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1993 SNA Update Information - Country comments for issue:
Contracts and leases of assets

Issue description
Issue description in [English] | [French] | [Russian] | [Spanish]
The 1993 SNA refers to contracts, leases and licences in a number of contexts but there is no overview that sets out the principles of the appropriate treatment of all such arrangements. Further, clarification is desirable concerning several specific points:
1. the definition and treatment of operating and financial leases on fixed assets,
2. when legal constructs should be recognized as assets,
3. whether tradable government permits should be treated as assets,
4. can sub-contracting lead to the creation of an asset,
5. can a difference between a contract price and the corresponding prevailing price affect the treatment of existing leases.
Country comments
Number of country comments for selected issue:40
  Date postedSourceComment
 27/11/2006AustraliaWe agree with the recommendations made by the AEG, but we note that for some issues the results of a recent consultation process has not been distributed to countries for comment.
 11/10/2006ArmeniaThe National Statistical Service of the Republic of Armenia agrees with the most recent AEG recommendations.
 10/10/2006SwedenFurther clarification/analysis required
 29/09/2006Bank of KoreaLeases and licenses:
We broadly support the AEG recommendations.
 29/09/2006Bank of KoreaGovernment permits:
We broadly support the recommendations.
 15/09/2006United KingdomWe do not believe that the generic issue of contracts, leases and licences has been. satisfactorily resolved - in particular we believe that contracts and licences that can attain value in their own right do so as a form of financial derivative, and not as an intangible non-produced fixed asset. The current approach will give rise to inconsistencies with the treatment of encumbered assets generally. A particular cause of concern is the implication that the asset value of nuclear power stations which will require significant decommissioning costs should be shown reflecting the associated costs. So a £250m power station with decommissioning costs of £50 million at the end of its 25 year life will be shown in the accounts (ignoring allowing for discounting) as value £200m at the beginning, and -£50million at the end. This is better represented in the accounts as £250m depreciating to zero, with an associated financial arrangement to which the station owes £50 million at the beginning, and pays it off gradually as a floating fund so that the fund has asset value of £50m at the end to pay for the decommissioning.
In terms of the very specific issues raised in the consultation document, recognising value in transferable contracts as that of a fixed asset raises issues of consistency with the treatment of encumbrances and sharing ownership what have not been adequately addressed in the revision.
Similarly, recognising as non-financial assets, contracts allowing a degree of monopoly profits in the exercise of a sanctioned activity, is inconsistent with the recognition of payment for government licences, whether restricted or not, as a tax.
 15/09/2006LatviaAfter deep discussions and expert consultations we basically support the 1993 SNA Update Issues.
 21/08/2006Central Bank of El SalvadorGovernment permits:
No hay opinión. Se quedó en espera de la profundización que el ISWGNA hará al respecto.

No opinion. The SCN looks forward to the further examination of this topic by the ISWGNA.
 21/08/2006Central Bank of El SalvadorLeases and licenses:
m4cbElSalvador21; m4cbElSalvador21-english;
 18/08/2006NetherlandsIn general, we think that some of the recommendations on leases may be too detailed, especially when one realises that some of the related items will be of minor importance in practice. This detail may be important at the present stage to understand and make clear all conceptual ins and outs. On the other hand, in our opinion, it is important to try to limit the relevant text in the updated SNA to the basic underlying principles, avoiding getting into too many details.
Some other remarks:
• From a conceptual point of view, it seems more logical to record transferable leases as a kind of (financial) derivatives, according to which the asset on the balance sheet of the lessee is counterbalanced by a liability on the balance sheet of the lessor. Nevertheless, all in all, we prefer the proposed treatment. Of course, this also means accepting the possibility of negative non-financial assets. We do have major problems with such negative items. In practice, however, we think that there will be hardly any negative assets, as the lessees will usually (be able to) get out of the relevant contracts.
• In our opinion, it should be made clearer what is to be understood with the term “market price”: the encumbered value or the unencumbered value. We think that some of the confusion regarding the market price may be caused by this being a bit obscure.
• Regarding government permits, we agree with the difference in treatment of permits with and without an underlying asset. In our opinion, however, it is not always clear when there actually is an asset. For example, radio spectra only seem to have come into existence when government started to auction the relevant permits. Along the same lines as for radio spectra, one could also argue that all space (and especially space to drive and/or park a car) is an as-set. In the updated SNA, we should be clear on this topic.
• In the case of shared economic ownership, where the economic benefits have to be partitioned between different units, we do not favour the so-called fi-nancial lease treatment, neither the two loans approach nor the single loan approach. In our opinion, it is far too complicated, as a consequence of which it will be nearly impossible to apply in practice. In addition, it gives rise to a lot of imputations which, for a major part, are not in line with the perceptions of the relevant actors.
 18/08/2006USAWe agree with the recommendations of the AEG regarding leases and licenses. On the issue of government permits, we support recommendation 1 of the Canberra II Group, that all government permits that rely on the exercise of sovereign powers and are issued on a restricted basis should be treated as taxes.
 18/08/2006State Bank of PakistanLeases and licenses:
Financial & Operating leases need different treatment due to difference in concepts and nature of the two types of leases. Operating lease is a contract in which lessee have the rights to use an asset for a very short period of time where maintenance of the assets is the responsibility of the leaser. The depreciation and maintenance cost is charged to the profit and loss account. The ownership remains with the leaser and the leased amount received by the leaser is credited in the profit and loss account.
On the other hand, financial lease has a different concept and treatment. The asset is transferred to the leasee along with all its rights, rewards and risks. The leasee pays its rental to the leaser, which covers cost of the asset along with interest. The leaser credits its income account with the interest earned on the lease. The value of the asset and its depreciation charges are reflected in the books of the leasee and its maintenance is also the responsibility of the leasee. The value of the asset is transferred to the leasee account with the repayment proportion and at the end of the lease contract the ownership is transferred to the leasee
So, there is a strong reason to distinguish between financial and operating leases without depending on the production activity in which it was used. The break down between repayment of interest and principal should be made in case of financial lease only as interest paid on lease is charged to the financial account and the principal amount paid is to be recorded in the leased asset account. In case of operating lease, the breakdown of principal and interest amounts would not be meaningful.
Leases are for a specific period and for a limited economic life, so lease of an asset having unlimited life should be treated as resource lease rather than financial or operating Lease
 18/08/2006State Bank of PakistanGovernment permits:
When government issues licenses to undertake some specific activity by using its sovereign powers and are issued on some restricted bases, if the concerned asset is returned and non-utilized amount is received from the government, it should be treated as sale of an asset. If the asset is not returned to the government then receipt should be treated as tax.
 02/08/2006European Central BankThe ECB generally supports the recommendations made by the AEG.
 01/08/2006Hong Kong, ChinaGovernment permits:
We generally agree to the proposed treatment of government permits of different nature.
It would be useful if elaborated guidelines can be provided for recording different types of government licenses / permits in the GDP statistics to achieve consistency of national accounts statistics compiled by different economies.
 01/08/2006National Bank/ National Bureau for Statistics MoldovaNational Bank and National Bureau for Statistics of Moldova agree with the recommendations made at the latest meeting of the AEG.
 01/08/2006Reserve Bank of South AfricaWe carefully worked through all the issues and would like to give our general support to the recommendations made by the AEG.
 01/08/2006Reserve Bank of South AfricaGovernment permits:
On the issue of — treatment of (restricted) government permits, we would like to support the arguments to treat this as a sale of a non-produced, non-financial asset.
 31/07/2006Macao SARStatistics and Census Service of Macao SAR agrees to the AEG recommendations and has no further comments.
 31/07/2006Bosnia and HerzegovinaWe agree with AEG recommendations on the update of the 1993 SNA and do not have any further comments.
 31/07/2006Central Bank of NicaraguaGovernment permits:
Nicaragua está de acuerdo en tratar los permisos restringidos de igual forma que trata el SCN93 a los permisos sin restricciones, como impuesto, y no como activos no financiero no producido, ya que para reconocerlo como activos el gobierno debería tenerlos en su balance antes de la venta.
 28/07/2006VietnamLeases and licenses:
- We agree with altogether outcome of AEG were set out in this aspects.
- However, the type of asset should be further clarified and demonstrated
 28/07/2006VietnamGovernment permits:
We agree with recommendation 1: All Government permits that rely on exercise of sovereign power and are issued on a restricted basis should be treated as taxes rather than sale of a non-produced non-financial asset.
 28/07/2006FranceL’INSEE constate que les débats sur ce sujet n’ont pas encore abouti à un ensemble final de recommandations.
Il semble utile de faire les observations suivantes :
- la définition des « financial leases » et la distinction entre « financial leases » et « operating leases » ne doivent pas changer par rapport à la rédaction du SCN93 : tout au plus est-il nécessaire de préciser qu’il peut exister des « financial leases » portant sur une durée inférieure à la durée de vie attendue des actifs concernés ;
- le traitement des contrats transférables doit rester le même que celui du SCN93, même si des adaptations de rédaction sont envisagés ;
- il n’est pas nécessaire d’élaborer sur des sujets qui ne présentent pas une grande importance macro-économique, et sur lesquels il est difficile d’obtenir des données.
Sur la question des permis accordés par les administrations sans qu’il existe d’actif sousjacent, l’INSEE soutient la position qu’ils doivent être traités comme des impôts.
 28/07/2006National Bank of SlovakiaConcerning the results of the most recent AEG meeting, we fully support the conclusions and recommendations made by the AEG.
 28/07/2006AustraliaGovernment permits:
The ABS is of the view that an asset is created by the restrictive government permit. There are some unattractive features about treating these permits as taxes, including recording (for multi-year permits) a liability for government when there is no actual obligation.
 28/07/2006Bank of PortugalBanco de Portugal would like to express general support for the recommendations made in the Frankfurt meeting of the Advisory Expert Group on National Accounts (AEG).
 28/07/2006Bank of PolandPlease find our general support for the AEG recommendations made during its recent meeting in Frankfurt.
 27/07/2006PolandWe are against using maintenance as a distinction criterion between operating and financial leases. In our opinion the distinction should be based on and stay in line with the accounting rules, i.e., financial leasing if recorded by a lessee and operational if recorded by a lessor.
 27/07/2006Bank of Sierra LeoneWe agree with the recommendations made by the AEG.
 27/07/2006EgyptWe agree with recommendations made by AEG. The suggested treatment elaborates the treatment of the operating and financial leases.
 25/07/2006Bank of ItalyWe broadly support the conclusions.
 24/07/2006SwitzerlandThe SFSO supports the outcomes of the discussions of the AEG with the following comments:
- While it is true that individual characteristics of a lease have to be known in order to determine its status, the SNA should limit itself to establish broad principles. In particular, referring to the responsibility for the maintenance of the leased asset and the production activity in which it is used is an appropriate “rule of thumb”.
- We believe that operating and financial leases should be considered as assets in their own right only in exceptional cases.
- Reference could be made in the text to the guidelines being developed by government and business accountants, given the fact that these guidelines can help in the decision-making process and are up-to-date with a changing environment.
- We support the proposal made to consider that the contractual price represents the market price. Any alternative would create confusion as it is difficult to track leases characteristics and the evolution of their prices over time and make adjustments to earlier contracts. Besides the lessor is usually locked into the existing contract at the market price set at the time the contract was signed and no contractual changes (transfer of lease for example) is possible. The change in the market price since the initial contract was let is thus irrelevant.
- We agree with the treatment of prepayments as being either a payment for a service or the acquisition of an asset, depending on the nature of the agreement. However, we believe that most cases will fall into the second category.
- Finally, we also agree with the proposal made that a party contributing an asset to a collective project in lieu of a financial payment should be imputed a financial transaction in a similar way to the treatment of wages in kind
 24/07/2006GermanyGovernment permits:
We support the recommendations of the Canberra II Group, treating government permits without any underlying assets as taxes.
 24/07/2006GermanyLeases and licenses:
 24/07/2006National Bank of the Republic of AzerbaijanWe have analyzed the “Comment on the recommendations of the most recent Advisory Expert Group on National Accounts (AEG) meeting (January 30 – February 8, 2006) in Frankfurt” within the scope of our responsibilities and I am pleased to inform you that we are in agreement with the AEG recommendations.
 10/07/2006DenmarkLeases and licenses:
Regarding question (i): It is not clear from the text if lease contracts with negative value are accepted as ‘assets’. It is the view of Statistics Denmark that lease contracts with a negative value should be accepted as a non-financial non-produced asset. A lessee has a non-produced non-financial asset with a negative value when the encumbered value is larger then the unencumbered value for the underlying asset regarding the lease contract. As for nuclear plants close to termination, the negative value reflects the fact that the owner of the asset has to pay the new owner a sum of money in the case of a transfer of ownership.
General comment: It should be mentioned in SNA93 1. Rev. that for practical reasons only lease contracts with significant values should enter the balance sheets. Others could be ignored.
 10/07/2006DenmarkGovernment permits:
General comment from Statistics Denmark: Statistics Denmark is a strong supporter of the treatment of (restricted) government permits (with no underlying assets) as taxes.
It is not clear how permits issued (or “sold”) by government to a non-resident (eg. CO2-permits) should be treated. The issue paper should contain some words on this subject.
 03/01/2006CubaConsideramos que tanto la clasificación, frontera, valoración y definición de los activos convienen ser revisados. Debe ser analizado también el criterio de propiedad por parte de una unidad institucional, dado que en la metodología actual aparecen los flujos en el sistema una vez que comienzan a usarse como activos económicos; quedan excluidos recursos naturales de la actual clasificación, etc.
La formación de capital humano, forma parte en la actualidad del consumo final ante la imposibilidad hasta la fecha de considerar su apropiación por el individuo como activo. Deberá buscarse una solución para registrarse como activo
Los gastos de I+D, no se consideran activos con excepción de los destinados a la exploración minera, ya descritos. Proponemos que la I+D forme parte de los activos, y que los trabajos de exploración minera se registren independientes del stocks de reservas económicamente explotable.
 01/04/2005PolandIn the scope of leasing we think that current treatment of this issue in the SNA is proper and does not need improvements.
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