EUROPEAN COMMISSION. Directorate C: National Accounts, Prices and Key Indicators Unit C5: Integrated Global Accounts and Balance of Payments

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1 EUROPEAN COMMISSION EUROSTAT Directorate C: National Accounts, Prices and Key Indicators Unit C5: Integrated Global Accounts and Balance of Payments 21 October 2016 BP/16/23 BALANCE OF PAYMENTS WORKING GROUP OCTOBER 2016 Bech Building: Ampere Kirchberg, Luxembourg Starting: Wednesday, 26 October 2016 at Ending: Thursday, 27 October 2016 Eurostat Task Force on pilot studies relating to annual FDI statistics based on the UBO and FDI statistics distinguishing greenfield FDI transactions from takeovers Document available on CIRCABC here (user must be logged in CIRCABC)

2 EUROPEAN COMMISSION EUROSTAT Directorate G: Global Business Statistics Unit G2: Structural business statistics and global value chains FDI/2016/07 MEETING OF THE WORKING GROUP ON FOREIGN DIRECT INVESTMENT STATISTICS 15 June 2016 BECH Building Meeting room AMPERE 5, rue Alphonse Weicker, L-2721 Luxembourg Kirchberg Starting: 10.00h Ending: 17.00h FDI/2016/07 Amendment of the Regulation (EC) No 184/2005 (upcoming) (Item n 6 of the Agenda) Please note that there will be no interpretation service available. As a consequence, English will be the common language for all presentations and discussions. Delegates are invited to bring with them the copies they received through CIRCABC *Website: *Path: CircaBC/ESTAT/FDI/Library/ FDI Working Group

3 Introduction Regulation (EC) No 184/2005 concerning balance of payments (BOP), international trade in services (ITS) and foreign direct investment (FDI) statistics is a part of the overall EU framework aiming at monitoring the certain economic developments in each Member States and in the Union as a whole. The amendment to this Regulation will be signed soon to ensure its alignment with the rules of The Treaty on the Functioning of the European Union (TFEU 2009, called also the Treaty of Lisbon) conferring powers on the Commission to adopt delegated and/or implementing acts. During the legislative process on the amendment during not only the abovementioned powers were discussed but also the content of the data collection, in particular for the FDI, on the initiation of the European Parliament. Request for an extended data requirement in the format of established pilot studies was put forward and justified by intensified and more complex international capital flows since the adoption of the original regulation in particular by the increased use of special purposes vehicles and legal constructions for channelling capital outflows and inflows. It was furthermore argued being important to be able to separate the types of investments which have true increases for the gross capital formation or the working capital of the Member State or the economic unit concerned by the FDI. The compromise text of the amendment has been finalised by the co-legislators the European Parliament and the Council at the beginning of 2016 and should be published soon for entering into force on the twentieth day following that of its publication (already during the summer 2016). Pilot studies Following the amendment, the current Article 5 of the Regulation No 184/2005 on Data Flows will be accompanied by several new paragraphs. This is for supplement the current BoP, ITSS and FDI data requirements in order to: " develop the appropriate methodology for compiling FDI statistics based on the ultimate ownership concept in addition to the immediate counterpart principle and FDI statistics distinguishing greenfield FDI transactions from takeovers. " The amendment sets the following deadlines for this development: a deadline of 24 months for Eurostat to institute pilot studies to be carried out by Member States " to establish the conditions, including the methodological framework, to introduce new data collections on annual FDI statistics and to assess the costs of the related data collections, the implied statistical quality, as well as the cross-country comparability. " a deadline of 36 months for Eurostat to report on the findings of the studies. 1 P a g e

4 after the reporting on the findings, a deadline of 12 months for Eurostat to make an amendment proposal to Regulation No 184/2005 to define the methodological and data requirements for annual FDI statistics on the ultimate ownership concept and for annual FDI statistics distinguishing greenfield FDI transactions from takeovers. This is the essential content of the amendment to Article 5 on piloting FDI statistics based on the ultimate ownership concept and on greenfield investments. The amendment to Article 5 discusses also on Grants which may be provided to facilitate carrying out the pilot studies and, secondly, on the possibility to extend the deadline of 36 months (above) by Commission delegated acts. 1 Organisation of the activities Eurostat is of the opinion that in order to institute the good basis for the pilot studies within 24 months after the amendment to Regulation No 184/2005 has entered into force, the considerations need to be initiated as soon as possible. a call for tender Subject to the availability of the budget for 2017 Eurostat is making a reservation for a call for tender for searching the external expertise for assisting Eurostat and Member States in the tasks related to the development of the methodology and piloting the ultimate ownership concept based data production as well as distinguishing greenfield FDI transactions from takeovers. This assistance would cover the time before the pilots are to be instituted and continue throughout the piloting period until the point when the report on the findings of the pilot studies needs to be provided to the European Parliament and the Council. The tasks of the external contractor would be established in the call for tender and the work, kicked-off by the literature review, would naturally cover through scrutiny of all current development and data compilations in the area of the two actions under pilot studies. a call for proposals Similarly, subject to budget availability, Eurostat is setting up a grants' programme for supporting the Member States for the pilot studies. The timing for the call for grants proposals should allow the start of the pilot studies no later than the second half 2018, preferably even earlier. With the planned timetable the actions supported by the grants could last maximum one calendar year for feeding the reporting to the European Parliament and the Council in time. 1 The coming amendment touches also the current content of the FDI statistics. Assets and liabilities elements of both Direct investments abroad (DIA) and Direct investments in the reporting economy (DIRE) are requested on Geo 6 basis instead of Geo 5. This concerns Tables 4.1, 4.2 and 5.1 i.e. similarly transactions, income and positions. This is mandatory already from reference year 2015 onwards and, after the amendment enters into force, is applicable without further operations from Eurostat. Requirement for Net (of these) has already earlier been requested on Geo 6 basis (in R184/2005). 2 P a g e

5 a task force For starting the activities Eurostat is proposing setting up a dedicated Task Force. The Task Force would be mandated by the FDI WGM to discuss the FDI statistics based on the ultimate ownership concept in addition to the immediate counterpart principle and FDI statistics distinguishing greenfield FDI transactions from takeovers and build the methodology for the actions to be piloted by the Member States. The Task Force would look at the issues such as the definitions of "ultimate ownership" and "greenfield FDI" and discuss the related statistical concepts in the context of the current guidelines and manuals. Critical matters such as potential limitations in the overall scope like whether not only inwards but also outwards FDI should be considered; or whether it would be beneficial considering simultaneously all four types of financial operations that qualify as FDI and not only greenfield investments (OECD, BD4 page 87). The overall scope would be considered both on its theoretical origin for ensuring that legislators' wishes are thoroughly respected and also on practical side by looking at the data collection challenges different choices would bring. Interested and active Member States would be invited to the Task Force. The Task Force would be complemented by Eurostat contractor with the later defined tasks of the overall operation. International organisations would be invited to the Task Force with their conceptual and practical expertise on the areas of the pilot studies. The Task Force would work in combination of physical and virtual (Webinars/Teleconferences) meetings. It would be set for the whole duration of the new actions as indicated in the amended Article 5 of the Regulation No 184/2005 and would cover also the run up period before the actual piloting begins. Overall timeline towards Commission proposal (2020) Indicative timing of the operation looks as follows. Here it is assumed that the amendment of the Regulation No 184/2005 enters in force in June June 2016 Autumn 2016 Jan 2017 Feb 2017 Oct 2017 Jan 2018 April 2018 by June 2018 Jan 2019 by June 2019 Jan 2020 by June 2020 amendment enters into force Task Force fixed and mandated Call for Tender published Call for Proposal published (grants) institution of the pilot studies reporting to EP/Council (option for +12 months) proposal for UOC/greenfield data requirements 3 P a g e

6 Summary and next steps The amendment of the Regulation No 184/2005 will be published soon. Once it enters into force it sets certain deadlines for the Commission and Member States as regards the development and reporting in respect of the methodology and piloting the ultimate ownership concept based data production as well as distinguishing greenfield FDI transactions from takeovers. Eurostat will be searching external expertise for the related actions and considers a grants programme for supporting the Member States in the pilot studies. A dedicated Task Force is proposed for being set up for the overall development work. An indicative provisional timetable has been proposed for the whole duration of the work. The members of the FDI WGM are invited to discuss and express their opinions - on the development work assigned for the area of FDI statistics; and to agree - on the setting-up of the dedicated Task Force for the development work; and to consider - potential nominations to the Task Force for FDI piloting actions. 4 P a g e