Distributive transactions

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)

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:

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

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:

• basic wages and salaries payable at regular intervals;
• enhanced rates of pay for overtime, night work, weekend work, disagreeable or hazardous circumstances;
• cost of living allowances, local allowances and expatriation allowances;
• bonuses based on productivity or profits, Christmas and New Year bonuses excluding employee social benefits, ‘13th to 14th month’ pay (annual supplementary pay);
• 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;
• holiday pay for official holidays or annual holidays;
• commissions, tips, attendance and directors' fees paid to employees;
• ad hoc bonuses or other exceptional payments linked to the overall performance of the enterprise made under incentive schemes;
• payments made by employers to their employees under saving schemes;
• exceptional payments to employees who leave the enterprise, if those payments are not linked to a collective agreement;
• housing allowances paid in cash by employers to their employees.

Wages and salaries in kind

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.

The most common are:

• meals and drinks, including those consumed when travelling on business (because they would have been taken anyway) but excluding special meals or drinks necessitated by exceptional working conditions. Price reductions obtained in free or subsidized canteens, or obtained by luncheon vouchers, are to be included in wages and salaries in kind;
• own account and purchased housing or accommodation services of a type that can be used by all members of the household to which the employee belongs;
• uniforms or other forms of special clothing which employees choose to wear frequently outside of the workplace as well as at work; (d) the services of vehicles or other durables provided for the personal use of employees;
• goods and services produced as outputs from the employer's own processes of production, such as free travel for the employees of railways or airlines, free coal for miners, or free food for employees in agriculture;
• the provision of sports, recreation or holiday facilities for employees and their families;
• transportation to and from work, except when organized in the employer's time, car parking;
• crèches for the children of employees;
• payments made by employers to works councils or similar bodies;
• bonus shares distributed to employees;
• remuneration in kind may also include the value of the interest foregone by employers when they provide loans to employees at reduced, or even zero, rates of interest. This value may be estimated as the amount the employee would have to pay if average mortgage (when buying houses) or consumer loan (when buying other goods and services) interest rates were charged, less the amount of interest actually paid. An imputed payment from the employee is rerouted in the primary distribution of income account back to the employer.

Employers' social conyributions (D.12)

An amount equal to the value of the social contributions incurred by employers in order to secure for their employees the entitlement to social benefits needs to be recorded under compensation of employees. Employers' social contributions may be either actual or imputed.

Employers' actual social contributions (D.121)

Definition: Employers' actual social contributions (D.121) consist of the payments made by employers for the benefit of their employees to insurers (social security funds and private funded schemes). These payments cover statutory, conventional, contractual and voluntary contributions in respect of insurance against social risks or needs. Although paid directly by employers to the insurers, these employers' contributions are treated as a component of the compensation of employees, who are then deemed to pay them over to the insurers.

Employers' imputed social contributions (D.122)

Definition: Employers' imputed social contributions (D.122) represent the counterpart to unfunded social benefits (less eventual employees' social contributions) paid directly by employers to their employees or former employees and other eligible persons without involving an insurance enterprise or autonomous pension fund, and without creating a special fund or segregated reserve for the purpose.

The fact that certain social benefits are paid directly by employers, and not through the medium of social security funds or other insurers, in no way detracts from their character as social welfare benefits. However, since the costs of these benefits form part of employers' labour costs, they should also be included in the compensation of employees.

Taxes on production and imports (D.2)

Definition: Taxes on production and imports (D.2) consist of compulsory, unrequited payments, in cash or in kind which are levied by general government, or by the institutions of the European Union, in respect of the production and importation of goods and services, the employment of labour, the ownership or use of land, buildings or other assets used in production. These taxes are payable whether or not profits are made.

Taxes on production and imports are divided into:

• taxes on products (D.21):
  • value-added type taxes (VAT) (D.211);
  • taxes and duties on imports excluding VAT (D.212):
    • import duties (D.2121),
    • taxes on imports excluding VAT and import duties (D.2122);
  • taxes on products, except VAT and import taxes (D.214);
• other taxes on production (D.29).

Taxes on products (D.21)

Definition: Taxes on products (D.21) are taxes that are payable per unit of some good or service produced or transacted. The tax may be a specific amount of money per unit of quantity of a good or service, or it may be calculated ad valorem as a specified percentage of the price per unit or value of the goods and services produced or transacted. As a general principle, taxes in fact assessed on a product, irrespective of which institutional unit pays the tax, are to be included in taxes on products, unless specifically included in another heading.

Value-added type taxes (VAT) (D.211)

Definition: A value-added type tax (VAT) is a tax on goods or services collected in stages by enterprises and which is ultimately charged in full to the final purchasers.

This heading value-added type taxes (D.211) comprises the value-added tax which is collected by the general government and which is applied to national and imported products, as well as, where appropriate, other deductible taxes applied under similar rules to those governing VAT, for simplicity henceforth called ‘VAT’.

Producers are obliged to pay only the difference between the VAT on their sales and the VAT on their purchases for their own intermediate consumption or gross fixed capital formation.

VAT is recorded net in the sense that:

• outputs of goods and services and imports are valued excluding invoiced VAT;
• purchases of goods and services are recorded inclusive of nondeductible VAT. VAT is recorded as being borne by purchasers, not sellers, and then only by those purchasers who are not able to deduct it. The greater part of VAT is therefore recorded in the system as being paid on final uses, mainly on household consumption. A part of VAT may, however, be paid by enterprises, mainly by those which are exempted from VAT.

For the total economy, VAT is equal to the difference between total invoiced VAT and total deductible VAT.

Taxes and duties on imports excluding VAT (D.212)

Definition: Taxes and duties on imports excluding VAT (D.212) comprise compulsory payments levied by general government or the institutions of the European Union on imported goods, excluding VAT, in order to admit them to free circulation on the economic territory, and on services provided to resident units by non-resident units.

These payments include:

• import duties (D.2121): these consist of customs duties, or other import charges, payable according to customs tariff schedules on goods of a particular type when they enter for use in the economic territory of the country of utilization;
• taxes on imports, excluding VAT and import duties (D.2122). This heading includes:
  • levies on imported agricultural products;
  • monetary compensatory amounts levied on imports;
  • excise duties and special taxes on certain imported products, provided such duties and taxes on similar products of domestic origin are paid by the producer branch itself;
  • general sales taxes payable on imports of goods and services;
  • taxes on specific services provided by non-resident enterprises to resident units within the economic territory;
  • profits of public enterprises exercising a monopoly over the imports of some good or service, which are transferred to the State.

Net taxes and duties on imports excluding VAT are calculated by deducting import subsidies (D.311) from taxes and duties on imports excluding VAT (D.212).

Taxes on products, except VAT and import taxes (D.214)

Definition: Taxes on products, except VAT and import taxes (D.214) consist of taxes on goods and services that become payable as a result of the production, export, sale, transfer, leasing or delivery of those goods or services, or as a result of their use for own consumption or own capital formation.

This heading includes, in particular:

• excise duties and consumption taxes (other than those included in taxes and duties on imports);
• stamp taxes on the sale of specific products, such as alcoholic beverages or tobacco, and on legal documents or cheques;
• taxes on financial and capital transactions, payable on the purchase or sale of non-financial and financial assets, including foreign exchange. They become payable when the ownership of land or other assets changes, except as a result of capital transfers (mainly inheritances and gifts). They are treated as taxes on the services of intermediaries;
• car registration taxes;
• taxes on entertainment;
• taxes on lotteries, gambling and betting, other than those on winnings;
• taxes on insurance premiums;
• other taxes on specific services: hotels or lodging, housing services, restaurants, transportation, communication, advertising;
• general sales or turnover taxes (excluding VAT type taxes): these include manufacturers' wholesale and retail sales taxes, purchase taxes, turnover taxes;
• profits of fiscal monopolies which are transferred to the State, except those exercising a monopoly over the imports of some good or services (included in D.2122). Fiscal monopolies are public enterprises which have been granted a legal monopoly over the production or distribution of a particular kind of good or service in order to raise revenue and not in order to further the interests of public economic or social policy. When a public enterprise is granted monopoly powers as a matter of deliberate economic or social policy because of the special nature of the good or service or the technology of production — for example, public utilities, post offices and telecommunications, railways and so on — it should not be treated as a fiscal monopoly. As a general rule, fiscal monopolies are typically engaged in the production of goods or services which may be heavily taxed in other countries; they tend to be confined to the production of certain consumer goods (alcoholic beverages, tobacco, matches, etc.) or fuels;
• export duties and monetary compensatory amounts collected on exports.

Net taxes on products are obtained by deducting subsidies on products (D.31) from taxes on products (D.21).

Other taxes on production (D.29)

Definition: Other taxes on production (D.29) consist of all taxes that enterprises incur as a result of engaging in production, independent of the quantity or value of the goods and services produced or sold.

They may be payable on the land, fixed assets or labour employed in the production process or on certain activities or transactions.

Other taxes on production (D.29) include in particular:

• taxes on the ownership or use of land, buildings, or other structures utilized by enterprises in production (including owner-occupiers of dwellings);
• taxes on the use of fixed assets (vehicles, machinery, equipment) for purposes of production, whether such assets are owned or rented;
• taxes on the total wage bill and payroll taxes;
• taxes on international transactions (travel abroad, foreign remittances, or similar transactions with non-residents) for purposes of production;
• taxes paid by enterprises in order to obtain business and professional licences if those licences are being granted automatically on payment of the amounts due. However, if the government carries out checks on the suitability or safety of the business premises, on the reliability or safety of the equipment employed, on the professional competence of the staff employed, or on the quality or standard of goods or services produced as a condition for granting such a licence, the payments are treated as purchases of services rendered, unless the amounts charged for the licences are out of all proportion to the costs of the checks carried out by the government;
• taxes on pollution resulting from production activities. These consist of taxes levied on the emission or discharge into the environment of noxious gases, liquids or other harmful substances. They do not include payments made for the collection and disposal of waste or noxious substances by public authorities, which constitute intermediate consumption of enterprises;
• under-compensation of VAT resulting from the flat rate system, frequently found in agriculture.

This heading excludes taxes on the personal use of vehicles etc. by households, which are recorded under current taxes on income, wealth, etc.

Subsidies (D.3)

Definition: Subsidies (D.3) are current unrequited payments which general government or the institutions of the European Union make to resident (1) producers, with the objective of influencing their levels of production, their prices or the remuneration of the factors of production.

Other non-market producers can receive other subsidies on production only if those payments depend on general regulations applicable to market and non-market producers as well. By convention, subsidies on products are not recorded on other non-market output (P.13).

Subsidies granted by the institutions of the European Union cover only current transfers made directly by them to resident producer units.

Subsidies are classified into:

• subsidies on products (D.31):
  • import subsidies (D.311);
  • other subsidies on products (D.319);
(b) other subsidies on production (D.39).

Subsidies on products (D.31)

Definition: Subsidies on products (D.31) are subsidies payable per unit of a good or service produced or imported. The subsidy may be a specific amount of money per unit of quantity of a good or service, or it may be calculated ad valorem as a specified percentage of the price per unit. A subsidy may also be calculated as the difference between a specified target price and the market price actually paid by a buyer.

A subsidy on a product usually becomes payable when the good is produced, sold or imported. By convention, subsidies on products can only pertain to market output (P.11) or to output for own final use (P.12).

Import subsidies (D.311)

Definition: Import subsidies (D.311) consist of subsidies on goods and services that become payable when the goods cross the frontier for use in the economic territory or when the services are delivered to resident institutional units. They may include losses incurred as a matter of deliberate government policy by government trading organizations whose function is to purchase products from non-residents and then sell them at lower prices to residents.

Other subsidies on products (D.319)

Other subsidies on products (D.319) include:

• subsidies on products used domestically: these consist of subsidies payable to resident producers in respect of their production which is used or consumed within the economic territory;
• losses of government trading organizations whose function is to buy the products of resident producers and then sell them at lower prices to residents or non-residents, when they are incurred as a matter of deliberate government economic or social policy;
• subsidies to public corporations and quasi-corporations to compensate for persistent losses which they incur on their productive activities as a result of charging prices which are lower than their average costs of production as a matter of deliberate government or European economic and social policy;
• direct subsidies on exports payable directly to resident producers when the goods leave the economic territory or the services are provided to non-residents — except repayments at the customs frontier of taxes on products previously paid and waiving of the taxes that would be due if the goods were to be sold or used inside the economic territory.

Other subsidies on production (D.39)

. Definition: Other subsidies on production (D.39) consist of subsidies except subsidies on products which resident producer units may receive as a consequence of engaging in production.

For their other non-market output, other non-market producers can receive other subsidies on production only if those payments from general government depend on general regulations applicable to market and non-market producers as well.

This heading includes in particular:

• subsidies on payroll or work force: these consist of subsidies payable on the total wage or salary bill, or total work force, or on the employment of particular types of persons such as physically handicapped persons or persons who have been unemployed for long periods, or on the costs of training schemes organized or financed by enterprises;
• subsidies to reduce pollution: these consist of current subsidies intended to cover some or all of the costs of additional processing undertaken to reduce or eliminate the discharge of pollutants into the environment;
• grants for interest relief made to resident, producer units, even when they are intended to encourage capital formation. In effect, these are current transfers designed to lighten producers' operating costs. They are treated in the accounts as subsidies to the producers benefiting from them, even when the difference in the interest is, in practice, paid directly by the government to the credit institution making the loan;
• over-compensation of VAT resulting from the flat rate system, frequently found in agriculture.

Property income (D.4)

Definition: Property income (D.4) is the income receivable by the owner of a financial asset or a tangible non-produced asset in return for providing funds to, or putting the tangible non-produced asset at the disposal of, another institutional unit.

Property incomes are classified in the following way in the system:

• interest (D.41);
• distributed income of corporations (D.42):
  • dividends (D.421);
  • withdrawals from income of quasi-corporations (D.422);
• reinvested earnings on direct foreign investment (D.43);
• property income attributed to insurance policy holders (D.44);
• rents (D.45).

Interest (D.41)

Definition: Under the terms of the financial instrument agreed between them, interest (D.41) is the amount that the debtor becomes liable to pay to the creditor over a given period of time without reducing the amount of principal outstanding.

Creditors lend funds to debtors that lead to creation of one or other of the financial instruments listed below.

This form of property income is receivable by the owners of certain kinds of financial assets:

• deposits (AF.2);
• securities other than shares (AF.3);
• loans (AF.4);
• other accounts receivable (AF.7).

Distributed income of corporations (D.42)

Dividends (D.421)

Definition: Dividends (D.421) are a form of property income received by owners of shares (AF.5) to which they become entitled as a result of placing funds at the disposal of corporations. Raising equity capital through the issue of shares is an alternative way of raising funds to borrowing. In contrast to loan capital, however, equity capital does not give rise to a liability that is fixed in monetary terms and it does not entitle the holders of shares of a corporation to a fixed or predetermined income.

This heading also includes:

• shares issued to shareholders in payment of the dividend for the financial year. However, issues of bonus shares which represent the capitalization of own funds in the form of reserves and undistributed profits and give rise to new shares to shareholders in proportion for their holdings are not included;
• dividends received by mutual funds (see paragraph 2.51.b) from the investments they have made, and which are assigned to shareholders, even if they are capitalized. It excludes holding gains or losses on financial instruments belonging to unit trusts, which are not recorded as property income;
• the income paid to general government by public enterprises which are recognized as independent legal entities though not formally constituted as corporate enterprises.

Definition: Withdrawals from the income of quasi-corporations (D.422) consist of the amounts which entrepreneurs actually withdraw for their own use from the profits earned by the quasi-corporations which belong to them.

These amounts are to be recorded before the deduction of any current taxes on income, wealth, etc. which are deemed always to be paid by the owners of the businesses.

Reinvested earnings on direct foreign investment (D.43)

Definition: Reinvested earnings on direct foreign investment (D.43) are equal to:
the operating surplus of the direct foreign investment enterprise
plus any property incomes or current transfers receivable
minus any property incomes or current transfers payable, including actual remittances to foreign direct investors and any current taxes payable on the income, wealth, etc., of the direct foreign investment enterprise.

A direct foreign investment enterprise is an incorporated or unincorporated enterprise in which an investor resident in another economy owns 10 % or more of the ordinary shares or voting power (for an incorporated enterprise) or the equivalent (for an unincorporated enterprise). Direct foreign investment enterprises comprise those entities that are identified as subsidiaries (investor owns more than 50 %), associates (investor owns 50 % or less) and branches (wholly or jointly owned unincorporated enterprises), either directly or indirectly owned by the investor. Consequently, ‘direct foreign investment enterprises’ is a broader concept than ‘foreign controlled corporations’.

Actual distributions may be made out of the entrepreneurial income of direct foreign investment enterprises in the form of dividends or withdrawals of income from quasi-corporations.

In addition, retained earnings are treated as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested by them. Reinvested earnings on direct foreign investment can be either positive or negative.

Property income attributed to insurance policy holders (D.44)

Definition: Property income attributed to insurance policy holders corresponds to total primary incomes received from the investment of insurance technical reserves. Insurance technical reserves are invested by insurance enterprises and pension funds in financial assets or land (from which net property income, i.e. after deducting any interest paid, is received) or in buildings (which generate net operating surpluses). Any net income received that results from the investment of insurance enterprises' own funds is to be excluded in proportion to the ratio between own funds and a sum of own funds and insurance technical reserves.

Since technical reserves are assets of insurance policy holders, the receipts from investing them are shown in the accounts as being paid by insurance enterprises and pension funds to the policy holders in the form of property income attributed to insurance policy holders.

As this income is retained by insurance enterprises and pension funds in practice, it is therefore treated as being paid back to the insurance enterprises and pension funds in the form of premium and contribution supplements that are additional to actual premiums and contributions payable.

Rents (D.45)

Rents on land

The rent received by a landowner from a tenant constitutes a form of property income.

This heading also includes the rents payable to the owners of inland waters and rivers for the right to exploit such waters for recreational or other purposes, including fishing.

A landowner may be liable to pay land taxes or incur certain maintenance expenses solely as a consequence of owning the land. By convention, such taxes and expenses are treated as payable by the person entitled to use the land, who is deemed to deduct them from the rent that he would otherwise be obliged to pay to the landowner.

Rents on land do not include the rentals of buildings and of dwellings situated on it; those rentals are treated as the payment for a market service provided by the owner to the tenant of the building or dwelling, and are shown in the accounts as the intermediate or final consumption of the tenant unit. If there is no objective basis on which to split the payment between rent on land and rental on the buildings situated on it, the whole amount is treated as rent when the value of the land is believed to exceed the value of the buildings on it and as rental otherwise.

Rents on sub-soil assets

This heading includes the royalties that accrue to owners of deposits of minerals or fossil fuels (coal, oil or natural gas) who grant leases to other institutional units permitting them to explore or to extract such deposits over a specified period of time.

Current taxes on income, wealth, etc. (D.5)

Definition: Current taxes on income, wealth, etc. (D.5) cover all compulsory, unrequited payments, in cash or in kind, levied periodically by general government and by the rest of the world on the income and wealth of institutional units, and some periodic taxes which are assessed neither on the income nor the wealth.

Current taxes on income, wealth, etc. are divided into:

• taxes on income (D.51);
• other current taxes (D.59).

Taxes on income (D.51)

Definition: Taxes on income (D.51) consist of taxes on incomes, profits and capital gains. They are assessed on the actual or presumed incomes of individuals, households, corporations or NPIs. They include taxes assessed on holdings of property, land or real estate when these holdings are used as a basis for estimating the income of their owners.

Taxes on income include:

• taxes on individual or household income (income from employment, property, entrepreneurship, pensions, etc.), including taxes deducted by employers (pay-as-you-earn taxes). Taxes on the income of owners of unincorporated enterprises are included here;
• taxes on the income or profits of corporations;
• taxes on holding gains;
• taxes on winnings from lottery or gambling, payable on the amounts received by winners as distinct from taxes on the turnover of producers that organize gambling or lotteries which are treated as taxes on products.

Other current taxes (D.59)

Other current taxes (D.59) include:

• current taxes on capital which consist of taxes that are payable periodically on the ownership or use of land or buildings by owners, and current taxes on net wealth and on other assets (jewellery, other external signs of wealth) — except taxes mentioned in D.29 (which are paid by enterprises as a result of engaging in production) and those mentioned in D.51 (taxes on income);
• poll taxes, levied per adult or per household, independently of income or wealth;
• expenditure taxes, payable on the total expenditures of persons or households;
• payments by households for licences to own or use vehicles, boats or aircraft (which are not used for business purposes), or for licences to hunt, shoot or fish, etc.;
• taxes on international transactions (travel abroad, foreign remittances, foreign investments, etc.), except those payable by producers and import duties paid by households.

Social contributions and benefits (D.6)

Definition: Social benefits are transfers to households, in cash or in kind, intended to relieve them from the financial burden of a number of risks or needs, made through collectively organized schemes, or outside such schemes by government units and NPISHs; they include payments from general government to producers which individually benefit households and which are made in the context of social risks or needs.

The list of risks or needs which may give rise to social benefits is, by convention, fixed as follows:

• sickness;
• invalidity, disability;
• occupational accident or disease;
• old age;
• survivors;
• maternity;
• family;
• promotion of employment;
• unemployment;
• housing ;
• education;
• general neediness.

Social benefits include:

• current and lump-sum transfers from schemes which receive contributions, cover the entire community or large sections of the community and are imposed and controlled by government units (social security schemes);
• current and lump sum transfers from schemes organized by enterprises on behalf of their employees, ex-employees or dependants (private funded and unfunded enterprises' schemes). Contributions may be made by employees or employers; they may also be made by self-employed persons;
• current transfers from government units and NPISHs which are not conditional on previous payment of contributions (assistance).

In order for an individual policy to be treated as part of a social insurance scheme, the eventualities or circumstances against which the participants are insured must correspond to the risks or needs listed above, and in addition, one or more of the following conditions must be satisfied:

• participation in the scheme is obligatory either by law for a specified category of worker, whether employees, self- or non-employed, or under the terms and conditions of employment of an employee, or group of employees;
• the scheme is a collective one operated for the benefit of a designated group of workers, whether employees, self- or non-employed, participation being restricted to members of that group;
• an employer makes a contribution (actual or imputed) to the scheme on behalf of an employee, whether or not the employee also makes a contribution.

Social insurance schemes are schemes in which workers are obliged, or encouraged, by their employers or by general government to take out insurance against certain eventualities or circumstances that may adversely affect their welfare or that of their dependants.

Social insurance schemes may be classified according to the following types:

• social security schemes, covering the entire community, or large sections of the community, that are imposed, controlled and financed by government units;
• private funded schemes, which consist of:
  • schemes in which the social contributions are paid to third parties (insurance enterprises, autonomous pension funds);
  • schemes in which employers maintain special reserves which are segregated from their other reserves, even though such schemes do not constitute separate institutional units from the employers. These are referred to as non-autonomous pension funds. The reserves are treated as assets that belong to the beneficiaries and not the employers;
• unfunded schemes in which employers pay social benefits to their employees, ex-employees or their dependants out of their own resources without creating special reserves for the purpose.

Social insurance schemes organized by government units for their own employees are classified as private funded schemes or unfunded schemes as appropriate and not as social security schemes.

Social contributions (D.61)

Actual social contributions (D.611)

Actual social contributions include:

• employers' actual social contributions (D.611). These correspond to flow D.121.
  Employers' actual social contributions are paid by employers to social security funds, insurance enterprises or autonomous as well as nonautonomous pension funds administering social insurance schemes to secure social benefits for their employees.
  As employers' actual social contributions are made for the benefit of their employees, their value is recorded as one of the components of compensation of employees together with wages and salaries in cash and in kind. The social contributions are then recorded as being paid by the employees as current transfers to the social security funds, insurance enterprises or autonomous as well as non-autonomous pension funds;
• employees' social contributions (D.6112).
  These are social contributions payable by employees to social security, private funded and unfunded schemes. Employees' social contributions consist of the actual contributions payable plus, in the case of private funded schemes, the contribution supplements payable out of the property income attributed to insurance policy holders received by employees participating in the schemes, minus the service charges. All the service charges are treated as charges against the employees' contributions and not the employers';
• social contributions by self-employed and non-employed persons (D.6113).
  These are social contributions payable for their own benefit by persons who are not employees — namely, self-employed persons (employers or own-account workers), or non-employed persons. They also include the value of the contribution supplements payable out of the property income attributed to insurance policy holders received by participating individuals that they are recorded as paying back to the insurance enterprises in addition to their other contributions.

Imputed social contributions (D.612)

Imputed social contributions (D.612) represent the counterpart to social benefits (less eventual employees' social contributions) paid directly by employers (i.e. not linked to employers' actual contributions) to their employees or former employees and other eligible persons. They correspond to flow D.122. Their value should, in principle, be based on actuarial considerations.

Social transfers in kind (D.63)

Definition: Social transfers in kind (D.63) consist of individual goods and services provided as transfers in kind to individual households by government units and NPISHs, whether purchased on the market or produced as non-market output by government units or NPISHs. They may be financed out of taxation, other government income or social security contributions, or out of donations and property income in the case of NPISHs.

Although some of the non-market services produced by NPISHs have some of the characteristics of collective services, all the non-market services produced by NPISHs are, for simplicity and by convention, treated as individual in nature. Services provided free, or at prices that are not economically significant, to households are described as individual services to distinguish them from collectve services provided to the community as a whole, or large sections of the community. Individual services consist mainly of education and health services, although other kinds of services such as housing services, cultural and recreational services are also frequently provided.

Other current transfers (D.7)

Net non-life insurance premiums (D.71)

Definition: Net non-life insurance premiums (D.71) are premiums payable under policies taken out by institutional units. The policies taken out by individual households are those taken out on their own initiative and for their own benefit, independently of their employers or government and outside any social insurance scheme. Net non-life insurance premiums comprise both the actual premiums payable by policy holders to obtain insurance cover during the accounting period (premiums earned) and the premium supplements payable out of the property income attributed to insurance policy holders, after deducting the service charges of insurance enterprises arranging the insurance.

Net non-life insurance premiums are the amounts available to provide cover against various events or accidents resulting in damage to goods or property, or harm to persons as a result of natural or human causes (fires, floods, crashes, collisions, sinkings, theft, violence, accidents, sickness, etc.) or against financial losses resulting from events such as sickness, unemployment, accidents, etc.

Non-life insurance claims (D.72)

Definition: Non-life insurance claims (D.72) represent the claims due under contracts in respect of non-life insurance; that is, the amounts which insurance enterprises are obliged to pay in settlement of injuries or damage suffered by persons or goods (including fixed capital goods).

Current transfers within general government (D.73)

Definition: Current transfers within general government (D.73) include transfers between the different subsectors of general government (central government, state government, local government, social security funds) with the exception of taxes, subsidies, investment grants and other capital transfers.

Current international cooperation (D.74)

Definition: Current international cooperation (D.74) includes all transfers in cash or in kind between general government and governments or international organisations in the rest of the world, except investment grants and other capital transfers.

Miscellaneous current transfers (D.75)

Current transfers to NPISHs

Current transfers to NPISHs include all voluntary contributions (other than legacies), membership subscriptions and financial assistance which NPISHs receive from households (including non-resident households) and, to a lesser extent, from other units.

Current transfers between households

Definition: Current transfer between households consist of all current transfers in cash or in kind made, or received, by resident households to, or from, other resident or non-resident households. In particular, these comprise remittances by emigrants or workers permanently settled abroad (or working abroad for a period of a year or longer) to members of their family living in their country of origin, or by parents to children in another location.

Fines and penalties

Definition: Fines and penalties imposed on institutional units by courts of law or quasi-judicial bodies are treated as compulsory current transfers.

Lotteries and gambling

The amounts paid for lottery tickets or placed in bets consist of two elements: the payment of a service charge to the unit organizing the lottery or gambling and a residual current transfer that is paid out to the winners. The service charge may be quite substantial and may have to cover taxes on the production of gambling services. The transfers are regarded in the system as taking place directly between those participating in the lottery or gambling, that is, between households. When non-resident households take part there may be significant net transfers between the household sector and the rest of the world.

Payments of compensation

Definition: Payments of compensation consist of current transfers paid by institutional units to other institutional units in compensation for injury to persons or damage to property caused by the former, excluding payments of non-life insurance claims. Payments of compensation could be either compulsory payments awarded by a court of law, or ex gratia payments agreed out of court. This heading covers ex gratia payments made by government units or NPISHs in compensation for injuries or damage caused by natural disasters other than those classified as capital transfers.

Time of recording: payments of compensation are recorded when they are made (ex gratia payments) or when they are to be made (compulsory payments).

GNP-based fourth own resource

The ‘GNP-based fourth own resource’ created by the Council Decision of 24 June 1988 on the system of Communities' own resources is a current transfer paid by the general government of each Member State to the institutions of the European Union.

It is a residual contribution to the budget of those institutions, which is assessed on the levels of GNP of each of the countries.

Other

• Current transfers from NPISHs to general government which are not taxes.
• Payments by general government to public enterprises classified in the sector non-financial corporate and quasi-corporate enterprises intended to cover abnormal pension charges.
• Travelling fellowships and awards paid to resident or non-resident households by general government or NPISHs.
• Bonus payments on savings granted at intervals by general government to households in order to reward them for their saving during the period.
• The refunds by households of expenditure incurred on their behalf by social welfare organizations.
• Current transfers from NPISHs to the rest of the world.
• Sponsoring by corporations if those payments cannot be regarded as purchases of advertising or other services (for instance, transfers for a good cause, or scholarships).
• Current transfers from general government to households in their capacity as consumers, if not recorded as social benefits.

Adjustment for the change in the net equity of households in pension funds reserves (D.8)

Definition: The adjustment for the change in the net equity of households in pension funds reserves (D.8) represents the adjustment needed to make appear in the saving of households the change in the actuarial reserves on which households have a definite claim (a claim which reappears at the financial level as an asset under heading F.61) and which are fed by premiums and contributions recorded in the secondary distribution of income account as social contributions.

Since households are treated in the financial accounts and balance sheets of the system as owning the reserves of private funded schemes, both autonomous and non-autonomous, an adjustment item is necessary to ensure that any excess of pension contributions over pension receipts (i.e. of ‘transfers’ payable over ‘transfers’ receivable) does not affect household saving.

In order to neutralize this effect, an adjustment equal to: the total value of the actual social contributions in respect of pensions payable into private funded pension schemes plus the total value of contribution supplements payable out of the property income attributed to insurance policy holders minus the value of the associated service charges minus the total value of the pensions paid out as social insurance benefits by private funded pension schemes is added to the disposable income, or adjusted disposable income, of households in the use of income accounts before arriving at saving.

In this way, the saving of households is the same as what it would be if pension contributions and pension receipts had not been recorded as current transfers in the secondary distribution of income account. This adjustment item is necessary in order to reconcile the saving of households with the change in their net equity in pension funds reserves recorded in the financial account of the system. Opposite adjustments are, of course, needed in the use of income accounts of the insurance enterprises or autonomous pension funds or employers maintaining non-autonomous pension funds.

Capital transfers (D.9)

Capital transfers are different from current transfers by the fact that they involve the acquisition or disposal of an asset, or assets, by at least one of the parties to the transaction. Whether made in cash or in kind, they should result in a commensurate change in the financial, or non-financial, assets shown in the balance sheets of one or both parties to the transaction.

A capital transfer in kind consists of the transfer of ownership of an asset (other than inventories and cash), or the cancellation of a liability by a creditor, without any counterpart being received in return.

A capital transfer in cash consists of the transfer of cash that the first party has raised by disposing of an asset, or assets (other than inventories), or that the second party is expected, or required, to use for the acquisition of an asset, or assets (other than inventories). The second party, the recipient, is often obliged to use the cash to acquire an asset, or assets, as a condition on which the transfer is made.

Capital transfers cover capital taxes (D.91), investment grants (D.92) and other capital transfers (D.99).

Capital taxes (D.91)

Definition: Capital taxes (D.91) consist of taxes levied at irregular and very infrequent intervals on the values of the assets or net worth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gifts inter vivos or other transfers.

Investment grants (D.92)

Definition: Investment grants (D.92) consist of capital transfers in cash or in kind made by governments or by the rest of the world to other resident or non-resident institutional units to finance all or part of the costs of their acquiring fixed assets.

Investment grants can be made in cash or in kind. Investment grants in kind consist of transfers of transport equipment, machinery and other equipment by governments to other resident or non-resident units and also the direct provision of buildings or other structures for resident or non-resident units.

Other capital transfers (D.99)

Definition: Other capital transfers (D.99) cover transfers other than investment grants and capital taxes which do not themselves redistribute income but redistribute saving or wealth among the different sectors or subsectors of the economy or the rest of the world.

. Other capital transfers include the following transactions:

• payments by general government or by the rest of the world to the owners of capital goods destroyed or damaged by acts of war, other political events or natural disasters (floods etc.);
• transfers from general government to non-financial corporate and quasi-corporate enterprises to cover losses accumulated over several financial years or exceptional losses from causes beyond the control of the enterprise;
• transfers between subsectors of general government designed to cover unexpected expenditure or accumulated deficits ;
• non-recurrent bonus payments on savings granted by general government to households to reward them for their savings carried out over a period of several years;
• legacies, large gifts inter vivos and donations between units belonging to different sectors, including legacies or large gifts to NPIs (for example, gifts to universities to cover the costs of building new residential colleges, libraries, laboratories, etc.);
• the counterpart transaction of cancellation of debts by agreement between institutional units belonging to different sectors or subsectors
• that part of realized capital gains (or losses) which is redistributed to another sector, as, for example, capital gains redistributed by insurance companies to households. However, the counterpart transactions of transfers to general government of the proceeds of privatization made indirectly (through a holding company for example) have to be recorded as financial transactions in shares and other equity (F.5) and have therefore no direct impact on the level of net lending/net borrowing of the general government;
• major payments in compensation for extensive damage or serious injuries not covered by insurance policies.