set of enterprises controlled by the "group head". The group
   head is a parent legal unit which is not controlled either directly or indirectly by any
   other legal unit. The subsidiary enterprises of a subsidiary enterprise are considered
   to be subsidiaries of the parent enterprise. However there are some forms of
   cooperative or mutual associations where the parent enterprise is actually owned by the
   units of the group.
    Enterprise groups are often bound together by various types of links such as
   ownership, controlling interest, management, etc. These units are often linked with
   units of the same "family" from several different generations. The "enterprise group"
   unit often corresponds to a conglomerate bound together by a network of complex
    relationships and frequently covers a very wide range of activities. Sub-groups can be
    identified within enterprise groups.
    It is useful to recognize all (majority and minority) links between the group head and
    the controlled enterprise via the network of subsidiaries and sub-subsidiaries. This
    allows the group's entire organization to be depicted.
7.  In view of the implications of the different accounting directives, an attempt should
    always be made to distinguish between basic units of the group that belong to "non-
    financial enterprises" and those which must be classified as "financial institutions". In
    the case of the latter, a distinction must be drawn between units that are "credit
    institutions" and those that are "insurance enterprises". Some enterprise groups span
    the whole world, but need to be analysed for the economic territory of the Community
    and for that of each Member State.
8.  The "enterprise group" unit is particularly useful for financial analyses and for
    studying company strategies, but it is too varied in nature and unstable to be adopted
    as the central unit for observation and analysis, which remains the enterprise. It is
    used for compiling and presenting certain information.
                                   - 11
 ---pagebreak---                               D) Kind-of-activity unit
The KIND OF ACTIVITY UNIT (KAU) groups all the parts of an enterprise
contributing to the performance of an activity at class level (4 digits) of NACE
Rev.l and corresponds to one or more operational subdivisions of the enterprise.
The enterprise's information system must be capable of indicating or calculating
for each KAU at least the value of production, intermediate consumption,
manpower costs, the operating surplus and employment and gross fixed capital
formation.
Explanatory notes
The KAU was devised as an observation unit in order to improve the homogeneity of
the results of statistical surveys by activity and hence the international comparability of
these results, since at the level of the enterprise different types of horizontal and
vertical integration can be observed at both national and international level. An entity
which only carries out ancillary activities for the enterprise to which it belongs cannot
be considered as a separate KAU. In fact the "KAU" corresponds to the operational
definition given in paragraph 96 of the introduction to ISIC Rev.3.
The KAUs falling within a particular heading in the classification system can produce
products outside the homogeneous group, on account of secondary activities connected
with them which cannot be separately identified from available accounting documents.
Conversely, the KAUs classified under a particular heading in the classification system
on the basis of a principal activity do not produce the entire output of homogeneous
groups of specific products because the same products can be produced in secondary
 activities of KAUs falling under some other classification heading.
 The internal accounts of enterprises (e.g. p )fit or cost centres) have often been
 developed according to criteria that are close L the activity concept. They enable the
 supply of data at KAU level, so that these can be observed.
 AH the costs of ancillary activities of an enterprise must be allocated to the principal
 and secondary activities and thus to the KAUs observed within the enterprise.
                                  12-
 ---pagebreak---                       E) Unit of homogeneous production
The UNIT OF HOMOGENEOUS PRODUCTION (UHP) is characterized by a
single activity which is identified by its homogeneous inputs, production process
and outputs. The products which constitute the inputs and outputs are themselves
distinguished by their physical characteristics and the extent to which they have
been processed as well as by the production technique used, by reference to a
product classification. The unit of homogeneous production may correspond to an
institutional unit or a part thereof; on the other hand, it can never belong to two
different institutional units.
Explanatory notes
For a clear analysis of the production process, the ESA has adopted units of
homogeneous production that enable the technical/economic relationships to be
studied. These analytical units are used particularly for Input-Output tables, and in
practice are reconstituted from data collected for the observation units, since they
cannot as a rule be directly observed.
 Most observation units are engaged in a combination of activities at the same time.
They may be engaged in a principal activity, some secondary activities - i.e. activities
belonging to other branches - and some ancillary activities such as administration,
purchasing, selling to the trade, storage, repairs, etc. If an observation unit carries out
a principal activity as well as one or more secondary activities, it will be subdivided
 into the corresponding number of units of homogeneous production, and the secondary
activities will be reclassified under different headings from the principal activity. On
the other hand, the ancillary activities of the observation unit are not separated from
 the principal or secondary activities they serve.
 The unit of homogeneous production is defined independently of the location of the
 activity. In ISIC Rev.3, the "unit of homogeneous production" is defined in such a
 way as to correspond to the local UHP. Paragraph 112 of the introduction to ISIC
 Rev.3 is governed by paragraph 104.
                                 13
 ---pagebreak---                                      F) Local unit
   The LOCAL UNIT is an enterprise or part thereof (e.g. a workshop, factory,
   warehouse, office, mine or depot) situated in a geographically identified place. At
   or from this place economic activity is carried out for which - save for certain
   exceptions - one or more persons work (even if only part-time) for one and the
   same enterprise.
   Explanatory notes
1. If a person works in more than one place (maintenance or surveillance) or at home, the
   local unit is taken to be the place from which instructions emanate or from where the
   work is organized. It must be possible to specify the employment attached to any
   local unit. However, all legal units that serve as the legal basis for an enterprise or a
   part thereof must have a local unit which is the registered office, even if nobody works
   there. Moreover, a local unit can comprise only ancillary activities.
   A geographically identified place must be interpreted on a strict basis: two units
   belonging to the same enterprise at different locations (even within the smallest
   administrative unit of the Member State) must be regarded as two local units.
    However, a single local unit may be spread over several adjacent administrative areas,
    in which case, by convention, the postal address is the determining factor.
   The boundaries ot the unit are determined by the boundaries of the site, which means
    for example that a public highway running through does not interrupt the continuity of
    the boundaries. The definition is similar to the one in paragraph 101 of the
    introduction to ISIC Rev.3, in that it concerns localization in the strict sense of the
    term, but differs from the definition in paragraph 102 in that this strict sense may not
    vary according to the statistics under consideration. In addition, the criterion of
    persons working in the unit is normally applied.
4. The ESA-REG (the regional application of the ESA) uses the same definition of "local
    unit" for regional accounts purposes.
                                   14-
 ---pagebreak---                         G) Local kind-of-activity unit
The LOCAL KIND-OF-ACTIVITY UNIT (local KAU) is the part of a KAU which
corresponds to a local unit.
Explanatory notes
Each KAU must have at least one local KAU, although the KAU can be made up of a
grouping of parts of one or more local units. On the other hand, a local unit may in
certain circumstances comprise solely a group of ancillary activities. In this instance, a
supplementary classification of the local unit is possible. Furthermore, each enterprise
should have at least one "local KAU".
The "local KAU" corresponds to the operational definition of the "establishment" as
given in paragraph 106 of the introduction to ISIC Rev.3.
                  H) Local unit of homogeneous production
The LOCAL UNIT OF HOMOGENEOUS PRODUCTION (local UHP) is the part of
a unit of homogeneous production which corresponds to a local unit.
                                15-
 ---pagebreak---                       Section IV : Additional explanatory notes
A) Government and non-profits bodies
1. In the case of general government bodies, the appropriate statistical unit for the
   collection and corr elation of statistics is very variable (e.g. central government, social
   security administr lion, or local government of the region, province, department,
   county, municipality, metropolitan area, etc.). These various bodies collectively plan,
   supervise and administer the finances of their constituent bodies (which can be
   ministries, directorates-general, directorates, bureaus, agencies, offices, etc.). As
   regards the type of activity, however, some of these bodies, particularly local
   authorities, are likely to be much more heterogeneous than corporate enterprises.
   The activities of these bodies often belong to Section L of NACE Rev.l "Public
   administration and defence: compulsory social security", although other bodies carry
   out activities which basically belong to other Sections, including "Education" (Section
   M), "Health and social work" (Section N) and "Other community, social and personal
   service activities" (Section O).
   When series of data on private-sector entities have to be combined with data on these
   general government and private non-profit institutions classified by type of economic
   activity, their identification and classification must be carried out using statistical units
   corresponding to entities which are closest to the statistical units defined in the private
   sector. This is why all the criteria used in the private sector are - by analogy - applied
   to general .government bodies. The same applies to private non-profit institutions.
                                    16-
 ---pagebreak--- B) Ancillary activities
1. An activity must be regarded as ancillary if it satisfies all the following conditions:
   a)      it serves only the unit referred to: in other words, goods or services produced
           must not be sold on the market;
   b)      a comparable activity on a similar scale is performed in similar production
           units;
   c)      it produces services or, in exceptional cases, non-durable goods which do not
           form part of the unit's end product (e.g. small implements or scaffolding);
   d)      it contributes to the current costs of the unit itself, i.e. does not generate gross
           fixed capital formation.
   The distinction between ancillary, principal and secondary activity can be illustrated
   by a few examples.
           Production of small implements for the unit's use is an ancillary activity (in
           accordance with all criteria).
           Own-account transport is normally an ancillary activity (in accordance with all
           criteria).
            Sales of own products are an ancillary activity because, as a general rule, it is
            not possible to produce without sales. However, if it is possible to identify a
            retail sales point within a production enterprise (direct sales to end-user) which
            may be, for example, a local unit, this sales point - exceptionally and for the
            purposes of certain analyses - may be regarded as a kind-of-activity unit. This
           observation unit then forms the subject of a twofold classification, i.e. in terms
           of the (principal or secondary) activity it performs within the enterprise and in
            terms of its own activity (retail sale).
                                    17
 ---pagebreak--- Thus, the general rule is that, .nee production processes a:j not usually viable
without the support of ancillary activities, these ancillary activities should not be
isolated to form distinct entities, even if they are carried out by a distinct legal entity
or at a distinct place, and even if separate accounts are kem. Furthermore, the
ancillary activity is not taken into account when classifying the activity of the entity by
which the ancillary activities are carried out. The best example of an entity carrying
out ancillary activities is the central administrative department or "registered office".
Having regard to the definition in paragraph above, the following activities must not
be considered as ancillary activities.
a)       The production of goods or work carried out which forms part of fixed capital
         formation - in particular, construction work for own account. This is in line
         with the method used in NACE Rev.l, where units carrying out construction
         work for own account are classified under the building industry if data are
         available.
b)       Production, a significant part of which is sold commercially, even if much is
         used as consumption in connection with the principal activity or secondary
         activities.
c)       The production of goods which subsequently become an integral part of the
         output of the principal or secondary activity - e.g. production of boxes,
         containers, etc. by a department of an enterprise for use in packing its
         products.
 d)      The production of energy (integrated power station or integrated coking plant),
         even where this is consumed in its entirety in the principal or secondary
         activity of the parent unit.
 e)      The purchase of goods for resale in unaltered state.
 f)       Research and development. These activities are not \ :y widespread and do
          not produce services which are used in current production.
 In all îese cases, if separate data are available for these activities, they should be
 regaruvxl as distinct activities and subsequently recognized as KAUs.
                                 - 18-
 ---pagebreak---    If ancillary activities are carried out tor the benefit ot a single entity, these activities
   and the resources they use will constitute an integral part of the activities and
   resources of that unit. However, if the activities of the statistical unit and the
   corresponding ancillary activities are not carried out in the same geographical area
   (defined in terms of the zones delimited for the purposes of statistical surveys), it may
   be desirable to collect separate supplementary information on these units for the
   categories of data which have to be classified in terms of geographical areas, even if
   the units only carry out ancillary activities.
6. If ancillary activities are carried out basically for the benefit of two or more kind-of-
   activity units, the cost of these ancillary activities must be spread over all the kind-of-
   activity units which they support. If data are available on the proportion of the costs
   which can be assigned to each of these distinct activities, the costs should be broken
   down accordingly. However, should no information of this kind be available, the cost
   of the ancillary activity should be broken down over the principal and secondary
   activities proportionately to the value of output minus intermediate costs excluding the
   costs of the ancillary activities themselves. If this method proves too difficult in
   practice, the cost of the ancillary activity may simply be broken down proportionately
   to the value of output.
7.  If ancillary activities are organized in such a way as to serve two or more entities of a
    multi-unit enterprise, they may constitute a group of ancillary activities at a distinct
    location. In this case, in the same way as it would be desirable to cover certain
    activities completely even if they are carried out independently or by entities which are
   engaged exclusively in ancillary activities (such as computer services), it could be
    useful to allow for supplementary classifications. For this purpose these ancillary
    entities could then be classified according to their own activities as well as being
   classified under the activity of the unit to which they belong.
    It is possible that an activity starts out as ancillary but subsequently begins to provide
    services for sale to other entities. An activity of this kind may develop to the point
    where it ceases to be an ancillary activity and must therefore be regarded as one of the
    principal or secondary activities of an entity. The only way of deciding whether a
    given activity should be regarded as an ancillary activity or a principal or secondary
    activity is to assess the role it plays in the enterprise as a whole.
                                    - 19
 ---pagebreak--- C)     Synoptic table by activity and location
                                      One or more locations      A single location
One or nufre activities                       Enterprise                 Local unit
                                              Institutional unit
                                              KAU                        Local KAU
One single activity
                                              UHP                        Local UHP
                                   -20-
 ---pagebreak---  ---pagebreak---                                                                      ISSN 0254-1475
                                                              COM (92) 353 final
                                                      DOCUMENTS
EN                                                                         oi 17
                                 Catalogue number : CB-CO-92-406-EN-C
                                                             ISBN 92-77-47546-3
Office for Official Publications of the European Communities
L-2985 Luxembourg
                                            -     2A-