Centrale Bank van Curaçao en Sint Maarten. Manual International Investment Position Survey. Prepared by: Project group IIP

Transcription

1 Centrale Bank van Curaçao en Sint Maarten Manual International Investment Position Survey Prepared by: Project group IIP December 1, 2014

2 Contents Introduction 3 General reporting and instruction notes 4 Explanatory notes 7 General notes standard columns 7 General notes breakdown by country 8 Form 1: Real Estate Abroad 9 Form 2: Direct Investment Outward 10 Claims on foreign direct investment enterprises 11 Claims by your foreign direct investment enterprises (reverse investment) 13 Claims on your fellow enterprises 15 Form 3: Retained earnings by foreign direct investment enterprises 17 Form 4: Direct Investment Inward 19 Liabilities to foreign direct investors 20 Liabilities by foreign direct investors (reverse investment) 22 Liabilities to fellow enterprises 23 Form 5 Retained Earnings by Reporting Enterprise 25 Numerical example of the calculation of retained earnings (see Figure 12) 27 Form 6: Portfolio Investment Assets 28 Equity securities 28 Long-term debt securities 30 Short-term debt securities 32 Repurchase agreements 33 Form 7: Portfolio Investment Liabilities 34 Form 8: Loans extended 35 Form 9: Loans received 37 Form 10: Other Investment Assets and Liabilities 39 Numerical example treatment of securities involved in repurchase arrangements 40 Glossary 43 2

3 Introduction The Centrale Bank van Curaçao en Sint Maarten (CBCS) has introduced a survey to collect annual data on transactions and positions in foreign assets and liabilities. The collected data will be used to improve the compilation of the balance of payments and to create new statistics on the international investment position (IIP) for Curaçao and Sint Maarten. This survey is based on guidelines of the International Monetary Fund (IMF) to improve the coverage and quality of statistics on international capital flows and to facilitate international data comparability. Purpose and legal basis of the survey The monitoring of private capital flows and positions and their composition is very important for macroeconomic analysis. In a small open economy with relatively free mobility of capital, it is only through surveys that data on transactions and positions in foreign assets and liabilities can be collected. Compilation of these data is mandated by the International Monetary Fund (IMF) for its international monitoring and assessment role. Also major credit rating agencies use these data in their assessments. Pursuant to article 9 of the Foreign Exchange Regulation Curaçao and Sint Maarten (2010), every entity is obliged to truthfully submit all information and data that the CBCS requires to compile the balance of payments, including the international investment position (IIP). The supplied data will be treated strictly confidential and will be used for statistical purposes only. Furthermore, the data will be published only in aggregate form, which prevents the disclosure of data provided by individual respondents. What, when, and how to report The information we require concerns the years 2012 and The survey and manual can be downloaded from the CBCS website using the following link: The survey should be reported in accordance with the reporting instructions provided and the completed survey should be submitted before March 27, For assistance in understanding or completing the survey, please contact the person mentioned in accompanying letter. Once completed, please send the survey only as an Excel file by electronic mail to sirodev@centralbank.cw. We thank you in advance for your cooperation. Centrale Bank van Curaçao en Sint Maarten December 1,

4 General reporting and instruction notes Residency The balance of payments and international investment position include transactions/positions between residents and nonresidents only. In accordance with the definitions of the IMF, residents of a country are natural persons and legal entities whose centre of economic interest lies in the country concerned. This definition is elaborated further in article 1 of the Foreign Exchange Regulation Curaçao and Sint Maarten (2010). For the purpose of this survey, branches and subsidiaries of foreign companies registered in Curaçao and Sint Maarten also are considered as residents as are corporations legally registered in Curaçao and Sint Maarten with no physical presence. Representation Reporting enterprises usually report directly to the CBCS without the intervention of third parties. A reporting enterprise may outsource its reporting to an external party (a representative) but shall remain responsible at all times for the fulfillment of its reporting requirements. Sanctions will be imposed on reporting enterprises failing to (timely) meet the reporting requirements. Representatives of reporting enterprises must be resident natural persons or legal entities, and all correspondence by the CBCS on behalf of the reporting enterprise will be sent to the representative s correspondence address. Change of representatives should be reported immediately to the Bank through an official letter. General valuation principles and conversion to guilders The positions to be reported (for the beginning and the end of the year) are in principle to be valued at current market prices. Amounts in foreign currency should be converted into guilders using the reference (middle) rate on the last trading day of the year. The positions at the beginning of the year should be stated on the basis of end-of-year market prices from the preceding year. If current market prices are not available, e.g., in the case of unlisted securities, approximations of current prices are acceptable. In the case of transactions, the market price almost always corresponds with the agreed transaction price. Transactions in foreign currency should be converted into guilders according to the reference (middle) rate on the transaction day or reported as the actual exchange rate used in the transaction. 4

5 Contents of the survey The survey is set up in a Microsoft Excel 2007 file consisting of 3 sections and 18 worksheets. We strongly suggest that the survey be filled out by the person most familiar with the financial affairs of the reporting enterprise, for example, the finance manager, investment manager, or an accountant. The survey consists of the following sections: Section I: Registration The first sheet of the survey contains the registration form and must be filled in by every respondent to enable categorization of the entities by sector. If an external party is completing the survey on behalf of your enterprise, its name also must be filled in. Section II: Filtering questions The second sheet of the survey consists of a set of filtering questions regarding the reporter details. Based on your answers to these questions, you will know which sheets of the survey are relevant for your enterprise. There are 10 filtering questions. You must select Yes or No for each question. The filtering questions are categorized as shown in Table 1. Table 1 Filtering questions Type of Investment 1-5 Ownership Investment 6-7 Securities Investment 8-10 Other Investment 5

6 Section III: The questionnaire forms The survey concerns transactions and positions data from January 1 to December 31. Table 2 Type of Investment Ownership Investment (Direct Investment) Portfolio Investment Worksheet Form 1: Real Estate-Abroad Form 2a, 2b and 2c: Direct Investment - Outward Form 3: Retained Earnings Assets Form 4a, 4b and 4c: Direct Investment-Inward Form 5: Retained Earnings Liabilities Form 6a, 6b and 6c: Portfolio Investment Assets Form 7: Portfolio Investment Liabilities Form 8: Loans Extended Short description Land, buildings, or residential properties located abroad. Intercompany lending between your enterprise and your foreign direct investment enterprise, 1 including all debt instruments that require the payment of principal and/or interest. Your enterprise s share in the earnings of your direct investment enterprise that are not distributed. Intercompany lending between your enterprise and your foreign direct investor 2 including all debt instruments that require the payment of principal and/or interest. Your direct investor s share in the earnings of your enterprise that are not distributed. Investment in securities issued by nonresident entities. Investment by nonresidents in securities issued by your enterprise. Loans extended to nonresidents. Other Investment Form 9: Loans Received Form 10: Other Assets and Liabilities Loans received from abroad. Other assets held abroad (e.g., bank deposits); other liabilities due to abroad (e.g., taxes due but not yet paid). 1 A direct investment enterprise is an entity subject to control or a significant degree of influence by a direct investor. 2 A direct investor is an entity or group of related entities that is able to exercise control or a significant degree of influence over another entity that is a resident of another country. 6

7 Explanatory notes General notes standard columns All worksheets contain the following columns (see Figure 1): (i) Opening position refers to the value of the financial claims or liabilities of your enterprise vis-à-vis the rest of the world at the beginning of the year. The opening position reported by your enterprise should match the closing position of the previous year. (ii) Transactions (increases/decreases) are the gross transactions carried out during the reporting year. Examples of transactions that increase assets are purchases of shares in nonresident companies and extension of long-term loans to nonresident companies. Increases in liabilities occur, for example, when a nonresident company acquires longterm debt securities issued by your enterprise. Examples of transactions that decrease assets are sales of shares by your enterprise in nonresident companies. Decreases in liabilities occur when your enterprise pays off a loan obtained from a nonresident company. Increases must be reported with a positive sign (+) and decreases with a negative sign (-). (iii) Revaluation entails value changes caused by market price and or exchange rate changes: Price changes are caused by, e.g., asset price volatility. Exchange rate changes show all the changes that result from exposure to exchange rate fluctuations. (iv) Other changes entails changes in the value of financial assets and liabilities not related to transactions or to revaluations. Examples are write-offs, reclassifications, and changes in financial assets arising from entities changing their country of residence. When you report a value in the other changes column, your are required to provide an explanatory note regarding this particular entry. (v) The closing position refers to the value of the financial claims or financial liabilities of your enterprise vis-à-vis the rest of the world at the end of the year. The closing position is a result of your reported data and will be automatically generated in the Excel file. Figure 1 7

8 General notes breakdown by country Various data must also be broken down by country (see Figure 2 for an example). Figure 2 When you click on the arrow as shown above, a dialog box will appear that allows you to select a country. The overall total (2.1) is automatically calculated based on the totals by country (2.2). In the next sections, we will explain each form separately. 8

9 Form 1: Real Estate Abroad Form 1 concerns real estate investments abroad (Figure 3). Types of real estate can be land, buildings, or residential properties. Figure 3 Note: Only 5 rows are shown in the above figure for illustration purposes. This form contains additional rows in the survey. The specific data we are interested in are: (1.1) Value real estate abroad: the total value of all properties located abroad and owned by your enterprise. This value is automatically calculated based on the totals under item (1.2). (1.2) Countries where the real estate is located: specify the countries where your real estate investments are located, and for each country you must report the data as follows: Opening position: the total value of properties owned by your enterprise in that country at the beginning of the reporting year; Transactions: purchases or sales of properties; Revaluations: changes in your properties value due to price and/or exchange rate changes; Other changes: changes in your properties value for other reasons, e.g., destruction of property by storm or fire; Closing position: the total value of properties owned by your enterprise at the end of the reporting year, which is automatically generated in the Excel file. 9

10 Form 2: Direct Investment Outward Direct Investment is a category of cross-border investment associated with a resident in one country having control or a significant degree of influence on the management of an enterprise that is domiciled in another country. Control or influence is achieved by directly or indirectly owning equity that represents 10% or more of the voting power in the enterprise. Control or influence may be achieved directly by owning equity that entitles voting power in the enterprise, or indirectly by having voting power in another enterprise that in turn has voting power in the enterprise. The underlying ownership links of the direct investment category can be complicated (see Box 2.1). For simplicity, we are interested only in the direct ownership of equity. Box 2.1 Examples of underlying ownership links In the figure below, enterprises A, B, and C are located in different countries. Enterprise A owns 80% of the voting power in enterprise B, and enterprise B, in turn, owns 60% of the voting power in enterprise C. A has control over B and, subsequently, indirect control over C. Since we are interested only in the direct ownership of equity, this means that the reporting must be done as follows: if enterprise A is the resident entity, then A must report with regard to its subsidiary abroad, enterprise B; if enterprise B is the resident entity, then B must report with regard to its parent, enterprise A, and with regard to its subsidiary, enterprise C. 80% 60% A B C Country 1 Country 2 Country 3 It is not uncommon for an entity to own more than one enterprise, or there can also be two overlapping ownership relationships, as shown in the next figure. In this example, enterprise C is owned by both enterprises A and B (note that enterprises B and C are from the same country). Because we are interested only in the direct ownership of equity, this means that the reporting must be done as follows: if enterprise A is the resident company, then A must report with regard to its subsidiary abroad, enterprise C; if enterprise B is the resident company, then B has nothing to report with regard to its subsidiary, enterprise C, because B and C are both resident enterprises; if enterprise C is the resident company, then C must report with regard to its parent company, enterprise A. Country 1 Country 2 A 70% 30% B C Country 2 Economy 2 10

11 Form 2 is designed to capture the direct investment outward relationships that result if your enterprise controls or has a significant degree of influence over the management of foreign enterprises. This form is divided in 3 separate forms (Form 2a, 2b and 2c) and captures data on positions (stocks), financial transactions, and reconciliation items (other changes in stocks), and is broken down by the relationship between the investor and the entity in which the investment is made, namely: Claims on foreign direct investment enterprises; Claims by your foreign direct investment enterprises (reverse investment); Claims on your fellow enterprises (less than 10%). From 2a: Claims on foreign direct investment enterprises Form 2a concerns claims (equity and debt) on those foreign enterprises which your enterprise has control or a significant degree of influence over (Figure 4). We are interested only in the direct ownership of equity. Figure 4 11

12 The specific data we are interested in are: (2.1) Equity claims on foreign direct investment enterprises: the total equity value directly owned by your enterprise in all foreign enterprises in which you have 10% or more of the voting power. This value is automatically calculated based on the totals under item (2.2). Equity consists of all instruments acknowledging a claim on the residual value of an enterprise after the claims of all creditors have been met. Examples are ordinary shares, participating preference shares, and depositary receipts. For consistency purposes, please report the owner s equity as the sum of: (i) paid-up capital (excluding shares held by the enterprise itself and including share premium accounts); (ii) all types of reserves identified as equity in the enterprise s balance sheet (e.g., undistributed net profits resulting from the preceding financial years); (iii) cumulated reinvested earnings (including results for the reporting year). (2.2) Equity claims by country: specify the countries where your direct investment enterprises are located, and for each country you must report the data as follows: Opening position: the total equity value your enterprise owns in the selected country at the beginning of the reporting year; Transactions: the total equity-related transactions, like an increase in share capital or sale of shares during the reporting year; Revaluations: the changes in the value of your equity investments due to price and/or exchange rate changes; Other changes: the changes in the value of your equity investments due to other reasons, e.g., if you previously had 20% of voting power in one of the enterprises and sold 15%, the relationship between the parties changes from direct investment to portfolio investment because you sold equity holdings; 3 Closing position: the total equity value your enterprise owns at the end of the reporting year is automatically calculated in the Excel file. 3 A sale of equity holdings during the reporting year that resulted in a change of the relationship between the parties from direct investment to portfolio investment must be recorded only under the other changes category and not under the transactions category. 12

13 (2.3) Debt claims on foreign direct investment enterprises: refers to the total value of your debt claims on directly owned enterprises abroad, including all debt instruments that require the payment of principal and/or interest at some point(s) in the future. Debt instruments include deposits, debt securities, and other debt (loans, trade credit, other accounts payable/receivable, and insurance technical reserves when the direct investment relationship concerns an insurance company). Debt securities are to be valued at market prices and all other types of debt that is, loans, deposits, trade credit, and other accounts payable/receivable are to be valued at nominal value. This value is automatically calculated based on the totals under item (2.4). (2.4) Debt claims by country: specify the countries where your direct investment enterprises are located and on which your enterprise has a debt claim. For each country, you must report the data as explained under (2.2). Form 2b: Claims by your foreign direct investment enterprises (reverse investment) Form 2b concerns the claims (equity and debt) by direct investment enterprises abroad on your enterprise (Figure 5). We also call these claims reverse investment, and they arise when an enterprise lends funds to or acquires equity in its parent company. The acquired equity may not exceed 10 percent of the voting power. These transactions may occur as a way of withdrawing investment or as a way of organizing finance within a group, for example, for an enterprise that borrows on behalf of its parent company. From the viewpoint of your enterprise, these transactions are considered as liabilities to your directly owned enterprises abroad. 13

14 Figure 5 The specific data we are looking for are the same as previously described: (2.5) Equity claims held by your foreign direct investment enterprises: the total of your equity held by your own foreign enterprises; equity may not represent 10% or more of the voting power. This value is automatically calculated based on the totals under item (2.6). (2.6) Equity held by country: specify the countries of your foreign enterprises that hold equity claims on your enterprise. For each country, you must report the data as explained under (2.2). (2.7) Debt claims held by your foreign direct investment enterprises: see explanation (2.3). This value is automatically calculated based on the totals under item (2.8). (2.8) Debt claims held by country: specify the countries of your foreign enterprises that hold debt claims on your enterprise. For each country, you must report the data as explained under (2.2). 14

15 Form 2c: Claims on your fellow enterprises Form 2c concerns the claims on fellow enterprises (Figure 6). Fellow enterprises are those enterprises related to other enterprises in the same country or in a different country, owing no equity or less than 10% of the voting power in each other, but both being directly or indirectly influenced by a common parent in the ownership hierarchy. Figure 6 The data in this section is only applicable for your enterprise if your enterprise is also directly owned by a foreign enterprise. The specific data we are looking for are basically the same as previously described: (2.9) Equity claims on fellow enterprises: refers to the total equity owned by your entity in fellow enterprises abroad that are owned by the same foreign company as yours; equity owned by your enterprise in the fellow enterprise may only represent less than 10% of the voting power. This value is automatically calculated based on the totals under item (2.10). 15

16 (2.10) Equity claims on fellow enterprises by country: specify the countries where your fellow enterprises are located on which your enterprise has a claim. For each country, you must report the data as explained under (2.2). (2.11) Debt claims on fellow enterprises: see explanation (2.3). This value is automatically calculated based on the totals under item (2.12). (2.12) Debt claims on fellow enterprises by country: specify the countries where your fellow enterprises are located and on which your enterprise has a debt claim. For each country, you must report the data as explained under (2.2). 16

17 Form 3: Retained earnings by foreign direct investment enterprises Form 3 concerns retained earnings from your direct investment enterprises abroad (Figure 7). The retained earnings of an enterprise show the net earnings from production and primary and secondary income transactions before attributing reinvested earnings. Retained earnings also are known as accumulated earnings, undistributed earnings, or undistributed profits. Figure 7 Here we are looking for the following specific data: (3.1) Country of residence of foreign direct investment enterprises: in this section, you must select the countries of your 5 main foreign enterprises based on the share of equity owned by your enterprise during the reporting year. 4 The equity by your enterprise must represent 10% or more of the voting power in the foreign enterprises. When you click the arrow, a dialog box will appear from which you can select a country, as shown on the next page. 4 If two or more of your main foreign enterprises are established in the same country, you should mention them separately. Consequently, the same country can be mentioned more than once. 17

18 (3.2) Operating profit plus net income during the year: specify the sum of the operating profit + net income for each of your 5 main foreign enterprises separately. The definitions we use are: (i) operating profit: operating revenue minus operating expenses for each of the 5 foreign subsidiaries; (ii) net income: refers to receivable (accrued) interest, dividends, and any undistributed profits from the ownership of subsidiaries and associates attributable to the enterprises concerned minus interest payable by the enterprises. (3.3) Profit taxes due for payment during the year: specify the profit taxes to be paid in the reporting period for each of your 5 main foreign enterprises. (3.4) Dividends paid or profits remitted during the year: specify the dividends paid or profits remitted by each of your 5 main foreign enterprises in the reporting year. (3.5) Retained earnings: this section is automatically calculated given the information provided under rows 1, 2, and 3 as the operating profit + net income - taxes due - dividends paid or profits remitted. (3.6) Percentage equity owned by reporting enterprise at end of period (%): specify the percentage of ownership of your enterprise with regard to your 5 main foreign enterprises. (3.7) Retained earnings attributable to reporting enterprise: this section also is automatically calculated given the information provided in rows 4 and 5 and refers to the percentage of the retained earnings that your enterprise has a claim on. 18

19 Form 4: Direct Investment Inward Form 4 is designed to capture the direct investment inward relationships, resulting from a foreign enterprise having control or a significant degree of influence over the management of your enterprise. This is the case for many enterprises in Curaçao and Sint Maarten. The foreign enterprise is called a foreign direct investor (FDI) or foreign shareholder, and your enterprise is called the local direct investment enterprise (LDIE). For simplicity, we are interested only in the direct ownership of equity given that the common underlying ownership links of many enterprises in Curaçao and Sint Maarten are complicated (see Box 4.1). Box 4.1 Common ownership links in Curaçao and Sint Maarten Two types of ownership links are very common with regard to enterprises in Curaçao and Sint Maarten. The first type is shown in the figure below. An enterprise in Curaçao or Sint Maarten (Cur-Sxm) is fully owned by an entity in the USA, and the enterprise in Cur-Sxm, in turn, fully owns enterprises in the BES islands and Aruba. In this case, we are interested in the financial positions and transactions with regard to the entity in the USA and the direct ownership of the enterprise in the BES islands and Aruba. USA BES 100 % 100% 100 % Cur-Sxm Aruba The second type of ownership link with regard to enterprises in Curaçao and Sint Maarten is shown below. An enterprise in Curaçao or Sint Maarten (Cur-Sxm) is fully owned by 2 entities in the USA and Canada (CA). The resident enterprise, in turn, partly owns enterprises in Aruba. One of the foreign shareholders also owns companies in Spain. CA 55% 45% USA 50% Aruba 65% Cur-Sxm Spain In this case, we are only interested in the financial positions and transactions with regard to the direct ownership links with Canada, the USA, Aruba, and Spain. The company in Spain is actually a fellow enterprise of the enterprise in Cur-Sxm, and you must also report the financial positions and transactions between them (if any). Form 4 is divided in 3 separate forms (Form 4a, 4b and 4c) representing the following 3 types of direct investment liabilities: Liabilities to foreign direct investors; Liabilities by foreign direct investors (reverse investment); Liabilities to fellow enterprises (less than 10% ownership) 19

20 Form 4a: Liabilities to foreign direct investors Form 4a concerns liabilities (equity and debt) that your enterprise has with regard to those foreign enterprises that own your enterprise (Figure 8). We are interested only in the direct ownership of equity. Figure 8 The specific data we are interested in are: (4.1) Equity owned by foreign direct investors: refers to your enterprise s equity directly owned by foreign enterprises. This value is automatically calculated based on the totals under item (4.2). Equity consists of all instruments acknowledging a claim on the residual value of an enterprise after the claims of all creditors have been met. Examples are ordinary shares, participating preference shares, and depositary receipts. 20

21 For consistency purposes, please report the owner s equity as the sum of: (i) paid-up capital (excluding own shares held by the enterprise itself and including share premium accounts); (ii) all types of reserves identified as equity in the enterprise s balance sheet (e.g., undistributed net profits resulting from the preceding financial years); (iii) cumulated reinvested earnings (including results for the reporting year). (4.2) Equity owned by foreign direct investors by country: indicate the countries where your foreign direct investors are located, and for each country report the data as follows: Opening position: the value of your enterprise s equity owned by the foreign direct investors in the selected country at the beginning of the reporting year; Transactions: total equity-related transactions, e.g., capital contributions by your foreign direct investor or conversion of loans extended to your enterprise in shares of your enterprise; Revaluations: changes in the value of the investment due to price and/or exchange rate changes; Other changes: changes in the value of the investment due to other reasons, e.g., if a foreign direct investor previously owned 25% of the shares of your enterprise and sold 20%, then the relationship between the parties changes from direct investment to portfolio investment because the direct investor s voting power dropped below 10%; 5 Closing position: the value of the equity of your enterprise owned by foreigners at the end of the reporting year is automatically calculated in the Excel file. (4.3) Debt due to foreign direct investors: refers to the total value of your debt liabilities to your foreign direct investors. Examples are loans extended by your foreign direct investors to your enterprise (on a nominal value basis), and insurance technical reserves when the direct investment relationship concerns an insurance company (reported on a market value basis). This value is automatically calculated based on the totals under item (4.4). (4.4) Debt due to foreign direct investors by country: indicate the countries where your foreign direct investors are located and which have debt claims on your enterprise. For each country, you must report the data as explained under (4.2). 5 A sale of equity holdings during the reporting year that resulted in a change of the relationship between the parties from direct investment to portfolio investment must be recorded only under the other changes category and not under the transactions category. 21

22 Form 4b: Liabilities by foreign direct investors (reverse investment) Form 4b concerns the liabilities (equity and debt) by foreign direct investors (Figure 9). These liabilities are called reverse investment with regard to foreign direct investors and arise when your enterprise lends funds to or acquires equity in your direct foreign parent company. The acquired equity may not exceed 10 percent of the voting power. From the viewpoint of your enterprise, these transactions are considered assets on your foreign direct investors. Figure 9 The data we are looking for are the same as previously described: (4.5) Equity of foreign direct investor owned by your enterprise: refers to the total equity your enterprise owns in its direct foreign parent company; equity may not represent 10% or more of the voting power. This value is automatically calculated based on the totals under item (4.6). 22

23 (4.6) Equity owned by country: specify the countries of your foreign direct investors for which your enterprise owns part of their equity. For each country, you must report the data as explained under (4.2). (4.7) Debt due from your foreign direct investors: see explanation (4.3). This value is automatically calculated based on the totals under item (4.8). (4.8) Debt due by country: specify the countries of your foreign direct investors for which your enterprise has a debt claim. For each country, you must report the data as explained under (4.2). Form 4c: Liabilities to fellow enterprises Form 4c concerns the liabilities to fellow enterprises (Figure 10). Fellow enterprises are those enterprises related to other enterprises in the same or in a different country, owing no equity or less than 10% of the voting power in each other, but both being directly or indirectly influenced by a common parent in the ownership hierarchy. 23

24 Figure 10 The specific data we are seeking are basically the same as previously described: (4.9) Equity owned by fellow enterprises: refers to equity of your enterprise owned by fellow enterprises abroad which are owned by the same foreign company as yours; equity may not represent 10% or more of the voting power. This value is automatically calculated based on the totals under item (4.8). (4.10) Equity owned by fellow enterprises by country: indicate the countries where your fellow enterprises are located which have a claim on your enterprise. For each country, you must report the data as explained under (4.2). (4.11) Debt due to fellow enterprises: see explanation (4.3). This value is automatically calculated based on the totals under item (4.12). (4.12) Debt due to fellow enterprises by country: indicate the countries where your fellow enterprises are located and which have a debt claim on your enterprise. For each country, you must report the data as explained under (4.2). 24

25 Form 5 Retained Earnings by Reporting Enterprise Form 5 concerns foreign investors shares in the retained earnings of your enterprise (Figure 11). The retained earnings of an enterprise show the net earnings from production and primary and secondary income transactions before attributing reinvested earnings. Retained earnings are also known as accumulated earnings, undistributed earnings, or undistributed profits. Figure 11 The data we are interested in are the following: (5.1) Total for all investors: in this column, specify the total value in the reporting period with regard to: operating profit plus net income (row 1); profit taxes due for payment during the year (row 2); dividends paid or profit remitted (row 3). 25

26 (5.2) Country of residence of foreign direct investors: specify the countries of your foreign direct investors. 6 When you click in the row below the country heading, a dialog box will appear from which you can select a country. (5.3) Operating profit plus net income during the year: specify your enterprise s total operating profit + net income for the reporting year and for your foreign direct investors separately, based on the amount of equity they own in your enterprise. The definitions we use are: (i) operating profit: operating revenue minus operating expenses; (ii) net income: refers to receivable (accrued) interest, dividends, and any undistributed profits from the ownership of subsidiaries and associates attributable to the enterprises concerned, minus interest payable by the enterprises. (5.4) Profit taxes due for payment during the year: specify the total taxes to be paid in the reporting period broken down among your foreign direct investors based on their equity participation in your enterprise. (5.5) Dividends paid or profits remitted during the year: specify the total dividends paid or profits remitted broken down among your foreign direct investors based on their equity participation in your enterprise. (5.6) Retained earnings: this section is automatically calculated given the information provided under rows 1, 2, and 3 as the operating profit + net income - taxes due - dividends paid or profits remitted. (5.7) Percentage equity owned by foreign direct investors at end of period (%): specify the percentage of shares owned in your enterprise by each of your foreign direct investors. (5.8) Retained earnings attributable to foreign direct investors: this section is also automatically calculated given the information provided under rows 4 and 5, and refers to the percentage of the retained earnings that your foreign direct investors have as a claim on your enterprise. 6 If two or more of your main foreign direct investors are established in the same country, you should mention them separately. Consequently, the same country can be mentioned more than once. 26

27 Numerical example of the calculation of retained earnings (see Figure 12) An enterprise in Curacao has 4 foreign direct investors, one in Canada, one in France, one in Spain, and one in Aruba. At the beginning of the year, they own 50%, 25%, 20%, and 5%, respectively, of the equity of your enterprise. Given our definition of direct investment of owning 10% or more of the voting power in your enterprise, only the investors in Canada, France, and Spain are considered as your foreign direct investors. The shares owned by the investor in Aruba should be treated as portfolio investment. From the Profit and Loss statement, we also can derive the following information: During the year, your enterprise registered a net operating income before taxes of NAf ; Taxes on profit were NAf ; Dividends payable were NAf Given the above information, Form 5 would look like this: Figure 12 27

28 Form 6: Portfolio Investment Assets Portfolio investment is defined as cross-border transactions involving debt or equity securities other than those included in direct investment or reserve assets. Securities are debt and equity instruments that have the characteristic feature of negotiability. In contrast to direct investors, portfolio investors typically have less of a role in the decision making of the enterprise. Portfolio investment differs from other investment in that it provides a direct way to access financial markets, and thus can provide liquidity and flexibility. Form 6 is divided in 3 separate forms (Form 6a, 6b and 6c) and only covers investments by residents in equity, long-term and short-term debt securities issued by unrelated nonresident entities. Financial transactions in securities generally fall into four categories: (i) issues, (ii) redemptions, (iii) purchases, and (iv) sales. Form 6a: Equity securities Form 6a concerns the data related to equity securities issued abroad and held by your enterprise, on your own behalf or on behalf of your resident clients (Figure 13). Figure 13 Note: Only 10 rows are shown in the above figure for illustration purposes. This form contains additional rows in the survey. 28

29 The data we are interested in are the following: (6.1) Total equity securities: refers to the total foreign equity value owned by your enterprise, not representing 10% or more of the voting power in each of their issuing entities. This value is automatically calculated based on the totals under item (6.2). (6.2) Equity securities holdings by country of issuer: specify the equity securities holdings held by your enterprise, broken down by the country of residence of the nonresident issuer. The residence of an enterprise is considered to be where it is legally incorporated or, in the absence of legal incorporation, where it is legally domiciled. For each country, you must report the data as follows: Opening position: the total equity value your enterprise owns at the beginning of the reporting year; Transactions: total equity-related transactions, like sales or purchases of shares during the reporting year; Revaluations: changes in the value of your equity investments due to price and/or exchange rate changes (revaluations); Other changes: changes in the value of your equity investments due to other reasons, e.g., if you previously had 2% of the voting power in one of the foreign enterprises and acquired 15%, then the relationship changes from portfolio investment to direct investment because you now own more than 10% of the shares; 7 Closing position: the total equity value your enterprise owns at the end of the reporting year is automatically calculated in the Excel file. (6.3) Income receivable: refers to total dividends earned. Dividends should be recorded on the ex-dividend date. 8 This value is automatically calculated based on the totals under item (6.4). (6.4) Income receivable by country: specify the income earned on the equity securities holdings held by your enterprise, broken down by the country of residence of the nonresident issuer. 7 Purchases of additional shares that result in a change of the relationship between the parties from portfolio investment to direct investment must only be recorded under the other changes category and not under the transactions category. 8 The date the recipients of the dividends are determined comes from the shareholders register. After this date, subsequent shareholders are not entitled to the dividends. 29

30 Equity securities that are listed on organized markets or are readily tradable should be valued at actual market prices. The market value of equities that are not quoted on stock exchanges or otherwise traded regularly could be estimated by using the net asset value of the enterprises to which the equities relate. Equity securities include among others: common and preferred shares; shares/units in mutual funds and investment trusts; depositary receipt (DR); equity securities that have been sold under repurchase agreements; and equity securities that have been lent under a securities lending arrangement. Form 6b: Long-term debt securities Form 6b concerns the data related to long-term debt securities issued abroad and held by your enterprise, on your own behalf or on behalf of your resident clients (Figure 14). Debt securities that are listed in organized markets or are readily tradable should be valued at actual market prices. For debt securities not readily tradable, the net present value of the expected stream of future payments associated with the securities could be used to estimate the market value. For those securities that are traded, prices should be commonly available from securities exchanges, commercial vendors (for instance, Reuters and Bloomberg), or organizations that maintain security databases. The market value at the close of business on December 31 should be taken. 30

31 Figure 14 Note: Only 10 rows are shown in the above figure for illustration purposes. This form contains additional rows in the survey. The data we are interested in are the following: (6.5) Total long-term debt securities: refers to the total value of bonds, debentures, and notes that usually assign the holder the unconditional right to a fixed cash flow or contractually determined variable money income and have an original term to maturity of more than one year. This value is automatically calculated based on the totals under item (6.6). Long-term debt securities include among others: bonds, such as treasury, zero-coupon, currency-linked, and eurobonds; asset-backed securities, such as mortgage-backed bonds; nonparticipating preference shares; debt securities that have been sold under repurchase agreements; and debt securities that have been lent under a securities lending arrangement. (6.6) Long-term debt securities holdings by country of issuer: see explanation under (6.2). 31

32 (6.7) Income receivable: refers to total interest earned. Interest should be recorded on an accrual basis. This value is automatically calculated based on the totals under item (6.8). (6.8) Income receivable by country: specify the income earned on the long-term and short-term securities holdings held by your enterprise, broken down by the country of residence of the nonresident issuer. Form 6c: Short-term debt securities Form 6c concerns the data related to short-term debt securities issued abroad and held by your enterprise, on your own behalf or on behalf of your resident clients (Figure 15). Figure 15 Note: Only 10 rows are shown in the above figure for illustration purposes. This form contains additional rows in the survey. The data we are interested in are the following: (6.9) Total short-term debt securities: covers money market instruments that usually assign the holder the unconditional right to receive a stated, fixed sum of money on a specified date and have an original term to maturity of one year or less. This value is automatically calculated based on the totals under item (6.8). 32

33 Short-term debt securities include among others: treasury bills and notes; commercial and financial papers; certificates of deposit with contractual maturity of one year or less; debt securities sold under repurchase agreements; and debt securities lent under a securities lending arrangement. (6.10) Short-term debt securities holdings by country of issuer: see explanation under (6.2). (6.11) Income receivable: see explanation under (6.7). This value is automatically calculated based on the totals under item (6.12). (6.12) Income receivable by country: see explanation under (6.8). Repurchase agreements A repurchase agreement (repo) is an arrangement involving the sale of securities in exchange for cash with a commitment to repurchase the same or similar securities at a fixed price on a specified future date or on demand. A reverse repo is the same transaction seen from the other side; that is, an agreement whereby a security is purchased at a specified price with a commitment to resell the same or similar securities at a fixed price on a specified future date or on demand. There are various types of repos. In some repo transactions, ownership of the underlying security remains with the seller; in others, the underlying security is, in essence, held by a third party for safekeeping (so-called tri-party repos) or the ownership of the underlying security changes hands. Regardless of the type of repo transaction, the market risks of owning the security and all significant benefits remain with the seller. It is recommended, at least for the purposes of this survey and in line with the IMF recommendations, that repo transactions are recorded as collateralized loans. 9 Please refer to page 40 for an example of the treatment of repos. 9 A collateral loan (also called a secured loan) is a loan obtained from a banking or other financial institution, where in exchange, the creditor may sell that which is offered for collateral if the loan is not paid back. A collateral loan is often offered at a lower interest rate than an unsecured loan, because there is a guarantee of repayment should the borrower default on the loan. 33

34 Form 7: Portfolio Investment Liabilities Form 7 (sections A, B, and C) concerns the data related to local portfolio investment liabilities, being the positions and flows of securities issued by enterprises on Curaçao and Sint Maarten locally, and held or traded by foreign institutions for their nonresident clients or on their own account (Figure 16). This survey covers only equity, long-term and short-term debt securities issued by resident entities. Figure 16 The data we are interested in are the following: (7.1) Total equity securities issued by your enterprise: refers to your enterprise s equity owned by nonresidents, not representing 10% or more of the voting power in your enterprise. (7.2) Total long-term debt securities: refers to the total value of debt securities issued by your enterprise that have an original term to maturity of more than one year. (7.3) Total short-term debt securities: refers to the total value of debt securities issued by your enterprise that have an original term to maturity of one year or less. We do not require a breakdown of the total of these liabilities by country of the nonresident holder(s). 34

35 Form 8: Loans extended Form 8 concerns the asset data related to loans extended to abroad (Figure 17). Figure 17 Note: Only 5 rows are shown in the above figure for illustration purposes. This form contains additional rows in the survey. The specific data we are interested in are the following: (8.1) Long-term loans extended: refers to loans and financial leases extended by your enterprise with original maturities of more than 1 year. Loans are to be valued at nominal value and loans related to repos also must be included. This value is automatically calculated based on the totals under item (8.2). 35

36 (8.2) Long-term loans extended by country of debtor: specify the countries of the long-term debtor, and for each country you must report the data as follows: Opening position: the outstanding value of the loans extended by your enterprise at the beginning of the reporting year; Transactions: new loans extended or repayments received; Revaluations: changes in the outstanding value of the loans extended due to price and/or exchange rate changes; Other changes: changes in the outstanding value of the loans extended due to other reasons, e.g., if a loan is written off as uncollectible because of bankruptcy or liquidation of the debtor; Closing position: the outstanding value of the loans extended by your enterprise at the end of the reporting year is automatically calculated in the Excel file. (8.3) Short-term loans extended: refers to loans and financial leases extended by your enterprise with original maturities of less than 1 year. This category includes loans such as overdraft facilities and should be valued at nominal value. Loans related to repos also must be included. This value is automatically calculated based on the totals under item (8.4). (8.4) Short-term loans extended by country of debtor: specify the countries of the short-term debtor, and for each country you must report the data as explained under (8.2). 36

37 Form 9: Loans received Form 9 concerns the liability data related to loans received from abroad (Figure 18). Figure 18 The specific data we are interested in are the following: (9.1) Long-term loans received: refers to loans and financial leases received by your enterprise with original maturities of more than 1 year. Loans are to be valued at nominal value. Loans related to repos must also be included. This value is automatically calculated based on the totals under item (9.2). 37

38 (9.2) Long-term loans received by country of creditor: specify the countries of the long-term creditor, and for each country you must report the data as follows: Opening position: the outstanding value of the loans received by your enterprise at the beginning of the reporting year; Transactions: new loans received or repayments made by your enterprise; Revaluations: changes in the outstanding value of the loans received due to price and/or exchange rate changes; Other changes: changes in the outstanding value of the loans received due to other reasons, e.g., if a loan is written off; Closing position: the outstanding value of the loans received by your enterprise at the end of the reporting year is automatically calculated in the Excel file. (9.3) Short-term loans received: refers to loans and financial leases received by your enterprise with original maturities of less than 1 year and should be valued at nominal value. Loans related to repos also must be included. This value is automatically calculated based on the totals under item (9.4). (9.4) Short-term loans received by country of creditor: specify the countries of the short-term creditor, and for each country you must report the data as explained under (9.2). 38

39 Form 10: Other Investment Assets and Liabilities Form 10 (sections A-C) concerns the asset data related to (a) currency and deposits; (b) pension entitlements; and (c) other accounts receivable. In addition, Form 10 (sections D-E) concerns the liability data related to (a) currency and deposits; and (b) other accounts payable (Figure 19). We do not require a breakdown of the total by country. Figure 19 The specific data we are interested in are the following: (10.1) Deposits held at foreign institutions: refers to the total nominal value of deposits held by your enterprise abroad. (10.2) Pension entitlements: refers to the value of financial claims your enterprise holds on a foreign insurer to pay pensions earned as part of a compensation agreement between your enterprise and your employees. (10.3) Other accounts receivable: refers to the total value of all other financial assets not included in any of the abovementioned instruments, e.g., prepaid taxes, and dividends declared payable but not yet received. 39

40 (10.4) Deposits of nonresidents held with your enterprise: refers to the total nominal value of deposits held by nonresidents with your enterprise. (10.5) Other accounts payable: refers to all other financial liabilities not included in any of the abovementioned instruments, e.g., contributions that have accrued but not yet been paid. Numerical example treatment of securities involved in repurchase arrangements On page 33, we explained the concept of a repurchase agreement (repo). A repo is legally the sale and subsequent repurchase of a security; the economic effect is that of a secured loan (hence the term securities lending). Basically, the party purchasing the security makes funds available to the seller and holds the security as collateral. For consistency purposes, please report the repo transactions as collateralized loans. The example below illustrates one of the problems that can arise when the recording of repos is not done on a consistent basis by all the respondents. Example: Resident company (A) enters a repo arrangement with securities worth 10,000 with a company in the USA. These securities were issued by a company in Spain. We assume it also has some equity investments in France; during the reporting period, its investments in France are revaluated due to exchange rate changes. Resident A treats repos as collateralized loans. Figure 20 shows how the reporting of resident A would look. 40

41 Figure 20 Other resident company (B) enters a repo arrangement with securities worth 5,000 with a company in the USA. These securities were issued by a company in the Netherlands. Resident B treats the repos as sale and purchases of securities. Figure 21 on the next page shows how the reporting of resident B would look. 41

42 Figure 21 As you can see in Figure 21, resident company B incorrectly reported only the changes in its investment holdings without mentioning its increased foreign loan liabilities due to the repo agreement. The correct reporting is shown in Figure 22. Figure 22 42