EU Balance of Payments and International Investment Position statistical sources and methods

The European Central Bank (ECB), with the support of the European System of Central Bank’s (ESCB’s) Statistics Committee, compiles and publishes the balance of payments (b.o.p.) and the international investment position (i.i.p.) of the euro area. These statistics depict the economic relations of the euro area as a whole vis-à-vis the rest of the world and provide important indicators of economic performance. The euro area is therefore considered as a single economic area. The ESCB analyses the euro area b.o.p. and i.i.p. in the context of its tasks, particularly monetary policy, macroprudential analysis and reserve assets management. The individual European Union (EU) Member States’ b.o.p. and i.i.p. statistics also provide crucial indicators of economic performance. These are closely monitored by, for example, the International Monetary Fund (IMF) in Article IV reports, the European Systemic Risk Board (ESRB) in the Risk Dashboard and in the context of the European Commission’s macroeconomic imbalances procedure (MIP).

The euro area b.o.p. and i.i.p. are in general compiled by summing up the individual b.o.p. and i.i.p. statistics of each euro area country vis-à-vis non-euro area countries (with some exceptions, as explained in the compilation methods of the euro area in each chapter). Cross-border transactions/positions of euro area countries vis-à-vis each other are therefore excluded. This publication, commonly referred to as the “B.o.p. and i.i.p. e-book”, aims to provide users with an overview of the main features of the b.o.p. and i.i.p. methodological framework and of the data sources and compilation methods used in the euro area and in the individual EU Member States.

The structure of the e-book is as follows: The background sets out the general principles and definitions of the b.o.p. and i.i.p. statistics from a euro area point of view, followed by a description of the ECB requirements for compiling euro area aggregates and. relevant information on the institutional framework, data availability and dissemination policy and tools for each EU country.

The balance of payments is a statistical statement of the economic transactions between residents and non-residents in an economy over a specific period of time. A transaction is an interaction between two institutional units which occurs by mutual agreement or through the operation of the law and involves an exchange of economic value or a transfer thereof.

Despite its name, which refers to standards applied in the past in accordance with the recommendations of the IMF Manuals up to the fourth edition, the b.o.p. is now less concerned with payments, as that term is generally understood, than with transactions. In fact, international transactions recorded in the b.o.p. may not involve the transfer of money, and some are not paid for in any sense: “change in ownership” is the relevant concept for recording transactions. This development from a financial towards an economic approach was deemed more appropriate to (i) foster a sound economic interpretation of the figures, and (ii) make the b.o.p. concepts compliant with national accounts (the b.o.p. corresponds to the “rest of the world” account).

The b.o.p. is organised in three main accounts:

• current account;
• capital account;
• financial account.

The current account shows transactions in goods, services and income between residents and non-residents. The capital account shows transactions in non-produced, non-financial assets, and capital transfers between residents and non-residents. The financial account shows net acquisitions of financial assets and net incurrences of liabilities between residents and non-residents. The financial account is organised in five functional categories:

• direct investment;
• portfolio investment;
• financial derivatives;
• other investment;
• reserve assets.

The current and capital accounts record gross transactions (or commonly denominated “flows”); the inward flows are classified as credits, whereas the outward flows are classified as debits. By contrast, the financial account records transactions in net terms, separately for each financial asset and liability (i.e. it reflects net changes arising from all credit and debit entries during the accounting period). The net acquisition of financial assets records all acquisitions minus disposals of assets, whereas the net incurrence of liabilities records all incurrences minus redemptions of liabilities.

The sum of the current and capital accounts’ balances corresponds to the net lending (surplus) or net borrowing (deficit) of an economy vis-à-vis the rest of the world. The same concept can be derived from the financial account as the net acquisition of financial assets minus the net incurrence of liabilities. Differences between these two alternative measures of net lending/net borrowing are commonly identified as b.o.p. “net errors and omissions”.

The international investment position is a statistical statement that shows, at a specific point in time, the value of the stocks of residents’ financial assets that are non-contingent claims on non-residents in that economy or gold bullion held as reserve assets, and of the non-contingent liabilities of the residents to non-residents in that economy. As with the b.o.p. financial account, financial assets and liabilities are grouped into the same five functional categories (see above).

The difference between the financial assets and liabilities is the net i.i.p. It represents either a net claim on or a net liability to non-residents. Changes in the i.i.p. between consecutive periods can be due to transactions, as recorded in the b.o.p. financial account during that period, or to “other flows” (see below).

Changes in positions between consecutive points in time are explained by the following flows during that period:

• transactions in the b.o.p. financial account;
• revaluations due to changes in the euro exchange rate vis-à-vis the currencies in which the assets/liabilities are denominated;
• revaluation due to price changes of the assets/liabilities;
• other changes in the volume of assets and liabilities (such as reclassifications or write-offs).

The greater the level of detail of the basic information on both stocks and flows – namely currency breakdown, applicable market prices (especially for portfolio investment) and the timing of the transaction (using the price and exchange rate for that date) – the more precise the reconciliation of consecutive positions will be.

For equity shares of unlisted companies, the transactions recorded in the b.o.p. financial account may differ from the change in the own funds at book value (OFBV) recorded in the i.i.p. Such differences are recorded as revaluations due to price changes.

For non-negotiable instruments, namely loans, deposits and other accounts receivable/payable, financial account transactions, which are valued at market prices, will differ from the change in the nominal values recorded in the i.i.p. Such differences are recorded as other price changes during the period in which the transaction occurs.

Other changes in the volume of assets and liabilities are recorded when new assets that were not in the beginning-of-period balance sheet appear in the end-of-period balance sheet, or when existing assets that were in the beginning-of-period balance sheet disappear from the end-of-period balance sheet, and these appearances/disappearances are not the result of transactions and/or revaluations. These include write-offs of claims by creditors, statistical reclassifications (of instruments, sectors, country of residency, etc.), and monetisation and demonetisation of gold bullion.

When writing off financial instruments that are valued at nominal values, the value recorded in the other changes in volume should correspond to their nominal value prior to being written off. For reclassifications (e.g. a sector reclassification), the values of both the new and the old instruments should be in general identical.

The accounting system for national and international accounts relies on quadruple-entry bookkeeping, which results from the simultaneous application of both vertical and horizontal double-entry bookkeeping.

Vertical double-entry bookkeeping implies that each transaction is recorded with two entries in the books of the respective unit, one credit and one debit. In the current and capital accounts, a credit corresponds to exports, primary income receivable, transfers receivable, or disposals of non-produced, non-financial assets; a debit corresponds to imports, primary income payable, transfers payable, or acquisitions of non-produced, non-financial assets. In the financial account, transactions are recorded separately for assets and liabilities on a net basis, i.e. all credits minus all debits during the accounting period, and are therefore classified as net acquisition of financial assets and net incurrence of liabilities respectively. This means that, in principle, the total for all credit entries is equal to the total for all debit entries, which allows the “vertical” consistency of the accounts for a single resident unit to be checked.

Horizontal double-entry bookkeeping ensures recoding consistency between resident units and their (non-resident) counterparts. For example, an export recorded by a resident unit should be recorded as an import by a non-resident unit. This is useful for compiling accounts that consistently reflect the mutual economic relationships between different institutional units.

The quadruple-entry system deals in a coherent manner with multiple transactors or groups of transactors, each of which practises vertical double-entry bookkeeping. A single transaction between two counterparties thus gives rise to four entries, as a liability of one unit is mirrored by a financial asset of another unit.

Although the total of all the credit entries and all the debit entries should, in principle, be equal, imbalances occur in practice due to imperfections in source data and compilation systems. This imbalance is known as “net errors and omissions”. A positive value for net errors and omissions indicates that the total value of debits is higher than the total value of credits recorded in the current and capital accounts of the b.o.p., and/or the value of net increases in assets in the financial account is too high, and/or the value of net increases in liabilities in the financial account is too low. Negative net errors and omissions indicate the opposite.

Following a careful review of the euro area net errors and omissions, the ECB introduced an updated statistical methodology for the correction of these errors and omissions in 2020. The current balancing mechanism is applied jointly to the euro area b.o.p. and the “rest of the world” sector in euro area accounts (EAA) statistics, and it considers a comprehensive information set, comprising the various EAA building blocks as well as “unadjusted” euro area b.o.p. data, which primarily consist of the national contributions to the euro area aggregate. The adjustment mechanism aims to keep absolute net errors and omissions in the euro area b.o.p. and “vertical discrepancies” in EAA statistics below a threshold which is currently set at €30 billion, broadly corresponding to 1% of euro area quarterly GDP.

In line with the BPM6, the ECB requires, as a general principle, that flows be recorded on an accrual basis, meaning that flows are recorded when economic value is created, transformed, exchanged, transferred or extinguished. Flows that imply a change of economic ownership are recorded when ownership passes, and services are recorded when provided.

However, it is not mandatory to report the monthly b.o.p. on a full accrual basis, due to the short time frame for the collection and reporting of monthly data. In agreement with the ECB, national central banks (NCBs) and other national compilers may provide monthly b.o.p. statistics that are partially based on other recording principles, such as cash basis (flows are recorded when the respective payment/receipt occurs). However, national compilers are invited to review these data once quarterly data are available on a full accrual basis.

In order to achieve a more precise geographical allocation from a risk analysis perspective, the BPM6 requires the application of the debtor/creditor principle. This principle is also fundamental for ensuring bilateral symmetry in the transmission of country contributions to euro area aggregates. According to this principle, transactions/positions in a country’s financial assets are assigned to the country that incurs the liability (the debtor) and transactions/positions in a country’s financial liabilities are assigned to the country of residence of the creditor.

Aggregations or combinations in which all elementary items are shown for their full values are called gross recordings (e.g. all interest credits are aggregated separately from all interest debits). The international accounts show the gross recording in their current and capital accounts.

The international accounts show the net recording in their financial account and other respective changes, meaning aggregations or combinations that show net changes (increases minus reductions) in a particular financial asset or liability. In general, the net recording of flows in financial assets and liabilities is recommended in the international accounts from both an analytical and a pragmatic perspective. Net acquisition of external financial assets and net incurrence of external liabilities are generally of more analytical interest than gross flows. Moreover, gross reporting of data may not be possible for different classes of units and for some financial instruments. Furthermore, net transactions in some financial assets and liabilities often have to be derived from balance sheet data because gross transactions are not available.

In general, the term resident means having one’s centre of predominant economic interest in the economic territory of a country.

For the euro area, the economic territory comprises (i) the economic territory of those EU Member States whose currency is the euro (the euro area countries); and (ii) the ECB, the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF), which are regarded as resident units of the euro area. The b.o.p. of the euro area is therefore the statistical statement of the economic transactions between residents in the euro area (seen as one economic territory) and residents outside the euro area. Similarly, the i.i.p. of the euro area is the statistical statement of the positions in financial assets and liabilities of the residents in the euro area vis-à-vis residents outside the euro area.

The rest of the world (RoW) comprises all third countries and international organisations, including those physically located within the euro area (except the ECB, ESM and EFSF). Consequently, all transactions of euro area countries vis-à-vis EU institutions are classified as vis-à-vis non-euro area residents and hence included in the euro area b.o.p. and i.i.p. statistics.

Some territories belonging to, or associated with, euro area countries might give rise to difficulties in the statistical classification. These can be divided into the following groups:

Territories which are part of the euro area:

• Helgoland: Germany;
• Canary Islands, Ceuta and Melilla, Balearic Islands: Spain;
• Monaco, French overseas departments (French Guiana, Guadeloupe, Martinique, Réunion, Mayotte), Saint Pierre and Miquelon, Saint Barthélemy, Saint Martin: France;
• Madeira, the Azores: Portugal;
• the Åland Islands: Finland.

Territories associated with euro area countries which are to be included in the RoW:

• Büsingen: not Germany;
• Andorra: neither Spain nor France;
• Aruba, Bonaire, Sint Eustatius and Saba, Curaçao, Sint Maarten: not the Netherlands;
• French overseas territories (French Polynesia, New Caledonia, and Wallis and Futuna): not France;
• San Marino, Vatican City: not Italy.

A centre of economic interest exists when a unit engages and intends to continue engaging, either indefinitely or over a finite but long period of time, in economic activities and transactions on a significant scale in or from a location, dwelling, place of production or other premises within a territory. For practical reasons, actual or intended location for one year or more is used as an operational threshold. However, the following are examples of borderline cases in the determination of residency.

• Students who go abroad to study full-time generally continue to be resident in the territory in which they were resident prior to studying abroad. This treatment is adopted even though their course of study may exceed a year.
• Patients who go abroad for medical treatment maintain their predominant centre of interest in the territory in which they were resident before they received the treatment, even if the treatment lasts one year or more.
• Crews of ships, aircraft, oil rigs, space stations or other similar equipment which operate outside a territory or across several territories are treated as being resident in their home country.
• National diplomats, peacekeeping and other military personnel, and other civil servants employed abroad in government enclaves, as well as members of their households, are considered to be residents of the economic territory of the employing government.
• Staff of international organisations, including those with diplomatic status and military personnel, are resident in the territory of their principal dwelling.
• Border workers, seasonal workers and other short-term workers who cross borders for a short period to undertake a job are considered residents in the economic territory in which they maintain a dwelling used by members of the household as their principal dwelling.

When undertaking international transactions in land and/or buildings (e.g. holiday homes), property owners are treated as if they have transferred their ownership to a notional institutional unit resident in the country where the property is located. The notional unit is treated as being owned and controlled by the non-resident owner.

A legal entity is resident in the economic territory under whose laws the entity is incorporated or registered. This applies also to legal entities with little or no physical presence, e.g. investment funds (as distinct from their managers), securitisation vehicles, and some SPEs. If the entity is not incorporated, it is considered to be resident in the country whose legal system governs the creation and continued existence of the entity.

Subsidiaries are separate institutional units with independent legal status, either wholly owned or with majority ownership held by another entity (the parent institution). Branches are entities without independent legal status (they are wholly owned by the parent). However, when branches are located in a country other than the one in which the company controlling them is located, they are deemed to be separate institutional units.

The sector breakdowns of the euro area b.o.p. and i.i.p. are consistent with the European System of Accounts (ESA) 2010. Monthly b.o.p. data are required using the following sector breakdown of the resident units:

• central banks;
• other monetary financial institutions (MFIs):
  • deposit-taking corporations except the central bank;
  • money market funds.
• general government;
• other sectors.

For the quarterly b.o.p. and i.i.p. data, the ECB requests that the “other sectors” category be further broken down into:

• non-money market investment funds;
• insurance corporations and pension funds;
• other financial institutions;
• non-financial corporations;
• households and non-profit institutions serving households (NPISHs).

The central banks sector of the euro area b.o.p. and i.i.p. consists of the Eurosystem, i.e. the ECB and the NCBs of euro area countries.

In the field of b.o.p. and i.i.p. statistics, the ECB requires that NCBs report data on international transactions and international reserve assets (including revaluations) at monthly frequency. Reports on more detailed international transactions, on international positions and on respective revaluations are due on a quarterly basis.

From a euro area perspective, international transactions encompass all transactions that create or redeem, in full or in part, claims or debts, or any transaction that implies the transfer of a right over an object between residents of a euro area country or institution and non-residents of the euro area. International positions are the stocks of financial assets and liabilities of euro area residents towards non-residents of the euro area.

Revaluations are (realised and unrealised) holding gains and losses on international positions arising from changes in the exchange rate and/or in asset prices.

The ECB requires NCBs to report monthly data to compile the stock of international reserves held by the Eurosystem (the ECB and the NCBs of the euro area countries). The reserve assets of the Eurosystem are the financial assets held and effectively controlled by the ECB and the euro area NCBs, which are issued by residents outside the euro area and denominated in currencies other than the euro. This definition, approved by the ECB’s Governing Council in March 1999, conforms to the BPM6 (Appendix 3 on regional arrangements, paragraph A3.29).

In addition to the BPM6 standard components, (i) the foreign currency-denominated claims (i.e. claims denominated in any currency other than the euro) not included under official reserve assets, mainly claims on euro area residents held by the Eurosystem; and (ii) the predetermined net drains are shown as memorandum items in the ECB’s Statistics Bulletin. The purpose of this approach is to support an analysis for monetary purposes as well as to permit the reconciliation of the Eurosystem’s international reserves with its foreign currency liquidity position.

The quarterly requirements are the ECB’s main statistical product in the field of b.o.p. and i.i.p. statistics. With the introduction of the BPM6, these requirements are comprehensive and detailed, covering to a large extent the standard components of the b.o.p. and i.i.p., as specified in Annex 9 of the BPM6.

The ECB requires quarterly data on b.o.p., i.i.p., and revaluations to be reported within 82 calendar days after the end of the reference quarter.

In terms of breakdowns, the structure of the i.i.p. is broadly equivalent to the structure of the b.o.p. financial account.

A detailed geographical breakdown of the euro area b.o.p. and i.i.p. is available for some items vis-à-vis main partner countries, such as non-euro area EU countries, Canada, China, Japan, Norway, the Russian Federation, Saudi Arabia, Switzerland, the United Kingdom and the United States, and counterpart groupings (namely offshore financial centres, EU institutions and other international organisations).

A detailed currency of denomination breakdown (euro, US dollar, Japanese yen and other currencies) is reported for some items of the i.i.p.

The ECB’s own transactions and positions vis-à-vis non-euro area counterparts are also reflected in the external statistics of the euro area.

In practice, the ECB’s main contributions to the euro area b.o.p. and i.i.p. are related to the following items.

• Reserve assets: reserve assets of the ECB are claims on non-residents of the euro area pooled in accordance with Article 30 of the Statute of the ESCB and thus under the direct and effective control of the ECB. As long as no further transfer of ownership takes place, in accordance with Article 30.4, external assets retained by the NCBs are under their direct and effective control and are treated as reserve assets of each individual NCB.
• Other investment: transactions between the ECB and the NCBs of EU Member States not participating in the euro area related to the operation of the T2 system; repo transactions with non-residents of the euro area in euro or in foreign currency (the latter only refers to liabilities, because reverse repos are included in reserve assets); non-euro area participations in the ECB’s capital; deposits taken from other NCBs outside the euro area.
• Portfolio investment: debt securities denominated in euro and issued by non-residents of the euro area (the ECB’s holdings of debt securities denominated in foreign currency, which were issued by non-euro area residents, are included in the ECB’s reserve assets).
• Income on portfolio investment, other investment and reserve assets: income received (paid) by the ECB from (on) the above-mentioned investment assets (liabilities).
• Financial derivatives: transactions and positions in financial derivatives, e.g. from foreign exchange interventions or foreign currency providing liquidity programs.

(As of October 2023)

(As of October 2023)

A release calendar should include a predetermined timetable for the release of external statistics. Apart from the publication date, the release calendar also provides information on the type of statistics, reference period and frequency of the series.

A harmonised EU revision practice for b.o.p. and i.i.p. and national accounts (including government finance statistics) has been introduced for quarterly data. This practice aims at achieving consistency on three levels: (i) within European Union Member States (aligning revision practices between national accounts and b.o.p. and i.i.p.); (ii) across EU Member States (common revision practices for the various blocks of statistics reported to the European institutions according to BPM6 and European System of Accounts 2010); and (iii) on the European level, among the various statistical domains of the euro area/EU b.o.p. and i.i.p. and national accounts.

In this context, two distinct concepts of major revisions and routine revisions have been introduced; the latter are further sub-divided into monthly, quarterly and annual cycles.

Major revisions require coordination across domains and across EU Member States, which consequently entails a clear coordination role on the European level, particularly to ensure the correct timing across the two statistical domains. In the case of major revisions, the full series may be revised.

Routine monthly revisions affect only monthly data (b.o.p. and the international reserves template). When reporting monthly data, EU Member States may revise all months for which no quarterly data have yet been reported. For example, when reporting monthly b.o.p. data for October (around mid-December), EU Member States may revise all reference months from July to September since quarterly data are available only up to the second quarter; however, when reporting data for November (around mid-January of the following year), EU Member States may revise data only for the reference month of October. This practice ensures permanent consistency between monthly data and published quarterly data.

Routine quarterly and annual revisions allow for the revision of a variable number of periods (quarters) but never the full series:

• when reporting quarterly data for the first quarter of year t: EU Member States may revise all observations for year t-1;
• when reporting quarterly data for the second quarter of year t EU Member States may revise all observations of year T and all observations for years t-1, t-2, t-3 and t-4;
• when reporting quarterly data for the third quarter of year t: EU Member States may revise all observations of year t and all observations for year t-1;and
• when reporting quarterly data for the fourth quarter of year t: EU Member States may revise all observations of year t and all observations for years t-1, t-2, t-3 and t-4.

EU Member States are strongly encouraged to ensure consistency between different frequencies and between different breakdowns. Therefore, the revision of monthly b.o.p. data should follow the reported or revised quarterly data.

(As of October 2023)

Data availability is a quality indicator of official statistics. It concerns both the accessibility of information and its continuity. Short series, incomplete or inconsistent data might end up being useless to users. This can occur owing to changes in methodology, as was the case in 2009 when the methodology applied when compiling balance of payment (b.o.p.) and international investment position (i.i.p.) statistics switched from BPM5 to BPM6. The European Union (EU) implemented the BPM6 methodology in 2014.

Goods are physical, produced items for which a change of ownership occurs between residents and non-residents. The goods item in euro area b.o.p. statistics covers general merchandise, branding, net exports of goods under merchanting and non-monetary gold. In accordance with general b.o.p. principles, change of ownership is the principle which determines the coverage and time of recording international transactions in goods.

The BPM6 recommends that the geographical allocation of exports be based on the country of final destination and that the geographical allocation of imports be based on the country of origin. Nevertheless, for the purpose of compiling euro area and European Union (EU) aggregates, country contributions are also to be reported according to the “country of consignment” principle, i.e. the last Member State where a change has been made to the goods, for example, where there is a change of ownership of the goods, a change of means of transport, preserving operations to keep the goods in good condition during transport or goods are repackaged or further processed in some way. Note that in the case where the goods simply transit through a Member State, this does not change the country of consignment. In this way, transactions in goods are recorded as extra-euro area/EU transactions only by the euro area/EU country in which the goods enter or exit the euro area/EU borders (Community principle). This treatment aims to avoid either double accounting (which would occur in the euro area and EU aggregates if the various euro area/EU countries through which goods are routed recorded the transactions vis-à-vis the country of final destination/origin) or omissions. Ultimately, all intra-euro area/EU merchandise transactions ought to cancel each other out, and euro area/EU aggregates should conform to international statistical standards.

General merchandise on a b.o.p. basis covers goods for which a change of economic ownership occurs between a resident and non-resident and which are not included either in other specific categories such as goods under merchanting and non-monetary gold or as part of some transactions in services. Exports and imports of goods are recorded on a free-on-board (f.o.b.) basis, i.e. at market value at the customs frontiers of exporting economies (including charges for insurance and transport services up to the frontier of the exporting country).

Branding – Quasi-transit trade is a term used to define goods that are imported into an EU Member State, cleared through customs for free circulation within the EU and subject to import duties by an entity that is not considered a resident institutional unit before ultimately being dispatched to another EU Member State. When applicable, branding is to be recorded by EU Member States affected by quasi-transit trade in order to report the gap between the value of general merchandise declared when the goods are initially imported from a third country and its value when dispatched to another EU Member State. The geographical breakdown should be compiled on the basis of the country of residence of the parent enterprise controlling the company that manages the customs procedure related to these goods in the reporting economy.

Merchanting is defined as the purchase of goods by a resident (of the compiling economy) from a non-resident, combined with the subsequent resale of the same goods to another non-resident without the goods being present in the compiling economy. Net exports of goods under merchanting represent the difference between sales and purchases of goods under merchanting. This item includes merchants’ margins and holding gains and losses, as well as changes in inventories of goods under merchanting. Acquisitions and subsequent resale of crude-oil products when in transit between the production country and its final destination are typical examples of merchanting while the product does not have any transformation. Goods acquired under merchanting are shown as negative exports/credits of the merchant’s economy. The sale of goods is shown under goods sold under merchanting as a positive export/credit of the merchant’s economy.

Non-monetary gold covers all cross-border transactions in gold other than monetary gold (monetary gold is owned by monetary authorities and held as reserve assets). It can be in the form of bullion (i.e. coins, ingots or bars with a purity of at least 995 parts per 1,000, including gold held in allocated gold accounts), as well as gold powder and gold in other unwrought or semi-manufactured forms. Allocated gold accounts are treated as arrangements for storing gold bullion. A change in ownership of an allocated gold account holding is, therefore, treated in the same way as gold bullion although it would not be a physical cross-border delivery.

International trade in goods statistics (ITGS) are the main data source for the general merchandise item of the b.o.p. goods account. They are typically compiled monthly by the national statistical institute (NSI) based on information from both Intrastat (data are directly collected from intra-EU trade operators once a month) and Extrastat (data on trade in goods with non-EU countries are collected by customs authorities based on the records of trade transactions in customs declarations).

To align ITGS with b.o.p. methodology for compiling the goods account, a number of adjustments to ITGS are traditionally necessary. ITGS include transactions that belong in the services account instead of the goods account (e.g. goods for processing); ITGS do not include transactions in goods that do not cross the reporting economy’s borders (e.g. merchanting); ITGS include transactions that need to be nullified in the b.o.p. (returned goods). Finally, transactions in non-monetary gold need to be allocated to the corresponding sub-category in the b.o.p. goods account.

The following transactions are typically deducted from ITGS when compiling general merchandise:

• costs of transport and insurance on imports (c.i.f./f.o.b. adjustment);
• returned goods;
• goods for processing;
• goods for repair or storage;
• goods exported/imported for construction projects abroad/in the reporting economy;
• non-monetary gold (separate goods item, not included in general merchandise);
• estimate of imports / exports by non-resident enterprises registered for VAT purposes.

The following transactions are commonly added to ITGS:

• goods procured in ports by carriers on the import side (on the export side, they are already included in ITGS);
• goods changing ownership entering/leaving the territory illegally;
• goods acquired from other economies for processing abroad;
• goods sold abroad after processing in other economies;
• valuables and durable goods purchased abroad that have to be recorded under goods instead of travel;
• goods under merchanting;
• estimate of imports / exports by resident enterprises registered for VAT abroad.

By default, all countries are deemed to make the aforementioned adjustments, as needed. Specific information on these adjustments, when available, is detailed in the following two tables. In addition, depending on the circumstances of individual countries, other adjustments may be necessary; these are also listed in the tables.

(As of October 2023)

Services are the result of a production activity that changes the conditions of the consuming units or facilitates the exchange of products or financial assets. Services are not typically separate items over which ownership rights can be established, and they cannot generally be separated from their production.

The services account of euro area/European Union b.o.p. statistics consists of the items presented below, which are to be recorded the moment they are delivered:

Manufacturing services on physical inputs owned by others cover processing, assembly, labelling, packaging, etc. undertaken by an enterprise that does not own the goods in question (ownership of the goods does not change) and that is paid a fee by the owner. The value of the fees charged is not necessarily the same as the difference between the value of goods sent for processing and their value subsequent to processing. Assembly of prefabricated constructions (included in construction), as well as labelling and packaging incidental to transport (included in transport), is excluded.

Maintenance and repair services not included elsewhere (n.i.e.) cover maintenance and repair work by residents on goods that are owned by non-residents (and vice versa). The repairs may be performed at the site of the repairer or elsewhere. Repairs and maintenance of ships, aircraft and other transport equipment are included in this item. Cleaning of transport equipment is included in transport. Construction maintenance and repairs are included under construction. Maintenance and repairs of computers are included under telecommunications, computer and information services.

Transport covers all transportation services (sea, air and other – including land, inland waterway, rail, space and pipeline) that are performed by euro area residents for non-residents or vice versa and that involve carrying people or objects from one location to another, as well as related supporting and auxiliary services. Postal and courier services are also included. Passenger services provided to non-residents in the euro area by euro area carriers within euro area economies or vice versa (included under travel) are excluded.

Construction covers the creation, renovation, repair or extension of fixed assets in the form of buildings, land improvements of an engineering nature and other engineering constructions (including roads, bridges, dams, etc.). It includes related installation and assembly work, site preparation and general construction, specialised services such as painting, plumbing and demolition and management of construction projects. The construction contracts covered in international trade in services are generally of a short-term nature. A large-scale construction project contracted by a non-resident enterprise that takes a year or more to be completed will usually give rise to a resident branch.

Travel includes goods and services which euro area/EU travellers acquire from non-residents of the euro area/EU or which euro area/EU residents provide to travellers residing outside the euro area/EU during visits of less than one year, net of any purchases made with money earned or provided locally. Unlike other services, travel is not a specific type of service but an assortment of goods and services consumed by travellers. Travel includes local transport (i.e. transport within the economy being visited and provided by a resident of that economy) but excludes personal international transport in connection with travel, which is included under transport. Travel excludes goods for resale or other goods exceeding customs thresholds, which are to be included in general merchandise.

Insurance and pension services cover direct insurance, reinsurance, auxiliary insurance services, pensions and standardised guarantee services. These services are estimated or valued by the charges included in total premiums rather than by the total value of premiums.

Financial services cover intermediary and auxiliary services, excluding insurance and pension fund services, and are usually provided by banks and other financial corporations. In euro area b.o.p. statistics these services are broken down into (i) explicitly charged and other financial services and (ii) financial intermediation services that are measured indirectly (FISIM).

Many financial services are explicitly charged and require no special calculation. They include fees for deposit-taking and lending, fees for one-off guarantees, early or late repayment of fees or penalties, account charges, fees related to letters of credit, credit card services, commissions and charges related to financial leasing, factoring, underwriting and clearing of payments. Financial advisory services, custody of financial assets, financial asset management, monitoring services, liquidity provision services, risk assumption services (other than insurance), merger and acquisition services, credit rating services, stock exchange services and trust services are also included. Dealers in financial instruments may charge, in full or part, for their services by incorporating a spread between their buying and selling prices; these margins on buying and selling transactions are also included in explicitly charged and other financial services.

Actual interest can be considered to include both an income component and a charge for service. Lenders and deposit-takers operate by providing rates of interest to their depositors that are lower than the rates that they charge their borrowers. The resulting interest margins are used by financial corporations to defray their expenses and generate an operating surplus. By convention, these indirect charges of interest apply only to loans and deposits and only when the loans and deposits are provided by, or deposited with, financial corporations. For loans from financial corporations, FISIM is the difference between the interest actually payable on loans and the amount that would be payable if a reference rate were used; for deposits with financial corporations, FISIM is the difference between the interest that would be earned if a reference rate were used and the interest actually earned. Such a reference rate should not contain a service component and should reflect the risk and maturity structure of deposits and loans (the rate prevailing in interbank borrowing and lending is usually a suitable choice).

Charges for the use of intellectual property (n.i.e.) include: (i) charges for the use of proprietary rights (such as patents, trademarks, copyrights, industrial processes and designs, including trade secrets and franchises) that may arise from research and development, as well as from marketing; and (ii) charges for licences to reproduce or distribute intellectual property embodied in produced originals or prototypes (such as copyrights on books and manuscripts, computer software, cinematographic works and sound recordings) and related rights (such as for live performances and television, cable or satellite broadcasts).

Telecommunications, computer and information services encompass the transmission of sound, images or other information by telephone, telex, telegram, radio and television cable and broadcasting, satellite, electronic mail, facsimile services, etc., including business network services, teleconferencing and support services. They do not include the value of the information transported. Mobile telecommunication services, internet backbone services and online access services, such as providing access to the internet, are also included. Installation services for telephone network equipment are excluded since they are included in construction.

Computer services consist of hardware and/or software-related services and data-processing services. Also included are hardware and software consultancy and implementation services; maintenance and repair of computers and peripheral equipment; disaster recovery services; provision of advice and assistance on matters related to the management of computer resources; analysis, design and programming of ready-to-use systems (including web page development and design) and technical consultancy related to software; licences to use non-customised software; development, production, supply and documentation of customised software, including operating systems made to order for specific users; systems maintenance and other support services such as training provided as part of consultancy; data-processing services such as data entry,; tabulation and processing on a time-sharing basis; web page hosting services (i.e. provision of server space on the internet to host clients’ web pages); and computer facilities management. Charges for licences to reproduce and/or distribute software included in charges for the use of intellectual property (n.i.e.) are excluded. Leasing of computers without an operator is included in technical, trade-related and other business services.

Information services comprise news agency services, database services (database conception, data storage and dissemination of data and databases, including directories and mailing lists), both online and through magnetic, optical or printed media; and web search portals (search engine services that locate internet addresses for clients who input keyword queries). Direct, non-bulk subscriptions to newspapers and periodicals, whether by mail, electronic transmission or other means, as well as other online content provision services and library and archive services are also included. Bulk newspapers and periodicals are included under general merchandise.

Other business services include: (i) research and development services; (ii) professional and management consulting services; and (iii) technical, trade-related and other business services.

Research and development services are associated with basic research, applied research and experimental development of new products and processes. In principle, such activities in the physical sciences, social sciences and humanities, including the development of operating systems that represent technological advances, are covered in this category. Commercial research related to electronics, pharmaceuticals and biotechnology is also included.

Professional and management consulting services include: (a) legal services, accounting, management consulting, managerial services and public relations services; and (b) advertising, market research and public opinion-polling services.

Technical, trade-related and other business services encompass: (a) architectural, engineering, scientific and other technical services; (b) waste treatment and de-pollution, agricultural and mining services; (c) operating leasing services; (d) trade-related services; and (e) other business services (n.i.e).

Personal, cultural and recreational services include audio/visual and related services, as well as other personal, cultural and recreational services. Audio/visual and related services are services and associated fees related to the production of motion pictures (on film or videotape), radio and television programmes (live or on tape) and musical recordings. Rentals of audio/visual and related products, as well as access to encrypted television channels (such as cable or satellite services); mass-produced audio/visual products purchased or sold for perpetual use that are delivered electronically (downloaded); fees received by performing artists (actors, musicians and dancers), authors, composers, etc. are included. Charges or licences to reproduce and/or distribute audio/visual products are excluded, as these are included in charges for the use of intellectual property (n.i.e.). Other personal, cultural and recreational services include: (a) education services, (b) health services, (c) heritage and recreational services and (d) other personal services.

Government goods and services (n.i.e.) is a residual category covering government transactions (including those of international organisations) in goods and services which cannot be classified under other items. Included are all transactions (in both goods and services) by enclaves such as embassies, consulates, military bases and international organisations with residents of economies in which the enclaves are located. Transactions of the enclaves with residents of the home economies are excluded.

Surveys are the main data sources across the various components of the services account in most countries. However, overall services data include data from other sources, for example administrative sources and estimates, as well as reclassifications such as from goods to freight and insurance services (c.i.f./f.o.b. adjustment) and from primary income to financial services (FISIM), ITRS information, etc. The following table presents the main surveys implemented in euro area/EU countries, together with other general data sources. Subsequent tables numbered 1 to 6, present item-specific data sources and/or compilation methods.

Services are to be compiled on a gross basis, the correct service category and counterpart country need to be identified carefully. Many service items can be directly obtained from surveys or ITRS, while some items need to be estimated based on different data sources as they cannot be observed directly, such as FISIM or insurance services. Item-specific compilation methods, including the use of specific data sources, are summarised hereafter by type of service.

Primary income is the return that accrues to institutional units for their contribution to the production process, either for providing labour or for providing financial assets and renting natural resources to non-resident institutional units. It therefore comprises compensation of employees, investment income and other primary income.

(As of October 2023)

Compensation of employees is the total remuneration, in cash or in kind, payable by resident/non-resident employers (the producing units) to non-resident/resident employees in return for work. This includes the contributions paid by employers, on behalf of employees, to social security schemes or to private insurance or pension funds to secure benefits for employees. It is important to establish whether an employer-employee relationship exists; if not, the payment constitutes a purchase of services.

Administrative sources such as social security agency records from border countries, aggregated income statements from private individuals with country breakdown, and tax declarations are very common for the exports in this category. For the imports, administrative sources include information on authorisation and employment contract data, social security information, and wages. EU institutions, embassies and other international organisations voluntarily report data to cover staff who are resident in the country where the institution is located.

Surveys are also frequently used sources. These include the International Trade in Services Survey (ITSS), International Tourism Survey (ITS), Labour Force Surveys, and surveys of national workers abroad.

Mirror data are normally used by countries that have established data sharing and cooperation, along with strong commuting links.

Finally, some countries still use an international transactions reporting system (ITRS), usually as a complementary source, while others maintain a system of direct reporting by corporations.

The models used to estimate imports (residents in the rest of the world who obtain income in the compiler country) are based on the number of employees, average salary in the relevant economic sector and rates for taxation and social security contributions. The population data are obtained from various sources, depending on the country of origin of the workers: the International Trade in Services Survey (for workers coming from other EU and EFTA countries), or the number of work permits issued by the ministry of migration/labour in the case of workers who need special permission to work in the EU. The social security administration may be also a useful source for the number of non-resident employees.

Imports may also be recorded directly by companies and complemented by general government reporting on remuneration paid to local (non-resident) staff hired in embassies abroad.

Export models (residents who obtain income abroad) are based on an estimation of the number of employees per foreign country multiplied by the average salary in the relevant country and economic sector (if available), including taxation and social security contributions. The number of border workers can usually be obtained from the compiler country’s own social security agency or that of the partner country, or from data on the number of work permits issued. It can also be estimated using, for example, data from International Tourism Surveys where travellers for business purposes are identified or from Labour Force Surveys. Some models use banking reporting, with payments to individuals from non-residents, or direct reporting if the subject of the payments is identified.

Credits are complemented by data collected from international organisations located in the country as well as embassies that hire resident workers.

Partner/mirror data can also be added for border workers in some circumstances, when there is a relevant link with the partner country. Mirror data are sometimes used to assess and correct structural under/over-estimation.

Estimates of non-registered workers employed, for example, in construction services, agriculture and the tourism sector are also produced for countries where this phenomenon is relevant. The seasonality of certain work is considered in this type of estimation.

The majority of the countries use mixed approach of data estimation and a data collection to compile this item. For Croatia, Hungary, and Austria the item is calculated based on data estimations. For Denmark and Greece, the item is calculated based on data collection, including ITRS.

In Finland, Tax Administration information classifies as residents, foreign employees, and vice versa, after six months. A correction of 50% is therefore made to account for foreign employment lasting 6 to 12 months.

(As of October 2023)

Investment income is derived from a resident’s ownership of a financial asset issued by a non-resident (credit) or, conversely, from a non-resident’s ownership of a financial asset issued by a resident (debit). Investment income includes income on equity (dividends, withdrawals from income of quasi-corporations, reinvested earnings and investment income attributable to investment fund shareholders) and on debt (interest), as well as investment income attributable to policyholders in insurance, pension schemes, and standardised guarantee schemes. Capital/holding gains and losses (realised or unrealised) are not classified as income on investments but as revaluations (due to exchange rate or other price changes).

In euro area statistics, investment income is broken down by functional category of underlying investment, i.e. income on direct investment, portfolio investment, other investment or on reserve assets, and further detailed according to the type of instrument and resident / non-resident sector. Financial derivatives and employee stock options do not give rise to investment income.

Dividends are distributed earnings allocated to owners of equity shares for having placed funds at the disposal of corporations. Dividends are to be recorded the moment that shares go “ex-dividend”, gross of any withholding taxes. The following borderline cases apply:

• distribution of earnings in the form of stock dividends (when stockholders elect to receive dividend payments in the form of a new share issuance) is a capitalisation of current earnings and an alternative to distributing cash dividends. Distributions of such earnings are recorded in the euro area b.o.p. in the same manner as reinvested earnings (i.e. as investment income in the current account and as offsetting equity investment in the financial account);
• bonus shares (new shares distributed to all stockholders in proportion to existing ownership) are not treated as transactions or income, as no new resources are involved, i.e. shareholders’ claim on the entity remains the same following issuance of the shares;
• liquidating dividends refer to the distribution of assets in the form of a dividend from a corporation that is going out of business. Payment of liquidating dividends may take place when a firm goes bankrupt or when a company’s assets are sold and the proceeds passed to shareholders. As liquidating dividends represent more of a repayment of capital than a distribution of earnings from current income, they are to be recorded as withdrawals of equity in the financial account and, consequently, should be excluded from investment income;
• super-dividends are exceptional payments that are made by corporations (including quasi-corporations such as branches) to their shareholders and that consist of accumulated reserves or asset sales. These are to be recorded as withdrawals of equity in the financial account and should consequently be excluded from investment income.

Withdrawals from income of quasi-corporations (unincorporated enterprises that exercise some functions of corporations which, in legal terms, cannot distribute income in the form of dividends) are income that owners draw from their profits. From an economic point of view, the withdrawal of such income is equivalent to the distribution of corporate income through dividends and is treated the same way. Withdrawals of funds realised by the sale or disposal of a quasi-corporation’s assets are excluded; these (so-called super-dividends) should be recorded as a reduction in the equity of quasi-corporations in the financial account.

Reinvested earnings are associated with the concept of attributing retained earnings of corporations to their ultimate owners. In macroeconomic statistics, corporations are defined as entities separate from their owners and able to take economic decisions. Owners receive dividends and face other financial gains and losses arising from the activity of corporations they own. For corporations, the notion that institutional units are decision-making entities implies that retained earnings are treated as income and savings of that entity rather than of its owners. Accordingly, undistributed income derived from net operating surplus, net property income and net current transfers is recorded as retained earnings or net savings of corporations. When owners decide to retain earnings deliberately for reinvestment purposes, however, treating these earnings as “retained” by corporations would not reflect economic reality.

Although most economic relationships between a corporation and its owners may be considered to take place “at arm’s length”, distribution of net earnings to its owners may, in some cases, be subject to the control and influence that the owners have on corporate decisions. Therefore, earnings retained by investment funds or by direct investment enterprises are imputed to their owners and shown in the primary income account as “reinvested earnings”, with corresponding flows recorded in the financial account as “reinvestment of earnings”. These reinvested earnings are to be recorded in the period in which they are earned.

Reinvested earnings on foreign direct investment represent the direct investors’ proportion, in terms of equity held, of earnings that foreign subsidiaries, associates and branches do not distribute as dividends. They are defined as the direct investors’ share of the total consolidated profits earned by the direct investment enterprise in the reference period (after allowing for tax, interest and depreciation – see below) minus dividends due for payment in the reference period, even if these dividends relate to profits earned in previous periods.

Investment income attributable to shareholders in investment funds, including mutual funds and unit trusts, consists of the following separate components: i) dividends paid to collective investment fund shareholders; and ii) retained earnings attributable to collective investment fund shareholders. The dividend component is recorded in the same manner as dividends for individual corporations, as described above. The retained earnings component is recorded using the same principles as those described for foreign direct investment enterprises.

Earnings from investment funds can be viewed as being passed on to their shareholders (or unit holders), as they are earned in the form of investment income on their equity. Investment funds earn income by investing funds received from shareholders. Shareholders’ income from investment funds is defined as investment income earned on the fund’s investment portfolio after deducting operating expenses. Where only a portion of net earnings is distributed to shareholders as dividends, the retained earnings should be treated as though they were distributed to the shareholders and then deemed to be reinvested.

As for other income components, investment funds’ holding gains and losses in their portfolio are recorded in the revaluation account.

Interest is a form of investment income that is receivable by owners of certain kinds of financial assets (debt instruments) – namely, deposits, debt securities, loans and other accounts receivable – for the purpose of placing the financial assets at the disposal of another institutional unit. Income on special drawing rights (SDR) holdings and SDR allocations are also classified as interest.

Interest is recorded on an accrual basis; that is, interest is recorded as accruing continuously over time to the creditor on the amount outstanding. Depending on the contractual arrangements, the rate at which interest accrues may be a percentage of the amount outstanding, a predetermined sum of money, a variable sum of money dependent on a defined indicator or some combination of these.

In view of the short deadline for providing monthly euro area b.o.p. data, deviations from accrual accounting, where unavoidable, are tolerable and methods such as cash recording are acceptable.

As interest accrues before it is actually paid, the amount of the respective claim must be recorded under investment income in the current account, with a counterbalancing entry in the financial account in the underlying instrument (e.g. other investment loans). When actual payment occurs, it should not be recorded again under investment income (where the respective value has been accruing) but should instead be recorded in the financial account as a reduction in the underlying instrument (e.g. as in the example above, other investment loans), cancelling out the interest that had been accruing. For the creditor, the actual receipt of interest on loans, for example, would typically correspond to an increase in deposits as a counterpart to a reduction in loans.

The primary income account records so-called “pure interest” by excluding its FISIM component (see description in the “Services” chapter).

For the purpose of defining and measuring interest, it is useful to distinguish between two types of arrangements: i) fixed-rate instruments (the contracting parties determine at inception all future cash flows that the debtor must make in domestic currency); and ii) index-linked instruments (the indexation mechanism links the amount to be paid at maturity, periodic payments – such as coupons – or both to indicators agreed by the parties; the values of the indicators are not known in advance).

In general, interest accrual on deposits, loans and accounts receivable/payable is determined by applying the relevant interest rate, as specified in the contractual arrangements between parties, to the amount outstanding at each point in time throughout the accounting period. For each period, the relevant interest rate should be used to calculate interest accrued in that period.

Fees for securities lending without cash collateral and gold loans are payments for putting a financial instrument at the disposal of another institutional unit. Accordingly, fees for securities lending (equity securities, as well as debt securities) and for gold loans accrue to the owner of the security/gold and are treated as interest (with corresponding entry in other investment – other accounts receivable/payable).

Amounts outstanding of non-performing debt remain a legal liability of the debtor, so interest should continue to accrue unless the liability has been extinguished (e.g. repaid, written off or rescheduled as a result of a bilateral arrangement between debtor and creditor). Following the accrual principle, arrears on debt repayments (both periodic payments and amount to be paid at maturity) that have not been paid on the due dates should continue to be shown in the same instrument until the liability is extinguished.

Income on non-participating preference shares is treated as interest rather than as dividends and is generally recorded under direct investment income on debt instruments. Interest recorded on debt securities has the following characteristics:

• On debt securities traded in secondary markets – defining / measuring interest on debt securities traded in secondary markets is not straightforward. While debtors have obligations to settle according to the terms and conditions set at the inception of the debt instruments, holders of securities acquired in the secondary markets may not know about the interest rate at the time of issue. Therefore, there are three approaches to defining / measuring interest on these debt instruments. In international accounts, however, interest is recorded using the so-called debtor approach: Interest is equal to the amounts debtors will have to pay to their creditors over and above the repayment of the amounts advanced by the creditors. Interest accrual on a debt instrument is determined over its entire life by conditions set at the inception of the instrument. Interest accrual is determined using the original yield to maturity. A single effective yield, established at the time of security issuance, is used to calculate the amount of accrued interest in each period to maturity.
• With known cash flows – for debt securities where issue and redemption prices are the same (i.e. issued at par), total interest accruals over the life of the securities are given by the periodic coupon payments. If coupon payments are fixed, accrued interest can be calculated by allocating the coupon payment to the relevant period using a daily compound formula.
• Certain debt securities, e.g. short-term bills of exchange and zero-coupon bonds, are such that the debtor is under no obligation to make any payments to the creditor until the liability matures. In effect, the debtor’s liability is discharged by a single payment covering both the amount of the funds originally borrowed and the interest accrued / accumulated over the life of the liability. Instruments of this type are said to be discounted because the amount initially borrowed is less than the amount to be repaid. The difference between the amount to be repaid at the end of the contract and the amount originally borrowed is interest that must be allocated over the accounting periods between the beginning and end of the contract. A slightly more complicated case is a deep-discount bond, which is a discounted instrument that also requires periodic coupon payments. In such cases, interest accrual is the amount of the coupon payable periodically plus the amount of interest accruing in each period attributable to the difference between the redemption price and issue price.
• In some cases, debt securities are issued at a premium rather than at a discount. The method of determining the interest accrual is identical to the case of a discounted instrument except that, when issued at a premium, the difference between the redemption and issue price is amortised over the life of the instrument and reduces (rather than increases as in the case of the discounted instrument) the amount of interest accruing in each period.
• Index-linked debt securities: In the case of index-linked debt securities, an indexation mechanism links the amount to be paid at maturity or coupon payments (or both) to indicators agreed by the parties. The values of the indicators are not known in advance. Therefore, in order to estimate interest accruals before the values of the reference indicators are known, some proxy measures need to be used.
• When only coupon payments are index-linked, the full amount resulting from indexation is treated as interest accruing during the period covered by the coupon. It is most likely that, by the time data are compiled for a reporting period, the date for the coupon payment has passed and hence the value of index is known. When the date for the coupon payment has not passed, the movement in the index during that part of the reporting period covered by the coupon may be used to calculate the interest accrual.
• When the amount to be paid at maturity is index-linked, the calculation of interest accruals becomes uncertain because the redemption value is unknown; in some cases, the maturity time may be several years in the future. Two approaches can be followed to determine the interest accrual in each accounting period: i) interest accruing in an accounting period due to the indexation of the amount to be paid at maturity may be calculated as the change in the value of this amount outstanding between the end and the beginning of the accounting period due to the movement in the relevant index; and ii) interest accruals may be determined by fixing the rate of accrual at the time of issue. Accordingly, interest is the difference between the issue price and the market expectation, at inception, of all payments that the debtor will have to make, which is recorded as accruing over the life of the instrument.
• For debt securities with embedded derivatives, such as call, put or equity conversion options, the accounting for accrued interest is the same as for securities that do not have such features. For all periods leading up to the exercise of the option, the interest accrual is unaffected by the presence of the option.

Direct investment income includes all investment income arising from direct investment positions between resident and non-resident institutional units. Debt between selected affiliated financial intermediaries is not included in direct investment, so the corresponding income on these instruments is also classified as portfolio or other investment income. Rare cases of other primary income, such as compensation of employees and rents between direct investors and direct investment enterprises, are not included under direct investment income. Dividends, withdrawals from income of quasi-corporations and interest can apply to any of the types of direct investment relationships.

Transfer pricing at values that differ significantly from “arm’s length” prices is usually associated with shifting resources between related enterprises, so it relates to direct investment income measures. Transfer pricing may be motivated by income distribution (hidden dividends), equity build-ups or withdrawals. Examples include providing goods and services without explicitly charging or at understated / overstated values. Where transfer pricing is identified and quantified with a high degree of certainty, the relevant income entries should be adjusted to an “arm’s length” value.

Portfolio investment income includes income flows between residents and non-residents arising from positions in equity and debt securities other than those classified under direct investment or reserve assets. Three types of portfolio investment income are distinguished at the first level: namely, income on equity securities (dividends), income attributable to investment fund shareholders and income on debt securities (interest). The income attributable to investment fund shareholders includes both dividends and reinvested earnings. Interest is further classified by type of debt security and by maturity. Income from investments in investment fund shares is, by assumption, always classified in the portfolio investment functional category, as it is established that to hold more than 10% of the investment fund shares does not qualify as a direct investment relationship (see also the “direct investment” chapter).

Other investment income covers flows between resident and non-resident institutional units with regard to interest on deposits, loans, trade credits/advances and other accounts receivable/payable; income on other equity not classified as direct investment; and investment income attributable to policyholders of insurance, standardised guarantees and pension funds. Fees for non-monetary gold loans should also be included in interest under other investment income.

Reserve asset income covers income on equity and investment fund shares, as well as interest from securities included in reserve assets. Fees on securities lending and monetary gold loans, as well as interest on unallocated gold accounts, are also included under interest on reserve assets. Interest on SDR holdings is also shown on a net basis under income on reserve assets, i.e. the value of interest payable on SDR allocations (other investment) is deducted.

In the b.o.p. the various components of investment income are presented according to the functional categories of the financial account. This section presents a description of the sources used to compile each of these components.

Direct investment income is usually collected through the quarterly or annual FDI surveys; however, compilers may make use of more timely sources or variables to compile some preliminary estimates. Portfolio investment income is generally compiled from positions collected on a security-by-security basis, either directly or indirectly from custodians, and CSDB is the securities database used as reference for securities with an ISIN code. CSDB contains information on dividends of equity securities and interest of debt securities.

Compiling direct investment income is one of the most challenging tasks in producing b.o.p. statistics. It requires

• the direct investment corporations’ profit and loss account (mostly annual), which is subject to various adjustments to calculate the statistical measure of net operating surplus, denominated in accounting terms of the COPC;
• estimation methods for delays in obtaining information; and
• interpolation procedures to adjust the (typically annual) data to the required frequency.

Reinvested earnings are calculated after deducting dividends (when declared payable) from direct investment companies’ net operating earnings. Reinvested earnings may be negative when companies show losses or when dividends distributed during the year are larger than net operating earnings for the year.

In general, portfolio investment income in the euro area is compiled on a security-by-security basis, using information from the centralised securities database (CSDB). As specified in Annex VI of Guideline ECB/2011/23, stocks of securities reported to the national compiler on an aggregate basis, i.e. not using standard (ISIN or similar) codes, should not exceed 15% of the total portfolio investment stocks of assets or liabilities; the same threshold should apply to compiling the respective portfolio investment income. The CSDB provides security-by-security information on dividends paid (for equity and investment fund shares) and income accrued (for debt securities and investment fund shares) in addition to price, maturity, market capitalisation and outstanding amounts. These data allow b.o.p. compilers to calculate income flows related to their countries’ assets and liabilities of these portfolio investment instruments. This also allows for a full geographical and sector (resident and counterpart sector) breakdown of credits.

Interest on debt securities, which is calculated by applying coupon attributes from the CSDB to stocks, is recorded on an accrual basis. Dividends on equity securities and investment fund shares are compiled directly from the CSDB and multiplied by holdings. This method is common in all euro area countries and most of the EU countries for calculating income generated by portfolio assets. It is the most common debit side method; however, the table below highlights some specific features for a few countries.

Furthermore, in addition to the accrual basis for calculating the income of debt instruments, the debtor approach is recommended in order to reduce asymmetries at the euro area level, i.e. interest accrual on a debt instrument is determined using the original yield to maturity over the life of the instrument by the terms and conditions set at its inception. A single effective yield, which is established at the time of security issuance and which takes into account discounts and premiums, is used to calculate the amount of accrued interest earned each period to maturity.

The calculation of income generated by investment funds is still not harmonised among EU countries. Some countries use CSDB information, while others use data collected from resident investment funds or available mirror data. The various cases are explained below.

In the EU other investment income includes only “pure” interest, i.e. net of FISIM; for details on how FISIM is estimated per country, see ”financial services” in the “Services” chapter.

As members of a currency union, euro area countries initiate some b.o.p. transactions or enter i.i.p. positions that are typically domestic in other economies. These positions generate income in other investments:

• remuneration for claims on the ECB resulting from the transfer by NCBs of pooled reserve assets as interest;
• distribution of ECB profit to NCBs and coverage of ECB financial losses by NCBs are considered positive or negative income (as appropriate) accruing to the share of each NCB in the ECB’s capital ECB as withdrawals from income of quasi-corporations;
• any remuneration related to intra-Eurosystem “technical” balances (difference between the value of euro banknotes allocated to each NCB according to the banknote allocation key and the value of euro banknotes that the NCB actually puts into circulation) as interest.

In all of the above cases, the geographical allocation accords with the debtor/creditor approach of the related assets/liabilities.

Function/category-specific compilation methods are summarised in the following table, with deviations also included.

(As of October 2023)

Other primary income comprises taxes and subsidies on products and production and rents. This latter component is presented in the primary income account to maintain consistency with national accounts, and it is broken down by institutional sector of the compiling economy (general government and other sectors). Together, rents and investment income correspond to the national accounts concept of property income.

Taxes on production and on imports consist of compulsory, unrequited payments, in cash or in kind, which are levied by general government or by the EU institutions in respect of the production and import of goods and services, the employment of labour, and the ownership or use of land, buildings or other assets used in production (such taxes are payable irrespective of profits made).

From December 2015 onwards, following the implementation of the Single Resolution Mechanism (SRM) and constitution of the Single Resolution Fund (SRF), contributions of the country’s banking sector to the SRM should be included in this account.

Conversely, subsidies are current unrequited payments which general government or the EU institutions make to resident producers. Cross-border taxes and subsidies on products and production are normally not significant, except in the case of economic unions such as the euro area. In the euro area, taxes on production and imports paid to EU institutions include the following taxes collected by national governments on behalf of EU institutions: receipts from the common agricultural policy (levies on imported agricultural products; monetary compensatory amounts levied on exports and imports; sugar production levies and the tax on isoglucose; co-responsibility taxes on milk and cereals; and receipts from trade with third countries) and customs duties levied on the basis of the Integrated Tariff of the European Communities (TARIC). The taxes on production and imports paid to the EU institutions do not include the VAT-based third own resource, which is included in other current transfers. Subsidies granted by the EU institutions only cover current transfers made directly by them to resident producer units.

Rents cover income receivable for putting natural resources at the disposal of non-resident institutional units. Examples of rents include amounts payable for the use of land for extracting mineral deposits and other subsoil assets, and for fishing, forestry and grazing rights. The regular payments made by the lessees of natural resources, such as subsoil assets, are often described as royalties, but they are classified as rents.

Notional direct investment enterprises (i.e. “fictitious” institutional units) created for holding land and leases on land for long periods will normally generate rent (or travel or operational leasing services if there is a building on the land). If the land or buildings are used by the owners (who are non-residents) of the notional unit, an imputation for rent (in the case of use of land), travel services (e.g. in territories that have a large number of vacation homes owned by non-residents) or operational leasing (if non-resident enterprises own premises for their own use) would be necessary. These imputations are recorded under relevant categories of the current account (mostly services). The income arising from the notional direct investment enterprise is recorded under direct investment income. For example, if a vacation home is rented, the notional unit receives the payment for accommodation and generates net earnings that are considered withdrawals from income of quasi-corporations.

Administrative sources such as the Ministry of Finance, the Ministry of Agriculture or other Tax Authorities are the main sources for the estimation of taxes and subsidies. Mirror data are normally used for transactions vis-à-vis the Commission.

Some countries still use ITRS for the compilation of rent data, while others maintain a system of direct reporting. Surveys (e.g. ITSS) are also frequently used sources.

(As of October 2023)

The secondary income account shows current transfers (in cash or in kind) between residents and non-residents. Various types of current transfers are recorded in this account to show the different roles in the income distribution process between economies.

A transfer is an entry that corresponds to the provision of a good, service, financial asset or other non-produced asset by one institutional unit to another institutional unit, with no corresponding return of an item of economic value (or of an item much below its value).

Current transfers consist of all transfers that are not transfers of capital. Current transfers directly affect the level of disposable income of the donor or recipient. They include transfers typically related to general government, for example transfers relating to current international cooperation between different governments, payment of current taxes on income and wealth, etc. and transfers related to other sectors, such as personal transfers (among them workers’ remittances) or non-life insurance premiums and claims (excluding service charges).

The distinction between current and capital transfers is that, in the case of the latter, ownership of an asset (other than cash or inventories) either changes from one party to another, or else one or both parties acquire or dispose of an asset (other than cash or inventories) or a liability is forgiven by the creditor. Moreover, a capital transfer results in a commensurate change in stocks of assets of one or both parties to the transaction without affecting the savings of either party. Capital transfers are typically large and infrequent but cannot be defined in terms of size or frequency alone.

In euro area b.o.p., a primary distinction is made between general government transfers and other sector transfers whereas BPM6 differentiates primarily between personal transfers and other current transfers.

Other sector transfers cover transactions with non-resident foreign institutions: on the debit side, current taxes on income, wealth, etc., as well as social contributions, paid to foreign institutions; on the credit side, social benefits, for example.

Net premiums and claims on standardised guarantees are also included, although they are expected to be relatively negligible for international accounts. On the contrary, non-life reinsurance is expected to be rather significant for international accounts.

Other current transfers of other sectors encompass adjustments for change in pension entitlements, as well as miscellaneous current transfers, including personal transfers.

Adjustment for changes in pension entitlements is an imputed item, which is necessary to reconcile the treatment of pensions as current transfers with the treatment of pension entitlements as financial assets.

Miscellaneous current transfers (in cash or in kind) include current transfers between households (personal transfers), current transfers to non-profit institutions serving households, fines and penalties, payments of compensation (for injury to persons or damage to property caused by the former that are not settled as payments of non-life insurance claims) and others (e.g. gifts and donations of a current nature).

Personal transfers between resident and non-resident households consist of all current transfers (in cash or in kind) made or received by resident households to or from non-resident households. This is independent of the source of income of the sender or the relationship between households. Personal transfers also include workers’ remittances that consist of personal transfers made by employees to residents of another economy, and vice versa. Personal transfers also include current transfers payable from gamblers to winners and, in some cases, to charities; these transfers are regarded as directly payable from gambling or lottery participants to winners and charities.

Administrative sources that are commonly used to compile general government secondary income encompass the Ministry of Finance, the Treasury, tax authorities, the Ministry of Foreign Affairs, the immigration/emigration administration, the development aid agency, the Ministry of International Cooperation and the social security administration. Central banks may also be a source of data. Depending on the institutional settings in individual countries, the exact name of these various institutions, or their existence as separate institutions, may vary.

Surveys are used indirectly in a number of countries where the national statistical institutes (NSIs) conduct surveys to estimate taxes on income, social contributions and social benefits for compilingation of the compensation of employees both on the credit and on the debit sides; these estimates are also used to compile secondary income of the general government and other sectors.

The main source for compiling secondary income are administrative. In order to align these sources with statistical concepts, some estimates are called for. It is particularly important to adjust secondary-income flows to comply with the accrual principle and to identify the beneficiaries, i.e. current transfers should be recorded at the time of their use by final beneficiaries. For segregating current and capital transfers, information on the purpose or nature of the transfers is to be identified using the data sources.

The general use of available sources for compiling the various components of secondary income involving the government is as follows:

• Data on transfers to and from EU institutions are collected essentially from national administrative sources, including central banks, and in some cases complemented by data from EU institutions published by Eurostat.
• Estimates of other current international cooperations, both for credits and debits, are mainly sourced from the relevant agencies at national level (e.g. ministry of finance, ministry of foreign affairs and central bank).
• Estimates on the debit side, benefits paid abroad (pensions and healthcare payments) are based on data collected from social security offices or other equivalent agencies.
• On the credit side, taxes on income and social contributions paid by non-resident workers are part of the calculations performed concerning the compensation of employees.

Compilation of secondary income for sectors other than general government is largely based on estimates involving information from multiple data sources.

• Taxes on income and social contributions (on the debit side) are part of the calculations performed concerning the compensation of employees;
• Personal transfers, in particular workers’ remittances, may involve a combination of sources, such as migration data (e.g. ministry of foreign affairs and NSI), transfer data from MFIS, MTOs, post offices, data from international organisations (such as the World Bank, Organisation for Economic Co-operation and Development and the United Nations), estimates by the NSI, etc.

(As of October 2023)

The capital account covers the acquisition/disposal of non-produced non-financial assets and capital transfers. The sum of the current and capital account balances may also be shown as a balancing item, which is labelled as net lending (+)/net borrowing (-). For the distinction between current transfers (secondary income account) and capital transfers (capital account), see Section 4 on the secondary income account.

Non-produced non-financial assets consist of: (i) natural resources (land, mineral rights, forestry rights, water, fishing rights, air space and the electromagnetic spectrum); (ii) contracts, leases and licences; and (iii) marketing assets (brand names/trademarks) and goodwill. Acquisitions and disposals of non-produced non-financial assets are recorded separately on a gross basis (rather than net). Only the purchase/sale of such assets (and not their use) is to be recorded under this item of the capital account. International transactions in land and other natural resources do not usually take place because notional resident units are generally identified as the owners of these immovable assets. Therefore, changes of ownership in land (typically including real estate) are usually classified as financial transactions under direct investment (see also Section 6 on direct investment).

However, international transactions in land are performed in specific cases, for instance, when foreign governments or international organisations purchase or enter into long-term (financial) leases of land for purposes of establishing or extending their enclaves, diplomatic missions or military bases.

Capital transfers consist of: (i) transfers of ownership of fixed assets; (ii) transfers of funds linked to, or conditional on, the acquisition or disposal of fixed assets; and (iii) the cancellation, without any compensation being received in return, of liabilities by creditors (such as debt forgiveness).

In practice, the distinction between current and capital transfers rests on the use of the transfer by the recipient country (see also Section 4 on the secondary income account).

Capital transfers in the euro area b.o.p. are classified by the institutional sector (as is the case for current transfers) that initiates or receives the transfer in the compiling economy (general government or other sectors) and are further broken down into (1) capital taxes, (2) investment grants, and (3) other capital transfers.

1. Capital taxes refer to taxes levied at irregular and infrequent intervals either on the values of assets or net worth owned by institutional units or on the values of assets transferred between institutional units. These include inheritance taxes, as well as taxes on gifts between persons that are levied on the capital of the beneficiaries.
2. Investment grants are capital transfers (in cash or in kind) transacted by governments or international organisations to finance all or part of the costs of acquiring fixed assets. Recipients are obliged to use investment grants received in cash for purposes of gross fixed capital formation; grants are often tied to specific investment projects such as large construction works. A direct investment stake is distinguished from a project funded by an investment grant in that the direct investor owns voting power in the enterprise and has a right to future benefits such as dividends or the right to sell the asset, which is not the case for investment grants. An investment grant in cash may be paid in instalments if the investment project continues over a long period of time. Payments of instalments continue to be classified as capital transfers even though they may be recorded in a succession of different accounting periods. In most EU countries, a relevant portion of government sector investment grants reflects the value of grants/funds that are received from EU institutions and are not attributable to current transfers.
3. Other capital transfers include: (a) debt forgiveness; (b) large non-life insurance claims (e.g. in the context of catastrophes); (c) one-off guarantees and other debt assumptions; (d) major non-recurrent payments as compensation for extensive damages or serious injuries not covered by insurance policies; (e) large gifts, donations and inheritances (legacies), including those to non-profit institutions; and (f) some capital contributions to international organisations or non-profit institutions (if they do not give rise to ownership rights/equity).

Administrative sources used to compile the capital account essentially refer to capital transfers of the general government. The institutions involved may include the Ministry of Finance, the Treasury, the Ministry of Foreign Affairs, the Ministry of International Cooperation and the development aid agency. Central banks may also be a source of data. Depending on the institutional settings in individual countries, the exact name of the various institutions or their existence as separate institutions may vary.

Surveys serve as the primary data source in many countries to collect information on transactions in non-financial, non-produced assets (typically the surveys on international trade in services and other international transactions conducted in many countries). The periodicity of the surveys may be monthly for large companies, and quarterly or annual for medium and small-sized companies, respectively.

A number of countries use a direct reporting system and/or an international transaction reporting system (ITRS).

In most countries, capital transfers essentially involve the general government sector. The main sources for compiling this item are administrative. In order to bring the sources into line with the appropriate statistical concepts, some estimates are in order. It is particularly important to adjust flows in accordance with the accrual principle: capital transfers should be recorded at the time of their disbursement to final beneficiaries, which implies the identification of the latter.

The compilation of transactions on non-produced non-financial assets and capital transfers usually involves cross-checking data from the various sources available.

(As of October 2023)

Foreign direct investment (FDI), or simply direct investment, is the first functional category of the financial account of the b.o.p./i.i.p., which covers transactions, stocks and other flows (revaluations and other changes in volume). In the following paragraphs we outline the methodology for compiling direct investment statistics: flows (transactions and other) and positions, both for assets and liabilities.

FDI is the functional category used to record cross-border investment, whereby a resident in one economy has outright control, or otherwise a significant degree of influence, over the management of an enterprise resident in another economy. In addition to the equity interest that gives rise to that control or influence, FDI also includes investment in enterprises influenced or controlled indirectly, investment in fellow enterprises, debt (except between affiliated financial corporations) and reverse investment.

A direct investor is the entity or group of related entities that is able to exercise control, or a significant degree of influence, over another entity resident in a different economy. Conversely, a direct investment enterprise is the entity subject to that control, or significant degree of influence, from a direct investor. Fellow enterprises are those enterprises that are under the control or influence of the same immediate or indirect investor, but where neither fellow enterprise controls or influences the other. In some cases, a single entity may be a direct investor, a direct investment enterprise, and a fellow enterprise in different relationships to other enterprises, all at the same time. All these enterprises are known as affiliates and are in a direct investment relationship with each other.

Equity securities listed on stock exchanges are valued at market prices using the quotations from those exchanges which are available in the CSDB. In the case of equity of unlisted direct investment enterprises, positions are valued on the basis of own funds at book value (OFBV), which comprises the following accounting items:

• paid-up capital (shares effectively paid for excluding own shares and including share premium accounts);
• all types of reserves (including investment grants, where accounting guidelines consider them to be company reserves);
• non-distributed profits net of losses (including results for the current year).

This information is based on the balance sheet of the subsidiaries concerned: for outward FDI in the balance sheet of the non-resident enterprise and for inward FDI in the books of the resident enterprise.

To ensure greater consistency in the valuation of assets and liabilities, equity stocks in unlisted direct investment companies may be valued using one of the alternative valuation methods mentioned in the BPM6 (paragraph 7.16), if at least one of the following situations exists:

• at least one enterprise in a direct investment chain is listed on the stock exchange, while at least one does not, leading to a significant distortion in the net i.i.p. of a company in the chain; in this case the market price of the listed company may be used as a reference for the valuation of the related unlisted companies;
• where differences exist in the recording of acquired goodwill along a chain of direct investment enterprises, leading to a significant distortion in the net i.i.p. of the country in which the enterprise in the middle of the chain is resident;
• the accounts of enterprises in a direct investment chain are denominated in different currencies and exchange rate fluctuations lead to a significant distortion in the net i.i.p. of the country in which the company in the middle of the chain is resident.

For equity interests in unlisted companies, the transactions recorded in the financial account may differ from the OFBV recorded in the i.i.p. Such differences are recorded as revaluations due to other price changes.

The valuation of debt instruments should follow the general principles, tradable debt securities should be valued at market value, and non-tradable debt (loans, etc.) should be measured at nominal value.

The WG ES came up with a step-by-step approach to identifying super-dividends in 2013. When the dividend is above a certain threshold (e.g. €2 billion) far exceeding the company’s average earnings over the past five years and is classified as “extraordinary”, it should be considered a super-dividend. The excess (the difference between the dividend effectively paid and average earnings over the last five years) should be treated as a withdrawal of equity. This treatment is broadly in line with paragraph 7.131 of the 2008 SNA.

Administrative sources are commonly used to compile direct investment statistics. The relevant information may be provided by different agencies, depending on the regulatory circumstances of each country, though typically from the following: official business registers, foreign investment registers, financial/banking supervision authorities, real estate registers, mandatory annual financial/accounting statements, or stock exchanges/registers of securities. This information may help to identify direct investment relationships and provide other valuable data.

Surveys are used by all countries to identify the reporting population and/or collect data. They may be direct investment-specific or cover the entire financial account. They may be used to collect flows and/or stocks, and price and exchange rate changes, and have different periodicities. They are used in combination with any or all of the other data sources.

Direct reporting is in place in many countries as a general data collection system, including for direct investment statistics.

A number of countries also use an international transaction reporting system (ITRS).

Monitoring of the financial press is often very important, both to highlight the occurrence of and to better assess significant FDI transactions. Dedicated human resources (i.e. financial analysts) must be assigned to the systematic review of the financial press.

Bilateral sources are also very relevant in the EU context. The Coordinated Direct Investment Survey (CDIS) or bilateral data exchange via the EU secured mechanism may be useful in identifying recurrent under coverage or early awareness of a relevant transaction not yet captured.