LegalizeCouncil Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community
4.06. Goods and services, or other advantages, should be valued at basic prices when produced by the employer, and at purchasers' prices when purchased by the employer (that is, the price actually paid by the employer). When provided free, the whole value of the wages and salaries in kind is calculated according to the basic prices (or purchasers' prices of the employer when purchased by him) of the goods and services, or other advantages, in question. When provided at reduced prices, the value is given by the difference between the calculation explained above and the amount paid by the employee.
4.07. Wages and salaries do not include:
4.08. An amount equal to the value of the social contributions incurred by employers in order to secure for their employees the entitlement to social benefits needs to be recorded under compensation of employees. Employers' social contributions may be either actual or imputed.
| 4.09. | Definition: Employers' actual social contributions (D.121) consist of the payments made by employers for the benefit of their employees to insurers (social security funds and private funded schemes). These payments cover statutory, conventional, contractual and voluntary contributions in respect of insurance against social risks or needs (see paragraph 4.92.a) Although paid directly by employers to the insurers, these employers' contributions are treated as a component of the compensation of employees, who are then deemed to pay them over to the insurers. |
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| Definition: | Employers' actual social contributions (D.121) consist of the payments made by employers for the benefit of their employees to insurers (social security funds and private funded schemes). These payments cover statutory, conventional, contractual and voluntary contributions in respect of insurance against social risks or needs (see paragraph 4.92.a) |
4.10. Definition : Employers' imputed social contributions (D.122) represent the counterpart to unfunded social benefits (less eventual employees' social contributions) paid directly by employers to their employees or former employees and other eligible persons (53) without involving an insurance enterprise or autonomous pension fund, and without creating a special fund or segregated reserve for the purpose. The fact that certain social benefits are paid directly by employers, and not through the medium of social security funds or other insurers, in no way detracts from their character as social welfare benefits. However, since the costs of these benefits form part of employers' labour costs, they should also be included in the compensation of employees.
4.11. In the accounts of the sectors, the costs of direct social benefits appear first among uses in the generation of income account, as a component of the compensation of employees, and a second time among uses in the secondary distribution of income account, as social benefits. In order to balance the latter account, it is assumed that the households of employees pay back to the employers' sectors the employers' imputed social contributions which finance together with eventual employees' social contributions the direct social welfare benefits provided to them by these same employers. This notional circuit is similar to that for employers' actual social contributions, which pass through the accounts of households and are then deemed to be paid by them to the insurers. For the valuation of employers' imputed social contributions, the amount of which does not necessarily coincide with that of direct social benefits, reference should be made to heading D.612.
4.12. Time of recording of compensation of employees:
4.13. The compensation of employees may consist of: These different items are recorded in the ESA as follows:
TAXES ON PRODUCTION AND IMPORTS (D.2)
| 4.14. | Definition: Taxes on production and imports (D.2) consist of compulsory, unrequited payments, in cash or in kind which are levied by general government, or by the institutions of the European Union, in respect of the production and importation of goods and services, the employment of labour, the ownership or use of land, buildings or other assets used in production. These taxes are payable whether or not profits are made. |
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| Definition: | Taxes on production and imports (D.2) consist of compulsory, unrequited payments, in cash or in kind which are levied by general government, or by the institutions of the European Union, in respect of the production and importation of goods and services, the employment of labour, the ownership or use of land, buildings or other assets used in production. These taxes are payable whether or not profits are made. |
4.15. Taxes on production and imports are divided into:
| 4.16. | Definition: Taxes on products (D.21) are taxes that are payable per unit of some good or service produced or transacted. The tax may be a specific amount of money per unit of quantity of a good or service, or it may be calculated ad valorem as a specified percentage of the price per unit or value of the goods and services produced or transacted. As a general principle, taxes in fact assessed on a product, irrespective of which institutional unit pays the tax, are to be included in taxes on products, unless specifically included in another heading. |
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| Definition: | Taxes on products (D.21) are taxes that are payable per unit of some good or service produced or transacted. The tax may be a specific amount of money per unit of quantity of a good or service, or it may be calculated ad valorem as a specified percentage of the price per unit or value of the goods and services produced or transacted. As a general principle, taxes in fact assessed on a product, irrespective of which institutional unit pays the tax, are to be included in taxes on products, unless specifically included in another heading. |
| 4.17. | Definition: A value-added type tax (VAT) is a tax on goods or services collected in stages by enterprises and which is ultimately charged in full to the final purchasers. This heading value-added type taxes (D.211) comprises the value-added tax which is collected by the general government and which is applied to national and imported products, as well as, where appropriate, other deductible taxes applied under similar rules to those governing VAT, for simplicity henceforth called ‘VAT’. Producers are obliged to pay only the difference between the VAT on their sales and the VAT on their purchases for their own intermediate consumption or gross fixed capital formation. VAT is recorded net in the sense that: (a) outputs of goods and services and imports are valued excluding invoiced VAT; (b) purchases of goods and services are recorded inclusive of non-deductible VAT. VAT is recorded as being borne by purchasers, not sellers, and then only by those purchasers who are not able to deduct it. The greater part of VAT is therefore recorded in the system as being paid on final uses, mainly on household consumption. A part of VAT may, however, be paid by enterprises, mainly by those which are exempted from VAT. For the total economy, VAT is equal to the difference between total invoiced VAT and total deductible VAT (see point 4.27). |
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| Definition: | A value-added type tax (VAT) is a tax on goods or services collected in stages by enterprises and which is ultimately charged in full to the final purchasers. |
| 4.18. | Definition: Taxes and duties on imports excluding VAT (D.212) comprise compulsory payments levied by general government or the institutions of the European Union on imported goods, excluding VAT, in order to admit them to free circulation on the economic territory, and on services provided to resident units by non-resident units. These payments include: (a) import duties (D.2121): these consist of customs duties, or other import charges, payable according to customs tariff schedules on goods of a particular type when they enter for use in the economic territory of the country of utilization; (b) taxes on imports, excluding VAT and import duties (D.2122). This heading includes: 1. levies on imported agricultural products; 2. monetary compensatory amounts levied on imports; 3. excise duties and special taxes on certain imported products, provided such duties and taxes on similar products of domestic origin are paid by the producer branch itself; 4. general sales taxes payable on imports of goods and services; 5. taxes on specific services provided by non-resident enterprises to resident units within the economic territory; 6. profits of public enterprises exercising a monopoly over the imports of some good or service, which are transferred to the State. Net taxes and duties on imports excluding VAT are calculated by deducting import subsidies (D.311) from taxes and duties on imports excluding VAT (D.212). |
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| Definition: | Taxes and duties on imports excluding VAT (D.212) comprise compulsory payments levied by general government or the institutions of the European Union on imported goods, excluding VAT, in order to admit them to free circulation on the economic territory, and on services provided to resident units by non-resident units. |
| 4.19. | Definition: Taxes on products, except VAT and import taxes (D.214) consist of taxes on goods and services that become payable as a result of the production, export, sale, transfer, leasing or delivery of those goods or services, or as a result of their use for own consumption or own capital formation. |
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| Definition: | Taxes on products, except VAT and import taxes (D.214) consist of taxes on goods and services that become payable as a result of the production, export, sale, transfer, leasing or delivery of those goods or services, or as a result of their use for own consumption or own capital formation. |
4.20. This heading includes, in particular:
4.21. Net taxes on products are obtained by deducting subsidies on products (D.31) from taxes on products (D.21).
| 4.22. | Definition: Other taxes on production (D.29) consist of all taxes that enterprises incur as a result of engaging in production, independent of the quantity or value of the goods and services produced or sold. They may be payable on the land, fixed assets or labour employed in the production process or on certain activities or transactions. |
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| Definition: | Other taxes on production (D.29) consist of all taxes that enterprises incur as a result of engaging in production, independent of the quantity or value of the goods and services produced or sold. |
4.23. Other taxes on production (D.29) include in particular:
4.24. This heading excludes taxes on the personal use of vehicles etc. by households, which are recorded under current taxes on income, wealth, etc.
4.25. The taxes on production and imports paid to the institutions of the European Union include, in particular:
4.26. Recording of taxes on production and imports: taxes on production and imports are recorded when the activities, transactions or other events occur which create the liabilities to pay taxes.
4.27. However, some economic activities, transactions or events, which under tax legislation ought to impose on the units concerned the obligation to pay taxes, permanently escape the attention of the tax authorities. It would be unrealistic to assume that such activities, transactions or events give rise to financial assets or liabilities in the form of payables or receivables. For this reason, the amounts to be recorded in the system are determined by the amounts due for payment only when evidenced by tax assessments, declarations or other instruments which create liabilities in the form of clear obligations to pay on the part of taxpayers. The system does not impute missing taxes not evidenced by tax assessments. Taxes recorded in the accounts may be derived from two sources: amounts evidenced by assessments and declarations or cash receipts.
4.28. The total value of the taxes which should be recorded includes any interest charged on arrears of taxes due and any fines imposed by taxation authorities if it is impossible to record such interest and fines separately from taxes; it also includes any charges which may be imposed in connection with the collection or recovery of taxes outstanding. Correspondingly, it is reduced by the amount of any tax rebates made by general government as a matter of economic policy and any tax refunds made as a result of over-payments.
4.29. In the system of accounts, taxes on production and imports (D.2) appear: Taxes on products are recorded as resources in the goods and services account of the total economy. This enables the resources of goods and services — valued exclusive of taxes on products — to be balanced with the uses, which are valued inclusive of these taxes. Other taxes on production (D.29) appear among uses in the generation of income accounts of the industries or sectors which pay them.
SUBSIDIES (D.3)
4.30. Definition : Subsidies (D.3) are current unrequited payments which general government or the institutions of the European Union make to resident (54) producers, with the objective of influencing their levels of production, their prices or the remuneration of the factors of production. Other non-market producers can receive other subsidies on production only if those payments depend on general regulations applicable to market and non-market producers as well. By convention, subsidies on products are not recorded on other non-market output (P.13).
4.31. Subsidies granted by the institutions of the European Union cover only current transfers made directly by them to resident producer units.
4.32. Subsidies are classified into:
| 4.33. | Definition: Subsidies on products (D.31) are subsidies payable per unit of a good or service produced or imported. The subsidy may be a specific amount of money per unit of quantity of a good or service, or it may be calculated ad valorem as a specified percentage of the price per unit. A subsidy may also be calculated as the difference between a specified target price and the market price actually paid by a buyer. A subsidy on a product usually becomes payable when the good is produced, sold or imported. By convention, subsidies on products can only pertain to market output (P.11) or to output for own final use (P.12). |
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| Definition: | Subsidies on products (D.31) are subsidies payable per unit of a good or service produced or imported. The subsidy may be a specific amount of money per unit of quantity of a good or service, or it may be calculated ad valorem as a specified percentage of the price per unit. A subsidy may also be calculated as the difference between a specified target price and the market price actually paid by a buyer. A subsidy on a product usually becomes payable when the good is produced, sold or imported. By convention, subsidies on products can only pertain to market output (P.11) or to output for own final use (P.12). |
| 4.34. | Definition: Import subsidies (D.311) consist of subsidies on goods and services that become payable when the goods cross the frontier for use in the economic territory or when the services are delivered to resident institutional units. They may include losses incurred as a matter of deliberate government policy by government trading organizations whose function is to purchase products from non-residents and then sell them at lower prices to residents. |
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| Definition: | Import subsidies (D.311) consist of subsidies on goods and services that become payable when the goods cross the frontier for use in the economic territory or when the services are delivered to resident institutional units. They may include losses incurred as a matter of deliberate government policy by government trading organizations whose function is to purchase products from non-residents and then sell them at lower prices to residents. |
4.35. Other subsidies on products (D.319) include:
| 4.36. | Definition: Other subsidies on production (D.39) consist of subsidies except subsidies on products which resident producer units may receive as a consequence of engaging in production. For their other non-market output, other non-market producers can receive other subsidies on production only if those payments from general government depend on general regulations applicable to market and non-market producers as well. |
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| Definition: | Other subsidies on production (D.39) consist of subsidies except subsidies on products which resident producer units may receive as a consequence of engaging in production. For their other non-market output, other non-market producers can receive other subsidies on production only if those payments from general government depend on general regulations applicable to market and non-market producers as well. |
4.37. This heading includes in particular:
4.38. The following are not treated as subsidies:
4.39. Time of recording: Subsidies are recorded when the transaction or the event (production, sale, import, etc.) which gives rise to the subsidy occurs. Particular cases:
4.40. In the system of accounts, subsidies appear: Subsidies on products are recorded as negative resources in the goods and services account of the total economy. This enables the resources of goods and services to be balanced with the uses. Other subsidies on production (D.39) appear among negative uses in the generation of income accounts of the industries or sectors which receive them. Consequences of a system of multiple exchange rates on taxes on production and imports and on subsidies: multiple exchange rates are not currently applicable among the Member States of the European Union. In such a system:
PROPERTY INCOME (D.4)
| 4.41. | Definition: Property income (D.4) is the income receivable by the owner of a financial asset or a tangible non-produced asset in return for providing funds to, or putting the tangible non-produced asset at the disposal of, another institutional unit. Property incomes are classified in the following way in the system: (a) interest (D.41); (b) distributed income of corporations (D.42): 1. dividends (D.421); 2. withdrawals from income of quasi-corporations (D.422); (c) reinvested earnings on direct foreign investment (D.43); (d) property income attributed to insurance policy holders (D.44); (e) rents (D.45). |
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| Definition: | Property income (D.4) is the income receivable by the owner of a financial asset or a tangible non-produced asset in return for providing funds to, or putting the tangible non-produced asset at the disposal of, another institutional unit. |
| 4.42. | Definition: Under the terms of the financial instrument agreed between them, interest (D.41) is the amount that the debtor becomes liable to pay to the creditor over a given period of time without reducing the amount of principal outstanding. |
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| Definition: | Under the terms of the financial instrument agreed between them, interest (D.41) is the amount that the debtor becomes liable to pay to the creditor over a given period of time without reducing the amount of principal outstanding. |
4.43. Creditors lend funds to debtors that lead to creation of one or other of the financial instruments listed below. This form of property income is receivable by the owners of certain kinds of financial assets:
4.44. The interest receivable and payable on these financial assets and liabilities is determined by applying the relevant rate of interest to the principal outstanding at each point of time throughout the accounting period.
4.45. The difference between the face value and the price paid at the time of issue (i.e. the discount) measures the interest payable over the life of the bill. The increase in the value of a bill due to the accumulation of accrued interest does not constitute a holding gain because it is due to an increase in the principal outstanding and not a change in the price of the asset. Other changes in the value of the bill are treated as holding gains/losses.
4.46. Bonds and debentures are long-term securities that give the holder the unconditional right to: a fixed or contractually determined variable money income in the form of coupon payments, or a stated fixed sum on a specified date or dates when the security is redeemed, or both these two terms.
4.47. No payment resulting from any kind of swap arrangement is to be considered as interest and recorded under property income. (See paragraphs 5.67(d) and 5.139(c) relative to financial derivatives). Similarly, transactions under forward rate agreements are not to be recorded as property income. (See paragraph 5.67(e)).
4.48. A financial lease is an alternative to lending as a method of financing the purchase of machinery and equipment. It is a contract which channels funds from a lender to a borrower: the lessor purchases the equipment and the lessee contracts to pay rentals which enable the lessor, over the period of the contract, to recover all, or virtually all, of his costs including interest. The lessor is treated as making a loan to the lessee equal to the value of the purchaser's price paid for the asset, this loan being gradually paid off in full over the period of the lease. The rental paid each period by the lessee is therefore treated as having two components: a repayment of principal and a payment of interest. The rate of interest on the imputed loan is implicitly determined by the total amount paid in rentals over the life of the lease in relationship to the purchaser's price of the asset. The share of the rental that represents interest gradually declines over the life of the lease as the principal is repaid. The initial loan by the lessee, together with the subsequent repayments of principal, are recorded in the Financial Accounts of the lessor and lessee. The interest payments are recorded under interest in their respective Primary Distribution of Income Accounts.
4.49. The following are also treated as interest:
4.50. Interest is recorded on an accrual basis: that is, interest is recorded as accruing continuously over time to the creditor on the amount of principal outstanding. The interest accruing in each accounting period must be recorded whether or not it is actually paid or added to the principal outstanding. When it is not actually paid, the increase in the principal must also be recorded in the Financial Account as a further acquisition of that kind of financial asset by the creditor and an equal acquisition of a liability by the debtor.
4.51. Interest is to be recorded before the deduction of any taxes levied on it. Interest received and paid is always recorded inclusive of grants for interest relief, even if those grants are directly paid to financial institutions and not to the beneficiaries (see subsidies). The value of the services provided by financial intermediaries not being allocated among different customers, the actual payments or receipts of interest to or from financial intermediaries are not adjusted to eliminate the margins that represent the implicit charges made by financial intermediaries. An adjustment item is needed in the allocation of primary income account of financial intermediaries and of a nominal industry to which, by convention, the whole output of financial intermediaries is allocated as intermediate consumption.
4.52. In the system of accounts, interest is shown:
| 4.53. | Definition: Dividends (D.421) are a form of property income received by owners of shares (AF.5) to which they become entitled as a result of placing funds at the disposal of corporations. Raising equity capital through the issue of shares is an alternative way of raising funds to borrowing. In contrast to loan capital, however, equity capital does not give rise to a liability that is fixed in monetary terms and it does not entitle the holders of shares of a corporation to a fixed or predetermined income. |
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| Definition: | Dividends (D.421) are a form of property income received by owners of shares (AF.5) to which they become entitled as a result of placing funds at the disposal of corporations. Raising equity capital through the issue of shares is an alternative way of raising funds to borrowing. In contrast to loan capital, however, equity capital does not give rise to a liability that is fixed in monetary terms and it does not entitle the holders of shares of a corporation to a fixed or predetermined income. |
4.54. This heading also includes:
4.55. Time of recording: dividends are recorded at the time they are due to be paid as determined by the corporation. In the system of accounts, dividends appear:
| 4.56. | Definition: Withdrawals from the income of quasi-corporations (D.422) consist of the amounts which entrepreneurs actually withdraw for their own use from the profits earned by the quasi-corporations which belong to them. |
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| Definition: | Withdrawals from the income of quasi-corporations (D.422) consist of the amounts which entrepreneurs actually withdraw for their own use from the profits earned by the quasi-corporations which belong to them. |
4.57. These amounts are to be recorded before the deduction of any current taxes on income, wealth, etc. which are deemed always to be paid by the owners of the businesses.
4.58. When a quasi-corporation makes a trading profit, the unit which owns it may choose to leave part or all of the profit in the business, especially for investment purposes. This income left in the business appears as saving by the quasi-corporation, and only the profits actually withdrawn by the owner units are recorded in the accounts under the heading withdrawals from the income of quasi-corporations.
4.59. When profits are earned in the rest of the world by the branch-offices, agencies, etc. of resident enterprises, in so far as these branch-offices etc. are treated as non-resident units, retained earnings appear as reinvested earnings on direct foreign investment (D.43). Only the income actually transferred to the parent enterprise is treated in the accounts as withdrawals from the income of quasi-corporations received from the rest of the world. The same principles are applied to deal with the relations between branch-offices, agencies, etc. operating on the economic territory and the non-resident parent enterprise to which they belong.
4.60. This heading includes the net operating surplus received by residents as owners of land and buildings in the rest of the world, or by non-residents as owners of land or buildings on the economic territory. In effect, in respect of all transactions in land and buildings carried out on the economic territory of a country by non-resident units, the latter are considered, in accordance with the conventions adopted in the ESA, to be notional resident units in which the non-resident owners own the equity. The rental value of owner-occupied dwellings abroad is registered as imports of services and the corresponding net operating surplus as primary income received from the rest of the world; the rental value of owner-occupied dwellings belonging to non-residents is registered as exports of services and the corresponding net operating surplus as primary income paid to the rest of the world.
4.61. The heading withdrawals from the income of quasi-corporations does not include amounts which their owners receive: These amounts are treated as withdrawals from equity in the financial account. Conversely, any funds provided by the owner(s) of a quasi-corporation for the purpose of acquiring assets or reducing its liabilities is treated as additions to its equity. However, if the quasi-corporation is owned by government, and if it runs a persistent operating deficit as a matter of deliberate government economic and social policy, any regular transfers of funds into the enterprise made by government to cover its losses should be treated as subsidies.
4.62. Time of recording: withdrawals from the income of quasi-corporations are recorded when they are made by the owners.
4.63. In the system of accounts, withdrawals from the income of quasi-corporations appear:
| 4.64. | Definition: Reinvested earnings on direct foreign investment (D.43) are equal to: the operating surplus of the direct foreign investment enterprise plus any property incomes or current transfers receivable minus any property incomes or current transfers payable, including actual remittances to foreign direct investors and any current taxes payable on the income, wealth, etc., of the direct foreign investment enterprise. | |
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| Definition: | Reinvested earnings on direct foreign investment (D.43) are equal to: | |
| the operating surplus of the direct foreign investment enterprise | ||
| plus | any property incomes or current transfers receivable | |
| minus | any property incomes or current transfers payable, including actual remittances to foreign direct investors and any current taxes payable on the income, wealth, etc., of the direct foreign investment enterprise. |
4.65. A direct foreign investment enterprise is an incorporated or unincorporated enterprise in which an investor resident in another economy owns 10 % or more of the ordinary shares or voting power (for an incorporated enterprise) or the equivalent (for an unincorporated enterprise). Direct foreign investment enterprises comprise those entities that are identified as subsidiaries (investor owns more than 50 %), associates (investor owns 50 % or less) and branches (wholly or jointly owned unincorporated enterprises), either directly or indirectly owned by the investor. Consequently, ‘direct foreign investment enterprises’ is a broader concept than ‘foreign controlled corporations’.
4.66. Actual distributions may be made out of the entrepreneurial income of direct foreign investment enterprises in the form of dividends or withdrawals of income from quasi-corporations. In addition, retained earnings are treated as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested by them. Reinvested earnings on direct foreign investment can be either positive or negative.
4.67. Time of recording: reinvested earnings on direct foreign investment are recorded when they are earned. In the system of accounts, reinvested earnings on direct foreign investment appear:
| 4.68. | Definition: Property income attributed to insurance policy holders corresponds to total primary incomes received from the investment of insurance technical reserves. Insurance technical reserves are invested by insurance enterprises and pension funds in financial assets or land (from which net property income, i.e. after deducting any interest paid, is received) or in buildings (which generate net operating surpluses). Any net income received that results from the investment of insurance enterprises' own funds is to be excluded in proportion to the ratio between own funds and a sum of own funds and insurance technical reserves. |
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| Definition: | Property income attributed to insurance policy holders corresponds to total primary incomes received from the investment of insurance technical reserves. Insurance technical reserves are invested by insurance enterprises and pension funds in financial assets or land (from which net property income, i.e. after deducting any interest paid, is received) or in buildings (which generate net operating surpluses). Any net income received that results from the investment of insurance enterprises' own funds is to be excluded in proportion to the ratio between own funds and a sum of own funds and insurance technical reserves. |
4.69. Since technical reserves are assets of insurance policy holders, the receipts from investing them are shown in the accounts as being paid by insurance enterprises and pension funds to the policy holders in the form of property income attributed to insurance policy holders. As this income is retained by insurance enterprises and pension funds in practice, it is therefore treated as being paid back to the insurance enterprises and pension funds in the form of premium and contribution supplements that are additional to actual premiums and contributions payable. These premium and contribution supplements on non-life insurance policies and on life insurance policies taken out under social insurance schemes are recorded together with the actual premiums and contributions in the secondary distribution of income accounts of the units concerned. The premium supplements on individual life insurance not taken out under social insurance schemes, like the actual premiums, are not current transfers and are therefore not recorded in the secondary distribution of income accounts. They are directly included as one of the elements contributing to the change in the ‘net equity of households in life insurance reserves and in pension funds reserves’ recorded in the financial accounts of the units concerned.
4.70. Time of recording: property income attributed to insurance policy holders is recorded when it accrues.
4.71. In the system of accounts, the property income attributed to insurance policy holders appears:
4.72. The rent received by a landowner from a tenant constitutes a form of property income. This heading also includes the rents payable to the owners of inland waters and rivers for the right to exploit such waters for recreational or other purposes, including fishing. A landowner may be liable to pay land taxes or incur certain maintenance expenses solely as a consequence of owning the land. By convention, such taxes and expenses are treated as payable by the person entitled to use the land, who is deemed to deduct them from the rent that he would otherwise be obliged to pay to the landowner.
4.73. Rents on land do not include the rentals of buildings and of dwellings situated on it; those rentals are treated as the payment for a market service provided by the owner to the tenant of the building or dwelling, and are shown in the accounts as the intermediate or final consumption of the tenant unit. If there is no objective basis on which to split the payment between rent on land and rental on the buildings situated on it, the whole amount is treated as rent when the value of the land is believed to exceed the value of the buildings on it and as rental otherwise.
4.74. This heading includes the royalties that accrue to owners of deposits of minerals or fossil fuels (coal, oil or natural gas) who grant leases to other institutional units permitting them to explore or to extract such deposits over a specified period of time.
4.75. Time of recording of rents: rents are recorded in the period when payable.
4.76. In the system of accounts, rents are recorded:
CURRENT TAXES ON INCOME, WEALTH, ETC. (D.5)
| 4.77. | Definition: Current taxes on income, wealth, etc. (D.5) cover all compulsory, unrequited payments, in cash or in kind, levied periodically by general government and by the rest of the world on the income and wealth of institutional units, and some periodic taxes which are assessed neither on the income nor the wealth. Current taxes on income, wealth, etc. are divided into: (a) taxes on income (D.51); (b) other current taxes (D.59). |
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| Definition: | Current taxes on income, wealth, etc. (D.5) cover all compulsory, unrequited payments, in cash or in kind, levied periodically by general government and by the rest of the world on the income and wealth of institutional units, and some periodic taxes which are assessed neither on the income nor the wealth. |
| 4.78. | Definition: Taxes on income (D.51) consist of taxes on incomes, profits and capital gains. They are assessed on the actual or presumed incomes of individuals, households, corporations or NPIs. They include taxes assessed on holdings of property, land or real estate when these holdings are used as a basis for estimating the income of their owners. Taxes on income include: (a) taxes on individual or household income (income from employment, property, entrepreneurship, pensions, etc.), including taxes deducted by employers (pay-as-you-earn taxes). Taxes on the income of owners of unincorporated enterprises are included here; (b) taxes on the income or profits of corporations; (c) taxes on holding gains; (d) taxes on winnings from lottery or gambling, payable on the amounts received by winners as distinct from taxes on the turnover of producers that organize gambling or lotteries which are treated as taxes on products. |
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| Definition: | Taxes on income (D.51) consist of taxes on incomes, profits and capital gains. They are assessed on the actual or presumed incomes of individuals, households, corporations or NPIs. They include taxes assessed on holdings of property, land or real estate when these holdings are used as a basis for estimating the income of their owners. |
4.79. Other current taxes (D.59) include:
4.80. Current taxes on income, wealth, etc. do not include:
4.81. The total value of the taxes which should be recorded includes any interest charged on arrears of taxes due and any fines imposed by taxation authorities if it is impossible to record such interest and fines separately; it also includes any charges which may be imposed in connection with the recovery and assessment of taxes outstanding. Correspondingly, it is reduced by the amount of any rebates made by general government as a matter of economic policy and any refunds made as a result of over-payments.
4.82. Recording of current taxes on income, wealth, etc.: current taxes on income, wealth, etc. are recorded at the time when activities, transactions or other events occur which create the liabilities to pay. However, some economic activities, transactions or events, which under tax legislation ought to impose on the units concerned the obligation to pay taxes, permanently escape the attention of the tax authorities. It would be unrealistic to assume that such activities, transactions or events give rise to financial assets or liabilities in the form of payables or receivables. For this reason, the amounts to be recorded in the system are determined by the amounts due for payment only when evidenced by tax assessments, declarations or other instruments which create liabilities in the form of clear obligations to pay on the part of taxpayers. The system does not impute missing taxes not evidenced by tax assessments. Taxes recorded in the accounts may be derived from two sources: amounts evidenced by assessments and declarations or cash receipts. When retained at source by the employer, current taxes on income, wealth, etc. should be included in wages and salaries even if the employer did not in fact pass them on to the general government. The households sector is then shown as paying the full amount on to the general government sector. The amounts actually unpaid have to be neutralised under D.995 as a capital transfer from general government to the employers' sectors. In some cases, the liability to pay income taxes can only be determined in a later accounting period than that in which the income accrues. Some flexibility is therefore needed in the time at which such taxes are recorded. Income taxes deducted at source, such as PAYE taxes and regular prepayments of income taxes, may be recorded in the periods in which they are paid and any final tax liability on income can be recorded in the period in which the liability is determined. In the system of accounts, current taxes on income, wealth, etc. are recorded:
SOCIAL CONTRIBUTIONS AND BENEFITS (D.6)
| 4.83. | Definition: Social benefits are transfers to households, in cash or in kind, intended to relieve them from the financial burden of a number of risks or needs, made through collectively organized schemes, or outside such schemes by government units and NPISHs; they include payments from general government to producers which individually benefit households and which are made in the context of social risks or needs. |
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| Definition: | Social benefits are transfers to households, in cash or in kind, intended to relieve them from the financial burden of a number of risks or needs, made through collectively organized schemes, or outside such schemes by government units and NPISHs; they include payments from general government to producers which individually benefit households and which are made in the context of social risks or needs. |
4.84. The list of risks or needs which may give rise to social benefits is, by convention, fixed as follows:
4.85. Social benefits include:
4.86. Social benefits exclude:
4.87. In order for an individual policy to be treated as part of a social insurance scheme, the eventualities or circumstances against which the participants are insured must correspond to the risks or needs listed in paragraph 4.84 above, and in addition, one or more of the following conditions must be satisfied:
4.88. Social insurance schemes are schemes in which workers are obliged, or encouraged, by their employers or by general government to take out insurance against certain eventualities or circumstances that may adversely affect their welfare or that of their dependants. Social insurance schemes may be classified according to the following types:
4.89. Social insurance schemes organized by government units for their own employees are classified as private funded schemes or unfunded schemes as appropriate and not as social security schemes.
4.90. Social contributions may be divided into actual contributions payable under the first two categories of schemes mentioned in paragraph 4.88 above and imputed contributions payable under unfunded schemes.
4.91. Social contributions may be divided into those that are compulsory by law and those that are not.
4.92. Actual social contributions include:
4.93. Payments of actual social contributions may be compulsory by virtue of a statute or regulation, or they may be paid as a result of collective agreements in a particular industry or agreements between employer and employees in a particular enterprise, or because they are written into the contract of employment itself. In certain cases, the contributions may be voluntary. The voluntary contributions referred to here cover:
4.94. To distinguish between social contributions that are compulsory and those that are not, a supplementary level is introduced in the classification:
4.95. Actual social contributions to social security funds or other government agencies are recorded gross as distributive transactions. On the other hand, social contributions paid under private funded schemes to insurance enterprises, and to friendly societies and autonomous pension funds included in the same sector, are recorded net, i.e. after deducting that part of the contribution which represents the value of the insurance service provided to (resident and non-resident) households. Under the conventions adopted, this part of the contribution represents, in effect, the payment for a market service which forms part of the final consumption of households or, in the case of contributions paid by non-resident households, part of exports of services. In the case of non-autonomous private funded social insurance schemes, where employers maintain their own segregated reserves, no service charge is deducted from contributions paid by the employees. As such schemes do not constitute separate institutional units from the employers, the costs of managing and administering the funds are assimilated with the employers' general production costs.
4.96. Time of recording: employers' actual social contributions (D.6111) and employees' social contributions (D.6112) are recorded at the time when the work that gives rise to the liability to pay the contributions is carried out. Social contributions by self-employed and non-employed persons (D.6113) are recorded when the liabilities to pay are created. Social contributions payable to the general government sector recorded in the accounts may be derived from two sources: amounts evidenced by assessments and declarations or cash receipts. When retained at source by the employer, social contributions payable to the general government sector should be included in wages and salaries even if the employer did not in fact pass them on to the general government. The households sector is then shown as paying the full amount on to the general government sector. The amounts actually unpaid have to be neutralised under D.995 as a capital transfer from general government to the employers' sectors.
4.97. In the system of accounts, actual social contributions are recorded:
4.98. Imputed social contributions (D.612) represent the counterpart to social benefits (less eventual employees' social contributions) paid directly by employers (i.e. not linked to employers' actual contributions) to their employees or former employees and other eligible persons. They correspond to flow D.122. Their value should, in principle, be based on actuarial considerations.
4.99. It is necessary to introduce imputed social contributions if the social benefits distributed directly by employers are to be included in the accounts under the heading social benefits and if the cost of these benefits (for the part which is not covered by employees' actual contributions) is to be included in the compensation of employees paid by the employer. When employers provide social benefits themselves directly to their employees, ex-employees or dependants out of their own resources without involving a social security fund, an insurance enterprise or an autonomous pension fund, and without creating a special fund or segregate reserve for the purpose, beneficiaries may be considered as being protected against various specific needs, or circumstances, even though no payments are being made to cover them. Remuneration should therefore be imputed for employees equal in value to the amount of social contributions that would be needed to secure the de facto entitlements to the social benefits they accumulate. These amounts depend not only on the levels of the benefits currently payable but also on the ways in which employers' liabilities under such schemes are likely to evolve in the future as a result of factors such as expected changes in the numbers, age distribution and life expectancies of their present and previous employees. Thus, the values that should be imputed for the contribution ought, in principle, to be based on the same kind of actuarial considerations that determine the levels of premiums charged by insurance enterprises. When as a result of political events or economic changes, the ratio between the number currently employed and the number receiving pensions changes appreciably and becomes abnormal, the value of the imputed contributions for current employees should be estimated, which will be different from the actual value of the pensions paid out. A reasonable percentage of wages and salaries paid to current employees can be used for this purpose. In practice, however, it may be difficult to decide how large such imputed contributions should be. The enterprise may make estimates itself, perhaps on the basis of the contributions paid into similar funded schemes, in order to calculate its likely liabilities in the future. Otherwise, the only practical alternative may be to use the unfunded social benefits payable by the enterprise during the same accounting period (after deducting actual contributions made by employees themselves) as an estimate of the imputed remuneration that would be needed to cover the imputed contributions. While there are obviously many reasons why the value of the imputed contributions that would be needed may diverge from the unfunded social benefits actually paid in the same period, such as the changing composition and age structure of the enterprise's labour force, the benefits actually paid in the current period (less employees' social contributions) may nevertheless provide sufficient estimates of the contributions and associated imputed remuneration.
4.100. Employers are recorded, in the generation of income account, as paying to their existing employees as a component of their compensation an amount described as imputed social contributions equal in value to the estimated social contributions that would be needed to provide for the unfunded social benefits to which they become entitled. Employees are recorded, in the secondary distribution of income account, as paying back to their employers the same amount of imputed social contributions (i.e. current transfers) as if they were paying them to a separate social insurance scheme.
4.101. Time of recording: imputed social contributions which represent the counterpart of compulsory direct social benefits are recorded at the time the obligation to pay the benefits arises. Imputed social contributions which represent the counterpart of voluntary direct social benefits are recorded at the time the benefits are provided.
4.102. In the system of accounts, imputed social contributions are recorded:
4.103. The heading D.62 is made up of four sub-headings:
They are payable to households by social security funds (excluding reimbursements, see D.6311).
Those benefits are provided under social security schemes.
They are (in cash or in kind), payable to households by insurance enterprises or other institutional units administering private funded social insurance schemes.
They are (in cash or in kind), payable to their employees, their dependants or survivors by employers administering unfunded social insurance schemes. They typically include:
(a) the continued payment of normal, or reduced, wages during periods of absence from work as a result of ill health, accident, maternity, etc.;
(b) the payment of family, education or other allowances in respect of dependants;
(c) the payment of retirement or survivors' pensions to ex-employees or their survivors, and the payment of severance allowances to workers or their survivors in the event of redundancy, incapacity, accidental death, etc. (if linked to collective agreements);
(d) general medical services not related to the employee's work;
(e) convalescent and retirement homes.
Unfunded employee social benefits payable by employers to their former employees or other eligible persons should be recorded including employers' actual social contributions, i.e. payments made by the employers for the benefit of the persons concerned to insurers.
They are payable to households by government units or NPISHs to meet the same needs as social insurance benefits but which are not made under a social insurance scheme incorporating social contributions and social insurance benefits. Such benefits do not include current transfers paid in response to events or circumstances that are not normally covered by social insurance schemes (i.e. transfers made in response to natural disasters, recorded under other current transfers or under other capital transfers).
| 4.104. | Definition: Social transfers in kind (D.63) consist of individual goods and services provided as transfers in kind to individual households by government units and NPISHs, whether purchased on the market or produced as non-market output by government units or NPISHs. They may be financed out of taxation, other government income or social security contributions, or out of donations and property income in the case of NPISHs. Although some of the non-market services produced by NPISHs have some of the characteristics of collective services, all the non-market services produced by NPISHs are, for simplicity and by convention, treated as individual in nature. Services provided free, or at prices that are not economically significant, to households are described as individual services to distinguish them from collectve services provided to the community as a whole, or large sections of the community. Individual services consist mainly of education and health services, although other kinds of services such as housing services, cultural and recreational services are also frequently provided. The heading social transfers in kind (D.63) includes social benefits in kind and transfers of individual non-market goods or services. |
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| Definition: | Social transfers in kind (D.63) consist of individual goods and services provided as transfers in kind to individual households by government units and NPISHs, whether purchased on the market or produced as non-market output by government units or NPISHs. They may be financed out of taxation, other government income or social security contributions, or out of donations and property income in the case of NPISHs. |
4.105. Social benefits in kind are social transfers in kind intended to relieve the households from the financial burden of social risks or needs (see paragraph 4.84). They can be subdivided into those where beneficiary households actually purchase the goods and services themselves and are then reimbursed, and those where the relevant services are provided directly to the beneficiaries. In this second case, general government units or NPISHs produce or purchase, entirely or in part, goods and services which are directly provided by their producers to the beneficiaries.
These benefits consist of reimbursement by social security funds of approved expenditures made by households on specified goods or services.
When a household purchases a good or service for which it is subsequently reimbursed, in part or in whole, by a social security fund, the household can be regarded as if it were acting on behalf of the social security fund. In effect, the household provides a short-term credit to the social security fund that is liquidated as soon as the household is reimbursed.
The amount of the expenditure reimbursed is recorded as being incurred directly by the social security fund at the time the household makes the purchase, while the only expenditure recorded for the household is the difference, if any, between the purchaser's price paid and the amount reimbursed. Thus, the amount of the expenditure reimbursed is not treated as a current transfer in cash from the social security funds to households.
These consist of social transfers in kind, except reimbursements, made by social security funds to households. Most other social security benefits in kind are likely to consist of medical or dental treatments, surgery, hospital accommodation, spectacles or contact lenses, medical appliances or equipment, and similar goods or services in the context of social risks or needs. The service is provided directly to the beneficiaries, without reimbursement, by market or non-market producers and should be valued accordingly. Any payments made by the householders themselves should be deducted. Other social security benefits in kind can be therefore subdivided into those for which the service is produced by market producers and purchased by general government units or NPISHs (D.63121), and those for which the service is produced by non-market producers (D.63122).
These consist of transfers in kind provided to households by government units or NPISHs that are similar in nature to social security benefits in kind but are not provided in the context of a social insurance scheme. Included are, if not covered by a social insurance scheme, social housing, dwelling allowance, day nurseries, professional training, reductions on transport prices (provided that there is a social purpose), and similar goods and services in the context of social risks or needs. Any payments made by the householders themselves should be deducted. Social assistance benefits in kind can be therefore subdivided into those for which the service is produced by market producers and purchased by general government units or NPISHs (D.63131), and those for which the service is produced by non-market producers (D.63132).
| 4.106. | Definition: Transfers of individual non-market goods or services (D.632) consist of goods or services provided to individual households free or at prices which are not economically significant, by non-market producers or government units or NPISHs. They correspond to individual consumption expenditure of NPISHs and government (see paragraph 3.85), less social benefits in kind (D.631) granted to households under social security or social assistance arrangements. |
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| Definition: | Transfers of individual non-market goods or services (D.632) consist of goods or services provided to individual households free or at prices which are not economically significant, by non-market producers or government units or NPISHs. They correspond to individual consumption expenditure of NPISHs and government (see paragraph 3.85), less social benefits in kind (D.631) granted to households under social security or social assistance arrangements. |
4.107. Time of recording of social benefits:
4.108. In the system of accounts, social benefits other than social transfers in kind (D.62) are recorded: Social transfers in kind (D.63) are recorded: The consumption of the goods and services transferred is recorded in the use of adjusted disposable income account. By convention there are no social transfers in kind with the rest of the world (they are registered in D.62 social benefits other than social transfers in kind).
OTHER CURRENT TRANSFERS (D.7)
4.109. Definition : Net non-life insurance premiums (D.71) are premiums payable under policies taken out by institutional units. The policies taken out by individual households are those taken out on their own initiative and for their own benefit, independently of their employers or government and outside any social insurance scheme (60). Net non-life insurance premiums comprise both the actual premiums payable by policy holders to obtain insurance cover during the accounting period (premiums earned) and the premium supplements payable out of the property income attributed to insurance policy holders, after deducting the service charges of insurance enterprises arranging the insurance. Net non-life insurance premiums are the amounts available to provide cover against various events or accidents resulting in damage to goods or property, or harm to persons as a result of natural or human causes (fires, floods, crashes, collisions, sinkings, theft, violence, accidents, sickness, etc.) or against financial losses resulting from events such as sickness, unemployment, accidents, etc.
4.110. Time of recording: net non-life insurance premiums are recorded when they are earned. The insurance premiums from which the service charges are deducted are those parts of the total premiums paid in the current period, or previous periods, that cover risks outstanding in the current period. Premiums earned in the current period must be distinguished from the premiums due for payment during the current period, which are likely to cover risks in future periods as well as the current period.
4.111. In the system of accounts net non-life insurance premiums are recorded:
4.112. Definition : Non-life insurance claims (D.72) represent the claims due under contracts in respect of non-life insurance (61); that is, the amounts which insurance enterprises are obliged to pay in settlement of injuries or damage suffered by persons or goods (including fixed capital goods).
4.113. Non-life insurance claims do not include payments which constitute social benefits.
4.114. As the service charges on non-life insurance are calculated by subtracting claims due from the combined value of the premiums earned and premium supplements, it follows that the total claims due must equal the net non-life premiums receivable by an insurance enterprise during the same accounting period. This underlines the fact that the essential function of non-life insurance is to redistribute resources. The settlement of a non-life insurance claim is treated as a transfer to the claimant. Such payments are always treated as current transfers, even when large sums may be involved as a result of the accidental destruction of a fixed asset or serious personal injury to an individual. The amounts received by claimants are usually not committed for any particular purpose and goods or assets which have been damaged or destroyed need not necessarily be repaired or replaced. Some claims arise because of damage or injuries that the policy holders cause to the property or persons of third parties. In these cases, valid claims are recorded as being payable directly by the insurance enterprise to the injured parties and not indirectly via the policy holder.
4.115. Time of recording: non-life insurance claims are recorded at the time the accident or other event insured against occurs.
4.116. In the system of accounts, they are recorded:
| 4.117. | Definition: Current transfers within general government (D.73) include transfers between the different subsectors of general government (central government, state government, local government, social security funds) with the exception of taxes, subsidies, investment grants and other capital transfers. |
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| Definition: | Current transfers within general government (D.73) include transfers between the different subsectors of general government (central government, state government, local government, social security funds) with the exception of taxes, subsidies, investment grants and other capital transfers. |
4.118. Current transfers within general government do not include transactions on behalf of another unit; these are recorded only once in the accounts, in the resources of the beneficiary unit on whose behalf the transaction is made. This situation arises particularly when a government agency (e.g. a central government department) collects taxes which are automatically transferred, in total or in part, to another government agency (e.g. a local authority). In this case, the tax receipts destined for the other government agency are shown as if they were collected directly by that agency and not as a current transfer within general government. This solution applies a fortiori in the case of taxes destined for another government agency which take the form of additional rates superimposed on taxes levied by central government. Delays in remitting the taxes from the first to the second government unit give rise to entries under ‘other accounts receivable/payable’ in the Financial Account. On the other hand, transfers of tax receipts which form part of a block transfer from central government to another government agency are included in current transfers within general government. These transfers do not correspond to any specific category of taxes and they are not made automatically but mainly through certain funds (county and local authority funds) in accordance with scales of apportionment laid down by central government.
4.119. Time of recording: Current transfers within general government are recorded at the time the regulations in force stipulate they are to be made.
4.120. In the system of accounts, current transfers within general government are recorded among uses and resources in the secondary distribution of income account of the subsectors of general governmen (62).
4.121. Definition : Current international cooperation (D.74) includes all transfers in cash or in kind between general government and governments or international organisations (63) in the rest of the world, except investment grants and other capital transfers.
4.122. Heading D.74 covers: Current international cooperation includes transfers between general government and international organizations located in the country, as international organizations are not treated as resident institutional units of the countries in which they are located.
4.123. Time of recording: the time the regulations in force stipulate the transfers are to be made (obligatory transfers), or the time the transfers are made (voluntary transfers).
4.124. In the system of accounts, current international cooperation is recorded:
4.125. Current transfers to NPISHs include all voluntary contributions (other than legacies), membership subscriptions and financial assistance which NPISHs receive from households (including non-resident households) and, to a lesser extent, from other units.
4.126. The following are included: Excluded are payments of membership dues or subscriptions to market NPIs serving businesses, such as chambers of commerce or trade associations, which are treated as payments for services rendered.
4.127. Time of recording: current transfers to NPISHs are recorded at the time they are made.
4.128. In the system of accounts, current transfers to NPISHs are recorded:
| 4.129. | Definition: Current transfer between households consist of all current transfers in cash or in kind made, or received, by resident households to, or from, other resident or non-resident households. In particular, these comprise remittances by emigrants or workers permanently settled abroad (or working abroad for a period of a year or longer) to members of their family living in their country of origin, or by parents to children in another location. |
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| Definition: | Current transfer between households consist of all current transfers in cash or in kind made, or received, by resident households to, or from, other resident or non-resident households. In particular, these comprise remittances by emigrants or workers permanently settled abroad (or working abroad for a period of a year or longer) to members of their family living in their country of origin, or by parents to children in another location. |
4.130. Time of recording: the time the transfers occur.
4.131. In the system of accounts, current transfers between households are recorded:
| 4.132. | Definition: Fines and penalties imposed on institutional units by courts of law or quasi-judicial bodies are treated as compulsory current transfers. |
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| Definition: | Fines and penalties imposed on institutional units by courts of law or quasi-judicial bodies are treated as compulsory current transfers. |
4.133. Not included under this heading are:
4.134. Time of recording: fines and penalties are recorded at the time the liabilities arise.
4.135. The amounts paid for lottery tickets or placed in bets consist of two elements: the payment of a service charge to the unit organizing the lottery or gambling and a residual current transfer that is paid out to the winners. The service charge may be quite substantial and may have to cover taxes on the production of gambling services. The transfers are regarded in the system as taking place directly between those participating in the lottery or gambling, that is, between households. When non-resident households take part there may be significant net transfers between the household sector and the rest of the world. The current transfers are recorded at the time they are made.
| 4.136. | Definition: Payments of compensation consist of current transfers paid by institutional units to other institutional units in compensation for injury to persons or damage to property caused by the former, excluding payments of non-life insurance claims. Payments of compensation could be either compulsory payments awarded by a court of law, or ex gratia payments agreed out of court. This heading covers ex gratia payments made by government units or NPISHs in compensation for injuries or damage caused by natural disasters other than those classified as capital transfers. |
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| Definition: | Payments of compensation consist of current transfers paid by institutional units to other institutional units in compensation for injury to persons or damage to property caused by the former, excluding payments of non-life insurance claims. Payments of compensation could be either compulsory payments awarded by a court of law, or ex gratia payments agreed out of court. This heading covers ex gratia payments made by government units or NPISHs in compensation for injuries or damage caused by natural disasters other than those classified as capital transfers. |
4.137. Time of recording: payments of compensation are recorded when they are made (ex gratia payments) or when they are to be made (compulsory payments).
4.138. The ‘GNP-based fourth own resource’ created by the Council Decision of 24 June 1988 on the system of Communities' own resources is a current transfer paid by the general government of each Member State to the institutions of the European Union. It is a residual contribution to the budget of those institutions, which is assessed on the levels of GNP of each of the countries. Time of recording: GNP-based fourth own resource is recorded when it is to be paid. In the system of accounts, GNP-based fourth own resource appears:
4.140. Time of recording: these transfers are recorded when they are made, except those from or to general government, which are recorded when they are to be made. In the system of accounts, miscellaneous current transfers appear:
ADJUSTMENT FOR THE CHANGE IN THE NET EQUITY OF HOUSEHOLDS IN PENSION FUNDS RESERVES (D.8)
| 4.141. | Definition: The adjustment for the change in the net equity of households in pension funds reserves (D.8) represents the adjustment needed to make appear in the saving of households the change in the actuarial reserves on which households have a definite claim (a claim which reappears at the financial level as an asset under heading F.61) and which are fed by premiums and contributions recorded in the secondary distribution of income account as social contributions. |
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| Definition: | The adjustment for the change in the net equity of households in pension funds reserves (D.8) represents the adjustment needed to make appear in the saving of households the change in the actuarial reserves on which households have a definite claim (a claim which reappears at the financial level as an asset under heading F.61) and which are fed by premiums and contributions recorded in the secondary distribution of income account as social contributions. |
| 4.142. | Since households are treated in the financial accounts and balance sheets of the system as owning the reserves of private funded schemes, both autonomous and non-autonomous, an adjustment item is necessary to ensure that any excess of pension contributions over pension receipts (i.e. of ‘transfers’ payable over ‘transfers’ receivable) does not affect household saving. In order to neutralize this effect, an adjustment equal to: the total value of the actual social contributions in respect of pensions payable into private funded pension schemes plus the total value of contribution supplements payable out of the property income attributed to insurance policy holders minus the value of the associated service charges minus the total value of the pensions paid out as social insurance benefits by private funded pension schemes is added to the disposable income, or adjusted disposable income, of households in the use of income accounts before arriving at saving. In this way, the saving of households is the same as what it would be if pension contributions and pension receipts had not been recorded as current transfers in the secondary distribution of income account. This adjustment item is necessary in order to reconcile the saving of households with the change in their net equity in pension funds reserves recorded in the financial account of the system. Opposite adjustments are, of course, needed in the use of income accounts of the insurance enterprises or autonomous pension funds or employers maintaining non-autonomous pension funds. |
| --- | --- |
| the total value of the actual social contributions in respect of pensions payable into private funded pension schemes | |
| plus | the total value of contribution supplements payable out of the property income attributed to insurance policy holders |
| minus | the value of the associated service charges |
| minus | the total value of the pensions paid out as social insurance benefits by private funded pension schemes |
| is added to the disposable income, or adjusted disposable income, of households in the use of income accounts before arriving at saving. |
4.143. Time of recording: the adjustment is recorded according to the flows which compose it.
4.144. In the system of accounts, the adjustment for the change in the net equity of households in pension funds reserves is recorded:
CAPITAL TRANSFERS (D.9)
4.145. Capital transfers are different from current transfers by the fact that they involve the acquisition or disposal of an asset, or assets, by at least one of the parties to the transaction. Whether made in cash or in kind, they should result in a commensurate change in the financial, or non-financial, assets shown in the balance sheets of one or both parties to the transaction.
4.146. A capital transfer in kind consists of the transfer of ownership of an asset (other than inventories and cash), or the cancellation of a liability by a creditor, without any counterpart being received in return. A capital transfer in cash consists of the transfer of cash that the first party has raised by disposing of an asset, or assets (other than inventories), or that the second party is expected, or required, to use for the acquisition of an asset, or assets (other than inventories). The second party, the recipient, is often obliged to use the cash to acquire an asset, or assets, as a condition on which the transfer is made.
4.147. Capital transfers cover capital taxes (D.91), investment grants (D.92) and other capital transfers (D.99).
| 4.148. | Definition: Capital taxes (D.91) consist of taxes levied at irregular and very infrequent intervals on the values of the assets or net worth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gifts inter vivos or other transfers. |
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| Definition: | Capital taxes (D.91) consist of taxes levied at irregular and very infrequent intervals on the values of the assets or net worth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gifts inter vivos or other transfers. |
4.149. Capital taxes include:
4.150. Taxes recorded in the accounts may be derived from two sources: amounts evidenced by assessments and declarations or cash receipts.
4.151. In the system of accounts, capital taxes are recorded:
4.152. Definition : Investment grants (D.92) consist of capital transfers in cash or in kind made by governments or by the rest of the world (67) to other resident or non-resident institutional units to finance all or part of the costs of their acquiring fixed assets.
4.153. Investment grants can be made in cash or in kind. Investment grants in kind consist of transfers of transport equipment, machinery and other equipment by governments to other resident or non-resident units and also the direct provision of buildings or other structures for resident or non-resident units.
4.154. Investment grants do not include transfers of military equipment in the form of weapons or equipment whose sole function is to fire such weapons, as they are not classified as fixed assets.
4.155. The value of capital formation carried out by general government for the benefit of other sectors of the economy is also to be shown under investment grants whenever the beneficiary is identifiable and becomes the owner of the capital. In such cases, the capital formation is recorded among changes in assets in the capital account of the beneficiary and is financed by an investment grant which appears among changes in liabilities and net worth in the same account.
4.156. Heading D.92 includes not only single non-recurrent payments designed to finance capital formation during the same period, but also instalment payments in respect of capital formation carried out during an earlier period. Thus, those parts of the annual payments by general government which represent the amortization of debts, contracted by enterprises for the purpose of capital formation projects for whose amortization the government has assumed total or partial responsibility, are also treated as investment grants. Grants for interest relief made by general government are, however, excluded, even when the object of the relief is to encourage capital formation. In practice, the assumption by public authorities of part of the interest charges constitutes, like the flow of interest itself, a current distributive transaction. Nevertheless, when a grant serves the dual purpose of financing the amortization of the debt contracted and the payment of the interest on the capital borrowed, and when it is not possible to separate these two elements, the whole of the grant is treated in the accounts as an investment grant.
4.157. Investment grants to the sector non-financial corporate and quasi-corporate enterprises include, in addition to grants to private enterprises, capital grants to public enterprises recognized as independent legal entities, provided that the government department which makes the grant does not retain a claim against the public enterprise.
4.158. Investment grants to the households sector include equipment and modernization grants to businesses other than corporate or quasi-corporate enterprises and grants to households for the construction, purchase and improvement of dwellings.
4.159. Investment grants to general government include all payments (except grants for interest relief) made to subsectors of general government (68) for the purpose of financing capital formation. The most important examples are transfers from central government to local authorities for the specific purpose of financing their gross fixed capital formation. It should be emphasized that transfers of a general nature intended for various or indeterminate purposes are shown under current transfers within general government, even if they are partly used to cover expenditure on capital formation.
4.160. Investment grants to non-profit institutions from general government and from the rest of the world are distinguished from current transfers to non-profit institutions by using the same criterion.
4.161. Investment grants to the rest of the world should also be restricted to transfers with the specific objective of financing capital formation by non-resident units. They include, for example, unrequited transfers for the construction of bridges, roads, factories, hospitals or schools in developing countries, or for constructing buildings for international organizations. They may comprise instalment payments over a period of time as well as single payments. This heading also covers the supply of fixed capital goods free of charge.
4.162. Time of recording: investment grants in cash are recorded when the payment is due to be made. Investment grants in kind are recorded when the ownership of the asset is transferred.
4.163. In the system of accounts, investment grants are recorded:
| 4.164. | Definition: Other capital transfers (D.99) cover transfers other than investment grants and capital taxes which do not themselves redistribute income but redistribute saving or wealth among the different sectors or subsectors of the economy or the rest of the world. |
|---|---|
| Definition: | Other capital transfers (D.99) cover transfers other than investment grants and capital taxes which do not themselves redistribute income but redistribute saving or wealth among the different sectors or subsectors of the economy or the rest of the world. |
4.165. Other capital transfers include the following transactions:
4.166. Time of recording:
4.167. In the system of accounts, other capital transfers are shown among changes in liabilities and net worth in the capital account of sectors and of the rest of the world.
CHAPTER 5
FINANCIAL TRANSACTIONS
| 5.01. | Definition: Financial transactions are transactions in financial assets and liabilities between institutional units, and between them and the rest of the world. |
|---|---|
| Definition: | Financial transactions are transactions in financial assets and liabilities between institutional units, and between them and the rest of the world. |
5.02. Considering the definition of a transaction (see paragraph 1.33), a financial transaction is an interaction between institutional units, or between an institutional unit and the rest of the world, by mutual agreement, involving a simultaneous creation or liquidation of a financial asset and the conterpart liability, or a change in ownership of a financial asset, or an assumption of a liability.
5.03. Financial assets are economic assets, comprising means of payment, financial claims and economic assets which are close to financial claims in nature.
5.04. Means of payment consist of monetary gold, special drawing rights, currency and transferable deposits. Financial claims entitle their owners, the creditors, to receive a payment or series of payments without any counter-performance from other institutional units, the debtors, who have incurred the counterpart liabilities. Examples of economic assets which are close to financial claims in nature are shares and other equity and partly contingent assets. The institutional unit issuing such a financial asset is considered to have incurred a counterpart liability.
5.05. Contingent assets are contractual arrangements between institutional units, and between them and the rest of the world, which specify one or more conditions which must be fulfilled before a financial transaction takes place. Examples are guarantees of payment by third parties, letters of credit, lines of credit, underwritten note issuance facilities (NIFs) and many of the derivative instruments. In the system, a contingent asset is a financial asset in cases where the contractual arrangement itself has a market value because it is tradable or can be offset on the market. Otherwise, a contingent asset is not recorded in the system (70).
5.06. Seven categories of financial assets are distinguished: monetary gold and special drawing rights (AF.1), currency and deposits (AF.2), securities other than shares (AF.3), loans (AF.4), shares and other equity (AF.5), insurance technical reserves (AF.6) and other accounts receivable/payable (AF.7).
5.07. In the system, each financial asset has a counterpart liability, with the exception of those financial assets classified in the category monetary gold and special drawing rights (AF.1). Six categories of liabilities are distinguished corresponding to the categories of the counterpart financial assets.
5.08. The classification of financial transactions corresponds to the classification of financial assets and liabilities. Seven categories of financial transactions are distinguished: transactions in monetary gold and special drawing rights (F.1), transactions in currency and deposits (F.2), transactions in securities other than shares (F.3), transactions in loans (F.4), transactions in shares and other equity (F.5), transactions in insurance technical reserves (F.6) and transactions in other accounts receivable/payable (F.7).
5.09. The financial assets held and the liabilities outstanding at a particular point in time (of a sector or the rest of the world) are recorded in the balance sheet (see chapter 7). Financial transactions result in changes in balance sheets. However, the changes between the opening balance sheet and the closing balance sheet may also include other flows (see chapter 6). They are not due to interactions between institutional units, or between them and the rest of the world, by mutual agreement. The other flows are broken down into revaluations in financial assets and liabilities, and changes in the volume of financial assets and liabilities not due to financial transactions. The former are recorded in the revaluation account and the latter in the other changes in the volume of assets account under the categories catastrophic losses, uncompensated seizures, other volume changes in financial assets and liabilities n.e.c., and changes in classifications and structure.
5.10. Financial transactions between institutional units are recorded in the financial accounts of the sectors involved. Financial transactions between institutional units and the rest of the world are recorded in the financial accounts of the sectors involved and the external financial account, that is the financial account of the rest of the world (see chapter 8). The financial account (of a sector or the rest of the world) shows on its left side acquisitions less disposals of financial assets, while its right side shows the incurrence of liabilities less their repayment. The balancing item of the financial account, that is net acquisition of financial assets less net incurrence of liabilities, is net lending (+)/net borrowing (-) (B.9).
5.11. The financial account of a sector may be consolidated or non-consolidated. The non-consolidated financial account of a sector shows the changes in financial assets and liabilities due to all financial transactions in which institutional units classified in the sector are involved. The consolidated financial account of a sector shows the changes in financial assets and liabilities due to financial transactions between institutional units classified in the sector under consideration and other institutional units or the rest of the world. Compared to the non-consolidated financial account, the financial transactions between institutional units classified in the sector under consideration are eliminated from the consolidated financial account. The external financial account is consolidated by definition.
5.12. A financial transaction between two institutional units increases net lending/net borrowing of one institutional unit and, by the same amount, decreases net lending/net borrowing of the other institutional unit. Financial transactions between institutional units classified in the same sector do not change net lending/net borrowing of the sector. The consolidated and the non-consolidated financial account of a sector show the same amount of net lending/net borrowing. By the same token, financial transactions between institutional units do not change net lending/net borrowing of the total economy. It is of equal amount but opposite sign to net lending/net borrowing in the external financial account. Therefore, total net lending/net borrowing of all institutional units and the rest of the world is zero.
5.13. The financial account by debtor/creditor (71) (of a sector or the rest of the world) is an extension of the financial account, showing in addition a breakdown of the net acquisition of financial assets by debtor sector and a breakdown of the net incurrence of liabilities by creditor sector. Therefore, it provides information on debtor/creditor relationships and it is consistent with the financial balance sheet by debtor/creditor (see paragraph 7.69). In the case of financial transactions on secondary markets, however, it does not provide information on the institutional units to whom financial assets were sold or from whom financial assets were bought, that is to say the financial account by debtor/creditor provides not a complete answer on the question who is financing whom in an accounting period.
5.14. The financial account is the final account, in the full sequence of accounts that records transactions (see chapter 8). Therefore, the financial account does not have a balancing item that is carried forward to another account. In the system, the balancing item of the financial account is identical with the balancing item of the capital account. In practice, a discrepancy will usually be found between them because they are calculated on the basis of different statistical data.
5.15. Financial transactions always have counterpart transactions in the system. Those counterparts may be other financial transactions or non-financial transactions. The simultaneous rise or reduction of both financial assets and liabilities, or the exchange of one financial asset for another are recorded wholly within the financial account (of a sector or the rest of the world). In cases where a transaction and its counterpart are both financial transactions, they change the portfolio of financial assets and liabilities and they may change the totals of both financial assets and liabilities of the institutional units involved or the rest of the world, but they do not change net lending/net borrowing or net worth. The counterparts of financial transactions may also be transactions in products (see chapter 3), distributive transactions (see chapter 4) or transactions in non-financial non-produced assets (see paragraph 6.06). In cases where the counterpart transaction of a financial transaction is not a financial transaction, net lending/net borrowing of the institutional units involved or the rest of the world will change.
5.16. The counterpart transaction of a financial transaction may be a (current or a capital) transfer (see chapter 4). In this case, the financial transaction involves a change in ownership of a financial asset, or an assumption of a liability as debtor (debt assumption), or the simultaneous liquidation of a financial asset and the counterpart liability (debt cancellation or debt forgiveness). The counterpart transaction of debt assumption and debt cancellation is classified in the category capital transfers (D.9) and is recorded in the capital account. If the owner of a quasi-corporation assumes liabilities from or cancels financial claims against the quasi-corporation, the counterpart transaction of debt assumption or debt cancellation is a transaction in shares and other equity (F.5). If government cancels or assumes debt from a public corporation which disappears as an institutional unit in the system, no transaction is recorded in the capital account or the financial account. In this case a flow is recorded in the other changes in the volume of assets account (chapter 6, ‘Other flows’). If government cancels or assumes debt from a public corporation as part of an ongoing process of privatization to be achieved in a short term perspective, the counterpart transaction is a transaction in shares and other equity. Privatization means the giving up of control over that public corporation (see paragraph 2.26) by the disposal of shares and other equity. Such a cancellation or assumption leads to an increase of the own funds (see paragraph 7.05), regardless as to whether or not this increase of the own funds is due to an issue of shares and other equity. The writing-off or writing-down of bad debts by creditors and the unilateral cancellation of a liability by a debtor (debt repudiation) are not classified as financial transactions because they do not involve interactions between institutional units, or between institutional units and the rest of the world, by mutual agreement. The writing-off or writing-down of bad debts by creditors is recorded in the other changes in the volume of assets account (see paragraph 6.27. d). Debt repudiation is not recognized in the system.
5.17. The counterpart transaction of a financial transaction may be interest (D.41). Interest is receivable by the creditors and payable by the debtors of certain kinds of financial claims classified in the categories currency and deposits (AF.2), securities other than shares (AF.3), loans (AF.4) and other accounts receivable/payable (AF.7). In the system, interest is recorded on an accrual basis, that is to say interest is recorded as accruing continuously over time to the creditor on the amount of principal outstanding (see paragraph 4.50). The counterpart transaction of an entry in interest (D.41) is always a financial transaction creating an additional financial claim of the creditor against the debtor. The effect of this financial transaction is that interest is reinvested. The actual payment of interest is not recorded in interest (D.41), but it involves a transaction relating to the change in ownership of the means of payment. The counterpart transaction is a financial transaction reducing the net financial claim of the creditor against the debtor. When accrued interest is not paid when due, this gives rise to interest arrears. As accrued interest is already recorded in the system, interest arrears do not change the total of financial assets or liabilities but possibly their classification (see paragraph 5.131).
5.18. The counterpart transaction of a financial transaction may be property income allocated but not distributed. Examples are interest (D.41) and dividends (D.421) received by mutual funds from the investments they have made and which are allocated but not distributed to shareholders (see paragraphs 4.49. b and 4.54. b), reinvested earnings on direct foreign investment (D.43) and property income attributed to insurance policy holders (D.44) in case of individual life insurance policies not taken out under social insurance schemes. The effect of the counterpart financial transaction is that the (positive or negative) property income is reinvested.
CLASSIFICATION OF FINANCIAL TRANSACTIONS
5.19. The financial transactions are classified in categories subdivided into sub-categories and some of which are further subdivided into sub-positions. The classification of the transactions in financial assets and liabilities corresponds to the classification of financial assets and liabilities (see paragraphs 5.06 to 5.08). Therefore, the definitions of the categories, sub-categories and sub-positions and the supplementary explanations are provided only once in the ESA — in this section of the financial transactions chapter. The balance sheets chapter does not repeat the definitions and their explanations in its main text but it provides in its Annex 7.1 a summary of all assets and liabilities defined in the system.
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