LegalizeCouncil Regulation (EEC) No 696/93 of 15 March 1993 on the statistical units for the observation and analysis of the production system in the Community
Article 1
A list of statistical units (hereinafter referred to as ‘statistical units 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.
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 1994, for the objectives referred to in Article 2, Member States shall use the definitions referred to in Article 1 for statistics relating to situations subsequent to that date.
Article 4
Article 5
After the end of the transitional period referred to in Article 4, the Commission may, in accordance with the management procedure referred to in Article 7(2), authorise a Member State to use other statistical units of the production system.
Article 6
Measures for the implementation of this Regulation, including those designed to adapt to economic and technical progress concerning in particular the statistical units of the production system, the criteria used and the definitions specified in the Annex, shall be adopted by the Commission. Those measures, designed to amend non-essential elements of this Regulation, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 7(3).
Article 7
Where reference is made to this paragraph, Articles 4 and 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 8 thereof.
The period provided for in Article 4(3) of Decision 1999/468/EC shall be set at three months.
Article 8
The statistical units of the production system referred to in a Community 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 20th day following 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.
ANNEX
SECTION I
List of units
The list of statistical units of the production system is as follows:
A. the enterprise;
B. the institutional unit;
C. the enterprise group;
D. the kind-of-activity unit (KAU);
E. the unit of homogeneous production (UHP);
F. the local unit;
G. the local kind-of-activity unit (local KAU);
H. the local unit of homogeneous production (local UHP).
SECTION II
Criteria used
The statistial 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.
A. Legal, accounting or organizational criteria
In order to define units that are recognizable and identifiable in the 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:
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 worldwide 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’ or ‘koinotis’ in Greece; the ‘municipio’ in Spain; the ‘commune’ in France; the ‘DED/ward’ in Ireland; the ‘comune’ in Italy; the ‘commune’ in Luxembourg; the ‘gemeente’ in the Netherlands;
the ‘Gemeinde’ in Austria; the ‘concelho’ in Portugal; the ‘ kunta — kommun ’ in Finland; the ‘primärkommun’ in Sweden 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.
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.
If a unit carries out more than one activity, all the activities which are not ancillary activities are ranked according to the gross value added at factor cost which they generate. A distinction is made between principal activity and secondary activities.
If no value-added figures are available, other criteria must be used, such as, for example, employment, payroll, turnover and assets, with a view to obtaining the closest possible approximation of the classification which would have been obtained on the basis of value added.
Units are classified in terms of their activities. If one activity accounts for over 50 % of the value added this determines the classification of the unit. In all other cases, classification rules must be observed. Classification is carried out in stages from the highest level of aggregation which is the section (one letter), down to the class (four digits) via the division (two digits) and the group (three digits). The classification at each level must be compatible with the previous level. The Statistical Programme Committee referred to in Article 7 of Regulation (EEC) No 3037/90 has competence in this field.
Principal and secondary activities are backed up by ancillary activities, such as, for example, administration, accounts, data processing, process monitoring, purchasing, sales and marketing, warehousing, repairs, transport and renovation.
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.
SECTION III
Definitions of units 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. An enterprise may be a sole legal unit.
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 must 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 institutional unit if it has decision-making autonomy in respect of its principal function and keeps a complete set of accounts.
— In order to be said to have autonomy of decision in respect of its principal function, a unit must be responsible and accountable for the decisions and actions it takes.
— 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.
Explanatory notes
1.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.
2.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, part 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.
— 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 referred to in points (a), (b) and (c) in so far 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, but 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 and profits. 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
1.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 Seventh Council Directive 83/349/EEC (OJ No L 193, 18.7.1983, p. 1). This Directive came into force for the first time for consolidated accounts of the financial year which began in 1990. Directive 90/605/EEC (OJ No L 317, 16.11.1990, p. 60) extended the scope of application of the Seventh Directive.
2.Within the meaning of 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 is.
3.This definition as it stands, is not suitable for statistical analysis because ‘accounting groups’ do not constitute mutually exclusive, additive groups of 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 consolidating by virtue of application of one of the criteria allowed by the seventh Directive, i. e. difference in the type of activity or small realive size,
— discount temporary links of less than a year.
4.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.
5.Enterprise groups are often bound together by various types of links such as ownership, controlling interest and management. 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. Subgroups can be identified within enterprise groups.
6.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.
D. Kind-of-activity unit (KAU)
The kind of activity unit (KAU) groups all the parts of an enterprise contributing to the performance of an activity at class level (four digits) of NACE Rev. 1 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
1.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.
2.The KAUs falling within a particular heading in the NACE Rev. 1 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.
3.The internal accounts of enterprises (e. g. profit or cost centres) have often been developed according to criteria that are close: the activity concept. They enable the supply of data at KAU level, so that these can be observed.
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