Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union Text with EEA relevance

• 13.15All transactions of uniregional institutional units are allocated to the region in which such units have their centre of predominant economic interest. For households, the centre of predominant economic interest lies in the region where they are resident, not the region where they work. Other uniregional units have their centre of predominant economic interest in the region where they are located.

• 13.16Some of the transactions of multiregional units cannot be allocated to regions. This is the case for most distributive and financial transactions. Consequently, balancing items of multiregional units such as saving and net lending are not recorded at the regional level for multiregional units.

Local kind-of-activity units and regional production activities by industry

• 13.17Enterprises can engage in production activities at more than one location, and for regional accounts it is necessary to allocate the activities to location. Where enterprises are partitioned by location, the partitioned parts are called local units.

• 13.18Institutional units can be classified on the basis of economic activities to describe the economy's production activities by industry. This results in heterogeneous industries, as many enterprises have substantial secondary activities that are different from their principal activity. It also results in some industries having the principal product of the industry as a small proportion of total output. In order to obtain groups of producers whose activities are more homogeneous in terms of output, cost structure and technology of production, enterprises are partitioned into smaller and more homogeneous units. These are called kind-of-activity units.

• 13.19The local kind-of-activity unit (local KAU) is the part of a kind-of -activity unit (KAU) which corresponds to a local unit. When a KAU is engaged in production activities in several regions, the information on the KAU is split in order to obtain regional accounts. For this splitting, information is required on compensation of employees, or employment if this is not available, and gross fixed capital formation. For enterprises situated in a single location and in which the principal activity accounts for most of the value added, the local KAU is the same as the enterprise.

• 13.20An industry for a region consists of a group of local KAUs engaged in the same, or similar, kind-of-activity.

• 13.21When defining a local KAU there are three distinct cases.

• (a) A production activity with significant labour input at a fixed location. Significant labour input, in this context, at a minimum is the yearly equivalent of one person regularly working half a day.

• (b) A production activity without significant labour input at a fixed location is generally not to be considered as a separate local KAU and the production should be attributed to the local unit that is responsible for managing this production. However, there are exceptions to this rule, examples being windmills, the extraction of oil and gas, internet hubs and fully automatic petrol stations. Such production activities may be located in one region and fully managed in a different region. The output of such activities is not recorded in the region where they are managed, as production takes place in the other region. Gross fixed capital formation should be recorded in the same region as the associated output and value added.

• (c) For a production activity without a fixed location the concept of residence (see paragraph 2.04) at the national level is applied. For example, major construction projects undertaken by contractors from other regions are registered as a separate local KAU. Examples of major construction projects are building bridges, dams and power stations, that take a year or more to complete and are managed through a local site office. For construction projects of less than a year, the residence of the parent construction company is used to allocate the production by region.

• 13.22Production transactions between local KAUs, which belong to the same institutional unit and are located in different regions, are recorded. However, no delivery of ancillary output between local KAUs is recorded, unless it is observable (see paragraph 1.31). This implies that only deliveries of principal or secondary output between local KAUs are recorded, as far as this is practised in national accounts.

• 13.23If an establishment undertaking only ancillary activities is statistically observable, in that separate accounts for the production it undertakes are readily available, or if it is in a geographically different location from the establishments it serves, it is recorded as a separate unit and allocated to the industrial classification corresponding to its principal activity, in both national and regional accounts. In the absence of suitable basic data being available, the output of the ancillary activity is estimated by summing costs.

METHODS OF REGIONALISATION

• 13.24Regional accounts are based on the transactions of units that are resident in a regional territory. In general, regional accounts are compiled by using the following:

• (a) bottom-up methods;

• (b) top-down methods; or

• (c) a mixture of bottom-up and top-down methods.

• 13.25The bottom-up or ascending method of estimating a regional aggregate consists of collecting data directly for resident units, and compiling regional estimates by aggregation.

• A pseudo-bottom-up approach is acceptable when data for local KAUs is not available. Data for local KAUs can be estimated from enterprise, KAU or local unit data using distribution models. The estimates are aggregated to obtain regional totals as in the bottom-up approach.

• In the second stage of the compilation process, bottom-up estimates are reconciled with the totals from the national accounts.

• 13.26When information is only available at the level of units which contain several local KAUs engaged in different activities and regions, indicators such as compensation of employees, and employment by region, are used to compile regional breakdowns by industry.

• 13.27The top-down method is distributing a national total across the regions, without attempting to distinguish resident units by region. The national figure is distributed using an indicator that is distributed across regions in the same way as the variable to be estimated.

• The notion of a resident unit by region is needed in order to achieve regional coverage of the indicator used to produce the regional allocation of the variable required.

• 13.28Bottom-up methods are rarely encountered in their pure form. Mixed methods are also acceptable. For example, regional estimates of a variable or an aggregate of variables may only be possible with the help of the bottom-up method at macro-regional level. For estimates at a more detailed regional level, a top-down method is then applied.

• 13.29Direct measures of regional values are preferred to indirect measures. If complete and reliable micro-data is available at the level of local KAUs, regional values that correspond in concept with the national values are estimated by the bottom-up method. To obtain consistency with the national accounts totals, those regional accounts estimates are then made consistent with national accounts aggregates.

• 13.30Indirect measurement on the basis of national aggregates and an indicator that is correlated with the variable to be measured is subject to measurement errors. For example, national figures on gross value added by industry can be allocated to regions using regional employment statistics, under the assumption that, for each industry, gross value added per employee is the same for all regions. Compiling at a detailed breakdown level of industry improves top-down calculations.

• 13.31Aggregates of production are allocated to the region where the unit carrying out the relevant transactions is resident. The residence of the local KAU is an essential criterion for the allocation of such aggregates to a particular region. The residence principle is preferred to a territorial approach in which production activities are allocated on the basis of their location.

• 13.32For specific industries, like construction, energy production and energy distribution, communication networks, transport and financial intermediation, and for some transactions in the household accounts such as property income, specific problems in the allocation to regions exist. For international comparability of regional accounts, the same compilation methods, or methods yielding similar results, are employed.

• 13.33Gross fixed capital formation is allocated to regions by ownership. Fixed assets owned by a multiregional unit are allocated to the local KAUs where they are used. Fixed assets used under an operating lease are recorded in the region of the owner of the assets, and those used under a financial lease are recorded in the region of the user.

AGGREGATES FOR PRODUCTION ACTIVITIES

Gross value added and gross domestic product by region

• 13.34Three approaches can be used for estimating regional gross domestic product: the production, income and expenditure approaches.

• 13.35The production approach measures regional gross domestic product at market prices as the sum of gross value added at basic prices, plus taxes minus subsidies on products. Gross value added at basic prices is measured as the difference between output at basic prices and intermediate consumption at purchasers' prices.

• 13.36The income approach measures regional gross domestic product at market prices by measuring and aggregating the various uses in the regional part of the total economy generation of income account: compensation of employees, gross operating surplus and taxes less subsidies on production. Information by industry on compensation of employees and employment is often available at regional level. This information is used in estimating gross value added by industry directly or via the production approach. The income approach for regional gross domestic product overlaps with the production approach.

• 13.37Information on gross operating surplus is generally not available by industry and by region. Information on gross operating surplus of market producers can be derived from the business accounts of enterprises. A breakdown by institutional sector and by region is often not available. This is a barrier to using the income approach to the estimation of regional gross domestic product.

• 13.38Taxes (less subsidies) on production consist of taxes (less subsidies) on products and other taxes (less subsidies) on production. The allocation of taxes (less subsidies) on products is discussed in paragraph 13.43. For the other taxes (less subsidies) on production, information may be available by industry, e.g. in business surveys or by inferring from the specific type of tax or subsidy of the industry involved. This can then be an indicator for allocation of gross value added by region.

• 13.39For measuring regional gross domestic product, the expenditure approach is not used due to lack of information. Examples where there is a lack of data are direct information on inter-regional sales and purchases, and a breakdown of exports and imports between regions.

The allocation of FISIM to user industries

• 13.40Financial intermediation services indirectly measured (FISIM) are treated in regional accounts in the same way as in national accounts. The allocation of intermediate consumption of FISIM by user industries to regions poses a problem, because estimates of stocks of loans and deposits are usually not available by region. Where this is the case, the allocation of FISIM to user industry is made with a second-best method: regional gross output or gross value added by industry are used as distribution indicators.

Employment

• 13.41Regional production measures are consistent with employment estimates in a region when employment includes both the residents and the non-residents who work for regional producer units. Regional employment is defined consistently with the principles governing employment and residence for the national economy (see paragraph 11.17).

Compensation of employees

• 13.42For producers, compensation of employees is allocated to the local KAUs where the people are employed. Where this data is not available, compensation of employees is allocated, as a second-best method, based on the hours worked. If neither compensation of employees nor hours worked are available, the number of employees by local KAU is used. Compensation of employees in the household accounts is allocated to regions according to residence.

Transition from regional GVA to regional GDP

• 13.43In order to calculate GDP at market prices for regions, taxes and subsidies on products are allocated to the regions. By convention, these supra-regional taxes and subsidies are allocated on the basis of the relative size of gross value added of all industries in the region valued at basic prices. Alternative methods of allocation can be applied on a case-by-case basis for territories with specific fiscal systems, resulting in significantly different rates of taxes and subsidies on products within a country.

• 13.44Per inhabitant figures can be calculated for the GDP of all regions. These figures are not calculated for extra-regio measures.

• 13.45Regional gross domestic product per inhabitant can be significantly influenced by commuter flows between regions. Net commuter inflows into regions increase production beyond that possible by the resident active population. GDP per inhabitant appears relatively high in regions with net commuter inflows and relatively low in regions with net commuter outflows.

Volume growth rates of regional GVA

• 13.46In measuring price and volume changes, the principles applied for the national economy shall apply also to regions. However, there are problems with regional data which make applying these principles to regions difficult. Examples of the difficulties are the following:

• (a) information on regional price changes is often not available;

• (b) if regional value added in current prices is directly estimated and not by deducting intermediate consumption from output, then double deflation of regional value added is not possible;

• (c) in the absence of regional supply and use tables, price and volume changes cannot be measured and assessed in such a framework.

• 13.47A commonly used approach is therefore to deflate regional value added by industry on the basis of national price changes by industry. This is carried out at the most detailed level at which gross value added at current prices is available. Differences between national and regional price changes due to differences in economic structure by industry are taken into account. However, this solution is still vulnerable to major differences between national and regional price changes. Examples of such differences are:

• (a) differences in cost structure and composition of outputs within one industry between producers in different regions. There can be large variations in price changes amongst regions for a single industry;

• (b) regional differences in the price changes of major inputs, e.g. changes in the price of labour, land and renting office space. The existence of national wage agreements with no regional differentiation implies that regional differences in changes in wage rates are small.

• 13.48Regional value added is deflated by using:

• (a) regional deflators when available and of sufficient quality, using price changes of outputs rather than inputs. In some cases regional deflators can be obtained indirectly by combining information on value changes and volume changes. When regional prices are used (possibly in combination with national deflators by industry), the regional growth rates are calculated to be consistent with national growth rates;

• (b) double deflation when possible. This is in particular appropriate where the price change of intermediate consumption deviates from that of output and where intermediate consumption is substantial.

REGIONAL HOUSEHOLD INCOME ACCOUNTS

• 13.49Distribution and redistribution of income result in balancing items, namely primary income and disposable income. In regional accounts these income measures are limited to households.

• 13.50Regional accounts of households are a regional specification of the corresponding accounts at the national level. For measurement reasons the accounts are limited to:

• (a) allocation of primary income account;

• (b) secondary distribution of income account.

• These accounts record primary income and disposable income of households which are resident in a region (see Table 13.1).

Table 13.1 —  Regional household income accounts

		Region	Region	Region	Region	Correction for regional flows without any national counterpart	National total
		a	b		Extra-regio	Correction for regional flows without any national counterpart	National total
Allocation of primary income	Allocation of primary income	Allocation of primary income	Allocation of primary income	Allocation of primary income	Allocation of primary income	Allocation of primary income	Allocation of primary income
Resources	B.2/B.3  Net operating surplus/mixed income					Correction for regional flows without any national counterpart	National total
	D.1  Compensation of employees					Correction for regional flows without any national counterpart	National total
	D.4  Property income receivable					Minus intraregional property income related to B2/B3
Uses	D.4  Property income payable					Minus intraregional property income related to B2/B3
	B.5  Primary income (balancing item)
Secondary distribution of income account for households	Secondary distribution of income account for households	Secondary distribution of income account for households	Secondary distribution of income account for households	Secondary distribution of income account for households	Secondary distribution of income account for households	Secondary distribution of income account for households	Secondary distribution of income account for households
Resources	B.5  Primary income
	D.62  Social benefits other than social benefits in kind
	D.7  Other current transfers receivable
Uses	D.5  Current taxes on income, wealth, etc.
	D.61  Social contributions
	D.7  Other current transfers payable
	B.6  Disposable income (balancing item)
	Supplementary information
	Population (number of inhabitants)
	Primary income per capita
	Disposable income per capita

• 13.51The regional household accounts are based on the households that are resident in a regional territory. The number of persons that are members of the resident households adds up to the total resident population of the region.

• 13.52The rules for determining the residence of households at the national level shall also apply to the regional accounts of households. By way of exception, when the host region is in the same country as the region of residence, students and long-term patients are treated as resident of the host region if they stay there more than one year.

• 13.53The household accounts can be extended by the use of income accounts. This requires the allocation by region of national accounts statistics on final consumption expenditure by households and the adjustment for the change in net equity of households in pension fund reserves. Regional saving by households is the balancing item.

• 13.54Allocation by region of final consumption expenditure by households requires reliable regional information from for example an extended household budget survey. However, such a regional breakdown is often absent and in the national accounts final consumption expenditure by households is often estimated using other information. In these circumstances, constructing a regional breakdown is more difficult.

• 13.55Governments can play an important role in providing education, health care and social services to households, through social transfers in kind. The role of such social transfers in kind differs substantially between different countries and can show major fluctuations over time. Allocating such social transfers in kind to regions implies that regional actual final consumption by households and adjusted disposable income by households can be obtained. Considering the important role of social transfers in kind in some Member States, comparing actual final consumption and actual disposable income by households across Member States can give a different picture from a comparison based on final consumption expenditure and disposable income by households.

CHAPTER 14

FINANCIAL INTERMEDIATION SERVICES INDIRECTLY MEASURED (FISIM)

THE CONCEPT OF FISIM AND THE IMPACT OF THEIR USER ALLOCATION ON MAIN AGGREGATES

• 14.01One traditional way in which financial services are provided is by means of financial intermediation. This is the process whereby a financial institution such as a bank accepts deposits from units wishing to receive interest on funds, and lends them to units whose own funds are insufficient to meet their needs. The bank thus provides a mechanism to allow the first unit to lend to the second. The unit lending funds accepts a rate of interest lower than that paid by the borrower. A 'reference rate' of interest is the rate at which both lender and borrower would be happy to strike a deal. The difference between the reference rate and the rate actually paid to depositors and charged to borrowers is a financial intermediation service charge indirectly measured (FISIM). The total FISIM is the sum of the two implicit fees paid by the borrower and the lender.

• 14.02However, it is seldom the case that the amount of funds lent by a financial institution exactly matches the amount deposited with them. Some money may have been deposited but not yet loaned; some loans may be financed by the bank's own funds and not from borrowed funds. However, the depositor of funds receives the same amount of interest and intermediation service whether or not his funds are lent, and the borrower pays the same rate of interest and receives the same intermediation service whether his funds are provided by intermediated funds or the bank's own funds. For this reason FISIM are estimated for all loans and deposits offered by a financial institution irrespective of the source of the funds. The amounts of interest recorded are calculated as the reference rate times the level of loan or deposit in question. The difference between those amounts and the amounts actually received by or paid to the financial institution are recorded as the indirect service charges paid by the borrower or depositor to the financial institution. The amounts recorded in the system as interest are described as 'ESA interest' and the total amounts actually paid to or by the financial institution are described as 'bank interest'. The total implicit service charge is the sum of the bank interest on loans less the ESA interest on the same loans plus the ESA interest on deposits less the bank interest on the same deposits.

• 14.03FISIM apply only to loans and deposits provided by, or deposited with, financial institutions. The financial institutions in question need not be resident; nor need the clients of the financial institution be resident. Imports and exports of FISIM occur. The financial institution need not offer deposit-taking facilities as well as making loans. The financial subsidiaries of retailers are examples of financial institutions that make loans without accepting deposits. A money lender who has sufficiently detailed accounts to be treated as a corporation or a quasi-corporation can receive FISIM.

• 14.04To consider the impact of the allocation of FISIM on GDP and national income, as compared with the situation where FISIM would not be allocated, five cases have to be considered:

• (a) loans are provided and deposits are taken by resident financial intermediaries (FIs) for intermediate consumption of market producers (including households as owners of unincorporated enterprises and of dwellings): the FISIM output of FIs is counterbalanced by the intermediate consumption of market producers. Therefore, there is no impact on GDP and national income;

• (b) loans are provided and deposits are taken by resident FIs for intermediate consumption of non-market producers and for final consumption of households: when FISIM is consumed by non-market producers, as intermediate consumption, the output of such producers is increased by the same amount since intermediate consumption is a part of the sum of their costs and the counterpart flow is an increase of final consumption expenditure. Therefore, GDP and national income increase by the amount of allocated FISIM. Also, when FISIM is consumed by households as final consumers, GDP and national income increase by the amount of allocated FISIM;

• (c) loans are provided and deposits are taken by resident FIs to non-resident non-FIs (exports of FISIM): exports of FISIM are recorded, increasing GDP. But in the transition from GDP to national income, this increase is counterbalanced by a decrease of interest receivable less interest payable towards the rest of the world (as FISIM is deducted from interest receivable on loans and added to interest payable on deposits). Therefore, exports of FISIM do not impact national income;

• (d) loans are provided and deposits are taken by non-resident FIs for intermediate consumption of market producers, including households as owners of unincorporated enterprises and of dwellings (imports of FISIM): GDP decreases by the amount of this category of imports of FISIM, as their counterpart is intermediate consumption. But in the transition from GDP to national income, this decrease is counterbalanced by an increase of interest receivable less payable towards the rest of the world (as FISIM are added to interest receivable on deposits and deducted from interest payable on loans). Therefore, this category of imports does not impact national income;

• (e) loans are provided and deposits are taken by non-resident FIs for intermediate consumption of non-market producers and for final consumption of households (imports of FISIM): imports of FISIM by non-market producers correspond to intermediate consumption. The output of such producers is increased by the same amount since intermediate consumption is a part of the sum of their costs and the counterpart flow is an increase of final consumption expenditure. When measuring GDP from the production approach, the increase in intermediate consumption is matched by the rise of output, leaving value added unchanged. When measuring GDP from the expenditure side, the increase in final consumption expenditure is neutralised by the increase of imports of services. But in the transition from GDP to national income, there is an increase of interest receivable less payable towards the rest of the world (as FISIM is added to interest receivable on deposits and deducted from interest payable on loans). Therefore, national income increases by the amount of this category of imports of FISIM. Also, when FISIM is imported by households as final consumers, there is no impact on GDP and national income increases as there is an increase of interest receivable less payable towards the rest of the world. By convention, FISIM are not calculated for interbank loans and deposits between resident FIs, nor between resident FIs and non-resident FIs. But interbank loans and deposits are used to calculate reference rates.

• 14.05From the five cases presented in paragraph 14.04, the impact of allocating FISIM on GDP and national income can be summarised in the following way:

• (a) GDP increases by the amount of FISIM produced by resident FIs and allocated to sectors S.13 (general government), S.14 (for households as consumers), S.15 (NPISHs) and S.2 (rest of the world);

• (b) GDP decreases by the amount of imported FISIM allocated to S.11 (non-financial corporations), S.12 (financial corporations) excluding S.121 (central bank), S.122 (deposit-taking corporations except the central bank) and S.125 (other financial intermediaries, except insurance corporations and pension funds), and S.14 (for households as owners of dwellings and unincorporated enterprises);

• (c) national income increases by the amount of FISIM (produced by resident FIs or imported) allocated to sectors S.13 (general government), S.14 (for households as consumers) and S.15 (NPISHs).

CALCULATION OF FISIM OUTPUT BY SECTORS S.122 AND S.125

• 14.06FISIM are produced by FIs: the central bank (S.121); deposit-taking corporations except the central bank (S.122); and other financial intermediaries, except insurance corporations and pension funds (S.125).

• FISIM calculations concentrate on subsectors S.122 and S.125; by convention, FISIM are not calculated for the central bank (see paragraph 14.16).

Statistical data required

• 14.07For each of the subsectors S.122 and S.125, data is needed in the form of a table of stocks of loans and deposits categorised by user sectors, and averaged over a four quarter period, and the corresponding accrued interest. The interest is calculated after reallocation of interest rate subsidies to the recipients.

Reference rates

• 14.08In the balance sheets of financial intermediaries included in subsectors S.122 and S. 125, loans and deposits with resident units have to be broken down to differentiate between loans and deposits:

• — which are interbank (i.e. within the institutional units providing FISIM included in subsectors S.122 and S.125),

• — which are undertaken with the user institutional sectors (S.11 — other S.12 subsectors — S.13 — S.14 — S.15) (except with the central banks).

• In addition, loans and deposits with the rest of the world (S.2) are broken down into loans and deposits with non-resident financial intermediaries and loans and deposits with other non-residents.

Internal reference rate

• 14.09To obtain the FISIM output of the resident FIs by resident user institutional sector, the internal reference rate is calculated as the ratio of interest receivable on loans within and between subsectors S.122 and S.125 to stocks of loans within and between subsectors S.122 and S.125 as follows:

Image omitted; see official source

• In theory, the internal reference rate is the same when using deposits data rather than loans data. Due to data inconsistencies, the estimate from the deposits data will be different from the estimate from the loans data.

• When the deposits data is more reliable, the internal reference rate should be calculated on interbank deposits as the ratio of:

Image omitted; see official source

• If the loans and deposits data are equally reliable, the internal reference rate should be calculated on interbank loans and deposits as the ratio between interest receivable on loans incurred plus interest payable on deposits held between FIs, and the stock of loans plus the stock of deposits held by FIs on behalf of other FIs.

• In cases where resident FIs, for their resident customers, provide loans and take deposits expressed in foreign currencies, several 'internal' reference rates by currencies or groups of currencies are to be calculated if this improves the estimates significantly. This would require splitting by currency or groups of currencies both the calculation of the 'internal' reference rates and the loans and deposits from resident FIs towards each resident user sector.

External reference rates

• 14.10To determine FISIM imports and exports, the reference rate used is the average interbank rate weighted by the levels of stocks in the headings 'loans between resident FIs on the one hand, and non-resident FIs on the other hand' and 'deposits between resident FIs on the one hand, and non-resident FIs on the other hand', which are included in the balance sheet of the FIs. So the external reference rate is calculated as the ratio of interest on loans plus interest on deposits between resident FIs and non-resident FIs, to the stock of loans plus the stock of deposits between resident FIs and non-resident FIs.

• Several external reference rates are to be calculated for different currencies or groups of currencies, if the data is available for each currency or group of currencies for the following categories, and if this improves the estimates significantly:

• (a) loans and deposits from non-resident FIs towards each user sector;

• (b) loans and deposits from resident FIs towards non-resident users.

Detailed breakdown of FISIM by institutional sector

• 14.11By convention, no interbank FISIM have to be calculated between resident FIs, nor between resident FIs and non-resident FIs. FISIM are calculated in respect of non-bank user institutional sectors only.

• For each institutional non-FI sector, it is necessary to have data according to the following table of loans and deposits granted by the resident FIs:

	Stocks	Interest receivable by resident FIs		Stocks	Interest payable by resident FIs
Loans granted by resident FIs (S.122 and S.125)			Deposits with resident FIs (S.122 and S.125)

• The total FISIM by institutional sector is obtained as the sum of FISIM on loans granted to the institutional sector and of FISIM on deposits of the institutional sector.

• FISIM on the loans granted to the institutional sector is estimated as interest receivable on loans less (loan stocks multiplied by the internal reference rate).

• FISIM on the deposits of the institutional sector is estimated as (deposit stocks multiplied by the internal reference rate) less interest payable on deposits.

• Part of the output is exported; on the basis of the balance sheet of the FIs we observe:

	Stocks	Interest receivable by resident FIs		Stocks	Interest payable by resident FIs
Loans to non-resident non-banks			Deposits with non-resident non-banks

• Exports of FISIM are estimated using the external interbank reference rate, for loans granted to non-residents (excluding FIs), as interest receivable less (loan stock multiplied by the external reference rate).

• Exports of FISIM on deposits of non-residents (excluding FIs) are estimated as (deposit stocks multiplied by the external reference rate) less interest payable.

• Where several reference rates are used for different currencies or groups of currencies, the loans and deposits are split both by institutional user sectors and by the currencies (or groups of currencies) in which they are denominated.

Breakdown into intermediate and final consumption of FISIM allocated to households

• 14.12FISIM attributable to households are broken down into the following categories:

• (a) intermediate consumption of households in their capacity as owners of dwellings;

• (b) intermediate consumption of households in their capacity as owners of unincorporated enterprises; and

• (c) final consumption of households.

• The estimation method requires a breakdown of loans to households (stocks and interest) into the following corresponding categories:

• (i) dwelling loans;

• (ii) loans to households as owners of unincorporated enterprises; and

• (iii) other loans to households.

• Loans to households as owners of unincorporated enterprises and dwelling loans are generally shown separately in the various breakdowns of lending in financial and monetary statistics. Other loans to households are obtained as a residual item by subtracting the two previously mentioned categories of loans from the total. FISIM for loans to households should be distributed amongst the three categories on the basis of information on stocks and interest for each of the three groups. Dwelling loans are not identical to mortgage loans, as mortgage loans can have other purposes.

• Household deposits are broken down into:

• (1) deposits of households as owners of unincorporated enterprises; and

• (2) deposits of households as consumers.

• In the absence of statistics on deposits of households as owners of unincorporated enterprises, stocks of deposits are calculated by one of the following methods:

Method 1

Stocks of deposits are calculated by assuming that the ratio of stocks of deposits to value added observed for the smallest size corporations applies for unincorporated enterprises.

Method 2

Stocks of deposits are calculated by assuming that the ratio of stocks of deposits to turnover observed for the smallest size corporations applies for unincorporated enterprises.

• FISIM on the deposits of households must be distributed between FISIM on the deposits of households as owners of unincorporated enterprises and FISIM on the deposits of households as consumers on the basis of the average stocks of those two categories, for which, in the event of lack of further information, the same interest rate may be used.

• As an alternative, where detailed information on loans and deposits of households is absent, FISIM to households are allocated to intermediate consumption and final consumption assuming that all loans are attributable to households as producer or as owners of dwellings and that all deposits are attributable to households as consumers.

CALCULATION OF IMPORTS OF FISIM

• 14.13Non-resident FIs grant loans to residents and receive deposits from residents. Data according to the following table is needed for each institutional sector.

	Stocks	Interest receivable by non-resident FIs and payable by resident users		Stocks	Interest payable by non-resident FIs and receivable resident users
Loans granted by non-resident FIs			Deposits with non-resident FIs

• Imports of FISIM for each institutional sector are calculated as follows:

Imports of FISIM for loans are estimated as the interest receivable by non-resident FIs less (loan stocks multiplied by the external reference rate).

Imports of FISIM for deposits are estimated as (deposit stocks multiplied by the external reference rate) less the interest payable by non-resident FIs.

• It is recommended that several external reference rates are used by currency or groups of currencies (see paragraph 14.10).

FISIM IN VOLUME TERMS

• 14.14Volume estimates of FISIM are calculated using stocks of loans and deposits deflated to base period prices using a general price index such as the implicit price deflator for domestic final demand.

• The price of FISIM has two components: the first is the difference between the bank rate of interest and the reference rate (or the reverse in the case of deposits) which represents the margin earned by the financial intermediary; the second is the price index used to deflate the stocks of loans and deposits to base period prices.

• FISIM in volume terms are calculated as follows:

Image omitted; see official source

Image omitted; see official source

• Base period margin on loans is equal to the effective interest rate on loans less the reference rate.

• Base period margin on deposits is equal to the reference rate less the effective interest rate on deposits.

• In nominal terms, the effective margin is equal to the ratio of FISIM to stocks, so replacing the effective margin by this expression in the two above formulas gives the following:

Image omitted; see official source

Image omitted; see official source

CALCULATION OF FISIM BY INDUSTRY

• 14.15The allocation of FISIM among user industries is based on the stocks of loans and deposits of each industry and, if this information is not reliable, on the output of each industry.

THE OUTPUT OF THE CENTRAL BANK

• 14.16The output of the central bank is, by convention, to be measured as the sum of costs, i.e. its intermediate consumption, compensation of employees, consumption of fixed capital and other taxes less subsidies on production. FISIM do not have to be calculated for the central bank.

• Commissions and fees for directly measured services invoiced by the central bank both in respect of resident and non-resident units should be allocated to these units.

• Only the part of the total central bank output (sum of costs less commissions and fees) which is not sold has to be, by convention, allocated to the intermediate consumption of other FIs — subsectors S.122 (deposit-taking corporations except the central bank) and S.125 (other financial intermediaries, except insurance corporations and pension funds) — in proportion to the respective value added of each of these subsectors.

• To equilibrate the accounts of subsectors S.122 and S.125, the amount of their respective intermediate consumption of the service provided by the central bank is to be counterbalanced by a current transfer (classified under D.759 'other miscellaneous current transfers') received from the central bank, for the same amount.

CHAPTER 15

CONTRACTS, LEASES AND LICENCES

INTRODUCTION

• 15.01Contracts are agreements on the terms under which goods, services and assets are provided to the customer. Contracts representing straightforward sales of goods, services or assets determine the value, and time of recording, of the transaction, which in the case of goods is the change of ownership. The difference between the time of payment and time of recording is reflected in entries recorded as other accounts receivable or payable in the financial account.

• 15.02Leases, licences and permits are contracts which determine the classification of payments and the economic ownership of assets; some of the contracts are a separate type of non-financial asset.

• 15.03In this Chapter, the recording of various groups of complex contracts and their underlying flows and stocks are discussed in seven sections:

• (a) the distinction between operating leases, resource leases and financial leases;

• (b) permits to use a natural resource;

• (c) permits to undertake specific activities;

• (d) public-private partnerships;

• (e) service concession contracts;

• (f) marketable operating leases;

• (g) entitlements to future goods and services on an exclusive basis.

THE DISTINCTION BETWEEN OPERATING LEASES, RESOURCE LEASES AND FINANCIAL LEASES

• 15.04Three types of leases of non-financial assets are distinguished (see Table 15.1):

• (a) operating lease;

• (b) resource lease;

• (c) financial lease.

• Each of these leases relates to the use of a non-financial asset:

• — in the case of operating leases and resource leases, there is no change of economic ownership and the legal owner continues to be the economic owner. Resource leases are used for natural resources, such as land and radio spectra. Operating leases are used for all other non-financial assets,

• — in the case of financial leases, there is a change of economic ownership of the asset, and the legal owner of the asset is not considered to be the economic owner. Financial leases can apply to all non-financial assets, including in some situations natural resources.

• 15.05Every entity such as a good and service, a natural resource, a financial asset or liability has both a legal owner and an economic owner. In many cases the economic and legal owners are the same. Where they are not, the legal owner has handed responsibility for the risk involved in using the entity in an economic activity to the economic owner along with the associated benefits. In return the legal owner accepts from the economic owner payments for another package of risks and benefits.

Table 15.1 —  The recording of three different types of lease

Type of lease	Method of recording for the user
Operating lease (not for natural resources)	The user is not the economic owner of the non-financial asset The rentals are recorded as payments for a service, intermediate consumption or final consumption expenditure by general government, households and NPISHs
Resource lease (only for natural resources)	The user is not the economic owner of the natural resource. Payments are rents (property income)
Financial lease	The user is the economic owner of a non-financial asset, financed by a loan from the lessor. The payments are for the most part re-payment of principal and payments of interest on the loan. Part of the interest payments may be recorded as FISIM when the lender is a financial intermediary. This payment is classified as intermediate consumption or final consumption expenditure by general government, households and NPISHs

Table 15.2 —  The recording of three different types of lease, by type of transaction

Type of transaction	Type of use, and asset involved
Intermediate consumption	Operating lease of produced assets, for example machines and intellectual property rights FISIM services on a financial lease
Consumption of fixed capital	Only for produced assets, and only for the economic owner
Final consumption expenditure	Operating lease of consumer durables Purchase of consumer durables (including when financed by a financial lease or hire purchase) FISIM services on a financial lease to final consumers
Purchase of non-financial assets
Fixed capital formation	Purchase of produced assets (including when financed by a financial lease)
Acquisition of natural resources	Purchase of natural resources, including the right to use to extinction
Acquisition of other non-produced assets	Purchase of the right to use a natural resource for an extended period, for example a fishing quota
Property income payments
Rent	Resource lease, i.e. payment for the use of a natural resource
Interest	Financial lease, i.e. purchase of a non-financial asset financed simultaneously by a loan
Financial transaction: loan	Financial lease, i.e. purchase of a non-financial asset financed simultaneously by a loan

• 15.06 Definition: the economic owner of entities such as a good and service, a natural resource, a financial asset or liability is the institutional unit entitled to claim the benefits associated with the use of the entity in the course of an economic activity by virtue of accepting the associated risks.

• 15.07 Definition: the legal owner of entities such as a good and service, a natural resource, a financial asset or liability is the institutional unit entitled in law and sustainable under the law to claim the benefits associated with the entities.

Operating leases

• 15.08 Definition: an operating lease is a lease whereby the legal owner is also the economic owner and accepts the operating risks and receives the economic benefits from the asset by charging for the use of it, in a productive activity.

• 15.09One indicator of an operating lease is that it is the responsibility of the legal owner to provide for repair and maintenance of the asset.

• 15.10Under an operating lease the asset remains on the balance sheet of the lessor.

• 15.11The payments made for produced assets under an operating lease are referred to as rentals and are recorded as payments for a service (see Table 15.2). The character of an operating lease is best described in relation to equipment since operating leases are often for vehicles, cranes, drills, etc. However, any sort of non-financial asset may be subject to an operating lease. The service provided by the lessor goes beyond the mere provision of the asset. It includes other elements such as convenience and security. In the case of equipment, the lessor, or owner of the equipment, normally maintains a stock of equipment in good working order that can be hired on demand or at short notice. The lessor must normally be a specialist in the operation of the equipment. This is important in the case of highly complicated equipment, such as computers, where the lessee may not have the necessary expertise or facilities to service the equipment properly. The lessor may also undertake to replace the equipment in the event of a serious or prolonged breakdown. In the case of a building, the lessor is responsible for the structural integrity of the building and for replacement in the case of damage due to a natural disaster, for example, and is usually responsible for ensuring that elevators, heating and ventilation systems function adequately.

• 15.12Operating leasing developed originally to meet the needs of users who require certain types of equipment only at regular intervals. Many operating leases are for short periods though the lessee may renew the lease when the period expires and the same user may use the same piece of equipment on several occasions. However, with the evolution of increasingly complicated types of machinery, especially in the electronics field, the servicing and back-up facilities provided by a lessor are important factors that may influence a user to lease rather than purchase. Other factors that may persuade users to lease over long periods rather than purchase are the consequences for the enterprise's balance sheet, cash flow or tax liability.

Financial leases

• 15.13 Definition: a financial lease is one where the lessor is the legal owner of an asset but the lessee is the economic owner as the latter bears the operating risks and receives the economic benefits from using the asset in a productive activity. In return, the lessor accepts another package of risks and rewards from the lessee, in the form of repayments associated with a loan. It is frequently the case that the lessor, though the legal owner of the asset, never takes physical delivery of the asset but consents to its delivery directly to the lessee. One indicator of a financial lease is that it is the responsibility of the economic owner to provide any necessary repair and maintenance of the asset.

• 15.14Under a financial lease, the legal owner is shown as issuing a loan to the lessee, which the lessee uses to acquire the asset. Thereafter the asset is shown on the balance sheet of the lessee and not the lessor; the corresponding loan is shown as an asset of the lessor and a liability of the lessee. Payments under a financial lease are treated not as rentals but as the payment of interest and repayment of principal on the imputed loan. If the lessor is a financial intermediary, part of the payment is also treated as a service charge (FISIM).

• 15.15Very often the nature of the asset subject to a financial lease may be quite distinct from the assets used by the lessor in his productive activity, for example a commercial airliner legally owned by a bank but leased to an airline. It makes no economic sense to record either the aircraft or its consumption of fixed capital in the accounts of the bank or to omit them from the accounts of the airline. The device of a financial lease avoids this undesirable form of recording the ownership of the aircraft and the decline in its value while keeping the net worth of both parties correct throughout the length of the lease.

• 15.16It is common for a financial lease period to be for the whole of the economic life of the asset. When this occurs, the value of the imputed loan corresponds to the present value of the payments to be made under the lease agreement. This value will cover the cost of the asset and usually also include a fee charged by the lessor, which is accrued over the period of the lease. Payments made regularly to the lessor can be recorded as four components: interest payments, repayments of principal on the imputed loan, the lessor fee, and FISIM (if the lessor is a financial intermediary). If the terms of the agreement do not specify how the first three elements are identified, the repayment of principal must correspond to the decline in the value of the asset (the consumption of fixed capital), the interest payable must correspond to the return to capital on the asset and the service charge to the difference between the total amount payable and those two elements.

• 15.17A financial lease may also exist when the lease period is less than the economic life of the asset. In this case, the value of the imputed loan again covers the cost of the asset and the fee charged by the lessor plus the value of the service charges to be made under the terms of the lease. Payments made regularly to the lessor shall be recorded as interest payments and repayments of principal on the imputed loan, the lessor fee, and for FISIM (if the lessor is a financial intermediary). It may also include pre-payments funding the repurchase of the asset at the end of the lease period. At the end of the lease, the asset may transfer to the balance sheet of the lessee, depending upon the contractual arrangements. The value of the residual amounts outstanding on the loan will be equal to the expected market value of the asset at the end of the lease period as determined at the start of the lease. At this point, the asset could be returned to the lessor, an option invoked for the lessee to legally acquire the asset, or a new lease arrangement set up.

• A financial lease requires the lessee to bear the risks and rewards associated with using the asset. Therefore, any holding gains and losses on the expected value of the asset at the end of the lease period shall be borne by the lessee. In this case, where the asset is legally acquired by the lessee at the end of the lease period, then the cash payments are recorded as the repayment of the loan since the asset is already on the balance sheet of the lessee.

• If the asset reverts to the lessor, then a transaction representing the purchase of the asset is recorded at the current market value of the asset. The proceeds are used to repay the amount outstanding on the loan and any difference between those amounts is recorded as a capital transfer. The payments over the lease period will often include pre-payments of the acquisition of the asset so that the transaction occurs for no cash consideration, since the loan is fully repaid at this time.

• If a further lease period is negotiated, then the new contract needs to be analysed to see whether it is a continuation of a financial lease or an operating lease.

• 15.18Although a financial lease will typically be for several years, the duration of the lease does not determine whether the lease is to be regarded as an operating or financial lease. In some cases the asset may be leased for a short period, perhaps only one year at a time, but the contract includes the condition that the lessee takes all responsibility for the asset, including all maintenance and cover for exceptional damage. Even though the lease period is short, and even though the lessor may not be a financial institution, if the lessee accepts the majority of the risks associated with the use of the asset in production as well as the rewards, the lease is recorded as a financial and not an operating lease. However, in practice, it is difficult to deviate from the recording in the business accounts, which follows international business accounting standards, where financial leases are limited to leases covering the major part of the economic life time of the asset.

• 15.19Any corporation that specialises in financial leasing, even if called a property company or aircraft leasing company, shall be classified as a financial intermediary offering loans to the units leasing assets from them. If the lessor is not a financial intermediary, the payments associated with the imputed loan are split into repayments of principal and interest only; if the lessor is a financial corporation, a further component representing the service charge (FISIM) is included.

• 15.20Hire purchase is a type of financial leasing.

• Definition: a hire purchase arrangement exists when a durable good is sold to a purchaser in return for agreed future payments. The buyer takes possession of the good immediately, though legally it remains the property of the lessor as collateral/guarantee until all agreed payments have been made by the lessee.

• 15.21Hire purchase is usually restricted to consumer durables, and most purchasers are in the households sector. Financiers of hire purchase contracts typically are separate institutional units operating in close cooperation with sellers of durable goods

• 15.22In the case of hire purchase, the durable good is recorded as if acquired by the purchaser on the day they take possession of the asset at the market price that would have been realised in an equivalent transaction. The purchaser receives an imputed loan of equivalent value. The payments from purchaser to financier are recorded as repayments of principal and interest payments, using the same method as the one applied for financial leasing. The productive activity carried out by financiers of hire purchase contracts is financial intermediation. As they do not usually charge directly for their services, their entire output are FISIM, calculated as property income receivable less interest payable. As in the case of conventional financial leasing, the amount of interest payable may be difficult to observe and must therefore be estimated.

Resource leases

• 15.23 Definition: a resource lease is one where the owner of a natural resource makes it available to a lessee in return for a payment recorded as rent.

• 15.24In a resource lease, the resource asset remains on the balance sheet of the lessor even though it is used by the lessee. Any decline in value of a natural resource is recorded as an economic disappearance of non-produced assets (under K.21, 'depletion of natural resources'). It is not recorded as a transaction similar to consumption of fixed capital, as there is no fixed capital to consume. Payables due under a resource lease, and only such payables, are recorded as rent.

• 15.25The classic case of an asset subject to a resource lease is land. However, the use of other natural resources is similarly recorded in this way, e.g. timber, fish, water, mineral resources and radio spectra.

Permits to use a natural resource

• 15.26Permits to use a natural resource can be issued by government, but can also be issued by private owners, like farmers and businesses.

• 15.27When permits are issued for using a natural resource, three recording options can be distinguished (see Table 15.3):

• (a) the owner can extend or withhold permission to continued use of the asset from one lease period to the next;

• (b) the owner may allow the resource asset to be used for an extended period of time in such a way that in effect the user controls the use of the resource during this time with little, if any, intervention from the owner;

• (c) the owner permits the resource asset to be used to extinction.

• The first option is recorded as a resource lease; this should be recorded as rent.

• The second option may not only lead to a recording of rent but also to the creation of an asset for the user, distinct from the resource itself but where the value of the resource asset and the asset allowing use of it are linked.

• This asset (category AN.222) is only recognised if its value, the benefits to the holder in excess of the value accruing to the issuer, is realisable through transferring the asset. Such permits are first observed through economic appearance of assets (category K.1, see point (g) of paragraph 6.06). If the value of the asset is not realised it will tend towards zero as the lease period ends.

• The third option results in the sale (or possibly an expropriation) of the natural resource itself.

Table 15.3 —  The recording of three different types of permits for the use of natural resources

Type of use	Method of recording
Permission for temporary use, possibly for a long time	Resource lease: rent (property income)
Control by user during an extended period, risks and rewards borne by the user, transferability of permit at a realisable value	Rent and creation of new asset for the right to use the natural resource
Use to extinction; permanent use (all risks and rewards borne by the user)	Sale of natural resource

• 15.28In order to distinguish between rent, creation of a new asset and sale of the natural resource, the major criterion is the transfer of risks and rewards. The natural resource is sold if all the risks and rewards have been transferred. A new asset is created if the transfer of risks and rewards results in a separate and transferable permit with a realisable value. Using other criteria, like pre-agreement on payments, up-front payment, length of the permit and treatment in the business accounts, can be misleading as they do not necessarily reflect the transfer of risks and rewards.

• 15.29Natural resources, like land and mineral resources, may be acquired by non-residents. However, sale of natural resources is not to be recorded as being sold to a non-resident unit. In such cases a notional resident unit is created that holds the title to the natural resource; the non-resident unit then owns the equity of the notional resident unit. A similar recording applies in the case of the acquisition by residents of natural resources in the rest of world.

• 15.30The revenues of the government from a specific type of natural resources (e.g. revenues from oil and natural gas) can consist of a wide range of transactions. Examples are:

• (a) rent in case of resource leases;

• (b) disposition of non-produced assets, e.g. sales of natural resources or sales of licences for exploiting during an extended period of time;

• (c) dividend from a public corporation exploiting natural resources;

• (d) corporation tax paid by corporations exploiting natural resources.

Permits to undertake specific activities

• 15.31In addition to licences and leases to use an asset, permission may be granted to engage in a particular activity, quite independently of any assets involved in the activity. The permits are not dependent on qualifying criteria (such as passing an examination to qualify for permission to drive a car) but are designed to limit the number of individual units entitled to engage in the activity. Such permits may be issued by government or by private institutional units and different treatments apply to the two cases.

Table 15.4

The recording of the use and purchase of non-financial assets, by type of transaction and flow

Type of transaction / other economic flow	Type of use/purchase and type of asset and type of payment
Intermediate consumption	Operating lease of produced assets, e.g. machines and intellectual property rights Regular payments by corporations for the delivery of water FISIM services related to the provision of a financial lease
Consumption of fixed capital	Only for produced assets, and for the economic owner
Final consumption expenditure	Operating lease of consumer durables Purchase of consumer durables, including when financed by a financial lease, or through a hire purchase agreement
Purchase of non-financial assets
Fixed capital formation	Purchase of produced assets, including when financed via a financial lease
Acquisition of natural resources	Purchase of a natural resource, including the right to use to extinction Purchase of the right to use a natural resource for an extended period, e.g. a fishing quota
Acquisition of other non-produced assets	Transferable time-share arrangements Purchase of a contract transferable to a third party Contracts for future production, for example contracts with footballers and writers
Payment as property income: rent	Resource lease, i.e. payment for short-term use of natural resource Regular payments for the right to extract water Financial lease, i.e. purchase of a non-financial asset financed simultaneously by a loan
Income transfer	Permits issued by government to undertake a specific activity not dependent on qualifying criteria, or with a disproportionate charge compared to the costs of administering the permit scheme Emission permits issued by the government to control total emissions
Other taxes on production
Financial transaction: loan	Financial lease, i.e. purchase of a non-financial asset financed simultaneously by a loan
Other change in volume of assets	Exhaustion of natural resources by the owner Illegal logging, fishing or hunting (uncompensated seizure of cultivated assets or natural resources)
Change in the price of assets	Expiry of contracts, licences and permits recorded as assets

• 15.32When governments restrict the number of cars entitled to operate as taxis or limit the number of casinos by issuing permits, for example, they are in effect creating monopoly profits for the approved operators and recovering some of the profits as the fee. Such fees are recorded as other taxes on production. This principle applies to all cases where government issues permits to limit the number of units operating in a particular field where the limit is fixed arbitrarily and is not dependent only on qualifying criteria.

• 15.33In principle, if the permit is valid for several years, the payment shall be recorded on an accrual basis with another account receivable or payable entry for the amount of the permit fee covering future years.

• 15.34The incentive to acquire such a permit is that the permit holder believes that he will thereby acquire the right to make monopoly profits through the future income being greater than the payments to acquire the rights to them. The benefit to the holder in excess of the value accruing to the issuer is treated as an asset if the permit holder can realise this by transferring the asset. The type of asset is described as a permit to undertake specific activities (AN.223).

• 15.35The permit to undertake specific activities as an asset first appears in the other changes in the volume of assets account. Changes in value, both up and down, are recorded in the revaluation account of the acquirer.

• 15.36The value of the permit as an asset is determined by the value at which it can be sold or, if no such figure is available, is estimated as the present value of the future stream of monopoly profits. If the permit is on-sold, the new owner assumes the right to receive a refund from the government if the permit is cancelled as well as the right to earn the monopoly profits.

• 15.37A permit issued by government to undertake a specific activity is treated as an asset only when all the following conditions are satisfied:

• (a) the activity concerned does not utilise an asset belonging to government; if it does, the permission to use the asset is treated as an operating lease, a financial lease, a resource lease or possibly the acquisition of an asset representing permission to use the asset at the discretion of the licensee over an extended period;

• (b) the permit is not issued subject to a qualifying criterion; such permits are treated as either taxes or payments for services;

• (c) the number of permits is limited and so allows the holder to make monopoly profits when undertaking the activity concerned;

• (d) the permit holder must be able to sell the permit to a third party.

• If any of the conditions is not satisfied, the payments are treated as taxes or as payments for services.

• 15.38For units other than government, it is much less common to be able to limit the participation in a given activity. One instance is when it is either compulsory or desirable to belong to a professional association and there is a strict limit on numbers participating. An example is where an owner of property limits the number of units operating on his property, e.g. a hotel with a policy of only allowing one taxi firm to pick up guests. In these sorts of cases, the permits are treated as payments for services. In principle the payment shall be recorded on an accrual basis throughout the period for which the permit is valid. There is no reason in principle why such permits could not be treated as assets if they were marketable though this may not be a common situation.

• 15.39A permit issued by a unit other than government to undertake a specific activity is treated as an asset only when all the following conditions are satisfied:

• (a) the activity concerned does not utilise an asset belonging to the permit issuer; if it does, the permission to use the asset is treated as an operating lease, a financial lease or a resource lease;

• (b) the number of permits is limited and so allows the holder to make monopoly profits when undertaking the activity concerned;

• (c) the permit holder must be legally and practically able to sell the permit to a third party.