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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

Type Regulation

Publication 2013-06-26

Last updated 2025-09-01

State In force

Department Council of the European Union, European Parliament

Source EUR-Lex

articles 13

Reform history JSON API

2.115 Definition: this subsector consists of those types of public administration which are separate institutional units exercising some of the functions of government, except for the administration of social security funds, at a level below that of central government and above that of the governmental institutional units existing at local level.

Included in subsector S.1312 are those non-profit institutions which are controlled by state governments and whose competence is restricted to the economic territories of the states.

2.116 Definition: this subsector includes those types of public administration whose competence extends to only a local part of the economic territory, apart from local agencies of social security funds.

Included in subsector S.1313 are those non-profit institutions which are controlled by local governments and whose competence is restricted to the economic territories of the local governments.

2.117 Definition: the social security funds subsector includes central, state and local institutional units whose principal activity is to provide social benefits and which fulfil each of the following two criteria:

(a) by law or by regulation certain groups of the population are obliged to participate in the scheme or to pay contributions; and

(b) general government is responsible for the management of the institution in respect of the settlement or approval of the contributions and benefits independently from its role as supervisory body or employer.

There is usually no direct link between the amount of the contribution paid by an individual and the risk to which that individual is exposed.

Households (S.14)

2.118 Definition: the households sector (S.14) consists of individuals or groups of individuals as consumers and as entrepreneurs producing market goods and non-financial and financial services (market producers) provided that the production of goods and services is not by separate entities treated as quasi-corporations. It also includes individuals or groups of individuals as producers of goods and non-financial services for exclusively own final use.

Households as consumers may be defined as small groups of persons who share the same living accommodation, who pool their income and wealth and who consume certain types of goods and services collectively, mainly housing and food.

The principal resources of households are the following:

(a) the compensation of employees;

(b) property income;

(d) receipts from the disposal of market products; and

(e) imputed receipts from the output of products for own final consumption.

2.119The households sector includes:

(a) individuals or groups of individuals whose principal function is consumption;

(b) persons living permanently in institutions who have little or no autonomy of action or decision in economic matters (e.g. members of religious orders living in monasteries, long-term patients in hospitals, prisoners serving long sentences, old persons living permanently in retirement homes). Such people are treated as a single institutional unit: a single household;

(c) individuals or groups of individuals whose principal function is consumption and that produce goods and non-financial services for exclusively own final use; only two categories of services produced for own final consumption are included within the system: services of owner-occupied dwellings and domestic services produced by paid employees;

(d) sole proprietorships and partnerships without legal status, other than those treated as quasi-corporations, and which are market producers; and

(e) non-profit institutions serving households, which do not have independent legal status, or those which do but which are of only minor importance.

2.120In the ESA 2010, the households sector is subdivided into the following subsectors:

(a) employers (S.141) and own-account workers (S.142);

(b) employees (S.143);

(d) recipients of pensions (S.1442);

(e) recipients of other transfers (S.1443).

2.121Households are allocated to subsectors according to the largest income category (employers' income, compensation of employees, etc.) of the household as a whole. When more than one income of a given category is received within the same household, the classification is based on the total household income within each category.

Employers and own-account workers (S.141 and S.142)

2.122 Definition: the employers and own-account workers subsector consists of the group of households for which the (mixed) incomes (B.3) accruing to the owners of household unincorporated enterprises from their activity as producers of market goods and services with or without paid employees are the largest source of income for the household as a whole, even if it does not account for more than half of total household income.

Employees (S.143)

2.123 Definition: the employees subsector consists of the group of households for which the income accruing from compensation of employees (D.1) is the largest source of income for the household as a whole.

Recipients of property income (S.1441)

2.124 Definition: the recipients of property income subsector consists of the group of households for which property income (D.4) is the largest source of income for the household as a whole.

Recipients of pensions (S.1442)

2.125 Definition: the recipients of pensions subsector consists of the group of households for which the income accruing from pensions is the largest source of income for the household as a whole.

Pension households are households whose largest source of income consists of retirement or other pensions, including pensions from previous employers.

Recipients of other transfers (S.1443)

2.126 Definition: the recipients of other transfers subsector consists of the group of households for which the income accruing from other current transfers is the largest source of income for the household as a whole.

Other current transfers are all current transfers other than property income, pensions and income of persons living permanently in institutions.

2.127If information on the relative contributions of the sources of income of the household as a whole is not available for sectoring purposes, the income of the reference person is used for classifying purposes. The reference person of a household is the person with the largest income. If the latter information is not available, the income of the person who states that he/she is the reference person is used for subsectoring households.

2.128Other criteria for subsectoring households can be used, e.g. breakdown of households as entrepreneurs by activity: agricultural households and non-agricultural households.

Non-profit institutions serving households (S.15)

2.129 Definition: the non-profit institutions serving households (NPISHs) sector (S.15) consists of non-profit institutions which are separate legal entities, which serve households and which are private non-market producers. Their principal resources are voluntary contributions in cash or in kind from households in their capacity as consumers, from payments made by general government and from property income.

2.130Where such institutions are not very important, they are not included in the NPISH sector, but in the households sector (S.14), as their transactions are indistinguishable from units in that sector. Non-market NPISHs controlled by general government are classified in the general government sector (S.13).

The NPISHs sector includes the following main kinds of NPISHs that provide non-market goods and services to households:

(a) trade unions, professional or learned societies, consumers' associations, political parties, churches or religious societies (including those financed but not controlled by governments), and social, cultural, recreational and sports clubs; and

(b) charities, relief and aid organisations financed by voluntary transfers in cash or in kind from other institutional units.

Sector S.15 includes charities, relief or aid agencies serving non-resident units and excludes entities where membership gives a right to a predetermined set of goods and services.

Rest of the world (S.2)

2.131 Definition: the rest of the world sector (S.2) is a grouping of units without any characteristic functions and resources; it consists of non-resident units insofar as they are engaged in transactions with resident institutional units, or have other economic links with resident units. Its accounts provide an overall view of the economic relationships linking the national economy with the rest of the world. The institutions of the EU and international organisations are included.

2.132The rest of the world is not a sector for which complete sets of accounts have to be kept, but it is convenient to treat the rest of the world as a sector. Sectors are obtained by disaggregating the total economy to obtain more homogeneous groups of resident institutional units, which are similar in respect to their economic behaviour, objectives and functions. This is not the case for the rest of the world sector: for this sector, there are recorded the transactions and other flows of non-financial and financial corporations, non-profit institutions, households and general government with non-resident institutional units and other economic relationships between residents and non-residents, e.g. claims by residents on non-residents.

2.133The accounts for the rest of the world include only transactions carried out between resident institutional units and non-resident units, subject to the following exceptions:

(a) the services of transport (up to the border of the exporting country) provided by resident units in respect of imported goods are shown in the rest of the world accounts with FOB imports, even though they are produced by resident units;

(b) transactions in foreign assets between residents belonging to different sectors in the domestic economy are shown in the detailed financial accounts for the rest of the world. These transactions do not affect the country's financial position vis-à-vis the rest of the world; they affect the financial relationships of individual sectors with the rest of the world;

(c) transactions in the country's liabilities between non-residents belonging to different geographical zones are shown in the geographical breakdown of the rest of the world accounts. Although these transactions do not affect the country's overall liability to the rest of the world, they affect its liabilities to different parts of the world.

2.134The rest of the world sector (S.2) is subdivided into:

(a) Member States and institutions and bodies of the European Union (S.21):
(1) Member States of the European Union (S.211);
(2) Institutions and bodies of the European Union (S.212);

(b) non-member countries and international organisations non-resident of EU (S.22).

Sector classification of producer units for main standard legal forms of ownership

2.135The following overview and paragraphs 2.31 to 2.44 summarise the principles underlying the classification of producer units into sectors, using the standard terminology for describing the main types of institutions.

2.136Private and public corporations which are market producers are classified as follows:

(a) those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations).

2.137Cooperatives and partnerships which are recognised as independent legal entities and are market producers are classified as follows:

(a) those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations).

2.138Public producers which by virtue of special legislation are recognised as independent legal entities and which are market producers are classified as follows:

(a) those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations).

2.139Public producers which are not recognised as independent legal entities and are market producers are classified as follows:

(a) If they are quasi-corporations:
(1) those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);
(2) those principally engaged in financial intermediation and financial auxiliary activities: in sector S.12 (financial corporations).

(b) If they are not quasi-corporations: in sector S.13 (general government), as they remain an integral part of the units which control them.

2.140Non-profit institutions (associations and foundations) recognised as independent legal entities are classified as follows:

(a) those which are market producers and principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations);

(c) those which are non-market producers:
(1) in sector S.13 (general government), if they are public producers controlled by general government;
(2) in sector S.15 (non-profit institutions serving households), if they are private producers.

2.141Sole proprietorships and partnerships which are not recognised as independent legal entities and are market producers are classified as follows:

(a) If they are quasi-corporations:
(1) those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);
(2) those principally engaged in financial intermediation and financial auxiliary activities: in sector S.12 (financial corporations).

(b) If they are not quasi-corporations, they are classified in sector S.14 (households).

2.142Head offices are classified as follows:

(a) in sector S.11 (non-financial corporations), if the preponderant type of activity of the group of corporations which are market producers as a whole is the production of goods and non-financial services (see point (e) of paragraph 2.46);

(b) in sector S.12 (financial corporations), if the preponderant type of activity of the group of corporations as a whole is financial intermediation (see point (e) of paragraph 2.65).

Holding companies which are holders of assets of a group of subsidiary corporations are always treated as financial corporations. Holding companies hold the assets of a group of companies, but do not undertake any management activities with respect to the group.

2.143Table 2.5 shows in schematic form the various cases enumerated above.

Table 2.5 — Sector classification of producer units for main standard legal forms of ownership

Type of producer Standard legal description	Type of producer Standard legal description	Market producers (goods and non-financial services)	Market producers (financial intermediation)	Non-market producers	Non-market producers
Type of producer Standard legal description	Type of producer Standard legal description	Market producers (goods and non-financial services)	Market producers (financial intermediation)	Public producers	Private producers
Private and public corporations	Private and public corporations	S.11 non-financial corporations	S.12 financial corporations
Cooperatives and partnerships recognised as independent legal entities	Cooperatives and partnerships recognised as independent legal entities	S.11 non-financial corporations	S.12 financial corporations
Public producers which by virtue of special legislation are recognised as independent legal entities	Public producers which by virtue of special legislation are recognised as independent legal entities	S.11 non-financial corporations	S.12 financial corporations
Public producers not recognised as independent legal entities	Those with the characteristics of quasi-corporations	S.11 non-financial corporations	S.12 financial corporations
Public producers not recognised as independent legal entities	The rest			S.13 general government
Non-profit institutions recognised as independent legal entities	Non-profit institutions recognised as independent legal entities	S.11 non-financial corporations	S.12 financial corporations	S.13 general government	S.15 non-profit institutions serving households
Partnerships not recognised as independent legal entities Sole proprietorships	Those with the characteristics of quasi-corporations	S.11 non-financial corporations	S.12 financial corporations
Partnerships not recognised as independent legal entities Sole proprietorships	The rest	S.14 households	S.14 households
Head offices whose preponderant type of activity of the group of corporations controlled by them is the production of:	goods and non-financial services	S.11 non-financial corporations
Head offices whose preponderant type of activity of the group of corporations controlled by them is the production of:	financial services		S.12 financial corporations

LOCAL KIND-OF-ACTIVITY UNITS AND INDUSTRIES

2.144Most institutional units producing goods and services are engaged in a combination of activities at the same time. They may be engaged in a principal activity, some secondary activities and some ancillary activities.

2.145An activity occurs when resources such as equipment, labour, manufacturing techniques, information networks or products are combined, leading to the creation of specific goods or services. An activity is characterised by an input of products, a production process and an output of products.

Activities can be determined by reference to a specific level of NACE Rev. 2.

2.146If a unit carries out more than one activity, all the activities which are not ancillary activities (see Chapter 3, paragraph 3.12) are ranked according to the gross value added. On the basis of the preponderant gross value added generated, a distinction can then be made between principal activity and secondary activities.

2.147In order to analyse flows occurring in the process of production and in the use of goods and services, it is necessary to choose units which emphasise relationships of a technico-economic kind. This requirement means that institutional units must be partitioned into smaller and more homogeneous units with regard to the kind of production. Local kind-of-activity units are intended to meet this requirement as an operational approach.

The local kind-of-activity unit

2.148 Definition: the local kind-of-activity unit (local KAU) is the part of a kind-of-activity unit (KAU) which corresponds to a local unit. The local KAU is called establishment in the 2008 SNA and ISIC Rev. 4. A KAU groups all the parts of an institutional unit in its capacity as producer contributing to the performance of an activity at class level (four digits) of the NACE Rev. 2 and corresponds to one or more operational subdivisions of the institutional unit. The institutional unit's information system must be capable of indicating or calculating for each local KAU at least the value of production, intermediate consumption, compensation of employees, the operating surplus and employment and gross fixed capital formation.

The local unit is an institutional unit, or part of an institutional unit, producing goods or services situated in a geographically identified place.

A local KAU may correspond to an institutional unit as producer; on the other hand, it can never belong to two different institutional units.

2.149If an institutional unit producing goods or services contains a principal activity and also one or several secondary activities, it is subdivided into the same number of KAUs, and the secondary activities are classified under different headings from the principal activity. The ancillary activities are not separated from the principal or secondary activities. But KAUs falling within a particular heading of the classification system can produce products outside the homogeneous group on account of secondary activities connected with them which cannot be separately identified from available accounting documents. Thus a KAU may carry out one or more secondary activities.

Industries

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

Industries comprise both local KAUs producing market goods and services and local KAUs producing non-market goods and services. An industry by definition consists of a group of local KAUs engaged in the same type of productive activity, irrespective of whether or not the institutional units to which they belong produce market or non-market output.

2.151Industries are classified in three categories:

(a) industries producing market goods and services (market industries) and goods and services for own final use. Services for own final use are housing services produced by owner-occupiers, and domestic services produced by employing paid staff;

(b) industries producing non-market goods and services of general government: non-market industries of general government;

(c) industries producing non-market goods and services of non-profit institutions serving households: non-market industries of non-profit institutions serving households.

Classification of industries

2.152The classification used for grouping local KAUs into industries is the NACE Rev. 2.

UNITS OF HOMOGENEOUS PRODUCTION AND HOMOGENEOUS BRANCHES

2.153For analysis of the production process, the unit best suited to this analysis is the unit of homogeneous production. This unit has a unique activity defined by its inputs, process of production, and outputs.

The unit of homogeneous production

2.154 Definition: a unit of homogeneous production carries out a unique activity which is identified by its inputs, process of production, and its outputs. The products which constitute the inputs and outputs are themselves distinguished by their physical characteristics, the extent to which they are processed and the technique of production used. They can be identified by a classification of products (classification of products by activity — CPA). The CPA is a product classification the elements of which are structured according to the industrial origin criterion, industrial origin being defined by NACE Rev. 2.

The homogeneous branch

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

2.156Homogeneous branches are units designed for economic analysis. Units of homogeneous production cannot usually be observed directly; data collected from the units used in statistical enquiries have to be re-arranged to form homogeneous branches.

CHAPTER 3 TRANSACTIONS IN PRODUCTS AND NON-PRODUCED ASSETS

TRANSACTIONS IN PRODUCTS IN GENERAL

3.01 Definition: products are all goods and services that are created within the production boundary. Production is defined in paragraph 3.07.

3.02The following main categories of transactions in products are distinguished in the ESA:

Transaction categories	Code
Output	P.1
Intermediate consumption	P.2
Final consumption expenditure	P.3
Actual final consumption	P.4
Gross capital formation	P.5
Exports of goods and services	P.6
Imports of goods and services	P.7

3.03Transactions in products are recorded as follows:

(a) in the goods and services account, output and imports are recorded as resources and the other transactions in products are recorded as uses;

(b) in the production account, output is recorded as a resource and intermediate consumption is recorded as a use; gross value added is the balancing item of these two transactions in products;

(d) in the use of adjusted disposable income account, actual final consumption is recorded as a use;

(e) in the capital account, gross capital formation is recorded as a use (a change in non-financial assets);

(f) in the external account of goods and services, imports of goods and services are recorded as a resource, and exports of goods and services are registered as uses.

Many major balancing items in the accounts, like value added, gross domestic product, national income and disposable income, are defined in terms of transactions in products. The definition of transactions in products defines those balancing items.

3.04In the supply table (see paragraph 1.136), output and imports are recorded as supplies. In the use table, intermediate consumption, gross capital formation, final consumption expenditure and exports are registered as uses. In the symmetric input-output table, output and imports are recorded as supplies and the other transactions in products as uses.

3.05Supplies of products are valued at basic prices (see paragraph 3.44). Uses of products are valued at purchasers' prices (see paragraph 3.06). For some types of supplies and uses, e.g. for imports and exports of goods, more specific valuation principles are used.

3.06 Definition:

The purchaser's price is the price the purchaser pays for the products. The purchaser's price includes the following:

(a) taxes less subsidies on the products (but excluding deductible taxes like VAT on the products);

(b) transport charges paid separately by the purchaser to take delivery at the required time and place;

The purchaser's price excludes the following:

(a) interest or services charges added under credit arrangements;

(b) extra charges incurred as a result of late payment, where late payment means failing to pay within the period stated at the time the purchases were made.

If the time of use does not coincide with the time of purchase, adjustments are made to the value to take account of the changes in price due to the lapsing of time (in a manner symmetrical with changes in the prices of the inventories). Such modifications are important if the prices of the products involved change significantly within a year.

PRODUCTION AND OUTPUT

3.07 Definition: production is an activity carried out under the control, responsibility and management of an institutional unit that uses inputs of labour, capital and goods and services to produce outputs of goods and services.

Production does not cover natural processes which have no human involvement or direction, such as the unmanaged growth of fish stocks in international waters, but production does include fish farming.

3.08Production includes:

(a) the production of all individual or collective goods and services that are supplied to units other than their producers;

(b) the own-account production of all goods that are retained by their producers for their own final consumption or gross fixed capital formation. Examples of own-account production for gross fixed capital formation are the production of fixed assets such as construction, the development of software and mineral exploration for own gross fixed capital formation. The concept of gross fixed capital formation is described in paragraphs 3.124-3.138. Own-account production of goods by households pertains in general to:
(1) own-account construction of dwellings;
(2) the production and storage of agricultural products;
(3) the processing of agricultural products, like the production of flour by milling, the preservation of fruit by drying and bottling, the production of dairy products like butter and cheese and the production of beer, wine and spirits;
(4) the production of other primary products, like mining salt, cutting peat and carrying water;
(5) other kinds of processing, like weaving cloth, the production of pottery and making furniture;

(d) domestic and personal services produced by employing paid domestic staff;

(e) volunteer activities that result in goods. Examples of such activities are the construction of a dwelling, church or other building. Volunteer activities that do not result in goods, e.g. care-taking and cleaning without payment, are excluded.

The activities listed above in points (a) to (e) are included as production irrespective of being illegal or not-registered at tax, social security, statistical and other public authorities.

Own-account production of goods by households is recorded when this type of production is significant, i.e. when it is quantitatively important in relation to the total supply of that good in a country.

The only own-account production of goods by households included is the construction of dwellings, and the production, storage and processing of agricultural products.

3.09Production excludes the production of domestic and personal services that are produced and consumed within the same household. Examples of domestic services produced by households themselves that are excluded are:

(a) cleaning, decoration and maintenance of the dwelling as far as these activities are also common for tenants;

(b) cleaning, servicing and repair of household durables;

(d) care, training and instruction of children;

(e) care of sick, infirm or old people; and

(f) transportation of members of the household or their goods.

Domestic and personal services produced by employing paid domestic staff and the services of owner-occupied dwellings are included in production.

Principal, secondary and ancillary activities

3.10 Definition: the principal activity of a local KAU is the activity where the value added of such activity exceeds that of any other activity carried out within the same unit. The classification of the principal activity is determined by reference to NACE rev. 2, first at the highest level of the classification and then at more detailed levels.

3.11 Definition: a secondary activity is an activity carried out within a single local KAU in addition to the principal activity. The output of the secondary activity is a secondary product.

3.12 Definition: an ancillary activity is an activity whose output is intended for use within an enterprise.

An ancillary activity is a supporting activity undertaken within an enterprise in order to enable the principal or secondary activities of local KAUs to be carried out. All inputs consumed by an ancillary activity — materials, labour, consumption of fixed capital, etc. — are treated as inputs into the principal or secondary activity which it supports.

Examples of ancillary activities are:

(a) purchasing;

(b) sales;

(d) accounting;

(e) data processing;

(f) transportation;

(g) storage;

(h) maintenance;

(i) cleaning; and

(j) security services.

Enterprises have a choice between engaging in ancillary activities and purchasing such services on the market from specialist service producers.

Own-account capital formation is not an ancillary activity.

3.13Ancillary activities are not isolated to form distinct entities or separated from the principal or secondary activities or entities they serve. Accordingly, ancillary activities must be integrated with the local KAU they serve.

Ancillary activities may be carried out in separate locations, located in a region other than the local KAU they serve. The strict application of the rule referred to in the first subparagraph for the geographical allocation of the ancillary activities would result in the underestimation of the aggregates in the regions where ancillary activities are concentrated. In accordance, therefore, with the principle of residence, ancillary activities have to be allocated to the region where they are situated; they remain in the same industry as the local KAU they serve.

Output (P.1)

3.14 Definition: output is the total of products created during the accounting period.

Examples of output include the following:

(a) the goods and services which one local KAU provides to a different local KAU belonging to the same institutional unit;

(b) the goods produced by a local KAU that remain in inventories at the end of the period in which they are produced, whatever their subsequent use. Goods and services produced and consumed within the same accounting period and within the same local KAU are not separately identified. They are not recorded as part of the output or intermediate consumption of that local KAU.

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

3.16Three types of output are distinguished in the ESA 2010:

(a) market output (P.11);

(b) output produced for own final use (P.12);

This distinction is also applied to local KAUs and institutional units:

(a) market producers;

(b) producers for own final use;

The distinction between market, for own final use and non-market is fundamental in view of the following:

(a) it affects the valuation of output and related concepts, such as value added, gross domestic product and final consumption expenditure by the government and NPISH;

(b) it affects the classification of institutional units by sector, e.g. which units are included in the sector general government and which are not.

The distinction determines the valuation principles to be applied to output. Market output and output produced for own final use are valued at basic prices. The total output of non-market producers is valued by summing the costs of production. The output of an institutional unit is valued as the sum of the outputs of its local KAUs and depends thus also on the distinction between market, for own final use and non-market.

The distinction is also used to classify institutional units by sector. Non-market producers are classified in the general government sector or the non-profit institutions serving households sector.

The distinctions are defined in a top-down way, i.e. the distinction is first defined for institutional units, then for local KAUs and then for their output.

At the product level output is classified as market output, output for own final use and non-market output according to the characteristics of the institutional unit and the local KAU that produce that output.

3.17 Definition: market output consists of output that is disposed of on the market or intended to be disposed of on the market.

3.18Market output includes:

(a) products sold at economically significant prices;

(b) products bartered;

(d) products supplied by one local KAU to another within the same institutional unit to be used as intermediate inputs or for final uses;

(e) products added to the inventories of finished goods and work-in-progress intended for one or other of the above uses (including natural growth of animal and vegetable products and uncompleted structures for which the buyer is unknown).

3.19 Definition: economically significant prices are prices that have a substantial effect on the amounts of products that producers are willing to supply and on the amounts of products that purchasers wish to acquire. Such prices arise when both of the following conditions apply:

(a) the producer has an incentive to adjust supply either with the goal of making a profit in the long run or, at a minimum, covering capital and other costs; and

(b) consumers have the freedom to purchase or not purchase and make the choice on the basis of the prices charged.

Not economically significant prices are likely to be charged in order to raise some revenue or achieve some reduction in the excess demand that may occur when services are provided completely free.

The economically significant price of a product is defined in relation to the institutional unit and local KAU that has produced the output. For example, all the output of unincorporated enterprises owned by households sold to other institutional units is sold at economically significant prices; it is thus to be regarded as market output. For the output of other institutional units, the ability to undertake a market activity at economically significant prices will be checked notably through a quantitative criterion (the 50 % criterion), using the ratio of sales to production costs. To be a market producer, the unit shall cover at least 50 % of its costs by its sales over a sustained multi-year period.

3.20 Definition: output produced for own final use consists of goods or services that are retained either for own final consumption or for capital formation by the same institutional unit.

3.21Products retained for own final consumption can only be produced by the households sector. Examples of products retained for own final consumption include:

(a) agricultural products retained by farmers;

(b) dwelling services produced by owner-occupiers;

3.22Products used for own capital formation can be produced by any sector. Examples of such products are:

(a) machine tools produced by engineering enterprises;

(b) dwellings, or extensions to dwellings, produced by households;

(d) own-account software;

(e) own-account research and development. Expenditure on research and development is only to be recorded as fixed capital formation when a sufficiently high level of reliability and comparability of the estimates across the Member States has been achieved.

3.23 Definition: non-market output is output that is provided to other units for free, or at prices that are not economically significant.

Non-market output (P.13) is subdivided into two items: 'Payments for non-market output' (P.131), which consists of various fees and charges, and 'Non-market output, other' (P.132), which is output provided for free.

Non-market output is produced for the following reasons.

(a) It may be technically impossible to make individuals pay for collective services because their consumption of such services cannot be monitored and controlled. The production of collective services is organised by government units and financed out of funds other than receipts from sales, namely taxation or other government incomes.

(b) Government units and NPISHs may also produce and supply goods or services to individual households for which they could charge but choose not to do so as a matter of social or economic policy. Examples are the provision of education or health services, for free or at prices that are not economically significant.

3.24 Definition: market producers are local KAUs or institutional units the majority of output of which is market output.

If a local KAU or institutional unit is a market producer, its main output is by definition market output, as the concept of market output is defined after having applied the distinction market, for own final use and non-market output, to the local KAU and institutional unit that have produced that output.

3.25 Definition: producers for own final use are local KAUs or institutional units the major part of the output of which is for own final use within the same institutional unit.

3.26 Definition: non-market producers are local KAUs or institutional units the major part of the output of which is provided for free or at not economically significant prices.

Institutional units: distinction between market, for own final use and non-market

3.27For institutional units as producers, the distinction between market, for own final use and non-market is summarised in Table 3.1. The classification by sectors is also shown.

Table 3.1 — The distinction between market producers, producers for own final use and non-market producers for institutional units

Type of institutional unit	Type of institutional unit	Type of institutional unit	Type of institutional unit	Classification	Classification
Private or public?		NPI or not?	Market producer?	Type of producer	Sector(s)
1. Private producers	1.1 Unincorporated enterprises owned by households (excluding quasi-corporate enterprises owned by households)			1.1 = Market or for own final use	Households
	1.2 Other private producers (including quasi-corporate enterprises owned by households)	1.2.1 Private NPIs	1.2.1.1 Yes	1.2.1.1 = Market	Corporations
			1.2.1.2 No	1.2.1.2 = Non-market	NPISH
		1.2.2 Other private producers not NPI		1.2.2 = Market	Corporations
2. Public producers			2.1 Yes	2.1 = Market	Corporations
			2.2 No	2.2 = Non-market	General government

3.28Table 3.1 shows that, in order to determine whether an institutional unit should be classified as a market producer, a producer for own-final use or a non-market producer, several distinctions are made sequentially. The first distinction is between private and public producers. A public producer is a producer that is controlled by the general government, where control is as defined in paragraph 2.38.

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

3.30A specific category of private producers is that of unincorporated enterprises owned by households. These are market producers or producers for own final use. The latter occurs in case of the production of services of owner-occupied dwellings and the own-account production of goods. All unincorporated enterprises owned by households are classified to the households sector apart from quasi-corporate enterprises owned by households. These are market producers and classified in the non-financial corporations and financial corporations sectors.

3.31For other private producers, a distinction is made between private non-profit institutions and other private producers.

Definition: a private non-profit institution (NPI) is defined as a legal or social entity acting for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gains for the units that establish, control or finance them. Where their productive activities generate surpluses, such surpluses cannot be appropriated by other institutional units.

A private NPI is classified to the non-financial corporations and financial corporations sectors, if it is a market producer.

A private NPI is classified to the NPISH sector if it is a non-market producer, except when it is under the control of government. When a private NPI is controlled by government, then it is classified in the general government sector.

All other private producers that are not NPIs are market producers. They are classified in the non-financial corporations and financial corporations sectors.

3.32In distinguishing between market and non-market output and between market and non-market producers, several criteria are to be used. The market-non-market criteria in question (see paragraph 3.19 on the definition of economically significant prices) seek to assess the existence of market circumstances and sufficient market behaviour by the producer. According to the quantitative market-non-market criterion, products sold at economically significant prices should cover at least a majority of the production costs by sales.

3.33In applying this quantitative market-non-market criterion, sales and production costs are defined as follows.

(a) Sales shall mean the sales excluding taxes on products but including all payments made by general government or the institutions of the Union and granted to any kind of producer in this type of activity, i.e. all payments linked to the volume or value of output are included, but payments to cover an overall deficit or settle debts are excluded. This definition of sales corresponds to that of output at basic prices except that:
(1) output at basic prices is only defined after it has been decided on whether the output is market or non-market: sales are only used in valuing market output; non-market output is valued at costs;
(2) the payments made by general government to cover an overall deficit of public corporations and quasi-corporations constitute part of other subsidies on products as defined in point (c) of paragraph 4.35. As a consequence, market output at basic prices includes the payments made by general government to cover an overall deficit.

(b) Sales exclude other sources of revenue like holding gains (though they could be a normal and expected part of business revenue), investment grants, other capital transfers (e.g. debt redemption) and the purchase of equity.

(c) For the purpose of this criterion, production costs are equal to the sum of intermediate consumption, compensation of employees, consumption of fixed capital, other taxes on production plus costs of capital. Other subsidies on production are not deducted. To ensure consistency of the concepts 'sales' and 'production costs' when applying the quantitative market-non-market criterion, 'production costs' shall exclude all costs incurred for own-account capital formation. For the sake of simplicity, the costs of capital may in general be approximated by the net actual interest payments. However, for producers of financial services, the interest charge is taken, i.e. a correction is made for financial intermediation services indirectly measured (FISIM).

The quantitative market-non-market criterion is applied by looking over a range of years. Minor fluctuations in the size of sales from one year to another do not require a reclassification of institutional units (and their local KAUs and output).

3.34Sales may consist of various elements. For example, in the case of health care services provided by a hospital, sales may correspond to:

(a) purchases by employers to be recorded as income in kind paid to their employees and final consumption expenditure by these employees;

(b) purchases by private insurance companies;

(d) purchases by households without reimbursement (final consumption expenditure).

Only other subsidies on production and gifts (e.g. from charities) received are not treated as sales.

Similarly, as an illustrative example, the sale of transport services by an enterprise may correspond to intermediate consumption by producers, income in kind provided by employers, social benefits in kind provided by the government and purchases by households without reimbursement.

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

3.36In applying the criterion of comparing sales and production costs of private or public NPIs, including in sales, all the payments linked to volume of output may be misleading in some specific cases. This can be the case, for example, in relation to the financing of private and public schools. Payments by general government can be linked to the number of pupils but be the subject of negotiation with general government. In such a case, those payments are not recorded as sales, although they may have an explicit link with a measure of the volume of output, such as the number of pupils. This implies that a school mainly financed by such payments is a non-market producer.

3.37Public producers can be market producers or non-market producers. Market producers are classified in the non-financial and financial corporations sectors. If the institutional unit is a non-market producer, it is classified in the general government sector.

3.38Local KAUs as market producers and as producers for own final use cannot supply non-market output. Their output can thus only be recorded as market output or output for own final use and valued correspondingly (see paragraphs 3.42 to 3.53).

3.39Local KAUs as non-market producers can supply as secondary output market outputs and output for own final use. The output for own final use consists of own-account capital formation. The occurrence of market output should in principle be determined by applying the qualitative and quantitative market-non-market criteria to individual products. Such secondary market output by non-market producers might be the case for instance when government hospitals charge economically significant prices for some of their services.

3.40Other examples are sales of reproductions by government museums and sales of weather forecasts by meteorological institutes.

3.41Non-market producers may also have revenues from the sale of their non-market output at not economically significant prices, e.g. the museum's revenues from tickets for entrance. These revenues pertain to non-market output. However, if both types of revenues (revenues from tickets and those from the sale of posters and cards) are difficult to distinguish, they can all be treated as either revenues for market output or revenues from non-market output. The choice between these two alternative registrations should depend on the assumed relative importance of both types of revenues (from tickets versus those from the sale of posters and cards).

Time of recording and valuation of output

3.42Output is to be recorded and valued when it is generated by the production process.

3.43All output is to be valued at basic prices, but specific conventions hold for:

(a) the valuation of non-market output;

(b) the valuation of total output of a non-market producer (local KAU);

3.44 Definition: the basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output minus any tax (i.e. taxes on products) payable on that unit as a consequence of its production or sale, plus any subsidy (i.e. subsidies on products) receivable on that unit as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer. It also excludes holding gains and losses on financial and non-financial assets.

3.45Output for own final use (P.12) is valued at the basic prices of similar products sold on the market. This generates net operating surplus or mixed income for such output. An example is services of owner-occupied dwellings generating net operating surplus. If basic prices of similar products are not available, output for own final use should be valued at the costs of production plus a mark-up (except for non-market producers) for net operating surplus or mixed income.

3.46Additions to work-in-progress are valued at the current basic price of the finished product.

3.47In order to estimate in advance the value of output treated as work-in-progress, the value is based on the actual costs incurred, plus a mark-up (except for non-market producers) for the estimated operating surplus or mixed income. The provisional estimates are subsequently replaced by those obtained by distributing the actual value (once known) of the finished products, over the period of work-in-progress.

The value of the output of finished products is the sum of the values of:

(a) finished products sold or bartered;

(b) entries of finished products into inventories, less withdrawals;

3.48For buildings and structures acquired in an incomplete state, a value is estimated based on costs to date, including a mark-up for operating surplus or mixed income. This mark-up results when the value can be estimated on the basis of the prices of similar buildings and structures. The amounts of stage payments may be used to approximate the values of gross fixed capital formation undertaken by the purchaser at each stage, assuming no advance payments or arrears.

Where the own-account construction of a structure is not completed within a single accounting period, the value of the output is estimated by the following method. The ratio of the costs incurred in the current period to the total costs over the whole time of construction is calculated. This ratio is applied to the estimate of total output at the current basic price. If it is not possible to estimate the value of the finished structure at current basic price, it is valued by its total costs of production plus a mark-up (except for non-market producers) for net operating surplus or mixed income. If some or all of the labour is provided free, as may happen with communal construction by households, an estimate of what the cost of paid labour would have been is included in the estimated total production costs using wage rates for similar labour inputs.

3.49The total output of a non-market producer (a local KAU) is valued at the total costs of production, i.e. the sum of:

(a) intermediate consumption (P.2);

(b) compensation of employees (D.1);

(d) other taxes on production (D.29) less other subsidies on production (D.39).

Interest payments (excluding FISIM) are not included as costs of non-market production. The costs of non-market production also do not include an imputation for a net return on capital, nor an imputation for the rental value of the non-residential buildings owned and used in non-market production.

3.50The total output of an institutional unit is the sum of the total output of its constituent local KAUs. This applies also to institutional units that are non-market producers.

3.51In the absence of secondary market output by non-market producers, non-market output is valued at the costs of production. In the case of secondary market output by non-market producers, non-market output is valued as a residual item, i.e. as the total costs of production minus their revenues from market output.

3.52Market output by non-market producers is valued at basic prices. Total output of a non-market local KAU covering market, non-market and own final use output is valued by the sum of production costs. The value of its market output is given by its receipts from sales of market products, the value of its non-market output being obtained residually as the difference between the value of its total output and the sum of its market output and output for own final use. The value of its receipts from the sale of non-market goods or services at prices that are not economically significant does not figure in these calculations — they are part of the value of its non-market output.

3.53A list of exceptions and clarifications to the times of recording and the valuation of output follows, in the order of CPA sections.

Products of agriculture, forestry and fishing (Section A)

3.54The output of agricultural products is recorded as being produced continuously over the entire period of production (and not only when the crops are harvested or animals slaughtered).

Growing crops, standing timber and stocks of fish or animals reared for purposes of food are treated as inventories of work-in-progress during the process, and transformed into inventories of finished products when the process is completed.

Output excludes any changes in uncultivated biological resources, e.g. growth of animals, birds, fish living in the wild or uncultivated growth of forests.

Manufactured products (Section C); construction work (Section F)

3.55In the case of the construction of a building or other structure extending over several accounting periods, the output produced each period is treated as being sold to the purchaser at the end of the period, i.e. recorded as fixed capital formation by the purchaser rather than work-in-progress in the construction industry. The output is treated as being sold to the purchaser in stages. When the contract calls for stage payments, the value of the output may be approximated by the value of stage payments made each period. Where there is no certainty as to the ultimate purchaser, the incomplete output produced each period is recorded as work-in-progress.

Wholesale and retail trade services; repair services of motor vehicles and motorcycles (Section G)

3.56The output of wholesale and retail services is measured by the trade margins realised on the goods they purchase for resale.

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

Trade margins realised on some goods can be negative if their sale prices are marked down. Trade margins are negative on goods that are not sold, but instead go to waste or are stolen. Trade margins on goods given to employees as compensation in kind, or withdrawn for final consumption by owners, are equal to zero.

Holding gains and losses are not included in the trade margin.

The output of a wholesaler or retailer is given by the following identity:

the value of output =

the value of sales

plus the value of goods purchased for resale and used for intermediate consumption, compensation of employees in kind or mixed income in kind,

minus the value of goods purchased for resale,

plus the value of additions to inventories of goods for resale,

minus the value of goods withdrawn from inventories of goods for resale,

minus the value of recurrent losses due to normal rates of wastage, theft or accidental damage.

Transportation and storage (Section H)

3.57The output of transport services is measured by the value of the amounts receivable for transporting goods or persons. Transportation for own use within the local KAU is considered ancillary activity and is not separately identified and recorded.

3.58The output of storage services is measured as the value of an addition to work-in-progress. Increases in the price of goods while in inventories should not be regarded as work-in-progress and production, but be treated as holding gains. If the increase in value reflects a rise in price with no change in quality, then there is no further production during the period in addition to the costs of storage or the explicit purchase for a storage service. However, in three cases the increase in value is regarded as production:

(a) the quality of the good may improve with the passage of time, e.g. in case of wine; only in cases where maturing is part of the regular production process, the increase of the quality of the good is regarded as production;

(b) seasonal factors affecting the supply or demand for a specific good that lead to regular, predictable variations in price over the year, even though its physical qualities may not have changed;

(c) the production process is sufficiently long that discounting factors are applied to work carried out significantly long before delivery.

3.59Most changes in prices of goods while in inventories are not additions to work-in-progress. In order to estimate the increase in the value of goods stored over and above the storage costs, use may be made of the expected increase in value over and above the general rate of inflation over a predetermined period. Any gain that occurs outside the predetermined period continues to be recorded as a holding gain or loss.

Storage services do not include any change in price due to holding financial assets, valuables or other non-financial assets like land and buildings.

3.60The output of travel agency services is measured as the value of service charges of agencies (fees or commission charges) and not by the full expenditures made by travellers to the travel agency, including charges for transport by third parties.

3.61The output of tour operator services is measured by the full expenditure made by travellers to the tour operator.

3.62Travel agency services and tour operator services are distinguished by the fact that travel agency services amount only to intermediation on behalf of the traveller, while tour operator services create a new product called a tour, which has various components of travel, accommodation and entertainment.

Accommodation and food services (Section I)

3.63The value of the output of the services of hotels, restaurants and cafes includes the value of the food, beverages, etc. consumed.

Financial and insurance services (Section K): output of the central bank

The central bank delivers the following services:

(a) monetary policy services;

(b) financial intermediation services;

The output of the central bank is measured as the sum of its costs.

Financial and insurance services (Section K): financial services in general

Financial services consist of the following services:

(a) financial intermediation (including insurance and pension services);

(b) services of financial auxiliaries; and

3.64Financial intermediation is financial risk management and liquidity transformation. Corporations engaged in these activities obtain funds for example by taking deposits, and issuing bills, bonds and other securities. The corporations use these funds as well as own funds to acquire financial assets by making loans to others and by purchasing bills, bonds or other securities. Financial intermediation includes insurance and pension services.

3.65Auxiliary financial activities facilitate risk management and liquidity transformation. Financial auxiliaries act on behalf of other units and do not put themselves at risk by incurring financial liabilities or by acquiring financial assets as part of an intermediation service.

3.66Other financial services include monitoring services such as monitoring the stock and bond market, security services such as safeguarding expensive jewellery and important documents, and trading services such as foreign exchange dealing and dealing in securities.

3.67Financial services are produced almost exclusively by financial institutions because of the stringent supervision of those services. For example, if a retailer wishes to offer credit facilities to its customers, the credit facilities are usually offered by a financial corporation subsidiary of the retailer or by another specialised financial institution.

3.68Financial services may be paid for directly or indirectly. Some transactions in financial assets may involve both direct charges and indirect charges. Financial services are provided and charged for in four main ways:

(a) financial services provided for direct payment;

(b) financial services paid for through loading interest charges;

(d) financial services provided in insurance and pension schemes, where the activity is financed by loading insurance contributions and from the income return on savings.

Financial services provided for direct payment

3.69These financial services are provided for explicit charges, covering a wide range of services that may be provided by different types of financial institutions. The following examples illustrate the nature of the services charged for directly:

(a) banks charge households to arrange a mortgage, manage an investment portfolio, and administer an estate;

(b) specialised institutions charge non-financial corporations for organising a takeover or for administering a restructuring of a group of corporations;

(d) a card holder is charged an explicit fee, usually each year, for holding the card.

Financial services paid for through loading interest charges

3.70For example, in financial intermediation, a financial institution like a bank accepts deposits from units wishing to receive interest on funds for which the unit has no immediate use and lends them to other units whose funds are insufficient to meet their needs. The bank thus provides a mechanism to allow the first unit to lend to the second. Each of the two parties pays a fee to the bank for the service provided: the unit lending funds pays by accepting a rate of interest lower than the 'reference' rate of interest, while the unit borrowing funds pays by accepting a rate of interest higher than the 'reference' rate of interest. The difference between the interest rate paid to banks by borrowers and the interest rate actually paid to depositors is a charge for FISIM.

3.71It 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. Irrespective of the source of finance, a service is provided for the loans and deposits offered. FISIM are imputed for all loans and deposits. These indirect charges apply only to loans and deposits provided by, or deposited with, financial institutions.

3.72The reference rate lies between bank interest rates on deposits and loans. It does not correspond to an arithmetic average of the rates on loans or deposits. The rate prevailing for inter-bank borrowing and lending is a suitable choice. However, different reference rates are needed for each currency in which loans and deposits are denominated, especially when a non-resident financial institution is involved.

FISIM are described in detail in Chapter 14.

Financial services consisting of acquiring and disposing of financial assets and liabilities in financial markets

3.73When a financial institution offers a security (e.g. bill or bond) for sale, a service charge is levied. The purchase price (the ask price) is equal to the estimated market value of the security plus a margin. Another charge is levied when a security is sold, the price offered to the seller (the bid price) being equal to the market value minus a margin. Margins between buying and selling prices apply also to equities, investment fund shares and foreign currencies. These margins are for the provision of financial services.

Financial services provided in insurance and pension schemes, where activity is financed by loading insurance contributions and from the income return on savings

3.74The following financial services fall under this heading. Each of them results in a redistribution of funds.

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