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

• (a) meals and drinks, including those consumed when travelling on business (because they would have been taken anyway) but excluding special meals or drinks necessitated by exceptional working conditions. Price reductions obtained in free or subsidized canteens, or obtained by luncheon vouchers, are to be included in wages and salaries in kind;

• (b) own account and purchased housing or accommodation services of a type that can be used by all members of the household to which the employee belongs;

• (c) uniforms or other forms of special clothing which employees choose to wear frequently outside of the workplace as well as at work;

• (d) the services of vehicles or other durables provided for the personal use of employees;

• (e) goods and services produced as outputs from the employer's own processes of production, such as free travel for the employees of railways or airlines, free coal for miners, or free food for employees in agriculture;

• (f) the provision of sports, recreation or holiday facilities for employees and their families;

• (g) transportation to and from work, except when organized in the employer's time, car parking;

• (h) crèches for the children of employees;

• (i) payments made by employers to works councils or similar bodies;

• (j) bonus shares distributed to employees;

• (k) remuneration in kind may also include the value of the interest foregone by employers when they provide loans to employees at reduced, or even zero, rates of interest. This value may be estimated as the amount the employee would have to pay if average mortgage (when buying houses) or consumer loan (when buying other goods and services) interest rates were charged, less the amount of interest actually paid. An imputed payment from the employee is rerouted in the primary distribution of income account back to the employer.

• 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:

• (a) expenditure by employers which is to their own benefit as well as to that of their employees, because it is necessary for the employers' production process:
• 1. allowances or reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties;
• 1. expenditure on providing amenities at the place of work, medical examinations required because of the nature of the work, supplying working clothes which are worn exclusively, or mainly, at work;
• 1. accommodation services at the place of work of a kind which cannot be used by the households to which the employees belong — cabins, dormitories, huts and so on;
• 1. special meals or drinks necessitated by exceptional working conditions;
• 1. allowances paid to employees for the purchase of tools, equipment or special clothing needed exclusively, or primarily, for their work, or that part of their wages or salaries which, under their contracts of employment, employees are required to devote to such purchases. Such expenditure on goods and services that employers are obliged to provide to their employees in order for them to be able to carry out their work is treated as intermediate consumption by employers.

• (b) The amounts of wages and salaries which employers continue to pay to their employees temporarily in the case of sickness, maternity, industrial injury, disability, redundancy, etc. These payments are treated as unfunded employee social benefits (D.623), with the same amounts being shown under employers' imputed social contributions (D.122);

• (c) other unfunded employee social benefits, in the form of children's, spouses', family, education or other allowances in respect of dependants, and in the form of the provision of free medical services (other than those necessitated by the nature of the work) to employees or their families;

• (d) any taxes payable by the employer on the wage and salary bill — for example, a payroll tax. Such taxes are treated as other taxes on production.

EMPLOYERS' SOCIAL CONTRIBUTIONS (D.12)

• 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.

Employers' actual social contributions (D.121)

• 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.

Employers' imputed social contributions (D.122)

• 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 ([^E0054]) 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:

• (a) wages and salaries (D.11) are recorded in the period during which the work is done. However, ad hoc bonuses or other exceptional payments, 13th month, etc. are recorded when they are due to be paid;

• (b) employers' actual social contributions (D.121) are recorded in the period during which the work is done;

• (c) employers' imputed social contributions (D.122):
• 1. representing the counterpart of compulsory direct social benefits are recorded in the period during which the work is done;
• 1. representing the counterpart of voluntary direct social benefits are recorded at the time these benefits are provided.

• 4.13. The compensation of employees may consist of:

• (a) the compensation of resident employees by resident employers;

• (b) the compensation of resident employees by non-resident employers;

• (c) the compensation of non-resident employees by resident employers.

These different items are recorded in the ESA as follows:

• 1. the compensation of resident and non-resident employees by resident employers groups together items (a) and (c) and appears among uses in the generation of income account of the sectors and industries to which the employers belong;

• 1. the compensation of resident employees by resident and non-resident employers groups together items (a) and (b) and appears among resources in the allocation of primary income account of households;

• 1. item (b), compensation of resident employees by non-resident employers, appears among uses in the external account of primary incomes and current transfers;

• 1. item (c), compensation of non-resident employees by resident employers appears, among resources in the external account of primary incomes and current transfers.

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. |

• 4.15. Taxes on production and imports are divided into:

• (a) taxes on products (D.21):
• 1. value-added type taxes (VAT) (D.211);
• 1. taxes and duties on imports excluding VAT (D.212):
• — import duties (D.2121),
• — taxes on imports excluding VAT and import duties (D.2122);
• 1. taxes on products, except VAT and import taxes (D.214);

• (b) other taxes on production (D.29).

TAXES ON PRODUCTS (D.21)

• 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. |

Value-added type taxes (VAT) (D.211)

• 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).

Taxes and duties on imports excluding VAT (D.212)

• 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;
• 1. monetary compensatory amounts levied on imports;
• 1. 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;
• 1. general sales taxes payable on imports of goods and services;
• 1. taxes on specific services provided by non-resident enterprises to resident units within the economic territory;
• 1. 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).

Taxes on products, except VAT and import taxes (D.214)

• 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. |

• 4.20. This heading includes, in particular:

• (a) excise duties and consumption taxes (other than those included in taxes and duties on imports);

• (b) stamp taxes on the sale of specific products, such as alcoholic beverages or tobacco, and on legal documents or cheques;

• (c) taxes on financial and capital transactions, payable on the purchase or sale of non-financial and financial assets, including foreign exchange. They become payable when the ownership of land or other assets changes, except as a result of capital transfers (mainly inheritances and gifts). They are treated as taxes on the services of intermediaries;

• (d) car registration taxes;

• (e) taxes on entertainment;

• (f) taxes on lotteries, gambling and betting, other than those on winnings;

• (g) taxes on insurance premiums;

• (h) other taxes on specific services: hotels or lodging, housing services, restaurants, transportation, communication, advertising;

• (i) general sales or turnover taxes (excluding VAT type taxes): these include manufacturers' wholesale and retail sales taxes, purchase taxes, turnover taxes;

• (j) profits of fiscal monopolies which are transferred to the State, except those exercising a monopoly over the imports of some good or services (included in D.2122). Fiscal monopolies are public enterprises which have been granted a legal monopoly over the production or distribution of a particular kind of good or service in order to raise revenue and not in order to further the interests of public economic or social policy. When a public enterprise is granted monopoly powers as a matter of deliberate economic or social policy because of the special nature of the good or service or the technology of production — for example, public utilities, post offices and telecommunications, railways and so on — it should not be treated as a fiscal monopoly. As a general rule, fiscal monopolies are typically engaged in the production of goods or services which may be heavily taxed in other countries; they tend to be confined to the production of certain consumer goods (alcoholic beverages, tobacco, matches, etc.) or fuels;

• (k) export duties and monetary compensatory amounts collected on exports.

• 4.21. Net taxes on products are obtained by deducting subsidies on products (D.31) from taxes on products (D.21).

OTHER TAXES ON PRODUCTION (D.29)

• 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.

• 4.23. Other taxes on production (D.29) include in particular:

• (a) taxes on the ownership or use of land, buildings, or other structures utilized by enterprises in production (including owner-occupiers of dwellings);

• (b) taxes on the use of fixed assets (vehicles, machinery, equipment) for purposes of production, whether such assets are owned or rented;

• (c) taxes on the total wage bill and payroll taxes;

• (d) taxes on international transactions (travel abroad, foreign remittances, or similar transactions with non-residents) for purposes of production;

• (e) taxes paid by enterprises in order to obtain business and professional licences if those licences are being granted automatically on payment of the amounts due. However, if the government carries out checks on the suitability or safety of the business premises, on the reliability or safety of the equipment employed, on the professional competence of the staff employed, or on the quality or standard of goods or services produced as a condition for granting such a licence, the payments are treated as purchases of services rendered, unless the amounts charged for the licences are out of all proportion to the costs of the checks carried out by the government;

• (f) taxes on pollution resulting from production activities. These consist of taxes levied on the emission or discharge into the environment of noxious gases, liquids or other harmful substances. They do not include payments made for the collection and disposal of waste or noxious substances by public authorities, which constitute intermediate consumption of enterprises;

• (g) under-compensation of VAT resulting from the flat rate system, frequently found in agriculture.

• 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.

TAXES ON PRODUCTION AND IMPORTS PAID TO THE INSTITUTIONS OF THE EUROPEAN UNION

• 4.25. The taxes on production and imports paid to the institutions of the European Union include, in particular:

• (a) taxes paid directly by resident producer units to the institutions of the European Union (the ECSC levy on mining and iron and steel producing enterprises);

• (b) taxes collected by national governments on behalf of the institutions of the European Union, namely:
• 1. receipts from the common agricultural policy; levies on imported agricultural products, monetary compensatory amounts levied on exports and imports, sugar production levies and the tax on isoglucose, co-responsibility taxes on milk and cereals;
• 1. receipts from trade with third countries: customs duties levied on the basis of the Integrated Tariff of the European Union (Taric);
• 1. receipts from VAT in each Member State.

• 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.

• (a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer, to the relevant sectors could be recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of taxes.

• (b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activity took place to generate the tax liability. This adjustment may be based on the average time difference between the activity and cash tax receipt.

• 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:

• (a) among uses in the generation of income account of the total economy;

• (b) among resources in the allocation of primary income account of the general government sector and in the external account of primary incomes and current transfers.

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 ([^E0055]) 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:

• (a) subsidies on products (D.31):
• 1. import subsidies (D.311);
• 1. other subsidies on products (D.319);

• (b) other subsidies on production (D.39).

SUBSIDIES ON PRODUCTS (D.31)

• 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). |

Import subsidies (D.311)

• 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. |

Other subsidies on products (D.319)

• 4.35. Other subsidies on products (D.319) include:

• (a) subsidies on products used domestically: these consist of subsidies payable to resident producers in respect of their production which is used or consumed within the economic territory;

• (b) losses of government trading organizations whose function is to buy the products of resident producers and then sell them at lower prices to residents or non-residents, when they are incurred as a matter of deliberate government economic or social policy;

• (c) subsidies to public corporations and quasi-corporations to compensate for persistent losses which they incur on their productive activities as a result of charging prices which are lower than their average costs of production as a matter of deliberate government or European economic and social policy;

• (d) direct subsidies on exports payable directly to resident producers when the goods leave the economic territory or the services are provided to non-residents — except repayments at the customs frontier of taxes on products previously paid and waiving of the taxes that would be due if the goods were to be sold or used inside the economic territory.

OTHER SUBSIDIES ON PRODUCTION (D.39)

• 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. |

• 4.37. This heading includes in particular:

• (a) subsidies on payroll or work force: these consist of subsidies payable on the total wage or salary bill, or total work force, or on the employment of particular types of persons such as physically handicapped persons or persons who have been unemployed for long periods, or on the costs of training schemes organized or financed by enterprises;

• (b) subsidies to reduce pollution: these consist of current subsidies intended to cover some or all of the costs of additional processing undertaken to reduce or eliminate the discharge of pollutants into the environment;

• (c) grants for interest relief made to resident, producer units, even when they are intended to encourage capital formation ([^E0056]). In effect, these are current transfers designed to lighten producers' operating costs. They are treated in the accounts as subsidies to the producers benefiting from them, even when the difference in the interest is, in practice, paid directly by the government to the credit institution making the loan;

• (d) over-compensation of VAT resulting from the flat rate system, frequently found in agriculture.

• 4.38. The following are not treated as subsidies:

• (a) current transfers from general government to households in their capacity as consumers. These are treated either as social benefits or as miscellaneous current transfers (D.75);

• (b) current transfers between different parts of general government in their capacity as producers of non-market goods and services, except other subsidies on production (D.39). The current transfers are shown under the heading current transfers within general government (D.73);

• (c) investment grants (D.92);

• (d) extraordinary payments into social insurance funds, in so far as these payments are designed to increase the actuarial reserves of these funds. Such payments are shown under the heading other capital transfers (D.99);

• (e) transfers made by general government to non-financial corporations and quasi-corporations to cover losses accumulated over several financial years, or exceptional losses due to factors outside the control of the enterprise, are classified under the heading other capital transfers (D.99);

• (f) the cancellation of debts which producer units have incurred towards the government (resulting, for example, from loans advanced by a government agency to a non-financial enterprise which has accumulated trading losses over several financial years). In general, these transactions are treated in the accounts as other capital transfers (D.99) (see paragraph 4.165.f);

• (g) payments made by general government or by the rest of the world for damage to, or losses of, capital goods as a result of acts of war, other political events or national disasters are shown under the heading other capital transfers (D.99);

• (h) shares and other equities in corporate enterprises purchased by general government, which are shown under the heading shares and other equity (AF.5);

• (i) payments made by a general government agency which has assumed responsibility for abnormal pension charges affecting a public enterprise. These payments must be recorded under miscellaneous current transfers (D.75);

• (j) payments made by general government to market producers to pay entirely, or in part, for goods and services that those market producers provide directly and individually to households in the context of social risks or needs (see paragraph 4.84), and to which the households have a legally established right. These payments are included in individual consumption expenditure of general government (P.31) and subsequently in social benefits in kind (D.631) and actual individual consumption of households (P.41).

• 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:

• (a) subsidies which take the form of the difference between the purchase price and the selling price charged by a government trading agency are recorded at the time the goods are bought by the agency, if the selling price is known at that time;

• (b) subsidies intended to cover a loss incurred by a producer are recorded at the time the general government agency decides to cover the loss.

• 4.40. In the system of accounts, subsidies appear:

• (a) among negative uses in the generation of income account of the total economy;

• (b) among negative resources in the allocation of primary income account of the general government sector and in the external account of primary incomes and current transfers.

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:

• (a) implicit taxes on imports are treated as taxes on imports excluding VAT and import duties (D.2122);

• (b) implicit taxes on exports are treated as taxes on products, except VAT and import taxes (D.214);

• (c) implicit subsidies on imports are treated as import subsidies (D.311);

• (d) implicit subsidies on exports are treated as other subsidies on products (D.319).

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);
• 1. 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).

INTEREST (D.41)

• 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. |

• 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:

• (a) deposits (AF.2);

• (b) securities other than shares (AF.3);

• (c) loans (AF.4);

• (d) other accounts receivable (AF.7).

Interest on deposits, loans and accounts receivable and payable

• 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.

Interest on securities

Interest on bills and similar short-term instruments

• 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.

Interest on bonds and debentures

• 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.

• (a) zero-coupon bonds: there are no coupon payments. The interest based on the difference between the redemption price and the issue price has to be distributed over the years to the maturity of the bond. The interest accruing each year is reinvested in the bond by its holder, thus counterpart entries equal to the value of the accrued interest must be recorded in the Financial Account as the acquisition of more bond by the holder and as a further issue of more bond by the issuer or debtor (i.e. as a growth in the ‘volume’ of the original bond);

• (b) other bonds, including deep-discounted bonds. The interest has two components:
• 1. the amount of the money income receivable from coupon payments each period;
• 1. the amount of interest accruing each period attributable to the difference between the redemption price and the issue price, calculated in the same way as for zero-coupon bonds;

• (c) index-linked securities: the amounts of the coupon payments and/or the principal outstanding are linked to a price index. The change in the value of the principal outstanding between the beginning and the end of a particular accounting period due to the movement in the relevant index is treated as interest accruing in that period, in addition to any interest due for payment in that period. The interest accruing as a result of the indexing is effectively reinvested in the security and must be recorded in the financial accounts of the holder and issuer.

Interest rate swaps and forward rate agreements

• 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)).

Interest on financial leases

• 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.

Other interest

• 4.49. The following are also treated as interest:

• (a) interest charged on bank overdrafts, extra interest paid on deposits left longer than originally agreed, and payments to certain bond holders which are determined by lottery;

• (b) interest received by mutual funds (see paragraph 2.51.b), from the investments they have made, and which is assigned to shareholders, even if it is capitalized. It excludes holding gains or losses on financial instruments belonging to unit trusts, which are not recorded as property income.

Time of recording

• 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:

• (a) among resources and among uses in the allocation of primary income account of the sectors ([^E0057]);

• (b) among resources and among uses in the external account of primary incomes and current transfers.

DISTRIBUTED INCOME OF CORPORATIONS (D.42)

Dividends (D.421)

• 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. |

• 4.54. This heading also includes:

• (a) shares issued to shareholders in payment of the dividend for the financial year. However, issues of bonus shares which represent the capitalization of own funds in the form of reserves and undistributed profits and give rise to new shares to shareholders in proportion for their holdings are not included;

• (b) dividends received by mutual funds (see paragraph 2.51.b) from the investments they have made, and which are assigned to shareholders, even if they are capitalized. It excludes holding gains or losses on financial instruments belonging to unit trusts, which are not recorded as property income;

• (c) the income paid to general government by public enterprises which are recognized as independent legal entities though not formally constituted as corporate enterprises.

• 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:

• (a) among uses in the allocation of primary income account of the sectors in which the corporations are classified;

• (b) among resources in the allocation of primary income account of the sectors in which shareholders are classified;

• (c) among uses and resources in the external account of primary incomes and current transfers.

Withdrawals from the income of quasi-corporations (D.422)

• 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. |

• 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:

• (a) from the sale of existing fixed capital goods;

• (b) from the sale of land and intangible assets;

• (c) from withdrawals of capital (e.g. the total or partial liquidation of their equity in the quasi-corporation).

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:

• (a) among uses in the allocation of primary income account of the sectors in which the quasi-corporations are classified;

• (b) among resources in the allocation of primary income account of the owner sectors;

• (c) among uses and resources in the external account of primary incomes and current transfers.

REINVESTED EARNINGS ON DIRECT FOREIGN INVESTMENT (D.43)

• 4.64. | | | | | --- | --- | --- | | Definition: | Reinvested earnings on direct foreign investment (D.43) are equal to: | Reinvested earnings on direct foreign investment (D.43) are equal to: | | | the operating surplus of the direct foreign investment enterprise | 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:

• (a) among uses and resources in the allocation of primary income account of the sectors;

• (b) among uses and resources in the external account of primary incomes and current transfers.

PROPERTY INCOME ATTRIBUTED TO INSURANCE POLICY HOLDERS (D.44)

• 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. |

• 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:

• (a) among resources in the allocation of primary income account of policy holders;

• (b) among uses in the allocation of primary income account of the insurers;

• (c) among resources and among uses in the external account of primary incomes and current transfers.

RENTS (D.45)

Rents on land

• 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.

Rents on sub-soil assets

• 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:

• (a) among resources and among uses in the allocation of primary income account of sectors;

• (b) among resources and among uses in the external account of primary incomes and current transfers.

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).

TAXES ON INCOME (D.51)

• 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.

OTHER CURRENT TAXES (D.59)

• 4.79. Other current taxes (D.59) include:

• (a) current taxes on capital which consist of taxes that are payable periodically on the ownership or use of land or buildings by owners, and current taxes on net wealth and on other assets (jewellery, other external signs of wealth) — except taxes mentioned in D.29 (which are paid by enterprises as a result of engaging in production) and those mentioned in D.51 (taxes on income);

• (b) poll taxes, levied per adult or per household, independently of income or wealth;

• (c) expenditure taxes, payable on the total expenditures of persons or households;

• (d) payments by households for licences to own or use vehicles, boats or aircraft (which are not used for business purposes), or for licences to hunt, shoot or fish, etc. ([^E0058]);

• (e) taxes on international transactions (travel abroad, foreign remittances, foreign investments, etc.), except those payable by producers and import duties paid by households.

• 4.80. Current taxes on income, wealth, etc. do not include:

• (a) inheritance taxes, death duties or taxes on gifts inter vivos, which are deemed to be levied on the capital of the beneficiaries and are shown under the heading capital taxes (D.91);

• (b) occasional or exceptional levies on capital or wealth, which are shown under the heading capital taxes (D.91);

• (c) taxes on land, buildings or other assets owned or rented by enterprises and used by them for production, such taxes being treated as other taxes on production (D.29);

• (d) payments by households for licences other than licences on the use of vehicles, boats or aircraft, or licences to hunt, shoot or fish: driving or pilot's licences, television or radio licences, firearm licences, museum or library admissions, garbage disposal fees, etc. which are treated in most cases as purchases of services rendered by government ([^E0059]).

• 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.

• (a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors could be recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of taxes.

• (b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activities, transactions or other events took place to generate the tax liability (or when the amount of tax was determined, in the case of some income taxes). This adjustment may be based on the average time difference between the activities, transactions or other events (or the determination of the amount of tax) and cash tax receipt.

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:

• (a) among uses in the secondary distribution of income account of the sectors in which the taxpayers are classified;

• (b) among resources in the secondary distribution of income account of general government;

• (c) among uses and resources in the external account of primary incomes and current transfers.

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. |

• 4.84. The list of risks or needs which may give rise to social benefits is, by convention, fixed as follows:

• (a) sickness;

• (b) invalidity, disability;

• (c) occupational accident or disease;

• (d) old age;

• (e) survivors;

• (f) maternity;

• (g) family;

• (h) promotion of employment;

• (i) unemployment;

• (j) housing ([^E0060]);

• (k) education;

• (l) general neediness.

• 4.85. Social benefits include:

• (a) current and lump-sum transfers from schemes which receive contributions, cover the entire community or large sections of the community and are imposed and controlled by government units (social security schemes);

• (b) current and lump sum transfers from schemes organized by enterprises on behalf of their employees, ex-employees or dependants (private funded and unfunded enterprises' schemes). Contributions may be made by employees or employers; they may also be made by self-employed persons;

• (c) current transfers from government units and NPISHs which are not conditional on previous payment of contributions (assistance).

• 4.86. Social benefits exclude:

• (a) insurance claims based on policies taken out solely on the own initiative of the insured, independently of his employer or government;

• (b) insurance claims on policies taken out with the sole purpose of obtaining a discount, even if those policies follow from a collective agreement.

• 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:

• (a) participation in the scheme is obligatory either by law for a specified category of worker, whether employees, self- or non-employed, or under the terms and conditions of employment of an employee, or group of employees;

• (b) the scheme is a collective one operated for the benefit of a designated group of workers, whether employees, self- or non-employed, participation being restricted to members of that group;

• (c) an employer makes a contribution (actual or imputed) to the scheme on behalf of an employee, whether or not the employee also makes a contribution.

• 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:

• (a) social security schemes, covering the entire community, or large sections of the community, that are imposed, controlled and financed by government units;

• (b) private funded schemes, which consist of:
• 1. schemes in which the social contributions are paid to third parties (insurance enterprises, autonomous pension funds);
• 1. schemes in which employers maintain special reserves which are segregated from their other reserves, even though such schemes do not constitute separate institutional units from the employers. These are referred to as non-autonomous pension funds. The reserves are treated as assets that belong to the beneficiaries and not the employers;

• (c) unfunded schemes in which employers pay social benefits to their employees, ex-employees or their dependants out of their own resources without creating special reserves for the purpose.

• 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.

SOCIAL CONTRIBUTIONS (D.61)

Actual social contributions (D.611)

• 4.92. Actual social contributions include:

• (a) employers' actual social contributions (D.611). These correspond to flow D.121. Employers' actual social contributions are paid by employers to social security funds, insurance enterprises or autonomous as well as non-autonomous pension funds administering social insurance schemes to secure social benefits for their employees. As employers' actual social contributions are made for the benefit of their employees, their value is recorded as one of the components of compensation of employees together with wages and salaries in cash and in kind. The social contributions are then recorded as being paid by the employees as current transfers to the social security funds, insurance enterprises or autonomous as well as non-autonomous pension funds;

• (b) employees' social contributions (D.6112). These are social contributions payable by employees to social security, private funded and unfunded schemes. Employees' social contributions consist of the actual contributions payable plus, in the case of private funded schemes, the contribution supplements payable out of the property income attributed to insurance policy holders received by employees participating in the schemes, minus the service charges. All the service charges are treated as charges against the employees' contributions and not the employers';

• (c) social contributions by self-employed and non-employed persons (D.6113). These are social contributions payable for their own benefit by persons who are not employees — namely, self-employed persons (employers or own-account workers), or non-employed persons. They also include the value of the contribution supplements payable out of the property income attributed to insurance policy holders received by participating individuals that they are recorded as paying back to the insurance enterprises in addition to their other contributions.

• 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:

• (a) social contributions which persons who are not, or who are no longer, legally obliged to contribute pay or continue to pay to a social security fund;

• (b) social contributions paid to insurance enterprises (or friendly societies and pension funds classified in the same sector) as part of supplementary insurance schemes organized by enterprises for the benefit of their employees and which the latter join voluntarily;

• (c) contributions to friendly societies with membership open to employees or self-employed workers.

• 4.94. To distinguish between social contributions that are compulsory and those that are not, a supplementary level is introduced in the classification:

• (a) compulsory employers' actual social contributions (D.61111);

• (b) voluntary employers' actual social contributions (D.61112);

• (c) compulsory employees' social contributions (D.61121);

• (d) voluntary employees' social contributions (D.61122);

• (e) compulsory social contributions by self and non-employed persons (D.61131);

• (f) voluntary social contributions by self and non-employed persons (D.61132).

• 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.

• (a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors could be recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of social contributions.

• (b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activity took place to generate the social contribution liability (or when the liability is created). This adjustment may be based on the average time difference between the activity (or the creation of the liability) and cash receipt.