- DRAFT - OECD BENCHMARK DEFINITION OF FOREIGN DIRECT ...

- DRAFT - OECD BENCHMARK DEFINITION OF FOREIGN DIRECT INVESTMENT, 4TH EDITION Session 2.5.: The revised Benchmark Definition (BMD) - Adapting FDI data to the new realities of the global economy OECD Global Forum on International Investment OECD Investment Division www.oecd.org/investment/gfi-7 TABLE OF CONTENTS CHAPTER 1 INTRODUCTION ..................................................................................................................... 6 1.1 Summary ........................................... 7 1.2 Purpose of the Benchmark Definition ............................... 7 1.3 Revision of the Benchmark Definition .............................................................................................. 9 1.4 An overview of foreign direct investment concepts........................................ 10 1.5 Organisation of the Benchmark Definition ..................... 11 CHAPTER 2 USES OF FDI STATISTICS .................................................................. 12 2.1 Summary ......................................................................... 12 2.2 Why measure FDI? ......................................................... 12 2.3 Understanding the main features of FDI ................................................................ 13 2.3.1 FDI in the context of economic accounts .................................................. 13 2.3.2 FDI Equity ownership: the critical determinant ........................................ 14 2.3.2.1 FDI relationship ................................................. 15 2.3.2.2 FDI accounts ...................................................... 16 2.3.2.3 Valuation ........................................................... 17 2.4 Analytical FDI Breakdowns ............ 17 2.4.1 Standard (core) FDI series ......................................................................................................... 20 2.4.1.1 FDI according to the asset/liability principle ..................................... 20 2.4.1.2 FDI according to the directional principle ......... 21 2.4.2 Supplemental FDI series ............ 23 2.5 Interpreting FDI series and globalisation indicators ....................................... 24 2.5.1 FDI series ................................................................................................... 24 2.5.2 Globalisation indicators related to FDI ..................................................... 26 2.5.2.1 Reference indicators .......... 26 2.5.2.2 Supplemental indicators .................................... 27 CHAPTER 3 MAIN CONCEPTS AND DEFINITIONS OF FOREIGN DIRECT INVESTMENT ........... 31 3.1 Summary ......................................................................................................... 31 3.2 Statistical units ................................ 31 3.2.1 Economic territory and the concept of residence ...... 31 3.2.1.1 Economic territory ............. 32 3.2.1.2 Centre of predominant economic interest .......................................................................... 33 3.2.2 Institutional units ....................................................... 35 3.2.2.1 Enterprises ......................................................................................... 35 3.2.2.2 Quasi-corporations ............ 36 3.2.3 Institutional sectors .................... 39 3.3 Foreign Direct Investment............................................................................................................... 39 3.4 The Direct Investment Relationship ................................................................................................ 40 3.4.1 Foreign Direct Investor .............. 40 3.4.2 Foreign Direct Investment Enterprise ........................ 41 3.4.3 Framework for Direct Investment Relationships (FDIR) .......................... 41 3.4.3.1 Subsidiaries in FDI ............................................................................................................ 44 2 3.4.3.2 Associates in FDI .............................................................................................................. 44 3.4.3.3 Not relevant in FDI ............ 45 3.4.3.4 Fellow enterprises in FDI .. 45 3.4.4. The Debtor/Creditor principle ...... 47 3.4.5. The Asset/Liability principle and the Directional principle .................................................. 48 CHAPTER 4 FDI COMPONENTS, ACCOUNTS AND SCOPE ................................ 50 4.1 Summary ......................................................................................................... 50 4.2 FDI components .............................. 50 4.3 FDI accounts ................................... 53 4.3.1 FDI positions ............................................................................................................................. 55 4.3.1.1 Equity position ................... 57 4.3.1.2 Debt instruments positions 57 4.3.1.3 Changes in direct investment positions ............................................................................. 58 4.3.1.4 Reconciliation of presentations according to the “asset/liability” and the “directional” principles: A numerical example ........................................ 59 4.3.2 FDI financial transactions .......... 61 4.3.2.1 Equity and reinvestment of earnings ................................................................................. 63 4.3.2.2 Equity transactions ............ 64 4.3.2.3 Reinvestment of earnings .................................................................................................. 64 4.3.2.4 Debt instrument transactions ............................. 65 4.3.3 Direct Investment Income ......... 66 4.3.3.1 Direct Investment Income on equity ................................................................................. 69 4.3.3.2 Distributed earnings ........................................... 70 4.3.3.3 Reinvested earnings 71 4.3.3.4 Direct Investment income on debt ..................... 71 4.3.4 Other changes ............................................................................................................................ 72 4.3.4.1 Valuation changes ............. 72 4.3.4.2 Exchange rate changes....................................... 72 4.3.4.3 Other price changes ........................................................................... 73 4.3.4.4 Recording valuation changes ............................. 74 4.3.4.5 Volume changes ................................................ 74 4.4 Scope of FDI ................................... 76 4.4.1 Standard content of FDI statistics .............................................................................................. 76 4.4.1.1 Aggregate FDI statistics (asset/liability principle) ............................ 77 4.4.1.2 Detailed FDI statistics (directional principle) ................................... 77 4.4.2 Supplemental FDI series ............................................................................ 78 4.4.2.1 FDI looking through non-resident SPEs (directional principle) ........ 78 4.4.2.2 FDI by type: Mergers and acquisitions (directional principle) .......... 79 4.4.2.3 FDI according to Ultimate host/investing country ............................................................ 81 4.4.3 Banks and other financial intermediaries .................................................. 82 4.4.4 Financial leases .......................................................... 82 CHAPTER 5 FDI ACCOUNTING PRINCIPLES AND VALUATION ...................................................... 83 5.1 Summary ......................................................................................................... 83 5.2 Accounting principles ..................... 83 5.3 Valuation ......................................... 84 5.3.1 Valuation of foreign direct investment positions ....... 84 5.3.1.1 Equity positions ................................................................................. 84 5.3.1.2 Debt positions .................................................... 87 5.3.2 Valuation of FDI financial flows and transfer pricing ............................... 87 3 5.3.2.1 Hidden dividends ............................................................................................................... 87 5.3.2.2 Hidden withdrawals of equity ............................ 88 5.3.2.3 Hidden injections of equity................................................................................................ 88 CHAPTER 6 SPECIAL ENTITIES .............. 89 6.1 Summary ......................................................................................................................................... 89 6.2 Special Purpose Entities .................. 89 6.3 Collective investment institutions ... 92 6.4 Land, structures and other immovable objects ................ 92 6.5 Construction enterprises .................................................................................................................. 94 6.6 Mobile equipment ........................... 94 6.7 Other cases ...................................... 95 CHAPTER 7 CLASSIFICATION OF FDI BY ECONOMY AND INDUSTRY ........................................ 97 7.1 Summary ......................................................................... 97 7.2 Attribution to an economy .............. 98 7.2.1 General principles to identify home and host economies .......................................................... 98 7.2.2 Standard and supplemental geographical presentations ........................... 99 7.3 Industry classification ................................................................................... 102 7.3.1 General principles to identify industry allocation ................................................................... 102 7.3.2 Standard and supplementa