Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community

Financial intermediaries may also provide various financial services and business services for which fees or commissions are explicitly charged. Cases in point can be e.g. currency exchange and advice about investments, the purchase of real estate or advice on taxation. The output of such services is valued on the basis of the fees or commissions charged.

Output of insurance services (service charge) is measured as:

	total actual premiums earned
plus	total premium supplements (equal to the income from the investment of the insurance technical reserves)
minus	the total claims due
minus	the change in the actuarial reserves and reserves for with-profits insurance.

Holding gains and losses are to be ignored in the measurement of the output of insurance services: they are not to be regarded as income from investment of the insurance technical reserves and they are not to be considerd as changes in the actuarial reserves and reserves for with-profits insurance.

Notice that insurance technical reserves may be invested in secondary activities of the insurance company, e.g. the letting of dwellings or offices. In that case, the net operating surplus on these secondary activities is income from the investment of insurance technical reserves.

Similarly, the output of pension funding services is measured as:

	total actual pension contributions
plus	total supplementary contributions (equal to the income from investment of the pension funds technical reserves)
minus	the benefits due
minus	the change in the actuarial reserves.

• 3.64. K. Real estate, renting and business services

The output of services of owner-occupied dwellings should be valued at the estimated value of rental that a tenant would pay for the same accommodation, taking into account factors such as location, neighbourhoud amenities, etc. as well as the size and quality of the dwelling itself. For garages located separately from dwellings, which are used by the owner for final consumption purposes in connection with using the dwelling, a similar imputation is to be made. No imputation is to be made for garages used by their private owner only for the purpose of parking near the workplace. The rental value of owner-occupied dwellings abroad, e.g. holiday homes, should not be recorded as part of domestic production, but imports of services and the corresponding net operating surplus as primary income received from the rest of the world. For owner-occupied dwellings owned by non-residents, analogous entries should be made. In case of time-sharing apartments, a proportion of the service charge should be recorded as such.

The output of real estate services of non-residential buildings is measured by the value of the rentals due.

The output of operating leasing services (renting out machinery or equipment, etc.) is measured by the value of rental which the lessee pays to the lessor. It is clearly distinguished from financial leasing which is a method of financing the acquisition of fixed assets, i.e. by making a loan from the lessor to the lessee. In the case of financial leasing rentals consist (mainly) of repayments and interest payments, and the value of services is very small compared with the total rentals paid (see Annex II ‘Leasing and hire purchase of durable goods’).

When possible, a separate local KAU should be distinguished for research and development activities (R&D). When this is not possible, all R&D of a significant size (compared to the principal activity) should be recorded as a secondary activity of the local KAU.

The output of R&D services is measured as follows:

• (a) R&D by specialised commercial research laboratories or institutes is valued at the revenues from sales, contracts, commissions, fees, etc. in the usual way;

• (b) the output of R&D for use within the same enterprise should, in principle, be valued on the basis of the estimated basic prices that would be paid if the research were sub-contracted commercially. However, in practice, it is likely to have to be valued on the basis of the total production costs;

• (c) R&D by government units, universities, non-profit research institutes, etc. is usually other non-market production and is thus valued on the basis of the costs of production. Revenues from the sale of R&D by other non-market producers of R&D are to be recorded as revenues from secondary market output.

Expenditure on R&D should be distinguished from that on education and training. Expenditure on R&D does not include the costs of developing software as a principal or secondary activity. However, their accounting treatment is nearly the same; the only difference is that software is regarded as a produced intangible asset and is not patented.

• 3.65. L. Public administration and defence services, compulsory social security services

Public administration, defence services and compulsory social security services are always provided as other non-market services and should thus be valued accordingly.

• 3.66. M. Education services;

For education services and health services it may often be necessary to draw precise borderlines between market and other non-market producers and between their market and other non-market output. For example, for some types of education and medical treatment nominal fees can be levied by government institutions (or by other institutions due to specific subsidies), but for other education and special medical treatments they may charge commercial tariffs. Another common case in point is that the same type of service (e.g. higher education) is provided by, on the one hand, the government (or its intermediation) and, on the other hand, commercial institutes. Then, often large differences exist between the prices charged and the quality of the services.

Education and health services exclude R&D activities; health services exclude education in health care, e.g. by academic hospitals.

• 3.67. O. Other community, social and personal services

The production of books, recordings, films, software, tapes, disks, etc. a two-stage process and measured accordingly:

• 1. the output from the production of originals (an intangible fixed asset) is measured by the price paid if sold, or, if not sold, by the basic price paid for similar originals, its production costs or the discounted value of the future receipts expected from using it in production;

• 1. the owner of this asset may use it directly or to produce copies in subsequent periods. If the owner has licensed other producers to make use of the original in production, the fees, commissions, royalties, etc. he receives from the licenses are his output of his services. However, the sale of the intangible asset is negative fixed capital formation.

• 3.68. P. Private housholds with employed persons

The output of household services produced by employing paid staff is by convention valued by the compensation of employees paid; this includes any compensation in kind such as food or accommodation.

INTERMEDIATE CONSUMPTION (P.2)

• 3.69. | | | | --- | --- | | Definition: | Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services may be either transformed or used up by the production process. |

• 3.70. Intermediate consumption includes the following borderline cases:

• (a) the value of all the goods or services used as inputs into ancillary activities. Common examples are purchasing, sales, marketing, accounting, data processing, transportation, storage, maintenance, security, etc. These goods and services are not distinguished from those consumed by the principal (or secondary) activities of a local KAU;

• (b) the value of goods and services which are received from another local KAU of the same institutional unit (only if they comply to the general definition in paragraph 3.69);

• (c) the costs of using rented fixed assets, e.g. the operational leasing of machines or cars;

• (d) the subscriptions, contributions or dues paid to non-profit business associations;

• (e) items not treated as gross capital formation, like:
• 1. small tools which are inexpensive and used for relatively simple operations, such as saws, hammers, screwdrivers and other hand tools; small devices, such as pocket calculators. By convention, in the ESA, all expenditure on such durables which does not exceed 500 ECU (at 1995 prices) per item (or, when bought in quantities, for the total amount bought), should be recorded as intermediate consumption;
• 1. the ordinary, regular maintenance and repair of fixed assets used in production;
• 1. military weapons of destruction and the equipment needed to deliver them (but not light weapons or armoured vehicles acquired by police and security forces, which are treated as gross fixed capital formation);
• 1. services of research and development, staff training, market research and similar activities, purchased from an outside agency or provided by a separate local KAU of the same institutional unit;

• (f) payments for the use of intangible non-produced assets like patented assets, trademarks, etc. (excluding payments for the purchase of such property rights: these are treated as acquisitions of intangible non-produced assets);

• (g) expenditure by employees, reimbursed by the employer, on items necessary for the employers' production, like contractual obligations to purchase on own-account tools or safety-wear;

• (h) expenditure by employers which is to their own benefit as well as to that of their employees, because it is necessary for the employers' production. Cases in point are:
• 1. reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties;
• 1. providing amenities at the place of work; (a more extensive list is presented in the paragraphs on compensation of employees (D.1));

• (i) non-life insurance service charges paid by local KAUs (see also Annex III ‘Insurance’): in order to record only the service charge as intermediate consumption the premiums paid should be discounted for, e.g. claims paid out and the net change in actuarial reserves. The latter can be allocated to local KAUs as a proportion of the premiums paid;

• (j) only for the total economy: all financial intermediation services indirectly measured (Fisim) provided by resident producers.

• 3.71. Intermediate consumption excludes:

• (a) items treated as gross capital formation, like:
• 1. valuables;
• 1. mineral exploration;
• 1. major improvements which go considerably beyond what is required simply to keep the fixed assets in good working order, e.g. renovation, reconstruction or enlargement;
• 1. software purchased or produced on own account;

• (b) expenditure by employers treated as wages and salaries in kind (see paragraph 4.05);

• (c) use by market or own-account producer units of collective services provided by government units (treated as collective consumption expenditure by government);

• (d) goods or services produced and consumed within the same accounting period and within the same local KAU (they are also not recorded as output);

• (e) payments for government licences and fees that are treated as taxes on production (see paragraphs 4.79 to 4.80).

TIME OF RECORDING AND VALUATION OF INTERMEDIATE CONSUMPTION

• 3.72. Products used for intermediate consumption should be recorded and valued at the time they enter the process of production. They are to be valued at the purchasers' prices for similar goods or services at that time.

• 3.73. In practice, producer units do not usually record the actual use of goods in production directly. They record the purchases intended to be used as inputs and the changes in the amounts of such goods held in inventory. Intermediate consumption has therefore to be estimated by subtracting from the purchases the changes in inventories of inputs (see paragraphs 3.120 to 3.124 for the correct valuation of the latter).

FINAL CONSUMPTION (P.3, P.4)

• 3.74. Two concepts of final consumption are used:

• (a) final consumption expenditure (P.3);

• (b) actual final consumption (P.4)

Final consumption expenditure is a concept that refers to a sector's expenditure on consumption goods and services. In contrast, actual final consumption refers to its acquisition of consumption goods and services. The difference between these concepts lies in the treatment of certain goods and services financed by the government or NPISHs but supplied to households as social transfers in kind.

FINAL CONSUMPTION EXPENDITURE (P.3)

• 3.75. | | | | --- | --- | | Definition: | Final consumption expenditure consists of expenditure incurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants or the collective needs of members of the community. Final consumption expenditure may take place on the domestic territory or abroad. |

• 3.76. Household final consumption expenditure includes the following borderline cases:

• (a) services of owner-occupied dwellings;

• (b) income in kind, like:
• 1. goods and services received as income in kind by employees;
• 1. goods or services produced as outputs of unincorporated enterprises owned by households that are retained for consumption by members of the household. Cases in point are food and other agricultural goods, housing services by owner-occupiers and household services produced by employing paid staff (servants, cooks, gardeners, chauffeurs, etc.);

• (c) items not treated as intermediate consumption, like:
• 1. materials for small repairs to and interior decoration of dwellings of a kind typically carried out by tenants as well as owners;
• 1. materials for repairs and maintenance to consumer durables, including vehicles;

• (d) items not treated as capital formation, in particular consumer durables, that continue to perform their function in several accounting periods; this includes the transfer of ownership of some durables from an enterprise to a household (see transactions in existing goods, paragraph 3.148);

• (e) financial services directly charged;

• (f) insurance services by the amount of the implicit service charge (see paragraph 3.63);

• (g) pension funding services by the amount of the implicit service charge (see paragraph 3.63);

• (h) payments by households for licences, permits, etc. which are regarded as purchases of services (see paragraphs 4.79 and 4.80);

• (i) the purchase of output at not economically significant prices, e.g. entrance fees for a museum (see paragraph 3.45).

• 3.77. Household final consumption expenditure excludes:

• (a) social transfers in kind, like expenditures initially incurred by households but subsequently reimbursed by social security, e.g. some medical expenses;

• (b) items treated as intermediate consumption or gross capital formation, like:
• 1. expenditures by households owning unincorporated enterprises when incurred for business purposes — e.g. on durable goods such as vehicles, furniture or electrical equipment (gross fixed capital formation), and also on non-durables such as fuel (intermediate consumption);
• 1. expenditure that an owner-occupier incurs on the decoration, maintenance and repair of the dwelling not typically carried out by tenants (treated as intermediate consumption in producing housing services);
• 1. the purchase of dwellings (treated as gross fixed capital formation);
• 1. expenditure on valuables (treated as gross capital formation);

• (c) items treated as acquisitions of a non-produced assets, in particular the purchase of land;

• (d) all those payments by households which are to be regarded as taxes, such as licences to own vehicles, boats or aircraft and also licences to hunt, shoot or fish (see paragraphs 4.79 to 4.80);

• (e) subscriptions, contributions and dues paid by households to NPISHs, like trade unions, professional societies, consumers' associations, churches and social, cultural, recreational and sports clubs;

• (f) voluntary transfers in cash or in kind by households to charities, relief and aid organizations.

• 3.78. Final consumption expenditure of NPISHs includes two separate categories:

• (a) the value of the goods and services produced by NPISHs other than own-account capital formation and other than expenditure made by households and other units;

• (b) expenditures by NPISHs on goods or services produced by market producers that are supplied — without any transformation — to households for their consumption as social transfers in kind.

• 3.79. Final consumption expenditure (P.3) by government includes two categories of expenditures, similar to those by NPISHs:

• (a) the value of the goods and services produced by general government itself (P.1) other than own-account capital formation (corresponding to P.12) and sales. Market output (P.11) and payments for the other non-market output (P.131);

• (b) purchases by general government of goods and services produced by market producers that are supplied to households, without any transformation, as social transfers in kind (D.6311 + D.63121 + D.63131). This implies that general government just pays for goods and services that the sellers provide to households.

• 3.80. Corporations do not make final consumption expenditures. Their purchases of the same kind of goods or services as used by households for final consumption are either used for intermediate consumption or provided to employees as compensation of employees in kind, i.e. imputed household final consumption expenditure. Even where, for example through advertising, they finance individual consumption, this expenditure is treated as intermediate.

ACTUAL FINAL CONSUMPTION (P.4)

• 3.81. | | | | --- | --- | | Definition: | Actual final consumption consists of the goods or services that are acquired by resident institutional units for the direct satisfaction of human needs, whether individual or collective. |

• 3.82. | | | | --- | --- | | Definition: | Goods and services for individual consumption (‘individual goods and services’) are acquired by a household and used to satisfy the needs and wants of members of that household. Individual goods and services have the following characteristics: (a) it must be possible to observe and record the acquisition of the good or services by an individual household or member thereof and also the time at which it took place; (b) the household must have agreed to the provision of the good or service and take whatever action is necessary to make it possible, for example by attending a school or clinic; (c) the good or service must be such that its acquisition by one household or person, or possibly by a small, restricted group of persons, precludes its acquisition by other households or persons. |

• 3.83. | | | | --- | --- | | Definition: | Services for collective consumption (‘collective services’) are provided simultaneously to all members of the community or all members of a particular section of the community, such as all households living in a particular region. Collective services have the following characteristics: (a) they can be delivered simultaneously to every member of the community or to particular sections of the community, such as those in a particular region or locality; (b) the use of such services is usually passive and does not require the explicit agreement or active participation of all the individuals concerned; (c) the provision of a collective service to one individual does not reduce the amount available to others in the same community or section of the community. There is no rivalry in acquisition. |

• 3.84. All household final consumption expenditure is individual. By convention, all goods and services provided by NPISHs are treated as individual.

• 3.85. For the goods and services provided by government units, the borderline between individual and collective goods and services is drawn on the basis of the Classification of the Functions of Government (COFOG).

By convention, all government final consumption expenditure under each of the following headings should be treated as expenditures on individual consumption:

• (a) - 7.1 Medical products, appliances and equipment
• 7.2 Outpatient services
• 7.3 Hospital services
• 7.4 Public health services

• (b) - 8.1 Recreational and sporting services
• 8.2 Cultural services

• (c) - 9.1 Pre-primary and primary education
• 9.2 Secondary education
• 9.3 Post-secondary non-tertiary education
• 9.4 Tertiary education
• 9.5 Education not definable by level
• 9.6 Subsidiary services to education

• (d) - 10.1 Sickness and disability
• 10.2 Old age
• 10.3 Survivors
• 10.4 Family and children
• 10.5 Unemployment
• 10.6 Housing
• 10.7 Social exclusion n.e.c.

Alternatively individual consumption expenditure of general government corresponds to division 14 of the COICOP, which includes the following groups:

• 14.1 Housing (equivalent to COFOG group 10.6)

• 14.2 Health (equivalent to COFOG groups 7.1 to 7.4)

• 14.3 Recreation and culture (equivalent to COFOG groups 8.1 and 8.2)

• 14.4 Education (equivalent to COFOG groups 9.1 to 9.6)

• 14.5 Social protection (equivalent to COFOG groups 10.1 to 10.5 and group 10.7).

The collective consumption expenditure is the remainder of the government final consumption expenditure.

According to COFOG, it consists in particular of:

• (a) General public services (division 1)

• (b) Defence (division 2)

• (c) Public order and safety (division 3)

• (d) Economic affairs (division 4)

• (e) Environmental protection (division 5)

• (f) Housing and community amenities (division 6)

• (g) General administration, regulation, dissemination of general information and statistics (all divisions)

• (h) Research and development (all divisions).

• 3.86. The relationships between the various concepts employed can be shown in a table:

	Sector making expenditure	Sector making expenditure	Sector making expenditure
	Government	NPISHs	Households	Total acquisitions
Individual consumption	X (= social transfers in kind)	X (= social transfers in kind)	X	Households' actual individual final consumption
Collective consumption	X	0	0	Government's actual collective final consumption
Total	Government's final consumption expenditure	NPISHs final consumption expenditure	Households final consumption expenditure	Actual final consumption = total final consumption expenditure

• 3.87. Final consumption expenditure of NPISHs is by convention all individual. As a consequence, total actual final consumption is equal to the sum of households actual final consumption and actual final consumption of general government.

• 3.88. By convention, there are no social transfers in kind with the rest of the world (though there are such transfers in monetary terms). As a consequence, total actual final consumption is equal to total final consumption expenditure.

TIME OF RECORDING AND VALUATION OF FINAL CONSUMPTION EXPENDITURE

• 3.89. As explained in chapter 1, goods and services should in general be recorded when the payables are created, that is, when the purchaser incurs a liability to the seller. This implies that expenditure on a good is to be recorded at the time its ownership changes; expenditure on a service is recorded when the delivery of the service is completed.

• 3.90. Expenditure on a good acquired under a hire purchase or similar credit agreement (and also under a financial lease) should be recorded at the time the good is delivered even if there is no legal change of ownership at this point.

• 3.91. Own-account consumption should be recorded when the output retained for own final consumption is produced.

• 3.92. The final consumption expenditure of households is recorded at purchasers' prices. This is the price the purchaser actually pays for the products at the time of the purchase. A more detailed definition can be found in paragraph 3.06.

• 3.93. Goods and services supplied as compensation of employees in kind are valued at basic prices when produced by the employer and at the purchasers' prices of the employer when bought in by the employer.

• 3.94. Retained goods or services for own consumption are valued at basic prices.

• 3.95. Final consumption expenditures by general government or NPISHs on products produced by themselves are recorded at the time they are produced, which is also the time of delivery of such services by government or NPISHs. For the final consumption expenditure on goods and services supplied via market producers, the time of delivery is the time of recording.

• 3.96. Final consumption expenditure (P.3) by general government or NPISHs are equal to the sum of their output (P.1), plus the expenditure on products supplied to households via market producers, part of social transfers in kind (D.6311 + D.63121 + D.63131), minus the payments by other units, market output (P.11) and payments for the other non-market output (P.131), minus own-account capital formation (corresponding to P.12).

TIME OF RECORDING AND VALUATION OF ACTUAL FINAL CONSUMPTION

• 3.97. Goods and services are acquired by institutional units when they become the new owners of the goods or when the delivery of goods or services to them is completed.

• 3.98. Acquisitions (actual final consumption) are valued at the purchasers' prices for the units that incur the expenditures.

Transfers in kind other than social transfers in kind from government and NPISHs are treated as if they were transfers in cash. Accordingly, the values of the goods or services are actually recorded as expenditures by the institutional units or sectors that acquire them.

• 3.99. The values of the two aggregates of final consumption expenditure and actual final consumption are the same. The goods and services acquired by resident households through social transfers in kind, thus, are valued at the same prices at which they are valued in the expenditure aggregates.

GROSS CAPITAL FORMATION (P.5)

• 3.100. Gross capital formation consists of:

• (a) gross fixed capital formation (P.51);

• (b) changes in inventories (P.52);

• (c) acquisitions less disposals of valuables (P.53).

• 3.101. Gross capital formation means gross of consumption of fixed capital. Net capital formation is arrived at by deducting consumption of fixed capital from gross capital formation.

GROSS FIXED CAPITAL FORMATION (P.51)

• 3.102. | | | | --- | --- | | Definition: | Gross fixed capital formation (P.51) consists of resident producers' acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets realized by the productive activity of producer or institutional units. Fixed assets are tangible or intangible assets produced as outputs from processes of production that are themselves used repeatedly, or continuously, in processes of production for more than one year. |

• 3.103. Gross fixed capital formation consists of both positive and negative values:

• (a) positive values:
• 1. new or existing fixed assets purchased;
• 1. fixed assets produced and retained for producers' own use (including own account production of fixed assets not yet completed or fully mature);
• 1. new or existing fixed assets acquired through barter;
• 1. new or existing fixed assets received as capital transfers in kind;
• 1. new or existing fixed assets acquired by the user under a financial lease;
• 1. major improvements to fixed assets and existing historic monuments;
• 1. natural growth of those natural assets that yield repeat products;

• (b) negative values, i.e. disposals of fixed assets recorded as negative acquisitions:
• 1. existing fixed assets sold;
• 1. existing fixed assets surrendered in barter;
• 1. existing fixed assets surrendered as capital transfers in kind.

• 3.104. The disposals components of fixed assets exclude:

• (a) consumption of fixed capital (which includes anticipated normal accidental damage);

• (b) exceptional losses, such as those due to drought or other natural disasters (recorded as another change in the volume of assets).

• 3.105. The following types of gross fixed capital formation may be distinguished:

• (a) acquisitions, less disposals, of tangible fixed assets:
• 1. dwellings;
• 1. other buildings and structures;
• 1. machinery and equipment;
• 1. and cultivated assets, e.g. trees and livestock;

• (b) acquisitions, less disposals, of intangible fixed assets:
• 1. mineral exploration;
• 1. computer software;
• 1. entertainment, literary or artistic originals;
• 1. other intangible fixed assets;

• (c) major improvements to tangible non-produced assets, in particular those pertaining to land (though the acquisition of non-produced assets is not included);

• (d) costs associated with the transfers of ownership of non-produced assets, like land and patented assets (though the acquisition of these assets themselves is not included).

• 3.106. Major improvements to land include:

• (a) reclamation of land from sea by the construction of dikes, sea walls or dams for this purpose;

• (b) clearance of forests, rocks, etc. to enable land to be used in production for the first time;

• (c) draining of marshes or the irrigation of deserts by the construction of dikes, ditches and irrigation channels;

• (d) prevention of flooding or erosion by the sea or rivers by the construction of breakwaters, sea walls or flood barriers.

These activities may lead to the creation of substantial new structures such as sea walls, flood barriers and dams but these are not themselves used directly to produce other goods and services in the way that most structures are. Their construction is undertaken to obtain more or better land, and it is the land, a non-produced asset, that is needed for production. For example, a dam built to produce electricity serves quite a different purpose from a dam built to keep out the sea. Only building the latter type of dam should be classified as an improvement to land.

• 3.107. Gross fixed capital formation includes borderline cases like:

• (a) acquisitions of houseboats, barges, mobile homes and caravans used as residences of households and any associated structures such as garages;

• (b) structures and equipment used by the military (similar to those utilised by civilian producers) such as airfields, docks, roads and hospitals;

• (c) light weapons and armoured vehicles used by non-military units;

• (d) changes in livestock used in production year after year, such as breeding stock, dairy cattle, sheep reared for wool and draught animals;

• (e) changes in trees that are cultivated year after year, such as fruit trees, vines, rubber trees, palm trees, etc.;

• (f) improvements to existing fixed assets that go well beyond the requirements of ordinary maintenance and repairs;

• (g) the acquisition of fixed assets by financial leasing.

• 3.108. Gross fixed capital formation excludes:

• (a) transactions included in intermediate consumption, like:
• 1. purchase of small tools for production purposes (see paragraph 3.70.e);
• 1. ordinary maintenance and repairs;
• 1. purchase of military weapons and their supporting systems;
• 1. the purchase of fixed assets to be used under an operational leasing contract (see also Annex II ‘Leasing and hire purchase of durable goods’);

• (b) transactions recorded as changes in inventories:
• 1. animals raised for slaughter, including poultry;
• 1. trees grown for timber (work-in-progress).

• (c) machinery and equipment acquired by households for purposes of final consumption (final consumption expenditure);

• (d) holding gains and losses on fixed assets (other changes in assets);

• (e) catastrophic losses on fixed assets (other changes in assets), e.g. destruction of cultivated assets and livestock by outbreaks of disease (and not normally covered by insurance) or damage due to abnormal flooding, wind damage or forest fires (see chapter 6).

• 3.109. Gross fixed capital formation in the form of improvements to existing fixed assets is to be classified with acquisitions of new fixed assets of the same kind.

• 3.110. Intangible fixed assets typically consist of new information, specialized knowledge, etc. and comprise:

• (a) mineral exploration comprising costs of actual test drilling, aerial or other surveys, transportation costs, etc.;

• (b) computer software and large data bases to be used in production for more than one year;

• (c) literary and artistic originals of manuscripts, renderings, models, films, sound recordings, etc.

• 3.111. For both fixed assets and non-produced non-financial assets, the costs of ownership transfer incurred by their new owner consist of:

• (a) charges incurred in taking delivery of the asset (new or existing asset) at the required location and time, such as transport charges, installation charges, erection charges, etc.;

• (b) professional charges or commissions incurred, such as fees paid to surveyors, engineers, lawyers, valuers, etc., and commissions paid to estate agents, auctioneers, etc.;

• (c) taxes payable by the new owner on the transfer of ownership of the asset.

All these costs are to be recorded as gross fixed capital formation by the new owner. Note that the taxes are to be treated as taxes on the services of intermediaries and not as taxes on the asset bought.

TIME OF RECORDING AND VALUATION OF GROSS FIXED CAPITAL FORMATION

• 3.112. Gross fixed capital formation is recorded when the ownership of the fixed assets is transferred to the institutional unit that intends to use them in production.

Modification to this general rule is needed in case of:

• (a) financial leasing (a change of ownership is then imputed);

• (b) own-account fixed capital formation.

Assets acquired under a financial lease are recorded as if the user becomes the owner when he takes possession of the goods. Own account capital formation is recorded when produced.

• 3.113. Gross fixed capital formation is valued at purchasers' prices including installation charges and other costs of ownership transfer. When produced on own-account it is valued at the basic prices of similar fixed assets (which implies a mark-up for net operating surplus or mixed income) or at the costs of production if such prices are not available.

• 3.114. Acquisitions of intangible fixed assets are valued in different ways:

• (a) for mineral exploration: by the costs of actual test drillings and borings, and the costs incurred to make it possible to carry out tests, such as aerial or other surveys;

• (b) for computer software: by purchasers' prices when purchased on the market, or at its estimated basic price (or at its costs of production if not feasible) when developed in-house;

• (c) for entertainment, literary or artistic originals: valued at the price paid by the purchaser when it is sold, or if not sold, at the basic price paid for similar originals, its production costs or discounted value of the future receipts expected from using it in production.

• 3.115. Disposals of existing fixed assets by sale are valued at the (basic) prices after deducting any costs of ownership transfer incurred by the seller.

• 3.116. Costs of ownership transfer can apply to both produced assets, including fixed assets, and non-produced assets, such as land.

These costs are integrated in the purchasers' prices in the case of produced assets. They must be separated from the purchases and sales themselves in the case of land and other non-produced assets and recorded under a separate heading in the classification of gross fixed capital formation.

CHANGES IN INVENTORIES (P.52)

• 3.117. | | | | --- | --- | | Definition: | Changes in inventories are measured by the value of the entries into inventories less the value of withdrawals and the value of any recurrent losses of goods held in inventories. |

• 3.118. Due to physical deterioration, or accidental damage or pilfering, recurrent losses may occur to all kinds of goods in inventories, such as:

• (a) losses of materials and supplies;

• (b) losses in the case of work-in-progress;

• (c) losses of finished goods;

• (d) losses of goods for resale (e.g. shoplifting).

• 3.119. Inventories consists of the following categories:

• (a) materials and supplies: materials and supplies consist of all commodities held in stock with the intention of using them as intermediate inputs in production; this includes commodities held in stock by the government. Items such as gold, diamonds, etc. are included when intended for industrial use or other production;

• (b) work-in-progress: work-in-progress consists of output produced that is not yet finished. It is recorded in the inventories of its producer. It can take a variety of different forms, e.g.:
• 1. growing crops;
• 1. maturing trees and livestock;
• 1. uncompleted structures (except those produced under a contract of sale agreed in advance or on own-account which are treated as fixed capital formation);
• 1. uncompleted other fixed assets, e.g. ships and oil rigs;
• 1. partially completed research for a legal or consultant's dossier;
• 1. partially completed film productions;
• 1. partially completed computer programs. Work-in-progress must be recorded for any production process that is not finished at the end of the given period. In particular, this is significant in quarterly accounts, e.g. agricultural crops not being completed within a quarter of a year. Reductions in work-in-progress take place when the production process is completed. At that point, all work-in-progress is transformed into a finished product;

• (c) finished goods: finished goods as part of inventories consist of outputs that their producer does not intend to process further before supplying them (also when supplied for intermediate input into other processes of production);

• (d) goods for resale: goods for resale are goods acquired for the purpose of reselling them in their present state.

TIME OF RECORDING AND VALUATION OF CHANGES IN INVENTORIES

• 3.120. The time of recording and valuation of changes in inventories should be consistent with that of other transactions in products. This applies in particular to intermediate consumption (e.g. for materials and supplies), output (e.g. work-in-progress and output from storage of agricultural products) and gross fixed capital formation (e.g. work-in-progress). Consistency is also required for processing-to-order flows. For example, if goods are processed abroad and it involves a substantial physical change in the goods, the goods are to be included in exports (and, later, in imports) (see paragraph 3.135). This export is reflected by a concomitant reduction in the inventories and the related import is later also recorded as an increase in the inventories (when not immediately used or sold).

• 3.121. Changes in inventories should be valued at the time of entering the inventories (for goods entering) or at the time of withdrawal (for goods withdrawn).

• 3.122. The prices used should be consistent with those of other flows, implying more specifically that:

• (a) output of finished goods transferred into the producer's inventories are valued as if they were sold at that time, at current basic prices;

• (b) additions to work-in-progress is valued in proportion to the estimated current basic price of the finished product;

• (c) reductions in work-in-progress as withdrawn from inventories when production is finished are valued at current basic prices of the unfinished product;

• (d) goods transferred out of inventories for sale are valued at basic prices;

• (e) goods for resale entering the inventories of wholesalers and retailers, etc. are valued at their actual or estimated purchasers' prices of the trader;

• (f) goods for resale withdrawn from inventories are valued at the purchasers' prices at which they can be replaced at the time they are withdrawn (not when acquired).

• 3.123. Losses as a result of physical deterioration, insurable accidental damage or pilfering are recorded and valued as follows:

• (a) for materials and supplies: as materials and supplies actually withdrawn to be used up in production (intermediate consumption);

• (b) for work-in-progress: as deduction from the additions accruing to production carried out in the same period;

• (c) for finished goods and goods for resale: treated as withdrawals at the current price of undeteriorated goods.

• 3.124. The previous paragraphs have described the conceptually correct valuation of each individual transaction in and out of inventories necessary to be consistent with the valuation of output, intermediate consumption and final uses. In practice, this will often prove too difficult to apply and approximation methods should be used:

• (a) when changes in the volume of inventories are fairly regular, a practical method which comes close to the theoretical valuation principle is to multiply the volume change of the inventories by the average prices for the period (purchasers' prices for inventories held by users or by wholesalers or retailers, basic prices for inventories held by their producers);

• (b) in case the prices of the goods involved remain fairly constant, even large fluctuations in the volume of inventories may not invalidate a simple approximation, i.e. the multiplication of the volume change with the average price;

• (c) if both the volume and the prices of the inventories change substantially within the accounting period, more sophisticated approximation methods are required. For example, quarterly valuation of the changes in inventories or the use of a priori information about the distribution of the fluctuation within the accounting period (fluctuations may be largest at the end of the calendar year, during harvest time, etc.);

• (d) if only information about the values at the beginning and end of the period are available (e.g. in case of wholesale or retail trade in which inventories often exist of many different products), the changes in volume between the beginning and end of the period should also be estimated. This can be done by estimating (assuming) turn-over rates by type of product.

Note that seasonal changes in prices may partly reflect a difference in quality, e.g. clearance prices or off-season prices for fruit and vegetables. These changes in quality should be treated as changes in the volume.

ACQUISITIONS LESS DISPOSALS OF VALUABLES (P.53)

• 3.125. | | | | --- | --- | | Definition: | Valuables are non-financial goods that are not used primarily for production or consumption, do not deteriorate (physically) over time under normal conditions and that are acquired and held primarily as stores of value. |

• 3.126. Valuables encompass the following types of goods:

• (a) precious stones and metals, such as diamonds, non-monetary gold, platinum, silver, etc.;

• (b) antiques and other art objects, such as paintings, sculptures, etc.;

• (c) other valuables, such as jewellery fashioned out of precious stones and metals and collectors items.

These types of goods are to be recorded as acquisition or disposal of valuables in case of:

• (a) the acquisition or disposal of non-monetary gold, silver, etc. by (central) banks and other financial intermediaries;

• (b) the acquisition or disposal of these goods by enterprises whose principal or secondary activity does not involve the production or trade in such types of goods; as a consequence, this acquisition or disposal is not included in the intermediate consumption or fixed capital formation of these enterprises;

• (c) the acquisition or disposal of such goods by households; as a consequence, such acquisitions are not included in final consumption expenditure by households.

In the ESA, by convention also the following cases are recorded as acquisition or disposal of valuables:

• (a) the acquisition or disposal of these goods by jewellers and art dealers (following the general definition of valuables the acquisition of these goods by jewellers and art dealers should be recorded as changes in inventories);

• (b) the acquisition or disposal of these goods by museums (following the general definition of valuables the acquisition by a museum of these goods should be recorded as fixed capital formation).

This convention avoids frequent reclassification between the three main types of capital formation, i.e. between acquisition less disposal of valuables, fixed capital formation and changes in inventories, e.g. in the case of transactions of such goods between households and art dealers.

• 3.127. The production of valuables is valued at basic prices (see paragraph 3.67 on production of originals). All other acquisitions of valuables are valued at the purchasers' prices paid for them, including any agents' fees or commissions. They also include trade margins when bought from dealers. Disposals of valuables are valued at the prices received by sellers, after deducting any fees or commissions paid to agents or other intermediaries. Disregarding the production of valuables, in aggregate, acquisitions less disposals between resident sectors cancel out, leaving only agents or dealers margins.

IMPORTS AND EXPORTS OF GOODS AND SERVICES (P.6 and P.7)

• 3.128. | | | | --- | --- | | Definition: | Exports of goods and services consist of transctions in goods and services (sales, barter, gifts or grants) from residents to non-residents. |

• 3.129. | | | | --- | --- | | Definition: | Imports of goods and services consist of transactions in goods and services (purchases, barter, gifts or grants) from non-residents to residents. |

• 3.130. Imports and exports of goods and services do not include:

• (a) establishment trade, i.e.:
• 1. deliveries to non-residents by non-resident affiliates of resident enterprises, e.g. sales abroad by foreign affiliates of a multinational owned/controlled by residents;
• 1. deliveries to residents by resident affiliates of non-resident enterprises, e.g. sales by domestic affiliates of a foreign multinational;

• (b) primary income flows to or from the rest of the world, such as compensation of employees, interest and revenues from direct investment. The revenues from direct investment may include an indistinguishable part for the provision of various services, e.g. training of employees, management services and the use of patents and trade marks;

• (c) the sale or purchase of financial assets or non-produced assets, like land and patents.

• 3.131. Imports and exports of goods and services should be distinguished into:

• (a) Intra-European Union deliveries;

• (b) Imports and exports outside the European Union.

For convenience they will both be referred to as imports and exports here.

IMPORTS AND EXPORTS OF GOODS (P.61 and P.71)

• 3.132. Imports and exports of goods occur when there are changes of ownership of goods between residents and non-residents (whether or not there are also corresponding physical movements of goods across frontiers).

• 3.133. However, in four instances the change of ownership principle is modified in recording imports and exports of goods:

• (a) financial leasing: a change of ownership from lessor to lessee is to be imputed for goods under a financial lease; it is to be recorded when the lessee takes possession of the good (see Annex II ‘Leasing and hire purchase of durable goods’);

• (b) deliveries between affiliated enterprises (branch or subsidiary, or foreign affiliate): a change of ownership is to be imputed whenever goods are delivered between affiliated enterprises;

• (c) goods for significant processing to order or repair are recorded both in imports and exports although no change of ownership occurs;

• (d) merchanting: no import or export is recorded when merchants or commodity dealers buy from non-residents and then sell again to non-residents within the same accounting period. A similar treatment is to be employed for merchanting by non-residents.

• 3.134. In the following cases exports of goods occur without the goods ever crossing the country's frontier.

• (a) goods produced by resident units operating in international waters are sold directly to non-residents in foreign countries (oil, natural gas, fishery products, maritime salvage, etc.);

• (b) transportation equipment or other movable equipment not tied to a fixed location need not cross the frontier of the exporting country as a result of being sold by a resident to a non-resident.

• (c) goods are lost or destroyed after changing ownership before they have crossed the frontier of the exporting country.

Analogous cases pertain to imports of goods.

• 3.135. Imports and exports of goods include transactions between residents and non-residents in:

• (a) non-monetary gold, i.e. gold not used for the purposes of monetary policy;

• (b) silver bullion, diamonds and other precious metals and stones;

• (c) paper money and coins not in circulation and unissued securities (valued as goods, not at face value);

• (d) electricity, gas and water;

• (e) livestock driven across frontiers;

• (f) parcel post;

• (g) government exports including goods financed by grants and loans;

• (h) goods transferred to or from the ownership of a buffer stock organization;

• (i) goods delivered by a resident enterprise to its non-resident affiliates;

• (j) goods received by a resident enterprise from its non-resident affiliates;

• (k) smuggled goods;

• (l) other unrecorded shipments, such as gifts and those of less than a stated minimum value;

• (m) goods processed to order abroad when a substantial physical change in the goods is involved. Similar goods processed on the domestic territory on behalf of non-residents;

• (n) investment goods repaired abroad when a substantial amount of reconstruction work or manufacturing is involved. Similar goods repaired on the domestic territory on behalf of non-residents.

• 3.136. Imports and exports of goods exclude the following goods which nevertheless may cross the national frontier:

• (a) goods in transit through a country;

• (b) goods shipped to or from a country's own embassies, military bases or other enclaves inside the national frontiers of another country;

• (c) transportation equipment and other movable kinds of equipment which leave a country temporarily, without any change of ownership (e.g. construction equipment for installation or construction purposes abroad);

• (d) equipment and other goods which are sent abroad for minor processing, maintenance, servicing or repair;

• (e) other goods which leave a country temporarily, being generally returned within a year in their original State and without change of ownership (e.g. goods sent abroad for exhibition and entertainment purposes, goods under an operating lease, including leases for several years, goods returned because expected sales did not materialize);

• (f) goods on consignment lost or destroyed after crossing a frontier before change of ownership occurs.

• 3.137. In principle, imports and exports of goods should be recorded when the ownership of the goods is transferred. In practice, a change of ownership is considered to occur at the time the parties to the transaction record it in their books or accounts. This may not coincide with the various stages of the contractual process, like:

• (a) the time of commitment (contract date);

• (b) the time of provision of goods and services and acquisition of a claim for payment (transfer date);

• (c) the time of settlement of that claim (payment date).

• 3.138. Imports and exports of goods are to be valued free on board at the border of the exporting country (fob). This value consists of:

• (a) the value of the goods at basic prices;

• (b) plus the related transport and distributive services up to that point of the border, including the cost of loading on to a carrier for onward transportation (where appropriate) (see table 3.4, second column in the second part of the table);

• (c) plus any taxes less subsidies on the goods exported; for intra-European Union deliveries this includes VAT and other taxes on the goods paid in the exporting country.

In the supply and use and symmetric input-output tables, imports of goods for individual product groups have to be valued differently: at the cost-insurance-freight (cif) price at the border of the importing country.

Definition	:	The cif price is the price of a good delivered at the frontier of the importing country, or the price of a service delivered to a resident, before the payment of any import duties or other taxes on imports or trade and transport margins within the country ([^E0053])

• 3.139. Proxies or substitute measures for the fob value may be necessary under certain circumstances, such as:

• (a) barter of goods should be valued at the basic prices that would have been received if the goods had been sold for cash;

• (b) transactions between affiliated enterprises: as a rule, actual transfer values should be used. However, if they largely differ from market prices, they should be replaced by an estimated market price equivalent, or at least be separately identified for analytical purposes;

• (c) goods transferred under a financial lease: the goods should be valued on the basis of the purchasers' price paid by the lessor (not by the cumulative value of the rental payments);

• (d) imports of goods to be estimated on the basis of customs data (for extra-European Union trade) or Intrastat-information (for intra-European Union trade). Both data sources do not apply fob valuation, they use respectively the cif value at the European Union border and cif values at the national border. As fob-values are only used at the most aggregate level and cif-values are used at the product group level, these modifications have only to be applied at the most aggregate level, i.e. the cif/fob adjustment;

• (e) imports and exports of goods to be estimated on the basis of survey information or various types of ad hoc information. In such instances, usually only the total value of sales split out by product can be obtained. As a consequence, the estimate will be based on purchasers' prices and not on fob values.

IMPORTS AND EXPORTS OF SERVICES (P.62 and P.72)

• 3.140. | | | | --- | --- | | Definition: | Exports of services consist of all services rendered by residents to non-residents. |

• 3.141. | | | | --- | --- | | Definition: | Imports of services consist of all services rendered by non-residents to residents. |

• 3.142. Exports of services include the following borderline cases:

• (a) transportation of exported goods after they have left the frontier of the exporting country when provided by a resident carrier (cases 2 and 3 in table 3.4);

• (b) transportation of imported goods by a resident carrier:
• 1. up to the frontier of the exporting country when goods are valued fob to offset the transportation value included in the fob-value (case 3 in table 3.5);
• 1. up to the frontier of the importing country when goods are valued cif to offset the transportation value included in the cif-value (cases 3 and 2 cif in table 3.5);

• (c) transportation of goods by residents on behalf of non-residents which does not involve imports or exports of the goods (e.g. the transport of goods that do not leave the country as exports or the transport of goods outside the domestic territory);

• (d) international or national passenger transportation on behalf of non-residents by resident carriers;

• (e) minor processing and repair activities on behalf of non-residents;

• (f) construction services when a construction site office abroad is not treated as a quasi-corporation. This applies to construction projects lasting less than a year and whose output is not gross fixed capital formation (see paragraph 2.09 and in particular the corresponding note (4));

• (g) installation of equipment abroad when a project is of limited duration by its nature;

• (h) financial services by the amount of the explicit commissions and fees;

• (i) insurance services by the amount of the service charge;

• (j) expenditure by non-resident tourists and business travellers (by convention classified as services; however, for the purposes of the supply and use and symmetric input-output tables, a global breakdown by products may be necessary);

• (k) expenditure by non-residents on health and education services provided by residents; this includes the provision of these services on the domestic territory as well as abroad;

• (l) services of owner-occupied holiday homes of non-residents (see paragraph 3.64);

• (m) royalties and licence fees, receipts of which are associated with the authorized use of intangible non-produced non-financial assets and property rights, such as patents, copyrights, trademarks, industrial processes, franchises, etc., and with the use through licensing agreements of produced originals or prototypes, such as manuscripts, paintings, etc.

• 3.143. For imports of services most borderline cases are the mirror-image of those for exports of services; therefore, only a limited number of specific clarifications are necessary for imports of services.

• 3.144. Imports of transport services include the following borderline cases:

• (a) transportation of exported goods up to the frontier of the exporting country when provided by a non-resident carrier to offset the transportation value included in the fob-value of the exported goods (case 4 in table 3.4);

• (b) transportation of imported goods by a non-resident carrier:
• 1. from the frontier of the exporting country as a separate transportation service when imported goods are valued fob (cases 4 and 5 fob in table 3.5);
• 1. from the frontier of the importing country as a separate transportation service when imported goods are valued cif (in this case the value of the transportation service between the frontiers of the exporting and the importing country is already included in the cif-value of the good; case 4 in table 3.5);

• (c) transportation of goods by non-residents on behalf of residents which does not involve imports or exports of goods (e.g. transport of goods in transit or transport outside the domestic territory);

• (d) international or national passenger transportation on behalf of residents by non-resident carriers.

Imports of transport services do not include transportation of exported goods after they have left the frontier of the exporting country when provided by a non-resident carrier (cases 5 and 6 in table 3.4). Exports of goods are valued fob and all such transport services are thus to be regarded as transactions between non-residents, i.e. between a non-resident carrier and a non-resident importer. This applies even when these transportation services are paid under export-cif-contracts by the exporter.

• 3.145. Imports in respect of direct purchases abroad by residents cover all purchases of goods and services made by residents while travelling abroad for business or personal purposes. Two categories must be distinguished because they require different treatment:

• (a) expenditures by business travellers are intermediate consumption;

• (b) expenditures by other travellers on personal trips are household final consumption expenditure.

• 3.146. Imports and exports of services are recorded at the time at which they are rendered, which mostly coincides with the time at which services are produced. Imports of services are to be valued at purchasers' price and exports of services at basic prices.

Table 3.4 — The treatment of transportation of exported goods

Explanation of how to read this table: the first part of this table indicates that there are six different possibilities of transportation of exported goods, depending on whether the carrier is resident or not and depending on where the transport takes place: from a place on the domestic territory to the national border, from the national border to the border of the importing country or from the border of the importing country to a place within the importing country. In the second part of this table, for each of these six possibilities, it is indicated whether they are to be recorded as exports of goods, exports of services, imports of goods or imports of services.

Domestic territory	Territory in between	Territory of importing country
1. resident carrier =>	2. resident carrier =>	3. resident carrier =>
4. non-resident carrier =>	5. non-resident carrier =>	6. non-resident carrier =>
	Exports of goods (fob)	Exports of services
---	---	---
1	X	—
2	—	X
3	—	X
4	X	—
5	—	—
6	—	—

Table 3.5 — The treatment of transportation of imported goods

Explanation of how to read this table: the first part of this table indicates that there are six different possibilities of transportation of imported goods, depending on whether the carrier is resident or not and depending on where the transport takes place: from a place in the exporting country to the border of this exporting country, from the border of the exporting country to the border of the importing country and from the border of the importing country to a place within the importing country. In the second part of this table, for each of these six possibilities, it is indicated whether they are to be recorded as imports of goods, imports of services, exports of goods or exports of services. In some instances (cases 2 and 5), this recording depends on the valuation principle applied for imported goods.

Domestic territory	Territory in between	Territory of exporting country
1. resident carrier <=	2. resident carrier <=	3. resident carrier <=
4. non-resident carrier <=	5. non-resident carrier <=	6. non-resident carrier <=
	Valuation of imported goods	Imports of goods
---	---	---
1	cif/fob	—
2	fob	—
	cif	X
3	cif/fob	X
4	cif/fob	—
5	fob	—
	cif	X
6	cif/fob	X

Note that the transition from valuation of imported goods at cif to fob consists of:

• (a) cif/fob adjustment, i.e. from 2 cif to 2 fob (reduces total imports and exports);

• (b) cif/fob reclassification, i.e. from 5 cif to 5 fob (leaves total imports and exports unchanged).

TRANSACTIONS IN EXISTING GOODS

• 3.147. | | | | --- | --- | | Definition: | Existing goods are goods that already have had a user (other than inventories). |

• 3.148. Existing goods include:

• (a) existing buildings and other fixed capital goods which are sold by producer units to other units:
• 1. to be re-used as such;
• 1. to be demolished or broken up; the resulting products usually become raw materials (e.g. scrap iron) used for the production of new goods (e.g. steel);

• (b) valuables which are sold from one unit to another;

• (c) existing consumer durables which are sold by households or military authorities to other units:
• 1. to be re-used as such;
• 1. to be broken up and converted into demolition materials;

• (d) existing non-durable goods (e.g. waste paper, rags, old clothes, old bottles, etc.) which are sold by any unit, either to be used again or to become raw material for the manufacture of new goods (recovered goods).

• 3.149. The transfer of existing goods is recorded as a negative expenditure (acquisition) for the seller and a positive expenditure (acquisition) for the purchaser.

• 3.150. This has the following consequences:

• (a) when the sale of an existing fixed asset or valuable takes place between two resident producers, the positive and negative values recorded for gross fixed capital formation cancel out for the economy as a whole except for the costs of ownership transfer;

• (b) when an existing immovable fixed asset (e.g. a building) is sold to a non-resident, by convention the latter is treated as purchasing a financial asset, i.e the equity of a notional resident unit. This notional resident unit is then deemed to purchase the fixed asset. As a consequence; the sale and purchase of the fixed asset takes place between residents;

• (c) when an existing movable fixed asset, such as a ship or aircraft, is exported, no positive gross fixed capital formation is recorded elsewhere in the economy to offset the seller's negative gross fixed capital formation;

• (d) some durable goods, such as vehicles, may be classified as fixed assets or as consumer durables depending upon the owner and the purpose for which they are used. If, therefore, the ownership of such a good is transferred from an enterprise to a household to be used for final consumption, negative gross fixed capital formation is recorded for the enterprise and positive consumption expenditure for the household. In the less common case where ownership of such a good is transferred from a household to an enterprise, for the household negative final consumption expenditure should be recorded and for the enterprise positive gross fixed capital formation;

• (e) transactions in existing valuables are to be recorded as the acquisition of a valuable (positive gross capital formation) by the purchaser and as the disposal of a valuable (negative gross capital formation) by the seller. In case of a transaction with the rest of the world, the import or export of a good is to be recorded (see paragraph 3.135). The sale of a valuable by a household is not to be recorded as negative final consumption expenditure;

• (f) when existing military durables are sold abroad by the government, this should be recorded as an export of goods and as negative intermediate (and final) consumption by the government.

• 3.151. For the selling costs incurred by the former owner (costs of ownership transfer), a holding loss has to be recorded. A similar entry is to be made for the part of his original acquisition costs that has not been written down as consumption of fixed capital.

• 3.152. Transactions in existing goods should be recorded at the time ownership changes. The valuation principles to be applied are those appropriate to the type(s) of transactions in products involved.

CHAPTER 4

DISTRIBUTIVE TRANSACTIONS

• 4.01. | | | | --- | --- | | Definition: | Distributive transactions consist of transactions by means of which the value added-generated by production is distributed to labour, capital and government, and of transactions involving the redistribution of income and wealth. |

The system draws a distinction between current and capital transfers, with the latter deemed to redistribute saving or wealth rather than income.

COMPENSATION OF EMPLOYEES (D.1)

• 4.02. | | | | --- | --- | | Definition: | Compensation of employees (D.1) is defined as the total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during the accounting period. |

Compensation of employees is broken down into:

• (a) wages and salaries (D.11):
• — wages and salaries in cash;
• — wages and salaries in kind;

• (b) employers' social contributions (D.12):
• — employers' actual social contributions (D.121);
• — employers' imputed social contributions (D.122).

WAGES AND SALARIES (D.11)

Wages and salaries in cash

• 4.03. Wages and salaries in cash include the values of any social contributions, income taxes, etc. payable by the employee even if they are actually withheld by the employer and paid directly to social insurance schemes, tax authorities, etc. on behalf of the employee:

Wages and salaries in cash include the following kinds of remuneration:

• (a) basic wages and salaries payable at regular intervals;

• (b) enhanced rates of pay for overtime, night work, weekend work, disagreeable or hazardous circumstances;

• (c) cost of living allowances, local allowances and expatriation allowances;

• (d) bonuses based on productivity or profits, Christmas and New Year bonuses excluding employee social benefits (see paragraph 4.07. c), ‘13th to 14th month’ pay (annual supplementary pay);

• (e) allowances for transport to and from work, excluding allowances or reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties (see paragraph 4.07. a);

• (f) holiday pay for official holidays or annual holidays;

• (g) commissions, tips, attendance and directors' fees paid to employees;

• (h) ad hoc bonuses or other exceptional payments linked to the overall performance of the enterprise made under incentive schemes;

• (i) payments made by employers to their employees under saving schemes;

• (j) exceptional payments to employees who leave the enterprise, if those payments are not linked to a collective agreement;

• (k) housing allowances paid in cash by employers to their employees.

Wages and salaries in kind

• 4.04. | | | | --- | --- | | Definition: | Wages and salaries in kind consist of good and services, or other benefits, provided free or at reduced prices by employers, that can be used by employees in their own time and at their own discretion, for the satisfaction of their own needs or wants or those of other members of their households. Those goods and services, or other benefits, are not necessary for the employers' production process. For the employees, those wages and salaries in kind represent an additional income: they would have paid a market price if they had bought these goods or services by themselves. |

• 4.05. The most common are: