OECD Benchmark Definition of Foreign Direct Investment ...

1 Benchmark Definition of Foreign Direct Investment FOURTH EDITION2008 OECD Benchmark Definition of Foreign Direct InvestmentFOURTH EDITION 2008 Foreign Direct Investment (FDI) is a major driver of globalisation. As Investment patterns of multinational enterprises become more and more complex, reliable and internationally comparable, FDI statistics are necessary for sound decision making. The OECD Benchmark Definition of Foreign Direct Investment sets the world standard for FDI statistics. It provides a single point of reference for statisticians and users on all aspect of FDI statistics, while remaining compatible with other internationally accepted statistical edition introduces new analytical data breakdowns and statistical treatments that better reflect the realities of today s world economy. The revised Benchmark Definition provides methods for classifying different types of FDI ( , mergers and acquisitions, greenfield investments) and for identifying the ultimate investor.

2 The new edition now addresses the uses of FDI statistics, including globalisation indicators, and has a chapter on statistics relating to the activities of multinational :HSTCQE=UYZ\X[:The full text of this book is available on line via these links: with access to all OECD books on line should use this link: is the OECD online library of books, periodicals and statistical databases. For more information about this award-winning service and free trials ask your librarian, or write to us at 978-92-64-04573-6 20 2008 03 1 POECD Benchmark Definition of Foreign Direct InvestmentFOURTH EDITION 110-Sep-2009 9:35:18 AMOECD Benchmark Definition of Foreign Direct InvestmentFOURTH EDITION2008 Vol. XX, Edition, AuthorCorps 14 Caecilia Roman, Inter 16 ptsEmpagement 152 199 mm Top 25 mm Left 19 mmORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENTThe OECD is a unique forum where the governments of 30 democracies work together toaddress the economic, social and environmental challenges of globalisation.]

3 The OECD is also atthe forefront of efforts to understand and to help governments respond to new developments andconcerns, such as corporate governance, the information economy and the challenges of anageing population. The Organisation provides a setting where governments can compare policyexperiences, seek answers to common problems, identify good practice and work to co-ordinatedomestic and international OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic,Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea,Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic,Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission ofthe European Communities takes part in the work of the Publishing disseminates widely the results of the Organisation s statistics gathering andresearch on economic, social and environmental issues, as well as the conventions, guidelines andstandards agreed by its available in French under the title:D finition de r f rence de l OCDE des investissements directs internationauxQUATRI ME DITIONP hoto credits: Cover Peggy Ford-Fyffe KingCorrigenda to OECD publications may be found on line at: OECD 2008 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimediaproducts in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as sourceand copyright owner is given.

4 All requests for public or commercial use and translation rights should be submitted to Requests forpermission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC)at or the Centre fran ais d'exploitation du droit de copie (CFC) work is published on the responsibility of the Secretary-General of the OECD. Theopinions expressed and arguments employed herein do not necessarily reflect the officialviews of the Organisation or of the governments of its member Benchmark Definition OF Foreign Direct Investment : FOURTH EDITION ISBN 978-92-64-04573-6 OECD 20083 ForewordForeign Direct Investment (FDI) is a key driver of international economic integration. With theright policy framework, FDI can provide financial stability, promote economic development andenhance the well being of FDI statistics have always been essential for policy makers faced with the challenges ofattracting and making the most of international Investment .

5 In the early 1980s, the OECD recognised that traditional reporting models could not account for the removal of regulatory barriersfor cross-border investments, the evolution of multinational enterprises and the increasingcomplexity of their financing through offshore tax juridisctions and other arrangements. As a result,in 1983, the OECD adopted a new " Benchmark Definition of Foreign Direct Investment " whichprovided a comprehensive set of rules to improve statistical measures of Foreign Direct , the financing structures of multinational enterprises and other business combinationshave continued to evolve in an increasingly globalised market. To adapt the statistical measures tochanging economic and financial realities, the OECD adopted in 2008 the 4th edition of theBenchmark Definition of Foreign Direct Investment which sets the world standard for FDI 4th edition introduces new techniques in financial measures of Direct Investment .

6 Asexamples, distinguishing financial flows via special purpose entities to reduce the effects of round-tripping of funds; distinguishing FDI by type of transaction (such as mergers and acquisitions); andidentifying FDI according to the ultimate investor. This revised Benchmark Definition includesindicators on economic activities of multinational enterprises and a new section for users. Theannexes elaborate further specific topics and include practical examples. The 4th editon of theBenchmark Definition will serve as a single point of reference for all that is related to FDI and publication is the result of the work by the Working Group on International InvestmentStatistics, representing the international community of FDI statisticians [and chaired by Mr. RogerDe Boeck]. The work was undertaken at the request of the OECD Investment Committee and in co-operation with the IMF and other partner international organisations.

7 It was supported by materialprepared by the Secretariat of the Working Group, Ayse Bertrand, Senior Statisician in the OECDI nvestment Division headed by Pierre Poret in the Directorate for Financial and Enterprise OF CONTENTSOECD Benchmark Definition OF Foreign Direct Investment : FOURTH EDITION ISBN 978-92-64-04573-6 OECD 20085Ta b l e o f C o n t e n t sTa b l e o f C o n t e n t sAcronyms ..10 Recommendation of the Council on the OECD Benchmark Definition of Foreign Direct Investment ..12 Chapter 1. Introduction .. Summary .. Purpose of the Benchmark Definition .. Revision of the Benchmark Definition .. An overview of Foreign Direct Investment concepts .. Organisation of the Benchmark Definition ..18 Chapter 2. Uses of FDI Statistics.. Summary .. Why measure FDI? .. Understanding the main features of FDI.

8 FDI in the context of economic accounts .. FDI Equity ownership: the critical determinant .. Analytical FDI breakdowns .. Standard (core) FDI series .. Supplemental FDI series .. Interpreting FDI series and globalisation indicators.. FDI series .. Globalisation indicators related to FDI ..34 Chapter 3. Main Concepts and Definitions of Foreign Direct Investment .. Summary .. Statistical units.. Economic territory and the concept of residence .. Institutional units .. Institutional sectors .. Foreign Direct Investment .. The Direct Investment relationship.. Foreign Direct investor .. Foreign Direct Investment enterprise .. Framework for Direct Investment Relationships (FDIR) .. The debtor/creditor principle .. The Asset/Liability principle and the Directional principle ..56 Chapter 4. FDI Components, Accounts and Scope.

9 Summary .. FDI components .. FDI accounts .. FDI positions ..65 TABLE OF CONTENTSOECD Benchmark Definition OF Foreign Direct Investment : FOURTH EDITION ISBN 978-92-64-04573-6 OECD FDI financial transactions .. Direct Investment Income.. Other changes .. Scope of FDI .. Standard content of FDI statistics .. Supplemental FDI series .. Banks and other financial intermediaries.. Financial leases ..89 Chapter 5. FDI Accounting Principles and Valuation.. Summary .. Accounting principles .. Valuation .. Valuation of Foreign Direct Investment positions .. Valuation of FDI financial flows and transfer pricing ..96 Chapter 6. Special Entities.. Summary .. Special purpose entities .. Collective Investment institutions .. Land, structures and other immovable objects .. Construction enterprises .. Mobile equipment.

10 Insurance.. 107 Chapter 7. Classification of FDI by Economy and Industry.. Summary .. Attribution to an economy .. General principles to identify home and host economies .. Standard and supplemental geographical presentations.. Industry classification .. General principles to identify industry allocation .. Standard and supplemental industrial activity presentations .. International Standard Industry Classification (ISIC) .. Holding companies.. Country attribution linked with industry classification.. 120 Chapter 8. FDI and Globalisation.. Summary .. FDI statistics as indicators of globalisation .. Intersection between FDI and Activities of multinational Enterprises (AMNE) statistics .. Coverage of AMNE statistics .. Ownership criteria .. Statistical units .. Attribution of AMNE variables.