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Separately compiling FDI statistics for resident SPEs

pose Entities (SPEs) to channel investments through intermediate countries before reaching their final destinations. The use of SPEs is one important factor that can distort FDI statistics. First, transactions by SPEs inflate the FDI flows into and out of the country where they are located as the investment passes through. It appears the country is receiving investment from countries whose investors are just passing capital through SPEs. Likewise, it appears that inves-tors from this country are investing abroad when that investment is from funds that have been passed through. Second, these complex chains of ownership obscure the ultimate source of FDI because the statistics are collected on an immediate partner country basis.

To address these issues, BMD4 recommended that countries compile FDI statistics separately for SPEs so that data excluding SPEs can be derived, result-ing in more meanresult-ingful measures of FDI. BMD4 also recommended that coun-tries compile inward FDI positions according to the Ultimate Investing Country (UIC) to identify the country of the investor that ultimately controls the invest-ments in their country.

With the widespread implementation of the BMD4 guidelines in 2014 by OECD economies, detailed information on FDI of SPEs is available for a large number of OECD countries for the first time. Also, about a dozen countries now compile inward FDI positions by UIC. This paper will examine these new statistics to better understand how MNEs channel funds through different economies and to identify the ultimate origin of the investment. It will also briefly discuss the current research to develop FDI statistics to better analyse globalisation.

BMD4 recommends that countries compile their FDI statistics including resident SPEs, and, then, separately for resident SPEs. This recommendation provides a more meaningful measure of direct investment into and out of an economy by enabling the removal of FDI that involves funds simply passing through the economy via SPEs to other destinations. For the country hosting the SPEs, this recommendation improves the measurement of FDI by excluding inward FDI that has little or no real impact on their economies and by exclud-ing outward FDI that did not originate from their economies.

2.1 Importance of resident SPEs in selected countries

Four countries – Austria, Hungary, Luxembourg, and the Netherlands – have reported FDI flows and positions excluding resident SPEs to the OECD for several years. With the implementation of the latest standards, 12 additional countries now report data excluding resident SPEs.2 Figure 7.1 shows the percentage of inward positions accounted for by resident SPEs in 2015.

Figure 7.1: Share of inward FDI position accounted for by SPEs, at end 2015








SPEs Operating affiliates






Source: OECD FDI Statistics Database.

The role played by SPEs varies significantly across countries. SPEs account for more than 90% of FDI into Luxembourg and around 80% into the Nether-lands. While lower, SPEs account for more than half of the FDI into Hungary and more than a third of the FDI into Austria. Of the countries with new

2 Four OECD countries do not report separate data for SPEs – Finland, Ireland, Mexico, and the United States – and two countries – Canada and Czech Republic – do not know if foreign investors establish SPEs in their economies. The remaining OECD countries either do not host SPEs or they are insignificant in the FDI statistics.

reporting on resident SPEs, SPEs play a significant role in Iceland and the United Kingdom, accounting for more than 25% of their investment. SPEs play smaller, but still significant, roles in FDI for Switzerland, Denmark, Por-tugal, Sweden, Spain, and Belgium, accounting for 6% to 15% of inward FDI.

On the other hand, SPEs resident in Norway, Poland, Chile, and Korea account for less than 2% of inward FDI.

Even in countries where SPEs do not play a significant role, it is useful to identify resident SPEs in the statistics so that their role in FDI can be moni-tored. By their nature, SPEs can form easily, can grow rapidly, and can have large transactions in a particular period that can distort FDI flows. FDI statistics excluding resident SPEs are not overstated by including funds that are simply passing through the economy, are easier to interpret for policy-making and other purposes, and provide a better measure of FDI that is likely to have an economic impact in the host economy.

2.2 Rates of return on SPEs and operating affiliates

In addition to capital, income also flows through SPEs. For countries that pub-lish FDI income statistics including and excluding SPEs, it is possible to calcu-late a simple rate of return – total income over the total position – for total FDI and for operating, or non-SPE, affiliates (table 7.1).

Table 7.1: Rates of return on inward and outward investment, all and opera-ting affiliates, 2015


Rates of Return

Inward Outward

Total Operating

affiliates Total Operating affiliates

Austria 5.4% 7.1% 5.2% 6.6%

Denmark 4.6% 5.1% 7.2% 7.6%

Hungary 6.1% 10.7% 2.6% 3.0%

Iceland 0.6% 0.8% 2.4% 3.2%

Korea 1.3% 1.3% –0.1% –0.1%

Luxembourg 1.5% 4.5% 1.9% 2.8%

Netherlands 4.1% 5.0% 4.0% 4.7%

Norway 5.2% 5.3% 4.8% 4.8%

Sweden 6.9% 7.3% 7.7% 7.9%

Switzerland 7.6% 8.0% 8.5% 9.0%

Source: OECD FDI Statistics Database.

In 2015, operating affiliates had higher rates of return than the overall rate of return on FDI with the exceptions of the two countries with little SPE pres-ence – Korea and Norway. This means that operating affiliates have higher rates of return than SPEs in these economies. The rate of return is an indica-tion of the profitability of an investment. Rates of return on FDI are used in a number of ways: to compare the rates of return on inward and outward FDI to

rates of return in the domestic economy as a whole to see how they compare to all businesses for a country; to look at rates of return over time as an indication of whether investments in resident enterprises are becoming more profitable and whether those enterprises are becoming more competitive; and, finally, to compare rates of return on FDI to other types of investment, such as portfolio investment. Were the statistics not available separately for SPEs, the difference in rates of return would not be apparent, and it may have been assumed that FDI in and from these countries was less profitable than they really were.

2.3 Reinvested earnings by SPEs and operating affiliates

FDI income includes the direct investors’ claims on the earnings of their affili-ates; these earnings can either be distributed to the foreign investor or rein-vested in the affiliate. Reinvestment of earnings is included in FDI financial flows and can be an important source of financing for affiliates. Changes in the reinvestment of earnings reflect both changes in the earnings of affiliates and in the amount of earnings that parents choose to distribute. The rein-vestment ratio is the share of earnings that the parent reinvests. It can be an indication of the parent’s perception of investment opportunities available to the affiliate: if the parent sees the opportunity to make profitable investments in its affiliates, the parent might choose to reinvest more money in them.

However, many other factors can influence the share of earnings reinvested.

For example, if the parent is in need of cash, they might pay higher dividends.

Table 7.2 shows the share of earnings that is reinvested overall and by oper-ating affiliates in the countries reporting the required statistics.

Table 7.2: Share of reinvested earnings overall and in operating affiliates


Share of earnings that are reinvested

Inward Outward

Total Operating

affiliates Total Operating affiliates

Austria 36.0% 26.2% 35.1% 29.2%

Denmark 1 1 16.3% 17.8%

Hungary 49.2% 55.2% 68.2% 35.9%

Iceland 2 2 63.9% 62.4%

Korea 66.9% 66.5% 2 2

Luxembourg 1.9% 9.8% 1 1

Norway 1 1 13.9% 14.1%

Switzerland 33.8% 35.4% 38.6% 45.1%

1 Share undefined because reinvested earnings are negative.

2 Share undefined because earnings were negative.

Source: OECD FDI Statistics Database.

In countries where the reinvestment ratio of operating affiliates is less than the share overall, it indicates that SPEs are reinvesting a higher share of earnings than operating affiliates. This is useful to know because the reinvestment of earnings by SPEs does not impact the local economy since SPEs have little or

no physical presence in the economy. Being able to calculate the reinvestment ratios of the foreign-owned investments actually in the reporting country enhances the quality of analyses using reinvestment ratios.

2.4 Detail on the source and destination countries of FDI in SPEs:

example from the Netherlands

Some countries also publish statistics on the geographic distribution of FDI into and out of SPEs, which provides valuable information about the investors that are channelling investments through SPEs rather than investing in oper-ating affiliates. Table 7.3 provides information for the FDI positions in SPEs of the Netherlands by partner country at end 2015; the inward position is shown on the left hand side, and the outward position is shown on the right.

Table 7.3: Inward and outward FDI positions of SPEs in the Netherlands by major partner country, at end 2015

Inward FDI position in SPEs in the

Netherlands Outward FDI position of SPEs in the Netherlands


Value (billions

of €) Share of

total Country

Value (billions

of €) Share of total

Total 2,952 100% Total 3,281 100%

United States 653 22.1% Luxembourg 536 16.3%

Luxembourg 570 19.3% United States 465 14.2%


King-dom 251 8.5% United

King-dom 319 9.7%

Bermuda 241 8.2% Switzerland 157 4.8%

Switzerland 182 6.2% Spain 155 4.7%

Belgium 116 3.9% Germany 149 4.6%

Ireland 107 3.6% Ireland 146 4.4%

Germany 103 3.5% Bermuda 126 3.8%

Curacao 97 3.3% Canada 89 2.7%

France 86 2.9% Italy 83 2.5%

Source: OECD FDI statistics database.

Investors from the top 5 countries account for almost two thirds of the FDI in Dutch SPEs, and affiliates in the top 5 destinations account for almost half of the outward FDI of Dutch SPEs. Countries where MNEs often locate affiliates to manage their finances and intellectual property and to reduce their tax and regulatory burdens, such as Luxembourg, Bermuda, Ireland, and Cura-cao, also appear among the top partner countries. The prevalence of countries associated with the financial management of MNEs among the top partner countries for FDI in SPEs reflects the complexity of the structures used by some MNEs to manage their finances and operations.