Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community

Type of producer Standard legal description	Market producers principally engaged in the production of goods and non-financial services	Market producers principally engaged in financial intermediation	Other non-market producers
Public producers (see paragraph 3.28)	Private producers (see paragraph 3.29)
Private and public corporations	S.11 non-financial corporations (see paragraph 2.23. a)	S.12 financial corporations (see paragraph 2.40. a and f)
Cooperatives and partnerships recognized as independent legal entities	S.11 non-financial corporations (see paragraph 2.23. b)	S.12 financial corporations (see paragraph 2.40. b)
Public producers which by virtue of special legislation are recognized as independent legal entities	S.11 non-financial corporations (see paragraph 2.23. c)	S.12 financial corporations (see paragraph 2.40. c)
Public producers not recognized as independent legal entities	those with the characteristics of quasi-corporations	S.11 non-financial corporations (see paragraph 2.23. f)	S.12 financial corporations (see paragraph 2.40. g)
the rest			S.13 general government (see paragraph 2.69. a)
Non-profit institutions recognized as independent legal entities	S.11 non-financial corporations (see paragraph 2.23. d)	S.12 financial corporations (see paragraph 2.40. d)	S.13 general government (see paragraph 2.69. b)	S.15 non-profit institutions serving households (1) (see paragraph 2.87)
Partnerships not recognized as independent legal entities Sole proprietorships	those with the characteristics of quasi-corporations	S.11 non-financial corporations (see paragraph 2.23. f)	S.12 financial corporations (see paragraph 2.40. g)
the rest	S.14 households (see paragraph 2.75)	S.14 households (see paragraph 2.75)
Holding corporations whose preponderant type of activity of the group of corporations controlled by them is the production of	goods and non-financial services	S.11 non-financial corporations (see 2.23. e)
financial services		S.12 financial corporations (see paragraph 2.40. e)
(1) With the exception of non-profit institutions of minor importance (see paragraph 2.88).

2.96. Public producers which by virtue of special legislation are recognized as independent legal entities and which are market producers are classified as follows:

2.97. Public producers not recognized as independent legal entities and which are market producers are classified as follows:

2.98. Non-profit institutions (associations, foundations) recognized as independent legal entities are classified as follows:

2.99. Sole proprietorships and partnerships not recognized as independent legal entities and which are market producers are classified as follows:

2.100. Holding corporations (i.e. corporations which direct a group of companies) are classified as follows:

2.101. Table 2.3 illustrates in schematic form the various cases which are enumerated above.

LOCAL KIND-OF-ACTIVITY UNITS AND INDUSTRIES

2.102. In practice, most institutional units producing goods and services are engaged in a combination of activities at the same time. They may be engaged in a principal activity, some secondary activites and some ancillary activities (see paragraphs 3.10 to 3.13).

2.103. An 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 and services), a production process and an output of products. Activities can be determined by reference to a specific level of  NACE Rev. 2 (⁴⁶).

2.104. If a unit carries out more than one activity, all the activites which are not ancillary activities are ranked according to the gross value added. On the basis of the preponderant gross value added generated, a distinction can then be made between principal activity and secondary activities. Ancillary activities are not isolated to form distinct entities or separated from the principal or secondary activities of entities they serve.

2.105. In order to analyse flows occurring in the process of production and in the use of goods and services, it is necessary to choose units which emphasize relationships of a technico-economic kind. This requirement means that as a rule institutional units must be partitioned into smaller and more homogeneous units with regard to the kind of production. Local kind-of-activity units are intended to meet this requirement as a first but practice-oriented operational approach.

2.106. Definition : The local kind-of-activity unit (local KAU) is the part of a KAU which corresponds to a local unit (⁴⁷). The KAU groups all the parts of an institutional unit in its capacity as producer contributing to the performance of an activity at class level (four digits) of the  NACE Rev. 2 and corresponds to one or more operational subdivisions of the institutional unit. The institutional unit's information system must be capable of indicating or calculating for each local KAU at least the value of production, intermediate consumption, compensation of employees, the operating surplus and employment and gross fixed capital formation The local unit is an institutional unit producing goods and services or a part thereof situated in a geographically identified place. A local KAU may correspond to an institutional unit as producer or a part thereof; on the other hand, it can never belong to two different institutional units.

2.107. If an institutional unit producing goods and services contains a principal activity and also one or several secondary activities, it should be subdivided into the same number of KAUs, and the secondary activities should be classified under different headings from the principal activity. On the other hand, the ancillary activities are not separated from the principal or secondary activities. But KAUs falling within a particular heading of 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. Thus a KAU may carry out one or more secondary activities.

2.108.

Definition: An industry consists of a group of local KAUs engaged in the same, or similar, kind-of-activity. At the most detailed level of classification, an industry consists of all the local KAUs falling within a single class (four digits) of  NACE Rev. 2 and which are therefore engaged in the same activity as defined in the  NACE Rev. 2. Industries comprise both local KAUs producing market goods and services and local KAUs producing non-market goods and services. An industry by definition consists of a group of local KAUs engaged in the same type of productive activity, irrespective of whether or not the institutional units to which they belong produce market or non-market output.

Definition:

An industry consists of a group of local KAUs engaged in the same, or similar, kind-of-activity. At the most detailed level of classification, an industry consists of all the local KAUs falling within a single class (four digits) of  NACE Rev. 2 and which are therefore engaged in the same activity as defined in the  NACE Rev. 2.

2.109. Industries may be classified in three categories:

CLASSIFICATION OF INDUSTRIES

2.110. The classification used for grouping local KAUs into industries is the  NACE Rev. 2.

UNITS OF HOMOGENEOUS PRODUCTION AND HOMOGENEOUS BRANCHES

2.111. The local KAU meets the requirements of production process analysis only approximately (see paragraphs 2.105 and 2.107). The unit which is optimal for this kind of analysis, i.e. input-output analysis, is the unit of homogeneous production.

2.112.

Definition: The distinguishing feature of a unit of homogeneous production is a unique activity which is identified by its inputs, a particular process of production and its outputs. The products which constitute the inputs and outputs are themselves distinguished not only by their physical characteristics and the extent to which they are processed but also by the technique of production used: they can be identified by reference to a classification of products (see paragraph 2.118).

Definition:

The distinguishing feature of a unit of homogeneous production is a unique activity which is identified by its inputs, a particular process of production and its outputs. The products which constitute the inputs and outputs are themselves distinguished not only by their physical characteristics and the extent to which they are processed but also by the technique of production used: they can be identified by reference to a classification of products (see paragraph 2.118).

2.113. If a goods and services producing institutional unit carries out a principal activity and also one or more secondary activities, it will be partitioned into the same number of units of homogeneous production. Ancillary activities are not separated from the principal or secondary activities. Just like the local KAU, 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.

2.114.	Definition: The homogeneous branch consists of a grouping of units of homogeneous production. The set of activities covered by a homogeneous branch is identified by reference to a product classification. The homogeneous branch produces those goods or services specified in the classification and only those products.
Definition:	The homogeneous branch consists of a grouping of units of homogeneous production. The set of activities covered by a homogeneous branch is identified by reference to a product classification. The homogeneous branch produces those goods or services specified in the classification and only those products.

2.115. Homogeneous branches are units designed for economic analysis. Units of homogeneous production cannot usually be observed directly; data collected from the units used in statistical enquiries have to be rearranged to. form homogeneous branches.

2.116. Homogeneous branches may be classified in three categories:

2.117. The homogeneous branches producing market goods and services and goods and services for own final use consist of all units of homogeneous production of whatever institutional sector which are exclusively engaged in the production of market goods and services or of goods and services for own final use. The production of market goods and services within the general government or non-profit institutions sectors (including those intended for themselves) are treated as units of homogeneous production and classified in an appropriate market branch. The non-market homogeneous branches of general government producing non-market goods and services consist of all units of homogeneous production in the general government sector which produce non-market goods and services. The non-market homogeneous branches of non-profit institutions serving households consist of all units of homogeneous production in the non-profit institutions serving households sector which produce non-market goods and services.

THE CLASSIFICATION OF HOMOGENEOUS BRANCHES

2.118. The classification of homogeneous branches used in the input-output tables is based on the Classification of Products by Activity (CPA) (⁵⁰). The CPA is a product classification whose elements are structured according to the industrial origin criterion, industrial origin being defined by  NACE Rev. 2.

CHAPTER 3

TRANSACTIONS IN PRODUCTS

3.01.	Definition: Products are all goods and services that are created within the production boundary. The latter is defined in paragraph 3.07.
Definition:	Products are all goods and services that are created within the production boundary. The latter is defined in paragraph 3.07.
3.02.	The following main categories of transactions in products are distinguished in the ESA: Transaction categories Code Output P.1 Intermediante consumption P.2 Final consumption expenditure P.3 Actual final consumption P.4 Gross capital formation P.5 Exports of goods and services P.6 Imports of goods and services P.7
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Transaction categories	Code
Output	P.1
Intermediante consumption	P.2
Final consumption expenditure	P.3
Actual final consumption	P.4
Gross capital formation	P.5
Exports of goods and services	P.6
Imports of goods and services	P.7

3.03. Transactions in products are recorded in the following accounts:

3.04. In the supply table, output and imports are recorded as supplies. In the use table, intermediate consumption, gross capital formation, final consumption expenditure and exports are registered as uses. In the symmetric input-output table, output and imports are recorded as supplies and the other transactions in products as uses.

3.05. Supplies of products are valued at basic prices (see paragraph 3.48). Uses of products are valued at purchasers' prices (see paragraph 3.06). For some types of supplies and uses, more specific valuation principles are used, e.g. for imports and exports of goods.

3.06.

Definition: At the time of purchase, the purchaser's price is the price the purchaser actually pays for the products; including any taxes less subsidies on the products (but excluding deductible taxes like VAT on the products); including any transport charges paid separately by the purchaser to take delivery at the required time and place; after deductions for any discounts for bulk or off-peak-purchases from standard prices or charges; excluding interest or services charges added under credit arrangements; excluding any extra charges incurred as a result of failing to pay within the period stated at the time the purchases were made. If the time of use does not coincide with the time of purchase, adjustments should be made in such a way to take account of the changes in price due to the lapsing of time (in a manner symmetrical with changes in the prices of the inventories). Such modifications are especially important if the prices of the products involved change drastically within a year.

Definition:

At the time of purchase, the purchaser's price is the price the purchaser actually pays for the products; including any taxes less subsidies on the products (but excluding deductible taxes like VAT on the products); including any transport charges paid separately by the purchaser to take delivery at the required time and place; after deductions for any discounts for bulk or off-peak-purchases from standard prices or charges; excluding interest or services charges added under credit arrangements; excluding any extra charges incurred as a result of failing to pay within the period stated at the time the purchases were made.

PRODUCTION AND OUTPUT

3.07.	Definition: Production is an activity carried out under the control and responsibility of an institutional unit that uses inputs of labour, capital and goods and services to produce goods and services. Production does not cover purely natural processes without any human involvement or direction, like the unmanaged growth of fish stocks in international waters (but fish farming is production).
Definition:	Production is an activity carried out under the control and responsibility of an institutional unit that uses inputs of labour, capital and goods and services to produce goods and services. Production does not cover purely natural processes without any human involvement or direction, like the unmanaged growth of fish stocks in international waters (but fish farming is production).

3.08. Production includes: All such activities are included even if they are illegal or not-registered with tax, social security, statistical and other public authorities.

3.09. Production excludes the production of domestic and personal services that are produced and consumed within the same household (with the exception of employing paid domestic staff and the services of owner-occupied dwellings). Cases in point are:

3.10.	Definition: The principal activity of a local KAU is the activitiy whose value added exceeds that of any other activity carried out within the same unit. The classification of the principal activity is determined by reference to  NACE Rev. 2, first at the highest level of the classification and then at more detailed levels.
Definition:	The principal activity of a local KAU is the activitiy whose value added exceeds that of any other activity carried out within the same unit. The classification of the principal activity is determined by reference to  NACE Rev. 2, first at the highest level of the classification and then at more detailed levels.
3.11.	Definition: A secondary activity is an activity carried out within a single local KAU in addition to the principal activity. The output of the secondary activity is a secondary product.
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Definition:	A secondary activity is an activity carried out within a single local KAU in addition to the principal activity. The output of the secondary activity is a secondary product.
3.12.	Definition: The output of an ancillary activity is not intended for use outside the enterprise. An ancillary activity is a supporting activity undertaken within an enterprise in order to create the conditions within which the principal or secondary activities of local KAUs can be carried out. Ancillary activities typically produce outputs that are commonly found as inputs into almost any kind of productive activity, small as well as large. Ancillary activities may be, e.g. purchasing, sales, marketing, accounting, data processing, transportation, storage, maintenance, cleaning and security services. Enterprises may have a choice between engaging in ancillary activities or purchasing such services on the market from specialist service producers. Own-account capital formation is not considered to be an ancillary activity.
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Definition:	The output of an ancillary activity is not intended for use outside the enterprise. An ancillary activity is a supporting activity undertaken within an enterprise in order to create the conditions within which the principal or secondary activities of local KAUs can be carried out. Ancillary activities typically produce outputs that are commonly found as inputs into almost any kind of productive activity, small as well as large.

3.13. Ancillary activities are treated as integral parts of the principal or secondary activities with which they are associated. As a result:

3.14.

Definition: Output consists of the products created during the accounting period. Particular cases included are: (a) the goods and services which one local KAU provides to a different local KAU belonging to the same institutional unit; (b) the goods which are produced by a local KAU and remain in inventories at the end of the period in which they are produced, whatever their subsequent use. However, goods or services produced and consumed within the same accounting period and within the same local KAU are not separately identified. They are therefore not recorded as part of the output or intermediate consumption of that local KAU.

Definition:

Output consists of the products created during the accounting period.

3.15. When an institutional unit contains more than one local KAU, the output of the institutional unit is the sum of the outputs of its component local KAUs, including outputs delivered between the component local KAUs.

3.16. Three types of output are distinguished in the ESA: This distinction is also applied to local KAUs and institutional units: The distinction, between market, for own final use and other non-market is fundamental, because it determines the valuation principles to be applied to output: market output, output produced for own final use and total output of market producers and producers for own final use are valued at basic prices, while the total output of other non-market producers (local KAUs) is valued from the costs side. The total output of an institutional unit is valued as the sum of the total outputs of its local KAUs and depends thus also on the distinction between market, for own final use and other non-market (see paragraphs 3.54 to 3.56). Furthermore, the distinction is also used to classify institutional units by sector (see paragraphs 3.27 to 3.37). The distinctions are defined in a top-down way, i.e. the distinction is first defined for institutional units, then for local KAUs and then for their output. As a consequence, the exact meaning of the distinction on the product level (i.e. the definition of the concepts of market output, output for own final use and other non-market output) can only be understood by looking also at features of the institutional unit and the local KAU that produce that output. After the general definitions of the three types of output and of the three types of producers (see paragraphs 3.17 to 3.26), the distinction between market, for own final use and other non-market is presented in a top-down way.

3.17.	Definition: Market output consists of output that is disposed of on the market (see paragraph 3.18) or intended to be disposed of on the market.
Definition:	Market output consists of output that is disposed of on the market (see paragraph 3.18) or intended to be disposed of on the market.

3.18. Market output includes:

3.19.	Definition: In the ESA, the economically significant price of a product is defined partly in relation to the institutional unit and local KAU that has produced the output (see paragraphs 3.27 to 3.40). For example, by convention all the output of unincorporated enterprises owned by households sold to other institutional units is sold at economically significant prices, i.e. is to be regarded as market output. For the output of some other institutional units, output is only sold at economically significant prices when more than 50 % of the production costs is covered by sales.
Definition:	In the ESA, the economically significant price of a product is defined partly in relation to the institutional unit and local KAU that has produced the output (see paragraphs 3.27 to 3.40). For example, by convention all the output of unincorporated enterprises owned by households sold to other institutional units is sold at economically significant prices, i.e. is to be regarded as market output. For the output of some other institutional units, output is only sold at economically significant prices when more than 50 % of the production costs is covered by sales.
3.20.	Definition: Output produced for own final use consists of goods or services that are retained either for final consumption by the same institutional unit or for gross fixed capital formation by the same institutional unit.
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Definition:	Output produced for own final use consists of goods or services that are retained either for final consumption by the same institutional unit or for gross fixed capital formation by the same institutional unit.

3.21. Products retained for own final consumption can only be produced by the household sector. Typical examples are:

3.22. Products used for own gross fixed capital formation can be produced by any sector. Examples are:

3.23.	Definition: Other non-market output covers output that is provided free, or at prices that are not economically significant, to other units. Other non-market output (P.13) can be subdivided into two items: ‘Payments for the other non-market output’ (P.131 ), which consist of various fees and charges, and ‘Other non-market output, other’ (P.132), covering output that is provided free.
Definition:	Other non-market output covers output that is provided free, or at prices that are not economically significant, to other units.
3.24.	Definition: Market producers are local KAUs or institutional units the major part of whose output is market output. It should be noted that if a local KAU or institutional unit is a market producer its main output is by definition market output, as the concept of market output is defined after having applied the distinction market, for own final use and other non-market to the local KAU and institutional unit that have produced that output.
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Definition:	Market producers are local KAUs or institutional units the major part of whose output is market output.
3.25.	Definition: Producers for own final use are local KAUs or institutional units the major part of whose output is for own final use within the same institutional unit.
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Definition:	Producers for own final use are local KAUs or institutional units the major part of whose output is for own final use within the same institutional unit.
3.26.	Definition: Other non-market producers are local KAUs or institutional units whose major part of output is provided free or at not economically significant prices.
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Definition:	Other non-market producers are local KAUs or institutional units whose major part of output is provided free or at not economically significant prices.
3.27.	For the institutional units as producers, the distinction between market, for own final use and other non market is summarized in table 3.1. The implications for the classification by sectors are also shown. Table 3.1 — The distinction between market producers, producers for own final use and other non-market producers for institutional units Type of institutional unit Classification Private or public? NPI or not? Sales cover more than 50 % of production costs? Type of producer Sector(s) 1. Private Producers 1.1.  Unincorporated enterprises owned by households (excluding quasi-corporate enterprises owned by households) 1.1. = Market or for own final use Households 1.2.  Other private producers (including quasi-corporate enterprises owned by households) 1.2.1.  Private NPIs 1.2.1.1.  Yes 1.2.1.1. = Market Corporations 1.2.1.2.  No 1.2.1.2. = Other non-market NPISH 1.2.2.  Other private producers that are not NPI 1.2.2. = Market Corporations 2. Public producers 2.1.  Yes 2.1. = Market Corporations 2.2.  No 2.2. = Other non-market General Government The table shows that in order to determine whether an institutional unit should be classified as a market producer, a producer for own-final use or another non-market producer several distinctions should be applied subsequently.
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Type of institutional unit	Classification
Private or public?
1. Private Producers	1.1.  Unincorporated enterprises owned by households (excluding quasi-corporate enterprises owned by households)
	1.2.  Other private producers (including quasi-corporate enterprises owned by households)
	1.2.1.2.  No
2. Public producers

3.28. The first distinction is that between private and public producers. A public producer is a producer that is controlled by the general government. In case of NPIs, a public producer is an NPI that is controlled and mainly financed by the general government. All other producers are private producers. Control is defined as the ability to determine the general (corporate) policy or programme of an institutional unit by appointing appropriate directors or managers, if necessary. Owning more than half the shares of a corporation is a sufficient, but not a necessary, condition for control (see paragraph 2.26).

3.29. As table 3.1 shows, private producers are found in all sectors except the sector general government. In contrast, public producers are only found in the corporations sectors (non-financial corporations and financial corporations) and in the general government sector.

3.30. A specific category of private producers are the unincorporated enterprises owned by households. These are always market producers or producers for own final use. The latter occurs in case of the production of services of owner-occupied dwellings and the own-account production of goods. All unincorporated enterprises owned by households are classified to the household sector. An exception should only be made for quasi-corporate enterprises owned by households. These are market producers and classified to the non-financial and financial corporations sectors.

3.31.

For the other private producers, a distinction should be made between private non-profit institutions and other private producers. Definition: A NPI is defined as a legal or social entity created for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gains for the units that establish, control or finance them. In practice, their productive activities are bound to generate either surpluses or deficits but any surpluses they happen to make cannot be appropriated by other institutional units. All the other private producers that are not NPIs are market producers. They are classified to the non-financial and financial corporations sectors.

Definition:

A NPI is defined as a legal or social entity created for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gains for the units that establish, control or finance them. In practice, their productive activities are bound to generate either surpluses or deficits but any surpluses they happen to make cannot be appropriated by other institutional units.

3.32. In order to determine the type of producer and the sector for the private NPIs, a 50 % criterion should be applied:

3.33. In distinguishing market and other non-market producers by means of the 50 % criterion, sales and production costs are defined as follows: The 50 % criterion should be applied by looking over a range of years: only if the criterion holds for several years or holds for the present year and is expected to hold for the near future, it should be applied strictly. Minor fluctuations in the size of sales from one year to another do not necessitate a reclassification of institutional units (and their local KAUs and output).

3.34. Sales may consist of various elements. For example, in case of the health care services provided by a hospital sales may correspond to: Only other subsidies on production and gifts (e.g. from charities) received are not treated as sales. Similarly, the sale of transport services by an enterprise may correspond to intermediate consumption by producers, income in kind provided by employers, social benefits in kind provided by the government and purchases by households without reimbursement.

3.35. Private non-profit institutions serving businesses are a special case. They are usually financed by contributions or subscriptions from the group of businesses concerned. The subscriptions are treated not as transfers but as payments for services rendered, i.e. as sales. These NPIs are therefore market producers and are classified in the non-financial and financial corporations sectors.

3.36. In applying the 50 % criterion to the sales and production costs of private or public NPIs, including in sales all the payments linked to volume of output may be misleading in some specific cases. This can apply e.g. to the financing of the output of private and public schools: the payments by the general government can be linked to the number of pupils but be the subject of negotiation with the general government. In such a case, these payments need not be regarded as sales though they have an explicit link with the volume of output, e.g. with the number of pupils. This implies that a school mainly financed by such payments is another non-market producer. When the school is a public producer, i.e. when it is mainly financed and controlled by the government, it should be classified in the sector general government. When the school is a private other non-market producer, it should be classified in the sector NPISHs.

3.37. Public producers can be market producers or other non-market producers. If the 50 % criterion decides that the institutional unit should be regarded as a market producer, it is classified in the non-financial and financial corporations sectors. The 50 % criterion decides also when a government unit should be treated as a quasi-corporation owned by the government: only when it meets the 50 % criterion, a quasi-corporation should be created. If the institutional unit is another non-market producer, it is classified in the sector general government. The distinction between NPIs and other producers is thus irrelevant for classifying public producers.

3.38.	After having applied the distinction market, for own final use and other non-market to institutional units as producers, the distinction can be applied to local KAU and their outputs. This relation is shown in table 3.2. Table 3.2 — Institutional units, local KAUs and output and the distinction between market, for own final use and other non-market Institutional unit Principal local Secondary local KAU(s) Principal output of principal local KAU Secondary output of principal local KAU Principal output of secondary local KAU Secondary output of secondary local KAU Market producer Market producer Market output Market output Output for own final use Market producer Market output Market output Output for own final use Producer for own final use Output for own final use Market output Producer for own final use Producer for own final use Output for own final use Market output Other non-market producer Other non-market producer Other non-market output Market output Output for own final use Other non-market output Market producer Market output Market output Output for own final use Other non-market producer Other non-market output Market output Output for own final use Other non-market output
Institutional unit	Principal local	Secondary local KAU(s)	Principal output of principal local KAU	Secondary output of principal local KAU	Principal output of secondary local KAU	Secondary output of secondary local KAU
Market producer	Market producer		Market output	Market output
				Output for own final use
		Market producer			Market output	Market output
						Output for own final use
		Producer for own final use			Output for own final use	Market output
Producer for own final use	Producer for own final use		Output for own final use	Market output
Other non-market producer	Other non-market producer		Other non-market output	Market output
				Output for own final use
				Other non-market output
		Market producer			Market output	Market output
						Output for own final use
		Other non-market producer			Other non-market output	Market output
						Output for own final use
						Other non-market output

3.39. For institutional units qualifying as market producers, the principal local KAU is of course also a market producer. The secondary local KAU can be a market producer, but also a producer for own final use. However, the secondary local KAU can by convention not be another non-market producer. This implies that the (secondary) local KAUs in the sectors non-financial corporations and financial corporations are all market producers or producers for own final use.

3.40. For institutional units that are other non-market producers, the principal local KAU will also be another non-market producer. The secondary local KAUs can be market producers or other non-market producers. This implies that the sectors general government and NPISH can contain some (secondary) local KAUs that are market producers (although all the institutional units in these sectors are other non-market producers). In order to determine whether the secondary local KAUs are market or other non-market producers the 50 % criterion should be applied.

3.41.	After having applied the distinction market, for own final use and other non-market to institutional units and their local KAUs, the distinction can be applied to the outputs of local KAUs. This relation is shown in table 3.3. Table 3.3 — The distinction market, for own final use and other non-market for local KAUs and their output Market producers Producers for own final use Other non-market producers Total Market output X x x Total market output Output for own final use x X x Total output for own final use Other non-market output 0 0 X Total other non-market output Total Total output by market producers Total output by producers for own final use Total output by other non-market producers Total output X = large output; x = small output; 0 = no output (by convention).
	Market producers	Producers for own final use	Other non-market producers	Total
Market output	X	x	x	Total market output
Output for own final use	x	X	x	Total output for own final use
Other non-market output	0	0	X	Total other non-market output
Total	Total output by market producers	Total output by producers for own final use	Total output by other non-market producers	Total output
X = large output; x = small output; 0 = no output (by convention).

3.42. By convention, local KAUs as market producers and as producers for own final use cannot supply other non-market output. Their output can thus only be recorded as market output or output for own final use and valued correspondingly (see paragraphs 3.46 to 3.52).

3.43. Local KAUs as other non-market producers can supply as secondary output market outputs and output for own final use. The output for own final use consists of own-account capital formation. The occurrence of market output should in principle be determined by applying the 50 % criterion to individual products: market output is output that is soldat at least 50 % of its production costs. This might be the case for instance when government hospitals charge economically significant prices for some of their services. Other examples are sales of reproductions by government museums and sales of weather forecasts by meteorological institutes.

3.44. In statistical practice, it may be difficult to make a clear distinction between the different products of local KAUs of government institutions and NPISHs. Even more, this is true for the production costs in relation to the different products. In that case, a simple solution is to treat all revenues of other non-market producers from their secondary activity (activities) as the revenues for one type of market output. This applies for example to a museum's revenues from the sale of posters and cards (⁵¹).

3.45. Other non-market producers may also have revenues from the sale of their other non-market output at not economically significant prices, e.g. the museum's revenues from tickets for entrance. These revenues pertain to other non-market output. However, if both types of revenues (revenues from tickets and those from the sale of posters and cards) are difficult to distinguish, they can all be treated as either revenues for market output or revenues from other non-market output. The choice between these two alternative registrations should depend on the assumed relative importance of both types of revenues (from tickets versus those from the sale of posters and cards).

3.46. Output is to be recorded and valued when it is generated by the production process.

3.47. All output is to be valued at basic prices, but specific conventions hold for:

3.48.

Definition: The basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output, minus any tax payable (see point 4.27) on that unit as a consequence of its production or sale (i.e. taxes on products), plus any subsidy receivable on that unit as a consequence of its production or sale (i.e. subsidies on products). It excludes any transport charges invoiced separately by the producer. It includes any transport margins charged by the producer on the same invoice, even when they are included as a separate item on the invoice.

Definition:

The basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output, minus any tax payable (see point 4.27) on that unit as a consequence of its production or sale (i.e. taxes on products), plus any subsidy receivable on that unit as a consequence of its production or sale (i.e. subsidies on products). It excludes any transport charges invoiced separately by the producer. It includes any transport margins charged by the producer on the same invoice, even when they are included as a separate item on the invoice.

3.49. Output for own final use (P.12) is to be valued at the basic prices of similar products sold on the market; as a consequence, net operating surplus or mixed income can occur for such output. This also applies to services of owner-occupied dwellings (see paragraph 3.64.). However, it will usually be necessary to value output of own-account construction by costs of production.

3.50. Additions to work-in-progress are valued in proportion to the estimated current basic price of the finished product.

3.51. If the value of output treated as work-in-progress is to be estimated in advance, it should be based on the actual costs incurred, plus a mark-up for the estimated operating surplus or an estimate of mixed income. The provisional estimates should subsequently be replaced by those obtained by distributing the actual value (when it becomes known) of the finished products. The latter is the sum of the values of:

3.52. For buildings and structures acquired in an incomplete state, a value is estimated based on costs to date, including a mark up for operating surplus or mixed income. This mark-up results when the value can be estimated on the basis of the prices of similar buildings and structure. The amounts of stage payments may be used to approximate the values of gross fixed capital formation undertaken by the purchaser at each stage (assuming no advance payments or arrears). If the own-account construction of a structure is not yet completed within a single accounting period, the value of the output and the corresponding gross fixed capital formation should be estimated by applying the fraction of the total costs of production incurred during the relevant period to the estimated current basic price. If it is not possible to estimate the basic price of the finished structure, it must be valued by its total costs of production. If some or all of the labour is provided free, as may happen with communal construction by households, an estimate of what the cost of paid labour would have been included in the estimated total production costs using wage rates for similar kinds of labour in the vicinity or region.

3.53. The total output of an other non-market producer (a local KAU) is to be valued at the total costs of production, i.e. the sum of: Other subsidies on production should be deducted. However, it should be realized that other subsidies on production to other non-market producers will often be absent in practice or only involve very small amounts (see paragraph 4.36). By convention, interest payments are not included as costs of other non-market production (though they could be regarded as major costs of production in some cases, e.g. in the case of housing corporations). The costs of other non-market production also do not include an imputation for the rental value of the non-residential buildings owned and used in other non-market production.

3.54. The total output of an institutional unit is the sum of the total output of its constituent local KAUs. This applies also to institutional units that are other non-market producers.

3.55. In the absence of secondary market output by other non-market producers (local KAUs), other non-market output is to be valued at the costs of production. In the case of secondary market output by other non-market producers, other non-market output is valued as a residual item i.e. as the difference between the total costs of production of other non-market producer minus their revenues from market output.

3.56. In principle, market output by other non-market producers is to be valued at basic prices. However, even though another non-market local KAU may have sales receipts, its total output covering both its market and its other non-market output (and possibly also output for own final use), is still valued by the production costs. The value of its market output is given by its receipts from sales of market products, the value of its other non-market output being obtained residually as the differences between on the one hand the values of its total output and, on the other hand, its market output and output for own final use. The value of its receipts from the sale of other non-market goods or services at prices that are not economically significant remain as part of the value of its other non-market output.

3.57. For some specific types of output, the times of recording and the valuation of output are subject to the following clarifications and exceptions, given in order of CPA sections.

3.58 The output of agricultural products should be recorded as being produced continuously over the entire period of production (and not simply when the crops are harvested or animals slaughtered). Growing crops, standing timber and stocks of fish or animals reared for purposes of food should be treated as inventories of work-in-progress during the process, and transformed into inventories of finished products when the process is completed.

3.59. When a contract of sale is agreed in advance for the construction of a building or other structure extending over several accounting periods, the output produced each period is treated as being sold to the purchaser at the end of the period: i.e. in the purchaser's fixed capital formation rather than work-in-progress in the construction industry. In effect, the output produced is treated as being sold to the purchaser in stages as the latter takes legal possession of the output. When the contract calls for stage payments, the value of the output may often be approximated by the value of stage payments made each period. In the absence of a contract of sale, however, the incomplete output produced each period is recorded as work-in-progress.

3.60.

G. Wholesale and retail trade services; repair services of motor vehicles, motorcycles and personal and household goodsThe output of wholesale and retail services is measured by the trade margins realized on the goods they purchase for resale. Definition: A trade margin is the difference between the actual or imputed price realized on a good purchased for resale and the price that would have to be paid by the distributor to replace the good at the time it is sold or otherwise disposed of. By convention, holding gains and losses are not included in the trade margin. However, in practice, data sources may not allow for separating out all the holding gains and losses.

Definition:

A trade margin is the difference between the actual or imputed price realized on a good purchased for resale and the price that would have to be paid by the distributor to replace the good at the time it is sold or otherwise disposed of.

3.61. The value of the output of the services of hotels, restaurants and cafes includes the value of the food, beverages, etc. consumed.

3.62. The output of transport services is measured by the value of the amounts receivable for transporting goods or persons. Transportation for own use within the local KAU is considered ancillary activity and is not separately identified and recorded. The output of storage services is measured as the value of an addition to work-in-progress, either additional output in the sense of transportation over time (e.g. storage on behalf of other local KAUs) or a physical change (e.g. in the case of the maturing of wine). The output of travel agency services is measured as the value of service charges of agencies (fees or commission charges) and not by the full expenditures made by travellers to the travel agency. The latter may e.g. also include charges for transport by third parties. The output of tour operator services is measured by the full expenditure made by travellers to the tour operator. The distinction between travel agency services and tour operator services is that travel agency services amount only to intermediation on behalf of the traveller, while tour operator services create a new product, i.e. a tour is arranged of which the prices of its various components (e.g. travel, accommodation and entertainment) are not recognizable as such for the traveller.

3.63.	J. Financial intermediation services (this includes insurance services and pension funding services)The output of financial intermediation for which no explicit charges are made is measured, by convention, as the total property income received by the units providing the services minus their total interest payments, excluding the value of any income received from the investment of their own funds (as such income does not arise from financial intermediation), and, in the case of secondary insurance activities by a financial intermediary, excluding the income from investment of insurance technical reserves. Holding gains and losses should be ignored in measuring this output, because throughout the system holding gains are not recorded in the production account but in a separate account (other changes in assets account). This applies also to holding gains on foreign exchange and securities by professional dealers (though their holding gains may be generally positive and be regarded by the dealers themselves as part of their normal revenues). However, the trade margins on foreign exchange and securities (i.e. the common differences between the purchasers' prices for the dealer and the purchasers' price for the buyer) are to be included in output, like for wholesale and retail traders. Analogously, there may also be data problems in distinguishing such trade margins from the holding gains; these should be overcome as best as possible. The output of services of financial intermediation provided by central banks should be measured in the same way as those provided by other financial intermediaries. The activity of money lenders who lend only their own funds is not treated as the production of services. Financial intermediaries may also provide various financial services and business services for which fees or commissions are explicitly charged. Cases in point can be e.g. currency exchange and advice about investments, the purchase of real estate or advice on taxation. The output of such services is valued on the basis of the fees or commissions charged. Output of insurance services (service charge) is measured as: total actual premiums earned plus total premium supplements (equal to the income from the investment of the insurance technical reserves) minus the total claims due minus the change in the actuarial reserves and reserves for with-profits insurance. Holding gains and losses are to be ignored in the measurement of the output of insurance services: they are not to be regarded as income from investment of the insurance technical reserves and they are not to be considerd as changes in the actuarial reserves and reserves for with-profits insurance. Notice that insurance technical reserves may be invested in secondary activities of the insurance company, e.g. the letting of dwellings or offices. In that case, the net operating surplus on these secondary activities is income from the investment of insurance technical reserves. Similarly, the output of pension funding services is measured as: total actual pension contributions plus total supplementary contributions (equal to the income from investment of the pension funds technical reserves) minus the benefits due minus the change in the actuarial reserves.
	total actual premiums earned
plus	total premium supplements (equal to the income from the investment of the insurance technical reserves)
minus	the total claims due
minus	the change in the actuarial reserves and reserves for with-profits insurance.
	total actual pension contributions
plus	total supplementary contributions (equal to the income from investment of the pension funds technical reserves)
minus	the benefits due
minus	the change in the actuarial reserves.

3.64. The output of services of owner-occupied dwellings should be valued at the estimated value of rental that a tenant would pay for the same accommodation, taking into account factors such as location, neighbourhoud amenities, etc. as well as the size and quality of the dwelling itself. For garages located separately from dwellings, which are used by the owner for final consumption purposes in connection with using the dwelling, a similar imputation is to be made. No imputation is to be made for garages used by their private owner only for the purpose of parking near the workplace. The rental value of owner-occupied dwellings abroad, e.g. holiday homes, should not be recorded as part of domestic production, but imports of services and the corresponding net operating surplus as primary income received from the rest of the world. For owner-occupied dwellings owned by non-residents, analogous entries should be made. In case of time-sharing apartments, a proportion of the service charge should be recorded as such. The output of real estate services of non-residential buildings is measured by the value of the rentals due. The output of operating leasing services (renting out machinery or equipment, etc.) is measured by the value of rental which the lessee pays to the lessor. It is clearly distinguished from financial leasing which is a method of financing the acquisition of fixed assets, i.e. by making a loan from the lessor to the lessee. In the case of financial leasing rentals consist (mainly) of repayments and interest payments, and the value of services is very small compared with the total rentals paid (see Annex II ‘Leasing and hire purchase of durable goods’). When possible, a separate local KAU should be distinguished for research and development activities (R&D). When this is not possible, all R&D of a significant size (compared to the principal activity) should be recorded as a secondary activity of the local KAU. The output of R&D services is measured as follows: Expenditure on R&D should be distinguished from that on education and training. Expenditure on R&D does not include the costs of developing software as a principal or secondary activity. However, their accounting treatment is nearly the same; the only difference is that software is regarded as a produced intangible asset and is not patented.

3.65. Public administration, defence services and compulsory social security services are always provided as other non-market services and should thus be valued accordingly.

3.66. For education services and health services it may often be necessary to draw precise borderlines between market and other non-market producers and between their market and other non-market output. For example, for some types of education and medical treatment nominal fees can be levied by government institutions (or by other institutions due to specific subsidies), but for other education and special medical treatments they may charge commercial tariffs. Another common case in point is that the same type of service (e.g. higher education) is provided by, on the one hand, the government (or its intermediation) and, on the other hand, commercial institutes. Then, often large differences exist between the prices charged and the quality of the services. Education and health services exclude R&D activities; health services exclude education in health care, e.g. by academic hospitals.

3.67. The production of books, recordings, films, software, tapes, disks, etc. a two-stage process and measured accordingly:

3.68. The output of household services produced by employing paid staff is by convention valued by the compensation of employees paid; this includes any compensation in kind such as food or accommodation.

INTERMEDIATE CONSUMPTION (P.2)

3.69.	Definition: Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services may be either transformed or used up by the production process.
Definition:	Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services may be either transformed or used up by the production process.

3.70. Intermediate consumption includes the following borderline cases:

3.71. Intermediate consumption excludes:

3.72. Products used for intermediate consumption should be recorded and valued at the time they enter the process of production. They are to be valued at the purchasers' prices for similar goods or services at that time.

3.73. In practice, producer units do not usually record the actual use of goods in production directly. They record the purchases intended to be used as inputs and the changes in the amounts of such goods held in inventory. Intermediate consumption has therefore to be estimated by subtracting from the purchases the changes in inventories of inputs (see paragraphs 3.120 to 3.124 for the correct valuation of the latter).

FINAL CONSUMPTION (P.3, P.4)

3.74. Two concepts of final consumption are used: Final consumption expenditure is a concept that refers to a sector's expenditure on consumption goods and services. In contrast, actual final consumption refers to its acquisition of consumption goods and services. The difference between these concepts lies in the treatment of certain goods and services financed by the government or NPISHs but supplied to households as social transfers in kind.

3.75.	Definition: Final consumption expenditure consists of expenditure incurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants or the collective needs of members of the community. Final consumption expenditure may take place on the domestic territory or abroad.
Definition:	Final consumption expenditure consists of expenditure incurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants or the collective needs of members of the community. Final consumption expenditure may take place on the domestic territory or abroad.

3.76. Household final consumption expenditure includes the following borderline cases:

3.77. Household final consumption expenditure excludes:

3.78. Final consumption expenditure of NPISHs includes two separate categories:

3.79. Final consumption expenditure (P.3) by government includes two categories of expenditures, similar to those by NPISHs:

3.80. Corporations do not make final consumption expenditures. Their purchases of the same kind of goods or services as used by households for final consumption are either used for intermediate consumption or provided to employees as compensation of employees in kind, i.e. imputed household final consumption expenditure. Even where, for example through advertising, they finance individual consumption, this expenditure is treated as intermediate.

3.81.	Definition: Actual final consumption consists of the goods or services that are acquired by resident institutional units for the direct satisfaction of human needs, whether individual or collective.
Definition:	Actual final consumption consists of the goods or services that are acquired by resident institutional units for the direct satisfaction of human needs, whether individual or collective.
3.82.	Definition: Goods and services for individual consumption (‘individual goods and services’) are acquired by a household and used to satisfy the needs and wants of members of that household. Individual goods and services have the following characteristics: (a) it must be possible to observe and record the acquisition of the good or services by an individual household or member thereof and also the time at which it took place; (b) the household must have agreed to the provision of the good or service and take whatever action is necessary to make it possible, for example by attending a school or clinic; (c) the good or service must be such that its acquisition by one household or person, or possibly by a small, restricted group of persons, precludes its acquisition by other households or persons.
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Definition:	Goods and services for individual consumption (‘individual goods and services’) are acquired by a household and used to satisfy the needs and wants of members of that household. Individual goods and services have the following characteristics: (a) it must be possible to observe and record the acquisition of the good or services by an individual household or member thereof and also the time at which it took place; (b) the household must have agreed to the provision of the good or service and take whatever action is necessary to make it possible, for example by attending a school or clinic; (c) the good or service must be such that its acquisition by one household or person, or possibly by a small, restricted group of persons, precludes its acquisition by other households or persons.
3.83.	Definition: Services for collective consumption (‘collective services’) are provided simultaneously to all members of the community or all members of a particular section of the community, such as all households living in a particular region. Collective services have the following characteristics: (a) they can be delivered simultaneously to every member of the community or to particular sections of the community, such as those in a particular region or locality; (b) the use of such services is usually passive and does not require the explicit agreement or active participation of all the individuals concerned; (c) the provision of a collective service to one individual does not reduce the amount available to others in the same community or section of the community. There is no rivalry in acquisition.
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Definition:	Services for collective consumption (‘collective services’) are provided simultaneously to all members of the community or all members of a particular section of the community, such as all households living in a particular region. Collective services have the following characteristics: (a) they can be delivered simultaneously to every member of the community or to particular sections of the community, such as those in a particular region or locality; (b) the use of such services is usually passive and does not require the explicit agreement or active participation of all the individuals concerned; (c) the provision of a collective service to one individual does not reduce the amount available to others in the same community or section of the community. There is no rivalry in acquisition.

3.84. All household final consumption expenditure is individual. By convention, all goods and services provided by NPISHs are treated as individual.

3.85. For the goods and services provided by government units, the borderline between individual and collective goods and services is drawn on the basis of the Classification of the Functions of Government (COFOG). By convention, all government final consumption expenditure under each of the following headings should be treated as expenditures on individual consumption: Alternatively individual consumption expenditure of general government corresponds to division 14 of the COICOP, which includes the following groups: The collective consumption expenditure is the remainder of the government final consumption expenditure. According to COFOG, it consists in particular of:

3.86.	The relationships between the various concepts employed can be shown in a table: Sector making expenditure Government NPISHs Households Total acquisitions Individual consumption X (= social transfers in kind) X (= social transfers in kind) X Households' actual individual final consumption Collective consumption X 0 0 Government's actual collective final consumption Total Government's final consumption expenditure NPISHs final consumption expenditure Households final consumption expenditure Actual final consumption = total final consumption expenditure
	Sector making expenditure
Government	NPISHs	Households	Total acquisitions
Individual consumption	X (= social transfers in kind)	X (= social transfers in kind)	X	Households' actual individual final consumption
Collective consumption	X	0	0	Government's actual collective final consumption
Total	Government's final consumption expenditure	NPISHs final consumption expenditure	Households final consumption expenditure	Actual final consumption = total final consumption expenditure

3.87. Final consumption expenditure of NPISHs is by convention all individual. As a consequence, total actual final consumption is equal to the sum of households actual final consumption and actual final consumption of general government.

3.88. By convention, there are no social transfers in kind with the rest of the world (though there are such transfers in monetary terms). As a consequence, total actual final consumption is equal to total final consumption expenditure.

3.89. As explained in chapter 1, goods and services should in general be recorded when the payables are created, that is, when the purchaser incurs a liability to the seller. This implies that expenditure on a good is to be recorded at the time its ownership changes; expenditure on a service is recorded when the delivery of the service is completed.

3.90. Expenditure on a good acquired under a hire purchase or similar credit agreement (and also under a financial lease) should be recorded at the time the good is delivered even if there is no legal change of ownership at this point.

3.91. Own-account consumption should be recorded when the output retained for own final consumption is produced.

3.92. The final consumption expenditure of households is recorded at purchasers' prices. This is the price the purchaser actually pays for the products at the time of the purchase. A more detailed definition can be found in paragraph 3.06.

3.93. Goods and services supplied as compensation of employees in kind are valued at basic prices when produced by the employer and at the purchasers' prices of the employer when bought in by the employer.

3.94. Retained goods or services for own consumption are valued at basic prices.

3.95. Final consumption expenditures by general government or NPISHs on products produced by themselves are recorded at the time they are produced, which is also the time of delivery of such services by government or NPISHs. For the final consumption expenditure on goods and services supplied via market producers, the time of delivery is the time of recording.

3.96. Final consumption expenditure (P.3) by general government or NPISHs are equal to the sum of their output (P.1), plus the expenditure on products supplied to households via market producers, part of social transfers in kind (D.6311 + D.63121 + D.63131), minus the payments by other units, market output (P.11) and payments for the other non-market output (P.131), minus own-account capital formation (corresponding to P.12).

3.97. Goods and services are acquired by institutional units when they become the new owners of the goods or when the delivery of goods or services to them is completed.

3.98. Acquisitions (actual final consumption) are valued at the purchasers' prices for the units that incur the expenditures. Transfers in kind other than social transfers in kind from government and NPISHs are treated as if they were transfers in cash. Accordingly, the values of the goods or services are actually recorded as expenditures by the institutional units or sectors that acquire them.

3.99. The values of the two aggregates of final consumption expenditure and actual final consumption are the same. The goods and services acquired by resident households through social transfers in kind, thus, are valued at the same prices at which they are valued in the expenditure aggregates.

GROSS CAPITAL FORMATION (P.5)

3.100. Gross capital formation consists of:

3.101. Gross capital formation means gross of consumption of fixed capital. Net capital formation is arrived at by deducting consumption of fixed capital from gross capital formation.

3.102.

Definition: Gross fixed capital formation (P.51) consists of resident producers' acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets realized by the productive activity of producer or institutional units. Fixed assets are tangible or intangible assets produced as outputs from processes of production that are themselves used repeatedly, or continuously, in processes of production for more than one year.

Definition:

Gross fixed capital formation (P.51) consists of resident producers' acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets realized by the productive activity of producer or institutional units. Fixed assets are tangible or intangible assets produced as outputs from processes of production that are themselves used repeatedly, or continuously, in processes of production for more than one year.

3.103. Gross fixed capital formation consists of both positive and negative values:

3.104. The disposals components of fixed assets exclude:

3.105. The following types of gross fixed capital formation may be distinguished:

3.106. Major improvements to land include: These activities may lead to the creation of substantial new structures such as sea walls, flood barriers and dams but these are not themselves used directly to produce other goods and services in the way that most structures are. Their construction is undertaken to obtain more or better land, and it is the land, a non-produced asset, that is needed for production. For example, a dam built to produce electricity serves quite a different purpose from a dam built to keep out the sea. Only building the latter type of dam should be classified as an improvement to land.

3.107. Gross fixed capital formation includes borderline cases like:

3.108. Gross fixed capital formation excludes:

3.109. Gross fixed capital formation in the form of improvements to existing fixed assets is to be classified with acquisitions of new fixed assets of the same kind.

3.110. Intangible fixed assets typically consist of new information, specialized knowledge, etc. and comprise:

3.111. For both fixed assets and non-produced non-financial assets, the costs of ownership transfer incurred by their new owner consist of: All these costs are to be recorded as gross fixed capital formation by the new owner. Note that the taxes are to be treated as taxes on the services of intermediaries and not as taxes on the asset bought.

3.112. Gross fixed capital formation is recorded when the ownership of the fixed assets is transferred to the institutional unit that intends to use them in production. Modification to this general rule is needed in case of: Assets acquired under a financial lease are recorded as if the user becomes the owner when he takes possession of the goods. Own account capital formation is recorded when produced.

3.113. Gross fixed capital formation is valued at purchasers' prices including installation charges and other costs of ownership transfer. When produced on own-account it is valued at the basic prices of similar fixed assets (which implies a mark-up for net operating surplus or mixed income) or at the costs of production if such prices are not available.

3.114. Acquisitions of intangible fixed assets are valued in different ways:

3.115. Disposals of existing fixed assets by sale are valued at the (basic) prices after deducting any costs of ownership transfer incurred by the seller.

3.116. Costs of ownership transfer can apply to both produced assets, including fixed assets, and non-produced assets, such as land. These costs are integrated in the purchasers' prices in the case of produced assets. They must be separated from the purchases and sales themselves in the case of land and other non-produced assets and recorded under a separate heading in the classification of gross fixed capital formation.

3.117.	Definition: Changes in inventories are measured by the value of the entries into inventories less the value of withdrawals and the value of any recurrent losses of goods held in inventories.
Definition:	Changes in inventories are measured by the value of the entries into inventories less the value of withdrawals and the value of any recurrent losses of goods held in inventories.

3.118. Due to physical deterioration, or accidental damage or pilfering, recurrent losses may occur to all kinds of goods in inventories, such as:

3.119. Inventories consists of the following categories:

3.120. The time of recording and valuation of changes in inventories should be consistent with that of other transactions in products. This applies in particular to intermediate consumption (e.g. for materials and supplies), output (e.g. work-in-progress and output from storage of agricultural products) and gross fixed capital formation (e.g. work-in-progress). Consistency is also required for processing-to-order flows. For example, if goods are processed abroad and it involves a substantial physical change in the goods, the goods are to be included in exports (and, later, in imports) (see paragraph 3.135). This export is reflected by a concomitant reduction in the inventories and the related import is later also recorded as an increase in the inventories (when not immediately used or sold).

3.121. Changes in inventories should be valued at the time of entering the inventories (for goods entering) or at the time of withdrawal (for goods withdrawn).

3.122. The prices used should be consistent with those of other flows, implying more specifically that:

3.123. Losses as a result of physical deterioration, insurable accidental damage or pilfering are recorded and valued as follows:

3.124. The previous paragraphs have described the conceptually correct valuation of each individual transaction in and out of inventories necessary to be consistent with the valuation of output, intermediate consumption and final uses. In practice, this will often prove too difficult to apply and approximation methods should be used: Note that seasonal changes in prices may partly reflect a difference in quality, e.g. clearance prices or off-season prices for fruit and vegetables. These changes in quality should be treated as changes in the volume.

3.125.	Definition: Valuables are non-financial goods that are not used primarily for production or consumption, do not deteriorate (physically) over time under normal conditions and that are acquired and held primarily as stores of value.
Definition:	Valuables are non-financial goods that are not used primarily for production or consumption, do not deteriorate (physically) over time under normal conditions and that are acquired and held primarily as stores of value.

3.126. Valuables encompass the following types of goods: These types of goods are to be recorded as acquisition or disposal of valuables in case of: In the ESA, by convention also the following cases are recorded as acquisition or disposal of valuables: This convention avoids frequent reclassification between the three main types of capital formation, i.e. between acquisition less disposal of valuables, fixed capital formation and changes in inventories, e.g. in the case of transactions of such goods between households and art dealers.

3.127. The production of valuables is valued at basic prices (see paragraph 3.67 on production of originals). All other acquisitions of valuables are valued at the purchasers' prices paid for them, including any agents' fees or commissions. They also include trade margins when bought from dealers. Disposals of valuables are valued at the prices received by sellers, after deducting any fees or commissions paid to agents or other intermediaries. Disregarding the production of valuables, in aggregate, acquisitions less disposals between resident sectors cancel out, leaving only agents or dealers margins.

IMPORTS AND EXPORTS OF GOODS AND SERVICES (P.6 and P.7)

3.128.	Definition: Exports of goods and services consist of transctions in goods and services (sales, barter, gifts or grants) from residents to non-residents.
Definition:	Exports of goods and services consist of transctions in goods and services (sales, barter, gifts or grants) from residents to non-residents.
3.129.	Definition: Imports of goods and services consist of transactions in goods and services (purchases, barter, gifts or grants) from non-residents to residents.
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Definition:	Imports of goods and services consist of transactions in goods and services (purchases, barter, gifts or grants) from non-residents to residents.

3.130. Imports and exports of goods and services do not include:

3.131. Imports and exports of goods and services should be distinguished into: For convenience they will both be referred to as imports and exports here.

3.132. Imports and exports of goods occur when there are changes of ownership of goods between residents and non-residents (whether or not there are also corresponding physical movements of goods across frontiers).

3.133. However, in four instances the change of ownership principle is modified in recording imports and exports of goods:

3.134. In the following cases exports of goods occur without the goods ever crossing the country's frontier. Analogous cases pertain to imports of goods.

3.135. Imports and exports of goods include transactions between residents and non-residents in:

3.136. Imports and exports of goods exclude the following goods which nevertheless may cross the national frontier:

3.137. In principle, imports and exports of goods should be recorded when the ownership of the goods is transferred. In practice, a change of ownership is considered to occur at the time the parties to the transaction record it in their books or accounts. This may not coincide with the various stages of the contractual process, like:

3.139. Proxies or substitute measures for the fob value may be necessary under certain circumstances, such as:

3.140.	Definition: Exports of services consist of all services rendered by residents to non-residents.
Definition:	Exports of services consist of all services rendered by residents to non-residents.
3.141.	Definition: Imports of services consist of all services rendered by non-residents to residents.
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Definition:	Imports of services consist of all services rendered by non-residents to residents.

3.142. Exports of services include the following borderline cases:

3.143. For imports of services most borderline cases are the mirror-image of those for exports of services; therefore, only a limited number of specific clarifications are necessary for imports of services.

3.144. Imports of transport services include the following borderline cases: Imports of transport services do not include transportation of exported goods after they have left the frontier of the exporting country when provided by a non-resident carrier (cases 5 and 6 in table 3.4). Exports of goods are valued fob and all such transport services are thus to be regarded as transactions between non-residents, i.e. between a non-resident carrier and a non-resident importer. This applies even when these transportation services are paid under export-cif-contracts by the exporter.

3.145. Imports in respect of direct purchases abroad by residents cover all purchases of goods and services made by residents while travelling abroad for business or personal purposes. Two categories must be distinguished because they require different treatment:

3.146.	Imports and exports of services are recorded at the time at which they are rendered, which mostly coincides with the time at which services are produced. Imports of services are to be valued at purchasers' price and exports of services at basic prices. Table 3.4 — The treatment of transportation of exported goods Explanation of how to read this table: the first part of this table indicates that there are six different possibilities of transportation of exported goods, depending on whether the carrier is resident or not and depending on where the transport takes place: from a place on the domestic territory to the national border, from the national border to the border of the importing country or from the border of the importing country to a place within the importing country. In the second part of this table, for each of these six possibilities, it is indicated whether they are to be recorded as exports of goods, exports of services, imports of goods or imports of services. Domestic territory Territory in between Territory of importing country 1. resident carrier => 2. resident carrier => 3. resident carrier => 4. non-resident carrier => 5. non-resident carrier => 6. non-resident carrier => Exports of goods (fob) Exports of services Imports of goods (cif/fob) Imports of services 1 X — — — 2 — X — — 3 — X — — 4 X — — X 5 — — — — 6 — — — — Table 3.5 — The treatment of transportation of imported goods Explanation of how to read this table: the first part of this table indicates that there are six different possibilities of transportation of imported goods, depending on whether the carrier is resident or not and depending on where the transport takes place: from a place in the exporting country to the border of this exporting country, from the border of the exporting country to the border of the importing country and from the border of the importing country to a place within the importing country. In the second part of this table, for each of these six possibilities, it is indicated whether they are to be recorded as imports of goods, imports of services, exports of goods or exports of services. In some instances (cases 2 and 5), this recording depends on the valuation principle applied for imported goods. Domestic territory Territory in between Territory of exporting country 1. resident carrier <= 2. resident carrier <= 3. resident carrier <= 4. non-resident carrier <= 5. non-resident carrier <= 6. non-resident carrier <= Valuation of imported goods Imports of goods Imports of services Exports of goods (fob) Exports of services 1 cif/fob — — — — 2 fob — — — — cif X — — X 3 cif/fob X — — X 4 cif/fob — X — — 5 fob — X — — cif X — — — 6 cif/fob X — — — Note that the transition from valuation of imported goods at cif to fob consists of: (a) cif/fob adjustment, i.e. from 2 cif to 2 fob (reduces total imports and exports); (b) cif/fob reclassification, i.e. from 5 cif to 5 fob (leaves total imports and exports unchanged).
Domestic territory	Territory in between	Territory of importing country
1. resident carrier =>	2. resident carrier =>	3. resident carrier =>
4. non-resident carrier =>	5. non-resident carrier =>	6. non-resident carrier =>
	Exports of goods (fob)	Exports of services	Imports of goods (cif/fob)	Imports of services
1	X	—	—	—
2	—	X	—	—
3	—	X	—	—
4	X	—	—	X
5	—	—	—	—
6	—	—	—	—
Domestic territory	Territory in between	Territory of exporting country
1. resident carrier <=	2. resident carrier <=	3. resident carrier <=
4. non-resident carrier <=	5. non-resident carrier <=	6. non-resident carrier <=
	Valuation of imported goods	Imports of goods	Imports of services	Exports of goods (fob)	Exports of services
1	cif/fob	—	—	—	—
2	fob	—	—	—	—
	cif	X	—	—	X
3	cif/fob	X	—	—	X
4	cif/fob	—	X	—	—
5	fob	—	X	—	—
	cif	X	—	—	—
6	cif/fob	X	—	—	—

TRANSACTIONS IN EXISTING GOODS

3.147.	Definition: Existing goods are goods that already have had a user (other than inventories).
Definition:	Existing goods are goods that already have had a user (other than inventories).

3.148. Existing goods include:

3.149. The transfer of existing goods is recorded as a negative expenditure (acquisition) for the seller and a positive expenditure (acquisition) for the purchaser.

3.150. This has the following consequences:

3.151. For the selling costs incurred by the former owner (costs of ownership transfer), a holding loss has to be recorded. A similar entry is to be made for the part of his original acquisition costs that has not been written down as consumption of fixed capital.

3.152. Transactions in existing goods should be recorded at the time ownership changes. The valuation principles to be applied are those appropriate to the type(s) of transactions in products involved.

CHAPTER 4

DISTRIBUTIVE TRANSACTIONS

4.01.	Definition: Distributive transactions consist of transactions by means of which the value added-generated by production is distributed to labour, capital and government, and of transactions involving the redistribution of income and wealth. The system draws a distinction between current and capital transfers, with the latter deemed to redistribute saving or wealth rather than income.
Definition:	Distributive transactions consist of transactions by means of which the value added-generated by production is distributed to labour, capital and government, and of transactions involving the redistribution of income and wealth.

COMPENSATION OF EMPLOYEES (D.1)

4.02.

Definition: Compensation of employees (D.1) is defined as the total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during the accounting period. Compensation of employees is broken down into: (a) wages and salaries (D.11): — wages and salaries in cash; — wages and salaries in kind; (b) employers' social contributions (D.12): — employers' actual social contributions (D.121); — employers' imputed social contributions (D.122).

Definition:

Compensation of employees (D.1) is defined as the total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during the accounting period.

4.03. Wages and salaries in cash include the values of any social contributions, income taxes, etc. payable by the employee even if they are actually withheld by the employer and paid directly to social insurance schemes, tax authorities, etc. on behalf of the employee: Wages and salaries in cash include the following kinds of remuneration:

4.04.

Definition: Wages and salaries in kind consist of good and services, or other benefits, provided free or at reduced prices by employers, that can be used by employees in their own time and at their own discretion, for the satisfaction of their own needs or wants or those of other members of their households. Those goods and services, or other benefits, are not necessary for the employers' production process. For the employees, those wages and salaries in kind represent an additional income: they would have paid a market price if they had bought these goods or services by themselves.

Definition:

Wages and salaries in kind consist of good and services, or other benefits, provided free or at reduced prices by employers, that can be used by employees in their own time and at their own discretion, for the satisfaction of their own needs or wants or those of other members of their households. Those goods and services, or other benefits, are not necessary for the employers' production process. For the employees, those wages and salaries in kind represent an additional income: they would have paid a market price if they had bought these goods or services by themselves.

4.05. The most common are: