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1993 SNA Update Information - Country comments for issue:
Research and development

Issue description
Issue description in [English] | [French] | [Russian] | [Spanish]
The 1993 SNA does not recognize the output of R&D as capital formation, despite the fact it is thought to be a major contributor to future economic growth. If the SNA were to be changed, should all expenditure on R&D, or only some, be recorded as capital formation? Can all the practical difficulties of deriving satisfactory estimates be overcome, for example by using expenditure data collected in accordance with the Frascati Manual, and obtaining appropriate deflators and service lives?
Country comments
Number of country comments for selected issue:45
  Date postedSourceComment
 10/10/2006SwedenDisagreement with proposal
 10/10/2006Denmark Denmark9;
 10/10/2006GermanyWe reject this proposed change.
In our opinion, this is not a new phenomenon. The issue was discussed in detail already for the last SNA revision. Since that time, no major methodical progress has been made and the importance of the issue has not considerably increased. Our national user survey has very clearly shown that users reject the inclusion of own-account research and development (R&D) as capital formation into the national accounting core system. Users favour the representation of R&D in a satellite system. Another argument for treating R&D in this way is the multitude of unsolved practical statistical problems, such as problems of estimating own-account R&D, the lack of price indices for deflation, lack of quarterly data, lack of useful life, lack of regional data, etc.
 27/09/2006IcelandStatistics Iceland is of the opinion that it is not advisable to capitalize R&D following the definitions in the Frascati manual. Definitions in that manual are vague and very much depend on subjective views of the compilers. Therefore there is a risk of a lack of consistency both between countries and from time to time within the same country. To improve consistency, a better solution is to follow the accounting principles of the enterprises. These principles to a great extent follow international guidelines which ensure comparability between countries.
 15/09/2006LatviaWe support the proposal of recording expenditure on R&D as capital formation. Particular change will be completely in line with accounting and bookkeeping rules of Latvia.
 15/09/2006United KingdomThe United Kingdom is in broad agreement with the recommendations made by the AEG on this issue and we support the moves to refine the definitions of R&D. We support the moves to make adjustments to the Frascati framework to meet the needs of the SNA more closely. We note the AEG recommendation that freely available R&D should not be included as capital formation and believe that this needs further description and definition. We believe that the correct treatment of freely available R&D needs to be set out in the SNA along with guidance on measurement.
We remain however concerned that payments for the use of intellectual property arising from the activity of Research and Development are more akin to property income as defined in the current SNA, as opposed to rental payments for capital services provided. The recent allocation of Microsoft patent rights from the USA to Ireland, and the redirection of the associated licence fees to Ireland, seem more like a change in Gross National Income through a re-direction of property income, than an increase in GDP due to an increase in rental through ownership of fixed assets. We believe this subject requires further consideration before the issue is closed.
 15/09/2006NorwayRegarding the provisional recommendation to capitalize R&D, we sympathise with the recommendation from a theoretical point of view and believe this is the way forward. However, we realise that this is a rather fundamental change to the system, and there are still unresolved problems of theoretical, methodological and empirical nature. It can, therefore, be questioned whether the implementation of this recommendation will hamper comparability between countries. We recommend that in an interim period, satellite accounts should be used to test and evaluate the consequences of R&D capitalisation. We do not think that a satellite account is the answer on a permanent basis. At the point of time when experiences are gained, and when we believe that GDP included capitalisation of R&D represents the best and most relevant measure, then it is also time to include it in the core accounts.
 14/09/2006Bank of LithuaniaIt should be treated as gross capital formation. We suppose that transfers in cash which is linked to, or conditional on the Research and development have to be attributed to the capital transfers.
 06/09/2006Monetary Agency of Saudi ArabiaThere is no clear treatment of on-job related improvements in skills of workers. Is on-job training considered in the estimation of output as a human capital formation?
 18/08/2006ItalyWe agree with the proposal to change the SNA and to record the expenditure on R&D as gross fixed capital formation but excluding freely disseminated R&D from capitalisation.
 18/08/2006SingaporeWe agree with the recommendation to recognise output of R&D as assets, but consider the practicality of including a return to capital on non-financial assets used in non-market R&D production to be a major concern (reference to Issue 16).
 27/07/2006EgyptThe idea of including all research and development as capital formation is mostly accepted but practically we will face a lot of problems concerning the kinds of R & D in different areas and the valuation in constant prices.
 24/07/2006NepalIn principle the idea of incorporating the expenditure on R&D is very much sensible. But the problem arises in practice- getting data on regular basis. Methodology of data sources and methods needs to be developed to track the expenditure on R&D more precisely.
 23/02/2006South African Reserve Bank Although we acknowledge the theoretical aspect of the capitalisation of R&D, we are concerned about the number of practical issues and the assumption related to freely available R&D. We suggest a satellite approach as a phased solution to iron out all practical and statistical problems, before it is fully introduced in the SNA update.
 27/01/2006Central Bank of El SalvadorDado que dicho manual plantea que la investigación y el desarrollo experimental (l+D) comprenden el trabajo creativo llevado a cabo de forma sistemática para incrementar el volumen de conocimientos, incluido el conocimiento del hombre, la cultura y la sociedad, y el uso de esos conocimientos para crear nuevas aplicaciones, se considera en términos prácticos de estadística básica cierto grado de complejidad para su registro contable. No obstante, estamos de acuerdo en hacer un esfuerzo por incorporar dichas mediciones bajo un tratamiento similar al de la exploración minera, es decir, por el valor de los recursos asignados para la investigación y desarrollo.
 17/01/2006KuwaitKuwait agrees with the recommendations:
One) that the 1993 SNA should be changed to recognise outputs of R&D as assets.
Two) “patented entities will no longer be separately identified as such in the system but they will be subsumed into R&D assets”.
 06/01/2006State Bank of PakistanWe support the AEG recommendation to revise the treatment of research and development (R&D) in the SNA 1993 to recognize the outputs of R&D as assets. However, it is suggested that definition of an asset may be re-examined for uniformity and to remove any ambiguity between the country practices.
 03/01/2006CubaEn el SCN estas erogaciones son consideradas compras intermedias, afectando el ejercicio en que se ejecutan y no los diferentes ejercicios en que se recuperan esos gastos. Una excepción a este tratamiento son los gastos similares en exploración minera que se registran como gastos de formación bruta de capital.
El registro como consumo intermedio de la I+D conlleva a la reducción del valor agregado en igual magnitud.
Apoyamos que el registro se realice como formación bruta de capital; los servicios de I+D se venderían, formarían parte de la producción, del valor agregado y por tanto formarían parte de la demanda final.
 22/12/2005Serbia and MontenegroWe agree with the suggested changes.
 14/12/2005FranceL'INSEE est favorable à la reconnaissance du produit de I'activité de Recherche-Développement en tant que formation de capital fixe.
La production de données relatives au stock d'actifs de connaissances est de nature à améliorer les études sur la croissance et sur la productivité.
Du point de vue de I'INSEE, toutes les dépenses de R&D, qu'elles soient engagées par des unités marchandes ou non marchandes, doivent être traitées en formation de capital fixe.
 13/12/2005CanadaCanada agrees with the recommendations to treat R&D as gross fixed capital formation using the Frascati Manual definition of R&D. While the data collected for the GERD statistics suits the capital formation treatment well, some work still needs to be done to convert the own account activities within corporations to an output. This also means deciding on treatment of asset lives for depreciation purposes and recommended deflation techniques to get at real outputs and real capital formation. Canada will view all R&D as capital because there is no way to distinguish between what can be subject to controlled access or not. Therefore freely available R&D will be carried on the balance sheet for the determined asset life of that type of R&D.
 12/12/2005Bank of KoreaWe agree to all the recommendations and hope that more research will be undertaken to make clear the measurement standards on R&D.
 12/12/2005MexicoActualmente el SCN 1993 no reconoce la producción de la Investigación y Desarrollo (ID) como formación de capital, si toda la ID fuera incluida en la frontera de los activos existirían dificultades prácticas para derivar estimaciones satisfactorias y tendrían que ser tratadas utilizando datos de gasto recopilados según el Manual de Frascati y obtener deflactores adecuados y servicios útiles.
Estamos de acuerdo que si estas dificultades pueden ser satisfactoriamente solucionadas, sería deseable una propuesta que afecte el SCN en el sentido de tratar el gasto de ID de manera similar a la exploración minera.
Nosotros apoyamos esta recomendación del AEG para reconocer la producción de Investigación y Desarrollo como activos fijos.
Sin embargo cabe destacar que como en la mayoría d estos temas en discusión, su implementación de estas recomendaciones estaría en función de la disponibilidad de la Estadística Básica referente a esta actividad.
 09/12/2005European Central BankThe ECB does not agree with the proposed inclusion as assets of research and development made freely av*ilable as it would potentially change the current SNA definition of an asset
 09/12/2005RussiaRosstat largely supports the recommendations on the updating 1993 SNA, made at the July 2005 meeting of the Advisory Expert Group on National Accounts.
 05/12/2005Denmark m3Denmark9;
 02/12/2005NetherlandsIn the Netherlands, almost 50 % of all R&D is public R&D. As a consequence, the assumption of the AEG that the amount of R&D made freely available is small, is likely to be incorrect for the case of The Netherlands. In such cases, and we think The Netherlands is not unique in this respect, one can not uphold this assumption. Since the AEG agreed that theoretically this R&D should not be treated as an asset, one should go all the way, i.e. not recognising the relevant R&D as assets, but leaving room however to include them for practical reasons.
Another point we would like to mention is the feedback we got from important users of our R&D data. Somewhat to our surprise, a number of acknowledged scientists in this field was against capitalising R&D mainly because, in their opinion, it is nearly impossible to value the relevant assets properly. As such, they consider R&D-expenditure as a very poor proxy of the value of the assets.
 02/12/2005AustraliaAustralia agrees with the AEG recommendations. Regarding recommendation (b) which was presented to the AEG meeting, Australia believes all R&D expenditure (including that which is made freely available) should be included as capital formation, as all R&D has the potential to contribute to the production process.
 02/12/2005TurkeyWe agree with the recommendations made at the July 2005 meeting of the Advisory Expert Group on National Accounts.
 01/12/2005GermanyThe Federal Statistical Office of Germany is against the capitalisation of R&D and in favour of remaining with the current treatment of R&D in the SNA 93. Nevertheless we acknowledge, that from a certain theoretical point of view it could be desirable to have data on capitalised R&D. The main arguments against the capitalisation of R&D in national accounts are:
- Current R&D-expenditures gain possible future income. But the question is, if the proposed classification as Intangible Assets and part of Gross Fixed Capital Formation (GFCF) is adequate. R&D in general can be seen as raising the stock of knowledge and skills that contribute to improvements of tangible assets or raise direct the efficiency of labour in the future. Insofar R&D would rather be part of human capital or an own category.
- There are a lot of practical problems, starting from measuring the expenditures as proposed instead of the results, the unsolved problems of adequate measurement of prices and last but not least the estimation of average service lives and the distribution of service lives.
- Nowadays it is not allowed in German business accounts to capitalise R&D-expenditure. Doing this in national accounts would raise another difference to business accounts with the result of further problems of interpretation of national accounts in comparison with business accounts. National accounts would include more and more notional, model-based elements and therefore reflect economic reality from bad to worse.
- Gross Domestic Product (GDP) and Gross National Income (GNI) are of high political relevance. Capitalising R&D has direct influence on the level and development of GDP and GNI and therefore direct impact on the own resources within the European Union. From this point of view all the more and more model-based estimations in national accounts – such as capitalising R&D – should be rejected.
It could be useful to treat R&D in a satellite system to get experience with the raised practical-statistical problems.
 01/12/2005NorwayWe agree with the AEG's recommendations.
 01/12/2005IsraelWe agree with the recommendations of the AEG. We would also like to express our strong support for the registration of R&D produced by non-market producers and made freely available as assets, and not only due to practical reasons. Non-market R&D is important for the analysis of production processes of the whole economy, even though it may not be possible to allocate the capital services derived from the R&D between units in the economy. Another important reason for including such R&D as assets is that countries differ very much in the institutional organization of R&D production – in some countries R&D is mainly developed in higher education or government institutions, in others private enterprises are fulfilling similar functions. Omitting R&D produced in higher education and government would distort international comparisons.
 01/12/2005SloveniaWe have some concerns about the inclusion of R&D expenditures as part of capital formation and assets. Part of R&D expenditures is already included or reflected in other assets which are already part of capital formation and assets. There would be a problem of determination of lifetime of these assets.
 01/12/2005Hong Kong, China• We support the AEG's recommendation that expenditure on research and development should be capitalized and treated as capital formation, as R&D contributes to the expansion of production capacity and enhances future production.
• However, the compilation of the market value of capital formation on research and development is difficult in practice. Hence, we suggest that the AEG would provide more detailed guidelines in the updated version of 1993 SNA, particularly on the following aspects:
- Method of measuring the market value of capital formation in research and development, especially for own-account production. While the simple approach is to sum up the costs incurred, there is however a difference between input costs and the outcomes, particularly in the area of research and development.
- Method of measuring the volume of capital formation in research and development, to take into account the quality differences in the R&D engaged in various sectors.
 01/12/2005United KingdomWhile the United Kingdom is broadly in agreement with most of the recommendations made by the AEG on this issue, we are of the view that the definition of R&D in the Frascati Manual and in the SNA should be consistent with one another. Therefore, considering that the AEG agreed to use the Frascati Manual definition of R&D, we would support moves to refine the definitions. However, we would strongly urge a move closer towards the SNA,

for example complying with the SNA definitions used for current expenditure and capital expenditure. Within recommendation (b) we note that freely available R&D will not normally meet the definition of an economic asset. We think that the theoretically correct treatment should be described in SNA, with some guidance on acceptable approximations for measurement.
 30/11/2005Slovak RepublicSO SR agree with AEG recommendations.
 30/11/2005Palestinian Central Bureau of StatisticsWe agree with the recommendations related to this issue due to its significant role in developing the society regardless of the levels micro or macro economic and both in short and long run.
 30/11/2005FinlandIn theory r&d should be capitalised, but there are serious practical problems how to combine Frascati data and business statistics data (structural business statistics in EU) in order to avoid double counting or missing of data.
 30/11/2005ItalyIstat fully agrees with the recommendations made at the July 2005 meeting of the Advisory Expert Group on National Accounts.
 30/11/2005State Bank of VietnamThe output of Research and development should be recognized as capital formation. Research and development expenditure should be treated in a similar way to mineral explorative activity.
 29/11/2005LithuaniaWe support the recommendation to recognise thr output of R&D as a capital formation.
 29/11/2005EstoniaFor purposes of explaining growth in output by estimating the different inputs in production process, Estonia is in favour of capitalizing R&D output. The FM definition of R&D expenditure should be adopted in the SNA, with the clarification of not implying the human capital as an asset in the SNA.
 29/11/2005People's Bank of ChinaI agree with your improvements and have no other suggestions.
 25/11/2005VietnamThe output of Research and development should be recognized as capital formation. Research and development expenditure should be treated in a similar way to mineral explorative activity
 21/11/2005USAWe endorse the recommendation of the AEG to recognize the output of research and development as fixed assets.
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