\nSummarize the following text:\n8.7.2016 EN Official Journal of the European Union L 183/1 COUNCIL REGULATION (EU) 2016/1103 of 24 June 2016 implementing enhanced cooperation in the area of jurisdiction, applicable law and the recognition and nforcement of decisions in matters of matrimonial property regimes THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 81(3) thereof, Having regard to Council Decision (EU) 2016/954 of 9 June 2016 authorising enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions on the property regimes of international couples, covering both matters of matrimonial property regimes and the property consequences of registered partnerships (1), Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Parliament (2), Acting in accordance with a special legislative procedure, Whereas: (1) The Union has set itself the objective of maintaining and developing an area of freedom, security and justice in which the free movement of persons is ensured. For the gradual establishment of such an area, the Union is to adopt measures relating to judicial cooperation in civil matters having cross-border implications, particularly when necessary for the proper functioning of the internal market. (2) In accordance with point (c) of Article 81(2) of the Treaty on the Functioning of the European Union (TFEU), such measures may include measures aimed at ensuring the compatibility of the rules applicable in the Member States concerning conflict of laws and of jurisdiction. (3) The European Council meeting in Tampere on 15 and 16 October 1999 endorsed the principle of mutual recognition of judgments and other decisions of judicial authorities as the cornerstone of judicial cooperation in civil matters and invited the Council and the Commission to adopt a programme of measures to implement that principle. (4) A programme of measures for the implementation of the principle of mutual recognition of decisions in civil and commercial matters (3), common to the Commission and to the Council, was adopted on 30 November 2000. That programme identifies measures relating to the harmonisation of conflict-of-law rules as measures facilitating the mutual recognition of decisions and provides for the drawing-up of an instrument in matters of matrimonial property regimes. (5) The European Council meeting in Brussels on 4 and 5 November 2004 adopted a new programme called ‘The Hague programme: strengthening freedom, security and justice in the European Union’ (4). In this programme the Council asked the Commission to present a Green Paper on the conflict of laws in matters concerning matrimonial property regimes, including the question of jurisdiction and mutual recognition. The programme also stressed the need to adopt an instrument in this area. (6) On 17 July 2006 the Commission adopted the Green Paper on the conflict of laws in matters concerning matrimonial property regimes, including the question of jurisdiction and mutual recognition. This Green Paper launched wide consultations on all aspects of the difficulties faced by couples in Europe when it comes to the liquidation of their common property and the legal remedies available. (7) At its meeting in Brussels on 10 and 11 December 2009 the European Council adopted a new multiannual programme called ‘The Stockholm programme — An open and secure Europe serving and protecting citizens’ (5). In that programme the European Council considered that mutual recognition should be extended to fields that are not yet covered but are essential to everyday life, for example matrimonial property rights, while taking into consideration Member States' legal systems, including public policy (ordre public), and national traditions in this area. (8) In the ‘EU Citizenship Report 2010: Dismantling the obstacles to EU citizens' rights’, adopted on 27 October 2010, the Commission announced that it would adopt a proposal for legislation to eliminate the obstacles to the free movement of persons, in particular the difficulties experienced by couples in managing or dividing their property. (9) On 16 March 2011, the Commission adopted a proposal for a Council Regulation on jurisdiction, applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes and a proposal for a Council Regulation on jurisdiction, applicable law and the recognition and enforcement of decisions regarding the property consequences of registered partnerships. (10) At its meeting of 3 December 2015, the Council concluded that no unanimity could be reached for the adoption of the proposals for the regulations on matrimonial property regimes and the property consequences of registered partnerships and that therefore the objectives of cooperation in this area could not be attained within a reasonable period by the Union as a whole. (11) From December 2015 to February 2016, Belgium, Bulgaria, the Czech Republic, Germany, Greece, Spain, France, Croatia Italy, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Finland and Sweden addressed requests to the Commission indicating that they wished to establish enhanced cooperation between themselves in the area of the property regimes of international couples and, specifically, of the jurisdiction, applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes and jurisdiction, applicable law and the recognition and enforcement of decisions regarding the property consequences of registered partnerships, and asking the Commission to submit a proposal to the Council to that effect. By letter to the Commission in March 2016, Cyprus indicated its wish to participate in the establishment of the enhanced cooperation; Cyprus reiterated this wish during the work of the Council. (12) On 9 June 2016, the Council adopted Decision (EU) 2016/954 authorising such enhanced cooperation. (13) According to Article 328(1) TFEU, when enhanced cooperation is being established, it is to be open to all Member States, subject to compliance with any conditions of participation laid down by the authorising decision. It is also to be open to them at any other time, subject to compliance with the acts already adopted within that framework, in addition to those conditions. The Commission and the Member States participating in enhanced cooperation should ensure that they promote participation by as many Member States as possible. This Regulation should be binding in its entirety and directly applicable only in the Member States which participate in enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions on the property regimes of international couples, covering both matters of matrimonial property regimes and the property consequences of registered partnerships, by virtue of Decision (EU) 2016/954, or by virtue of a decision adopted in accordance with the second or third subparagraph of Article 331(1) TFEU. (14) In accordance with Article 81 TFEU, this Regulation should apply in the context of matrimonial property regimes having cross-border implications. (15) To provide married couples with legal certainty as to their property and offer them a degree of predictability, all the rules applicable to matrimonial property regimes should be covered in a single instrument. (16) In order to achieve those objectives, this Regulation should bring together provisions on jurisdiction, applicable law, recognition or, as the case may be, acceptance, enforceability and enforcement of decisions, authentic instruments and court settlements. (17) This Regulation does not define ‘marriage’, which is defined by the national laws of the Member States. (18) The scope of this Regulation should include all civil-law aspects of matrimonial property regimes, both the daily management of matrimonial property and the liquidation of the regime, in particular as a result of the couple's separation or the death of one of the spouses. For the purposes of this Regulation, the term ‘matrimonial property regime’ should be interpreted autonomously and should encompass not only rules from which the spouses may not derogate but also any optional rules to which the spouses may agree in accordance with the applicable law, as well as any default rules of the applicable law. It includes not only property arrangements specifically and exclusively envisaged by certain national legal systems in the case of marriage but also any property relationships, between the spouses and in their relations with third parties, resulting directly from the matrimonial relationship, or the dissolution thereof. (19) For reasons of clarity, a number of questions which could be seen as having a link with matters of matrimonial property regime should be explicitly excluded from the scope of this Regulation. (20) Accordingly, this Regulation should not apply to questions of general legal capacity of the spouses; however, this exclusion should not cover the specific powers and rights of either or both spouses with regard to property, either as between themselves or as regards third parties, as these powers and rights should fall under the scope of this Regulation. (21) This Regulation should not apply to other preliminary questions such as the existence, validity or recognition of a marriage, which continue to be covered by the national law of the Member States, including their rules of private international law. (22) As maintenance obligations between spouses are governed by Council Regulation (EC) No 4/2009 (6), they should be excluded from the scope of this Regulation, as should issues relating to the succession to the estate of a deceased spouse, since they are covered by Regulation (EU) No 650/2012 of the European Parliament and of the Council (7). (23) Issues of entitlements to transfer or adjustment between spouses of rights to retirement or disability pension, whatever their nature, accrued during marriage and which have not generated pension income during the marriage are matters that should be excluded from the scope of this Regulation, taking into account the specific systems existing in the Member States. However, this exclusion should be strictly interpreted. Hence, this Regulation should govern in particular the issue of classification of pension assets, the amounts that have already been paid to one spouse during the marriage, and the possible compensation that would be granted in case of a pension subscribed with common assets. (24) This Regulation should allow for the creation or the transfer resulting from the matrimonial property regime of a right in immoveable or moveable property as provided for in the law applicable to the matrimonial property regime. It should, however, not affect the limited number (‘numerus clausus’) of rights in rem known in the national law of some Member States. A Member State should not be required to recognise a right in rem relating to property located in that Member State if the right in rem in question is not known in its law. (25) However, in order to allow the spouses to enjoy in another Member State the rights which have been created or transferred to them as a result of the matrimonial property regime, this Regulation should provide for the adaptation of an unknown right in rem to the closest equivalent right under the law of that other Member State. In the context of such an adaptation, account should be taken of the aims and the interests pursued by the specific right in rem and the effects attached to it. For the purposes of determining the closest equivalent national right, the authorities or competent persons of the State whose law is applied to the matrimonial property regime may be contacted for further information on the nature and the effects of the right. To that end, the existing networks in the area of judicial cooperation in civil and commercial matters could be used, as well as any other available means facilitating the understanding of foreign law. (26) The adaptation of unknown rights in rem as explicitly provided for by this Regulation should not preclude other forms of adaptation in the context of the application of this Regulation. (27) The requirements for the recording in a register of a right in immoveable or moveable property should be excluded from the scope of this Regulation. It should therefore be the law of the Member State in which the register is kept (for immoveable property, the lex rei sitae) which determines under what legal conditions, and how, the recording must be carried out and which authorities, such as land registers or notaries, are in charge of checking that all requirements are met and that the documentation presented or established is sufficient or contains the necessary information. In particular, the authorities may check that the right of a spouse to a property mentioned in the document presented for registration is a right which is recorded as such in the register or which is otherwise demonstrated in accordance with the law of the Member State in which the register is kept. In order to avoid duplication of documents, the registration authorities should accept such documents, drawn up in another Member State by the competent authorities the circulation of which is provided for by this Regulation. This should not preclude the authorities involved in the registration from asking the person applying for registration to provide such additional information, or to present such additional documents, as are required under the law of the Member State in which the register is kept, for instance information or documents relating to the payment of revenue. The competent authority may indicate to the person applying for registration how the missing information or documents can be provided. (28) The effects of the recording of a right in a register should also be excluded from the scope of this Regulation. It should therefore be the law of the Member State in which the register is kept which determines whether the recording is, for instance, declaratory or constitutive in effect. Thus, where, for example, the acquisition of a right in immoveable property requires a recording in a register under the law of the Member State in which the register is kept in order to ensure the erga omnes effect of registers or to protect legal transactions, the moment of such acquisition should be governed by the law of that Member State. (29) This Regulation should respect the different systems for dealing with matters of the matrimonial property regime applied in the Member States. For the purposes of this Regulation, the term ‘court’ should therefore be given a broad meaning so as to cover not only courts in the strict sense of the word, exercising judicial functions, but also for example notaries in some Member States who, in certain matters of matrimonial property regime, exercise judicial functions like courts, and the notaries and legal professionals who, in some Member States, exercise judicial functions in a given matrimonial property regime by delegation of power by a court. All courts as defined in this Regulation should be bound by the rules of jurisdiction set out in this Regulation. Conversely, the term ‘court’ should not cover non-judicial authorities of a Member State empowered under national law to deal with matters of matrimonial property regime, such as the notaries in most Member States where, as is usually the case, they are not exercising judicial functions. (30) This Regulation should allow all notaries who are competent in matters of matrimonial property regime in the Member States to exercise such competence. Whether or not the notaries in a given Member State are bound by the rules of jurisdiction set out in this Regulation should depend on whether or not they are covered by the term ‘court’ for the purposes of this Regulation. (31) Acts issued by notaries in matters of matrimonial property regime in the Member States should circulate in accordance with this Regulation. When notaries exercise judicial functions they should be bound by the rules of jurisdiction set out in this Regulation, and the decisions they give should circulate in accordance with the provisions of this Regulation on recognition, enforceability and enforcement of decisions. When notaries do not exercise judicial functions they should not be bound by those rules of jurisdiction, and the authentic instruments they issue should circulate in accordance with the provisions of this Regulation on authentic instruments. (32) To reflect the increasing mobility of couples during their married life and facilitate the proper administration of justice, the rules on jurisdiction set out in in this Regulation should enable citizens to have their various related procedures handled by the courts of the same Member State. To that end, this Regulation should seek to concentrate the jurisdiction on matrimonial property regime in the Member State whose courts are called upon to handle the succession of a spouse in accordance with Regulation (EU) No 650/2012, or the divorce, legal separation or marriage annulment in accordance with Council Regulation (EC) No 2201/2003 (8). (33) This Regulation should provide that, where proceedings on the succession of a spouse are pending before the court of a Member State seised under Regulation (EU) No 650/2012, the courts of that State should have jurisdiction to rule on matters of matrimonial property regimes arising in connection with that succession case. (34) Similarly, matters of matrimonial property regimes arising in connection with proceedings pending before the court of a Member State seised for divorce, legal separation or marriage annulment under Regulation (EC) No 2201/2003, should be dealt with by the courts of that Member State unless the jurisdiction to rule on the divorce, legal separation or marriage annulment may only be based on specific grounds of jurisdiction. In such cases, the concentration of jurisdiction should not be allowed without the spouses' agreement. (35) Where matters of matrimonial property regime are not linked to proceedings pending before the court of a Member State on the succession of a spouse or on divorce, legal separation or marriage annulment, this Regulation should provide for a scale of connecting factors for the purposes of determining jurisdiction, starting with the habitual residence of the spouses at the time the court is seised. These connecting factors are set in view of the increasing mobility of citizens and in order to ensure that a genuine connecting factor exists between the spouses and the Member State in which jurisdiction is exercised. (36) In order to increase legal certainty, predictability and the autonomy of the parties, this Regulation should, under certain circumstances, enable the parties to conclude a choice of court agreement in favour of the courts of the Member State of the applicable law or of the courts of the Member State of the conclusion of the marriage. (37) For the purposes of this Regulation and in order to cover all possible situations, the Member State of the conclusion of the marriage should be the Member State before whose authorities the marriage is concluded. (38) The courts of a Member State may hold that, under their private international law, the marriage in question cannot be recognised for the purposes of matrimonial property regime proceedings. In such a case, it may exceptionally be necessary to decline jurisdiction under this Regulation. The courts shall act swiftly and the party concerned should have the possibility to submit the case in any other Member State that has a connecting factor granting jurisdiction, irrespective of the order of the jurisdiction grounds, while at the same time respecting the parties' autonomy. Any court seised after a declining of jurisdiction other than the courts of the Member State of the conclusion of the marriage, may also exceptionally need to decline jurisdiction under the same conditions. The combination of the various jurisdiction rules should, however, ensure that parties have all possibilities to seise the courts of a Member State which will accept jurisdiction for the purposes of giving effect to their matrimonial property regime. (39) This Regulation should not prevent the parties from settling the matrimonial property regime case amicably out of court, for instance before a notary, in a Member State of their choice where this is possible under the law of that Member State. This should be the case even if the law applicable to the matrimonial property regime is not the law of that Member State. (40) In order to ensure that the courts of all Member States may, on the same grounds, exercise jurisdiction in relation to the matrimonial property regimes of spouses, this Regulation should set out in an exhaustive way the grounds on which such subsidiary jurisdiction may be exercised. (41) In order to remedy, in particular, situations of denial of justice, this Regulation should provide for a forum necessitatis allowing a court of a Member State, on an exceptional basis, to rule on a matrimonial property regime which is closely connected with a third state. Such an exceptional basis may be deemed to exist when proceedings prove impossible in the third state in question, for example because of civil war, or when a spouse cannot reasonably be expected to initiate or conduct proceedings in that State. Jurisdiction based on forum necessitatis should, however, be exercised only if the case has a sufficient connection with the Member State of the court seised. (42) In the interests of the harmonious functioning of justice, the giving of irreconcilable decisions in different Member States should be avoided. To that end, this Regulation should provide for general procedural rules similar to those of other Union instruments in the area of judicial cooperation in civil matters. One such procedural rule is a lis pendens rule, which will come into play if the same matrimonial property regime case is brought before different courts in different Member States. That rule will then determine which court should proceed to deal with the matrimonial property regime case. (43) In order to allow citizens to avail themselves, with all legal certainty, of the benefits offered by the internal market, this Regulation should enable spouses to know in advance which law will apply to their matrimonial property regime. Harmonised conflict-of-law rules should therefore be introduced in order to avoid contradictory results. The main rule should ensure that the matrimonial property regime is governed by a predictable law with which it is closely connected. For reasons of legal certainty and in order to avoid the fragmentation of the matrimonial property regime, the law applicable to a matrimonial property regime should govern that regime as a whole, that is to say, all the property covered by that regime, irrespective of the nature of the assets and regardless of whether the assets are located in another Member State or in a third state. (44) The law determined by this Regulation should apply even if it is not the law of a Member State. (45) To facilitate to spouses the management of their property, this Regulation should authorise them to choose the law applicable to their matrimonial property regime, regardless of the nature or location of the property, among the laws with which they have close links because of habitual residence or their nationality. This choice may be made at any moment, before the marriage, at the time of conclusion of the marriage or during the course of the marriage. (46) To ensure the legal certainty of transactions and to prevent any change of the law applicable to the matrimonial property regime being made without the spouses being notified, no change of law applicable to the matrimonial property regime should be made except at the express request of the parties. Such a change by the spouses should not have retrospective effect unless they expressly so stipulate. Whatever the case, it may not infringe the rights of third parties. (47) Rules on the material and formal validity of an agreement on the choice of applicable law should be set up so that the informed choice of the spouses is facilitated and their consent is respected with a view to ensuring legal certainty as well as better access to justice. As far as formal validity is concerned, certain safeguards should be introduced to ensure that spouses are aware of the implications of their choice. The agreement on the choice of applicable law should at least be expressed in writing, dated and signed by both parties. However, if the law of the Member State in which the two spouses have their habitual residence at the time the agreement is concluded lays down additional formal rules, those rules should be complied with. If, at the time the agreement is concluded, the spouses are habitually resident in different Member States which lay down different formal rules, compliance with the formal rules of one of these States should suffice. If, at the time the agreement is concluded, only one of the spouses is habitually resident in a Member State which lays down additional formal rules, those rules should be complied with. (48) A matrimonial property agreement is a type of disposition on matrimonial property the admissibility and acceptance of which vary among the Member States. In order to make it easier for matrimonial property rights acquired as a result of a matrimonial property agreement to be accepted in the Member States, rules on the formal validity of a matrimonial property agreement should be defined. At least the agreement should be expressed in writing, dated and signed by both parties. However, the agreement should also fulfil additional formal validity requirements set out in the law applicable to the matrimonial property regime as determined by this Regulation and in the law of the Member State in which the spouses have their habitual residence. This Regulation should also determine which law is to govern the material validity of such an agreement. (49) Where no applicable law is chosen, and with a view to reconciling predictability and legal certainty with consideration of the life actually lived by the couple, this Regulation should introduce harmonised conflict-of-law rules to determine the law applicable to all the spouses' property on the basis of a scale of connecting factors. The first common habitual residence of the spouses shortly after marriage should constitute the first criterion, ahead of the law of the spouses' common nationality at the time of their marriage. If neither of these criteria apply, or failing a first common habitual residence in cases where the spouses have dual common nationalities at the time of the conclusion of the marriage, the third criterion should be the law of the State with which the spouses have the closest links. In applying the latter criterion all the circumstances should be taken into account and it should be made clear that these links are to be considered as they were at the time the marriage was entered into. (50) Where this Regulation refers to nationality as a connecting factor, the question of how to consider a person having multiple nationalities is a preliminary question which falls outside the scope of this Regulation and should be left to national law, including, where applicable, international Conventions, in full observance of the general principles of the Union. This consideration should have no effect on the validity of a choice of law made in accordance with this Regulation. (51) With regard to the determination of the law applicable to the matrimonial property regime in the absence of a choice of law and a matrimonial property agreement, the judicial authority of a Member State, at the request of either of the spouses, should, in exceptional cases — where the spouses have moved to the State of their habitual residence for a long duration — be able to arrive at the conclusion that the law of that State may apply if the spouses have relied on it. Whatever the case, it may not infringe the rights of third parties. (52) The law determined as the law applicable to the matrimonial property regime should govern the matrimonial property regime from the classification of property of one or both spouses into different categories during the marriage and after its dissolution, to the liquidation of the property. It should include the effects of the matrimonial property regime on a legal relationship between a spouse and third parties. However, the law applicable to matrimonial property regime may be invoked by a spouse against a third party to govern such effects only when the legal relations between the spouse and the third party arose at a time where the third party knew or should have known of that law. (53) Considerations of public interest, such as the protection of a Member State's political, social or economic organisation, should justify giving the courts and other competent authorities of the Member States the possibility, in exceptional cases, of applying exceptions based on overriding mandatory provisions. Accordingly, the concept of ‘overriding mandatory provisions’ should cover rules of an imperative nature such as rules for the protection of the family home. However, this exception to the application of the law applicable to the matrimonial property regime requires a strict interpretation in order to remain compatible with the general objective of this Regulation. (54) Considerations of public interest should also allow courts and other competent authorities dealing with matters of matrimonial property regime in the Member States to disregard, in exceptional circumstances, certain provisions of a foreign law where, in a given case, applying such provisions would be manifestly incompatible with the public policy (ordre public) of the Member State concerned. However, the courts or other competent authorities should not be able to apply the public policy exception in order to set aside the law of another State or to refuse to recognise or, as the case may be, accept or enforce a decision, an authentic instrument or a court settlement from another Member State when doing so would be contrary to the Charter of Fundamental Rights of the European Union (‘Charter’), and in particular Article 21 thereof on the principle of non-discrimination. (55) Since there are States in which two or more systems of law or sets of rules concerning matters governed by this Regulation coexist, there should be a provision governing the extent to which this Regulation applies in the different territorial units of those States. (56) In the light of its general objective, which is the mutual recognition of decisions given in the Member States in matters of matrimonial property regime, this Regulation should lay down rules relating to the recognition, enforceability and enforcement of decisions similar to those of other Union instruments in the area of judicial cooperation in civil matters. (57) In order to take into account the different systems for dealing with matters of matrimonial property regimes in the Member States, this Regulation should guarantee the acceptance and enforceability in all Member States of authentic instruments in matters of matrimonial property regime. (58) Authentic instruments should have the same evidentiary effects in another Member State as they have in the Member State of origin, or the most comparable effects. When determining the evidentiary effects of a given authentic instrument in another Member State or the most comparable effects, reference should be made to the nature and the scope of the evidentiary effects of the authentic instrument in the Member State of origin. The evidentiary effects which a given authentic instrument should have in another Member State will therefore depend on the law of the Member State of origin. (59) The ‘authenticity’ of an authentic instrument should be an autonomous concept covering elements such as the genuineness of the instrument, the formal prerequisites of the instrument, the powers of the authority drawing up the instrument and the procedure under which the instrument is drawn up. It should also cover the factual elements recorded in the authentic instrument by the authority concerned, such as the fact that the parties indicated appeared before that authority on the date indicated and that they made the declarations indicated. A party wishing to challenge the authenticity of an authentic instrument should do so before the competent court in the Member State of origin of the authentic instrument under the law of that Member State. (60) The term ‘the legal acts or legal relationships recorded in an authentic instrument’ should be interpreted as referring to the contents as to substance recorded in the authentic instrument. A party wishing to challenge the legal acts or legal relationships recorded in an authentic instrument should do so before the courts having jurisdiction under this Regulation, which should decide on the challenge in accordance with the law applicable to the matrimonial property regime. (61) If a question relating to the legal acts or legal relationships recorded in an authentic instrument is raised as an incidental question in proceedings before a court of a Member State, that court should have jurisdiction over that question. (62) An authentic instrument which is being challenged should not produce any evidentiary effects in a Member State other than the Member State of origin as long as the challenge is pending. If the challenge concerns only a specific matter relating to the legal acts or legal relationships recorded in the authentic instrument, the authentic instrument in question should not produce any evidentiary effects in a Member State other than the Member State of origin with regard to the matter being challenged as long as the challenge is pending. An authentic instrument which has been declared invalid as a result of a challenge should cease to produce any evidentiary effects. (63) Should an authority, in application of this Regulation, be presented with two incompatible authentic instruments, it should assess the question as to which authentic instrument, if any, should be given priority taking into account the circumstances of the particular case. Where it is not clear from those circumstances which authentic instrument, if any, should be given priority, the question should be determined by the courts having jurisdiction under this Regulation or, where the question is raised as an incidental question in the course of proceedings, by the court seised of those proceedings. In the event of incompatibility between an authentic instrument and a decision, regard should be had to the grounds of non-recognition of decisions under this Regulation. (64) The recognition and enforcement of a decision on matrimonial property regime under this Regulation should not in any way imply the recognition of the marriage underlying the matrimonial property regime which gave rise to the decision. (65) The relationship between this Regulation and the bilateral or multilateral conventions on matrimonial property regime to which the Member States are party should be specified. (66) This Regulation should not preclude Member States which are parties to the Convention of 6 February 1931 between Denmark, Finland, Iceland, Norway and Sweden containing international law provisions on marriage, adoption and guardianship, as revised in 2006; to the Convention of 19 November 1934 between Denmark, Finland, Iceland, Norway and Sweden comprising private international law provisions on succession, wills and estate administration, as revised in June 2012; and to the Convention of 11 October 1977 between Denmark, Finland, Iceland, Norway and Sweden on the recognition and enforcement of judgments in civil matters, from continuing to apply certain provisions of these Conventions in so far as they provide for simplified and more expeditious procedures for the recognition and enforcement of decisions in matters of matrimonial property regime. (67) In order to facilitate the application of this Regulation, provision should be made for an obligation requiring Member States to communicate certain information regarding their legislation and procedures relating to matrimonial property regimes within the framework of the European Judicial Network in civil and commercial matters established by Council Decision 2001/470/EC (9). In order to allow for the timely publication in the Official Journal of the European Union of all information of relevance for the practical application of this Regulation, the Member States should also communicate such information to the Commission before this Regulation starts to apply. (68) Equally, to facilitate the application of this Regulation and to allow for the use of modern communication technologies, standard forms should be prescribed for the attestations to be provided in connection with the application for a declaration of enforceability of a decision, authentic instrument or court settlement. (69) In calculating the periods and time limits provided for in this Regulation, Regulation (EEC, Euratom) No 1182/71 of the Council (10) should apply. (70) In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission with regard to the establishment and subsequent amendment of the attestations and forms pertaining to the declaration of enforceability of decisions, court settlements and authentic instruments. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (11). (71) The advisory procedure should be used for the adoption of implementing acts establishing and subsequently amending the attestations and forms provided for in this Regulation. (72) The objectives of this Regulation, namely the free movement of persons in the Union, the opportunity for spouses to arrange their property relations in respect of themselves and others during their life as a couple and when liquidating their property, and greater predictability and legal certainty, cannot be sufficiently achieved by the Member States, but can rather, by reason of the scale and effects of this Regulation, be better achieved at Union level, where appropriate by means of enhanced cooperation between Member States. In accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union, the Union has therefore competence to act. In accordance with the principle of proportionality set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives. (73) This Regulation respects fundamental rights and observes the principles recognised in the Charter, in particular Articles 7, 9, 17, 21 and 47 concerning, respectively, respect for private and family life, the right to marry and to found a family according to national laws, property rights, the principle of non-discrimination and the right to an effective remedy and to a fair trial. This Regulation should be applied by the courts and other competent authorities of the Member States in compliance with those rights and principles. HAS ADOPTED THIS REGULATION: CHAPTER I SCOPE AND DEFINITIONS Article 1 Scope 1. This Regulation shall apply to matrimonial property regimes. It shall not apply to revenue, customs or administrative matters. 2. The following shall be excluded from the scope of this Regulation: (a) the legal capacity of spouses; (b) the existence, validity or recognition of a marriage; (c) maintenance obligations; (d) the succession to the estate of a deceased spouse; (e) social security; (f) the entitlement to transfer or adjustment between spouses, in the case of divorce, legal separation or marriage annulment, of rights to retirement or disability pension accrued during marriage and which have not generated pension income during the marriage; (g) the nature of rights in rem relating to a property; and (h) any recording in a register of rights in immoveable or moveable property, including the legal requirements for such recording, and the effects of recording or failing to record such rights in a register. Article 2 Competence in matters of matrimonial property regimes within the Member States This Regulation shall not affect the competence of the authorities of the Member States to deal with matters of matrimonial property regimes. Article 3 Definitions 1. For the purposes of this Regulation: (a) ‘matrimonial property regime’ means a set of rules concerning the property relationships between the spouses and in their relations with third parties, as a result of marriage or its dissolution; (b) ‘matrimonial property agreement’ means any agreement between spouses or future spouses by which they organise their matrimonial property regime; (c) ‘authentic instrument’ means a document in a matter of a matrimonial property regime which has been formally drawn up or registered as an authentic instrument in a Member State and the authenticity of which: (i) relates to the signature and the content of the authentic instrument; and (ii) has been established by a public authority or other authority empowered for that purpose by the Member State of origin; (d) ‘decision’ means any decision in a matter of a matrimonial property regime given by a court of a Member State, whatever the decision may be called, including a decision on the determination of costs or expenses by an officer of the court; (e) ‘court settlement’ means a settlement in a matter of matrimonial property regime which has been approved by a court, or concluded before a court in the course of proceedings; (f) ‘Member State of origin’ means the Member State in which the decision has been given, the authentic instrument drawn up, or the court settlement approved or concluded; (g) ‘Member State of enforcement’ means the Member State in which recognition and/or enforcement of the decision, the authentic instrument, or the court settlement is requested. 2. For the purposes of this Regulation, the term ‘court’ means any judicial authority and all other authorities and legal professionals with competence in matters of matrimonial property regimes which exercise judicial functions or act by delegation of power by a judicial authority or under its control, provided that such other authorities and legal professionals offer guarantees with regard to impartiality and the right of all parties to be heard, and provided that their decisions under the law of the Member State in which they operate: (a) may be made the subject of an appeal to or review by a judicial authority; and (b) have a similar force and effect as a decision of a judicial authority on the same matter. The Member States shall notify the Commission of the other authorities and legal professionals referred to in the first subparagraph in accordance with Article 64. CHAPTER II JURISDICTION Article 4 Jurisdiction in the event of the death of one of the spouses Where a court of a Member State is seised in matters of the succession of a spouse pursuant to Regulation (EU) No 650/2012, the courts of that State shall have jurisdiction to rule on matters of the matrimonial property regime arising in connection with that succession case. Article 5 Jurisdiction in cases of divorce, legal separation or marriage annulment 1. Without prejudice to paragraph 2, where a court of a Member State is seised to rule on an application for divorce, legal separation or marriage annulment pursuant to Regulation (EC) No 2201/2003, the courts of that State shall have jurisdiction to rule on matters of the matrimonial property regime arising in connection with that application. 2. Jurisdiction in matters of matrimonial property regimes under paragraph 1 shall be subject to the spouses' agreement where the court that is seised to rule on the application for divorce, legal separation or marriage annulment: (a) is the court of a Member State in which the applicant is habitually resident and the applicant had resided there for at least a year immediately before the application was made, in accordance with the fifth indent of Article 3(1)(a) of Regulation (EC) No 2201/2003; (b) is the court of a Member State of which the applicant is a national and the applicant is habitually resident there and had resided there for at least six months immediately before the application was made, in accordance with sixth indent of Article 3(1)(a) of Regulation (EC) No 2201/2003; (c) is seised pursuant to Article 5 of Regulation (EC) No 2201/2003 in cases of conversion of legal separation into divorce; or (d) is seised pursuant to Article 7 of Regulation (EC) No 2201/2003 in cases of residual jurisdiction. 3. If the agreement referred to in paragraph 2 of this Article is concluded before the court is seised to rule on matters of matrimonial property regimes, the agreement shall comply with Article 7(2). Article 6 Jurisdiction in other cases Where no court of a Member State has jurisdiction pursuant to Article 4 or 5 or in cases other than those provided for in those Articles, jurisdiction to rule on a matter of the spouses' matrimonial property regime shall lie with the courts of the Member State: (a) in whose territory the spouses are habitually resident at the time the court is seised; or failing that (b) in whose territory the spouses were last habitually resident, insofar as one of them still resides there at the time the court is seised; or failing that (c) in whose territory the respondent is habitually resident at the time the court is seised; or failing that (d) of the spouses' common nationality at the time the court is seised. Article 7 Choice of court 1. In cases which are covered by Article 6, the parties may agree that the courts of the Member State whose law is applicable pursuant to Article 22, or point (a) or (b) of Article 26(1), or the courts of the Member State of the conclusion of the marriage shall have exclusive jurisdiction to rule on matters of their matrimonial property regime. 2. The agreement referred to in paragraph 1 shall be expressed in writing and dated and signed by the parties. Any communication by electronic means which provides a durable record of the agreement shall be deemed equivalent to writing. Article 8 Jurisdiction based on the appearance of the defendant 1. Apart from jurisdiction derived from other provisions of this Regulation, a court of a Member State whose law is applicable pursuant to Article 22 or point (a) or (b) of Article 26(1), and before which a defendant enters an appearance, shall have jurisdiction. This rule shall not apply where appearance was entered to contest the jurisdiction, or in cases covered by Article 4 or 5(1). 2. Before assuming jurisdiction pursuant to paragraph 1, the court shall ensure that the defendant is informed of his right to contest the jurisdiction and of the consequences of entering or not entering an appearance. Article 9 Alternative jurisdiction 1. By way of exception, if a court of the Member State that has jurisdiction pursuant to Article 4, 6, 7 or 8 holds that, under its private international law, the marriage in question is not recognised for the purposes of matrimonial property regime proceedings, it may decline jurisdiction. If the court decides to decline jurisdiction, it shall do so without undue delay. 2. Where a court having jurisdiction pursuant to Article 4 or 6 declines jurisdiction and where the parties agree to confer jurisdiction to the courts of any other Member State in accordance with Article 7, jurisdiction to rule on the matrimonial property regime shall lie with the courts of that Member State. In other cases, jurisdiction to rule on the matrimonial property regime shall lie with the courts of any other Member State pursuant to Article 6 or 8, or the courts of the Member State of the conclusion of the marriage. 3. This Article shall not apply when the parties have obtained a divorce, legal separation or marriage annulment which is capable of being recognised in the Member State of the forum. Article 10 Subsidiary jurisdiction Where no court of a Member State has jurisdiction pursuant to Article 4, 5, 6, 7 or 8, or when all the courts pursuant to Article 9 have declined jurisdiction and no court has jurisdiction pursuant to Article 9(2), the courts of a Member State shall have jurisdiction in so far as immoveable property of one or both spouses are located in the territory of that Member State, but in that event the court seised shall have jurisdiction to rule only in respect of the immoveable property in question. Article 11 Forum necessitatis Where no court of a Member State has jurisdiction pursuant to Article 4, 5, 6, 7, 8 or 10, or when all the courts pursuant to Article 9 have declined jurisdiction and no court of a Member State has jurisdiction pursuant to Article 9(2) or Article 10, the courts of a Member State may, on an exceptional basis, rule on a matrimonial property regime case if proceedings cannot reasonably be brought or conducted or would be impossible in a third state with which the case is closely connected. The case must have a sufficient connection with the Member State of the court seised. Article 12 Counterclaims The court in which proceedings are pending pursuant to Article 4, 5, 6, 7, 8, 9 (2), 10 or 11 shall also have jurisdiction to rule on a counterclaim if it falls within the scope of this Regulation. Article 13 Limitation of proceedings 1. Where the estate of the deceased whose succession falls under Regulation (EU) No 650/2012 comprises assets located in a third state, the court seised to rule on the matrimonial property regime may, at the request of one of the parties, decide not to rule on one or more of such assets if it may be expected that its decision in respect of those assets will not be recognised and, where applicable, declared enforceable in that third state. 2. Paragraph 1 shall not affect the right of the parties to limit the scope of the proceedings under the law of the Member State of the court seised. Article 14 Seising a court For the purpose of this Chapter, a court shall be deemed to be seised: (a) at the time when the document instituting the proceedings or an equivalent document is lodged with the court, provided that the applicant has not subsequently failed to take the steps he was required to take to have service effected on the defendant; (b) if the document has to be served before being lodged with the court, at a time when it is received by the authority responsible for service, provided that the applicant has not subsequently failed to take the steps he was required to take to have the document lodged with the court; or (c) if the proceedings are opened on the court's own motion, at the time when the decision to open the proceedings is taken by the court, or, where such a decision is not required, at the time when the case is registered by the court. Article 15 Examination as to jurisdiction Where a court of a Member State is seised of a matter of matrimonial property regime over which it has no jurisdiction under this Regulation, it shall declare of its own motion that it has no jurisdiction. Article 16 Examination as to admissibility 1. Where a defendant habitually resident in a State other than the Member State where the action was brought does not enter an appearance, the court having jurisdiction pursuant to this Regulation shall stay the proceedings so long as it is not shown that the defendant has been able to receive the document instituting the proceedings or an equivalent document in time to arrange for his defence, or that all necessary steps have been taken to this end. 2. Article 19 of Regulation (EC) No 1393/2007 of the European Parliament and of the Council (12) shall apply instead of paragraph 1 of this Article if the document instituting the proceedings or an equivalent document had to be transmitted from one Member State to another pursuant to that Regulation. 3. Where Regulation (EC) No 1393/2007 is not applicable, Article 15 of the Hague Convention of 15 November 1965 on the service abroad of judicial and extrajudicial documents in civil or commercial matters shall apply if the document instituting the proceedings or an equivalent document had to be transmitted abroad pursuant to that Convention. Article 17 Lis pendens 1. Where proceedings involving the same cause of action and between the same parties are brought before courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. 2. In the cases referred to in paragraph 1, upon request by a court seised of the dispute, any other court seised shall without delay inform the former court of the date when it was seised. 3. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court. Article 18 Related actions 1. Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings. 2. Where the actions referred to in paragraph 1 are pending at first instance, any court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits the consolidation thereof. 3. For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable decisions resulting from separate proceedings. Article 19 Provisional, including protective, measures Application may be made to the courts of a Member State for such provisional, including protective, measures as may be available under the law of that State, even if, under this Regulation, the courts of another Member State have jurisdiction as to the substance of the matter. CHAPTER III APPLICABLE LAW Article 20 Universal application The law designated as applicable by this Regulation shall be applied whether or not it is the law of a Member State. Article 21 Unity of the applicable law The law applicable to a matrimonial property regime pursuant to Article 22 or 26 shall apply to all assets falling under that regime, regardless of where the assets are located. Article 22 Choice of the applicable law 1. The spouses or future spouses may agree to designate, or to change, the law applicable to their matrimonial property regime, provided that that law is one of the following: (a) the law of the State where the spouses or future spouses, or one of them, is habitually resident at the time the agreement is concluded; or (b) the law of a State of nationality of either spouse or future spouse at the time the agreement is concluded. 2. Unless the spouses agree otherwise, a change of the law applicable to the matrimonial property regime made during the marriage shall have prospective effect only. 3. Any retroactive change of the applicable law under paragraph 2 shall not adversely affect the rights of third parties deriving from that law. Article 23 Formal validity of the agreement on a choice of applicable law 1. The agreement referred to in Article 22 shall be expressed in writing, dated and signed by both spouses. Any communication by electronic means which provides a durable record of the agreement shall be deemed equivalent to writing. 2. If the law of the Member State in which both spouses have their habitual residence at the time the agreement is concluded lays down additional formal requirements for matrimonial property agreements, those requirements shall apply. 3. If the spouses are habitually resident in different Member States at the time the agreement is concluded and the laws of those States provide for different formal requirements for matrimonial property agreements, the agreement shall be formally valid if it satisfies the requirements of either of those laws. 4. If only one of the spouses is habitually resident in a Member State at the time the agreement is concluded and that State lays down additional formal requirements for matrimonial property agreements, those requirements shall apply. Article 24 Consent and material validity 1. The existence and validity of an agreement on choice of law or of any term thereof, shall be determined by the law which would govern it pursuant to Article 22 if the agreement or term were valid. 2. Nevertheless, a spouse may, in order to establish that he did not consent, rely upon the law of the country in which he has his habitual residence at the time the court is seised if it appears from the circumstances that it would not be reasonable to determine the effect of his conduct in accordance with the law specified in paragraph 1. Article 25 Formal validity of a matrimonial property agreement 1. The matrimonial property agreement shall be expressed in writing, dated and signed by both spouses. Any communication by electronic means which provides a durable record of the agreement shall be deemed equivalent to writing. 2. If the law of the Member State in which both spouses have their habitual residence at the time the agreement is concluded lays down additional formal requirements for matrimonial property agreements, those requirements shall apply. If the spouses are habitually resident in different Member States at the time the agreement is concluded and the laws of those States provide for different formal requirements for matrimonial property agreements, the agreement shall be formally valid if it satisfies the requirements of either of those laws. If only one of the spouses is habitually resident in a Member State at the time the agreement is concluded and that State lays down additional formal requirements for matrimonial property agreements, those requirements shall apply. 3. If the law applicable to the matrimonial property regime imposes additional formal requirements, those requirements shall apply. Article 26 Applicable law in the absence of choice by the parties 1. In the absence of a choice-of-law agreement pursuant to Article 22, the law applicable to the matrimonial property regime shall be the law of the State: (a) of the spouses' first common habitual residence after the conclusion of the marriage; or, failing that (b) of the spouses' common nationality at the time of the conclusion of the marriage; or, failing that (c) with which the spouses jointly have the closest connection at the time of the conclusion of the marriage, taking into account all the circumstances. 2. If the spouses have more than one common nationality at the time of the conclusion of the marriage, only points (a) and (c) of paragraph 1 shall apply. 3. By way of exception and upon application by either spouse, the judicial authority having jurisdiction to rule on matters of the matrimonial property regime may decide that the law of a State other than the State whose law is applicable pursuant to point (a) of paragraph 1 shall govern the matrimonial property regime if the applicant demonstrates that: (a) the spouses had their last common habitual residence in that other State for a significantly longer period of time than in the State designated pursuant to point (a) of paragraph 1; and (b) both spouses had relied on the law of that other State in arranging or planning their property relations. The law of that other State shall apply as from the conclusion of the marriage, unless one spouse disagrees. In the latter case, the law of that other State shall have effect as from the establishment of the last common habitual residence in that other State. The application of the law of the other State shall not adversely affect the rights of third parties deriving from the law applicable pursuant to point (a) of paragraph 1. This paragraph shall not apply when the spouses have concluded a matrimonial property agreement before the establishment of their last common habitual residence in that other State. Article 27 Scope of the applicable law The law applicable to the matrimonial property regime pursuant to this Regulation shall govern, inter alia: (a) the classification of property of either or both spouses into different categories during and after marriage; (b) the transfer of property from one category to the other one; (c) the responsibility of one spouse for liabilities and debts of the other spouse; (d) the powers, rights and obligations of either or both spouses with regard to property; (e) the dissolution of the matrimonial property regime and the partition, distribution or liquidation of the property; (f) the effects of the matrimonial property regime on a legal relationship between a spouse and third parties; and (g) the material validity of a matrimonial property agreement. Article 28 Effects in respect of third parties 1. Notwithstanding point (f) of Article 27, the law applicable to the matrimonial property regime between the spouses may not be invoked by a spouse against a third party in a dispute between the third party and either or both of the spouses unless the third party knew or, in the exercise of due diligence, should have known of that law. 2. The third party is deemed to possess the knowledge of the law applicable to the matrimonial property regime, if: (a) that law is the law of: (i) the State whose law is applicable to the transaction between a spouse and the third party; (ii) the State where the contracting spouse and the third party have their habitual residence; or, (iii) in cases involving immoveable property, the State in which the property is situated; or (b) either spouse had complied with the applicable requirements for disclosure or registration of the matrimonial property regime specified by the law of: (i) the State whose law is applicable to the transaction between a spouse and the third party; (ii) the State where the contracting spouse and the third party have their habitual residence; or (iii) in cases involving immoveable property, the State in which the property is situated. 3. Where the law applicable to the matrimonial property regime between the spouses cannot be invoked by a spouse against a third party by virtue of paragraph 1, the effects of the matrimonial property regime in respect of the third party shall be governed: (a) by the law of the State whose law is applicable to the transaction between a spouse and the third party; or (b) in cases involving immoveable property or registered assets or rights, by the law of the State in which the property is situated or in which the assets or rights are registered. Article 29 Adaptation of rights in rem Where a person invokes a right in rem to which he is entitled under the law applicable to the matrimonial property regime and the law of the Member State in which the right is invoked does not know the right in rem in question, that right shall, if necessary and to the extent possible, be adapted to the closest equivalent right under the law of that State, taking into account the aims and the interests pursued by the specific right in rem and the effects attached to it. Article 30 Overriding mandatory provisions 1. Nothing in this Regulation shall restrict the application of the overriding mandatory provisions of the law of the forum. 2. Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a Member State for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the matrimonial property regime pursuant to this Regulation. Article 31 Public policy (ordre public) The application of a provision of the law of any State specified by this Regulation may be refused only if such application is manifestly incompatible with the public policy (ordre public) of the forum. Article 32 Exclusion of renvoi The application of the law of any State specified by this Regulation means the application of the rules of law in force in that State other than its rules of private international law. Article 33 States with more than one legal system — territorial conflicts of laws 1. Where the law specified by this Regulation is that of a State which comprises several territorial units each of which has its own rules of law in respect of matrimonial property regimes, the internal conflict-of-laws rules of that State shall determine the relevant territorial unit whose rules of law are to apply. 2. In the absence of such internal conflict-of-laws rules: (a) any reference to the law of the State referred to in paragraph 1 shall, for the purposes of determining the law applicable pursuant to provisions referring to the habitual residence of the spouses, be construed as referring to the law of the territorial unit in which the spouses have their habitual residence; (b) any reference to the law of the State referred to in paragraph 1 shall, for the purposes of determining the law applicable pursuant to provisions referring to the nationality of the spouses, be construed as referring to the law of the territorial unit with which the spouses have the closest connection; (c) any reference to the law of the State referred to in paragraph 1 shall, for the purposes of determining the law applicable pursuant to any other provisions referring to other elements as connecting factors, be construed as referring to the law of the territorial unit in which the relevant element is located. Article 34 States with more than one legal system — inter-personal conflicts of laws In relation to a State which has two or more systems of law or sets of rules applicable to different categories of persons in respect of matrimonial property regimes, any reference to the law of such a State shall be construed as referring to the system of law or set of rules determined by the rules in force in that State. In the absence of such rules, the system of law or the set of rules with which the spouses have the closest connection shall apply. Article 35 Non-application of this Regulation to internal conflicts of laws A Member State which comprises several territorial units each of which has its own rules of law in respect of matrimonial property regimes shall not be required to apply this Regulation to conflicts of laws arising between such units only. CHAPTER IV RECOGNITION, ENFORCEABILITY AND ENFORCEMENT OF DECISIONS Article 36 Recognition 1. A decision given in a Member State shall be recognised in the other Member States without any special procedure being required. 2. Any interested party who raises the recognition of a decision as the principal issue in a dispute may, in accordance with the procedures provided for in Articles 44 to 57, apply for the decision to be recognised. 3. If the outcome of the proceedings in a court of a Member State depends on the determination of an incidental question of recognition, that court shall have jurisdiction over that question. Article 37 Grounds of non-recognition A decision shall not be recognised: (a) if such recognition is manifestly contrary to public policy (ordre public) in the Member State in which recognition is sought; (b) where it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the decision when it was possible for him to do so; (c) if it is irreconcilable with a decision given in proceedings between the same parties in the Member State in which recognition is sought; (d) if it is irreconcilable with an earlier decision given in another Member State or in a third State involving the same cause of action and between the same parties, provided that the earlier decision fulfils the conditions necessary for its recognition in the Member State in which recognition is sought. Article 38 Fundamental rights Article 37 of this Regulation shall be applied by the courts and other competent authorities of the Member States in observance of the fundamental rights and principles recognised in the Charter, in particular in Article 21 thereof on the principle of non-discrimination. Article 39 Prohibition of review of jurisdiction of the court of origin 1. The jurisdiction of the court of the Member State of origin may not be reviewed. 2. The public policy (ordre public) criterion referred to in Article 37 shall not apply to the rules on jurisdiction set out in Articles 4 to 11. Article 40 No review as to substance Under no circumstances may a decision given in a Member State be reviewed as to its substance. Article 41 Staying of recognition proceedings A court of a Member State in which recognition is sought of a decision given in another Member State may stay the proceedings if an ordinary appeal against the decision has been lodged in the Member State of origin. Article 42 Enforceability Decisions given in a Member State and enforceable in that State shall be enforceable in another Member State when, on the application of any interested party, they have been declared enforceable there in accordance with the procedure provided for in Articles 44 to 57. Article 43 Determination of domicile To determine whether, for the purposes of the procedure provided for in Articles 44 to 57, a party is domiciled in the Member State of enforcement, the court seised shall apply the internal law of that Member State. Article 44 Jurisdiction of local courts 1. The application for a declaration of enforceability shall be submitted to the court or competent authority of the Member State of enforcement communicated by that Member State to the Commission in accordance with Article 64. 2. The local jurisdiction shall be determined by reference to the place of domicile of the party against whom enforcement is sought, or to the place of enforcement. Article 45 Procedure 1. The application procedure shall be governed by the law of the Member State of enforcement. 2. The applicant shall not be required to have a postal address or an authorised representative in the Member State of enforcement. 3. The application shall be accompanied by the following documents: (a) a copy of the decision which satisfies the conditions necessary to establish its authenticity; (b) the attestation issued by the court or competent authority of the Member State of origin using the form established in accordance with the advisory procedure referred to in Article 67(2), without prejudice to Article 46. Article 46 Non-production of the attestation 1. If the attestation referred to in point (b) of Article 45(3) is not produced, the court or competent authority may specify a time for its production or accept an equivalent document or, if it considers that it has sufficient information before it, dispense with its production. 2. If the court or competent authority so requires, a translation or transliteration of the documents shall be produced. The translation shall be done by a person qualified to do translations in one of the Member States. Article 47 Declaration of enforceability The decision shall be declared enforceable immediately on completion of the formalities set out in Article 45 without any review under Article 37. The party against whom enforcement is sought shall not at this stage of the proceedings be entitled to make any submissions on the application. Article 48 Notice of the decision on the application for a declaration of enforceability 1. The decision on the application for a declaration of enforceability shall forthwith be brought to the notice of the applicant in accordance with the procedure laid down by the law of the Member State of enforcement. 2. The declaration of enforceability shall be served on the party against whom enforcement is sought, accompanied by the decision, if not already served on that party. Article 49 Appeal against the decision on the application for a declaration of enforceability 1. The decision on the application for a declaration of enforceability may be appealed by either party. 2. The appeal shall be lodged with the court communicated by the Member State concerned to the Commission in accordance with Article 64. 3. The appeal shall be dealt with in accordance with the rules governing procedure in contradictory matters. 4. If the party against whom enforcement is sought fails to appear before the appellate court in proceedings concerning an appeal brought by the applicant, Article 16 shall apply even where the party against whom enforcement is sought is not domiciled in any of the Member States. 5. An appeal against the declaration of enforceability shall be lodged within 30 days of service thereof. If the party against whom enforcement is sought is domiciled in a Member State other than that in which the declaration of enforceability was given, the time for appealing shall be 60 days and shall run from the date of service, either on him in person or at his residence. No extension may be granted on account of distance. Article 50 Procedure to contest the decision given on appeal The decision given on the appeal may be contested only by the procedure communicated by the Member State concerned to the Commission in accordance with Article 64. Article 51 Refusal or revocation of a declaration of enforceability The court with which an appeal is lodged under Article 49 or Article 50 shall refuse or revoke a declaration of enforceability only on one of the grounds specified in Article 37. It shall give its decision without delay. Article 52 Staying of proceedings The court with which an appeal is lodged under Article 49 or Article 50 shall, on the application of the party against whom enforcement is sought, stay the proceedings if the enforceability of the decision is suspended in the Member State of origin by reason of an appeal. Article 53 Provisional, including protective, measures 1. When a decision must be recognised in accordance with this Chapter, nothing shall prevent the applicant from availing himself of provisional, including protective, measures in accordance with the law of the Member State of enforcement without a declaration of enforceability under Article 46 being required. 2. The declaration of enforceability shall carry with it by operation of law the power to proceed to any protective measures. 3. During the time specified for an appeal pursuant to Article 49(5) against the declaration of enforceability and until any such appeal has been determined, no measures of enforcement may be taken other than protective measures against the property of the party against whom enforcement is sought. Article 54 Partial enforceability 1. Where a decision has been given in respect of several matters and the declaration of enforceability cannot be given for all of them, the court or competent authority shall give it for one or more of them. 2. An applicant may request a declaration of enforceability limited to parts of a decision. Article 55 Legal aid An applicant who, in the Member State of origin, has benefited from complete or partial legal aid or exemption from costs or expenses shall be entitled, in any proceedings for a declaration of enforceability, to benefit from the most favourable legal aid or the most extensive exemption from costs or expenses provided for by the law of the Member State of enforcement. Article 56 No security, bond or deposit No security, bond or deposit, however described, shall be required of a party who in one Member State applies for recognition, enforceability or enforcement of a decision given in another Member State on the ground that he is a foreign national or that he is not domiciled or resident in the Member State of enforcement in the Member State of enforcement. Article 57 No charge, duty or fee In proceedings for the issue of a declaration of enforceability, no charge, duty or fee calculated by reference to the value of the matter at issue may be levied in the Member State of enforcement. CHAPTER V AUTHENTIC INSTRUMENTS AND COURT SETTLEMENTS Article 58 Acceptance of authentic instruments 1. An authentic instrument established in a Member State shall have the same evidentiary effects in another Member State as it has in the Member State of origin, or the most comparable effects, provided that this is not manifestly contrary to public policy (ordre public) in the Member State concerned. A person wishing to use an authentic instrument in another Member State may ask the authority establishing the authentic instrument in the Member State of origin to fill in the form established in accordance with the advisory procedure referred to in Article 67(2) describing the evidentiary effects which the authentic instrument produces in the Member State of origin. 2. Any challenge relating to the authenticity of an authentic instrument shall be made before the courts of the Member State of origin and shall be decided upon under the law of that State. The authentic instrument challenged shall not produce any evidentiary effect in another Member State for as long as the challenge is pending before the competent court. 3. Any challenge relating to the legal acts or legal relationships recorded in an authentic instrument shall be made before the courts having jurisdiction under this Regulation and shall be decided upon under the law applicable pursuant to Chapter III. The authentic instrument challenged shall not produce any evidentiary effect in a Member State other than the Member State of origin as regards the matter being challenged for as long as the challenge is pending before the competent court. 4. If the outcome of proceedings in a court of a Member State depends on the determination of an incidental question relating to the legal acts or legal relationships recorded in an authentic instrument in matters of matrimonial property regimes, that court shall have jurisdiction over that question. Article 59 Enforceability of authentic instruments 1. An authentic instrument which is enforceable in the Member State of origin shall be declared enforceable in another Member State on the application of any interested party in accordance with the procedure provided for in Articles 44 to 57. 2. For the purposes of point (b) of Article 45(3), the authority which established the authentic instrument shall, on the application of any interested party, issue an attestation using the form established in accordance with the advisory procedure referred to in Article 67(2). 3. The court with which an appeal is lodged under Article 49 or Article 50 shall refuse or revoke a declaration of enforceability only if enforcement of the authentic instrument is manifestly contrary to public policy (ordre public) in the Member State of enforcement. Article 60 Enforceability of court settlements 1. Court settlements which are enforceable in the Member State of origin shall be declared enforceable in another Member State on the application of any interested party in accordance with the procedure provided for in Articles 44 to 57. 2. For the purposes of point (b) of Article 45(3), the court which approved the settlement or before which it was concluded shall, on the application of any interested party, issue an attestation using the form established in accordance with the advisory procedure referred to in Article 67(2). 3. The court with which an appeal is lodged under Article 49 or 50 shall refuse or revoke a declaration of enforceability only if enforcement of the court settlement is manifestly contrary to public policy (ordre public) in the Member State of enforcement. CHAPTER VI GENERAL AND FINAL PROVISIONS Article 61 Legalisation and other similar formalities No legalisation or other similar formality shall be required in respect of documents issued in a Member State in the context of this Regulation. Article 62 Relations with existing international conventions 1. This Regulation shall not affect the application of the bilateral or multilateral conventions to which one or more Member States are party at the time of adoption of this Regulation or of a decision pursuant to the second or third subparagraph of Article 331(1) TFEU and which concern matters covered by this Regulation, without prejudice to the obligations of the Member States under Article 351 TFEU. 2. Notwithstanding paragraph 1, this Regulation shall, as between Member States, take precedence over conventions concluded between them in so far as such conventions concern matters governed by this Regulation. 3. This Regulation shall not preclude the application of the Convention of 6 February 1931 between Denmark, Finland, Iceland, Norway and Sweden containing international private law provisions on marriage, adoption and guardianship, as revised in 2006; of the Convention of 19 November 1934 between Denmark, Finland, Iceland, Norway and Sweden comprising private international law provisions on succession, wills and estate administration, as revised in June 2012; and of the Convention of 11 October 1977 between Denmark, Finland, Iceland, Norway and Sweden on the recognition and enforcement of judgements in civil matters, by the Member States which are parties thereto, in so far as they provide for simplified and more expeditious procedures for the recognition and enforcement of decisions in matters of matrimonial property regime. Article 63 Information made available to the public The Member States shall, with a view to making the information available to the public within the framework of the European Judicial Network in civil and commercial matters, provide the Commission with a short summary of their national legislation and procedures relating to matrimonial property regimes, including information on the type of authority which has competence in matters of matrimonial property regimes and on the effects in respect of third parties referred to in Article 28. The Member States shall keep the information permanently updated. Article 64 Information on contact details and procedures 1. By 29 April 2018, the Member States shall communicate to the Commission: (a) the courts or authorities with competence to deal with applications for a declaration of enforceability in accordance with Article 44(1) and with appeals against decisions on such applications in accordance with Article 49(2); (b) the procedures to contest the decision given on appeal referred to in Article 50. The Member States shall apprise the Commission of any subsequent changes to that information. 2. The Commission shall publish the information communicated in accordance with paragraph 1 in the Official Journal of the European Union, with the exception of the addresses and other contact details of the courts and authorities referred to in point (a) of paragraph 1. 3. The Commission shall make all information communicated in accordance with paragraph 1 publicly available through any appropriate means, in particular through the European Judicial Network in civil and commercial matters. Article 65 Establishment and subsequent amendment of the list containing the information referred to in Article 3(2) 1. The Commission shall, on the basis of the notifications by the Member States, establish the list of the other authorities and legal professionals referred to in Article 3(2). 2. The Member States shall notify the Commission of any subsequent changes to the information contained in that list. The Commission shall amend the list accordingly. 3. The Commission shall publish the list and any subsequent amendments in the Official Journal of the European Union. 4. The Commission shall make all information notified in accordance with paragraphs 1 and 2 publicly available through any other appropriate means, in particular through the European Judicial Network in civil and commercial matters. Article 66 Establishment and subsequent amendment of the attestations and forms referred to in point (b) of Article 45(3) and Articles 58, 59 and 60 The Commission shall adopt implementing acts establishing and subsequently amending the attestations and forms referred to in point (b) of Article 45(3) and Articles 58, 59 and 60. Those implementing acts shall be adopted in accordance with the advisory procedure referred to in Article 67(2). Article 67 Committee procedure 1. The Commission shall be assisted by a committee. That committee shall be a committee within the meaning of Regulation (EU) No 182/2011. 2. Where reference is made to this paragraph, Article 4 of Regulation (EU) No 182/2011 shall apply. Article 68 Review clause 1. By 29 January 2027, the Commission shall present to the European Parliament, the Council and the European Economic and Social Committee a report on the application of this Regulation. Where necessary, the report shall be accompanied by proposals to amend this Regulation. 2. By 29 January 2024, the Commission shall present to the European Parliament, the Council and the European Economic and Social Committee a report on the application of Articles 9 and 38 of this Regulation. This report shall evaluate in particular the extent to which these Articles have ensured access to justice. 3. For the purposes of the reports referred to in paragraphs 1 and 2, Member States shall communicate to the Commission relevant information on the application of this Regulation by their courts. Article 69 Transitional provisions 1. This Regulation shall apply only to legal proceedings instituted, to authentic instruments formally drawn up or registered and to court settlements approved or concluded on or after 29 January 2019 subject to paragraphs 2 and 3. 2. If the proceedings in the Member State of origin were instituted before 29 January 2019, decisions given after that date shall be recognised and enforced in accordance with Chapter IV as long as the rules of jurisdiction applied comply with those set out in Chapter II. 3. Chapter III shall apply only to spouses who marry or who specify the law applicable to the matrimonial property regime after 29 January 2019. Article 70 Entry into force 1. This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. 2. This Regulation shall apply in the Member States which participate in enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions on the property regimes of international couples, covering both matters of matrimonial property regimes and the property consequences of registered partnerships, as authorised by Decision (EU) 2016/954. It shall apply from 29 January 2019, except for Articles 63 and 64 which shall apply from 29 April 2018, and Articles 65, 66 and 67, which shall apply from 29 July 2016. For those Member States which participate in enhanced cooperation by virtue of a decision adopted in accordance with the second or third subparagraph of Article 331(1) TFEU, this Regulation shall apply as from the date indicated in the decision concerned. This Regulation shall be binding in its entirety and directly applicable in the participating Member States in accordance with the Treaties. Done at Luxembourg, 24 June 2016. For the Council The President A.G. KOENDERS (1) OJ L 159, 16.6.2016, p. 16. (2) Opinion of 23 June 2016 (not yet published in the Official Journal). (3) OJ C 12, 15.1.2001, p. 1. (4) OJ C 53, 3.3.2005, p. 1. (5) OJ C 115, 4.5.2010, p. 1. (6) Council Regulation (EC) No 4/2009 of 18 December 2008 on jurisdiction, applicable law, recognition and enforcement of decisions and cooperation in matters relating to maintenance obligations (OJ L 7, 10.1.2009, p. 1). (7) Regulation (EU) No 650/2012 of the European Parliament and of the Council of 4 July 2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession (OJ L 201, 27.7.2012, p. 107). (8) Council Regulation (EC) No 2201/2003 of 27 November 2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility, repealing Regulation (EC) No 1347/2000 (OJ L 338, 23.12.2003, p. 1). (9) Council Decision 2001/470/EC of 28 May 2001 establishing a European Judicial Network in civil and commercial matters (OJ L 174, 27.6.2001, p. 25). (10) Regulation (EEC, Euratom) No 1182/71 of the Council of 3 June 1971 determining the rules applicable to periods, dates and time limits (OJ L 124, 8.6.1971, p. 1). (11) Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission's exercise of implementing powers (OJ L 55, 28.2.2011, p. 13). (12) Regulation (EC) No 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (service of documents), and repealing Council Regulation (EC) No 1348/2000 (OJ L 324, 10.12.2007, p. 79).\n<|assistant|>\nEnhanced cooperation on matrimonial and registered partnership property issues Enhanced cooperation on matrimonial and registered partnership property issues SUMMARY OF: Regulation (EU) 2016/1103 implementing enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes Regulation (EU) 2016/1104 implementing enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of the property consequences of registered partnerships WHAT IS THE AIM OF THE REGULATIONS? The two regulations determine the rules applicable to the property of married couples or registered partners where the couples have different EU nationalities or where couples own properties in another EU country. They outline revised rules, agreed by 18 EU countries, on the jurisdiction, the laws that should be applied, and the recognition and enforcement of decisions about matrimonial property regimes* or property consequences* of a registered partnership* arising when marriages or registered partnerships break up, or when one partner dies. KEY POINTS The 18 EU countries participating in the enhanced cooperation are Belgium, Bulgaria, Cyprus, Czechia, Germany, Greece, Spain, France, Croatia, Italy, Luxembourg, Malta, Netherlands, Austria, Portugal, Slovenia, Finland and Sweden, as authorised by Council Decision (EU) 2016/954. Other countries are free to join at any time after the regulation is adopted. In this respect, Estonia announced its interest, and that it would consider taking part in the cooperation after its adoption. Scope Issues about the legal capacity of spouses, the recognition or validity of the marriage, maintenance obligations and inheritance are not covered. The regulations do not change national laws on marriage or registered partnerships, and stipulate that the applicable law applies to all assets regardless of where the assets are located, and will be applied whether or not it is the law of an EU country. Jurisdiction The regulations aim to allow citizens to have their cases handled by the courts of the same EU country. Spouses and partners can agree which country’s laws will apply to their matrimonial or registered partnership property, either in: the country where one or both are ‘habitually resident’; the country of nationality of either spouse or partner; the country under whose law the registered partnership was created. Where the couple do not make such a choice, jurisdiction will be decided in the case of matrimonial property based on (taken in order): the country where the couple both lived after the marriage ended; or the couple’s common nationality when the marriage ended; or the country with which the couple have the closest connection at the time the marriage ended. If the marriage is not recognised in national law for the purposes of matrimonial property the court can refuse jurisdiction, and similarly for registered partnership. The regulation does not prevent the parties from settling amicably out of court, for instance before a notary, in an EU country of their choice. The registered partnership regulation sets out the issues pertaining to the property consequences of registered partnerships, particularly the liquidation of assets and the effects of the property consequences of the registered partnership on a legal relationship between a partner and third parties. Recognition, and enforcement of decisions The regulations contain rules about the recognition, enforceability and enforcement of decisions similar to those of other EU rules concerning judicial cooperation in civil matters. Grounds for non-recognition of a decision include circumstances where such recognition is obviously contrary to public policy in the EU country in which recognition is sought. FROM WHEN DO THE REGULATIONS APPLY? Except for some preparatory administrative matters, the regulations apply from 29 January 2019. KEY TERMS Matrimonial property regime: rules concerning the property relationships between spouses and in their relations with third parties, as a result of marriage or its break-up. Registered partnership: the regime governing the shared life of two people which is provided for in law, the registration of which is mandatory under that law and which fulfils the legal formalities required by that law for its creation. Property consequences of a registered partnership: rules concerning the property relationships of the partners, between themselves and in their relations with third parties, as a result of the legal relationship created by the registration of the partnership or its break-up. MAIN DOCUMENTS Council Regulation (EU) 2016/1103 of 24 June 2016 implementing enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes (OJ L 183, 8.7.2016, pp. 1-29) Successive amendments to Regulation (EU) 2016/1103 have been incorporated in the original text. This consolidated version is of documentary value only. Council Regulation (EU) 2016/1104 of 24 June 2016 implementing enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of the property consequences of registered partnerships (OJ L 183, 8.7.2016, pp. 30-56) See consolidated version. RELATED DOCUMENT Council Decision (EU) 2016/954 of 9 June 2016 authorising enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions on the property regimes of international couples, covering both matters of matrimonial property regimes and the property consequences of registered partnerships (OJ L 159, 16.6.2016, pp. 16-18) last update 07.09.2018\n<|endoftext|>"}}},{"rowIdx":91,"cells":{"text":{"kind":"string","value":"<|system|>\nYou are a helpful assistant that summarizes text clearly, accurately, and concisely.\n<|user|>\nSummarize the following text:\n26.5.2016 EN Official Journal of the European Union L 138/44 DIRECTIVE (EU) 2016/797 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 11 May 2016 on the interoperability of the rail system within the European Union (recast) (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 91(1) and Articles 170 and 171 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee (1), Having regard to the opinion of the Committee of the Regions (2), Acting in accordance with the ordinary legislative procedure (3), Whereas: (1) Directive 2008/57/EC of the European Parliament and of the Council (4) has been substantially amended several times. Since further amendments are to be made, that Directive should be recast in the interests of clarity. (2) In order to enable citizens of the Union, economic operators and competent authorities to benefit to the full from the advantages deriving from the establishment of a single European railway area, it is appropriate, in particular, to improve the interlinkage and interoperability of the national rail networks as well as access to those networks and to implement any measures that may be necessary in the field of technical standardisation as provided for in Article 171 of the Treaty on the Functioning of the European Union (TFEU). (3) The pursuit of interoperability within the Union rail system should lead to the definition of an optimal level of technical harmonisation and make it possible to facilitate, improve and develop international rail transport services within the Union and with third countries, and contribute to the progressive creation of the internal market in equipment and services for the construction, renewal, upgrading and operation of the Union rail system. (4) In order to contribute to the completion of the single European railway area, reduce the costs and duration of authorisation procedures and improve railway safety it is appropriate to streamline and harmonise authorisation procedures at Union level. (5) Metros, trams and other light rail systems are subject in many Member States to local technical requirements. Such local public transport systems are usually not subject to licensing within the Union. Trams and light rail systems are furthermore often subject to road legislation because of shared infrastructure. For those reasons, such local systems do not need to be interoperable and should therefore be excluded from the scope of this Directive. This does not prevent Member States from applying the provisions of this Directive to local rail systems on a voluntary basis if they deem this appropriate. (6) A tram-train is a public-transport concept which allows for a combined operation on both light-rail infrastructure and heavy-rail infrastructure. Member States should be permitted to exclude from the scope of the measures implementing this Directive those vehicles primarily used on light-rail infrastructure but equipped with some heavy-rail components necessary to enable transit to be effected on a confined and limited section of heavy-rail infrastructure for connectivity purposes only. When tram-trains use railway infrastructure, compliance with all essential requirements should be ensured, as well as compliance with the expected safety level on the relevant lines. For cross-border cases, competent authorities should cooperate. (7) The commercial operation of trains throughout the rail network requires, in particular, excellent compatibility between the characteristics of the infrastructure and those of the vehicles, as well as efficient interconnection of the information and communication systems of the different infrastructure managers and railway undertakings. Performance levels, safety, quality of service and cost depend upon such compatibility and interconnection, as does, in particular, the interoperability of the Union rail system. (8) The railway regulatory framework at Union and Member State level should set clear roles and responsibilities for ensuring compliance with the safety, health and consumer protection rules applying to the railway networks. This Directive should not lead to a reduced level of safety or increase costs in the Union rail system. To that end, the European Union Agency for Railways (‘the Agency’) established by Regulation (EU) 2016/796 of the European Parliament and of the Council (5) and the national safety authorities should take full responsibility for the authorisations they issue. (9) Major differences exist between national regulations, internal rules and technical specifications applicable to rail systems, subsystems and components, since they incorporate techniques that are specific to the national industries and lay down specific dimensions and devices as well as special characteristics. That situation may prevent trains from running without hindrance throughout the Union. (10) In order to enhance their competitiveness at world level, the Union railway industries require an open and competitive market. (11) It is therefore appropriate to define essential requirements relating to rail interoperability for the whole of the Union which should apply to its rail system. (12) The development of technical specifications for interoperability (‘TSIs’) has shown the need to clarify the relationship between the essential requirements and TSIs on the one hand, and the European standards and other documents of a normative nature on the other. In particular, a clear distinction should be drawn between the standards or parts of standards which should be made mandatory in order to achieve the objectives of this Directive, and the harmonised standards that have been developed in accordance with Regulation (EU) No 1025/2012 of the European Parliament and of the Council (6). Where strictly necessary, the TSIs may make an explicit reference to European standards or specifications, which become mandatory from the moment the TSI is applicable. (13) In order to genuinely increase the competitiveness of the Union railway sector without distorting competition between key actors of the Union rail system, the TSIs and the recommendations of the Agency related to these TSIs should be drafted by respecting the principles of openness, consensus and transparency as defined in Annex II to Regulation (EU) No 1025/2012. (14) The quality of rail services in the Union depends, inter alia, on excellent compatibility between the characteristics of the network (in the broadest sense, i.e. the fixed parts of all the subsystems concerned) and those of the vehicles (including the on-board components of all the subsystems concerned). Performance levels, safety, quality of service and cost depend upon that compatibility. (15) TSIs have a direct or potential impact on the staff involved in the operation and maintenance of subsystems. When preparing TSIs, therefore, the Agency should consult social partners, where appropriate. (16) A TSI should set out all the conditions with which an interoperability constituent is to conform, and the procedure to be followed in assessing conformity. In addition, it is necessary to specify that every constituent should undergo the procedure for assessing conformity and suitability for the use indicated in the TSIs and should have the corresponding certificate, comprising either the assessment of the conformity of an interoperability constituent, considered in isolation, to the technical specifications to be met, or the assessment of the suitability for use of an interoperability constituent, considered within its railway environment, in relation to the technical specifications. (17) In the development of new TSIs, the aim should always be to ensure compatibility with the existing subsystems. This will help to promote the competitiveness of rail transport and prevent unnecessary additional costs through the requirement of upgrading or renewal of existing subsystems to ensure backward compatibility. In those exceptional cases where it will not be possible to ensure compatibility, it should be possible for TSIs to establish the framework necessary to decide whether the existing subsystem needs a new decision or authorisation for placing in service or placing on the market, and the corresponding deadlines. (18) If certain technical aspects corresponding to the essential requirements cannot be explicitly covered in a TSI, those aspects which still need to be addressed should be identified in an annex to that TSI as open points. For those open points, as well as for specific cases, and with the aim of compliance with the existing systems, national rules that may be adopted in a Member State by any competent national, regional or local authority should apply. To avoid redundant verifications and unnecessary administrative burdens, national rules should be classified to establish the equivalence between national rules of different Member States covering the same topics. (19) The procedure to be followed in the case of essential requirements applicable to a subsystem which have not yet been covered in the corresponding TSI should be specified. In such a case, the bodies responsible for the conformity assessment and verification procedures should be the designated bodies referred to in this Directive. (20) This Directive should apply to the entire Union rail system and the scope of the TSIs should be extended to cover the vehicles and networks not included in the trans-European rail system. Therefore, Annex I to Directive 2008/57/EC should be simplified. (21) The functional and technical specifications to be met by subsystems and their interfaces may vary according to the use of the subsystems concerned, for example according to the categories of lines and vehicles, in particular for ensuring coherence between high-speed and conventional rail systems. (22) In order to ensure the progressive implementation of rail interoperability within the whole of the Union and to gradually reduce the diversity of legacy systems, the TSIs should specify the provisions to be applied in the event of renewal or upgrading of existing subsystems and may include proposals for the staged completion of the target system. However, in order to keep the railway sector competitive and to prevent undue costs, the entry into force of new or amended TSIs should not lead to an immediate adaptation of vehicles and infrastructure to the new specifications. (23) TSIs should indicate when the upgrade and renewal of infrastructure and vehicles requires a new authorisation. In all cases for the upgrade and renewal of infrastructure, the applicant should submit, through the one-stop shop referred to in Regulation (EU) 2016/796, a file to the national safety authority so that it can decide whether a new authorisation is needed on the basis of the criteria set out in this Directive. In the case of the upgrade and renewal of vehicles which have an authorisation to place on the market, the applicant should be able to decide whether it needs to seek a new authorisation from the national safety authority or the Agency on the basis of the criteria set out in this Directive. (24) In view of the gradual approach to eliminating obstacles to the interoperability of the Union rail system and of the time consequently required for the adoption of TSIs, steps should be taken to avoid a situation where Member States adopt new national rules or undertake projects that increase the diversity of the present system. (25) In order to eliminate the obstacles to interoperability, and as a consequence of extending the scope of the TSIs to the whole of the Union rail system, the volume of national rules should be progressively reduced. National rules strictly relating to existing systems should be differentiated from those needed to cover open points in TSIs. Rules of the latter type should be progressively removed as a result of closure of open points in the TSIs. (26) National rules should be drafted and published in such a way that any potential user of a national network can understand them. Such rules often refer to other documents such as national standards, European standards, international standards or other technical specifications which might be partly or fully protected by intellectual property rights. Therefore, the obligation of publication should not apply to documents referred to directly or indirectly in the national rule. (27) The adoption of a gradual approach satisfies the objective of interoperability of the Union rail system, which is characterised by old national infrastructure and vehicles requiring heavy investment for adaptation or renewal, and particular care should be taken to maintain the competitiveness of rail vis-à-vis other modes of transport. (28) In view of the extent and complexity of the Union rail system, it has proved necessary, for practical reasons, to break it down into the following subsystems: infrastructure, trackside control-command and signalling, on-board control-command and signalling, energy, rolling stock, operation and traffic management, maintenance and telematics applications for passenger and freight services. For each of those subsystems, the essential requirements need to be specified and the technical specifications determined, particularly in respect of constituents and interfaces, in order to meet those essential requirements. The same system is broken down into fixed and mobile elements comprising, on the one hand, the network, which is composed of the lines, stations, terminals, and all kinds of fixed equipment needed to ensure safe and continuous operation of the system and, on the other hand, all vehicles travelling on that network. Therefore, for the purposes of this Directive, a vehicle is composed of one subsystem (rolling stock) and where applicable other subsystems (mainly the on-board control-command and signalling subsystem). Although the system is divided into several elements, the Agency should retain an overview of the system, in order to promote interoperability and safety. (29) The United Nations Convention on the Rights of Persons with Disabilities, to which the Union is a party, establishes accessibility as one of its general principles and requires State Parties to take appropriate measures in order to ensure access for persons with disabilities on an equal basis with others, including by developing, promulgating and monitoring the implementation of minimum standards and guidelines for accessibility. Accessibility for persons with disabilities and persons with reduced mobility is therefore an essential requirement for the interoperability of the Union rail system. (30) No person is to be discriminated against, either directly or indirectly, on the basis of a disability. In order to ensure that all Union citizens can enjoy the benefits resulting from the establishment of single European railway area, Member States should promote a railway system accessible to all. (31) Implementation of the provisions on the interoperability of the Union rail system should not give rise to unjustified costs nor undermine the preservation of the interoperability of existing rail networks. (32) TSIs also have an impact on the conditions of use of rail transport by users, and it is therefore necessary to consult those users on aspects concerning them, including organisations of persons with disabilities, where appropriate. (33) Each Member State concerned should be allowed not to apply certain TSIs in a limited number of duly substantiated situations. Those situations and the procedures to be followed in cases of non-application of a given TSI should be clearly defined. (34) The drawing-up of TSIs and their application to the Union rail system should not impede technological innovation, which should be directed towards improving economic performance. (35) In order to comply with the appropriate provisions on procurement procedures in the rail sector and, in particular, those laid down in Directive 2014/25/EU of the European Parliament and of the Council (7), contracting entities are to include technical specifications in the general documents or in the terms and conditions for each contract. To that end, it is necessary to draw up a set of rules to serve as references for those technical specifications. (36) An international system of standardisation capable of generating standards which are actually used by those involved in international trade and which meet the requirements of Union policy would be in the Union's interest. The European standardisation organisations should therefore continue their cooperation with international standardisation bodies. (37) The contracting entity ordering the design, construction, renewal or upgrading of a subsystem could be a railway undertaking, an infrastructure manager, an entity in charge of maintenance, a keeper, or a concession-holder responsible for carrying out a project. Contracting entities should define the requirements needed to complete European specifications or other standards. Those specifications should meet the essential requirements that have been harmonised at Union level and which the Union rail system is to satisfy. (38) The procedures governing the assessment of conformity or of suitability of use of constituents should be based on the use of the modules for the procedures for assessment of conformity, suitability for use and ‘EC’ verification to be used in the technical specifications for interoperability adopted under this Directive. As far as possible, and in order to promote industrial development, it is appropriate to draw up the procedures involving a system of quality assurance. (39) Conformity of constituents is linked mainly to their area of use in order to guarantee the interoperability of the system and not only their free movement in the Union market. The suitability for use of the most critical constituents as regards safety, availability or system economy should be assessed. It is therefore not necessary for a manufacturer to affix the ‘CE’ marking to constituents that are subject to this Directive. On the basis of the assessment of conformity and/or suitability for use, the manufacturer's declaration of conformity should be sufficient. (40) Manufacturers are nonetheless obliged to affix the ‘CE’ marking to certain components in order to certify their compliance with other Union law relating to them. (41) When a TSI enters into force, a number of interoperability constituents are already on the market. A transitional period should be provided for, so that those constituents can be integrated into a subsystem, even if they do not strictly conform to that TSI. (42) The subsystems constituting the Union rail system should be subject to a verification procedure. That verification should enable the entities responsible for their placing in service or placing on the market to be certain that, at the design, construction and placing into service stages, the result is in line with the regulations and technical and operational provisions in force. It should also result in manufacturers being able to count upon equality of treatment in all Member States. (43) After a subsystem is placed in service or on the market, care should be taken to ensure that it is operated and maintained in accordance with the essential requirements relating to it. In accordance with Directive (EU) 2016/798 of the European Parliament and of the Council (8), responsibility for meeting those requirements lies, for their respective subsystems, with the infrastructure manager, the railway undertaking or the entity in charge of maintenance, each for their own part. (44) When during operation it appears that a vehicle or a vehicle type does not meet one of the applicable essential requirements, the necessary corrective measures should be taken by the railway undertakings concerned in order to bring the vehicle(s) into conformity. In addition, if that non-conformity leads to a serious safety risk, it should be possible for the national safety authorities responsible for the supervision of the circulation of the vehicle to take the necessary temporary safety measures, including immediately restricting or suspending the relevant operation. If the corrective measures are insufficient and the serious safety risk generated by the non-conformity remains, national safety authorities or the Agency should be allowed to revoke or amend the authorisation. A serious safety risk in this context should be understood as being serious non-compliance with legal obligations or safety requirements, that may in itself or in a series of consequential events cause an accident or a serious accident. The process of revocation should be supported by an appropriate exchange of information between the Agency and the national safety authorities, including the use of registers. (45) The respective roles and responsibilities of all actors involved should be clarified in relation to the procedures for the placing on the market and use of vehicles, and for the placing in service of fixed installations. (46) The Agency and national safety authorities should cooperate and share competencies as appropriate for the issuing of authorisations with due regard to safety. To that end, cooperation agreements between the Agency and the national safety authorities should be established. (47) In order to ensure that European Rail Traffic Management System (ERTMS) equipment complies with the relevant specifications in force and to prevent additional requirements in relation to the ERTMS from undermining its interoperability, the Agency should act as the ERTMS system authority. To that end, the Agency should be in charge of assessing the technical solutions envisaged before any call for tenders relating to ERTMS trackside equipment is launched or published, in order to check whether those technical solutions are compliant with the relevant TSIs and are fully interoperable. Any overlap between this assessment by the Agency and the tasks of the notified bodies in the verification procedure should be avoided. The applicant should therefore inform the Agency if the verification procedure carried out by the notified body has already started or if any conformity certificate is already available. The applicant should be able to choose to request such an assessment from the Agency either for each individual ERTMS project or for a combination of projects, a line, a group of lines or a network. (48) The entry into force of this Directive should not delay the deployment of ERTMS projects for which the tendering or contracting process has been completed. (49) In order to facilitate the placing on the market of vehicles and to reduce administrative burdens, the notion of a vehicle authorisation for placing on the market that is valid throughout the Union should be introduced. While authorisations for placing on the market allow for commercial transactions of vehicles anywhere on the Union market, a vehicle may only be used within the area of use covered by its authorisation. In that context, any extension of the area of use should be subject to an updated authorisation for the vehicle. It is necessary that vehicles already authorised under earlier Directives also receive an authorisation for placing on the market if they are intended to be used on networks not covered by their authorisation. (50) When the area of use is limited to a network or networks within one Member State, the applicant should be able to choose whether it submits its application for vehicle authorisation, through the one-stop shop referred to in Regulation (EU) 2016/796, to the national safety authority of that Member State or to the Agency. The choice made by the applicant should be binding until the application is completed or terminated. (51) An appropriate procedure should be available to enable the applicant to appeal against a decision of, or a failure to act by, the Agency or the national safety authorities. In addition, clear procedural and dispute resolution provisions should be established to address situations where the Agency and the national safety authorities disagree on assessments made in relation to the issuing of vehicle authorisations. (52) Specific measures, including cooperation agreements, should take account of the specific geographical and historical situation of certain Member States, while ensuring the proper functioning of the internal market. (53) Where operation is limited to networks requiring specific expertise for geographical or historical reasons, and where such networks are isolated from the rest of the Union rail system, it should be possible for the applicant to fulfil the necessary formalities locally by interacting with the relevant national safety authorities. To that end, for the purpose of reducing administrative burdens and costs, it should be possible for the cooperation agreements that are to be concluded between the Agency and the relevant national safety authorities to provide for the appropriate allocation of tasks, without prejudice to the assumption by the Agency of final responsibility for issuing the authorisation. (54) The railway networks located in the Baltic States (Estonia, Latvia and Lithuania) have 1 520 mm track gauge, which is the same as in neighbouring third countries, but is different from that of the main rail network within the Union. These Baltic networks have inherited common technical and operational requirements, which provide de facto interoperability between them, and, in this respect, the vehicle authorisation issued in one of these Member States might be valid for the rest of these networks. To facilitate the efficient and proportionate allocation of resources for vehicle authorisation for placing on the market or a type authorisation of vehicles, and to reduce the financial and administrative burden for the applicant in such cases, the specific cooperation arrangements between the Agency and relevant national safety authorities should include, where necessary, the possibility of contracting tasks to these national safety authorities. (55) Member States with an important share of rail traffic with third countries having the same railway gauge which is different from that of the main rail network within the Union should be able to maintain different vehicle authorisation procedures for freight wagons and passenger coaches which are in shared use with those third countries. (56) For traceability and safety reasons, Member States' competent authorities should assign a European vehicle number to a vehicle when requested to do so by the vehicle's keeper. The vehicle information should then be entered in a vehicle register. The vehicle registers should be open to consultation by all Member States and by certain economic players within the Union. The vehicle registers should be consistent as regards the data format. They should therefore be covered by common operational and technical specifications. In order to reduce administrative burdens and undue costs, the Commission should adopt a specification for a European Vehicle Register that would incorporate national vehicle registers, with a view to creating a common tool, while, at the same time, allowing for the maintenance of additional functions relevant to Member States' specific needs. (57) To ensure traceability of vehicles and their history, the references of the vehicle authorisations for placing on the market should be recorded together with other vehicle data. (58) Procedures should be established for checking the compatibility between vehicles and the routes on which they are to be deployed after delivery of the vehicle authorisation for placing on the market and before the use by a railway undertaking of a vehicle in its area of use as specified in the vehicle authorisation for placing on the market. (59) The notified bodies responsible for examining the procedures for assessment of conformity and suitability for use of constituents, together with the procedure for the assessment of subsystems, should, in particular in the absence of any European specification, coordinate their decisions as closely as possible. (60) Transparent accreditation, as provided for in Regulation (EC) No 765/2008 of the European Parliament and of the Council (9), ensuring the necessary level of confidence in conformity certificates, should be considered by the national public authorities throughout the Union to be the preferred means of demonstrating the technical competence of notified bodies and, mutatis mutandis, of the bodies designated to check compliance with national rules. However, national authorities should be able to consider that they possess the appropriate means of carrying out this evaluation themselves. In such cases, in order to ensure the appropriate level of credibility of evaluations carried out by other national authorities, they should provide the Commission and the other Member States with the necessary documentary evidence demonstrating the compliance of the conformity assessment bodies evaluated with the relevant regulatory requirements. (61) This Directive should be limited to establishing the interoperability requirements for interoperability constituents and subsystems. In order to facilitate compliance with those requirements, it is necessary to provide for a presumption of conformity for interoperability constituents and subsystems which are in conformity with harmonised standards that are adopted in accordance with Regulation (EU) No 1025/2012 for the purpose of expressing detailed technical specifications relating to those requirements. (62) Measures adopted pursuant to this Directive should be complemented by initiatives aimed at providing financial support to innovative and interoperable technologies in the Union rail sector. (63) In order to supplement non-essential elements of this Directive, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of the specific objectives of each TSI. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council. (64) In order to ensure uniform conditions for the implementation of this Directive, implementing powers should be conferred on the Commission relating to: TSIs and amendments to TSIs, including those amendments needed to remedy deficiencies in TSIs; the template of the ‘EC’ declaration of conformity or suitability for use of interoperability constituents and the accompanying documents; the information to be included in the file which should accompany the request for non-application of one or more TSIs or parts of them, the format and the transmission methods of that file and, where appropriate, the decision on non-application of TSIs; the classification of the notified national rules in different groups with the aim of facilitating the compatibility checks between fixed and mobile equipment; the details of the ‘EC’ verification procedure and the verification procedure in the case of national rules and the templates for the ‘EC’ declaration of verification and the templates for documents of the technical file that should accompany the declaration of verification as well as the templates for certificates of verification; the practical arrangements for the purposes of vehicle authorisation; the model of the declaration of conformity to type and, where appropriate, ad hoc modules for conformity assessment; the national vehicle registers, the European Vehicle register and the register of authorisation to place types on the market; and the common specifications relating to content, data format, functional and technical architecture, operating mode and rules for data input and consultation for the register of infrastructure. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (10). (65) The TSIs should be revised at regular intervals. When deficiencies are discovered in the TSIs, the Agency should be asked to issue an opinion which, under certain conditions, might be published and used by all stakeholders (including industry and notified bodies) as an acceptable means of compliance pending the revision of the TSIs concerned. (66) Implementing acts establishing new TSIs or amending TSIs should reflect the specific objectives set out by the Commission by way of delegated acts. (67) Certain organisational steps are necessary in order to prepare the Agency for its enhanced role under this Directive. Accordingly, an appropriate transitional period should be provided for. During that period, the Commission should review the progress made by the Agency in preparing for its enhanced role. Thereafter, the Commission should report periodically on the progress made in implementing this Directive. In particular, the report should evaluate the vehicle authorisation process, the cases where the TSIs are not applied and the use of registers. The Commission should also report on actions taken regarding the identification and traceability of safety-critical components. (68) It is necessary to allow Member States, national safety authorities and stakeholders sufficient time in which to prepare to implement this Directive. (69) Since the objective of this Directive, namely interoperability within the rail system on a Union-wide scale, cannot be sufficiently achieved by the Member States but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. (70) The obligation to transpose this Directive into national law should be confined to those provisions which represent a substantive amendment as compared to Directive 2008/57/EC. The obligation to transpose the provisions which are unchanged arises under Directive 2008/57/EC. (71) This Directive should be without prejudice to the obligations of the Member States relating to the time limits for transposition into national law of the Directives set out in Part B of Annex V, HAVE ADOPTED THIS DIRECTIVE: CHAPTER I GENERAL PROVISIONS Article 1 Subject matter and scope 1. This Directive establishes the conditions to be met to achieve interoperability within the Union rail system in a manner compatible with Directive (EU) 2016/798 in order to define an optimal level of technical harmonisation, to make it possible to facilitate, improve and develop rail transport services within the Union and with third countries and to contribute to the completion of the single European railway area and the progressive achievement of the internal market. Those conditions concern the design, construction, placing in service, upgrading, renewal, operation and maintenance of the parts of that system as well as the professional qualifications of, and health and safety conditions applying to, the staff who contribute to its operation and maintenance. 2. This Directive lays down the provisions relating to, for each subsystem, the interoperability constituents, the interfaces and procedures, and the conditions of overall compatibility of the Union rail system required in order to achieve its interoperability. 3. This Directive shall not apply to: (a) metros; (b) trams and light rail vehicles, and infrastructure used exclusively by those vehicles; (c) networks that are functionally separate from the rest of the Union rail system and intended only for the operation of local, urban or suburban passenger services, as well as undertakings operating solely on those networks. 4. Member States may exclude from the scope of the measures implementing this Directive: (a) privately owned railway infrastructure, including sidings, used by its owner or by an operator for the purpose of their respective freight activities or for the transport of persons for non-commercial purposes, and vehicles used exclusively on such infrastructure; (b) infrastructure and vehicles reserved for a strictly local, historical or touristic use; (c) light rail infrastructure occasionally used by heavy rail vehicles under the operational conditions of the light rail system, where it is necessary for the purposes of connectivity of those vehicles only; and (d) vehicles primarily used on light rail infrastructure but equipped with some heavy rail components necessary to enable transit to be effected on a confined and limited section of heavy rail infrastructure for connectivity purposes only. 5. In the case of tram-trains operating in the Union rail system, where there are no TSIs that apply to those tram-trains, the following shall apply: (a) Member States concerned shall ensure that national rules or other relevant accessible measures are adopted in order to ensure that such tram-trains meet the relevant essential requirements; (b) Member States may adopt national rules in order to specify the authorisation procedure applicable to such tram-trains. The authority issuing the vehicle authorisation shall consult the relevant national safety authority in order to ensure that mixed operation of tram-trains and heavy rail trains meet all essential requirements as well as relevant common safety targets (‘CSTs’); (c) by way of derogation from Article 21, in the case of cross-border operation, the relevant competent authorities shall cooperate with a view to issuing the vehicle authorisations. This paragraph does not apply to vehicles excluded from the scope of this Directive in accordance with paragraphs 3 and 4. Article 2 Definitions For the purposes of this Directive: (1) ‘Union rail system’ means the elements listed in Annex I; (2) ‘interoperability’ means the ability of a rail system to allow the safe and uninterrupted movement of trains which accomplish the required levels of performance; (3) ‘vehicle’ means a railway vehicle suitable for circulation on wheels on railway lines, with or without traction; a vehicle is composed of one or more structural and functional subsystems; (4) ‘network’ means the lines, stations, terminals, and all kinds of fixed equipment needed to ensure safe and continuous operation of the Union rail system; (5) ‘subsystems’ means the structural or functional parts of the Union rail system, as set out in Annex II; (6) ‘mobile subsystem’ means the rolling stock subsystem and the on-board control-command and signalling subsystem; (7) ‘interoperability constituents’ means any elementary component, group of components, subassembly or complete assembly of equipment incorporated or intended to be incorporated into a subsystem, upon which the interoperability of the rail system depends directly or indirectly, including both tangible objects and intangible objects; (8) ‘product’ means a product obtained through a manufacturing process, including interoperability constituents and subsystems; (9) ‘essential requirements’ means all the conditions set out in Annex III which must be met by the Union rail system, the subsystems, and the interoperability constituents, including interfaces; (10) ‘European specification’ means a specification which falls into one of the following categories: — a common technical specification as defined in Annex VIII of Directive 2014/25/EU, — a European technical approval as referred to in Article 60 of Directive 2014/25/EU, or — a European standard as defined in point (b) of Article 2(1) of Regulation (EU) No 1025/2012; (11) ‘technical specification for interoperability’ (TSI) means a specification adopted in accordance with this Directive by which each subsystem or part of a subsystem is covered in order to meet the essential requirements and ensure the interoperability of the Union rail system; (12) ‘basic parameter’ means any regulatory, technical or operational condition which is critical to interoperability and is specified in the relevant TSIs; (13) ‘specific case’ means any part of the rail system which needs special provisions in the TSIs, either temporary or permanent, because of geographical, topographical or urban environment constraints or those affecting compatibility with the existing system, in particular railway lines and networks isolated from the rest of the Union, the loading gauge, the track gauge or space between the tracks and vehicles strictly intended for local, regional or historical use, as well as vehicles originating from or destined for third countries; (14) ‘upgrading’ means any major modification work on a subsystem or part of it which results in a change in the technical file accompanying the ‘EC’ declaration of verification, if that technical file exists, and which improves the overall performance of the subsystem; (15) ‘renewal’ means any major substitution work on a subsystem or part of it which does not change the overall performance of the subsystem; (16) ‘existing rail system’ means the infrastructure composed of lines and fixed installations of the existing rail network as well as the vehicles of all categories and origins travelling on that infrastructure; (17) ‘substitution in the framework of maintenance’ means any replacement of components by parts of identical function and performance in the framework of preventive or corrective maintenance; (18) ‘tram-train’ means a vehicle designed for combined use on both a light-rail infrastructure and a heavy-rail infrastructure; (19) ‘placing in service’ means all the operations by which a subsystem is put into its operational service; (20) ‘contracting entity’ means a public or private entity which orders the design and/or construction or the renewal or upgrading of a subsystem; (21) ‘keeper’ means the natural or legal person that, being the owner of a vehicle or having the right to use it, exploits the vehicle as a means of transport and is registered as such in a vehicle register referred to in Article 47; (22) ‘applicant’ means a natural or legal person requesting an authorisation, be it a railway undertaking, an infrastructure manager or any other person or legal entity, such as a manufacturer, an owner or a keeper; for the purpose of Article 15, the ‘applicant’ means a contracting entity or a manufacturer, or its authorised representatives; for the purpose of Article 19, the ‘applicant’ means a natural or legal person requesting the Agency's decision for the approval of the technical solutions envisaged for the ERTMS track-side equipment projects; (23) ‘project at an advanced stage of development’ means any project the planning or construction stage of which has reached a point where a change in the technical specifications may compromise the viability of the project as planned; (24) ‘harmonised standard’ means a European standard as defined in point (c) of Article 2(1) of Regulation (EU) No 1025/2012; (25) ‘national safety authority’ means a safety authority as defined in point (7) of Article 3 of Directive (EU) 2016/798; (26) ‘type’ means a vehicle type defining the basic design characteristics of the vehicle as covered by a type or design examination certificate described in the relevant verification module; (27) ‘series’ means a number of identical vehicles of a design type; (28) ‘entity in charge of maintenance’ (‘ECM’) means an entity in charge of maintenance as defined in point (20) of Article 3 of Directive (EU) 2016/798; (29) ‘light rail’ means an urban and/or suburban rail transport system with a crashworthiness of C-III or C-IV (in accordance with EN 15227:2011) and a maximum strength of vehicle of 800 kN (longitudinal compressive force in coupling area); light rail systems may have their own right of way or share it with road traffic and usually do not exchange vehicles with long-distance passenger or freight traffic; (30) ‘national rules’ means all binding rules adopted in a Member State, irrespective of the body issuing them, which contain railway safety or technical requirements, other than those laid down by Union or international rules which are applicable within that Member State to railway undertakings, infrastructure managers or third parties; (31) ‘design operating state’ means the normal operating mode and the foreseeable degraded conditions (including wear) within the range and the conditions of use specified in the technical and maintenance files; (32) ‘area of use of a vehicle’ means a network or networks within a Member State or a group of Member States in which a vehicle is intended to be used; (33) ‘acceptable means of compliance’ means non-binding opinions issued by the Agency to define ways of establishing compliance with the essential requirements; (34) ‘acceptable national means of compliance’ means non-binding opinions issued by Member States to define ways of establishing compliance with national rules; (35) ‘placing on the market’ means the first making available on the Union's market of an interoperability constituent, subsystem or vehicle ready to function in its design operating state; (36) ‘manufacturer’ means any natural or legal person who manufactures a product in the form of interoperability constituents, subsystems or vehicles, or has it designed or manufactured, and markets it under his name or trademark; (37) ‘authorised representative’ means any natural or legal person established within the Union who has received a written mandate from a manufacturer or a contracting entity to act on behalf of that manufacturer or contracting entity in relation to specified tasks; (38) ‘technical specification’ means a document that prescribes technical requirements to be fulfilled by a product, subsystem, process or service; (39) ‘accreditation’ means accreditation as defined in point (10) of Article 2 of Regulation (EC) No 765/2008; (40) ‘national accreditation body’ means a national accreditation body as defined in point (11) of Article 2 of Regulation (EC) No 765/2008; (41) ‘conformity assessment’ means the process demonstrating whether specified requirements relating to a product, process, service, subsystem, person or body have been fulfilled; (42) ‘conformity assessment body’ means a body that has been notified or designated to be responsible for conformity assessment activities, including calibration, testing, certification and inspection; a conformity assessment body is classified as a ‘notified body’ following notification by a Member State; a conformity assessment body is classified as a ‘designated body’ following designation by a Member State; (43) ‘person with disabilities’ and ‘person with reduced mobility’ shall include any person who has a permanent or temporary physical, mental, intellectual or sensory impairment which, in interaction with various barriers, may hinder the full and effective use by that person of transport on an equal basis with other passengers or whose mobility when using transport is reduced due to age; (44) ‘infrastructure manager’ means an infrastructure manager as defined in point (2) of Article 3 of Directive 2012/34/EU of the European Parliament and of the Council (11); (45) ‘railway undertaking’ means a railway undertaking as defined in point (1) of Article 3 of Directive 2012/34/EU, and any other public or private undertaking, the activity of which is to provide transport of goods and/or passengers by rail on the basis that the undertaking is to ensure traction; this also includes undertakings which provide traction only. Article 3 Essential requirements 1. The Union rail system, subsystems and interoperability constituents including interfaces shall meet the relevant essential requirements. 2. The technical specifications referred to in Article 60 of Directive 2014/25/EU, which are necessary to complete European specifications or other standards in use within the Union, shall not conflict with the essential requirements. CHAPTER II TECHNICAL SPECIFICATIONS FOR INTEROPERABILITY Article 4 Content of TSIs 1. Each of the subsystems defined in Annex II shall be covered by one TSI. Where necessary, a subsystem may be covered by several TSIs and one TSI may cover several subsystems. 2. Fixed subsystems shall comply with the TSIs and national rules in force at the time of the request for authorisation of placing in service in accordance with this Directive and without prejudice to point (f) of paragraph 3. Vehicles shall comply with TSIs and national rules in force at the time of the request for authorisation of placing on the market in accordance with this Directive and without prejudice to point (f) of paragraph 3. The conformity and compliance of fixed subsystems and vehicles shall be permanently maintained while they are in use. 3. To the extent necessary to achieve the objectives of this Directive referred to in Article 1, each TSI shall: (a) indicate its intended scope (part of network or vehicles referred to in Annex I; subsystem or part of subsystem referred to in Annex II); (b) lay down essential requirements for each subsystem concerned and its interfaces in relation to other subsystems; (c) establish the functional and technical specifications to be met by the subsystem and its interfaces in relation to other subsystems. If necessary, these specifications may vary according to the use of the subsystem, for example according to the categories of line, hub and/or vehicles provided for in Annex I; (d) determine the interoperability constituents and interfaces which must be covered by European specifications, including European standards, which are necessary to achieve interoperability within the Union rail system; (e) state, in each case under consideration, which procedures are to be used in order to assess the conformity or the suitability for use of the interoperability constituents, on the one hand, or the ‘EC’ verification of the subsystems, on the other. Those procedures shall be based on the modules defined in Commission Decision 2010/713/EU (12); (f) indicate the strategy for the application of the TSI. In particular, it is necessary to specify the stages to be completed, taking into account the estimated costs and benefits and the expected repercussions for the stakeholders affected in order to make a gradual transition from the existing situation to the final situation in which compliance with the TSI shall be the norm. Where coordinated implementation of the TSI is necessary, such as along a corridor or between infrastructure managers and railway undertakings, the strategy may include proposals for staged completion; (g) indicate, for the staff concerned, the professional qualifications and health and safety conditions at work required for the operation and maintenance of the above subsystem, as well as for the application of the TSIs; (h) indicate the provisions applicable to the existing subsystems and vehicles, in particular in the event of upgrading and renewal and, in such cases, the modification work which requires an application for a new authorisation; (i) indicate the parameters of the vehicles and fixed subsystems to be checked by the railway undertaking and the procedures to be applied to check those parameters after the delivery of the vehicle authorisation for placing on the market and before the first use of the vehicle to ensure compatibility between vehicles and the routes on which they are to be operated. 4. Each TSI shall be drawn up on the basis of an examination of an existing subsystem and indicate a target subsystem that may be obtained gradually within a reasonable timescale. Accordingly, the adoption of the TSIs and compliance with them shall gradually facilitate achievement of the interoperability of the Union rail system. 5. TSIs shall retain, in an appropriate manner, the compatibility of the existing rail system of each Member State. For that purpose, specific cases for each TSI may be provided for, with regard to both network and vehicles, and in particular for the loading gauge, the track gauge or space between the tracks and vehicles originating from or destined for third countries. For each specific case, the TSIs shall stipulate the implementing rules of the elements of the TSIs provided for in points (c) to (g) of paragraph 3. 6. If certain technical aspects corresponding to the essential requirements cannot be explicitly covered in a TSI, they shall be clearly identified in an annex to the TSI as open points. 7. TSIs shall not prevent the Member States from deciding on the use of infrastructures for the movement of vehicles not covered by the TSIs. 8. TSIs may make an explicit, clearly identified reference to European or international standards or specifications or technical documents published by the Agency where this is strictly necessary in order to achieve the objectives of this Directive. In such a case, these standards or specifications (or their relevant parts) or technical documents shall be regarded as annexes to the TSI concerned and shall become mandatory from the moment the TSI is applicable. In the absence of such standards or specifications or technical documents, and pending their development, reference may be made to other clearly identified normative documents that are easily accessible and in the public domain. Article 5 Drafting, adoption and review of TSIs 1. In order to set out the specific objectives of each TSI, the Commission shall be empowered to adopt delegated acts in accordance with Article 50 concerning, in particular and where appropriate: (a) the geographical and technical scope of the TSIs; (b) the applicable essential requirements; (c) the list of regulatory, technical and operational conditions to be harmonised at the level of subsystems and at the level of the interfaces between subsystems and their expected level of harmonisation; (d) the railway-specific procedures for assessment of conformity and suitability for use of the interoperability constituents; (e) the railway-specific procedures to assess the ‘EC’ verification of the subsystems; (f) the categories of staff involved in the operation and maintenance of the subsystems concerned and the general objectives for setting the minimum requirements for professional qualifications and health and safety conditions for the staff concerned; (g) any other necessary element to be taken into account to ensure interoperability pursuant to Article 1(1) and (2) within the Union rail system, such as alignment of TSI with European and international standards or specifications. When adopting those delegated acts, the Commission shall justify the need for a new or substantially amended TSI, including its impact on existing rules and technical specifications. 2. In order to ensure uniform implementation of the delegated acts referred to in paragraph 1, the Commission shall request that the Agency draft TSIs and amendments thereto and make the relevant recommendations to the Commission. Each draft TSI shall be drawn up in the following stages: (a) the Agency shall identify the basic parameters for the TSI as well as the interfaces with the other subsystems and any other specific cases that may be necessary; (b) the Agency shall draw up the draft TSI on the basis of the basic parameters referred to in point (a). Where appropriate, the Agency shall take account of technical progress, of standardisation work already carried out, of working parties already in place and of acknowledged research work. 3. When drafting or reviewing each TSI, including the basic parameters, the Agency shall take account of the estimated costs and benefits of all the technical solutions considered, together with the interfaces between them, so as to establish and implement the most viable solutions. That assessment shall indicate the likely impact on all the operators and economic actors involved and shall take due account of the requirements of Directive (EU) 2016/798. Member States shall participate in this assessment by providing, where appropriate, the requisite data. 4. The Agency shall draft the TSIs and amendments thereto in accordance with Articles 5 and 19 of Regulation (EU) 2016/796 while fulfilling the criteria of openness, consensus and transparency as defined in Annex II to Regulation (EU) No 1025/2012. 5. The committee referred to in Article 51 (‘the committee’) shall be kept periodically informed of the preparatory work on the TSIs. During that work, to comply with the delegated acts referred to in paragraph 1 of this Article, the Commission may formulate any terms of reference or useful recommendations concerning the design of the TSIs and a cost-benefit analysis. In particular, the Commission may require that alternative solutions be examined and that the assessment of the cost and benefits of those alternative solutions be set out in the report annexed to the draft TSI. 6. Where different subsystems have to be placed in service simultaneously for reasons of technical compatibility, the dates of application of the relevant TSIs shall be the same. 7. When drafting, adopting or reviewing the TSIs, the Agency shall take account of the opinion of users as regards the characteristics which have a direct impact on the conditions in which they use the subsystems. To that end, the Agency shall consult associations and bodies representing users during the drafting and review phases of the TSIs. It shall enclose with the draft TSI a report on the results of that consultation. 8. In accordance with Article 7 of Regulation (EU) 2016/796, the Commission, with the assistance of the committee, shall draw up and periodically update the list of passengers' associations and bodies to be consulted. That list may be re-examined and updated at the request of a Member State or upon the initiative of the Commission. 9. When drafting or reviewing the TSIs, the Agency shall take account of the opinion of the social partners as regards the professional qualifications and health and safety conditions at work referred to in point (g) of Article 4(3). To that end, the Agency shall consult the social partners before submitting to the Commission recommendations on TSIs and their amendments. The social partners shall be consulted within the Sectoral Dialogue Committee set up in accordance with Commission Decision 98/500/EC (13). The social partners shall issue their opinion within three months of the consultation. 10. When the revision of a TSI leads to a change of requirements, the new TSI version shall ensure compatibility with subsystems placed in service in accordance with former TSI versions. 11. The Commission shall establish, by means of implementing acts, TSIs to implement the specific objectives set out in the delegated acts referred to in paragraph 1. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 51(3). They shall include all the elements listed in Article 4(3) and meet all the requirements set out in Article 4(4) to (6) and (8). Article 6 Deficiencies in TSIs 1. If, after its adoption, it appears that a TSI has a deficiency, that TSI shall be amended in accordance with Article 5(11). If appropriate, the Commission shall apply this procedure without delay. Such deficiencies shall include cases which could result in unsafe operations within a Member State. 2. Pending the review of a TSI, the Commission may request an opinion from the Agency. The Commission shall analyse the Agency's opinion and inform the committee of its conclusions. 3. At the request of the Commission, the Agency's opinion referred to in paragraph 2 shall constitute acceptable means of compliance and may therefore be used for the assessment of projects, pending the adoption of a revised TSI. 4. Any member of the network of representative bodies referred to in Article 38(4) of Regulation (EU) 2016/796 may make the Commission aware of possible TSI deficiencies. Article 7 Non-application of TSIs 1. Member States may allow the applicant not to apply one or more TSIs or parts of them in the following cases: (a) for a proposed new subsystem or part of it, for the renewal or upgrading of an existing subsystem or part of it, or for any element referred to in Article 1(1) which is at an advanced stage of development or which is the subject of a contract in the course of performance on the date of application of the TSI(s) concerned; (b) where, following an accident or a natural disaster, the conditions for the rapid restoration of the network do not economically or technically allow for partial or total application of the relevant TSIs, in which case the non-application of the TSIs shall be limited to the period before the restoration of the network; (c) for any proposed renewal, extension or upgrading of an existing subsystem or part of it, when the application of the TSI(s) concerned would compromise the economic viability of the project and/or the compatibility of the rail system in the Member State concerned, for example in relation to the loading gauge, track gauge, space between tracks or electrification voltage; (d) for vehicles arriving from or going to third countries the track gauge of which is different from that of the main rail network within the Union; (e) for a proposed new subsystem or for the proposed renewal or upgrading of an existing subsystem in the territory of the Member State concerned when its rail network is separated or isolated by the sea or separated as a result of special geographical conditions from the rail network of the rest of the Union. 2. In the case referred to in point (a) of paragraph 1, the Member State concerned shall communicate to the Commission, within one year of entry into force of each TSI, a list of projects that are taking place within its territory and which, in the view of the Member State concerned, are at an advanced stage of development. 3. In the cases referred to in points (a) and (b) of paragraph 1, the Member State concerned shall communicate to the Commission its decision not to apply one or more TSIs or parts of them. 4. In the cases referred to in points (a), (c), (d) and (e) of paragraph 1 of this Article, the Member State concerned shall submit to the Commission the request for non-application of the TSIs or parts of them, accompanied by a file containing the justification for the request, and specifying the alternative provisions that that Member State intends to apply instead of the TSIs. In the case referred to in point (e) of paragraph 1 of this Article, the Commission shall analyse the request and decide whether or not to accept it on the basis of the completeness and coherence of the information contained in the file. In the cases referred to in points (c) and (d) of paragraph 1 of this Article, the Commission shall adopt its decision by means of implementing acts on the basis of such analysis. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 51(3). In the cases referred to in the third subparagraph of Article 21(6), the applicant shall submit the file to the Agency. The Agency shall consult the relevant safety authorities and give its final opinion to the Commission. 5. The Commission shall, by means of an implementing act, establish the information to be included in the file referred to in paragraph 4, the required format of that file and the method to be used for its transmission. That implementing act shall be adopted in accordance with the examination procedure referred to in Article 51(3). 6. Pending the decision of the Commission, the Member State may apply the alternative provisions referred to in paragraph 4 without delay. 7. The Commission shall give its decision within four months of submission of the request supported by the complete file. In the absence of such a decision, the request shall be deemed to have been accepted. 8. Member States shall be informed of the results of the analyses and of the outcome of the procedure set out in paragraph 4. CHAPTER III INTEROPERABILITY CONSTITUENTS Article 8 Conditions for the placing on the market of interoperability constituents 1. Member States shall take all necessary steps to ensure that interoperability constituents are: (a) placed on the market only if they enable interoperability to be achieved within the Union rail system while at the same time meeting the essential requirements; (b) used in their area of use as intended and suitably installed and maintained. This paragraph shall not prevent the placing on the market of those constituents for other applications. 2. Member States shall not, in their territory and on the basis of this Directive, prohibit, restrict or hinder the placing on the market of interoperability constituents for use in the Union rail system where these constituents comply with this Directive. In particular, they shall not require checks which have already been carried out as part of the procedure for ‘EC’ declaration of conformity or suitability for use as provided for in Article 10. Article 9 Conformity or suitability for use 1. Member States and the Agency shall consider that an interoperability constituent meets the essential requirements if it complies with the conditions laid down in the corresponding TSI or the corresponding European specifications developed to comply with those conditions. The ‘EC’ declaration of conformity or suitability for use shall attest that the interoperability constituents have been subject to the procedures laid down in the corresponding TSI for assessing conformity or suitability for use. 2. Where the TSI so requires, the ‘EC’ declaration shall be accompanied by: (a) a certificate, issued by a notified body or bodies, of the intrinsic conformity of an interoperability constituent considered in isolation, to the technical specifications to be met; (b) a certificate, issued by a notified body or bodies, of the suitability for use of an interoperability constituent considered within its railway environment, particularly in the case of functional requirements concerned. 3. The ‘EC’ declaration shall be dated and signed by the manufacturer or its authorised representative. 4. The Commission shall establish, by means of implementing acts, the template of the ‘EC’ declaration of conformity or suitability for use of interoperability constituents and the list of accompanying documents. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 51(3). 5. Spare parts for subsystems that are already placed in service when the corresponding TSI enters into force may be installed in those subsystems without being subject to paragraph 1. 6. TSIs may provide for a period of transition for rail products identified by those TSIs as interoperability constituents which have already been placed on the market when the TSIs enter into force. Such constituents shall comply with Article 8(1). Article 10 Procedure for ‘EC’ declaration of conformity or suitability for use 1. In order to establish the ‘EC’ declaration of conformity or suitability for use of an interoperability constituent, the manufacturer or his authorised representative shall apply the provisions laid down by the relevant TSIs. 2. Where the corresponding TSI so requires, assessment of the conformity or suitability for use of an interoperability constituent shall be carried out by the notified body with which the manufacturer or his authorised representative has lodged the application. 3. Where interoperability constituents are the subject of other legal acts of the Union covering other matters, the ‘EC’ declaration of conformity or suitability for use shall state that the interoperability constituents also meet the requirements of those other legal acts. 4. Where neither the manufacturer nor his authorised representative has met the obligations laid down in paragraphs 1 and 3, those obligations shall be incumbent on any person who places interoperability constituents on the market. For the purposes of this Directive, the same obligations shall apply to any person who assembles interoperability constituents, or parts of interoperability constituents having diverse origins, or manufactures interoperability constituents for his own use. 5. If a Member State finds that the ‘EC’ declaration has been drawn up improperly, it shall ensure that the interoperability constituent is not placed on the market. In such a case, the manufacturer or his authorised representative shall be required to restore the interoperability constituent to a state of conformity under the conditions laid down by that Member State. Article 11 Non-compliance of interoperability constituents with essential requirements 1. Where a Member State finds that an interoperability constituent covered by the ‘EC’ declaration of conformity or suitability for use and placed on the market is, when used as intended, unlikely to meet the essential requirements, that Member State shall take all necessary steps to restrict its field of application, prohibit its use, withdraw it from the market or recall it. The Member State shall forthwith inform the Commission, the Agency and the other Member States of the measures taken and give reasons for its decision, stating in particular whether the failure to conform is due to: (a) failure to meet the essential requirements; (b) incorrect application of European specifications where application of such specifications is relied upon; (c) inadequacy of European specifications. 2. The Agency, on a mandate from the Commission, shall start the consultation process with the parties concerned without delay and in any case within 20 days of the date of receipt of that mandate. Where, following that consultation, the Agency establishes that the measure is unjustified, it shall forthwith inform the Commission, the Member State that has taken the initiative as well as other Member States, and the manufacturer or his authorised representative. Where the Agency establishes that the measure is justified, it shall forthwith inform the Member States. 3. Where the decision referred to in paragraph 1 results from an inadequacy of European specifications, the Member States, the Commission or the Agency, as appropriate, shall apply one or more of the following measures: (a) partial or total withdrawal of the specification concerned from the publications containing them; (b) if the relevant specification is a harmonised standard, restriction or withdrawal of that standard in accordance with Article 11 of Regulation (EU) No 1025/2012; (c) review of the TSI in accordance with Article 6. 4. Where an interoperability constituent bearing the ‘EC’ declaration of conformity fails to comply with the essential requirements, the competent Member State shall take appropriate measures against any entity which has drawn up the declaration and shall inform the Commission and the other Member States thereof. CHAPTER IV SUBSYSTEMS Article 12 Free movement of subsystems Without prejudice to the provisions of Chapter V, Member States shall not, in their territory and on grounds relating to this Directive, prohibit, restrict or hinder the construction, placing in service and operation of structural subsystems constituting the rail system which meet the essential requirements. In particular, they shall not require checks which have already been carried out: (a) as part of the procedure leading to the ‘EC’ declaration of verification; or (b) in other Member States, before or after the entry into force of this Directive, with a view to verifying compliance with identical requirements under identical operational conditions. Article 13 Conformity with TSIs and national rules 1. The Agency and the national safety authorities shall consider as meeting the essential requirements, those structural subsystems constituting the rail system which are covered, as appropriate, by the ‘EC’ declaration of verification established by reference to TSIs, in accordance with Article 15, or the declaration of verification established by reference to national rules in accordance with Article 15(8), or both. 2. National rules for implementing the essential requirements and, where relevant, acceptable national means of compliance, shall apply in the following cases: (a) where the TSIs do not cover, or do not fully cover, certain aspects corresponding to the essential requirements, including open points as referred to in Article 4(6); (b) where non-application of one or more TSIs or parts of them has been notified under Article 7; (c) where a specific case requires the application of technical rules not included in the relevant TSI; (d) national rules used to specify existing systems, limited to the aim of assessing technical compatibility of the vehicle with the network; (e) networks and vehicles not covered by TSIs; (f) as an urgent temporary preventive measure, in particular following an accident. Article 14 Notification of national rules 1. Member States shall notify to the Commission and to the Agency the existing national rules referred to in Article 13(2) in the following cases: (a) where the national rule(s) has/have not been notified by 15 June 2016. In that case, they shall be notified by 16 December 2016; (b) each time the rules are changed; (c) when a new request has been submitted in accordance with Article 7 for non-application of the TSI; (d) where national rules become redundant after publication or revision of the TSI concerned. 2. Member States shall notify the full text of national rules referred to in paragraph 1 through the appropriate IT system in accordance with Article 27 of Regulation (EU) 2016/796. 3. Member States shall ensure that national rules referred to in paragraph 1, including those covering the interfaces between vehicles and networks, are easily accessible, in the public domain and formulated in terminology that all interested parties can understand. Member States may be requested to provide additional information on those national rules. 4. Member States may lay down new national rules only in the following cases: (a) when a TSI does not fully meet the essential requirements; (b) as an urgent preventive measure, in particular following an accident. 5. Member States shall submit, through the appropriate IT system in accordance with Article 27 of Regulation (EU) 2016/796, the drafts of new national rules to the Agency and the Commission for consideration before the expected introduction of the proposed new rule into the national legal system, in due time and within the deadlines referred to in Article 25(1) of Regulation (EU) 2016/796 and provide justification for the introduction of that new national rule. Member States shall ensure that the draft is sufficiently developed to allow the Agency to carry out its examination in accordance with Article 25(2) of Regulation (EU) 2016/796. 6. When they adopt a new national rule, Member States shall notify it to the Agency and the Commission through the appropriate IT system in accordance with Article 27 of Regulation (EU) 2016/796. 7. In the case of urgent preventive measures, Member States may adopt and apply a new national rule immediately. That rule shall be notified in accordance with Article 27(2) of Regulation (EU) 2016/796 and subject to the assessment of the Agency in accordance with Article 26(1), (2) and (5) of that Regulation. 8. When notifying a national rule referred to in paragraph 1 or a new national rule, Member States shall provide justification of the need for that rule in order to fulfil an essential requirement not already covered by the relevant TSI. 9. Draft national rules and national rules referred to in paragraph 1 shall be examined by the Agency in accordance with the procedures laid down in Articles 25 and 26 of Regulation (EU) 2016/796. 10. The Commission shall establish, by means of implementing acts, the classification of the notified national rules in different groups with the aim of facilitating cross-acceptance in different Member States and the placing on the market of vehicles, including compatibility between fixed and mobile equipment. Those implementing acts shall build on the progress achieved by the Agency in the field of cross-acceptance and shall be adopted in accordance with the examination procedure referred to in Article 51(3). The Agency shall classify, in accordance with the implementing acts referred to in the first subparagraph, the national rules which are notified in accordance with this Article. 11. Member States may decide not to notify rules and restrictions of a strictly local nature. In such cases, Member States shall mention those rules and restrictions in the registers of infrastructure referred to in Article 49. 12. National rules notified under this Article are not subject to the notification procedure set out in Directive (EU) 2015/1535 of the European Parliament and of the Council (14). 13. National rules not notified in accordance with this Article shall not apply for the purposes of this Directive. Article 15 Procedure for establishing the ‘EC’ declaration of verification 1. In order to establish the ‘EC’ declaration of verification necessary for placing on the market and placing in service referred to in Chapter V, the applicant shall request the conformity assessment body or bodies that it has selected for that purpose to apply the ‘EC’ verification procedure set out in Annex IV. 2. The applicant shall establish the ‘EC’ declaration of verification of a subsystem. The applicant shall declare on his sole responsibility that the subsystem concerned has been subject to the relevant verification procedures and that it satisfies the requirements of relevant Union law and any relevant national rule. The ‘EC’ declaration of verification and the accompanying documents shall be dated and signed by the applicant. 3. The task of the notified body responsible for the ‘EC’ verification of a subsystem shall begin at the design stage and cover the entire manufacturing period through to the acceptance stage before the subsystem is placed on the market or in service. It shall, in accordance with the relevant TSI, also cover verification of the interfaces of the subsystem in question with the system into which it is incorporated. 4. The applicant shall be responsible for compiling the technical file that is to accompany the ‘EC’ declaration of verification. That technical file shall contain all the necessary documents relating to the characteristics of the subsystem and, where appropriate, all the documents certifying conformity of the interoperability constituents. It shall also contain all the elements relating to the conditions and limits of use and to the instructions concerning servicing, constant or routine monitoring, adjustment and maintenance. 5. In the event of the renewal or upgrading of a subsystem resulting in an amendment to the technical file and affecting the validity of the verification procedures already carried out, the applicant shall assess the need for a new ‘EC’ declaration of verification. 6. The notified body may issue intermediate statement verifications to cover certain stages of the verification procedure or certain parts of the subsystem. 7. If the relevant TSIs allow, the notified body may issue certificates of verification for one or more subsystems or certain parts of those subsystems. 8. Member States shall designate the bodies responsible for carrying out the verification procedure in respect of national rules. In that regard, designated bodies shall be responsible for the tasks involved. Without prejudice to Article 30, a Member State may appoint a notified body as a designated body, in which case the entire process may be carried out by a single conformity assessment body. 9. The Commission may specify, by means of implementing acts: (a) the details of the ‘EC’ verification procedures for subsystems, including the verification procedure in the case of national rules and the documents to be submitted by the applicant for the purposes of that procedure; (b) the templates for the ‘EC’ declaration of verification, including in the case of a modification of the subsystem or in the case of additional verifications, the intermediate statement of verification, and templates for documents of the technical file that is to accompany those declarations as well as templates for the certificate of verification. Those implementing acts shall be adopted in accordance with the examination procedure referred to Article 51(3). Article 16 Non-compliance of subsystems with essential requirements 1. Where a Member State finds that a structural subsystem covered by the ‘EC’ declaration of verification accompanied by the technical file does not fully comply with this Directive and, in particular, does not meet the essential requirements, it may request that additional checks be carried out. 2. The Member State making the request shall forthwith inform the Commission of any additional checks requested and set out the reasons therefor. The Commission shall consult the interested parties. 3. The Member State making the request shall state whether the failure to fully comply with this Directive is due to: (a) non-compliance with the essential requirements or with a TSI, or incorrect application of a TSI, in which case the Commission shall forthwith inform the Member State where the person who drew up the ‘EC’ declaration of verification in error resides and shall request that Member State to take the appropriate measures; (b) inadequacy of a TSI, in which case the procedure for amending the TSI as referred to in Article 6 shall apply. Article 17 Presumption of conformity Interoperability constituents and subsystems which are in conformity with harmonised standards or parts thereof, the references of which have been published in the Official Journal of the European Union, shall be presumed to be in conformity with the essential requirements covered by those standards or parts thereof. CHAPTER V PLACING ON THE MARKET AND PLACING IN SERVICE Article 18 Authorisation for the placing in service of fixed installations 1. The trackside control-command and signalling, energy and infrastructure subsystems shall be placed in service only if they are designed, constructed and installed in such a way as to meet the essential requirements, and the relevant authorisation is received in accordance with paragraphs 3 and 4. 2. Each national safety authority shall authorise the placing in service of the energy, infrastructure and trackside control-command and signalling subsystems which are located or operated in the territory of its Member State. 3. National safety authorities shall provide detailed guidance on how to obtain the authorisations referred to in this Article. An application guidance document describing and explaining the requirements for those authorisations and listing the documents required shall be made available to applicants free of charge. The Agency and the national safety authorities shall cooperate in disseminating such information. 4. The applicant shall submit a request for authorisation of the placing in service of fixed installations to the national safety authority. The application shall be accompanied by a file which includes documentary evidence of: (a) the declarations of verification referred to in Article 15; (b) the technical compatibility of the subsystems with the system into which they are being integrated, established on the basis of the relevant TSIs, national rules and registers; (c) the safe integration of the subsystems, established on the basis of the relevant TSIs, national rules, and the common safety methods (‘CSMs’) set out in Article 6 of Directive (EU) 2016/798; (d) in the case of trackside control-command and signalling subsystems involving European Train Control System (ETCS) and/or Global System for Mobile Communications — Railway (GSM-R) equipment, the positive decision of the Agency issued in accordance with Article 19 of this Directive; and, in the case of a change to the draft tender specifications or to the description of the envisaged technical solutions that occurred after the positive decision, the compliance with the result of the procedure referred to in Article 30(2) of Regulation (EU) 2016/796. 5. Within one month of receipt of the applicant's request, the national safety authority shall inform the applicant that the file is complete or ask for relevant supplementary information, setting a reasonable deadline for the provision thereof. The national safety authority shall verify the completeness, relevance and consistency of the file, and, in the case of trackside ERTMS equipment, compliance with the positive decision of the Agency issued in accordance with Article 19 of this Directive and, where appropriate, compliance with the result of the procedure referred to in Article 30(2) of Regulation (EU) 2016/796. Following such verification, the national safety authority shall issue the authorisation for placing in service of fixed installations, or inform the applicant of its negative decision, within a pre-determined, reasonable time, and, in any case, within four months of receipt of all relevant information. 6. In the event of renewal or upgrading of existing subsystems, the applicant shall send a file describing the project to the national safety authority. Within one month of receipt of the applicant's request, the national safety authority shall inform the applicant that the file is complete or ask for relevant supplementary information, setting a reasonable deadline for the provision thereof. The national safety authority, in close cooperation with the Agency in the case of trackside ERTMS projects, shall examine the file and shall decide whether a new authorisation for placing in service is needed, on the basis of the following criteria: (a) the overall safety level of the subsystem concerned may be adversely affected by the works envisaged; (b) it is required by the relevant TSIs; (c) it is required by the national implementation plans established by the Member States; or (d) changes are made to the values of the parameters on the basis of which the authorisation was already granted. The national safety authority shall take its decision within a predetermined, reasonable time, and, in any case, within four months of receipt of all relevant information. 7. A decision refusing a request for an authorisation for the placing in service of fixed installations shall be duly substantiated by the national safety authority. The applicant may, within one month of receipt of the negative decision, submit a request that the national safety authority review its decision. The request shall be accompanied by a justification. The national safety authority shall have two months from the date of receipt of the request for review in which to confirm or reverse its decision. If the negative decision of a national safety authority is confirmed, the applicant may bring an appeal before the appeal body designated by the relevant Member State under Article 18(3) of Directive (EU) 2016/798. Article 19 Harmonised implementation of ERTMS in the Union 1. In the case of trackside control-command and signalling subsystems involving ETCS and/or GSM-R equipment, the Agency shall ensure the harmonised implementation of ERTMS in the Union. 2. In order to ensure the harmonised implementation of ERTMS and interoperability at Union level, before any call for tenders relating to ERTMS track-side equipment, the Agency shall check that the technical solutions envisaged are fully compliant with the relevant TSIs and are therefore fully interoperable. 3. The applicant shall submit a request for the Agency's approval. The application relating to individual ERTMS projects or for a combination of projects, a line, a group of lines or a network, shall be accompanied by a file which includes: (a) the draft tender specifications or the description of the envisaged technical solutions; (b) documentary evidence of the conditions necessary for technical and operational compatibility of the subsystem with the vehicles intended to operate on the relevant network; (c) documentary evidence of the compliance of technical solutions envisaged with the relevant TSIs; (d) any other relevant documents, such as national safety authority opinions, declarations of verification or conformity certificates. That application and information about all applications, the stages of the relevant procedures and their outcome, and, where applicable, the requests and decisions of the Board of Appeal, shall be submitted through the one-stop shop referred to in Article 12 of Regulation (EU) 2016/796. The national safety authorities may issue an opinion on the request for approval either to the applicant before the submission of the request or to the Agency after such a submission. 4. Within one month of receipt of the applicant's request, the Agency shall inform the applicant that the file is complete or ask for relevant supplementary information, setting a reasonable deadline for the provision thereof. The Agency shall issue a positive decision, or inform the applicant of possible deficiencies, within a predetermined, reasonable time period, and in any case, within two months of receipt of all relevant information. The Agency shall base its opinion on the file of the applicant and on possible opinions from the national safety authorities. If the applicant agrees with the deficiencies identified by the Agency, the applicant shall rectify the project design and introduce a new request for approval to the Agency. If the applicant does not agree with the deficiencies identified by the Agency, the procedure referred to in paragraph 5 shall apply. In the case referred to in point (a) of Article 7(1), the applicant shall not request a new assessment. 5. If the decision of the Agency is not positive, it shall be duly substantiated by the Agency. The applicant may, within one month of receipt of such a decision, submit a reasoned request that the Agency review its decision. The Agency shall confirm or reverse its decision within two months of the date of receipt of the request. If the Agency confirms its initial decision, the applicant is entitled to bring an appeal before the Board of Appeal established under Article 55 of Regulation (EU) 2016/796. 6. In the case of a change to the draft tender specifications or to the description of the envisaged technical solutions that occurred after the positive decision, the applicant shall inform, without undue delay, the Agency and the national safety authority through the one-stop shop referred to in Article 12 of Regulation (EU) 2016/796. In that case, Article 30(2) of that Regulation shall apply. Article 20 Placing on the market of mobile subsystems 1. Mobile subsystems shall be placed on the market by the applicant only if they are designed, constructed and installed in such a way as to meet the essential requirements. 2. In particular, the applicant shall ensure that the relevant declaration of verification has been provided. Article 21 Vehicle authorisation for placing on the market 1. The applicant shall place a vehicle on the market only after having received the vehicle authorisation for placing on the market issued by the Agency in accordance with paragraphs 5 to 7 or by the national safety authority in accordance with paragraph 8. 2. In its application for a vehicle authorisation for placing on the market, the applicant shall specify the area of use of the vehicle. The application shall include evidence that the technical compatibility between the vehicle and the network of the area of use has been checked. 3. The application for a vehicle authorisation for placing on the market shall be accompanied by a file concerning the vehicle or vehicle type and including documentary evidence of: (a) the placing on the market of the mobile subsystems of which the vehicle is composed in accordance with Article 20, on the basis of the ‘EC’ declaration of verification; (b) the technical compatibility of the subsystems referred to in point (a) within the vehicle, established on the basis of the relevant TSIs, and where applicable, national rules; (c) the safe integration of the subsystems referred to in point (a) within the vehicle, established on the basis of the relevant TSIs, and where applicable, national rules, and the CSMs referred to in Article 6 of Directive (EU) 2016/798; (d) the technical compatibility of the vehicle with the network in the area of use referred to in paragraph 2, established on the basis of the relevant TSIs and, where applicable, national rules, registers of infrastructure and the CSM on risk assessment referred to in Article 6 of Directive (EU) 2016/798. That application and information about all applications, the stages of the relevant procedures and their outcome, and, where applicable, the requests and decisions of the Board of Appeal, shall be submitted through the one-stop shop referred to in Article 12 of Regulation (EU) 2016/796. Whenever tests are necessary in order to obtain documentary evidence of the technical compatibility referred to in points (b) and (d) of the first subparagraph, the national safety authorities involved may issue temporary authorisations to the applicant to use the vehicle for practical verifications on the network. The infrastructure manager, in consultation with the applicant, shall make every effort to ensure that any tests take place within three months of receipt of the applicant's request. Where appropriate, the national safety authority shall take measures to ensure that the tests take place. 4. The Agency or, in the case of paragraph 8, the national safety authority shall issue vehicle authorisations for placing on the market or inform the applicant of its negative decision within a predetermined, reasonable time, and in any case within four months of receipt of all relevant information from the applicant. The Agency, or, in the cases provided for in paragraph 8, the national safety authority, shall apply the practical arrangements on the authorisation procedure to be established in an implementing act, as referred to in paragraph 9. Those authorisations shall allow vehicles to be placed on the Union market. 5. The Agency shall issue vehicle authorisations for placing on the market in respect of vehicles having an area of use in one or more Member States. In order to issue such authorisations, the Agency shall: (a) assess the elements of the file specified in points (b), (c) and (d) of the first subparagraph of paragraph 3 in order to verify the completeness, relevance and consistency of the file in relation to the relevant TSIs; and (b) refer the applicant's file to the national safety authorities concerned by the intended area of use for assessment of the file in order to verify its completeness, relevance and consistency in relation to point (d) of the first subparagraph of paragraph 3 and to the elements specified in points (a), (b) and (c) of the first subparagraph of paragraph 3 in relation to the relevant national rules. As part of the assessments pursuant to points (a) and (b) and in the case of justified doubts, the Agency or the national safety authorities may request that tests be conducted on the network. In order to facilitate those tests, the national safety authorities involved may issue temporary authorisations to the applicant to use the vehicle for tests on the network. The infrastructure manager shall make every effort to ensure that any such test takes place within three months of the request of the Agency or the national safety authority. 6. Within one month of receipt of the applicant's request, the Agency shall inform the applicant that the file is complete or ask for relevant supplementary information, setting a reasonable deadline for the provision thereof. With regard to the completeness, relevance and consistency of the file, the Agency may also assess the elements specified in point (d) of paragraph 3. The Agency shall take full account of the assessments under paragraph 5 before taking its decision on the issuance of the vehicle authorisation for placing on the market. The Agency shall issue the authorisation for placing on the market, or inform the applicant of its negative decision, within a predetermined, reasonable time, and in any case within four months of receipt of all relevant information. In the event of non-application of one or more TSIs or parts of them as referred to in Article 7, the Agency shall issue the vehicle authorisation only after application of the procedure laid down in that Article. The Agency shall take full responsibility for the authorisations it issues. 7. When the Agency disagrees with a negative assessment carried out by one or more national safety authorities pursuant to point (b) of paragraph 5, it shall inform the authority or authorities in question, giving reasons for its disagreement. The Agency and the national safety authority or authorities shall cooperate with a view to reaching a mutually acceptable assessment. Where necessary, as decided by the Agency and the national safety authority or authorities, this process shall also involve the applicant. If no mutually acceptable assessment can be agreed on within one month after the Agency has informed the national safety authority or authorities of its disagreement, the Agency shall take its final decision unless the national safety authority or authorities have referred the matter for arbitration to the Board of Appeal established under Article 55 of Regulation (EU) 2016/796. The Board of Appeal shall decide whether to confirm the Agency's draft decision within one month of the request of the national safety authority or authorities. Where the Board of Appeal agrees with the Agency, the Agency shall take a decision without delay. Where the Board of Appeal agrees with the negative assessment of the national safety authority, the Agency shall issue an authorisation with an area of use excluding the parts of the network which received a negative assessment. Where the Agency disagrees with a positive assessment of one or more national safety authorities pursuant to point (b) of paragraph 5, it shall inform the authority or authorities in question, giving reasons for its disagreement. The Agency and the national safety authority or authorities shall cooperate with a view to agreeing on a mutually acceptable assessment. Where necessary, as decided by the Agency and the national safety authority or authorities, this process shall also involve the applicant. If no mutually acceptable assessment can be agreed on within one month after the Agency has informed the national safety authority and authorities of its disagreement, the Agency shall take its final decision. 8. Where the area of use is limited to a network or networks within one Member State only, the national safety authority of that Member State may, under its own responsibility and when the applicant so requests, issue the vehicle authorisation for placing on the market. In order to issue such authorisations, the national safety authority shall assess the file in relation to the elements specified in paragraph 3 and in accordance with the procedures to be established in the implementing act adopted pursuant to paragraph 9. Within one month of receipt of the request of the applicant, the national safety authority shall inform the applicant that the file is complete or ask for relevant supplementary information. The authorisation shall also be valid without extension of the area of use for vehicles travelling to stations in neighbouring Member States with similar network characteristics, when those stations are close to the border, following consultation of the competent national safety authorities. This consultation may be carried out on a case-by-case basis or set out in a cross-border agreement between national safety authorities. If the area of use is limited to the territory of one Member State and in the event of non-application of one or more TSIs or parts of them as referred to in Article 7, the national safety authority shall issue the vehicle authorisation only after application of the procedure laid down in that Article. The national safety authority shall take full responsibility for the authorisations it issues. 9. By 16 June 2018, the Commission shall adopt by means of implementing acts practical arrangements specifying: (a) how the requirements for the vehicle authorisation for placing on the market and for vehicle type authorisation laid down in this Article shall be fulfilled by the applicant and listing the documents required; (b) the details of the authorisation process, such as procedural stages and timeframes for each stage of the process; (c) how the requirements laid down in this Article shall be complied with by the Agency and the national safety authority through the different stages of the application and authorisation process including in the assessment of applicants' files. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 51(3). They shall take into account the experience gained during the preparation of the cooperation agreements referred to in paragraph 14 of this Article. 10. Vehicle authorisations for placing on the market shall state: (a) the area(s) of use; (b) the values of the parameters set out in the TSIs and, where applicable, in the national rules, for checking the technical compatibility between the vehicle and the area of use; (c) the vehicle's compliance with the relevant TSIs and sets of national rules, relating to the parameters referred to in point (b); (d) the conditions for use of the vehicle and other restrictions. 11. Any decision refusing the vehicle authorisation for placing on the market or excluding part of the network in accordance with a negative assessment as referred to in paragraph 7 shall be duly substantiated. The applicant may, within a period of one month from receipt of the negative decision, request that the Agency or the national safety authority, as appropriate, review the decision. The Agency or the national safety authority shall have two months from the date of receipt of the request for review in which to confirm or reverse its decision. If the negative decision of the Agency is confirmed, the applicant may bring an appeal before the Board of Appeal designated under Article 55 of Regulation (EU) 2016/796. If the negative decision of a national safety authority is confirmed, the applicant may bring an appeal before an appeal body in accordance with the national law. Member States may designate the regulatory body referred to in Article 55 of Directive 2012/34/EU for the purpose of this appeal procedure. In that case, Article 18(3) of Directive (EU) 2016/798 shall apply. 12. In the event of renewal or upgrading of existing vehicles which already have a vehicle authorisation for placing on the market, a new vehicle authorisation for placing on the market shall be required if: (a) changes are made to the values of the parameters referred to in point (b) of paragraph 10 which are outside the range of acceptable parameters as defined in the TSIs; (b) the overall safety level of the vehicle concerned may be adversely affected by the works envisaged; or (c) it is required by the relevant TSIs. 13. Where the applicant wishes to extend the area of use of a vehicle which has already been authorised, it shall supplement the file with the relevant documents referred to in paragraph 3 concerning the additional area of use. The applicant shall submit the file to the Agency, which shall, after following the procedures laid down in paragraphs 4 to 7, issue an updated authorisation covering the extended area of use. If the applicant has received a vehicle authorisation in accordance with paragraph 8 and wishes to extend the area of use within that Member State, it shall supplement the file with the relevant documents referred to in paragraph 3 concerning the additional area of use. It shall submit the file to the national safety authority which shall, after following the procedures laid down in paragraph 8, issue an updated authorisation covering the extended area of use. 14. For the purposes of paragraphs 5 and 6 of this Article, the Agency shall conclude cooperation agreements with national safety authorities in accordance with Article 76 of Regulation (EU) 2016/796. Those agreements may be specific or framework agreements, and may involve one or more national safety authorities. They shall contain a detailed description of tasks and conditions for deliverables, the time limits applying to their delivery, and an apportionment of the fees payable by the applicant. They may also include specific cooperation arrangements in the case of networks requiring specific expertise for geographical or historical reasons, with a view to reducing administrative burdens and costs to the applicant. Where such networks are isolated from the rest of the Union rail system, such specific cooperation arrangements may include the possibility of contracting tasks to the relevant national safety authorities when this is necessary in order to ensure the efficient and proportionate allocation of resources for authorisation. Those agreements shall be in place before the Agency shall undertake the authorisation tasks in accordance with Article 54(4) of this Directive. 15. In the case of those Member States whose rail networks have a track gauge that is different from that of the main rail network within the Union and share identical technical and operational requirements with neighbouring third countries, in addition to the cooperation agreements referred to in paragraph 14, all national safety authorities concerned in those Member States shall conclude with the Agency a multilateral agreement with a view to defining the conditions under which a vehicle authorisation issued in one of those Member States is also valid for the other Member States concerned. 16. This Article shall not apply to freight wagons or passenger coaches which are in shared use with third countries, the track gauge of which is different from that of the main rail network within the Union and authorised in accordance with a different vehicle authorisation procedure. The rules governing the procedure for authorisation of such vehicles shall be published and notified to the Commission. The conformity of those vehicles with the essential requirements of this Directive shall be ensured by the railway undertaking concerned in the context of its safety management system. The Commission, on the basis of the report by the Agency may give an opinion on whether such rules are compliant with the objectives of this Directive. If such rules are not compliant, the Member States concerned and the Commission may cooperate in order to lay down appropriate actions to be taken, involving relevant international bodies, if necessary. 17. A Member State may decide not to apply this Article to locomotives or self-propelling trains arriving from third countries and intended to run until a station that is situated close to the border in its territory and designated for cross-border operations. The conformity of such vehicles with the essential requirements of this Directive shall be ensured by the railway undertaking concerned in the context of its safety management system and, where relevant, in accordance with Article 10(9) of Directive (EU) 2016/798. Article 22 Registration of vehicles authorised to be placed on the market 1. Before a vehicle is used for the first time, and after the authorisation to be placed on the market in accordance with Article 21 is granted, it shall be registered in a vehicle register as referred to in Article 47 at the request of the keeper. 2. When the area of use of the vehicle is restricted to the territory of one Member State, it shall be registered in that Member State. 3. When the area of use of the vehicle covers the territory of more than one Member State, it shall be registered in one of the Member States concerned. Article 23 Checks before the use of authorised vehicles 1. Before a railway undertaking uses a vehicle in the area of use specified in its authorisation for placing on the market, it shall check: (a) that the vehicle has been authorised for placing on the market in accordance with Article 21 and is duly registered; (b) that the vehicle is compatible with the route on the basis of the infrastructure register, the relevant TSIs or any relevant information to be provided by the infrastructure manager free of charge and within a reasonable period of time, where such a register does not exist or is incomplete; and (c) that the vehicle is properly integrated in the composition of the train where it is intended to operate, taking into account the safety management system set out in Article 9 of Directive (EU) 2016/798 and the TSI on operation and traffic management. 2. For the purposes of paragraph 1, the railway undertaking may carry out tests in cooperation with the infrastructure manager. The infrastructure manager, in consultation with the applicant, shall make every effort to ensure that any tests take place within three months of receipt of the applicant's request. Article 24 Type authorisation of vehicles 1. The Agency or a national safety authority may, where appropriate, in accordance with the procedure laid down in Article 21, grant vehicle type authorisations. The application for a vehicle type authorisation and information about all applications, the stages of the relevant procedures and their outcome, and, where applicable, the requests and decisions of the Board of Appeal, shall be submitted through the one-stop shop referred to in Article 12 of Regulation (EU) 2016/796. 2. If the Agency or a national safety authority issues a vehicle authorisation for placing on the market, it shall at the same time as the applicant's request issue the vehicle type authorisation, which is related to the same area of use of the vehicle. 3. In the event of changes to any relevant provisions in TSIs or national rules, on the basis of which an authorisation of a vehicle type has been issued, the TSI or national rule shall determine whether the vehicle type authorisation already granted remains valid or needs to be renewed. If that authorisation needs to be renewed, the checks performed by the Agency or by a national safety authority may only concern the changed rules. 4. The Commission shall establish, by means of implementing acts, the model of declaration of conformity to type. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 51(3). 5. The declaration of conformity to type shall be established in accordance with: (a) the verification procedures of the relevant TSIs; or (b) where TSIs do not apply, the conformity assessment procedures as defined in modules B+D, B+F and H1 of Decision No 768/2008/EC of the European Parliament and of the Council (15). 6. Where appropriate, the Commission may adopt implementing acts establishing ad hoc modules for conformity assessment. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 51(3). 7. The authorisation of vehicle types shall be registered in the European register of authorised vehicle types referred to in Article 48. Article 25 Conformity of vehicles with an authorised vehicle type 1. A vehicle or a series of vehicles which is in conformity with an authorised vehicle type shall, without further checks, receive a vehicle authorisation in accordance with Article 21 on the basis of a declaration of conformity to that vehicle type submitted by the applicant. 2. The renewal of the authorisation of a vehicle type as referred to in Article 24(3) shall not affect vehicle authorisations for placing on the market already issued on the basis of the previous authorisation to place that vehicle type on the market. Article 26 Non-compliance of vehicles or vehicle types with essential requirements 1. When a railway undertaking finds, during operation, that a vehicle it is using does not meet one of the applicable essential requirements, it shall take the necessary corrective measures in order to bring the vehicle into conformity. Furthermore, it may inform the Agency and any national safety authorities concerned of the measures taken. If the railway undertaking has evidence that the non-compliance existed already at the time when the authorisation for placing on the market was issued, it shall inform the Agency and any other national safety authorities concerned. 2. When a national safety authority becomes aware, for instance within the process of supervision provided for in Article 17 of Directive (EU) 2016/798, that a vehicle or a vehicle type to which an authorisation for placing on the market was granted either by the Agency, in accordance with Article 21(5) or Article 24, or by the national safety authority, in accordance with Article 21(8) or Article 24, when used as intended, does not meet one of the applicable essential requirements, it shall inform the railway undertaking using the vehicle or the vehicle type and ask it to take the necessary corrective measures in order to bring the vehicle(s) into conformity. The national safety authority shall inform the Agency and any other national safety authorities concerned, including those in a territory where application for authorisation for placing on the market for a vehicle of the same type is ongoing. 3. When, in the cases set out in paragraphs 1 or 2 of this Article, the corrective measures applied by the railway undertaking do not ensure conformity with the applicable essential requirements and that non-conformity leads to a serious safety risk, the national safety authority concerned may apply temporary safety measures under its supervision tasks, in accordance with Article 17(6) of Directive (EU) 2016/798. Temporary safety measures in the form of a suspension of type authorisation of a vehicle may be applied in parallel by the national safety authority or by the Agency and shall be subject to judicial review and the arbitration procedure laid down in Article 21(7). 4. In the cases referred to in paragraph 3, the Agency or the national safety authority which issued the authorisation, following a review of the effectiveness of any measures taken to address the serious safety risk, may decide to revoke or amend the authorisation when it is proven that an essential requirement was not met at the time of authorisation. To that end, they shall notify their decision to the holder of the authorisation for placing on the market or of the vehicle type authorisation, giving the reasons for their decisions. The holder may, within a period of one month from receipt of the decision of the Agency or the national safety authority, request them to review the decision. In that case, the decision to revoke shall be temporarily suspended. The Agency or the national safety authority shall have one month from the date of receipt of the request for review in which to confirm or reverse their decision. Where relevant, in the event of disagreement between the Agency and the national safety authority concerning the need to restrict or revoke the authorisation, the arbitration procedure provided for in Article 21(7) shall be followed. If the result of that procedure is that the vehicle authorisation is neither to be restricted nor revoked, the temporary safety measures referred to in paragraph 3 of this Article shall be suspended. 5. If the decision of the Agency is confirmed, the holder of the vehicle authorisation may bring an appeal before the Board of Appeal designated under Article 55 of Regulation (EU) 2016/796 within the time limit referred to in Article 59 of that Regulation. If the decision of a national safety authority is confirmed, the holder of the vehicle authorisation may bring an appeal, within two months of the notification of that decision, under the national judicial review referred to in Article 18(3) of Directive (EU) 2016/798. Member States may designate the regulatory body set out in Article 56 of Directive 2012/34/EU for the purpose of this appeal procedure. 6. When the Agency decides to revoke or amend an authorisation for placing on the market which it has granted, it shall directly inform all national safety authorities, giving the reasons for its decision. When a national safety authority decides to revoke an authorisation for placing on the market which it has granted, it shall forthwith inform the Agency thereof and give the reasons for its decision. The Agency shall then inform the other national safety authorities. 7. The decision of the Agency or the national safety authority to revoke the authorisation shall be reflected in the appropriate vehicle register, in accordance with Article 22 or, in the case of an authorisation of a vehicle type, in the European register of authorised vehicle types in accordance with Article 24(7). The Agency and the national safety authorities shall ensure that railway undertakings using vehicles of the same type as the vehicle or type subject to the revocation are properly informed. Such railway undertakings shall first check whether the same problem of non-compliance applies. In that event, the procedure provided for in this Article shall apply. 8. When an authorisation for placing on the market is revoked, the vehicle concerned shall no longer be used and its area of use shall not be extended. When a vehicle type authorisation is revoked, vehicles built on the basis of it shall not be placed on the market or, if they had already been placed on the market, they shall be withdrawn. A new authorisation may be requested on the basis of the procedure provided for in Article 21 in the case of individual vehicles or Article 24 in the case of a vehicle type. 9. When, in the cases provided for in paragraphs 1 or 2, the non-compliance with the essential requirements is limited to part of the area of use of the vehicle concerned and such non-compliance already existed at the time when the authorisation for placing on the market was issued, the latter shall be amended to exclude the parts of the area of use concerned. CHAPTER VI CONFORMITY ASSESSMENT BODIES Article 27 Notifying authorities 1. Member States shall appoint notifying authorities that shall be responsible for setting up and carrying out the necessary procedures for the assessment, notification and monitoring of conformity assessment bodies, including compliance with Article 34. 2. Member States shall ensure that those authorities notify the Commission and other Member States' bodies authorised to carry out third-party conformity assessment tasks as provided for in Articles 10(2) and 15(1). They shall also ensure that they inform the Commission and the other Member States of the designated bodies referred to in Article 15(8). 3. Member States may decide that the assessment and monitoring referred to in paragraph 1 are to be carried out by a national accreditation body within the meaning of, and in accordance with, Regulation (EC) No 765/2008. 4. Where the notifying authority delegates or otherwise entrusts the assessment, notification or monitoring referred to in paragraph 1 of this Article to a body which is not a governmental entity, that body shall be a legal person and shall comply with the requirements laid down in Article 28. It shall put in place arrangements to cover liabilities arising out of its activities. 5. The notifying authority shall take full responsibility for the tasks performed by the body referred to in paragraph 3. Article 28 Requirements relating to notifying authorities A notifying authority shall: (a) be established in such a way as to avoid any conflict of interest with conformity assessment bodies; (b) be organised and operated in such a way as to safeguard the objectivity and impartiality of its activities; (c) be organised in such a way that each decision relating to notification of a conformity assessment body is taken by competent persons different from those who carried out the assessment; (d) not offer or provide any activities that are performed by conformity assessment bodies or consultancy services on a commercial or competitive basis; (e) safeguard the confidentiality of the information it obtains; (f) have at its disposal a sufficient number of competent personnel for the proper performance of its tasks. Article 29 Obligation of notifying authorities to provide information Member States shall inform the Commission of their procedures for the assessment, notification and monitoring of conformity assessment bodies, and of any changes to those procedures. The Commission shall make that information publicly available. Article 30 Conformity assessment bodies 1. For the purposes of notification, a conformity assessment body shall meet the requirements laid down in paragraphs 2 to 7 of this Article and in Articles 31 and 32. 2. A conformity assessment body shall be established under national law and shall have legal personality. 3. A conformity assessment body shall be capable of carrying out all the conformity assessment tasks assigned to it by the relevant TSI and in relation to which it has been notified, whether those tasks are carried out by the conformity assessment body itself or on its behalf and under its responsibility. At all times and for each conformity assessment procedure and each kind or category of product in relation to which it has been notified, a conformity assessment body shall have at its disposal: (a) the necessary personnel with technical knowledge and sufficient and appropriate experience to perform the conformity assessment tasks; (b) the relevant descriptions of procedures in accordance with which conformity assessment is to be carried out, ensuring the transparency and the ability to apply those procedures. It shall have in place appropriate policies and procedures that distinguish between the tasks it carries out as a notified conformity assessment body and other activities; (c) the proper procedures for the performance of activities which take due account of the size of an undertaking, the sector in which it operates, its structure, the degree of complexity of the product technology in question and the mass or serial nature of the production process. It shall have the means necessary to perform in an appropriate manner the technical and administrative tasks connected with the conformity assessment activities and shall have access to all necessary equipment or facilities. 4. Conformity assessment bodies shall take out liability insurance unless liability is assumed by the State in accordance with national law, or unless the Member State itself is directly responsible for the conformity assessment. 5. The personnel of a conformity assessment body shall observe professional secrecy with regard to all information obtained in carrying out their tasks under the relevant TSI or any provision of national law giving effect to it, except in relation to the competent authorities of the Member State in which its activities are carried out. Proprietary rights shall be protected. 6. Conformity assessment bodies shall participate in, or ensure that their assessment personnel are informed of, the relevant standardisation activities and the activities of the notified conformity assessment bodies' coordination group established under the relevant Union law, and shall apply as general guidance the administrative decisions and documents produced as a result of the work of that group. 7. Conformity assessment bodies that are notified for trackside and/or on-board control-command and signalling subsystems shall participate in, or shall ensure that their assessment personnel are informed of, the activities of the ERTMS group referred to in Article 29 of Regulation (EU) 2016/796. They shall follow the guidelines produced as a result of the work of that group. In the event that they consider it inappropriate or impossible to apply them, the conformity assessment bodies concerned shall submit their observations for discussion to the ERTMS group for the continuous improvement of the guidelines. Article 31 Impartiality of conformity assessment bodies 1. A conformity assessment body shall be a third-party body independent of the organisation or of the manufacturer of the product it assesses. A body belonging to a business association or professional federation representing undertakings involved in the design, manufacturing, provision, assembly, use or maintenance of products which it assesses may, on condition that its independence and the absence of any conflict of interest are demonstrated, be considered to be such a body. 2. The impartiality of the conformity assessment bodies, of their top-level management and of the assessment personnel shall be guaranteed. 3. A conformity assessment body, its top-level management and the personnel responsible for carrying out the conformity assessment tasks shall not be the designer, manufacturer, supplier, installer, purchaser, owner, user or maintainer of the products which they assess, or the authorised representative of any of those parties. This shall not preclude the use of assessed products that are necessary for the operations of the conformity assessment body or the use of such products for personal purposes. 4. A conformity assessment body, its top-level management and the personnel responsible for carrying out the conformity assessment tasks shall not be directly involved in the design, manufacture or construction, marketing, installation, use or maintenance of those products, or represent the parties engaged in those activities. They shall not engage in any activity that may conflict with their independence of judgement or integrity in relation to conformity assessment activities for which they are notified. This prohibition shall apply, in particular, to consultancy services. 5. Conformity assessment bodies shall ensure that the activities of their subsidiaries or subcontractors do not affect the confidentiality, objectivity or impartiality of their conformity assessment activities. 6. Conformity assessment bodies and their personnel shall carry out the conformity assessment activities with the highest degree of professional integrity and the requisite technical competence in the specific field and shall be free from all pressures and inducements, particularly financial, which might influence their judgement or the results of their conformity assessment activities, especially as regards persons or groups of persons with an interest in the results of those activities. Article 32 Personnel of conformity assessment bodies 1. The personnel responsible for carrying out conformity assessment activities shall have the following skills: (a) sound technical and vocational training covering all the conformity assessment activities in relation to which the conformity assessment body has been notified; (b) satisfactory knowledge of the requirements of the assessments they carry out and adequate authority to carry out those assessments; (c) appropriate knowledge and understanding of the essential requirements, of the applicable harmonised standards and of the relevant provisions of Union law; (d) the ability to draw up certificates, records and reports demonstrating that assessments have been carried out. 2. The remuneration of the top-level management and assessment personnel of a conformity assessment body shall not depend on the number of assessments carried out or on the results of those assessments. Article 33 Presumption of conformity of a conformity assessment body Where a conformity assessment body demonstrates its conformity with the criteria laid down in the relevant harmonised standards or parts thereof, the references of which have been published in the Official Journal of the European Union, it shall be presumed to comply with the requirements set out in Articles 30 to 32, in so far as the applicable harmonised standards cover those requirements. Article 34 Subsidiaries of, and subcontracting by, notified bodies 1. Where a notified body subcontracts specific tasks connected with conformity assessment or has recourse to a subsidiary, it shall ensure that the subcontractor or the subsidiary meets the requirements set out in Articles 30 to 32 and shall inform the notifying authority accordingly. 2. Notified bodies shall take full responsibility for the tasks performed by subcontractors or subsidiaries wherever these are established. 3. Activities of notified bodies may be subcontracted or carried out by a subsidiary only with the agreement of the client. 4. Notified bodies shall keep at the disposal of the notifying authority the relevant documents concerning the assessment of the qualifications of the subcontractor or the subsidiary and the work carried out by them under the relevant TSI. Article 35 Accredited in-house bodies 1. Applicants may use an accredited in-house body to carry out conformity assessment activities for the purpose of implementing the procedures set out in modules A1, A2, C1 or C2 laid down in Annex II to Decision No 768/2008/EC and modules CA1 and CA2 laid down in Annex I to Decision 2010/713/EU. That body shall constitute a separate and distinct part of the applicant concerned and shall not participate in the design, production, supply, installation, use or maintenance of the products it assesses. 2. An accredited in-house body shall meet the following requirements: (a) it shall be accredited in accordance with Regulation (EC) No 765/2008; (b) the body and its personnel shall, within the undertaking of which they form a part, be organisationally identifiable and have reporting methods which ensure their impartiality, and shall demonstrate it to the competent national accreditation body; (c) neither the body nor its personnel shall be responsible for the design, manufacture, supply, installation, operation or maintenance of the products they assess, nor shall they engage in any activity that might conflict with their independence of judgement or integrity in relation to their assessment activities; (d) the body shall supply its services exclusively to the undertaking of which it forms a part. 3. An accredited in-house body shall not be notified to the Member States or the Commission, but information concerning its accreditation shall be given by the undertaking of which it forms a part or by the national accreditation body to the notifying authority at the request of that authority. Article 36 Application for notification 1. A conformity assessment body shall submit an application for notification to the notifying authority of the Member State in which it is established. 2. That application shall be accompanied by a description of the conformity assessment activities, the conformity assessment module or modules and the product or products for which that body claims to be competent, as well as by an accreditation certificate, where one exists, issued by a national accreditation body attesting that the conformity assessment body fulfils the requirements laid down in Articles 30 to 32. 3. Where the conformity assessment body concerned cannot provide an accreditation certificate, it shall provide the notifying authority with all the documentary evidence necessary for the verification, recognition and regular monitoring of its compliance with the requirements laid down in Articles 30 to 32. Article 37 Notification procedure 1. Notifying authorities shall only notify conformity assessment bodies which comply with the requirements laid down in Articles 30 to 32. 2. Notifying authorities shall notify the bodies referred to in paragraph 1 to the Commission and the other Member States using the electronic notification tool developed and managed by the Commission. 3. The notification shall include full details of the conformity assessment activities, the conformity assessment module or modules and the product or products concerned, and the relevant accreditation certificate or other attestation of competence provided for in paragraph 4. 4. Where a notification is not based on an accreditation certificate as referred to in Article 36(2), the notifying authority shall provide the Commission and the other Member States with documentary evidence which attests to the conformity assessment body's competence and the arrangements in place to ensure that that body will be monitored periodically and will continue to satisfy the requirements laid down in Articles 30 to 32. 5. The body concerned may perform the activities of a notified body only where no objections are raised by the Commission or the other Member States within two weeks of a notification where an accreditation certificate is used or within two months of a notification where accreditation is not used. 6. The Commission and the other Member States shall be notified of any subsequent relevant changes to the notification. Article 38 Identification numbers and lists of notified bodies 1. The Commission shall assign an identification number to a notified body. A notified body shall be assigned a single identification number even where it is notified under several legal acts of the Union. 2. The Commission shall make publicly available the list of the bodies notified under this Directive, including the identification numbers that have been allocated to them and the activities for which they have been notified. The Commission shall ensure that that list is kept up to date. Article 39 Changes to notifications 1. Where a notifying authority has ascertained or has been informed that a notified body no longer meets the requirements laid down in Articles 30 to 32, or that it is failing to fulfil its obligations, the notifying authority shall restrict, suspend or withdraw notification as appropriate, depending on the seriousness of the failure to meet those requirements or fulfil those obligations. It shall immediately inform the Commission and the other Member States accordingly. 2. In the event of restriction, suspension or withdrawal of notification, or where the notified body has ceased its activity, the notifying Member State shall take appropriate steps to ensure that the files of that body are either processed by another notified body or kept available for the responsible notifying and market surveillance authorities at their request. Article 40 Challenges to the competence of notified bodies 1. The Commission shall investigate all cases where it has any doubt, or where a doubt is brought to its attention, regarding the competence of a notified body or the continued fulfilment by a notified body of the requirements and responsibilities to which it is subject. 2. The notifying Member State shall provide the Commission, on request, with all information relating to the basis for the notification or the maintenance of the competence of the body concerned. 3. The Commission shall ensure that all sensitive information obtained in the course of its investigations is treated confidentially. 4. Where the Commission ascertains that a notified body does not meet, or no longer meets, the requirements for its notification, it shall inform the notifying Member State accordingly and request it to take the necessary corrective measures, including withdrawal of notification if necessary. Article 41 Operational obligations of notified bodies 1. Notified bodies shall carry out conformity assessments in accordance with the conformity assessment procedures provided for in the relevant TSI. 2. Conformity assessments shall be carried out in a proportionate manner, avoiding unnecessary burdens for economic operators. Notified bodies, when performing their activities, shall take due account of the size of an undertaking, the sector in which it operates, its structure, the degree of complexity of the product technology in question and the mass or serial nature of the production process. In so doing, they shall nevertheless operate with the aim of assessing the compliance of the product with this Directive. 3. Where a notified body finds that requirements laid down in the relevant TSI or corresponding harmonised standards or technical specifications have not been met by a manufacturer, it shall require that manufacturer to take appropriate corrective measures and shall not issue a conformity certificate. 4. Where, in the course of the monitoring of conformity following the issue of a certificate, a notified body finds that a product no longer complies with the relevant TSI or corresponding harmonised standards or technical specifications, it shall require the manufacturer to take appropriate corrective measures and shall suspend or withdraw the certificate if necessary. 5. Where corrective measures are not taken or do not have the required effect, the notified body shall restrict, suspend or withdraw any certificates, as appropriate. Article 42 Obligation of notified bodies to provide information 1. Notified bodies shall inform the notifying authority of the following: (a) any refusal, restriction, suspension or withdrawal of a certificate; (b) any circumstances affecting the scope of, and conditions for, notification; (c) any request for information which they have received from market surveillance authorities regarding conformity assessment activities; (d) on request, conformity assessment activities performed within the scope of their notification and any other activity performed, including cross-border activities and subcontracting. The competent national safety authorities shall also be informed of any refusal, restriction, suspension or withdrawal of a certificate under point (a). 2. Notified bodies shall provide the other bodies notified under this Directive carrying out similar conformity assessment activities covering the same products with relevant information on issues relating to negative and, on request, positive conformity assessment results. 3. Notified bodies shall provide the Agency with ‘EC’ certificates of verification of subsystems, ‘EC’ certificates of conformity of interoperability constituents and ‘EC’ certificates of suitability of use of interoperability constituents. Article 43 Exchanges of best practice The Commission shall provide for the organisation of exchanges of best practices between the Member States' national authorities responsible for notification policy. Article 44 Coordination of notified bodies The Commission shall ensure appropriate coordination and cooperation between bodies notified under this Directive through the establishment of a sectoral group of notified bodies. The Agency shall support the activities of notified bodies in accordance with Article 24 of Regulation (EU) 2016/796. Member States shall ensure that the bodies notified by them participate in the work of that group, directly or by means of designated representatives. Article 45 Designated bodies 1. The requirements relating to conformity assessment bodies set out in Articles 30 to 34 shall also apply to bodies designated under Article 15(8), except: (a) in the case of skills required by its personnel under point (c) of Article 32(1), where the designated body shall have appropriate knowledge and understanding of national law; (b) in the case of documents to be kept at the disposal of the notifying authority under Article 34(4), where the designated body shall include documents relating to work carried out by subsidiaries or subcontractors under the relevant national rules. 2. The operational obligations laid down in Article 41 shall also apply to bodies designated under Article 15(8), except that those obligations refer to national rules instead of TSIs. 3. The information obligation laid down in Article 42(1) shall also apply to designated bodies, which shall inform Member States accordingly. CHAPTER VII REGISTERS Article 46 Vehicle numbering system 1. Upon registration in accordance with Article 22, each vehicle shall be assigned a European vehicle number (EVN) by the competent authority in the Member State of registration. Each vehicle shall be marked with an assigned EVN. 2. The specifications of the EVN shall be set out in the measures referred to in Article 47(2), in accordance with the relevant TSI. 3. Each vehicle shall be assigned an EVN only once, unless otherwise specified in the measures referred to in Article 47(2), in accordance with the relevant TSI. 4. Notwithstanding paragraph 1, in the case of vehicles operated or meant to be operated from or to third countries the track gauge of which is different from that of the main rail network within the Union, Member States may accept vehicles clearly identified in accordance with a different coding system. Article 47 Vehicle registers 1. Until the European Vehicle Register referred to in paragraph 5 is operational, each Member State shall keep a national vehicle register. That register shall: (a) comply with the common specifications referred to in paragraph 2; (b) be kept updated by a body independent of any railway undertaking; (c) be accessible to the national safety authorities and investigating bodies designated in Articles 16 and 22 of Directive (EU) 2016/798; it shall also be made accessible, in response to any legitimate request, to the regulatory bodies referred to in Article 55 of Directive 2012/34/EU, and to the Agency, the railway undertakings and the infrastructure managers, as well as those persons or organisations registering vehicles or identified in the register. 2. The Commission shall adopt common specifications for the national vehicle registers as regards their content, data format, functional and technical architecture, operating mode, including arrangements for the exchange of data, and rules for data input and consultation, by means of implementing acts. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 51(3). 3. The national vehicle register shall contain at least the following elements: (a) the EVN; (b) references to the ‘EC’ declaration of verification and the issuing body; (c) references to the European register of authorised vehicle types referred to in Article 48; (d) identification of the owner of the vehicle and the keeper; (e) restrictions on how the vehicle may be used; (f) references to the entity in charge of maintenance. 4. As long as Member States' national vehicle registers are not linked in accordance with the specification referred to in paragraph 2, each Member State shall update its register, as regards the data with which it is concerned, with the modifications made by another Member State in its own register. 5. With a view to reducing administrative burdens and undue costs for Member States and stakeholders, by 16 June 2018, the Commission, taking into account the result of a cost-benefit analysis, shall adopt by means of implementing acts the technical and functional specifications for the European Vehicle Register, which would incorporate the national vehicle registers with a view to providing a harmonised interface to all users for the registration of vehicles and data management. Points (b) and (c) of paragraph 1 and paragraph 3 shall apply. Such a specification shall include content, data format, functional and technical architecture, operating mode, including arrangements for the exchange of data, and rules for data input, and consultation, as well as migration steps. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 51(3) and on the basis of a recommendation of the Agency. The European Vehicle Register shall be developed taking into consideration the IT applications and registers already set up by the Agency and the Member States, such as the European Centralised Virtual Vehicle Register connected to the national vehicle registers. The European Vehicle Register shall be operational by 16 June 2021. 6. The keeper shall immediately declare any modification to the data entered in the vehicle registers, the destruction of a vehicle or its decision to no longer register a vehicle, to the Member State where the vehicle has been registered. 7. In the case of vehicles authorised for the first time in a third country and subsequently used in a Member State, that Member State shall ensure that the vehicle data, including at least data relating to the keeper of the vehicle concerned, the entity in charge of its maintenance and the restrictions on how the vehicle may be used, can be retrieved through a vehicle register or are otherwise made available without delay in an easily readable format and in accordance with the same non-discriminatory principles that apply to similar data from a vehicle register. Article 48 European register of authorised vehicle types 1. The Agency shall set up and keep a register of authorisations to place vehicle types on the market issued in accordance with Article 24. That register shall: (a) be public and electronically accessible; (b) comply with the common specifications referred to in paragraph 2; (c) be linked with relevant vehicle registers. 2. The Commission shall adopt common specifications for the register of authorised vehicle types relating to content, data format, functional and technical architecture, operating mode and rules for data input and consultation, by means of implementing acts. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 51(3). 3. The register shall include at least the following elements for each type of vehicle: (a) technical characteristics, including those related to accessibility for persons with disabilities and persons with reduced mobility, of the type of vehicle as defined in the relevant TSIs; (b) the manufacturer's name; (c) the data of the authorisations related to the area of use for a vehicle type, including any restrictions or withdrawals. Article 49 Register of infrastructure 1. Each Member State shall ensure that a register of infrastructure, stating the values of the network parameters of each subsystem or part subsystem concerned, as set out in the relevant TSI, is published. 2. The values of the parameters recorded in the register of infrastructure shall be used in combination with the values of the parameters recorded in the vehicle authorisation for placing on the market to check the technical compatibility between vehicle and network. 3. The register of infrastructure may stipulate conditions for the use of fixed installations and other restrictions. 4. Each Member State shall ensure that the register of infrastructure is updated in accordance with paragraph 5. 5. The Commission shall adopt common specifications for the register of infrastructure relating to content, data format, functional and technical architecture, operating mode and rules for data input and consultation, by means of implementing acts. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 51(3). CHAPTER VIII TRANSITIONAL AND FINAL PROVISIONS Article 50 Exercise of delegation 1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2. The power to adopt delegated acts referred to in Article 5(1) shall be conferred on the Commission for a period of five years from 15 June 2016. The Commission shall draw up a report in respect of the delegation of power not later than nine months before the end of the five-year period. The delegation of power shall be tacitly extended for periods of an identical duration, unless the European Parliament or the Council opposes such extension not later than three months before the end of each period. 3. It is of particular importance that the Commission follow its usual practice and carry out consultations with experts, including Member States' experts, before adopting those delegated acts. 4. The delegation of power referred to in Article 5(1) may be revoked at any time by the European Parliament or by the Council. A decision of revocation shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 5. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 6. A delegated act adopted pursuant to Article 5(1) shall enter into force only if no objection has been expressed either by the European Parliament or the Council within a period of two months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by two months at the initiative of the European Parliament or of the Council. Article 51 Committee procedure 1. The Commission shall be assisted by the committee established by Article 21 of Council Directive 96/48/EC (16). That committee shall be a committee within the meaning of Regulation (EU) No 182/2011. 2. Where reference is made to this paragraph, Article 4 of Regulation (EU) No 182/2011 shall apply. 3. Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply. Where the committee delivers no opinion, the Commission shall not adopt the draft implementing act and the third subparagraph of Article 5(4) of Regulation (EU) No 182/2011 shall apply. Article 52 Motivation Any decision taken pursuant to this Directive concerning the assessment of conformity or suitability for use of interoperability constituents or the checking of subsystems constituting the Union rail system or any decision taken pursuant to Articles 7, 12 and 17 shall set out in detail the reasons on which it is based. It shall be notified as soon as possible to the party concerned, together with an indication of the remedies available under the law in force in the Member State concerned and of the time limits allowed for the exercise of such remedies. Article 53 Reports and information 1. By 16 June 2018, the Commission shall report on the progress made in preparing for the Agency's enhanced role under this Directive. Additionally, every three years and for the first time three years after the end of the transitional period provided for by Article 54, the Commission shall report to the European Parliament and to the Council on the progress made towards achieving interoperability of the Union rail system and the functioning of the Agency in this context. That report shall also include an evaluation of the implementation and use of the registers under Chapter VII and an analysis of the cases set out in Article 7 and of the application of Chapter V, assessing in particular the functioning of the cooperation agreements concluded between the Agency and national safety authorities. For the purposes of the first report, after the end of the transitional period the Commission shall carry out extensive consultations with the relevant stakeholders and shall establish a programme to allow for the assessment of progress. The Commission shall, if appropriate in the light of the above analysis, propose legislative measures including measures for the future role of the Agency in enhancing interoperability. 2. The Agency shall develop and periodically update a tool capable of providing, at the request of a Member State, the European Parliament or of the Commission, an overview of the interoperability level of the Union rail system. That tool shall use the information included in the registers provided for in Chapter VII. Article 54 Transitional regime for using vehicles 1. Without prejudice to paragraph 4 of this Article, vehicles which need to be authorised between 15 June 2016 and 16 June 2019 shall be subject to the provisions set out in Chapter V of Directive 2008/57/EC. 2. Authorisations for the placing in service of vehicles which have been granted pursuant to paragraph 1 and all other authorisations granted prior to 15 June 2016, including authorisations delivered under international agreements, in particular RIC (Regolamento Internazionale Carrozze) and RIV (Regolamento Internazionale Veicoli), shall remain valid in accordance with the conditions under which the authorisations have been granted. 3. Vehicles authorised for placing in service pursuant to paragraphs 1 and 2 shall receive a new vehicle authorisation for placing on the market in order to operate on one or more networks which are not yet covered by their authorisation. The placing on the market on those additional networks shall be subject to Article 21. 4. At the latest from 16 June 2019 the Agency shall carry out the authorisation tasks pursuant to Articles 21 and 24 and the tasks referred to in Article 19 in respect of areas of use in the Member States that have not notified the Agency and the Commission in accordance with Article 57(2). By way of derogation from Articles 21 and 24, national safety authorities of Member States which have notified the Agency and Commission pursuant to Article 57(2) may continue to issue authorisations in accordance with Directive 2008/57/EC until 16 June 2020. Article 55 Other transitional provisions 1. Annexes IV, V, VII and IX to Directive 2008/57/EC shall apply until the date of application of the corresponding implementing acts referred to in Article 7(5), Article 9(4), Article 14(10) and Article 15(9) of this Directive. 2. Directive 2008/57/EC shall continue to apply in relation to ERTMS trackside projects which are to be placed in service between 15 June 2016 and 16 June 2019. 3. Projects which have completed the tendering or contracting phase prior to 16 June 2019 are not subject to the pre-authorisation by the Agency referred to in Article 19. 4. Until 16 June 2031 options included in contracts which were signed before 15 June 2016 shall not be subject to the pre-authorisation by the Agency referred to in Article 19, even if they are exercised after 15 June 2016. 5. Before authorising the placing in service of any ERTMS track-side equipment which was not subject to the pre-authorisation by the Agency referred to in Article 19, national safety authorities shall cooperate with the Agency in order to ensure that the technical solutions are fully interoperable, in accordance with Articles 30(3) and 31(2) of Regulation (EU) 2016/796. Article 56 Recommendations and opinions of the Agency The Agency shall provide recommendations and opinions in accordance with Article 19 of Regulation (EU) 2016/796 for the purpose of application of this Directive. Where relevant, those recommendations and opinions shall be taken into account when implementing acts are being drawn up pursuant to this Directive. Article 57 Transposition 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with Articles 1 and 2, Article 7(1) to (4) and (6), Article 8, Article 9(1), Article 10(5), Article 11(1), (3) and (4), Articles 12, 13 and 14, Article 15(1) to (8), Article 16, Article 18, Article 19(3), Articles 21 to 39, Article 40(2), Articles 41, 42, 44, 45 and 46, Article 47(1), (3), (4) and (7), Article 49(1) to (4), Article 54 and Annexes I, II, III and IV by 16 June 2019. They shall immediately communicate the text of those measures to the Commission. 2. Member States may extend the transposition period referred to in paragraph 1 by one year. For that purpose, by 16 December 2018, Member States which do not bring into force the laws, regulations and administrative provisions within the transposition period referred to in paragraph 1 shall notify the Agency and the Commission thereof and present the reasons for such extension. 3. When Member States adopt those measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. They shall also include a statement that references in existing laws, regulations and administrative provisions to the Directives repealed by this Directive shall be construed as references to this Directive. Member States shall determine how such reference is to be made and how that statement is to be formulated. 4. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. 5. The obligation to transpose and implement Article 13, Article 14(1) to (8), (11) and (12), Article 15(1) to (9), Article 16(1), Articles 19 to 26, Articles 45, 46 and 47, Article 49(1) to (4) and Article 54 of this Directive shall not apply to Cyprus and Malta for as long as no rail system is established within their territories. However, as soon as a public or private entity submits an official application to build a railway line with a view to its operation by one or more railway undertakings, the Member States concerned shall put in place measures to implement the Articles referred to in the first subparagraph within two years of receipt of the application. Article 58 Repeal Directive 2008/57/EC, as amended by the Directives listed in Annex V, Part A, is repealed with effect from 16 June 2020, without prejudice to the obligations of the Member States relating to the time limits for the transposition into national law of the Directives set out in Annex V, Part B. References to the repealed Directive shall be construed as references to this Directive and shall be read in accordance with the correlation table in Annex VI. Article 59 Entry into force This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. Article 60 Addressees This Directive is addressed to the Member States. Done at Strasbourg, 11 May 2016. For the European Parliament The President M. SCHULZ For the Council The President J. A. HENNIS-PLASSCHAERT (1) OJ C 327, 12.11.2013, p. 122. (2) OJ C 356, 5.12.2013, p. 92. (3) Position of the European Parliament of 26 February 2014 (not yet published in the Official Journal) and position of the Council at first reading of 10 December 2015 (OJ C 57, 12.2.2016, p. 1). Position of the European Parliament of 28 April 2016 (not yet published in the Official Journal). (4) Directive 2008/57/EC of the European Parliament and of the Council of 17 June 2008 on the interoperability of the rail system within the Community (OJ L 191, 18.7.2008, p. 1). (5) Regulation (EU) 2016/796 of the European Parliament and of the Council of 11 May 2016 on the European Union Agency for Railways and repealing Regulation (EC) No 881/2004 (see page 1 of this Official Journal). (6) Regulation (EU) No 1025/2012 of the European Parliament and of the Council of 25 October 2012 on European standardisation, amending Council Directives 89/686/EEC and 93/15/EEC and Directives 94/9/EC, 94/25/EC, 95/16/EC, 97/23/EC, 98/34/EC, 2004/22/EC, 2007/23/EC, 2009/23/EC and 2009/105/EC of the European Parliament and of the Council and repealing Council Decision 87/95/EEC and Decision No 1673/2006/EC of the European Parliament and of the Council (OJ L 316, 14.11.2012, p. 12). (7) Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC (OJ L 94, 28.3.2014, p. 243). (8) Directive (EU) 2016/798 of the European Parliament and of the Council of 11 May 2016 on railway safety (see page 102 of this Official Journal). (9) Regulation (EC) No 765/2008 of the European Parliament and of the Council of 9 July 2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products and repealing Regulation (EEC) No 339/93 (OJ L 218, 13.8.2008, p. 30). (10) Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission's exercise of implementing powers (OJ L 55, 28.2.2011, p. 13). (11) Directive 2012/34/EU of the European Parliament and of the Council of 21 November 2012 establishing a single European railway area (OJ L 343, 14.12.2012, p. 32). (12) Commission Decision 2010/713/EU of 9 November 2010 on modules for the procedures for assessment of conformity, suitability for use and ‘EC’ verification to be used in the technical specifications for interoperability adopted under Directive 2008/57/EC of the European Parliament and of the Council (OJ L 319, 4.12.2010, p. 1). (13) Commission Decision 98/500/EC of 20 May 1998 on the establishment of Sectoral Dialogue Committees promoting the Dialogue between the social partners at European level (OJ L 225, 12.8.1998, p. 27). (14) Directive (EU) 2015/1535 of the European Parliament and of the Council of 9 September 2015 laying down a procedure for the provision of information in the field of technical regulations and rules on Information Society services (OJ L 241, 17.9.2015, p. 1). (15) Decision No 768/2008/EC of the European Parliament and of the Council of 9 July 2008 on a common framework for the marketing of products, and repealing Council Decision 93/465/EEC (OJ L 218, 13.8.2008, p. 82). (16) Council Directive 96/48/EC of 23 July 1996 on the interoperability of the trans-European high-speed rail system (OJ L 235, 17.9.1996, p. 6). ANNEX I ELEMENTS OF THE UNION RAIL SYSTEM 1. Network For the purposes of this Directive, the Union's network shall include the following elements: (a) specially built high-speed lines equipped for speeds generally equal to or greater than 250 km/h; (b) specially upgraded high-speed lines equipped for speeds of the order of 200 km/h; (c) specially upgraded high-speed lines which have special features as a result of topographical, relief or town-planning constraints, to which the speed must be adapted in each case. This category includes interconnecting lines between high-speed and conventional networks, lines through stations, accesses to terminals, depots, etc. travelled at conventional speed by ‘high-speed’ rolling stock; (d) conventional lines intended for passenger services; (e) conventional lines intended for mixed traffic (passengers and freight); (f) conventional lines intended for freight services; (g) passenger hubs; (h) freight hubs, including intermodal terminals; (i) lines connecting the abovementioned elements. This network includes traffic management, tracking and navigation systems, technical installations for data processing and telecommunications intended for long-distance passenger services and freight services on the network in order to guarantee the safe and harmonious operation of the network and efficient traffic management. 2. Vehicles For the purposes of this Directive, Union vehicles shall comprise all vehicles likely to travel on all or part of the Union's network: — locomotives and passenger rolling stock, including thermal or electric traction units, self-propelling thermal or electric passenger trains, and passenger coaches; — freight wagons, including low-deck vehicles designed for the entire network and vehicles designed to carry lorries; — special vehicles, such as on-track machines. This list of vehicles shall include those which are specially designed to operate on the different types of high-speed lines described in point 1. ANNEX II SUBSYSTEMS 1. List of subsystems For the purposes of this Directive, the system constituting the Union rail system may be broken down into the following subsystems, either: (a) structural areas: — infrastructure, — energy, — trackside control-command and signalling, — on-board control-command and signalling, — rolling stock; or (b) functional areas: — operation and traffic management, — maintenance, — telematics applications for passenger and freight services. 2. Description of the subsystems For each subsystem or part of a subsystem, the list of constituents and aspects relating to interoperability is proposed by the Agency at the time of drawing up the relevant draft TSI. Without prejudging the choice of aspects and constituents relating to interoperability or the order in which they will be made subject to TSIs, the subsystems include the following: 2.1. Infrastructure The track, points, level crossings, engineering structures (bridges, tunnels, etc.), rail-related elements of stations (including entrances, platforms, zones of access, service venues, toilets and information systems, as well as their accessibility features for persons with disabilities and persons with reduced mobility), safety and protective equipment. 2.2. Energy The electrification system, including overhead lines and the trackside electricity consumption measuring and charging system. 2.3. Trackside control-command and signalling All the trackside equipment required to ensure safety and to command and control movements of trains authorised to travel on the network. 2.4. On-board control-command and signalling All the on-board equipment required to ensure safety and to command and control movements of trains authorised to travel on the network. 2.5. Operation and traffic management The procedures and related equipment permitting coherent operation of the various structural subsystems, during both normal and degraded operation, including in particular train composition and train driving, traffic planning and management. The professional qualifications which may be required for carrying out any type of railway service. 2.6. Telematics applications In accordance with Annex I, this subsystem comprises two elements: (a) applications for passenger services, including systems which provide passengers with information before and during the journey, reservation and payment systems, luggage management and management of connections between trains and with other modes of transport; (b) applications for freight services, including information systems (real-time monitoring of freight and trains), marshalling and allocation systems, reservation, payment and invoicing systems, management of connections with other modes of transport and production of electronic accompanying documents. 2.7. Rolling stock Structural body, command and control system for all train equipment, electric current collection devices, traction and energy conversion units, on-board equipment for electricity consumption measuring and charging, braking, coupling and running gear (bogies, axles, etc.) and suspension, doors, man/machine interfaces (driver, on-board staff and passengers, including accessibility features for persons with disabilities and persons with reduced mobility), passive or active safety devices and requisites for the health of passengers and on-board staff. 2.8. Maintenance The procedures, associated equipment, logistics centres for maintenance work and reserves providing the mandatory corrective and preventive maintenance to ensure the interoperability of the Union rail system and guarantee the performance required. ANNEX III ESSENTIAL REQUIREMENTS 1. General requirements 1.1. Safety 1.1.1. The design, construction or assembly, maintenance and monitoring of safety-critical components, and more particularly of the components involved in train movements, must be such as to guarantee safety at the level corresponding to the aims laid down for the network, including those for specific degraded situations. 1.1.2. The parameters involved in the wheel/rail contact must meet the stability requirements needed in order to guarantee safe movement at the maximum authorised speed. The parameters of brake equipment must guarantee that it is possible to stop within a given brake distance at the maximum authorised speed. 1.1.3. The components used must withstand any normal or exceptional stresses that have been specified during their period in service. The safety repercussions of any accidental failures must be limited by appropriate means. 1.1.4. The design of fixed installations and rolling stock and the choice of the materials used must be aimed at limiting the generation, propagation and effects of fire and smoke in the event of a fire. 1.1.5. Any devices intended to be handled by users must be designed in such a way as not to impair the safe operation of the devices or the health and safety of users if used in a foreseeable manner, albeit not in accordance with the posted instructions. 1.2. Reliability and availability The monitoring and maintenance of fixed or movable components that are involved in train movements must be organised, carried out and quantified in such a manner as to maintain their operation under the intended conditions. 1.3. Health 1.3.1. Materials likely, by virtue of the way they are used, to constitute a health hazard to those having access to them must not be used in trains and railway infrastructures. 1.3.2. Those materials must be selected, deployed and used in such a way as to restrict the emission of harmful and dangerous fumes or gases, particularly in the event of fire. 1.4. Environmental protection 1.4.1. The environmental impact of establishment and operation of the rail system must be assessed and taken into account at the design stage of the system in accordance with Union law. 1.4.2. The materials used in the trains and infrastructures must prevent the emission of fumes or gases which are harmful and dangerous to the environment, particularly in the event of fire. 1.4.3. The rolling stock and energy-supply systems must be designed and manufactured in such a way as to be electromagnetically compatible with the installations, equipment and public or private networks with which they might interfere. 1.4.4. The design and operation of the rail system must not lead to an inadmissible level of noise generated by it: — in areas close to railway infrastructure, as defined in point (3) of Article 3 of Directive 2012/34/EU, and — in the driver's cab. 1.4.5. Operation of the rail system must not give rise to an inadmissible level of ground vibrations for the activities and areas close to the infrastructure and in a normal state of maintenance. 1.5. Technical compatibility The technical characteristics of the infrastructure and fixed installations must be compatible with each other and with those of the trains to be used on the rail system. This requirement includes the safe integration of the vehicle's subsystem with the infrastructure. If compliance with these characteristics proves difficult on certain sections of the network, temporary solutions, which ensure compatibility in the future, may be implemented. 1.6. Accessibility 1.6.1. The ‘infrastructure’ and ‘rolling stock’ subsystems must be accessible to persons with disabilities and persons with reduced mobility in order to ensure access on an equal basis with others by way of the prevention or removal of barriers, and by way of other appropriate measures. This shall include the design, construction, renewal, upgrade, maintenance and operation of the relevant parts of the subsystems to which the public has access. 1.6.2. The ‘operations’ and ‘telematics applications for passengers’ subsystems must provide for the necessary functionality required to facilitate access for persons with disabilities and persons with reduced mobility on an equal basis with others by way of the prevention or removal of barriers, and by way of other appropriate measures. 2. Requirements specific to each subsystem 2.1. Infrastructure 2.1.1. Safety Appropriate steps must be taken to prevent access to, or undesirable intrusions into, installations. Steps must be taken to limit the dangers to which persons are exposed, particularly when trains pass through stations. Infrastructure to which the public has access must be designed and made in such a way as to limit any human safety hazards (stability, fire, access, evacuation, platforms, etc.). Appropriate provisions must be laid down to take account of the particular safety conditions in very long tunnels and viaducts. 2.1.2. Accessibility Infrastructure subsystems to which the public has access must be accessible for persons with disabilities and persons with reduced mobility in accordance with point 1.6. 2.2. Energy 2.2.1. Safety Operation of the energy-supply systems must not impair the safety either of trains or of persons (users, operating staff, trackside dwellers and third parties). 2.2.2. Environmental protection The functioning of the electrical or thermal energy-supply systems must not interfere with the environment beyond the specified limits. 2.2.3. Technical compatibility The electricity/thermal energy-supply systems used must: — enable trains to achieve the specified performance levels, — in the case of electricity energy-supply systems, be compatible with the collection devices fitted to the trains. 2.3. Control-command and signalling 2.3.1. Safety The control-command and signalling installations and procedures used must enable trains to travel with a level of safety which corresponds to the objectives set for the network. The control-command and signalling systems must continue to provide for safe passage of trains permitted to run under degraded conditions. 2.3.2. Technical compatibility All new infrastructure and all new rolling stock manufactured or developed after adoption of compatible control-command and signalling systems must be tailored to the use of those systems. The control-command and signalling equipment installed in the train drivers' cabs must permit normal operation, under the specified conditions, throughout the rail system. 2.4. Rolling stock 2.4.1. Safety The rolling-stock structures and those of the links between vehicles must be designed in such a way as to protect the passenger and driving compartments in the event of collision or derailment. The electrical equipment must not impair the safety and functioning of the control-command and signalling installations. The braking techniques and the stresses exerted must be compatible with the design of the tracks, engineering structures and signalling systems. Steps must be taken to prevent access to electrically-live constituents in order not to endanger the safety of persons. In the event of danger, devices must enable passengers to inform the driver and accompanying staff to contact them. The safety of passengers boarding and alighting from trains must be ensured. The access doors must incorporate an opening and closing system which guarantees passenger safety. Emergency exits must be provided and indicated. Appropriate provisions must be laid down to take account of the particular safety conditions in very long tunnels. An emergency lighting system having a sufficient intensity and duration is an absolute requirement on board trains. Trains must be equipped with a public address system which provides a means of communication to the public from on-board staff. Passengers must be given easily understandable and comprehensive information about rules applicable to them both in railway stations and in trains. 2.4.2. Reliability and availability The design of the vital equipment and the running, traction and braking equipment as well as the control-command system must, in a specific degraded situation, be such as to enable the train to continue without adverse consequences for the equipment remaining in service. 2.4.3. Technical compatibility The electrical equipment must be compatible with the operation of the control-command and signalling installations. In the case of electric traction, the characteristics of the current-collection devices must be such as to enable trains to travel under the energy-supply systems for the rail system. The characteristics of the rolling stock must be such as to allow it to travel on any line on which it is expected to operate, taking account of relevant climatic conditions. 2.4.4. Controls Trains must be equipped with a recording device. The data collected by that device and the processing of the information must be harmonised. 2.4.5. Accessibility Rolling-stock subsystems to which the public has access must be accessible for persons with disabilities and persons with reduced mobility in accordance with point 1.6. 2.5. Maintenance 2.5.1. Health and safety The technical installations and the procedures used in the centres must ensure the safe operation of the subsystem and not constitute a danger to health and safety. 2.5.2. Environmental protection The technical installations and the procedures used in the maintenance centres must not exceed the permissible levels of nuisance with regard to the surrounding environment. 2.5.3. Technical compatibility The maintenance installations for rolling stock must be such as to enable safety, health and comfort operations to be carried out on all stock for which they have been designed. 2.6. Operation and traffic management 2.6.1. Safety Alignment of the network operating rules and the qualifications of drivers and on-board staff and of the staff in the control centres must be such as to ensure safe operation, bearing in mind the different requirements of cross-border and domestic services. The maintenance operations and intervals, the training and qualifications of the maintenance and control centre staff and the quality assurance system set up by the operators concerned in the control and maintenance centres must be such as to ensure a high level of safety. 2.6.2. Reliability and availability The maintenance operations and periods, the training and qualifications of the maintenance and control centre staff and the quality assurance system set up by the operators concerned in the control and maintenance centres must be such as to ensure a high level of system reliability and availability. 2.6.3. Technical compatibility Alignment of the network operating rules and the qualifications of drivers, on-board staff and traffic managers must be such as to ensure operating efficiency on the rail system, bearing in mind the different requirements of cross-border and domestic services. 2.6.4. Accessibility Appropriate steps must be taken to ensure that operating rules provide for the necessary functionality required to ensure accessibility for persons with disabilities and persons with reduced mobility. 2.7. Telematics applications for freight and passengers 2.7.1. Technical compatibility The essential requirements for telematics applications guarantee a minimum quality of service for passengers and carriers of goods, particularly in terms of technical compatibility. Steps must be taken to ensure: — that the databases, software and data communication protocols are developed in a manner allowing maximum data interchange between different applications and operators, excluding confidential commercial data, — easy access to the information for users. 2.7.2. Reliability and availability The methods of use, management, updating and maintenance of these databases, software and data communication protocols must guarantee the efficiency of these systems and the quality of the service. 2.7.3. Health The interfaces between these systems and users must comply with the minimum rules on ergonomics and health protection. 2.7.4. Safety Suitable levels of integrity and dependability must be provided for the storage or transmission of safety-related information. 2.7.5. Accessibility Appropriate steps must be taken to ensure that telematics applications for passenger subsystems provide for the necessary functionality required to ensure accessibility for persons with disabilities and persons with reduced mobility. ANNEX IV ‘EC’ VERIFICATION PROCEDURE FOR SUBSYSTEMS 1. GENERAL PRINCIPLES ‘“EC” verification’ means a procedure carried out by the applicant within the meaning of Article 15 to demonstrate that the requirements of the relevant Union law and any relevant national rules relating to a subsystem have been fulfilled and the subsystem may be authorised to be placed in service. 2. CERTIFICATE OF VERIFICATION ISSUED BY A NOTIFIED BODY 2.1. Introduction For the purpose of this Directive, the verification by reference to TSIs is the procedure whereby a notified body checks and certifies that the subsystem complies with the relevant technical specifications for interoperability (TSI). This is without prejudice to the obligations of the applicant to comply with the other applicable legal acts of the Union and any verifications by the assessment bodies required by the other rules. 2.2. Intermediate statement of verification (ISV) 2.2.1 Principles At the request of the applicant the verifications may be done for parts of a subsystem or may be limited to certain stages of the verification procedure. In these cases, the results of verification may be documented in an ‘intermediate statement of verification’ (ISV) issued by the notified body chosen by the applicant. The ISV must provide reference to the TSIs with which the conformity has been assessed. 2.2.2 Parts of the subsystem The applicant may apply for an ISV for any part into which he decides to split the subsystem. Each part shall be checked at each stage as set out in point 2.2.3. 2.2.3 Stages of the verification procedure The subsystem, or certain parts of the subsystem, shall be checked at each of the following stages: (a) overall design; (b) production: construction, including, in particular, civil-engineering activities, manufacturing, constituent assembly and overall adjustment; (c) final testing. The applicant may apply for an ISV for the design stage (including the type tests) and for the production stage for the whole subsystem or for any part into which the applicant decided to split it (see point 2.2.2). 2.3. Certificate of verification 2.3.1. The notified bodies responsible for the verification assess the design, production and final testing of the subsystem and draw up the certificate of verification intended for the applicant who in turn draws up the ‘EC’ declaration of verification. The certificate of verification must provide reference to the TSIs with which the conformity has been assessed. Where a subsystem has not been assessed for its conformity with all relevant TSI(s) (e.g. in the case of a derogation, partial application of TSIs for upgrade or renewal, transitional period in a TSI or specific case), the certificate of verification shall give the precise reference to the TSI(s) or their parts whose conformity has not been examined by the notified body during the verification procedure. 2.3.2. Where ISV have been issued, the notified body responsible for the verification of the subsystem takes these ISV into account, and, before issuing its certificate of verification: (a) verifies that the ISV cover correctly the relevant requirements of the TSI(s); (b) checks all aspects that are not covered by the ISV; and (c) checks the final testing of the subsystem as a whole. 2.3.3. In the case of a modification to a subsystem already covered by a certificate of verification, the notified body shall perform only those examinations and tests that are relevant and necessary, i.e. assessment shall relate only to the parts of the subsystem that are changed and their interfaces to the unchanged parts of the subsystem. 2.3.4 Each notified body involved in the verification of a subsystem shall draw up a file in accordance with Article 15(4) covering the scope of its activities. 2.4. Technical file accompanying the ‘EC’ declaration of verification. The technical file accompanying the ‘EC’ declaration of verification shall be assembled by the applicant and must contain the following: (a) technical characteristics linked to the design including general and detailed drawings with respect to execution, electrical and hydraulic diagrams, control-circuit diagrams, description of data-processing and automatic systems to the level of detail sufficient for documenting the verification of conformity carried out, documentation on operation and maintenance, etc., relevant for the subsystem concerned; (b) a list of interoperability constituents, referred to in point (d) of Article 4(3), incorporated into the subsystem; (c) the files referred to in Article 15(4), compiled by each of the notified bodies involved in the verification of the subsystem, which shall include: — copies of the ‘EC’ declarations of verification and, where applicable, ‘EC’ declarations of suitability for use established for interoperability constituents referred to in point (d) of Article 4(3) and accompanied, where appropriate, by the corresponding calculation notes and a copy of the records of the tests and examinations carried out by the notified bodies on the basis of the common technical specifications, — where available, the ISV that accompany the certificate of verification, including the result of verification by the notified body of the ISV validity, — the certificate of verification, accompanied by corresponding calculation notes and signed by the notified body responsible for the verification, stating that the subsystem complies with the requirements of the relevant TSI(s) and mentioning any reservations recorded during performance of the activities and not withdrawn; the certificate of verification should also be accompanied by the inspection and audit reports drawn up by the same body in connection with its task, as specified in points 2.5.2 and 2.5.3; (d) certificates of verification issued in accordance with other legal acts of the Union; (e) when verification of safe integration is required pursuant to in point (c) of Article 18(4) and in point (c) of Article 21(3), the relevant technical file shall include the assessors' report(s) on the CSMs on risk assessment referred to in Article 6(3) of Directive 2004/49/EC (1). 2.5. Surveillance by notified bodies. 2.5.1. The notified body responsible for checking production must have permanent access to building sites, production workshops, storage areas and, where appropriate, prefabrication or testing facilities and, more generally, to all premises which it considers necessary for its task. The notified body must receive from the applicant all the documents needed for that purpose and, in particular, the implementation plans and technical documentation concerning the subsystem. 2.5.2. The notified body responsible for checking implementation must periodically carry out audits in order to confirm compliance with the relevant TSI(s). It must provide those responsible for implementation with an audit report. Its presence may be required at certain stages of the building operations. 2.5.3. In addition, the notified body may pay unexpected visits to the worksite or to the production workshops. At the time of such visits the notified body may conduct complete or partial audits. It must provide those responsible for implementation with an inspection report and, if appropriate, an audit report. 2.5.4. The notified body shall be able to monitor a subsystem on which an interoperability constituent is mounted in order to assess, where required by the corresponding TSI, its suitability for use in its intended railway environment. 2.6. Submission A copy of the technical file accompanying the ‘EC’ declaration of verification must be kept by the applicant) throughout the service life of the subsystem. It must be sent to any Member State or the Agency, upon request. The documentation submitted for an application for an authorisation for placing in service shall be submitted to the authority where the authorisation is sought. The national safety authority or the Agency may request that part(s) of the documents submitted together with the authorisation is/are translated into its own language. 2.7. Publication Each notified body must periodically publish relevant information concerning: (a) requests for verification and ISV received; (b) request for assessment of conformity and suitability for use of ICs; (c) ISV issued or refused; (d) certificates of verification and ‘EC’ certificates for suitability for use issued or refused; (e) certificates of verification issued or refused. 2.8. Language The files and correspondence relating to the ‘EC’ verification procedure must be written in a Union official language of the Member State in which the applicant is established or in a Union official language accepted by the applicant 3. CERTIFICATE OF VERIFICATION ISSUED BY A DESIGNATED BODY 3.1. Introduction In the case where national rules apply, the verification shall include a procedure whereby the body designated pursuant to Article 15(8), (the designated body) checks and certifies that the subsystem complies with the national rules notified in accordance with Article 14 for each Member State in which the subsystem is intended to be authorised to be placed in service. 3.2. Certificate of verification The designated body draws up the certificate of verification intended for the applicant. The certificate shall contain a precise reference to the national rule(s) whose conformity has been examined by the designated body in the verification process. In the case of national rules related to the subsystems composing a vehicle, the designated body shall divide the certificate into two parts, one part including the references to those national rules strictly related to the technical compatibility between the vehicle and the network concerned, and the other part for all other national rules. 3.3. File The file compiled by the designated body and accompanying the certificate of verification in the case of national rules must be included in the technical file accompanying the ‘EC’ declaration of verification referred to in point 2.4 and shall contain the technical data relevant for the assessment of the conformity of the subsystem with those national rules. 3.4. Language The files and correspondence relating to the ‘EC’ verification procedure must be written in a Union official language of the Member State in which the applicant is established or in a Union official language accepted by the applicant. 4. VERIFICATION OF PARTS OF SUBSYSTEMS IN ACCORDANCE WITH ARTICLE 15(7) If a certificate of verification is to be issued for certain parts of a subsystem, provisions for this Annex shall apply mutatis mutandis for those parts. (1) Directive 2004/49/EC of the European Parliament and of the Council of 29 April 2004 on safety on the Community's railways and amending Council Directive 95/18/EC on the licensing of railway undertakings and Directive 2001/14/EC on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure and safety certification (Railway Safety Directive) (OJ L 164, 30.4.2004, p. 44). ANNEX V PART A Repealed Directives with list of the successive amendments thereto (referred to in Article 58) Directive 2008/57/EC (OJ L 191, 18.7.2008, p. 1.) Directive 2009/131/EC (OJ L 273, 17.10.2009, p. 12.) Directive 2011/18/EU (OJ L 57, 2.3.2011, p. 21.) PART B Time limits for transposition into national law (referred to in Article 57) Directive Deadline for transposition 2008/57/EC 19 July 2010 2009/131/EC 19 July 2010 2011/18/EU 31 December 2011 ANNEX VI Correlation table Directive 2008/57/EC This Directive Article 1 Article 1 Article 2(a) to (z) Article 2(1) to (5), (7) to (17) and (19) to (28) - Article 2(6), (18) and (29) to (45) Article 3 - Article 4 Article 3 Article 5(1) to (3)(g) Article 4(1) to (3)(g) - Article 4(3)(h) and (i) Article 5(4) to (8) Article 4(4) to (8) Article 6 Article 5 Article 7 Article 6 Article 8 - Article 9 Article 7 Article 10 Article 8 Article 11 Article 9 Article 12 - Article 13 Article 10 Article 14 Article 11 Article 15(1) Articles 18(2) Article 15(2) and (3) - Article 16 Article 12 Article 17 Articles 13 and 14 Article 18 Article 15 Article 19 Article 16 - Article 17 - Article 18 (except 18(3)) - Articles 19, 20, 21, 22 and 23 Article 20 - Article 21 - Articles 22 to 25 - Article 26 Article 24 Article 27 Article 14(10) - Article 26 Article 28 and Annex VIII Articles 27 to 44 - Article 45 Article 29 Article 51 Articles 30 and 31 - Article 32 Article 46 Article 33 Article 47(3), (4), (6) and (7) - Article 47(1), (2) and (5) Article 34 Article 48 Article 35 Article 49 Article 36 - - Article 50- Article 37 Article 52 Article 38 Article 57 Article 39 Article 53 - Articles 54 and 55 - Article 56 Article 40 Article 58 Article 41 Article 59 Article 42 Article 60 Annex I to III Annex I to III Annex IV Article 9(2) Annex V Article 15(9) Annex VI Annex IV Annex VII Article 14(10) Annex VIII Articles 30, 31 and 32 Annex IX Article 7(5) Annex X Annex V Annex XI Annex VI Statement by the Commission on explanatory documents The Commission recalls that the European Parliament, the Council and the Commission acknowledged in their Joint Political Declaration of 27 October 2011 on explanatory documents that the information Member States supply to the Commission as regards the transposition of directives in national law ‘must be clear and precise’ in order to facilitate the achievement by the Commission of its task of overseeing the application of Union law. In the present case, explanatory documents could have been useful to this end. The Commission regrets that the final text does not contain provisions to this effect.\n<|assistant|>\nAn interoperable EU rail system An interoperable EU rail system SUMMARY OF: Directive (EU) 2016/797 on the interoperability of the EU’s rail system WHAT IS THE AIM OF THE DIRECTIVE? It sets out the conditions to be met to achieve interoperability* within the European Union (EU) rail system and defines the subsystems, both structural* and functional*, that make up that system. It aims to facilitate, improve and develop rail transport services within the EU and with non-EU countries, thereby contributing to the completion of the single European railway area and to the shift to more efficient types of transport. The directive is one of three legislative acts covering the technical aspects of the fourth railway package, which aims to revitalise the rail sector and deliver a better quality of service and more choice to passengers. It works alongside Regulation (EU) 2016/796 on the European Agency for Railways (see summary) and Directive (EU) 2016/798 on railway safety (see summary). Following the outbreak of the COVID-19 pandemic in 2020, Amending Directive (EU) 2020/700 extended the deadline for the transposition of Directive (EU) 2016/797 and Directive (EU) 2016/798 into EU Member States’ national law. KEY POINTS Scope The directive applies to the rail system in Member States, including: vehicles and infrastructure;energy;signalling systems and telematics* applications (e.g. ticketing systems) for freight and passengers;accessibility for persons with reduced mobility;noise issues. It does not apply to: metros;trams, light rail vehicles or infrastructure used exclusively by those vehicles;networks that are functionally separated from the EU rail system and that are intended to operate only local, urban or suburban passenger services, along with companies that operate solely on these networks. Harmonised requirements The directive sets out conditions related to: the design, construction, placing in service, upgrading, renewal, operation and maintenance of the parts of the system; and the professional qualifications and health and safety conditions of the staff who contribute to its operation and maintenance. These conditions take the form of harmonised requirements covering: essential requirements with regard to: safety (e.g. components such as brakes),reliability and availability (e.g. monitoring and maintaining essential components),human health and environmental protection,technical compatibility and operation of the system,accessibility; technical specifications for interoperability for each subsystem or part of a subsystem; related EU standards and other documents allowing the bodies involved to prove their compliance with the essential requirements and technical specifications for interoperability. Conformity The directive sets out the procedures related to interoperable components and systems covering: conditions for being placed on the market; conformity or suitability for use; procedures in cases of non-compliance with essential requirements. Specific technical aspects The European Commission has adopted a series of regulations that supplement Directive (EU) 2016/797 with regard to technical aspects. Regulation (EU) No 1300/2014 on accessibility for persons with disabilities, as amended by Implementing Regulation (EU) 2019/772, which concerns an inventory of assets with a view to identifying barriers to accessibility, providing information to users and monitoring and evaluating progress on accessibility. Implementing Regulation (EU) 2019/773 on the operation and traffic management subsystem. Regulation (EU) No 1304/2014 relating to the ‘rolling stock – noise’ subsystem, as amended by Implementing Regulation (EU) 2019/774 which specifically applies to existing freight wagons. Regulation (EU) No 454/2011 on the technical specification for interoperability relating to the ‘telematics applications for passenger services’ subsystem of the trans-European rail system, as amended most recently by Implementing Regulation (EU) 2019/775. COVID-19 outbreak – Amending Directive (EU) 2020/700 Directive (EU) 2016/797 was due to have been transposed by 16 June 2019, with a possible extension of 1 year, i.e. by 16 June 2020. However, to provide the railway sector with greater legal certainty and flexibility to deal with the exceptional circumstances arising from the COVID-19 pandemic, Amending Directive (EU) 2020/700 was adopted to extend the transposition period of Directive (EU) 2016/797 from 16 June 2020 to 31 October 2020. FROM WHEN DOES THE DIRECTIVE APPLY? It has applied since 15 June 2016 and had to become law in the Member States by 16 June 2019. Member States could apply a one-year extension until 16 June 2020. Member States that have extended the transposition period could further extend it until 31 October 2020. BACKGROUND For further information, see: Rail Transport: Landmark deal will deliver better rail services to passengers – press release (European Commission). KEY TERMS Interoperability. The ability of a rail system to allow the safe and uninterrupted movement of trains that accomplish the required level of performance. Structural subsystems. Subsystems of the rail system relating to infrastructure, energy, trackside and on-board control-command and signalling, rolling stock and other movable railway material. Functional subsystems. Subsystems of the rail system relating to operation and traffic management, maintenance, and telematics applications for passenger and freight services. Telematics. The integrated use of telecommunications with information and communications technology. MAIN DOCUMENT Directive (EU) 2016/797 of the European Parliament and of the Council of 11 May 2016 on the interoperability of the rail system within the European Union (recast) (OJ L 138, 26.5.2016, pp. 44–101). Successive amendments to Directive (EU) 2016/797 have been incorporated into the original text. This consolidated version is of documentary value only. RELATED DOCUMENTS Commission Implementing Regulation (EU) 2019/773 of 16 May 2019 on the technical specification for interoperability relating to the operation and traffic management subsystem of the rail system within the European Union and repealing Decision 2012/757/EU (OJ L 139 I , 27.5.2019, pp. 5–88). See consolidated version. Regulation (EU) 2016/796 of the European Parliament and of the Council of 11 May 2016 on the European Union Agency for Railways and repealing Regulation (EC) No 881/2004 (OJ L 138, 26.5.2016, pp. 1–43). Directive (EU) 2016/798 of the European Parliament and of the Council of 11 May 2016 on railway safety (OJ L 138, 26.5.2016, pp. 102–149). See consolidated version Commission Regulation (EU) No 1300/2014 of 18 November 2014 on the technical specifications for interoperability relating to accessibility of the Union’s rail system for persons with disabilities and persons with reduced mobility (OJ L 356, 12.12.2014, pp. 110–178). See consolidated version. Commission Regulation (EU) No 1304/2014 of 26 November 2014 on the technical specification for interoperability relating to the subsystem ‘rolling stock – noise’ amending Decision 2008/232/EC and repealing Decision 2011/229/EU (OJ L 356, 12.12.2014, pp. 421–437). See consolidated version. Commission Regulation (EU) No 454/2011 of 5 May 2011 on the technical specification for interoperability relating to the subsystem ‘telematics applications for passenger services’ of the trans-European rail system (OJ L 123, 12.5.2011, pp. 11–67). See consolidated version. last update 18.11.2021\n<|endoftext|>"}}},{"rowIdx":92,"cells":{"text":{"kind":"string","value":"<|system|>\nYou are a helpful assistant that summarizes text clearly, accurately, and concisely.\n<|user|>\nSummarize the following text:\n26.5.2016 EN Official Journal of the European Union L 138/102 DIRECTIVE (EU) 2016/798 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 11 May 2016 on railway safety (recast) (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 91(1) thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee (1), Having regard to the opinion of the Committee of the Regions (2), Acting in accordance with the ordinary legislative procedure (3), Whereas: (1) Directive 2004/49/EC of the European Parliament and of the Council (4) has been substantially amended. Since further amendments are to be made, it should be recast in the interests of clarity. (2) Directive 2004/49/EC established a common regulatory framework for railway safety through harmonisation of the content of safety rules, the safety certification of railway undertakings, the tasks and roles of the national safety authorities and the investigation of accidents. Nevertheless, in order to pursue efforts to further develop a single European railway area, it is necessary to thoroughly revise Directive 2004/49/EC. (3) Metros, trams and other light rail systems are subject in many Member States to local technical requirements and are excluded from the scope of Directive (EU) 2016/797 of the European Parliament and of the Council (5). In order to facilitate the implementation of this Directive and of Directive (EU) 2016/797, both Directives should have the same scope. Therefore, such local systems should be excluded from the scope of this Directive. (4) Insofar as some concepts referred to in this Directive may be usefully applied to metros and other local systems, Member States should be permitted to decide, without prejudice to the scope of this Directive, to apply certain provisions of this Directive that they consider to be appropriate. In such cases, Member States should be allowed not to apply obligations such as the notification of national rules and reporting. (5) Safety levels in the Union rail system are generally high especially when compared to road transport. Railway safety should be generally maintained and, when practicable, continuously improved, taking into account technical and scientific progress, and the development of Union and international law. Priority should be given to the prevention of accidents. The impact of human factors should also be taken into consideration. (6) If a Member State introduces a higher level of safety, it should ensure that the rule adopted does not create a barrier to interoperability or result in discrimination. (7) The main actors in the Union rail system, infrastructure managers and railway undertakings should bear full responsibility for the safety of the system, each for their own part. Whenever appropriate, they should cooperate in implementing risk control measures. (8) Without prejudice to the responsibility of infrastructure managers and railway undertakings for developing and improving railway safety, the other actors, such as entities in charge of maintenance, manufacturers, carriers, consignors, consignees, fillers, unfillers, loaders, unloaders, maintenance suppliers, keepers, service providers and contracting entities, should not be precluded from assuming responsibility for their products, services and processes. Each actor in the Union rail system should be responsible, vis-à-vis the other actors, for complete and truthful communication of all relevant information to check whether vehicles are fit to run. This concerns, in particular, information on the status and history of a given vehicle, maintenance files, traceability of loading operations, and consignment notes. (9) Each railway undertaking, infrastructure manager and entity in charge of maintenance should ensure that its contractors and other parties implement risk control measures. To that end, each railway undertaking, infrastructure manager and entity in charge of maintenance should apply the methods for monitoring set out in the common safety methods (‘CSMs’). Their contractors should apply this process through contractual arrangements. In view of the fact that such arrangements are an essential part of the safety management system of railway undertakings and infrastructure managers, railway undertakings and infrastructure managers should disclose their contractual arrangements on request of the European Union Agency for Railways (‘the Agency’) established by Regulation (EU) 2016/796 of the European Parliament and of the Council (6) or the national safety authority in the context of supervision activities. (10) Member States should promote a culture of mutual trust, confidence and learning in which the staff of railway undertakings and infrastructure managers are encouraged to contribute to the development of safety while confidentiality is ensured. (11) Common safety targets (‘CSTs’) and CSMs have been gradually introduced to ensure that safety is maintained at a high level and, when necessary and where reasonably practicable, improved. They should provide tools for the assessment of the safety and performance of operators at Union level as well as in the Member States. Common safety indicators (‘CSIs’) have been established in order to assess whether systems comply with the CSTs and to facilitate the monitoring of railway safety performance. (12) National rules, which are often based on national technical standards, are being gradually replaced by rules based on common standards, established by CSTs, CSMs and technical specifications for interoperability (‘TSIs’). In order to eliminate the obstacles to interoperability, the volume of national rules, including operating rules, should be reduced as a consequence of extending the scope of the TSIs to the whole of the Union rail system and of closing open points in the TSIs. For that purpose, Member States should keep their system of national rules updated, delete obsolete rules and inform the Commission and the Agency thereof without delay. (13) National rules should be drafted and published in such a way that any potential user of a national network can understand them. However, such rules often refer to other documents such as national standards, European standards, international standards or other technical specifications which might be partly or fully protected by intellectual property rights. It is appropriate, therefore, that the obligation of publication should not apply to any documents referred to directly or indirectly in the national rule. (14) National rules often include requirements which are partly relevant for both interoperability and safety purposes. Safety being an essential requirement of Directive (EU) 2016/797, a national rule may be relevant for Directive (EU) 2016/797 and for this Directive. The distinction between the terms ‘national safety rules’ and ‘national technical rules’ as defined in Directive 2004/49/EC and Directive 2008/57/EC of the European Parliament and of the Council (7) respectively should therefore be removed and replaced by the concept of ‘national rules’ which are to be notified under Directive (EU) 2016/797 and/or this Directive. National rules are to be notified under Directive (EU) 2016/797 mainly when they relate to the placing on the market or placing in service of structural subsystems. They should be notified under this Directive when they relate to the operation of the Union rail system, or to the specific subjects of this Directive, including the role of the actors, safety certification, safety authorisation and accident investigation. (15) In view of the gradual approach to eliminating obstacles to the interoperability of the Union rail system and of the time consequently required for the adoption of TSIs, steps should be taken to avoid a situation where Member States adopt new national rules or undertake projects that increase the diversity of the present system except in the specific situations as provided for in this Directive. The safety management system is the recognised tool for controlling risks, whereas infrastructure managers and railway undertakings are responsible for taking immediate corrective action to prevent recurrence of accidents. Member States should avoid establishing new national rules immediately after an accident, unless such new rules are required as an urgent preventive measure. (16) Train control and signalling systems play a critical role in ensuring railway safety. In this regard, the deployment of the European Rail Traffic Management System (ERTMS) on the Union railway network constitutes an important contribution to improving safety levels. (17) In carrying out their duties and fulfilling their responsibilities, infrastructure managers and railway undertakings should implement a safety management system meeting Union requirements and containing common elements. Information on safety and on the implementation of the safety management system should be submitted to the Agency and to the national safety authority in the Member State concerned. (18) Through its processes, the safety management system should ensure that human capabilities and limitations and the influences on human performance are addressed by applying human factors knowledge and using recognised methods. (19) Rail freight services should also encompass the transport of dangerous goods. However, a distinction should be made between the objective of this Directive, which is to maintain and, where possible, improve the safety of the Union rail system, and that of Directive 2008/68/EC of the European Parliament and of the Council (8), which is, mainly, to regulate the classification of substances and the specification of their containments, including the safe loading, unloading and use of the containments within the existing railway system. Consequently, without prejudice to Directive 2008/68/EC, the safety management system of the railway undertakings and of the infrastructure managers should duly take into consideration the potential additional risks generated by carrying dangerous goods containments. (20) All railway undertakings should be subject to the same safety requirements in order to ensure a high level of railway safety and equal conditions. A railway undertaking should hold a safety certificate as a condition of being allowed to obtain access to the railway infrastructure. The safety certificate should provide evidence that the railway undertaking has established its safety management system and that it is able to comply with the relevant safety standards and rules for the relevant area of operation. When the Agency issues a single safety certificate to a railway undertaking having an area of operation in one or more Member States, it should be the only authority to assess whether the railway undertaking has correctly established its safety management system. The national safety authorities concerned by the intended area of operation should be involved in assessing the requirements laid down in the relevant national rules. (21) Harmonised methods based on Directive 2004/49/EC have been established, to be applied to the actors in the Union rail system and the national safety authorities, on monitoring, conformity assessment, supervision and risk evaluation and assessment. That regulatory framework is sufficiently mature to move progressively towards a ‘single safety certificate’ valid within the area of operation of the railway undertaking concerned. (22) In order to make the procedures for issuing single safety certificates to railway undertakings more efficient and coherent, it is necessary to assign the Agency a central role in the issuing of such certificates. Where the area of operation is limited to one Member State, the applicant should have the possibility of choosing whether to submit its application for a single safety certificate, through the one-stop shop referred to in Regulation (EU) 2016/796, to the national safety authority of that Member State or to the Agency. The choice made by the applicant should be binding until the application is completed or terminated. This new regime should make the Union rail system more effective and efficient by reducing administrative burdens for railway undertakings. (23) The Agency and the national safety authorities should cooperate and share competences as appropriate for the issuing of single safety certificates. Clear procedural and arbitration provisions should be established to address situations where the Agency and the national safety authorities disagree on assessments made in relation to the issuing of single safety certificates. (24) The new allocation of functions and tasks between national safety authorities and the Agency concerning the issuing of safety certificates should be done efficiently. To that end, cooperation agreements between the Agency and the national safety authorities should be established. (25) In particular, cooperation agreements are required to take account of the specific geographical and historical situation of certain Member States, while ensuring the proper functioning of the internal market. Where operation is limited to networks requiring specific expertise for geographical or historical reasons, and where such networks are isolated from the rest of the Union rail system, it should be possible for the applicant to fulfil the necessary formalities locally by interacting with the relevant national safety authorities. To that end, for the purposes of reducing administrative burdens and costs, it should be possible for the cooperation agreements to be concluded between the Agency and the relevant national safety authorities to provide for an appropriate allocation of tasks, without prejudice to the ultimate responsibility of the Agency in issuing the single safety certificate. (26) The railway networks located in the Baltic States (Estonia, Latvia and Lithuania) have 1520 mm track gauge, which is the same as in neighbouring third countries, but different from that of the main rail network within the Union. These Baltic networks have inherited common technical and operational requirements which provide de facto interoperability between them, and, in this respect, the safety certificate issued in one of these Member States might be extended to the rest of these networks. To facilitate the efficient and proportionate allocation of resources for safety certification, and to reduce the financial and administrative burden for the applicant in such cases, the specific cooperation arrangements between the Agency and relevant national safety authorities should include, where necessary, the possibility of contracting tasks to these national safety authorities. (27) This Directive should not lead to a reduced level of safety and should not increase costs in the Union's railway sector. To that end, the Agency and the national safety authorities should take full responsibility for the single safety certificates they issue, assuming in particular contractual and non-contractual liabilities in that regard. In the event of a judicial inquiry involving the Agency or its staff, the Agency should cooperate fully with the competent authorities of the Member State or States concerned. (28) A clear distinction should be drawn between, on the one hand, the immediate responsibility of the Agency and the national safety authorities for safety deriving from the issuing of the safety certificates and safety authorisations and, on the other, the national safety authorities' task of providing a national regulatory framework and supervising the performance of all parties concerned on a continuous basis. Each national safety authority should oversee continued compliance with the legal obligation imposed on a railway undertaking or infrastructure manager to establish a safety management system. Establishing evidence of such compliance may require not only on-site inspections of the railway undertaking or infrastructure manager concerned, but also supervision tasks to be carried out by the national safety authorities in order to assess that the railway undertaking or infrastructure manager continue to duly apply their safety management system after having been granted a safety certificate or a safety authorisation. National safety authorities should coordinate their supervision activities in relation to railway undertakings established in different Member States, and should share information among themselves and, where appropriate, with the Agency. The Agency should assist the national safety authorities in their cooperation. In that context, necessary arrangements should be established by the Agency and the national safety authorities to facilitate the exchange of information between them. (29) The Agency and the national safety authorities should cooperate closely in cases where a national safety authority concludes that a holder of a single safety certificate issued by the Agency no longer satisfies the conditions for certification. In such a case, it should ask the Agency to restrict or revoke that certificate. An arbitration procedure should be established to deal with cases of disagreement between the Agency and the national safety authority. If a national safety authority identifies a serious safety risk during supervision, it should inform the Agency and any other national safety authority concerned in the area of operation of the railway undertaking. The national safety authorities concerned should be allowed to apply temporary safety measures, including immediately restricting or suspending the relevant operations. A serious safety risk in this context should be understood as being a serious instance of non-compliance with legal obligations or safety requirements that may in itself, or in a series of consequential events, cause an accident or a serious accident. (30) The Agency should be able to establish a tool that facilitates the exchange of information among the relevant actors who identify or are informed of a safety risk relating to defects and construction non-conformities or malfunctions of technical equipment. (31) The single safety certificate should be issued on the basis of evidence that a railway undertaking has established its safety management system. (32) Infrastructure managers should have a key responsibility for the safe design, maintenance and operation of their rail network. Infrastructure managers should be subject to a safety authorisation by the national safety authority concerning their safety management system and to other provisions so as to meet safety requirements. (33) The certification of train staff might create difficulties for new entrants. Member States should ensure that facilities for the training and certification of train staff necessary to meet requirements under national rules are available to railway undertakings intending to operate on the relevant network. (34) The entity in charge of maintenance should be certified for freight wagons. Where the entity in charge of maintenance is an infrastructure manager, this certification should be included in the procedure for safety authorisation. The certificate issued to such an entity should guarantee that the maintenance requirements of this Directive are met for any freight wagon for which it is responsible. That certificate should be valid throughout the Union and should be issued by a body able to audit the maintenance system established by the entity. As freight wagons are frequently used in international traffic, and as the entity in charge of maintenance may want to use workshops established in more than one Member State, the certification body should be able to implement its controls throughout the Union. The Agency should evaluate the system of certification of the entity in charge of maintenance for freight wagons and should, if appropriate, recommend its extension to all rail vehicles. (35) The national safety authorities should be fully independent in their organisation, legal structure and decision-making from any railway undertaking, infrastructure manager, applicant, contracting entity or entity which awards public service contracts. They should carry out their tasks in an open and non-discriminatory way and should cooperate with the Agency to create a single European railway area and coordinate their decision-making criteria. It should be possible, where necessary, for Member States to decide to include their national safety authority within the national ministry responsible for transport matters, provided that the independence of the national safety authority is respected. In order to fulfil their tasks, the national safety authorities should have the necessary internal and external organisational capacity in terms of human and material resources. (36) The national investigating bodies play a core role in the safety investigation process. Their work is of the utmost importance in determining the causes of an accident or incident. It is therefore essential that they should possess the financial and human resources required to conduct effective and efficient investigations. The national investigating bodies should cooperate with a view to exchanging information and best practices. They should establish a programme of peer reviews in order to monitor the effectiveness of their investigations. The peer-review reports should be provided to the Agency in order to allow it to monitor the overall safety performance of the Union rail system. (37) Serious accidents on the railways are rare. However, they can have disastrous consequences and raise concern among the public about the safety performance of the Union rail system. All such accidents should therefore be investigated from a safety perspective to avoid recurrence with the results of the investigations being made publicly available. Other accidents and incidents should also be subject to safety investigations when they involve significant precursors to a serious accident. (38) A safety investigation should be kept separate from any judicial inquiry into the same incident, and those conducting it should be granted access to evidence and witnesses. It should be carried out by a permanent body that is independent of the actors in the Union rail system. The body should function in a way which avoids any conflict of interest and any possible involvement in the causes of the occurrences that are investigated. In particular, its functional independence should not be affected if it is closely linked, for organisational and legal structure purposes, to the national safety authority, the Agency or the regulator of railways. Its investigations should be carried out with as much openness as possible. For each occurrence, the investigating body should establish the relevant investigation group possessing the expertise needed to find the immediate and underlying causes. (39) An investigation after a serious accident should be carried out in such a way that all parties are given the possibility to be heard and to share the results. In particular, during the investigation, the investigating body should update the parties whom it judges as having safety-related responsibility on the progress of the investigation, and should take account of their views and opinions. This will allow the investigating body to receive any additional relevant information and to be aware of different opinions on its work so that it can complete its investigation in the most appropriate manner. Such consultation should in no case lead to apportioning blame or liability but, rather, to collecting factual evidence and learning lessons for the future improvement of safety. The investigating body should, however, be free to choose the information it intends to share with such parties in order to avoid any undue pressure, except when this is requested by those conducting the judicial procedure. The investigating body should also take account of the reasonable information needs of any victims and of their relatives. (40) In order to improve the efficiency of their activities and to facilitate the discharge of their duties, investigating bodies should have timely access to the site of an accident, where necessary in good cooperation with any judicial authority involved in the matter. The reports on investigations and any findings and recommendations provide crucial information for the further improvement of railway safety and should be made publicly available at Union level. Safety recommendations should be acted upon by the addressees and actions reported back to the investigating body. (41) In the event that the direct cause of an accident or incident seems to be related to human actions, attention should be paid to the particular circumstances and the manner in which routine activities are performed by staff during normal operations, including the design of the man-machine interface, the suitability of procedures, conflicting objectives, workload and any other circumstances which may have influence on the occurrence, including physical and work-related stress, fatigue or psychological fitness. (42) Efforts should be made to ensure that a high level of training and advanced qualifications is available across the Union. (43) In order to supplement and amend certain non-essential elements of this Directive, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in respect of CSMs and CSTs, and their revision. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council. (44) Implementing powers should be conferred on the Commission in order to ensure uniform conditions for the implementation of this Directive with regard to the mandate of the Agency to draft CSMs and CSTs and their amendments and to make the relevant recommendations to the Commission; practical arrangements for the purpose of safety certification; detailed provisions identifying which of the requirements set out in Annex III are to apply for the purpose of maintenance functions carried out by maintenance workshops, including detailed provisions to ensure the uniform implementation of certification of maintenance workshops, in compliance with the relevant CSM and TSIs; detailed provisions identifying which of the requirements set out in Annex III are to apply for the purpose of certification of entities in charge of maintenance of the vehicles other than freight wagons, on the basis of the technical characteristics of such vehicles, including detailed provisions to ensure uniform implementation of certification conditions for the entity in charge of maintenance for vehicles other than freight wagons, in compliance with the relevant CSM and TSIs and the reporting structure of the accident and incident investigation report. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (9). (45) The Member States should lay down rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and ensure that they are implemented. Those penalties should be effective, proportionate and dissuasive. (46) Since the objectives of this Directive, namely coordinating activities in the Member States in order to regulate and supervise safety, investigating accidents and establishing CSTs, CSMs, CSIs and common requirements for single safety certificates, cannot be sufficiently achieved by the Member States but can rather, by reason of their scale and effects, be better achieved at Union level, the Union may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives. (47) The obligation to transpose this Directive into national law should be confined to those provisions representing a substantive amendment as compared to Directive 2004/49/EC. The obligation to transpose the provisions that are unchanged arises under that Directive. (48) This Directive should be without prejudice to the obligation of the Member States relating to the time limits for transposition into national law of the Directives set out in Part B of Annex IV, HAVE ADOPTED THIS DIRECTIVE: CHAPTER I GENERAL PROVISIONS Article 1 Subject matter This Directive lays down provisions to ensure the development and improvement of the safety of the Union rail system and improved access to the market for rail transport services by: (a) harmonising the regulatory structure in the Member States; (b) defining responsibilities between the actors in the Union rail system; (c) developing common safety targets (‘CSTs’) and common safety methods (‘CSMs’) with a view to gradually removing the need for national rules; (d) setting out the principles for issuing, renewing, amending and restricting or revoking safety certificates and authorisations; (e) requiring the establishment, for each Member State, of a national safety authority and an accident and incident investigating body; and (f) defining common principles for the management, regulation and supervision of railway safety. Article 2 Scope 1. This Directive applies to the rail system in the Member States, which may be broken down into subsystems for structural and functional areas. It covers safety requirements for the system as a whole, including the safe management of infrastructure and of traffic operation and the interaction between railway undertakings, infrastructure managers and other actors in the Union rail system. 2. This Directive shall not apply to: (a) metros; (b) trams and light rail vehicles, and infrastructure used exclusively by those vehicles; or (c) networks that are functionally separate from the rest of the Union rail system and intended only for the operation of local, urban or suburban passenger services, as well as undertakings operating solely on those networks. 3. Member States may exclude from the scope of the measures implementing this Directive: (a) privately owned railway infrastructure, including sidings, used by the owner or by an operator for the purpose of their respective freight activities or for the transport of persons for non-commercial purposes, and vehicles used exclusively on such infrastructure; (b) infrastructure and vehicles reserved for strictly local, historical or tourist use; (c) light rail infrastructure occasionally used by heavy rail vehicles under the operational conditions of the light rail system, where it is necessary for the purposes of connectivity of those vehicles only; and (d) vehicles primarily used on light rail infrastructure but equipped with some heavy rail components necessary to enable transit to be effected on a confined and limited section of heavy rail infrastructure for connectivity purposes only. 4. Notwithstanding paragraph 2, Member States may decide to apply, where appropriate, provisions of this Directive to metros and other local systems in accordance with national law. Article 3 Definitions For the purposes of this Directive, the following definitions apply: (1) ‘Union rail system’ means the Union rail system as defined in point (1) of Article 2 of Directive (EU) 2016/797; (2) ‘infrastructure manager’ means an infrastructure manager as defined in point (2) of Article 3 of Directive 2012/34/EU of the European Parliament and of the Council (10); (3) ‘railway undertaking’ means a railway undertaking as defined in point (1) of Article 3 of Directive 2012/34/EU, and any other public or private undertaking, the activity of which is to provide transport of goods and/or passengers by rail on the basis that the undertaking is to ensure traction, including undertakings which provide traction only; (4) ‘technical specification for interoperability’ (TSI) means a specification adopted in accordance with Directive (EU) 2016/797 by which each subsystem or part of a subsystem is covered in order to meet the essential requirements and ensure the interoperability of the Union rail system; (5) ‘common safety targets’ (CSTs) means the minimum safety levels that are to be reached by the system as a whole, and where feasible, by different parts of the Union rail system (such as the conventional rail system, the high-speed rail system, long railway tunnels or lines solely used for freight transport); (6) ‘common safety methods’ (CSMs) means the methods describing the assessment of safety levels and achievement of safety targets and compliance with other safety requirements; (7) ‘national safety authority’ means the national body entrusted with the tasks regarding railway safety in accordance with this Directive or any body entrusted by several Member States with those tasks in order to ensure a unified safety regime; (8) ‘national rules’ means all binding rules adopted in a Member State, irrespective of the body issuing them, which contain railway safety or technical requirements, other than those laid down by Union or international rules, and which are applicable within that Member State to railway undertakings, infrastructure managers or third parties; (9) ‘safety management system’ means the organisation, arrangements and procedures established by an infrastructure manager or a railway undertaking to ensure the safe management of its operations; (10) ‘investigator-in-charge’ means a person responsible for the organisation, conduct and control of an investigation; (11) ‘accident’ means an unwanted or unintended sudden event or a specific chain of such events which have harmful consequences; accidents are divided into the following categories: collisions; derailments; level crossing accidents; accidents to persons involving rolling stock in motion; fires and others; (12) ‘serious accident’ means any train collision or derailment of trains resulting in the death of at least one person or serious injuries to five or more persons or extensive damage to rolling stock, the infrastructure or the environment, and any other accident with the same consequences which has an obvious impact on railway safety regulation or the management of safety; ‘extensive damage’ means damage that can be immediately assessed by the investigating body to cost at least EUR 2 million in total; (13) ‘incident’ means any occurrence, other than an accident or serious accident, affecting the safety of railway operations; (14) ‘investigation’ means a process conducted for the purpose of accident and incident prevention which includes the gathering and analysis of information, the drawing of conclusions, including the determination of causes and, when appropriate, the making of safety recommendations; (15) ‘causes’ means actions, omissions, events or conditions, or a combination thereof, which led to an accident or incident; (16) ‘light rail’ means an urban and/or suburban rail transport system with a crashworthiness of C-III or C-IV (in accordance with EN 15227:2011) and a maximum strength of vehicle of 800 kN (longitudinal compressive force in coupling area); light rail systems may have their own right of way or share it with road traffic and usually do not exchange vehicles with long-distance passenger or freight traffic; (17) ‘conformity assessment body’ means a body that has been notified or designated to be responsible for conformity assessment activities, including calibration, testing, certification and inspection; a conformity assessment body is classified as a ‘notified body’ following notification by a Member State; a conformity assessment body is classified as a ‘designated body’ following designation by a Member State; (18) ‘interoperability constituents’ means the interoperability constituents as defined in point (7) of Article 2 of Directive (EU) 2016/797; (19) ‘keeper’ means the natural or legal person that, being the owner of a vehicle or having the right to use it, exploits the vehicle as a means of transport and is registered as such in a vehicle register referred to in Article 47 of Directive (EU) 2016/797; (20) ‘entity in charge of maintenance’ (‘ECM’) means an entity in charge of the maintenance of a vehicle, and registered as such in a vehicle register referred to in Article 47 of Directive (EU) 2016/797; (21) ‘vehicle’ means a railway vehicle suitable for circulation on wheels on railway lines, with or without traction; a vehicle is composed of one or more structural and functional subsystems; (22) ‘manufacturer’ means the manufacturer as defined in point (36) of Article 2 of Directive (EU) 2016/797; (23) ‘consignor’ means an enterprise which consigns goods either on its own behalf or for a third party; (24) ‘consignee’ means any natural or legal person who receives goods pursuant to a contract of carriage; if the transport operation takes place without a contract of carriage, any natural or legal person that takes charge of the goods on arrivals shall be deemed to be the consignee; (25) ‘loader’ means an enterprise which loads packaged goods, small containers or portable tanks into or onto a wagon or a container, or which loads a container, bulk-container, multiple-element gas container, tank-container or portable tank onto a wagon; (26) ‘unloader’ means an enterprise which removes a container, bulk-container, multiple-element gas container, tank-container or portable tank from a wagon, or any enterprise which unloads packaged goods, small containers or portable tanks out of or from a wagon or a container, or any enterprise which discharges goods from a tank (tank-wagon, demountable tank, portable tank or tank-container), or from a battery-wagon or multiple-element gas container, or from a wagon, large container or small container for carriage in bulk or a bulk-container; (27) ‘filler’ means an enterprise that loads goods into a tank (including a tank-wagon, wagon with demountable tank, portable tank or tank-container), into a wagon, large container or small container for carriage in bulk, or into a battery-wagon or multiple-element gas container; (28) ‘unfiller’ means an enterprise that removes goods from a tank (including a tank-wagon, wagon with demountable tank, portable tank or tank-container), a wagon, a large container or small container for carriage in bulk, or from a battery-wagon or multiple-element gas container; (29) ‘carrier’ means an enterprise which carries out a transport operation pursuant to a contract of carriage; (30) ‘contracting entity’ means a public or private entity which orders the design and/or construction or the renewal or upgrading of a subsystem; (31) ‘type of operation’ means the type characterised by passenger transport, including or excluding high-speed services, freight transport, including or excluding dangerous goods services, and shunting services only; (32) ‘extent of operation’ means the extent characterised by the number of passengers and/or volume of goods and the estimated size of a railway undertaking in terms of number of employees working in the railway sector (i.e., as a micro, small, medium-sized or large enterprise); (33) ‘area of operation’ means a network or networks within one or more Member States where a railway undertaking intends to operate. CHAPTER II DEVELOPMENT AND MANAGEMENT OF RAILWAY SAFETY Article 4 Role of actors in the Union rail system in developing and improving railway safety 1. With the aim of developing and improving railway safety, Member States, within the limits of their competences, shall: (a) ensure that railway safety is generally maintained and, where reasonably practicable, continuously improved, taking into consideration the development of Union law and international rules and of technical and scientific progress, and giving priority to the prevention of accidents; (b) ensure that all applicable legislation is enforced in an open and non-discriminatory manner, fostering the development of a single European rail transport system; (c) ensure that measures to develop and improve railway safety take account of the need for a system-based approach; (d) ensure that the responsibility for the safe operation of the Union rail system and the control of risks associated with it is laid upon the infrastructure managers and railway undertakings, each for its part of the system, obliging them to: (i) implement necessary risk control measures as referred to in point (a) of Article 6(1), where appropriate in cooperation with each other; (ii) apply Union and national rules; (iii) establish safety management systems in accordance with this Directive; (e) without prejudice to civil liability in accordance with the legal requirements of the Member States, ensure that each infrastructure manager and each railway undertaking is made responsible for its part of the system and its safe operation, including supply of materials and contracting of services vis-à-vis users, customers, the workers concerned and other actors referred to in paragraph 4; (f) develop and publish annual safety plans setting out the measures envisaged to achieve the CSTs; and (g) where appropriate, support the Agency in its work to monitor the development of railway safety at Union level. 2. The Agency shall ensure, within the limits of its competences, that railway safety is generally maintained and, where reasonably practicable, continuously improved, taking into consideration the development of Union law and of technical and scientific progress and giving priority to the prevention of serious accidents. 3. Railway undertakings and infrastructure managers shall: (a) implement the necessary risk control measures referred to in point (a) of Article 6(1), where appropriate in cooperation with each other and with other actors; (b) take account in their safety management systems of the risks associated with the activities of other actors and third parties; (c) where appropriate, contractually oblige the other actors referred to in paragraph 4 having a potential impact on the safe operation of the Union rail system to implement risk control measures; and (d) ensure that their contractors implement risk control measures through the application of the CSMs for monitoring processes set out in the CSMs on monitoring referred to in point (c) of Article 6(1), and that this is stipulated in contractual arrangements to be disclosed on request of the Agency or of the national safety authority. 4. Without prejudice to the responsibilities of railway undertakings and infrastructure managers referred to in paragraph 3, entities in charge of maintenance and all other actors having a potential impact on the safe operation of the Union rail system, including manufacturers, maintenance suppliers, keepers, service providers, contracting entities, carriers, consignors, consignees, loaders, unloaders, fillers and unfillers, shall: (a) implement the necessary risk control measures, where appropriate in cooperation with other actors; (b) ensure that subsystems, accessories, equipment and services supplied by them comply with specified requirements and conditions for use so that they can be safely operated by the railway undertaking and/or the infrastructure manager concerned. 5. Railway undertakings, infrastructure managers and any actor referred to in paragraph 4 who identifies or is informed of a safety risk relating to defects and construction non-conformities or malfunctions of technical equipment, including those of structural subsystems, shall, within the limits of their respective competence: (a) take any necessary corrective measure to tackle the safety risk identified; (b) report those risks to the relevant parties involved, in order to enable them to take any necessary further corrective action to ensure continuous achievement of the safety performance of the Union rail system. The Agency may establish a tool that facilitates this exchange of information among the relevant actors, taking into account the privacy of the users involved, the results of a cost-benefit analysis as well as the IT applications and registers already set up by the Agency. 6. In the case of exchange of vehicles between railway undertakings, any involved actor shall exchange all information relevant to safe operation including, but not limited to, the status and history of the vehicle concerned, elements of the maintenance files for the purpose of traceability, traceability of loading operations and consignment notes. Article 5 Common safety indicators (‘CSIs’) 1. In order to facilitate assessment of the achievement of the CSTs and to provide for the monitoring of the general development of railway safety, Member States shall collect information on CSIs through the annual reports of the national safety authorities referred to in Article 19. 2. The CSIs are set out in Annex I. Article 6 Common safety methods (‘CSMs’) 1. The CSMs shall describe how the safety levels, the achievement of safety targets and compliance with other safety requirements are assessed, including, where appropriate, through an independent assessment body, by elaborating and defining: (a) the risk evaluation and assessment methods; (b) the methods for assessing conformity with requirements in safety certificates and safety authorisations issued in accordance with Articles 10 and 12; (c) the methods for supervision to be applied by national safety authorities and the methods for monitoring to be applied by railway undertakings, infrastructure managers and entities in charge of maintenance; (d) the methods for assessing the safety level and the safety performance of railway operators at national and Union level; (e) the methods for assessing the achievement of safety targets at national and Union level; and (f) any other methods covering a process of the safety management system which need to be harmonised at Union level. 2. The Commission shall, by means of implementing acts, give a mandate to the Agency to draft CSMs and amendments thereto and to make the relevant recommendations to the Commission, on the basis of a clear justification of the need for a new or amended CSM and its impact on existing rules and on the level of safety of the Union rail system. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 28(3). Where the committee referred to in Article 28 (‘the committee’) delivers no opinion, the Commission shall not adopt the draft implementing act, and the third subparagraph of Article 5(4) of Regulation (EU) No 182/2011 shall apply. The drafting, adoption and review of CSMs shall take account of the opinions of users, the national safety authorities and stakeholders, including social partners, where appropriate. The recommendations shall enclose a report on the results of that consultation and a report assessing the impact of the new or amended CSM to be adopted. 3. During the exercise of the mandate referred to in paragraph 2, the committee shall be kept systematically and regularly informed by the Agency or by the Commission of the preparatory work on the CSMs. During that work, the Commission may address to the Agency any useful recommendations concerning the CSMs and a cost-benefit analysis. In particular, the Commission may require that alternative solutions be examined by the Agency and that the assessment of the costs and benefits of those alternative solutions be set out in the report annexed to the draft CSMs. The Commission shall be assisted by the committee for the tasks mentioned in the first subparagraph. 4. The Commission shall examine the recommendation issued by the Agency with a view to verifying that the mandate referred to in paragraph 2 is fulfilled. Where the mandate is not fulfilled, the Commission shall request the Agency to review its recommendation by indicating the points of the mandate which were not fulfilled. For justified reasons, the Commission may decide to modify the mandate given to the Agency in accordance with the procedure set out in paragraph 2. The Commission shall be assisted by the committee for the tasks mentioned in the first subparagraph. 5. The CSMs shall be revised at regular intervals, taking into account the experience gained from their application and the global development of railway safety and with the objective of generally maintaining and, where reasonably practicable, continuously improving safety. 6. On the basis of the recommendation issued by the Agency and after the examination referred to in paragraph 4 of this Article, the Commission shall be empowered to adopt delegated acts in accordance with Article 27 concerning the content of CSMs, and of any amendments thereto. 7. Member States shall make any necessary amendments to their national rules in the light of the adoption of CSMs and amendments thereto without delay. Article 7 Common safety targets (‘CSTs’) 1. The CSTs shall establish the minimum safety levels to be reached by the system as a whole, and where feasible, by different parts of the rail system in each Member State and in the Union. The CSTs may be expressed in terms of risk acceptance criteria or target safety levels and shall take into consideration, in particular: (a) individual risks relating to passengers, staff including employees or contractors, level crossing users and others, and, without prejudice to existing national and international liability rules, individual risks relating to trespassers; (b) societal risks. 2. The Commission shall, by means of implementing acts, give a mandate to the Agency to draft CSTs and amendments thereto and to make the relevant recommendations to the Commission, on the basis of a clear justification of the need for a new or amended CST and its impact on existing rules. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 28(3). Where the committee delivers no opinion, the Commission shall not adopt the draft implementing act, and the third subparagraph of Article 5(4) of Regulation (EU) No 182/2011 shall apply. 3. During the exercise of the mandate referred to in paragraph 2, the committee shall be kept systematically and regularly informed by the Agency or by the Commission of the preparatory work on the CSTs. During that work, the Commission may address to the Agency any useful recommendations concerning the CSTs and a cost-benefit analysis. In particular, the Commission may require that alternative solutions be examined by the Agency and that the assessment of the cost and benefits of those alternative solutions be set out in the report annexed to the draft CSTs. The Commission shall be assisted by the committee for the tasks mentioned in the first subparagraph. 4. The Commission shall examine the recommendation issued by the Agency with a view to verifying that the mandate referred to in paragraph 2 is fulfilled. Where the mandate is not fulfilled, the Commission shall request the Agency to review its recommendation by indicating the points of the mandate which were not fulfilled. For justified reasons, the Commission may decide to modify the mandate given to the Agency in accordance with the procedure set out in paragraph 2. The Commission shall be assisted by the committee for the tasks mentioned in the first subparagraph. 5. The CSTs shall be revised at regular intervals, taking into account the global development of railway safety. The revised CSTs shall reflect any priority area where safety needs to be further improved. 6. On the basis of the recommendation issued by the Agency and after the examination referred to in paragraph 4 of this Article, the Commission shall be empowered to adopt delegated acts in accordance with Article 27 concerning the content of CSTs, and of any amendments thereto. 7. Member States shall make any necessary amendments to their national rules in order to achieve at least the CSTs, and any revised CSTs, in accordance with the implementation timetables attached to them. Those amendments shall be taken into account in the annual safety plans referred to in point (f) of Article 4(1). Member States shall notify those rules to the Commission in accordance with Article 8. Article 8 National rules in the field of safety 1. National rules notified by 15 June 2016 pursuant to Directive 2004/49/EC shall apply if they: (a) fall into one of the types identified under Annex II; and (b) comply with Union law, including in particular TSIs, CSTs and CSMs; and (c) would not result in arbitrary discrimination or a disguised restriction on rail transport operation between Member States. 2. By 16 June 2018, Member States shall review the national rules referred to in paragraph 1 and repeal: (a) any national rule which was not notified or which does not meet the criteria specified in paragraph 1; (b) any national rule which has been made redundant by Union law, including in particular TSIs, CSTs and CSMs. To that end, Member States may use the rule management tool referred to in Article 27(4) of Regulation (EU) 2016/796 and may request Agency to examine specific rules against the criteria specified in this paragraph. 3. Member States may lay down new national rules pursuant to this Directive only in the following cases: (a) where rules concerning existing safety methods are not covered by a CSM; (b) where operating rules of the railway network are not yet covered by TSIs; (c) as an urgent preventive measure, in particular following an accident or an incident; (d) where an already notified rule needs to be revised; (e) where rules concerning requirements in respect of staff executing safety-critical tasks, including selection criteria, physical and psychological fitness and vocational training are not yet covered by a TSI or by Directive 2007/59/EC of the European Parliament and of the Council (11). 4. Member States shall submit the draft of a new national rule to the Agency and the Commission for consideration in due time and within the deadlines referred to in Article 25(1) of Regulation (EU) 2016/796, before the expected introduction into the national legal system of the proposed new rule, providing justification for its introduction, through the appropriate IT system in accordance with Article 27 of Regulation (EU) 2016/796. Member States shall ensure that the draft is sufficiently developed to allow the Agency to carry out its examination in accordance with Article 25(2) of Regulation (EU) 2016/796. 5. In the case of urgent preventive measures, Member States may adopt and apply a new rule immediately. That rule shall be notified in accordance with Article 27(2) of Regulation (EU) 2016/796 and subject to the assessment of the Agency in accordance with Article 26(1), (2) and (5) of Regulation (EU) 2016/796. 6. If the Agency becomes aware of any national rule, whether notified or not, which has become redundant or is in conflict with the CSMs or any other Union law adopted after the application of the national rule concerned, the procedure provided for in Article 26 of Regulation (EU) 2016/796 shall apply. 7. Member States shall notify to the Agency and to the Commission the national rules adopted. They shall use the appropriate IT system in accordance with Article 27 of Regulation (EU) 2016/796. Member States shall ensure that existing national rules are easily accessible, in the public domain and formulated in terminology that all interested parties can understand. Member States may be requested to provide additional information on their national rules. 8. Member States may decide not to notify rules and restrictions of a strictly local nature. In such cases, Member States shall mention those rules and restrictions in the registers of infrastructure referred to in Article 49 of Directive (EU) 2016/797 or indicate in the network statement referred to in Article 27 of Directive 2012/34/EU where those rules and restrictions are published. 9. National rules notified in accordance with this Article shall not be subject to the notification procedure provided for by Directive (EU) 2015/1535 of the European Parliament and the Council (12). 10. Draft national rules and existing national rules shall be examined by the Agency in accordance with the procedures laid down in Articles 25 and 26 of Regulation (EU) 2016/796. 11. Without prejudice to paragraph 8, national rules not notified in accordance with this Article shall not apply for the purposes of this Directive. Article 9 Safety management systems 1. Infrastructure managers and railway undertakings shall establish their respective safety management systems to ensure that the Union rail system can achieve at least the CSTs, that it is in conformity with the safety requirements laid down in TSIs, and that the relevant parts of CSMs and national rules notified in accordance with Article 8 are applied. 2. The safety management system shall be documented in all relevant parts and shall in particular describe the distribution of responsibilities within the organisation of the infrastructure manager or the railway undertaking. It shall show how control is ensured by the management on different levels, how staff and their representatives on all levels are involved and how continuous improvement of the safety management system is ensured. There shall be a clear commitment to consistently apply human factors knowledge and methods. Through the safety management system, infrastructure managers and railway undertakings shall promote a culture of mutual trust, confidence and learning in which staff are encouraged to contribute to the development of safety while ensuring confidentiality. 3. The safety management system shall contain the following basic elements: (a) a safety policy approved by the organisation's chief executive and communicated to all staff; (b) qualitative and quantitative targets of the organisation for the maintenance and enhancement of safety, and plans and procedures for reaching these targets; (c) procedures to meet existing, new and altered technical and operational standards or other prescriptive conditions as laid down in TSIs, national rules referred to in Article 8 and Annex II, other relevant rules or authority decisions; (d) procedures to assure compliance with the standards and other prescriptive conditions throughout the life cycle of equipment and operations; (e) procedures and methods for identifying risks, carrying out risk evaluation and implementing risk-control measures whenever a change of operating conditions or the introduction of new material imposes new risks on the infrastructure or the man-machine-organisation interface; (f) the provision of programmes for the training of staff and systems to ensure that the staff's competence is maintained and that tasks are carried out accordingly, including arrangements with regard to physical and psychological fitness; (g) arrangements for the provision of sufficient information within the organisation and, where appropriate, between organisations of the railway system; (h) procedures and formats for the documentation of safety information and designation of procedure for the configuration control of vital safety information; (i) procedures to ensure that accidents, incidents, near misses and other dangerous occurrences are reported, investigated and analysed and that necessary preventive measures are taken; (j) the provision of actions plans, alerts and information in the event of an emergency, agreed upon with the appropriate public authorities; and (k) provisions for recurrent internal auditing of the safety management system. Infrastructure managers and railway undertakings shall include any other element necessary to cover safety risks, in accordance with the assessment of risks arising from their own activity. 4. The safety management system shall be adapted to the type, extent, area of operations and other conditions of the activity pursued. It shall ensure the control of all risks associated with the activity of the infrastructure manager or railway undertaking, including the supply of maintenance, without prejudice to Article 14, and material, and the use of contractors. Without prejudice to existing national and international liability rules, the safety management system shall also take into account, where appropriate and reasonable, the risks arising as a result of activities by other actors referred to in Article 4. 5. The safety management system of any infrastructure manager shall take into account the effects of operations by different railway undertakings on the network and shall provide for all railway undertakings to be able to operate in accordance with TSIs and national rules and with the conditions laid down in their safety certificate. Safety management systems shall be developed with the aim of coordinating the emergency procedures of the infrastructure manager with all railway undertakings that operate on its infrastructure, and with the emergency services, so as to facilitate the rapid intervention of rescue services, and with any other party that could be involved in an emergency situation. For cross-border infrastructure, the cooperation between the relevant infrastructure managers shall facilitate the necessary coordination and preparedness of the competent emergency services on both sides of the border. Following a serious accident, the railway undertaking shall provide assistance to victims helping them in complaints procedures under Union law, in particular Regulation (EC) No 1371/2007 of the European Parliament and of the Council (13), without prejudice to the obligations of other parties. Such assistance shall use channels for communicating with victims' families and include psychological support for accident victims and their families. 6. Before 31 May of each year, all infrastructure managers and railway undertakings shall submit to the national safety authority an annual safety report concerning the preceding calendar year. The safety report shall contain: (a) information on how the organisation's corporate safety targets are met and the results of safety plans; (b) an account of the development of national safety indicators, and of the CSIs referred to in Article 5, in so far as it is relevant to the reporting organisation; (c) the results of internal safety auditing; (d) observations on deficiencies and malfunctions of railway operations and infrastructure management that might be relevant for the national safety authority, including a summary of information provided by the relevant actors in accordance with point (b) of Article 4(5); and (e) a report on the application of the relevant CSMs. 7. On the basis of the information provided by the national safety authorities in accordance with Articles 17 and 19, the Agency may address a recommendation to the Commission for a CSM covering elements of the safety management system which need to be harmonised at Union level, including through harmonised standards, as referred to in point (f) of Article 6(1). In such case, Article 6(2) shall apply. CHAPTER III SAFETY CERTIFICATION AND AUTHORISATION Article 10 Single safety certificate 1. Without prejudice to paragraph 9, access to the railway infrastructure shall be granted only to railway undertakings which hold the single safety certificate issued by the Agency in accordance with paragraphs 5 to 7 or by a national safety authority in accordance with paragraph 8. The purpose of the single safety certificate is to provide evidence that the railway undertaking concerned has established its safety management system and that it is able to operate safely in the intended area of operation. 2. In its application for a single safety certificate, the railway undertaking shall specify the type and extent of the railway operations covered and the intended area of operation. 3. The application for a single safety certificate shall be accompanied by a file including documentary evidence that: (a) the railway undertaking has established its safety management system in accordance with Article 9 and that it meets the requirements laid down in TSIs, CSMs and CSTs and in other relevant legislation in order to control risks and provide transport services safely on the network; and (b) the railway undertaking, where applicable, meets the requirements laid down in the relevant national rules notified in accordance with Article 8. That application and information about all applications, the stages of the relevant procedures and their outcome, and, where applicable, the requests and decisions of the Board of Appeal, shall be submitted through the one-stop shop referred to in Article 12 of Regulation (EU) 2016/796. 4. The Agency, or in the cases provided for by paragraph 8 the national safety authority, shall issue the single safety certificate, or inform the applicant of its negative decision, within a predetermined and reasonable time, and, in any case, not more than 4 months after all information required and any supplementary information requested have been submitted by the applicant. The Agency, or in the cases provided for by paragraph 8 the national safety authority, shall apply the practical arrangements on the certification procedure to be established in an implementing act, as referred to in paragraph 10. 5. The Agency shall issue a single safety certificate to railway undertakings having an area of operation in one or more Member States. In order to issue such a certificate, the Agency shall: (a) assess the elements set out in point (a) of paragraph 3; and (b) immediately refer the railway undertaking's file in its entirety to the national safety authorities concerned by the intended area of operation for an assessment of the elements set out in point (b) of paragraph 3. As part of the above assessments, the Agency or the national safety authorities shall be authorised to undertake visits and inspections on the sites of the railway undertaking and audits, and may request relevant supplementary information. The Agency and the national safety authorities shall coordinate the organisation of such visits, audits and inspections. 6. Within 1 month of receipt of an application for a single safety certificate, the Agency shall inform the railway undertaking that the file is complete or ask for relevant supplementary information, setting a reasonable deadline for the provision thereof. With regard to the completeness, relevance and consistency of the file, the Agency may also assess the elements set out in point (b) of paragraph 3. The Agency shall take full account of the assessments under paragraph 5 before taking its decision on the issuing of the single safety certificate. The Agency shall take full responsibility for any single safety certificates it issues. 7. Where the Agency disagrees with a negative assessment carried out by one or more national safety authorities pursuant to point (b) of paragraph 5, it shall inform that authority or authorities in question, giving reasons for its disagreement. The Agency and the national safety authority or authorities shall cooperate with a view to agreeing on a mutually acceptable assessment. Where necessary, the Agency and the national safety authority or authorities may decide to involve the railway undertaking. If no mutually acceptable assessment can be agreed on within 1 month after the Agency has informed the national safety authority or authorities of its disagreement, the Agency shall take its final decision unless the national safety authority or authorities have referred the matter for arbitration to the Board of Appeal established under Article 55 of Regulation (EU) 2016/796. The Board of Appeal shall decide whether to confirm the Agency's draft decision within 1 month of the request of the national safety authority or authorities. Where the Board of Appeal agrees with the Agency, the Agency shall take a decision without delay. Where the Board of Appeal agrees with the negative assessment of the national safety authority, the Agency shall grant a single safety certificate with an area of operations excluding the parts of the network which received a negative assessment. Where the Agency disagrees with a positive assessment of one or more national safety authorities pursuant to point (b) of paragraph 5, it shall inform the authority or authorities in question, giving reasons for its disagreement. The Agency and the national safety authority or authorities shall cooperate with a view to agreeing on a mutually acceptable assessment. Where necessary, the Agency and the national safety authority or authorities may decide to involve the applicant. If no mutually acceptable assessment can be agreed on within 1 month after the Agency has informed the national safety authority or authorities of its disagreement, the Agency shall take its final decision. 8. Where the area of operation is limited to one Member State, the national safety authority of that Member State may, under its own responsibility and when the applicant so requests, issue a single safety certificate. In order to issue such certificates, the national safety authority shall assess the file in relation to all the elements specified in paragraph 3 and shall apply the practical arrangements to be established in the implementing acts referred to in paragraph 10. As part of the above assessments, the national safety authority shall be authorised to undertake visits and inspections on the sites of the railway undertaking and audits. Within 1 month of receipt of the application, the national safety authority shall inform the applicant that the file is complete or ask for relevant supplementary information. The single safety certificate shall also be valid without an extension of the area of operations for railway undertakings travelling to stations in neighbouring Member States with similar network characteristics and similar operating rules, when those stations are close to the border, following consultation of the competent national safety authorities. This consultation may be carried out on a case-by-case basis or set out in a cross-border agreement between Member States or national safety authorities. The national safety authority shall take full responsibility for any single safety certificates it issues. 9. A Member State may allow third-country operators to reach a station in its territory designated for cross-border operations and close to the border of that Member State without requiring a single safety certificate, provided that an appropriate level of safety is ensured through: (a) cross-border agreement between the Member State concerned and the neighbouring third country; or (b) contractual arrangements between the third-country operator and the railway undertaking or infrastructure manager that has a single safety certificate or safety authorisation to operate on that network, provided that the safety-related aspects of those arrangements have been duly reflected in their safety management system. 10. By 16 June 2018, the Commission shall adopt, by means of implementing acts, practical arrangements specifying: (a) how the requirements for the single safety certificate laid down in this Article shall be fulfilled by the applicant and listing the documents required; (b) the details of the certification process, such as procedural stages and timeframes for each stage of the process; (c) how the requirements laid down in this Article shall to be complied with by the Agency and the national safety authority through the different stages of the application and certification process, including in the assessment of applicants' files; and (d) the period of validity of single safety certificates issued by the Agency or by the national safety authorities, in particular in the case of updates of any single safety certificate resulting from changes to type, extent and area of operation. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 28(3). They shall take into account the experience gained during the implementation of Commission Regulation (EC) No 653/2007 (14) and of Commission Regulation (EU) No 1158/2010 (15) and the experience gained during the preparation of the cooperation agreements referred to in Article 11(1). 11. Single safety certificates shall specify the type and extent of the railway operations covered and the area of operation. A single safety certificate may also cover sidings owned by the railway undertaking if these are included in its safety management system. 12. Any decision refusing the issuing of a single safety certificate or excluding part of the network in accordance with a negative assessment as referred to in paragraph 7 shall be duly substantiated. The applicant may, within 1 month of receipt of the decision, request that the Agency or the national safety authority, as appropriate, review the decision. The Agency or the national safety authority shall have 2 months from the date of receipt of the request for review in which to confirm or reverse its decision. If the negative decision of the Agency is confirmed, the applicant may bring an appeal before the Board of Appeal designated under Article 55 of Regulation (EU) 2016/796. If the negative decision of a national safety authority is confirmed, the applicant may bring an appeal before an appeal body in accordance with national law. Member States may designate the regulatory body referred to in Article 56 of Directive 2012/34/EU for the purpose of this appeal procedure. In that case, Article 18(3) of this Directive shall apply. 13. A single safety certificate issued either by the Agency or by a national safety authority under this Article shall be renewed upon application by the railway undertaking at intervals not exceeding 5 years. It shall be fully or partly updated whenever the type or extent of the operation is substantially altered. 14. Where an applicant already has a single safety certificate issued in accordance with paragraphs 5 to 7 and wishes to extend its area of operations, or where it already has a single safety certificate issued in accordance with paragraph 8 and wishes to extend its area of operations to another Member State, it shall supplement the file with the relevant documents referred to in paragraph 3 concerning the additional area of operation. The railway undertaking shall submit the file to the Agency, which shall, after following the procedures laid down in paragraphs 4 to 7, issue an updated single safety certificate covering the extended area of operation. In that case, only the national safety authorities concerned by the extension of operation shall be consulted for the purposes of assessing the file as provided for in point (b) of paragraph 3. If the railway undertaking has a single safety certificate in accordance with paragraph 8 and wishes to extend the area of operation within that Member State, it shall supplement the file with the relevant documents referred to in paragraph 3 concerning the additional area of operation. It shall submit the file, through the one-stop shop referred to in Article 12 of Regulation (EU) 2016/796, to the national safety authority, which shall, after following the procedures laid down in paragraph 8, issue an updated single safety certificate covering the extended area of operation. 15. The Agency and the competent national safety authorities may require the revision of single safety certificates issued by them following substantial changes to the safety regulatory framework. 16. The Agency shall inform the competent national safety authorities without delay, and in any case within 2 weeks, of the issue of a single safety certificate. The Agency shall inform the competent national safety authorities immediately in the case of renewal, amendment or revocation of a single safety certificate. It shall state the name and address of the railway undertaking, the issue date, the type, extent, validity and area of operation of the single safety certificate and, in the case of revocation, the reasons for its decision. In the case of single safety certificates issued by national safety authorities, the same information shall be provided by the competent national safety authority or authorities to the Agency within the same timeframe. Article 11 Cooperation between the Agency and national safety authorities on issuing single safety certificates 1. For the purposes of Article 10(5) and (6) of this Directive, the Agency and the national safety authorities shall conclude cooperation agreements in accordance with Article 76 of Regulation (EU) 2016/796. The cooperation agreements shall be specific or framework agreements, and shall involve one or more national safety authorities. The cooperation agreements shall contain a detailed description of tasks and conditions for deliverables, the time limits applying to their delivery and an apportionment of the fees payable by the applicant. 2. The cooperation agreements may also include specific cooperation arrangements in the case of networks requiring specific expertise for geographical or historical reasons, with a view to reducing administrative burdens and costs to the applicant. Where such networks are isolated from the rest of the Union rail system, such specific cooperation arrangements may include the possibility of contracting tasks to the relevant national safety authorities when this is necessary in order to ensure efficient and proportionate allocation of resources for certification. Those cooperation agreements shall be in place before the Agency carries out the certification tasks in accordance with Article 31(3). 3. In the case of those Member States whose rail networks have a track gauge that is different from that of the main rail network within the Union and share identical technical and operational requirements with neighbouring third countries, in addition to the cooperation agreements referred to in paragraph 2 all the national safety authorities concerned in those Member States shall conclude with the Agency a multilateral agreement which shall include the conditions to facilitate the extension of the area of operation of safety certificates in the Member States concerned, where relevant. Article 12 Safety authorisation of infrastructure managers 1. In order to be allowed to manage and operate a rail infrastructure, the infrastructure manager shall obtain a safety authorisation from the national safety authority in the Member State where the rail infrastructure is located. The safety authorisation shall comprise an authorisation confirming acceptance of the infrastructure manager's safety management system as provided for in Article 9, and shall include the procedures and provisions fulfilling the requirements necessary for the safe design, maintenance and operation of the railway infrastructure, including, where appropriate, the maintenance and operation of the traffic control and signalling system. The national safety authority shall explain the requirements for the safety authorisations and the documents required, where appropriate in the form of an application guidance document. 2. The safety authorisation shall be valid for 5 years and may be renewed upon application by the infrastructure manager. It shall be wholly or partly revised whenever substantial changes are made to the infrastructure, signalling or energy subsystems or to the principles of their operation and maintenance. The infrastructure manager shall inform the national safety authority of all such changes without delay. The national safety authority may require that the safety authorisation be revised following substantial changes to the safety regulatory framework. 3. The national safety authority shall take a decision on an application for safety authorisation without delay and in any event not more than 4 months after all the information required and any supplementary information requested has been submitted by the applicant. 4. The national safety authority shall inform the Agency without delay, and in any event within 2 weeks, of the safety authorisations that have been issued, renewed, amended or revoked. It shall state the name and address of the infrastructure manager, the issue date, scope and period of validity of the safety authorisation and, in the event of revocation, the reasons for its decision. 5. In the case of cross-border infrastructure, the competent national safety authorities shall cooperate in order to issue the safety authorisations. Article 13 Access to training facilities 1. Member States shall ensure that railway undertakings and infrastructure managers and their staff performing safety-critical tasks have fair and non-discriminatory access to training facilities for train drivers and staff accompanying trains, whenever such training is necessary for operating services on their network. The training services shall include training on necessary route knowledge, operating rules and procedures, the signalling and control-command system and emergency procedures applied on the routes operated. If the training services do not include examinations and granting of certificates, Member States shall ensure that staff of railway undertakings and infrastructure managers have access to such certificates. The national safety authority shall ensure that the training services meet the requirements laid down respectively in Directive 2007/59/EC, in TSIs or in the national rules referred to in point (e) of Article 8(3) of this Directive. 2. If the training facilities are available only through a single railway undertaking or the infrastructure manager, Member States shall ensure that they are made available to other railway undertakings at a reasonable and non-discriminatory price which is cost-related and which may include a profit margin. 3. When recruiting new train drivers, staff on board trains and staff performing safety-critical tasks, railway undertakings may take into account any training, qualifications and experience acquired previously from other railway undertakings. For that purpose, such members of staff shall be entitled to have access to, obtain copies of, and communicate all documents attesting to their training, qualifications and experience. 4. Railway undertakings and infrastructure managers shall be responsible for the level of training and qualifications of their staff carrying out safety-critical work. Article 14 Maintenance of vehicles 1. Each vehicle, before it is being used on the network, shall have an entity in charge of maintenance assigned to it and this entity shall be registered in the vehicle register in accordance with Article 47 of Directive (EU) 2016/797. 2. Without prejudice to the responsibility of the railway undertakings and infrastructure managers for the safe operation of a train as provided for in Article 4, the entity in charge of maintenance shall ensure that the vehicles for the maintenance of which it is in charge are in a safe state of running. To that end, the entity in charge of maintenance shall establish a maintenance system for those vehicles and shall by means of that system: (a) ensure that vehicles are maintained in accordance with the maintenance file of each vehicle and the requirements in force, including maintenance rules and relevant TSI provisions; (b) implement the necessary risk evaluation and assessment methods established in the CSMs as referred to in point (a) of Article 6(1), where appropriate in cooperation with other actors; (c) ensure that its contractors implement risk control measures through the application of the CSM on monitoring referred to in point (c) of Article 6(1) and that this is stipulated in contractual arrangements to be disclosed on request of the Agency or the national safety authority; and (d) ensure the traceability of the maintenance activities. 3. The maintenance system shall be composed of the following functions: (a) a management function to supervise and coordinate the maintenance functions referred to in points (b) to (d) and to ensure the safe state of the vehicle in the railway system; (b) a maintenance development function responsible to manage the maintenance documentation, including the configuration management, based on design and operational data as well as on performance and return on experience; (c) a fleet-maintenance management function to manage the vehicle's removal for maintenance and its return to operation after maintenance; (d) a maintenance delivery function to deliver the required technical maintenance of a vehicle or parts of it, including the release to service documentation. The entity in charge of maintenance shall carry out the management function itself, but may outsource the maintenance functions referred to in points (b) to (d), or parts thereof, to other contracting parties such as maintenance workshops. The entity in charge of maintenance shall ensure that all the functions set out in points (a) to (d) comply with the requirements and assessment criteria set out in Annex III. Maintenance workshops shall apply relevant sections of Annex III as identified in the implementing acts adopted pursuant to point (a) of paragraph 8, which correspond to the functions and activities to be certified. 4. In the case of freight wagons, and after the adoption of the implementing acts referred to in point (b) of paragraph 8 in the case of other vehicles, each entity in charge of maintenance shall be certified and be awarded an entity in charge of maintenance certificate (ECM certificate) by an accredited or recognised body or by a national safety authority in accordance with the following conditions: (a) the accreditation and recognition processes of certification processes shall be based on criteria of independence, competence and impartiality; (b) the system of certification shall provide evidence that an entity in charge of maintenance has established the maintenance system to ensure the safe state of running of any vehicle for which it is in charge of maintenance; (c) the ECM certification shall be based on an assessment of the ability of the entity in charge of maintenance to meet the relevant requirements and assessment criteria set out in Annex III and to apply them consistently. It shall include a system of surveillance to ensure continuing compliance with those requirements and assessment criteria after award of the ECM certificate; (d) the certification of maintenance workshops shall be based on the compliance with the relevant sections in Annex III applied to the corresponding functions and activities to be certified. Where the entity in charge of maintenance is a railway undertaking or an infrastructure manager, compliance with the conditions set out in the first subparagraph may be checked by the national safety authority pursuant to the procedures referred to in Article 10 or 12 and may be confirmed on the certificates issued in accordance with those procedures. 5. The certificates issued in accordance with paragraph 4 shall be valid throughout the Union. 6. On the basis of the recommendation of the Agency, the Commission shall, by means of implementing acts, adopt detailed provisions on the certification conditions referred to in the first subparagraph of paragraph 4 for the entity in charge of maintenance of freight wagons, including the requirements set out in Annex III in compliance with the relevant CSM and TSIs, and, when necessary, shall amend those provisions. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 28(3). The certification system applicable to freight wagons adopted by Commission Regulation (EU) No 445/2011 (16) shall continue to apply until the implementing acts referred to in this paragraph apply. 7. By 16 June 2018, the Agency shall evaluate the system of certification of the entity in charge of maintenance for freight wagons, consider the expediency of extending that system to all vehicles and the mandatory certification of maintenance workshops and submit its report to the Commission. 8. On the basis of the evaluation carried out by the Agency pursuant to paragraph 7, the Commission shall, by means of implementing acts, adopt, if appropriate, and, when necessary, subsequently amend detailed provisions identifying which of the requirements set out in Annex III shall apply for the purpose of: (a) maintenance functions carried out by maintenance workshops, including detailed provisions to ensure the uniform implementation of the certification of maintenance workshops, in compliance with the relevant CSM and TSIs; (b) the certification of entities in charge of maintenance of vehicles other than freight wagons, on the basis of the technical characteristics of such vehicles, including detailed provisions to ensure the uniform implementation of the certification conditions by the entity in charge of maintenance for vehicles other than freight wagons, in compliance with the relevant CSM and TSIs. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 28(3). Article 15 Derogations from the system of certification of entities in charge of maintenance 1. Member States may fulfil the obligation to identify the entity in charge of maintenance through alternative measures with respect to the maintenance system established in Article 14, in the following cases: (a) vehicles registered in a third country and maintained in accordance with the law of that country; (b) vehicles used on networks or lines the track gauge of which is different from that of the main rail network within the Union and in respect of which fulfilment of the requirements laid down in Article 14(2) is ensured by international agreements with third countries; (c) freight wagons and passenger coaches which are in shared use with third countries the track gauge of which is different from that of the main rail network within the Union; (d) vehicles used on the networks referred to in Article 2(3), and military equipment and special transport requiring an ad hoc national safety authority permit to be delivered prior to their entry into service. In this case derogations shall be granted for periods not longer than 5 years. 2. The alternative measures referred to in paragraph 1 shall be implemented through derogations to be granted by the relevant national safety authority or by the Agency when: (a) registering vehicles pursuant to Article 47 of Directive (EU) 2016/797, as far as the identification of the entity in charge of maintenance is concerned; (b) delivering single safety certificates and safety authorisations to railway undertakings and infrastructure managers pursuant to Articles 10 and 12 of this Directive, as far as the identification or certification of the entity in charge of maintenance is concerned. 3. Derogations shall be identified and justified in the annual report referred to in Article 19. Where it appears that undue safety risks are being taken on the Union rail system, the Agency shall immediately inform the Commission thereof. The Commission shall make contact with the parties concerned and, where appropriate, request the Member State concerned to withdraw its derogation decision. CHAPTER IV NATIONAL SAFETY AUTHORITIES Article 16 Tasks 1. Each Member State shall establish a national safety authority. Member States shall ensure that the national safety authority has the necessary internal and external organisational capacity in terms of human and material resources. That authority shall be independent in its organisation, legal structure and decision-making from any railway undertaking, infrastructure manager, applicant or contracting entity and from any entity awarding public service contracts. Provided that such independence is guaranteed, that authority may be a department within the national ministry responsible for transport matters. 2. The national safety authority shall be entrusted with at least the following tasks: (a) authorising the placing in service of the trackside control-command and signalling, energy and infrastructure subsystems constituting the Union rail system in accordance with Article 18(2) of Directive (EU) 2016/797; (b) issuing, renewing, amending and revoking vehicle authorisations for placing on the market in accordance with Article 21(8) of Directive (EU) 2016/797; (c) supporting the Agency in the issuing, renewal, amendment and revocation of vehicle authorisations for placing on the market in accordance with Article 21(5) of Directive (EU) 2016/797 and type authorisations of vehicle in accordance with Article 24 of Directive (EU) 2016/797; (d) supervising, in its territory, that interoperability constituents are in compliance with the essential requirements as required by Article 8 of Directive (EU) 2016/797; (e) ensuring that a vehicle number has been assigned in accordance with Article 46 of Directive (EU) 2016/797, without prejudice to Article 47(4) of that Directive; (f) supporting the Agency in the issuing, renewal, amendment and revocation of single safety certificates granted in accordance with Article 10(5); (g) issuing, renewing, amending and revoking single safety certificates granted in accordance with Article 10(8); (h) issuing, renewing, amending and revoking safety authorisations granted in accordance with Article 12; (i) monitoring, promoting, and, where appropriate, enforcing and updating the safety regulatory framework including the system of national rules; (j) supervising railway undertakings and infrastructure managers in accordance with Article 17; (k) where relevant, and in accordance with national law, issuing, renewing, amending and revoking train driving licences in accordance with Directive 2007/59/EC; (l) where relevant, and in accordance with national law, issuing, renewing, amending and revoking certificates granted to entities in charge of maintenance. 3. The tasks referred to in paragraph 2 may not be transferred or subcontracted to any infrastructure manager, railway undertaking or contracting entity. Article 17 Supervision 1. National safety authorities shall oversee continued compliance with the legal obligation incumbent on railway undertakings and infrastructure managers to use a safety management system as referred to in Article 9. For that purpose, the national safety authorities shall apply the principles set out in the relevant CSMs for supervision referred to in point (c) of Article 6(1), ensuring that supervision activities include, in particular, checking the application by railway undertakings and infrastructure managers of: (a) the safety management system to monitor its effectiveness; (b) the individual or partial elements of the safety management system, including operational activities, the supply of maintenance and material and the use of contractors to monitor their effectiveness; and (c) the relevant CSMs referred to in Article 6. The supervision activities relating to this point shall also apply to entities in charge of maintenance, where appropriate. 2. Railway undertakings shall inform the relevant national safety authorities at least 2 months before starting any new rail transport operation, in order to allow the latter to plan the supervision activities. Railway undertakings shall also provide a breakdown of the categories of staff and the types of vehicles. 3. The holder of a single safety certificate shall inform the competent national safety authorities without delay of any major changes to the information referred to in paragraph 2. 4. The monitoring of compliance with applicable working, driving and rest-time rules for train drivers shall be ensured by competent authorities designated by Member States. Where the monitoring of compliance is not ensured by national safety authorities, the competent authorities shall cooperate with the national safety authorities with a view to allowing the national safety authorities to fulfil their role of supervision of railway safety. 5. If a national safety authority finds that a holder of a single safety certificate no longer satisfies the conditions for certification, it shall ask the Agency to restrict or revoke that certificate. The Agency shall immediately inform all the competent national safety authorities. If the Agency decides to restrict or revoke the single safety certificate, it shall give reasons for its decision. In the event of disagreement between the Agency and the national safety authority, the arbitration procedure indicated in Article 10(7) shall apply. If the result of that arbitration procedure is that the single safety certificate is to be neither restricted nor revoked, the temporary safety measures referred to in paragraph 6 of this Article shall be suspended. Where the national safety authority has itself issued the single safety certificate in accordance with Article 10(8), it may restrict or revoke the certificate, giving reasons for its decision, and shall inform the Agency. The holder of a single safety certificate whose certificate has been restricted or revoked either by the Agency or by the national safety authority shall have the right to appeal in accordance with Article 10(12). 6. If, during supervision, a national safety authority identifies a serious safety risk, it may at any time apply temporary safety measures, including immediately restricting or suspending the relevant operations. If the single safety certificate was issued by the Agency, the national safety authority shall immediately inform the Agency thereof and provide supporting evidence for its decision. If the Agency finds that the holder of a single safety certificate no longer satisfies the conditions for certification, it shall immediately restrict or revoke that certificate. If the Agency finds that the measures applied by the national safety authority are disproportionate, it may ask the national safety authority to withdraw or adapt those measures. The Agency and the national safety authority shall cooperate with a view to reaching a mutually acceptable solution. Where necessary, this process shall also involve the railway undertaking. If the latter procedure fails, the decision of the national safety authority to apply temporary measures shall remain in force. The decision of the national safety authority relating to temporary safety measures shall be subject to national judicial review as referred to in Article 18(3). In such a case, the temporary safety measures may apply until the end of the judicial review, without prejudice to paragraph 5. If the duration of a temporary measure is longer than 3 months, the national safety authority shall ask the Agency to restrict or revoke the single safety certificate and the procedure set out in paragraph 5 shall apply. 7. The national safety authority shall supervise the trackside, control-command and signalling, energy and infrastructure subsystems and ensure that they are in compliance with the essential requirements. In the case of cross-border infrastructures, it will perform its activities of supervision in cooperation with other relevant national safety authorities. If the national safety authority finds that an infrastructure manager no longer satisfies the conditions for its safety authorisation, it shall restrict or revoke that authorisation, giving reasons for its decision. 8. When supervising the effectiveness of the safety management systems of infrastructure managers and railway undertakings, the national safety authorities may take into account the safety performance of actors as referred to in Article 4(4) of this Directive, and, where appropriate, the training centres referred to in Directive 2007/59/EC as long as their activities have an impact on railway safety. This paragraph applies without prejudice to the responsibility of the railway undertakings and infrastructure managers referred to in Article 4(3) of this Directive. 9. The national safety authorities of Member States where a railway undertaking operates shall cooperate in coordinating their supervision activities concerning that railway undertaking to ensure that any key information on the specific railway undertaking is shared, particularly on known risks and its safety performance. The national safety authority shall also share information with other relevant national safety authorities and the Agency if it finds that the railway undertaking is not taking the necessary risk control measures. That cooperation shall ensure that the supervision has sufficient coverage and that the duplication of inspections and audits is avoided. The national safety authorities may develop a common supervision plan in order to ensure that audits and other inspections are carried out periodically, taking into account the type and extent of transport operations in each of the Member States concerned. The Agency shall assist such coordination activities by developing guidelines. 10. National safety authorities may address notices to warn infrastructure managers and railway undertakings in cases of non-compliance with their obligations set out in paragraph 1. 11. National safety authorities shall use information gathered by the Agency during the assessment of the file referred to in point (a) of Article 10(5) for the purposes of supervision of a railway undertaking after issuing its single safety certificate. They shall use the information gathered during the process of safety authorisation in accordance with Article 12 for the purposes of supervision of the infrastructure manager. 12. For the purpose of renewing single safety certificates, the Agency, or the competent national safety authorities in the case of a safety certificate issued in accordance with Article 10(8), shall use information gathered during the supervision activities. For the purpose of renewing safety authorisations, the national safety authority shall also use information gathered during its supervision activities. 13. The Agency and the national safety authorities shall make the necessary arrangements to coordinate and ensure the full exchange of information referred to in paragraphs 10, 11 and 12. Article 18 Decision-making principles 1. The Agency, when considering applications for a single safety certificate in accordance with Article 10(1), and the national safety authorities shall carry out their tasks in an open, non-discriminatory and transparent way. In particular, they shall allow all interested parties to be heard and give reasons for their decisions. They shall promptly respond to requests and applications and communicate their requests for information without delay and adopt all their decisions within 4 months after all relevant information has been provided by the applicant. They may at any time request the technical assistance of infrastructure managers and railway undertakings or other qualified bodies when they are carrying out the tasks referred to in Article 16. In the process of developing the national regulatory framework, the national safety authorities shall consult all actors and interested parties, including infrastructure managers, railway undertakings, manufacturers and maintenance providers, users and staff representatives. 2. The national safety authorities shall be free to carry out all inspections, audits and investigations that are needed for the accomplishment of their tasks, and they shall be granted access to all relevant documents and to premises, installations and equipment of infrastructure managers and railway undertakings and, where necessary, of any actor referred to in Article 4. The Agency shall have the same rights in relation to railway undertakings when it carries out its safety certification tasks in accordance with Article 10(5). 3. Member States shall take the measures necessary to ensure that decisions taken by the national safety authorities are subject to judicial review. 4. The national safety authorities shall conduct an active exchange of views and experience, in particular within the network established by the Agency in order to harmonise their decision-making criteria across the Union. Article 19 Annual report National safety authorities shall publish an annual report concerning their activities in the preceding year and send them to the Agency by 30 September. The report shall contain information on: (a) the development of railway safety, including an aggregation at Member State level of the CSIs, in accordance with Article 5(1); (b) important changes in legislation and regulation concerning railway safety; (c) the development of safety certification and safety authorisation; (d) the results of, and experience relating to, the supervision of infrastructure managers and railway undertakings, including the number and outcome of inspections and audits; (e) the derogations decided in accordance with Article 15; and (f) the experience of the railway undertakings and infrastructure managers on the application of the relevant CSMs. CHAPTER V ACCIDENT AND INCIDENT INVESTIGATION Article 20 Obligation to investigate 1. Member States shall ensure that an investigation is carried out by the investigating body referred to in Article 22 after any serious accident on the Union rail system. The objective of the investigation shall be to improve, where possible, railway safety and the prevention of accidents. 2. The investigating body referred to in Article 22 may also investigate those accidents and incidents which under slightly different conditions might have led to serious accidents, including technical failures of the structural subsystems or of interoperability constituents of the Union rail system. The investigating body may decide whether or not an investigation of such an accident or incident is to be undertaken. In making its decision it shall take into account: (a) the seriousness of the accident or incident; (b) whether it forms part of a series of accidents or incidents relevant to the system as a whole; (c) its impact on railway safety; and (d) requests from infrastructure managers, railway undertakings, the national safety authority or the Member States. 3. The extent of investigations and the procedure to be followed in carrying out investigations shall be determined by the investigating body, taking into account Articles 21 and 23 and depending on the lessons it expects to draw from the accident or incident for the improvement of safety. 4. The investigation shall in no case be concerned with apportioning blame or liability. Article 21 Status of investigation 1. Member States shall define, within the framework of their respective legal system, the legal status of the investigation that is to enable the investigators-in-charge to carry out their task in the most efficient way and within the shortest time. 2. In accordance with their national legislation, Member States shall ensure full cooperation by the authorities responsible for any judicial inquiry, and shall ensure that the investigators are given access as soon as possible to information and evidence relevant for the investigation. In particular, they shall be granted: (a) immediate access to the site of the accident or incident as well as to the rolling stock involved, the related infrastructure and traffic control and signalling installations; (b) the right to an immediate listing of evidence and controlled removal of wreckage, infrastructure installations or components for examination or analysis purposes; (c) unrestricted access to, and use of, the contents of on-board recorders and equipment for the recording of verbal messages and registration of the operation of the signalling and traffic control system; (d) access to the results of examination of the bodies of victims; (e) access to the results of examinations of the train staff and other railway staff involved in the accident or incident; (f) the opportunity to question the railway staff involved in the accident or incident and other witnesses; and (g) access to any relevant information or records held by the infrastructure manager, railway undertakings, entities in charge of maintenance and national safety authority concerned. 3. The Agency shall cooperate with the investigating body when the investigation involves vehicles authorised by the Agency or railway undertakings certified by the Agency. It shall as soon as possible submit all requested information or records to the investigating body and provide explanations, where requested. 4. The investigation shall be carried out independently of any judicial inquiry. Article 22 Investigating body 1. Each Member State shall ensure that investigations of the accidents and incidents referred to in Article 20 are conducted by a permanent body, which shall comprise at least one investigator able to perform the function of investigator-in-charge in the event of an accident or incident. That body shall be independent in its organisation, legal structure and decision-making from any infrastructure manager, railway undertaking, charging body, allocation body and conformity assessment body and from any party whose interests could conflict with the tasks entrusted to the investigating body. It shall, furthermore, be functionally independent from the national safety authority, from the Agency and from any regulator of railways. 2. The investigating body shall perform its tasks independently of the other entities referred to in paragraph 1 and shall be able to obtain sufficient resources to do so. Its investigators shall be afforded status giving them the necessary guarantees of independence. 3. Member States shall provide for railway undertakings, infrastructure managers and, where appropriate, the national safety authority to be obliged to immediately notify the accidents and incidents referred to in Article 20 to the investigating body and to provide all available information. Where appropriate, this notification shall be updated as soon as any missing information becomes available. The investigating body shall decide, without delay and in any event no later than 2 months after receipt of the notification concerning the accident or incident, whether or not to start the investigation. 4. The investigating body may combine its tasks under this Directive with the work of investigating occurrences other than railway accidents and incidents as long as such other investigations do not endanger its independence. 5. If necessary, and provided it does not undermine the independence of the investigating body as provided for in paragraph 1, the investigating body may request the assistance of investigating bodies from other Member States or from the Agency to supply expertise or to carry out technical inspections, analyses or evaluations. 6. Member States may entrust the investigating body with the task of carrying out investigations of railway accidents and incidents other than those referred to in Article 20. 7. The investigating bodies shall conduct an active exchange of views and experience for the purposes of the development of common investigation methods, drawing up common principles for follow up of safety recommendations and adaptation to the development of technical and scientific progress. Without prejudice to paragraph 1, the Agency shall support the investigating bodies in the performance of this task in accordance with Article 38(2) of Regulation (EU) 2016/796. The investigating bodies, with the support of the Agency in accordance with Article 38(2) of Regulation (EU) 2016/796, shall establish a programme of peer reviews where all investigating bodies are encouraged to participate so as to monitor their effectiveness and independence. The investigating bodies, with the support of the secretariat referred to in Article 38(2) of Regulation (EU) 2016/796, shall publish: (a) the common peer-review programme and the review criteria; and (b) an annual report on the programme, highlighting identified strengths and suggestions for improvements. The peer review reports shall be provided to all investigating bodies and to the Agency. Those reports shall be published on a voluntary basis. Article 23 Investigation procedure 1. An accident or incident referred to in Article 20 shall be investigated by the investigating body of the Member State in which it occurred. If it is not possible to establish in which Member State it occurred or if it occurred on or close to a border installation between two Member States, the relevant investigating bodies shall agree which of them is to carry out the investigation or agree to carry it out in cooperation with each other. The other investigating body shall, in the first case, be allowed to participate in the investigation and fully share its results. Investigating bodies from other Member States shall be invited, if appropriate, to participate in an investigation where: (a) a railway undertaking established and licensed in one of those Member States is involved in the accident or incident; or (b) a vehicle registered or maintained in one of those Member States is involved in the accident or incident. Investigating bodies from invited Member States shall be provided with the powers necessary to enable them, when requested, to assist in the collection of evidence for another Member State's investigating body. Investigating bodies from invited Member States shall be provided with access to the information and evidence necessary to enable them to participate effectively in the investigation with due respect for national laws relating to judicial proceedings. This paragraph shall not preclude Member States from agreeing that the relevant bodies shall carry out investigations in cooperation with each other in other circumstances. 2. For each accident or incident the body responsible for the investigation shall arrange for the appropriate means, comprising the necessary operational and technical expertise, to carry out the investigation. The expertise may be obtained from inside or outside the body, depending on the character of the accident or incident to be investigated. 3. The investigation shall be carried out with as much openness as possible, so that all parties can be heard and can share the results. The relevant infrastructure manager and railway undertakings, the national safety authority, the Agency, victims and their relatives, owners of damaged property, manufacturers, the emergency services involved and representatives of staff and users shall be given an opportunity to provide relevant technical information in order to improve the quality of the investigation report. The investigating body shall also take account of the reasonable needs of the victims and their relatives and keep them informed of the progress made in the investigation. 4. The investigating body shall conclude its examinations at the accident site in the shortest possible time in order to enable the infrastructure manager to restore the infrastructure and open it to rail transport services as soon as possible. Article 24 Reports 1. An investigation of an accident or incident referred to in Article 20 shall be the subject of reports in a form appropriate to the type and seriousness of the accident or incident and the relevance of the investigation findings. The reports shall state the objectives of the investigations as referred to in Article 20(1) and shall contain, where appropriate, safety recommendations. 2. The investigating body shall make public the final report in the shortest possible time and normally not later than 12 months after the date of the occurrence. If the final report cannot be made public within 12 months, the investigating body shall release an interim statement at least on each anniversary of the accident, detailing the progress of the investigation and any safety issues raised. The report, including the safety recommendations, shall be communicated to the relevant parties referred to in Article 23(3) and to bodies and parties concerned in other Member States. Taking into account experience gained by the investigating bodies, the Commission shall establish, by means of implementing acts, the reporting structure to be followed as closely as possible for accident and incident investigation reports. This reporting structure shall include the following elements: (a) a description of the occurrence and its background; (b) a record of the investigations and inquires, including on the safety management system, the rules and regulations applied, the functioning of rolling stock and technical installations, the organisation of man power, the documentation on the operating system and previous occurrences of a similar character; (c) analysis and conclusions with regard to the causes of the occurrence, including contributory factors, relating to: (i) actions taken by persons involved; (ii) the condition of rolling stock or technical installations; (iii) skills of the staff, procedures and maintenance; (iv) the regulatory framework conditions; and (v) the application of the safety management system. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 28(3). 3. By 30 September every year the investigating body shall publish an annual report accounting for the investigations carried out in the preceding year, the safety recommendations that were issued and actions taken in accordance with recommendations issued previously. Article 25 Information to be sent to the Agency 1. Within 7 days of the decision to open an investigation, the investigating body shall inform the Agency thereof. The information shall indicate the date, time and place of the occurrence, as well as its type and its consequences as regards fatalities, injuries and material damage. 2. The investigating body shall send the Agency a copy of the final report referred to in Article 24(2) and of the annual report referred to in Article 24(3). Article 26 Safety recommendations 1. A safety recommendation issued by an investigating body shall in no case create a presumption of blame or liability for an accident or incident. 2. Recommendations shall be addressed to the national safety authority and, where needed by reason of the character of the recommendation, to the Agency, to other bodies or authorities in the Member State concerned or to other Member States. Member States, their national safety authorities and the Agency shall, within the limits of their competence, take the necessary measures to ensure that the safety recommendations issued by the investigating bodies are duly taken into consideration, and, where appropriate, acted upon. 3. The Agency, the national safety authority and other authorities or bodies or, where appropriate, other Member States to which recommendations have been addressed, shall report back periodically to the investigating body on measures that are taken or planned as a consequence of a given recommendation. CHAPTER VI TRANSITIONAL AND FINAL PROVISIONS Article 27 Exercise of delegation 1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2. The power to adopt delegated acts referred to in Article 6(6) and Article 7(6) shall be conferred on the Commission for a period of 5 years from 15 June 2016. The Commission shall draw up a report in respect of the delegation of power not later than 9 months before the end of the 5-year period. The delegation of power shall be tacitly extended for periods of an identical duration, unless the European Parliament or the Council opposes such extension not later than 3 months before the end of each period. 3. It is of particular importance that the Commission follow its usual practice and carry out consultations with experts, including Member States' experts, before adopting those delegated acts. 4. The delegation of power referred to in Article 6(6) and Article 7(6) may be revoked at any time by the European Parliament or by the Council. A decision of revocation shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 5. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 6. A delegated act adopted pursuant to Article 6(6) and Article 7(6) shall enter into force only if no objection has been expressed either by the European Parliament or the Council within a period of 2 months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by 2 months at the initiative of the European Parliament or of the Council. Article 28 Committee procedure 1. The Commission shall be assisted by the committee referred to in Article 51 of Directive (EU) 2016/797. That committee shall be a committee within the meaning of Regulation (EU) No 182/2011. 2. Where reference is made to this paragraph, Article 4 of Regulation (EU) No 182/2011 shall apply. 3. Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply. Where the committee delivers no opinion, the Commission shall not adopt the draft implementing act and the third subparagraph of Article 5(4) of Regulation (EU) No 182/2011 shall apply. Article 29 Report and further Union action 1. The Commission shall submit to the European Parliament and to the Council by 16 June 2021, and every 5 years thereafter, a report on the implementation of this Directive, in particular to monitor the effectiveness of the measures for the issuing of single safety certificates. The report shall be accompanied where necessary by proposals for further Union action. 2. The Agency shall evaluate the development of a safety culture including occurrence reporting. It shall submit to the Commission, by 16 June 2024, a report containing, where appropriate, improvements to be made to the system. The Commission shall take appropriate measures on the basis of these recommendations and shall propose, if necessary, amendments to this Directive. 3. By 16 December 2017, the Commission shall report to the European Parliament and to the Council on the actions taken with a view to achieving the following objectives: (a) the obligation for manufacturers to mark with an identification code the safety-critical components circulating on the European rail networks, ensuring that the identification code clearly identifies the component, the name of the manufacturer and the significant production data; (b) the full traceability of the safety-critical components, the traceability of their maintenance activities and the identification of their operational life; and (c) the identification of common mandatory principles for the maintenance of those components. Article 30 Penalties The Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that they are implemented. The penalties provided for must be effective, proportionate, non-discriminatory and dissuasive. The Member States shall notify those rules to the Commission by the date specified in Article 33(1) and shall notify it without delay of any subsequent amendment affecting them. Article 31 Transitional provisions 1. Annex V to Directive 2004/49/EC shall apply until the date of application of the implementing acts referred to in Article 24(2) of this Directive. 2. Without prejudice to paragraph 3 of this Article, railway undertakings which need to be certified between 15 June 2016 and 16 June 2019, shall be subject to Directive 2004/49/EC. Such safety certificates shall be valid until their date of expiry. 3. At the latest from 16 June 2019 the Agency shall carry out the certification tasks pursuant to Article 10 in respect of areas of operation in the Member States that have not notified the Agency or the Commission in accordance with Article 33(2). By way of derogation from Article 10, national safety authorities of the Member States which have notified the Agency and the Commission pursuant to Article 33(2) may continue to issue certificates in accordance with Directive 2004/49/EC until 16 June 2020. Article 32 Recommendations and opinions of the Agency The Agency shall provide recommendations and opinions in accordance with Article 13 of Regulation (EU) 2016/796 for the purpose of the application of this Directive. Those recommendations and opinions may be taken into account when the Union adopts legal acts pursuant to this Directive. Article 33 Transposition 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with Articles 2, 3, 4, Articles 8 to 11, Article 12(5), Article 15(3), Articles 16 to 19, Article 21(2), Article 23(3) and (7), Article 24(2), Article 26(3) and Annexes II and III by 16 June 2019. They shall immediately communicate the text of those measures to the Commission. 2. Member States may extend the transposition period referred to in paragraph 1 by 1 year. For that purpose, by 16 December 2018, Member States which do not bring into force the laws, regulations and administrative provisions within the transposition period referred to in paragraph 1 shall notify the Agency and the Commission thereof and present the reasons for such an extension. 3. When Member States adopt those measures, they shall contain a reference to this Directive or shall be accompanied by such reference on the occasion of their official publication. They shall also include a statement that references in existing laws, regulations and administrative provisions to the Directive repealed by this Directive shall be construed as references to this Directive. Member States shall determine how such reference is to be made and how that statement is to be formulated. 4. The obligation to transpose and implement this Directive shall not apply to Cyprus and Malta for as long as no rail system is established within their territories. However, as soon as a public or private entity submits an official application to build a railway line with a view to its operation by one or more railway undertakings, the Member States concerned shall put in place measures to implement this Directive within 2 years of the receipt of the application. Article 34 Repeal Directive 2004/49/EC, as amended by the Directives listed in Annex IV, Part A, is repealed with effect from 16 June 2020, without prejudice to the obligations of the Member States concerning the time limits for transposition into national law and application of the Directives set out in Annex IV, Part B. References to the repealed Directive shall be construed as references to this Directive and shall be read in accordance with the correlation table in Annex V. Article 35 Entry into force This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. Article 36 Addressees This Directive is addressed to the Member States. Done at Strasbourg, 11 May 2016. For the European Parliament The President M. SCHULZ For the Council The President J.A. HENNIS-PLASSCHAERT (1) OJ C 327, 12.11.2013, p. 122. (2) OJ C 356, 5.12.2013, p. 92. (3) Position of the European Parliament of 26 February 2014 (not yet published in the Official Journal) and position of the Council at first reading of 10 December 2015 (OJ C 57, 12.2.2016, p. 64). Position of the European Parliament of 28 April 2016 (not yet published in the Official Journal). (4) Directive 2004/49/EC of the European Parliament and of the Council of 29 April 2004 on safety on the Community's railways and amending Council Directive 95/18/EC on the licensing of railway undertakings and Directive 2001/14/EC on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure and safety certification (OJ L 164, 30.4.2004, p. 44). (5) Directive (EU) 2016/797 of the European Parliament and of the Council of 11 May 2016 on the interoperability of the rail system within the European Union (see page 44 of this Official Journal). (6) Regulation (EU) 2016/796 of the European Parliament and of the Council of 11 May 2016 on the European Union Agency for Railways and repealing Regulation (EC) No 881/2004 (see page 1 of this Official Journal). (7) Directive 2008/57/EC of the European Parliament and of the Council of 17 June 2008 on the interoperability of the rail system within the Community (OJ L 191, 18.7.2008, p. 1). (8) Directive 2008/68/EC of the European Parliament and of the Council of 24 September 2008 on the inland transport of dangerous goods (OJ L 260, 30.9.2008, p. 13). (9) Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission's exercise of implementing powers (OJ L 55, 28.2.2011, p. 13). (10) Directive 2012/34/EU of the European Parliament and of the Council of 21 November 2012 establishing a single European railway area (OJ L 343, 14.12.2012, p. 32). (11) Directive 2007/59/EC of the European Parliament and of the Council of 23 October 2007 on the certification of train drivers operating locomotives and trains on the railway system in the Community (OJ L 315, 3.12.2007, p. 51). (12) Directive (EU) 2015/1535 of the European Parliament and the Council of 9 September 2015, laying down a procedure for the provision of information in the field of technical regulations and of rules on Information Society services (OJ L 241, 17.9.2015, p. 1). (13) Regulation (EC) No 1371/2007 of the European Parliament and of the Council of 23 October 2007 on rail passengers' rights and obligations (OJ L 315, 3.12.2007, p. 14). (14) Commission Regulation (EC) No 653/2007 of 13 June 2007 on the use of a common European format for safety certificates and application documents in accordance with Article 10 of Directive 2004/49/EC of the European Parliament and of the Council and on the validity of safety certificates delivered under Directive 2001/14/EC (OJ L 153, 14.6.2007, p. 9). (15) Commission Regulation (EU) No 1158/2010 of 9 December 2010 on a common safety method for assessing conformity with the requirements for obtaining railway safety certificates (OJ L 326, 10.12.2010, p. 11). (16) Commission Regulation (EU) No 445/2011 of 10 May 2011 on a system of certification of entities in charge of maintenance for freight wagons and amending Regulation (EC) No 653/2007 (OJ L 122, 11.5.2011, p. 22). ANNEX I COMMON SAFETY INDICATORS Common safety indicators (CSIs) shall be reported annually by the national safety authorities. If new facts or errors are discovered after the submission of the report, the indicators for one particular year shall be amended or corrected by the national safety authority at the first convenient opportunity and at the latest in the next annual report. Common definitions for the CSIs and methods to calculate the economic impact of accidents are laid down in the Appendix. 1. Indicators relating to accidents 1.1. Total and relative (to train-kilometres) number of serious accidents and a break-down for the following types of accidents: — collision of train with rail vehicle, — collision of train with obstacle within the clearance gauge, — derailment of train, — level crossing accident, including accident involving pedestrians at level crossing, and a further break-down for the five types of level crossings defined in point 6.2, — accident to persons involving rolling stock in motion, with the exception of suicides and attempted suicides, — fire in rolling stock, — other. Each significant accident shall be reported under the type of the primary accident, even if the consequences of the secondary accident are more severe (e.g. a derailment followed by a fire). 1.2. Total and relative (to train-kilometres) number of persons seriously injured and killed by type of accident divided into the following categories: — passenger (also relative to total passenger-kilometres and passenger train-kilometres), — employee or contractor, — level crossing user, — trespasser, — other person at a platform, — other person not at a platform. 2. Indicators relating to dangerous goods Total and relative (to train-kilometres) number of accidents involving the transport of dangerous goods by rail divided into the following categories: — accident involving at least one railway vehicle transporting dangerous goods, as defined in the Appendix, — number of such accidents in which dangerous goods are released. 3. Indicators relating to suicides Total and relative (to train-kilometres) number of suicides and attempted suicides 4. Indicators relating to precursors of accidents Total and relative (to train-kilometres) number of precursors to accidents and a break down on the following types of precursor: — broken rail, — track buckle and other track misalignment, — wrong-side signalling failure, — signal passed at danger when passing a danger point, — signal passed at danger without passing a danger point, — broken wheel on rolling stock in service, — broken axle on rolling stock in service. All precursors are to be reported, both those resulting and those not resulting in accidents. (A precursor resulting in a significant accident shall also be reported under indicators relating to precursors; a precursor not resulting in a significant accident shall only be reported under indicators relating to precursors). 5. Indicators to calculate the economic impact of accidents Total in euro and relative (to train-kilometres): — number of deaths and serious injuries multiplied by the Value of Preventing a Casualty (VPC), — cost of damages to environment, — cost of material damages to rolling stock or infrastructure, — cost of delays as a consequence of accidents. National safety authorities shall report the economic impact of significant accidents. The VPC is the value society attributes to the prevention of a casualty and as such shall not form a reference for compensation between parties involved in accidents. 6. Indicators relating to technical safety of infrastructure and its implementation 6.1. Percentage of tracks with Train Protection Systems (TPSs) in operation and percentage of train-kilometres using on-board TPSs, where these systems provide: — warning, — warning and automatic stop, — warning and automatic stop and discrete supervision of speed, — warning and automatic stop and continuous supervision of speed. 6.2. Number of level crossings (total, per line kilometre and track kilometre) by the following five types: (a) passive level crossing (b) active level crossing: (i) manual, (ii) automatic with user-side warning, (iii) automatic with user-side protection, (iv) rail-side protected. Appendix Common definitions for the CSIs and methods of calculating the economic impact of accidents 1. Indicators relating to accidents 1.1. ‘significant accident’ means any accident involving at least one rail vehicle in motion, resulting in at least one killed or seriously injured person, or in significant damage to stock, track, other installations or environment, or extensive disruptions to traffic, excluding accidents in workshops, warehouses and depots; 1.2. ‘significant damage to stock, track, other installations or environment’ means damage that is equivalent to EUR 150 000 or more; 1.3. ‘extensive disruptions to traffic’ means that train services on a main railway line are suspended for six hours or more; 1.4. ‘train’ means one or more railway vehicles hauled by one or more locomotives or railcars, or one railcar travelling alone, running under a given number or specific designation from an initial fixed point to a terminal fixed point, including a light engine, i.e. a locomotive travelling on its own; 1.5. ‘collision of train with rail vehicle’ means a front to front, front to end or a side collision between a part of a train and a part of another train or rail vehicle, or with shunting rolling stock; 1.6. ‘collision of train with obstacle within the clearance gauge’ means a collision between a part of a train and objects fixed or temporarily present on or near the track (except at level crossings if lost by a crossing vehicle or user), including collision with overhead contact lines; 1.7. ‘derailment of train’ means any case in which at least one wheel of a train leaves the rails; 1.8. ‘level crossing accident’ means any accident at level crossings involving at least one railway vehicle and one or more crossing vehicles, other crossing users such as pedestrians or other objects temporarily present on or near the track if lost by a crossing vehicle or user; 1.9. ‘accident to persons involving rolling stock in motion’ means accidents to one or more persons who are either hit by a railway vehicle or by an object attached to, or that has become detached from, the vehicle, this includes persons who fall from railway vehicles as well as persons who fall or are hit by loose objects when travelling on board vehicles; 1.10. ‘fire in rolling stock’ means a fire or explosion that occurs in a railway vehicle (including its load) when it is running between the departure station and the destination, including when stopped at the departure station, the destination or intermediate stops, as well as during re-marshalling operations; 1.11. ‘other (accident)’ means any accident other than a collision of train with rail vehicle, collision of train with obstacle within the clearance gauge, derailment of train, level crossing accident, an accident to person involving rolling stock in motion or a fire in rolling stock; 1.12. ‘passenger’ means any person, excluding a member of the train crew, who makes a trip by rail, including a passenger trying to embark onto or disembark from a moving train for accident statistics only; 1.13. ‘employee or contractor’ means any person whose employment is in connection with a railway and is at work at the time of the accident, including the staff of contractors, self-employed contractors, the crew of the train and persons handling rolling stock and infrastructure installations; 1.14. ‘level crossing user’ means any person using a level crossing to cross the railway line by any means of transport or by foot; 1.15. ‘trespasser’ means any person present on railway premises where such presence is forbidden, with the exception of a level crossing user; 1.16. ‘other person at a platform’ means any person at a railway platform who is not defined as ‘passenger’, ‘employee or contractor’, ‘level crossing user’, ‘other person not at a platform’ or ‘trespasser’; 1.17. ‘other person not at a platform’ means any person not at a railway platform who is not defined as ‘passenger’, ‘employee or contractor’, ‘level crossing user’, ‘other person at a platform’ or ‘trespasser’; 1.18. ‘death (killed person)’ means any person killed immediately or dying within 30 days as a result of an accident, excluding any suicide; 1.19. ‘serious injury (seriously injured person)’ means any person injured who was hospitalised for more than 24 hours as a result of an accident, excluding any attempted suicide. 2. Indicators relating to dangerous goods 2.1. ‘accident involving the transport of dangerous goods’ means any accident or incident that is subject to reporting in accordance with RID (1)/ADR section 1.8.5; 2.2. ‘dangerous goods’ means those substances and articles the carriage of which is prohibited by RID, or authorised only under the conditions prescribed therein. 3. Indicators relating to suicides 3.1. ‘suicide’ means an act to deliberately injure oneself resulting in death, as recorded and classified by the competent national authority; 3.2. ‘attempted suicide’ means an act to deliberately injure oneself resulting in serious injury. 4. Indicators relating to precursors of accidents 4.1. ‘broken rail’ means any rail which is separated in two or more pieces, or any rail from which a piece of metal becomes detached, causing a gap of more than 50 mm in length and more than 10 mm in depth on the running surface; 4.2. ‘track buckle or other track misalignment’ means any fault related to the continuum and the geometry of track, requiring track to be placed out of service or immediate restriction of permitted speed; 4.3. ‘wrong side signalling failure’ means any technical failure of a signalling system (either to infrastructure or to rolling stock), resulting in signalling information less restrictive than that demanded; 4.4. ‘Signal Passed at Danger when passing a danger point’ means any occasion when any part of a train proceeds beyond its authorised movement and travels beyond the danger point; 4.5. ‘Signal Passed at Danger without passing a danger point’ means any occasion when any part of a train proceeds beyond its authorised movement but does not travel beyond the danger point. Unauthorised movement as referred to in points 4.4 and 4.5 above means to pass: — a trackside colour light signal or semaphore at danger, or an order to STOP where a Train Protection system (TPS) is not operational, — the end of a safety related movement authority provided in a TPS, — a point communicated by verbal or written authorisation laid down in regulations, — stop boards (buffer stops are not included) or hand signals. Any case in which a vehicle without any traction unit attached or a train that is unattended runs away past a signal at danger is not included. Any case in which, for any reason, the signal is not turned to danger in time to allow the driver to stop the train before the signal is not included. National safety authorities may report separately on the four indices of unauthorised movement listed in the indents in this point and shall report at least an aggregate indicator containing data on all four items indices. 4.6. ‘broken wheel on rolling stock in service’ means a break affecting the wheel and creating a risk of accident (derailment or collision); 4.7. ‘broken axle on rolling stock in service’ means a break affecting the axle and creating a risk of accident (derailment or collision). 5. Common methodologies to calculate the economic impact of accidents 5.1. The Value of Preventing a Casualty (VPC) is composed of: (1) Value of safety per se: Willingness to Pay (WTP) values based on stated preference studies carried out in the Member State for which they are applied. (2) Direct and indirect economic costs: cost values appraised in the Member State, composed of: — medical and rehabilitation cost, — legal court cost, cost for police, private crash investigations, the emergency service and administrative costs of insurance, — production losses: value to society of goods and services that could have been produced by the person if the accident had not occurred. When calculating the costs of casualties, fatalities and serious injuries shall be considered separately (different VPC for fatality and serious injury). 5.2. Common principles to appraise the value of safety per se and direct and/or indirect economic costs: For the value of safety per se, the assessment of whether available estimates are appropriate or not shall be based on the following considerations: — estimates shall relate to a system for valuation of mortality risk reduction in the transport sector and follow a WTP approach according to stated preference methods, — the respondent sample used for the values shall be representative of the population concerned. In particular, the sample has to reflect the age/income distribution along with other relevant socioeconomic and/or demographic characteristics of the population, — method for eliciting WTP values: survey design shall be such that questions are clear/meaningful to respondents. Direct and indirect economic costs shall be appraised on the basis of the real costs borne by society. 5.3. Definitions 5.3.1. ‘Cost of damage to environment’ means costs that are to be met by Railway Undertakings and Infrastructure Managers, appraised on the basis of their experience, in order to restore the damaged area to its state before the railway accident. 5.3.2. ‘Cost of material damage to rolling stock or infrastructure’ means the cost of providing new rolling stock or infrastructure, with the same functionalities and technical parameters as that damaged beyond repair, and the cost of restoring repairable rolling stock or infrastructure to its state before the accident, to be estimated by Railway Undertakings and Infrastructure Managers on the basis of their experience, including also costs related to the leasing of rolling stock, as a consequence of non-availability due to damaged vehicles. 5.3.3. ‘Cost of delays as a consequence of accidents’ means the monetary value of delays incurred by users of rail transport (passengers and freight customers) as a consequence of accidents, calculated by the following model: VT = monetary value of travel time savings Value of time for a passenger of a train (an hour) VTP = [VT of work passengers]*[Average percentage of work passengers per year] + [VT of non-work passengers]*[Average percentage of non-work passengers per year] VTP is measured in EUR per passenger per hour ‘Work passenger’ means a passenger travelling in connection with their professional activities excluding commuting. Value of time for a freight train (an hour) VTF = [VT of freight trains]*[(Tonne-km)/(Train-km)] VTF is measured in EUR per freight tonne per hour Average tonnes of goods transported per train in 1 year = (Tonne-km)/(Train-km) CM = Cost of 1 minute of delay of a train Passenger train CMP = K1*(VTP/60)*[(Passenger-km)/(Train-km)] Average number of passengers per train in 1 year = (Passenger-km)/(Train-km) Freight train CMF = K2* (VTF/60) Factors K1 and K2 are between the value of time and the value of delay, as estimated by stated preference studies, to take into account that the time lost as a result of delays is perceived significantly more negatively than normal travel time. Cost of delays of an accident = CMP *(Minutes of delay of passenger trains) + CMF *(Minutes of delay of freight trains) Scope of the model Cost of delays is to be calculated for significant accidents, as follows: — real delays on the railway lines where accidents occurred as measured at terminal station — real delays or, if not possible, estimated delays on the other affected lines. 6. Indicators relating to technical safety of infrastructure and its implementation 6.1. ‘Train Protection System (TPS)’ means a system that helps to enforce obedience to signals and speed restrictions. 6.2. ‘On-board systems’ mean systems assisting the driver to observe line-side signalling and in cab signalling and thus providing protection of danger points and enforcement of speed limits. On-board TPSs are described as follows: (a) Warning, providing automatic warning to driver. (b) Warning and automatic stop, providing automatic warning to driver and automatic stop when passing a signal at danger. (c) Warning and automatic stop and discrete supervision of speed, providing protection of danger points, where ‘discrete supervision of speed’ means supervision of speed at certain locations (speed traps) at the approach of a signal. (d) Warning and automatic stop and continuous supervision of speed, providing protection of danger points and continuous supervision of the speed limits of the line, where ‘continuous supervision of speed’ means continuous indication and enforcement of the maximal allowed target speed on all sections of the line. Type (d) is regarded as Automatic Train Protection (ATP) system. 6.3. ‘level crossing’ means any level intersection between a road or passage and a railway, as recognised by the infrastructure manager and open to public or private users. Passages between platforms within stations are excluded, as well as passages over tracks for the sole use of employees. 6.4. ‘road’ means, for the purpose of railway accident statistics, any public or private road, street or highway, including adjacent footpaths and bicycle lanes. 6.5. ‘passage’ means any route, other than a road, provided for the passage of people, animals, vehicles or machinery. 6.6. ‘passive level crossing’ means a level crossing without any form of warning system or protection activated when it is unsafe for the user to traverse the crossing. 6.7. ‘active level crossing’ means a level crossing where the crossing users are protected from or warned of the approaching train by devices activated when it is unsafe for the user to traverse the crossing. — Protection by the use of physical devices includes: — half or full barriers, — gates. — Warning by the use of fixed equipment at level crossings: — visible devices: lights, — audible devices: bells, horns, klaxons, etc. Active level crossings are classified as: (a) Manual: a level crossing where user-side protection or warning is manually activated by a railway employee. (b) Automatic with user-side warning: a level crossing where user-side warning is activated by the approaching train. (c) Automatic with user-side protection: a level crossing where user-side protection is activated by the approaching train. This shall include a level crossing with both user-side protection and warning. (d) Rail-side protected: a level crossing where a signal or other train protection system permits a train to proceed once the level crossing is fully user-side protected and is free from incursion. 7. Definitions of the scaling bases 7.1. ‘train-km’ means the unit of measure representing the movement of a train over one kilometre. The distance used is the distance actually run, if available, otherwise the standard network distance between the origin and destination shall be used. Only the distance on the national territory of the reporting country shall be taken into account. 7.2. ‘passenger-km’ means the unit of measure representing the transport of one passenger by rail over a distance of one kilometre. Only the distance on the national territory of the reporting country shall be taken into account. 7.3. ‘line km’ means the length measured in kilometres of the railway network in Member States, whose scope is laid down in Article 2. For multiple-track railway lines, only the distance between origin and destination is to be counted. 7.4. ‘track km’ means the length measured in kilometres of the railway network in Member States, whose scope is laid down in Article 2. Each track of a multiple-track railway line is to be counted. (1) RID, Regulations concerning the International Carriage of Dangerous Goods by Rail, as adopted under Directive 2008/68/EC of the European Parliament and of the Council of 24 September 2008 on the inland transport of dangerous goods (OJ L 260, 30.9.2008, p. 13). ANNEX II NOTIFICATION OF NATIONAL SAFETY RULES National safety rules notified in accordance with point (a) of Article 8(1) include: 1. rules concerning existing national safety targets and safety methods; 2. rules concerning requirements in respect of safety management systems and safety certification of railway undertakings; 3. common operating rules of the railway network that are not yet covered by TSIs, including rules relating to the signalling and traffic management system; 4. rules laying down requirements in respect of additional internal operating rules (company rules) that must be established by infrastructure managers and railway undertakings; 5. rules concerning requirements in respect of staff executing safety-critical tasks, including selection criteria, medical fitness and vocational training and certification, in so far as they are not yet covered by a TSI; 6. rules concerning the investigation of accidents and incidents. ANNEX III REQUIREMENTS AND ASSESSMENT CRITERIA FOR ORGANISATIONS APPLYING FOR AN ECM CERTIFICATE OR FOR A CERTIFICATE IN RESPECT OF MAINTENANCE FUNCTIONS OUTSOURCED BY AN ENTITY IN CHARGE OF MAINTENANCE The organisation management must be documented in all relevant parts and shall in particular describe the distribution of responsibilities within the organisation and with subcontractors. It shall show how control by the management on different levels is secured, how staff and their representatives on all levels are involved and how continuous improvement is ensured. The following basic requirements shall be applied to the four functions of an entity in charge of maintenance (ECM) to be covered by the organisation itself or through contracting arrangements: 1. Leadership— commitment to the development and implementation of the maintenance system of the organisation and to the continuous improvement of its effectiveness; 2. Risk assessment— a structured approach to assess risks associated with the maintenance of vehicles, including those directly arising from operational processes and the activities of other organisations or persons, and to identify the appropriate risk control measures; 3. Monitoring— a structured approach to ensure that risk control measures are in place, working correctly and achieving the organisation's objectives; 4. Continuous improvement— a structured approach to analyse the information gathered through regular monitoring, auditing, or other relevant sources and to use the results to learn and to adopt preventive or corrective measures in order to maintain or improve the level of safety; 5. Structure and responsibility— a structured approach to define the responsibilities of individuals and teams for secure delivery of the organisation's safety objectives; 6. Competence management— a structured approach to ensure that employees have the competences required in order to achieve the organisation's objectives safely, effectively and efficiently in all circumstances; 7. Information— a structured approach to ensure that important information is available to those making judgments and decisions at all levels of the organisation and to ensure the completeness and appropriateness of the information; 8. Documentation— a structured approach to ensure the traceability of all relevant information; 9. Contracting activities— a structured approach to ensure that subcontracted activities are managed appropriately in order for the organisation's objectives to be achieved and all competences and requirements are covered; 10. Maintenance activities— a structured approach to ensure: — that all maintenance activities affecting safety and safety-critical components are identified and correctly managed and that all the necessary changes to those maintenance activities affecting safety are identified, properly managed based upon the return of experience and the application of Common Safety Methods for risk assessment in accordance with point (a) of Article 6(1) and properly documented; — conformity with the essential requirements for interoperability; — the implementation and check of maintenance facilities, equipment and tools specifically developed and required for maintenance delivery; — the analysis of the initial documentation related to the vehicle for providing the first maintenance file and to ensure its correct implementation through the development of maintenance orders; — that components (including spare parts) and materials are used as specified in the maintenance orders and supplier documentation; they are stored, handled and transported in an appropriate manner as specified in the maintenance orders and supplier documentation and comply with relevant national and international rules as well as with the requirements of relevant maintenance orders; — that suitable and adequate facilities, equipment and tools are determined, identified, provided, recorded and kept available to enable to deliver the maintenance services in accordance with maintenance orders and other applicable specifications, ensuring the safe delivery of maintenance, ergonomics and health protection; — that the organisation have processes to ensure that its measuring equipment, all facilities, equipment and tools are correctly used, calibrated, preserved and maintained in accordance with documented processes; 11. Control activities— a structured approach to ensure: — that vehicles are removed from operation for scheduled, conditional or corrective maintenance in due time, or whenever defects or other needs have been identified; — the necessary quality control measures; — that maintenance tasks are performed in accordance with the maintenance orders and to issue the notice to return to operation that includes eventual restrictions of use; — that possible instance of non-compliance in the application of the management system that might result in accidents, incidents, near-misses or other dangerous occurrences are reported, investigated and analysed and that necessary preventive measures are taken in compliance with the common safety method for monitoring provided in point (c) of Article 6(1); — recurrent internal auditing and monitoring process compliant with the common safety method for monitoring provided in point (c) of Article 6(1). ANNEX IV PART A Repealed Directive with a list of the successive amendments thereto (referred to in Article 34) Directive 2004/49/EC (OJ L 164, 30.4.2004, p. 44) Directive 2008/57/EC (OJ L 191, 18.7.2008, p. 1) Directive 2008/110/EC (OJ L 345, 23.12.2008, p. 62) Commission Directive 2009/149/EC (OJ L 313, 28.11.2009, p. 65) Corrigendum, 2004/49/EC (OJ L 220, 21.6.2004, p. 16) Commission Directive 2014/88/EU (OJ L 201, 10.7.2014, p. 9) PART B Time limits for transposition into national law (referred to in Article 34) Directive Deadline for transposition 2004/49/EC 30 April 2006 2008/57/EC 19 July 2010 2008/110/EC 24 December 2010 Commission Directive 2009/149/EC 18 June 2010 Commission Directive 2014/88/EU 30 July 2015 ANNEX V Correlation table Directive 2004/49/EC This Directive Article 1 Article 1 Article 2 Article 2 Article 3 Article 3 Article 4 Article 4 Article 5 Article 5 Article 6 Article 6 Article 7 Article 7 Article 8 Article 8 Article 9 Article 9 Article 10 Article 10 — Article 11 Article 11 Article 12 Article 12 — Article 13 Article 13 Article 14a(1) to (7) Article 14 Article 14a(8) Article 15 Article 15 — Article 16 Article 16 — Article 17 Article 17 Article 18 Article 18 Article 19 Article 19 Article 20 Article 20 Article 21 Article 21 Article 22 Article 22 Article 23 Article 23 Article 24 Article 24 Article 25 Article 25 Article 26 Article 26 — — Article 27 Article 27 Article 28 Article 28 — Article 29 — Article 30 — Article 31 Article 29 Article 32 Article 30 — Article 31 — Article 32 Article 33 Article 33 — Article 34 Article 34 Article 35 Article 35 Article 36 Annex I Annex I Annex II Annex II Annex III — Annex IV — Annex V — — Annex III Statement by the Commission on explanatory documents The Commission recalls that the European Parliament, the Council and the Commission acknowledged in their Joint Political Declaration of 27 October 2011 on explanatory documents that the information Member States supply to the Commission as regards the transposition of directives in national law ‘must be clear and precise’ in order to facilitate the achievement by the Commission of its task overseeing the application of Union law. In the present case, explanatory documents could have been useful to this end. The Commission regrets that the final text does not contain provisions to this effect.\n<|assistant|>\nEU-wide rail safety EU-wide rail safety SUMMARY OF: Directive (EU) 2016/798 on railway safety WHAT IS THE AIM OF THE DIRECTIVE? It aims to enhance railway safety across the EU by revising the role of national safety authorities (NSAs) and reallocating responsibilities between them and the European Union Agency for Railways (the Agency). The directive is one of 3 legislative acts covering the technical aspects of the fourth railway package which aims to revitalise the rail sector and deliver a better quality of service and more choice to passengers. It works alongside Regulation (EU) 2016/796 on the European Union Agency for Railways and Directive (EU) 2016/797 on the interoperability of the EU rail system. Following the outbreak of the COVID-19 pandemic in 2020, the directive was amended by Regulation (EU) 2020/698 and Directive (EU) 2020/700 to extend the deadline for incorporating the directive into EU countries’ national law. KEY POINTS The directive sets out a number of measures to develop and improve safety and to improve access to the market for rail transport services, including: establishing the Agency as a body issuing safety certificates to railway undertakings which operate in more than one EU country; defining the responsibilities between the different bodies involved in the EU rail system; developing common safety targets and common safety methods with the aim of removing national rules and therefore barriers to the development of a single European railway area; setting out the principles for issuing, renewing, amending and restricting or revoking safety certificates and authorisations; requiring each EU country to establish a national safety authority and an investigation body for railway accidents and incidents; defining common principles for the management and supervision of railway safety. Scope The directive applies to the rail system in EU countries, it does not apply to: metros; trams and light rail vehicles and infrastructure used exclusively by those vehicles; networks that are not part of the EU rail system and that are intended to operate only local, urban or suburban passenger services, along with companies that operate solely on these networks. Development and management of safety Within their respective competences under EU law, the Agency and the EU countries are responsible for ensuring that railway safety is maintained and generally improved with a priority placed on preventing accidents. EU countries are also responsible for ensuring that: measures to develop and improve safety follow a system-based approach;infrastructure managers and railway companies are responsible for the safe operation of the EU rail system and the control of any associated risks. Common safety methods and targets The assessment of safety levels, the achievement of safety targets and compliance with other safety requirements are established using common safety methods (CSMs). In particular, common methods for: risk and evaluation assessment;assessing conformity for issuing safety certificates and safety authorisations;supervision by national safety authorities and for monitoring by railway companies, infrastructure managers and railway maintenance bodies;assessing the achievement of safety targets at EU and national level. Minimum safety targets to be achieved by the EU rail system as a whole are set out in common safety targets (CSTs). CSTs may take the form of risk acceptance criteria or target safety levels. Single safety certificate Access to the EU railway infrastructure will only be granted to companies holding a single safety certificate issued either by the Agency or by the relevant national safety authorities. The purpose of the certificate is to provide evidence that the company concerned has established its safety management system and that it is able to operate safely in its intended area of operation. Amendments following the COVID-19 outbreak Directive (EU) 2016/798 was due to have taken effect from 16 June 2020. However, to provide the railway sector with greater legal certainty and flexibility to deal with the exceptional circumstances arising from the COVID-19 pandemic, amending Directive (EU) 2020/700 was adopted to extend transposition and repeal periods of Directive (EU) 2016/798 (originally set at 16 June 2020 to 31 October 2020). It also aligns the application dates for the CSMs with the revised deadlines. Regulation (EU) 2020/698 lays down specific and temporary measures in view of the COVID‐19 outbreak concerning renewing or extending certain certificates, licences and authorisations and the postponing certain periodic checks and periodic training in certain areas of transport legislation. The regulation extends the time limits laid down in Directive (EU) 2016/798 with regard to the renewal of single safety certificates that expire between 1 March 2020 and 31 August 2020 and the validity of safety authorisations that expire between 1 March 2020 and 31 August 2020 by 6 months. Amendment as regards the application of railway safety and interoperability rules within the Channel Fixed Link Regulation (EU) 2020/1530 extends the definition of the national safety authority with regards to any body entrusted by an EU country and a non-EU country and sets out arrangements therewith. FROM WHEN DOES THE DIRECTIVE APPLY? The directive has applied since 15 June 2016 and had to become law in the EU countries by 16 June 2020. This date has been further extended by amending Directive (EU) 2020/700 until 31 October 2020. BACKGROUND For further information, see: ‘Rail Transport: Landmark deal will deliver better rail services to passengers’ — press release (European Commission). MAIN DOCUMENT Directive (EU) 2016/798 of the European Parliament and of the Council of 11 May 2016 on railway safety (OJ L 138, 26.5.2016, pp. 102-149) Successive amendments to Directive (EU) 2016/798 have been incorporated into the original text. This consolidated version is of documentary value only. RELATED DOCUMENTS Regulation (EU) 2020/698 of the European Parliament and of the Council of 25 May 2020 laying down specific and temporary measures in view of the COVID‐19 outbreak concerning the renewal or extension of certain certificates, licences and authorisations and the postponement of certain periodic checks and periodic training in certain areas of transport legislation (OJ L 165, 27.5.2020, pp. 10-24) Regulation (EU) 2016/796 of the European Parliament and of the Council of 11 May 2016 on the European Union Agency for Railways and repealing Regulation (EC) No 881/2004 (OJ L 138, 26.5.2016, pp. 1-43) Directive (EU) 2016/797 of the European Parliament and of the Council of 11 May 2016 on the interoperability of the rail system within the European Union (OJ L 138, 26.5.2016, pp. 44-101) See consolidated version. last update 06.11.2020\n<|endoftext|>"}}},{"rowIdx":93,"cells":{"text":{"kind":"string","value":"<|system|>\nYou are a helpful assistant that summarizes text clearly, accurately, and concisely.\n<|user|>\nSummarize the following text:\n26.10.2018 EN Official Journal of the European Union L 268/3 TRANSLATION COOPERATION AGREEMENT between the European Union and the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) on the development of satellite navigation and the provision of associated services in ASECNA's area of competence for the benefit of civil aviation The EUROPEAN UNION, hereafter referred to as the ‘Union’, of the one hand, and the AGENCY FOR AERIAL NAVIGATION SAFETY IN AFRICA AND MADAGASCAR, hereafter referred to as ‘ASECNA’, of the other hand, hereafter jointly referred to as ‘the parties’, WHEREAS there is increasing development in applications of global satellite navigation systems in the Union, in Africa and other regions of the world, particularly in the civil aviation sector, WHEREAS ASECNA is mainly tasked with the provision of aerial navigation services in the airspaces coming within its remit, organisation of these spaces, publication of aeronautic information, and forecasting and transmission of information in the field of aeronautic meteorology, RECOGNISING the importance of the Union's satellite navigation programmes, Galileo and European Geostationary Navigation Overlay Service (EGNOS), which are specifically designed for civil uses, the benefits accruing from implementing them and the interest that ASECNA has in satellite navigation services, RECOGNISING that the EGNOS system, the regional infrastructure centred on Europe which controls and corrects the open signals emitted by world satellite navigation systems, offering greater precision and an integrity function, provides services which are particularly suitable for the needs of civil aviation, WHEREAS services based on the EGNOS system technology may be technically extended to the entire African continent in so far as there would be synergies between the ground infrastructure under the responsibility of the parties and the EGNOS system transponders are installed on satellites in geostationary orbit over Africa, WHEREAS the resolution of the ‘Space’ Council of the Union, entitled ‘Global challenges: taking full benefit of European space systems’, adopted on 25 November 2010, invites the European Commission to work with the African Union Commission to build capacity in this area and determine how a similar infrastructure to EGNOS could be implemented in Africa, WHEREAS the Communication of the European Commission of 26 April 2007 on European space policy attaches particular importance to cooperation between Europe and Africa in space and the Communication from the Commission of 4 April 2011 entitled ‘Towards a space strategy for the European Union that benefits its citizens’ underlines the Union's will to place its expertise and its infrastructures at the service of Africa and to strengthen cooperation with that continent, WHEREAS Resolution No 2005 CM 44-11 of 7 July 2005 of the Committee of Ministers of ASECNA on the implementation of satellite navigation systems (GNSS) at ASECNA requests support from European bodies so that it can benefit from the deployment of EGNOS or Galileo for the Agency's operational needs, WHEREAS Resolution No 2011 CA 120-18 of 7 July 2011 of the Council of Administration of ASECNA on effective participation of the Agency in deploying EGNOS/Galileo in the African and Indian Ocean region authorises the Director-General to make representations to the appropriate European bodies to this end, WHEREAS in the course of implementing that resolution, ASECNA developed an SBAS-ASECNA programme to provide SBAS services based on the EGNOS system technology within the Agency's area of competence, WHEREAS long-term cooperation between the Union and ASECNA on satellite navigation forms part of the general strategic partnership between the Union and Africa, since the roadmap adopted at the fourth EU-Africa summit in Brussels on 2-3 April 2014 in order to define the cooperation between the two continents for the period 2014-2017 provides for allocation of sustainable and sufficient human and financial resources to deploy satellite navigation infrastructures based on EGNOS and to put in place governance and financing systems to cover the outlay on investment and operational expenditure for EGNOS in Africa for the countries involved, WHEREAS, in the course of implementing this strategic partnership between the Union and Africa, ASECNA and the Union are already cooperating under the programme supporting the air transport and satellite services sector in Africa financed by the tenth European Development Fund and the pan-African programme for support of EGNOS in Africa funded by the Development Cooperation Instrument, namely by setting up an EGNOS-Africa Joint Programme Office (JPO). WHEREAS there is a joint interest in long-term cooperation between the Union and ASECNA on developing satellite navigation for the benefit of civil aviation and they wish to establish such cooperation formally, WHEREAS a very high level of protection needs to be ensured for satellite navigation services on the territory covered by the parties, WHEREAS the Union has set up its own agencies to assist in certain specific domains, particularly the European GNSS Agency for European satellite navigation programmes and the European Aviation Safety Agency, and there was a delegation agreement between the Union and the European GNSS Agency for the deployment of the EGNOS system for the period 2014-2021, RECOGNISING that Regulation (EU) No 1285/2013 of the European Parliament and of the Council of 11 December 2013 on the implementation and exploitation of European satellite navigation systems (1) provides that the Union is the owner of all tangible and intangible assets created or developed under the Galileo and EGNOS programmes, that the Union may enter into agreements with third countries and international organisations under these programmes and that the cost of any extension of the coverage of the EGNOS system outside Europe would not be covered by budgetary resources allocated under this Regulation, WHEREAS Regulation (EU) No 912/2010 of the European Parliament and of the Council of 22 September 2010 establishes the European GNSS Agency (2), RECOGNISING the interest in coordinating approaches to standardisation and certification, and to all satellite navigation system and service issues within international standardisation and certification bodies, particularly in order to promote extended and novel use of the Galileo, EGNOS and SBAS-ASECNA services as a world standard for navigation and synchronisation in the civil aviation sector, HAVE AGREED AS FOLLOWS: PART I GENERAL PROVISIONS Article 1 Aims 1. The aims of this Agreement are to develop satellite navigation and to provide associated services in ASECNA's area of competence for the benefit of civil aviation by enabling it to benefit from European satellite navigation programmes. This Agreement forms part of the arrangements for promoting services based on European satellite navigation programmes on the African continent. 2. The form and the conditions of the cooperation between the parties to achieve the aims set out in paragraph 1 are laid down by this Agreement. Article 2 Definitions For the purposes of this Agreement: (1) ‘GNSS’ or ‘global navigation satellite system’ means an infrastructure made up of a constellation of satellites and a network of centres and stations on the ground which use the radio signals emitted to provide a very precise time measurement and positioning service over the entire surface of the world for users with a suitable receiver; (2) ‘European satellite navigation systems’ means the global satellite navigation system produced by the Galileo programme and the EGNOS system which are the property of the Union; (3) ‘ASECNA's area of competence’ is the geographical area in which ASECNA provides aerial navigation services, whether this is its Member States' airspace or not; (4) ‘European Geostationary Navigation Overlay Service’ or ‘EGNOS’ means a regional satellite navigation system infrastructure which controls and corrects open signals emitted by global satellite navigation systems, mainly GPS and Galileo, enabling users of these world systems to obtain best performance in terms of precision and integrity. EGNOS comprises ground stations and several transponders installed on geostationary satellites. The ground stations are made up of an engineering centre, mission control centres, RIMS stations, NLES stations, a service centre and an EDAS server. The regional coverage of EGNOS is mainly the territory of the Member States of the European Union located geographically in Europe; (5) ‘SBAS-ASECNA’ means the ASECNA satellite navigation system which controls and corrects open signals emitted by the world satellite navigation systems, mainly GPS and Galileo, enabling users of the world systems to obtain best performance in terms of precision and integrity. SBAS-ASECNA is the property of ASECNA. It comprises a ground infrastructure and several transponders installed on geostationary satellites. The ground infrastructure is made up mainly of RIMS stations, one or two mission control centres and NLES stations. The coverage of SBAS-ASECNA is mainly ASECNA's area of competence. The SBAS-ASECNA system covers both the initial version of the system and all the subsequent developments, including the double-frequency and multi-constellation developments. Putting this system in place mainly comprises the phases of definition and design, development and deployment and approval and certification. This is followed by the exploitation phase; (6) ‘EGNOS coverage area’ or ‘SBAS-ASECNA coverage area’ means the area in which it is possible to receive the signals emitted by the system in question (for example the geostationary satellites' footprint); (7) ‘SBAS-ASECNA service area’ means the area within the SBAS-ASECNA coverage area in which the SBAS-ASECNA system provides a service which complies with the requirements defined by ASECNA and laid down by the ICAO Standards and Recommended Practices (SARPs) and is responsible for the corresponding approved operations; (8) ‘EGNOS SoL service area’ means the area within the EGNOS coverage area in which the EGNOS system provides a service which complies with the ICAO Standards and Recommended Practices (SARPs) and is responsible for the corresponding approved operations; (9) ‘RIMS stations’ means the stations belonging to the EGNOS or SBAS-ASECNA systems which are intended to collect in real time the positioning data from the signals emitted by world satellite navigation systems; (10) ‘NLES stations’ means the stations belonging to the EGNOS or SBAS-ASECNA systems which send to the transponders installed on the geostationary satellites the corrected data enabling recipients of the GNSS signals in the coverage area of one or other of the two systems to make suitable corrections to their positioning; (11) ‘Galileo’ means an independent European civil satellite navigation and synchronisation system with world coverage under civilian control and designed to provide GNSS services designed and developed by the Union, the European Space Agency and the respective Member States. Exploitation of Galileo may be entrusted to a private entity. Galileo is intended to offer an open service, a commercial service, a regulated public service and a search and rescue service and to contribute to services of integrity control for users of safety of life applications; (12) ‘interoperability’ means the capability of two or more satellite navigation systems and the services that they provide to be used together to offer users better capacities than those which would be obtained using only one system; (13) ‘intellectual property’ means the concept defined in point (viii) of Article 2 of the Convention establishing the World Intellectual Property Organisation, signed in Stockholm on 14 July 1967; (14) ‘classified information’ means information, in whatever form, which requires protection against unauthorised disclosure which might harm, to varying degrees, essential interests, including national security, of the parties or of a Member State. The classification is indicated by a classification marking. Such information is classified by the parties in accordance with the applicable laws and regulations and must be protected against any loss of confidentiality, integrity and availability. Article 3 Cooperation principles The parties shall conduct the cooperation activities governed by this Agreement in compliance with the following principles: 1. mutual advantage based on an overall balance between rights and obligations, including contributions and access to all services; 2. reciprocal opportunities to take part in cooperation activities in the Union's and ASECNA's satellite navigation programmes; 3. timely exchange of all relevant information for implementing this Agreement; 4. appropriate and effective protection of intellectual property rights. Article 4 Union agencies The Union may entrust the European GNSS Agency or the European Aviation Safety Agency with execution of all or some of the tasks provided for in this Agreement. In that case it remains responsible vis-à-vis ASECNA for correct and complete discharge of its obligations under this Agreement. Article 5 Relations with third parties The Union shall facilitate and support any initiative for cooperation or partnership between ASECNA and other entities involved in the European satellite navigation programmes, EGNOS and Galileo, particularly the European Space Agency, on the condition that these initiatives are likely to promote the development of and provision by ASECNA of satellite navigation services based on these two programmes. PART II PROVISIONS ON COOPERATION Article 6 Cooperation activities 1. The cooperation activities provided for in this Agreement mainly involve those geared to setting up and operating the SBAS-ASECNA system, based on the EGNOS system technology. They also cover the use in Africa of the system produced by the Galileo programme, the radio spectrum, standards, certification and international organisations, safety, research and development, human resources, communication and awareness-raising, exchanges of personnel and promotion on the African continent of satellite navigation services. The parties have the option of amending this list of activities in accordance with Article 34 of this Agreement. 2. This Agreement is without prejudice to the Union's institutional independence with regard to regulating European satellite navigation programmes or the structure established by the Union for implementing these programmes. The Agreement is also without prejudice to regulatory measures that implement non-proliferation obligations, control of exports and control of intangible transfers of technology. It is also without prejudice to measures affecting national security. 3. This Agreement is also without prejudice to ASECNA's institutional independence. 4. Subject to their respective rules, the parties shall promote as far as possible the cooperation activities conducted under this Agreement. SUB-PART I Article 7 Setting up and operation of the SBAS-ASECNA system 1. The Union shall assist ASECNA in setting up and implementing the SBAS-ASECNA system. In addition to the specific provisions in Articles 8 to 16, it undertakes in general to facilitate the setting up and implementation of the SBAS-ASECNA system, particularly by making any relevant information available to ASECNA free of charge, advising ASECNA on managing the programme and on the technical and organisational plans, and contributing to evaluating and monitoring the SBAS-ASECNA programme. 2. Where interconnections are established between the EGNOS and SBAS-ASECNA systems, each party is responsible for modifying its own system and shall bear the associated investment and implementation costs. Each party shall forward to the other the information required and shall cooperate in modifying the system belonging to the other party. A process of commitment to and monitoring of performance which establishes respective obligations shall be put in place. Article 8 Definition and design of the SBAS-ASECNA system The Union shall assist ASECNA in defining and designing the SBAS-ASECNA system, particularly as regards the system architecture, the ground infrastructure location sites and the operating design. The studies undertaken to that effect will specify the interconnections between the SBAS-ASECNA and EGNOS systems. Article 9 Development and deployment of the RIMS stations The Union shall assist ASECNA in developing and deploying the SBAS-ASECNA system RIMS stations, particularly with regard to equipment, operating procedures, operator qualification and validation of the ground infrastructure location sites by, amongst other things, setting up and verifying safety requirements. In order to optimise the performance and the service areas of the EGNOS and SBAS-ASECNA systems, the parties shall coordinate installation of their respective RIMS stations, especially those situated in adjoining areas covered by both systems, so that the stations are distributed evenly and can operate in synergy on the basis of the exchange of data generated by these RIMS stations, whilst complying with the safety and security requirements stipulated by the rules applicable to each party. Article 10 Development and deployment of control centres The Union shall assist ASECNA in developing and deploying the SBAS-ASECNA system control centres, particularly with regard to equipment, operating procedures, operator qualification and validation of the ground infrastructure location sites by, amongst other things, setting up and verifying safety requirements. Article 11 Development and deployment of the NLES stations and transponders The Union shall assist ASECNA in the development and deployment of the data dissemination services based on the transponders of the SBAS-ASECNA system installed on the geostationary satellites and associated terrestrial data transmission stations. It will also assist ASECNA in the procedures and activities necessary to obtain the PRN codes which are indispensable for operating the SBAS-ASECNA system. Article 12 Approval and certification of the SBAS-ASECNA system The Union shall assist ASECNA, at its request, in: — certification of the SBAS-ASECNA system, — approval of the safety of the SBAS-ASECNA system, including the ground infrastructure location sites, — certification of the services provided by the SBAS-ASECNA system. The Union may also assist ASECNA, at its request, in developing the methodology and processes geared to: — approval, before it is issued as an Aeronautical Information Publication, of the SBAS-ASECNA system-linked procedures for take-off, flight and landing of the aircraft, — certification of equipment on board aircraft and intended for the reception and treatment of satellite navigation signals and approval of aircraft operators and teams. Article 13 Operation of the SBAS-ASECNA system 1. The Union shall assist ASECNA in operating the SBAS-ASECNA system. With regard to the preparations for launching operations, it shall assist ASECNA mainly in: — putting in place the governance scheme for provision of services, — adaptation to the SBAS-ASECNA system of the operational procedures and training documentation for the EGNOS system, — implementing an integrated management system for the provision of services, mainly covering security, safety and environmental issues, — analysis and implementation of subcontracting schemes, — training of operators, — declaration of services. The Union shall also assist ASECNA in resolving operating problems encountered subsequent to the declaration of services, especially by making available procedures and instruments for analysing performance, support for training, and on-site presence of personnel during an initial period. The Union shall also provide support to ASECNA for taking developments of the system into service during operation. 2. The parties shall provide mutual assistance to encourage users to adopt the services provided by the EGNOS and SBAS-ASECNA systems and to promote corresponding development of the markets. Article 14 Service areas The parties shall consult each other on the definitions of the EGNOS SoL service area and the SBAS-ASECNA service area to avoid any problems in operation, especially with regard to interoperability and responsibility. The parties shall strive to identify joint solutions in that regard. In the event of the EGNOS SoL service area covering part of the area under ASECNA's responsibility and in the event of the SBAS-ASECNA service area covering part of the territory of the Member States of the European Union, a process for commitment to and monitoring of performance, establishing respective obligations, shall be put in place. In the event of the EGNOS SoL service area and the SBAS-ASECNA service area covering a territory located outside the territory of the Member States of the European Union and the ASECNA's area of responsibility — or overlapping with a system other than EGNOS and SBAS-ASECNA — the parties shall inform each other and shall coordinate their representations to the authorities of the territory or territories in question to ensure that joint solutions can be found to the problems posed, particularly with regard to interoperability and responsibility. Article 15 Public procurement 1. The Union shall assist ASECNA, at its request, in preparing the documents for calls for tender and in analysing bids in the course of awarding contracts for the setting up and operation of the SBAS-ASECNA system. 2. Without prejudice to Article XXIII of the Agreement on Government Procurement concluded under the auspices of the World Trade Organisation (Article III of the revised Agreement), public bodies and enterprises in Member States of the European Union are entitled to participate in tenders on the setting up and operation of the SBAS-ASECNA system, unless a conflict of interest exists. 3. Acquisitions for the setting up and operation of the EGNOS and SBAS-ASECNA systems may be covered by joint Union and ASECNA public procurement depending on the interests of each of the parties, particularly with regard to ground stations and transponders. Article 16 Intellectual property rights 1. Each party shall make available to the other party free of charge all intellectual property rights on the work or inventions of which it is the owner and which are of use in setting up and operating the EGNOS and SBAS-ASECNA systems. This Agreement is equivalent to a licence to use those rights. If one of the parties creates or generates new intellectual property rights based on the intellectual property rights made available by the other party, the latter shall become the holder of the new intellectual property rights thus created or generated and shall provide free of charge a licence to use these new rights to the party which created or generated them. However, the party that is the holder of these new rights may not grant a licence to a third party without the explicit agreement of the other party. The conditions for using the licence in the first and second subparagraphs are laid down in paragraphs 2 and 3. 2. The licence for use mentioned in the first subparagraph of paragraph 1 is personal, non-exclusive and non-transmissible, without prejudice to the provisions of the second subparagraph of the paragraph 1. Depending on the case, it comprises the right to use, have used, modify, reproduce and manufacture, for the sole purpose of setting up and operating the EGNOS and SBAS-ASECNA systems. One party may not make available to a third party nor market in any manner the intellectual property rights made available to it by the other party in compliance with the first subparagraph of paragraph 1 without the express consent of that other party unless it does so as part of a public procurement procedure or contracts awarded by one or other of the parties for the setting up and operation of the EGNOS system, the system produced by the Galileo programme and the SBAS-ASECNA system. 3. Each party shall keep up to date a register of intellectual property rights that it makes available to the other party pursuant to the first subparagraph of paragraph 1. It shall provide the other party with a copy. For every intellectual property right made available, the register shall specify: — the subject of the right, such as an invention, software, database, etc., — the nature of the right, such as copyright, patent, etc., — the right of use granted, such as the right to reproduce, adapt, manufacture etc., — the territory for which the right is made available, — the duration for which it is made available. 4. Each party which grants the other party a licence for use pursuant to the first subparagraph of paragraph 1 may terminate that licence if it finds that the conditions for exercising it provided for in paragraphs 2 and 3 have not been complied with. 5. The parties shall provide and ensure adequate and effective protection for intellectual property rights in the domains and sectors related to the setting up and operation of the EGNOS and SBAS-ASECNA systems in compliance with the highest ranking international standards laid down by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organisation, also by providing for effective means to ensure that these standards are complied with. SUB-PART II OTHER ACTIVITIES Article 17 Galileo 1. The parties shall cooperate in order to promote and utilise the system produced by the Galileo programme on the African continent, in particular by developing applications and usage of the services based on this system in the fields of timing, navigation, surveillance, and search and rescue, and by highlighting the benefits of the applications and the services based on this system. 2. ASECNA shall abstain from any action or initiative which is likely to be prejudicial to the Union's interests with regard to intellectual property rights linked with the Galileo programme. Article 18 Radio spectrum 1. The parties shall cooperate with and assist each other in respect of radio frequency spectrum management by the International Telecommunication Union (hereinafter ‘ITU’), especially for the protection of frequency bands linked to satellite navigation services and aviation communications. 2. The parties shall exchange information and assist each other with regard to the sharing and allocation of frequencies by the ITU. They shall encourage and protect allocations of frequencies for the EGNOS and SBAS-ASECNA systems, and for the system established under the Galileo programme, in order to assure the accessibility of services offered by these systems in the Union and in Africa. 3. In order to protect the navigation radio spectrum against disruptions such as jamming, whether intentional or not, and ‘masking’, the parties shall strive to identify sources of disruption and seek mutually acceptable solutions. 4. Nothing in this Agreement may be interpreted as a derogation from the relevant provisions of the ITU, particularly those governing radio communications. Article 19 Standards, certification and international organisations 1. The parties shall seek to adopt a joint approach to standardisation and to all the issues concerning satellite navigation systems handled by international organisations and associations, especially the International Civil Aviation Organisation, the Radio Technical Commission for Aeronautics and the European Organisation for Civil Aviation Equipment (EUROCAE), and associations or groups active in the field of standardisation. 2. The parties shall jointly support the development of satellite navigation standards in international organisations, especially the ICAO standards and recommended practices (SARPs) and the RTCA and EUROCAE minimum operational performance specifications (MOPS). They shall assist each other in seeking recognition of Galileo, EGNOS and SBAS-ASECNA standards by these international organisations and strive to promote their application throughout the world, emphasising their interoperability with other satellite navigation systems. Article 20 Security In order to protect European satellite navigation systems and the SBAS-ASECNA system against threats or malicious action, such as intentional jamming and ‘masking’, the parties shall take all possible measures, particularly with regard to control and non-proliferation of the technologies, to ensure the continuity, security and safety of satellite navigation services and their infrastructure and essential associated assets without prejudice to Article 6(2). Article 21 Research and development The parties shall seek to conduct joint research and development activities on satellite navigation, especially with a view to developing and planning future technological advances in satellite navigation systems. Each party shall encourage the other to participate in its research and development programmes. The Union shall facilitate access by ASECNA to the funds available under its framework research and development programmes. Article 22 Human resources On the basis of its own experience, the Union shall provide ASECNA with all the information which is relevant for managing the human resources required for implementing the SBAS-ASECNA programme. The Union shall assist ASECNA in developing the jobs and skills necessary for setting up and operating the SBAS-ASECNA system. The Union shall support any cooperation and partnership initiative between ASECNA and the entities involved in reinforcing capacity in the fields relating to European satellite navigation programmes. It shall also facilitate access by ASECNA to funds available under European training programmes. Joint training activities may be conducted to meet the needs for setting up and operating the EGNOS, SBAS-ASECNA and Galileo system and for preparing their technological development. Article 23 Communication and awareness-raising The parties shall seek to conduct joint communication and promotion activities for their respective satellite navigation programmes. The Union shall assist ASECNA in defining and implementing communication strategies targeting both the entities affected by the setting up and operation of the SBAS-ASECNA system and the public at large. Article 24 Exchanges of personnel The parties shall exchange personnel in the course of the cooperation activities provided for by this Agreement. Article 25 Promotion of satellite navigation on the African continent The parties shall assist each other in promoting satellite navigation on the African continent and shall consult with each other whenever there is a need to agree on joint action to be taken on that front. In particular, they shall support initiatives likely to promote the adoption of satellite navigation by users and development of the markets associated with this technology. PART III FINANCIAL PROVISIONS Article 26 Funding 1. ASECNA shall finance the setting up and operation of the SBAS-ASECNA system from its own resources, aid or subsidies, especially those covered by paragraph 3, loans contracted with financial institutions or any other means of financing subject to the provisions of paragraph 2. 2. Setting up and operation of the SBAS-ASECNA system may not under any circumstances be financed by budgetary contributions earmarked for European satellite navigation and covered by Chapter II of Regulation (EU) No 1285/2013 of the European Parliament and of the Council of 11 December 2013. 3. For the setting up and operation of the SBAS-ASECNA system, the Union shall facilitate access by ASECNA to EU cooperation and development funds for which ASECNA is eligible, both for current and future programmes. The current programmes are the pan-African programme covered by Article 9 and Annex III to Regulation (EU) No 233/2014 of the European Parliament and of the Council of 11 March 2014 establishing a financing instrument for developing cooperation for the period 2014-2020, and those under the EU-Africa Trust Fund for Infrastructure provided for in the Communication from the Commission to the Council and the European Parliament of 13 July 2006 — Interconnecting Africa: the EU-Africa Partnership on Infrastructure COM(2006) 376 final. PART IV FINAL PROVISIONS Article 27 Legal responsibility 1. As ASECNA is not the owner of the European satellite navigation systems, it will not incur any liability linked to ownership of the systems. As the Union is not the owner of the SBAS-ASECNA system, it will not incur any liability linked with ownership of that system. 2. Neither of the parties may be held liable for damage resulting from the use by the other party of technologies covered by this Agreement, nor do they guarantee the sound functioning thereof. Article 28 Exchange of classified information The parties shall exchange classified information only if they have entered into an agreement to that effect. They shall seek to put in place a comprehensive and coherent legal framework enabling such an agreement to be concluded. Article 29 Joint committee 1. A joint committee, called the ‘GNSS EU/ASECNA Committee’ shall be set up. It shall be made up of representatives of the parties and is responsible for management and correct implementation of this Agreement. To that end, it shall take decisions in the cases covered by this Agreement, which shall be implemented by the parties in accordance with their own rules. The joint committee's decisions are taken by mutual agreement. The joint committee shall also draft recommendations on issues for which it has no authority to decide. The joint committee shall define the conditions and arrangements that are not specified in this Agreement. 2. The joint committee shall establish its rules of procedure, including, amongst other provisions, the arrangements for convening meetings, designating the chairperson, defining the latter's mandate and contacts between the parties. 3. The joint committee shall meet as required. The Union or ASECNA may request that a meeting be convened. The joint committee shall meet within fifteen days of a request. 4. The joint committee may decide to form any working group or group of experts which it deems suitable to assist it in accomplishing its tasks. 5. The joint committee may decide to amend Annex I. Article 30 Consultations 1. For the purposes of correct performance of this Agreement, the parties shall regularly exchange information and, at the request of either one of them, shall meet in the joint committee. 2. The parties shall consult each other rapidly, at the request of one of them, on any issue concerning the interpretation or implementation of this Agreement. 3. The parties shall provide each other regularly with information and shall mutually raise awareness of the management and development of their own satellite navigation programmes. If one party envisages taking a decision which may affect the other party's satellite navigation system(s), the latter shall be consulted first in order for it to draft a non-binding opinion. If the requirements of confidentiality provided for by the rules applicable to the parties do not preclude it, each party shall allow a representative of the other party to participate, as an observer, in its working parties and management bodies and committees. Article 31 Safeguard measures 1. Either party may, after consultation in the joint committee, take any safeguard measures which are required, including suspension of one or more cooperation activities, if it considers that an equivalent level of control of exports or of safety is no longer ensured between the parties. If any delay runs the risk of compromising the sound functioning of the European satellite navigation systems or the SBAS-ASECNA system, provisional precautionary measures may be decreed without prior consultation, as long as consultations are undertaken immediately after the measures have been adopted. 2. The scope and duration of the measures referred to in paragraph 1 shall be confined to what is necessary to control a situation and ensure that there is a fair balance between the rights and obligations under this Agreement. The other party may request the joint committee to initiate consultations on the proportionality of these measures. If it is impossible to settle this dispute in six months, it may be submitted to a binding arbitration body by one of the parties, in keeping with the procedure provided for in Annex I. No question of interpretation of the provisions of this Agreement which are identical to corresponding provisions of Union law may be settled in this context. Article 32 Settlement of disputes Without prejudice to Article 31, disputes concerning interpretation or implementation of this Agreement shall be settled by joint committee consultations. If a dispute is not settled within three months following the date of referral to the joint committee, the arbitration procedure provided for in Annex I is used. Article 33 Annexes The annexes to this Agreement are an integral part of it. Article 34 Amendments This Agreement may be amended and extended at any moment by a signed amendment between the parties following the respective internal procedures. Article 35 Termination 1. The Union or ASECNA may terminate this Agreement by notifying its decision to the other party. The Agreement shall cease to be applicable six months after receipt of that notification. 2. Termination of this Agreement is without prejudice to the validity or duration of any substantive provisions agreed in the course of its performance. Nor is it prejudicial to specific rights and obligations established with regard to intellectual property in the Agreement, and a party which has granted the other party a licence for use shall retain, after termination of the Agreement, the right to terminate it if it finds that the conditions for exercising the licence are not complied with. 3. If this Agreement is terminated, the joint committee shall make a proposal for the parties to settle any question in abeyance which has financial consequences, taking account, where necessary, of the principle of pro rata temporis. Article 36 Entry into force 1. This Agreement is approved by the parties in accordance with their internal procedures. It shall enter into force on the first day of the first month following the date of signature by the party which was the last to complete this formality. 2. This Agreement, drawn up in duplicate in the French language only, is concluded for an indefinite period. For the European Union For ASECNA (1) OJ L 347, 20.12.2013, p. 1. (2) OJ L 276, 20.10.2010, p. 11. ANNEX I ARBITRATION PROCEDURE If a dispute is referred to arbitration, three arbitrators shall be designated unless the parties decide otherwise. Each party shall designate an arbitrator within thirty days of a disagreement being noted in the joint committee. The two arbitrators so appointed shall, by common agreement, nominate an umpire who shall not be a national of the parties. If they cannot agree within two months of their appointment, the umpire shall be chosen by them from seven persons on a list established by the joint committee. The joint committee shall draw up and update this list in accordance with its rules of procedure. Unless the parties decide otherwise, the arbitration tribunal shall adopt its rules of procedure. It shall take its decisions by majority vote.\n<|assistant|>\nCooperation Agreement between the EU and the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) Cooperation Agreement between the EU and the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) SUMMARY OF: Cooperation Agreement between the EU and the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) on developing satellite navigation and providing associated services in ASECNA’s area of competence for the benefit of civil aviation Decision (EU) 2018/1603 concluding on behalf of the EU of the Cooperation Agreement between the EU and the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) Decision (EU) 2016/2234 on the signing on behalf of EU of the Cooperation Agreement between the EU and the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) WHAT IS THE AIM OF THE AGREEMENT AND DECISIONS? The agreement aims to use the expertise of European satellite navigation programmes to help the 17 African member countries of the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) develop their own facilities and systems. Decision (EU) 2016/2234 and Decision (EU) 2018/1603 mark respectively the EU’s signing and approval of the agreement. KEY POINTS The agreement applies the following principles: mutual advantage, balancing rights and obligations; possibility of participating in each other’s activities; timely exchange of all relevant information; protection of intellectual property rights. The cooperation covers: setting up and operating the SBAS- (satellite-based augmentation systems) ASECNA system; general promotion in Africa of satellite navigation services and specifics, such as radio spectrum, standards, safety, R&D, communication and staff exchanges. The EU: may delegate some tasks to the European global navigation satellite system (GNSS) Agency or the European Union Aviation Safety Agency; supports cooperation and partnership between ASECNA and European programmes, such as the European Geostationary Navigation Overlay Service (EGNOS), the European global satellite-based navigation system (Galileo) and the European Space Agency; helps ASECNA design, establish, certify and operate the new system, including the development of its basic architecture, Ranging Integrity Monitoring Systems (RIMS), control stations, data dissemination services and human resources management. The EU and ASECNA: consult each other on the EGNOS Safety of Life (SoL) and SBAS-ASECNA service areas, especially on interoperability and responsibility, to avoid operational problems; make available to each other free of charge all their intellectual property rights, listing these in an up to date register; promote use of the Galileo programme in Africa; cooperate on radio frequency spectrum management by the International Telecommunication Union; seek a joint approach to standardisation and satellite navigation systems in international organisations and associations; take measures to ensure the continuity, security and safety of satellite navigation services; conduct joint R&D and communication and promotion activities for their respective programmes; regularly exchange information and consult each other quickly when requested; are not responsible for any liabilities linked to the other’s systems. ASECNA covers the cost of the SBAS-ASECNA system, but is eligible for EU cooperation and development funds. A joint committee, the GNSS EU/ASECNA committee, with representatives from each partner, is responsible for management and correct implementation of the agreement. Disputes are settled by arbitration and either party may terminate the agreement with 6 months’ notice. DATE OF ENTRY INTO FORCE The agreement entered into force on 1 November 2018. BACKGROUND ASECNA, the Agency for Air Navigation Safety in Africa and Madagascar, is an international public organisation with 17 African members and France. Created in 1959, its main mission is to provide air navigation and aeronautical information and meteorology services within a single airspace of more than 16 million square kilometres. For more information, see: SBAS Implementation in the regions ACAC and ASECNA (European Global Navigation Satellite Systems Agency). MAIN DOCUMENTS Cooperation Agreement between the European Union and the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) on the development of satellite navigation and the provision of associated services in ASECNA’s area of competence for the benefit of civil aviation (OJ L 268, 26.10.2018, pp. 3-15) Council Decision (EU) 2018/1603 of 18 September 2018 on the conclusion on behalf of the Union of the Cooperation Agreement between the European Union and the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) on the development of satellite navigation and the provision of associated services in ASECNA’s area of competence for the benefit of civil aviation (OJ L 268, 26.10.2018, pp. 1-2) Council Decision (EU) 2016/2234 of 21 November 2016 on the signing, on behalf of the Union, of the Cooperation Agreement between the European Union and the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) on the development of satellite navigation and the provision of associated services in ASECNA’s area of competence for the benefit of civil aviation (OJ L 337, 13.12.2016, pp. 1-2) RELATED DOCUMENTS Information relating to the entry into force of the ‘Cooperation Agreement between the European Union and the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA) on the development of satellite navigation and the provision of associated services in ASECNA’s area of competence for the benefit of civil aviation’ (OJ L 292, 19.11.2018, p. 1) Regulation (EU) 2018/1139 of the European Parliament and of the Council of 4 July 2018 on common rules in the field of civil aviation and establishing a European Union Aviation Safety Agency, and amending Regulations (EC) No 2111/2005, (EC) No 1008/2008, (EU) No 996/2010, (EU) No 376/2014 and Directives 2014/30/EU and 2014/53/EU of the European Parliament and of the Council, and repealing Regulations (EC) No 552/2004 and (EC) No 216/2008 of the European Parliament and of the Council and Council Regulation (EEC) No 3922/91 (OJ L 212, 22.8.2018, pp. 1-122) Regulation (EU) No 1285/2013 of the European Parliament and of the Council of 11 December 2013 on the implementation and exploitation of European satellite navigation systems and repealing Council Regulation (EC) No 876/2002 and Regulation (EC) No 683/2008 of the European Parliament and of the Council (OJ L 347, 20.12.2013, pp. 1-24) Regulation (EU) No 912/2010 of the European Parliament and of the Council of 22 September 2010 setting up the European GNSS Agency, repealing Council Regulation (EC) No 1321/2004 on the establishment of structures for the management of the European satellite radio navigation programmes and amending Regulation (EC) No 683/2008 of the European Parliament and of the Council (OJ L 276, 20.10.2010, pp. 11-21) Successive amendments to Regulation (EU) No 912/2010 have been incorporated into the original text. This consolidated version is of documentary value only. last update 10.09.2020\n<|endoftext|>"}}},{"rowIdx":94,"cells":{"text":{"kind":"string","value":"<|system|>\nYou are a helpful assistant that summarizes text clearly, accurately, and concisely.\n<|user|>\nSummarize the following text:\n31.10.2017 EN Official Journal of the European Union L 283/1 COUNCIL REGULATION (EU) 2017/1939 of 12 October 2017 implementing enhanced cooperation on the establishment of the European Public Prosecutor’s Office (‘the EPPO’) THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 86 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the notification by Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Germany, Finland, France, Greece, Lithuania, Luxembourg, Portugal, Romania, Slovakia, Slovenia and Spain, by which those Member States on 3 April 2017 notified the European Parliament, the Council and the Commission of their wish to establish enhanced cooperation on the basis of the draft Regulation, Having regard to the consent of the European Parliament (1), Acting in accordance with a special legislative procedure, Whereas: (1) The Union has set itself the objective of establishing an area of freedom, security and justice. (2) The possibility of setting up the European Public Prosecutor’s Office (‘the EPPO’) is foreseen by the Treaty on the Functioning of the European Union (TFEU) in the Title concerning the area of freedom, security and justice. (3) Both the Union and the Member States of the European Union have an obligation to protect the Union’s financial interests against criminal offences, which generate significant financial damages every year. Yet, these offences are currently not always sufficiently investigated and prosecuted by the national criminal justice authorities. (4) On 17 July 2013, the Commission adopted a proposal for a Council Regulation on the establishment of the EPPO. (5) At its meeting of 7 February 2017, the Council registered the absence of unanimity on the draft Regulation. (6) In accordance with the second subparagraph of Article 86(1) TFEU, a group of seventeen Member States requested, by a letter of 14 February 2017, that the draft Regulation be referred to the European Council. (7) On 9 March 2017, the European Council discussed the draft Regulation and noted that there was disagreement within the meaning of the third subparagraph of Article 86(1) TFEU. (8) On 3 April 2017, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Finland, France, Germany, Greece, Lithuania, Luxembourg, Portugal, Romania, Slovakia, Slovenia and Spain notified the European Parliament, the Council and the Commission that they wished to establish enhanced cooperation on the establishment of the EPPO. Therefore, in accordance with the third subparagraph of Article 86(1) TFEU, the authorisation to proceed with enhanced cooperation referred to in Article 20(2) of the Treaty on European Union (TEU) and Article 329(1) TFEU is deemed to be granted and the provisions on enhanced cooperation apply as from 3 April 2017. In addition, respectively by letters of 19 April 2017, 1 June 2017, 9 June 2017 and 22 June 2017, Latvia, Estonia, Austria and Italy indicated their wish to participate in the establishment of the enhanced cooperation. (9) In accordance with Article 328(1) TFEU, when enhanced cooperation is being established it is to be open to all Member States of the European Union. It is also to be open to them at any other time, including with regard to an enhanced cooperation in progress subject to compliance with the acts already adopted within that framework. The Commission and the Member States which participate in enhanced cooperation on the establishment of the EPPO (the ‘Member States’) should ensure that they promote participation by as many Member States of the European Union as possible. This Regulation should be binding in its entirety and directly applicable only in the Member States which participate in enhanced cooperation on the establishment of the EPPO, or by virtue of a decision adopted in accordance with the second or third subparagraph of Article 331(1) TFEU. (10) In accordance with Article 86 TFEU, the EPPO should be established from Eurojust. This implies that this Regulation should establish a close relationship between them based on mutual cooperation. (11) The TFEU provides that the material scope of competence of the EPPO is limited to criminal offences affecting the financial interests of the Union in accordance with this Regulation. The tasks of the EPPO should thus be to investigate, prosecute and bring to judgment the perpetrators of offences against the Union’s financial interests under Directive (EU) 2017/1371 of the European Parliament and of the Council (2) and offences which are inextricably linked to them. Any extension of this competence to include serious crimes having a cross-border dimension requires a unanimous decision of the European Council. (12) In accordance with the principle of subsidiarity, combatting crimes affecting the financial interests of the Union can be better achieved at Union level by reason of its scale and effects. The present situation, in which the criminal prosecution of offences against the Union’s financial interests is exclusively in the hands of the authorities of the Member States of the European Union, does not always sufficiently achieve that objective. Since the objectives of this Regulation, namely, to enhance the fight against offences affecting the financial interests of the Union by setting up the EPPO, cannot be sufficiently achieved by the Member States of the European Union, given the fragmentation of national prosecutions in the area of offences committed against the Union’s financial interests but can rather, by reason of the fact that the EPPO is to have competence to prosecute such offences, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 TEU. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives and ensures that its impact on the legal orders and the institutional structures of the Member States is the least intrusive possible. (13) This Regulation provides for a system of shared competence between the EPPO and national authorities in combating crimes affecting the financial interests of the Union, based on the right of evocation of the EPPO. (14) In the light of the principle of sincere cooperation, both the EPPO and the competent national authorities should support and inform each other with the aim of efficiently combatting the crimes falling under the competence of the EPPO. (15) This Regulation is without prejudice to Member States’ national systems concerning the way in which criminal investigations are organised. (16) Since the EPPO is to be granted powers of investigation and prosecution, institutional safeguards should be put in place to ensure its independence as well as its accountability towards the institutions of the Union. (17) The EPPO should act in the interest of the Union as a whole and neither seek nor take instructions from any person external to the EPPO. (18) Strict accountability is a complement to the independence and the powers granted to the EPPO under this Regulation. The European Chief Prosecutor is fully accountable for the performance of his/her duties as the head of the EPPO and as such he/she bears an overall institutional accountability for its general activities to the European Parliament, the Council and the Commission. As a result, any of these institutions can apply to the Court of Justice of the European Union (the ‘Court of Justice’), with a view to his/her removal under certain circumstances, including in cases of serious misconduct. The same procedure should apply for the dismissal of European Prosecutors. (19) The EPPO should issue a public Annual Report on its general activities, which at a minimum should contain statistical data on the work of the EPPO. (20) The organisational structure of the EPPO should allow quick and efficient decision-making in the conduct of criminal investigations and prosecutions, whether they involve one or several Member States. The structure should also ensure that all national legal systems and traditions of the Member States are represented in the EPPO, and that prosecutors with knowledge of the individual legal systems will in principle handle investigations and prosecutions in their respective Member States. (21) To that end, the EPPO should be an indivisible Union body operating as a single office. The central level consists of a European Chief Prosecutor, who is the head of the EPPO as a whole and the head of the College of European Prosecutors, Permanent Chambers and European Prosecutors. The decentralised level consists of European Delegated Prosecutors located in the Member States. (22) In addition, to ensure consistency in its action and thus an equivalent protection of the Union’s financial interests, the organisational structure and the internal decision-making process of the EPPO should enable the Central Office to monitor, direct and supervise all investigations and prosecutions undertaken by European Delegated Prosecutors. (23) In this Regulation, the terms ‘general oversight’, ‘monitoring and directing’ and ‘supervision’ are used to describe different control activities exercised by the EPPO. ‘General oversight’ should be understood as referring to the general administration of the activities of the EPPO, in which instructions are only given on issues which have a horizontal importance for the EPPO. ‘Monitoring and directing’ should be understood as referring to the powers to monitor and direct individual investigations and prosecutions. ‘Supervision’ should be understood as referring to a closer and continuous oversight of investigations and prosecutions, including, whenever necessary, intervention and instruction-giving on investigations and prosecution matters. (24) The College should take decisions on strategic matters, including determining the priorities and the investigation and prosecution policy of the EPPO, as well as on general issues arising from individual cases, for example regarding the application of this Regulation, the correct implementation of the investigation and prosecution policy of the EPPO or questions of principle or of significant importance for the development of a coherent investigation and prosecution policy of the EPPO. The decisions of the College on general issues should not affect the duty to investigate and prosecute in accordance with this Regulation and national law. The College should use its best efforts to take decisions by consensus. If such a consensus cannot be reached, decisions should be taken by voting. (25) The Permanent Chambers should monitor and direct investigations and ensure the coherence of the activities of the EPPO. The composition of Permanent Chambers should be determined in accordance with the internal rules of procedure of the EPPO, which should allow, among other things, for a European Prosecutor to be a member of more than one Permanent Chamber where this is appropriate to ensure, to the extent possible, an even workload between individual European Prosecutors. (26) Permanent Chambers should be chaired by the European Chief Prosecutor, one of the deputy European Chief Prosecutors or a European Prosecutor, in accordance with principles laid down in the internal rules of procedure of the EPPO. (27) The allocation of cases between the Permanent Chambers should be based on a system of a random distribution so as to ensure, to the extent possible, an equal division of workload. Deviations from this principle should be possible to ensure the proper and efficient functioning of the EPPO on a decision by the European Chief Prosecutor. (28) A European Prosecutor from each Member State should be appointed to the College. The European Prosecutors should in principle supervise, on behalf of the competent Permanent Chamber, the investigations and prosecutions handled by the European Delegated Prosecutors in their Member State of origin. They should act as liaison between the central office and the decentralised level in their Member States, facilitating the functioning of the EPPO as a single office. The supervising European Prosecutor should also check any instruction’s compliance with national law and inform the Permanent Chamber if the instructions do not do so. (29) For reasons of workload linked to the high number of investigations and prosecutions in a given Member State, a European Prosecutor should be able to request that, exceptionally, the supervision of certain investigations and prosecutions in his/her Member State of origin may be assigned to other European Prosecutors. The decision should be taken by the European Chief Prosecutor with the agreement of the European Prosecutor who would take over the cases concerned. The criteria for such decisions should be laid down in the internal rules of procedure of the EPPO, and should include the requirement that the European Prosecutor taking over the cases has sufficient knowledge of the language and legal system of the Member State concerned. (30) The investigations of the EPPO should as a rule be carried out by European Delegated Prosecutors in the Member States. They should do so in accordance with this Regulation and, as regards matters not covered by this Regulation, in accordance with national law. European Delegated Prosecutors should carry out their tasks under the supervision of the supervising European Prosecutor and under the direction and instruction of the competent Permanent Chamber. Where the national law of a Member State provides for the internal review of certain acts within the structure of the national prosecutor’s office, the review of such decisions taken by the European Delegated Prosecutor should fall under the supervision powers of the supervising European Prosecutor in accordance with the internal rules of procedure of the EPPO. In such cases, Member States should not be obliged to provide for review by national courts, without prejudice to Article 19 TEU and Article 47 of the Charter of Fundamental Rights of the European Union (‘the Charter’). (31) The functions of prosecutor in competent courts apply until the conclusion of the proceedings, which is understood to mean the final determination of the question whether the suspect or accused person has committed the offence, including, where applicable, sentencing and the resolution of any legal action or remedies available until that decision has become definitive. (32) The European Delegated Prosecutors should be an integral part of the EPPO and as such, when investigating and prosecuting offences within the competence of the EPPO, they should act exclusively on behalf and in the name of the EPPO on the territory of their respective Member State. This should entail granting them under this Regulation a functionally and legally independent status which is different from any status under national law. (33) Notwithstanding their special status under this Regulation, the European Delegated Prosecutors should, during their term of office, also be members of the prosecution service of their Member State, namely a prosecutor or member of the judiciary, and should be granted by their Member State at least the same powers as national prosecutors. (34) The European Delegated Prosecutors should be bound to follow instructions coming from the Permanent Chambers and the European Prosecutors. Where a European Delegated Prosecutor considers that an instruction would require him/her to undertake any measure that would not be in compliance with national law, he/she should ask for a review of that instruction by the European Chief Prosecutor. (35) The European Delegated Prosecutor handling a case should report any significant developments in a case, such as the performance of investigative measures or changes to the list of suspected persons, to the supervising European Prosecutor and to the competent Permanent Chamber. (36) The Permanent Chambers should exercise their decision-making power at specific steps of the proceedings of the EPPO with a view to ensuring a common investigation and prosecution policy. They should adopt decisions on the basis of a draft decision proposed by the handling European Delegated Prosecutor. However, in exceptional cases, a Permanent Chamber should be able to adopt a decision without a draft decision of the handling European Delegated Prosecutor. In such cases, the European Prosecutor supervising the case may present such a draft decision. (37) A Permanent Chamber should be able to delegate its decision-making power to the supervising European Prosecutor in specific cases where an offence is not serious or the proceedings are not complex. When assessing the degree of seriousness of an offence, account should be taken of its repercussions at Union level. (38) A substitution mechanism between European Prosecutors should be provided for in the internal rules of procedure of the EPPO. The substitution mechanism should be used in cases where a European Prosecutor is briefly unable to fulfil his/her duties, for example, due to absence. (39) In addition, a European Prosecutor should be substituted by one of the European Delegated Prosecutors of his/her Member State when the European Prosecutor resigns, is dismissed or leaves his/her position for any other reason or in cases, for example, of prolonged illness. The substitution should be limited to a period of up to 3 months. The possibility to prolong this time limit should be left to the discretion of the College, where deemed to be necessary, taking into account the workload of the EPPO and the duration of the absence, pending replacement or return of the European Prosecutor. The European Delegated Prosecutor substituting the European Prosecutor should, for the period of the substitution, no longer be in charge of investigations and prosecutions handled by him/her as a European Delegated Prosecutor or as national prosecutor. With regard to proceedings of the EPPO which were handled by the European Delegated Prosecutor substituting a European Prosecutor, the EPPO’s rules on reallocation should apply. (40) The procedure for the appointment of the European Chief Prosecutor and the European Prosecutors should guarantee their independence. Their legitimacy should be drawn from the institutions of the Union involved in the appointment procedure. The Deputies to the European Chief Prosecutor should be appointed by the College from among its members. (41) A selection panel should establish a short list of candidates for the position of European Chief Prosecutor. The power to establish the panel’s operating rules and to appoint its members should be conferred on the Council, based on a proposal from the Commission. Such an implementing power would mirror the specific powers conferred on the Council under Article 86 TFEU, and reflects the specific nature of the EPPO, which will remain firmly embedded in national legal structures while at the same time being a Union body. The EPPO will be acting in proceedings where most other actors will be national, such as courts, police and other law enforcement authorities, and therefore the Council has a specific interest in being closely involved in the appointment procedure. Conferring those powers on the Council also adequately takes into account the potential sensitive nature of any decision-making powers with direct implications for the national judicial and prosecution structures. The European Parliament and the Council should appoint, by common accord, one of the shortlisted candidates as Chief Prosecutor. (42) Each Member State should nominate three candidates for the position of European Prosecutor to be selected and appointed by the Council. With a view to ensuring the continuity of the work of the College, there should be a partial replacement of one third of the European Prosecutors every 3 years. The power to adopt transitional rules for the appointment of European Prosecutors for and during the first mandate period should be conferred on the Council. That implementing power mirrors the power of the Council to select and appoint the European Prosecutors. This is also justified by the specific nature of the European Prosecutors as being linked to their respective Member States while at the same time being Members of the College and more generally, by the specific nature of the EPPO following the same logic underlying the implementing power conferred on the Council to establish the panel’s operating rules and to appoint its members. The Council should take into account the geographical range of the Member States when deciding on the partial replacement of one third of the European Prosecutors during their first mandate period. (43) The procedure for the appointment of the European Delegated Prosecutors should ensure that they are an integral part of the EPPO while they remain integrated at an operational level in their national legal systems and judicial and prosecution structures. Member States should nominate candidates for the position of European Delegated Prosecutors, who should be appointed by the College on a proposal by the European Chief Prosecutor. (44) There should be two or more European Delegated Prosecutors in each Member State to ensure the proper handling of the caseload of the EPPO. The European Chief Prosecutor should approve the number of European Delegated Prosecutors per Member State, as well as the functional and territorial division of tasks among them, in consultation with each Member State. In such consultations, due account should be taken of the organisation of the national prosecution systems. The notion of functional division of competences between European Delegated Prosecutors could allow for a division of tasks. (45) The total number of European Delegated Prosecutors in a Member State may be modified with the approval of the European Chief Prosecutor, subject to the limits of the annual budget line of the EPPO. (46) The College should be responsible for disciplinary procedures concerning European Delegated Prosecutors acting under this Regulation. Since European Delegated Prosecutors remain active members of the public prosecution or the judiciary of the Member States, and may also exercise functions as national prosecutors, national disciplinary provisions may apply for reasons not connected with this Regulation. However, in such cases the European Chief Prosecutor should be informed of the dismissal or of any disciplinary action, given his responsibilities for the management of the EPPO and in order to protect its integrity and independence. (47) The work of the EPPO should, in principle, be carried out in electronic form. A case management system should be established, owned and managed by the EPPO. The information in the case management system should include information received about possible offences that fall under the EPPO’s competence, as well as information from the case files, also when those have been closed. The EPPO should, when establishing the case management system, ensure that the system allows the EPPO to operate as a single office, where the case files administered by European Delegated Prosecutors are available to the Central Office for the exercise of its decision-making, monitoring and direction, and supervision tasks. (48) National authorities should inform the EPPO without delay of any conduct that could constitute an offence within the competence of the EPPO. In cases which fall outside its scope of competence, the EPPO should inform the competent national authorities of any facts of which it becomes aware, and which might constitute a criminal offence, for example false testimony. (49) Institutions, bodies, offices and agencies of the Union, as well as national authorities, should provide without delay any information to the EPPO about offences in respect of which it could exercise its competence. The EPPO may also receive or gather information from other sources, such as private parties. A verification mechanism in the EPPO should aim to assess whether, on the basis of the information received, the conditions for material, territorial and personal competence of the EPPO are fulfilled. (50) Whistle-blowers may bring new information to the attention of the EPPO thereby assisting it in its work to investigate, prosecute and bring to judgment perpetrators of offences affecting the Union’s financial interests. However, whistleblowing may be deterred by fear of retaliation. With a view to facilitating the detection of offences that fall within the competence of the EPPO, Member States are encouraged to provide, in accordance with their national law, effective procedures to enable reporting of possible offences that fall within the competence of the EPPO and to ensure protection of the persons who report such offences from retaliation, and in particular from adverse or discriminatory employment actions. The EPPO should develop its own internal rules if necessary. (51) In order to comply fully with their obligation to inform the EPPO where a suspicion of an offence within its competence is identified, the national authorities of the Member States as well as all institutions, bodies, offices and agencies of the Union should follow the existing reporting procedures and have in place efficient mechanisms for a preliminary evaluation of allegations reported to them. The institutions, bodies, offices and agencies of the Union may make use of the European Anti-Fraud Office (‘OLAF’) to that end. (52) Member States’ authorities should set up a system that ensures that information is reported to the EPPO as soon as possible. It is up to the Member States to decide whether to set up a direct or centralised system. (53) Compliance with that reporting obligation is essential for the EPPO’s good functioning and should be interpreted broadly to ensure that national authorities report cases where the assessment of some criteria is not immediately possible (for example the level of damage or the applicable penalty). The EPPO should also be able to request information from the Member States’ authorities on a case-by-case basis about other offences affecting the Union’s financial interests. This should not be considered as a possibility for the EPPO to request systematic or periodic information from Member States’ authorities concerning minor offences. (54) The efficient investigation of offences affecting the financial interests of the Union and the principle of ne bis in idem may require, in certain cases, an extension of the investigation to other offences under national law, where these are inextricably linked to an offence affecting the financial interests of the Union. The notion of ‘inextricably linked offences’ should be considered in light of the relevant case-law which, for the application of the ne bis in idem principle, retains as a relevant criterion the identity of the material facts (or facts which are substantially the same), understood in the sense of the existence of a set of concrete circumstances which are inextricably linked together in time and space. (55) The EPPO should have the right to exercise competence, where offences are inextricably linked and the offence affecting the Union’s financial interests is preponderant, in terms of the seriousness of the offence concerned, as reflected in the maximum sanctions that could be imposed. (56) However, the EPPO should also have the right to exercise competence in the case of inextricably linked offences where the offence affecting the financial interests of the Union is not preponderant in terms of sanctions levels, but where the inextricably linked other offence is deemed to be ancillary in nature because it is merely instrumental to the offence affecting the financial interests of the Union, in particular where such other offence has been committed for the main purpose of creating the conditions to commit the offence affecting the financial interests of the Union, such as an offence strictly aimed at ensuring the material or legal means to commit the offence affecting the financial interests of the Union, or to ensure the profit or product thereof. (57) The notion of offences relating to participation in a criminal organisation should be subject to the definition provided for in national law in accordance with Council Framework Decision 2008/841/JHA (3), and may cover, for example, membership in, or the organisation and leadership of, such a criminal organisation. (58) The competence of the EPPO regarding offences affecting the financial interests of the Union should, as a general rule, take priority over national claims of competence so that it can ensure consistency and provide steering of investigations and prosecutions at Union level. With regard to those offences the authorities of Member States should refrain from acting, unless urgent measures are required, until the EPPO has decided whether to conduct an investigation. (59) A particular case should be considered to have repercussions at Union level, inter alia, where a criminal offence has a transnational nature and scale, where such an offence involves a criminal organisation, or where the specific type of offence could pose a serious threat to the Union’s financial interests or the Union institutions’ credit and Union citizens’ confidence. (60) Where the EPPO cannot exercise its competence in a particular case because there is reason to assume that the damage caused, or likely to be caused, to the Union’s financial interests does not exceed the damage caused, or likely to be caused, to another victim, the EPPO should nevertheless be able to exercise its competence provided that it would be better placed to investigate or prosecute than the authorities of the respective Member State(s). The EPPO could appear to be better placed, inter alia, where it would be more effective to let the EPPO investigate and prosecute the respective criminal offence due to its transnational nature and scale, where the offence involves a criminal organisation, or where a specific type of offence could be a serious threat to the Union’s financial interests or the Union institutions’ credit and Union citizens’ confidence. In such a case the EPPO should be able to exercise its competence with the consent given by the competent national authorities of the Member State(s) where damage to such other victim(s) occurred. (61) When a judicial or law enforcement authority of a Member State initiates an investigation in respect of a criminal offence and considers that the EPPO could not exercise its competence, it should inform the EPPO thereof, in order to allow the latter to assess whether it should exercise competence. (62) In the case of disagreement over the questions of exercise of competence, the competent national authorities should decide on the attribution of competence. The notion of competent national authorities should be understood as any judicial authorities which have competence to decide on the attribution of competence in accordance with national law. (63) As the EPPO should bring prosecutions before national courts, its competence should be defined by reference to the criminal law of the Member States that criminalises acts or omissions affecting the Union’s financial interests and determines the applicable penalties by implementing the relevant Union legislation, in particular Directive (EU) 2017/1371, in national legal systems. (64) The EPPO should exercise its competence as broadly as possible so that its investigations and prosecutions may extend to offences committed outside the territory of the Member States. (65) The investigations and prosecutions of the EPPO should be guided by the principles of proportionality, impartiality and fairness towards the suspect or accused person. This includes the obligation to seek all types of evidence, inculpatory as well as exculpatory, either motu proprio or at the request of the defence. (66) In order to ensure legal certainty and to effectively combat offences affecting the Union’s financial interests, the investigation and prosecution activities of the EPPO should be guided by the legality principle, whereby the EPPO applies strictly the rules laid down in this Regulation relating in particular to competence and its exercise, the initiation of investigations, the termination of investigations, the referral of a case, the dismissal of the case and simplified prosecution procedures. (67) In order to best safeguard the rights of the defendant, in principle a suspect or accused person should only face one investigation or prosecution by the EPPO. Where an offence has been committed by several persons, the EPPO should in principle initiate only one case and conduct investigations in respect of all suspect or accused persons jointly. (68) Where several European Delegated Prosecutors have opened investigations in respect of the same criminal offence, the Permanent Chamber should where appropriate merge such investigations. The Permanent Chamber may decide not to merge such proceedings or decide to subsequently split such proceedings if this is in the interest of the efficiency of investigations, for example if proceedings against one suspect or accused person could be terminated at an earlier stage, whereas proceedings against other suspect or accused persons would still have to be continued, or if splitting the case could shorten the period of pre-trial detention of one of the suspects. Where different Permanent Chambers are in charge of the cases to be merged, the internal rules of procedure of the EPPO should determine the appropriate competence and procedure. Where the Permanent Chamber decides to split a case, its competence for the resulting cases should be maintained. (69) The EPPO should rely on national authorities, including police authorities, in particular for the execution of coercive measures. Under the principle of sincere cooperation, all national authorities and the relevant bodies of the Union, including Eurojust, Europol and OLAF, should actively support the investigations and prosecutions of the EPPO, as well as cooperate with it, from the moment a suspected offence is reported to the EPPO until the moment it determines whether to prosecute or otherwise dispose of the case. (70) It is essential for the effective investigation and prosecution of offences affecting the Union’s financial interests that the EPPO be able to gather evidence by using at least a minimum set of investigation measures, while respecting the principle of proportionality. Those measures should be available with regard to the offences that are within the mandate of the EPPO, at least where they are punishable by a maximum penalty of at least 4 years of imprisonment, for the purpose of its investigations and prosecutions, but may be subject to limitations in accordance with national law. (71) In addition to the minimum set of investigation measures listed in this Regulation, European Delegated Prosecutors should be entitled to request or to order any measures which are available to prosecutors under national law in similar national cases. Availability should be ensured in all situations where the indicated investigative measure exists but may be subject to limitations in accordance with national law. (72) In cross-border cases, the handling European Delegated Prosecutor should be able to rely on assisting European Delegated Prosecutors when measures need to be undertaken in other Member States. Where judicial authorisation is required for such a measure, it should be clearly specified in which Member State the authorisation should be obtained, but in any case there should be only one authorisation. If an investigation measure is finally refused by the judicial authorities, namely after all legal remedies have been exhausted, the handling European Delegated Prosecutor should withdraw the request or the order. (73) The possibility foreseen in this Regulation to have recourse to legal instruments on mutual recognition or cross-border cooperation should not replace the specific rules on cross-border investigations under this Regulation. It should rather supplement them to ensure that, where a measure is necessary in a cross-border investigation but is not available in national law for a purely domestic situation, it can be used in accordance with national law implementing the relevant instrument, when conducting the investigation or prosecution. (74) The provisions of this Regulation on cross-border cooperation should be without prejudice to existing legal instruments that facilitate cross-border cooperation between national authorities, other than prosecution or judicial authorities. The same should apply to national authorities cooperating on the basis of administrative law. (75) The provisions of this Regulation relating to pre-trial arrest and cross-border surrender should be without prejudice to the specific procedures in Member States where judicial authorisation is not required for the initial arrest of a suspect or accused person. (76) The handling European Delegated Prosecutor should be entitled to issue or request European Arrest Warrants within the area of competence of the EPPO. (77) The EPPO should be entitled to refer a case to national authorities, where the investigation reveals that the offence is outside the competence of the EPPO. In such a referral, national authorities should preserve their full prerogatives under national law to open, continue or dismiss the investigation. (78) This Regulation requires the EPPO to exercise the functions of a prosecutor, which includes taking decisions on a suspect or accused person’s indictment and the choice of the Member State whose courts will be competent to hear the prosecution. The decision whether to indict the suspect or accused person should in principle be made by the competent Permanent Chamber on the basis of a draft decision by the European Delegated Prosecutor, so that there is a common prosecution policy. The Permanent Chamber should be entitled to take any decision within 21 days of receiving the draft decision, including requesting further evidence, before deciding to bring a case to judgment, except a decision to dismiss a case where the European Delegated Prosecutor has proposed to bring the case to judgment. (79) The Member State whose courts will be competent to hear the prosecution should be chosen by the competent Permanent Chamber on the basis of a set of criteria laid down in this Regulation. The Permanent Chamber should take its decision on the basis of a report and a draft decision by the handling European Delegated Prosecutor, which should be transmitted to the Permanent Chamber by the supervising European Prosecutor with, if necessary, his/her own assessment. The supervising European Prosecutor should retain all the powers to give specific instructions to the European Delegated Prosecutor provided for in this Regulation. (80) The evidence presented by the EPPO in court should not be denied admission on the mere ground that the evidence was gathered in another Member State or in accordance with the law of another Member State, provided that the trial court considers its admission to respect the fairness of the procedure and the suspect or accused person’s rights of defence under the Charter. This Regulation respects the fundamental rights and observes the principles recognised by Article 6 TEU and in the Charter, in particular Title VI thereof, by international law and by international agreements to which the Union or all the Member States are party, including the European Convention for the Protection of Human Rights and Fundamental Freedoms, and by Member States’ constitutions in their respective fields of application. In line with those principles, and in respecting the different legal systems and traditions of the Member States as provided for in Article 67(1) TFEU, nothing in this Regulation may be interpreted as prohibiting the courts from applying the fundamental principles of national law on fairness of the procedure that they apply in their national systems, including in common law systems. (81) Taking into account the legality principle, the investigations of the EPPO should as a rule lead to prosecution in the competent national courts in cases where there is sufficient evidence and no legal ground bars prosecution, or where no simplified prosecution procedure has been applied. The grounds for dismissal of a case are exhaustively laid down in this Regulation. (82) National legal systems provide for various types of simplified prosecution procedures, which may or may not include involvement of a court, for example in the form of transactions with the suspect or accused person. If such procedures exist, the European Delegated Prosecutor should have the power to apply them under the conditions provided for in national law and in the situations provided for by this Regulation. Those situations should include cases where the final damage of the offence, after possible recovery of an amount corresponding to such damage, is not significant. Considering the interest of a coherent and effective prosecution policy of the EPPO, the competent Permanent Chamber should always be called upon to give its consent to the use of such procedures. When the simplified procedure has been successfully applied, the case should be finally disposed of. (83) This Regulation requires the EPPO to respect, in particular, the right to a fair trial, the rights of the defence and the presumption of innocence, as enshrined in Articles 47 and 48 of the Charter. Article 50 of the Charter, which protects the right not to be tried or punished twice in criminal proceedings for the same offence (ne bis in idem), ensures that there will be no double jeopardy as a result of the prosecutions brought by the EPPO. The activities of the EPPO should thus be exercised in full compliance with those rights and this Regulation should be applied and interpreted accordingly. (84) Article 82(2) TFEU allows the Union to establish minimum rules on rights of individuals in criminal proceedings, in order to ensure that the rights of defence and the fairness of the proceedings are respected. Those minimum rules have been gradually set out by the Union legislator in Directives on specific rights. (85) The rights of defence provided for in the relevant Union law, such as Directives 2010/64/EU (4), 2012/13/EU (5), 2013/48/EU (6), (EU) 2016/343 (7), (EU) 2016/1919 (8), of the European Parliament and of the Council as implemented by national law, should apply to the activities of the EPPO. Any suspect or accused person in respect of whom the EPPO initiates an investigation should benefit from those rights, as well as from the rights provided for in national law to request that experts are appointed or that witnesses are heard, or that evidence on behalf of the defence is otherwise produced by the EPPO. (86) Article 86(3) TFEU allows the Union legislator to determine the rules applicable to the judicial review of procedural measures taken by the EPPO in the performance of its functions. That competence granted to the Union legislator reflects the specific nature of the tasks and structure of the EPPO, which is different from that of all other bodies and agencies of the Union and requires special rules regarding judicial review. (87) According to Article 86(2) TFEU, the EPPO exercises its functions of prosecutor before the competent courts of the Member States. Acts undertaken by the EPPO in the course of its investigations are closely related to the prosecution which may result therefrom, and thus have effects in the legal order of the Member States. In many cases the acts will be carried out by national law enforcement authorities acting under the instructions of the EPPO, in some cases after having obtained the authorisation of a national court. It is therefore appropriate to consider that procedural acts of the EPPO that are intended to produce legal effects vis-à-vis third parties should be subject to review by the competent national courts in accordance with the requirements and procedures laid down by national law. This should ensure that the procedural acts of the EPPO that are adopted before the indictment and intended to produce legal effects vis-à-vis third parties (a category which includes the suspect, the victim, and other interested persons whose rights may be adversely affected by such acts) are subject to judicial review by national courts. Procedural acts that relate to the choice of the Member State whose courts will be competent to hear the prosecution, which is to be determined on the basis of the criteria laid down in this Regulation, are intended to produce legal effects vis-à-vis third parties and should therefore be subject to judicial review by national courts, at the latest at the trial stage. Actions before competent national courts for failures of the EPPO to act are those regarding procedural acts which the EPPO is under a legal obligation to adopt and which are intended to produce legal effects vis-à-vis third parties. Where national law provides for judicial review concerning procedural acts which are not intended to produce legal effects vis-à-vis third parties or for legal actions concerning other failures to act, this Regulation should not be interpreted as affecting such legal provisions. In addition, Member States should not be required to provide for judicial review by the competent national courts of procedural acts which are not intended to produce legal effects vis-à-vis third parties, such as the appointment of experts or the reimbursement of witness costs. Finally, this Regulation does not affect the powers of national trial courts. (88) The legality of procedural acts of the EPPO that are intended to produce legal effects vis-à-vis third parties should be subject to judicial review before national courts. In that regard, effective remedies should be ensured in accordance with the second subparagraph of Article 19(1) TEU. Furthermore, as underlined by the case-law of the Court of Justice, the national procedural rules governing actions for the protection of individual rights granted by Union law must be no less favourable than those governing similar domestic actions (principle of equivalence) and must not render practically impossible or excessively difficult the exercise of rights conferred by Union law (principle of effectiveness). When national courts review the legality of such acts, they may do so on the basis of Union law, including this Regulation, and also on the basis of national law, which applies to the extent that a matter is not dealt with by this Regulation. As underlined in the case-law of the Court of Justice, national courts should always refer preliminary questions to the Court of Justice when they entertain doubts about the validity of those acts vis-à-vis Union law. However, national courts may not refer to the Court of Justice preliminary questions on the validity of the procedural acts of the EPPO with regard to national procedural law or to national measures transposing Directives, even if this Regulation refers to them. This is however without prejudice to preliminary references concerning the interpretation of any provision of primary law, including the Treaties and the Charter, or the interpretation and validity of any provision of Union secondary law, including this Regulation and applicable Directives. In addition, this Regulation does not exclude the possibility for national courts to review the validity of the procedural acts of the EPPO which are intended to produce legal effects vis-à-vis third parties with regard to the principle of proportionality as enshrined in national law. (89) The provision of this Regulation on judicial review does not alter the powers of the Court of Justice to review the EPPO administrative decisions, which are intended to have legal effects vis-à-vis third parties, namely decisions that are not taken in the performance of its functions of investigating, prosecuting or bringing to judgement. This Regulation is also without prejudice to the possibility for a Member State of the European Union, the European Parliament, the Council or the Commission to bring actions for annulment in accordance with the second paragraph of Article 263 TFEU and to the first paragraph of Article 265 TFEU, and to infringement proceedings under Articles 258 and 259 TFEU. (90) Regulation (EC) No 45/2001 of the European Parliament and of the Council (9) applies to the processing of administrative personal data performed by the EPPO. (91) Consistent and homogeneous application of the rules for the protection of individuals’ fundamental rights and freedoms with regard to the processing of personal data should be ensured throughout the Union. (92) Declaration No 21 on the protection of personal data in the fields of judicial cooperation in criminal matters and police cooperation, annexed to the TEU and to the TFEU, provides that specific rules on the protection of personal data and the free movement of such data in the fields of judicial cooperation in criminal matters and police cooperation based on Article 16 TFEU may prove to be necessary because of the specific nature of these fields. (93) The rules of this Regulation on the protection of personal data should be interpreted and applied in accordance with the interpretation and application of Directive (EU) 2016/680 of the European Parliament and of the Council (10), which will apply to the processing of personal data by competent authorities of the Member States of the European Union for the purposes of the prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties. (94) The data protection principle of fair processing is a distinct notion from the right to a fair trial as defined in Article 47 of the Charter and in Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms. (95) The data protection provisions of this Regulation are without prejudice to the applicable rules on the admissibility of personal data as evidence in criminal court proceedings. (96) All Member States of the European Union are affiliated to the International Criminal Police Organisation (Interpol). To fulfil its mission, Interpol receives, stores and circulates personal data to assist competent authorities in preventing and combating international crime. It is therefore appropriate to strengthen cooperation between the Union and Interpol by promoting an efficient exchange of personal data whilst ensuring respect for fundamental rights and freedoms regarding the automatic processing of personal data. Where operational personal data are transferred from the EPPO to Interpol, and to countries which have delegated members to Interpol, this Regulation, in particular the provisions on international transfers, should apply. This Regulation should be without prejudice to the specific rules laid down in Council Common Position 2005/69/JHA (11) and Council Decision 2007/533/JHA (12). (97) When the EPPO transfers operational personal data to an authority of a third country or to an international organisation or Interpol by virtue of an international agreement concluded pursuant to Article 218 TFEU, appropriate safeguards for the protection of privacy and the fundamental rights and freedoms of individuals should ensure that the data protection provisions of this Regulation are complied with. (98) In order to ensure effective, reliable and consistent monitoring of compliance with and enforcement of this Regulation as regards operational personal data, as required by Article 8 of the Charter, the European Data Protection Supervisor should have the tasks laid down in this Regulation and should have effective powers, including investigative, corrective, and advisory powers which constitute the necessary means to perform those tasks. However, the powers of the European Data Protection Supervisor should not unduly interfere with specific rules for criminal proceedings, including investigation and prosecution of criminal offences, or the independence of the judiciary. (99) In order to enable the EPPO to fulfil its tasks and to take account of developments in information technology, and in light of the state of progress in the information society, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of listing and updating the list of the categories of operational personal data and the categories of data subjects listed in an Annex. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement on Better Law-Making of 13 April 2016 (13). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council should receive all documents at the same time as Member States’ experts, and their experts should systematically have access to meetings of the Commission expert group dealing with the preparation of delegated acts. (100) The EPPO should work closely with other institutions, bodies, offices and agencies of the Union in order to facilitate the exercise of its functions under this Regulation and establish, where necessary, formal arrangements on detailed rules relating to exchange of information and cooperation. Cooperation with Europol and OLAF should be of particular importance to avoid duplication and enable the EPPO to obtain the relevant information in their possession, as well as to draw on their analysis in specific investigations. (101) The EPPO should be able to obtain any relevant information that falls within its competence stored in databases and registers of the institutions, bodies, offices and agencies of the Union. (102) The EPPO and Eurojust should become partners and should cooperate in operational matters in accordance with their respective mandates. Such cooperation may involve any investigations conducted by the EPPO where an exchange of information or coordination of investigative measures in respect of cases within the competence of Eurojust is considered to be necessary or appropriate. Whenever the EPPO is requesting such cooperation of Eurojust, the EPPO should liaise with the Eurojust national member of the handling European Delegated Prosecutor’s Member State. The operational cooperation may also involve third countries that have a cooperation agreement with Eurojust. (103) The EPPO and OLAF should establish and maintain a close cooperation aimed at ensuring the complementarity of their respective mandates, and avoiding duplication. In that regard, OLAF should in principle not open any administrative investigations parallel to an investigation conducted by the EPPO into the same facts. This should, however, be without prejudice to the power of OLAF to start an administrative investigation on its own initiative, in close consultation with the EPPO. (104) In all actions in support of the EPPO, OLAF will act independently of the Commission, in accordance with Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council (14). (105) In cases where the EPPO is not conducting an investigation, it should be able to provide relevant information to allow OLAF to consider appropriate action in accordance with its mandate. In particular, the EPPO could consider informing OLAF of cases where there are no reasonable grounds to believe that an offence within the competence of the EPPO is being or has been committed, but an administrative investigation by OLAF may be appropriate, or where the EPPO dismisses a case and a referral to OLAF is desirable for administrative follow-up or recovery. When the EPPO provides information, it may request that OLAF considers whether to open an administrative investigation or take other administrative follow-up or monitoring action, in particular for the purposes of precautionary measures, recovery or disciplinary action, in accordance with Regulation (EU, Euratom) No 883/2013. (106) To the extent that recovery procedures are deferred as a result of decisions taken by the EPPO in connection with investigations or prosecutions under this Regulation, Member States should not be considered at fault or negligent for the purposes of recovery procedures within the meaning of Article 122 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (15). (107) The EPPO should enable the institutions, bodies, offices or agencies of the Union and other victims to take appropriate measures. This may include taking precautionary measures, in particular to prevent any continuous wrongdoing or to protect the Union from reputational damage, or to allow them to intervene as a civil party in the proceedings in accordance with national law. The exchange of information should take place in a manner that fully respects the independence of the EPPO, and only to the extent possible, without any prejudice to the proper conduct and confidentiality of investigations. (108) In so far as necessary for the performance of its tasks, the EPPO should also be able to establish and maintain cooperative relations with the authorities of third countries and international organisations. For the purpose of this Regulation, ‘international organisations’ means international organisations and their subordinate bodies governed by public international law or other bodies which are set up by, or on the basis of, an agreement between two or more countries as well as Interpol. (109) Where the College identifies an operational need for cooperation with a third country or an international organisation, it should be able to suggest that the Council draw the attention of the Commission to the need for an adequacy decision or for a recommendation on the opening of negotiations on an international agreement. Pending the conclusion of new international agreements by the Union or the accession by the Union to multilateral agreements already concluded by the Member States, on legal assistance in criminal matters, the Member States should facilitate the exercise by the EPPO of its functions pursuant to the principle of sincere cooperation enshrined in Article 4(3) TEU. If permitted under a relevant multilateral agreement and subject to the third country’s acceptance, the Member States should recognise and, where applicable, notify the EPPO as a competent authority for the purpose of the implementation of those multilateral agreements. This may entail, in certain cases, an amendment to those agreements but the renegotiation of such agreements should not be regarded as a mandatory step, since it may not always be possible. The Member States may also notify the EPPO as a competent authority for the purpose of the implementation of other international agreements on legal assistance in criminal matters concluded by them, including by way of an amendment to those agreements. Where the notification of the EPPO as a competent authority for the purposes of multilateral agreements already concluded by the Member States with third countries is not possible or is not accepted by the third countries and pending the Union accession to such international agreements, European Delegated Prosecutors may use their status as national prosecutor toward such third countries, provided that they inform and where appropriate endeavour to obtain consent from the authorities of third countries that the evidence collected from these third countries on the basis of those international agreements, will be used in investigations and prosecutions carried out by the EPPO. The EPPO should also be able to rely on reciprocity or international comity vis à-vis the authorities of third countries. This should however be carried out on a case-by-case basis, within the limits of the material competence of the EPPO and subject to possible conditions set by the authorities of the third countries. (110) Member States of the European Union which do not participate in enhanced cooperation on the establishment of the EPPO are not bound by this Regulation. The Commission should, if appropriate, submit proposals in order to ensure effective judicial cooperation in criminal matters between the EPPO and Member States of the European Union which do not participate in enhanced cooperation on the establishment of the EPPO. This should in particular concern the rules relating to judicial cooperation in criminal matters and surrender, fully respecting the Union acquis in this field as well as the duty of sincere cooperation in accordance with Article 4(3) TEU. (111) To guarantee the full autonomy and independence of the EPPO, it should be granted an autonomous budget, with revenue coming essentially from a contribution from the budget of the Union. The financial, budgetary and staff regime of the EPPO should follow the relevant Union standards applicable to bodies referred to in Article 208 of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council (16), with due regard, however, to the fact that the competence of the EPPO to carry out criminal investigations and prosecutions at Union level is unique. (112) The costs of investigation measures undertaken by the EPPO should in principle be covered by the national authorities carrying them out. Exceptionally high costs for investigation measures such as complex experts’ opinions, extensive police operations or surveillance activities over a long period of time could partly be reimbursed by the EPPO, including, where possible, by reallocating resources from other budget lines of the EPPO, or by amending the budget in accordance with this Regulation and the applicable financial rules. When preparing the proposal for the provisional draft estimate of the revenue and expenditure the Administrative Director should take into account the need of the EPPO to partly reimburse exceptionally costly investigation measures accepted by the Permanent Chamber. (113) Operational expenditures of the EPPO should be covered from the budget of the EPPO. These should include the cost of operational communication between the European Delegated Prosecutor and the central level of the EPPO, such as mail delivery costs, travel expenses, translations necessary for the internal functioning of the EPPO, and other costs not previously incurred by Member States during an investigation which are caused only due to the EPPO having assumed responsibilities for investigation and prosecution. However, the costs of the European Delegated Prosecutors’ office and secretarial support should be covered by the Member States. In accordance with Article 332 TFEU, expenditure resulting from the implementation of the EPPO will be borne by the Member States. That expenditure does not include the administrative costs entailed for the institutions within the meaning of Article 13(1) TEU. (114) The College should in principle always delegate its powers conferred on the appointing authority by the Staff Regulations of Officials and the Conditions of Employment of Other Servants (17) (‘the Staff Regulations and the Conditions of Employment’) to conclude contracts of employment, to the Administrative Director, unless specific circumstances call for it to exercise that power. (115) The Administrative Director, as authorising officer, is responsible for the implementation of the budget of the EPPO. When consulting with the Permanent Chamber regarding exceptionally costly investigation measures, the Administrative Director is responsible for deciding on the amount of the grant to be awarded, based on the available financial resources and in accordance with the criteria set out in the internal rules of procedure of the EPPO. (116) The remuneration of the European Delegated Prosecutors as special advisers, which will be set through a direct agreement, should be based on a specific decision to be taken by the College. This decision should, inter alia, ensure that the European Delegated Prosecutors, in the specific case that they also exercise functions as national prosecutors in accordance with Article 13(3), will in principle continue to be paid in their capacity as national prosecutors and that the remuneration as special adviser will only relate to the equivalent of the work on behalf of the EPPO in the capacity as a European Delegated Prosecutor. Each Member State retains the power to determine in its legislation, in compliance with Union law, the conditions for granting benefits under their social security scheme. (117) In order for the EPPO to be fully operational on the date to be determined, it will need staff with experience within the institutions, bodies, offices or agencies of the Union. With a view to meeting that need, the recruitment by the EPPO of temporary and contract agents already working in the institutions, bodies, offices or agencies of the Union should be facilitated by guaranteeing those staff members continuity of their contractual rights if they are recruited by the EPPO in its set-up phase until 1 year after the EPPO becomes operational in accordance with the decision in Article 120(2). (118) The EPPO’s proceedings should be transparent in accordance with Article 15(3) TFEU and specific provisions on how the right of public access to documents is ensured, would need to be adopted by the College. Nothing in this Regulation is intended to restrict the right of public access to documents in so far as it is guaranteed in the Union and in the Member States, in particular under Article 42 of the Charter and other relevant provisions. (119) The general rules on transparency that apply to Union agencies should also apply to the EPPO but only with regard to documents other than case files, including electronic images of such files, so as not to jeopardise in any manner the requirement of confidentiality in its operational work. In the same manner, administrative inquiries conducted by the European Ombudsman should respect the requirement of confidentiality of the EPPO. In view of ensuring the integrity of the investigations and prosecutions of the EPPO, documents relating to the operational activity should not be covered by the rules of transparency. (120) The European Data Protection Supervisory has been consulted and, on 10 March 2014, delivered an opinion. (121) The Representatives of the Member States, meeting at Head of State or Government level in Brussels on 13 December 2003, have determined the seat of the EPPO in accordance with the provisions of the Decision of 8 April 1965 (18), HAS ADOPTED THIS REGULATION: CHAPTER I SUBJECT MATTER AND DEFINITIONS Article 1 Subject matter This Regulation establishes the European Public Prosecutor’s Office (‘the EPPO’) and sets out rules concerning its functioning. Article 2 Definitions For the purposes of this Regulation, the following definitions apply: (1) ‘Member State’ means, except where otherwise indicated, in particular in Chapter VIII, a Member State which participates in enhanced cooperation on the establishment of the EPPO, as deemed to be authorised in accordance with the third subparagraph of Article 86(1) TFEU, or by virtue of a decision adopted in accordance with the second or third subparagraph of Article 331(1) TFEU; (2) ‘person’ means any natural or legal person; (3) ‘financial interests of the Union’ means all revenues, expenditures and assets covered by, acquired through, or due to the Union budget and the budgets of the institutions, bodies, offices and agencies established under the Treaties and budgets managed and monitored by them; (4) ‘staff of the EPPO’ means the personnel at the central level who supports the College, the Permanent Chambers, the European Chief Prosecutor, the European Prosecutors, the European Delegated Prosecutors and the Administrative Director in the day-to-day activities in the performance of the tasks of this Office under this Regulation; (5) ‘handling European Delegated Prosecutor’ means a European Delegated Prosecutor responsible for the investigations and prosecutions, which he/she has initiated, which have been allocated to him/her or which he/she has taken over using the right of evocation according to Article 27; (6) ‘assisting European Delegated Prosecutor’ means a European Delegated Prosecutor located in a Member State, other than the Member State of the handling European Delegated Prosecutor, where an investigation or other measure assigned to him/her is to be carried out; (7) ‘personal data’ means any information relating to an identified or identifiable natural person (‘data subject’); an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person; (8) ‘processing’ means any operation or set of operations which are performed on personal data or on sets of personal data, whether or not by automated means, such as collection, recording, organisation, structuring, storage, adaptation or alteration, retrieval, consultation, use, disclosure by transmission, dissemination or otherwise making available, alignment or combination, restriction, erasure or destruction; (9) ‘restriction of processing’ means the marking of stored personal data with the aim of limiting their processing in the future; (10) ‘profiling’ means any form of automated processing of personal data consisting of the use of personal data to evaluate certain personal aspects relating to a natural person, in particular to analyse or predict aspects concerning that natural person’s performance at work, economic situation, health, personal preferences, interests, reliability, behaviour, location or movements; (11) ‘pseudonymisation’ means the processing of personal data in such a manner that the personal data can no longer be attributed to a specific data subject without the use of additional information, provided that such additional information is kept separately and is subject to technical and organisational measures to ensure that the personal data are not attributed to an identified or identifiable natural person; (12) ‘filing system’ means any structured set of personal data which are accessible according to specific criteria, whether centralised, decentralised or dispersed on a functional or geographical basis; (13) ‘controller’ means the EPPO or another competent authority which, alone or jointly with others, determines the purposes and means of the processing of personal data; where the purposes and means of such processing are determined by Union law or the law of a Member State of the European Union, the controller or the specific criteria for its nomination may be provided for by Union law or the law of a Member State of the European Union; (14) ‘processor’ means a natural or legal person, public authority, agency or other body which processes personal data on behalf of the controller; (15) ‘recipient’ means a natural or legal person, public authority, agency or any other body to which the personal data are disclosed, whether a third party or not. However, Member States of the European Unions’ public authorities other than competent authorities defined in point 7(a) of Article 3 of Directive (EU) 2016/680, which receive personal data in the framework of a particular inquiry of the EPPO shall not be regarded as recipients; the processing of those data by those public authorities shall be in compliance with the applicable data protection rules according to the purposes of the processing; (16) ‘personal data breach’ means a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to, personal data transmitted, stored or otherwise processed; (17) ‘administrative personal data’ means all personal data processed by the EPPO apart from operational personal data; (18) ‘operational personal data’ means all personal data processed by the EPPO for the purposes laid down in Article 49; (19) ‘genetic data’ means personal data relating to the inherited or acquired genetic characteristics of a natural person which give unique information about the physiology or the health of that natural person and which result, in particular, from an analysis of a biological sample from the natural person in question; (20) ‘biometric data’ means personal data resulting from specific technical processing relating to the physical, physiological or behavioural characteristics of a natural person, which allow or confirm the unique identification of that natural person, such as facial images or dactyloscopic data; (21) ‘data concerning health’ means personal data related to the physical or mental health of a natural person, including the provision of health care services, which reveal information about his/her health status; (22) ‘supervisory authority’ means an independent public authority which is established by a Member State of the European Union pursuant to Article 51 of Regulation (EU) 2016/679 of the European Parliament and of the Council (19) or pursuant to Article 41 of Directive (EU) 2016/680; (23) ‘international organisation’ means an organisation and its subordinate bodies governed by public international law, or any other body which is set up by, or on the basis of, an agreement between two or more countries. CHAPTER II ESTABLISHMENT, TASKS AND BASIC PRINCIPLES OF THE EPPO Article 3 Establishment 1. The EPPO is hereby established as a body of the Union. 2. The EPPO shall have legal personality. 3. The EPPO shall cooperate with Eurojust and rely on its support in accordance with Article 100. Article 4 Tasks The EPPO shall be responsible for investigating, prosecuting and bringing to judgment the perpetrators of, and accomplices to, criminal offences affecting the financial interests of the Union which are provided for in Directive (EU) 2017/1371 and determined by this Regulation. In that respect the EPPO shall undertake investigations, and carry out acts of prosecution and exercise the functions of prosecutor in the competent courts of the Member States, until the case has been finally disposed of. Article 5 Basic principles of the activities 1. The EPPO shall ensure that its activities respect the rights enshrined in the Charter. 2. The EPPO shall be bound by the principles of rule of law and proportionality in all its activities. 3. The investigations and prosecutions on behalf of the EPPO shall be governed by this Regulation. National law shall apply to the extent that a matter is not regulated by this Regulation. Unless otherwise specified in this Regulation, the applicable national law shall be the law of the Member State whose European Delegated Prosecutor is handling the case in accordance with Article 13(1). Where a matter is governed by both national law and this Regulation, the latter shall prevail. 4. The EPPO shall conduct its investigations in an impartial manner and shall seek all relevant evidence whether inculpatory or exculpatory. 5. The EPPO shall open and conduct investigations without undue delay. 6. The competent national authorities shall actively assist and support the investigations and prosecutions of the EPPO. Any action, policy or procedure under this Regulation shall be guided by the principle of sincere cooperation. Article 6 Independence and accountability 1. The EPPO shall be independent. The European Chief Prosecutor, the Deputy European Chief Prosecutors, the European Prosecutors, the European Delegated Prosecutors, the Administrative Director, as well as the staff of the EPPO shall act in the interest of the Union as a whole, as defined by law, and neither seek nor take instructions from any person external to the EPPO, any Member State of the European Union or any institution, body, office or agency of the Union in the performance of their duties under this Regulation. The Member States of the European Union and the institutions, bodies, offices and agencies of the Union shall respect the independence of the EPPO and shall not seek to influence it in the exercise of its tasks. 2. The EPPO shall be accountable to the European Parliament, to the Council and to the Commission for its general activities, and shall issue annual reports in accordance with Article 7. Article 7 Reporting 1. Every year the EPPO shall draw up and publicly issue an Annual Report on its general activities in the official languages of the institutions of the Union. It shall transmit the report to the European Parliament and to national parliaments, as well as to the Council and to the Commission. 2. The European Chief Prosecutor shall appear once a year before the European Parliament and before the Council, and before national parliaments of the Member States at their request, to give account of the general activities of the EPPO, without prejudice to the EPPO’s obligation of discretion and confidentiality as regards individual cases and personal data. The European Chief Prosecutor may be replaced by one of the Deputy European Chief Prosecutors for hearings organised by national parliaments. CHAPTER III STATUS, STRUCTURE AND ORGANISATION OF THE EPPO SECTION 1 Status and structure of the EPPO Article 8 Structure of the EPPO 1. The EPPO shall be an indivisible Union body operating as one single Office with a decentralised structure. 2. The EPPO shall be organised at a central level and at a decentralised level. 3. The central level shall consist of a Central Office at the seat of the EPPO. The Central Office shall consist of the College, the Permanent Chambers, the European Chief Prosecutor, the Deputy European Chief Prosecutors, the European Prosecutors and the Administrative Director. 4. The decentralised level shall consist of European Delegated Prosecutors who shall be located in the Member States. 5. The Central Office and the European Delegated Prosecutors shall be assisted by the staff of the EPPO in their duties under this Regulation. Article 9 The College 1. The College of the EPPO shall consist of the European Chief Prosecutor and one European Prosecutor per Member State. The European Chief Prosecutor shall chair the meetings of the College and shall be responsible for their preparation. 2. The College shall meet regularly and shall be responsible for the general oversight of the activities of the EPPO. It shall take decisions on strategic matters, and on general issues arising from individual cases, in particular with a view to ensuring coherence, efficiency and consistency in the prosecution policy of the EPPO throughout the Member States, as well on other matters as specified in this Regulation. The College shall not take operational decisions in individual cases. The internal rules of procedure of the EPPO shall provide for modalities on the exercise by the College of the general oversight activities and for taking decisions on strategic matters and general issues in accordance with this Article. 3. On a proposal by the European Chief Prosecutor and following the internal rules of procedure of the EPPO, the College shall set up Permanent Chambers. 4. The College shall adopt internal rules of procedure of the EPPO in accordance with Article 21, and shall further stipulate the responsibilities for the performance of functions of the members of the College and the staff of the EPPO. 5. Unless otherwise stated in this Regulation, the College shall take decisions by simple majority. Any member of the College shall have the right to initiate voting on matters to be decided by the College. Each member of the College shall have one vote. The European Chief Prosecutor shall have a casting vote in the event of a tie vote on any matter to be decided by the College. Article 10 The Permanent Chambers 1. The Permanent Chambers shall be chaired by the European Chief Prosecutor or one of the Deputy European Chief Prosecutors, or a European Prosecutor appointed as Chair in accordance with the internal rules of procedure of the EPPO. In addition to the Chair, the Permanent Chambers shall have two permanent Members. The number of Permanent Chambers, and their composition, as well as the division of competences between the Chambers, shall take due account of the functional needs of the EPPO and be determined in accordance with the internal rules of procedure of the EPPO. The internal rules of procedure of the EPPO shall ensure an equal distribution of workload on the basis of a system of random allocation of cases and shall, in exceptional cases, establish procedures, where necessary for the proper functioning of the EPPO, to allow the European Chief Prosecutor to decide to deviate from the principle of random allocation. 2. The Permanent Chambers shall monitor and direct the investigations and prosecutions conducted by the European Delegated Prosecutors in accordance with paragraphs 3, 4 and 5 of this Article. They shall also ensure the coordination of investigations and prosecutions in cross-border cases, and shall ensure the implementation of decisions taken by the College in accordance with Article 9(2). 3. In accordance with the conditions and procedures set out by this Regulation, where applicable after reviewing a draft decision proposed by the handling European Delegated Prosecutor, the Permanent Chambers shall decide on the following issues: (a) to bring a case to judgment in accordance with Article 36(1), (3) and (4); (b) to dismiss a case in accordance with point (a) to (g) of Article 39(1); (c) to apply a simplified prosecution procedure and to instruct the European Delegated Prosecutor to act with a view to finally dispose of the case in accordance with Article 40; (d) to refer a case to the national authorities in accordance with Article 34(1), (2), (3) or (6); (e) to reopen an investigation in accordance with Article 39(2). 4. Where necessary, the Permanent Chambers shall take the following decisions, in accordance with the conditions and procedures set out in this Regulation: (a) to instruct the European Delegated Prosecutor to initiate an investigation in accordance with the rules in Article 26(1) to (4) where no investigation has been initiated; (b) to instruct the European Delegated Prosecutor to exercise the right of evocation in accordance with Article 27(6) where the case has not been evoked; (c) to refer to the College strategic matters or general issues arising from individual cases in accordance with Article 9(2); (d) to allocate a case in accordance with Article 26(3); (e) to reallocate a case in accordance with Article 26(5) or 28(3); (f) to approve the decision of a European Prosecutor to conduct the investigation himself or herself in accordance with Article 28(4). 5. The competent Permanent Chamber, acting through the European Prosecutor who is supervising the investigation or the prosecution, may in a specific case give instructions in compliance with applicable national law to the handling European Delegated Prosecutor, where it is necessary for the efficient handling of the investigation or prosecution, in the interest of justice, or to ensure the coherent functioning of the EPPO. 6. The Permanent Chamber shall take decisions by simple majority. The Chamber shall vote at the request of any of its members. Each member shall have one vote. The Chair shall have a casting vote in the event of a tie vote. Decisions shall be taken after deliberation in meetings of the Chamber on the basis, where applicable, of the draft decision proposed by the handling European Delegated Prosecutor. All case material shall be accessible upon request to the competent Permanent Chamber for the purpose of preparing decisions. 7. The Permanent Chambers may decide to delegate their decision-making power under point (a) or (b) of paragraph 3 of this Article, and in the latter case only in respect of the rules set out in points (a) to (f) of Article 39(1) to the European Prosecutor supervising the case in accordance with Article 12(1) where such delegations can be duly justified with reference to the degree of seriousness of the offence or the complexity of the proceedings in the individual case, with regard to an offence that has caused or is likely to cause damage to the financial interests of the Union of less than EUR 100 000. The internal rules of procedure of the EPPO shall set guidelines with a view to ensuring a consistent application within the EPPO. The Permanent Chamber shall inform the European Chief Prosecutor of any decision to delegate their decision-making power. On reception of that information, the European Chief Prosecutor may within 3 days request the Permanent Chamber to review its decision if the European Chief Prosecutor considers that the interest to ensure the coherence of the investigations and prosecutions of the EPPO so requires. If the European Chief Prosecutor is a Member of the relevant Permanent Chamber, one of the Deputy European Chief Prosecutors shall exercise the right to request the said review. The supervising European Prosecutor shall report to the Permanent Chamber about the final disposal of the case as well as any information or circumstance he/she deems to be likely to necessitate a new assessment of the opportunity to maintain the delegation, in particular in circumstances referred to in Article 36(3). The decision to delegate decision-making power may be withdrawn at any time on the request of one of the Members of the Permanent Chamber and shall be decided in accordance with paragraph 6 of this Article. A delegation shall be withdrawn when a European Delegated Prosecutor has substituted the European Prosecutor in accordance with Article 16(7). To ensure coherent application of the principle of delegation, each Permanent Chamber shall report annually to the College on the use of delegation. 8. The internal rules of procedure of the EPPO shall authorise the Permanent Chambers to take decisions by means of a written procedure to be laid down in detail in the internal rules of procedure of the EPPO. All decisions taken and instructions given in accordance with paragraphs 3, 4, 5 and 7 shall be recorded in writing and become part of the case file. 9. In addition to the permanent Members, the European Prosecutor who is supervising an investigation or a prosecution in accordance with Article 12(1) shall participate in the deliberations of the Permanent Chamber. The European Prosecutor shall have a right to vote, except as regards the Permanent Chamber’s decisions on delegation or withdrawal of delegation in accordance with paragraph 7 of this Article, on allocation and reallocation under Article 26(3), (4) and (5) and Article 27(6) and on bringing a case to judgment in accordance with Article 36(3), where more than one Member State has jurisdiction for the case, as well as situations described in Article 31(8). A Permanent Chamber may also, either at the request of a European Prosecutor or a European Delegated Prosecutor or on its own initiative, invite other European Prosecutors or European Delegated Prosecutors who are concerned by a case to attend its meetings without a right to vote. 10. The Chairs of the Permanent Chambers shall, in accordance with the internal rules of procedure of the EPPO, keep the College informed of the decisions taken pursuant to this Article, in order to enable the College to fulfil its role under Article 9(2). Article 11 The European Chief Prosecutor and the Deputy European Chief Prosecutors 1. The European Chief Prosecutor shall be the Head of the EPPO. The European Chief Prosecutor shall organise the work of the EPPO, direct its activities, and take decisions in accordance with this Regulation and the internal rules of procedure of the EPPO. 2. Two Deputy European Chief Prosecutors shall be appointed to assist the European Chief Prosecutor in the discharge of his/her duties and to act as replacement when he/she is absent or is prevented from attending to those duties. 3. The European Chief Prosecutor shall represent the EPPO vis-à-vis the institutions of the Union and of the Member States of the European Union, and third parties. The European Chief Prosecutor may delegate his/her tasks relating to representation to one of the Deputy European Chief Prosecutors or to a European Prosecutor. Article 12 The European Prosecutors 1. On behalf of the Permanent Chamber and in compliance with any instructions it has given in accordance with Article 10(3), (4) and (5), the European Prosecutors shall supervise the investigations and prosecutions for which the European Delegated Prosecutors handling the case in their Member State of origin are responsible. The European Prosecutors shall present summaries of the cases under their supervision and, where applicable, proposals for decisions to be taken by the said Chamber, on the basis of draft decisions prepared by the European Delegated Prosecutors. The internal rules of procedure of the EPPO shall, without prejudice to Article 16(7), provide for a mechanism of substitution between European Prosecutors where the supervising European Prosecutor is temporarily absent from his/her duties or is for other reasons not available to carry out the functions of the European Prosecutors. The substitute European Prosecutor may fulfil any function of a European Prosecutor, except the possibility to conduct an investigation provided for in Article 28(4). 2. A European Prosecutor may request, on an exceptional basis, on grounds related to the workload resulting from the number of investigations and prosecutions in the European Prosecutor’s Member State of origin, or a personal conflict of interest, that the supervision of investigations and prosecutions of individual cases handled by European Delegated Prosecutors in his/her Member State of origin be assigned to other European Prosecutors, subject to the agreement of the latter. The European Chief Prosecutor shall decide on the request based on the workload of a European Prosecutor. In the case of a conflict of interests concerning a European Prosecutor, the European Chief Prosecutor shall grant that request. The internal rules of procedure of the EPPO shall lay down the principles governing that decision and the procedure for the subsequent allocation of the cases concerned. Article 28(4) shall not apply to investigations and prosecutions supervised in accordance with this paragraph. 3. The supervising European Prosecutors may, in a specific case and in compliance with applicable national law and with the instructions given by the competent Permanent Chamber, give instructions to the handling European Delegated Prosecutor, whenever necessary for the efficient handling of the investigation or prosecution or in the interest of justice, or to ensure the coherent functioning of the EPPO. 4. Where the national law of a Member State provides for the internal review of certain acts within the structure of a national prosecutor’s office, the review of such acts taken by the European Delegated Prosecutor shall fall under the supervisory powers of the supervising European Prosecutor in accordance with the internal rules of procedure of the EPPO without prejudice to the supervisory and monitoring powers of the Permanent Chamber. 5. The European Prosecutors shall function as liaisons and information channels between the Permanent Chambers and the European Delegated Prosecutors in their respective Member States of origin. They shall monitor the implementation of the tasks of the EPPO in their respective Member States, in close consultation with the European Delegated Prosecutors. They shall ensure, in accordance with this Regulation and the internal rules of procedure of the EPPO that all relevant information from the Central Office is provided to European Delegated Prosecutors and vice versa. Article 13 The European Delegated Prosecutors 1. The European Delegated Prosecutors shall act on behalf of the EPPO in their respective Member States and shall have the same powers as national prosecutors in respect of investigations, prosecutions and bringing cases to judgment, in addition and subject to the specific powers and status conferred on them, and under the conditions set out in this Regulation. The European Delegated Prosecutors shall be responsible for those investigations and prosecutions that they have initiated, that have been allocated to them or that they have taken over using their right of evocation. The European Delegated Prosecutors shall follow the direction and instructions of the Permanent Chamber in charge of a case as well as the instructions from the supervising European Prosecutor. The European Delegated Prosecutors shall also be responsible for bringing a case to judgment, in particular have the power to present trial pleas, participate in taking evidence and exercise the available remedies in accordance with national law. 2. There shall be two or more European Delegated Prosecutors in each Member State. The European Chief Prosecutor shall, after consulting and reaching an agreement with the relevant authorities of the Member States, approve the number of European Delegated Prosecutors, as well as the functional and territorial division of competences between the European Delegated Prosecutors within each Member State. 3. The European Delegated Prosecutors may also exercise functions as national prosecutors, to the extent that this does not prevent them from fulfilling their obligations under this Regulation. They shall inform the supervising European Prosecutor of such functions. In the event that a European Delegated Prosecutor at any given moment is unable to fulfil his/her functions as a European Delegated Prosecutor because of the exercise of such functions as national prosecutor, he/she shall notify the supervising European Prosecutor, who shall consult the competent national prosecution authorities in order to determine whether priority should be given to their functions under this Regulation. The European Prosecutor may propose to the Permanent Chamber to reallocate the case to another European Delegated Prosecutor in the same Member State or that he/she conduct the investigations himself/herself in accordance with Article 28(3) and (4). SECTION 2 Appointment and dismissal of the members of the EPPO Article 14 Appointment and dismissal of the European Chief Prosecutor 1. The European Parliament and the Council shall appoint by common accord the European Chief Prosecutor for a non-renewable term of 7 years. The Council shall act by simple majority. 2. The European Chief Prosecutor shall be selected from among candidates: (a) who are active members of the public prosecution service or judiciary of the Member States, or active European Prosecutors; (b) whose independence is beyond doubt; (c) who possess the qualifications required for appointment to the highest prosecutorial or judicial offices in their respective Member States and have relevant practical experience of national legal systems, financial investigations and of international judicial cooperation in criminal matters, or have served as European Prosecutors, and (d) who have sufficient managerial experience and qualifications for the position. 3. The selection shall be based on an open call for candidates, to be published in the Official Journal of the European Union, following which a selection panel shall draw up a shortlist of qualified candidates to be submitted to the European Parliament and to the Council. The selection panel shall comprise twelve persons chosen from among former members of the Court of Justice and the Court of Auditors, former national members of Eurojust, members of national supreme courts, high level prosecutors and lawyers of recognised competence. One of the persons chosen shall be proposed by the European Parliament. The Council shall establish the selection panel’s operating rules and shall adopt a decision appointing its members on a proposal from the Commission. 4. If a European Prosecutor is appointed to be the European Chief Prosecutor, his/her position of European Prosecutor shall without delay be filled in accordance with the procedure set out in Article 16(1) and (2). 5. The Court of Justice may, upon the application of the European Parliament, of the Council or of the Commission, dismiss the European Chief Prosecutor if it finds that he/she is no longer able to perform his/her duties, or that he/she is guilty of serious misconduct. 6. If the European Chief Prosecutor resigns, if he/she is dismissed or leaves his/her position for any reason, the position shall immediately be filled in accordance with the procedure set out in paragraphs 1, 2 and 3. Article 15 Appointment and dismissal of the Deputy European Chief Prosecutors 1. The College shall appoint two European Prosecutors to serve as Deputy European Chief Prosecutors for a renewable mandate period of 3 years, which shall not exceed the periods for their mandates as European Prosecutors. The selection process shall be regulated by the internal rules of procedure of the EPPO. The Deputy European Chief Prosecutors shall retain their status as European Prosecutors. 2. The rules and conditions for the exercise of the function of Deputy European Chief Prosecutor shall be set out in the internal rules of procedure of the EPPO. If a European Prosecutor is no longer able to perform his/her duties as Deputy European Chief Prosecutor, the College may decide in accordance with the internal rules of procedure of the EPPO to dismiss the Deputy European Chief Prosecutor from that position. 3. If a Deputy European Chief Prosecutor resigns, is dismissed or leaves his/her position as a Deputy European Chief Prosecutor for any reason, the position shall, without delay, be filled in accordance with the procedure set out in paragraph 1 of this Article. Subject to the rules in Article 16, he/she shall remain European Prosecutor. Article 16 Appointment and dismissal of the European Prosecutors 1. Each Member State shall nominate three candidates for the position of European Prosecutor from among candidates: (a) who are active members of the public prosecution service or judiciary of the relevant Member State; (b) whose independence is beyond doubt; and (c) who possess the qualifications required for appointment to high prosecutorial or judicial office in their respective Member States, and who have relevant practical experience of national legal systems, of financial investigations and of international judicial cooperation in criminal matters. 2. After having received the reasoned opinion of the selection panel referred to in Article 14(3), the Council shall select and appoint one of the candidates to be the European Prosecutor of the Member State in question. If the selection panel finds that a candidate does not fulfil the conditions required for the performance of the duties of a European Prosecutor, its opinion shall be binding on the Council. 3. The Council, acting by simple majority, shall select and appoint the European Prosecutors for a non-renewable term of 6 years. The Council may decide to extend the mandate for a maximum of 3 years at the end of the 6-year period. 4. Every 3 years there shall be a partial replacement of one third of the European Prosecutors. The Council, acting by simple majority, shall adopt transitional rules for the appointment of European Prosecutors for and during the first mandate period. 5. The Court of Justice may, upon application of the European Parliament, of the Council or of the Commission, dismiss a European Prosecutor if it finds that he/she is no longer able to perform his/her duties or that he/she is guilty of serious misconduct. 6. If a European Prosecutor resigns, is dismissed or leaves his/her position for any other reason, the position shall without delay be filled in accordance with the procedure set out in paragraphs 1 and 2. If the European Prosecutor in question also serves as Deputy European Chief Prosecutor, he/she shall automatically be dismissed from the latter position. 7. The College shall, upon nomination of each European Prosecutor, designate one of the European Delegated Prosecutors of the same Member State to substitute the European Prosecutor in case he/she is unable to carry out his/her functions or left his/her position according to paragraphs 5 and 6. Where the College acknowledges the need for substitution, the designated person shall act as an interim European Prosecutor, pending replacement or return of the European Prosecutor, for a period not exceeding 3 months. The College may, upon request, prolong that period if necessary. The mechanisms and modalities of temporary substitution shall be determined and governed by the internal rules of procedure of the EPPO. Article 17 Appointment and dismissal of the European Delegated Prosecutors 1. Upon a proposal by the European Chief Prosecutor, the College shall appoint the European Delegated Prosecutors nominated by the Member States. The College may reject a person who has been nominated if he/she does not fulfil the criteria referred to in paragraph 2. The European Delegated Prosecutors shall be appointed for a renewable term of 5 years. 2. The European Delegated Prosecutors shall, from the time of their appointment as European Delegated Prosecutors until dismissal, be active members of the public prosecution service or judiciary of the respective Member States which nominated them. Their independence shall be beyond doubt and they shall possess the necessary qualifications and relevant practical experience of their national legal system. 3. The College shall dismiss a European Delegated Prosecutor if it finds that he/she no longer fulfils the requirements set out in paragraph 2, is unable to perform his/her duties, or is guilty of serious misconduct. 4. If a Member State decides to dismiss, or to take disciplinary action against, a national prosecutor who has been appointed as European Delegated Prosecutor for reasons not connected with his/her responsibilities under this Regulation, it shall inform the European Chief Prosecutor before taking such action. A Member State may not dismiss, or take disciplinary action against, a European Delegated Prosecutor for reasons connected with his/her responsibilities under this Regulation without the consent of the European Chief Prosecutor. If the European Chief Prosecutor does not consent, the Member State concerned may request the College to review the matter. 5. If a European Delegated Prosecutor resigns, if his/her services are no longer necessary to fulfil the duties of the EPPO, or if he/she is dismissed or leaves his/her position for any other reason, the relevant Member State shall immediately inform the European Chief Prosecutor and, where necessary, nominate another prosecutor to be appointed as the new European Delegated Prosecutor in accordance with paragraph 1. Article 18 Status of the Administrative Director 1. The Administrative Director shall be engaged as a temporary agent of the EPPO under Article 2(a) of the Conditions of Employment. 2. The Administrative Director shall be appointed by the College from a list of candidates proposed by the European Chief Prosecutor, following an open and transparent selection procedure in accordance with the internal rules of procedure of the EPPO. For the purpose of concluding the contract of the Administrative Director, the EPPO shall be represented by the European Chief Prosecutor. 3. The term of office of the Administrative Director shall be 4 years. By the end of that period, the College shall undertake an assessment which takes into account an evaluation of the performance of the Administrative Director. 4. The College, acting on a proposal from the European Chief Prosecutor which takes into account the assessment referred to in paragraph 3, may extend once the term of office of the Administrative Director for a period of no more than 4 years. 5. An Administrative Director whose term of office has been extended may not participate in another selection procedure for the same post at the end of the overall period. 6. The Administrative Director shall be accountable to the European Chief Prosecutor and the College. 7. Upon a decision of the College on the basis of a two-thirds majority of its members and without prejudice to the applicable rules pertaining to the termination of contract in the Staff Regulations and the Conditions of Employment, the Administrative Director may be removed from the EPPO. Article 19 Responsibilities of the Administrative Director 1. For administrative and budgetary purposes, the EPPO shall be managed by its Administrative Director. 2. Without prejudice to the powers of the College or the European Chief Prosecutor, the Administrative Director shall be independent in the performance of his/her duties and shall neither seek nor take instructions from any government or any other body. 3. The Administrative Director shall be the legal representative of the EPPO for administrative and budgetary purposes. The Administrative Director shall implement the budget of the EPPO. 4. The Administrative Director shall be responsible for the implementation of the administrative tasks assigned to the EPPO, in particular: (a) the day-to-day administration of the EPPO and staff management; (b) implementing the decisions adopted by the European Chief Prosecutor or the College; (c) preparing a proposal for the annual and multi-annual programming document and submitting it to the European Chief Prosecutor; (d) implementing the annual and multi-annual programming documents and reporting to the College on their implementation; (e) preparing the administrative and budgetary parts of the annual report on the EPPO’s activities; (f) preparing an action plan following-up on the conclusions of the internal or external audit reports, evaluations and investigations, including those of the European Data Protection Supervisor and OLAF and reporting to them and to the College twice a year; (g) preparing an internal anti-fraud strategy for the EPPO and presenting it to the College for approval; (h) preparing a proposal for the draft financial rules applicable to the EPPO, and submitting it to the European Chief Prosecutor; (i) preparing a proposal for the EPPO’s draft statement of estimates of revenues and expenditures, and submitting it to the European Chief Prosecutor; (j) providing necessary administrative support to facilitate the operational work of the EPPO; (k) providing support to the European Chief Prosecutor and the Deputy European Chief Prosecutors in the carrying out of their duties. Article 20 Provisional administrative arrangements of the EPPO 1. Based on provisional budgetary appropriations allocated in its own budget, the Commission shall be responsible for the establishment and initial administrative operation of the EPPO until the latter has the capacity to implement its own budget. For that purpose the Commission may: (a) designate, after consulting with the Council, a Commission official to act as interim Administrative Director and exercise the duties assigned to the Administrative Director, including the powers conferred by the Staff Regulations and the Conditions of Employment on the appointing authority regarding administrative staff of the EPPO, in respect of any staff positions which need to be filled before the Administrative Director takes up his or her duties in accordance with Article 18; (b) offer assistance to the EPPO, in particular by seconding a limited number of Commission officials necessary to carry out the administrative activities of the EPPO under the responsibility of the interim Administrative Director. 2. The interim Administrative Director may authorise all payments covered by appropriations entered in the EPPO’s budget and may conclude contracts, including staff contracts. 3. Once the College takes up its duties in accordance with Article 9(1), the interim Administrative Director shall exercise his/her duties in accordance with Article 18. The interim Administrative Director shall cease to exercise that function once the Administrative Director has taken up duties following appointment by the College in accordance with Article 18. 4. Until the College takes up its duties in accordance with Article 9(1), the Commission shall exercise its functions set out in this Article in consultation with a group of experts composed of representatives of the Member States. SECTION 3 Internal rules of procedure of the EPPO Article 21 Internal rules of procedure of the EPPO 1. The organisation of the work of the EPPO shall be governed by its internal rules of procedure 2. Once the EPPO has been set up, the European Chief Prosecutor shall without delay prepare a proposal for the internal rules of procedure of the EPPO, to be adopted by the College by a two-thirds majority. 3. Modifications to the internal rules of procedure of the EPPO may be proposed by any European Prosecutor and shall be adopted if the College so decides by a two-thirds majority. CHAPTER IV COMPETENCE AND EXERCISE OF THE COMPETENCE OF THE EPPO SECTION 1 Competence of the EPPO Article 22 Material competence of the EPPO 1. The EPPO shall be competent in respect of the criminal offences affecting the financial interests of the Union that are provided for in Directive (EU) 2017/1371, as implemented by national law, irrespective of whether the same criminal conduct could be classified as another type of offence under national law. As regards offences referred to in point (d) of Article 3(2) of Directive (EU) 2017/1371, as implemented by national law, the EPPO shall only be competent when the intentional acts or omissions defined in that provision are connected with the territory of two or more Member States and involve a total damage of at least EUR 10 million. 2. The EPPO shall also be competent for offences regarding participation in a criminal organisation as defined in Framework Decision 2008/841/JHA, as implemented in national law, if the focus of the criminal activity of such a criminal organisation is to commit any of the offences referred to in paragraph 1. 3. The EPPO shall also be competent for any other criminal offence that is inextricably linked to criminal conduct that falls within the scope of paragraph 1 of this Article. The competence with regard to such criminal offences may only be exercised in conformity with Article 25(3). 4. In any case, the EPPO shall not be competent for criminal offences in respect of national direct taxes including offences inextricably linked thereto. The structure and functioning of the tax administration of the Member States shall not be affected by this Regulation. Article 23 Territorial and personal competence of the EPPO The EPPO shall be competent for the offences referred to in Article 22 where such offences: (a) were committed in whole or in part within the territory of one or several Member States; (b) were committed by a national of a Member State, provided that a Member State has jurisdiction for such offences when committed outside its territory, or (c) were committed outside the territories referred to in point (a) by a person who was subject to the Staff Regulations or to the Conditions of Employment, at the time of the offence, provided that a Member State has jurisdiction for such offences when committed outside its territory. SECTION 2 Exercise of the competence of the EPPO Article 24 Reporting, registration and verification of information 1. The institutions, bodies, offices and agencies of the Union and the authorities of the Member States competent under applicable national law shall without undue delay report to the EPPO any criminal conduct in respect of which it could exercise its competence in accordance with Article 22, Article 25(2) and (3). 2. When a judicial or law enforcement authority of a Member State initiates an investigation in respect of a criminal offence for which the EPPO could exercise its competence in accordance with Article 22, Article 25(2) and (3), or where, at any time after the initiation of an investigation, it appears to the competent judicial or law enforcement authority of a Member State that an investigation concerns such an offence, that authority shall without undue delay inform the EPPO so that the latter can decide whether to exercise its right of evocation in accordance with Article 27. 3. When a judicial or law enforcement authority of a Member State initiates an investigation in respect of a criminal offence as defined in Article 22 and considers that the EPPO could, in accordance with Article 25(3), not exercise its competence, it shall inform the EPPO thereof. 4. The report shall contain, as a minimum, a description of the facts, including an assessment of the damage caused or likely to be caused, the possible legal qualification and any available information about potential victims, suspects and any other involved persons. 5. The EPPO shall also be informed, in accordance with paragraphs 1 and 2 of this Article, of cases where an assessment of whether the criteria in Article 25(2) are met is not possible. 6. Information provided to the EPPO shall be registered and verified in accordance with its internal rules of procedure. The verification shall assess whether, on the basis of the information provided in accordance with paragraphs 1 and 2, there are grounds to initiate an investigation or to exercise the right of evocation. 7. Where upon verification the EPPO decides that there are no grounds to initiate an investigation in accordance with Article 26, or to exercise its right of evocation in accordance with Article 27, the reasons shall be noted in the case management system. The EPPO shall inform the authority that reported the criminal conduct in accordance with paragraph 1 or 2, as well as crime victims and if so provided by national law, other persons who reported the criminal conduct. 8. Where it comes to the knowledge of the EPPO that a criminal offence outside of the scope of the competence of the EPPO may have been committed, it shall without undue delay inform the competent national authorities and forward all relevant evidence to them. 9. In specific cases, the EPPO may request further relevant information available to the institutions, bodies, offices and agencies of the Union and the authorities of the Member States. The requested information may concern infringements which caused damage to the Union’s financial interests, other than those within the competence of the EPPO in accordance with Article 25(2). 10. The EPPO may request other information in order to enable the College, in accordance with Article 9(2), to issue general guidelines on the interpretation of the obligation to inform the EPPO of cases falling within the scope of Article 25(2). Article 25 Exercise of the competence of the EPPO 1. The EPPO shall exercise its competence either by initiating an investigation under Article 26 or by deciding to use its right of evocation under Article 27. If the EPPO decides to exercise its competence, the competent national authorities shall not exercise their own competence in respect of the same criminal conduct. 2. Where a criminal offence that falls within the scope of Article 22 caused or is likely to cause damage to the Union’s financial interests of less than EUR 10 000, the EPPO may only exercise its competence if: (a) the case has repercussions at Union level which require an investigation to be conducted by the EPPO; or (b) officials or other servants of the Union, or members of the institutions of the Union could be suspected of having committed the offence. The EPPO shall, where appropriate, consult the competent national authorities or bodies of the Union to establish whether the criteria set out in points (a) and (b) of the first subparagraph are met. 3. The EPPO shall refrain from exercising its competence in respect of any offence falling within the scope of Article 22 and shall, upon consultation with the competent national authorities, refer the case without undue delay to the latter in accordance with Article 34 if: (a) the maximum sanction provided for by national law for an offence falling within the scope of Article 22(1) is equal to or less severe than the maximum sanction for an inextricably linked offence as referred to in Article 22(3) unless the latter offence has been instrumental to commit the offence falling within the scope of Article 22(1); or (b) there is a reason to assume that the damage caused or likely to be caused, to the Union’s financial interests by an offence as referred to in Article 22 does not exceed the damage caused, or likely to be caused to another victim. Point (b) of the first subparagraph of this paragraph shall not apply to offences referred to in Article 3(2)(a), (b) and (d) of Directive (EU) 2017/1371 as implemented by national law. 4. The EPPO may, with the consent of the competent national authorities, exercise its competence for offences referred to in Article 22 in cases which would otherwise be excluded due to application of paragraph 3(b) of this Article if it appears that the EPPO is better placed to investigate or prosecute. 5. The EPPO shall inform the competent national authorities without undue delay of any decision to exercise or to refrain from exercising its competence. 6. In the case of disagreement between the EPPO and the national prosecution authorities over the question of whether the criminal conduct falls within the scope of Article 22(2), or (3) or Article 25(2) or (3), the national authorities competent to decide on the attribution of competences concerning prosecution at national level shall decide who is to be competent for the investigation of the case. Member States shall specify the national authority which will decide on the attribution of competence. CHAPTER V RULES OF PROCEDURE ON INVESTIGATIONS, INVESTIGATION MEASURES, PROSECUTION AND ALTERNATIVES TO PROSECUTION SECTION 1 Rules on investigations Article 26 Initiation of investigations and allocation of competences within the EPPO 1. Where, in accordance with the applicable national law, there are reasonable grounds to believe that an offence within the competence of the EPPO is being or has been committed, a European Delegated Prosecutor in a Member State which according to its national law has jurisdiction over the offence shall, without prejudice to the rules set out in Article 25(2) and (3), initiate an investigation and note this in the case management system. 2. Where upon verification in accordance with Article 24(6), the EPPO decides to initiate an investigation, it shall without undue delay inform the authority that reported the criminal conduct in accordance with Article 24(1) or (2). 3. Where no investigation has been initiated by a European Delegated Prosecutor, the Permanent Chamber to which the case has been allocated shall, under the conditions set out in paragraph 1, instruct a European Delegated Prosecutor to initiate an investigation. 4. A case shall as a rule be initiated and handled by a European Delegated Prosecutor from the Member State where the focus of the criminal activity is or, if several connected offences within the competences of the EPPO have been committed, the Member State where the bulk of the offences has been committed. A European Delegated Prosecutor of a different Member State that has jurisdiction for the case may only initiate or be instructed by the competent Permanent Chamber to initiate an investigation where a deviation from the rule set out in the previous sentence is duly justified, taking into account the following criteria, in order of priority: (a) the place of the suspect’s or accused person’s habitual residence; (b) the nationality of the suspect or accused person; (c) the place where the main financial damage has occurred. 5. Until a decision to prosecute under Article 36 is taken, the competent Permanent Chamber may, in a case concerning the jurisdiction of more than one Member State and after consultation with the European Prosecutors and/or European Delegated Prosecutors concerned, decide to: (a) reallocate the case to a European Delegated Prosecutor in another Member State; (b) merge or split cases and, for each case choose the European Delegated Prosecutor handling it, if such decisions are in the general interest of justice and in accordance with the criteria for the choice of the handling European Delegated Prosecutor in accordance with paragraph 4 of this Article. 6. Whenever the Permanent Chamber is taking a decision to reallocate, merge or split a case, it shall take due account of the current state of the investigations. 7. The EPPO shall inform the competent national authorities without undue delay of any decision to initiate an investigation. Article 27 Right of evocation 1. Upon receiving all relevant information in accordance with Article 24(2), the EPPO shall take its decision on whether to exercise its right of evocation as soon as possible, but no later than 5 days after receiving the information from the national authorities and shall inform the national authorities of that decision. The European Chief Prosecutor may in a specific case take a reasoned decision to prolong the time limit by a maximum period of 5 days, and shall inform the national authorities accordingly. 2. During the periods referred to in paragraph 1, the national authorities shall refrain from taking any decision under national law that may have the effect of precluding the EPPO from exercising its right of evocation. The national authorities shall take any urgent measures necessary, under national law, to ensure effective investigation and prosecution. 3. If the EPPO becomes aware, by means other than the information referred to in Article 24(2), of the fact that an investigation in respect of a criminal offence for which it could be competent is already undertaken by the competent authorities of a Member State, it shall inform these authorities without delay. After being duly informed in accordance with Article 24(2), the EPPO shall take a decision on whether to exercise its right of evocation. The decision shall be taken within the time limits set out in paragraph 1 of this Article. 4. The EPPO shall, where appropriate, consult the competent authorities of the Member State concerned before deciding whether to exercise its right of evocation. 5. Where the EPPO exercises its right of evocation, the competent authorities of the Member States shall transfer the file to the EPPO and refrain from carrying out further acts of investigation in respect of the same offence. 6. The right of evocation set out in this Article may be exercised by a European Delegated Prosecutor from any Member State whose competent authorities have initiated an investigation in respect of an offence that falls within the scope of Articles 22 and 23. Where a European Delegated Prosecutor, who has received the information in accordance with Article 24(2), considers not to exercise the right of evocation, he/she shall inform the competent Permanent Chamber through the European Prosecutor of his/her Member State with a view to enabling the Permanent Chamber to take a decision in accordance with Article 10(4). 7. Where the EPPO has refrained from exercising its competence, it shall inform the competent national authorities without undue delay. At any time in the course of the proceedings, the competent national authorities shall inform the EPPO of any new facts which could give the EPPO reasons to reconsider its decision not to exercise competence. The EPPO may exercise its right of evocation after receiving such information, provided that the national investigation has not already been finalised and that an indictment has not been submitted to a court. The decision shall be taken within the time limit set out in paragraph 1. 8. Where, with regard to offences which caused or are likely to cause damage to the Union’s financial interests of less than EUR 100 000, the College considers that, with reference to the degree of seriousness of the offence or the complexity of the proceedings in the individual case, there is no need to investigate or to prosecute at Union level, it shall in accordance with Article 9(2), issue general guidelines allowing the European Delegated Prosecutors to decide, independently and without undue delay, not to evoke the case. The guidelines shall specify, with all necessary details, the circumstances to which they apply, by establishing clear criteria, taking specifically into account the nature of the offence, the urgency of the situation and the commitment of the competent national authorities to take all necessary measures in order to fully recover the damage to the Union’s financial interests. 9. To ensure coherent application of the guidelines, a European Delegated Prosecutor shall inform the competent Permanent Chamber of each decision taken in accordance with paragraph 8 and each Permanent Chamber shall report annually to the College on the application of the guidelines. Article 28 Conducting the investigation 1. The European Delegated Prosecutor handling a case may, in accordance with this Regulation and with national law, either undertake the investigation measures and other measures on his/her own or instruct the competent authorities in his/her Member State. Those authorities shall, in accordance with national law, ensure that all instructions are followed and undertake the measures assigned to them. The handling European Delegated Prosecutor shall report through the case management system to the competent European Prosecutor and to the Permanent Chamber any significant developments in the case, in accordance with the rules laid down in the internal rules of procedure of the EPPO. 2. At any time during the investigations conducted by the EPPO, the competent national authorities shall take urgent measures in accordance with national law necessary to ensure effective investigations even where not specifically acting under an instruction given by the handling European Delegated Prosecutor. The national authorities shall without undue delay inform the handling European Delegated Prosecutor of the urgent measures they have taken. 3. The competent Permanent Chamber may, on proposal of the supervising European Prosecutor decide to reallocate a case to another European Delegated Prosecutor in the same Member State when the handling European Delegated Prosecutor: (a) cannot perform the investigation or prosecution; or (b) fails to follow the instructions of the competent Permanent Chamber or the European Prosecutor. 4. In exceptional cases, after having obtained the approval of the competent Permanent Chamber, the supervising European Prosecutor may take a reasoned decision to conduct the investigation personally, either by undertaking personally the investigation measures and other measures or by instructing the competent authorities in his/her Member State, where this appears to be indispensable in the interest of the efficiency to the investigation or prosecution by reasons of one or more of the following criteria: (a) the seriousness of the offence, in particular in view of its possible repercussions at Union level; (b) when the investigation concerns officials or other servants of the Union or members of the institutions of the Union; (c) in the event of failure of the reallocation mechanism provided for in paragraph 3. In such exceptional circumstances Member States shall ensure that the European Prosecutor is entitled to order or request investigative measures and other measures and that he/she has all the powers, responsibilities and obligations of a European Delegated Prosecutor in accordance with this Regulation and national law. The competent national authorities and the European Delegated Prosecutors concerned by the case shall be informed without undue delay of the decision taken under this paragraph. Article 29 Lifting privileges or immunities 1. Where the investigations of the EPPO involve persons protected by a privilege or immunity under national law, and such privilege or immunity presents an obstacle to a specific investigation being conducted, the European Chief Prosecutor shall make a reasoned written request for its lifting in accordance with the procedures laid down by that national law. 2. Where the investigations of the EPPO involve persons protected by privileges or immunities under the Union law, in particular the Protocol on the privileges and immunities of the European Union, and such privilege or immunity presents an obstacle to a specific investigation being conducted, the European Chief Prosecutor shall make a reasoned written request for its lifting in accordance with the procedures laid down by Union law. SECTION 2 Rules on investigation measures and other measures Article 30 Investigation measures and other measures 1. At least in cases where the offence subject to the investigation is punishable by a maximum penalty of at least 4 years of imprisonment, Member States shall ensure that the European Delegated Prosecutors are entitled to order or request the following investigation measures: (a) search any premises, land, means of transport, private home, clothes and any other personal property or computer system, and take any conservatory measures necessary to preserve their integrity or to avoid the loss or contamination of evidence; (b) obtain the production of any relevant object or document either in its original form or in some other specified form; (c) obtain the production of stored computer data, encrypted or decrypted, either in their original form or in some other specified form, including banking account data and traffic data with the exception of data specifically retained in accordance with national law pursuant to the second sentence of Article 15(1) of Directive 2002/58/EC of the European Parliament and of the Council (20); (d) freeze instrumentalities or proceeds of crime, including assets, that are expected to be subject to confiscation by the trial court, where there is reason to believe that the owner, possessor or controller of those instrumentalities or proceeds will seek to frustrate the judgement ordering confiscation. (e) intercept electronic communications to and from the suspect or accused person, over any electronic communication means that the suspect or accused person is using; (f) track and trace an object by technical means, including controlled deliveries of goods. 2. Without prejudice to Article 29, the investigation measures set out in paragraph 1 of this Article may be subject to conditions in accordance with the applicable national law if the national law contains specific restrictions that apply with regard to certain categories of persons or professionals who are legally bound by an obligation of confidentiality. 3. The investigation measures set out in points(c), (e) and (f) of paragraph 1 of this Article may be subject to further conditions, including limitations, provided for in the applicable national law. In particular, Member States may limit the application of points (e) and (f) of paragraph 1 of this Article to specific serious offences. A Member State intending to make use of such limitation shall notify the EPPO of the relevant list of specific serious offences in accordance with Article 117. 4. The European Delegated Prosecutors shall be entitled to request or to order any other measures in their Member State that are available to prosecutors under national law in similar national cases, in addition to the measures referred to in paragraph 1. 5. The European Delegated Prosecutors may only order the measures referred to in paragraphs 1 and 4 where there are reasonable grounds to believe that the specific measure in question might provide information or evidence useful to the investigation, and where there is no less intrusive measure available which could achieve the same objective. The procedures and the modalities for taking the measures shall be governed by the applicable national law. Article 31 Cross-border investigations 1. The European Delegated Prosecutors shall act in close cooperation by assisting and regularly consulting each other in cross-border cases. Where a measure needs to be undertaken in a Member State other than the Member State of the handling European Delegated Prosecutor, the latter European Delegated Prosecutor shall decide on the adoption of the necessary measure and assign it to a European Delegated Prosecutor located in the Member State where the measure needs to be carried out. 2. The handling European Delegated Prosecutor may assign any measures, which are available to him/her in accordance with Article 30. The justification and adoption of such measures shall be governed by the law of the Member States’ of the handling European Delegated Prosecutor. Where the handling European Delegated Prosecutor assigns an investigation measure to one or several European Delegated Prosecutors from another Member State, he/she shall at the same time inform his supervising European Prosecutor. 3. If judicial authorisation for the measure is required under the law of the Member State of the assisting European Delegated Prosecutor, the assisting European Delegated Prosecutor shall obtain that authorisation in accordance with the law of that Member State. If judicial authorisation for the assigned measure is refused, the handling European Delegated Prosecutor shall withdraw the assignment. However, where the law of the Member State of the assisting European Delegated Prosecutor does not require such a judicial authorisation, but the law of the Member State of the handling European Delegated Prosecutor requires it, the authorisation shall be obtained by the latter European Delegated Prosecutor and submitted together with the assignment. 4. The assisting European Delegated Prosecutor shall undertake the assigned measure, or instruct the competent national authority to do so. 5. Where the assisting European Delegated Prosecutor considers that: (a) the assignment is incomplete or contains a manifest relevant error; (b) the measure cannot be undertaken within the time limit set out in the assignment for justified and objective reasons; (c) an alternative but less intrusive measure would achieve the same results as the measure assigned; or (d) the assigned measure does not exist or would not be available in a similar domestic case under the law of his/her Member State, he/she shall inform his supervising European Prosecutor and consult with the handling European Delegated Prosecutor in order to resolve the matter bilaterally. 6. If the assigned measure does not exist in a purely domestic situation, but would be available in a cross-border situation covered by legal instruments on mutual recognition or cross-border cooperation, the European Delegated Prosecutors concerned may, in agreement with the supervising European Prosecutors concerned, have recourse to such instruments. 7. If the European Delegated Prosecutors cannot resolve the matter within 7 working days and the assignment is maintained, the matter shall be referred to the competent Permanent Chamber. The same applies where the assigned measure is not undertaken within the time limit set out in the assignment or within a reasonable time. 8. The competent Permanent Chamber shall to the extent necessary hear the European Delegated Prosecutors concerned by the case and then decide without undue delay, in accordance with applicable national law as well as this Regulation, whether and by when the assigned measure needed, or a substitute measure, shall be undertaken by the assisting European Delegated Prosecutor, and communicate this decision to the said European Delegated Prosecutors through the competent European Prosecutor. Article 32 Enforcement of assigned measures The assigned measures shall be carried out in accordance with this Regulation and the law of the Member State of the assisting European Delegated Prosecutor. Formalities and procedures expressly indicated by the handling European Delegated Prosecutor shall be complied with unless such formalities and procedures are contrary to the fundamental principles of law of the Member State of the assisting European Delegated Prosecutor. Article 33 Pre-trial arrest and cross-border surrender 1. The handling European Delegated Prosecutor may order or request the arrest or pre-trial detention of the suspect or accused person in accordance with the national law applicable in similar domestic cases. 2. Where it is necessary to arrest and surrender a person who is not present in the Member State in which the handling European Delegated Prosecutor is located, the latter shall issue or request the competent authority of that Member State to issue a European Arrest Warrant in accordance with Council Framework Decision 2002/584/JHA (21). SECTION 3 Rules on prosecution Article 34 Referrals and transfers of proceedings to the national authorities 1. Where an investigation conducted by the EPPO reveals that the facts subject to investigation do not constitute a criminal offence for which it is competent under Articles 22 and 23, the competent Permanent Chamber shall decide to refer the case without undue delay to the competent national authorities. 2. Where an investigation conducted by the EPPO reveals that the specific conditions for the exercise of its competence set out in Article 25(2) and (3) are no longer met, the competent Permanent Chamber shall decide to refer the case to the competent national authorities without undue delay and before initiating prosecution at national courts. 3. Where, with regard to offences which caused or are likely to cause damage to the financial interests of the Union of less than EUR 100 000, the College considers that, with reference to the degree of seriousness of the offence or the complexity of the proceedings in the individual case, there is no need to investigate or to prosecute a case at Union level and that it would be in the interest of the efficiency of investigation or prosecution, it shall in accordance with Article 9(2), issue general guidelines allowing the Permanent Chambers to refer a case to the competent national authorities. Such guidelines shall also allow the Permanent Chambers to refer a case to the competent national authorities where the EPPO exercises a competence in respect of offences referred to in points (a) and (b) of Article 3(2) of Directive (EU) 2017/1371 and where the damage caused or likely to be caused to the Union’s financial interests does not exceed the damage caused or likely to be caused to another victim. To ensure coherent application of the guidelines, each Permanent Chamber shall report annually to the College on the application of the guidelines. Such referrals shall also include any inextricably linked offences within the competence of the EPPO as referred to in Article 22(3). 4. The Permanent Chamber shall communicate any decision to refer a case to national authorities on the basis of paragraph 3 to the European Chief Prosecutor. Within 3 days of receiving of this information, the European Chief Prosecutor may request the Permanent Chamber to review its decision if the European Chief Prosecutor considers that the interest to ensure the coherence of the referral policy of the EPPO so requires. If the European Chief Prosecutor is a Member of the relevant Permanent Chamber, one of the Deputy European Chief Prosecutors shall exercise the right to request the said review. 5. Where the competent national authorities do not accept to take over the case in accordance with paragraph 2 and 3 within a timeframe of maximum 30 days, the EPPO shall remain competent to prosecute or dismiss the case, in accordance with the rules laid down in this Regulation. 6. Where the EPPO considers a dismissal in accordance with Article 39(3), and if the national authority so requires, the Permanent Chamber shall refer the case without delay to that authority. 7. If, following a referral in accordance with paragraph (1), (2) or (3) of this Article and Article 25(3), the national authority decides to open an investigation, the EPPO shall transfer the file to that national authority, refrain from taking further investigative or prosecutorial measures and close the case. 8. If a file is transferred in accordance with paragraph (1), (2) or (3) of this Article and Article 25(3), the EPPO shall inform the relevant institutions, bodies, offices and agencies of the Union, as well as, where appropriate under national law, suspects or accused persons and the crime victims of the transfer. Article 35 Termination of the investigation 1. When the handling European Delegated Prosecutor considers the investigation to be completed, he/she shall submit a report to the supervising European Prosecutor, containing a summary of the case and a draft decision whether to prosecute before a national court or to consider a referral of the case, dismissal or simplified prosecution procedure in accordance with Article 34, 39 or 40. The supervising European Prosecutor shall forward those documents to the competent Permanent Chamber accompanied, if he/she considers it to be necessary, by his/her own assessment. When the Permanent Chamber, in accordance with Article 10(3), takes the decision as proposed by the European Delegated Prosecutor, he/she shall pursue the matter accordingly. 2. If the Permanent Chamber, based on the reports received, considers that it will not take the decision as proposed by the European Delegated Prosecutor, it shall, where necessary, undertake its own review of the case file before taking a final decision or giving further instructions to the European Delegated Prosecutor. 3. Where applicable, the report of the European Delegated Prosecutor shall also provide sufficient reasoning for bringing the case to judgment either at a court of the Member State where he/she is located, or, in accordance with Article 26(4) at a court of a different Member State which has jurisdiction over the case. Article 36 Prosecution before national Courts 1. When the European Delegated Prosecutor submits a draft decision proposing to bring a case to judgment, the Permanent Chamber shall, following the procedures set out in Article 35, decide on this draft within 21 days. The Permanent Chamber cannot decide to dismiss the case if a draft decision proposes bringing a case to judgment. 2. Where the Permanent Chamber does not take a decision within the 21-day time limits, the decision proposed by the European Delegated Prosecutor shall be deemed to be accepted. 3. Where more than one Member State has jurisdiction over the case, the Permanent Chamber shall in principle decide to bring the case to prosecution in the Member State of the handling European Delegated Prosecutor. However, the Permanent Chamber may, taking into account the report provided in accordance with Article 35(1), decide to bring the case to prosecution in a different Member State, if there are sufficiently justified grounds to do so, taking into account the criteria set out in Article 26(4) and (5), and instruct a European Delegated Prosecutor of that Member State accordingly. 4. Before deciding to bring a case to judgment, the competent Permanent Chamber may, on the proposal of the handling European Delegated Prosecutor, decide to join several cases, where investigations have been conducted by different European Delegated Prosecutors against the same person(s) with a view to prosecuting these cases in the courts of a single Member State which, in accordance with its law, has jurisdiction for each of those cases. 5. Once a decision on the Member State in which the prosecution shall be brought has been taken, the competent national court within that Member State shall be determined on the basis of national law. 6. Where necessary for the purposes of recovery, administrative follow-up or monitoring, the Central Office shall notify the competent national authorities, interested persons and the relevant institutions, bodies, offices and agencies of the Union of the decision to prosecute. 7. Where, following a judgment of the Court, the prosecution has to decide whether to lodge an appeal, the European Delegated Prosecutor shall submit a report including a draft decision to the competent Permanent Chamber and await its instructions. Should it be impossible to await those instructions within the deadline set by national law, the European Delegated Prosecutor shall be entitled to lodge the appeal without prior instructions from the Permanent Chamber, and shall subsequently submit the report to the Permanent Chamber without delay. The Permanent Chamber shall then instruct the European Delegated Prosecutor either to maintain or withdraw the appeal. The same procedure shall apply when, in the course of the court proceedings and in accordance with applicable national law, the handling European Delegated Prosecutor would take a position that would lead to the dismissal of the case. Article 37 Evidence 1. Evidence presented by the prosecutors of the EPPO or the defendant to a court shall not be denied admission on the mere ground that the evidence was gathered in another Member State or in accordance with the law of another Member State. 2. The power of the trial court to freely assess the evidence presented by the defendant or the prosecutors of the EPPO shall not be affected by this Regulation. Article 38 Disposition of confiscated assets Where, in accordance with the requirements and procedures under national law including the national law transposing Directive 2014/42/EU of the European Parliament and of the Council (22), the competent national court has decided by a final ruling to confiscate any property related to, or proceeds derived from, an offence within the competence of the EPPO, such assets or proceeds shall be disposed of in accordance with applicable national law. This disposition shall not negatively affect the rights of the Union or other victims to be compensated for damage that they have incurred. SECTION 4 Rules on alternatives to prosecution Article 39 Dismissal of the case 1. Where prosecution has become impossible, pursuant to the law of the Member State of the handling European Delegated Prosecutor, the Permanent Chamber shall, based on a report provided by the European Delegated Prosecutor handling the case in accordance with Article 35(1), decide to dismiss the case against a person on account of any of the following grounds: (a) the death of the suspect or accused person or winding up of a suspect or accused legal person; (b) the insanity of the suspect or accused person; (c) amnesty granted to the suspect or accused person; (d) immunity granted to the suspect or accused person, unless it has been lifted; (e) expiry of the national statutory limitation to prosecute; (f) the suspect’s or accused person’s case has already been finally disposed of in relation to the same acts; (g) the lack of relevant evidence. 2. A decision in accordance with paragraph 1 shall not bar further investigations on the basis of new facts which were not known to the EPPO at the time of the decision and which become known after the decision. The decision to reopen investigations on the basis of such new facts shall be taken by the competent Permanent Chamber. 3. Where the EPPO is competent in accordance with Article 22(3), it shall dismiss a case only after consultation with the national authorities of the Member State referred to in Article 25(6). If applicable, the Permanent Chamber shall refer the case to the competent national authorities in accordance with Article 34(6), (7) and (8). The same applies where the EPPO exercises a competence in respect of offences referred to in points (a) and (b) of Article 3(2) of Directive (EU) 2017/1371 and where the damage caused or likely to be caused to the Union’s financial interests does not exceed the damage caused or likely to be caused to another victim. 4. Where a case has been dismissed, the EPPO shall officially notify the competent national authorities and shall inform the relevant institutions, bodies, offices and agencies of the Union, as well as, where appropriate under national law, the suspects or accused persons and the crime victims, of such dismissal. The dismissed cases may also be referred to OLAF or to the competent national administrative or judicial authorities for recovery or other administrative follow-up. SECTION 5 Rules on simplified procedures Article 40 Simplified prosecution procedures 1. If the applicable national law provides for a simplified prosecution procedure aiming at the final disposal of a case on the basis of terms agreed with the suspect, the handling European Delegated Prosecutor may, in accordance with Article 10(3) and Article 35(1), propose to the competent Permanent Chamber to apply that procedure in accordance with the conditions provided for in national law. Where the EPPO exercises a competence in respect of offences referred to in points (a) and (b) of Article 3(2) of Directive (EU) 2017/1371 and where the damage caused or likely to be caused to the Union’s financial interest does not exceed the damage caused or likely to be caused to another victim, the handling European Delegated Prosecutor shall consult national prosecution authorities before proposing to apply a simplified prosecution procedure. 2. The Permanent Chamber shall decide on the proposal of the handling European Delegated Prosecutor taking into account the following grounds: (a) the seriousness of the offence, based on in particular the damage caused; (b) the willingness of the suspected offender to repair the damage caused by the illegal conduct; (c) the use of the procedure would be in accordance with the general objectives and basic principles of the EPPO as set out in this Regulation. The College shall, in accordance with Article 9(2), adopt guidelines on the application of those grounds. 3. If the Permanent Chamber agrees with the proposal, the handling European Delegated Prosecutor shall apply the simplified prosecution procedure in accordance with the conditions provided for in national law and register it in the case management system. When the simplified prosecution procedure has been finalised upon fulfilment of the terms agreed with the suspect, the Permanent Chamber shall instruct the European Delegated Prosecutor to act with a view to finally dispose of the case. CHAPTER VI PROCEDURAL SAFEGUARDS Article 41 Scope of the rights of the suspects and accused persons 1. The activities of the EPPO shall be carried out in full compliance with the rights of suspects and accused persons enshrined in the Charter, including the right to a fair trial and the rights of defence. 2. Any suspected or accused person in the criminal proceedings of the EPPO shall, at aa minimum, have the procedural rights provided for in Union law, including directives concerning the rights of suspects and accused persons in criminal procedures, as implemented by national law, such as: (a) the right to interpretation and translation, as provided for in Directive 2010/64/EU; (b) the right to information and access to the case materials, as provided for in Directive 2012/13/EU; (c) the right of access to a lawyer and the right to communicate with and have third persons informed in the event of detention, as provided for in Directive 2013/48/EU; (d) the right to remain silent and the right to be presumed innocent as provided for in Directive (EU) 2016/343; (e) the right to legal aid as provided for in Directive (EU) 2016/1919. 3. Without prejudice to the rights referred to in this Chapter, suspects and accused persons as well as other persons involved in the proceedings of the EPPO shall have all the procedural rights available to them under the applicable national law, including the possibility to present evidence, to request the appointment of experts or expert examination and hearing of witnesses, and to request the EPPO to obtain such measures on behalf of the defence. Article 42 Judicial review 1. Procedural acts of the EPPO that are intended to produce legal effects vis-à-vis third parties shall be subject to review by the competent national courts in accordance with the requirements and procedures laid down by national law. The same applies to failures of the EPPO to adopt procedural acts which are intended to produce legal effects vis-à-vis third parties and which it was legally required to adopt under this Regulation. 2. The Court of Justice shall have jurisdiction, in accordance with Article 267 TFEU, to give preliminary rulings concerning: (a) the validity of procedural acts of the EPPO, in so far as such a question of validity is raised before any court or tribunal of a Member State directly on the basis of Union law; (b) the interpretation or the validity of provisions of Union law, including this Regulation; (c) the interpretation of Articles 22 and 25 of this Regulation in relation to any conflict of competence between the EPPO and the competent national authorities. 3. By way of derogation from paragraph 1 of this Article, the decisions of the EPPO to dismiss a case, in so far as they are contested directly on the basis of Union law, shall be subject to review before the Court of Justice in accordance with the fourth paragraph of Article 263 TFEU. 4. The Court of Justice shall have jurisdiction in accordance with Article 268 TFEU in any dispute relating to compensation for damage caused by the EPPO. 5. The Court of Justice shall have jurisdiction in accordance with Article 272 TFEU in any dispute concerning arbitration clauses contained in contracts concluded by the EPPO. 6. The Court of Justice shall have jurisdiction in accordance with Article 270 TFEU in any dispute concerning staff-related matters. 7. The Court of Justice shall have jurisdiction on the dismissal of the European Chief Prosecutor or European Prosecutors, in accordance, respectively, with Article 14(5) and Article 16(5). 8. This Article is without prejudice to judicial review by the Court of Justice in accordance with the fourth paragraph of Article 263 TFEU of decisions of the EPPO that affect the data subjects’ rights under Chapter VIII and of decisions of the EPPO which are not procedural acts, such as decisions of the EPPO concerning the right of public access to documents, or decisions dismissing European Delegated Prosecutors adopted pursuant to Article 17(3) of this Regulation, or any other administrative decisions. CHAPTER VII PROCESSING OF INFORMATION Article 43 Access to information by the EPPO 1. European Delegated Prosecutors shall be able to obtain any relevant information stored in national criminal investigation and law enforcement databases, as well as other relevant registers of public authorities, under the same conditions as those that apply under national law in similar cases. 2. The EPPO shall also be able to obtain any relevant information falling within its competence that is stored in databases and registers of the institutions, bodies, offices and agencies of the Union. Article 44 Case management system 1. The EPPO shall establish a case management system, which shall be held and managed in accordance with the rules established in this Regulation and in the internal rules of procedure of the EPPO. 2. The purpose of the case management system shall be to: (a) support the management of investigations and prosecutions conducted by the EPPO, in particular by managing internal information workflows and by supporting investigative work in cross-border cases; (b) ensure secure access to information on investigations and prosecutions at the Central Office and by the European Delegated Prosecutors; (c) allow for the cross-referencing of information and the extraction of data for operational analysis and statistical purposes; (d) facilitate monitoring to ensure that the processing of operational personal data is lawful and complies with the relevant provisions of this Regulation. 3. The case management system may be linked to the secure telecommunications connection referred to in Article 9 of Council Decision 2008/976/JHA (23). 4. The case management system shall contain: (a) a register of information obtained by the EPPO in accordance with Article 24, including any decisions in relation to that information, (b) an index of all case files; (c) all information from the case files stored electronically in the case management system in accordance with Article 45(3). The index shall not contain any operational personal data other than data needed to identify cases or establish cross-links between different case files. 5. For the processing of operational personal data, the EPPO may only establish automated data files other than case files in accordance with this Regulation and with the internal rules of procedure of the EPPO. Details on such other automated data files shall be notified to the European Data Protection Supervisor. Article 45 Case files of the EPPO 1. Where the EPPO decides to open an investigation or exercise its right of evocation in accordance with this Regulation, the handling European Delegated Prosecutor shall open a case file. The case file shall contain all the information and evidence available to the European Delegated Prosecutor that relates to the investigation or prosecution by the EPPO. Once an investigation has been opened, the information from the register referred to in Article 44(4)(a) shall become part of the case file. 2. The case file shall be managed by the handling European Delegated Prosecutor in accordance with the law of his/her Member State. The internal rules of procedure of the EPPO may include rules on the organisation and management of the case files to the extent necessary to ensure the functioning of the EPPO as a single office. Access to the case file by suspects and accused persons as well as other persons involved in the proceedings shall be granted by the handling European Delegated Prosecutor in accordance with the national law of that Prosecutor’s Member State. 3. The case management system of the EPPO shall include all information and evidence from the case file that may be stored electronically, in order to enable the Central Office to carry out its functions in accordance with this Regulation. The handling European Delegated Prosecutor shall ensure that the content of information in the case management system reflects at all times the case file, in particular that operational personal data contained in the case management system is erased or rectified whenever such data has been erased or rectified in the corresponding case file. Article 46 Access to the case management system The European Chief Prosecutor, the Deputy European Chief Prosecutors, other European Prosecutors and the European Delegated Prosecutors shall have direct access to the register and to the index. The supervising European Prosecutor as well as the competent Permanent Chamber shall, when exercising their competences in accordance with Articles 10 and 12, have direct access to information stored electronically in the case management system. The supervising European Prosecutor shall also have direct access to the case file. The competent Permanent Chamber shall have access to the case file at its request. Other European Delegated Prosecutors may request access to information stored electronically in the case management system as well as any case file. The handling European Delegated Prosecutor shall decide on granting such access to other European Delegated Prosecutors in accordance with applicable national law. If the access is not granted, the matter may be referred to the competent Permanent Chamber. The competent Permanent Chamber shall, to the extent necessary, hear the European Delegated Prosecutors concerned and then decide in accordance with applicable national law as well as this Regulation. The internal rules of procedure of the EPPO shall set out further rules regarding the right to access, and the procedure to establish the level of access to the case management system by the European Chief Prosecutor, the Deputy European Chief Prosecutors, other European Prosecutors, the European Delegated Prosecutors and the staff of the EPPO, to the extent required for the performance of their duties. CHAPTER VIII DATA PROTECTION Article 47 Principles relating to processing of personal data 1. Personal data shall be: (a) processed lawfully and fairly (‘lawfulness and fairness’); (b) collected for specified, explicit and legitimate purposes and not further processed in a manner incompatible with those purposes; further processing for archiving purposes in the public interest, scientific or historical research purposes or statistical purposes shall not be considered to be incompatible with the initial purposes provided that the EPPO provides appropriate safeguards for the rights and freedoms of data subjects (‘purpose limitation’); (c) adequate, relevant, and not excessive in relation to the purposes for which they are processed (‘data minimisation’); (d) accurate and, where necessary, kept up to date; every reasonable step must be taken to ensure that personal data that are inaccurate, having regard to the purposes for which they are processed, are erased or rectified without delay (‘accuracy’); (e) kept in a form which permits identification of data subjects for no longer than is necessary for the purposes for which the personal data are processed; personal data may be stored for longer periods insofar as the personal data will be processed solely for archiving purposes in the public interest, scientific or historical research purposes or statistical purposes provided that the EPPO provides appropriate safeguards for the rights and freedoms of data subjects, in particular by the implementation of the appropriate technical and organisational measures required by this Regulation (‘storage limitation’); (f) processed in a manner that ensures appropriate security of the personal data, including protection against unauthorised or unlawful processing and against accidental loss, destruction or damage, using appropriate technical or organisational measures (‘integrity and confidentiality’). 2. The EPPO shall be responsible for, and be able to demonstrate compliance with paragraph 1 (‘accountability’) when processing personal data wholly or partly by automated means and when processing other than by automated means personal data which form part of a filing system or are intended to form part of a filing system. 3. Processing by the EPPO for any of the purposes set out in Article 49 other than that for which the operational personal data are collected shall be permitted in so far as: (a) the EPPO is authorised to process such operational personal data for such a purpose in accordance with this Regulation; and (b) processing is necessary and proportionate to that other purpose in accordance with Union law; and (c) where relevant, the use of operational personal data is not prohibited by the applicable national procedural law on the investigative measures taken in accordance with Article 30. The applicable national procedural law is the law of the Member State where the data was obtained. Article 48 Administrative personal data 1. Regulation (EC) No 45/2001 applies to all administrative personal data processed by the EPPO. 2. The EPPO shall determine the time limits for the storage of administrative personal data in the data protection provisions of its internal rules of procedure. Article 49 Processing of operational personal data 1. The EPPO shall process operational personal data by automated means or in structured manual files in accordance with this Regulation, and only for the following purposes: (a) criminal investigations and prosecutions undertaken in accordance with this Regulation; or (b) information exchange with the competent authorities of Member States of the European Union and other institutions, bodies, offices and agencies of the Union in accordance with this Regulation; or (c) cooperation with third countries and international organisations in accordance with this Regulation. 2. Categories of operational personal data, and the categories of data subjects whose operational personal data may be processed in the index as referred to in point (b) of Article 44(4) by the EPPO for each purpose referred to in paragraph 1 of this Article shall be listed in an Annex in accordance with paragraph 3. 3. The Commission shall be empowered to adopt delegated acts in accordance with Article 115 to list the categories of operational personal data and the categories of data subjects referred to in paragraph 2 of this Article and to update such a list in order to take account of developments in information technology and in the light of the state of progress in the information society. Where imperative grounds of urgency so require, the procedure provided for in Article 116 shall apply to delegated acts adopted pursuant to this paragraph. 4. The EPPO may temporarily process operational personal data for the purpose of determining whether such data are relevant to its tasks and for the purposes referred to in paragraph 1. The College, acting on a proposal from the European Chief Prosecutor and after consulting the European Data Protection Supervisor, shall further specify the conditions relating to the processing of such operational personal data, in particular with respect to access to and the use of the data, as well as time limits for the storage and deletion of the data. 5. The EPPO shall process operational personal data in such a way that it can be established which authority provided the data or where the data has been retrieved from. 6. When applying Articles 57 to 62, the EPPO shall, where relevant, act in compliance with national procedural law on the obligation to provide information to the data subject and the possibilities to omit, restrict or delay such information. Where appropriate, the handling European Delegated Prosecutor shall consult other European Delegated Prosecutors concerned by the case before taking a decision in respect of Articles 57 to 62. Article 50 Time limits for the storage of operational personal data 1. The EPPO shall review periodically the need for the storage of the operational personal data processed. At the latest, such a review shall be carried out not later than 3 years after the operational personal data were first processed and then every 3 years. If operational personal data are stored for a period exceeding 5 years, the European Data Protection Supervisor shall be informed of that fact. 2. Operational personal data processed by the EPPO shall not be stored beyond 5 years after an acquitting decision in respect of the case has become final; in case the accused was found guilty the time limits shall be extended until the penalty that has been imposed, is enforced or can no longer be enforced under the law of the sentencing Member State. 3. Before one of the deadlines referred to in paragraph 2 expires, the EPPO shall review the need for the continued storage of the operational personal data where and as long this is necessary to perform its tasks. The reasons for the continued storage shall be justified and recorded. If no decision is taken on the continued storage of operational personal data, those data shall be deleted automatically. Article 51 Distinction between different categories of data subject The EPPO shall, where applicable and as far as possible, make a clear distinction between operational personal data of different categories of data subjects, such as: (a) persons with regard to whom there are serious grounds for believing that they have committed or are about to commit a criminal offence; (b) persons convicted of a criminal offence; (c) victims of a criminal offence or persons with regard to whom certain facts give rise to reasons for believing that they could be the victim of a criminal offence; and (d) other parties to a criminal offence, such as persons who might be called upon to testify in investigations in connection with criminal offences or subsequent criminal proceedings, persons who can provide information on criminal offences, or contacts or associates of one of the persons referred to in points (a) and (b). Article 52 Distinction between operational personal data and verification of quality of personal data 1. The EPPO shall distinguish, as far as possible, operational personal data based on facts from operational personal data based on personal assessments. 2. The EPPO shall take all reasonable steps to ensure that operational personal data which are inaccurate, incomplete or no longer up to date are not transmitted or made available. To that end, the EPPO shall, as far as practicable, verify the quality of operational personal data before they are transmitted or made available. As far as possible, in all transmissions of operational personal data, the EPPO shall add necessary information enabling the recipient to assess the degree of accuracy, completeness and reliability of operational personal data, and the extent to which they are up to date. 3. If it emerges that incorrect operational personal data have been transmitted or operational personal data have been unlawfully transmitted, the recipient shall be notified without delay. In such a case, the operational personal data shall be rectified or erased or processing shall be restricted in accordance with Article 61. Article 53 Specific processing conditions 1. When required by this Regulation, the EPPO shall provide for specific conditions for processing and shall inform the recipient of such operational personal data of those conditions and the requirement to comply with them. 2. The EPPO shall comply with specific processing conditions for processing provided by a national authority in accordance with Article 9(3) and (4) of Directive (EU) 2016/680. Article 54 Transmission of operational personal data to institutions, bodies, offices and agencies of the Union 1. Subject to any further restrictions pursuant to this Regulation, in particular Article 53, the EPPO shall only transmit operational personal data to another institution, body, office or agency of the Union if the data are necessary for the legitimate performance of tasks covered by the competence of the other institution, body, office or agency of the Union. 2. Where the operational personal data are transmitted following a request from the other institution, body, office or agency of the Union, both the controller and the recipient shall bear the responsibility for the legitimacy of this transfer. The EPPO shall be required to verify the competence of the other institution, body, office or agency of the Union and to make a provisional evaluation of the necessity for the transmission of the operational personal data. If doubts arise as to this necessity, the EPPO shall seek further information from the recipient. The other institution, body, office or agency of the Union shall ensure that the necessity for the transmission of the operational personal data can be subsequently verified. 3. The other institution, body, office or agency of the Union shall process the operational personal data only for the purposes for which they were transmitted. Article 55 Processing of special categories of operational personal data 1. Processing of operational personal data revealing racial or ethnic origin, political opinions, religious or philosophical beliefs, or trade-union membership, and the processing of genetic data, biometric data for the purpose of uniquely identifying a natural person, operational personal data concerning health or operational personal data concerning a natural person’s sex life or sexual orientation shall be allowed only where strictly necessary for the EPPO’s investigations, subject to appropriate safeguards for the rights and freedoms of the data subject and only if they supplement other operational personal data already processed by the EPPO. 2. The Data Protection Officer shall be informed immediately of recourse to this Article. Article 56 Automated individual decision-making, including profiling The data subject shall have the right not to be subject to a decision of the EPPO based solely on automated processing, including profiling, which produces legal effects concerning him/her or similarly significantly affects him/her. Article 57 Communication and modalities for exercising the rights of the data subject 1. The EPPO shall take reasonable steps to provide any information referred to in Article 58. It shall make any communication with regard to Articles 56, 59 to 62 and 75 relating to processing to the data subject in a concise, intelligible and easily accessible form, using clear and plain language. The information shall be provided by any appropriate means, including by electronical means. As a general rule, the controller shall provide the information in the same form as the request. 2. The EPPO shall facilitate the exercise of the rights of the data subject under Articles 58 to 62. 3. The EPPO shall inform the data subject in writing about the follow up to his/her request without undue delay, and in any case at the latest after 3 months after receipt of the request by the data subject. 4. The EPPO shall provide for the information provided under Article 58 and any communication made or action taken pursuant to Articles 56, 59 to 62 and 75 to be provided free of charge. Where requests from a data subject are manifestly unfounded or excessive, in particular because of their repetitive character, the EPPO may either: (a) charge a reasonable fee, taking into account the administrative costs of providing the information or communication, or taking the action requested; or (b) refuse to act on the request. The EPPO shall bear the burden of demonstrating the manifestly unfounded or excessive character of the request. 5. Where the EPPO has reasonable doubts concerning the identity of the natural person making a request referred to in Article 59 or 61, the EPPO may request the provision of additional information necessary to confirm the identity of the data subject. Article 58 Information to be made available or given to the data subject 1. The EPPO shall make available to the data subject at least the following information: (a) the identity and the contact details of the EPPO; (b) the contact details of the data protection officer; (c) the purposes of the processing for which the operational personal data are intended; (d) the right to lodge a complaint with the European Data Protection Supervisor and its contact details; (e) the existence of the right to request from the EPPO access to and rectification or erasure of operational personal data and restriction of processing of the operational personal data concerning the data subject. 2. In addition to the information referred to in paragraph 1, the EPPO shall give to the data subject, in specific cases, the following further information to enable the exercise of his/her rights: (a) the legal basis for the processing; (b) the period for which the operational personal data will be stored, or, where that is not possible, the criteria used to determine that period; (c) where applicable, the categories of recipients of the operational personal data, including in third countries or international organisations; (d) where necessary, further information, in particular where the operational personal data are collected without the knowledge of the data subject. 3. The EPPO may delay, restrict or omit the provision of the information to the data subject pursuant to paragraph 2 to the extent that, and for as long as, such a measure constitutes a necessary and proportionate measure in a democratic society with due regard for the fundamental rights and the legitimate interests of the natural person concerned, in order to: (a) avoid obstructing official or legal inquiries, investigations or procedures; (b) avoid prejudicing the prevention, detection, investigation or prosecution of criminal offences or the execution of criminal penalties; (c) protect public security of the Member States of the European Union; (d) protect national security of the Member States of the European Union; (e) protect the rights and freedoms of others. Article 59 Right of access by the data subject The data subject shall have the right to obtain from the EPPO confirmation as to whether or not operational personal data concerning him/her are being processed, and, where that is the case, access to the operational personal data and the following information: (a) the purposes of and legal basis for the processing; (b) the categories of operational personal data concerned; (c) the recipients or categories of recipients to whom the operational personal data have been disclosed, in particular recipients in third countries or international organisations; (d) where possible, the envisaged period for which the operational personal data will be stored, or, if not possible, the criteria used to determine that period; (e) the existence of the right to request from the EPPO rectification or erasure of operational personal data or restriction of processing of operational personal data concerning the data subject; (f) the right to lodge a complaint with the European Data Protection Supervisor and the contact details of the European Data Protection Supervisor; (g) the communication of the operational personal data undergoing processing and of any available information as to their origin. Article 60 Limitations to the right of access 1. The EPPO may restrict, wholly or partly, the data subject’s right of access to the extent that, and for as long as, such a partial or complete restriction constitutes a necessary and proportionate measure in a democratic society with due regard for the fundamental rights and legitimate interests of the natural person concerned, in order to: (a) avoid obstructing official or legal inquiries, investigations or procedures; (b) avoid prejudicing the prevention, detection, investigation or prosecution of criminal offences or the execution of criminal penalties; (c) protect public security of the Member States of the European Union; (d) protect national security of the Member States of the European Union; (e) protect the rights and freedoms of others. 2. Where the provision of such information would undermine the purpose of paragraph 1, the EPPO shall only notify the data subject concerned that it has carried out the checks, without giving any information which might reveal to him/her whether or not operational personal data concerning him/her are processed by the EPPO. The EPPO shall inform the data subject of the possibility of lodging a complaint with the European Data Protection Supervisor or seeking a judicial remedy in the Court of Justice against the EPPO’s decision. 3. The EPPO shall document the factual or legal reasons on which the decision is based. That information shall be made available to the European Data Protection Supervisor on request. Article 61 Right to rectification or erasure of operational personal data and restriction of processing 1. The data subject shall have the right to obtain from the EPPO without undue delay the rectification of inaccurate operational personal data relating to him/her. Taking into account the purposes of the processing, the data subject shall have the right to have incomplete operational personal data completed, including by means of providing a supplementary statement. 2. The EPPO shall erase operational personal data without undue delay and the data subject shall have the right to obtain from the EPPO the erasure of operational personal data concerning him/her without undue delay where processing infringes Article 47, 49 or 55, or where operational personal data must be erased in order to comply with a legal obligation to which the EPPO is subject. 3. Instead of erasure, the EPPO shall restrict processing where: (a) the accuracy of the operational personal data is contested by the data subject and their accuracy or inaccuracy cannot be ascertained; or (b) the operational personal data must be maintained for the purposes of evidence. Where processing is restricted pursuant to point (a) of the first subparagraph, the EPPO shall inform the data subject before lifting the restriction of processing. 4. Where processing has been restricted under paragraph 3, such operational personal data shall, with the exception of storage, only be processed for the protection of the rights of the data subject or another natural or legal person who is a party of the proceedings of the EPPO, or for the purposes laid down in point (b) of paragraph 3. 5. The EPPO shall inform the data subject in writing of any refusal of rectification or erasure of operational personal data or restriction of processing and of the reasons for the refusal. The EPPO may restrict, wholly or partly, the obligation to provide such information to the extent that such a restriction constitutes a necessary and proportionate measure in a democratic society with due regard for the fundamental rights and legitimate interests of the natural person concerned in order to: (a) avoid obstructing official or legal inquiries, investigations or procedures; (b) avoid prejudicing the prevention, detection, investigation or prosecution of criminal offences or the execution of criminal penalties; (c) protect public security of the Member States of the European Union; (d) protect national security of the Member States of the European Union; (e) protect the rights and freedoms of others. The EPPO shall inform the data subject of the possibility of lodging a complaint with the European Data Protection Supervisor or of seeking a judicial remedy from the Court of Justice against the EPPO’s decision. 6. The EPPO shall communicate the rectification of inaccurate operational personal data to the competent authority from which the inaccurate operational personal data originate. 7. The EPPO shall, where operational personal data has been rectified or erased or processing has been restricted pursuant to paragraphs 1, 2 and 3, notify the recipients and inform them that they have to rectify or erase the operational personal data or restrict processing of the operational personal data under their responsibility. Article 62 Exercise of rights by the data subject and verification by the European Data Protection Supervisor 1. In the cases referred to in Articles 58(3), 60(2) and 61(5), the rights of the data subject may also be exercised through the European Data Protection Supervisor. 2. The EPPO shall inform the data subject of the possibility of exercising his/her rights through the European Data Protection Supervisor pursuant to paragraph 1. 3. Where the right referred to in paragraph 1 is exercised, the European Data Protection Supervisor shall inform the data subject at least that all necessary verifications or a review by it have taken place. The European Data Protection Supervisor shall also inform the data subject of his/her right to seek a judicial remedy in the Court of Justice against the European Data Protection Supervisor’s decision. Article 63 Obligations of the EPPO 1. Taking into account the nature, scope, context and purposes of processing as well as the risks of varying likelihood and severity for the rights and freedoms of natural persons, the EPPO shall implement appropriate technical and organisational measures to ensure, and to be able to demonstrate that processing is performed in accordance with this Regulation. Those measures shall be reviewed and updated where necessary. 2. Where proportionate in relation to processing activities, the measures referred to in paragraph 1 shall include the implementation of appropriate data protection policies by the EPPO. Article 64 Joint controllers 1. Where the EPPO together with one or more controllers jointly determine the purposes and means of processing, they shall be joint controllers. They shall, in a transparent manner, determine their respective responsibilities for compliance with their data protection obligations, in particular as regards the exercising of the rights of the data subject and their respective duties to provide the information, by means of an arrangement between them unless, and in so far as, the respective responsibilities of the controllers are determined by Union law or the law of a Member State of the European Union to which the controllers are subject. The arrangement may designate a contact point for data subjects. 2. The arrangement referred to in paragraph 1 shall duly reflect the respective roles and relationships of the joint controllers vis-à-vis the data subjects. The essence of the arrangement shall be made available to the data subject. 3. Irrespective of the terms of the arrangement referred to in paragraph 1, the data subject may exercise his/her rights under this Regulation in respect, and against each, of the controllers. Article 65 Processor 1. Where processing is to be carried out on behalf of the EPPO, the EPPO shall use only processors providing sufficient guarantees to implement appropriate technical and organisational measures in such a manner that processing will meet the requirements of this Regulation and ensure the protection of the rights of the data subject. 2. The processor shall not engage another processor without prior specific or general written authorisation of the EPPO. In the case of general written authorisation, the processor shall inform the EPPO of any intended changes concerning the addition or replacement of other processors, thereby giving the controller the opportunity to object to such changes. 3. Processing by a processor shall be governed by a contract or other legal act under Union law, or the law of a Member State of the European Union, that is binding on the processor with regard to the EPPO and that sets out the subject matter and duration of the processing, the nature and purpose of the processing, the type of operational personal data and categories of data subjects and the obligations and rights of the EPPO. That contract or other legal act shall stipulate, in particular, that the processor: (a) acts only on instructions from the controller; (b) ensures that persons authorised to process the operational personal data have committed themselves to confidentiality or are under an appropriate statutory obligation of confidentiality; (c) assists the controller by any appropriate means to ensure compliance with the provisions on the data subject’s rights; (d) at the choice of the EPPO, deletes or returns all the operational personal data to the EPPO after the end of the provision of services relating to processing, and deletes existing copies unless Union law or the law of a Member State of the European Union requires storage of the operational personal data; (e) makes available to the EPPO all information necessary to demonstrate compliance with the obligations laid down in this Article; (f) complies with the conditions referred to in paragraphs 2 and 3 for engaging another processor. 4. The contract or the other legal act referred to in paragraphs 3 shall be in writing, including in electronic form. 5. If a processor infringes this Regulation by determining the purposes and means of processing, the processor shall be considered to be a controller in respect of that processing. Article 66 Processing under the authority of the controller or processor The processor and any person acting under the authority of the EPPO or of the processor, who has access to operational personal data, shall not process those data except on instructions from the EPPO, unless required to do so by Union law or the law of a Member State of the European Union. Article 67 Data protection by design and by default 1. The EPPO shall, taking into account the state of the art, the cost of implementation and the nature, scope, context and purposes of processing, as well as the risks of varying likelihood and severity for rights and freedoms of natural persons posed by the processing, both at the time of the determination of the means for processing and at the time of the processing itself, implement appropriate technical and organisational measures, such as pseudonymisation, which are designed to implement data protection principles, such as data minimisation, in an effective manner and to integrate the necessary safeguards into the processing, in order to meet the requirements of this Regulation and protect the rights of the data subjects. 2. The EPPO shall implement appropriate technical and organisational measures ensuring that, by default, only operational personal data which are adequate, relevant and not excessive in relation to the purpose of the processing are processed. That obligation applies to the amount of operational personal data collected, the extent of their processing, the period of their storage and their accessibility. In particular, such measures shall ensure that by default operational personal data are not made accessible without the individual’s intervention to an indefinite number of natural persons. Article 68 Records of categories of processing activities 1. The EPPO shall maintain a record of all categories of processing activities under its responsibility. That record shall contain all of the following information: (a) its contact details and the name and the contact details of the data protection officer; (b) the purposes of the processing; (c) a description of the categories of data subjects and of the categories of operational personal data; (d) the categories of recipients to whom the operational personal data have been or will be disclosed including recipients in third countries or international organisations; (e) where applicable, transfers of operational personal data to a third country or an international organisation, including the identification of that third country or international organisation; (f) where possible, the envisaged time limits for erasure of the different categories of data; (g) where possible, a general description of the technical and organisational security measures referred to in Article 73. 2. The records referred to in paragraph 1 shall be in writing, including in electronic form. 3. The EPPO shall make the record available to the European Data Protection Supervisor on request. Article 69 Logging in respect of automated processing 1. The EPPO shall keep logs of any of the following processing operations in automated processing systems: collection, alteration, consultation, disclosure including transfers, combination and erasure of operational personal data used for operational purposes. The logs of consultation and disclosure shall make it possible to establish the justification for, and the date and time of, such operations, the identification of the person who consulted or disclosed operational personal data, and, as far as possible, the identity of the recipients of such operational personal data. 2. The logs shall be used solely for verification of the lawfulness of processing, self-monitoring, ensuring the integrity and security of the operational personal data, and for criminal proceedings. Such logs shall be deleted after 3 years, unless they are required for on-going control. 3. The EPPO shall make the logs available to the European Data Protection Supervisor on request. Article 70 Cooperation with the European Data Protection Supervisor The EPPO shall, on request, cooperate with the European Data Protection Supervisor in the performance of its tasks. Article 71 Data protection impact assessment 1. Where a type of processing, in particular, using new technologies, and taking into account the nature, scope, context and purposes of the processing is likely to result in a high risk to the rights and freedoms of natural persons, the EPPO shall carry out, prior to the processing, an assessment of the impact of the envisaged processing operations on the protection of operational personal data. 2. The assessment referred to in paragraph 1 shall contain at least a general description of the envisaged processing operations, an assessment of the risks to the rights and freedoms of data subjects, the measures envisaged to address those risks, safeguards, security measures and mechanisms to ensure the protection of operational personal data and to demonstrate compliance with this Regulation, taking into account the rights and legitimate interests of the data subjects and other persons concerned. Article 72 Prior consultation of the European Data Protection Supervisor 1. The EPPO shall consult the European Data Protection Supervisor prior to processing which will form part of a new filing system to be created, where: (a) a data protection impact assessment as provided for in Article 71 indicates that the processing would result in a high risk in the absence of measures taken by the EPPO to mitigate the risk; or (b) the type of processing, in particular, where using new technologies, mechanisms or procedures, involves a high risk to the rights and freedoms of data subjects. 2. The European Data Protection Supervisor may establish a list of the processing operations which are subject to prior consultation pursuant to paragraph 1. 3. The EPPO shall provide the European Data Protection Supervisor with the data protection impact assessment pursuant to Article 71 and, on request, with any other information to allow the European Data Protection Supervisor to make an assessment of the compliance of the processing and in particular of the risks for the protection of operational personal data of the data subject and of the related safeguards. 4. Where the European Data Protection Supervisor is of the opinion that the intended processing referred to in paragraph 1 of this Article would infringe this Regulation, in particular where the EPPO has insufficiently identified or mitigated the risk, the European Data Protection Supervisor shall provide, within a period of up to 6 weeks of receipt of the request for consultation, written advice to the EPPO according to its powers in accordance with Article 85. That period may be extended by a month, taking into account the complexity of the intended processing. The European Data Protection Supervisor shall inform the EPPO of any such extension within 1 month of receipt of the request for consultation, together with the reasons for the delay. Article 73 Security of processing of operational personal data 1. The EPPO shall, taking into account the state of the art, costs of implementation and the nature, scope, context and purposes of the processing as well as risk of varying likelihood and severity for the rights and freedoms of natural persons, implement appropriate technical and organisational measures to ensure a level of security appropriate to the risk, in particular as regards the processing of special categories of operational personal data referred to in Article 55. 2. In respect of automated processing, the EPPO shall, following an evaluation of the risks, implement measures designed to: (a) deny unauthorised persons access to data processing equipment used for processing (equipment access control); (b) prevent the unauthorised reading, copying, modification or removal of data media (data media control); (c) prevent the unauthorised input of data and the unauthorised inspection, modification or deletion of stored operational personal data (storage control); (d) prevent the use of automated processing systems by unauthorised persons using data communication equipment (user control); (e) ensure that persons authorised to use an automated processing system have access only to the operational personal data covered by their access authorisation (data access control); (f) ensure that it is possible to verify and establish the bodies to which operational personal data have been or may be transmitted or made available using data communication (communication control); (g) ensure that it is subsequently possible to verify and establish which operational personal data have been input into automated data processing systems, and when and by whom the data were input (input control); (h) prevent unauthorised reading, copying, modification or deletion of operational personal data during transfers of operational personal data or during transportation of data media (transport control); (i) ensure that installed systems may, in the case of interruption, be restored (recovery); (j) ensure that the functions of the system perform, that the appearance of faults in the functions is reported (reliability) and that stored operational personal data cannot be corrupted by means of a malfunctioning of the system (integrity). Article 74 Notification of a personal data breach to the European Data Protection Supervisor 1. In the case of a personal data breach, the EPPO shall notify without undue delay and, where feasible, not later than 72 hours after having become aware of it, the personal data breach to the European Data Protection Supervisor, unless the personal data breach is unlikely to result in a risk to the rights and freedoms of natural persons. Where the notification to the European Data Protection Supervisor is not made within 72 hours, it shall be accompanied by reasons for the delay. 2. The notification referred to in paragraph 1 shall at least: (a) describe the nature of the personal data breach including, where possible, the categories and approximate number of data subjects concerned and the categories and approximate number of personal data records concerned; (b) communicate the name and contact details of the data protection officer; (c) describe the likely consequences of the personal data breach; (d) describe the measures taken or proposed to be taken by the EPPO to address the personal data breach, including, where appropriate, measures to mitigate its possible adverse effects. 3. Where, and in so far as, it is not possible to provide the information referred to in paragraph 2 at the same time, the information may be provided in phases without undue further delay. 4. The EPPO shall document any personal data breaches referred to in paragraph 1, comprising the facts relating to the personal data breach, its effects and the remedial action taken. That documentation shall enable the European Data Protection Supervisor to verify compliance with this Article. 5. Where the personal data breach involves personal data that have been transmitted by or to another controller, the EPPO shall communicate the information referred to in paragraph 3 to that controller without undue delay. Article 75 Communication of a personal data breach to the data subject 1. Where the personal data breach is likely to result in a high risk to the rights and freedoms of natural persons, the EPPO shall communicate the personal data breach to the data subject without undue delay. 2. The communication to the data subject referred to in paragraph 1 of this Article shall describe, in clear and plain language the nature of the personal data breach and shall contain at least the information and the recommendations provided for in points (b), (c) and (d) of Article 74(2). 3. The communication to the data subject referred to in paragraph 1 shall not be required if any of the following conditions are met: (a) the EPPO has implemented appropriate technological and organisational protection measures, and that those measures were applied to the personal data affected by the personal data breach, in particular those that render the personal data unintelligible to any person who is not authorised to access it, such as encryption; (b) the EPPO has taken subsequent measures which ensure that the high risk to the rights and freedoms of data subjects referred to in paragraph 1 is no longer likely to materialise; (c) it would involve a disproportionate effort. In such a case, there shall instead be a public communication or a similar measure whereby the data subjects are informed in an equally effective manner. 4. If the EPPO has not already communicated the personal data breach to the data subject, the European Data Protection Supervisor, having considered the likelihood of the personal data breach resulting in a high risk, may require it to do so, or may decide that any of the conditions referred to in paragraph 3 are met. 5. The communication to the data subject referred to in paragraph 1 of this Article may be delayed, restricted or omitted subject to the conditions and on the grounds referred to in Article 60(3). Article 76 Authorised access to operational personal data within the EPPO Only the European Chief Prosecutor, the European Prosecutors, the European Delegated Prosecutors and authorised staff assisting them may, for the purpose of achieving their tasks and within the limits provided for in this Regulation, have access to operational personal data processed by the EPPO. Article 77 Designation of the Data Protection Officer 1. The College shall designate a Data Protection Officer, on the basis of a proposal from the European Chief Prosecutor. The Data Protection Officer shall be a member of staff specifically appointed for this purpose. In the performance of his/her duties, the Data Protection Officer shall act independently and may not receive any instructions. 2. The Data Protection Officer shall be selected on the basis of the Officer’s professional qualities and, in particular, expert knowledge of data protection law and practice, and the ability to fulfil the tasks referred to in this Regulation, in particular those referred to in Article 79. 3. The selection of the Data Protection Officer shall not be liable to result in a conflict of interests between the Officer’s duty as Data Protection Officer and any other official duties, in particular in relation to the application of this Regulation. 4. The Data Protection Officer shall be appointed for a term of 4 years and shall be eligible for reappointment up to a maximum total term of 8 years. The Officer may be dismissed from the post of Data Protection Officer by the College only with the agreement of the European Data Protection Supervisor, if the Officer no longer fulfils the conditions required for the performance of his/her duties. 5. The EPPO shall publish the contact details of the data protection officer and communicate them to the European Data Protection Supervisor. Article 78 Position of the Data Protection Officer 1. The EPPO shall ensure that the Data Protection Officer is involved, properly and in a timely manner, in all issues which relate to the protection of personal data. 2. The EPPO shall support the data protection officer in performing the tasks referred to in Article 79 by providing resources necessary to carry out those tasks and by providing access to personal data and processing operations, and to maintain his or her expert knowledge. 3. The EPPO shall ensure that the data protection officer does not receive any instructions regarding the exercise of those tasks. The Officer shall not be dismissed or penalised by the College for performing his/her tasks. The data protection officer shall directly report to the European Chief Prosecutor. 4. Data subjects may contact the data protection officer with regard to all issues related to processing of their personal data and to the exercise of their rights under this Regulation and under Regulation (EC) No 45/2001. 5. The College shall adopt implementing rules concerning the Data Protection Officer. Those implementing rules shall in particular concern the selection procedure for the position of the Data Protection Officer and the Officer’s dismissal, tasks, duties and powers and safeguards for independence of the Data Protection Officer. 6. The EPPO shall provide the Data Protection Officer with the staff and resources necessary for him/her to carry out his/her duties. 7. The Data Protection Officer and his/her staff shall be bound by the obligation of confidentiality in accordance with Article 108. Article 79 Tasks of the data protection officer 1. The Data Protection Officer shall in particular have the following tasks, regarding the processing of personal data: (a) ensuring, in an independent manner the EPPO’s compliance with the data protection provisions of this Regulation, of Regulation (EC) No 45/2001 and of the relevant data protection provisions in the internal rules of procedure of the EPPO; this includes monitoring compliance with this Regulation, with other Union or national data protection provisions and with the policies of the EPPO in relation to the protection of personal data, including the assignment of responsibilities, awareness-raising and training of staff involved in processing operations, and the related audits; (b) informing and advising the EPPO and the staff who carry out processing of their obligations pursuant to this Regulation and to other Union or national data protection provisions; (c) providing advice where requested as regards the data protection impact assessment and monitor its performance pursuant to Article 71; (d) ensuring that a record of the transfer and receipt of personal data is kept in accordance with the provisions to be laid down in the internal rules of procedure of the EPPO; (e) cooperating with the staff of the EPPO responsible for procedures, training and advice on data processing; (f) cooperating with the European Data Protection Supervisor; (g) ensuring that data subjects are informed of their rights under this Regulation; (h) acting as the contact point for the European Data Protection Supervisor; on issues relating to processing, including the prior consultation referred to in Article 72, and consulting, where appropriate, with regard to any other matter; (i) preparing an annual report and communicate that report to the European Chief Prosecutor and to the European Data Protection Supervisor. 2. The Data Protection Officer shall carry out the functions provided for in Regulation (EC) No 45/2001 with regard to administrative personal data. 3. The Data Protection Officer and the staff members of the EPPO assisting the Data Protection Officer in the performance of duties shall have access to the personal data processed by the EPPO and to its premises to the extent necessary for the performance of their tasks. 4. If the Data Protection Officer considers that the provisions of Regulation (EC) No 45/2001 related to the processing of administrative personal data or the provisions of this Regulation related to the processing of operational personal data have not been complied with, the Officer shall inform the European Chief Prosecutor, requesting him/her to resolve the non-compliance within a specified time. If the European Chief Prosecutor does not resolve the non-compliance of the processing within the specified time, the Data Protection Officer shall refer the matter to the European Data Protection Supervisor. Article 80 General principles for transfers of operational personal data 1. The EPPO may transfer operational personal data to a third country or international organisation, subject to compliance with the other provisions of this Regulation, in particular Article 53, only where the conditions laid down in the Articles 80 to 83 are met, namely: (a) the transfer is necessary for the performance of the tasks of the EPPO; (b) the operational personal data are transferred to a controller in a third country or international organisation that is an authority competent for the purpose of Article 104; (c) where the operational personal data to be transferred in accordance with this Article have been transmitted or made available by a Member State of the European Union to the EPPO, the latter shall obtain prior authorisation for the transfer by the relevant competent authority of that Member State of the European Union in compliance with its national law, unless that Member State of the European Union has granted this authorisation to such transfer in general terms or subject to specific conditions; (d) the Commission has decided pursuant to Article 81 that the third country or international organisation in question ensures an adequate level of protection, or in the absence of such an adequacy decision, where appropriate safeguards are adduced or exist pursuant to Article 82, or both in absence of an adequacy decision and of such appropriate safeguards, derogation for specific situations apply pursuant to Article 83; and (e) in the case of an onward transfer to another third country or international organisation by a third country or international organisation, the EPPO shall require the third country or international organisation to seek its prior authorisation for that onward transfer, which the EPPO may provide only after taking into due account all relevant factors, including the seriousness of the criminal offence, the purpose for which the operational personal data was originally transferred and the level of personal data protection in the third country or an international organisation to which operational personal data are onward transferred. 2. The EPPO may transfer operational personal data without prior authorisation by a Member State of the European Union in accordance with point (c) of paragraph 1 only if the transfer of the operational personal data is necessary for the prevention of an immediate and serious threat to public security of a Member State of the European Union or a third country or to essential interests of a Member State of the European Union and the prior authorisation cannot be obtained in good time. The authority responsible for giving prior authorisation shall be informed without delay. 3. The transfer of operational personal data received from the EPPO to a third country or an international organisation by a Member State of the European Union, or institution, body, office or agency of the Union shall be prohibited. This shall not apply in cases where the EPPO has authorised such transfer, after taking into due account all relevant factors, including the seriousness of the criminal offence, the purpose for which the operational personal data was originally transmitted and the level of personal data protection in the third country or an international organisation to which operational personal data are transferred. That obligation to obtain prior authorisation from the EPPO shall not apply to cases that have been referred to competent national authorities in accordance with Article 34. 4. Articles 80 to 83 shall be applied in order to ensure that the level of protection of natural persons ensured by this Regulation and by Union law is not undermined. Article 81 Transfers on the basis of an adequacy decision The EPPO may transfer operational personal data to a third country or an international organisation where the Commission has decided in accordance with Article 36 of Directive (EU) 2016/680 that the third country, a territory or one or more specified sectors within that third country, or the international organisation in question ensures an adequate level of protection. Article 82 Transfers subject to appropriate safeguards 1. In the absence of an adequacy decision, the EPPO may transfer operational personal data to a third country or an international organisation where: (a) appropriate safeguards with regard to the protection of operational personal data are provided for in a legally binding instrument; or (b) the EPPO has assessed all the circumstances surrounding the transfer of operational personal data and concludes that appropriate safeguards exist with regard to the protection of operational personal data. 2. The EPPO shall inform the European Data Protection Supervisor about categories of transfers under point (b) of paragraph 1. 3. When a transfer is based on point (b) of paragraph 1, such a transfer shall be documented and the documentation shall be made available to the European Data Protection Supervisor on request, including the date and time of the transfer, and information about the receiving competent authority, about the justification for the transfer and about the operational personal data transferred. Article 83 Derogations for specific situations 1. In the absence of an adequacy decision, or of appropriate safeguards pursuant to Article 82, the EPPO may transfer operational personal data to a third country or an international organisation only on the condition that the transfer is necessary: (a) in order to protect the vital interests of the data subject or another person; (b) to safeguard legitimate interests of the data subject; (c) for the prevention of an immediate and serious threat to public security of a Member State of the European Union or a third country; or (d) in individual cases for the performance of the tasks of the EPPO, unless the EPPO determines that fundamental rights and freedoms of the data subject concerned override the public interest in the transfer. 2. Where a transfer is based on paragraph 1, such a transfer shall be documented and the documentation shall be made available to the European Data Protection Supervisor on request, including the date and time of the transfer, and information about the receiving competent authority, about the justification for the transfer and about the operational personal data transferred. Article 84 Transfers of operational personal data to recipients established in third countries 1. By way of derogation from point (b) of Article 80(1) and without prejudice to any international agreement referred to in paragraph 2 of this Article, the EPPO, in individual and specific cases, may transfer operational personal data directly to recipients established in third countries only if the other provisions of this Chapter are complied with and all of the following conditions are fulfilled: (a) the transfer is strictly necessary for the performance of its tasks as provided for by this Regulation for the purposes set out in Article 49(1); (b) the EPPO determines that no fundamental rights and freedoms of the data subject concerned override the public interest necessitating the transfer in the case at hand; (c) the EPPO considers that the transfer to an authority that is competent for the purposes referred to in Article 49(1) in the third country is ineffective or inappropriate, in particular because the transfer cannot be achieved in good time; (d) the authority that is competent for the purposes referred to in Article 49(1) in the third country is informed without undue delay, unless this is ineffective or inappropriate; (e) the EPPO informs the recipient of the specified purpose or purposes for which the operational personal data are only to be processed by the latter provided that such processing is necessary. 2. An international agreement referred to in paragraph 1 shall be any bilateral or multilateral international agreement in force between the Union and third countries in the field of judicial cooperation in criminal matters and police cooperation. 3. Where a transfer is based on paragraph 1, such a transfer shall be documented and the documentation shall be made available to the European Data Protection Supervisor on request, including the date and time of the transfer, and information about the receiving competent authority, about the justification for the transfer and about the operational personal data transferred. Article 85 Supervision by the European Data Protection Supervisor 1. The European Data Protection Supervisor shall be responsible for monitoring and ensuring the application of the provisions of this Regulation relating to the protection of fundamental rights and freedoms of natural persons with regard to processing of operational personal data by the EPPO, and for advising the EPPO and data subjects on all matters concerning the processing of operational personal data. To this end, the European Data Protection Supervisor shall fulfil the duties set out in paragraph 2 of this Article, shall exercise the powers granted in paragraph 3 of this Article and shall cooperate with the national supervisory authorities in accordance with Article 87. 2. The European Data Protection Supervisor shall have the following duties under this Regulation: (a) hear and investigate complaints, and inform the data subject of the outcome within a reasonable period; (b) conduct inquiries either on his/her own initiative or on the basis of a complaint, and inform the data subjects of the outcome within a reasonable period; (c) monitor and ensure the application of the provisions of this Regulation relating to the protection of natural persons with regard to the processing of operational personal data by the EPPO; (d) advise the EPPO, either on his/her own initiative or in response to a consultation, on all matters concerning the processing of operational personal data, in particular before it draws up internal rules relating to the protection of fundamental rights and freedoms with regard to the processing of operational personal data. 3. The European Data Protection Supervisor may under this Regulation: (a) give advice to data subjects in the exercise of their rights; (b) refer the matter to the EPPO in the event of an alleged breach of the provisions governing the processing of operational personal data, and, where appropriate, make proposals for remedying that breach and for improving the protection of the data subjects; (c) consult the EPPO when requests to exercise certain rights in relation to operational personal data have been refused in breach of Articles 56 to 62; (d) refer the matter to the EPPO; (e) order the EPPO to carry out the rectification, restriction or erasure of operational personal data which have been processed by the EPPO in breach of the provisions governing the processing of operational personal data and the notification of such actions to third parties to whom such data have been disclosed, provided that this does not interfere with investigations and prosecutions led by the EPPO; (f) refer the matter to the Court of Justice under the conditions set out in the Treaties; (g) intervene in actions brought before the Court of Justice. 4. The European Data Protection Supervisor shall have access to the operational personal data processed by the EPPO and to its premises to the extent necessary for the performance of its tasks. 5. The European Data Protection Supervisor shall draw up an annual report on the supervisory activities on the EPPO. Article 86 Professional secrecy of the European Data Protection Supervisor The European Data Protection Supervisor and staff shall, both during and after their term of office, be subject to a duty of professional secrecy with regard to any confidential information which has come to their knowledge in the course of the performance of official duties. Article 87 Cooperation between the European Data Protection Supervisor and national supervisory authorities 1. The European Data Protection Supervisor shall act in close cooperation with national supervisory authorities with respect to specific issues requiring national involvement, in particular if the European Data Protection Supervisor or a national supervisory authority finds major discrepancies between practices of Member States of the European Union or finds potentially unlawful transfers using the communication channels of the EPPO, or in the context of questions raised by one or more national supervisory authorities on the implementation and interpretation of this Regulation. 2. In the cases referred to in paragraph 1, the European Data Protection Supervisor and the national supervisory authorities competent for data protection supervision may, each acting within the scope of their respective competences, exchange relevant information, and assist each other in carrying out audits and inspections, examine difficulties of interpretation or application of this Regulation, study problems related to the exercise of independent supervision or to the exercise of the rights of data subjects, draw up harmonised proposals for joint solutions to any problems, and promote awareness of data protection rights, as necessary. 3. The European Data Protection Board established by Regulation (EU) 2016/679 shall also carry out the tasks laid down in Article 51 of Directive (EU) 2016/680 with regard to matters covered by this Regulation, in particular those referred to in paragraphs 1 and 2 of this Article. Article 88 Right to lodge a complaint with the European Data Protection Supervisor 1. Every data subject shall have the right to lodge a complaint with the European Data Protection Supervisor, if the data subject considers that the processing by the EPPO of operational personal data relating to the data subject infringes this Regulation. 2. The European Data Protection Supervisor shall inform the data subject of the progress and the outcome of the complaint, including of the possibility of a judicial remedy pursuant to Article 89. Article 89 Right to judicial review against the European Data Protection Supervisor Actions against decisions of the European Data Protection Supervisor shall be brought before the Court of Justice. CHAPTER IX FINANCIAL AND STAFF PROVISIONS SECTION 1 Financial provisions Article 90 Financial actors 1. The European Chief Prosecutor shall be responsible for preparing decisions on the establishment of the budget and submitting them to the College for adoption. 2. The Administrative Director shall be responsible as authorising officer for implementing the budget of the EPPO. Article 91 Budget 1. The European Chief Prosecutor shall prepare estimates of the revenue and expenditure of the EPPO for each financial year, corresponding to the calendar year, on the basis of a proposal drawn up by the Administrative Director. Those estimates shall be shown in the budget of the EPPO. 2. The budget of the EPPO shall be balanced in terms of revenue and expenditure. 3. Without prejudice to other resources, the revenue of the EPPO shall comprise: (a) a contribution from the Union entered in the general budget of the Union, subject to paragraphs 7 and 8; (b) charges for publications and any service provided by the EPPO. 4. The expenditure of the EPPO shall include the remuneration of the European Chief Prosecutor, European Prosecutors, European Delegated Prosecutors, the Administrative Director and the staff of the EPPO, administrative and infrastructure expenses, and operational expenditure. 5. Where European Delegated Prosecutors act within the framework of the EPPO, the relevant expenditure incurred by the European Delegated Prosecutors in the course of those activities shall be regarded as operational expenditure of the EPPO. The operational expenditure of the EPPO’s shall in principle not include costs related to investigation measures carried out by competent national authorities or costs of legal aid. However, it shall, within the budget of the EPPO, include certain costs related to its investigation and prosecution activities as set out in paragraph 6. The operational expenditure shall also include the setting up of a case management system, training, missions and translations necessary for the internal functioning of the EPPO, such as translations for the Permanent Chamber. 6. Where an exceptionally costly investigation measure is carried out on behalf of the EPPO, the European Delegated Prosecutors may, on their own initiative or at the reasoned request of the competent national authorities, consult the Permanent Chamber as to whether the cost of the investigation measure could partly be met by the EPPO. Such consultations shall not delay the investigation. The Permanent Chamber may then, upon consultation with the Administrative Director and based on the proportionality of the measure carried out in the specific circumstances and the extra-ordinary nature of the cost it entails decide to accept or refuse the request, in accordance with the rules on the assessment of these criteria to be set out in the internal rules of procedure of the EPPO. The Administrative Director shall then decide on the amount of the grant to be awarded based on the available financial resources. The Administrative Director shall without delay inform the handling European Delegated Prosecutor of the decision on the amount. 7. In accordance with Article 332 TFEU, the expenditure of the EPPO referred to in paragraphs 4 and 5 of this Article shall be borne by the Member States. Member States of the European Union which do not participate in enhanced cooperation on the establishment of the EPPO shall receive an adjustment in accordance with Article 11 of Council Regulation (EU, Euratom) No 609/2014 (24). 8. Paragraph 7 shall not apply to the administrative costs entailed for the Union’s institutions resulting from implementation of enhanced cooperation on the establishment of the EPPO. Article 92 Establishment of the budget 1. Each year the European Chief Prosecutor shall prepare a provisional draft estimate of the revenue and expenditure of the EPPO for the following financial year on the basis of a proposal drawn up by the Administrative Director. The European Chief Prosecutor shall send the provisional draft estimate to the College for adoption. 2. The provisional draft estimate of the revenue and expenditure of the EPPO shall be sent to the Commission by 31 January each year. The EPPO shall send a final draft estimate, which shall include a draft establishment plan, to the Commission by 31 March each year. 3. The Commission shall send the statement of estimates to the European Parliament and to the Council (‘the budgetary authority’) together with the draft general budget of the Union. 4. On the basis of the statement of estimates, the Commission shall enter in the draft general budget of the Union the estimates it considers to be necessary for the establishment plan and the amount of the contribution to be charged to the general budget, which it shall submit to the budgetary authority in accordance with Articles 313 and 314 TFEU. 5. The budgetary authority shall authorise the appropriations for the contribution from the general budget of the Union to the EPPO. 6. The budgetary authority shall adopt the establishment plan of the EPPO. 7. The College shall adopt the budget of the EPPO on a proposal from the European Chief Prosecutor. It shall become final following the final adoption of the general budget of the Union. Where necessary, it shall be adjusted in accordance with the same procedure as for the adoption of the initial budget. 8. For any building project likely to have significant implications for the budget of the EPPO, Article 88 of Commission Delegated Regulation (EU) No 1271/2013 (25) shall apply. Article 93 Implementation of the budget 1. The Administrative Director acting as the authorising officer of the EPPO, shall implement its budget under his/her own responsibility and within the limits authorised in the budget. 2. Each year the Administrative Director shall send to the budgetary authority all information relevant to the findings of any evaluation procedures. Article 94 Presentation of accounts and discharge 1. The accounting officer of the EPPO shall send the provisional accounts for the financial year (year N) to the Commission’s Accounting Officer and to the Court of Auditors by 1 March of the following financial year (year N + 1). 2. The EPPO shall send the report on the budgetary and financial management to the European Parliament, to the Council and to the Court of Auditors, by 31 March of the following financial year. 3. The Commission’s Accounting Officer shall send the provisional accounts of the EPPO consolidated with the Commission’s accounts, to the Court of Auditors by 31 March following each financial year. 4. In accordance with Article 148(1) of Regulation (EU, Euratom) No 966/2012, the Court of Auditors shall, make its observations on the provisional accounts of the EPPO by 1 June of the following year at the latest. 5. On receipt of the Court of Auditors’ observations on the provisional accounts of the EPPO pursuant to Article 148 of Regulation (EU, Euratom) No 966/2012, the accounting officer of the EPPO shall draw up its final accounts under his/her own responsibility and submit these to the College for an opinion. 6. The accounting officer of the EPPO shall, by 1 July following each financial year, send the final accounts to the European Parliament, to the Council, to the Commission and to the Court of Auditors, together with the opinion of the College referred to in paragraph 5. 7. The final accounts of the EPPO shall be published in the Official Journal of the European Union by 15 November of the year following each financial year. 8. The Administrative Director shall send the Court of Auditors a reply to its observations by 30 September following each financial year at the latest. The Administrative Director shall also send the reply to the Commission. 9. The Administrative Director shall submit to the European Parliament, at the latter’s request, any information required for the smooth application of the discharge procedure for the financial year in question as laid down in Article 109(3) of Delegated Regulation (EU) No 1271/2013. 10. On a recommendation from the Council acting by a qualified majority, the European Parliament, shall, before 15 May of year N + 2, give a discharge to the Administrative Director in respect of the implementation of the budget for year N. Article 95 Financial rules The European Chief Prosecutor shall draw up the draft financial rules applicable to the EPPO on the basis of a proposal from the Administrative Director. Those rules shall be adopted by the College after consultation with the Commission. The financial rules shall not depart from those contained in Delegated Regulation (EU) No 1271/2013 unless such departure is specifically required for the operation of the EPPO and the Commission has given its prior consent. SECTION 2 Staff provisions Article 96 General provisions 1. The Staff Regulations and the Conditions of Employment and the rules adopted by agreement between the institutions of the Union for giving effect to those Staff Regulations and Conditions of Employment shall apply to the European Chief Prosecutor and the European Prosecutors, the European Delegated Prosecutors, the Administrative Director and the staff of the EPPO, unless otherwise provided for in this Regulation. The European Chief Prosecutor and the European Prosecutors shall be engaged as temporary agents of the EPPO under Article 2(a) of the Conditions of Employment. 2. The staff of the EPPO shall be recruited according to the rules and regulations applicable to officials and other servants of the European Union. 3. The powers conferred on the appointing authority by the Staff Regulations and the Conditions of Employment to conclude contracts of employment shall be exercised by the College. The College may delegate these powers to the Administrative Director with respect to the staff of the EPPO. Delegation of powers referred to in this paragraph shall not concern the European Chief Prosecutor, the European Prosecutors, the European Delegated Prosecutors or the Administrative Director. 4. The College shall adopt appropriate rules to implement the Staff Regulations and the Conditions of Employment in accordance with Article 110 of the Staff Regulations. The College shall also adopt staff resource programming as part of the programming document. 5. The Protocol on the Privileges and Immunities of the European Union shall apply to the EPPO and its staff. 6. European Delegated Prosecutors shall be engaged as Special Advisors in accordance with Articles 5, 123 and 124 of the Conditions of Employment. The competent national authorities shall facilitate the exercise of the functions of European Delegated Prosecutors under this Regulation and refrain from any action or policy that may adversely affect their career or status in the national prosecution system. In particular, the competent national authorities shall provide the European Delegated Prosecutors with the resources and equipment necessary to exercise their functions under this Regulation, and shall ensure that they are fully integrated into their national prosecution services. It shall be ensured that adequate arrangements are in place so that the European Delegated Prosecutors’ rights relating to social security, pension and insurance coverage under the national scheme are maintained. It shall also be ensured that the total remuneration of a European Delegated Prosecutor is not lower than what it would be if that prosecutor would only have remained a national prosecutor. The general working conditions and work environment of the European Delegated Prosecutors shall fall under the responsibility of the competent national judicial authorities. 7. The European Prosecutors and the European Delegated Prosecutors shall not receive in the exercise of their investigation and prosecution powers, any orders, guidelines or instructions other than those expressly provided for in Article 6. Article 97 Temporary agents and contract agents 1. Temporary agents employed under point (a) of Article 2 of the Conditions of Employment in the institutions, bodies, offices or agencies of the Union who are engaged by the EPPO with a contract concluded before and no later than 1 year after the EPPO becomes operational in accordance with the decision mentioned in Article 120(2) shall be offered contracts under point (f) of Article 2 of the Conditions of Employment whereas all other conditions of the contract shall remain unchanged, without prejudice to the need to respect the obligations stemming from the Conditions of Employment. Those temporary agents shall be deemed to have served their entire service in the EPPO. 2. Contract agents employed under Article 3a or 3b of the Conditions of Employment in the institutions of the Union who are engaged by the EPPO with a contract concluded before and no later than 1 year after the EPPO becomes operational in accordance with the decision mentioned in Article 120(2) shall be offered contracts under Article 3a Conditions of Employment whereas all other conditions of the contract shall remain unchanged. Those contract agents shall be deemed to have served their entire service in the EPPO. 3. Temporary agents employed under point (f) of Article 2 of the Conditions of Employment and contract agents employed under Article 3a of the Conditions of Employment in the institutions, bodies, offices or agencies of the Union who are engaged by the EPPO with a contract concluded before and no later than 1 year after the EPPO becomes operational in accordance with the decision mentioned in Article 120(2) shall be offered contracts under the same conditions. Those agents shall be deemed to have served their entire service in the EPPO. Article 98 Seconded national experts and other staff 1. The EPPO may make use, in addition to its own staff, of seconded national experts or other persons put at its disposal but not employed by it. The seconded national experts shall be subject to the authority of the European Chief Prosecutor in the exercise of tasks related to the functions of the EPPO. 2. The College shall adopt a decision laying down rules on the secondment of national experts to the EPPO or other persons put at its disposal but not employed by it. CHAPTER X PROVISIONS ON THE RELATIONS OF THE EPPO WITH ITS PARTNERS Article 99 Common provisions 1. In so far as necessary for the performance of its tasks, the EPPO may establish and maintain cooperative relations with institutions, bodies, offices or agencies of the Union in accordance with their respective objectives, and with the authorities of Member States of the European Union which do not participate in enhanced cooperation on the establishment of the EPPO, the authorities of third countries and international organisations. 2. In so far as relevant to the performance of its tasks, the EPPO may, in accordance with Article 111, directly exchange all information, with the entities referred to in paragraph 1 of this Article, unless otherwise provided for in this Regulation. 3. For the purposes set out in paragraphs 1 and 2, the EPPO may conclude working arrangements with the entities referred to in paragraph 1. Those working arrangements shall be of a technical and/or operational nature, and shall in particular aim to facilitate cooperation and the exchange of information between the parties thereto. The working arrangements may neither form the basis for allowing the exchange of personal data nor have legally binding effects on the Union or its Member States. Article 100 Relations with Eurojust 1. The EPPO shall establish and maintain a close relationship with Eurojust based on mutual cooperation within their respective mandates and on the development of operational, administrative and management links between them as defined in this Article. To this end, the European Chief Prosecutor and the President of Eurojust shall meet on a regular basis to discuss issues of common concern. 2. In operational matters, the EPPO may associate Eurojust with its activities concerning cross-border cases, including by: (a) sharing information, including personal data, on its investigations in accordance with the relevant provisions in this Regulation; (b) inviting Eurojust or its competent national member(s) to provide support in the transmission of its decisions or requests for mutual legal assistance to, and execution in, Member States of the European Union that are members of Eurojust but do not take part in the establishment of the EPPO, as well as third countries. 3. The EPPO shall have indirect access to information in Eurojust’s case management system on the basis of a hit/no-hit system. Whenever a match is found between data entered into the case management system by the EPPO and data held by Eurojust, the fact that there is a match shall be communicated to both Eurojust and the EPPO, as well as the Member State of the European Union which provided the data to Eurojust. The EPPO shall take appropriate measures to enable Eurojust to have access to information in its case management system on the basis of a hit/no-hit system. 4. The EPPO may rely on the support and resources of the administration of Eurojust. To that end, Eurojust may provide services of common interest to the EPPO. The details shall be regulated by means of an Arrangement. Article 101 Relations with OLAF 1. The EPPO shall establish and maintain a close relationship with OLAF based on mutual cooperation within their respective mandates and on information exchange. The relationship shall aim in particular to ensure that all available means are used to protect the Union’s financial interests through the complementarity and support by OLAF to the EPPO. 2. Without prejudice to the actions set out in paragraph 3, where the EPPO conducts a criminal investigation in accordance with this Regulation, OLAF shall not open any parallel administrative investigation into the same facts. 3. In the course of an investigation by the EPPO, the EPPO may request OLAF, in accordance with OLAF’s mandate, to support or complement the EPPO’s activity in particular by: (a) providing information, analyses (including forensic analyses), expertise and operational support; (b) facilitating coordination of specific actions of the competent national administrative authorities and bodies of the Union; (c) conducting administrative investigations. 4. The EPPO may, with a view to enabling OLAF to consider appropriate administrative action in accordance with its mandate, provide relevant information to OLAF on cases where the EPPO has decided not to conduct an investigation or has dismissed a case. 5. The EPPO shall have indirect access to information in OLAF’s case management system on the basis of a hit/no hit system. Whenever a match is found between data entered into the case management system by the EPPO and data held by OLAF, the fact that there is a match shall be communicated to both OLAF and the EPPO. The EPPO shall take appropriate measures to enable OLAF to have access to information in its case management system on the basis of a hit/no-hit system. Article 102 Relations with Europol 1. The EPPO shall establish and maintain a close relationship with Europol. To that end, they shall conclude a working arrangement setting out the modalities of their cooperation. 2. Where necessary for the purpose of its investigations, the EPPO shall be able to obtain, at its request, any relevant information held by Europol, concerning any offence within its competence, and may also ask Europol to provide analytical support to a specific investigation conducted by the EPPO. Article 103 Relations with other institutions, bodies, offices and agencies of the Union 1. The EPPO shall establish and maintain a cooperative relationship with the Commission for the purpose of protecting the financial interests of the Union. To that end, they shall conclude an agreement setting out the modalities for their cooperation. 2. Without prejudice to the proper conduct and confidentiality of its investigations, the EPPO shall without delay, provide the institution, body, office or agency of the Union and other victims concerned sufficient information in order to allow them to take appropriate measures, in particular: (a) administrative measures, such as precautionary measures to protect the financial interests of the Union, in this regard. The EPPO may recommend specific measures to the institution, body, office or agency of the Union; (b) intervention as a civil party in the proceedings; (c) measures for the purpose of administrative recovery of sums due to the Union budget or disciplinary action. Article 104 Relations with third countries and international organisations 1. The working arrangements referred to in Article 99(3) with the authorities of third countries and international organisations may in particular, concern the exchange of strategic information and the secondment of liaison officers to the EPPO. 2. The EPPO may designate, in agreement with the competent authorities concerned, contact points in third countries in order to facilitate cooperation in line with the operational needs of the EPPO. 3. International agreements with one or more third countries concluded by the Union or to which the Union has acceded in accordance with Article 218 TFEU in areas that fall under the competence of the EPPO, such as international agreements concerning cooperation in criminal matters between the EPPO and those third countries, shall be binding on the EPPO. 4. In the absence of an agreement pursuant to paragraph 3, the Member States shall, if permitted under the relevant multilateral international agreement and subject to the third country’s acceptance, recognise and, where applicable, notify the EPPO as a competent authority for the purpose of the implementation of multilateral international agreements on legal assistance in criminal matters concluded by them, including, where necessary and possible, by way of an amendment to those agreements. The Member States may also notify the EPPO as a competent authority for the purpose of the implementation of other international agreements on legal assistance in criminal matters concluded by them, including, by way of an amendment to those agreements. 5. In the absence of an agreement pursuant to paragraph 3 of this Article or a recognition pursuant to paragraph 4 of this Article, the handling European Delegated Prosecutor, in accordance with Article 13(1), may have recourse to the powers of a national prosecutor of his/her Member State to request legal assistance in criminal matters from authorities of third countries, on the basis of international agreements concluded by that Member State or applicable national law and, where required, through the competent national authorities. In that case, the European Delegated Prosecutor shall inform and where appropriate shall endeavour to obtain consent from the authorities of third countries that the evidence collected on that basis will be used by the EPPO for the purposes of this Regulation. In any case, the third country shall be duly informed that the final recipient of the reply to the request is the EPPO. Where the EPPO cannot exercise its functions on the basis of a relevant international agreement as referred to in paragraph 3 or 4 of this Article, the EPPO may also request legal assistance in criminal matters from authorities of third countries in a particular case and within the limits of its material competence. The EPPO shall comply with the conditions which may be set by those authorities concerning the use of the information that they provided on that basis. 6. Subject to the other provisions of this Regulation, the EPPO may, upon request, provide the competent authorities of third countries or international organisations, for the purpose of investigations or use as evidence in criminal investigations, with information or evidence which is already in the possession of the EPPO. After consulting the Permanent Chamber, the handling European Delegated Prosecutor shall decide on any such transfer of information or evidence in accordance with the national law of his/her Member State and this Regulation. 7. Where it is necessary to request the extradition of a person, the handling European Delegated Prosecutor may request the competent authority of his/her Member State to issue an extradition request in accordance with applicable treaties and/or national law. Article 105 Relations with Member States of the European Union which do not participate in enhanced cooperation on the establishment of the EPPO 1. The working arrangements referred to in Article 99(3) with the authorities of Member States of the European Union which do not participate in enhanced cooperation on the establishment of the EPPO may in particular, concern the exchange of strategic information and the secondment of liaison officers to the EPPO. 2. The EPPO may designate, in agreement with the competent authorities concerned, contact points in the Member States of the European Union which do not participate in enhanced cooperation on the establishment of the EPPO in order to facilitate cooperation in line with the EPPO’s needs. 3. In the absence of a legal instrument relating to cooperation in criminal matters and surrender between the EPPO and the competent authorities of the Member States of the European Union which do not participate in enhanced cooperation on the establishment of the EPPO, the Member States shall notify the EPPO as a competent authority for the purpose of implementation of the applicable Union acts on judicial cooperation in criminal matters in respect of cases falling within the competence of the EPPO, in their relations with Member States of the European Union which do not participate in enhanced cooperation on the establishment of the EPPO. CHAPTER XI GENERAL PROVISIONS Article 106 Legal status and operating conditions 1. In each of the Member States the EPPO shall have the legal capacity accorded to legal persons under national law. 2. The necessary arrangements concerning the accommodation provided for the EPPO and the facilities made available by Luxembourg, as well as the specific rules applicable in that Member State to the Members of the College, the Administrative Director and the staff of the EPPO, and members of their families, shall be laid down in a Headquarters Agreement to be concluded between the EPPO and Luxembourg by the date the EPPO assumes its investigative and prosecutorial tasks determined in accordance with Article 120(2). Article 107 Language arrangements 1. Council Regulation (EEC) No 1/58 (26) shall apply to the acts referred to in Articles 21 and 114 of this Regulation. 2. The College shall decide by a two-thirds majority of its members on the internal language arrangements of the EPPO. 3. The translation services required for the administrative functioning of the EPPO at the central level shall be provided by the Translation Centre of the bodies of the European Union, unless the urgency of the matter requires another solution. European Delegated Prosecutors shall decide on the modalities of translation for the purpose of investigations in accordance with applicable national law. Article 108 Confidentiality and professional secrecy 1. The members of the College, the Administrative Director and the staff of the EPPO, seconded national experts and other persons put at the disposal of the EPPO but not employed by it, and European Delegated Prosecutors shall be bound by an obligation of confidentiality in accordance with Union legislation with respect to any information held by the EPPO. 2. Any other person who participates or assists in carrying out the functions of the EPPO at the national level shall be bound by an obligation of confidentiality as provided for under applicable national law. 3. The obligation of confidentiality shall also apply to the persons referred to in paragraphs 1 and 2 after they have left office or employment and after the termination of activities. 4. The obligation of confidentiality shall, in accordance with applicable national or Union law, apply to all information received by the EPPO, unless that information has already lawfully been made public. 5. Investigations carried out under the authority of the EPPO shall be protected by the rules concerning professional secrecy under the applicable Union law. Any person who participates or assists in carrying out the functions of the EPPO shall be bound to respect professional secrecy under the applicable national law. Article 109 Transparency 1. Regulation (EC) No 1049/2001 of the European Parliament and of the Council (27) shall apply to documents other than case files, including electronic images of those files, that are kept in accordance with Article 45 of this Regulation. 2. The European Chief Prosecutor shall, within 6 months of the date of his/her appointment, prepare a proposal for detailed rules for applying this Article. That proposal shall be adopted by the College. 3. Decisions taken by the EPPO under Article 8 of Regulation (EC) No 1049/2001 may form the subject of a complaint to the European Ombudsman or of an action before the Court of Justice, under the conditions laid down in Articles 228 and 263 TFEU respectively. Article 110 OLAF and the Court of Auditors 1. In order to facilitate combating fraud, corruption and other unlawful activities under Regulation (EU, Euratom) No 883/2013, by 6 months after the date to be set by the Commission pursuant to Article 120(2), the EPPO shall accede to the Interinstitutional Agreement of 25 May 1999 concerning internal investigations by the European Anti-Fraud Office (OLAF) (28), and shall adopt the appropriate provisions applicable to the European Chief Prosecutor, the European Prosecutors, the Administrative Director and the staff of the EPPO, seconded national experts and other persons put at the disposal of the EPPO but not employed by it, and European Delegated Prosecutors using the template set out in the Annex to that Agreement. 2. The Court of Auditors shall have the power of audit, on the basis of documents and on the spot, over all contractors and subcontractors who have received Union funds from the EPPO. 3. OLAF may carry out investigations, including on-the-spot checks and inspections, in accordance with the provisions and procedures laid down in Regulation (EU, Euratom) No 883/2013 and Council Regulation (Euratom, EC) No 2185/96 (29) with a view to establishing whether there have been any irregularities affecting the financial interests of the Union in connection with expenditure funded by the EPPO. 4. Without prejudice to paragraphs 1, 2 and 3, working arrangements with bodies of the Union, authorities of third countries and international organisations, and contracts of the EPPO shall contain provisions expressly empowering the Court of Auditors and OLAF to conduct such audits and investigations, according to their respective competences. Article 111 Rules on the protection of sensitive non-classified and classified information 1. The EPPO shall establish internal rules on the protection of sensitive non-classified information, including the creation and processing of such information at the EPPO. 2. The EPPO shall establish internal rules on the protection of the EU classified information that shall be consistent with Council Decision 2013/488/EU (30) in order to ensure an equivalent level of protection for such information. Article 112 Administrative inquiries The administrative activities of the EPPO shall be subject to the inquiries of the European Ombudsman in accordance with Article 228 TFEU. Article 113 General regime of liability 1. The contractual liability of the EPPO shall be governed by the law applicable to the contract in question. 2. The Court of Justice shall have jurisdiction to give judgment pursuant to any arbitration clause contained in a contract concluded by the EPPO. 3. In the case of non-contractual liability, the EPPO shall, in accordance with the general principles common to the laws of the Member States of the European Union make good any damage caused by the EPPO or its staff in the performance of their duties in so far as it may be imputed to them. 4. Paragraph 3 shall also apply to damage caused through the fault of a European Delegated Prosecutor in the performance of his/her duties. 5. The Court of Justice shall have jurisdiction in disputes over compensation for damages as referred to in paragraph 3. 6. The national courts of the Member States of the European Union competent to deal with disputes involving the contractual liability of the EPPO as referred to in this Article shall be determined by reference to Regulation (EU) No 1215/2012 of the European Parliament and of the Council (31). 7. The personal liability of the staff of the EPPO shall be governed by the applicable provisions laid down in the Staff Regulations and the Conditions of Employment. Article 114 Implementing rules and programme documents The College, on the proposal of the European Chief Prosecutor, shall adopt in particular: (a) on an annual basis, the programming document containing annual and multi-annual programming of the EPPO; (b) an anti-fraud strategy, which is proportionate to the fraud risks having regard to the cost-benefit of the measures to be implemented; (c) rules on the conditions of employment, performance criteria, professional insufficiency, rights and obligations of the European Delegated Prosecutors, including rules on the prevention and management of conflicts of interest; (d) detailed rules concerning the application of Regulation (EC) No 1049/2001 in the activities of the EPPO; (e) implementing rules referred to in Article 24(8) of Regulation (EC) No 45/2001. Article 115 Exercise of the delegation 1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2. The power to adopt delegated acts referred to in Article 49(3) shall be conferred on the Commission for an indeterminate period of time from 20 November 2017. 3. The delegation of power referred to in Article 49(3) may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect on the day following the date of publication of the decision in the Official Journal of the European Union or on a later date specified therein. It shall not affect the validity of any delegated acts already in force. 4. Before adopting a delegated act, the Commission shall consult experts designated by each Member State in accordance with the principles laid down in the Interinstitutional Agreement on Better Law Making of 13 April 2016. 5. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 6. A delegated act adopted pursuant to Article 49(3) shall enter into force only if no objection has been expressed either by the European Parliament or by the Council within a period of 2 months of notification of that act to the European Parliament and to the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by 2 months at the initiative of the European Parliament or of the Council. Article 116 Urgency procedure 1. Delegated acts adopted under this Article shall enter into force without delay and shall apply as long as no objection is expressed in accordance with paragraph 2. The notification of a delegated act to the European Parliament and to the Council shall state the reasons for the use of the urgency procedure. 2. Either the European Parliament or the Council may object to a delegated act in accordance with the procedure referred to in Article 115(6). In such a case, the Commission shall repeal the act immediately following the notification of the decision to object by the European Parliament or by the Council. Article 117 Notifications Each Member State shall designate the authorities that are competent for the purposes of implementing this Regulation. Information on the designated authorities, as well as on any subsequent change thereto, shall be notified simultaneously to the European Chief Prosecutor, to the Council and to the Commission. Member States shall also notify to the EPPO an extensive list of the national substantive criminal law provisions that apply to the offences defined in Directive (EU) 2017/1371 and any other relevant national law. The EPPO shall ensure that the information received through these lists is made public. Furthermore, Member States that, in accordance with Article 30(3), intend to limit the application of points (e) and (f) of Article 30(1) to specific serious offences shall notify the EPPO of a list of those offences. Article 118 Review of the rules relating to the protection of natural persons with regard to the processing of personal data by the EPPO In the context of the adaptation of Regulation (EC) No 45/2001 in accordance with Article 2(3) and Article 98 of Regulation (EU) 2016/679, the Commission shall review the provisions relating to the protection of natural persons with regard to the processing of personal data by the EPPO laid down in this Regulation. The Commission shall, if appropriate, submit a legislative proposal with a view to amending or repealing those provisions. Article 119 Review clause 1. No later than 5 years after the date to be set by the Commission pursuant to Article 120(2), and every 5 years thereafter, the Commission shall commission an evaluation and shall submit an evaluation report on the implementation and impact of this Regulation, as well as on the effectiveness and efficiency of the EPPO and its working practices. The Commission shall forward the evaluation report together with its conclusions to the European Parliament and to the Council and to national parliaments. The findings of the evaluation shall be made public. 2. The Commission shall submit legislative proposals to the European Parliament and the Council if it concludes that it is necessary to have additional or more detailed rules on the setting up of the EPPO, its functions or the procedure applicable to its activities, including its cross-border investigations. Article 120 Entry into force 1. This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. 2. The EPPO shall exercise its competence with regard to any offence within its competence committed after the date on which this Regulation has entered into force. The EPPO shall assume the investigative and prosecutorial tasks conferred on it by this Regulation on a date to be determined by a decision of the Commission on a proposal of the European Chief Prosecutor once the EPPO is set up. The decision of the Commission shall be published in the Official Journal of the European Union. The date to be set by the Commission shall not be earlier than 3 years after the date of entry into force of this Regulation. For those Member States which participate in enhanced cooperation by virtue of a decision adopted in accordance with the second or third subparagraph of Article 331(1) TFEU, this Regulation shall apply as from the date indicated in the decision concerned. This Regulation shall be binding in its entirety and directly applicable in the Member States in accordance with the Treaties. Done at Luxembourg, 12 October 2017. For the Council The President U. REINSALU (1) Consent of 5 October 2017 (not yet published in the Official Journal). (2) Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against fraud to the Union’s financial interests by means of criminal law (OJ L 198, 28.7.2017, p. 29). (3) Council Framework Decision 2008/841/JHA of 24 October 2008 on the fight against organised crime (OJ L 300, 11.11.2008, p. 42). (4) Directive 2010/64/EU of the European Parliament and of the Council of 20 October 2010 on the right to interpretation and translation in criminal proceeding (OJ L 280, 26.10.2010, p. 1). (5) Directive 2012/13/EU of the European Parliament and of the Council of 22 May 2012 on the right to information in criminal proceedings (OJ L 142, 1.6.2012, p. 1). (6) Directive 2013/48/EU of the European Parliament and of the Council of 22 October 2013 on the right of access to a lawyer in criminal proceedings and in European arrest warrant proceedings, and on the right to have a third party informed upon deprivation of liberty and to communicate with third persons and with consular authorities while deprived of liberty (OJ L 294, 6.11.2013, p. 1). (7) Directive (EU) 2016/343 of the European Parliament and of the Council of 9 March 2016 on the strengthening of certain aspects of the presumption of innocence and of the right to be present at the trial in criminal proceedings (OJ L 65, 11.3.2016, p. 1). (8) Directive (EU) 2016/1919 of the European Parliament and of the Council of 26 October 2016 on legal aid for suspects and accused persons in criminal proceedings and for requested persons in European arrest warrant proceedings (OJ L 297, 4.11.2016, p. 1). (9) Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data (OJ L 8, 12.1.2001, p. 1). (10) Directive (EU) 2016/680 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data by competent authorities for the purposes of the prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and on the free movement of such data, and repealing Council Framework Decision 2008/977/JHA (OJ L 119, 4.5.2016, p. 89). (11) Council Common Position 2005/69/JHA of 24 January 2005 on exchanging certain data with Interpol (OJ L 27, 29.1.2005, p. 61). (12) Council Decision 2007/533/JHA of 12 June 2007 on the establishment, operation and use of the second generation Schengen Information System (SIS II) (OJ L 205, 7.8.2007, p. 63). (13) Interinstitutional Agreement between the European Parliament, the Council of the European Union and the European Commission of 13 April 2016 on Better Law-Making (OJ L 123, 12.5.2016, p. 1). (14) Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council of 11 September 2013 concerning investigations conducted by the European Anti-Fraud Office (OLAF) and repealing Regulation (EC) No 1073/1999 of the European Parliament and of the Council and Council Regulation (Euratom) No 1074/1999 (OJ L 248, 18.9.2013, p. 1). (15) Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320). (16) Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002 (OJ L 298, 26.10.2012, p. 1). (17) Council Regulation No 31 (EEC), 11 (EAEC), laying down the Staff Regulations of Officials and the Conditions of Employment of Other Servants of the European Economic Community and the European Atomic Energy Community (OJ 45, 14.6.1962, p. 1385/62). (18) Decision (67/446/EEC) (67/30/Euratom) of the representatives of the governments of the Member States of 8 April 1965 on the provisional location of certain institutions and departments of the Communities (OJ 152, 13.7.1967, p. 18). (19) Regulation (EU) 2016/679 of the European Parliament and the of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation (OJ L 119, 4.5.2016, p. 1). (20) Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (OJ L 201, 31.7.2002, p. 37). (21) Council Framework Decision 2002/584/JHA of 13 June 2002 on the European Arrest Warrant and the surrender procedures between Member States (OJ L 190, 18.7.2002, p. 1). (22) Directive 2014/42/EU of the European Parliament and of the Council of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union (OJ L 127, 29.4.2014, p. 39). (23) Council Decision 2008/976/JHA of 16 December 2008 on the European Judicial Network (OJ L 348, 24.12.2008, p. 130). (24) Council Regulation (EU, Euratom) No 609/2014 of 26 May 2014 on the methods and procedure for making available the traditional, VAT and GNI-based own resources and on the measures to meet cash requirements (OJ L 168, 7.6.2014, p. 39). (25) Commission Delegated Regulation (EU) No 1271/2013 of 30 September 2013 on the framework financial regulation for the bodies referred to in Article 208 of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council (OJ L 328, 7.12.2013, p. 42). (26) Council Regulation (EEC) No 1/58 determining the languages to be used by the European Economic Community (OJ 17, 6.10.1958, p. 385/58). (27) Regulation (EC) No 1049/2001 of the European Parliament and of the Council of 30 May 2001 regarding public access to European Parliament, Council and Commission documents (OJ L 145, 31.5.2001, p. 43). (28) Interinstitutional agreement of 25 May 1999 between the European Parliament, the Council of the European Union and the Commission of the European Communities concerning internal investigations by the European Anti-fraud Office (OLAF) (OJ L 136, 31.5.1999, p. 15). (29) Council Regulation (Euratom, EC) No 2185/96 of 11 November 1996 concerning on-the-spot checks and inspections carried out by the Commission in order to protect the European Communities’ financial interests against fraud and other irregularities (OJ L 292, 15.11.1996, p. 2). (30) Council Decision 2013/488/EU of 23 September 2013 on the security rules for protecting EU classified information (OJ L 274, 15.10.2013, p. 1). (31) Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (OJ L 351, 20.12.2012, p. 1).\n<|assistant|>\nThe establishment of the European Public Prosecutor’s Office The establishment of the European Public Prosecutor’s Office SUMMARY OF: Regulation (EU) 2017/1939 – implementing enhanced cooperation on the establishment of the European Public Prosecutor’s Office (the EPPO) WHAT IS THE AIM OF THE REGULATION? It establishes an independent prosecution office of the European Union (EU) with the power to investigate, prosecute and bring to judgment crimes against the EU’s financial interests. It establishes a system of shared powers between the European Public Prosecutor's Office (EPPO) and national authorities in tackling such crimes, with priority for the EPPO's powers. KEY POINTS Participating countries The regulation establishing the EPPO under enhanced cooperation applies to the 22 participating EU Member States: Belgium, Bulgaria, Czechia, Germany, Estonia, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Portugal, Romania, Slovenia, Slovakia and Finland. Ireland, Hungary, Poland and Sweden can join at any time. Denmark enjoys a permanent opt-out from the EU measures concerning criminal justice. Scope The EPPO is an independent prosecution office of the EU with a decentralised structure. It has the power to investigate, prosecute and bring to justice (before national courts) crimes against the EU budget, such as fraud (over €10,000), corruption, money laundering, misappropriation or cross-border value added tax fraud above €10 million. Existing EU bodies, such as the European Anti-Fraud Office (OLAF), the European Union Agency for Criminal Justice Cooperation (Eurojust) and the European Union Agency for Law Enforcement Cooperation (Europol), lack the powers to conduct criminal investigations and prosecutions. The EPPO has established close relationships with these bodies based on mutual cooperation within their respective mandates. Organisation The EPPO is built on two levels. The central level, consisting of a central office at the seat of the EPPO in Luxembourg. The central level consists of the European Chief Prosecutor, their two deputies, the European Prosecutors (one per participating Member State) and the Administrative Director. The decentralised level, consisting of European Delegated Prosecutors located in the participating Member States. Independence The staff of the EPPO acts in the interest of the EU as a whole and must neither ask for nor take instructions from any outside party. The EPPO is structurally independent from any other EU institution or service. The European Chief Prosecutor is selected following an open call for candidates and appointed by the European Parliament and the Council of the European Union. The term of office is limited to 7 years and is not renewable. The European Chief Prosecutor can be dismissed only by a decision of the Court of Justice of the European Union, following an application by the Parliament, the Council or the European Commission. The European Delegated prosecutors must be completely independent from national prosecution authorities. Launch of operations An implementing act, Implementing Decision (EU) 2021/856, set 1 June 2021 as the date on which the EPPO assumed the investigative and prosecutorial tasks conferred on it by Regulation (EU) 2017/1939. Processing of operational personal data A delegated act, Delegated Regulation (EU) 2020/2153, amended Regulation (EU) 2017/1939, adding an annex which sets out the categories of operational personal data and the categories of data subjects whose operational personal data may be processed in the index of case files by the EPPO. FROM WHEN DOES THE REGULATION APPLY? It has applied since 20 November 2017. BACKGROUND For further information, see: European Public Prosecutor’s Office (European Commission) European Public Prosecutor’s Office (EPPO). MAIN DOCUMENT Council Regulation (EU) 2017/1939 of 12 October 2017 implementing enhanced cooperation on the establishment of the European Public Prosecutor’s Office (‘the EPPO’) (OJ L 283, 31.10.2017, pp. 1–71). Successive amendments to Regulation (EU) 2017/1939 have been incorporated in the original text. This consolidated version is of documentary value only. RELATED DOCUMENTS Commission Implementing Decision (EU) 2021/856 of 25 May 2021 determining the date on which the European Public Prosecutor’s Office assumes its investigative and prosecutorial tasks (OJ L 188, 28.5.2021, pp. 100–102). See consolidated version. Commission Decision (EU) 2018/1103 of 7 August 2018 confirming the participation of Malta in the enhanced cooperation on the establishment of the European Public Prosecutor's Office (OJ L 201, 8.8.2018, pp. 2–3). Commission Decision (EU) 2018/1094 of 1 August 2018 confirming the participation of the Netherlands in the enhanced cooperation on the establishment of the European Public Prosecutor's Office (OJ L 196, 2.8.2018, pp. 1–2). Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against fraud to the Union’s financial interests by means of criminal law (OJ L 198, 28.7.2017, pp. 29–41). last update 14.03.2022\n<|endoftext|>"}}},{"rowIdx":95,"cells":{"text":{"kind":"string","value":"<|system|>\nYou are a helpful assistant that summarizes text clearly, accurately, and concisely.\n<|user|>\nSummarize the following text:\n19.7.2016 EN Official Journal of the European Union L 193/1 COUNCIL DIRECTIVE (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 115 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Parliament (1), Having regard to the opinion of the European Economic and Social Committee (2), Acting in accordance with a special legislative procedure, Whereas: (1) The current political priorities in international taxation highlight the need for ensuring that tax is paid where profits and value are generated. It is thus imperative to restore trust in the fairness of tax systems and allow governments to effectively exercise their tax sovereignty. These new political objectives have been translated into concrete action recommendations in the context of the initiative against base erosion and profit shifting (BEPS) by the Organisation for Economic Cooperation and Development (OECD). The European Council has welcomed this work in its conclusions of 13-14 March 2013 and 19-20 December 2013. In response to the need for fairer taxation, the Commission, in its communication of 17 June 2015 sets out an action plan for fair and efficient corporate taxation in the European Union. (2) The final reports on the 15 OECD Action Items against BEPS were released to the public on 5 October 2015. This output was welcomed by the Council in its conclusions of 8 December 2015. The Council conclusions stressed the need to find common, yet flexible, solutions at the EU level consistent with OECD BEPS conclusions. In addition, the conclusions supported an effective and swift coordinated implementation of the anti-BEPS measures at the EU level and considered that EU directives should be, where appropriate, the preferred vehicle for implementing OECD BEPS conclusions at the EU level. It is essential for the good functioning of the internal market that, as a minimum, Member States implement their commitments under BEPS and more broadly, take action to discourage tax avoidance practices and ensure fair and effective taxation in the Union in a sufficiently coherent and coordinated fashion. In a market of highly integrated economies, there is a need for common strategic approaches and coordinated action, to improve the functioning of the internal market and maximise the positive effects of the initiative against BEPS. Furthermore, only a common framework could prevent a fragmentation of the market and put an end to currently existing mismatches and market distortions. Finally, national implementing measures which follow a common line across the Union would provide taxpayers with legal certainty in that those measures would be compatible with Union law. (3) It is necessary to lay down rules in order to strengthen the average level of protection against aggressive tax planning in the internal market. As these rules would have to fit in 28 separate corporate tax systems, they should be limited to general provisions and leave the implementation to Member States as they are better placed to shape the specific elements of those rules in a way that fits best their corporate tax systems. This objective could be achieved by creating a minimum level of protection for national corporate tax systems against tax avoidance practices across the Union. It is therefore necessary to coordinate the responses of Member States in implementing the outputs of the 15 OECD Action Items against BEPS with the aim to improve the effectiveness of the internal market as a whole in tackling tax avoidance practices. It is therefore necessary to set a common minimum level of protection for the internal market in specific fields. (4) It is necessary to establish rules applicable to all taxpayers that are subject to corporate tax in a Member State. Considering that it would result in the need to cover a broader range of national taxes, it is not desirable to extend the scope of this Directive to types of entities which are not subject to corporate tax in a Member State; that is, in particular, transparent entities. Those rules should also apply to permanent establishments of those corporate taxpayers which may be situated in other Member State(s). Corporate taxpayers may be resident for tax purposes in a Member State or be established under the laws of a Member State. Permanent establishments of entities resident for tax purposes in a third country should also be covered by those rules if they are situated in one or more Member State. (5) It is necessary to lay down rules against the erosion of tax bases in the internal market and the shifting of profits out of the internal market. Rules in the following areas are necessary in order to contribute to achieving that objective: limitations to the deductibility of interest, exit taxation, a general anti-abuse rule, controlled foreign company rules and rules to tackle hybrid mismatches. Where the application of those rules gives rise to double taxation, taxpayers should receive relief through a deduction for the tax paid in another Member State or third country, as the case may be. Thus, the rules should not only aim to counter tax avoidance practices but also avoid creating other obstacles to the market, such as double taxation. (6) In an effort to reduce their global tax liability, groups of companies have increasingly engaged in BEPS, through excessive interest payments. The interest limitation rule is necessary to discourage such practices by limiting the deductibility of taxpayers' exceeding borrowing costs. It is therefore necessary to fix a ratio for deductibility which refers to a taxpayer's taxable earnings before interest, tax, depreciation and amortisation (EBITDA). Member States could decrease this ratio or place time limits or restrict the amount of unrelieved borrowing costs that can be carried forward or back to ensure a higher level of protection. Given that the aim is to lay down minimum standards, it could be possible for Member States to adopt an alternative measure referring to a taxpayer's earnings before interest and tax (EBIT) and fixed in a way that it is equivalent to the EBITDA-based ratio. Member States could in addition to the interest limitation rule provided by this Directive also use targeted rules against intra-group debt financing, in particular thin capitalisation rules. Tax exempt revenues should not be set off against deductible borrowing costs. This is because only taxable income should be taken into account in determining how much interest may be deducted. (7) Where the taxpayer is part of a group which files statutory consolidated accounts, the indebtedness of the overall group at worldwide level may be considered for the purpose of granting taxpayers entitlement to deduct higher amounts of exceeding borrowing costs. It may also be appropriate to lay down rules for an equity escape provision, where the interest limitation rule does not apply if the company can demonstrate that its equity over total assets ratio is broadly equal to or higher than the equivalent group ratio. The interest limitation rule should apply in relation to a taxpayer's exceeding borrowing costs without distinction of whether the costs originate in debt taken out nationally, cross-border within the Union or with a third country, or whether they originate from third parties, associated enterprises or intra-group. Where a group includes more than one entity in a Member State, the Member State may consider the overall position of all group entities in the same State, including a separate entity taxation system to allow the transfer of profits or interest capacity between entities within a group, when applying rules that limit the deductibility of interest. (8) To reduce the administrative and compliance burden of the rules without significantly diminishing their tax effect, it may be appropriate to provide for a safe harbour rule so that net interest is always deductible up to a fixed amount, when this leads to a higher deduction than the EBITDA-based ratio. Member States could reduce the fixed monetary threshold in order to ensure a higher level of protection of their domestic tax base. Since BEPS in principle takes place through excessive interest payments among entities which are associated enterprises, it is appropriate and necessary to allow the possible exclusion of standalone entities from the scope of the interest limitation rule given the limited risks of tax avoidance. In order to facilitate the transition to the new interest limitation rule, Member States could provide for a grandfathering clause that would cover existing loans to the extent that their terms are not subsequently modified, i.e. in case of a subsequent modification, the grandfathering would not apply to any increase in the amount or duration of the loan but would be limited to the original terms of the loan. Without prejudice to State aid rules, Member States could also exclude exceeding borrowing costs incurred on loans used to fund long-term public infrastructure projects considering that such financing arrangements present little or no BEPS risks. In this context, Member States should properly demonstrate that financing arrangements for public infrastructure projects present special features which justify such treatment vis-à-vis other financing arrangements subject to the restrictive rule. (9) Although it is generally accepted that financial undertakings, i.e. financial institutions and insurance undertakings, should also be subject to limitations to the deductibility of interest, it is equally acknowledged that these two sectors present special features which call for a more customised approach. As the discussions in this field are not yet sufficiently conclusive in the international and Union context, it is not yet possible to provide specific rules in the financial and insurance sectors and Member States should therefore be able to exclude them from the scope of interest limitation rules. (10) Exit taxes have the function of ensuring that where a taxpayer moves assets or its tax residence out of the tax jurisdiction of a State, that State taxes the economic value of any capital gain created in its territory even though that gain has not yet been realised at the time of the exit. It is therefore necessary to specify cases in which taxpayers are subject to exit tax rules and taxed on unrealised capital gains which have been built in their transferred assets. It is also helpful to clarify that transfers of assets, including cash, between a parent company and its subsidiaries fall outside the scope of the envisaged rule on exit taxation. In order to compute the amounts, it is critical to fix a market value for the transferred assets at the time of exit of the assets based on the arm's length principle. In order to ensure the compatibility of the rule with the use of the credit method, it is desirable to allow Member States to refer to the moment when the right to tax the transferred assets is lost. The right to tax should be defined at national level. It is also necessary to allow the receiving State to dispute the value of the transferred assets established by the exit State when it does not reflect such a market value. Member States could resort to this effect to existing dispute resolution mechanisms. Within the Union, it is necessary to address the application of exit taxation and illustrate the conditions for being compliant with Union law. In those situations, taxpayers should have the right to either immediately pay the amount of exit tax assessed or defer payment of the amount of tax by paying it in instalments over a certain number of years, possibly together with interest and a guarantee. Member States could request, for this purpose, the taxpayers concerned to include the necessary information in a declaration. Exit tax should not be charged when the transfer of assets is of a temporary nature and the assets are set to revert to the Member State of the transferor, where the transfer takes place in order to meet prudential capital requirements or for the purpose of liquidity management or when it comes to securities' financing transactions or assets posted as collateral. (11) General anti-abuse rules (GAARs) feature in tax systems to tackle abusive tax practices that have not yet been dealt with through specifically targeted provisions. GAARs have therefore a function aimed to fill in gaps, which should not affect the applicability of specific anti-abuse rules. Within the Union, GAARs should be applied to arrangements that are not genuine; otherwise, the taxpayer should have the right to choose the most tax efficient structure for its commercial affairs. It is furthermore important to ensure that the GAARs apply in domestic situations, within the Union and vis-à-vis third countries in a uniform manner, so that their scope and results of application in domestic and cross-border situations do not differ. Member States should not be prevented from applying penalties where the GAAR is applicable. When evaluating whether an arrangement should be regarded as non-genuine, it could be possible for Member States to consider all valid economic reasons, including financial activities. (12) Controlled foreign company (CFC) rules have the effect of re-attributing the income of a low-taxed controlled subsidiary to its parent company. Then, the parent company becomes taxable on this attributed income in the State where it is resident for tax purposes. Depending on the policy priorities of that State, CFC rules may target an entire low-taxed subsidiary, specific categories of income or be limited to income which has artificially been diverted to the subsidiary. In particular, in order to ensure that CFC rules are a proportionate response to BEPS concerns, it is critical that Member States that limit their CFC rules to income which has been artificially diverted to the subsidiary precisely target situations where most of the decision-making functions which generated diverted income at the level of the controlled subsidiary are carried out in the Member State of the taxpayer. With a view to limiting the administrative burden and compliance costs, it should also be acceptable that those Member States exempt certain entities with low profits or a low profit margin that give rise to lower risks of tax avoidance. Accordingly, it is necessary that the CFC rules extend to the profits of permanent establishments where those profits are not subject to tax or are tax exempt in the Member State of the taxpayer. However, there is no need to tax, under the CFC rules, the profits of permanent establishments which are denied the tax exemption under national rules because these permanent establishments are treated as though they were controlled foreign companies. In order to ensure a higher level of protection, Member States could reduce the control threshold, or employ a higher threshold in comparing the actual corporate tax paid with the corporate tax that would have been charged in the Member State of the taxpayer. Member States could, in transposing CFC rules into their national law, use a sufficiently high tax rate fractional threshold. It is desirable to address situations both in third countries and within the Union. To comply with the fundamental freedoms, the income categories should be combined with a substance carve-out aimed to limit, within the Union, the impact of the rules to cases where the CFC does not carry on a substantive economic activity. It is important that tax administrations and taxpayers cooperate to gather the relevant facts and circumstances to determine whether the carve-out rule is to apply. It should be acceptable that, in transposing CFC rules into their national law, Member States use white, grey or black lists of third countries, which are compiled on the basis of certain criteria set out in this Directive and may include the corporate tax rate level, or use white lists of Member States compiled on that basis. (13) Hybrid mismatches are the consequence of differences in the legal characterisation of payments (financial instruments) or entities and those differences surface in the interaction between the legal systems of two jurisdictions. The effect of such mismatches is often a double deduction (i.e. deduction in both states) or a deduction of the income in one state without inclusion in the tax base of the other. To neutralise the effects of hybrid mismatch arrangements, it is necessary to lay down rules whereby one of the two jurisdictions in a mismatch should deny the deduction of a payment leading to such an outcome. In this context, it is useful to clarify that measures aimed to tackle hybrid mismatches in this Directive are aimed to tackle mismatch situations attributable to differences in the legal characterisation of a financial instrument or entity and are not intended to affect the general features of the tax system of a Member State. Although Member States have agreed guidance, in the framework of the Group of the Code of Conduct on Business Taxation, on the tax treatment of hybrid entities and hybrid permanent establishments within the Union as well as on the tax treatment of hybrid entities in relations with third countries, it is still necessary to enact binding rules. It is critical that further work is undertaken on hybrid mismatches between Member States and third countries, as well as on other hybrid mismatches such as those involving permanent establishments. (14) It is necessary to clarify that the implementation of the rules against tax avoidance provided in this Directive should not affect the taxpayers' obligation to comply with the arm's length principle or the Member State's right to adjust a tax liability upwards in accordance with the arm's length principle, where applicable. (15) The European Data Protection Supervisor was consulted in accordance with Article 28(2) of Regulation (EC) No 45/2001 of the European Parliament and of the Council (3). The right to protection of personal data according to Article 8 of the Charter of Fundamental Rights of the European Union as well as Directive 95/46/EC of the European Parliament and of the Council (4) applies to the processing of personal data carried out within the framework of this Directive. (16) Considering that a key objective of this Directive is to improve the resilience of the internal market as a whole against cross-border tax avoidance practices, this cannot be sufficiently achieved by the Member States acting individually. National corporate tax systems are disparate and independent action by Member States would only replicate the existing fragmentation of the internal market in direct taxation. It would thus allow inefficiencies and distortions to persist in the interaction of distinct national measures. The result would be lack of coordination. Rather, by reason of the fact that much inefficiency in the internal market primarily gives rise to problems of a cross-border nature, remedial measures should be adopted at Union level. It is therefore critical to adopt solutions that function for the internal market as a whole and this can be better achieved at Union level. Thus, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. By setting a minimum level of protection for the internal market, this Directive only aims to achieve the essential minimum degree of coordination within the Union for the purpose of materialising its objectives. (17) The Commission should evaluate the implementation of this Directive four years after its entry into force and report to the Council thereon. Member States should communicate to the Commission all information necessary for this evaluation. HAS ADOPTED THIS DIRECTIVE: CHAPTER I GENERAL PROVISIONS Article 1 Scope This Directive applies to all taxpayers that are subject to corporate tax in one or more Member States, including permanent establishments in one or more Member States of entities resident for tax purposes in a third country. Article 2 Definitions For the purposes of this Directive, the following definitions apply: (1) ‘borrowing costs’ means interest expenses on all forms of debt, other costs economically equivalent to interest and expenses incurred in connection with the raising of finance as defined in national law, including, without being limited to, payments under profit participating loans, imputed interest on instruments such as convertible bonds and zero coupon bonds, amounts under alternative financing arrangements, such as Islamic finance, the finance cost element of finance lease payments, capitalised interest included in the balance sheet value of a related asset, or the amortisation of capitalised interest, amounts measured by reference to a funding return under transfer pricing rules where applicable, notional interest amounts under derivative instruments or hedging arrangements related to an entity's borrowings, certain foreign exchange gains and losses on borrowings and instruments connected with the raising of finance, guarantee fees for financing arrangements, arrangement fees and similar costs related to the borrowing of funds; (2) ‘exceeding borrowing costs’ means the amount by which the deductible borrowing costs of a taxpayer exceed taxable interest revenues and other economically equivalent taxable revenues that the taxpayer receives according to national law; (3) ‘tax period’ means a tax year, calendar year or any other appropriate period for tax purposes; (4) ‘associated enterprise’ means: (a) an entity in which the taxpayer holds directly or indirectly a participation in terms of voting rights or capital ownership of 25 percent or more or is entitled to receive 25 percent or more of the profits of that entity; (b) an individual or entity which holds directly or indirectly a participation in terms of voting rights or capital ownership in a taxpayer of 25 percent or more or is entitled to receive 25 percent or more of the profits of the taxpayer; If an individual or entity holds directly or indirectly a participation of 25 percent or more in a taxpayer and one or more entities, all the entities concerned, including the taxpayer, shall also be regarded as associated enterprises. For the purposes of Article 9 and where the mismatch involves a hybrid entity, this definition is modified so that the 25 percent requirement is replaced by a 50 percent requirement. (5) ‘financial undertaking’ means any of the following entities: (a) a credit institution or an investment firm as defined in point (1) of Article 4(1) of Directive 2004/39/EC of the European Parliament and of the Council (5) or an alternative investment fund manager (AIFM) as defined in point (b) of Article 4(1) of Directive 2011/61/EU of the European Parliament and of the Council (6) or an undertaking for collective investment in transferable securities (UCITS) management company as defined in point (b) of Article 2(1) of Directive 2009/65/EC of the European Parliament and of the Council (7); (b) an insurance undertaking as defined in point (1) of Article 13 of Directive 2009/138/EC of the European Parliament and of the Council (8); (c) a reinsurance undertaking as defined in point (4) of Article 13 of Directive 2009/138/EC; (d) an institution for occupational retirement provision falling within the scope of Directive 2003/41/EC of the European Parliament and of the Council (9), unless a Member State has chosen not to apply that Directive in whole or in part to that institution in accordance with Article 5 of that Directive or the delegate of an institution for occupational retirement provision as referred to in Article 19(1) of that Directive; (e) pension institutions operating pension schemes which are considered to be social security schemes covered by Regulation (EC) No 883/2004 of the European Parliament and of the Council (10) and Regulation (EC) No 987/2009 of the European Parliament and of the Council (11) as well as any legal entity set up for the purpose of investment of such schemes; (f) an alternative investment fund (AIF) managed by an AIFM as defined in point (b) of Article 4(1) of Directive 2011/61/EU or an AIF supervised under the applicable national law; (g) UCITS in the meaning of Article 1(2) of Directive 2009/65/EC; (h) a central counterparty as defined in point (1) of Article 2 of Regulation (EU) No 648/2012 of the European Parliament and of the Council (12); (i) a central securities depository as defined in point (1) of Article 2(1) of Regulation (EU) No 909/2014 of the European Parliament and of the Council (13). (6) ‘transfer of assets’ means an operation whereby a Member State loses the right to tax the transferred assets, whilst the assets remain under the legal or economic ownership of the same taxpayer; (7) ‘transfer of tax residence’ means an operation whereby a taxpayer ceases to be resident for tax purposes in a Member State, whilst acquiring tax residence in another Member State or third country; (8) ‘transfer of a business carried on by a permanent establishment’ means an operation whereby a taxpayer ceases to have taxable presence in a Member State whilst acquiring such presence in another Member State or third country without becoming resident for tax purposes in that Member State or third country; (9) ‘hybrid mismatch’ means a situation between a taxpayer in one Member State and an associated enterprise in another Member State or a structured arrangement between parties in Member States where the following outcome is attributable to differences in the legal characterisation of a financial instrument or entity: (a) a deduction of the same payment, expenses or losses occurs both in the Member State in which the payment has its source, the expenses are incurred or the losses are suffered and in another Member State (‘double deduction’); or (b) there is a deduction of a payment in the Member State in which the payment has its source without a corresponding inclusion for tax purposes of the same payment in the other Member State (‘deduction without inclusion’). Article 3 Minimum level of protection This Directive shall not preclude the application of domestic or agreement-based provisions aimed at safeguarding a higher level of protection for domestic corporate tax bases. CHAPTER II MEASURES AGAINST TAX AVOIDANCE Article 4 Interest limitation rule 1. Exceeding borrowing costs shall be deductible in the tax period in which they are incurred only up to 30 percent of the taxpayer's earnings before interest, tax, depreciation and amortisation (EBITDA). For the purpose of this Article, Member States may also treat as a taxpayer: (a) an entity which is permitted or required to apply the rules on behalf of a group, as defined according to national tax law; (b) an entity in a group, as defined according to national tax law, which does not consolidate the results of its members for tax purposes. In such circumstances, exceeding borrowing costs and the EBITDA may be calculated at the level of the group and comprise the results of all its members. 2. The EBITDA shall be calculated by adding back to the income subject to corporate tax in the Member State of the taxpayer the tax-adjusted amounts for exceeding borrowing costs as well as the tax-adjusted amounts for depreciation and amortisation. Tax exempt income shall be excluded from the EBITDA of a taxpayer. 3. By derogation from paragraph 1, the taxpayer may be given the right: (a) to deduct exceeding borrowing costs up to EUR 3 000 000; (b) to fully deduct exceeding borrowing costs if the taxpayer is a standalone entity. For the purposes of the second subparagraph of paragraph 1, the amount of EUR 3 000 000 shall be considered for the entire group. For the purposes of point (b) of the first subparagraph, a standalone entity means a taxpayer that is not part of a consolidated group for financial accounting purposes and has no associated enterprise or permanent establishment. 4. Member States may exclude from the scope of paragraph 1 exceeding borrowing costs incurred on: (a) loans which were concluded before 17 June 2016, but the exclusion shall not extend to any subsequent modification of such loans; (b) loans used to fund a long-term public infrastructure project where the project operator, borrowing costs, assets and income are all in the Union. For the purposes of point (b) of the first subparagraph, a long-term public infrastructure project means a project to provide, upgrade, operate and/or maintain a large-scale asset that is considered in the general public interest by a Member State. Where point (b) of the first subparagraph applies, any income arising from a long-term public infrastructure project shall be excluded from the EBITDA of the taxpayer, and any excluded exceeding borrowing cost shall not be included in the exceeding borrowing costs of the group vis-à-vis third parties referred to in point (b) of paragraph 5. 5. Where the taxpayer is a member of a consolidated group for financial accounting purposes, the taxpayer may be given the right to either: (a) fully deduct its exceeding borrowing costs if it can demonstrate that the ratio of its equity over its total assets is equal to or higher than the equivalent ratio of the group and subject to the following conditions: (i) the ratio of the taxpayer's equity over its total assets is considered to be equal to the equivalent ratio of the group if the ratio of the taxpayer's equity over its total assets is lower by up to two percentage points; and (ii) all assets and liabilities are valued using the same method as in the consolidated financial statements referred to in paragraph 8; or (b) deduct exceeding borrowing costs at an amount in excess of what it would be entitled to deduct under paragraph 1. This higher limit to the deductibility of exceeding borrowing costs shall refer to the consolidated group for financial accounting purposes in which the taxpayer is a member and be calculated in two steps: (i) first, the group ratio is determined by dividing the exceeding borrowing costs of the group vis-à-vis third-parties over the EBITDA of the group; and (ii) second, the group ratio is multiplied by the EBITDA of the taxpayer calculated pursuant to paragraph 2. 6. The Member State of the taxpayer may provide for rules either: (a) to carry forward, without time limitation, exceeding borrowing costs which cannot be deducted in the current tax period under paragraphs 1 to 5; (b) to carry forward, without time limitation, and back, for a maximum of three years, exceeding borrowing costs which cannot be deducted in the current tax period under paragraphs 1 to 5; or (c) to carry forward, without time limitation, exceeding borrowing costs and, for a maximum of five years, unused interest capacity, which cannot be deducted in the current tax period under paragraphs 1 to 5. 7. Member States may exclude financial undertakings from the scope of paragraphs 1 to 6, including where such financial undertakings are part of a consolidated group for financial accounting purposes. 8. For the purpose of this Article, the consolidated group for financial accounting purposes consists of all entities which are fully included in consolidated financial statements drawn up in accordance with the International Financial Reporting Standards or the national financial reporting system of a Member State. The taxpayer may be given the right to use consolidated financial statements prepared under other accounting standards. Article 5 Exit taxation 1. A taxpayer shall be subject to tax at an amount equal to the market value of the transferred assets, at the time of exit of the assets, less their value for tax purposes, in any of the following circumstances: (a) a taxpayer transfers assets from its head office to its permanent establishment in another Member State or in a third country in so far as the Member State of the head office no longer has the right to tax the transferred assets due to the transfer; (b) a taxpayer transfers assets from its permanent establishment in a Member State to its head office or another permanent establishment in another Member State or in a third country in so far as the Member State of the permanent establishment no longer has the right to tax the transferred assets due to the transfer; (c) a taxpayer transfers its tax residence to another Member State or to a third country, except for those assets which remain effectively connected with a permanent establishment in the first Member State; (d) a taxpayer transfers the business carried on by its permanent establishment from a Member State to another Member State or to a third country in so far as the Member State of the permanent establishment no longer has the right to tax the transferred assets due to the transfer. 2. A taxpayer shall be given the right to defer the payment of an exit tax referred to in paragraph 1, by paying it in instalments over five years, in any of the following circumstances: (a) a taxpayer transfers assets from its head office to its permanent establishment in another Member State or in a third country that is party to the Agreement on the European Economic Area (EEA Agreement); (b) a taxpayer transfers assets from its permanent establishment in a Member State to its head office or another permanent establishment in another Member State or a third country that is party to the EEA Agreement; (c) a taxpayer transfers its tax residence to another Member State or to a third country that is party to the EEA Agreement; (d) a taxpayer transfers the business carried on by its permanent establishment to another Member State or a third country that is party to the EEA Agreement. This paragraph shall apply to third countries that are party to the EEA Agreement if they have concluded an agreement with the Member State of the taxpayer or with the Union on the mutual assistance for the recovery of tax claims, equivalent to the mutual assistance provided for in Council Directive 2010/24/EU (14). 3. If a taxpayer defers the payment in accordance with paragraph 2, interest may be charged in accordance with the legislation of the Member State of the taxpayer or of the permanent establishment, as the case may be. If there is a demonstrable and actual risk of non-recovery, taxpayers may also be required to provide a guarantee as a condition for deferring the payment in accordance with paragraph 2. The second subparagraph shall not apply where the legislation in the Member State of the taxpayer or of the permanent establishment provides for the possibility of recovery of the tax debt through another taxpayer which is member of the same group and is resident for tax purposes in that Member State. 4. Where paragraph 2 applies, the deferral of payment shall be immediately discontinued and the tax debt becomes recoverable in the following cases: (a) the transferred assets or the business carried on by the permanent establishment of the taxpayer are sold or otherwise disposed of; (b) the transferred assets are subsequently transferred to a third country; (c) the taxpayer's tax residence or the business carried on by its permanent establishment is subsequently transferred to a third country; (d) the taxpayer goes bankrupt or is wound up; (e) the taxpayer fails to honour its obligations in relation to the instalments and does not correct its situation over a reasonable period of time, which shall not exceed 12 months. Points (b) and (c) shall not apply to third countries that are party to the EEA Agreement if they have concluded an agreement with the Member State of the taxpayer or with the Union on the mutual assistance for the recovery of tax claims, equivalent to the mutual assistance provided for in Directive 2010/24/EU. 5. Where the transfer of assets, tax residence or the business carried on by a permanent establishment is to another Member State, that Member State shall accept the value established by the Member State of the taxpayer or of the permanent establishment as the starting value of the assets for tax purposes, unless this does not reflect the market value. 6. For the purposes of paragraphs 1 to 5, ‘market value’ is the amount for which an asset can be exchanged or mutual obligations can be settled between willing unrelated buyers and sellers in a direct transaction. 7. Provided that the assets are set to revert to the Member State of the transferor within a period of 12 months, this Article shall not apply to asset transfers related to the financing of securities, assets posted as collateral or where the asset transfer takes place in order to meet prudential capital requirements or for the purpose of liquidity management. Article 6 General anti-abuse rule 1. For the purposes of calculating the corporate tax liability, a Member State shall ignore an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part. 2. For the purposes of paragraph 1, an arrangement or a series thereof shall be regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality. 3. Where arrangements or a series thereof are ignored in accordance with paragraph 1, the tax liability shall be calculated in accordance with national law. Article 7 Controlled foreign company rule 1. The Member State of a taxpayer shall treat an entity, or a permanent establishment of which the profits are not subject to tax or are exempt from tax in that Member State, as a controlled foreign company where the following conditions are met: (a) in the case of an entity, the taxpayer by itself, or together with its associated enterprises holds a direct or indirect participation of more than 50 percent of the voting rights, or owns directly or indirectly more than 50 percent of capital or is entitled to receive more than 50 percent of the profits of that entity; and (b) the actual corporate tax paid on its profits by the entity or permanent establishment is lower than the difference between the corporate tax that would have been charged on the entity or permanent establishment under the applicable corporate tax system in the Member State of the taxpayer and the actual corporate tax paid on its profits by the entity or permanent establishment. For the purposes of point (b) of the first subparagraph, the permanent establishment of a controlled foreign company that is not subject to tax or is exempt from tax in the jurisdiction of the controlled foreign company shall not be taken into account. Furthermore the corporate tax that would have been charged in the Member State of the taxpayer means as computed according to the rules of the Member State of the taxpayer. 2. Where an entity or permanent establishment is treated as a controlled foreign company under paragraph 1, the Member State of the taxpayer shall include in the tax base: (a) the non-distributed income of the entity or the income of the permanent establishment which is derived from the following categories: (i) interest or any other income generated by financial assets; (ii) royalties or any other income generated from intellectual property; (iii) dividends and income from the disposal of shares; (iv) income from financial leasing; (v) income from insurance, banking and other financial activities; (vi) income from invoicing companies that earn sales and services income from goods and services purchased from and sold to associated enterprises, and add no or little economic value; This point shall not apply where the controlled foreign company carries on a substantive economic activity supported by staff, equipment, assets and premises, as evidenced by relevant facts and circumstances. Where the controlled foreign company is resident or situated in a third country that is not party to the EEA Agreement, Member States may decide to refrain from applying the preceding subparagraph. or (b) the non-distributed income of the entity or permanent establishment arising from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage. For the purposes of this point, an arrangement or a series thereof shall be regarded as non-genuine to the extent that the entity or permanent establishment would not own the assets or would not have undertaken the risks which generate all, or part of, its income if it were not controlled by a company where the significant people functions, which are relevant to those assets and risks, are carried out and are instrumental in generating the controlled company's income. 3. Where, under the rules of a Member State, the tax base of a taxpayer is calculated according to point (a) of paragraph 2, the Member State may opt not to treat an entity or permanent establishment as a controlled foreign company under paragraph 1 if one third or less of the income accruing to the entity or permanent establishment falls within the categories under point (a) of paragraph 2. Where, under the rules of a Member State, the tax base of a taxpayer is calculated according to point (a) of paragraph 2, the Member State may opt not to treat financial undertakings as controlled foreign companies if one third or less of the entity's income from the categories under point (a) of paragraph 2 comes from transactions with the taxpayer or its associated enterprises. 4. Member States may exclude from the scope of point (b) of paragraph 2 an entity or permanent establishment: (a) with accounting profits of no more than EUR 750 000, and non-trading income of no more than EUR 75 000; or (b) of which the accounting profits amount to no more than 10 percent of its operating costs for the tax period. For the purpose of point (b) of the first subparagraph, the operating costs may not include the cost of goods sold outside the country where the entity is resident, or the permanent establishment is situated, for tax purposes and payments to associated enterprises. Article 8 Computation of controlled foreign company income 1. Where point (a) of Article 7(2) applies, the income to be included in the tax base of the taxpayer shall be calculated in accordance with the rules of the corporate tax law of the Member State where the taxpayer is resident for tax purposes or situated. Losses of the entity or permanent establishment shall not be included in the tax base but may be carried forward, according to national law, and taken into account in subsequent tax periods. 2. Where point (b) of Article 7(2) applies, the income to be included in the tax base of the taxpayer shall be limited to amounts generated through assets and risks which are linked to significant people functions carried out by the controlling company. The attribution of controlled foreign company income shall be calculated in accordance with the arm's length principle. 3. The income to be included in the tax base shall be calculated in proportion to the taxpayer's participation in the entity as defined in point (a) of Article 7(1). 4. The income shall be included in the tax period of the taxpayer in which the tax year of the entity ends. 5. Where the entity distributes profits to the taxpayer, and those distributed profits are included in the taxable income of the taxpayer, the amounts of income previously included in the tax base pursuant to Article 7 shall be deducted from the tax base when calculating the amount of tax due on the distributed profits, in order to ensure there is no double taxation. 6. Where the taxpayer disposes of its participation in the entity or of the business carried out by the permanent establishment, and any part of the proceeds from the disposal previously has been included in the tax base pursuant to Article 7, that amount shall be deducted from the tax base when calculating the amount of tax due on those proceeds, in order to ensure there is no double taxation. 7. The Member State of the taxpayer shall allow a deduction of the tax paid by the entity or permanent establishment from the tax liability of the taxpayer in its state of tax residence or location. The deduction shall be calculated in accordance with national law. Article 9 Hybrid mismatches 1. To the extent that a hybrid mismatch results in a double deduction, the deduction shall be given only in the Member State where such payment has its source. 2. To the extent that a hybrid mismatch results in a deduction without inclusion, the Member State of the payer shall deny the deduction of such payment. CHAPTER III FINAL PROVISIONS Article 10 Review 1. The Commission shall evaluate the implementation of this Directive, in particular the impact of Article 4, by 9 August 2020 and report to the Council thereon. The report by the Commission shall, if appropriate, be accompanied by a legislative proposal. 2. Member States shall communicate to the Commission all information necessary for evaluating the implementation of this Directive. 3. Member States referred to in Article 11(6) shall communicate to the Commission before 1 July 2017 all information necessary for evaluating the effectiveness of the national targeted rules for preventing base erosion and profit shifting risks (BEPS). Article 11 Transposition 1. Member States shall, by 31 December 2018, adopt and publish the laws, regulations and administrative provisions necessary to comply with this Directive. They shall communicate to the Commission the text of those provisions without delay. They shall apply those provisions from 1 January 2019. When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made. 2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. 3. Where this Directive mentions a monetary amount in euros (EUR), Member States whose currency is not the euro may opt to calculate the corresponding value in the national currency on 12 July 2016. 4. By way of derogation from Article 5(2), Estonia may, for as long as it does not tax undistributed profits, consider a transfer of assets in monetary or non-monetary form, including cash, from a permanent establishment situated in Estonia to a head office or another permanent establishment in another Member State or in a third country that is a party to the EEA Agreement as profit distribution and charge income tax, without giving taxpayers the right to defer the payment of such tax. 5. By way of derogation from paragraph 1, Member States shall, by 31 December 2019, adopt and publish, the laws, regulations and administrative provisions necessary to comply with Article 5. They shall communicate to the Commission the text of those provisions without delay. They shall apply those provisions from 1 January 2020. When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made. 6. By way of derogation from Article 4, Member States which have national targeted rules for preventing BEPS risks at 8 August 2016, which are equally effective to the interest limitation rule set out in this Directive, may apply these targeted rules until the end of the first full fiscal year following the date of publication of the agreement between the OECD members on the official website on a minimum standard with regard to BEPS Action 4, but at the latest until 1 January 2024. Article 12 Entry into force This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. Article 13 Addressees This Directive is addressed to the Member States. Done at Brussels, 12 July 2016. For the Council The President P. KAŽIMÍR (1) Not yet published in the Official Journal. (2) Not yet published in the Official Journal. (3) Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data (OJ L 8, 12.1.2001, p. 1). (4) Directive 95/46/EC of the European Parliament and the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (OJ L 281, 23.11.1995, p. 31). (5) Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC (OJ L 145, 30.4.2004, p. 1). (6) Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1). (7) Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32). (8) Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1). (9) Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision (OJ L 235, 23.9.2003, p. 10). (10) Regulation (EC) No 883/2004 of the European Parliament and of the Council of 29 April 2004 on the coordination of social security systems (OJ L 166, 30.4.2004, p. 1). (11) Regulation (EC) No 987/2009 of the European Parliament and of the Council of 16 September 2009 laying down the procedure for implementing Regulation (EC) No 883/2004 on the coordination of social security systems (OJ L 284, 30.10.2009, p. 1). (12) Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1). (13) Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 (OJ L 257, 28.8.2014, p. 1). (14) Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures (OJ L 84, 31.3.2010, p. 1).\n<|assistant|>\nTackling corporate tax avoidance Tackling corporate tax avoidance SUMMARY OF: Directive (EU) 2016/1164 — preventing tax avoidance by companies WHAT IS THE AIM OF THE DIRECTIVE? It introduces rules to prevent tax avoidance by companies and thus to address the issue of aggressive tax planning in the EU’s single market. KEY POINTS Scope The directive applies to all taxpayers that are subject to company tax in one or more EU country, including permanent establishments in one or more EU countries of entities resident for tax purposes in a non-EU country. Combating base erosion and profit shifting (BEPS)* The directive lays down anti-tax-avoidance rules in 4 specific fields to combat BEPS: Interest limitation rules: where multinational companies artificially erode their tax base by paying inflated interest payments to affiliated companies in low-tax jurisdictions. The directive aims to dissuade companies from this practice by limiting the amount of interest that a taxpayer has the right to deduct in a tax period. The maximum amount of deductible interest is set at a maximum of 30% of the taxpayer’s earnings before interest, tax, depreciation (a measure of how much of an asset's value has been used up at a given point in time) and amortisation (spreading payments over multiple periods). Exit taxation rules: where taxpayers try to reduce their tax liability by transferring its tax residence and/or its assets to a low-tax jurisdiction, solely for the purposes for aggressive tax planning. Exit taxation rules aims to prevent the erosion of the tax base in the EU country of origin when high-value assets are transferred with ownership unchanged, outside the tax jurisdiction of that country. The directive gives taxpayers the option of deferring the payment of the amount of tax over 5 years and settling through staggered payments, but only if the transfer takes place within the EU. General anti-abuse rule: this rule aims to cover gaps that may exist in a country's specific anti-abuse rules against tax avoidance, and allows tax authorities the power to deny taxpayers the benefit of abusive tax arrangements. The general anti-abuse clause of the directive applies to arrangements that are not genuine to the extent that they are not put into place for valid commercial reasons that reflect economic reality. Controlled foreign company (CFC) rules: in order to reduce their overall tax liability, corporate groups are able to shift profits to controlled subsidiaries in low-tax jurisdictions. CFC rules reattribute the income of a low-taxed controlled foreign subsidiary to its more highly taxed parent company. As a result of this, the parent company is charged to tax on this income in its country of residence. Amending Directive (EU) 2017/952 Because Directive (EU) 2016/1164 only addressed hybrid mismatches* within the EU, a new Directive (EU) 2017/952 was adopted extending the scope to ensure the rules cover hybrid mismatches with non-EU countries. The rules of the latter directive supersede the rules on hybrid mismatches of Directive EU 2016/1164. Rules on hybrid mismatches: where corporate taxpayers take advantage of disparities between national tax systems in order to reduce their overall tax liability, for instance through double deduction (i.e. deduction on both sides of the border) or a deduction of the income on one side of the border without its inclusion on the other side. To neutralise the effects of hybrid mismatch arrangements, the directive lays down rules whereby 1 of the 2 jurisdictions in a mismatch should deny the deduction of a payment leading to such an outcome. FROM WHEN DOES THE DIRECTIVE APPLY? Directive (EU) 2016/1164 has applied since 8 August 2016 and had to become law in the EU countries by 31 December 2018. Amending Directive (EU) 2017/952 has applied since 27 June 2017 and has to become law in the EU countries by 31 December 2019 (or by 31 December 2021 in the case of hybrid mismatches). BACKGROUND The directive builds on the Action Plan for Fair and Efficient Corporate Taxation and is in response to the finalisation of the project against Base Erosion and Profit Shifting (BEPS) by the G20 and the Organisation for Economic Cooperation and Development (OECD). KEY TERMS Base erosion and profit shifting (BEPS): tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Hybrid mismatch: an arrangement exploiting differences in the tax treatment of instruments, companies or transfers between 2 or more countries. MAIN DOCUMENT Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (OJ L 193, 19.7.2016, pp. 1-14) RELATED DOCUMENTS Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries (OJ L 144, 7.6.2017, pp. 1-11) last update 07.11.2017\n<|endoftext|>"}}},{"rowIdx":96,"cells":{"text":{"kind":"string","value":"<|system|>\nYou are a helpful assistant that summarizes text clearly, accurately, and concisely.\n<|user|>\nSummarize the following text:\n25.6.2020 EN Official Journal of the European Union L 202/3 STATUS AGREEMENT between the European Union and the Republic of Serbia on actions carried out by the European Border and Coast Guard Agency in the Republic of Serbia THE EUROPEAN UNION, of the one part, and THE REPUBLIC OF SERBIA, of the other part, hereinafter jointly referred to as ‘the Parties’, WHEREAS situations may arise where the European Border and Coast Guard Agency coordinates operational cooperation between Member States of the European Union and the Republic of Serbia, including on the territory of the Republic of Serbia, WHEREAS a legal framework in the form of a status agreement should be established for the situations where the team members of the European Border and Coast Guard Agency will have executive powers on the territory of the Republic of Serbia, WHEREAS the Parties will take due account of the declarations annexed to this Agreement, CONSIDERING that all actions of the European Border and Coast Guard Agency on the territory of the Republic of Serbia should fully respect fundamental rights, HAVE DECIDED TO CONCLUDE THIS AGREEMENT: Article 1 Scope 1. This Agreement shall cover all aspects of cooperation between the Republic of Serbia and the Agency necessary for carrying out actions by the Agency that may take place on the territory of the Republic of Serbia whereby team members of the Agency may have executive powers. 2. This Agreement does not extend the scope of the Agreement between the European Community and the Republic of Serbia on the readmission of persons residing without authorisation (1) (the ‘EC-Serbia Readmission Agreement’). With regard to return operations as defined in point (d) of Article 2, this Agreement only concerns the provision of operational support for return operations which are carried out in accordance with the EC-Serbia Readmission Agreement. 3. This Agreement shall cover the Republic of Serbia. This Agreement shall not cover Kosovo (*1). Article 2 Definitions For the purposes of this Agreement, the following definitions apply: (a) ‘action’ means a joint operation, a rapid border intervention or a return operation; (b) ‘joint operation’ means an action aimed at tackling illegal immigration or cross-border crime or aimed at providing increased technical and operational assistance at the external borders of a Member State neighbouring the Republic of Serbia and deployed on the territory of the Republic of Serbia; (c) ‘rapid border intervention’ means an action aimed at rapidly responding to a situation of specific and disproportionate challenges at the borders of the Republic of Serbia neighbouring a Member State and deployed on the territory of the Republic of Serbia for a limited period of time; (d) ‘return operation’ means an operation that is coordinated by the Agency and involves technical and operational reinforcement being provided by one or more Member States under which returnees from one or more Member States are returned from one or more Member States either on a forced or voluntary basis to the Republic of Serbia in line with the EC-Serbia Readmission Agreement; (e) ‘border control’ means the control of persons, travel documents, means of transport and items carried out when crossing a state border, consisting of border checks at border crossing points and border surveillance between border crossing points; (f) ‘member of a team’ means a member either of the Agency staff or a member of a team of border guards and other relevant staff from participating Member States, including border guards and other relevant staff that are seconded by Member States to the Agency to be deployed during an action; (g) ‘Member State’ means a Member State of the European Union; (h) ‘home Member State’ means the Member State of which a member of a team is a border guard or other relevant staff member; (i) ‘personal data’ means any information relating to an identified or identifiable natural person; an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number i.e. unique citizen’s identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person; (j) ‘participating Member State’ means a Member State which participates in an action in the Republic of Serbia by providing technical equipment, border guards and other relevant staff deployed as part of the team; (k) ‘Agency’ means the European Border and Coast Guard Agency established by the Council Regulation (EC) No 2007/2004 (2). Article 3 Launching an action 1. The initiative to launch an action can be proposed to the competent authorities of the Republic of Serbia by the Agency. The competent authorities of the Republic of Serbia may request the Agency to consider launching an action. 2. Carrying out an action requires the consent of competent authorities of both the Republic of Serbia and the Agency. Article 4 Operational plan 1. A joint operational plan shall be agreed between the Agency and the Republic of Serbia for each joint operation or rapid border intervention. The European Commission shall ensure that the Article 54(3) of the Regulation (EU) 2016/1624 of the European Parliament and of the Council (3) is respected. 2. The joint operational plan shall set out in detail the organisation and procedural aspects of the joint operation or rapid border intervention, including a description and an assessment of the situation, the operational aim and objectives, type of technical equipment to be deployed, the implementation plan, the cooperation with other third countries, other Agencies and bodies of the European Union or international organisations, the provisions in respect of fundamental rights including personal data protection, the coordination, command, control, communication and reporting structure, the organisational arrangements and logistics, the evaluation and the financial aspects of the joint operation or rapid border intervention. The evaluation of the joint operation or of the rapid border intervention shall be conducted jointly by the competent authority of the Republic of Serbia and by the Agency. Article 5 Tasks and powers of the members of the team 1. Members of the team shall have the authority to perform the tasks and exercise the executive powers required for border control and return operations. 2. Members of the team shall respect the national legislation of the Republic of Serbia. 3. Members of the team may only perform tasks and exercise powers on the territory of the Republic of Serbia under instructions from and in the presence of border guards or other police officers of the Republic of Serbia. The competent authority of the Republic of Serbia shall issue, where appropriate, instructions to the team in accordance with the operational plan. The competent authority of the Republic of Serbia may authorise members of the teams to act on its behalf as long as the overall responsibility and command and control functions remain with the border guards or other police officers of the Republic of Serbia present at all times. The Agency, through its coordinating officer, may communicate its views to the competent authority of the Republic of Serbia on the instructions given to the team. In that case, the competent authority of the Republic of Serbia shall take those views into consideration and follow them to the extent possible. In cases where the instructions issued to the team are not in compliance with the operational plan, the coordinating officer shall immediately report to the executive director of the Agency. The executive director may take appropriate measures, including the suspension or the termination of an action. 4. Members of the team shall wear their own uniform while performing their tasks and exercising their powers. They shall at least wear visible personal identification and a blue armband with the insignias of the European Union and of the Agency. For the purposes of identification vis-à-vis the competent authorities of the Republic of Serbia, members of the team shall at all times carry the accreditation document referred to in Article 8. 5. While performing their tasks and exercising their powers, members of the team may carry service weapons, ammunition and equipment as authorised according to the home Member State’s national law. The Republic of Serbia shall, in advance of the deployment of the members of the team, inform the Agency of the permissible service weapons, ammunition and equipment and of the relevant legal framework and conditions for their use. The Agency shall submit in advance to the competent authority of the Republic of Serbia the list of service weapons of the members of the team, namely information concerning the type and serial number of the weapons and the type and quantity of ammunitions. 6. While performing their tasks and exercising their powers, members of the team shall be authorised to use force, including service weapons, ammunition and equipment, with the consent of the home Member State and the Republic of Serbia, in the presence of border guards or other police officers of the Republic of Serbia and in accordance with the national law of the Republic of Serbia. The Republic of Serbia may authorise members of the team to use force in the absence of border or other police officers of the Republic of Serbia. Members of the team may use weapons only when it is absolutely necessary in self-defence to repel an immediate life-threatening attack against themselves or another person, in accordance with the national legislation of the Republic of Serbia. 7. The competent authority of the Republic of Serbia may, upon request, communicate relevant information contained in its national databases to members of the team if necessary for fulfilling operational aims specified in the operational plan and for implementing actions. The members of the team may be communicated only information concerning relevant facts which is necessary for performing their tasks and exercising their powers. The Agency may communicate to the competent authorities of the Republic of Serbia relevant information which is necessary for fulfilling operational aims specified in the operational plan and for implementing actions. 8. For the purposes of fulfilling operational aims specified in the operational plan and implementing actions, the competent authority of the Republic of Serbia and members of the team may exchange other information and findings. 9. The members of the team referred to in paragraphs 1 and 3 to 6 do not include the Agency staff. Article 6 Suspension and termination of an action 1. The executive director of the Agency may suspend or terminate an action, after informing the competent authority of the Republic of Serbia in writing, if this Agreement or the operational plan are not properly implemented by the Republic of Serbia. The executive director shall notify the competent authority of the Republic of Serbia of the reasons for such suspension or termination. 2. The Republic of Serbia may suspend or terminate an action, after informing the Agency in writing, if this Agreement or the operational plan is not properly implemented by the Agency or by any participating Member State. The competent authority of the Republic of Serbia shall notify the Agency the reasons for such suspension or termination. 3. In particular, the executive director of the Agency or the Republic of Serbia may suspend or terminate an action in cases of breach of fundamental rights or violations of the principle of non-refoulement or of data protection rules. 4. Termination of an action shall not affect any rights or obligations arising out of the application of this Agreement or the operational plan before such termination. Article 7 Privileges and immunities of the members of the team 1. Papers, correspondence and property of members of the team shall be inviolable, except in the case of measures of execution which are permitted pursuant to paragraph 6. 2. Members of the team shall enjoy immunity from the criminal jurisdiction of the Republic of Serbia in respect of the acts performed during and for the purpose of the exercise of the official functions in the course of the actions carried out in accordance with the operational plan. In the event of an allegation of a criminal offence being committed by a member of the team, the competent authority referred to in Article 13(1), shall immediately notify the executive director of the Agency and the competent authority of the home Member State. After careful consideration of any representation of the home Member State and of the Republic of Serbia, and based upon information provided by the Parties, the executive director of the Agency shall certify whether the act in question was performed in the exercise of the official functions of the member of the team in the course of the actions carried out in accordance with the operational plan. In case the executive director of the Agency certifies that the act was performed in the exercise of the official functions of the member of the team in the course of the actions carried out in accordance with the operational plan, the member of the team shall benefit from immunity of the criminal jurisdiction of the Republic of Serbia for the acts performed during and for the purpose of the exercise of the official functions in the course of the actions carried out in accordance with the operational plan. 3. Members of the team shall enjoy immunity from the civil and administrative jurisdiction of the Republic of Serbia in respect of all acts performed during and for the purpose of the exercise of the official functions in the course of the actions carried out in accordance with the operational plan. If any civil proceeding is instituted against members of the team before any court, the competent authority referred to in Article 13(1), shall immediately notify the Executive Director of the Agency and the competent authority of the home Member State. After careful consideration of any representation of the home Member State and of the Republic of Serbia, and based upon information provided by the Parties, the executive director of the Agency shall certify whether the act in question was performed in the exercise of the official functions of the member of the team in the course of the actions carried out in accordance with the operational plan. In case the executive director of the Agency certifies that the act was performed in the exercise of the official functions of the member of the team in the course of the actions carried out in accordance with the operational plan, the member of the team shall benefit from immunity of the civil and administrative jurisdiction of the Republic of Serbia for the acts performed during and for the purpose of the exercise of the official functions in the course of the actions carried out in accordance with the operational plan. 4. The immunity of members of the teams from the criminal, civil and administrative jurisdiction of the Republic of Serbia in accordance with paragraphs 2 and 3 may be waived by the home Member State as the case may be. Such a waiver must always be an express waiver. 5. Members of the team shall not be obliged to give evidence as witnesses. 6. In case of damage caused by a member of the team in the exercise of official functions in the course of the actions carried out in accordance with the operational plan, the Republic of Serbia shall be liable for any damage. In case of damage caused by gross negligence or wilful misconduct or if the act was not committed in the exercise of official functions by a member of the team from a participating Member State, the Republic of Serbia may request, via the executive director, that compensation be paid by the participating Member State concerned. In case of damage caused by gross negligence or wilful misconduct or if the act was not committed in the exercise of official functions by a member of the team who is a staff member of the Agency, the Republic of Serbia may request that compensation be paid by the Agency. In case of damage caused in the Republic of Serbia, due to force majeure, neither the Republic of Serbia, nor the participating Member State, nor the Agency, shall hold any responsibility. 7. No measures of execution may be taken in respect of members of the team, except in the case where a criminal or civil proceeding not related to their official functions is instituted against them. Property of members of the team, which is certified by the executive director of the Agency to be necessary for the fulfilment of their official functions, shall be free from seizure for the satisfaction of a judgment, decision or order. In civil proceedings, members of the team shall not be subject to any restrictions on their personal liberty or to any other measures of constraint. 8. The immunity of members of the team from the jurisdiction of the Republic of Serbia shall not exempt them from the jurisdictions of the respective home Member States. 9. Members of the team shall, with respect to services rendered for the Agency, be exempt from social security provisions which may be in force in the Republic of Serbia. 10. Members of the team shall be exempt from any form of taxation in the Republic of Serbia on the salary and emoluments paid to them by the Agency or the home Member States, as well as on any income received from outside the Republic of Serbia. 11. The Republic of Serbia shall, in accordance with such laws and regulations as it may adopt, permit the entry of articles for the personal use of members of the team, and shall grant exemption from all customs duties, taxes, and related charges other than charges for storage, transport and similar services, in respect of such articles. The Republic of Serbia shall also permit the export of such articles. 12. The personal baggage of members of the team may be inspected if there are grounds for considering that it contains articles that are not for the personal use of members of the team, or articles whose import or export is prohibited by the law or subject to quarantine regulations of the Republic of Serbia. Inspection of such personal baggage shall be conducted only in the presence of the member(s) of the team concerned or an authorised representative of the Agency. Article 8 Accreditation document 1. The Agency shall, in cooperation with the Republic of Serbia, issue a document in the official language(s) of the Republic of Serbia and in an official language of the institutions of the European Union to each member of the team for the purposes of identification vis-à-vis the national authorities of the Republic of Serbia and as proof of the holder’s rights to perform the tasks and exercise the powers referred to in Article 5 and in the operational plan. The document shall include the following information on the member: name and nationality; rank or job title; a recent digitised photograph and tasks authorised to be performed during the deployment. It shall also mention that the holder of this document has a right to reside in the territory of the Republic of Serbia for the duration of an action without additional procedures. 2. The accreditation document, in combination with a valid travel document, grants the member of the team access to the Republic of Serbia without the need for a visa or prior authorisation. 3. The accreditation document shall be returned to the Agency at the end of the action. 4. The Agency will before the start of the application of this Agreement and whenever its template is modified provide the competent authority of the Republic of Serbia with a specimen of the accreditation document referred to in paragraph 1. Article 9 Fundamental Rights 1. Members of the team shall, in the performance of their tasks and in the exercise of their powers, fully respect fundamental rights and freedoms, including as regards access to asylum procedures, human dignity and the prohibition of torture, inhuman or degrading treatment, the right to liberty, the principle of non-refoulement and the prohibition of collective expulsions, the rights of the child and the right to respect for private and family life. While performing their tasks and exercising their powers, they shall not discriminate against persons on any grounds including sex, racial or ethnic origin, religion or belief, disability, age, sexual orientation. Any measures interfering with fundamental rights and freedoms taken in the performance of their tasks and in the exercise of their powers shall be proportionate to the objectives pursued by such measures and respect the essence of these fundamental rights and freedoms. 2. Each Party shall use an existing mechanism to deal with allegations of a breach of fundamental rights committed by its staff in the exercise of their official functions in the course of an action performed under this Agreement. Article 10 Processing of personal data 1. Processing of personal data shall take place only in cases when it is necessary for the implementation of this Agreement by the Republic of Serbia, the Agency or participating Member States. 2. Processing of personal data by the competent authority of the Republic of Serbia shall be subject to its national laws. 3. Processing of personal data for administrative purposes by the Agency and the participating Member State(s), including in case of transfer of personal data to the Republic of Serbia, shall be subject to Regulation (EU) 2018/1725 of the European Parliament and of the Council of 23 October 2018 on the protection of natural persons with regard to the processing of personal data by the Union institutions, bodies, offices and agencies and on the free movement of such data, and repealing Regulation (EC) No 45/2001 and Decision No 1247/2002/EC (4); Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (5); Directive (EU) 2016/680 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data by competent authorities for the purposes of the prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and on the free movement of such data, and repealing Council Framework Decision 2008/977/JHA (6), and to measures adopted by the Agency for the application of Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data (7), as referred to in Article 45(2) of Regulation (EU) 2016/1624. 4. In case the processing involves the transfer of personal data, Member States and the Agency shall indicate, at the moment of transferring personal data to the competent authority of the Republic of Serbia, any restrictions on access to it or use of it, in general or specific terms, including as regards transfer, erasure or destruction. Where the need for such restrictions becomes apparent after the transfer of personal data, they shall inform the competent authority of the Republic of Serbia accordingly. 5. Personal data collected and further processed for administrative purposes during an action may be processed by the Agency, the participating Member States and the competent authority of the Republic of Serbia in line with the applicable data protection legislation. For the purpose of implementing this Agreement the competent authority of the Republic of Serbia shall keep a record of personal data collected and further processed under this Article. The data covered by this record shall be: name and surname, date of birth, place of birth, country of origin, number and type of personal or other documents, place and time of data processing and the reason for data collecting and processing. The data contained in this record shall be kept for three years from the date of collection. 6. The Agency, the participating Member States and the Republic of Serbia shall draw up a common report on the application of paragraphs 1 to 5 at the end of each action. This report shall be sent to the competent authorities of the Republic of Serbia, to the Agency’s fundamental rights officer and to the Agency’s data protection officer. The Agency’s fundamental rights officer and the Agency’s data protection officer shall report to the executive director of the Agency. Article 11 Disputes and interpretation 1. All issues arising in connection with the application of this Agreement shall be examined jointly by the competent authorities of the Republic of Serbia and by representatives of the Agency. 2. Failing any prior settlement, disputes concerning the interpretation or application of this Agreement shall be settled exclusively by negotiation between the competent authorities of the Republic of Serbia and the European Commission. 3. For the purposes of paragraphs 1 and 2, the Agency and the European Commission shall be in constant contact with the Member State(s) bordering the operational area. Article 12 Relation to other international obligations This Agreement shall be without prejudice to the obligations assumed by the Republic of Serbia or the European Union on the basis of international treaties and agreements in accordance with generally accepted principles of international law and shall be without prejudice to their application. Article 13 Competent authorities 1. The competent authority for the implementation of this Agreement in the Republic of Serbia shall be the Ministry in charge of Internal Affairs. 2. The competent authority of the European Union for the implementation of this Agreement shall be the Agency. Article 14 Entry into force, duration, suspension and termination 1. This Agreement shall be approved by the Parties in accordance with their own internal legal procedures. 2. This Agreement shall enter into force the first day of the second month following the date on which the Parties have notified each other of the completion of the internal legal procedures referred to in paragraph 1. 3. This Agreement may be suspended or terminated by written agreement between the Parties or unilaterally by either Party. In the latter case, the Party wishing to suspend or terminate this Agreement shall notify in writing the other Party thereof through diplomatic channels. The suspension shall take effect on the tenth working day after receiving notification. The termination shall take effect on the first day of the second month following the month notification was given. 4. Notifications made in accordance with this Article shall be sent, in the case of the European Union, to the General Secretariat of the Council of the European Union and, in the case of the Republic of Serbia, to the Ministry of Foreign Affairs of the Republic of Serbia. Article 15 Languages This Agreement shall be drawn up in duplicate in the Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish, Swedish and Serbian languages, each of these texts being equally authentic. Съставено в Белград на осемнадесети и в Скопие на деветнадесети ноември две хиляди и деветнадесета година. Hecho en Belgrado, el dieciocho, y en Skopie, el diecinueve de noviembre de dos mil diecinueve. V Bělehradě dne osmnáctého a ve Skopji dne devatenáctého listopadu dva tisíce devatenáct. Udfærdiget i Beograd den attende og i Skopje den nittende november to tusind og nitten. Geschehen zu Belgrad am achtzehnten November und zu Skopje am neunzehnten November zweitausendneunzehn. Kahe tuhande üheksateistkümnenda aasta novembrikuu kaheksateistkümnendal päeval Belgradis ja üheksateistkümnendal päeval Skopjes. Έγινε στο Βελιγράδι στις δεκαοκτώ και στα Σκόπια στις δεκαεννέα Νοεμβρίου δύο χιλιάδες δεκαεννέα. Done at Belgrade on the eighteenth day and at Skopje on the nineteenth day of November in the year two thousand and nineteen. Fait à Belgrade, le dix-huit novembre deux mille dix-neuf, et à Skopje, le dix-neuf novembre deux mille dix-neuf. Sastavljeno u Beogradu osamnaestog studenoga i u Skopju devetnaestog studenoga godine dvije tisuće devetnaeste. Fatto a Belgrado, addì diciotto e a Skopje, addì diciannove novembre duemiladiciannove. Belgradā, divi tūkstoši deviņpadsmitā gada astoņpadsmitajā novembrī, un Skopjē, deviņpadsmitajā novembrī. Priimta Belgrade du tūkstančiai devynioliktų metų lapkričio aštuonioliktą dieną ir Skopjėje du tūkstančiai devynioliktų metų lapkričio devynioliktą dieną. Kelt Belgrádban, a kétezer-tizenkilencedik év november havának tizennyolcadik napján és Szkopjében, a kétezer-tizenkilencedik év november havának tizenkilencedik napján. Magħmul f'Belgrad fit-tmintax-il jum u fi Skopje fid-dsatax-il jum ta’ Novembru fis-sena elfejn u dsatax. Gedaan te Belgrado op achttien november en te Skopje op negentien november tweeduizend negentien. Sporządzono w Belgradzie dnia osiemnastego listopada i w Skopje dnia dziewiętnastego listopada roku dwa tysiące dziewiętnastego. Feito em Belgrado, em dezoito, e em Skopje, em dezanove de novembro de dois mil e dezanove. Întocmit la Belgrad la optsprezece și la Skopje la nouăsprezece noiembrie două mii nouăsprezece. V Belehrade osemnásteho a v Skopje devätnásteho novembra dvetisícdevätnásť. V Beogradu, dne osemnajstega novembra, in v Skopju, dne devetnajstega novembra leta dva tisoč devetnajst. Tehty Belgradissa kahdeksantenatoista päivänä ja Skopjessa yhdeksäntenätoista päivänä marraskuuta vuonna kaksituhattayhdeksäntoista. Som skedde i Belgrad den artonde november och i Skopje den nittonde november år tjugohundranitton. Потписано у Београду осамнаестог новембра и у Скопљу деветнаестог новембра две хиљаде деветнаесте године. (1) OJ L 334, 19.12.2007, p. 46. (*1) This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence. (2) Council Regulation (EC) No 2007/2004 of 26 October 2004 establishing a European Agency for the Management of Operational Cooperation at the External Borders of the Member States of the European Union (OJ L 349, 25.11.2004, p. 1). (3) Regulation (EU) 2016/1624 of the European Parliament and of the Council of 14 September 2016 on the European Border and Coast Guard and amending Regulation (EU) 2016/399 of the European Parliament and of the Council and repealing Regulation (EC) No 863/2007 of the European Parliament and of the Council, Council Regulation (EC) No 2007/2004 and Council Decision 2005/267/EC (OJ L 251, 16.9.2016, p. 1). (4) OJ L 295, 21.11.2018, p. 39. (5) OJ L 119, 4.5.2016, p. 1. (6) OJ L 119, 4.5.2016, p. 89. (7) OJ L 8, 12.1.2001, p. 1. JOINT DECLARATION CONCERNING ARTICLE 2(b) The Parties take note that the European Border and Coast Guard Agency will support the Republic of Serbia to control efficiently its border with any country that is not a member of the European Union by other means than deployments of European Border and Coast Guard teams with executive powers. JOINT DECLARATION ON STATUS AND DELIMITATION OF THE TERRITORIES The status and delimitation under international law of the territory of Serbia and the Member States of the European Union are in no way affected either by this Agreement or by any act accomplished in its implementation by the Parties or on their behalf, including the establishment of operational plans or the participation in cross-border operations. JOINT DECLARATION WITH REGARD TO ICELAND, NORWAY, SWITZERLAND AND LIECHTENSTEIN The Parties take note of the close relationship between the European Union and Norway, Iceland, Switzerland and Liechtenstein, particularly by virtue of the Agreements of 18 May 1999 and 26 October 2004 concerning the association of those countries with the implementation, application and development of the Schengen acquis. In such circumstances it is desirable that the authorities of Norway, Iceland, Switzerland and Liechtenstein, on the one hand, and the Republic of Serbia, on the other hand, conclude, without delay, bilateral agreements on actions carried out by the European Border and Coast Guard Agency in the Republic of Serbia in terms similar to those of this Agreement.\n<|assistant|>\nStatus Agreement between the European Union and Serbia on actions carried out by the European Border and Coast Guard Agency in Serbia Status Agreement between the European Union and Serbia on actions carried out by the European Border and Coast Guard Agency in Serbia SUMMARY OF: Status Agreement between the European Union and Serbia on actions carried out by the European Border and Coast Guard Agency in Serbia Decision (EU) 2020/865 on the conclusion of the Status Agreement between the European Union and Serbia on actions carried out by the European Border and Coast Guard Agency in Serbia WHAT IS THE AIM OF THE DECISION AND AGREEMENT? The agreement covers cooperation between the European Border and Coast Guard Agency, set up under Regulation (EU) 2019/1896 (see summary), and the Republic of Serbia when the agency operates on the country’s territory. The decision approves the agreement between Serbia and the European Union (EU). KEY POINTS An action*: may be proposed to Serbia by the agency or requested by Serbia; requires the consent of both Serbia and the agency. A joint operational plan, agreed by the agency and Serbia, is needed for each joint operation* or rapid border intervention* on Serbian territory. It sets out in detail elements such as: organisation, procedures, coordination, finance and evaluation; description and assessment of the situation with operational objectives; cooperation with other agencies, non-EU countries and international organisations; respect of fundamental rights, including personal data protection. Members of the action team: have the authority and powers necessary for border control and return operations; respect Serbia’s national legislation; operate under instructions from, and in the presence of, Serbian border guards or other police officers, and may express their opinion on those instructions to the national authorities; wear their own uniform with visible personal identification and insignia of the EU and the agency; may, subject to certain conditions, carry and use weapons, ammunition and equipment; can request information in national databases necessary for their work; enjoy privileges and immunities, but immunity from criminal, civil and administrative jurisdiction may be waived under certain conditions; receive an accreditation document, issued by the agency and Serbia, confirming their identity and right to work under the operational plan. The agency’s executive director or Serbia may suspend or terminate an action, after informing the other in writing, if an operational plan is not being properly implemented. Processing of personal data may only take place when it is necessary for Serbia, the agency or participating EU Member States to implement the agreement. Serbia may keep a record of collected and used data for 3 years. The competent Serbian authority (the ministry in charge of internal affairs) and the agency examine together all issues arising from the agreement. Any disputes on the interpretation or application of the agreement are settled by the ministry and the European Commission. One or both parties may suspend or terminate the agreement in writing. Joint declarations to the agreement state: the agency will, without deploying its own teams, support Serbia in controlling its borders with non-EU countries; the agreement does not affect the status and delimitation under international law of Serbian or EU territory; Iceland, Liechtenstein, Norway, Serbia and Switzerland are urged to conclude without delay bilateral agreements similar to that between Serbia and the EU. Ireland does not participate in the agreement and Denmark has 6 months to decide whether to do so or not. The agreement does not: extend the scope of the EU–Serbia Readmission Agreement (see summary); cover Kosovo*. DATE OF ENTRY INTO FORCE The agreement entered into force on 1 May 2021. BACKGROUND This is the third agreement between the EU and a partner country. Previous ones were signed with Albania in 2018 and Montenegro in 2019. Cooperation with non-EU countries is an important component of European integrated border management. In 2019, the EU adopted a new regulation (Regulation (EU) 2019/1896) strengthening the role of the European Border and Coast Guard Agency. This enables the EU to conclude agreements and to carry out joint operations in countries beyond its immediate neighbourhood. For more information, see: Border management: EU signs agreement with Serbia on European Border and Coast Guard cooperation — press release (European Commission). KEY TERMS Action. A joint operation, rapid border intervention or return operation. Joint operation. An action to tackle illegal immigration or cross-border crime, or provide technical and operational assistance at Serbia’s borders with Member States (Bulgaria, Croatia, Hungary and Romania). Rapid border intervention. An action responding quickly to specific and disproportionate challenges on Serbia’s borders with a Member State. MAIN DOCUMENTS Status Agreement between the European Union and the Republic of Serbia on actions carried out by the European Border and Coast Guard Agency in the Republic of Serbia (OJ L 202, 25.6.2020, pp. 3–15). Council Decision (EU) 2020/865 of 26 May 2020 on the conclusion of the Status Agreement between the European Union and the Republic of Serbia on actions carried out by the European Border and Coast Guard Agency in the Republic of Serbia (OJ L 202, 25.6.2020, pp. 1–2). RELATED DOCUMENTS Information relating to the entry into force of the Agreement between the European Union and the Republic of Serbia on actions carried out by the European Border and Coast Guard Agency in the Republic of Serbia (OJ L 101, 23.3.2021, p. 1). Regulation (EU) 2019/1896 of the European Parliament and of the Council of 13 November 2019 on the European Border and Coast Guard and repealing Regulations (EU) No 1052/2013 and (EU) 2016/1624 (OJ L 295, 14.11.2019, pp. 1–131). * The designation is in line with UNSCR 1244/1999 and the ICJ opinion on the Kosovo declaration of independence. last update 06.12.2021\n<|endoftext|>"}}},{"rowIdx":97,"cells":{"text":{"kind":"string","value":"<|system|>\nYou are a helpful assistant that summarizes text clearly, accurately, and concisely.\n<|user|>\nSummarize the following text:\n8.2.2005 EN Official Journal of the European Union L 35/23 REGULATION (EC) No 184/2005 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 12 January 2005 on Community statistics concerning balance of payments, international trade in services and foreign direct investment THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular Article 285(1) thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the European Central Bank, delivered in accordance with Article 105(4) of the Treaty (1), Acting in accordance with the procedure laid down in Article 251 of the Treaty (2), Whereas: (1) The Treaty requires the Commission to submit reports to the Council in order to enable the Council to monitor economic developments in each of the Member States and in the Community as well as the consistency of economic policies with certain broad guidelines. (2) According to the Treaty, the Commission must submit proposals to the Council for implementing the common commercial policy and the Council must authorise the Commission to open the necessary negotiations. (3) The implementation and the review of trade agreements, including the General Agreement on Trade in Services (GATS) (3) and the Agreement on Trade-Related aspects of Intellectual Property Rights (TRIPs) (4), as well as the current and future negotiations on further agreements, call for the relevant statistical information to be made available. (4) Council Regulation (EC) No 2223/96 of 25 June 1996 on the European System of national and regional accounts in the Community (5) (ESA 95) contains the reference framework of common standards, definitions, classifications, and accounting rules for drawing up the accounts of the Member States for the statistical requirements of the Community, in order to obtain comparable results between Member States. (5) The Action Plan on EMU Statistical Requirements presented to the Council in September 2000 and the 3rd, 4th and 5th Progress Reports, also supported by the Council, provide for quarterly European accounts by the institutional sector within 90 days. The timely provision of quarterly balance-of-payments figures is a prerequisite for the compilation of these quarterly European accounts. (6) Council Regulation (EC, Euratom) No 58/97 of 20 December 1996 on Structural Business Statistics (6), established a common framework for the collection, compilation, transmission and evaluation of Community statistics on the structure, activity, competitiveness and performance of businesses in the Community and sets out the characteristics which should be collected in this area. (7) Regulation (EC) No 2560/2001 of the European Parliament and of the Council of 19 December 2001 on cross-border payments in euro (7), had a direct impact on the collection of statistics; an increase in the threshold provided for in that Regulation would have a significant impact on the reporting burden of undertakings and on the quality of balance of payments statistics of Member States, especially in the Member States that have collection systems based on settlements. (8) Collectively, the Balance of Payments Manual of the International Monetary Fund, the Guideline of the European Central Bank (ECB) of 2 May 2003 on the statistical reporting requirements of the European Central Bank in the field of balance of payments and international investment position statistics, and the international reserves template (8), the Manual on statistics of international trade in services of the United Nations, and the OECD Benchmark Definition of Foreign Direct Investment, define the general rules for compiling statistics on balance of payments, international trade in services, and foreign direct investment. (9) In the field of balance of payments statistics, the ECB and the Commission coordinate work on compilation issues as appropriate. This Regulation defines in particular the statistical information that the Commission needs from the Member States in order to produce Community statistics on balance of payments, international trade in services and foreign direct investment. For the purposes of producing and disseminating those Community statistics, the Commission and the Member States consult with each other on matters concerning the quality of the data supplied and its dissemination. (10) Council Regulation (Euratom, EEC) No 1588/90 of 11 June 1990 on the transmission of data subject to statistical confidentiality to the Statistical Office of the European Communities (9), provides that national rules on statistical confidentiality may not be invoked to prevent the transmission of confidential statistical data to the Community authority (Eurostat) where an act of Community law governing a Community statistic provides for the transmission of such data. (11) Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the collection of statistical information by the European Central Bank (10), lays down a confidentiality regime that applies to confidential statistical information transmitted to the ECB. (12) The production of specific Community statistics is governed by the rules set out in Council Regulation (EC) No 322/97 of 17 February 1997 on Community statistics (11). (13) There is a clear need to produce Community statistics on balance of payments, international trade in services and foreign direct investment which follow common statistical quality standards. (14) Since the objective of this Regulation, namely the creation of common statistical quality standards for the production of comparable statistics on balance of payments, international trade in services and foreign direct investment, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective. (15) In order to guarantee the fulfilment of the obligations laid down in this Regulation, the national institutions responsible for the collection of data within the Member States may need to gain access to administrative data sources such as business registers held by other public institutions and to other databases containing information on cross-border transactions and positions, wherever such data are necessary for the production of Community statistics. (16) The measures necessary for the implementation of this Regulation should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission (12), HAVE ADOPTED THIS REGULATION: Article 1 Subject matter This Regulation establishes a common framework for the systematic production of Community statistics on balance of payments, international trade in services and foreign direct investment. Article 2 Submission of data 1. Member States shall submit to the Commission (Eurostat) data on balance of payments, international trade in services and foreign direct investment as referred to in Annex I. The data shall be as defined in Annex II. 2. Member States shall submit the data to the Commission (Eurostat) in accordance with the deadlines shown in Annex I. Article 3 Data sources 1. Member States shall collect the information required pursuant to this Regulation using all the sources they consider relevant and appropriate. These may include administrative data sources such as business registers. 2. Natural and legal persons required to supply information shall, when responding, comply with the time limits and definitions set by the national institutions responsible for the collection of data within the Member States in accordance with this Regulation. 3. Where the required data cannot be collected at a reasonable cost, best estimates may be transmitted (zero values included). Article 4 Quality criteria and reports 1. Member States shall take all reasonable measures they consider necessary to ensure the quality of the data transmitted according to common quality standards. 2. Member States shall supply the Commission with a report on the quality of the data transmitted (hereinafter referred to as ‘quality report’). 3. The common quality standards, as well as the content and periodicity of the quality reports, shall be specified in accordance with the procedure referred to in Article 11(2), taking into account the implications as regards the cost of collecting and compiling the data as well as important changes concerning data collection. The quality of the data transmitted shall be assessed, on the basis of the quality reports, by the Commission with the assistance of the Balance of Payments Committee referred to in Article 11. This assessment by the Commission shall be sent to the European Parliament for information. 4. Member States shall communicate to the Commission major methodological or other changes that would influence the data transmitted, not later than three months after any such change becomes applicable. The Commission shall notify the European Parliament and the other Member States of any such communication. Article 5 Data flows The statistics to be produced shall be grouped for transmission to the Commission (Eurostat) according to the following data flows: (a) balance of payments euro indicators; (b) balance of payments quarterly statistics; (c) international trade in services; (d) foreign direct investment (FDI) flows; (e) FDI positions. The data flows shall be as further specified in Annex I. Article 6 Reference period and periodicity Member States shall compile the data flows according to the relevant first reference period and the periodicity as specified in Annex I. Article 7 Transmission of data Member States shall transmit to the Commission (Eurostat) the data required by this Regulation following a format and a procedure defined by the Commission, in accordance with the procedure referred to in Article 11(2). Article 8 Transmission and exchange of confidential data 1. Notwithstanding the rules laid down in Article 5(4) of Regulation (Euratom, EEC) No 1588/90, the transmission of confidential data between Eurostat and the ECB may take place to the extent this transmission is necessary to ensure coherence between the balance of payments figures of the European Union and those of the economic territory of the Member States which have adopted the single currency. 2. Paragraph 1 shall apply on condition that the ECB takes due account of the principles defined in Article 10 of Regulation (EC) No 322/97 and complies with the conditions laid down in Article 14 of the same Regulation. 3. The exchange of confidential data, as defined by Article 13 of Regulation (EC) No 322/97, shall be allowed between Member States where the exchange is necessary to safeguard the quality of the balance of payment figures of the European Union. Member States receiving confidential data from other Member States shall treat that information confidentially. Article 9 Dissemination The Commission (Eurostat) shall disseminate the Community statistics produced pursuant to this Regulation, with a periodicity similar to that specified in Annex I. Article 10 Adaptation to economic and technical changes The measures necessary to take account of economic and technical changes shall be laid down in accordance with the procedure referred to in Article 11(2). Such measures shall concern: (a) the updating of the definitions (Annex II); (b) the updating of data requirements, including submission deadlines as well as revisions, extensions and eliminations of data flows (Annex I). Article 11 Committee procedure 1. The Commission shall be assisted by a Balance of Payments Committee, hereinafter the ‘Committee’. 2. Where reference is made to this paragraph, Articles 5 and 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 8 thereof. The period laid down in Article 5(6) of Decision 1999/468/EC shall be set at three months. 3. The Committee shall adopt its Rules of Procedure. 4. The ECB may attend the meetings of the Committee as an observer. Article 12 Report on implementation By 28 February 2010, the Commission shall submit a report to the European Parliament and the Council on the implementation of this Regulation. In particular, the report shall: (a) record the quality of the statistics produced; (b) assess the benefits accruing to the Community, the Member States and the providers and users of statistical information of the statistics produced in relation to the costs; (c) identify areas for potential improvement and amendments considered necessary in the light of the results obtained; (d) review the operation of the Committee and recommend whether the scope of implementing measures should be redefined. Article 13 Entry into force This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Union. This Regulation shall be binding in its entirety and directly applicable in all Member States. Done at Strasbourg, 12 January 2005. For the European Parliament The President J. P. BORRELL FONTELLES For the Council The President N. SCHMIT (1) OJ C 296, 6.12.2003, p. 5. (2) Opinion of the European Parliament of 30 March 2004 (not yet published in the Official Journal) and Council Decision of 13 December 2004. (3) OJ L 336, 23.12.1994, p. 191. (4) OJ L 336, 23.12.1994, p. 214. (5) OJ L 310, 30.11.1996, p. 1. Regulation as last amended by Regulation (EC) No 1267/2003 of the European Parliament and of the Council (OJ L 180, 18.7.2003, p. 1). (6) OJ L 14, 17.1.1997, p. 1. Regulation as last amended by Regulation (EC) No 1882/2003 of the European Parliament and of the Council (OJ L 284, 31.10.2003, p. 1). (7) OJ L 344, 28.12.2001, p. 13. (8) OJ L 131, 28.5.2003, p. 20. (9) OJ L 151, 15.6.1990, p. 1. Regulation as last amended by Regulation (EC) No 1882/2003. (10) OJ L 318, 27.11.1998, p. 8. (11) OJ L 52, 22.2.1997, p. 1. Regulation as amended by Regulation (EC) No 1882/2003. (12) OJ L 184, 17.7.1999, p. 23. ANNEX I DATA FLOWS referred to in Article 5 1. Balance of payments euro indicators BOP EUR Euro Indicators Deadline: t (1) + 2 months Periodicity: Quarter First reference period: First quarter of 2006 Credit Debit Net Current Account Extra-EU Extra-EU Extra-EU Services Extra-EU Extra-EU Extra-EU 2. Balance of payments quarterly statistics BOP Q Quarterly Data Deadline: t + 3 months Periodicity: Quarter First reference period: First quarter of 2006 Credit Debit Net I. Current Account Level 1 Level 1 Level 1 Goods Level 1 Level 1 Level 1 Services Level 1 Level 1 Level 1 Transportation Level 1 Level 1 Level 1 Travel Level 1 Level 1 Level 1 Communications services Level 1 Level 1 Level 1 Construction services Level 1 Level 1 Level 1 Insurance services Level 1 Level 1 Level 1 Financial services Level 1 Level 1 Level 1 Computer and information services Level 1 Level 1 Level 1 Royalties and licence fees Level 1 Level 1 Level 1 Other business services Level 1 Level 1 Level 1 Personal, cultural and recreational services Level 1 Level 1 Level 1 Government services, not included elsewhere. Level 1 Level 1 Level 1 Income Level 1 Level 1 Level 1 Compensation of employees Level 1 Level 1 Level 1 Investment Income — Direct Investment Level 1 Level 1 Level 1 — Portfolio Investment Extra-EU World — Other Investment Extra-EU Extra-EU Extra-EU Current transfers Level 1 Level 1 Level 1 General Government Extra-EU Extra-EU Extra-EU Other sectors Extra-EU Extra-EU Extra-EU II. Capital Account Extra-EU Extra-EU Extra-EU Net assets Net liabilities Net III. Financial Account Direct Investment Level 1 Abroad Level 1 — Equity capital Level 1 — Reinvested earnings Level 1 — Other capital Level 1 In the reporting economy Level 1 — Equity capital Level 1 — Reinvested earnings Level 1 — Other capital Level 1 Portfolio Investment Extra-EU World Financial derivatives World Other Investment Extra-EU Extra-EU Extra-EU 3. International trade in services BOP ITS International Trade in Services Deadline: t + 9 months Periodicity: Year First reference period: 2006 Credit Debit Net Total Services Level 3 Level 3 Level 3 Transportation Level 2 Level 2 Level 2 Sea transport Level 2 Level 2 Level 2 — Passenger Level 2 Level 2 Level 2 — Freight Level 2 Level 2 Level 2 — Other Level 2 Level 2 Level 2 Air transport Level 2 Level 2 Level 2 — Passenger Level 2 Level 2 Level 2 — Freight Level 2 Level 2 Level 2 — Other Level 2 Level 2 Level 2 Other transport Level 2 Level 2 Level 2 — Passenger Level 2 Level 2 Level 2 — Freight Level 2 Level 2 Level 2 — Other Level 2 Level 2 Level 2 Extended classification of other transport Space transport Level 2 Level 2 Level 2 Rail transport Level 2 Level 2 Level 2 — Passenger Level 2 Level 2 Level 2 — Freight Level 2 Level 2 Level 2 — Other Level 2 Level 2 Level 2 Road transport Level 2 Level 2 Level 2 — Passenger Level 2 Level 2 Level 2 — Freight Level 2 Level 2 Level 2 — Other Level 2 Level 2 Level 2 Inland waterway transport Level 2 Level 2 Level 2 — Passenger Level 2 Level 2 Level 2 — Freight Level 2 Level 2 Level 2 — Other Level 2 Level 2 Level 2 Pipeline transport and electricity transmission Level 2 Level 2 Level 2 Other supporting and auxiliary transport services Level 2 Level 2 Level 2 Travel Level 2 Level 2 Level 2 Business travel Level 2 Level 2 Level 2 — Expenditure by seasonal and border workers Level 2 Level 2 Level 2 — Other Level 2 Level 2 Level 2 Personal travel Level 2 Level 2 Level 2 — Health-related expenditure Level 2 Level 2 Level 2 — Education-related expenditure Level 2 Level 2 Level 2 — Other Level 2 Level 2 Level 2 Communications services Level 2 Level 2 Level 2 Postal and courier services Level 2 Level 2 Level 2 Telecommunications services Level 2 Level 2 Level 2 Construction services Level 2 Level 2 Level 2 Construction abroad Level 2 Level 2 Level 2 Construction in the compiling economy Level 2 Level 2 Level 2 Insurance services Level 2 Level 2 Level 2 Life insurance and pension funding Level 2 Level 2 Level 2 Freight insurance Level 2 Level 2 Level 2 Other direct insurance Level 2 Level 2 Level 2 Reinsurance Level 2 Level 2 Level 2 Auxiliary services Level 2 Level 2 Level 2 Financial services Level 2 Level 2 Level 2 Computer and information services Level 2 Level 2 Level 2 Computer services Level 2 Level 2 Level 2 Information services Level 2 Level 2 Level 2 — News agency services Level 2 Level 2 Level 2 — Other information provision services Level 2 Level 2 Level 2 Royalties and licence fees Level 2 Level 2 Level 2 Franchises and similar rights Level 2 Level 2 Level 2 Other royalties and license fees Level 2 Level 2 Level 2 Other business services Level 2 Level 2 Level 2 Merchanting and other trade-related services Level 2 Level 2 Level 2 — Merchanting Level 2 Level 2 Level 2 — Other trade-related services Level 2 Level 2 Level 2 Operational leasing services Level 2 Level 2 Level 2 Miscellaneous business, professional and technical services Level 2 Level 2 Level 2 — Legal, accounting, management consulting and public relations Level 2 Level 2 Level 2 — Legal services Level 2 Level 2 Level 2 — Accounting, auditing, bookkeeping and tax consulting services Level 2 Level 2 Level 2 — Business and management consulting and public relations services Level 2 Level 2 Level 2 — Advertising, market research, and public opinion polling Level 2 Level 2 Level 2 — Research and development Level 2 Level 2 Level 2 — Architectural, engineering and other technical services Level 2 Level 2 Level 2 — Agricultural, mining and on-site processing services Level 2 Level 2 Level 2 — Waste treatment and depollution Level 2 Level 2 Level 2 — Agricultural, mining and other on-site processing services Level 2 Level 2 Level 2 — Other business services Level 2 Level 2 Level 2 — Services between related enterprises, not included elsewhere. Level 2 Level 2 Level 2 Personal, cultural and recreational services Level 2 Level 2 Level 2 Audiovisual and related services Level 2 Level 2 Level 2 Other personal, cultural and recreational services Level 2 Level 2 Level 2 — Education services Level 2 Level 2 Level 2 — Health services Level 2 Level 2 Level 2 — Other Level 2 Level 2 Level 2 Government services (not included elsewhere) Level 2 Level 2 Level 2 Embassies and consulates Level 2 Level 2 Level 2 Military units and agencies Level 2 Level 2 Level 2 Other government services Level 2 Level 2 Level 2 Memorandum items Audiovisual transactions Level 1 Level 1 Level 1 Postal services Level 1 Level 1 Level 1 Courier services Level 1 Level 1 Level 1 4. Foreign Direct Investment (FDI) flows BOP FDI Direct Investment Flows (2) Deadline: t + 9 months Periodicity: Year First reference period: 2006 A Geographical breakdown Item Data type Geographical breakdown Activity breakdown Direct investment abroad 510 Equity capital Net Level 2 Not required 525 Reinvested earnings Net Level 2 Not required 530 Other capital Net Level 2 Not required 505 Direct investment abroad: Total Net Level 3 Not required Direct investment in the reporting economy 560 Equity capital Net Level 2 Not required 575 Reinvested earnings Net Level 2 Not required 580 Other capital Net Level 2 Not required 555 Direct investment in the reporting economy: Total Net Level 3 Not required Direct investment income 332 Dividends Credit, debit, net Level 2 Not required 333 Reinvested earning and undistributed branch profits Credit, debit, net Level 2 Not required 334 Income on debt Credit, debit, net Level 2 Not required 330 Direct investment income: Total Credit, debit, net Level 3 Not required BOP FDI Direct Investment Flows Deadline: t + 21 months Periodicity: Year First reference period: 2006 A Geographical breakdown Item Data type Geographical breakdown Activity breakdown Direct investment abroad 510 Equity capital Net Level 2 Not required 525 Reinvested earnings Net Level 2 Not required 530 Other capital Net Level 2 Not required 505 Direct investment abroad: Total Net Level 3 Not required Direct investment in the reporting economy 560 Equity capital Net Level 2 Not required 575 Reinvested earnings Net Level 2 Not required 580 Other capital Net Level 2 Not required 555 Direct investment in the reporting economy: Total Net Level 3 Not required Direct investment income 332 Dividends Credit, debit, net Level 2 Not required 333 Reinvested earning and undistributed branch profits Credit, debit, net Level 2 Not required 334 Income on debt Credit, debit, net Level 2 Not required 330 Direct investment income: Total Credit, debit, net Level 3 Not required B Activity breakdown Item Data type Geographical breakdown Activity breakdown 505 Direct investment income: Total Net Net Level 1 Level 2 Level 2 Level 1 555 Direct investment in the reporting economy: Total Net Net Level 1 Level 2 Level 2 Level 1 330 Direct investment income: Total Credit, debit, net Credit, debit, net Level 1 Level 2 Level 2 Level 1 5. Foreign Direct Investment (FDI) positions BOP POS Direct Investment Positions (3) (4) Deadline: t + 9 months Periodicity: Year First reference period: 2006 A Geographical breakdown Item Data type Geographical breakdown Activity breakdown Direct investment assets 506 Equity capital and reinvested earnings Net Positions Level 1 Not required 530 Other capital Net Positions Level 1 Not required 505 Direct investment abroad: Total assets, net Net Positions Level 2 Not required Direct investment liabilities 556 Equity capital and reinvested earnings Net Positions Level 1 Not required 580 Other capital Net Positions Level 1 Not required 555 Direct investment in the reporting economy: Total liabilities, net Net Positions Level 2 Not required BOP POS Direct Investment Positions (5) Deadline: t + 21 months Periodicity: Year First reference period: 2006 A Geographical breakdown Item Data type Geographical breakdown Activity breakdown Direct investment assets 506 Equity capital and reinvested earnings Net Positions Level 2 Not required 530 Other capital Net Positions Level 2 Not required 505 Direct investment abroad: Total assets, net Net Positions Level 3 Not required Direct investment liabilities 556 Equity capital and reinvested earnings Net Positions Level 2 Not required 580 Other capital Net Positions Level 2 Not required 555 Direct investment in the reporting economy: Total liabilities, net Net Positions Level 3 Not required B Activity breakdown Item Data type Geographical breakdown Activity breakdown 505 Direct investment abroad: Total assets, net Net Positions Level 1 Level 2 Level 2 Level 1 555 Direct investment in the reporting economy: Total liabilities, net Net Positions Level 1 Level 2 Level 2 Level 1 6. Geographical breakdown levels Level 1 Level 2 A1 World (all entities) A1 World (all entities) D3 EU-25 (Intra-EU-25) D3 EU-25 (Intra-EU-25) U4 Extra-euro-zone U4 Extra-euro-zone 4A European Union institutions 4A European Union institutions D5 Extra-EU-25 D5 Extra-EU-25 IS Iceland LI Liechtenstein NO Norway CH Switzerland CH Switzerland BG Bulgaria HR Croatia RO Romania RU Russian Federation TR Turkey EG Egypt MA Morocco NG Nigeria ZA South Africa CA Canada CA Canada US United States of America US United States of America MX Mexico AR Argentina BR Brazil CL Chile UY Uruguay VE Venezuela IL Israel CN China HK Hong Kong IN India ID Indonesia JP Japan JP Japan KR South Korea MY Malaysia PH Philippines SG Singapore TW Taiwan TH Thailand AU Australia NZ New Zealand Z8 Extra- EU-25 non-allocated Z8 Extra- EU-25 non-allocated C4 Offshore financial centres (6) C4 Offshore financial centres Level 3 7Z International Organisations excluding European Union Institutions AD Andorra AE United Arab Emirates AF Afghanistan AG Antigua and Barbuda AI Anguilla AL Albania AM Armenia AN Netherlands Antilles AO Angola AQ Antarctica AR Argentina AS American Samoa AT Austria AU Australia AW Aruba AZ Azerbaijan BA Bosnia and Herzegovina BB Barbados BD Bangladesh BE Belgium BF Burkina Faso BG Bulgaria BH Bahrain BI Burundi BJ Benin BM Bermuda BN Brunei Darussalam BO Bolivia BR Brazil BS Bahamas BT Bhutan BV Bouvet Island BW Botswana BY Belarus BZ Belize CA Canada CC Cocos (Keeling) Islands CD Congo, the Democratic Republic of the CF Central African Republic CG Congo CH Switzerland CI Côte d'Ivoire CK Cook Islands CL Chile CM Cameroon CN China CO Colombia CR Costa Rica CS Serbia and Montenegro CU Cuba CV Cape Verde CX Christmas Island CY Cyprus CZ Czech Republic DE Germany DJ Djibouti DK Denmark DM Dominica DO Dominican Republic DZ Algeria EC Ecuador EE Estonia EG Egypt ER Eritrea ES Spain ET Ethiopia FI Finland FJ Fiji FK Falkland Islands (Malvinas) FM Micronesia, Federated States of FO Faeroe Islands FR France GA Gabon GB United Kingdom GD Grenada GE Georgia GG Guernsey (No official ISO 3166-1 country code, exceptionally reserved code elements) GH Ghana GI Gibraltar GL Greenland GM Gambia GN Guinea GQ Equatorial Guinea GR Greece GS South Georgia and the South Sandwich Islands GT Guatemala GU Guam GW Guinea-Bissau GY Guyana HK Hong Kong HM Heard Island and McDonald Islands HN Honduras HR Croatia HT Haiti HU Hungary ID Indonesia IE Ireland IL Israel IM Isle of Man (No official ISO 3166-1 country code, exceptionally reserved code elements) IN India IO British Indian Ocean Territory IQ Iraq IR Iran, Islamic Republic of IS Iceland IT Italy JE Jersey (No official ISO 3166-1 country code, exceptionally reserved code elements) JM Jamaica JO Jordan JP Japan KE Kenya KG Kyrgyzstan KH Cambodia (Kampuchea) KI Kiribati KM Comoros KN St Kitts and Nevis KP Korea, Democratic People's Republic of (North Korea) KR Korea, Republic of (South Korea) KW Kuwait KY Cayman Islands KZ Kazakhstan LA Lao People's Democratic Republic LB Lebanon LC Saint Lucia LI Liechtenstein LK Sri Lanka LR Liberia LS Lesotho LT Lithuania LU Luxembourg LV Latvia LY Libyan Arab Jamahiriya MA Morocco MD Moldova, Republic of MG Madagascar MH Marshall Islands MK (7) Macedonia, the Former Yugoslav Republic of ML Mali MM Myanmar MN Mongolia MO Macao MP Northern Mariana Islands MQ Martinique MR Mauritania MS Montserrat MT Malta MU Mauritius MV Maldives MW Malawi MX Mexico MY Malaysia MZ Mozambique NA Namibia NC New Caledonia NE Niger NF Norfolk Island NG Nigeria NI Nicaragua NL Netherlands NO Norway NP Nepal NR Nauru NU Niue NZ New Zealand OM Oman PA Panama PE Peru PF French Polynesia PG Papua New Guinea PH Philippines PK Pakistan PL Poland PN Pitcairn PR Puerto Rico PS Palestinian Territory, Occupied PT Portugal PW Palau PY Paraguay QA Qatar RO Romania RU Russian Federation RW Rwanda SA Saudi Arabia SB Solomon Islands SC Seychelles SD Sudan SE Sweden SG Singapore SH St Helena SI Slovenia SK Slovakia SL Sierra Leone SM San Marino SN Senegal SO Somalia SR Suriname ST Sao Tome and Principe SV El Salvador SY Syrian Arab Republic SZ Swaziland TC Turks and Caicos Islands TD Chad TG Togo TH Thailand TJ Tajikistan TK Tokelau TL Timor Leste TM Turkmenistan TN Tunisia TO Tonga TR Turkey TT Trinidad and Tobago TV Tuvalu TW Taiwan, Province of China TZ Tanzania, United Republic of UA Ukraine UG Uganda UM United States Minor Outlying Islands US United States UY Uruguay UZ Uzbekistan VA Holy See (Vatican City State) VC St Vincent and the Grenadines VE Venezuela VG Virgin Islands, British VI Virgin Islands, US VN Vietnam VU Vanuatu WF Wallis and Futuna WS Samoa YE Yemen YT Mayotte ZA South Africa ZM Zambia ZW Zimbabwe 7. Activity breakdown levels Level 1 Level 2 NACE rev. 1 AGRICULTURE AND FISHING Section A and B MINING & QUARRYING MINING AND QUARRYING Section C Of which: Extraction of petroleum and gas Div 11 MANUFACTURING MANUFACTURING Section D Food products Subsection DA Textiles and wearing apparel Subsection DB Wood, publishing and printing Subsections DD and DE TOTAL textiles and wood activities Refined petroleum products and other treatments Div 23 Manufacture of chemicals and chemical products Div 24 Rubber and plastic products Div 25 Petroleum, chemical, rubber, plastic products TOTAL petroleum, chemical, rubber, plastic products Metal products Subsection DJ Mechanical products Div 29 TOTAL metal and mechanical products Office machinery and computers Div 30 Radio, TV, communication equipment Div 32 Office machinery, computers, RTV, communication equipment TOTAL machines, computers, RTV, communication equipment. Motor vehicles Div 34 Other transport equipment Div 35 Vehicles, other transport equipment TOTAL vehicles and other transport equipment Manufacturing n.i.e. ELECTRICITY, GAS & WATER ELECTRICITY, GAS AND WATER Section E CONSTRUCTION CONSTRUCTION Section F TOTAL SERVICES TOTAL SERVICES TRADE AND REPAIRS TRADE AND REPAIRS Section G Sale, maintenance and repair of motor vehicles and motor cycles; retail sale of automotive fuel Div 50 Wholesale trade and commission trade, except of motor vehicles and motor cycles Div 51 Retail trade, except of motor vehicles and motor cycles; repair of personal and household goods Div 52 HOTELS & RESTAURANTS HOTELS AND RESTAURANTS Section H TRANSPORT, STORAGE AND COMMUNICATIONS TRANSPORT, STORAGE AND COMMUNICATIONS Section I Transport and storage Div 60, 61, 62, 63 Land transport; transport via pipelines Div 60 Water transport Div 61 Air transport Div 62 Supporting and auxiliary transport activities; activities of travel agencies Div 63 Post and telecommunications Div 64 Post and courier activities Group 641 Telecommunications Group 642 FINANCIAL INTERMEDIATION FINANCIAL INTERMEDIATION Section J Financial intermediation, except insurance and pension funding Div 65 Insurance and pension funding, except compulsory social security Div 66 Activities auxiliary to financial intermediation Div 67 REAL ESTATE ACTIVITIES Section K, Div 70 RENTING OF MACHINERY AND EQUIPMENT WITHOUT bPERATOR AND OF PERSONAL AND HOUSEHOLD GOODS Section K, Div 71 COMPUTER & RELATED ACTIVITIES COMPUTER AND RELATED ACTIVITIES Section K, Div 72 RESEARCH & DEVELOPMENT RESEARCH AND DEVELOPMENT Section K, Div 73 OTHER BUSINESS ACTIVITIES OTHER BUSINESS ACTIVITIES Section K, Div 74 Legal accounting, market research, consultancy Group 741 Legal activities Class 7411 Accounting, bookkeeping and audit; tax consultancy Class 7412 Market research and public opinion polling Class 7413 Business and management consultancy activities Class 7414, 7415 Architectural, engineering and other technical activities Group 742 Advertising Group 744 Business activities not elsewhere classified. Group 743, 745, 746, 747, 748 EDUCATION Section M HEALTH AND SOCIAL WORK Section N SEWAGE AND REFUSE DISPOSAL Section O, Div 90 ACTIVITIES OF MEMBERSHIP ORGANISATIONS NOT ELSEWHERE CLASSIFIED. Section O, Div 91 RECREATIONAL, CULTURAL, SPORTING ACTIVITIES RECREATIONAL, CULTURAL, SPORTING ACTIVITIES Section O, Div 92 Motion picture, radio, television, other entertainment activities Group 921, 922, 923 News agency activities Group 924 Library, archives, museums, other cultural activities Group 925 Sporting and other recreational activities Group 926, 927 OTHER SERVICE ACTIVITIES Section O, Div 93 Not allocated (1) t = reference period (year or quarter). (2) Only the geographical breakdown. (3) Only the geographical breakdown. (4) FDI positions as at 31.12.2005 will be transmitted in September 2007 pursuant to existing gentlemen’s agreements. (5) The revised data on FDI positions as at 31.12.2005 will be transmitted in September 2008 pursuant to this Regulation. (6) Only for FDI. (7) Provisional code that does not affect the definitive denomination of the country to be attributed after the conclusion of the negotiations currently taking place in the United Nations. ANNEX II DEFINITIONS referred to in Article 10 GOODS (CODE 100) The goods component of the Balance of Payments Current Account covers moveable goods for which change of ownership (between residents and non-residents) occurs. These goods should be measured at market value on an f.o.b. basis. Exceptions to the change of ownership rule (transactions in these items are recorded in goods) include: goods on financial lease, goods transferred between a parent enterprise and a branch, and some goods for processing. Intra-EU Trade in Goods: the partner country should be defined according to the consignment principle. It includes: general merchandise, goods for processing, repairs on goods, goods procured in ports by carriers and non-monetary gold. SERVICES (CODE 200) Transportation (code 205) Covers all transportation services that are provided by residents of one economy for those of another and that involve the carriage of passengers, the movement of goods (freight), rentals (charters) of carriers with crew, and related supporting and auxiliary services. Sea transport (code 206) Covers all transportation services by sea. The following breakdown is required: Passenger Sea Transport (code 207); Freight Sea Transport (code 208), and Other Sea Transport (code 209). Air transport (code 210) Covers all transportation services provided by air. The following breakdown is required: Passenger Air Transport (code 211); Freight Air Transport (code 212), and Other Air Transport (code 213). Other transport (code 214) Covers all transportation services not provided by sea or air. The following breakdown is required: Passenger on Other Transport (code 215); Freight on Other Transport (code 216), and Other on Other Transport (code 217). An extended classification for Other Transport (code 214) is required as follows: Space transport (code 218) Includes satellite launches undertaken by commercial enterprises for the owners of the satellites (such as telecommunication enterprises) and other operations performed by operators of space equipment, such as transport of goods and people for scientific experiments. Also included, is space passenger transport and the payments made by an economy in order to have its residents included on the space vehicles of another economy. Rail transport (code 219) Covers transport by train. A further subdivision between Passenger Rail Transport (code 220), Freight Rail Transport (code 221) and Other rail transport (code 222) is required. Road transport (code 223) Covers transport by lorries, trucks, buses and coaches. A further subdivision between Passenger Road Transport (code 224), Freight Road Transport (code 225) and Other Road Transport (code 226) is required. Inland Waterway Transport (code 227) Relates to international transportation on rivers, canals and lakes. Included are waterways that are internal to one country and those that are shared among two or more countries. A further subdivision between Passenger Inland Waterway Transport (code 228), Freight Inland Waterway Transport (code 229) and Other Inland Waterway Transport (code 230) is required. Pipeline Transport and Electricity Transmission (code 231) Covers international transport of goods in pipelines. Also included are charges for the transmission of electricity when this is separate from the production and distribution process. The provision of electricity itself is excluded, as is the provision of petroleum and related products, water and other goods supplied through pipelines. Also excluded are distribution services of electricity, water, gas and other petroleum products (included in Other Business Services (code 284)). Other Supporting and Auxiliary Transport Services (code 232) Other supporting and auxiliary transport services covers all other transportation services that cannot be allocated to any of the components of transportation services described above. Travel (code 236) Travel covers primarily the goods and services acquired from an economy by travellers during visits of less than one year to that economy. The goods and services are purchased by, or on behalf of, the traveller or provided, without a quid pro quo (that is, are provided as a gift), for the traveller to use or give away. Excluded are transportation of travellers within the economies that they are visiting, where such transportation is provided by carriers not resident in the particular economy being visited, as well as the international carriage of travellers, both of which are covered in passenger services under transportation. Also excluded are goods purchased by a traveller for resale in the traveller’s own economy or in any other economy. Travel is divided in two subcomponents: Business Travel (code 237) and Personal Travel (code 240). Business Travel (code 237) Business travel covers the acquisition of goods and services by business travellers. Also includes the acquisition of goods and services for personal use by seasonal, border and other workers who are not resident in the economy in which they are employed and whose employer is resident in that economy. Business travel is further divided into Expenditure by seasonal and border workers (code 238) and Other Business Travel (code 239). Expenditure by seasonal and border workers (code 238) Includes the acquisition of goods and services for personal use by seasonal, border and other workers who are not resident in the economy in which they are employed and whose employer is resident in that economy. Other Business Travel (code 239) Covers all Business Travel (code 237) not included in Expenditure by seasonal and border workers (code 238). Personal Travel (code 240) Personal travel covers goods and services acquired by travellers going abroad for purposes other than business, such as holidays, participation in recreational and cultural activities, visits with friends and relations, pilgrimage, and education- and health-related purposes. Personal travel (code 240) is divided in three subcomponents: Health-related Expenditure (code 241), Education-related Expenditure (code 242) and Other Personal Travel (code 243). Health-related Expenditure (code 241) It is defined as the total expenditure by those travelling for medical reasons. Education-related expenditure (code 242) It is defined as the total expenditure by students. Other Personal Travel (code 243) Covers all Personal Travel (code 240) not included in Health-related Expenditure (code 241) or Education-related Expenditure (code 242). Other services (code 981) All Services (code 200) not included in Transportation (code 205) or Travel (code 236). Communication services (code 245) Comprises Postal and Courier Services (code 246) and Telecommunication Services (code 247). Postal and Courier Services (code 246) Comprises Postal Services (code 958) and Courier Services (code 959). Postal Services (code 958) Includes poste restante services, telegram services and post office counter services, such as sales of stamps, money orders etc. Postal services are often, but not exclusively, supplied by national postal administrations. Postal services are subject to international agreements, and the flows between operators of different economies should be recorded on a gross basis. Courier Services (code 959) Courier services focuses on express and door-to-door delivery. Couriers may use self-owned, privately shared or public transportation to supply these services. Included are express delivery services, which might include, for example, on-demand pick-up or time-definite delivery. Telecommunications Services (code 247) Encompasses the transmission of sound, images or other information by telephone, telex, telegram, radio and television cable and broadcasting, satellite, electronic mail, facsimile services etc., including business network services, teleconferencing and support services. It does not include the value of the information transported. Also included are cellular telephone services, Internet backbone services and online access services, including provision of access to the Internet. Construction Services (code 249) Comprises Construction Abroad (code 250) and Construction in the Compiling Economy (code 251). Construction Abroad (code 250) Comprises the construction services provided to non-residents by enterprises resident in the compiling economy (credit) and the goods and services purchased in the host economy by these enterprises (debit). Construction in the Compiling Economy (code 251) Comprises construction services provided to residents of the compiling economy by non-resident construction enterprises (debit) and the goods and services purchased in the compiling economy by these non-resident enterprises (credit). Insurance Services (code 253) Covers the provision of various types of insurance to non-residents by resident insurance enterprises, and vice versa. These services are estimated or valued by the service charges included in total premiums rather than by the total value of the premiums. It comprises Life insurance and pension funding (code 254), Freight insurance (code 255), Other direct insurance (code 256), Reinsurance (code 257) and Auxiliary services (code 258) Life Insurance and Pension Funding (code 254) Holders of life insurance policies, both with profit and without profit, make regular payments to an insurer (there may be just a single payment), in return for which the insurer guarantees to pay the policy holder an agreed minimum sum or an annuity, at a given date or at the death of the policy holder, if this occurs earlier. Term life insurance, where benefits are provided in the case of death but in no other circumstances, is a form of direct insurance, and is excluded here and included in Other direct insurance (code 256). Pension funds are separate funds established for the purpose of providing income on retirement for specific groups of employees. They are organised and directed by private or public employers or jointly by employers and their employees. They are funded by contributions from the employer and/or the employees and by the investment income earned on fund assets, and they also engage in financial transactions on their own account. They do not include social security schemes organised for large sections of the community that are imposed, controlled or financed by general government. Pension fund management services are included. In the case of pension funds, ‘premiums’ are generally described as ‘contributions’, while ‘claims’ are generally described as ‘benefits’ Freight Insurance (code 255) Freight insurance services relate to insurance provided on goods that are in the process of being exported or imported, on a basis that is consistent with the measurement of goods f.o.b. and freight transportation. Other Direct Insurance (code 256) Other direct insurance covers all other forms of casualty insurance. Included are term life insurance; accident and health insurance (unless these are provided as part of government social security schemes); marine, aviation and other transport insurance, fire and other property damage, pecuniary loss insurance, general liability insurance and other insurance, such as travel insurance and insurance related to loans and credit cards. Reinsurance (code 257) Reinsurance is the process of subcontracting parts of the insurance risk, often to specialised operators, in return for a proportionate share of the premium income. Reinsurance transactions may relate to packages that mix several types of risks. Auxiliary Services (code 258) Comprises transactions that are closely related to insurance and pension fund operations. Included are agents’ commissions, insurance brokering and agency services, insurance and pension consultancy services, evaluation and adjustment services, actuarial services, salvage administration services, and regulatory and monitoring services on indemnities and recovery services. Financial Services (code 260) Financial services covers financial intermediation and auxiliary services, except those of life insurance enterprises and pension funds (which are included in life insurance and pension funding) and other insurance services that are conducted between residents and non-residents. Such services may be provided by banks, stock exchanges, factoring enterprises, credit card enterprises and other enterprises. Included are services provided in connection with transactions in financial instruments, as well as other services related to financial activity, such as advisory, custody and asset management services. Computer and Information Services (code 262) Comprises Computer Services (code 263) and Information Services (code 264). Computer Services (code 263) Consists of hardware and software-related services and data-processing services. Included are hardware and software consultancy and implementation services; maintenance and repair of computers and peripheral equipment; disaster recovery services, provision of advice and assistance on matters related to the management of computer resources; analysis, design and programming of systems ready to use (including web page development and design), and technical consultancy related to software; development, production, supply and documentation of customised software, including operating systems made on order for specific users; systems maintenance and other support services, such as training provided as part of consultancy; data-processing services, such as data entry, tabulation and processing on a time-sharing basis; web page hosting services (i.e. the provision of server space on the Internet to host clients’ web pages); and computer facilities management. Information Services (code 264) Comprises News Agency Services (code 889) and Other information provision services (code 890). News Agency Services (code 889) News agency services include the provision of news, photographs, and feature articles to the media. Other information provision services (code 890) Includes database services - database conception, data storage and the dissemination of data and databases (including directories and mailing lists) - both online and through magnetic, optical or printed media and web search portals (search engine services that find internet addresses for clients who input keyword queries). Also included are direct, non-bulk subscriptions to newspapers and periodicals, whether by mail, electronic transmission or other means. Royalties and licence fees (code 266) Comprises Franchises and similar rights (code 891) and Other royalties and licence fees (code 892). Franchises and similar rights (code 891) Comprises international payments and receipts of franchising fees and the royalties paid for the use of registered trademarks. Other royalties and licence fees (code 892) Includes international payments and receipts for the authorised use of intangible, non-produced, non-financial assets and proprietary rights (such as patents, copyrights and industrial processes and designs) and the use, through licensing agreements, of produced originals or prototypes (such as manuscripts, computer programs, and cinematographic works and sound recordings). Other business services (code 268) Comprises Merchanting and other trade-related services (code 269), Operational leasing services (code 272) and Miscellaneous business, professional, and technical services (code 273). Merchanting and other trade-related services (code 269) Comprise Merchanting (code 270) and Other trade-related services (code 271) Merchanting (code 270) Merchanting is defined as the purchase of a good by a resident of the compiling economy from a non-resident and the subsequent resale of the good to another non-resident; during the process, the good does not enter or leave the compiling economy. Other trade-related services (code 271) Covers commissions on goods and service transactions between (a) resident merchants, commodity brokers, dealers, and commission agents and (b) non-residents. Operational leasing services (code 272) Covers resident/non-resident leasing (rental) and charters, without operators, of ships, aircraft and transportation equipment, such as railway cars, containers and rigs, without crew. Miscellaneous business, professional, and technical services (code 273) Comprises Legal, accounting, management consulting, and public relations (code 274), Advertising, market research and public opinion polling (code 278), Research and development (code 279), Architectural, engineering and other technical services (code 280), Agricultural, mining, and on-site processing services (code 281), Other business services (code 284) and Services between related enterprises, n.i.e. (code 285). Legal, accounting, management consulting, and public relations (code 274) Comprises Legal services (code 275), Accounting, auditing, bookkeeping and tax consultancy services (code 276) and Business and management consulting and public relations services (code 277). Legal services (code 275) Covers legal advisory and representation services in any legal, judicial and statutory procedures, drafting services of legal documentation and instruments, certification consultancy; and escrow and settlement services. Accounting, auditing, bookkeeping and tax consultancy services (code 276) Covers the recording of commercial transactions for businesses and others, examination services of accounting records and financial statements, business tax planning and consulting; and preparation of tax documents. Business and management consulting and public relations services (code 277) Covers advisory, guidance and operational assistance services provided to businesses for business policy and strategy and the overall planning, structuring and control of an organisation. Included are management auditing, market management, human resources, production management and project management consulting; and advisory, guidance and operational services related to improving the image of the clients and their relations with the institutions and the general public. Advertising, market research and public opinion polling (code 278) Services transacted between residents and non-residents. Covers the design, creation and marketing of advertisements by advertising agencies, media placement, including the purchase and sale of advertising space, exhibition services provided by trade fairs, the promotion of products abroad, market research, telemarketing and public opinion polling on various issues. Research and development (code 279) Covers those services that are transacted between residents and non-residents and associated with basic research, applied research and experimental development of new products and processes. Architectural, engineering and other technical services (code 280) Covers transactions between residents and non-residents related to architectural design of urban and other development projects; planning and project design and supervision of dams, bridges, airports, turnkey projects etc.; surveying, cartography, product testing and certification; and technical inspection services. Agricultural, mining and on-site processing services (code 281) Comprises Waste treatment and depollution (code 282) and Agricultural, mining, and other on-site processing services (code 283). Waste treatment and depollution (code 282) Includes the treatment of radioactive and other waste, stripping of contaminated soil, cleaning up of pollution including oil spills, restoration of mining sites; and decontamination and sanitation services. Also included are all other services that relate to the cleaning or restoring of the environment. Agricultural, mining, and other on-site processing services (code 283) Comprises: (a) agricultural services that are incidental to agriculture, such as the provision of agricultural machinery with crew, harvesting, treatment of crops, pest control, animal boarding, animal care, and breeding services. Services in hunting, trapping, forestry and logging, and fishing are also included here; (b) mining services provided at oil and gas fields, including drilling, derrick building, repair and dismantling services, and oil and gas well casing cementing. Services incidental to mineral prospecting and exploration, as well as mining engineering and geological surveying, are also included here; (c) other on-site processing services, which covers on-site processing of or work on goods that have been imported without change of ownership, processed but not re-exported to the country from which the goods were consigned (but are instead either sold in the processing economy or sold to a third economy) or vice versa. Other business services (code 284) Covers services transactions between residents and non-residents, such as the placement of personnel, security and investigative services, translation and interpretation, photographic services, building cleaning, real estate services to businesses and any other business services that cannot be classified to any of the aforementioned business services. Services between related enterprises, n.i.e. (code 285) It is a residual category. It covers payments between related enterprises for services that cannot be specifically classified to any other component. It includes payments from branches, subsidiaries and associates to their parent enterprise or other related enterprises that represent contributions to the general management costs of the branches, subsidiaries and associates (for planning, organising and controlling) and also reimbursements of expenses settled directly by parent enterprises. Also included are transactions between parent enterprises and their branches, subsidiaries and associates to cover overhead expenses. Personal, cultural and recreational services (code 287) Comprises Audiovisual and related services (code 288) and Other personal, cultural and recreational services (code 289). Audiovisual and related services (code 288) Comprises services and associated fees related to the production of motion pictures (on film or videotape), radio and television programmes (live or on tape) and musical recordings. Included are receipts or payments for rentals; fees received by resident actors, producers etc. for productions abroad (or by non-residents for work carried out in the compiling economy); fees for distribution rights sold to the media for a limited number of showings in specified areas and access to encrypted television channels (such as cable services). Fees to actors, directors and producers involved with theatrical and musical productions, sporting events, circuses and other similar events and fees for distribution rights (for television, radio, and film) for these activities are included. Other personal, cultural and recreational services (code 289) Comprises Education services (code 895), Health services (code 896) and Other or Other personal, cultural and recreational services not included elsewhere (code 897). Education services (code 895) Comprises services supplied between residents and non-residents relating to education, such as correspondence courses and education via television or the Internet, as well as by teachers etc. who supply services directly in host economies. Health services (code 896) Comprises services provided by doctors, nurses and paramedical and similar personnel, as well as laboratory and similar services, whether rendered remotely or on-site. Excluded is all expenditure by travellers on education and health (included in travel). Other on Other personal, cultural and recreational services (code 897) It is a residual category covering Other personal, cultural and recreational services (code 289) not included in Education services (code 895) and Health services (code 896). Government services, n.i.e. (code 291) It is a residual category covering government transactions (including those of international organisations) not contained in the other components of the Extended Balance of Payments Services classification (EBOPS). Included are all transactions (in both goods and services) by embassies, consulates, military units and defence agencies with residents of economies in which the embassies, consulates, military units and defence agencies are located and all transactions with other economies. Excluded are transactions with residents of the home economies represented by the embassies, consulates, military units and defence agencies, and transactions in the commissaries and post exchanges of these embassies and consulates. A breakdown of this item into services transacted by Embassies and consulates (code 292), Services transacted by Military units and agencies (code 293) and Other government services (code 294) is required. INCOME (CODE 300) Income covers two types of transactions between residents and non-residents: (i) those involving compensation of employees, which is paid to non-resident workers (e.g. border, seasonal and other short-term workers), and (ii) those involving investment income receipts and payments on external financial assets and liabilities. Compensation of employees (code 310) Compensation of employees comprises wages, salaries, and other benefits, in cash or in kind, earned by individuals, in economies other than those in which they are resident, for work performed for (and paid for by) residents of those economies. Included are contributions paid by employers, on behalf of employees, to social security schemes or to private insurance or pension funds (whether funded or unfunded) to secure benefits for employees. Investment Income (code 320) Investment income is income derived from ownership of external financial assets and payable by residents of one economy to residents of another economy. Investment income includes interest, dividends, remittances of branch profits, and direct investors’ shares of the retained earnings of direct investment enterprises. Investment income should be classified by direct, portfolio and other investment components. Direct investment income (code 330) Direct investment income, namely income on equity and income on debt, covers income accruing to a direct investor resident in one economy from ownership of direct investment capital in an enterprise in another economy. Income on direct investment is presented on a net basis for both direct investment abroad and in the reporting economy (i.e. receipts of income on equity and income on debt less payments on income on equity and income on debt for each). Income on equity is subdivided into (i) distributed income (dividends and distributed branch profits), and (ii) reinvested earnings and undistributed branch profits. Income on debt consists of interest payable, on intercompany debt, to/from direct investors from/to associated enterprises abroad. Income on non-participating preference shares is treated as interest income, rather than dividend income, and is included in income on debt. Dividends and distributed branch profits (code 332) Dividends, including stock dividends, are the distribution of earnings allocated to shares and other forms of participation in the equity of incorporated private enterprises, cooperatives, and public corporations. Distributed income may be in the form of dividends on common or preferred shares owned by direct investors in associated enterprises abroad, or vice versa. Reinvested earnings and undistributed branch profits (code 333) Reinvested earnings comprise direct investors' shares - in proportion to equity held, of (i) earnings that foreign subsidiaries and associated enterprises do not distribute as dividends and (ii) earnings that branches and other unincorporated enterprises do not remit to direct investors. (If that part of earnings is not identified, all branch earnings are considered, by convention, to be distributed). Income on debt (code 334) Income on debt consists of interest payable, on intercompany debt, to/from direct investors from/to associated enterprises abroad. Income on nonparticipating preference shares is treated as interest income, rather than dividend income, and is included in income on debt. Equity capital and reinvested earnings abroad (code 506) Equity capital comprises equity in branches, all shares (whether voting or non-voting) in subsidiaries and associates (except nonparticipating, preferred shares that are treated as debt securities and included under other direct investment capital), and other capital contributions. Reinvested earnings consist of the direct investor's share (in proportion to direct equity participation) of earnings not distributed as dividends by subsidiaries or associates and earnings of branches not remitted to the direct investor. Equity capital and reinvested earnings in the reporting economy (code 556) Equity capital comprises equity in branches, all shares (whether voting or non-voting) in subsidiaries and associates (except nonparticipating, preferred shares that are treated as debt securities and included under other direct investment capital), and other capital contributions. Reinvested earnings consist of the direct investor's share (in proportion to direct equity participation) of earnings not distributed as dividends by subsidiaries or associates and earnings of branches not remitted to the direct investor. Portfolio investment income (code 339) Portfolio investment income comprises income transactions between residents and non-residents and is derived from holdings of shares, bonds, notes, and money market instruments. This category is subdivided into income on equity (dividends) and income on debt (interest). Other investment income (code 370) Other investment income covers interest receipts and payments on all other resident claims (assets) on and liabilities to non-residents, respectively. This category also includes, in principle, imputed income to households from net equity in life insurance reserves and in pension funds. Interest on assets comprises interest on long- and short-term loans, on deposits, on other commercial and financial claims, and on an economy’s creditor position in the IMF. Interest on liabilities covers interest on loans, on deposits, and on other claims and interest related to the use of IMF credit and loans form the IMF. Also included is interest paid to the IMF on the Fund's SDR holdings in the General Resources Account. Current transfers (code 379) Current transfers are offset items to unilateral transactions in which one economic entity provides a real resource or a financial item to another entity without receiving any real resource or financial item in exchange. These resources are consumed immediately or shortly after the transfer is made. Current transfers are all transfers that are not capital. Current transfers are classified according to the sector of the compiling economy into general government and other sectors. General government transfers (code 380) General government transfers comprise current international cooperation and cover current transfers, in cash or in kind, between governments of different economies or between governments and international organisations. Other sectors (code 390) Current transfers between other sectors of an economy and non-residents comprise those occurring between individuals, between non-governmental institutions or organisations (or between the two groups), or between non-resident governmental institutions and individuals or non-governmental institutions. Capital account (code 994) The capital account covers all transactions that involve the receipt or payment of capital transfers and acquisition/disposal of non-produced, non-financial assets. Financial account (code 995) The financial account covers all transactions associated with changes of ownership in the foreign financial assets and liabilities of an economy. Such changes include the creation and liquidation of claims on, or by the rest of the world. All components are classified according to type of investment or by functional subdivision (direct investment, portfolio investment, financial derivatives, other investment, reserve assets). DIRECT INVESTMENT (CODE 500) Foreign direct investment is the category of international investment that reflects the objective of a resident entity in one economy (direct investor) obtaining a lasting interest in an enterprise resident in an economy other than that of the investor (direct investment enterprise). ‘Lasting interest’ implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the investor on the management of the direct investment enterprise. Direct investment comprises the initial transaction between the two entities, that is, the transaction that establishes the direct investment relationship, and all subsequent transactions between them and among affiliated enterprises, both incorporated and unincorporated. Direct Investment abroad (code 505) Direct investment is classified primarily on a directional basis, resident direct investment abroad and non-resident investment in the reporting economy. Equity capital (code 510) Equity capital comprises equity in branches, all shares (whether voting or non-voting) in subsidiaries and associates (except nonparticipating, preferred shares that are treated as debt securities and included under other direct investment capital), and other capital contributions. Equity capital also covers the acquisition by a direct investment enterprise of shares in its direct investor. Reinvested earnings (code 525) Reinvested earnings consist of the direct investor's share (in proportion to direct equity participation) of earnings not distributed as dividends by subsidiaries or associates and earnings of branches not remitted to the direct investor. These reinvested earnings are recorded as income with an offsetting capital transaction. Other direct investment capital (code 530) Other direct investment capital (or intercompany debt transactions) covers the borrowing and lending of funds - including debt securities, suppliers’ credits and nonparticipating preferred shares (which are treated as debt securities), between direct investors and subsidiaries, branches, and associates. Debt claims on the direct investor by the direct investment enterprise are also recorded as direct investment capital. Direct investment in the reporting economy (code 555) Direct investment is classified primarily on a directional basis, resident direct investment abroad and non-resident investment in the reporting economy. Equity capital (code 560) Equity capital comprises equity in branches, all shares (whether voting or nonvoting) in subsidiaries and associates (except non-participating, preferred shares that are treated as debt securities and included under other direct investment capital), and other capital contributions. Equity capital also covers the acquisition by a direct investment enterprise of shares in its direct investor. Reinvested earnings (code 575) Reinvested earnings consist of the direct investor’s share (in proportion to direct equity participation) of earnings not distributed as dividends by subsidiaries or associates and earnings of branches not remitted to the direct investor. These reinvested earnings are recorded as income with an offsetting capital transaction. Other direct investment capital (code 580) Other direct investment capital (or intercompany debt transactions) covers the borrowing and lending of funds, including debt securities, suppliers’ credits and non-participating preferred shares (which are treated as debt securities), between direct investors and subsidiaries, branches, and associates. Debt claims on the direct investor by the direct investment enterprise are also recorded as direct investment capital. PORTFOLIO INVESTMENT (CODE 600) Portfolio investment covers transactions in equity and debt securities. Debt securities are subdivided into bonds and notes, money market instruments, and financial derivatives when the derivatives generate financial claims and liabilities. Unless they are categorised either as direct investment or as reserve assets. Financial derivatives (code 910) A financial derivatives contract is a financial instrument that is linked to another specific financial instrument or indicator or commodity and through which specific financial risks (such as interest rate risk, foreign exchange risk, equity and commodity price risks, credit risks, etc.) can, in their own right, be traded in financial markets. OTHER INVESTMENT (CODE 700) The other investment item is defined as a residual category that includes all financial transactions not covered in direct investment, portfolio investment, financial derivatives or reserve assets accounts.\n<|assistant|>\nEU statistics — balance of payments, trade in services and foreign direct investment EU statistics — balance of payments, trade in services and foreign direct investment SUMMARY OF: Regulation (EC) No 184/2005 — statistics for balance of payments, international trade in services and foreign direct investment WHAT IS THE AIM OF THE REGULATION? It establishes a common framework for regularly producing European Union statistics on balance of payments, international trade in services and foreign direct investment (FDI). KEY POINTS EU countries must: submit the 3 sets of economic data to the European Commission statistical department (Eurostat) according to established deadlines and quality controls; collect the information required using all sources, including administrative data sources such as business registers, that they consider relevant and appropriate; inform Eurostat of any major methodological or other type of changes that could affect the data transmitted within 3 months of these taking place. Eurostat: assesses the quality of the data it receives on the basis of national quality reports; prepares and publishes a report on the quality of European statistics covered by this regulation; submits this report to the European Parliament and to the Council for information purposes; with its international partners, develops appropriate methodology for compiling FDI statistics; institutes FDI pilot studies by 20 July 2018, which national authorities will carry out; prepares a report by 20 July 2019 on the findings of the above studies, identifying any issues that need to be addressed; proposes amendments to the regulation in order to define the methodological and data requirements for annual FDI statistics on the ultimate ownership concept as well as those distinguishing greenfield FDI transactions (i.e. new ventures) from takeovers (i.e. existing ventures), if appropriate; exchanges with the European Central Bank data related to EU-28 aggregates in order to establish a balance of payments figures; publishes national data and EU aggregates based on data transmitted by EU countries on the Commission’s website. The data flows Eurostat receives on the basis of Regulation (EC) No 184/2005 are: monthly and quarterly balance of payments statistics; international trade in services; FDI flows and positions. By 28 February 2018, and every 5 years thereafter, the Commission must publish a report on the implementation of Regulation (EU) 2016/1013 (which amends Regulation (EC) No 184/2005) to: evaluate the quality of the data it has received; assess the benefits and costs of the statistical information; identify areas for potential improvement. FROM WHEN DOES THE REGULATION APPLY? It has applied since 28 February 2005. BACKGROUND For more information, see articles on Eurostat’s website about: ‘Balance of payments statistics’; ‘Foreign direct investment statistics’; ‘International trade in services’. MAIN DOCUMENT Regulation (EC) No 184/2005 of the European Parliament and of the Council of 12 January 2005 on Community statistics concerning balance of payments, international trade in services and foreign direct investment (OJ L 35, 8.2.2005, pp. 23-55) Successive amendments to Regulation (EC) No 184/2005 have been incorporated into the original text. This consolidated version is of documentary value only. last update 06.03.2017\n<|endoftext|>"}}},{"rowIdx":98,"cells":{"text":{"kind":"string","value":"<|system|>\nYou are a helpful assistant that summarizes text clearly, accurately, and concisely.\n<|user|>\nSummarize the following text:\nEUR-Lex - 32000L0043 - EN Avis juridique important | 32000L0043 Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin Official Journal L 180 , 19/07/2000 P. 0022 - 0026 Council Directive 2000/43/ECof 29 June 2000implementing the principle of equal treatment between persons irrespective of racial or ethnic originTHE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community and in particular Article 13 thereof,Having regard to the proposal from the Commission(1),Having regard to the opinion of the European Parliament(2),Having regard to the opinion of the Economic and Social Committee(3),Having regard to the opinion of the Committee of the Regions(4),Whereas:(1) The Treaty on European Union marks a new stage in the process of creating an ever closer union among the peoples of Europe.(2) In accordance with Article 6 of the Treaty on European Union, the European Union is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law, principles which are common to the Member States, and should respect fundamental rights as guaranteed by the European Convention for the protection of Human Rights and Fundamental Freedoms and as they result from the constitutional traditions common to the Member States, as general principles of Community Law.(3) The right to equality before the law and protection against discrimination for all persons constitutes a universal right recognised by the Universal Declaration of Human Rights, the United Nations Convention on the Elimination of all forms of Discrimination Against Women, the International Convention on the Elimination of all forms of Racial Discrimination and the United Nations Covenants on Civil and Political Rights and on Economic, Social and Cultural Rights and by the European Convention for the Protection of Human Rights and Fundamental Freedoms, to which all Member States are signatories.(4) It is important to respect such fundamental rights and freedoms, including the right to freedom of association. It is also important, in the context of the access to and provision of goods and services, to respect the protection of private and family life and transactions carried out in this context.(5) The European Parliament has adopted a number of Resolutions on the fight against racism in the European Union.(6) The European Union rejects theories which attempt to determine the existence of separate human races. The use of the term \"racial origin\" in this Directive does not imply an acceptance of such theories.(7) The European Council in Tampere, on 15 and 16 October 1999, invited the Commission to come forward as soon as possible with proposals implementing Article 13 of the EC Treaty as regards the fight against racism and xenophobia.(8) The Employment Guidelines 2000 agreed by the European Council in Helsinki, on 10 and 11 December 1999, stress the need to foster conditions for a socially inclusive labour market by formulating a coherent set of policies aimed at combating discrimination against groups such as ethnic minorities.(9) Discrimination based on racial or ethnic origin may undermine the achievement of the objectives of the EC Treaty, in particular the attainment of a high level of employment and of social protection, the raising of the standard of living and quality of life, economic and social cohesion and solidarity. It may also undermine the objective of developing the European Union as an area of freedom, security and justice.(10) The Commission presented a communication on racism, xenophobia and anti-Semitism in December 1995.(11) The Council adopted on 15 July 1996 Joint Action (96/443/JHA) concerning action to combat racism and xenophobia(5) under which the Member States undertake to ensure effective judicial cooperation in respect of offences based on racist or xenophobic behaviour.(12) To ensure the development of democratic and tolerant societies which allow the participation of all persons irrespective of racial or ethnic origin, specific action in the field of discrimination based on racial or ethnic origin should go beyond access to employed and self-employed activities and cover areas such as education, social protection including social security and healthcare, social advantages and access to and supply of goods and services.(13) To this end, any direct or indirect discrimination based on racial or ethnic origin as regards the areas covered by this Directive should be prohibited throughout the Community. This prohibition of discrimination should also apply to nationals of third countries, but does not cover differences of treatment based on nationality and is without prejudice to provisions governing the entry and residence of third-country nationals and their access to employment and to occupation.(14) In implementing the principle of equal treatment irrespective of racial or ethnic origin, the Community should, in accordance with Article 3(2) of the EC Treaty, aim to eliminate inequalities, and to promote equality between men and women, especially since women are often the victims of multiple discrimination.(15) The appreciation of the facts from which it may be inferred that there has been direct or indirect discrimination is a matter for national judicial or other competent bodies, in accordance with rules of national law or practice. Such rules may provide in particular for indirect discrimination to be established by any means including on the basis of statistical evidence.(16) It is important to protect all natural persons against discrimination on grounds of racial or ethnic origin. Member States should also provide, where appropriate and in accordance with their national traditions and practice, protection for legal persons where they suffer discrimination on grounds of the racial or ethnic origin of their members.(17) The prohibition of discrimination should be without prejudice to the maintenance or adoption of measures intended to prevent or compensate for disadvantages suffered by a group of persons of a particular racial or ethnic origin, and such measures may permit organisations of persons of a particular racial or ethnic origin where their main object is the promotion of the special needs of those persons.(18) In very limited circumstances, a difference of treatment may be justified where a characteristic related to racial or ethnic origin constitutes a genuine and determining occupational requirement, when the objective is legitimate and the requirement is proportionate. Such circumstances should be included in the information provided by the Member States to the Commission.(19) Persons who have been subject to discrimination based on racial and ethnic origin should have adequate means of legal protection. To provide a more effective level of protection, associations or legal entities should also be empowered to engage, as the Member States so determine, either on behalf or in support of any victim, in proceedings, without prejudice to national rules of procedure concerning representation and defence before the courts.(20) The effective implementation of the principle of equality requires adequate judicial protection against victimisation.(21) The rules on the burden of proof must be adapted when there is a prima facie case of discrimination and, for the principle of equal treatment to be applied effectively, the burden of proof must shift back to the respondent when evidence of such discrimination is brought.(22) Member States need not apply the rules on the burden of proof to proceedings in which it is for the court or other competent body to investigate the facts of the case. The procedures thus referred to are those in which the plaintiff is not required to prove the facts, which it is for the court or competent body to investigate.(23) Member States should promote dialogue between the social partners and with non-governmental organisations to address different forms of discrimination and to combat them.(24) Protection against discrimination based on racial or ethnic origin would itself be strengthened by the existence of a body or bodies in each Member State, with competence to analyse the problems involved, to study possible solutions and to provide concrete assistance for the victims.(25) This Directive lays down minimum requirements, thus giving the Member States the option of introducing or maintaining more favourable provisions. The implementation of this Directive should not serve to justify any regression in relation to the situation which already prevails in each Member State.(26) Member States should provide for effective, proportionate and dissuasive sanctions in case of breaches of the obligations under this Directive.(27) The Member States may entrust management and labour, at their joint request, with the implementation of this Directive as regards provisions falling within the scope of collective agreements, provided that the Member States take all the necessary steps to ensure that they can at all times guarantee the results imposed by this Directive.(28) In accordance with the principles of subsidiarity and proportionality as set out in Article 5 of the EC Treaty, the objective of this Directive, namely ensuring a common high level of protection against discrimination in all the Member States, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale and impact of the proposed action, be better achieved by the Community. This Directive does not go beyond what is necessary in order to achieve those objectives,HAS ADOPTED THIS DIRECTIVE:CHAPTER IGENERAL PROVISIONSArticle 1PurposeThe purpose of this Directive is to lay down a framework for combating discrimination on the grounds of racial or ethnic origin, with a view to putting into effect in the Member States the principle of equal treatment.Article 2Concept of discrimination1. For the purposes of this Directive, the principle of equal treatment shall mean that there shall be no direct or indirect discrimination based on racial or ethnic origin.2. For the purposes of paragraph 1:(a) direct discrimination shall be taken to occur where one person is treated less favourably than another is, has been or would be treated in a comparable situation on grounds of racial or ethnic origin;(b) indirect discrimination shall be taken to occur where an apparently neutral provision, criterion or practice would put persons of a racial or ethnic origin at a particular disadvantage compared with other persons, unless that provision, criterion or practice is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary.3. Harassment shall be deemed to be discrimination within the meaning of paragraph 1, when an unwanted conduct related to racial or ethnic origin takes place with the purpose or effect of violating the dignity of a person and of creating an intimidating, hostile, degrading, humiliating or offensive environment. In this context, the concept of harassment may be defined in accordance with the national laws and practice of the Member States.4. An instruction to discriminate against persons on grounds of racial or ethnic origin shall be deemed to be discrimination within the meaning of paragraph 1.Article 3Scope1. Within the limits of the powers conferred upon the Community, this Directive shall apply to all persons, as regards both the public and private sectors, including public bodies, in relation to:(a) conditions for access to employment, to self-employment and to occupation, including selection criteria and recruitment conditions, whatever the branch of activity and at all levels of the professional hierarchy, including promotion;(b) access to all types and to all levels of vocational guidance, vocational training, advanced vocational training and retraining, including practical work experience;(c) employment and working conditions, including dismissals and pay;(d) membership of and involvement in an organisation of workers or employers, or any organisation whose members carry on a particular profession, including the benefits provided for by such organisations;(e) social protection, including social security and healthcare;(f) social advantages;(g) education;(h) access to and supply of goods and services which are available to the public, including housing.2. This Directive does not cover difference of treatment based on nationality and is without prejudice to provisions and conditions relating to the entry into and residence of third-country nationals and stateless persons on the territory of Member States, and to any treatment which arises from the legal status of the third-country nationals and stateless persons concerned.Article 4Genuine and determining occupational requirementsNotwithstanding Article 2(1) and (2), Member States may provide that a difference of treatment which is based on a characteristic related to racial or ethnic origin shall not constitute discrimination where, by reason of the nature of the particular occupational activities concerned or of the context in which they are carried out, such a characteristic constitutes a genuine and determining occupational requirement, provided that the objective is legitimate and the requirement is proportionate.Article 5Positive actionWith a view to ensuring full equality in practice, the principle of equal treatment shall not prevent any Member State from maintaining or adopting specific measures to prevent or compensate for disadvantages linked to racial or ethnic origin.Article 6Minimum requirements1. Member States may introduce or maintain provisions which are more favourable to the protection of the principle of equal treatment than those laid down in this Directive.2. The implementation of this Directive shall under no circumstances constitute grounds for a reduction in the level of protection against discrimination already afforded by Member States in the fields covered by this Directive.CHAPTER IIREMEDIES AND ENFORCEMENTArticle 7Defence of rights1. Member States shall ensure that judicial and/or administrative procedures, including where they deem it appropriate conciliation procedures, for the enforcement of obligations under this Directive are available to all persons who consider themselves wronged by failure to apply the principle of equal treatment to them, even after the relationship in which the discrimination is alleged to have occurred has ended.2. Member States shall ensure that associations, organisations or other legal entities, which have, in accordance with the criteria laid down by their national law, a legitimate interest in ensuring that the provisions of this Directive are complied with, may engage, either on behalf or in support of the complainant, with his or her approval, in any judicial and/or administrative procedure provided for the enforcement of obligations under this Directive.3. Paragraphs 1 and 2 are without prejudice to national rules relating to time limits for bringing actions as regards the principle of equality of treatment.Article 8Burden of proof1. Member States shall take such measures as are necessary, in accordance with their national judicial systems, to ensure that, when persons who consider themselves wronged because the principle of equal treatment has not been applied to them establish, before a court or other competent authority, facts from which it may be presumed that there has been direct or indirect discrimination, it shall be for the respondent to prove that there has been no breach of the principle of equal treatment.2. Paragraph 1 shall not prevent Member States from introducing rules of evidence which are more favourable to plaintiffs.3. Paragraph 1 shall not apply to criminal procedures.4. Paragraphs 1, 2 and 3 shall also apply to any proceedings brought in accordance with Article 7(2).5. Member States need not apply paragraph 1 to proceedings in which it is for the court or competent body to investigate the facts of the case.Article 9VictimisationMember States shall introduce into their national legal systems such measures as are necessary to protect individuals from any adverse treatment or adverse consequence as a reaction to a complaint or to proceedings aimed at enforcing compliance with the principle of equal treatment.Article 10Dissemination of informationMember States shall take care that the provisions adopted pursuant to this Directive, together with the relevant provisions already in force, are brought to the attention of the persons concerned by all appropriate means throughout their territory.Article 11Social dialogue1. Member States shall, in accordance with national traditions and practice, take adequate measures to promote the social dialogue between the two sides of industry with a view to fostering equal treatment, including through the monitoring of workplace practices, collective agreements, codes of conduct, research or exchange of experiences and good practices.2. Where consistent with national traditions and practice, Member States shall encourage the two sides of the industry without prejudice to their autonomy to conclude, at the appropriate level, agreements laying down anti-discrimination rules in the fields referred to in Article 3 which fall within the scope of collective bargaining. These agreements shall respect the minimum requirements laid down by this Directive and the relevant national implementing measures.Article 12Dialogue with non-governmental organisationsMember States shall encourage dialogue with appropriate non-governmental organisations which have, in accordance with their national law and practice, a legitimate interest in contributing to the fight against discrimination on grounds of racial and ethnic origin with a view to promoting the principle of equal treatment.CHAPTER IIIBODIES FOR THE PROMOTION OF EQUAL TREATMENTArticle 131. Member States shall designate a body or bodies for the promotion of equal treatment of all persons without discrimination on the grounds of racial or ethnic origin. These bodies may form part of agencies charged at national level with the defence of human rights or the safeguard of individuals' rights.2. Member States shall ensure that the competences of these bodies include:- without prejudice to the right of victims and of associations, organisations or other legal entities referred to in Article 7(2), providing independent assistance to victims of discrimination in pursuing their complaints about discrimination,- conducting independent surveys concerning discrimination,- publishing independent reports and making recommendations on any issue relating to such discrimination.CHAPTER IVFINAL PROVISIONSArticle 14ComplianceMember States shall take the necessary measures to ensure that:(a) any laws, regulations and administrative provisions contrary to the principle of equal treatment are abolished;(b) any provisions contrary to the principle of equal treatment which are included in individual or collective contracts or agreements, internal rules of undertakings, rules governing profit-making or non-profit-making associations, and rules governing the independent professions and workers' and employers' organisations, are or may be declared, null and void or are amended.Article 15SanctionsMember States shall lay down the rules on sanctions applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that they are applied. The sanctions, which may comprise the payment of compensation to the victim, must be effective, proportionate and dissuasive. The Member States shall notify those provisions to the Commission by 19 July 2003 at the latest and shall notify it without delay of any subsequent amendment affecting them.Article 16ImplementationMember States shall adopt the laws, regulations and administrative provisions necessary to comply with this Directive by 19 July 2003 or may entrust management and labour, at their joint request, with the implementation of this Directive as regards provisions falling within the scope of collective agreements. In such cases, Member States shall ensure that by 19 July 2003, management and labour introduce the necessary measures by agreement, Member States being required to take any necessary measures to enable them at any time to be in a position to guarantee the results imposed by this Directive. They shall forthwith inform the Commission thereof.When Member States adopt these measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. The methods of making such a reference shall be laid down by the Member States.Article 17Report1. Member States shall communicate to the Commission by 19 July 2005, and every five years thereafter, all the information necessary for the Commission to draw up a report to the European Parliament and the Council on the application of this Directive.2. The Commission's report shall take into account, as appropriate, the views of the European Monitoring Centre on Racism and Xenophobia, as well as the viewpoints of the social partners and relevant non-governmental organisations. In accordance with the principle of gender mainstreaming, this report shall, inter alia, provide an assessment of the impact of the measures taken on women and men. In the light of the information received, this report shall include, if necessary, proposals to revise and update this Directive.Article 18Entry into forceThis Directive shall enter into force on the day of its publication in the Official Journal of the European Communities.Article 19AddresseesThis Directive is addressed to the Member States.Done at Luxembourg, 29 June 2000.For the CouncilThe PresidentM. Arcanjo(1) Not yet published in the Official Journal.(2) Opinion delivered on 18.5.2000 (not yet published in the Official Journal).(3) Opinion delivered on 12.4.2000 (not yet published in the Official Journal).(4) Opinion delivered on 31.5.2000 (not yet published in the Official Journal).(5) OJ L 185, 24.7.1996, p. 5.\n<|assistant|>\nEqual treatment irrespective of racial or ethnic origin Equal treatment irrespective of racial or ethnic origin SUMMARY OF: Directive 2000/43/EC — implementing equal treatment irrespective of racial or ethnic origin WHAT IS THE AIM OF THE DIRECTIVE? It aims to combat discrimination on the grounds of racial or ethnic origin. It lays down minimum requirements for implementing the principle of equal treatment between persons in the European Union (EU). By discouraging discrimination, it should help to increase participation in economic and social life and reduce social exclusion. KEY POINTS This directive is based on the principle of equal treatment between persons. It forbids both direct* and indirect* discrimination, harassment*, instructions to discriminate and victimisation*. The directive applies to all persons and to all sectors of activity, regarding: access to employment; working conditions, including promotion, pay and dismissals; access to vocational training; involvement in workers’ or employers’ organisations, and in any professional organisation; access to social protection and to healthcare; education; social advantages; access to and supply of goods and services, including housing. The directive does not cover difference of treatment based on nationality, or the conditions of entry and residence for citizens from non-EU countries. Derogations from the principle of equal treatment In the field of employment, a derogation may be authorised where race or ethnic origin constitutes a genuine professional requirement. This derogation must be justifiable by the nature of the activity and the conditions under which it is exercised. It must be legitimate and proportionate. The directive does not oppose positive action, namely national measures aimed at preventing or compensating for disadvantages connected with race or ethnic origin. Remedies and enforcement Anyone who believes themselves to be a victim of discrimination on grounds of racial or ethnic origin must have access to legal and/or administrative proceedings. Associations or other interested legal persons may also undertake proceedings either on behalf of, or in support of the complainant. The victim of discrimination only needs to establish a presumption of discrimination after which it is for the respondent to prove that there has been no discrimination. Social dialogue and civil dialogue The social partners ensure the promotion of equal treatment, specifically by monitoring practices in the workplace, producing codes of conducts and concluding collective agreements. More generally, the directive encourages the conclusion of agreements establishing non-discrimination rules in the fields which fall within the scope of collective bargaining. Civil dialogue with the civil society organisations concerned is also encouraged. Bodies for the promotion of the principle Each EU country must establish at least one body dedicated to combating discrimination, which is, in particular, responsible for helping victims and conducting independent studies. Council Recommendation In 2013, the Council adopted a recommendation calling for measures to be taken in a number of area, including anti-discrimination, to strengthen the integration of Roma people. The recommendation builds upon Directive 2000/43/EC and underlines the importance of its practical enforcement. FROM WHEN DOES THE DIRECTIVE APPLY? It has applied since 19 July 2000. EU countries had to incorporate it into national law by 19 July 2003. BACKGROUND The Treaty of Lisbon (Article 19 of the Treaty on the Functioning of the EU) provides the EU with a legal basis to combat all forms of discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation. * KEY TERMS Direct discrimination: where one person is treated less favourably than another is, has been or would be treated in a comparable situation on grounds of racial or ethnic origin. Indirect discrimination: where an apparently neutral rule, criterion or practice would put persons of a racial or ethnic origin at a particular disadvantage compared with other persons, unless that rule, criterion or practice is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary. Harrassment: when an unwanted conduct related to racial or ethnic origin takes place with the purpose or effect of violating the dignity of a person and of creating an intimidating, hostile, degrading, humiliating or offensive environment. Victimisation: unjust or cruel treatment of someone who complains of discrimination or who assists someone else in a complaint of discrimination. MAIN DOCUMENT Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin (OJ L 180, 19.7.2000, pp. 22-26) RELATED DOCUMENTS Report from the Commission to the Council and the European Parliament — The application of Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin (COM(2006) 643 final, 30.10.2006) Council Recommendation of 9 December 2013 on effective Roma integration measures in the Member States (OJ C 378, 24.12.2013, pp. 1-7) Report from the Commission to the European Parliament and the Council: Joint Report on the application of Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin (‘Racial Equality Directive’) and of Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation (‘Employment Equality Directive’) (COM(2014) 2 final, 17.1.2014) last update 23.02.2017\n<|endoftext|>"}}},{"rowIdx":99,"cells":{"text":{"kind":"string","value":"<|system|>\nYou are a helpful assistant that summarizes text clearly, accurately, and concisely.\n<|user|>\nSummarize the following text:\nEUR-Lex - 31996R2223 - EN Avis juridique important | 31996R2223 Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community Official Journal L 310 , 30/11/1996 P. 0001 - 0469 COUNCIL REGULATION (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the CommunityTHE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community, and in particular Article 213 thereof,Having regard to the draft Regulation submitted by the Commission,Having regard to the opinion of the European Parliament (1),Having regard to the opinion of the European Monetary Institute (2),Having regard to the opinion of the Economic and Social Committee (3),(1) Whereas the implementation and supervision of Economic and Monetary Union require comparable, up-to-date and reliable information on the structure and developments in the economic situation of each country and/or region;(2) Whereas the Commission must play a part in the administration of Economic and Monetary Union and, in particular, report to the Council on the progress made by the Member States in fulfilling their obligations for the achievement of Economic and Monetary Union;(3) Whereas economic accounts are a basic tool for analysing the economic situation of a country and/or region on condition that they are drawn up on the basis of a single set of principles that are not open to differing interpretations;(4) Whereas the Commission must use aggregates of national accounts for Community administrative and, in particular, budgetary calculations;(5) Whereas in 1970 an administrative document entitled 'European System of Integrated Economic Accounts` (ESA) was published, covering the field governed by this Regulation, which had been drawn up solely by the Statistical Office of the European Communities and on its responsibility alone; whereas that document was the outcome of several years' work by the Statistical Office of the European Communities, together with Member States' national statistical institutes, to devise a system of national accounts meeting the requirements of the European Communities' economic and social policy, and whereas it constituted the Community version of the United Nations System of National Accounts which had been used by the Community up to that time;(6) Whereas in order to update the original text a second edition of the document was published in 1979 (hereinafter referred to as 'ESA Second edition`) (4);(7) Whereas the United Nations Statistical Commission adopted in February 1993 the new System of National Accounts (SNA) so that the results in all member countries of the United Nations should be internationally comparable;(8) Whereas attention should be paid in the case of environmental accounts to the communication from the Commission to the European Parliament and the Council of 21 December 1994 entitled 'Directions for the European Union on environmental indicators and green national accounting`;(9) Whereas the Community cooperates with third countries to mutual advantage, particularly those in the European Economic Area (EEA);(10) Whereas a European System of Accounts must be established to meet the requirements of Economic and Monetary Union and will have to be used for compiling the national and regional accounts provided for by Community legislation;(11) Whereas the results of the accounts and tables of all the Member States drawn up according to the system set up by this Regulation must be made available by the Commission to users on precise dates, particularly with regard to monitoring the economic convergence and achieving the closest coordination of the Member States' economic policies;(12) Whereas the system set up by this Regulation is gradually to replace all other systems as a reference framework of common standards, definitions, classifications and accounting rules for drawing up the accounts of the Member States for the requirements of the Community, so that results that are comparable between the Member States can be obtained;(13) Whereas these statistical results, must be accessible to citizens in accordance with the principle of transparency;(14) Whereas the system established by this Regulation, which constitutes a version of the SNA adapted to the structures of the Member States' economies, must follow the layout of the SNA so that the Community's data are comparable with those compiled by its main international partners;(15) Whereas the dates must be grouped according to broad category of the accounts and tables, and whereas only the information essential to the requirements of the Community must be processed and communicated to the Commission on precise dates;(16) Whereas, however, in view of the volume and size of the accounts concerned, the level of detail and the geographical coverage, as well as the situation in this respect in the Member States, certain extra periods of time for forwarding data shall be granted exceptionally and temporarily to Member States which objectively are unable to meet the deadlines laid down by this Regulation;(17) Whereas a decision on how financial intermediation services indirectly measured (Fisim) are to be broken down should be taken at a later date;(18) Whereas, according to the principle of subsidiarity, the creation of common statistical standards so that comparable information can be produced is a task that can only be dealt with effectively at Community level and whereas such standards will be implemented in each Member State under the aegis of the organizations and institutions responsible for compiling official statistics;(19) Whereas it is necessary to set up a procedure to adapt and update the provisions of this Regulation in cooperation with the Statistical Programme Committee of the European Community (SPC), established by Council Decision 89/382/EEC, Euratom (5); whereas that adaptation procedure will be limited to amendments which do not increase own resources;(20) Whereas the Statistical Programme Committee and the Committee on Monetary, Financial and Balance of Payments Statistics (CMFB), established by Decision 91/115/EEC (6), have declared themselves in favour of the draft of this Regulation;(21) Whereas Council Directive 89/130/EEC, Euratom of 13 February 1989 on the harmonization of the compilation of gross national product at market prices (GNPmp) (7) stipulates that GNPmp can be comparable only if the definitions and accounting rules of the European System of Integrated Economic Accounts are applied, and whereas Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax (8) provides that, in order to calculate the weighted average rate of VAT, the breakdown of transactions liable to tax shall be effected by means of national accounts prepared in accordance with the European System of Integrated Economic Accounts, and whereas for those instruments, and in the context of Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol on the excessive deficit procedure (9), Council Decision 94/728/EC, Euratom of 31 October 1994 on the system of the European Communities' own resources (10) and Council Decision 94/729/EC of 31 October 1994 on budgetary discipline (11), a transitional period for implementing the system set up by this Regulation should be provided,HAS ADOPTED THIS REGULATION:Article 1Purpose 1. The purpose of this Regulation is to set up the European System of Accounts 1995 hereinafter referred to as 'ESA 95`, by providing for:(a) a methodology on common standards, definitions, classifications and accounting rules, intended to be used for compiling accounts and tables on comparable bases for the purposes of the Community, together with results as required under the terms of Article 3;(b) a programme for transmitting for Community purposes on precise dates the accounts and tables compiled according to the ESA 95.2. Taking into account Articles 7 and 8, this Regulation shall apply to all Community acts that refer to the ESA or its definitions.3. This Regulation does not oblige any Member State to use the ESA 95 in compiling accounts for its own purposes.Article 2Methodology 1. The methodology of the ESA 95 referred to in Article 1 (1) (a) is set out in Annex A.2. Amendments to the ESA 95 methodology which are intended to clarify and improve its content shall be adopted by Commission Decision in accordance with the procedure provided for in Article 4, provided that they do not change its underlying concepts, do not require additional resources for their implementation and do not cause an increase in own resources.3. In accordance with the relevant provisions of the Treaty, the Council shall, not later than 31 December 1997, take a decision on introducing the system for breaking down the financial intermediation services indirectly measured (Fisim) described in Annex I of Annex A, and shall, if appropriate, adopt the necessary measures for the implementation thereof.Article 3Transmission to the Commission 1. The Member States shall transmit to the Commission (Statistical Office) the accounts and tables set out in Annex B within the time limits specified for each table.The extra periods of time granted to certain Member States in accordance with Annex B shall expire not later than 1 January 2005.The Commission, after consulting the Statistical Programme Committee, shall report to the Council not later than 1 July 2003 on the application of the extra periods of time granted in order to verify whether they are still justified. This report shall, if necessary, be accompanied by a Commission proposal again granting extra periods of time to those Member States requiring them.2. The Member States shall transmit the results of Annex B, including the data which have been declared confidential by Member States in accordance with national legislation or practice concerning statistical confidentiality, under the provisions of Council Regulation (Euratom, EEC) No 1588/90 of 11 June 1990 on the transmission of data subject to statistical confidentiality to the Statistical Office of the European Communities (12), which governs the confidential treatment of information.Within the limits set in Article 2 (2), any changes - new tables, countries and/or regions concerned - in the data requested from the Member States may be the subject of Commission Decisions in accordance with the procedure provided for in Article 4.Article 4Procedure 1. The Commission shall be assisted by the Statistical Programme Committee, hereinafter referred to as 'the Committee`.2. The representative of the Commission shall submit to the Committee a draft of the measures to be taken. The Committee shall deliver its opinion on the draft, within a time limit which the chairman may lay down according to the urgency of the matter. The opinion shall be delivered by the majority laid down in Article 148 (2) of the Treaty in the case of decisions which the Council is required to adopt on a proposal from the Commission. The votes of the representatives of the Member States within the Committee shall be weighted in the manner set out in that Article. The chairman shall not vote.3. The Commission shall adopt measures which apply immediately. However, if these measures are not in accordance with the opinion of the Committee, they shall be communicated by the Commission to the Council forthwith. In that event:(a) the Commission shall defer application of the measures it has decided by three months from the date of communication;(b) the Council, acting by a qualified majority, may take a different decision within the time limit laid down in point (a).Article 5The Committee's tasks The Committee shall examine all matters that are raised by its chairman relating to the implementation of this Regulation either on his own initiative or at the request of a Member State.Article 6Cooperation with other committees 1. On all matters falling within the competence of the Committee on Monetary, Financial and Balance of Payments Statistics (CMFB), the Commission shall request the opinion of that Committee in accordance with Article 2 of Decision 91/115/EEC.2. The Commission shall communicate to the Committee on Gross National Product, set up by Directive 89/130/EEC, Euratom any information concerning the implementation of this Regulation which is necessary for the performance of its duties.Article 7Date of application and of first transmission of data 1. The ESA 95 shall be applied for the first time to data established in accordance with Annex B to be transmitted in April 1999.2. The data shall be transmitted to the Commission (Statistical Office) in accordance with the time limits laid down in Annex B.3. In accordance with paragraph 1, until the first transmission based on the ESA 95, Member States shall continue to send to the Commission (Statistical Office) the accounts and tables established by applying the ESA second edition.4. Without prejudice to Article 19 of Council Regulation (EEC, Euratom) No 1552/89 of 29 May 1989 (13) implementing Decision 88/376/EEC, Euratom on the system of the Communities' own resources, the Commission and the Member State concerned shall check that this Regulation is being applied and shall submit the outcome of those checks to the Committee provided for in Article 4 (1) of this Regulation.Article 8Transitional provisions 1. For budgetary and own resources purposes and by way of derogation from Article 1 (2) and Article 7, the European system of integrated economic accounts in force within the meaning of Article 1 (1) of Directive 89/130/EEC, Euratom and the legal acts relating thereto, in particular Regulations (EEC, Euratom) No 1552/89 and No 1553/89 and Decisions 94/728/EC, Euratom and 94/729/EC, shall be the ESA second edition while Decision 94/728/EC, Euratom remains in force.2. For the purpose of the Member States' reports to the Commission under the excessive deficit procedure laid down in Regulation (EC) No 3605/93, the European system of integrated economic accounts shall be the ESA second edition until the 1 September 1999 reports.3. Application of the ESA second edition as laid down in paragraphs 1 and 2 of this Article shall be ensured by adjusting the data received by virtue of Article 7 (1) on the basis of the ESA 95 to take account of the changes resulting from any differences in concepts, definitions or nomenclatures between the ESA second edition and the ESA 95.Implementation of this principle shall be established in accordance with the procedure laid down in Article 6 of Council Directive 89/130/EEC, Euratom by December 1996 at the latest.Article 9This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Communities.This Regulation shall be binding in its entirety and directly applicable in all Member States.Done at Brussels, 25 June 1996.For the CouncilThe PresidentM. PINTO(1) OJ No C 287, 30. 10. 1995, p. 114.(2) Opinion delivered on 21. 6. 1995 (not yet published in the Official Journal).(3) OJ No C 133, 31. 5. 1995, p. 2.(4) Eurostat: 'European System of Integrated Economic Accounts` (ESA), second edition, Statistical Office of the European Communities, Luxembourg, 1979.(5) OJ No L 181, 28. 6. 1989, p. 47.(6) OJ No L 59, 6. 3. 1991, p. 19.(7) OJ No L 49, 21. 2. 1989, p. 26. Directive as last amended by the 1994 Act of Accession.(8) OJ No L 155, 7. 6. 1989, p. 9.(9) OJ No L 332, 31. 12. 1993, p. 7.(10) OJ No L 293, 12. 11. 1994, p. 9.(11) OJ No L 293, 12. 11. 1994, p. 14.(12) OJ No L 151, 15. 6. 1990, p. 1. Regulation as amended by the 1994 Act of Accession.(13) OJ No L 155, 7. 6. 1989, p. 1. Regulation as last amended by Regulation (EEC, Euratom) No 2729/94 (OJ No L 293, 12. 11. 1994, p. 5).ANNEX A EUROPEAN SYSTEM OF ACCOUNTS ESA 1995 CONTENTS PageCHAPTER 1.GENERAL FEATURES . 18THE USES OF THE ESA . 18Framework for analysis and policy . 18Eight characteristics of ESA concepts . 19The 1995 ESA and the 1993 SNA . 25The 1995 ESA and the 1970 ESA . 25THE ESA AS A SYSTEM . 26Statistical units and their groupings . 26Institutional units and sectors . 27Local kind of activity units and industries . 27Resident and non-resident units; total economy and rest of the world . 27Flows and stocks . 28Flows . 28Transactions . 28Properties of transactions . 29Interactions versus intra-unit transactions . 29Monetary versus non-monetary transactions . 29Transactions with and without counterparts . 29Rearranged transactions . 29Rerouting . 29Partitioning . 30Recognizing the principal party to a transaction . 30Borderline cases . 30Other changes in assets . 30Other changes in the volume of assets and liabilities . 30Holding gains and losses . 31Stocks . 31The system of accounts and the aggregates . 31Rules of accounting . 31Terminology for the two sides of the accounts . 31Double entry/quadruple entry . 32Valuation . 32Special valuations concerning products . 32Valuation at constant prices . 33CHAPTER 1.(cont'd)PageTime of recording . 33Consolidation and netting . 33Consolidation . 33Netting . 34Accounts, balancing items and aggregates . 34The sequence of accounts . 34The goods and services account . 35The rest of the world account . 35Balancing items . 35Aggregates . 35The input-output framework . 35CHAPTER 2.UNITS AND GROUPING OF UNITS . 37THE LIMITS OF THE NATIONAL ECONOMY . 37THE INSTITUTIONAL UNITS . 39THE INSTITUTIONAL SECTORS . 40Non-financial corporations (S.11) . 42Subsector: Public non-financial corporations (S.11001) . 43Subsector: National private non-financial corporations (S.11002) . 44Subsector: Foreign controlled non-financial corporations (S.11003) . 44Financial corporations (S.12) . 44Subsector: The central bank (S.121) . 46Subsector: Other monetary financial institutions (S.122) . 47Subsector: Other financial intermediaries, except insurance corporations and pension funds (S.123) . 48Subsector: Financial auxiliaries (S.124) . 48Subsector: Insurance corporations and pension funds (S.125) . 49General government (S.13) . 50Subsector: Central government (S.1311) . 50Subsector: State government (S.1312) . 50Subsector: Local government (S.1313) . 50Subsector: Social security funds (S.1314) . 51Households (S.14) . 51Subsector: Employers (including own-account workers) (S.141 + S.142) . 52Subsector: Employees (S.143) . 52Subsector: Recipients of property incomes (S.1441) . 52Subsector: Recipients of pensions (S.1442) . 52Subsector: Recipients of other transfer incomes (S.1443) . 52Subsector: Others (S.145) . 52Non-profit institutions serving households (S.15) . 53Rest of the world (S.2) . 53Sector classification of producer units for main standard legal forms of ownership . 54CHAPTER 2.(cont'd)PageLOCAL KIND-OF-ACTIVITY UNITS AND INDUSTRIES . 56The local kind-of-activity unit . 57The industry . 57CLASSIFICATION OF INDUSTRIES . 58UNITS OF HOMOGENEOUS PRODUCTION AND HOMOGENEOUS BRANCHES . 58The unit of homogeneous production . 58The homogeneous branch . 58THE CLASSIFICATION OF HOMOGENEOUS BRANCHES . 59CHAPTER 3.TRANSACTIONS IN PRODUCTS . 60PRODUCTION AND OUTPUT . 61Principal, secondary and ancillary activities . 62Output (P.1) . 62Time of recording and valuation of output . 68INTERMEDIATE CONSUMPTION (P.2) . 73Time of recording and valuation of intermediate consumption . 75FINAL CONSUMPTION (P.3, P.4) . 75Final consumption expenditure (P.3) . 75Actual final consumption (P.4) . 76Time of recording and valuation of final consumption expenditure . 78Time of recording and valuation of actual final consumption . 78GROSS CAPITAL FORMATION (P.5) . 79Gross fixed capital formation (P.51) . 79Time of recording and valuation of gross fixed capital formation . 81Changes in inventories (P.52) . 82Time of recording and valuation of changes in inventories . 83Acquisitions less disposals of valuables (P.53) . 84IMPORTS AND EXPORTS OF GOODS AND SERVICES (P.6 AND P.7) . 84Imports and exports of goods (P.61 and P.71) . 85Imports and exports of services (P.62 and P.72) . 87TRANSACTIONS IN EXISTING GOODS . 89CHAPTER 4.DISTRIBUTIVE TRANSACTIONS . 91COMPENSATION OF EMPLOYEES (D.1) . 91Wages and salaries (D.11) . 91Wages and salaries in cash . 91Wages and salaries in kind . 91Employers' social contributions (D.12) . 93Employers' actual social contributions (D.121) . 93Employers' imputed social contributions (D.122) . 93CHAPTER 4.(cont'd)PageTAXES ON PRODUCTION AND IMPORTS (D.2) . 94Taxes on products (D.21) . 95Value added type taxes (VAT) (D.211) . 95Taxes and duties on imports excluding VAT (D.212) . 95Taxes on products, except VAT and import taxes (D.214) . 96Other taxes on production (D.29) . 96Taxes on production and imports paid to the institutions of the European Union . 97SUBSIDIES (D.3) . 98Subsidies on products (D.31) . 98Import subsidies (D.311) . 99Other subsidies on products (D.319) . 99Other subsidies on production (D.39) . 99PROPERTY INCOME (D.4) . 101Interest (D.41) . 101Interest on deposits, loans and accounts receivable and payable . 101Interest on securities . 101Interest on bills and similar short-term instruments . 101Interest on bonds and debentures . 101Interest rate swaps and forward rate agreements . 102Interest on financial leases . 102Other interest . 102Time of recording . 103Distributed income of corporations (D.42) . 103Dividends (D.421) . 103Withdrawals from the income of quasi-corporations (D.422) . 104Reinvested earnings on direct foreign investment (D.43) . 105Property income attributed to insurance policy holders (D.44) . 105Rents (D.45) . 106Rents on land . 106Rents on sub-soil assets . 106CURRENT TAXES ON INCOME, WEALTH, ETC. (D.5) . 106Taxes on income (D.51) . 107Other current taxes (D.59) . 107SOCIAL CONTRIBUTIONS AND BENEFITS (D.6) . 108Social contributions (D.61) . 110Actual social contributions (D.611) . 110Imputed social contributions (D.612) . 111Social benefits other than social transfers in kind (D.62) . 112Social security benefits in cash (D.621) . 112Private funded social benefits (D.622) . 113CHAPTER 4.(cont'd)PageUnfunded employee social benefits (D.623) . 113Social assistance benefits in cash (D.624) . 113Social transfers in kind (D.63) . 113Social benefits in kind (D.631) . 113Social security benefits, reimbursements (D.6311) . 114Other social security benefits in kind (D.6312) . 114Social assistance benefits in kind (D.6313) . 114Transfers of individual non-market goods or services (D.632) . 114OTHER CURRENT TRANSFERS (D.7) . 115Net non-life insurance premiums (D.71) . 115Non-life insurance claims (D.72) . 116Current transfers within general government (D.73) . 116Current international cooperation (D.74) . 117Miscellaneous current transfers (D.75) . 118Current transfers to NPISHs . 118Current transfers between households . 118Fines and penalties . 118Lotteries and gambling . 119Payments of compensation . 119GNP based fourth own resource . 119Other . 119ADJUSTMENT FOR THE CHANGE IN THE NET EQUITY OF HOUSEHOLDS IN PENSION FUNDS RESERVES (D.8) . 120CAPITAL TRANSFERS (D.9) . 121Capital taxes (D.91) . 121Investment grants (D.92) . 122Other capital transfers (D.99) . 123CHAPTER 5.FINANCIAL TRANSACTIONS . 125CLASSIFICATION OF FINANCIAL TRANSACTIONS . 127Monetary gold and special drawing rights (SDRS) (F.1) . 129Monetary gold (F.11) . 129Special drawing rights (SDRS) (F.12) . 130Currency and deposits (F.2) . 130Currency (F.21) . 130Transferable deposits (F.22) . 131Other deposits (F.29) . 131Securities other than shares (F.3) . 132Securities other than shares, excluding financial derivatives (F.33) . 132Short-term securities other than shares, excluding financial derivatives (F.331) . 133Long-term securities other than shares, excluding financial derivatives (F.332) . 133Financial derivatives (F.34) . 134CHAPTER 5.(cont'd)PageLoans (F.4) . 135Short-term loans (F.41) . 135Long-term loans (F.42) . 135Shares and other equity (F.5) . 137Shares and other equity, excluding mutual funds shares (F.51) . 138Quoted shares, excluding mutual funds shares (F.511), and unquoted shares, excluding mutual funds shares (F.512) . 138Other equity (F.513) . 139Mutual funds shares (F.52) . 139Insurance technical reserves (F.6) . 139Net equity of households in life insurance reserves and in pension funds reserves (F.61) . 140Net equity of households in life insurance reserves (F.611) . 140Net equity of households in pension funds reserves (F.612) . 141Prepayments of insurance premiums and reserves for outstanding claims (F.62) . 142Other accounts receivable/payable (F.7) . 142Trade credits and advances (F.71) . 143Other accounts receivable/payable, excluding trade credits and advances (F.79) . 143Memorandum item: direct foreign investment (F.m) . 144ACCOUNTING RULES FOR FINANCIAL TRANSACTIONS . 144Valuation . 144Time of recording . 147Compiling financial transactions from changes in balance sheets . 147Annex 5.1: Link with measures of money . 147CHAPTER 6.OTHER FLOWS . 149CONSUMPTION OF FIXED CAPITAL (K.1) . 149ACQUISITIONS LESS DISPOSALS OF NON-FINANCIAL NON-PRODUCED ASSETS (K.2) . 149OTHER CHANGES IN ASSETS (K.3 to K.12) . 150OTHER CHANGES IN VOLUME (K.3 to K.10 AND K.12) . 150ECONOMIC APPEARANCE OF NON-PRODUCED ASSETS (K.3) . 151ECONOMIC APPEARANCE OF PRODUCED ASSETS (K.4) . 151NATURAL GROWTH OF NON-CULTIVATED BIOLOGICAL RESOURCES (K.5) . 151ECONOMIC DISAPPEARANCE OF NON-PRODUCED ASSETS (K.6) . 152CATASTROPHIC LOSSES (K.7) . 152UNCOMPENSATED SEIZURES (K.8) . 152OTHER VOLUME CHANGES IN NON-FINANCIAL ASSETS N.E.C. (K.9) . 152OTHER VOLUME CHANGES IN FINANCIAL ASSETS AND LIABILITIES N.E.C. (K.10) . 153CHAPTER 6.(cont'd)PageCHANGES IN CLASSIFICATIONS AND STRUCTURE (K.12) . 154Changes in sector classification and structure (K.12.1) . 154Changes in classification of assets and liabilities (K.12.2) . 154NOMINAL HOLDING GAINS/LOSSES (K.11) . 155Neutral holding gains/losses (K.11.1) . 156Real holding gains/losses (K.11.2) . 156Holding gains by type of financial asset . 157Currency and deposits (AF.2) . 157Loans (AF.4) and other accounts receivable/payable (AF.7) . 157Securities other than shares (AF.3) . 157Shares and other equity (AF.5) . 158Insurance technical reserves (AF.6) . 158Financial assets in foreign currency . 158CHAPTER 7.BALANCE SHEETS . 159TYPES OF ASSETS . 160Non-financial produced assets (AN.1) . 160Non-financial non-produced assets (AN.2) . 160Financial assets and liabilities (AF) . 161VALUATION OF ENTRIES IN THE BALANCE SHEETS . 163General valuation principles . 163NON-FINANCIAL ASSETS (AN) . 164Produced assets (AN.1) . 164Fixed assets (AN.11) . 164Tangible fixed assets (AN.111) . 164Intangible fixed assets (AN.112) . 164Inventories (AN.12) . 164Valuables (AN.13) . 165Non-produced assets (AN.2) . 165Tangible non-produced assets (AN.21) . 165Land (AN.211) . 165Subsoil assets (AN.212) . 165Other natural assets (AN.213 and AN.214) . 165Intangible non-produced assets (AN.22) . 165Financial assets and liabilities (AF) . 166Monetary gold and SDRs (AF.1) . 166Currency and deposits (AF.2) . 166Securities other than shares (AF.3) . 166Loans (AF.4) . 167Shares and other equity (AF.5) . 167CHAPTER 7.(cont'd)PageInsurance technical reserves (AF.6) . 167Other accounts receivable/payable (AF.7) . 168Memorandum items . 168Consumer durables (AN.m) . 168Direct foreign investment (AF.m) . 168Financial balance sheets . 169Annex 7.1: Definition of each asset category . 170Annex 7.2: A map of entries from opening balance sheet to closing balance sheet . 178CHAPTER 8.SEQUENCE OF ACCOUNTS AND BALANCING ITEMS . 181SEQUENCE OF ACCOUNTS . 184Current accounts . 184Production account (I) . 184Distribution and use of income accounts (II) . 184Primary distribution of income accounts (II.1) . 186Generation of income account (II.1.1) . 186Allocation of primary income account (II.1.2) . 186Entrepreneurial income account (II.1.2.1) . 186Allocation of other primary income account (II.1.2.2) . 192Secondary distribution of income account (II.2) . 192Redistribution of income in kind account (II.3) . 200Use of income account (II.4) . 200Use of disposable income account (II.4.1) . 200Use of adjusted disposable income account (II.4.2) . 200Accumulation accounts (III) . 202Capital account (III.1) . 202Change in net worth due to saving and capital tranfers account (III.1.1) . 202Acquisitions of non-financial assets account (III.1.2) . 202Financial account (III.2) . 202Other changes in assets account (III.3) . 202Other changes in volume of assets account (III.3.1) . 209Revaluation account (III.3.2) . 209Neutral holding gains and losses account (III.3.2.1) . 209Real holding gains and losses account (III.3.2.2) . 209Balance sheets (IV) . 218Opening balance sheet (IV.1) . 218Changes in balance sheet (IV.2) . 218Closing balance sheet (IV.3) . 218CHAPTER 8.(cont'd)PageREST OF THE WORLD ACCOUNTS (V) . 218Current accounts . 223External account of goods and services (V.I) . 223External account of primary incomes and current transfers (V.II) . 223External accumulation accounts (V.III) . 223Capital account (V.III.1) . 223Financial account (V.III.2) . 223Other changes in assets account (V.III.3) . 223Balance sheets (V.IV) . 224GOODS AND SERVICES ACCOUNT (0) . 232INTEGRATED ECONOMIC ACCOUNTS . 233AGGREGATES . 243Gross domestic product at market prices (GDP) . 243Operating surplus of the total economy . 243Mixed income of the total economy . 243Entrepreneurial income of the total economy . 243National income (at market prices) . 243National disposable income . 244Saving . 244Current external balance . 244Net lending (+) or borrowing ( ) of the total economy . 244Net worth of the total economy . 244MATRIX PRESENTATION . 244Matrix presentation of ESA accounts . 245Properties of accounting matrices . 248Adaptation of the reduced format matrix to specific types of analysis . 249CHAPTER 9.INPUT-OUTPUT FRAMEWORK . 264SUPPLY AND USE TABLES . 268TABLES LINKING THE SUPPLY AND USE TABLES TO THE SECTOR ACCOUNTS . 282SYMMETRIC INPUT-OUTPUT TABLES . 282CHAPTER 10.PRICE AND VOLUME MEASURES . 287SCOPE OF PRICE AND VOLUME INDICES IN THE ACCOUNTS SYSTEM . 288The integrated system of price and volume indices . 288Price and volume indices for other aggregates . 289GENERAL PRINCIPLES OF MEASURING PRICE AND VOLUME INDICES . 290Definition of prices and volumes of market products . 290Differences in quality and differences in price . 290CHAPTER 10.(cont'd)PagePrinciples for non-market services . 291Principles for value added and GDP . 292PROBLEMS IN THE APPLICATION OF THE PRINCIPLES . 292General application . 293Application to specific flows . 293Flows of goods and market services . 293Flows of non-market services . 294Taxes and subsidies on products and imports . 295Consumption of fixed capital . 296Compensation of employees . 296Stocks of produced fixed assets and inventories . 296Measures of real income for the total economy . 297CHOICE OF INDEX NUMBER FORMULAE AND THE BASE YEAR . 298INTERSPACIAL PRICE AND VOLUME INDICES . 298CHAPTER 11.POPULATION AND LABOUR INPUTS . 300TOTAL POPULATION . 300ECONOMICALLY ACTIVE POPULATION . 301EMPLOYMENT . 302Employees . 302Self-employed persons . 303Employment and residence . 303UNEMPLOYMENT . 304JOBS . 305Jobs and residence . 305TOTAL HOURS WORKED . 305FULL-TIME EQUIVALENCE . 306EMPLOYEE LABOUR INPUT AT CONSTANT COMPENSATION . 307CHAPTER 12.QUARTERLY ECONOMIC ACCOUNTS . 308CHAPTER 13.REGIONAL ACCOUNTS . 310REGIONAL TERRITORY . 310UNITS AND RESIDENCE . 310METHODS OF REGIONALIZATION . 311AGGREGATES BY INDUSTRY . 312HOUSEHOLD ACCOUNTS . 314PageANNEXESI. FINANCIAL INTERMEDIATION SERVICES INDIRECTLY MEASURED (Fisim) . 315Changes to be made in the ESA chapters if Fisim is to be allocated . 315II. LEASING AND HIRE PURCHASE OF DURABLE GOODS . 321Definitions . 321Leasing . 321Operating leasing . 321Financial leasing . 321Hire purchase . 322Treatment in the accounts . 322Operating leasing . 322Financial leasing . 322Hire purchase . 323III. INSURANCE . 325Introduction . 325Definitions . 325Social insurance . 325Social security schemes of government . 325Private funded social insurance schemes . 326Unfunded social insurance schemes operated by employers . 326Other insurance . 326Other life insurance . 326Other non-life insurance . 326Reinsurance . 327Insurance auxiliaries . 327Treatment in the accounts . 327Social insurance . 327Social security schemes of government . 327Private funded social insurance schemes . 328Unfunded social insurance schemes operated by employers . 329Other insurance . 330Other life insurance . 331Other non-life insurance . 331Reinsurance . 333Insurance auxiliaries . 333Insurance numerical example . 334IV. CLASSIFICATIONS AND ACCOUNTS . 339Classifications . 339Classification of institutional sectors (S) . 339PageClassification of transactions and other flows . 340Classification of balancing items (B) . 343Classification of assets (A) . 344Regrouping and coding of industries (A), products (P) and investments (fixed capital formation) (Pi) . 346Classification of individual consumption by purpose (Coicop) . 354Classification of the functions of the government (Cofog) . 355Accounts . 357Tables2.1Sectors and sub-sectors . 402.2The type of producer, the principal activities and functions classified by sector . 422.3Sector classification of producer units for main standard legal forms of ownership . 553.1The distinction between market producers, producers for own final use and other non-market producers for institutional units . 643.2Institutional units, local KAUs and output and the distinction between market, for own final use and other non-market . 673.3The distinction market, for own final use and other non-market for local KAUs and their output . 683.4The treatment of transportation of exported goods . 883.5The treatment of transportation of imported goods . 895.1Classification of financial transactions . 1288.1Synoptic presentation of the accounts, balancing items and main aggregates . 1828.2Account I: Production account . 1858.3Account II.1.1: Generation of income account . 1878.4Account II.1.2.: Allocation of primary income account . 1898.5Accounts II.1.2.1: Entrepreneurial income and II.1.2.2: Allocation of other primary income . 1938.6Account II.2: Secondary distribution of income account . 1968.7Account II.3: Redistribution of income in kind account . 1998.8Account II.4.1: Use of disposable income account . 2018.9Account II.4.2: Use of adjusted disposable income account . 2038.10Account III.1.1: Change in net worth due to saving and capital transfers account . 2048.11Account III.1.2: Acquisition of non-financial assets account . 2058.12Account III.2: Financial account . 2078.13Account III.3.1: Other changes in volume of assets account . 2108.14Account III.3.2: Revaluation account . 2148.15Account IV: Balance sheets . 2198.16Full sequence of accounts for rest of the world (external transactions account) . 2248.17Account 0: Goods and services account . 2328.18Integrated economic accounts . 2348.19Matrix presentation of the full sequence of accounts and balancing items for the total economy . 2508.20Schematic presentation of a Social Accounting Matrix . 2578.21Example of a more detailed Social Accounting Matrix . 2608.22Example of a detailed submatrix: Net value added (basic prices) . 262Page9.1A simplified supply table . 2649.2A simplified use table . 2649.3A simplified combined supply and use table . 2659.4A simplified symmetric input-output table (product by product) . 2669.5A supply table at basic prices, including a transformation into purchaser's prices . 2699.6A use table at purchaser's prices . 2709.7A simple trade and transport margins table . 2749.8A simple taxes less subsidies on products table . 2759.9A use table for imports . 2799.10A use table at basic prices for domestic output . 2809.11Table linking the supply and use tables to the sector accounts . 2829.12A symmetric input-output table at basic prices (product by product) . 2849.13A symmetric input-output table for domestic output (product by product) . 286A.I.1Effect of allocating Fisim to institutional sectors, including changes for non-market producers . 318A.I.2Effect of allocating Fisim to nominal sector only . 319A.III.1Social security schemes of Government . 334A.III.2Private funded social insurance schemes . 335A.III.3Unfunded schemes operated by employers . 336A.III.4Other life insurance . 337A.III.5Other non-life insurance . 338A.IV.1Account 0: Goods and services account . 357A.IV.2Full sequence of accounts for the total economy . 357A.IV.3Full sequence of accounts for non-financial corporations . 371A.IV.4Full sequence of accounts for financial corporations . 380A.IV.5Full sequence of accounts for general government . 390A.IV.6Full sequence of accounts for households . 401A.IV.7Full sequence of accounts for non-profit institutions serving households . 412CHAPTER 1 GENERAL FEATURES 1.01. The European System of National and Regional Accounts (1995 ESA, or simply: ESA) is an internationally compatible accounting framework for a systematic and detailed description of a total economy (that is a region, country or group of countries), its components and its relations with other total economies.The 1995 ESA, replaces the European System of Integrated Economic Accounts published in 1970 (1970 ESA; a second, slightly modified, edition appeared in 1978).The 1995 ESA is fully consistent with the revised world-wide guidelines on national accounting, the System of National Accounts (1993 SNA, or simply: SNA; these guidelines have been produced under the joint responsibility of the United Nations, the IMF, the Commission of the European Communities, the OECD and the World Bank). However, the ESA is focused more on the circumstances and data needs in the European Union. Like the SNA, the ESA is harmonized with the concepts and classifications used in many other, social and economic statistics. Cases in point are statistics on employment, statistics on manufacturing and statistics on external trade. The ESA can therefore serve as the central framework of reference for the social and economic statistics of the European Union and its Member States.1.02. The ESA framework consists of two main sets of tables:(a) the sector accounts (1);(b) the input-output framework (2) and the accounts by industry (3).The sector accounts provide, by institutional sector, a systematic description of the different stages of the economic process: production, generation of income, distribution of income, redistribution of income, use of income and financial and non-financial accumulation. The sector accounts also include balance sheets to describe the stocks of assets, liabilities and net worth at the beginning and the end of the accounting period.The input-output framework and the accounts by industry describe in more detail the production process (cost structure, income generated and employment) and the flows of goods and services (output, imports, exports, final consumption, intermediate consumption and capital formation by product group).The ESA encompasses concepts of population and employment (4). These concepts are relevant for both the sector accounts and the input-output framework.The ESA is not restricted to annual national accounting, but applies also to quarterly accounts (5) and regional accounts (6).THE USES OF THE ESAFramework for analysis and policy1.03. The ESA framework can be used to analyse and evaluate:(a) the structure of a total economy. Cases in point are:1. value added and employment by industry;2. value added and employment by region;3. income distributed by sector;4. imports and exports by product group;5. final consumption expenditure by product group;6. fixed capital formation and fixed capital stock by industry;7. the composition of the stocks and flows of financial assets by type of asset and by sector.(b) Specific parts or aspects of a total economy. Cases in point are:1. banking and finance in the national economy;2. the role of government;3. the economy of a specific region (in comparison to that of the nation as a whole).(c) The development of a total economy over time. Cases in point are:1. the analysis of GDP growth rates;2. the analysis of inflation;3. the analysis of seasonal patterns in household expenditure on the basis of quarterly accounts;4. the analysis of the changing importance of particular types of financial instruments over time, e.g. the increased importance of options;5. the comparison of the industrial structures of the national economy over the long term, e.g. over a period of 30 years.(d) A total economy in relation to other total economies. Cases in point are:1. the comparison of the roles of government in the Member States of the European Union;2. the analysis of the interdependencies between the economies of the European Union;3. the analysis of the composition and destination of the exports of the European Union;4. the comparison of GDP growth rates or disposable income per capita in the European Union and in the United States and Japan.1.04. For the European Union and its Member States, the figures from this framework play a major role in formulating and monitoring their social and economic policy.Furthermore, there are some very important specific uses:(a) for monitoring and guiding European monetary policy: the criteria of convergence for the European Monetary Union have been defined in terms of national accounts figures (government deficit, government debt and GDP);(b) for granting monetary support to regions in the European Union: the expenditure for the Structural Funds of the European Union is partly based on regionalized national accounts figures;(c) for determining the own resources of the European Union. The latter depend on national accounts figures in three ways:1. the total resources for the European Union are determined as a percentage of the Member States' gross national products (GNP);2. the third own resource of the European Union is the VAT own resource. The contributions by the Member States for this resource are largely affected by national accounts figures, because they are used to calculate the average VAT rate;3. the relative sizes of the contributions by the Member States for the fourth own resource of the European Union are based on their gross national products.Eight characteristics of ESA concepts1.05. In order to establish a good balance between data needs and data possibilities, the concepts in the ESA have eight important characteristics. They are:(a) internationally compatible;(b) harmonized with those in other social and economic statistics;(c) consistent;(d) operational;(e) different from most administrative concepts;(f) well-established and fixed for a long period;(g) focused on describing the economic process in monetary and readily observable terms;(h) flexible and multi-purpose.1.06. The concepts are internationally compatible because:(a) for European Union Member States, the ESA is the standard for submitting national accounts data to all international organizations. Only in the national publications is strict adherence to the ESA not obligatory;(b) the concepts in the ESA are in all respects consistent with those in the world-wide guidelines on national accounting, i.e. the SNA.International compatibility of concepts is crucial when comparing statistics for different countries.1.07. The concepts are harmonized with those in other social and economic statistics because:(a) the ESA employs many concepts and classifications (e.g. NACE rev. 1) that are also used for the other social and economic statistics of European Union Member States, e.g. in statistics on manufacturing, statistics on external trade and statistics on employment; conceptual differences have been kept to a minimum. Furthermore, these European Union concepts and classifications are also harmonized with those of the United Nations;(b) like the SNA, the concepts in the ESA are also harmonized with those in the major international guidelines on some other economic statistics, in particular the IMF Balance of Payments Manual (BPM), the IMF Government Finance Statistics (GFS), the OECD Revenue Statistics and the ILO resolutions on the concepts of employment, hours worked and labour costs.This harmonization with other, social and economic statistics greatly aids the linkage to and comparison with these figures. As a consequence, better national accounts figures can be compiled. Furthermore, the information contained in these specific statistics can now be better related to the general statistics on the national economy, i.e. the national accounts figures like GNP or value added per industry and sector.1.08. The identities in the accounting framework enforce the consistency of the concepts used to describe the different parts of the economic process (production, income distribution, use of income, accumulation). As a result of this internal consistency, statistics from different parts of the accounting framework can be usefully related to each other. So, for example, the following ratios can be calculated:(a) productivity figures, such as value added per hour worked (this figure requires consistency between the concepts of value added and hours worked);(b) national disposable income per capita (this ratio requires consistency between the concepts national disposable income and population);(c) fixed capital formation as a percentage of fixed capital stock (this ratio requires consistency between the definitions of these flows and stocks);(d) government deficit and debt as percentages of gross domestic product (these figures require consistency between the concepts of government deficit, government debt and gross domestic product).This internal consistency of concepts also allows some estimates to be derived by residual, e.g. saving can be estimated as the difference between disposable income and final consumption expenditure (7).1.09. The concepts in the ESA are operational concepts since they are designed with their measurement in mind. The operational character of the concepts is revealed in several ways:(a) some activities or items have only to be described when significant in size. This pertains, for example, to own-account production of goods by households: weaving cloth and the production of pottery are not to be recorded as production, because these types of production are deemed to be insignificant for European Union countries. Another case in point is that small inexpensive tools and appliances are only recorded as fixed capital formation when the purchaser's expenditure on such durables exceeds ECU 500 (at 1995 prices) per item (or, when bought in quantities, for the total amount bought); when this expenditure does not exceed this threshold, these items are recorded as intermediate consumption;(b) some concepts are accompanied by clear indications of how to estimate them. For example, in defining capital consumption reference is made to linear depreciation and for estimating fixed capital stock the Perpetual Inventory Method is recommended. Another case in point is the valuation of own-account production: in principle, it should be at basic prices, but if necessary the basic prices may be approximated by adding up the various costs involved;(c) some simplifying conventions have been adopted. For example, by convention, the collective services provided by government are all final consumption expenditure;(d) the concepts are harmonized with those in social and economic statistics used as inputs for compiling the national accounts.1.10. However, at the same time, the concepts are not always easy to put into operation as they usually diverge in some respects from those employed in administrative data sources. Cases in point are business accounts, data on various types of taxes (VAT, personal income tax, import levies, etc.), social security data and data from supervisory boards on banking and insurance. These administrative data often serve as inputs for compiling the national accounts. In general, they will therefore have to be transformed in order to comply with the ESA.The concepts in the ESA usually differ in some respects from their administrative counterparts because:(a) administrative concepts differ between countries. As a consequence, international compatibility cannot be attained through administrative concepts;(b) administrative concepts change over time. As a consequence, comparability in time cannot be attained through administrative concepts;(c) the concepts underlying administrative data sources are usually not consistent with each other. However, linking and comparing data, which is crucial for compiling national accounts figures, is only possible with a consistent set of concepts;(d) the administrative concepts are generally not optimal for economic analysis and the evaluation of economic policy.Nevertheless, sometimes, administrative data sources meet the data needs of national accounts and other statistics very well, because:(a) concepts and classifications originally devised for statistical purposes may also be adopted for administrative purposes, e.g. the classification of government expenditure by type;(b) administrative data sources may explicitly take account of the (separate) data needs of statistics; this applies, for example, to the Intrastat system for providing information about deliveries of goods between European Union Member States.1.11. The main concepts in the ESA are well-established and fixed for a long period, because:(a) they have been approved as the international standard for the next decades;(b) in the successive international guidelines on national accounting most of the basic concepts have hardly been changed.This conceptual continuity reduces the need to recalculate time series and to learn new concepts. Furthermore, it limits the vulnerability of the concepts to national and international political pressure. For these reasons, the national accounts figures have been able to serve as an objective data base for economic policy and analysis for decades.1.12. The ESA concepts are focused on describing the economic process in monetary and readily observable terms. For the most part, stocks and flows that are not readily observable in monetary terms, or that do not have a clear monetary counterpart are not taken into account.This principle has not been applied strictly, because account should also be taken of the requirement of consistency and the various data needs. For example, consistency requires that the value of collective services produced by government is recorded as output, because the payment of compensation of employees and the purchase of all kinds of goods and services by government are readily observable in monetary terms. Furthermore, for the purposes of economic analysis and policy, describing the collective services of government in relation to the rest of the national economy increases also the usefulness of the national accounts as a whole.1.13. The scope of the concepts in the ESA can be illustrated by considering some important borderline issues.The following fall within the production boundary of the ESA (see paragraphs 3.07. to 3.09.):(a) production of indiviual and collective services by government;(b) the own-account production of housing services by owner-occupiers;(c) production of goods for own final consumption, e.g. of agricultural products;(d) own-account construction, including that by households;(e) the production of services by paid domestic staff;(f) breeding of fish in fish farms;(g) production forbidden by law, e.g. prostitution and production of drugs;(h) production from which the revenues are not declared in full to the fiscal authorities, e.g. clandestine production of textiles.The following fall outside the production boundary:(a) domestic and personal services produced and consumed within the same household, e.g. cleaning, the preparation of meals or the care of sick or elderly people;(b) volunteer services that do not lead to the production of goods, e.g. caretaking and cleaning without payment;(c) natural breeding of fish in open seas.In general, the ESA records all outputs that result from production within the production boundary. However, there are some specific exceptions to this rule:(a) the outputs of ancillary activities are not to be recorded; all inputs consumed by an ancillary activity - materials, labour, consumption of fixed capital, etc. - are treated as inputs into the principal or secondary activity which it supports;(b) outputs produced for intermediate consumption in the same local kind-of-activity unit (KAU, see paragraph 1.29.) are not to be recorded; however, all outputs produced for other local KAUs belonging to the same institutional unit are to be recorded as output.The accounting logic of the ESA implies that if activities are regarded as production and their output is to be recorded, then the concomitant income, employment, final consumption, etc. are also to be recorded. For example, as the own-account production of housing services by owner-occupiers is recorded as production, so is the income and final consumption expenditure it generates for these owner-occupiers. The reverse holds when activities are not recorded as production: domestic services produced and consumed within the same household do not generate income and final consumption expenditure and according to the ESA concepts, no employment is involved.The ESA also contains many specific conventions, e.g.:(a) the valuation of government output;(b) the valuation of the output of insurance services and financial intermediation services indirectly measured;(c) recording all the collective services provided by government as final consumption expenditure and none as intermediate consumption;(d) recording the use of financial intermediation services indirectly measured as the intermediate consumption of a nominal sector or a nominal industry.1.14. The concepts in the ESA are multi-purpose: for a great range of uses the ESA concepts will be acceptable, though they may need to be supplemented for some uses (see paragraph 1.18.).1.15. The detail in the conceptual framework of the ESA offers the opportunity for flexible use: some concepts are not explicitly present in the ESA but can nevertheless easily be derived from it. For example, value added at factor cost can be derived by subtracting net other taxes on production from value added at basic prices. Another case in point is the creation of new sectors by rearranging the subsectors defined in the ESA.1.16. Flexible use is also possible by introducing additional criteria which do not conflict with the logic of the system. For example, these criteria might be the scale of employment for producer units or the size of income for households. For employment, subclassification by level of education, age and sex can be introduced.1.17. This flexible use may be incorporated in a Social Accounting Matrix (SAM). The SAM is a matrix presentation which elaborates the linkages between supply and use tables and the sector accounts (see paragraphs 8.133. to 8.155). A SAM commonly provides additional information on the level and composition of (un)employment, via a subdivision of compensation of employees by type of person employed. This subdivision applies to both the use of labour by industry, as shown in the use tables, and the supply of labour by socio-economic subgroup, as shown in the allocation of primary income account for subsectors of the sector households. In this way, the supply and use of various categories of labour is shown systematically.1.18. For some specific data needs the best solution is to draw up separate satellite accounts. Cases in point are the data needs for e.g.:(a) the analysis of the role of tourism in the national economy;(b) the analysis of the costs and financing of health care;(c) the analysis of the importance of research & development and human capital for the national economy;(d) the analysis of the income and expenditure of households on the basis of micro-oriented concepts of income and expenditure;(e) the analysis of the interaction between the environment and the economy;(f) the analysis of production within households;(g) the analysis of changes in welfare;(h) the analysis of the differences between national accounts and business accounts figures and their influence on stock and exchange markets;(i) the estimation of tax revenues.1.19. Satellite accounts can serve such data needs by:(a) showing more detail where necessary and leaving out superfluous detail;(b) enlarging the scope of the accounting framework by adding non-monetary information, e.g. on pollution and environmental assets;(c) changing some basic concepts, e.g. by enlarging the concept of capital formation by amount of the expenditure on research & development or the expenditure on education.1.20. An important feature of the satellite accounts is that in principle all basic concepts and classifications of the standard framework are retained. Only when the specific purpose of the satellite account definitely requires a modification, are changes in the basic concepts introduced. In such instances, the satellite account should also contain a table showing the link between the major aggregates in the satellite account and those in the standard framework. In this way, the standard framework retains its role as a framework of reference and at the same time justice is done to more specific needs.1.21. The standard framework does not pay much attention to stocks and flows which are not readily observable in monetary terms (or without a clear monetary counterpart). By their nature, the analysis of such stocks and flows is usually also well served by compiling statistics in non-monetary terms, e.g.:(a) production within households can most easily be described in terms of hours allocated to the alternative uses;(b) education can be described in terms of type of education, the number of pupils, the average number of years of education before obtaining a diploma, etc.;(c) the effects of pollution are best described in terms of changes in the number of living species, the health of the trees in the forest, the volume of refuse, the amounts of carbon-monoxide and radiation, etc.The satellite accounts offer a possibility to link such statistics in non-monetary units to the standard national accounts framework. The linkage is possible by using for these non-monetary statistics, as far as possible, the classifications employed in the standard framework, e.g. the classification by type of household or the classification by industry. In this way, a consistent extended framework is drawn up. This framework can then serve as a data base for the analysis and evaluation of all kinds of interactions between the variables in the standard framework and those in the extended part.1.22. The standard framework and its major aggregates do not describe changes in welfare. Extended accounts can be drawn up which include also the imputed monetary values of, e.g.:(a) domestic and personal services produced and consumed within the same household;(b) changes in leisure time;(c) amenities and disadvantages of urban life;(d) inequalities in the distribution of income over persons.They can also reclassify the final expenditure on regrettable necessities (e.g. defence) as intermediate consumption, i.e. as not contributing to welfare. Similarly, the damage due to floods and other natural disasters could be classified as intermediate consumption, i.e. as a reduction in (absolute) welfare.In this way, one could try to construct a very rough and very imperfect indicator of changes in welfare. However, welfare has many dimensions, most of which are best not expressed in monetary terms. A better solution for measuring welfare is therefore to use, for each dimension, separate indicators and units of measurement. The indicators could be, for example, infant mortality, life expectancy, adult literacy and national income per capita. These indicators could be incorporated in a satellite account.1.23. In order to attain a consistent, internationally compatible framework, administrative concepts are not employed in the ESA. However, for all kinds of national purposes, obtaining figures based on administrative concepts can be very useful. For example, for estimating tax revenues statistics of taxable income are required. These statistics can be provided by making some modifications to the national accounts statistics.A similar approach could be taken for some concepts used in national economic policy, e.g. for:(a) the concept of inflation used for increasing pensions, unemployment benefits or compensation of employees for civil servants;(b) the concepts of taxes, social contributions, government and the collective sector used in discussing the optimal size of the collective sector;(c) the concept of 'strategic` sectors/industries used in national economic policy or the economic policy of the EU;(d) the concept of 'business investments` used in national economic policy.Satellite accounts or simple supplementary tables could meet such, usually specifically national, data needs.The 1995 ESA and the 1993 SNA1.24. The ESA (the 1995 ESA) is fully consistent with the revised System of National Accounts (the 1993 SNA), which provides guidelines on national accounting for all countries throughout the world. Nevertheless, there are several differences between the 1995 ESA and the 1993 SNA:(a) differences in presentation, e.g.:1. in the ESA there are separate chapters on transactions in products, distributive transactions and financial transactions. In contrast, in the SNA these transactions are explained in seven chapters arranged by account, e.g. chapters on the production account, the primary distribution of income account, the capital account and the Rest of the World account;2. the ESA describes a concept by providing a definition and a listing of what is included and what is excluded. The SNA describes concepts usually in more general terms and endeavours also to explain the rationale behind the conventions adopted;3. the ESA also contains chapters on regional accounts and quarterly accounts;4. the SNA also contains a chapter on satellite accounts.(b) The ESA concepts are in several instances more specific and precise than those of the SNA, e.g.:1. the SNA does not contain very precise definitions on the distinction between market, for own final use and other non-market for institutional units, local KAUs and their outputs. This implies that in this respect the valuation of output and the classification by sectors are not defined sufficiently precisely. The ESA has therefore introduced several extra clarifications and also added in some specific instances the criterion that the sales of a market producer should cover at least 50 % of the production costs (see Table 3.1);2. the ESA specifies concrete recording thresholds, e.g. for recording small tools and appliances devices as intermediate consumption;3. the ESA assumes that several types of household production of goods, such as the weaving of cloth and the making of furniture, are not significant in European Union Member States and therefore need not be recorded;4. the ESA makes explicit reference to specific institutional arrangements in the European Union, such as the Intrastat system for recording intra-European Union flows of goods and the contributions by the Member States to the European Union;5. the ESA contains European Union-specific classifications, e.g.: CPA for products and NACE rev. 1 for industries (specific but harmonized with the corresponding UN classifications);6. the ESA contains an additional classification for all external transactions: they should be divided into those between residents of the European Union and those with residents from outside the European Union.The ESA can be more specific than the SNA, because the ESA primarily applies to the European Union Member States. For the data needs of the European Union, the ESA should also be more specific.The 1995 ESA and the 1970 ESA1.25. The 1995 ESA differs in scope as well as in concepts from the 1970 ESA. Most of these differences correspond to differences between the 1968 SNA and 1993 SNA. Some of these major differences in scope are:(a) the inclusion of balance sheets;(b) the inclusion of other changes in assets accounts, i.e. the introduction of the concepts other changes in volume, nominal holding gains and real holding gains;(c) the introduction of a subsectoring of households;(d) the introduction of a new concept of final consumption: Actual Final Consumption;(e) the introduction of a new price-adjusted income concept: real national disposable income;(f) the inclusion of the concept of purchasing power parities.Some of the major differences in concepts are:(a) literary-artistic work (writing books, composing music) is now regarded as production; payments for literary-artistic work are therefore payments for services and not property income;(b) the valuation of the output of insurance services has changed in some respects, e.g. the revenues from the investment of technical reserves are now also taken into account in valuing the output of non-life insurance;(c) more detailed treatment of trade and transport margins;(d) the introduction of chain linking for calculating constant prices;(e) the concept of financial leasing has been introduced (the 1968 SNA and 1970 ESA contained only the concept of operational leasing);(f) expenditure on mineral exploration and on computer software is now recorded as capital formation (instead of as intermediate consumption);(g) capital consumption should also be recorded for infrastructural works of government (roads, dikes, etc.);(h) identification of new financial instruments, such as repurchase agreements, and derivative financial instruments such as options.There are also differences that do not result from changes in the SNA, e.g.:(a) the introduction of supply and use tables (this was already included in the 1968 SNA);(b) the introduction of some registration thresholds and the reference to specific institutional arrangements in the European Union (see paragraph 1.24.);(c) a clear choice in favour of valuing output at basic prices (the 1970 ESA, the 1968 SNA and the 1993 SNA also accept valuation at producer's prices);(d) the introduction of the concepts of economically active population and unemployment (these concepts are absent in the 1968 and 1993 SNA).THE ESA AS A SYSTEM1.26. The main features of the system are:(a) statistical units and their groupings;(b) flows and stocks;(c) the system of accounts and the aggregates;(d) the input-output framework.STATISTICAL UNITS AND THEIR GROUPINGS (8)1.27. A characteristic feature of the system is the use of two types of unit and two ways of subdividing the economy which are quite different and serve separate analytical purposes.In order to describe income, expenditure and financial flows, and balance sheets, the system groups institutional units into sectors on the basis of their principal functions, behaviour and objectives.In order to describe processes of production and for input-output analysis, the system groups local kind-of-activity units (local KAUs) into industries on the basis of their type of activity. An activity is characterized by an input of products, a production process and an output of products.Institutional units and sectors1.28. Institutional units are economic entities that are capable of owning goods and assets, of incurring liabilities of engaging in economic activities and transactions with other units in their own right. For the purposes of the system, the institutional units are grouped together into five mutually exclusive institutional sectors composed of the following types of units:(a) non-financial corporations;(b) financial corporations;(c) general government;(d) households;(e) non-profit institutions serving households.The five sectors together make up the total economy. Each sector is also divided into subsectors.The system makes provision for a complete set of flow accounts and balance sheets to be compiled for each sector, and subsector if desired, as well as for the total economy.Local kind-of-activity units and industries1.29. Most institutional units in their capacity as producers carry out more than one activity; to emphasize relationships of a technico-economic kind, they have to be partitioned with regard to the type of activity.Local kind-of-activity units are intended to meet this requirement as an operational approach. A local KAU groups all the parts of an institutional unit in its capacity as producer which are located in a single or closely located sites, and which contribute to the performance of an activity at the class level (four digits) of the NACE rev. 1.In principle, as many local kind-of-activity units must be registered as there are secondary activities; however, if the accounting documents that would be necessary to describe such activities are not available, a local kind-of-activity unit may include one or several secondary activities.The group of all local KAUs engaged on the same, or similar, kind-of-activity constitutes an industry.There is a hierarchical relationship between institutional units and local KAUs. An institutional unit contains one or more entire local KAUs; a local KAU belongs to one and only one institutional unit.For more refined analysis of the production process, use is made of an analytical unit of production. This unit, which is not observable (except in the case of a local KAU only producing one type of product), is the unit of homogeneous production, defined as covering no secondary activities. Groupings of these units constitute homogeneous branches.Resident and non-resident units; total economy and rest of the world1.30. The total economy is defined in terms of resident units. A unit is said to be a resident unit of a country when it has a centre of economic interest on the economic territory of that country - that is, when it engages for an extended period (one year or more) in economic activities on this territory. The institutional sectors referred to above are groups of resident institutional units.Resident units engage in transactions with non-resident units (that is, units which are residents in other economies). These transactions are the external transactions of the economy and are grouped in the Rest of the World account. So, in the system's accounting structure, the rest of the world plays a role similar to that of an institutional sector, although non-resident units are included only in so far as they are engaged in transactions with resident institutional units. Consequently, as far as coding of classifications is concerned, a specific item for the rest of the world is included at the end of the classification of sectors.Notional resident units, treated in the system as institutional units, are defined as:(a) those parts of non-resident units which have a centre of economic interest (that is in most cases which engage in economic transactions for a year or more or which carry out a construction activity for a period of less than a year if the output constitutes gross fixed capital formation) on the economic territory of the country;(b) non-resident units in their capacity as owners of land or buildings on the economic territory of the country, but only in respect of transactions affecting such land or buildings.FLOWS AND STOCKS1.31. The system records two basic kinds of information: flows and stocks. Flows refer to actions and effects of events that take place within a given period of time, while stocks refer to positions at a point of time.Flows1.32. Flows reflect the creation, transformation, exchange, transfer or extinction of economic value. They involve changes in the value of an institutional unit's assets or liabilities. Economic flows are of two kinds: transactions, and other changes in assets. Transactions appear in all accounts and tables where flows appear, except the other changes in volume of assets account and the revaluation account. Other changes in the assets appear only in these two accounts.Elementary transactions and other flows are innumerable. The system groups them into a relatively small number of types according to their nature.Transactions1.33. A transaction is an economic flow that is an interaction between institutional units by mutual agreement or an action within an institutional unit that it is useful to treat as a transaction, often because the unit is operating in two different capacities. It is convenient to divide transactions into four main groups:(a) transactions in products: which describe the origin (domestic output or imports) and use (intermediate consumption, final consumption, capital formation or exports) of products (9);(b) distributive transactions: which describe how value added generated by production is distributed to labour, capital and government, and the redistribution of income and wealth (taxes on income and wealth and other transfers) (10);(c) financial transactions: which describe the net acquisition of financial assets or the net incurrence of liabilities for each type of financial instrument. Such transactions often occur as counterparts of non-financial transactions, but they may also occur as transactions involving only financial instruments (11);(d) transactions not included in the three groups above: consumption of fixed capital and acquisitions less disposals of non-produced non financial assets (12).Properties of transactionsInteractions versus intra-unit transactions1.34. Most transactions are interactions between two or more institutional units. However, the system records some actions within institutional units as transactions. The purpose of recording these intra-unit transactions is to give a more analytically useful picture of output, final uses and costs.Consumption of fixed capital, which is recorded as a cost by the system, is an important intra-unit transaction. Most of the other intra-unit transactions are transactions in products, typically recorded when institutional units operating as both producers and final consumers choose to consume some of the output they have produced themselves. This is often the case for households and general government.1.35. All own-produced output used for final uses within the same institutional unit is recorded. Own-produced output used for intermediate consumption within the same institutional unit is recorded only when production and intermediate consumption take place in different local kind-of-activity units within the same institutional unit. Output produced and used as intermediate consumption within the same local kind-of-activity unit is not recorded.Monetary versus non-monetary transactions1.36. Most transactions recorded by the system are monetary transactions, where the units involved make or receive payments, or incur liabilities or receive assets denominated in units of currency.Transactions that do not involve the exchange of cash, or assets or liabilities denominated in units of currency, are non-monetary transactions. Intra-unit transactions are normally non-monetary transactions. Non-monetary transactions involving more than one institutional unit occur among transactions in products (barter of products), distributive transactions (remuneration in kind, transfers in kind, etc.) and other transactions (barter of non-produced non-financial assets).The system records all transactions in monetary terms. The values to be recorded for non-monetary transactions must therefore be measured indirectly or otherwise estimated.Transactions with and without counterparts1.37. Transactions involving more than one unit are either 'something for something` or 'something for nothing` transactions. The former are exchanges between institutional units, i.e. provision of goods, services or assets in return for a counterpart, e.g. money. The latter typically are payments in cash or in kind from one institutional unit to another without counterpart. 'Something for something` transactions occur in all four transaction groups, while 'something for nothing` transactions occur mainly among distributive transactions, in the form of, for example, taxes, social assistance benefits or gifts.Rearranged transactions1.38. The system's treatment of most transactions is straightforward; that is, the transactions are recorded in the same way as they appear to the institutional units involved. However, some transactions are rearranged in order to bring out the underlying economic relationships more clearly. Transactions can be rearranged in three ways: rerouting, partitioning and recognizing the principal party to a transaction.Rerouting1.39. A transaction that appears to the units involved as taking place directly between units A and C may be recorded as taking place indirectly through a third unit B. Thus, the single transaction between A and C is recorded as two transactions: one between A and B, and one between B and C. In this case the transaction is rerouted.As well-known example of a rerouting is employers' social contributions paid directly by employers to social insurance funds. The system records these payments as two transactions: employers pay employer's social contributions to their employees, and employees pay the same contributions to social insurance funds. As with all reroutings, the purpose of rerouting employers' social contributions is to bring out the economic substance behind the transaction. In this case this means to show employer's social contributions as contributions paid for the benefit of employees.Another type of rerouting is that of transactions recorded as taking place between two or more institutional units, although according to the parties involved no transaction takes place at all. An example is the treatment of property income earned on certain insurance funds, which is retained by insurance enterprises. The system records this property income as being paid by insurance enterprises to policy holders, who then pay the same amount back to the insurance enterprises as premium supplements.Partitioning1.40. When a transaction appearing to the parties involved as a single transaction is recorded as two or more differently classified transactions, the transaction is partitioned. Partitioning does usually not imply involving additional units in the transactions.The payment of non-life insurance premiums is a typical partitioned transaction. Although policy holders and insurers regard these payments as one transaction, the system divides them into two quite different transactions: payments in return for non-life insurance services provided, and net non-life insurance premiums. The recording of trade margins is another important case of partitioning.Recognizing the principal party to a transaction1.41. When a unit carries out a transaction on behalf of another unit, the transaction is recorded exclusively in the accounts of the principal. As a rule, one should not go beyond this principle and try, for instance, to allocate taxes or subsidies to ultimate payers or ultimate beneficiaries under the adoption of assumptions.Borderline cases1.42. The definition of a transaction stipulates that an interaction between institutional units be by mutual agreement. When a transaction is undertaken by mutual agreement, the prior knowledge and consent of the institutional units is implied. However, this does not mean that all units necessarily enter a transaction voluntarily, because some transactions are imposed by law. This applies mainly to certain distributive transactions, such as payments of taxes, fines and penalties. However, uncompensated seizure of assets is not regarded as a transaction, even when imposed by law.Illegal economic actions are transactions only when all units involved enter the actions voluntarily. Thus, purchases, sales or barters of illegal drugs or stolen property are transactions, while theft is not.Other changes in assets1.43. Other changes in assets record changes that are not the result of transactions (13). They are either:(a) other changes in the volume of assets and liabilities; or(b) holding gains and losses.Other changes in the volume of assets and liabilities1.44. These changes can be roughly divided into three main categories:(a) normal appearance and disappearance of assets other than by transactions;(b) changes in assets and liabilities due to exceptional, unanticipated events;(c) changes in classification and structure.1.45. Examples of changes within category (a) are discovery or depletion of subsoil assets, and natural growth of non-cultivated biological resources. Category (b) comprises changes (normally losses) in assets due to natural disasters, war or severe acts of crime (14). Unilateral cancellation of debt and uncompensated seizure of assets also belong to category (b). Category (c) consists of changes as a consequence of reclassification and restructuring of institutional units or of assets and liabilities.Holding gains and losses1.46. Holding gains and losses result from changes in the prices of assets. They occur on all kinds of financial and non-financial assets, and on liabilities. Holding gains and losses accrue to the owners of assets and liabilities purely as a result of holding the assets or liabilities over time, without transforming them in any way.Holding gains and losses measured on the basis of current market prices are called nominal holding gains and losses. These may be decomposed into neutral holding gains and losses, reflecting changes in the general price level, and real holding gains and losses, reflecting changes in the relative prices of assets.Stocks1.47. Stocks are holdings of assets and liabilities at a point in time. Stocks are recorded at the beginning and end of each accounting period. The accounts that show stocks are called balance sheets (15).Stocks are also recorded for population and employment. However, these stocks are recorded as mean values over the accounting period.Stocks are recorded for all assets within the system's boundaries; that is, for financial assets and liabilities and for non-financial assets, both produced and non-produced. However, the coverage is limited to those assets that are used in economic activity and that are subject to ownership rights. Thus, stocks are not recorded for assets such as human capital and natural resources that are not owned.Within its boundaries, the system is exhaustive in respect of both flows and stocks. This implies that all changes in stocks can be fully explained by recorded flows.THE SYSTEM OF ACCOUNTS AND THE AGGREGATES (16)Rules of accounting1.48. An account is a means of recording, for a given aspect of economic life, the uses and resources or the changes in assets and the changes in liabilities during the accounting period, or the stock of assets and liabilities existing at the beginning or at the end of this period.Terminology for the two sides of the accounts1.49. The system employs the term 'resources` for the right side of the current accounts where transactions appear which add to the amount of economic value of a unit or a sector. The left side of the accounts, which relates to transactions that reduce the amount of economic value of a unit or sector, is termed 'uses`.The right side of the accumulation accounts is called 'changes in liabilities and net worth` and their left side is called 'changes in assets`.Balance sheets are presented with 'liabilities and net worth` (the difference between assets and liabilities) on the right side and 'assets` on the left. Comparison of two successive balance sheets shows changes in liabilities and net worth and changes in assets.Double entry/quadruple entry1.50. For a unit or sector, national accounting is based on the principle of double entry. Each transaction must be recorded twice, once as a resource (or a change in liabilities) and once as a use (or a change in assets). The total of transactions recorded as resources or changes in liabilities and the total of transactions recorded as uses or changes in assets must be equal, thus permitting a check on the consistency of the accounts.In practice though, national accounts - with all units and all sectors - are based on a principle of quadruple entry, since most transactions involve two institutional units. Each transaction of this type must be recorded twice by the two transactors involved. For example, a social benefit in cash paid by a government unit to a household is recorded in the accounts of government as a use under transfers and a negative acquisition of assets under currency and deposits; in the accounts of the household sector it is recorded as a resource under transfers and an acquisition of assets under currency and deposits.On the other hand, transactions within a single unit (such as the consumption of output by the same unit that produced it) require only two entries, whose values have to be estimated.Valuation1.51. With the exception of some variables concerning population and labour, the system shows all flows and stocks in monetary terms. The system does not attempt to determine the utility of flows and stocks. Instead, flows and stocks are measured according to their exchange value, i.e. the value at which flows and stocks are in fact, or could be, exchanged for cash. Market prices are thus ESA's basic reference for valuation.1.52. In the case of monetary transactions and cash holdings and liabilities, the values required are directly available. In most other cases, the preferred method of valuation is by reference to market prices for analogous goods, services or assets. This method is used for e.g. barter and the services of owner-occupied dwellings. When no market prices for analogous products are available, for instance in the case of non-market services produced by government, valuation should be made according to production costs. If neither of these two methods are feasible, flows and stocks may be valued at the discounted present value of expected future returns. However, due to the great uncertainty involved, this last method is only recommended as a last resort.1.53. Stocks should be valued at current prices at the time to which the balance sheet relates, not at the time of production or acquisition of the goods or assets that form the stocks. It is sometimes necessary to value stocks at their estimated written-down current acquisition values or production costs.Special valuations concerning products (17)1.54. Because of transport costs, trade margins and taxes less subsidies on products, the producer and the user of a given product usually perceive its value differently. In order to keep as close as possible to the views of the transactors, the system records all uses at purchaser's prices, which include transport costs, trade margins and taxes less subsidies on products, while output is recorded at basic prices, which exclude these elements.1.55. Imports and exports of products are recorded at border values. Total imports and exports are valued at the exporter's customs frontier, or free on board (fob). Foreign transport and insurance services between the importer's and the exporter's frontiers are not included in the value of goods but are recorded under services. As it may not be possible to obtain fob values for detailed product breakdowns, the tables containing details on foreign trade show imports valued at the importer's customs frontier (cif value). All transport and insurance services to the importer's frontier are included in the value of imported goods. As far as these services concern domestic services a global fob/cif adjustment is made in this presentation.Valuation at constant prices (18)1.56. Valuation at constant prices means valuing the flows and stocks in an accounting period at the prices of a previous period. The purpose of valuation at constant prices is to decompose changes over time in the values of flows and stocks into changes in price and changes in volume. Flows and stocks at constant prices are said to be in volume terms.Many flows and stocks, e.g. income, do not have price and quantity dimensions of their own. However, the purchasing power of these variables can be obtained by deflating the current values with a suitable price index, e.g. the price index for final national uses, excluding changes in inventories. Deflated flows and stocks are said to be in real terms. An example is real disposable income.Time of recording1.57. The system records flows on an accrual basis; that is, when economic value is created, transformed or extinguished, or when claims and obligations arise, are transformed or are cancelled.Thus, output is recorded when produced, not when paid for by a purchaser, and the sale of an asset is recorded when the asset changes hands, not when the corresponding payment is made. Interest is recorded in the accounting period when it accrues, regardless of whether or not it is actually paid in that period. Recording on an accrual basis applies to all flows, monetary as well as non-monetary and intra-unit a well as between units.However, in some cases it is necessary to show flexibility as regards time of recording. This applies in particular to taxes and other flows concerning general government, which are often recorded on a cash basis in government accounts. It is sometimes difficult to carry out an exact transformation of these flows from cash basis to accrual basis. In these cases it might therefore be necessary to use approximations.Any flow should be recorded at the same point of time for all institutional units involved and in all accounts in question. This principle may seem simple, but its implementation is not. Institutional units do not always apply the same accounting rules. Even when they do, differences in actual recording may occur for practical reasons such as delays in communication. Consequently, transactions may be recorded at different times by the transactors involved. These discrepancies must be eliminated by adjustments.Consolidation and nettingConsolidation1.58. Consolidation refers to the elimination, from both uses and resources, of transactions which occur between units when the latter are grouped, and to the elimination of reciprocal financial assets and liabilities.For subsectors or sectors, flows and stocks between constituent units are not consolidated between constituent units as a matter of principle.However, consolidated accounts may be built up for complementary presentations and analyses. For certain kinds of analysis, information on the transactions of these (sub)sectors with other sectors and the corresponding 'external` financial position is more significant than overall gross figures.Moreover, the accounts and tables showing the creditor/debitor relationship provide a detailed picture of financing of the economy and are considered very useful for understanding the channels through which the financing surpluses move from final lenders to final borrowers.Netting1.59. Individual units or sectors may have the same kind of transaction both as a use and as a resource (e.g. they both pay and receive interest) and the same kind of financial instrument both as an asset and as a liability.The system recommends gross recording, apart from the degree of netting which is inherent in the classifications themselves.In fact, netting is implicit in various transaction categories, the most outstanding example being 'changes in inventories`, which underlines the analytically significant aspect of overall capital formation rather than tracking daily additions and withdrawals.Similarly, with few exceptions, the financial account and other changes in assets accounts record increases in assets and in liabilities on a net basis, bringing out the final consequences of these types of flows at the end of the accounting period.Accounts, balancing items and aggregates1.60. For units (institutional units; local kind-of-activity units) or groups of units (institutional sectors and, by extension, the rest of the world; industries), different sub-accounts record the transactions or other flows which are connected to some specific aspect of economic life (for instance, production). Such a set of transactions usually does not balance; the total amounts recorded as receivable and payable usually differ. Therefore, a balancing item must be introduced. Usually, a balancing item must also be introduced between the total of assets and the total of liabilities of an institutional unit or sector. Balancing items are meaningful measures of economic performance in themselves. When summed for the whole economy, they constitute significant aggregates.The sequence of accounts1.61. The system is built around a sequence of inter-connected accounts.The full sequence of accounts for the institutional units and sectors is composed of current accounts, accumulation accounts and balance sheets.Current accounts deal with the production, generation, distribution and redistribution of income and the use of this income in the form of final consumption. Accumulation accounts cover changes in assets and liabilities and changes in net worth (the difference for any institutional unit or group of units between its assets and liabilities). Balance sheets present stocks of assets and liabilities and net worth.1.62. It is not possible to envisage a complete set of accounts, including balance sheets, being compiled for a local KAU, because generally such an entity is not capable of owning goods or assets in its own right or capable of receiving or disbursing income. The sequence of accounts for local kind-of-activity units and industries is shortened to the first current accounts: production account and generation of income account, the balancing item of which is the operating surplus.The goods and services account1.63. The goods and services account shows, for the economy as a whole or for groups of products, the total resources (output and imports) and uses of goods and services (intermediate consumption, final consumption, changes in inventories, gross fixed capital formation, acquisitions less disposals of valuables, and exports).The Rest of the World account1.64. The Rest of the World account covers transactions between resident and non-resident institutional units and the related stocks of assets and liabilities when relevant.As the rest of the world plays a role in the accounting structure similar to that of an institutional sector, the Rest of the World account is established from the point of view of the rest of the world. A resource for the rest of the world is a use for the total economy and vice versa. If a balancing item is positive, it means a surplus of the rest of the world and a deficit of the total economy, and vice versa if the balancing item is negative.Balancing items1.65. A balancing item is an accounting construct obtained by subtracting the total value of the entries on one side of an account from the total value on the other side. It cannot be measured independently of the other entries; as a derived entry, it reflects the application of the general accounting rules to the specific entries on the two sides of the account.Balancing items are not only devices introduced to ensure that accounts balance. They encapsulate a great deal of information and include some of the most important entries in the accounts, as can be seen from the following examples of balancing items: value added, operating surplus, disposable income, saving, net lending/net borrowing.Aggregates1.66. The aggregates are composite values which measure the result of the activity of the total economy considered from a particular point of view; for example, output, value added, disposable income, final consumption, saving, capital formation, etc. Although the calculation of the aggregates is neither its sole nor its main purpose, the system does recognize their importance as summary indicators and key magnitudes for purposes of macro-economic analysis and comparisons over time and space.Two types of aggregates can be distinguished:(a) aggregates which refer directly to transactions in the system, such as the output of goods and services, actual final consumption, gross fixed capital formation, compensation of employees, etc.;(b) aggregates which represent balancing items in the accounts, such as gross domestic product at market prices (GDP), operating surplus of the total economy, national income, national disposable income, saving, current external balance, net worth of the total economy (national wealth).1.67. A dimension is added to the usefulness of a number of national accounts figures by calculating these figures per head. For broad aggregates such as GDP or national income or household final consumption, the denominator commonly used is the total (resident) population. When subsectoring the accounts or part of the accounts of the household sector, data on the number of households and the number of persons belonging to each subsector are also necessary (19).THE INPUT-OUTPUT FRAMEWORK (20)1.68. The input-output framework consists of supply and use tables by industry, tables linking the supply and use tables to the sector accounts and symmetric input-output tables by homogeneous branch (product).1.69. Supply and use tables are matrices (rows of products, columns of industries), showing how the output of industries is broken down by type of products and how the domestic and imported supply of goods and services is allocated between various intermediate or final uses, including exports. The use table also shows by industry the structure of production costs and the income generated.The supply and use tables are the coordinating framework for all tables by industry and (or) by product, which include data on labour inputs, gross fixed capital formation, stocks of fixed assets, detailed price indices and thus describe in detail cost structure, income generated, employment, labour productivity, capital intensity.1.70. It is possible to link the supply and use tables to the sector accounts by cross-classifying output, intermediate consumption and the components of value added by sector and by industry.CHAPTER 2 UNITS AND GROUPINGS OF UNITS 2.01. The economy of a country is the outcome of the activity of a very large number of units which carry out numerous transactions of various kinds for purposes of production, finance, insurance, redistribution and consumption.2.02. The units and groupings of units used in national accounts must be defined with reference to the kind of economic analysis for which they are intended, and not in terms of the types of unit usually employed in statistical inquiries. These latter units (enterprises, holding companies, kind-of-activity units, local units, government departments, non-profit institutions, households, etc.) may not always be satisfactory for the purposes of national accounts, since they are generally based on traditional criteria of a legal, administrative or accounting nature.Statisticians should take into account the definitions of units of analysis used in the ESA, in order to ensure that in the surveys in which actual data are collected all the elements of information needed to compile data based on the units of analysis used in the ESA are gradually introduced.2.03. A feature of the system is the use of three types of unit corresponding to two very different ways of subdividing the economy. To analyse the process of production, it is essential to select units which bring out relationships of a technico-economic nature; to analyse flows affecting income, capital and financial transactions and balance sheets, it is essential to select units which make it possible to study behavioural relationships among economic agents.Given these two objectives, institutional units appropriate for the analysis of economic behaviour, local kind-of-activity units and units of homogeneous production appropriate for the analysis of technico-economic relationships are defined later in this chapter. In practice, these three types of unit are formed by combining or subdividing the basic units of statistical inquiries or sometimes received directly from statistical inquiries. Before giving precise definitions of these three types of unit used in the ESA, it is necessary to define the limits of the national economy.THE LIMITS OF THE NATIONAL ECONOMY2.04. The units, whether institutional, local kind-of-activity or of homogeneous production, which constitute the economy of a country and whose transactions are recorded in the ESA, are those which have a centre of economic interest on the economic territory of that country. These units, known as resident units, may or may not have the nationality of that country, may or may not be legal entities, and may or may not be present on the economic territory of the country at the time they carry out a transaction. Having thus defined the limits of the national economy in terms of resident units, it is necessary to define the meaning of the terms economic territory and centre of economic interest.2.05. The term economic territory means:(a) the geographic territory administered by a government within which persons, goods, services and capital move freely;(b) any free zones, including bonded warehouses and factories under customs control;(c) the national air-space, territorial waters and the continental shelf lying in international waters, over which the country enjoys exclusive rights (21);(d) territorial enclaves (i.e. geographic territories situated in the rest of the world and used, under international treaties or agreements between States, by general government agencies of the country (embassies, consulates, military bases, scientific bases, etc.));(e) deposits of oil, natural gas, etc. in international waters outside the continental shelf of the country, worked by units resident in the territory as defined in the preceding subparagraphs.2.06. The economic territory does not include extraterritorial enclaves (i.e. the parts of the country's own geographic territory used by general government agencies of other countries, by the institutions of the European Union or by international organizations under international treaties or agreements between States (22)).2.07. The term centre of economic interest indicates the fact there exists some location within the economic territory on, or from, which a unit engages, and intends to continue to engage, in economic activities and transactions on a significant scale, either indefinitely or over a finite but long period of time (a year or more). It follows that a unit which carries out such transactions on the economic territory of several countries is deemed to have a centre of economic interest in each of them. The ownership of land and buildings within the economic territory is deemed to be sufficient in itself for the owner to have a centre of economic interest there.2.08. On the basis of these definitions, units deemed to be residents of a country can be sub-divided into:(a) units which are principally engaged in production, finance, insurance or redistribution, in respect of all their transactions except those relating to ownership of land and buildings;(b) units which are principally engaged in consumption (23), in respect of all their transactions except those relating to ownership of land and buildings;(c) all units in their capacity as owners of land and buildings with the exception of owners of extraterritorial enclaves which are part of the economic territory of other countries or are States sui generis (see paragraph 2.06.).2.09. In the case of units which are principally engaged in production, finance, insurance or redistribution, in respect of all their transactions except those relating to ownership of land and buildings, the following two cases may be distinguished:(a) activity conducted exclusively on the economic territory of the country: units which carry out such activity are resident units of the country;(b) activity conducted for a year or more on the economic territories of several countries: only that part of the unit which has a centre of economic interest on the economic territory of the country is deemed to be a resident unit. It may be:1. either an institutional resident unit (see paragraph 2.12.), whose activities conducted for a year or more in the rest of the world are excluded and treated separately (24) or2. a notional resident unit (see paragraph 2.15.), in respect of the activity conducted in the country for a year or more by a unit which is resident in another country (25).2.10. In the case of units which are principally engaged in consumption, except in their capacity as owners of land and buildings, households which have a centre of economic interest in the country are deemed to be resident units, even if they go abroad for short periods (less than a year). They include, in particular, the following:(a) border workers, i.e. people who cross the frontier daily to work in a neighbouring country;(b) seasonal workers, i.e. people who leave the country for several months, but less than a year, to work in another country in sectors in which additional manpower is needed periodically;(c) tourists, patients, students (26), visiting officials, businessmen, salesmen, artists and crew members who travel abroad;(d) locally recruited staff working in the extraterritorial enclaves of foreign governments;(e) the staff of the institutions of the European Union and of civilian or military international organizations which have their headquarters in extraterritorial enclaves;(f) the official, civilian or military representatives of the government of the country (including their households) established in territorial enclaves.2.11. All units in their capacity as owners of land and/or buildings which form part of the economic territory are deemed to be resident units or notional resident units (see paragraph 2.15.) of the country in which the land or buildings in question are located.THE INSTITUTIONAL UNITS2.12. Definition: The institutional unit is an elementary economic decision-making centre characterized by uniformity of behaviour and decision-making autonomy in the exercise of its principal function. A resident unit is regarded as constituting an institutional unit if it has decision-making autonomy in respect of its principal function and either keeps a complete set of accounts or it would be possible and meaningful, from both an economic and legal viewpoint, to compile a complete set of accounts if they were required.In order to be said to have autonomy of decision in respect of its principal function, a unit must:(a) be entitled to own goods or assets in its own right; it will therefore be able to exchange the ownership of goods or assets in transactions with other institutional units;(b) be able to take economic decisions and engage in economic activities for which it is itself held to be directly responsible and accountable at law;(c) be able to incur liabilites on its own behalf, to take on other obligations or further commitments and to enter into contracts.In order to be said to keep a complete set of accounts, a unit must keep accounting records covering all its economic and financial transactions carried out during the accounting period, as well as a balance sheet of assets and liabilities.2.13. The following principles apply whenever entities do not clearly possess both the characteristics of an institutional unit:(a) households always enjoy autonomy of decision in respect of their principal function and must therefore be institutional units, even though they do not keep a complete set of accounts;(b) entities which do not keep a complete set of accounts, and for which it would not be possible or meaningful to compile a complete set of accounts if required, are combined with the institutional units into whose accounts their partial accounts are integrated;(c) entities which, while keeping a complete set of accounts, have no autonomy of decision in the exercise of their principal function are combined with the units which control them;(d) entities which satisfy the definition of an institutional unit are treated as such even if they do not publish their accounts;(e) entities forming part of a group of units engaged in production and keeping a complete set of accounts are deemed to be institutional units even if they have partially surrendered their autonomy of decision to the central body (the holding corporation) responsible for the general direction of the group; the holding corporation itself is deemed to be an institutional unit distinct from the units which it controls, unless (b) is applicable;(f) quasi-corporations keep a complete set of accounts and have no independent legal status. However, they have an economic and financial behaviour that is different from that of their owners and similar to that of corporations. Therefore they are deemed to have autonomy of decision and are considered as distinct institutional units.2.14. Holding corporations are institutional units whose main function is to control and direct a group of subsidiaries.2.15. Notional resident units are defined as:(a) those parts of non-resident units which have a centre of economic interest (that is in most cases which engage in economic transactions for a year or more or which carry out a construction activity for a period of less than a year if the output constitutes gross fixed capital formation) on the economic territory of the country;(b) non-resident units in their capacity as owners of land or buildings on the economic territory of the country, but only in respect of transactions affecting such land or buildings.Notional resident units, even if they keep only partial accounts and may not always enjoy autonomy of decision, are treated as institutional units.2.16. In conclusion, the following are deemed to be institutional units:(a) units which have a complete set of accounts and autonomy of decision:1. private and public corporations;2. cooperatives or partnerships recognized as independent legal entities;3. public producers which by virtue of special legislation are recognized as independent legal entities;4. non-profit institutions recognized as independent legal entities;5. agencies of general government;(b) units which have a complete set of accounts and which are deemed to have autonomy of decision: quasi-corporations (see paragraph 2.13. f);(c) units which do not necessarily keep a complete set of accounts, but which by convention are deemed to have autonomy of decision:1. households;2. notional resident units (see paragraph 2.15.).THE INSTITUTIONAL SECTORS2.17. The need for aggregation means that it is impossible to consider individual institutional units separately; they must be combined into groups called institutional sectors or simply sectors, some of which are divided into subsectors.>TABLE>2.18. Each of the sectors and subsectors groups together the institutional units which have a similar type of economic behaviour.The institutional units are grouped into sectors on the basis of the type of producer they are and depending on their principal activity and function, which are considered to be indicative of their economic behaviour.A sector is divided into subsectors according to the criteria relevant to that sector; this permits a more precise description of the economic behaviour of the units.The accounts for sectors and subsectors record all the activities, whether principal or secondary, of the institutional units covered.Each institutional unit belongs to only one sector or subsector.2.19. When the principal function of the institutional unit is to produce goods and services, it is necessary in deciding the sector to which it should be allocated - to distinguish first of all the type of producer it is belonging to.Three types of producers are distinguished in the ESA:(a) private and public market producers (see paragraph 3.24 and table 3.1 of chapter 3);(b) private producers for own final use (see paragraph 3.25 and table 3.1 of chapter 3);(c) private and public other non-market producers (see paragraph 3.26 and table 3.1 of chapter 3).Institutional units which are market producers are classified in the sectors non-financial corporations (S.11), financial corporations (S.12) or households (S.14).Institutional units which are private producers for own final use are classified in the households sector (S.14) together with the unincorporated enterprises owned by households (see paragraph 3.30).Institutional units which are other non-market producers are classified in the sector general government (S.13) or non-profit institutions serving households (S.15).2.20. Table 2.2 shows the type of producer, the principal activities and functions which are characteristic of each sector:>TABLE>The rest of the world (S.2) is a grouping of institutional units (see paragraph 2.89) which is not characterized by similar objectives and types of behaviour; it groups together non-resident institutional units insofar as they carry out transactions with resident institutional units.NON-FINANCIAL CORPORATIONS (S.11)2.21. Definition: The sector non-financial corporations (S.11) consists of institutional units whose distributive and financial transactions are distinct from those of their owners and which are market producers (see paragraphs 3.31, 3.32 and 3.37), whose principal activity is the production of goods and non-financial services (27).2.22. The sector non-financial corporations also includes non-financial quasi-corporations.2.23. The term 'non-financial corporations` denotes all bodies recognized as independent legal entities which are market producers and whose principal activity is the production of goods and non-financial services.The institutional units covered are the following:(a) private and public corporations which are market producers principally engaged in the production of goods and non-financial services;(b) cooperatives and partnerships recognized as independent legal entities which are market producers principally engaged in the production of goods and non-financial services;(c) public producers which by virtue of special legislation are recognized as independent legal entities and which are market producers principally engaged in the production of goods and non-financial services;(d) non-profit institutions or associations serving non-financial corporations, which are recognized as independent legal entities and which are market producers principally engaged in the production of goods and non-financial services (28);(e) holding corporations controlling (see paragraph 2.26) a group of corporations which are market producers, if the preponderant type of activity of the group of corporations as a whole - measured on the basis of value added - is the production of goods and non-financial services;(f) private and public quasi-corporations which are market producers principally engaged in the production of goods and non-financial services.2.24. The term 'non-financial quasi-corporations` denotes all bodies without independent legal status which are market producers principally engaged in the production of goods and non-financial services and meet the conditions qualifying them as quasi-corporations (see paragraph 2.13. f).Quasi-corporations must keep a complete set of accounts and are operated as if they were corporations. The de facto relationship to their owner is that of a corporation to their shareholders.Thus non-financial quasi-corporations owned by households, government units or non-profit institutions are grouped with non-financial corporations in the non-financial corporations sector.The existence of a complete set of accounts, including balance sheets, is not a sufficient condition for market producers to be treated as quasi-corporations. Therefore, partnerships and public producers, other than those included under 2.23. a, b, c and f and sole proprietorships - even if they keep a complete set of accounts - are in general not distinct institutional units because they do not enjoy autonomy of decision, their management being under the control of the households, non-profit institutions or governments which own them.2.25. The sector non-financial corporations also includes all notional resident units (see paragraph 2.15) which, by convention, are treated as if they were quasi-corporations.2.26. Control over a corporation is defined as the ability to determine general corporate policy by choosing appropriate directors, if necessary.A single institutional unit (another corporation, a household or a government unit) secures control over a corporation by owning more than half the voting shares or otherwise controlling more than half the shareholders' voting power. In addition, government secures control over a corporation as a result of special legislation decree or regulation which empowers the government to determine corporate policy or to appoint the directors.In order to control more than half the shareholders' voting power, an institutional unit need not own any of the voting shares itself. A corporation C could be a subsidiary of another corporation B in which a third corporation A owns a majority of the voting shares.Corporation C is said to be subsidiary of corporation B when: either corporation B controls more than half of the shareholders' voting power in corporation C or corporation B is a shareholder in C with the right to appoint or remove a majority of the directors of C.2.27. The sector non-financial corporations is divided into three subsectors:(a) public non-financial corporations (S.11001);(b) national private non-financial corporations (S.11002);(c) foreign controlled non-financial corporations (S.11003).Subsector: Public non-financial corporations (S.11001)2.28. Definition: The sub-sector public non-financial corporations consists of all non-financial corporations and quasi-corporations that are subject to control (see paragraph 2.26) by government units.2.29. Public quasi-corporations are quasi-corporations owned directly by government units.Subsector: National private non-financial corporations (S.11002)2.30. Definition: The subsector national private non-financial corporations consists of all non-financial corporations and quasi-corporations that are not controlled by government or by non-resident institutional units. This subsector includes all the non-profit institutions which are included in the non-financial corporate sector (see paragraph 2.23. d).This subsector includes corporate and quasi-corporate direct foreign investment enterprises (see paragraph 4.65) not classified in the subsector foreign controlled non-financial corporations (S.11003).Subsector: Foreign controlled non-financial corporations (S.11003)2.31. Definition: The subsector foreign controlled non-financial corporations consists of all non-financial corporations and quasi-corporations that are controlled (see paragraph 2.26) by non-resident institutional units.This subsector includes:(a) all subsidiaries of non-resident corporations;(b) all corporations controlled by a non-resident institutional unit that is not itself a corporation: for example, a corporation which is controlled by a foreign government; it includes corporations controlled by a group of non-resident units acting in concert;(c) all branches or other unincorporated agencies of non-resident corporations or unincorporated producers which are notional resident units to be treated as non-financial quasi-corporations (see paragraph 2.25).FINANCIAL CORPORATIONS (S.12)2.32. Definition: The sector financial corporations (S.12) consists of all corporations and quasi-corporations which are principally engaged in financial intermediation (financial intermediaries) and/or in auxiliary financial activities (financial auxiliaries) (29).Financial intermediation is the activity in which an institutional unit acquires financial assets and at the same time incurs liabilites (see paragraph 2.34) on its own account (see paragraph 2.33) by engaging in financial transactions on the market (see paragraphs 2.37 to 2.38). The assets and liabilities of the financial intermediaries have different characteristics, involving that the funds are transformed or repackaged with respect to maturity, scale, risk and the like in the financial intermediation process.Auxiliary financial activities are activities closely related to financial intermediation but which are not financial intermediation themselves (see paragraph 2.39).2.33. Through the financial intermediation process, funds are channelled between third parties with a surplus on one side and those with a lack of funds on the other. A financial intermediary does not simply act as an agent for these other institutional units but places itself at risk by acquiring financial assets and incurring liabilities on its own account.2.34. In the financial intermediation process, all categories of liabilities may be involved with the exception of the category other accounts payable (AF.7).The financial assets involved in the financial intermediation process may be classified in any category with the exception of the category insurance technical reserves (AF.6) but including the category other accounts receivable (factoring). In addition, financial intermediaries may invest their funds in non-financial assets including real estate. However, in order to be considered as a financial intermediary, a corporation should, in addition, incur liabilities on the market and transform funds. Therefore, real estate corporations (NACE. rev. 1 division 70) are excluded.2.35. The primary function of insurance corporations and pension funds consists of the pooling of risks. The main liabilities of these institutions are insurance technical reserves (AF.6). The counterparts of the reserves are investments by the insurance corporations and pension funds, which, therefore, act as financial intermediaries.2.36. Mutual funds primarily incur liabilities through the issue of shares (AF.52). They transform these funds by acquiring financial assets and/or real estate. Therefore, mutual funds are classified as financial intermediaries. As with other corporations, any change in the value of their assets and liabilities other than their own shares is reflected in their own funds (see paragraph 7.05). Because the amount of own funds normally equals the value of the mutual fund's shares, any change in the value of the fund's assets and liabilities will be reflected in the market value of these shares.Mutual funds investing solely in real estate are also regarded as financial intermediaries.2.37. Financial intermediation, generally, is limited to financial transactions on the market. In other words, acquiring assets and incurring liabilities should be with the general public or specified and relatively large sub-groups thereof. Where the activity is limited to small groups of persons or families, generally, no financial intermediation takes place. In particular, financial intermediation does not include institutional units providing treasury services to a company group. These institutional units are allocated to a sector according to the predominant function of the company group within the economic territory. However, in cases where the institutional unit providing the treasury services is subject to financial supervision, it is classified in the financial corporations sector by convention.2.38. Exceptions to the general limitation of financial intermediation to financial transactions on the market may exist. Examples are municipal credit and savings-banks, which rely heavily on the municipality involved, or financial lease corporations depending on a parent group of companies in acquiring funds or in investing funds. However, their lending or their acceptance of savings should be independent of the municipality involved or the parent group, respectively, in classifying them as financial intermediaries.2.39. Auxiliary financial activities comprise auxiliary activities for realizing transactions in financial assets and liabilities or the transformation or repackaging of funds. Financial auxiliaries do not set themselves at risk by acquiring financial assets or incurring liabilities. They only facilitate financial intermediation.2.40. The institutional units included in the sector financial corporations (S.12) are the following:a) private or public corporations which are principally engaged in financial intermediation and/or in auxiliary financial activities;b) cooperatives and partnerships recognized as independent legal entities which are principally engaged in financial intermediation and/or in auxiliary financial activities;c) public producers, which by virtue of special legislation are recognized as independent legal entities, which are principally engaged in financial intermediation and/or in auxiliary financial activities;d) non-profit institutions recognized as independent legal entities which are principally engaged in financial intermediation and/or in auxiliary financial activities, or which are serving financial corporations;e) holding corporations (see paragraph 2.14) if the group of subsidiaries within the economic territory as a whole is principally engaged in financial intermediation and/or in auxiliary financial activities;f) unincorporated mutual funds comprising investment portfolios owned by the group of participants, and whose management is undertaken, in general, by other financial corporations. These funds are institutional units by convention, separate from the managing financial corporation;g) financial quasi-corporations:1. unincorporated units principally engaged in financial intermediation and subject to regulation and supervision (in most cases classified in the other monetary financial institutions subsector or the insurance corporations and pension funds subsector) are deemed to enjoy autonomy of decision and to have autonomous management independent of their owners. Their economic and financial behaviour is similar to that of financial corporations. Therefore, they are treated as separate institutional units. Examples are branches of non-resident financial corporations;2. other unincorporated units principally engaged in financial intermediation but not subject to regulation and supervision are only considered as financial quasi-corporations if they meet the conditions qualifying them as quasi-corporations (see paragraph 2.13. f);3. unincorporated units principally engaged in auxiliary financial activities are only considered as financial quasi-corporations if they meet the conditions qualifying them as quasi-corporations (see paragraph 2.13. f).2.41. The financial corporations sector is subdivided into five subsectors:(a) the central bank (S.121);(b) other monetary financial institutions (S.122);(c) other financial intermediaries, except insurance corporations and pension funds (S.123);(d) financial auxiliaries (S.124);(e) insurance corporations and pension funds (S.125).The other monetary financial institutions subsector is regarded as equivalent to the other depository corporations subsector as defined in the 1993 SNA 4.88-4.94. While the definition of the other monetary financial institutions subsector (see paragraph 2.48) is intended to cover those financial intermediaries through which the effects of the monetary policy of the central bank are transmitted to the other entities of the economy, the other depository corporations subsector is defined in the 1993 SNA with reference to measures of broad money. The combined subsectors S.121 and S.122 coincide with the monetary financial institutions for statistical purposes as defined by the EMI (see paragraph 2.49).2.42. With the exception of subsector S.121, each subsector may be further subdivided into:(a) public financial corporations;(b) national private financial corporations;(c) foreign controlled financial corporations.The criteria for this subdivision are the same as for non-financial corporations (see paragraphs 2.26 to 2.31).2.43. Holding corporations which only control and direct a group of subsidiaries principally engaged in financial intermediation and/or in auxiliary financial activities are classified in the subsector other financial intermediaries except insurance corporations and pension funds (S.123) (30). However, holding corporations which are financial corporations themselves are to be allocated to the subsectors according to the main type of financial activity.2.44. Non-profit institutions recognized as independent legal entities serving financial corporations, but not engaged in financial intermediation or auxiliary financial activities, are classified in the subsector financial auxiliaries (S.124).Subsector: The central bank (S.121)2.45. Definition: The subsector the central bank (S.121) consists of all financial corporations and quasi-corporations whose principal function is to issue currency, to maintain the internal and external value of the currency and to hold all or part of the international reserves of the country.2.46. The following financial intermediaries are classified in subsector S.121:(a) the national central bank, also in the case where it is part of a European System of Central Banks;(b) central monetary agencies of essentially public origin (e.g. agencies managing foreign exchange or issuing currency) which keep a complete set of accounts and enjoy autonomy of decision in relation to central government. Mostly these activities are performed either within central government or within the central bank. In these cases no separate institutional units exist.2.47. Subsector S.121 does not include agencies and bodies, other than the central bank, which regulate or supervise financial corporations or financial markets. They are classified in subsector S.124 (see paragraph 2.58 (g) (31).Subsector: Other monetary financial institutions (S.122)2.48. Definition: The subsector other monetary financial institutions (S.122) consists of all financial corporations and quasi-corporations, except those classified in the central bank subsector, which are principally engaged in financial intermediation and whose business is to receive deposits and/or close substitutes for deposits from institutional units other than monetary financial institutions, and, for their own account, to grant loans and/or to make investments in securities.2.49. The monetary financial institutions (MFIs) comprise the subsector the central bank (S.121) and the subsector other monetary financial institutions (S.122), and coincide with the monetary financial institutions for statistical purposes as defined by the EMI (see paragraph 2.41).2.50. MFIs cannot be described simply as 'banks`, because they may possibly include some financial corporations which may not call themselves banks, and some which may not be permitted to do so in some countries, while some other financial corporations describing themselves as banks may not in fact be MFIs. In general, the following financial intermediaries are classified in subsector S.122:(a) commercial banks, 'universal` banks, 'all-purpose' banks;(b) savings banks (including trustee savings banks and savings banks and loan associations);(c) post office giro institutions, post banks, giro banks;(d) rural credit banks, agricultural credit banks;(e) cooperative credit banks, credit unions;(f) specialized banks (e.g. merchant banks, issuing houses, private banks).2.51. The following financial intermediaries may also be classified in subsector S.122 where it is their business to receive repayable funds from the public whether in the form of deposits or in other forms such as the continuing issue of bonds and other comparable securities. Otherwise, they should be classified in subsector S.123:(a) corporations engaged in granting mortgages (including building societies, mortgage banks and mortgage credit institutions);(b) mutual funds (including investment trusts, unit trusts and other collective investment schemes, e.g. undertakings for collective investment in transferable securities-UCITS);(c) municipal credit institutions.2.52. Subsector S.122 does not include:(a) holding corporations which only control and direct a group consisting predominantly of other monetary financial institutions, but which are not other monetary financial institutions themselves. They are classified in subsector S.123 (see paragraph 2.43);(b) non-profit institutions recognized as independent legal entities serving other monetary financial institutions, but not engaged in financial intermediation. They are classified in subsector S.124 (see paragraph 2.44).Subsector: Other financial intermediaries, except insurance corporations and pension funds (S.123)2.53. Definition: The subsector other financial intermediaries except insurance corporations and pension funds (S.123) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation by incurring liabilities in forms other than currency, deposits and/or close substitutes for deposits from institutional units other than monetary financial institutions, or insurance technical reserves.2.54. Subsector S.123 includes various types of financial intermediaries especially those which are predominantly engaged in long-term financing. In most cases this predominant maturity forms the basis of a distinction from the other monetary financial institutions subsector. Based on the non-existence of liabilities in the form of insurance technical reserves, the borderline with the insurance corporations and pension funds subsector can be determined.2.55. In particular, the following financial corporations and quasi-corporations are classified in subsector S.123 unless they are MFIs:(a) corporations engaged in financial leasing;(b) corporations engaged in hire purchase and the provision of personal or commercial finance;(c) corporations engaged in factoring;(d) security and derivative dealers (on own account);(e) specialized financial corporations such as venture and development capital companies, export/import financing companies;(f) financial vehicle corporations, created to be holders of securitized assets;(g) financial intermediaries which receive deposits and/or close substitutes for deposits from MFIs only;(h) holding corporations which only control and direct a group of subsidiaries principally engaged in financial intermediation and/or in auxiliary financial activities, but which are not financial corporations themselves (see paragraph 2.43).2.56. Subsector S.123 does not include non-profit institutions recognized as independent legal entities serving other financial intermediaries except insurance corporations and pension funds, but not engaged in financial intermediation. They are classified in subsector S.124 (see paragraph 2.44).Subsector: Financial auxiliaries (S.124)2.57. Definition: The subsector financial auxiliaries (S.124) consists of all financial corporations and quasi-corporations which are principally engaged in auxiliary financial activities, that is to say activities closely related to financial intermediation but which are not financial intermediation themselves (see paragraph 2.39).2.58. In particular, the following financial corporations and quasi-corporations are classified in subsector S.124:(a) insurance brokers, salvage and average administrators, insurance and pension consultants, etc.;(b) loan brokers, securities brokers, investment advisers, etc.;(c) flotation corporations that manage the issue of securities;(d) corporations whose principal function is to guarantee, by endorsement, bills and similar instruments;(e) corporations which arrange derivative and hedging instruments, such as swaps, options and futures (without issuing them);(f) corporations providing infrastructure for financial markets;(g) central supervisory authorities of financial intermediaries and financial markets when they are separate institutional units;(h) managers of pension funds, mutual funds, etc.;(i) corporations providing stock exchange and insurance exchange;(j) non-profit institutions recognized as independent legal entities serving financial corporations, but not engaged in financial intermediation or auxiliary financial activities (see paragraph 2.44).2.59. Subsector S.124 does not include holding corporations which only control and direct a group of subsidiaries principally engaged in auxiliary financial activities, but which are not financial auxiliaries themselves. They are classified in subsector S.123 (see paragraph 2.43).Subsector: Insurance corporations and pension funds (S.125)2.60. Definition: The subsector insurance corporations and pension funds (S.125) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation as the consequence of the pooling of risks (see paragraph 2.35).2.61. The insurance contracts administered might relate to individuals and/or groups, whether or not participation results from a general obligation imposed by government. Furthermore, social insurance contracts (see paragraphs 4.83 to 4.91) are sometimes a considerable part of the contracts administered.2.62. Subsector S.125 includes both captive insurance corporations and reinsurance corporations.2.63. Subsector S.125 does not include:(a) institutional units which fulfil each of the two criteria listed in paragraph 2.74. They are classified in subsector S.1314;(b) holding corporations which only control and direct a group consisting predominantly of insurance corporations and pension funds, but which are not insurance corporations and pension funds themselves. They are classified in subsector S.123 (see paragraph 2.43);(c) non-profit institutions recognized as independent legal entities serving insurance corporations and pension funds, but not engaged in financial intermediation. They are classified in subsector S.124 (see paragraph 2.44).2.64. The subsector insurance corporations and pension funds may be subdivided into:(a) insurance corporations;(b) (autonomous) pension funds.Autonomous pension funds are pension funds which have autonomy of decision and keep a complete set of accounts. They are therefore institutional units. Non-autonomous pension funds are not institutional units and remain part of the institutional unit that sets them up.2.65. Risks concerning individuals or groups could both be included in the activities of life and non-life insurance corporations. Some insurance corporations might limit their activities to group contracts only. These corporations are allowed to insure every group.2.66. Pension funds can be described as institutions which insure group risks relating to social risks and needs (see paragraph 4.84) of the insured persons. The typical groups of participants in such policies include employees of a single enterprise or a group of enterprises, employees of a branch or industry, and persons having the same profession. The benefits included in the insurance contract might encompass benefits which are paid after death of the insured to the widow(er) and children (mainly death in service), benefits which are paid after retirement and benefits which are paid after the insured became disabled.2.67. In some countries all these types of risks could be insured equally well by life insurance corporations as by pension funds. In other countries some of these classes of risks have to be insured through life insurance corporations. In contrast to life insurance corporations, pension funds are restricted (by law) to specified groups of employees and self-employed.GENERAL GOVERNMENT (S.13)2.68. Definition: The sector general government (S.13) includes all institutional units which are other non-market producers (see paragraph 3.26) whose output is intended for individual and collective consumption, and mainly financed by compulsory payments made by units belonging to other sectors, and/or all institutional units principally engaged in the redistribution of national income and wealth.2.69. The institutional units included in sector S.13 are the following:(a) general government entities (excluding public producers organized as public corporations or, by virtue of special legislation, recognized as independent legal entities, or quasi-corporations, when any of these are classified in the non-financial or financial sectors) which administer and finance a group of activities, principally providing non-market goods and services, intended for the benefit of the community (32);(b) non-profit institutions recognized as independent legal entities which are other non-market producers and which are controlled and mainly financed by general government;(c) autonomous pension funds if the two requirements of paragraph 2.74 are met.2.70. The general government sector is divided into four subsectors:(a) central government (S.1311);(b) State government (S.1312);(c) local government (S.1313);(d) social security funds (S.1314).Subsector: Central government (S.1311)2.71. Definition: The subsector central government includes all administrative departments of the State and other central agencies whose competence extends normally over the whole economic territory, except for the administration of social security funds.Included in subsector S.1311 are those non-profit institutions which are controlled and mainly financed by central government and whose competence extends over the whole economic territory.Subsector: State government (S.1312)2.72. Definition: The State government subsector consists of state governments which are separate institutional units exercising some of the functions of government at a level below that of central government and above that of the governmental institutional units existing at local level, except for the administration of social security funds.Included in subsector S.1312 are those non-profit institutions which are controlled and mainly financed by state governments and whose competence is restricted to the economic territories of the States.Subsector: Local government (S.1313)2.73. Definition: The subsector local government includes those types of public administration whose competence extends to only a local part of the economic territory, apart from local agencies of social security funds.Included in subsector S.1313 are those non-profit institutions which are controlled and mainly financed by local governments and whose competence is restricted to the economic territories of the local governments.Subsector: Social security funds (S.1314)2.74. Definition: The subsector social security funds includes all central, State and local institutional units whose principal activity is to provide social benefits and which fulfil each of the following two criteria:(a) by law or by regulation certain groups of the population are obliged to participate in the scheme or to pay contributions;(b) general government is responsible for the management of the institution in respect of the settlement or approval of the contributions and benefits independently from its role as supervisory body or employer (see paragraph 4.89).There is usually no direct link between the amount of the contribution paid by an individual and the risk to which that individual is exposed.HOUSEHOLDS (S.14)2.75. Definition: The households sector (S.14) covers individuals or groups of individuals as consumers and possibly also as entrepreneurs producing market goods and non-financial and financial services (market producers) provided that, in the latter case, the corresponding activities are not those of separate entities treated as quasi-corporations. It also includes individuals or groups of individuals as producers of goods and non-financial services for exclusively own final use (see paragraphs 3.20, 3.25 and 3.30).Households as consumers may be defined as small groups of persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, mainly housing and food. The criteria of the existence of family or emotional ties may be added.The principal resources of these units are derived from the compensation of employees, property income, transfers from other sectors or the receipts from disposal of market products or the imputed receipts from output of products for own final consumption.2.76. The households sector includes:(a) individuals or groups of individuals whose principal function is consumption;(b) persons living permanently in institutions who have little or no autonomy of action or decision in economic matters (e.g. members of religious orders living in monasteries, long-term patients in hospitals, prisoners serving long sentences, old persons living permanently in retirement homes). Such people are treated as comprising, together, a single institutional unit, that is, a single household;(c) individuals or groups of individuals whose principal function is consumption and that produce goods and non-financial services for exclusively own final use; only two categories of services produced for own final consumption are included within the system: services of owner-occupied dwellings and domestic services produced by paid employees;(d) sole proprietorships and partnerships without independent legal status - other than those treated as quasi-corporations - which are market producers;(e) non-profit institutions serving households, which do not have independent legal status or those which do but are of only minor importance (see paragraph 2.88).2.77. The households sector is subdivided into six subsectors:(a) employers (including own-account workers) (S.141 + S.142);(b) employees (S.143);(c) recipients of property incomes (S.1441);(d) recipients of pensions (S.1442);(e) recipients of other transfer incomes (S.1443);(f) others (S.145).2.78. Households are allocated to subsectors according to the largest income category (employers' income, compensation of employees, etc.) of the household as a whole. When more than one income of a given category is received within the same household, the classification must be based on the total household income within each category.Subsector: Employers (including own-account workers) (S.141 + S.142)2.79. Definition: The subsector employers (including own-account workers) consists of the group of households for which the (mixed) incomes (B.3) accruing to the owners of household unincorporated enterprises from their activity as producers of market goods and services with or without paid employees are the largest source of income for the household as a whole, even if it does not always account for more than a half of total household income.Subsector: Employees (S.143)2.80. Definition: The subsector employees consists of the group of households for which the income accruing from compensation of employees (D.1) is the largest source of income for the household as a whole.Subsector: Recipients of property incomes (S.1441)2.81. Definition: The subsector recipients of property incomes consists of the group of households for which property income (D.4) is the largest source of income for the household as a whole.Subsector: Recipients of pensions (S.1442)2.82. Definition: The subsector recipients of pensions consists of the group of households for which the income accruing from pensions is the largest source of income for the household as a whole.Pension households are households whose largest income consists of retirement or other pensions, including pensions from previous employers.Subsector: Recipients of other transfer incomes (S.1443)2.83. Definition: The subsector recipients of other transfer incomes consists of the group of households for which the income accruing from other current transfers is the largest source of income for the household as a whole.Other current transfers are all current transfers other than property income, pensions and income of persons living permanently in institutions.Subsector: Others (S.145)2.84. Definition: The subsector others consists of persons living permanently in institutions.Persons living permanently in institutions are classified separately because the criterion of the largest source of income does not allow a meaningful classification of these persons in one of the foregoing subsectors.2.85. If the main income source of the household as a whole is not available for sectoring purposes, the income of the reference person constitutes the second-best characteristic to be used for classifying purposes. The reference person of a household is normally the person with the largest income. If the latter information is not available, the income of the person who states the he/she is the reference person may be used for subsectoring households.2.86. However, other criteria may be appropriate and needed for different kinds of analysis or as the basis for policy-making, e.g. breakdown of households as entrepreneurs by activity: agricultural households; non-agricultural households (industry; services).NON-PROFIT INSTITUTIONS SERVING HOUSEHOLDS (S.15)2.87. Definition: The sector non-profit institutions serving households (NPISHs) (S.15) consists of non-profit institutions which are separate legal entities, which serve households and which are private other non-market producers (see paragraph 3.32). Their principal resources, apart from those derived from occasional sales, are derived from voluntary contributions in cash or in kind from households in their capacity as consumers, from payments made by general governments (33) and from property income.2.88. Where these institutions are not very important, they are not included in this sector, their transactions being mixed up with those of households (S.14).The NPISHs sector includes the following main kinds of NPISHs that provide non-market goods and services to households:(a) trade unions, professional or learned societies, consumers' associations, political parties, churches or religious societies (including those financed but not controlled by governments), and social, cultural, recreational and sports clubs;(b) charities, relief and aid organizations financed by voluntary transfers in cash or in kind from other institutional units.Sector S.15 includes charities, relief or aid agencies serving non-resident units and excludes entities where membership gives right to a predetermined set of goods and services.REST OF THE WORLD (S.2)2.89. Definition: The rest of the world (S.2) is a grouping of units without any characteristic functions and resources; it consists of non-resident units (34) insofar as they are engaged in transactions with resident institutional units, or have other economic links with resident units. Its accounts provide an overall view of the economic relationships linking the national economy with the rest of the world.2.90. The rest of the world is not a sector for which complete sets of accounts have to be kept, although it is often convenient to describe the rest of the world as if it were a sector. Sectors are obtained by disaggregating the total economy to obtain more homogeneous groups of resident institutional units, which are similar in respect to their economic behaviour, their objectives and functions. This is not the case for the sector rest of the world: there are recorded the transactions and other flows of non-financial and financial corporations, non-profit institutions, households and general government with non-resident institutional units and other economic relationships between residents and non-residents, e.g. claims by residents on non-residents.2.91. It should be noted that the rule whereby the accounts for the rest of the world include only transactions carried out between resident institutional units and non-resident units is subject to the following exceptions:(a) the services of transport (up to the border of the exporting country) provided by resident units in respect of imported goods are shown in the rest of the world accounts with fob imports, even though they are produced by resident units (see paragraph 3.144);(b) transactions in foreign assets between residents belonging to different sectors are shown in the detailed financial accounts for the rest of the world; although they do not affect the country's financial position vis-à-vis the rest of the world, they affect the financial relationships of individual sectors with the rest of the world;(c) transactions in the country's liabilities between non-residents belonging to different geographical zones are shown in the geographical breakdown of the rest of the world accounts. Although these transactions do not affect the country's overall liability to the rest of the world, they affect its liabilities to different parts of the world.2.92. The sector rest of the world (S.2) is subdivided into:(a) the European Union (S.21):1. the member countries of the European Union (S.211);2. the institutions of the European Union (S.212);(b) third countries and international organizations (S.22).SECTOR CLASSIFICATION OF PRODUCER UNITS FOR MAIN STANDARD LEGAL FORMS OF OWNERSHIP2.93. The following overview and paragraphs 2.94 to 2.101 summarize the principles underlying the classification of producer units into sectors, using the standard terminology for describing the main types of institutions.2.94. Private and public corporations which are market producers are classified as follows:(a) those principally engaged in the production of goods and non-financial services: in sector S.11, non-financial corporations (see paragraph 2.23.a);(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12, financial corporations (see paragraphs 2.40. a and 2.40. f).2.95. Cooperatives and partnerships recognized as independent legal entities and which are market producers are classified as follows:(a) those principally engaged in the production of goods and non-financial services: in sector S.11, non-financial corporations (see paragraph 2.23. b);(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12, financial corporations (see paragraph 2.40. b).>TABLE>2.96. Public producers which by virtue of special legislation are recognized as independent legal entities and which are market producers are classified as follows:(a) those principally engaged in the production of goods and non-financial services: in sector S.11, non-financial corporations (see paragraph 2.23. c);(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12, financial corporations (see paragraph 2.40. c).2.97. Public producers not recognized as independent legal entities and which are market producers are classified as follows:(a) if they are quasi-corporations (see paragraph 2.13. f):1. those principally engaged in the production of goods and non-financial services: in sector S.11, non-financial corporations (see paragraph 2.23. f);2. those principally engaged in financial intermediation and financial auxiliary activities: in sector S.12, financial corporations (see paragraph 2.40. g).(b) If they are not quasi-corporations: in sector S.13, general government, as they remain an integral part of the units which control them (see paragraph 2.69. a).2.98. Non-profit institutions (associations, foundations) recognized as independent legal entities are classified as follows:(a) those which are market producers and principally engaged in the production of goods and non-financial services: in sector S.11, non-financial corporations (see paragraph 2.23. d);(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12, financial corporations (see paragraph 2.40. d);(c) those which are non-market producers:1. in sector S.13, general government, if they are public producers controlled and mainly financed by general government (see paragraph 2.69. b);2. in sector S.15, non-profit institutions serving households, if they are private producers (see paragraph 2.87).2.99. Sole proprietorships and partnerships not recognized as independent legal entities and which are market producers are classified as follows:(a) if they are quasi-corporations (see paragraph 2.13. f):1. those principally engaged in the production of goods and non-financial services: in sector S.11, non-financial corporations (see paragraph 2.23. f);2. those principally engaged in financial intermediation and financial auxiliary activities in sector S.12 financial corporations (see paragraph 2.40. g).(b) If they are not quasi-corporations, they are classified in sector S.14, households (see paragraph 2.75).2.100. Holding corporations (i.e. corporations which direct a group of companies) are classified as follows:(a) in sector S.11, non-financial corporations, if the preponderant type of activity of the group of corporations which are market producers, as a whole is the production of goods and non-financial services (see paragraph 2.23. e);(b) in sector S.12, financial corporations, if the preponderant type of activity of the group of corporations as a whole is financial intermediation (see paragraph 2.40. e).2.101. Table 2.3 illustrates in schematic form the various cases which are enumerated above.LOCAL KIND-OF-ACTIVITY UNITS AND INDUSTRIES2.102. In practice, most institutional units producing goods and services are engaged in a combination of activities at the same time. They may be engaged in a principal activity, some secondary activites and some ancillary activities (see paragraphs 3.10 to 3.13).2.103. An activity can be said to take place when resources such as equipment, labour, manufacturing techniques, information networks or products are combined, leading to the creation of specific goods or services. An activity is characterized by an input of products (goods and services), a production process and an output of products.Activities can be determined by reference to a specific level of NACE rev. 1 (35).2.104. If a unit carries out more than one activity, all the activites which are not ancillary activities are ranked according to the gross value added. On the basis of the preponderant gross value added generated, a distinction can then be made between principal activity and secondary activities. Ancillary activities are not isolated to form distinct entities or separated from the principal or secondary activities of entities they serve.2.105. In order to analyse flows occurring in the process of production and in the use of goods and services, it is necessary to choose units which emphasize relationships of a technico-economic kind. This requirement means that as a rule institutional units must be partitioned into smaller and more homogeneous units with regard to the kind of production. Local kind-of-activity units are intended to meet this requirement as a first but practice-oriented operational approach.THE LOCAL KIND-OF-ACTIVITY UNIT2.106. Definition: The local kind-of-activity unit (local KAU) is the part of a KAU which corresponds to a local unit (36). The KAU groups all the parts of an institutional unit in its capacity as producer contributing to the performance of an activity at class level (four digits) of the NACE rev. 1 and corresponds to one or more operational subdivisions of the institutional unit. The institutional unit's information system must be capable of indicating or calculating for each local KAU at least the value of production, intermediate consumption, compensation of employees, the operating surplus and employment and gross fixed capital formation.The local unit is an institutional unit producing goods and services or a part thereof situated in a geographically identified place.A local KAU may correspond to an institutional unit as producer or a part thereof; on the other hand, it can never belong to two different institutional units.2.107. If an institutional unit producing goods and services contains a principal activity and also one or several secondary activities, it should be subdivided into the same number of KAUs, and the secondary activities should be classified under different headings from the principal activity. On the other hand, the ancillary activities are not separated from the principal or secondary activities. But KAUs falling within a particular heading of the classification system can produce products outside the homogeneous group on account of secondary activities connected with them which cannot be separately identified from available accounting documents. Thus a KAU may carry out one or more secondary activities.THE INDUSTRY2.108. Definition: An industry consists of a group of local KAUs engaged in the same, or similar, kind-of-activity. At the most detailed level of classification, an industry consists of all the local KAUs falling within a single class (four digits) of NACE rev. 1 and which are therefore engaged in the same activity as defined in the NACE rev. 1.Industries comprise both local KAUs producing market goods and services and local KAUs producing non-market goods and services. An industry by definition consists of a group of local KAUs engaged in the same type of productive activity, irrespective of whether or not the institutional units to which they belong produce market or non-market output.2.109. Industries may be classified in three categories:(a) industries producing market goods and services (market industries) and goods and services for own final use (37);(b) industries producing non-market goods and services of general government: non-market industries of general government;(c) industries producing non-market goods and services of non-profit institutions serving households: non-market industries of non-profit institutions serving households.CLASSIFICATION OF INDUSTRIES2.110. The classification used for grouping local KAUs into industries is the NACE rev. 1.UNITS OF HOMOGENEOUS PRODUCTION AND HOMOGENEOUS BRANCHES2.111. The local KAU meets the requirements of production process analysis only approximately (see paragraphs 2.105 and 2.107). The unit which is optimal for this kind of analysis, i.e. input-output analysis, is the unit of homogeneous production.THE UNIT OF HOMOGENEOUS PRODUCTION2.112. Definition: The distinguishing feature of a unit of homogeneous production is a unique activity which is identified by its inputs, a particular process of production and its outputs. The products which constitute the inputs and outputs are themselves distinguished not only by their physical characteristics and the extent to which they are processed but also by the technique of production used: they can be identified by reference to a classification of products (see paragraph 2.118).2.113. If a goods and services producing institutional unit carries out a principal activity and also one or more secondary activities, it will be partitioned into the same number of units of homogeneous production. Ancillary activities are not separated from the principal or secondary activities. Just like the local KAU, the unit of homogeneous production may correspond to an institutional unit or a part thereof; on the other hand, it can never belong to two different institutional units.THE HOMOGENEOUS BRANCH2.114. Definition: The homogeneous branch consists of a grouping of units of homogeneous production. The set of activities covered by a homogeneous branch is identified by reference to a product classification. The homogeneous branch produces those goods or services specified in the classification and only those products.2.115. Homogeneous branches are units designed for economic analysis. Units of homogeneous production cannot usually be observed directly; data collected from the units used in statistical enquiries have to be rearranged to form homogeneous branches.2.116. Homogeneous branches may be classified in three categories:(a) homogeneous branches producing market goods and services (market branches) and goods and services for own final use (38);(b) homogeneous branches producing non-market goods and services of general government: non-market branches of general government;(c) homogeneous branches producing non-market goods and services of non-profit institutions serving households: non-market branches of non-profit institutions serving households.2.117. The homogeneous branches producing market goods and services and goods and services for own final use consist of all units of homogeneous production of whatever institutional sector which are exclusively engaged in the production of market goods and services or of goods and services for own final use. The production of market goods and services within the general government or non-profit institutions sectors (including those intended for themselves) are treated as units of homogeneous production and classified in an appropriate market branch.The non-market homogeneous branches of general government producing non-market goods and services consist of all units of homogeneous production in the general government sector which produce non-market goods and services.The non-market homogeneous branches of non-profit institutions serving households consist of all units of homogeneous production in the non-profit institutions serving households sector which produce non-market goods and services.THE CLASSIFICATION OF HOMOGENEOUS BRANCHES2.118. The classification of homogeneous branches used in the input-output tables is based on the Classification of Products by Activity (CPA) (39). The CPA is a product classification whose elements are structured according to the industrial origin criterion, industrial origin being defined by NACE rev. 1.CHAPTER 3 TRANSACTIONS IN PRODUCTS 3.01. Definition: Products are all goods and services that are created within the production boundary. The latter is defined in paragraph 3.07.3.02. The following main categories of transactions in products are distinguished in the ESA:>TABLE>3.03. Transactions in products are recorded in the following accounts:(a) in the goods and services account, output and imports are recorded as resources and the other transactions in products are registered as uses;(b) in the production account, output is recorded as a resource and intermediate consumption is recorded as a use;(c) in the use of disposable income account, final consumption expenditure is recorded as a use;(d) in the use of adjusted disposable income account, actual final consumption is recorded as a use;(e) in the capital account, gross capital formation is registered as a use (a change in assets);(f) in the external account of goods and services, imports of goods and services are recorded as a resource, while exports of goods and services are registered as uses.3.04. In the supply table, output and imports are recorded as supplies. In the use table, intermediate consumption, gross capital formation, final consumption expenditure and exports are registered as uses. In the symmetric input-output table, output and imports are recorded as supplies and the other transactions in products as uses.3.05. Supplies of products are valued at basic prices (see paragraph 3.48). Uses of products are valued at purchasers' prices (see paragraph 3.06). For some types of supplies and uses, more specific valuation principles are used, e.g. for imports and exports of goods.3.06. Definition: At the time of purchase, the purchaser's price is the price the purchaser actually pays for the products; including any taxes less subsidies on the products (but excluding deductible taxes like VAT on the products); including any transport charges paid separately by the purchaser to take delivery at the required time and place; after deductions for any discounts for bulk or off-peak-purchases from standard prices or charges; excluding interest or services charges added under credit arrangements; excluding any extra charges incurred as a result of failing to pay within the period stated at the time the purchases were made.If the time of use does not coincide with the time of purchase, adjustments should be made in such a way to take account of the changes in price due to the lapsing of time (in a manner symmetrical with changes in the prices of the inventories). Such modifications are especially important if the prices of the products involved change drastically within a year.PRODUCTION AND OUTPUT3.07. Definition: Production is an activity carried out under the control and responsibility of an institutional unit that uses inputs of labour, capital and goods and services to produce goods and services. Production does not cover purely natural processes without any human involvement or direction, like the unmanaged growth of fish stocks in international waters (but fish farming is production).3.08. Production includes:(a) the production of all individual or collective goods or services that are supplied to units other than their producers (or intended to be so supplied);(b) the own-account production of all goods that are retained by their producers for their own final consumption or gross fixed capital formation. Own account production for gross fixed capital formation includes the production of fixed assets such as construction, the development of software and mineral exploration for own gross fixed capital formation (for the concept of gross fixed capital formation, see paragraphs 3.100 to 3.127).Own-account production of goods by households pertains in general to:1. own-account construction of dwellings;2. the production and storage of agricultural products;3. the processing of agricultural products, like the production of flour by milling, the preservation of fruit by drying and bottling; the production of dairy products like butter and cheese and the production of beer, wine and spirits;4. the production of other primary products, like mining salt, cutting peat and carrying water;5. other kinds of processing, like weaving cloth, the production of pottery and making furniture.Own-account production of a good by households should be recorded if this type of production is significant, i.e. if it is believed to be quantitatively important in relation to the total supply of that good in a country.By convention, in the ESA, only own-account construction of dwellings and the production, storage and processing of agricultural products is included; all other own-account production of goods by households are deemed to be insignificant for European Union countries;(c) the own-account production of housing services by owner-occupiers;(d) domestic and personal services produced by employing paid domestic staff;(e) volunteer activities that result in goods, e.g. the construction of a dwelling, church or other building are to be recorded as production. Volunteer activities that do not result in goods, e.g. caretaking and cleaning without payment, are excluded.All such activities are included even if they are illegal or not-registered with tax, social security, statistical and other public authorities.3.09. Production excludes the production of domestic and personal services that are produced and consumed within the same household (with the exception of employing paid domestic staff and the services of owner-occupied dwellings). Cases in point are:(a) cleaning, decoration and maintenance of the dwelling as far as these activities are also common for tenants;(b) cleaning, servicing and repair of household durables;(c) preparation and serving of meals;(d) care, training and instruction of children;(e) care of sick, infirm or old people;(f) transportation of members of the household or their goods.PRINCIPAL, SECONDARY AND ANCILLARY ACTIVITIES3.10. Definition: The principal activity of a local KAU is the activitiy whose value added exceeds that of any other activity carried out within the same unit. The classification of the principal activity is determined by reference to NACE rev. 1, first at the highest level of the classification and then at more detailed levels.3.11. Definition: A secondary activity is an activity carried out within a single local KAU in addition to the principal activity. The output of the secondary activity is a secondary product.3.12. Definition: The output of an ancillary activity is not intended for use outside the enterprise. An ancillary activity is a supporting activity undertaken within an enterprise in order to create the conditions within which the principal or secondary activities of local KAUs can be carried out. Ancillary activities typically produce outputs that are commonly found as inputs into almost any kind of productive activity, small as well as large.Ancillary activities may be, e.g. purchasing, sales, marketing, accounting, data processing, transportation, storage, maintenance, cleaning and security services. Enterprises may have a choice between engaging in ancillary activities or purchasing such services on the market from specialist service producers.Own-account capital formation is not considered to be an ancillary activity.3.13. Ancillary activities are treated as integral parts of the principal or secondary activities with which they are associated. As a result:(a) the output of an ancillary activity is not explicitly recognized and recorded separately. It follows that the use of this output is also not recorded;(b) all the inputs consumed by an ancillary activity - materials, labour, consumption of fixed capital, etc. are treated as inputs into the principal or secondary activity which it supports.OUTPUT (P.1)3.14. Definition: Output consists of the products created during the accounting period.Particular cases included are:(a) the goods and services which one local KAU provides to a different local KAU belonging to the same institutional unit;(b) the goods which are produced by a local KAU and remain in inventories at the end of the period in which they are produced, whatever their subsequent use.However, goods or services produced and consumed within the same accounting period and within the same local KAU are not separately identified. They are therefore not recorded as part of the output or intermediate consumption of that local KAU.3.15. When an institutional unit contains more than one local KAU, the output of the institutional unit is the sum of the outputs of its component local KAUs, including outputs delivered between the component local KAUs.3.16. Three types of output are distinguished in the ESA:(a) market output (P.11);(b) output produced for own final use (P.12);(c) other non-market output (P.13).This distinction is also applied to local KAUs and institutional units:(a) market producers;(b) producers for own final use;(c) other non-market producers.The distinction, between market, for own final use and other non-market is fundamental, because it determines the valuation principles to be applied to output: market output, output produced for own final use and total output of market producers and producers for own final use are valued at basic prices, while the total output of other non-market producers (local KAUs) is valued from the costs side. The total output of an institutional unit is valued as the sum of the total outputs of its local KAUs and depends thus also on the distinction between market, for own final use and other non-market (see paragraphs 3.54 to 3.56). Furthermore, the distinction is also used to classify institutional units by sector (see paragraphs 3.27 to 3.37).The distinctions are defined in a top-down way, i.e. the distinction is first defined for institutional units, then for local KAUs and then for their output. As a consequence, the exact meaning of the distinction on the product level (i.e. the definition of the concepts of market output, output for own final use and other non-market output) can only be understood by looking also at features of the institutional unit and the local KAU that produce that output.After the general definitions of the three types of output and of the three types of producers (see paragraphs 3.17 to 3.26), the distinction between market, for own final use and other non-market is presented in a top-down way.3.17. Definition: Market output consists of output that is disposed of on the market (see paragraph 3.18) or intended to be disposed of on the market.3.18. Market output includes:(a) products sold at economically significant prices;(b) products bartered;(c) products used for payments in kind (including compensation of employees in kind and mixed income in kind);(d) products supplied by one local KAU to another within the same institutional unit to be used as intermediate inputs or for final uses;(e) products added to the inventories of finished goods and work-in-progress intended for one or other of the above uses (including natural growth of animal and vegetable products and uncompleted structures for which the buyer is unknown).3.19. Definition: In the ESA, the economically significant price of a product is defined partly in relation to the institutional unit and local KAU that has produced the output (see paragraphs 3.27 to 3.40). For example, by convention all the output of unincorporated enterprises owned by households sold to other institutional units is sold at economically significant prices, i.e. is to be regarded as market output. For the output of some other institutional units, output is only sold at economically significant prices when more than 50 % of the production costs is covered by sales.3.20. Definition: Output produced for own final use consists of goods or services that are retained either for final consumption by the same institutional unit or for gross fixed capital formation by the same institutional unit.3.21. Products retained for own final consumption can only be produced by the household sector. Typical examples are:(a) agricultural products retained by farmers;(b) housing services produced by owner-occupiers;(c) household services produced by employing paid staff.3.22. Products used for own gross fixed capital formation can be produced by any sector. Examples are:(a) special machine tools produced by engineering enterprises;(b) dwellings, or extensions to dwellings, produced by households;(c) own-account construction, including communal construction undertaken by groups of households.3.23. Definition: Other non-market output covers output that is provided free, or at prices that are not economically significant, to other units.3.24. Definition: Market producers are local KAUs or institutional units the major part of whose output is market output.It should be noted that if a local KAU or institutional unit is a market producer its main output is by definition market output, as the concept of market output is defined after having applied the distinction market, for own final use and other non-market to the local KAU and institutional unit that have produced that output.3.25. Definition: Producers for own final use are local KAUs or institutional units the major part of whose output is for own final use within the same institutional unit.3.26. Definition: Other non-market producers are local KAUs or institutional units whose major part of output is provided free or at not economically significant prices.Institutional units: distinction between market, for own final use and other non-market3.27. For the institutional units as producers, the distinction between market, for own final use and other non market is summarized in table 3.1. The implications for the classification by sectors are also shown.>TABLE>The table shows that in order to determine whether an institutional unit should be classified as a market producer, a producer for own-final use or another non-market producer several distinctions should be applied subsequently.3.28. The first distinction is that between private and public producers. A public producer is a producer that is controlled by the general government. In case of NPIs, a public producer is an NPI that is controlled and mainly financed by the general government. All other producers are private producers. Control is defined as the ability to determine the general (corporate) policy or programme of an institutional unit by appointing appropriate directors or managers, if necessary. Owning more than half the shares of a corporation is a sufficient, but not a necessary, condition for control (see paragraph 2.26).3.29. As table 3.1 shows, private producers are found in all sectors except the sector general government. In contrast, public producers are only found in the corporations sectors (non-financial corporations and financial corporations) and in the general government sector.3.30. A specific category of private producers are the unincorporated enterprises owned by households. These are always market producers or producers for own final use. The latter occurs in case of the production of services of owner-occupied dwellings and the own-account production of goods. All unincorporated enterprises owned by households are classified to the household sector. An exception should only be made for quasi-corporate enterprises owned by households. These are market producers and classified to the non-financial and financial corporations sectors.3.31. For the other private producers, a distinction should be made between private non-profit institutions and other private producers.Definition: A NPI is defined as a legal or social entity created for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gains for the units that establish, control or finance them. In practice, their productive activities are bound to generate either surpluses or deficits but any surpluses they happen to make cannot be appropriated by other institutional units.All the other private producers that are not NPIs are market producers. They are classified to the non-financial and financial corporations sectors.3.32. In order to determine the type of producer and the sector for the private NPIs, a 50 % criterion should be applied:(a) if more than 50 % of the production costs are covered by sales, the institutional unit is a market producer and classified to the non-financial and financial corporations sectors;(b) if less than 50 % of the production costs are covered by sales, the institutional unit is another non-market producer and classified to the sector NPISH. But other non-market NPIs that are controlled and mainly financed by general government are classified to the general government sector.3.33. In distinguishing market and other non-market producers by means of the 50 % criterion, sales and production costs are defined as follows:(a) sales cover the sales excluding taxes on products but including all payments made by general government or the institutions of the European Union and granted to any kind of producer in this type of activity, i.e. all payments linked to the volume or value of output are included, but payments to cover an overall deficit are excluded.This definition of sales corresponds to that of output at basic prices except that:(1) output at basic prices is only defined after it has been decided on whether the output is market or other non-market: sales are only used in valuing market output; other non-market output is valued at costs;(2) the payments made by general government to cover an overall deficit of public corporations and quasi-corporations are part or other subsidies on products as defined in paragraph 4.35. c. As a consequence, market output at basic prices includes also the payments made by general government to cover an overall deficit;(b) production costs are the sum of intermediate consumption, compensation of employees, consumption of fixed capital and other taxes on production. For this criterion other subsidies on production are not deducted. To ensure consistency of the concepts sales and production costs when applying the 50 % criterion, the production costs should exclude all costs made for own-account capital formation.The 50 % criterion should be applied by looking over a range of years: only if the criterion holds for several years or holds for the present year and is expected to hold for the near future, it should be applied strictly. Minor fluctuations in the size of sales from one year to another do not necessitate a reclassification of institutional units (and their local KAUs and output).3.34. Sales may consist of various elements. For example, in case of the health care services provided by a hospital sales may correspond to:(a) purchases by employers to be recorded as income in kind paid to their employees and final consumption expenditure by these employees;(b) purchases by private insurance companies;(c) purchases by social security funds and general government to be classified as social benefits in kind;(d) purchases by households without reimbursement (final consumption expenditure).Only other subsidies on production and gifts (e.g. from charities) received are not treated as sales.Similarly, the sale of transport services by an enterprise may correspond to intermediate consumption by producers, income in kind provided by employers, social benefits in kind provided by the government and purchases by households without reimbursement.3.35. Private non-profit institutions serving businesses are a special case. They are usually financed by contributions or subscriptions from the group of businesses concerned. The subscriptions are treated not as transfers but as payments for services rendered, i.e. as sales. These NPIs are therefore market producers and are classified in the non-financial and financial corporations sectors.3.36. In applying the 50 % criterion to the sales and production costs of private or public NPIs, including in sales all the payments linked to volume of output may be misleading in some specific cases. This can apply e.g. to the financing of the output of private and public schools: the payments by the general government can be linked to the number of pupils but be the subject of negotiation with the general government. In such a case, these payments need not be regarded as sales though they have an explicit link with the volume of output, e.g. with the number of pupils. This implies that a school mainly financed by such payments is another non-market producer. When the school is a public producer, i.e. when it is mainly financed and controlled by the government, it should be classified in the sector general government. When the school is a private other non-market producer, it should be classified in the sector NPISHs.3.37. Public producers can be market producers or other non-market producers. If the 50 % criterion decides that the institutional unit should be regarded as a market producer, it is classified in the non-financial and financial corporations sectors. The 50 % criterion decides also when a government unit should be treated as a quasi-corporation owned by the government: only when it meets the 50 % criterion, a quasi-corporation should be created. If the institutional unit is another non-market producer, it is classified in the sector general government. The distinction between NPIs and other producers is thus irrelevant for classifying public producers.Local KAUs and their outputs: distinction between market, for own final use and other non-market3.38. After having applied the distinction market, for own final use and other non-market to institutional units as producers, the distinction can be applied to local KAU and their outputs. This relation is shown in table 3.2.>TABLE>3.39. For institutional units qualifying as market producers, the principal local KAU is of course also a market producer. The secondary local KAU can be a market producer, but also a producer for own final use. However, the secondary local KAU can by convention not be another non-market producer. This implies that the (secondary) local KAUs in the sectors non-financial corporations and financial corporations are all market producers or producers for own final use.3.40. For institutional units that are other non-market producers, the principal local KAU will also be another non-market producer. The secondary local KAUs can be market producers or other non-market producers. This implies that the sectors general government and NPISH can contain some (secondary) local KAUs that are market producers (although all the institutional units in these sectors are other non-market producers). In order to determine whether the secondary local KAUs are market or other non-market producers the 50 % criterion should be applied.3.41. After having applied the distinction market, for own final use and other non-market to institutional units and their local KAUs, the distinction can be applied to the outputs of local KAUs. This relation is shown in table 3.3.>TABLE>3.42. By convention, local KAUs as market producers and as producers for own final use cannot supply other non-market output. Their output can thus only be recorded as market output or output for own final use and valued correspondingly (see paragraphs 3.46 to 3.52).3.43. Local KAUs as other non-market producers can supply as secondary output market outputs and output for own final use. The output for own final use consists of own-account capital formation. The occurrence of market output should in principle be determined by applying the 50 % criterion to individual products: market output is output that is soldat at least 50 % of its production costs. This might be the case for instance when government hospitals charge economically significant prices for some of their services. Other examples are sales of reproductions by government museums and sales of weather forecasts by meteorological institutes.3.44. In statistical practice, it may be difficult to make a clear distinction between the different products of local KAUs of government institutions and NPISHs. Even more, this is true for the production costs in relation to the different products. In that case, a simple solution is to treat all revenues of other non-market producers from their secondary activity (activities) as the revenues for one type of market output. This applies for example to a museum's revenues from the sale of posters and cards (40).3.45. Other non-market producers may also have revenues from the sale of their other non-market output at not economically significant prices, e.g. the museum's revenues from tickets for entrance. These revenues pertain to other non-market output. However, if both types of revenues (revenues from tickets and those from the sale of posters and cards) are difficult to distinguish, they can all be treated as either revenues for market output or revenues from other non-market output. The choice between these two alternative registrations should depend on the assumed relative importance of both types of revenues (from tickets versus those from the sale of posters and cards).TIME OF RECORDING AND VALUATION OF OUTPUT3.46. Output is to be recorded and valued when it is generated by the production process.3.47. All output is to be valued at basic prices, but specific conventions hold for:(a) the valuation of other non-market output;(b) the valuation of total output of another non-market producer (local KAU);(c) the valuation of the total output of an institutional unit of which a local KAU is another non-market producer. (See paragraphs 3.53 to 3.56).3.48. Definition: The basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output minus any tax payable on that unit as a consequence of its production or sale (i.e. taxes on products), plus any subsidy receivable on that unit as a consequence of its production or sale (i.e. subsidies on products). It excludes any transport charges invoiced separately by the producer. It includes any transport margins charged by the producer on the same invoice, even when they are included as a separate item on the invoice.3.49. Output for own final use (P.12) is to be valued at the basic prices of similar products sold on the market; as a consequence, net operating surplus or mixed income can occur for such output. This also applies to services of owner-occupied dwellings (see paragraph 3.64.). However, it will usually be necessary to value output of own-account construction by costs of production.3.50. Additions to work-in-progress are valued in proportion to the estimated current basic price of the finished product.3.51. If the value of output treated as work-in-progress is to be estimated in advance, it should be based on the actual costs incurred, plus a mark-up for the estimated operating surplus or an estimate of mixed income. The provisional estimates should subsequently be replaced by those obtained by distributing the actual value (when it becomes known) of the finished products. The latter is the sum of the values of:(a) finished products sold or bartered;(b) entries of finished products into inventories, less withdrawals;(c) finished products for own final use.3.52. For buildings and structures acquired in an incomplete state, a value is estimated based on costs to date, including a mark up for operating surplus or mixed income. This mark-up results when the value can be estimated on the basis of the prices of similar buildings and structure. The amounts of stage payments may be used to approximate the values of gross fixed capital formation undertaken by the purchaser at each stage (assuming no advance payments or arrears).If the own-account construction of a structure is not yet completed within a single accounting period, the value of the output and the corresponding gross fixed capital formation should be estimated by applying the fraction of the total costs of production incurred during the relevant period to the estimated current basic price. If it is not possible to estimate the basic price of the finished structure, it must be valued by its total costs of production. If some or all of the labour is provided free, as may happen with communal construction by households, an estimate of what the cost of paid labour would have been included in the estimated total production costs using wage rates for similar kinds of labour in the vicinity or region.3.53. The total output of an other non-market producer (a local KAU) is to be valued at the total costs of production, i.e. the sum of:(a) intermediate consumption (P.2);(b) compensation of employees (D.1);(c) consumption of fixed capital (K.1);(d) other taxes on production (D.29) less other subsidies on production (D.39).Other subsidies on production should be deducted. However, it should be realized that other subsidies on production to other non-market producers will often be absent in practice or only involve very small amounts (see paragraph 4.36).By convention, interest payments are not included as costs of other non-market production (though they could be regarded as major costs of production in some cases, e.g. in the case of housing corporations). The costs of other non-market production also do not include an imputation for the rental value of the non-residential buildings owned and used in other non-market production.3.54. The total output of an institutional unit is the sum of the total output of its constituent local KAUs. This applies also to institutional units that are other non-market producers.3.55. In the absence of secondary market output by other non-market producers (local KAUs), other non-market output is to be valued at the costs of production. In the case of secondary market output by other non-market producers, other non-market output is valued as a residual item i.e. as the difference between the total costs of production of other non-market producer minus their revenues from market output.3.56. In principle, market output by other non-market producers is to be valued at basic prices. However, even though another non-market local KAU may have sales receipts, its total output covering both its market and its other non-market output (and possibly also output for own final use), is still valued by the production costs. The value of its market output is given by its receipts from sales of market products, the value of its other non-market output being obtained residually as the differences between on the one hand the values of its total output and, on the other hand, its market output and output for own final use. The value of its receipts from the sale of other non-market goods or services at prices that are not economically significant remain as part of the value of its other non-market output.3.57. For some specific types of output, the times of recording and the valuation of output are subject to the following clarifications and exceptions, given in order of CPA sections.3.58. A. Products of agriculture, hunting and forestry;B. FishThe output of agricultural products should be recorded as being produced continuously over the entire period of production (and not simply when the crops are harvested or animals slaughtered).Growing crops, standing timber and stocks of fish or animals reared for purposes of food should be treated as inventories of work-in-progress during the process, and transformed into inventories of finished products when the process is completed.3.59. D. Manufactured products;F. Construction workWhen a contract of sale is agreed in advance for the construction of a building or other structure extending over several accounting periods, the output produced each period is treated as being sold to the purchaser at the end of the period: i.e. in the purchaser's fixed capital formation rather than work-in-progress in the construction industry. In effect, the output produced is treated as being sold to the purchaser in stages as the latter takes legal possession of the output. When the contract calls for stage payments, the value of the output may often be approximated by the value of stage payments made each period. In the absence of a contract of sale, however, the incomplete output produced each period is recorded as work-in-progress.3.60. G. Wholesale and retail trade services; repair services of motor vehicles, motorcycles and personal and household goodsThe output of wholesale and retail services is measured by the trade margins realized on the goods they purchase for resale.Definition: A trade margin is the difference between the actual or imputed price realized on a good purchased for resale and the price that would have to be paid by the distributor to replace the good at the time it is sold or otherwise disposed of.By convention, holding gains and losses are not included in the trade margin. However, in practice, data sources may not allow for separating out all the holding gains and losses.3.61. H. Hotel and restaurant servicesThe value of the output of the services of hotels, restaurants and cafes includes the value of the food, beverages, etc. consumed.3.62. I. Transport, storage and communication servicesThe output of transport services is measured by the value of the amounts receivable for transporting goods or persons. Transportation for own use within the local KAU is considered ancillary activity and is not separately identified and recorded.The output of storage services is measured as the value of an addition to work-in-progress, either additional output in the sense of transportation over time (e.g. storage on behalf of other local KAUs) or a physical change (e.g. in the case of the maturing of wine).The output of travel agency services is measured as the value of service charges of agencies (fees or commission charges) and not by the full expenditures made by travellers to the travel agency. The latter may e.g. also include charges for transport by third parties.The output of tour operator services is measured by the full expenditure made by travellers to the tour operator.The distinction between travel agency services and tour operator services is that travel agency services amount only to intermediation on behalf of the traveller, while tour operator services create a new product, i.e. a tour is arranged of which the prices of its various components (e.g. travel, accommodation and entertainment) are not recognizable as such for the traveller.3.63. J. Financial intermediation services (this includes insurance services and pension funding services)The output of financial intermediation for which no explicit charges are made is measured, by convention, as the total property income received by the units providing the services minus their total interest payments, excluding the value of any income received from the investment of their own funds (as such income does not arise from financial intermediation), and, in the case of secondary insurance activities by a financial intermediary, excluding the income from investment of insurance technical reserves. Holding gains and losses should be ignored in measuring this output, because throughout the system holding gains are not recorded in the production account but in a separate account (other changes in assets account). This applies also to holding gains on foreign exchange and securities by professional dealers (though their holding gains may be generally positive and be regarded by the dealers themselves as part of their normal revenues). However, the trade margins on foreign exchange and securities (i.e. the common differences between the purchasers' prices for the dealer and the purchasers' price for the buyer) are to be included in output, like for wholesale and retail traders. Analogously, there may also be data problems in distinguishing such trade margins from the holding gains; these should be overcome as best as possible.The output of services of financial intermediation provided by central banks should be measured in the same way as those provided by other financial intermediaries.The activity of money lenders who lend only their own funds is not treated as the production of services.Financial intermediaries may also provide various financial services and business services for which fees or commissions are explicitly charged. Cases in point can be e.g. currency exchange and advice about investments, the purchase of real estate or advice on taxation. The output of such services is valued on the basis of the fees or commissions charged.Output of insurance services (service charge) is measured as:total actual premiums earnedplus total premium supplements (equal to the income from the investment of the insurance technical reserves)minus the total claims dueminus the change in the actuarial reserves and reserves for with-profits insurance.Holding gains and losses are to be ignored in the measurement of the output of insurance services: they are not to be regarded as income from investment of the insurance technical reserves and they are not to be considerd as changes in the actuarial reserves and reserves for with-profits insurance.Notice that insurance technical reserves may be invested in secondary activities of the insurance company, e.g. the letting of dwellings or offices. In that case, the net operating surplus on these secondary activities is income from the investment of insurance technical reserves.Similarly, the output of pension funding services is measured as:total actual pension contributionsplus total supplementary contributions (equal to the income from investment of the pension funds technical reserves)minus the benefits dueminus the change in the actuarial reserves.3.64. K. Real estate, renting and business servicesThe output of services of owner-occupied dwellings should be valued at the estimated value of rental that a tenant would pay for the same accommodation, taking into account factors such as location, neighbourhoud amenities, etc. as well as the size and quality of the dwelling itself. For garages located separately from dwellings, which are used by the owner for final consumption purposes in connection with using the dwelling, a similar imputation is to be made. No imputation is to be made for garages used by their private owner only for the purpose of parking near the workplace. The rental value of owner-occupied dwellings abroad, e.g. holiday homes, should not be recorded as part of domestic production, but imports of services and the corresponding net operating surplus as primary income received from the rest of the world. For owner-occupied dwellings owned by non-residents, analogous entries should be made. In case of time-sharing apartments, a proportion of the service charge should be recorded as such.The output of real estate services of non-residential buildings is measured by the value of the rentals due.The output of operating leasing services (renting out machinery or equipment, etc.) is measured by the value of rental which the lessee pays to the lessor. It is clearly distinguished from financial leasing which is a method of financing the acquisition of fixed assets, i.e. by making a loan from the lessor to the lessee. In the case of financial leasing rentals consist (mainly) of repayments and interest payments, and the value of services is very small compared with the total rentals paid (see Annex II 'Leasing and hire purchase of durable goods`).When possible, a separate local KAU should be distinguished for research and development activities (R& D). When this is not possible, all R& D of a significant size (compared to the principal activity) should be recorded as a secondary activity of the local KAU.The output of R& D services is measured as follows:(a) R& D by specialised commercial research laboratories or institutes is valued at the revenues from sales, contracts, commissions, fees, etc. in the usual way;(b) the output of R& D for use within the same enterprise should, in principle, be valued on the basis of the estimated basic prices that would be paid if the research were sub-contracted commercially. However, in practice, it is likely to have to be valued on the basis of the total production costs;(c) R& D by government units, universities, non-profit research institutes, etc. is usually other non-market production and is thus valued on the basis of the costs of production. Revenues from the sale of R& D by other non-market producers of R& D are to be recorded as revenues from secondary market output.Expenditure on R& D should be distinguished from that on education and training. Expenditure on R& D does not include the costs of developing software as a principal or secondary activity. However, their accounting treatment is nearly the same; the only difference is that software is regarded as a produced intangible asset and is not patented.3.65. L. Public administration and defence services, compulsory social security servicesPublic administration, defence services and compulsory social security services are always provided as other non-market services and should thus be valued accordingly.3.66. M. Education services;N. Health and social servicesFor education services and health services it may often be necessary to draw precise borderlines between market and other non-market producers and between their market and other non-market output. For example, for some types of education and medical treatment nominal fees can be levied by government institutions (or by other institutions due to specific subsidies), but for other education and special medical treatments they may charge commercial tariffs. Another common case in point is that the same type of service (e.g. higher education) is provided by, on the one hand, the government (or its intermediation) and, on the other hand, commercial institutes. Then, often large differences exist between the prices charged and the quality of the services.Education and health services exclude R& D activities; health services exclude education in health care, e.g. by academic hospitals.3.67. O. Other community, social and personal servicesThe production of books, recordings, films, software, tapes, disks, etc. a two-stage process and measured accordingly:1. the output from the production of originals (an intangible fixed asset) is measured by the price paid if sold, or, if not sold, by the basic price paid for similar originals, its production costs or the discounted value of the future receipts expected from using it in production;2. the owner of this asset may use it directly or to produce copies in subsequent periods. If the owner has licensed other producers to make use of the original in production, the fees, commissions, royalties, etc. he receives from the licenses are his output of his services. However, the sale of the intangible asset is negative fixed capital formation.3.68. P. Private housholds with employed personsThe output of household services produced by employing paid staff is by convention valued by the compensation of employees paid; this includes any compensation in kind such as food or accommodation.INTERMEDIATE CONSUMPTION (P.2)3.69. Definition: Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services may be either transformed or used up by the production process.3.70. Intermediate consumption includes the following borderline cases:(a) the value of all the goods or services used as inputs into ancillary activities. Common examples are purchasing, sales, marketing, accounting, data processing, transportation, storage, maintenance, security, etc. These goods and services are not distinguished from those consumed by the principal (or secondary) activities of a local KAU;(b) the value of goods and services which are received from another local KAU of the same institutional unit (only if they comply to the general definition in paragraph 3.69);(c) the costs of using rented fixed assets, e.g. the operational leasing of machines or cars;(d) the subscriptions, contributions or dues paid to non-profit business associations;(e) items not treated as gross capital formation, like:1. small tools which are inexpensive and used for relatively simple operations, such as saws, hammers, screwdrivers and other hand tools; small devices, such as pocket calculators. By convention, in the ESA, all expenditure on such durables which does not exceed 500 ECU (at 1995 prices) per item (or, when bought in quantities, for the total amount bought), should be recorded as intermediate consumption;2. the ordinary, regular maintenance and repair of fixed assets used in production;3. military weapons of destruction and the equipment needed to deliver them (but not light weapons or armoured vehicles acquired by police and security forces, which are treated as gross fixed capital formation);4. services of research and development, staff training, market research and similar activities, purchased from an outside agency or provided by a separate local KAU of the same institutional unit;(f) payments for the use of intangible non-produced assets like patented assets, trademarks, etc. (excluding payments for the purchase of such property rights: these are treated as acquisitions of intangible non-produced assets);(g) expenditure by employees, reimbursed by the employer, on items necessary for the employers' production, like contractual obligations to purchase on own-account tools or safety-wear;(h) expenditure by employers which is to their own benefit as well as to that of their employees, because it is necessary for the employers' production. Cases in point are:1. reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties;2. providing amenities at the place of work;(a more extensive list is presented in the paragraphs on compensation of employees (D.1));(i) non-life insurance service charges paid by local KAUs (see also Annex III 'Insurance`): in order to record only the service charge as intermediate consumption the premiums paid should be discounted for, e.g. claims paid out and the net change in actuarial reserves. The latter can be allocated to local KAUs as a proportion of the premiums paid;(j) only for the total economy: all financial intermediation services indirectly measured (Fisim) provided by resident producers.3.71. Intermediate consumption excludes:(a) items treated as gross capital formation, like:1. valuables;2. mineral exploration;3. major improvements which go considerably beyond what is required simply to keep the fixed assets in good working order, e.g. renovation, reconstruction or enlargement;4. software purchased or produced on own account;(b) expenditure by employers treated as wages and salaries in kind (see paragraph 4.05);(c) use by market or own-account producer units of collective services provided by government units (treated as collective consumption expenditure by government);(d) goods or services produced and consumed within the same accounting period and within the same local KAU (they are also not recorded as output);(e) payments for government licences and fees that are treated as taxes on production (see paragraphs 4.79 to 4.80).TIME OF RECORDING AND VALUATION OF INTERMEDIATE CONSUMPTION3.72. Products used for intermediate consumption should be recorded and valued at the time they enter the process of production. They are to be valued at the purchasers' prices for similar goods or services at that time.3.73. In practice, producer units do not usually record the actual use of goods in production directly. They record the purchases intended to be used as inputs and the changes in the amounts of such goods held in inventory. Intermediate consumption has therefore to be estimated by subtracting from the purchases the changes in inventories of inputs (see paragraphs 3.120 to 3.124 for the correct valuation of the latter).FINAL CONSUMPTION (P.3, P.4)3.74. Two concepts of final consumption are used:(a) final consumption expenditure (P.3);(b) actual final consumption (P.4)Final consumption expenditure is a concept that refers to a sector's expenditure on consumption goods and services. In contrast, actual final consumption refers to its acquisition of consumption goods and services. The difference between these concepts lies in the treatment of certain goods and services financed by the government or NPISHs but supplied to households as social transfers in kind.FINAL CONSUMPTION EXPENDITURE (P.3)3.75. Definition: Final consumption expenditure consists of expenditure incurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants or the collective needs of members of the community. Final consumption expenditure may take place on the domestic territory or abroad.3.76. Household final consumption expenditure includes the following borderline cases:(a) services of owner-occupied dwellings;(b) income in kind, like:1. goods and services received as income in kind by employees;2. goods or services produced as outputs of unincorporated enterprises owned by households that are retained for consumption by members of the household. Cases in point are food and other agricultural goods, housing services by owner-occupiers and household services produced by employing paid staff (servants, cooks, gardeners, chauffeurs, etc.);(c) items not treated as intermediate consumption, like:1. materials for small repairs to and interior decoration of dwellings of a kind typically carried out by tenants as well as owners;2. materials for repairs and maintenance to consumer durables, including vehicles;(d) items not treated as capital formation, in particular consumer durables, that continue to perform their function in several accounting periods; this includes the transfer of ownership of some durables from an enterprise to a household (see transactions in existing goods, paragraph 3.148);(e) financial services directly charged;(f) insurance services by the amount of the implicit service charge (see paragraph 3.63);(g) pension funding services by the amount of the implicit service charge (see paragraph 3.63);(h) payments by households for licences, permits, etc. which are regarded as purchases of services (see paragraphs 4.79 and 4.80);(i) the purchase of output at not economically significant prices, e.g. entrance fees for a museum (see paragraph 3.45).3.77. Household final consumption expenditure excludes:(a) social transfers in kind, like expenditures initially incurred by households but subsequently reimbursed by social security, e.g. some medical expenses;(b) items treated as intermediate consumption or gross capital formation, like:1. expenditures by households owning unincorporated enterprises when incurred for business purposes - e.g. on durable goods such as vehicles, furniture or electrical equipment (gross fixed capital formation), and also on non-durables such as fuel (intermediate consumption);2. expenditure that an owner-occupier incurs on the decoration, maintenance and repair of the dwelling not typically carried out by tenants (treated as intermediate consumption in producing housing services);3. the purchase of dwellings (treated as gross fixed capital formation);4. expenditure on valuables (treated as gross capital formation);(c) items treated as acquisitions of a non-produced assets, in particular the purchase of land;(d) all those payments by households which are to be regarded as taxes, such as licences to own vehicles, boats or aircraft and also licences to hunt, shoot or fish (see paragraphs 4.79 to 4.80);(e) subscriptions, contributions and dues paid by households to NPISHs, like trade unions, professional societies, consumers' associations, churches and social, cultural, recreational and sports clubs;(f) voluntary transfers in cash or in kind by households to charities, relief and aid organizations.3.78. Final consumption expenditure of NPISHs includes two separate categories:(a) the value of the goods and services produced by NPISHs other than own-account capital formation and other than expenditure made by households and other units;(b) expenditures by NPISHs on goods or services produced by market producers that are supplied - without any transformation - to households for their consumption as social transfers in kind.3.79. Final consumption expenditure by government includes two categories of expenditures, similar to those by NPISHs:(a) the value of the goods and services produced by general government itself other than own-account capital formation and sales;(b) purchases by general government of goods and services produced by market producers that are supplied to households - without any transformation - as social transfers in kind. This implies that general government just pays for goods and services that the sellers provide to households.3.80. Corporations do not make final consumption expenditures. Their purchases of the same kind of goods or services as used by households for final consumption are either used for intermediate consumption or provided to employees as compensation of employees in kind, i.e. imputed household final consumption expenditure. Even where, for example through advertising, they finance individual consumption, this expenditure is treated as intermediate.ACTUAL FINAL CONSUMPTION (P.4)3.81. Definition: Actual final consumption consists of the goods or services that are acquired by resident institutional units for the direct satisfaction of human needs, whether individual or collective.3.82. Definition: Goods and services for individual consumption ('individual goods and services`) are acquired by a household and used to satisfy the needs and wants of members of that household. Individual goods and services have the following characteristics:(a) it must be possible to observe and record the acquisition of the good or services by an individual household or member thereof and also the time at which it took place;(b) the household must have agreed to the provision of the good or service and take whatever action is necessary to make it possible, for example by attending a school or clinic;(c) the good or service must be such that its acquisition by one household or person, or possibly by a small, restricted group of persons, precludes its acquisition by other households or persons.3.83. Definition: Services for collective consumption ('collective services`) are provided simultaneously to all members of the community or all members of a particular section of the community, such as all households living in a particular region. Collective services have the following characteristics:(a) they can be delivered simultaneously to every member of the community or to particular sections of the community, such as those in a particular region or locality;(b) the use of such services is usually passive and does not require the explicit agreement or active participation of all the individuals concerned;(c) the provision of a collective service to one individual does not reduce the amount available to others in the same community or section of the community. There is no rivalry in acquisition.3.84. All household final consumption expenditure is individual. By convention, all goods and services provided by NPISHs are treated as individual.3.85. For the goods and services provided by government units, the borderline between individual and collective goods and services is drawn on the basis of the Classification of the Functions of Government (Cofog).By convention, all government final consumption expenditures under each of the following headings should be treated as expenditures on individual consumption services except for expenditures on general administration, regulation, research, etc. in each category:(a) 04 Education;(b) 05 Health;(c) 06 Social Security and Welfare;(d) 08.01 Sport and recreation;(e) 08.02 Culture.In addition, expenditures under the following sub-headings should also be treated as individual when they are important:(a) 07.11 (part of) the provision of housing;(b) 07.31 (part of) the collection of household refuse;(c) 12.12 (part of) the operation of transport system.The collective consumption expenditure is the remainder of the government final consumption expenditure. It consists in particular of:(a) management and regulation of society;(b) the provision of security and defence;(c) the maintenance of law and order, legislation and regulation;(d) the maintenance of public health;(e) the protection of the environment;(f) research and development;(g) infrastructure and economic development.3.86. The relationships between the various concepts employed can be shown in a table:>TABLE>3.87. Final consumption expenditure of NPISHs is by convention all individual. As a consequence, total actual final consumption is equal to the sum of households actual final consumption and actual final consumption of general government.3.88. By convention, there are no social transfers in kind with the rest of the world (though there are such transfers in monetary terms). As a consequence, total actual final consumption is equal to total final consumption expenditure.TIME OF RECORDING AND VALUATION OF FINAL CONSUMPTION EXPENDITURE3.89. As explained in chapter 1, goods and services should in general be recorded when the payables are created, that is, when the purchaser incurs a liability to the seller. This implies that expenditure on a good is to be recorded at the time its ownership changes; expenditure on a service is recorded when the delivery of the service is completed.3.90. Expenditure on a good acquired under a hire purchase or similar credit agreement (and also under a financial lease) should be recorded at the time the good is delivered even if there is no legal change of ownership at this point.3.91. Own-account consumption should be recorded when the output retained for own final consumption is produced.3.92. The final consumption expenditure of households is recorded at purchasers' prices. This is the price the purchaser actually pays for the products at the time of the purchase. A more detailed definition can be found in paragraph 3.06.3.93. Goods and services supplied as compensation of employees in kind are valued at basic prices when produced by the employer and at the purchasers' prices of the employer when bought in by the employer.3.94. Retained goods or services for own consumption are valued at basic prices.3.95. Final consumption expenditures by general government or NPISHs on products produced by themselves are recorded at the time they are produced, which is also the time of delivery of such services by government or NPISHs. For the final consumption expenditure on goods and services supplied via market producers, the time of delivery is the time of recording.3.96. Final consumption expenditures by general government or NPISHs are equal to the sum of their output, plus the expenditure on products supplied to households via market producers (i.e. social transfers in kind) minus the payments by other units minus own-account capital formation.TIME OF RECORDING AND VALUATION OF ACTUAL FINAL CONSUMPTION3.97. Goods and services are acquired by institutional units when they become the new owners of the goods or when the delivery of goods or services to them is completed.3.98. Acquisitions (actual final consumption) are valued at the purchasers' prices for the units that incur the expenditures.Transfers in kind other than social transfers in kind from government and NPISHs are treated as if they were transfers in cash. Accordingly, the values of the goods or services are actually recorded as expenditures by the institutional units or sectors that acquire them.3.99. The values of the two aggregates of final consumption expenditure and actual final consumption are the same. The goods and services acquired by resident households through social transfers in kind, thus, are valued at the same prices at which they are valued in the expenditure aggregates.GROSS CAPITAL FORMATION (P.5)3.100. Gross capital formation consists of:(a) gross fixed capital formation (P.51);(b) changes in inventories (P.52);(c) acquisitions less disposals of valuables (P.53).3.101. Gross capital formation means gross of consumption of fixed capital. Net capital formation is arrived at by deducting consumption of fixed capital from gross capital formation.GROSS FIXED CAPITAL FORMATION (P.51)3.102. Definition: Gross fixed capital formation (P.51) consists of resident producers' acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets realized by the productive activity of producer or institutional units. Fixed assets are tangible or intangible assets produced as outputs from processes of production that are themselves used repeatedly, or continuously, in processes of production for more than one year.3.103. Gross fixed capital formation consists of both positive and negative values:(a) positive values:1. new or existing fixed assets purchased;2. fixed assets produced and retained for producers' own use (including own account production of fixed assets not yet completed or fully mature);3. new or existing fixed assets acquired through barter;4. new or existing fixed assets received as capital transfers in kind;5. new or existing fixed assets acquired by the user under a financial lease;6. major improvements to fixed assets and existing historic monuments;7. natural growth of those natural assets that yield repeat products;(b) negative values, i.e. disposals of fixed assets recorded as negative acquisitions:1. existing fixed assets sold;2. existing fixed assets surrendered in barter;3. existing fixed assets surrendered as capital transfers in kind.3.104. The disposals components of fixed assets exclude:(a) consumption of fixed capital (which includes anticipated normal accidental damage);(b) exceptional losses, such as those due to drought or other natural disasters (recorded as another change in the volume of assets).3.105. The following types of gross fixed capital formation may be distinguished:(a) acquisitions, less disposals, of tangible fixed assets:1. dwellings;2. other buildings and structures;3. machinery and equipment;4. and cultivated assets, e.g. trees and livestock;(b) acquisitions, less disposals, of intangible fixed assets:1. mineral exploration;2. computer software;3. entertainment, literary or artistic originals;4. other intangible fixed assets;(c) major improvements to tangible non-produced assets, in particular those pertaining to land (though the acquisition of non-produced assets is not included);(d) costs associated with the transfers of ownership of non-produced assets, like land and patented assets (though the acquisition of these assets themselves is not included).3.106. Major improvements to land include:(a) reclamation of land from sea by the construction of dikes, sea walls or dams for this purpose;(b) clearance of forests, rocks, etc. to enable land to be used in production for the first time;(c) draining of marshes or the irrigation of deserts by the construction of dikes, ditches and irrigation channels;(d) prevention of flooding or erosion by the sea or rivers by the construction of breakwaters, sea walls or flood barriers.These activities may lead to the creation of substantial new structures such as sea walls, flood barriers and dams but these are not themselves used directly to produce other goods and services in the way that most structures are. Their construction is undertaken to obtain more or better land, and it is the land, a non-produced asset, that is needed for production. For example, a dam built to produce electricity serves quite a different purpose from a dam built to keep out the sea. Only building the latter type of dam should be classified as an improvement to land.3.107. Gross fixed capital formation includes borderline cases like:(a) acquisitions of houseboats, barges, mobile homes and caravans used as residences of households and any associated structures such as garages;(b) structures and equipment used by the military (similar to those utilised by civilian producers) such as airfields, docks, roads and hospitals;(c) light weapons and armoured vehicles used by non-military units;(d) changes in livestock used in production year after year, such as breeding stock, dairy cattle, sheep reared for wool and draught animals;(e) changes in trees that are cultivated year after year, such as fruit trees, vines, rubber trees, palm trees, etc.;(f) improvements to existing fixed assets that go well beyond the requirements of ordinary maintenance and repairs;(g) the acquisition of fixed assets by financial leasing.3.108. Gross fixed capital formation excludes:(a) transactions included in intermediate consumption, like:1. purchase of small tools for production purposes (see paragraph 3.70.e);2. ordinary maintenance and repairs;3. purchase of military weapons and their supporting systems;4. the purchase of fixed assets to be used under an operational leasing contract (see also Annex II 'Leasing and hire purchase of durable goods`);(b) transactions recorded as changes in inventories:1. animals raised for slaughter, including poultry;2. trees grown for timber (work-in-progress).(c) machinery and equipment acquired by households for purposes of final consumption (final consumption expenditure);(d) holding gains and losses on fixed assets (other changes in assets);(e) catastrophic losses on fixed assets (other changes in assets), e.g. destruction of cultivated assets and livestock by outbreaks of disease (and not normally covered by insurance) or damage due to abnormal flooding, wind damage or forest fires (see chapter 6).3.109. Gross fixed capital formation in the form of improvements to existing fixed assets is to be classified with acquisitions of new fixed assets of the same kind.3.110. Intangible fixed assets typically consist of new information, specialized knowledge, etc. and comprise:(a) mineral exploration comprising costs of actual test drilling, aerial or other surveys, transportation costs, etc.;(b) computer software and large data bases to be used in production for more than one year;(c) literary and artistic originals of manuscripts, renderings, models, films, sound recordings, etc.3.111. For both fixed assets and non-produced non-financial assets, the costs of ownership transfer incurred by their new owner consist of:(a) charges incurred in taking delivery of the asset (new or existing asset) at the required location and time, such as transport charges, installation charges, erection charges, etc.;(b) professional charges or commissions incurred, such as fees paid to surveyors, engineers, lawyers, valuers, etc., and commissions paid to estate agents, auctioneers, etc.;(c) taxes payable by the new owner on the transfer of ownership of the asset.All these costs are to be recorded as gross fixed capital formation by the new owner. Note that the taxes are to be treated as taxes on the services of intermediaries and not as taxes on the asset bought.TIME OF RECORDING AND VALUATION OF GROSS FIXED CAPITAL FORMATION3.112. Gross fixed capital formation is recorded when the ownership of the fixed assets is transferred to the institutional unit that intends to use them in production.Modification to this general rule is needed in case of:(a) financial leasing (a change of ownership is then imputed);(b) own-account fixed capital formation.Assets acquired under a financial lease are recorded as if the user becomes the owner when he takes possession of the goods. Own account capital formation is recorded when produced.3.113. Gross fixed capital formation is valued at purchasers' prices including installation charges and other costs of ownership transfer. When produced on own-account it is valued at the basic prices of similar fixed assets (which implies a mark-up for net operating surplus or mixed income) or at the costs of production if such prices are not available.3.114. Acquisitions of intangible fixed assets are valued in different ways:(a) for mineral exploration: by the costs of actual test drillings and borings, and the costs incurred to make it possible to carry out tests, such as aerial or other surveys;(b) for computer software: by purchasers' prices when purchased on the market, or at its estimated basic price (or at its costs of production if not feasible) when developed in-house;(c) for entertainment, literary or artistic originals: valued at the price paid by the purchaser when it is sold, or if not sold, at the basic price paid for similar originals, its production costs or discounted value of the future receipts expected from using it in production.3.115. Disposals of existing fixed assets by sale are valued at the (basic) prices after deducting any costs of ownership transfer incurred by the seller.3.116. Costs of ownership transfer can apply to both produced assets, including fixed assets, and non-produced assets, such as land.These costs are integrated in the purchasers' prices in the case of produced assets. They must be separated from the purchases and sales themselves in the case of land and other non-produced assets and recorded under a separate heading in the classification of gross fixed capital formation.CHANGES IN INVENTORIES (P.52)3.117. Definition: Changes in inventories are measured by the value of the entries into inventories less the value of withdrawals and the value of any recurrent losses of goods held in inventories.3.118. Due to physical deterioration, or accidental damage or pilfering, recurrent losses may occur to all kinds of goods in inventories, such as:(a) losses of materials and supplies;(b) losses in the case of work-in-progress;(c) losses of finished goods;(d) losses of goods for resale (e.g. shoplifting).3.119. Inventories consists of the following categories:(a) materials and supplies:materials and supplies consist of all commodities held in stock with the intention of using them as intermediate inputs in production; this includes commodities held in stock by the government. Items such as gold, diamonds, etc. are included when intended for industrial use or other production;(b) work-in-progress:work-in-progress consists of output produced that is not yet finished. It is recorded in the inventories of its producer. It can take a variety of different forms, e.g.:1. growing crops;2. maturing trees and livestock;3. uncompleted structures (except those produced under a contract of sale agreed in advance or on own-account which are treated as fixed capital formation);4. uncompleted other fixed assets, e.g. ships and oil rigs;5. partially completed research for a legal or consultant's dossier;6. partially completed film productions;7. partially completed computer programs.Work-in-progress must be recorded for any production process that is not finished at the end of the given period. In particular, this is significant in quarterly accounts, e.g. agricultural crops not being completed within a quarter of a year.Reductions in work-in-progress take place when the production process is completed. At that point, all work-in-progress is transformed into a finished product;(c) finished goods:finished goods as part of inventories consist of outputs that their producer does not intend to process further before supplying them (also when supplied for intermediate input into other processes of production);(d) goods for resale:goods for resale are goods acquired for the purpose of reselling them in their present state.TIME OF RECORDING AND VALUATION OF CHANGES IN INVENTORIES3.120. The time of recording and valuation of changes in inventories should be consistent with that of other transactions in products. This applies in particular to intermediate consumption (e.g. for materials and supplies), output (e.g. work-in-progress and output from storage of agricultural products) and gross fixed capital formation (e.g. work-in-progress). Consistency is also required for processing-to-order flows. For example, if goods are processed abroad and it involves a substantial physical change in the goods, the goods are to be included in exports (and, later, in imports) (see paragraph 3.135). This export is reflected by a concomitant reduction in the inventories and the related import is later also recorded as an increase in the inventories (when not immediately used or sold).3.121. Changes in inventories should be valued at the time of entering the inventories (for goods entering) or at the time of withdrawal (for goods withdrawn).3.122. The prices used should be consistent with those of other flows, implying more specifically that:(a) output of finished goods transferred into the producer's inventories are valued as if they were sold at that time, at current basic prices;(b) additions to work-in-progress is valued in proportion to the estimated current basic price of the finished product;(c) reductions in work-in-progress as withdrawn from inventories when production is finished are valued at current basic prices of the unfinished product;(d) goods transferred out of inventories for sale are valued at basic prices;(e) goods for resale entering the inventories of wholesalers and retailers, etc. are valued at their actual or estimated purchasers' prices of the trader;(f) goods for resale withdrawn from inventories are valued at the purchasers' prices at which they can be replaced at the time they are withdrawn (not when acquired).3.123. Losses as a result of physical deterioration, insurable accidental damage or pilfering are recorded and valued as follows:(a) for materials and supplies: as materials and supplies actually withdrawn to be used up in production (intermediate consumption);(b) for work-in-progress: as deduction from the additions accruing to production carried out in the same period;(c) for finished goods and goods for resale: treated as withdrawals at the current price of undeteriorated goods.3.124. The previous paragraphs have described the conceptually correct valuation of each individual transaction in and out of inventories necessary to be consistent with the valuation of output, intermediate consumption and final uses. In practice, this will often prove too difficult to apply and approximation methods should be used:(a) when changes in the volume of inventories are fairly regular, a practical method which comes close to the theoretical valuation principle is to multiply the volume change of the inventories by the average prices for the period (purchasers' prices for inventories held by users or by wholesalers or retailers, basic prices for inventories held by their producers);(b) in case the prices of the goods involved remain fairly constant, even large fluctuations in the volume of inventories may not invalidate a simple approximation, i.e. the multiplication of the volume change with the average price;(c) if both the volume and the prices of the inventories change substantially within the accounting period, more sophisticated approximation methods are required. For example, quarterly valuation of the changes in inventories or the use of a priori information about the distribution of the fluctuation within the accounting period (fluctuations may be largest at the end of the calendar year, during harvest time, etc.);(d) if only information about the values at the beginning and end of the period are available (e.g. in case of wholesale or retail trade in which inventories often exist of many different products), the changes in volume between the beginning and end of the period should also be estimated. This can be done by estimating (assuming) turn-over rates by type of product.Note that seasonal changes in prices may partly reflect a difference in quality, e.g. clearance prices or off-season prices for fruit and vegetables. These changes in quality should be treated as changes in the volume.ACQUISITIONS LESS DISPOSALS OF VALUABLES (P.53)3.125. Definition: Valuables are non-financial goods that are not used primarily for production or consumption, do not deteriorate (physically) over time under normal conditions and that are acquired and held primarily as stores of value.3.126. Valuables encompass the following types of goods:(a) precious stones and metals, such as diamonds, non-monetary gold, platinum, silver, etc.;(b) antiques and other art objects, such as paintings, sculptures, etc.;(c) other valuables, such as jewellery fashioned out of precious stones and metals and collectors items.These types of goods are to be recorded as acquisition or disposal of valuables in case of:(a) the acquisition or disposal of non-monetary gold, silver, etc. by (central) banks and other financial intermediaries;(b) the acquisition or disposal of these goods by enterprises whose principal or secondary activity does not involve the production or trade in such types of goods; as a consequence, this acquisition or disposal is not included in the intermediate consumption or fixed capital formation of these enterprises;(c) the acquisition or disposal of such goods by households; as a consequence, such acquisitions are not included in final consumption expenditure by households.In the ESA, by convention also the following cases are recorded as acquisition or disposal of valuables:(a) the acquisition or disposal of these goods by jewellers and art dealers (following the general definition of valuables the acquisition of these goods by jewellers and art dealers should be recorded as changes in inventories);(b) the acquisition or disposal of these goods by museums (following the general definition of valuables the acquisition by a museum of these goods should be recorded as fixed capital formation).This convention avoids frequent reclassification between the three main types of capital formation, i.e. between acquisition less disposal of valuables, fixed capital formation and changes in inventories, e.g. in the case of transactions of such goods between households and art dealers.3.127. The production of valuables is valued at basic prices (see paragraph 3.67 on production of originals). All other acquisitions of valuables are valued at the purchasers' prices paid for them, including any agents' fees or commissions. They also include trade margins when bought from dealers. Disposals of valuables are valued at the prices received by sellers, after deducting any fees or commissions paid to agents or other intermediaries. Disregarding the production of valuables, in aggregate, acquisitions less disposals between resident sectors cancel out, leaving only agents or dealers margins.IMPORTS AND EXPORTS OF GOODS AND SERVICES (P.6 and P.7)3.128. Definition: Exports of goods and services consist of transctions in goods and services (sales, barter, gifts or grants) from residents to non-residents.3.129. Definition: Imports of goods and services consist of transactions in goods and services (purchases, barter, gifts or grants) from non-residents to residents.3.130. Imports and exports of goods and services do not include:(a) establishment trade, i.e.:1. deliveries to non-residents by non-resident affiliates of resident enterprises, e.g. sales abroad by foreign affiliates of a multinational owned/controlled by residents;2. deliveries to residents by resident affiliates of non-resident enterprises, e.g. sales by domestic affiliates of a foreign multinational;(b) primary income flows to or from the rest of the world, such as compensation of employees, interest and revenues from direct investment. The revenues from direct investment may include an indistinguishable part for the provision of various services, e.g. training of employees, management services and the use of patents and trade marks;(c) the sale or purchase of financial assets or non-produced assets, like land and patents.3.131. Imports and exports of goods and services should be distinguished into:(a) Intra-European Union deliveries;(b) Imports and exports outside the European Union.For convenience they will both be referred to as imports and exports here.IMPORTS AND EXPORTS OF GOODS (P.61 and P.71)3.132. Imports and exports of goods occur when there are changes of ownership of goods between residents and non-residents (whether or not there are also corresponding physical movements of goods across frontiers).3.133. However, in four instances the change of ownership principle is modified in recording imports and exports of goods:(a) financial leasing: a change of ownership from lessor to lessee is to be imputed for goods under a financial lease; it is to be recorded when the lessee takes possession of the good (see Annex II 'Leasing and hire purchase of durable goods`);(b) deliveries between affiliated enterprises (branch or subsidiary, or foreign affiliate): a change of ownership is to be imputed whenever goods are delivered between affiliated enterprises;(c) goods for significant processing to order or repair are recorded both in imports and exports although no change of ownership occurs;(d) merchanting: no import or export is recorded when merchants or commodity dealers buy from non-residents and then sell again to non-residents within the same accounting period. A similar treatment is to be employed for merchanting by non-residents.3.134. In the following cases exports of goods occur without the goods ever crossing the country's frontier.(a) goods produced by resident units operating in international waters are sold directly to non-residents in foreign countries (oil, natural gas, fishery products, maritime salvage, etc.);(b) transportation equipment or other movable equipment not tied to a fixed location need not cross the frontier of the exporting country as a result of being sold by a resident to a non-resident.(c) goods are lost or destroyed after changing ownership before they have crossed the frontier of the exporting country.Analogous cases pertain to imports of goods.3.135. Imports and exports of goods include transactions between residents and non-residents in:(a) non-monetary gold, i.e. gold not used for the purposes of monetary policy;(b) silver bullion, diamonds and other precious metals and stones;(c) paper money and coins not in circulation and unissued securities (valued as goods, not at face value);(d) electricity, gas and water;(e) livestock driven across frontiers;(f) parcel post;(g) government exports including goods financed by grants and loans;(h) goods transferred to or from the ownership of a buffer stock organization;(i) goods delivered by a resident enterprise to its non-resident affiliates;(j) goods received by a resident enterprise from its non-resident affiliates;(k) smuggled goods;(l) other unrecorded shipments, such as gifts and those of less than a stated minimum value;(m) goods processed to order abroad when a substantial physical change in the goods is involved. Similar goods processed on the domestic territory on behalf of non-residents;(n) investment goods repaired abroad when a substantial amount of reconstruction work or manufacturing is involved. Similar goods repaired on the domestic territory on behalf of non-residents.3.136. Imports and exports of goods exclude the following goods which nevertheless may cross the national frontier:(a) goods in transit through a country;(b) goods shipped to or from a country's own embassies, military bases or other enclaves inside the national frontiers of another country;(c) transportation equipment and other movable kinds of equipment which leave a country temporarily, without any change of ownership (e.g. construction equipment for installation or construction purposes abroad);(d) equipment and other goods which are sent abroad for minor processing, maintenance, servicing or repair;(e) other goods which leave a country temporarily, being generally returned within a year in their original State and without change of ownership (e.g. goods sent abroad for exhibition and entertainment purposes, goods under an operating lease, including leases for several years, goods returned because expected sales did not materialize);(f) goods on consignment lost or destroyed after crossing a frontier before change of ownership occurs.3.137. In principle, imports and exports of goods should be recorded when the ownership of the goods is transferred. In practice, a change of ownership is considered to occur at the time the parties to the transaction record it in their books or accounts. This may not coincide with the various stages of the contractual process, like:(a) the time of commitment (contract date);(b) the time of provision of goods and services and acquisition of a claim for payment (transfer date);(c) the time of settlement of that claim (payment date).3.138. Imports and exports of goods are to be valued free on board at the border of the exporting country (fob). This value consists of:(a) the value of the goods at basic prices;(b) plus the related transport and distributive services up to that point of the border, including the cost of loading on to a carrier for onward transportation (where appropriate) (see table 3.4, second column in the second part of the table);(c) plus any taxes less subsidies on the goods exported; for intra-European Union deliveries this includes VAT and other taxes on the goods paid in the exporting country.In the supply and use and symmetric input-output tables, imports of goods for individual product groups have to be valued differently: at the cost-insurance-freight (cif) price at the border of the importing country.Definition: The cif price is the price of a good delivered at the frontier of the importing country, or the price of a service delivered to a resident, before the payment of any import duties or other taxes on imports or trade and transport margins within the country (41).3.139. Proxies or substitute measures for the fob value may be necessary under certain circumstances, such as:(a) barter of goods should be valued at the basic prices that would have been received if the goods had been sold for cash;(b) transactions between affiliated enterprises: as a rule, actual transfer values should be used. However, if they largely differ from market prices, they should be replaced by an estimated market price equivalent, or at least be separately identified for analytical purposes;(c) goods transferred under a financial lease: the goods should be valued on the basis of the purchasers' price paid by the lessor (not by the cumulative value of the rental payments);(d) imports of goods to be estimated on the basis of customs data (for extra-European Union trade) or Intrastat-information (for intra-European Union trade). Both data sources do not apply fob valuation, they use respectively the cif value at the European Union border and cif values at the national border. As fob-values are only used at the most aggregate level and cif-values are used at the product group level, these modifications have only to be applied at the most aggregate level, i.e. the cif/fob adjustment;(e) imports and exports of goods to be estimated on the basis of survey information or various types of ad hoc information. In such instances, usually only the total value of sales split out by product can be obtained. As a consequence, the estimate will be based on purchasers' prices and not on fob values.IMPORTS AND EXPORTS OF SERVICES (P.62 and P.72)3.140. Definition: Exports of services consist of all services rendered by residents to non-residents.3.141. Definition: Imports of services consist of all services rendered by non-residents to residents.3.142. Exports of services include the following borderline cases:(a) transportation of exported goods after they have left the frontier of the exporting country when provided by a resident carrier (cases 2 and 3 in table 3.4);(b) transportation of imported goods by a resident carrier:1. up to the frontier of the exporting country when goods are valued fob to offset the transportation value included in the fob-value (case 3 in table 3.5);2. up to the frontier of the importing country when goods are valued cif to offset the transportation value included in the cif-value (cases 3 and 2 cif in table 3.5);(c) transportation of goods by residents on behalf of non-residents which does not involve imports or exports of the goods (e.g. the transport of goods that do not leave the country as exports or the transport of goods outside the domestic territory);(d) international or national passenger transportation on behalf of non-residents by resident carriers;(e) minor processing and repair activities on behalf of non-residents;(f) construction services when a construction site office abroad is not treated as a quasi-corporation. This applies to construction projects lasting less than a year and whose output is not gross fixed capital formation (see paragraph 2.09 and in particular the corresponding note (4));(g) installation of equipment abroad when a project is of limited duration by its nature;(h) financial services by the amount of the explicit commissions and fees;(i) insurance services by the amount of the service charge;(j) expenditure by non-resident tourists and business travellers (by convention classified as services; however, for the purposes of the supply and use and symmetric input-output tables, a global breakdown by products may be necessary);(k) expenditure by non-residents on health and education services provided by residents; this includes the provision of these services on the domestic territory as well as abroad;(l) services of owner-occupied holiday homes of non-residents (see paragraph 3.64);(m) royalties and licence fees, receipts of which are associated with the authorized use of intangible non-produced non-financial assets and property rights, such as patents, copyrights, trademarks, industrial processes, franchises, etc., and with the use through licensing agreements of produced originals or prototypes, such as manuscripts, paintings, etc.3.143. For imports of services most borderline cases are the mirror-image of those for exports of services; therefore, only a limited number of specific clarifications are necessary for imports of services.3.144. Imports of transport services include the following borderline cases:(a) transportation of exported goods up to the frontier of the exporting country when provided by a non-resident carrier to offset the transportation value included in the fob-value of the exported goods (case 4 in table 3.4);(b) transportation of imported goods by a non-resident carrier:1. from the frontier of the exporting country as a separate transportation service when imported goods are valued fob (cases 4 and 5 fob in table 3.5);2. from the frontier of the importing country as a separate transportation service when imported goods are valued cif (in this case the value of the transportation service between the frontiers of the exporting and the importing country is already included in the cif-value of the good; case 4 in table 3.5);(c) transportation of goods by non-residents on behalf of residents which does not involve imports or exports of goods (e.g. transport of goods in transit or transport outside the domestic territory);(d) international or national passenger transportation on behalf of residents by non-resident carriers.Imports of transport services do not include transportation of exported goods after they have left the frontier of the exporting country when provided by a non-resident carrier (cases 5 and 6 in table 3.4). Exports of goods are valued fob and all such transport services are thus to be regarded as transactions between non-residents, i.e. between a non-resident carrier and a non-resident importer. This applies even when these transportation services are paid under export-cif-contracts by the exporter.3.145. Imports in respect of direct purchases abroad by residents cover all purchases of goods and services made by residents while travelling abroad for business or personal purposes. Two categories must be distinguished because they require different treatment:(a) expenditures by business travellers are intermediate consumption;(b) expenditures by other travellers on personal trips are household final consumption expenditure.3.146. Imports and exports of services are recorded at the time at which they are rendered, which mostly coincides with the time at which services are produced. Imports of services are to be valued at purchasers' price and exports of services at basic prices.Table 3.4 - The treatment of transportation of exported goods Explanation of how to read this table: the first part of this table indicates that there are six different possibilities of transportation of exported goods, depending on whether the carrier is resident or not and depending on where the transport takes place: from a place on the domestic territory to the national border, from the national border to the border of the importing country or from the border of the importing country to a place within the importing country. In the second part of this table, for each of these six possibilities, it is indicated whether they are to be recorded as exports of goods, exports of services, imports of goods or imports of services.>TABLE>>TABLE>Table 3.5 - The treatment of transportation of imported goods Explanation of how to read this table: the first part of this table indicates that there are six different possibilities of transportation of imported goods, depending on whether the carrier is resident or not and depending on where the transport takes place: from a place in the exporting country to the border of this exporting country, from the border of the exporting country to the border of the importing country and from the border of the importing country to a place within the importing country. In the second part of this table, for each of these six possibilities, it is indicated whether they are to be recorded as imports of goods, imports of services, exports of goods or exports of services. In some instances (cases 2 and 5), this recording depends on the valuation principle applied for imported goods.>TABLE>>TABLE>Note that the transition from valuation of imported goods at cif to fob consists of:(a) cif/fob adjustment, i.e. from 2 cif to 2 fob (reduces total imports and exports);(b) cif/fob reclassification, i.e. from 5 cif to 5 fob (leaves total imports and exports unchanged).TRANSACTIONS IN EXISTING GOODS3.147. Definition: Existing goods are goods that already have had a user (other than inventories).3.148. Existing goods include:(a) existing buildings and other fixed capital goods which are sold by producer units to other units:1. to be re-used as such;2. to be demolished or broken up; the resulting products usually become raw materials (e.g. scrap iron) used for the production of new goods (e.g. steel);(b) valuables which are sold from one unit to another;(c) existing consumer durables which are sold by households or military authorities to other units:1. to be re-used as such;2. to be broken up and converted into demolition materials;(d) existing non-durable goods (e.g. waste paper, rags, old clothes, old bottles, etc.) which are sold by any unit, either to be used again or to become raw material for the manufacture of new goods (recovered goods).3.149. The transfer of existing goods is recorded as a negative expenditure (acquisition) for the seller and a positive expenditure (acquisition) for the purchaser.3.150. This has the following consequences:(a) when the sale of an existing fixed asset or valuable takes place between two resident producers, the positive and negative values recorded for gross fixed capital formation cancel out for the economy as a whole except for the costs of ownership transfer;(b) when an existing immovable fixed asset (e.g. a building) is sold to a non-resident, by convention the latter is treated as purchasing a financial asset, i.e the equity of a notional resident unit. This notional resident unit is then deemed to purchase the fixed asset. As a consequence; the sale and purchase of the fixed asset takes place between residents;(c) when an existing movable fixed asset, such as a ship or aircraft, is exported, no positive gross fixed capital formation is recorded elsewhere in the economy to offset the seller's negative gross fixed capital formation;(d) some durable goods, such as vehicles, may be classified as fixed assets or as consumer durables depending upon the owner and the purpose for which they are used. If, therefore, the ownership of such a good is transferred from an enterprise to a household to be used for final consumption, negative gross fixed capital formation is recorded for the enterprise and positive consumption expenditure for the household. In the less common case where ownership of such a good is transferred from a household to an enterprise, for the household negative final consumption expenditure should be recorded and for the enterprise positive gross fixed capital formation;(e) transactions in existing valuables are to be recorded as the acquisition of a valuable (positive gross capital formation) by the purchaser and as the disposal of a valuable (negative gross capital formation) by the seller. In case of a transaction with the rest of the world, the import or export of a good is to be recorded (see paragraph 3.135). The sale of a valuable by a household is not to be recorded as negative final consumption expenditure;(f) when existing military durables are sold abroad by the government, this should be recorded as an export of goods and as negative intermediate (and final) consumption by the government.3.151. For the selling costs incurred by the former owner (costs of ownership transfer), a holding loss has to be recorded. A similar entry is to be made for the part of his original acquisition costs that has not been written down as consumption of fixed capital.3.152. Transactions in existing goods should be recorded at the time ownership changes. The valuation principles to be applied are those appropriate to the type(s) of transactions in products involved.CHAPTER 4 DISTRIBUTIVE TRANSACTIONS 4.01. 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)4.02. 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:(a) wages and salaries (D.11):- wages and salaries in cash;- wages and salaries in kind;(b) 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 cash4.03. 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:(a) basic wages and salaries payable at regular intervals;(b) enhanced rates of pay for overtime, night work, weekend work, disagreeable or hazardous circumstances;(c) cost of living allowances, local allowances and expatriation allowances;(d) bonuses based on productivity or profits, Christmas and New Year bonuses excluding employee social benefits (see paragraph 4.07. c), '13th to 14th month` pay (annual supplementary pay);(e) 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 (see paragraph 4.07. a);(f) holiday pay for official holidays or annual holidays;(g) commissions, tips, attendance and directors' fees paid to employees;(h) ad hoc bonuses or other exceptional payments linked to the overall performance of the enterprise made under incentive schemes;(i) payments made by employers to their employees under saving schemes;(j) exceptional payments to employees who leave the enterprise, if those payments are not linked to a collective agreement;(k) housing allowances paid in cash by employers to their employees.Wages and salaries in kind4.04. 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.4.05. The most common are:(a) 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;(b) 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;(c) 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;(e) 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;(f) the provision of sports, recreation or holiday facilities for employees and their families;(g) transportation to and from work, except when organized in the employer's time, car parking;(h) crèches for the children of employees;(i) payments made by employers to works councils or similar bodies;(j) bonus shares distributed to employees;(k) 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.4.06. Goods and services, or other advantages, should be valued at basic prices when produced by the employer, and at purchasers' prices when purchased by the employer (that is, the price actually paid by the employer).When provided free, the whole value of the wages and salaries in kind is calculated according to the basic prices (or purchasers' prices of the employer when purchased by him) of the goods and services, or other advantages, in question.When provided at reduced prices, the value is given by the difference between the calculation explained above and the amount paid by the employee.4.07. Wages and salaries do not include:(a) expenditure by employers which is to their own benefit as well as to that of their employees, because it is necessary for the employers' production process:1. allowances or reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties;2. expenditure on providing amenities at the place of work, medical examinations required because of the nature of the work, supplying working clothes which are worn exclusively, or mainly, at work;3. accommodation services at the place of work of a kind which cannot be used by the households to which the employees belong - cabins, dormitories, huts and so on;4. special meals or drinks necessitated by exceptional working conditions;5. allowances paid to employees for the purchase of tools, equipment or special clothing needed exclusively, or primarily, for their work, or that part of their wages or salaries which, under their contracts of employment, employees are required to devote to such purchases.Such expenditure on goods and services that employers are obliged to provide to their employees in order for them to be able to carry out their work is treated as intermediate consumption by employers.(b) The amounts of wages and salaries which employers continue to pay to their employees temporarily in the case of sickness, maternity, industrial injury, disability, redundancy, etc. These payments are treated as unfunded employee social benefits (D.623), with the same amounts being shown under employers' imputed social contributions (D.122);(c) other unfunded employee social benefits, in the form of children's, spouses', family, education or other allowances in respect of dependants, and in the form of the provision of free medical services (other than those necessitated by the nature of the work) to employees or their families;(d) any taxes payable by the employer on the wage and salary bill - for example, a payroll tax. Such taxes are treated as other taxes on production.EMPLOYERS' SOCIAL CONTRIBUTIONS (D.12)4.08. 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)4.09. 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 (see paragraph 4.92.a)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)4.10. 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 (42) 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.4.11. In the accounts of the sectors, the costs of direct social benefits appear first among uses in the generation of income account, as a component of the compensation of employees, and a second time among uses in the secondary distribution of income account, as social benefits. In order to balance the latter account, it is assumed that the households of employees pay back to the employers' sectors the employers' imputed social contributions which finance together with eventual employees' social contributions the direct social welfare benefits provided to them by these same employers. This notional circuit is similar to that for employers' actual social contributions, which pass through the accounts of households and are then deemed to be paid by them to the insurers.For the valuation of employers' imputed social contributions, the amount of which does not necessarily coincide with that of direct social benefits, reference should be made to heading D.612.4.12. Time of recording of compensation of employees:(a) wages and salaries (D.11) are recorded in the period during which the work is done. However, ad hoc bonuses or other exceptional payments, 13th month, etc. are recorded when they are due to be paid;(b) employers' actual social contributions (D.121) are recorded in the period during which the work is done;(c) employers' imputed social contributions (D.122):1. representing the counterpart of compulsory direct social benefits are recorded in the period during which the work is done;2. representing the counterpart of voluntary direct social benefits are recorded at the time these benefits are provided.4.13. The compensation of employees may consist of:(a) the compensation of resident employees by resident employers;(b) the compensation of resident employees by non-resident employers;(c) the compensation of non-resident employees by resident employers.These different items are recorded in the ESA as follows:1. the compensation of resident and non-resident employees by resident employers groups together items (a) and (c) and appears among uses in the generation of income account of the sectors and industries to which the employers belong;2. the compensation of resident employees by resident and non-resident employers groups together items (a) and (b) and appears among resources in the allocation of primary income account of households;3. item (b), compensation of resident employees by non-resident employers, appears among uses in the external account of primary incomes and current transfers;4. item (c), compensation of non-resident employees by resident employers appears, among resources in the external account of primary incomes and current transfers.TAXES ON PRODUCTION AND IMPORTS (D.2)4.14. 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.4.15. Taxes on production and imports are divided into:(a) taxes on products (D.21):1. value-added type taxes (VAT) (D.211);2. taxes and duties on imports excluding VAT (D.212):- import duties (D.2121),- taxes on imports excluding VAT and import duties (D.2122);3. taxes on products, except VAT and import taxes (D.214);(b) other taxes on production (D.29).TAXES ON PRODUCTS (D.21)4.16. 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)4.17. 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:(a) outputs of goods and services and imports are valued excluding invoiced VAT;(b) purchases of goods and services are recorded inclusive of non-deductible 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)4.18. 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:(a) 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;(b) taxes on imports, excluding VAT and import duties (D.2122).This heading includes:1. levies on imported agricultural products;2. monetary compensatory amounts levied on imports;3. 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;4. general sales taxes payable on imports of goods and services;5. taxes on specific services provided by non-resident enterprises to resident units within the economic territory;6. 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)4.19. 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.4.20. This heading includes, in particular:(a) excise duties and consumption taxes (other than those included in taxes and duties on imports);(b) stamp taxes on the sale of specific products, such as alcoholic beverages or tobacco, and on legal documents or cheques;(c) 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;(d) car registration taxes;(e) taxes on entertainment;(f) taxes on lotteries, gambling and betting, other than those on winnings;(g) taxes on insurance premiums;(h) other taxes on specific services: hotels or lodging, housing services, restaurants, transportation, communication, advertising;(i) general sales or turnover taxes (excluding VAT type taxes): these include manufacturers' wholesale and retail sales taxes, purchase taxes, turnover taxes;(j) 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;(k) export duties and monetary compensatory amounts collected on exports.4.21. 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)4.22. 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.4.23. Other taxes on production (D.29) include in particular:(a) taxes on the ownership or use of land, buildings, or other structures utilized by enterprises in production (including owner-occupiers of dwellings);(b) taxes on the use of fixed assets (vehicles, machinery, equipment) for purposes of production, whether such assets are owned or rented;(c) taxes on the total wage bill and payroll taxes;(d) taxes on international transactions (travel abroad, foreign remittances, or similar transactions with non-residents) for purposes of production;(e) 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;(f) 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;(g) under-compensation of VAT resulting from the flat rate system, frequently found in agriculture.4.24. This heading excludes taxes on the personal use of vehicles etc. by households, which are recorded under current taxes on income, wealth, etc.TAXES ON PRODUCTION AND IMPORTS PAID TO THE INSTITUTIONS OF THE EUROPEAN UNION4.25. The taxes on production and imports paid to the institutions of the European Union include, in particular:(a) taxes paid directly by resident producer units to the institutions of the European Union (the ECSC levy on mining and iron and steel producing enterprises);(b) taxes collected by national governments on behalf of the institutions of the European Union, namely:1. receipts from the common agricultural policy;levies on imported agricultural products, monetary compensatory amounts levied on exports and imports, sugar production levies and the tax on isoglucose, co-responsibility taxes on milk and cereals;2. receipts from trade with third countries: customs duties levied on the basis of the Integrated Tariff of the European Union (Taric);3. receipts from VAT in each Member State.4.26. Recording of taxes on production and imports: taxes on production and imports are recorded when the activities, transactions or other events occur which create the liabilities to pay taxes.4.27. However, some economic activities, transactions or events, which under tax legislation ought to impose on the units concerned the obligation to pay taxes, permanently escape the attention of the tax authorities. It would be unrealistic to assume that such activities, transactions or events give rise to financial assets or liabilities in the form of payables or receivables. For this reason, the amounts to be recorded in the system are determined by the amounts due for payment only when evidenced by tax assessments, declarations or other instruments which create liabilities in the form of clear obligations to pay on the part of taxpayers. The system does not impute missing taxes not evidenced by tax assessments.Taxes evidenced by tax assessments but which are never paid (for instance, because of bankruptcy) are treated as if they had been paid; there are two eventualities:(a) the writing-off of bad debt by the government, which recognizes that its claim can no longer be collected; this writing-off is recorded in the other changes in the volume of assets accounts of the government and the defaulting debtor;(b) the cancellation of the debt by mutual agreement between the government and the debtor. This cancellation is treated as a capital transfer from the government to the debtor in the capital account, with a simultaneous extinction of a claim in the financial account.4.28. The total value of the taxes which should be recorded includes any interest charged on arrears of taxes due and any fines imposed by taxation authorities if it is impossible to record such interest and fines separately from taxes; it also includes any charges which may be imposed in connection with the collection or recovery of taxes outstanding. Correspondingly, it is reduced by the amount of any tax rebates made by general government as a matter of economic policy and any tax refunds made as a result of over-payments.4.29. In the system of accounts, taxes on production and imports (D.2) appear:(a) among uses in the generation of income account of the total economy;(b) among resources in the allocation of primary income account of the general government sector and in the external account of primary incomes and current transfers.Taxes on products are recorded as resources in the goods and services account of the total economy. This enables the resources of goods and services - valued exclusive of taxes on products - to be balanced with the uses, which are valued inclusive of these taxes.Other taxes on production (D.29) appear among uses in the generation of income accounts of the industries or sectors which pay them.SUBSIDIES (D.3)4.30. Definition: Subsidies (D.3) are current unrequited payments which general government or the institutions of the European Union make to resident (43) 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).4.31. Subsidies granted by the institutions of the European Union cover only current transfers made directly by them to resident producer units.4.32. Subsidies are classified into:(a) subsidies on products (D.31):1. import subsidies (D.311);2. other subsidies on products (D.319);(b) other subsidies on production (D.39).SUBSIDIES ON PRODUCTS (D.31)4.33. 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)4.34. 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)4.35. Other subsidies on products (D.319) include:(a) 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;(b) 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;(c) 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;(d) 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)4.36. 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.4.37. This heading includes in particular:(a) 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;(b) 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;(c) grants for interest relief made to resident, producer units, even when they are intended to encourage capital formation (44). 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;(d) over-compensation of VAT resulting from the flat rate system, frequently found in agriculture.4.38. The following are not treated as subsidies:(a) current transfers from general government to households in their capacity as consumers. These are treated either as social benefits or as miscellaneous current transfers (D.75);(b) current transfers between different parts of general government in their capacity as producers of non-market goods and services, except other subsidies on production (D.39). The current transfers are shown under the heading current transfers within general government (D.73);(c) investment grants (D.92);(d) extraordinary payments into social insurance funds, in so far as these payments are designed to increase the actuarial reserves of these funds. Such payments are shown under the heading other capital transfers (D.99);(e) transfers made by general government to non-financial corporations and quasi-corporations to cover losses accumulated over several financial years, or exceptional losses due to factors outside the control of the enterprise, are classified under the heading other capital transfers (D.99);(f) the cancellation of debts which producer units have incurred towards the government (resulting, for example, from loans advanced by a government agency to a non-financial enterprise which has accumulated trading losses over several financial years). In general, these transactions are treated in the accounts as other capital transfers (D.99) (see paragraph 4.165.f);(g) payments made by general government or by the rest of the world for damage to, or losses of, capital goods as a result of acts of war, other political events or national disasters are shown under the heading other capital transfers (D.99);(h) shares and other equities in corporate enterprises purchased by general government, which are shown under the heading shares and other equity (AF.5);(i) payments made by a general government agency which has assumed responsibility for abnormal pension charges affecting a public enterprise. These payments must be recorded under miscellaneous current transfers (D.75);(j) payments made by general government to market producers to pay entirely, or in part, for goods and services that those market producers provide directly and individually to households in the context of social risks or needs (see paragraph 4.84), and to which the households have a legally established right. These payments are included in individual consumption expenditure of general government (P.31) and subsequently in social benefits in kind (D.631) and actual individual consumption of households (P.41).4.39. Time of recording: Subsidies are recorded when the transaction or the event (production, sale, import, etc.) which gives rise to the subsidy occurs.Particular cases:(a) subsidies which take the form of the difference between the purchase price and the selling price charged by a government trading agency are recorded at the time the goods are bought by the agency, if the selling price is known at that time;(b) subsidies intended to cover a loss incurred by a producer are recorded at the time the general government agency decides to cover the loss.4.40. In the system of accounts, subsidies appear:(a) among negative uses in the generation of income account of the total economy;(b) among negative resources in the allocation of primary income account of the general government sector and in the external account of primary incomes and current transfers.Subsidies on products are recorded as negative resources in the goods and services account of the total economy. This enables the resources of goods and services to be balanced with the uses.Other subsidies on production (D.39) appear among negative uses in the generation of income accounts of the industries or sectors which receive them.Consequences of a system of multiple exchange rates on taxes on production and imports and on subsidies: multiple exchange rates are not currently applicable among the Member States of the European Union. In such a system:(a) implicit taxes on imports are treated as taxes on imports excluding VAT and import duties (D.2122);(b) implicit taxes on exports are treated as taxes on products, except VAT and import taxes (D.214);(c) implicit subsidies on imports are treated as import subsidies (D.311);(d) implicit subsidies on exports are treated as other subsidies on products (D.319).PROPERTY INCOME (D.4)4.41. 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:(a) interest (D.41);(b) distributed income of corporations (D.42):1. dividends (D.421);2. withdrawals from income of quasi-corporations (D.422);(c) reinvested earnings on direct foreign investment (D.43);(d) property income attributed to insurance policy holders (D.44);(e) rents (D.45).INTEREST (D.41)4.42. 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.4.43. 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:(a) deposits (AF.2);(b) securities other than shares (AF.3);(c) loans (AF.4);(d) other accounts receivable (AF.7).Interest on deposits, loans and accounts receivable and payable4.44. The interest receivable and payable on these financial assets and liabilities is determined by applying the relevant rate of interest to the principal outstanding at each point of time throughout the accounting period.Interest on securitiesInterest on bills and similar short-term instruments4.45. The difference between the face value and the price paid at the time of issue (i.e. the discount) measures the interest payable over the life of the bill. The increase in the value of a bill due to the accumulation of accrued interest does not constitute a holding gain because it is due to an increase in the principal outstanding and not a change in the price of the asset. Other changes in the value of the bill are treated as holding gains/losses.Interest on bonds and debentures4.46. Bonds and debentures are long-term securities that give the holder the unconditional right to: a fixed or contractually determined variable money income in the form of coupon payments, or a stated fixed sum on a specified date or dates when the security is redeemed, or both these two terms.(a) zero-coupon bonds: there are no coupon payments. The interest based on the difference between the redemption price and the issue price has to be distributed over the years to the maturity of the bond. The interest accruing each year is reinvested in the bond by its holder, thus counterpart entries equal to the value of the accrued interest must be recorded in the Financial Account as the acquisition of more bond by the holder and as a further issue of more bond by the issuer or debtor (i.e. as a growth in the 'volume` of the original bond);(b) other bonds, including deep-discounted bonds. The interest has two components:1. the amount of the money income receivable from coupon payments each period;2. the amount of interest accruing each period attributable to the difference between the redemption price and the issue price, calculated in the same way as for zero-coupon bonds;(c) index-linked securities: the amounts of the coupon payments and/or the principal outstanding are linked to a price index. The change in the value of the principal outstanding between the beginning and the end of a particular accounting period due to the movement in the relevant index is treated as interest accruing in that period, in addition to any interest due for payment in that period. The interest accruing as a result of the indexing is effectively reinvested in the security and must be recorded in the financial accounts of the holder and issuer.Interest rate swaps and forward rate agreements4.47. Swaps are contractual arrangements between two institutional units who agree to exchange streams of payables on the same amount of indebtedness over time. Common varieties of swaps are interest rate swaps and currency swaps.The streams of interest payments resulting from swap arrangements should be recorded net of the payments between the two parties to the swap; any payments to third parties, such as specialized brokers, for arranging the swaps are recorded as purchases of services.The same principle is applied to transactions under forward rate agreements.Interest on financial leases4.48. A financial lease is an alternative to lending as a method of financing the purchase of machinery and equipment. It is a contract which channels funds from a lender to a borrower: the lessor purchases the equipment and the lessee contracts to pay rentals which enable the lessor, over the period of the contract, to recover all, or virtually all, of his costs including interest.The lessor is treated as making a loan to the lessee equal to the value of the purchaser's price paid for the asset, this loan being gradually paid off in full over the period of the lease. The rental paid each period by the lessee is therefore treated as having two components: a repayment of principal and a payment of interest. The rate of interest on the imputed loan is implicitly determined by the total amount paid in rentals over the life of the lease in relationship to the purchaser's price of the asset. The share of the rental that represents interest gradually declines over the life of the lease as the principal is repaid. The initial loan by the lessee, together with the subsequent repayments of principal, are recorded in the Financial Accounts of the lessor and lessee. The interest payments are recorded under interest in their respective Primary Distribution of Income Accounts.Other interest4.49. The following are also treated as interest:(a) interest charged on bank overdrafts, extra interest paid on deposits left longer than originally agreed, and payments to certain bond holders which are determined by lottery;(b) interest received by mutual funds (see paragraph 2.51.b), from the investments they have made, and which is assigned to shareholders, even if it is capitalized. It excludes holding gains or losses on financial instruments belonging to unit trusts, which are not recorded as property income.Time of recording4.50. Interest is recorded on an accrual basis: that is, interest is recorded as accruing continuously over time to the creditor on the amount of principal outstanding. The interest accruing in each accounting period must be recorded whether or not it is actually paid or added to the principal outstanding. When it is not actually paid, the increase in the principal must also be recorded in the Financial Account as a further acquisition of that kind of financial asset by the creditor and an equal acquisition of a liability by the debtor.4.51. Interest is to be recorded before the deduction of any taxes levied on it. Interest received and paid is always recorded inclusive of grants for interest relief, even if those grants are directly paid to financial institutions and not to the beneficiaries (see subsidies).The value of the services provided by financial intermediaries not being allocated among different customers, the actual payments or receipts of interest to or from financial intermediaries are not adjusted to eliminate the margins that represent the implicit charges made by financial intermediaries. An adjustment item is needed in the allocation of primary income account of financial intermediaries and of a nominal industry to which, by convention, the whole output of financial intermediaries is allocated as intermediate consumption.4.52. In the system of accounts, interest is shown:(a) among resources and among uses in the allocation of primary income account of the sectors (45);(b) among resources and among uses in the external account of primary incomes and current transfers.DISTRIBUTED INCOME OF CORPORATIONS (D.42)Dividends (D.421)4.53. 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.4.54. This heading also includes:(a) 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;(b) 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;(c) the income paid to general government by public enterprises which are recognized as independent legal entities though not formally constituted as corporate enterprises.4.55. Time of recording: dividends are recorded at the time they are due to be paid as determined by the corporation.In the system of accounts, dividends appear:(a) among uses in the allocation of primary income account of the sectors in which the corporations are classified;(b) among resources in the allocation of primary income account of the sectors in which shareholders are classified;(c) among uses and resources in the external account of primary incomes and current transfers.Withdrawals from the income of quasi-corporations (D.422)4.56. 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.4.57. 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.4.58. When a quasi-corporation makes a trading profit, the unit which owns it may choose to leave part or all of the profit in the business, especially for investment purposes. This income left in the business appears as saving by the quasi-corporation, and only the profits actually withdrawn by the owner units are recorded in the accounts under the heading withdrawals from the income of quasi-corporations.4.59. When profits are earned in the rest of the world by the branch-offices, agencies, etc. of resident enterprises, in so far as these branch-offices etc. are treated as non-resident units, retained earnings appear as reinvested earnings on direct foreign investment (D.43). Only the income actually transferred to the parent enterprise is treated in the accounts as withdrawals from the income of quasi-corporations received from the rest of the world. The same principles are applied to deal with the relations between branch-offices, agencies, etc. operating on the economic territory and the non-resident parent enterprise to which they belong.4.60. This heading includes the net operating surplus received by residents as owners of land and buildings in the rest of the world, or by non-residents as owners of land or buildings on the economic territory. In effect, in respect of all transactions in land and buildings carried out on the economic territory of a country by non-resident units, the latter are considered, in accordance with the conventions adopted in the ESA, to be notional resident units in which the non-resident owners own the equity.The rental value of owner-occupied dwellings abroad is registered as imports of services and the corresponding net operating surplus as primary income received from the rest of the world; the rental value of owner-occupied dwellings belonging to non-residents is registered as exports of services and the corresponding net operating surplus as primary income paid to the rest of the world.4.61. The heading withdrawals from the income of quasi-corporations does not include amounts which their owners receive:(a) from the sale of existing fixed capital goods;(b) from the sale of land and intangible assets;(c) from withdrawals of capital (e.g. the total or partial liquidation of their equity in the quasi-corporation).These amounts are treated as withdrawals from equity in the financial account. Conversely, any funds provided by the owner(s) of a quasi-corporation for the purpose of acquiring assets or reducing its liabilities is treated as additions to its equity. However, if the quasi-corporation is owned by government, and if it runs a persistent operating deficit as a matter of deliberate government economic and social policy, any regular transfers of funds into the enterprise made by government to cover its losses should be treated as subsidies.4.62. Time of recording: withdrawals from the income of quasi-corporations are recorded when they are made by the owners.4.63. In the system of accounts, withdrawals from the income of quasi-corporations appear:(a) among uses in the allocation of primary income account of the sectors in which the quasi-corporations are classified;(b) among resources in the allocation of primary income account of the owner sectors;(c) among uses and resources in the external account of primary incomes and current transfers.REINVESTED EARNINGS ON DIRECT FOREIGN INVESTMENT (D.43)4.64. Definition: Reinvested earnings on direct foreign investment (D.43) are equal to:the operating surplus of the direct foreign investment enterpriseplus any property incomes or current transfers receivableminus 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.4.65. 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`.4.66. 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.4.67. Time of recording: reinvested earnings on direct foreign investment are recorded when they are earned.In the system of accounts, reinvested earnings on direct foreign investment appear:(a) among uses and resources in the allocation of primary income account of the sectors;(b) among uses and resources in the external account of primary incomes and current transfers.PROPERTY INCOME ATTRIBUTED TO INSURANCE POLICY HOLDERS (D.44)4.68. 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.4.69. 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.These premium and contribution supplements on non-life insurance policies and on life insurance policies taken out under social insurance schemes are recorded together with the actual premiums and contributions in the secondary distribution of income accounts of the units concerned.The premium supplements on individual life insurance not taken out under social insurance schemes, like the actual premiums, are not current transfers and are therefore not recorded in the secondary distribution of income accounts. They are directly included as one of the elements contributing to the change in the 'net equity of households in life insurance reserves and in pension funds reserves` recorded in the financial accounts of the units concerned.4.70. Time of recording: property income attributed to insurance policy holders is recorded when it accrues.4.71. In the system of accounts, the property income attributed to insurance policy holders appears:(a) among resources in the allocation of primary income account of policy holders;(b) among uses in the allocation of primary income account of the insurers;(c) among resources and among uses in the external account of primary incomes and current transfers.RENTS (D.45)Rents on land4.72. 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.4.73. 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 assets4.74. 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.4.75. Time of recording of rents: rents are recorded in the period when payable.4.76. In the system of accounts, rents are recorded:(a) among resources and among uses in the allocation of primary income account of sectors;(b) among resources and among uses in the external account of primary incomes and current transfers.CURRENT TAXES ON INCOME, WEALTH, ETC. (D.5)4.77. 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:(a) taxes on income (D.51);(b) other current taxes (D.59).TAXES ON INCOME (D.51)4.78. 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:(a) 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;(b) taxes on the income or profits of corporations;(c) taxes on holding gains;(d) 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)4.79. Other current taxes (D.59) include:(a) 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);(b) poll taxes, levied per adult or per household, independently of income or wealth;(c) expenditure taxes, payable on the total expenditures of persons or households;(d) 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. (46);(e) taxes on international transactions (travel abroad, foreign remittances, foreign investments, etc.), except those payable by producers and import duties paid by households.4.80. Current taxes on income, wealth, etc. do not include:(a) inheritance taxes, death duties or taxes on gifts inter vivos, which are deemed to be levied on the capital of the beneficiaries and are shown under the heading capital taxes (D.91);(b) occasional or exceptional levies on capital or wealth, which are shown under the heading capital taxes (D.91);(c) taxes on land, buildings or other assets owned or rented by enterprises and used by them for production, such taxes being treated as other taxes on production (D.29);(d) payments by households for licences other than licences on the use of vehicles, boats or aircraft, or licences to hunt, shoot or fish: driving or pilot's licences, television or radio licences, firearm licences, museum or library admissions, garbage disposal fees, etc. which are treated in most cases as purchases of services rendered by government (47).4.81. The total value of the taxes which should be recorded includes any interest charged on arrears of taxes due and any fines imposed by taxation authorities if it is impossible to record such interest and fines separately; it also includes any charges which may be imposed in connection with the recovery and assessment of taxes outstanding. Correspondingly, it is reduced by the amount of any rebates made by general government as a matter of economic policy and any refunds made as a result of over-payments.4.82. Recording of current taxes on income, wealth, etc.: current taxes on income, wealth, etc. are recorded at the time when activities, transactions or other events occur which create the liabilities to pay.However, some economic activities, transactions or events, which under tax legislation ought to impose on the units concerned the obligation to pay taxes, permanently escape the attention of the tax authorities. It would be unrealistic to assume that such activities, transactions or events give rise to financial assets or liabilities in the form of payables or receivables. For this reason, the amounts to be recorded in the system are determined by the amounts due for payment only when evidenced by tax assessments, declarations or other instruments which create liabilities in the form of clear obligations to pay on the part of taxpayers. The system does not impute missing taxes not evidenced by tax assessments.Taxes evidenced by tax assessments but which are never paid (for instance, because of bankruptcy) are treated as if they had been paid; there are two eventualities:(a) the writing-off of bad debt by the government, which recognizes that its claim can no longer be collected; this writing-off is recorded in the other changes in the volume of assets accounts of the government and the defaulting debtor;(b) the cancellation of the debt by mutual agreement between the government and the debtor. This cancellation is treated as a capital transfer from the government to the debtor in the capital account, with a simultaneous extinction of a claim in the financial account.In some cases, the liability to pay income taxes can only be determined in a later accounting period than that in which the income accrues. Some flexibility is therefore needed in the time at which such taxes are recorded. Income taxes deducted at source, such as PAYE taxes and regular prepayments of income taxes, may be recorded in the periods in which they are paid and any final tax liability on income can be recorded in the period in which the liability is determined.In the system of accounts, current taxes on income, wealth, etc. are recorded:(a) among uses in the secondary distribution of income account of the sectors in which the taxpayers are classified;(b) among resources in the secondary distribution of income account of general government;(c) among uses and resources in the external account of primary incomes and current transfers.SOCIAL CONTRIBUTIONS AND BENEFITS (D.6)4.83. 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.4.84. The list of risks or needs which may give rise to social benefits is, by convention, fixed as follows:(a) sickness;(b) invalidity, disability;(c) occupational accident or disease;(d) old age;(e) survivors;(f) maternity;(g) family;(h) promotion of employment;(i) unemployment;(j) housing (48);(k) education;(l) general neediness.4.85. Social benefits include:(a) 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);(b) 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;(c) current transfers from government units and NPISHs which are not conditional on previous payment of contributions (assistance).4.86. Social benefits exclude:(a) insurance claims based on policies taken out solely on the own initiative of the insured, independently of his employer or government;(b) insurance claims on policies taken out with the sole purpose of obtaining a discount, even if those policies follow from a collective agreement.4.87. 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 in paragraph 4.84 above, and in addition, one or more of the following conditions must be satisfied:(a) 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;(b) 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;(c) 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.4.88. 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:(a) social security schemes, covering the entire community, or large sections of the community, that are imposed, controlled and financed by government units;(b) private funded schemes, which consist of:1. schemes in which the social contributions are paid to third parties (insurance enterprises, autonomous pension funds);2. 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;(c) 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.4.89. 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.4.90. Social contributions may be divided into actual contributions payable under the first two categories of schemes mentioned in paragraph 4.88 above and imputed contributions payable under unfunded schemes.4.91. Social contributions may be divided into those that are compulsory by law and those that are not.SOCIAL CONTRIBUTIONS (D.61)Actual social contributions (D.611)4.92. Actual social contributions include:(a) 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 non-autonomous 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;(b) 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';(c) 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.4.93. Payments of actual social contributions may be compulsory by virtue of a statute or regulation, or they may be paid as a result of collective agreements in a particular industry or agreements between employer and employees in a particular enterprise, or because they are written into the contract of employment itself. In certain cases, the contributions may be voluntary.The voluntary contributions referred to here cover:(a) social contributions which persons who are not, or who are no longer, legally obliged to contribute pay or continue to pay to a social security fund;(b) social contributions paid to insurance enterprises (or friendly societies and pension funds classified in the same sector) as part of supplementary insurance schemes organized by enterprises for the benefit of their employees and which the latter join voluntarily;(c) contributions to friendly societies with membership open to employees or self-employed workers.4.94. To distinguish between social contributions that are compulsory and those that are not, a supplementary level is introduced in the classification:(a) compulsory employers' actual social contributions (D.61111);(b) voluntary employers' actual social contributions (D.61112);(c) compulsory employees' social contributions (D.61121);(d) voluntary employees' social contributions (D.61122);(e) compulsory social contributions by self and non-employed persons (D.61131);(f) voluntary social contributions by self and non-employed persons (D.61132).4.95. Actual social contributions to social security funds or other government agencies are recorded gross as distributive transactions.On the other hand, social contributions paid under private funded schemes to insurance enterprises, and to friendly societies and autonomous pension funds included in the same sector, are recorded net, i.e. after deducting that part of the contribution which represents the value of the insurance service provided to (resident and non-resident) households. Under the conventions adopted, this part of the contribution represents, in effect, the payment for a market service which forms part of the final consumption of households or, in the case of contributions paid by non-resident households, part of exports of services.In the case of non-autonomous private funded social insurance schemes, where employers maintain their own segregated reserves, no service charge is deducted from contributions paid by the employees. As such schemes do not constitute separate institutional units from the employers, the costs of managing and administering the funds are assimilated with the employers' general production costs.4.96. Time of recording: employers' actual social contributions (D.6111) and employees' social contributions (D.6112) are recorded at the time when the work that gives rise to the liability to pay the contributions is carried out. Social contributions by self-employed and non-employed persons (D.6113) are recorded when the liabilities to pay are created.4.97. In the system of accounts, actual social contributions are recorded:(a) among uses in the secondary distribution of income account of households;(b) among uses in the external account of primary incomes and current transfers (in the case of non-resident households);(c) among resources in the secondary distribution of income account of resident insurers or employers;(d) among resources in the external account of primary incomes and current transfers (in the case of non-resident insurers or employers).Imputed social contributions (D.612)4.98. 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.4.99. It is necessary to introduce imputed social contributions if the social benefits distributed directly by employers are to be included in the accounts under the heading social benefits and if the cost of these benefits (for the part which is not covered by employees' actual contributions) is to be included in the compensation of employees paid by the employer.When employers provide social benefits themselves directly to their employees, ex-employees or dependants out of their own resources without involving a social security fund, an insurance enterprise or an autonomous pension fund, and without creating a special fund or segregate reserve for the purpose, beneficiaries may be considered as being protected against various specific needs, or circumstances, even though no payments are being made to cover them.Remuneration should therefore be imputed for employees equal in value to the amount of social contributions that would be needed to secure the de facto entitlements to the social benefits they accumulate. These amounts depend not only on the levels of the benefits currently payable but also on the ways in which employers' liabilities under such schemes are likely to evolve in the future as a result of factors such as expected changes in the numbers, age distribution and life expectancies of their present and previous employees. Thus, the values that should be imputed for the contribution ought, in principle, to be based on the same kind of actuarial considerations that determine the levels of premiums charged by insurance enterprises. When as a result of political events or economic changes, the ratio between the number currently employed and the number receiving pensions changes appreciably and becomes abnormal, the value of the imputed contributions for current employees should be estimated, which will be different from the actual value of the pensions paid out. A reasonable percentage of wages and salaries paid to current employees can be used for this purpose.In practice, however, it may be difficult to decide how large such imputed contributions should be. The enterprise may make estimates itself, perhaps on the basis of the contributions paid into similar funded schemes, in order to calculate its likely liabilities in the future. Otherwise, the only practical alternative may be to use the unfunded social benefits payable by the enterprise during the same accounting period (after deducting actual contributions made by employees themselves) as an estimate of the imputed remuneration that would be needed to cover the imputed contributions. While there are obviously many reasons why the value of the imputed contributions that would be needed may diverge from the unfunded social benefits actually paid in the same period, such as the changing composition and age structure of the enterprise's labour force, the benefits actually paid in the current period (less employees' social contributions) may nevertheless provide sufficient estimates of the contributions and associated imputed remuneration.4.100. Employers are recorded, in the generation of income account, as paying to their existing employees as a component of their compensation an amount described as imputed social contributions equal in value to the estimated social contributions that would be needed to provide for the unfunded social benefits to which they become entitled. Employees are recorded, in the secondary distribution of income account, as paying back to their employers the same amount of imputed social contributions (i.e. current transfers) as if they were paying them to a separate social insurance scheme.4.101. Time of recording: imputed social contributions which represent the counterpart of compulsory direct social benefits are recorded at the time the obligation to pay the benefits arises.Imputed social contributions which represent the counterpart of voluntary direct social benefits are recorded at the time the benefits are provided.4.102. In the system of accounts, imputed social contributions are recorded:(a) among uses in the secondary distribution of income account of households and in the external account of primary incomes and current transfers;(b) among resources in the secondary distribution of income account of the sectors to which the employers belong and in the external account of primary incomes and current transfers.SOCIAL BENEFITS OTHER THAN SOCIAL TRANSFERS IN KIND (D.62)4.103. The heading D.62 is made up of four sub-headings:Social security benefits in cash (D.621)They are payable to households by social security funds (excluding reimbursements, see D.6311).Those benefits are provided under social security schemes.Private funded social benefits (D.622)They are (in cash or in kind), payable to households by insurance enterprises or other institutional units administering private funded social insurance schemes.Unfunded employee social benefits (D.623)They are (in cash or in kind), payable to their employees, their dependants or survivors by employers administering unfunded social insurance schemes. They typically include:(a) the continued payment of normal, or reduced, wages during periods of absence from work as a result of ill health, accident, maternity, etc.;(b) the payment of family, education or other allowances in respect of dependants;(c) the payment of retirement or survivors' pensions to ex-employees or their survivors, and the payment of severance allowances to workers or their survivors in the event of redundancy, incapacity, accidental death, etc. (if linked to collective agreements);(d) general medical services not related to the employee's work;(e) convalescent and retirement homes.Unfunded employee social benefits payable by employers to their former employees or other eligible persons should be recorded including employers' actual social contributions, i.e. payments made by the employers for the benefit of the persons concerned to insurers.Social assistance benefts in cash (D.624)They are payable to households by government units or NPISHs to meet the same needs as social insurance benefits but which are not made under a social insurance scheme incorporating social contributions and social insurance benefits. Such benefits do not include current transfers paid in response to events or circumstances that are not normally covered by social insurance schemes (i.e. transfers made in response to natural disasters, recorded under other current transfers or under other capital transfers).SOCIAL TRANSFERS IN KIND (D.63)4.104. 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.The heading social transfers in kind (D.63) includes social benefits in kind and transfers of individual non-market goods or services.Social benefits in kind (D.631)4.105. Social benefits in kind are social transfers in kind intended to relieve the households from the financial burden of social risks or needs (see paragraph 4.84). They can be subdivided into those where beneficiary households actually purchase the goods and services themselves and are then reimbursed, and those where the relevant services are provided directly to the beneficiaries. In this second case, general government units or NPISHs produce or purchase, entirely or in part, goods and services which are directly provided by their producers to the beneficiaries.Social security benefits, reimbursements (D.6311)These benefits consist of reimbursement by social security funds of approved expenditures made by households on specified goods or services.When a household purchases a good or service for which it is subsequently reimbursed, in part or in whole, by a social security fund, the household can be regarded as if it were acting on behalf of the social security fund. In effect, the household provides a short-term credit to the social security fund that is liquidated as soon as the household is reimbursed.The amount of the expenditure reimbursed is recorded as being incurred directly by the social security fund at the time the household makes the purchase, while the only expenditure recorded for the household is the difference, if any, between the purchaser's price paid and the amount reimbursed. Thus, the amount of the expenditure reimbursed is not treated as a current transfer in cash from the social security funds to households.Other social security benefits in kind (D.6312)These consist of social transfers in kind, except reimbursements, made by social security funds to households. Most other social security benefits in kind are likely to consist of medical or dental treatments, surgery, hospital accommodation, spectacles or contact lenses, medical appliances or equipment, and similar goods or services in the context of social risks or needs. The service is provided directly to the beneficiaries, without reimbursement, by market or non-market producers and should be valued accordingly. Any payments made by the householders themselves should be deducted.Social assistance benefits in kind (D.6313)These consist of transfers in kind provided to households by government units or NPISHs that are similar in nature to social security benefits in kind but are not provided in the context of a social insurance scheme. Included are, if not covered by a social insurance scheme, social housing, dwelling allowance, day nurseries, professional training, reductions on transport prices (provided that there is a social purpose), and similar goods and services in the context of social risks or needs. Any payments made by the householders themselves should be deducted.Transfers of individual non-market goods or services (D.632)4.106. Definition: Transfers of individual non-market goods or services (D.632) consist of goods or services provided to individual households free or at prices which are not economically significant, by non-market producers or government units or NPISHs. They correspond to individual consumption expenditure of NPISHs and government (see paragraph 3.85), less social benefits in kind (D.631) granted to households under social security or social assistance arrangements.4.107. Time of recording of social benefits:(a) in cash, they are recorded when the claims on the benefits are established;(b) in kind, they are recorded at the time the services are provided, or at the time the changes of ownership of goods provided directly to households by non-market producers take place.4.108. In the system of accounts, social benefits other than social transfers in kind (D.62) are recorded:(a) among uses in the secondary distribution of income account of the sectors granting the benefits;(b) among uses in the external account of primary incomes and current transfers (in the case of benefits granted by the rest of the world);(c) among resources in the secondary distribution of income account of households;(d) among resources in the external account of primary incomes and current transfers (in the case of benefits granted to non-resident households).Social transfers in kind (D.63) are recorded:(a) among uses in the redistribution of income in kind account of the sectors granting the benefits;(b) among resources in the redistribution of income in kind account of households.The consumption of the goods and services transferred is recorded in the use of adjusted disposable income account.By convention there are no social transfers in kind with the rest of the world (they are registered in D.62 social benefits other than social transfers in kind).OTHER CURRENT TRANSFERS (D.7)NET NON-LIFE INSURANCE PREMIUMS (D.71)4.109. 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 (49). 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.4.110. Time of recording: net non-life insurance premiums are recorded when they are earned.The insurance premiums from which the service charges are deducted are those parts of the total premiums paid in the current period, or previous periods, that cover risks outstanding in the current period.Premiums earned in the current period must be distinguished from the premiums due for payment during the current period, which are likely to cover risks in future periods as well as the current period.4.111. In the system of accounts net non-life insurance premiums are recorded:(a) among uses in the secondary distribution of income account of resident policy holders;(b) among uses in the external account of primary incomes and current transfers (in the case of non-resident policy holders);(c) among resources in the secondary distribution of income account of resident insurance enterprises;(d) among resources in the external account of primary incomes and current transfers (in the case of non-resident insurance enterprises).NON-LIFE INSURANCE CLAIMS (D.72)4.112. Definition: Non-life insurance claims (D.72) represent the claims due under contracts in respect of non-life insurance (50); 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).4.113. Non-life insurance claims do not include payments which constitute social benefits.4.114. As the service charges on non-life insurance are calculated by subtracting claims due from the combined value of the premiums earned and premium supplements, it follows that the total claims due must equal the net non-life premiums receivable by an insurance enterprise during the same accounting period. This underlines the fact that the essential function of non-life insurance is to redistribute resources.The settlement of a non-life insurance claim is treated as a transfer to the claimant. Such payments are always treated as current transfers, even when large sums may be involved as a result of the accidental destruction of a fixed asset or serious personal injury to an individual. The amounts received by claimants are usually not committed for any particular purpose and goods or assets which have been damaged or destroyed need not necessarily be repaired or replaced.Some claims arise because of damage or injuries that the policy holders cause to the property or persons of third parties. In these cases, valid claims are recorded as being payable directly by the insurance enterprise to the injured parties and not indirectly via the policy holder.4.115. Time of recording: non-life insurance claims are recorded at the time the accident or other event insured against occurs.4.116. In the system of accounts, they are recorded:(a) among uses in the secondary distribution of income account of resident insurance enterprises;(b) among uses in the external account of primary incomes and current transfers (in the case of non-resident insurance enterprises);(c) among resources in the secondary distribution of income account of the beneficiary sectors;d) among resources in the external account of primary incomes and current transfers (in the case of non-resident beneficiaries).CURRENT TRANSFERS WITHIN GENERAL GOVERNMENT (D.73)4.117. 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.4.118. Current transfers within general government do not include transactions on behalf of another unit; these are recorded only once in the accounts, in the resources of the beneficiary unit on whose behalf the transaction is made. This situation arises particularly when a government agency (e.g. a central government department) collects taxes which are automatically transferred, in total or in part, to another government agency (e.g. a local authority). In this case, the tax receipts destined for the other government agency are shown as if they were collected directly by that agency and not as a current transfer within general government. This solution applies a fortiori in the case of taxes destined for another government agency which take the form of additional rates superimposed on taxes levied by central government. Delays in remitting the taxes from the first to the second government unit give rise to entries under 'other accounts receivable/payable` in the Financial Account.On the other hand, transfers of tax receipts which form part of a block transfer from central government to another government agency are included in current transfers within general government. These transfers do not correspond to any specific category of taxes and they are not made automatically but mainly through certain funds (county and local authority funds) in accordance with scales of apportionment laid down by central government.4.119. Time of recording: Current transfers within general government are recorded at the time the regulations in force stipulate they are to be made.4.120. In the system of accounts, current transfers within general government are recorded among uses and resources in the secondary distribution of income account of the subsectors of general governmen (51).CURRENT INTERNATIONAL COOPERATION (D.74)4.121. Definition: Current international cooperation (D.74) includes all transfers in cash or in kind between general government and governments or international organisations (52) in the rest of the world, except investment grants and other capital transfers.4.122. Heading D.74 covers:(a) the non-tax contributions of the government to the institutions of the European Union, except the 'GNP`-based fourth own resource (53);(b) the contributions of the government to international organizations (excluding taxes payable by member governments to supranational organizations);(c) any current transfers which general government may receive from the institutions or organizations referred to under (a) and (b) (54);(d) current transfers between governments, either in cash e.g. payments intended to finance the budget deficits of foreign countries or overseas territories) or in kind (e.g. counterpart of gifts of food, military equipment, emergency aid after natural disasters in the form of food, clothing, medicines, etc.);(e) wages and salaries paid by a government, an institution of the European Union or an international organization, to advisers or technical assistance experts made available to developing countries.Current international cooperation includes transfers between general government and international organizations located in the country, as international organizations are not treated as resident institutional units of the countries in which they are located.4.123. Time of recording: the time the regulations in force stipulate the transfers are to be made (obligatory transfers), or the time the transfers are made (voluntary transfers).4.124. In the system of accounts, current international cooperation is recorded:(a) among uses and resources in the secondary distribution of income account of the general government sector;(b) among uses and resources in the external account of primary incomes and current transfers.MISCELLANEOUS CURRENT TRANSFERS (D.75)Current transfers to NPISHs4.125. 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.4.126. The following are included:(a) regular subscriptions paid by households to trade unions and political, sporting, cultural, religious and similar organizations classified in the sector NPISHs;(b) voluntary contributions (other than legacies) from households, corporate enterprises and the rest of the world to NPISHs, including transfers in kind in the form of gifts of food, clothing, blankets, medicines, etc. to charities for distribution to resident or non-resident households;(c) assistance and grants from general government, other than transfers made for the specific purpose of financing capital expenditure, which are shown under investment grants.Excluded are payments of membership dues or subscriptions to market NPIs serving businesses, such as chambers of commerce or trade associations, which are treated as payments for services rendered.4.127. Time of recording: current transfers to NPISHs are recorded at the time they are made.4.128. In the system of accounts, current transfers to NPISHs are recorded:(a) among uses in the secondary distribution of income account of the contributing sectors;(b) among uses in the external account of primary incomes and current transfers;(c) among resources in the secondary distribution of income account of the NPISHs sector.Current transfers between households4.129. 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.4.130. Time of recording: the time the transfers occur.4.131. In the system of accounts, current transfers between households are recorded:(a) among uses and resources in the secondary distribution of income account of households;(b) among uses and resources in the external account of primary incomes and current transfers.Fines and penalties4.132. Definition: Fines and penalties imposed on institutional units by courts of law or quasi-judicial bodies are treated as compulsory current transfers.4.133. Not included under this heading are:(a) fines and penalties imposed by tax authorities for the evasion or late payment of taxes, which cannot usually be distinguished from the taxes themselves;(b) payments of fees to obtain licences, such payments being either taxes or payments for services rendered by government units (see D.29 and D.59).4.134. Time of recording: fines and penalties are recorded at the time the liabilities arise.Lotteries and gambling4.135. 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. The current transfers are recorded at the time they are made.Payments of compensation4.136. 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.4.137. 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 resource4.138. 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.Time of recording: GNP-based fourth own resource is recorded when it is to be paid.In the system of accounts, GNP-based fourth own resource appears:(a) among uses in the secondary distribution of income account of general government;(b) among resources in the external account of primary incomes and current transfers.Other4.139. (a) Current transfers from NPISHs to general government which are not taxes.(b) Payments by general government to public enterprises classified in the sector non-financial corporate and quasi-corporate enterprises intended to cover abnormal pension charges.(c) Travelling fellowships and awards paid to resident or non-resident households by general government or NPISHs.(d) Bonus payments on savings granted at intervals by general government to households in order to reward them for their saving during the period.(e) The refunds by households of expenditure incurred on their behalf by social welfare organizations.(f) Current transfers from NPISHs to the rest of the world.(g) 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).(h) Current transfers from general government to households in their capacity as consumers, if not recorded as social benefits.4.140. Time of recording: these transfers are recorded when they are made, except those from or to general government, which are recorded when they are to be made.In the system of accounts, miscellaneous current transfers appear:(a) among resources and uses in the secondary distribution of income account of all sectors;(b) among resources and uses in the external account of primary incomes and current transfers.ADJUSTMENT FOR THE CHANGE IN THE NET EQUITY OF HOUSEHOLDS IN PENSION FUNDS RESERVES (D.8)4.141. 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.4.142. 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 schemesplus the total value of contribution supplements payable out of the property income attributed to insurance policy holdersminus the value of the associated service chargesminus the total value of the pensions paid out as social insurance benefits by private funded pension schemesis 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.4.143. Time of recording: the adjustment is recorded according to the flows which compose it.4.144. In the system of accounts, the adjustment for the change in the net equity of households in pension funds reserves is recorded:(a) among uses in the use of income accounts of the insurance enterprises sector and other sectors administering non-autonomous pension funds;(b) among uses in the external account of primary incomes and current transfers (in the case of non-resident institutions);(c) among resources in the use of income accounts of the households sector;(d) among resources in the external account of primary incomes and current transfers (in the case of non-resident households).CAPITAL TRANSFERS (D.9)4.145. 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.4.146. 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.4.147. Capital transfers cover capital taxes (D.91), investment grants (D.92) and other capital transfers (D.99).CAPITAL TAXES (D.91)4.148. 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.4.149. Capital taxes include:(a) taxes on capital transfers: inheritance taxes, death duties and taxes on gifts inter vivos, which are deemed to be levied on the capital of the beneficiaries (except taxes on sales of assets, as these are not transfers);(b) capital levies: occasional and exceptional levies on assets or net worth owned by institutional units (55). These include betterment levies, that is taxes on the increase in the value of agricultural land due to planning permission to develop the land for commercial or residential purposes.4.150. Time of recording: capital taxes are recorded at the time when the tax liabilities arise.4.151. In the system of accounts, capital taxes are recorded:(a) among changes in liabilities and net worth (-) in the capital account of the sectors in which the taxpayers are classified;(b) among changes in liabilities and net worth (+) in the capital account of general government;(c) among changes in liabilities and net worth in the capital account of the rest of the world.INVESTMENT GRANTS (D.92)4.152. Definition: Investment grants (D.92) consist of capital transfers in cash or in kind made by governments or by the rest of the world (56) to other resident or non-resident institutional units to finance all or part of the costs of their acquiring fixed assets.4.153. 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.4.154. Investment grants do not include transfers of military equipment in the form of weapons or equipment whose sole function is to fire such weapons, as they are not classified as fixed assets.4.155. The value of capital formation carried out by general government for the benefit of other sectors of the economy is also to be shown under investment grants whenever the beneficiary is identifiable and becomes the owner of the capital. In such cases, the capital formation is recorded among changes in assets in the capital account of the beneficiary and is financed by an investment grant which appears among changes in liabilities and net worth in the same account.4.156. Heading D.92 includes not only single non-recurrent payments designed to finance capital formation during the same period, but also instalment payments in respect of capital formation carried out during an earlier period. Thus, those parts of the annual payments by general government which represent the amortization of debts, contracted by enterprises for the purpose of capital formation projects for whose amortization the government has assumed total or partial responsibility, are also treated as investment grants.Grants for interest relief made by general government are, however, excluded, even when the object of the relief is to encourage capital formation. In practice, the assumption by public authorities of part of the interest charges constitutes, like the flow of interest itself, a current distributive transaction. Nevertheless, when a grant serves the dual purpose of financing the amortization of the debt contracted and the payment of the interest on the capital borrowed, and when it is not possible to separate these two elements, the whole of the grant is treated in the accounts as an investment grant.4.157. Investment grants to the sector non-financial corporate and quasi-corporate enterprises include, in addition to grants to private enterprises, capital grants to public enterprises recognized as independent legal entities, provided that the government department which makes the grant does not retain a claim against the public enterprise.4.158. Investment grants to the households sector include equipment and modernization grants to businesses other than corporate or quasi-corporate enterprises and grants to households for the construction, purchase and improvement of dwellings.4.159. Investment grants to general government include all payments (except grants for interest relief) made to subsectors of general government (57) for the purpose of financing capital formation. The most important examples are transfers from central government to local authorities for the specific purpose of financing their gross fixed capital formation. It should be emphasized that transfers of a general nature intended for various or indeterminate purposes are shown under current transfers within general government, even if they are partly used to cover expenditure on capital formation.4.160. Investment grants to non-profit institutions from general government and from the rest of the world are distinguished from current transfers to non-profit institutions by using the same criterion.4.161. Investment grants to the rest of the world should also be restricted to transfers with the specific objective of financing capital formation by non-resident units. They include, for example, unrequited transfers for the construction of bridges, roads, factories, hospitals or schools in developing countries, or for constructing buildings for international organizations. They may comprise instalment payments over a period of time as well as single payments. This heading also covers the supply of fixed capital goods free of charge.4.162. Time of recording: investment grants in cash are recorded when the payment is due to be made. Investment grants in kind are recorded when the ownership of the asset is transferred.4.163. In the system of accounts, investment grants are recorded:(a) among changes in liabilities and net worth (-) in the capital account of general government;(b) among changes in liabilities and net worth (+) in the capital account of the sectors receiving the grants;(c) among changes in liabilities and net worth in the capital account of the rest of the world.OTHER CAPITAL TRANSFERS (D.99)4.164. 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.4.165. Other capital transfers include the following transactions:(a) 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.);(b) 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;(c) transfers between subsectors of general government designed to cover unexpected expenditure or accumulated deficits (58);(d) 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;(e) 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.);(f) the counterpart transaction of cancellation of debts by agreement between institutional units belonging to different sectors or subsectors (for example, the cancellation by the government of a debt owed to it by a foreign country; payments in fulfilment of guarantees which free defaulting debtors from their obligations). Such cancellations by mutual agreement are treated as a capital transfer from the creditor to the debtor equal to the value of the outstanding debt at the time of cancellation. Likewise the counterpart transaction of debt assumption is another capital transfer. However, excluded are:1. cancellation of financial claims against and assumption of liabilities from quasi-corporations by the owner of the quasi-corporation. This case is treated as a transaction in shares and other equity (see paragraph 5.16);2. debt cancellation against and debt assumption from a public corporation by government which disappears as an institutional unit in the system. This case is recorded in the other changes in the volume of assets account (see paragraphs 5.16, 6.29 and 6.30);3. debt cancellation against and debt assumption from a public corporation by government as a part of an ongoing process of privatization to be achieved in a short term perspective. This case is treated as a transaction in shares and other equity (see paragraph 5.16).The writing-off of debt is not a transaction between institutional units and therefore does not appear in either the capital account or the financial account of the system. If the creditor decides such a write-off, it should be recorded in the other changes in the volume of assets accounts of the creditor and the debtor (see paragraph 6.27. d)). Provisions for bad debt are treated as book-keeping entries that are internal to the institutional producer unit and do not appear anywhere in the system. The unilateral repudiation of debt by a debtor is also not a transaction and is not recognized in the system;(g) 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;(h) major payments in compensation for extensive damage or serious injuries not covered by insurance policies (except payments by general government or by the rest of the world described in (a)). The payments may be awarded by courts of law or settled out of court. They include payments of compensation for damage caused by major explosions, oil spillages, the side-effects of drugs, etc.;(i) extraordinary payments into social insurance funds made by employers (including government) or by government (as part of its social function), in so far as these payments are designed to increase the actuarial reserves of these funds. The accompanying adjustment from social insurance funds to households is also recorded as other capital transfers (D.99) (see Annex III 'Insurance`, paragraph 20).4.166. Time of recording:(a) other capital transfers in cash are recorded when the payment is due to be made;(b) other capital transfers in kind are recorded when the ownership of the asset is transferred or the liability cancelled by the creditor.4.167. In the system of accounts, other capital transfers are shown among changes in liabilities and net worth in the capital account of sectors and of the rest of the world.CHAPTER 5 FINANCIAL TRANSACTIONS 5.01. Definition: Financial transactions are transactions in financial assets and liabilities between institutional units, and between them and the rest of the world.5.02. Considering the definition of a transaction (see paragraph 1.33), a financial transaction is an interaction between institutional units, or between an institutional unit and the rest of the world, by mutual agreement, involving a simultaneous creation or liquidation of a financial asset and the conterpart liability, or a change in ownership of a financial asset, or an assumption of a liability.5.03. Financial assets are economic assets, comprising means of payment, financial claims and economic assets which are close to financial claims in nature.5.04. Means of payment consist of monetary gold, special drawing rights, currency and transferable deposits.Financial claims entitle their owners, the creditors, to receive a payment or series of payments without any counter-performance from other institutional units, the debtors, who have incurred the counterpart liabilities.Examples of economic assets which are close to financial claims in nature are shares and other equity and partly contingent assets. The institutional unit issuing such a financial asset is considered to have incurred a counterpart liability.5.05. Contingent assets are contractual arrangements between institutional units, and between them and the rest of the world, which specify one or more conditions which must be fulfilled before a financial transaction takes place. Examples are guarantees of payment by third parties, letters of credit, lines of credit, underwritten note issuance facilities (NIFs) and many of the derivative instruments. In the system, a contingent asset is a financial asset in cases where the contractual arrangement itself has a market value because it is tradable or can be offset on the market. Otherwise, a contingent asset is not recorded in the system (59).5.06. Seven categories of financial assets are distinguished: monetary gold and special drawing rights (AF.1), currency and deposits (AF.2), securities other than shares (AF.3), loans (AF.4), shares and other equity (AF.5), insurance technical reserves (AF.6) and other accounts receivable/payable (AF.7).5.07. In the system, each financial asset has a counterpart liability, with the exception of those financial assets classified in the category monetary gold and special drawing rights (AF.1). Six categories of liabilities are distinguished corresponding to the categories of the counterpart financial assets.5.08. The classification of financial transactions corresponds to the classification of financial assets and liabilities. Seven categories of financial transactions are distinguished: transactions in monetary gold and special drawing rights (F.1), transactions in currency and deposits (F.2), transactions in securities other than shares (F.3), transactions in loans (F.4), transactions in shares and other equity (F.5), transactions in insurance technical reserves (F.6) and transactions in other accounts receivable/payable (F.7).5.09. The financial assets held and the liabilities outstanding at a particular point in time (of a sector or the rest of the world) are recorded in the balance sheet (see chapter 7). Financial transactions result in changes in balance sheets. However, the changes between the opening balance sheet and the closing balance sheet may also include other flows (see chapter 6). They are not due to interactions between institutional units, or between them and the rest of the world, by mutual agreement. The other flows are broken down into revaluations in financial assets and liabilities, and changes in the volume of financial assets and liabilities not due to financial transactions. The former are recorded in the revaluation account and the latter in the other changes in the volume of assets account under the categories catastrophic losses, uncompensated seizures, other volume changes in financial assets and liabilities n.e.c., and changes in classifications and structure.5.10. Financial transactions between institutional units are recorded in the financial accounts of the sectors involved. Financial transactions between institutional units and the rest of the world are recorded in the financial accounts of the sectors involved and the external financial account, that is the financial account of the rest of the world (see chapter 8).The financial account (of a sector or the rest of the world) shows on its left side acquisitions less disposals of financial assets, while its right side shows the incurrence of liabilities less their repayment. The balancing item of the financial account, that is net acquisition of financial assets less net incurrence of liabilities, is net lending (+)/net borrowing (-) (B.9).5.11. The financial account of a sector may be consolidated or non-consolidated. The non-consolidated financial account of a sector shows the changes in financial assets and liabilities due to all financial transactions in which institutional units classified in the sector are involved. The consolidated financial account of a sector shows the changes in financial assets and liabilities due to financial transactions between institutional units classified in the sector under consideration and other institutional units or the rest of the world. Compared to the non-consolidated financial account, the financial transactions between institutional units classified in the sector under consideration are eliminated from the consolidated financial account. The external financial account is consolidated by definition.5.12. A financial transaction between two institutional units increases net lending/net borrowing of one institutional unit and, by the same amount, decreases net lending/net borrowing of the other institutional unit. Financial transactions between institutional units classified in the same sector do not change net lending/net borrowing of the sector. The consolidated and the non-consolidated financial account of a sector show the same amount of net lending/net borrowing. By the same token, financial transactions between institutional units do not change net lending/net borrowing of the total economy. It is of equal amount but opposite sign to net lending/net borrowing in the external financial account. Therefore, total net lending/net borrowing of all institutional units and the rest of the world is zero.5.13. The financial account by debtor/creditor (60) (of a sector or the rest of the world) is an extension of the financial account, showing in addition a breakdown of the net acquisition of financial assets by debtor sector and a breakdown of the net incurrence of liabilities by creditor sector. Therefore, it provides information on debtor/creditor relationships and it is consistent with the financial balance sheet by debtor/creditor (see paragraph 7.69). In the case of financial transactions on secondary markets, however, it does not provide information on the institutional units to whom financial assets were sold or from whom financial assets were bought, that is to say the financial account by debtor/creditor provides not a complete answer on the question who is financing whom in an accounting period.5.14. The financial account is the final account, in the full sequence of accounts that records transactions (see chapter 8). Therefore, the financial account does not have a balancing item that is carried forward to another account. In the system, the balancing item of the financial account is identical with the balancing item of the capital account. In practice, a discrepancy will usually be found between them because they are calculated on the basis of different statistical data.5.15. Financial transactions always have counterpart transactions in the system. Those counterparts may be other financial transactions or non-financial transactions.The simultaneous rise or reduction of both financial assets and liabilities, or the exchange of one financial asset for another are recorded wholly within the financial account (of a sector or the rest of the world). In cases where a transaction and its counterpart are both financial transactions, they change the portfolio of financial assets and liabilities and they may change the totals of both financial assets and liabilities of the institutional units involved or the rest of the world, but they do not change net lending/net borrowing or net worth.The counterparts of financial transactions may also be transactions in products (see chapter 3), distributive transactions (see chapter 4) or transactions in non-financial non-produced assets (see paragraph 6.06). In cases where the counterpart transaction of a financial transaction is not a financial transaction, net lending/net borrowing of the institutional units involved or the rest of the world will change.5.16. The counterpart transaction of a financial transaction may be a (current or a capital) transfer (see chapter 4). In this case, the financial transaction involves a change in ownership of a financial asset, or an assumption of a liability as debtor (debt assumption), or the simultaneous liquidation of a financial asset and the counterpart liability (debt cancellation or debt forgiveness). The counterpart transaction of debt assumption and debt cancellation is classified in the category capital transfers (D.9) and is recorded in the capital account.If the owner of a quasi-corporation assumes liabilities from or cancels financial claims against the quasi-corporation, the counterpart transaction of debt assumption or debt cancellation is a transaction in shares and other equity (F.5).If government cancels or assumes debt from a public corporation which disappears as an institutional unit in the system, no transaction is recorded in the capital account or the financial account. In this case a flow is recorded in the other changes in the volume of assets account (chapter 6, 'Other flows`).If government cancels or assumes debt from a public corporation as part of an ongoing process of privatization to be achieved in a short term perspective, the counterpart transaction is a transaction in shares and other equity. Privatization means the giving up of control over that public corporation (see paragraph 2.26) by the disposal of shares and other equity. Such a cancellation or assumption leads to an increase of the own funds (see paragraph 7.05), regardless as to whether or not this increase of the own funds is due to an issue of shares and other equity.The writing-off or writing-down of bad debts by creditors and the unilateral cancellation of a liability by a debtor (debt repudiation) are not classified as financial transactions because they do not involve interactions between institutional units, or between institutional units and the rest of the world, by mutual agreement. The writing-off or writing-down of bad debts by creditors is recorded in the other changes in the volume of assets account (see paragraph 6.27. d). Debt repudiation is not recognized in the system.5.17. The counterpart transaction of a financial transaction may be interest (D.41). Interest is receivable by the creditors and payable by the debtors of certain kinds of financial claims classified in the categories currency and deposits (AF.2), securities other than shares (AF.3), loans (AF.4) and other accounts receivable/payable (AF.7). In the system, interest is recorded on an accrual basis, that is to say interest is recorded as accruing continuously over time to the creditor on the amount of principal outstanding (see paragraph 4.50). The counterpart transaction of an entry in interest (D.41) is always a financial transaction creating an additional financial claim of the creditor against the debtor. The effect of this financial transaction is that interest is reinvested. The actual payment of interest is not recorded in interest (D.41), but it involves a transaction relating to the change in ownership of the means of payment. The counterpart transaction is a financial transaction reducing the net financial claim of the creditor against the debtor. When accrued interest is not paid when due, this gives rise to interest arrears. As accrued interest is already recorded in the system, interest arrears do not change the total of financial assets or liabilities but possibly their classification (see paragraph 5.131).5.18. The counterpart transaction of a financial transaction may be property income allocated but not distributed. Examples are interest (D.41) and dividends (D.421) received by mutual funds from the investments they have made and which are allocated but not distributed to shareholders (see paragraphs 4.49. b and 4.54. b), reinvested earnings on direct foreign investment (D.43) and property income attributed to insurance policy holders (D.44) in case of individual life insurance policies not taken out under social insurance schemes. The effect of the counterpart financial transaction is that the (positive or negative) property income is reinvested.CLASSIFICATION OF FINANCIAL TRANSACTIONS5.19. The financial transactions are classified in categories subdivided into sub-categories and some of which are further subdivided into sub-positions. The classification of the transactions in financial assets and liabilities corresponds to the classification of financial assets and liabilities (see paragraphs 5.06 to 5.08). Therefore, the definitions of the categories, sub-categories and sub-positions and the supplementary explanations are provided only once in the ESA - in this section of the financial transactions chapter. The balance sheets chapter does not repeat the definitions and their explanations in its main text but it provides in its Annex 7.1 a summary of all assets and liabilities defined in the system.5.20. The classification of financial transactions and of financial assets and liabilities is based primarily on the liquidity and the legal characteristics of the financial assets. The classification does not contain functional categories with the exception of a memorandum item related to direct foreign investment. The definitions of the categories, sub-categories and sub-positions are in general independent of the classification of institutional units. As the need arises, however, the classification of financial assets and liabilities can be further detailed by a cross-classification with the classification of institutional units. The class deposits between monetary financial institutions would be an example. The detail in which the classification of financial assets and liabilities may be employed depends on the institutional sector to be analysed.>TABLE>5.21. Analyses of the monetary policy transmission channels may require to identify measures of money in the balance sheets and also in the financial accounts of the sectors and the rest of the world. However, the definitions of the measures of money applied vary among countries and in time. In addition, they are composed of components which in most of the cases do not correspond with the categories, sub-categories or sub-positions of financial assets and liabilities as defined in the system. Moreover, the money-creating, money-holding and money-neutral sectors depend on the definition of the monetary aggregate under consideration. Therefore, measures of money are not defined in the system. Nevertheless, a method is provided in the Annex 5.1 to this chapter which allows any measure of money in the balance sheets and the financial accounts to be shown.5.22. Innovations in financial markets have diminished the usefulness of a short-term/long-term distinction for financial assets and liabilities. However, when maturity analysis is important, such as for analysis of interest rates and asset yields, a breakdown of a range of maturities may be required. Therefore, maturity distinction is recognized as a secondary classification criterion when relevant.Definition: Short-term financial assets (liabilities) are financial assets (liabilities) whose original maturity is normally one year or less, and in exceptional cases two years at the maximum (61).Long-term financial assets (liabilities) are financial assets (liabilities) whose original maturity is normally more than one year, and in exceptional cases more than two years at the minimum.5.23. Many of the categories, sub-categories and sub-positions of the financial assets and liabilities may be broken down by the units in which they are denominated.Definition: Financial assets (liabilities) in national currency are financial assets (liabilities) which are denominated in the currency unit(s) of the country's legal tender.Financial assets (liabilities) in foreign currency are financial assets (liabilities) which are not denominated in the currency unit(s) of the country's legal tender.Financial assets in foreign currency include financial assets denominated in a currency basket, for example ecus or SDRs, and financial assets denominated in gold. A distinction between national and foreign currency is particularly useful for the category currency and deposits (AF.2).MONETARY GOLD AND SPECIAL DRAWING RIGHTS (SDRs) (F.1)5.24. Category F.1 consists of two sub-categories of financial transactions:(a) monetary gold (F.11);(b) special drawing rights (SDRs) (F.12).5.25. The financial assets classified in the category monetary gold and SDRs (AF.1) are the only financial assets for which there are no counterpart liabilities in the system. Therefore, transactions in monetary gold and SDRs (F.1) always involve changes in ownership of financial assets (see paragraph 5.02).Monetary gold (F.11)5.26. Definition: The sub-category monetary gold (F.11) consists of all transactions in monetary gold (AF.11) that is gold held as a component of foreign reserves by monetary authorities or by others who are subject to the effective control of the authorities.5.27. The monetary authorities sector, which is based on a functional concept, consists of the subsector the central bank (S.121) and central government institutions which carry out operations usually attributed to the central bank. Such operations include the issue of currency, maintenance and management of international reserves and the operation of exchange stabilization funds.Therefore, gold can normally be a financial asset only for the central bank or central government. However, in some circumstances, other financial corporations may hold title to gold that can only be sold with the specific consent of the monetary authorities. In such restricted circumstances, the concept of effective control can be applied to the gold holdings of financial corporations other than the central bank.5.28. Monetary gold normally takes the form of bars with a purity of at least 995/1000.5.29. Transactions in monetary gold consist predominantly of sales and purchases of monetary gold among monetary authorities. Purchases of monetary gold are recorded in the financial accounts of the domestic monetary authorities as increases in financial assets. The counterpart entries are decreases in financial assets of the rest of the world.5.30. Transactions in non-monetary gold, that is in gold other than monetary gold, are treated as acquisitions less disposals of valuables (if the sole purpose is to provide a store of wealth) and otherwise as final or intermediate consumption and/or change in inventories. Transactions in non-monetary gold include transactions by the monetary authorities in gold that is not a component of their foreign reserves.5.31. If monetary authorities add non-monetary gold to their holdings of monetary gold or release monetary gold from their holdings for non-monetary purposes, they are deemed to have monetized or demonetized gold, respectively. Monetization or demonetization of gold does not give rise to entries in the financial accounts; instead, the change in balance sheet positions is accounted for by entries in the other changes in the volume of assets account as a reclassification, i.e. the reclassification of gold as valuables (AN.13) to monetary gold (AF.11) (see paragraph 6.32). Demonetization of gold is recorded symmetrically.5.32. Deposits, securities and loans denominated in gold are treated as financial assets other than monetary gold and are classified along with similar financial assets in foreign currency in the appropriate category.Non-monetary gold swaps, that is arrangements involving the temporary exchange of non-monetary gold for deposits, are treated as collateralized loans (see paragraph 5.81. e).Special drawing rights (SDRs) (F.12)5.33. Definition: The sub-category special drawing rights (SDRs) (F.12) consists of all transactions in SDRs (AF.12) that is international reserve assets created by the International Monetary Fund (IMF) and allocated to its members to supplement existing reserve assets.5.34. SDRs are not considered liabilities of the IMF, and IMF members to whom SDRs are allocated do not have an actual (unconditional) liability to repay their SDRs allocations. SDRs are held exclusively by official holders, which are normally central banks, and are transferable among participants in the IMF's Special Drawing Rights Department and other holders designated by the IMF (other central banks and certain international agencies). SDRs represent each holder's assured and unconditional right to obtain other reserve assets, especially foreign exchange.5.35. Changes in SDRs held by a monetary authority can arise through transactions in SDRs involving SDR payments to or receipts from the IMF, other participants in the IMF's Special Drawing Rights Department, or other holders. They are recorded in the financial accounts of the monetary authorities and the rest of the world, respectively. Changes in SDRs can also arise from changes in the value of SDRs to be recorded in the revaluation account, or from allocations and cancellations of SDRs to be recorded in the other changes in the volume of assets account (see paragraph 6.27. a).CURRENCY AND DEPOSITS (F.2)5.36. Definition: The category currency and deposits (F.2) consists of all transactions in currency and deposits (AF.2) that is currency in circulation and all types of deposits in national and in foreign currency.5.37. Category F.2 is divided into three sub-categories of financial transactions:(a) currency (F.21);(b) transferable deposits (F.22);(c) other deposits (F.29).The distinction between transferable and non-transferable deposits may be difficult and not very useful analytically in some countries (for the distinction between deposits and loans see paragraphs 5.74 to 5.76).Currency (F.21)5.38. Definition: The sub-category currency (F.21) consists of all transactions in currency (AF.21) that is notes and coins in circulation that are commonly used to make payments.5.39. Sub-category AF.21 includes:(a) notes and coins in circulation issued by resident monetary authorities;(b) notes and coins in circulation issued by non-resident monetary authorities and held by residents.5.40. Sub-category AF.21 does not include:(a) notes and coins that are not in circulation, for example, a central bank's stock of own notes or emergency stockpiles of notes;(b) commemorative coins that are not commonly used to make payment.5.41. All sectors and the rest of the world may hold currency. It is issued by the central bank, central government, the rest of the world, and in exceptional cases other monetary financial institutions. Currency is deemed to be a liability of the issuing institutional unit.Transferable deposits (F.22)5.42. Definition: The sub-category transferable deposits (F.22) consists of all transactions in transferable deposits (AF.22) that is deposits (in national or in foreign currency) which are immediately convertible into currency or which are transferable by cheque, banker's order, debit entry or the like, both without any kind of significant restriction or penalty.5.43. Sub-category AF.22 includes transferable deposits with resident and non-resident monetary financial institutions. They cover transferable deposits between monetary financial institutions, such as deposits which other monetary financial institutions hold with the central bank to satisfy compulsory reserve requirements, insofar as such deposits remain transferable, or working balances and foreign exchange deposits under swap arrangements or between other monetary financial institutions.5.44. All sectors and the rest of the world may hold transferable deposits. They are liabilities predominantly of monetary financial institutions and the rest of the world, and sometimes of general government.Other deposits (F.29)5.45. Definition: The sub-category other deposits (F.29) consists of all transactions in other deposits (AF.29) that is deposits (in national or in foreign currency) other than transferable deposits. Other deposits cannot be used to make payments at any time and they are not convertible into currency or transferable deposits without any kind of significant restriction or penalty.5.46. Sub-category AF.29 includes:(a) time deposits. These deposits are not immediately disposable because they are subject to a fixed term or a period of prior notice before withdrawal. They include, for example, deposits with the central bank as a form of compulsory reserves to the extent that the depositors cannot realize them without notice or restriction;(b) savings deposits, savings books, savings certificates or certificates of deposit all of which are not negotiable, or whose negotiability, while theoretically possible, is very restricted;(c) deposits resulting from a savings scheme or contract. These deposits often involve an obligation on the part of the depositor to make regular payments over a given period, and the capital paid and interest accrued do not become available until a fixed term has elapsed. These deposits are sometimes combined with the issue, at the end of the savings period, of loans which are proportionate to the accumulated savings, for the purpose of buying or building a dwelling;(d) evidence of deposit issued by savings and loan associations, building societies, credit unions, and the like, sometimes called shares, which are legally, or in practice, redeemable on demand or at relatively short notice;(e) repayable margin payments related to financial derivatives which are liabilities of monetary financial institutions (see paragraph 5.81. c);(f) short-term repurchase agreements (repos) which are liabilities of monetary financial institutions (see paragraph 5.81. d) (62).5.47. Sub-category AF.29 does not include negotiable certificates of deposit and negotiable savings certificates. They are classified in category securities other than shares, excluding financial derivatives (AF.33).5.48. Sub-category AF.29 includes further:(a) official ecus held by the central bank. These financial assets consist of the ecus issued by the EMI against monetary reserves from the central banks of the Member States for the purpose of implementing the EMS Agreement. These ecus may be used by the EMI and the central banks of the Member States as a means of settlement and for transactions between them and the EMI. The EMI may grant to the monetary authorities of third countries and to international monetary institutions the status of Other Holders of ecus (63);(b) financial claims or liabilities of the central bank arising from the very short-term financing mechanism and the short-term monetary support mechanism. They are administered by the EMI (64);(c) financial claims on the IMF that are components of international reserves and that are not evidenced by loans. They consist of an IMF member's reserve tranche position which arises from the payment of part of a member's subscription in reserve assets and the Fund's net use of the member's currency;(d) liabilities to the IMF that are not evidenced by loans. They consist of use of Fund credit within the IMF's General Resources Account; it measures the amount of a member's currency with the IMF that the member is obligated to repurchase.5.49. All sectors and the rest of the world may hold other deposits. They are liabilities predominantly of monetary financial institutions and the rest of the world, but also of other sectors, for example, general government (see paragraphs 5.74 to 5.76).SECURITIES OTHER THAN SHARES (F.3)5.50. Definition: The category securities other than shares (F.3) consists of all transactions in securities other than shares (AF.3) that is financial assets which are bearer instruments, are usually negotiable and traded on secondary markets or can be offset on the market, and do not grant the holder any ownership rights in the institutional unit issuing them.5.51. Category AF.3 covers financial assets which are typically represented by documents intended to circulate, and whose nominal value is determined on issue. It includes bills, bonds, certificates of deposit, commercial paper, debentures, financial derivatives, and similar instruments normally traded in the financial markets (for the distinction between securities other than shares and loans see paragraphs 5.77 to 5.80).5.52. All sectors and the rest of the world may hold securities other than shares as financial assets. They are liabilities predominantly of financial and non-financial corporations, central, state and local government, and the rest of the world.5.53. Category F.3 is divided into two sub-categories of financial transaction (65):(a) securities other than shares, excluding financial derivatives (F.33);(b) financial derivatives (F.34).Securities other than shares, excluding financial derivatives (F.33)5.54. Definition: The sub-category securities other than shares excluding financial derivatives (F.33) consists of all transactions in securities other than shares excluding financial derivatives (AF.33), that is securities other than shares which give the holder the unconditional right to a fixed or contractually determined variable money income in the form of coupon payments (interest) and/or a stated fixed sum on a specified date or dates or startiung from a date fixed at the time of issue.5.55. Sub-category F.33 may be divided, when relevant, into two sub-positions of financial transactions:(a) short-term securities other than shares, excluding financial derivatives (F.331);(b) long-term securities other thanshares, excluding financial derivatives (F.332).Short-term securities other than shares, excluding financial derivatives (F.331)5.56. Definition: The sub-position short-term securities other than shares excluding financial derivatives (F.331) consists of all transactions in short-term securities other than shares excluding financial derivatives (AF.331) that is securities other than shares with a short-term original maturity (see paragraph 5.22) except financial derivatives.5.57. Short-term securities other than financial derivatives are generally issued at a discount.5.58. Sub-position AF.331 includes:(a) treasury bills and other short-term paper issued by general government, including those which are taken up by other monetary financial institutions to satisfy their compulsory reserve requirements;(b) negotiable short-term paper issued by financial and by non-financial corporations. A variety of terms are used for such paper including: commercial paper, commercial bills, promissory notes, bills of trade, bills of exchange and certificates of deposit;(c) short-term securities issued under long-term underwritten note issuance facilities (NIFs);(d) bankers' acceptances (BAs). A BA involves the acceptance by financial corporations of drafts, commercial bills or bills of exchange issued by non-financial corporations and the unconditional promise to pay a specific amount at a specified date. The BA represents an unconditional financial claim on the part of the holder and an unconditional liability on the part of the accepting financial corporation. The financial corporation's counterpart transaction is a transaction in a short-term loan made by the financial corporation to its customer. For this reason it is recommended that BAs be treated as an actual liability of the accepting financial corporation and as a financial asset of the holder, even though no funds may have been exchanged. Flexibility in the application of this recommendation will be required to take national practices and variations in the nature of these instruments into account.5.59. Sub-position AF.331 does not include securities whose negotiability, while theoretically possible, is very restricted in practice and which are therefore classified in the sub-categories other deposits (AF.29) or short-term loans (AF.41) as appropriate (see paragraphs 5.74 to 5.76).Long-term securities other than shares, excluding financial derivatives (F.332)5.60. Definition: The sub-position long-term securities other than shares excluding financial derivatives (F.332) consists of all transactions in long-term securities other than shares excluding financial derivatives (AF.332) that is securities other than shares with a long-term original maturity (see paragraph 5.22) except financial derivatives.5.61. Long-term securities are generally issued with coupons.5.62. Sub-position AF.332 includes:(a) bearer bonds;(b) subordinated bonds, often referred to as subordinated debt;(c) bonds with optional maturity dates, the latest of which is more than one year away;(d) undated or perpetual bonds;(e) floating rate notes (FRNs);(f) index-linked securities, where the value of the principal is linked to a price index, the price of a commodity, or to an exchange rate index;(g) deep-discount bonds and zero-coupon bonds;(h) eurobonds. A bond issue that is placed simultaneously on the market of at least two countries and is denominated in currency which need not be that of either, usually through international syndicates of financial corporations of several countries;(i) privately issued bonds, that is bonds restricted by bilateral agreement to certain investors, if they are at least potentially transferable; if not, they are treated as long-term loans;(j) loans that have become negotiable de facto. This should be interpreted to mean only if they are traded on an organized secondary market (see paragraph 5.79.);(k) securities resulting from the conversion of loans. A conversion involves two financial transactions: the liquidation of the loan and the creation of the new securities;(l) debentures and loan stock convertible into shares, whether shares of the issuing corporation or shares of another corporation, so long as they have not yet been converted. A conversion involves two financial transactions: the liquidation of the debenture or loan stock and the share issue. Where separable from the underlying bond, the conversion option should be regarded as a separate financial asset classified in the sub-category financial derivatives (AF.34) (see paragraphs 5.67. a and 5.67. b);(m) shares or stocks that pay a fixed income but do not provide for participation in the distribution of the residual value of a corporation on dissolution, including non participating preference shares.5.63. Sub-position AF.332 includes further financial assets issued as part of the securitization of loans, mortgages, credit card debt, accounts receivable and other assets. Sometimes the new security is issued as replacement for the original asset, which is effectively liquidated. Alternatively, the original asset is transferred to another institutional unit and the new securities replace the original asset on the original institutional unit's balance sheet. In this case the original asset should be recorded on the balance sheet of the new institutional unit that holds it.5.64. Sub-position F.332 does not include:(a) transactions in securities as part of repurchase agreements. Repurchase agreements are classified in the sub-category other deposits (see paragraph 5.46. f) or in the category loans (see paragraph 5.81. d) depending on the institutional units involved. The stock lent or subject to repurchase does not change balance sheet and remains classified in AF.332;(b) transactions in non-negotiable securities. They are classified in sub-category long-term loans;(c) transactions in non-negotiable loans, including those which have been sold to a third party, but for which no organized secondary market exists (see paragraph 5.79).Financial derivatives (F.34)5.65. Definition: The sub-category financial derivatives (F.34) consists of all transactions in financial derivatives (AF.34) that is financial assets based on or derived from a different underlying instrument. The underlying instrument is usually another financial asset, but may also be a commodity or an index.5.66. Financial derivatives are also referred to as secondary instruments and since risk avoidance is frequently a motivation for their creation, they are also referred to as hedging instruments. Only those secondary instruments which have a market value because they are tradable or can be offset on the market are financial assets in the system and are classified in the sub-category AF.34 (see paragraph 5.05).5.67. Sub-category AF.34 includes:(a) options, tradable and over-the-counter (OTC). Options are contingent assets which give their holders the right, but not the obligation, to purchase from (in the case of a call option) or to sell to (in the case of a put option) the issuer of the option (the option writer) financial or non-financial assets (the underlying instrument) at a predetermined price (the strike price) within a given time span (American option) or on a given date (European option). The purchaser of the option pays a premium (the option price) for the commitment of the option writer to sell or to purchase the specified amount of the underlying asset or to provide, on demand of the purchaser, appropriate remuneration. By convention, that commitment is treated as a liability of the option writer because the option price represents the current cost to the option writer of buying out his contingent liability;(b) warrants. They are a form of tradable options, which give their holders the right to purchase from the issuer of the warrant (usually a corporation) a certain number of shares or bonds under specified conditions for a designated period of time. There are also currency warrants, the value of which is based on the amount of one currency required to purchase another currency at or before the expiration date of the warrant and cross-currency warrants tied to third currencies. By convention, the issuer of the warrant is considered to have incurred a liability representing the current cost of buying out the issuer's contingent liability;(c) futures, but only if they have a market value because they are tradable or can be offset. Futures are commitments to deliver, or to take delivery of, a specified quantity of a standard grade of a commodity, foreign exchange, or a security at a fixed price and for a specified delivery date or period. Futures may also be based on an index rather than a specific financial or non-financial asset;(d) swaps, but only if they have a market value because they are tradable or can be offset. Swaps are contractual arrangements between two parties who agree to exchange, over time and according to predetermined rules, streams of payment on the same amount of indebtedness. The two most prevalent varieties are interest rate swaps and currency swaps. Interest rate swaps involve an exchange of interest payments of different character, such as fixed rate for floating rate, two different floating rates, fixed rate in one currency and floating rate in another, etc. (see paragraph 4.47). Currency swaps involve an exchange of specified amounts of two different currencies with subsequent repayments, which include both interest and repayment flows, over time according to predetermined rules;(e) forward rate agreements (FRAs), but only if they have a market value because they are tradable or can be offset. FRAs are contractual arrangements in which two parties, in order to protect themselves against interest rate changes, agree on an interest rate to be paid, at a specified settlement date, on a notional amount of principal that is never exchanged. The payments are related to the difference between the agreed forward rate agreement rate and the prevailing market rate at the time of settlement. They are recorded as property income in the system (see paragraph 4.47).5.68. Sub-category AF.34 does not include:(a) the underlying instrument upon which the financial derivative is based;(b) repayable margin payments related to financial derivatives. They are classified in other deposits (AF.29) (see paragraph 5.46. e) or loans (AF.4) (see paragraph 5.81. c) depending on the institutional units involved;(c) secondary instruments, which are not tradable and cannot be offset on the market.LOANS (F.4)5.69. Definition: The category loans (F.4) consists of all transactions in loans (AF.4) that is financial assets created when creditors lend funds to debtors, either directly or through brokers, which are either evidenced by non-negotiable documents or not evidenced by documents.5.70. Generally loans are characterized by the following features:(a) the conditions governing a loan are either fixed by the financial corporation granting the loan or negotiated by the lender and the borrower directly or through a broker;(b) the initiative concerning a loan normally lies with the borrower;(c) a loan is an unconditional debt to the creditor which has to be repaid at maturity and which is interest-bearing.5.71. Category F.4 may be divided, when relevant, into two sub-categories of financial transactions;(a) short-term loans (F.41);(b) long-term loans (F.42).Short-term loans (F.41)5.72. Definition: The sub-category short-term loans (F.41) consists of all transactions in short-term loans (AF.41) that is loans with a short-term original maturity (see paragraph 5.22) and loans repayable on demand.Long-term loans (F.42)5.73. Definition: The sub-category long-term loans (F.42) consists of all transactions in long-term loans (AF.42) that is loans with a long-term original maturity (see paragraph 5.22).5.74. The distinction between transactions in loans (F.4) and transactions in deposits (F.22, F.29) may often be based on the criterion who is taking the initiative for the transaction. In cases where the initiative is taken by a borrower, the transaction is to be classified in the category loans. In cases where the initiative is taken by a lender, the transaction is to be classified in one of the deposit sub-categories. However, the criterion of who is taking the initiative is often a matter of judgement.5.75. By convention, short-term loans granted to monetary financial institutions, resident or non-resident, are normally classified in one of the deposit sub-categories (AF.22, AF.29), and short-term deposits accepted by institutional units other than monetary financial institutions, resident or non-resident, are normally classified in sub-category short-term loans (AF.41). Therefore, deposits are liabilities predominantly of resident and non-resident monetary financial institutions (see paragraphs 5.44 and 5.49), while monetary financial institutions normally have no short-term loan liabilities in the system.5.76. It might be useful analytically to allow for exceptions to the above conventions. Examples are savings deposits with general government and non-monetary gold swaps between monetary financial institutions (see paragraph 5.81. e) (66).5.77. The distinction between transactions in loans (F.4) and transactions in securities other than shares (F.3) can be based on the degree of marketability of the financial assets and its implications.5.78. Security issues consist of a large number of identical documents, each evidencing a round sum, which together form the total amount borrowed. Compared with this, loans are evidenced in most cases by a single document and transactions in loans are carried out between one creditor and one debtor. In the case of syndicated loans, however, the loan is granted by several creditors.5.79. Secondary trade in loans exists. However, individual loans are only traded incidentally. In cases where a loan becomes negotiable on an organized market, it is to be classified in the category securities other than shares. An explicit conversion of the original loan is normally involved (see paragraphs 5.62. j and 5.62. k).5.80. Standard loans are offered in most cases by financial corporations and they are often granted to households. The financial corporations determine the conditions and the households may only choose either to accept or not to accept. Compared with this, the conditions of non-standard loans are usually the result of negotiations between the creditor and the debtor. This is an important criterion which facilitates a distinction between non-standard loans and securities other than shares. In the case of public security issues, the issue conditions are determined by the borrower, possibly after consulting the bank/lead-manager. In the case of private security issues, however, the creditor and the debtor negotiate the issue conditions (see paragraph 5.62. i).5.81. Category AF.4 includes:(a) balances on current accounts, for example, intra-group balances between non-financial corporations and their non-resident subsidiaries, but excluding balances which are liabilities of monetary financial institutions classified in the deposit sub-categories;(b) balances of employees because of participation in the corporation's profits;(c) repayable margin payments related to financial derivatives which are liabilities of institutional units other than monetary financial institutions (see paragraph 5.46. e);(d) short-term repurchase agreements (repos) which are liabilities of institutional units other than monetary financial institutions (see paragraph 5.46. f) and long-term repurchase agreements;(e) loans arising from non-monetary gold swaps. These are arrangements involving the temporary exchange of non-monetary gold for deposits. Their economic nature is similar to that of a collateralized loan in that the purchaser of the gold is providing to the seller advances backed by the gold for the period of the arrangement and is receiving a return from the fixed price when the gold is repurchased;(f) loans which are counterparts of bankers' acceptances (see paragraph 5.58. d);(g) financial leasing and hire-purchase agreements (67);(h) loans to finance trade credits;(i) mortgage loans;(j) consumer credit;(k) revolving credits;(l) instalment loans;(m) loans paid as a guarantee for fulfilling certain obligations.5.82. Category AF.4 includes further:(a) financial claims or liabilities arising from the medium-term financial assistance for Member States' balances of payments. The loans are administered by the EMI (68);(b) financial claims on the IMF evidenced by loans under the General Arrangements to Borrow or under special borrowing arrangements with members;Liabilities to the IMF evidenced by loans under the Structural Adjustment Facility, the Enhanced Structural Adjustment Facility, and the Trust Fund.5.83. Category AF.4 does not include:(a) other accounts receivable/payable (AF.7), including trade credits and advances (AF.71);(b) financial assets or liabilities arising from the ownership of immovable assets, such as land and structures, by non-residents. They are classified in sub-position other equity (AF.513) (see paragraph 5.95. f).5.84. Loans may be financial assets or liabilities of all sectors and the rest of the world. However, monetary financial institutions have normally no short-term loan liabilities in the system.5.85. The sub-categories short-term loans and long-term loans are not divided into sub-positions in the system. Nevertheless, it may be useful analytically to divide, in particular, long-term loans into consumer credit (69), mortgage loans (70) and other loans.SHARES AND OTHER EQUITY (F.5)5.86. Definition: The category shares and other equity (F.5) consists of all transactions in shares and other equity (AF.5) that is financial assets which represent property rights on corporations or quasi-corporations. These financial assets generally entitle the holders to a share in the profits of the corporations or quasi-corporations and to a share in their net assets in the event of liquidation (71).Shares offered for sale but not taken up on issue are not recorded in the system. Shares and other equity are redeemed when purchased by the issuing corporation or when exchanged for the net assets of a corporation in the event of its liquidation.5.87. Category F.5 is divided into two sub-categories of financial transactions:(a) shares and other equity, excluding mutual funds shares (F.51);(b) mutual funds shares (F.52).Shares and other equity, excluding mutual funds shares (F.51)5.88. Definition: The sub-category shares and other equity excluding mutual funds shares (F.51) consists of all transactions in shares and other equity excluding mutual funds shares (AF.51) that is financial assets except mutual fund shares which represent property rights on corporations or quasi-corporations. These financial assets generally entitle the holders to a share in the profits of the corporations or quasi-corporations and to a share in their net assets in the event of liquidation.5.89. Sub-category F.51 may be divided, when relevant, into three sub-positions of financial transactions:(a) quoted shares, excluding mutual funds shares (F.511);(b) unquoted shares, excluding mutual funds shares (F.512);(c) other equity (F.513).Quoted shares, excluding mutual funds shares (F.511), and unquoted shares, excluding mutual funds shares (F.512)5.90. Definition: The sub-position quoted shares excluding mutual funds shares (F.511) consists of all transactions in quoted shares excluding mutual funds shares (AF.511) and the sub-position unquoted shares excluding mutual funds shares (F.512) consists of all transactions in unquoted shares excluding mutual funds shares (AF.512). Shares cover beneficial interest in the capital of corporations in the form of securities which in principle are negotiable. Sub-position AF.511 covers those shares with prices quoted on a recognized stock exchange or other form of secondary market, and sub-position AF.512 covers those shares that are not quoted.5.91. Sub-positions AF.511 and AF.512 include:(a) capital shares issued by limited liability companies: these are securities which give the holders the status of joint owners and entitle them both to a share in the total distributed profits and to a share in the net assets in the event of liquidation;(b) redeemed shares in limited liability companies: these are shares whose capital has been repaid but which are retained by the holders who continue to be joint owners and to be entitled to a share in the profits left after dividends have been paid on the remaining registered capital and also to a share in any surplus which may be left on liquidation, i.e. the net assets less the remaining registered capital;(c) dividend shares issued by limited liability companies: these are securities:1. which, according to country and the circumstances in which they are created, have a variety of names such as founders' shares, profits shares, dividend shares, etc. and which are not part of the registered capital;2. which do not give the holders the status of joint owners strictly speaking (the right to a share in the repayment of the registered capital, the right to a return on this capital, the right to vote at shareholders' meetings, etc.);3. which entitle the holders to a proportion of any profits remaining after dividends have been paid on the registered capital and to a fraction of any surplus remaining on liquidation;(d) preferred (preference) stocks or shares which provide for participation in the distribution of the residual value on dissolution of a corporation. These may be quoted or unquoted on a recognized exchange.5.92. Sub-positions AF.511 and AF.512 do not include:(a) shares offered for sale but not taken up on issue. They are not recorded in the system;(b) debentures and loan stock convertible into shares. They are shown in the accounts under sub-category AF.33 up to the time when they are converted (see paragraph 5.62. l);(c) the equity of partners with unlimited liability (unlimited partners) in incorporated partnerships. They are classified in sub-position AF.513;(d) government investments in the capital of international organizations which are legally constituted as corporations with share capital. They are classified in sub-position AF.513 (see paragraph 5.95. c).5.93. Sub-positions F.511 and F.512 do not include issues of bonus shares that is the remittance of new shares to shareholders in proportion to their holdings. Such an issue, which changes neither the liability of the corporation vis-à-vis the shareholders nor the proportion of the assets that each shareholder holds in the corporation, does not constitute a financial transaction and is not recorded in the system (see paragraph 6.56). The same applies for share split issues.Other equity (F.513)5.94. Definition: The sub-position other equity (F.513) consists of all transactions in other equity (AF.513) that is all forms of equity other than those classified in sub-positions AF.511 and AF.512, and in sub-category AF.52.5.95. Sub-position AF.513 includes:(a) all forms of equity in corporations which are not shares:1. the equity in incorporated partnerships subscribed by unlimited partners;2. the equity in limited liability companies whose owners are partners and not shareholders;3. the capital invested in ordinary or limited partnerships recognised as independent legal entities;4. the capital invested in cooperative societies recognized as independent legal entities;(b) investments by general government in the capital of public enterprises, whose capital is not divided into shares, which by virtue of special legislation are recognized as independent legal entities (see paragraph 2.16. c);(c) government investments in the capital of international and supranational organizations, with the sole exception of the IMF, even if these are legally constituted as companies with share capital (e.g. the European Investment Bank);(d) the financial resources of the EMI provided out of contributions by the national central banks (72);(e) capital invested in financial and non-financial quasi-corporations (see paragraph 2.13. f). The amount of such investments corresponds to new investments (in cash or kind) less any capital withdrawals (see paragraph 4.61);(f) the financial assets that non-resident units have against notional resident units (see paragraph 2.15) and vice versa.Mutual funds shares (F.52)5.96. Definition: The sub-category mutual funds shares (F.52) consists of all transactions in mutual funds shares (AF.52) that is shares issued by a specific type of financial corporation, whose exclusive purpose is to invest the funds collected on the money market, the capital market and/or in real estate.5.97. Sub-category AF.52 includes the shares issued by financial corporations called, according to country, mutual funds, unit trusts, investment trusts and other collective investment schemes, e.g. UCITS, whether they are open-ended, semi-open or closed-end funds. These shares may be quoted or unquoted. When they are unquoted, they are usually repayable on request, at a value corresponding to their share in the own funds of the financial corporation. These own funds are revalued regularly on the basis of the market prices of their various components.INSURANCE TECHNICAL RESERVES (F.6) (73)5.98. Definition: The category insurance technical reserves (F.6) consists of all transactions in insurance technical reserves (AF.6) that is the technical provisions of insurance corporations and (autonomous and non-autonomous) pension funds against policy holders or beneficiaries as laid down in Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and consolidated accounts of insurance undertakings (74).5.99. Category AF.6 covers:(a) net equity of households in life insurance reserves;(b) net equity of households in pension funds reserves;(c) prepayments of insurance premiums;(d) reserves for outstanding claims.5.100. Insurance technical reserves are financial assets:(a) for policy holders - in respect of net equity of households in life insurance reserves and in pension funds reserves, and prepayments of insurance premiums;(b) for beneficiaries - in respect of reserves for outstanding claims.5.101. Insurance technical reserves are liabilities:(a) of life or non-life insurance corporations and autonomous pension funds included in the subsector insurance corporations and pension funds (S.125);(b) of non-autonomous pension funds included in the sectors of the institutional units that set them up.Provisions or similar funds constituted by employers to provide employees with pensions (non-autonomous pension funds) are only included in category AF.6 if they are calculated according to actuarial criteria similar to those used by insurance corporations and autonomous pension funds. Otherwise, these provisions are covered by the shares or other equity issued by the institutional unit that sets up the provisions.5.102. Category AF.6 does not include provisions established by institutional units classified in the sub-sector social security funds (S.1314). In the system, these provisions are not liabilities of the social security funds sub-sector.5.103. Category F.6 is divided into two sub-categories of financial transactions:(a) net equity of households in life insurance reserves and in pension funds reserves (F.611);(b) prepayments of insurance premiums and reserves for outstanding claims (F.62).Net equity of households in life insurance reserves and in pension funds reserves (F.61)5.104. Definition: The sub-category net equity of households in life insurance reserves and in pension funds reserves (F.61) consists of all transactions in net equity of households in life insurance reserves and in pension funds reserves (AF.61) that is technical provisions set aside in the corporations and quasi-corporations concerned for the purpose of satisfying, once the established conditions are met, the claims and benefits foreseen.5.105. Sub-category F.61 is divided into two sub-positions of financial transactions:(a) net equity of households in life insurance reserves (F.61);(b) net equity of households in pension funds reserves (F.612).Net equity of households in life insurance reserves (F.611)5.106. Definition: The sub-position net equity of households in life insurance reserves (F.611) consists of all transactions in net equity of households in life insurance reserves (AF.611) that is technical provisions against outstanding risks and technical provisions for with-profit insurance that add to the value on maturity of with-profit endowments or similar policies.5.107. Sub-position AF.611 includes life insurance provisions, provisions for bonuses and rebates and technical provisions for life insurance policies where the investment risk is borne by the policyholders as defined in Articles 27, 29 and 31 of Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and consolidated accounts of insurance undertakings.5.108. Transactions in net equity of households in life insurance reserves consist of additions less reductions, which are to be distinguished from nominal holding gains or losses on the funds invested by insurance corporations (see paragraph 6.57).Additions consist of:(a) actual premiums earned during the current accounting period;(b) plus premium supplements corresponding to the income from the investment of the provisions, which is attributed to policy holding households;(c) less service charges for life insurance.Reductions consist of:(a) amounts due to holders of endowment and similar insurance policies when they mature and amounts due to beneficiaries from deaths of insured persons;(b) plus payments due on policies that are surrendered before maturity.5.109. Life insurance reserves are financial assets of resident or non-resident households and liabilities of resident or non-resident insurance corporations.In the case of a group insurance taken out, for example, by a corporation on behalf of its employees, the employees, but not the employer, are deemed to be the creditors, since they are considered as the real policy holders.Net equity of households in pension funds reserves (F.612)5.110. Definition: The sub-position net equity of households in pension funds reserves (F.612) consists of all transactions in net equity of households in pension funds reserves (AF.612) that is technical provisions held by autonomous and non-autonomous pension funds established by employers and/or employees or groups of self-employed to provide pensions for employees or self-employed.5.111. Transaction in net equity of households in pension funds reserves consist of additions less reductions, which are to be distinguished from nominal holding gains or losses on the funds invested by pension funds (see paragraph 6.57).Additions consist of:(a) actual contributions into pension funds payable by employees, employers, self-employed or other institutional units on behalf of individuals or households with claims on the funds and earned during the current accounting period;(b) plus contribution supplements corresponding to the income earned from the investment of the provisions of the pension funds, which are attributed to participating households;(c) less service charges during the period for managing the funds.Reductions consist of:(a) social benefits equal to the amounts payable to retired persons or their dependants in the form of regular payments or other benefits;(b) plus social benefits which consist of any lump sums payable to persons when they retire.5.112. Transactions in net equity of households in pension funds reserves do not include funds transferred from non-autonomous pension funds to autonomous pension funds, classified in the subsector insurance corporations and pension funds (S.125), as a result of the conversion of one fund into another. This event is to be recorded in the category changes in sector classification and structure (K.12.1) of the other changes in the volume of assets account (see paragraph 6.30).5.113. Pension funds reserves are financial assets of resident or non-resident households but not financial assets of the institutional units that manage them.Prepayments of insurance premiums and reserves for outstanding claims (F.62)5.114. Definition: The sub-category prepayments of insurance premiums and reserves for outstanding claims (F.62) consists of all transactions in prepayments of insurance premiums and reserves for outstanding claims (AF.62) that is technical provisions established by insurance corporations and (autonomous and non-autonomous) pension funds for:(a) the amount representing that part of gross premiums written which is to be allocated to the following accounting period (prepayments of insurance premiums);(b) the total estimated ultimate cost of settling all claims arising from events which have occurred up to the end of the accounting period, whether reported or not, less amounts already paid in respect of such claims (provisions for outstanding claims).5.115. Prepayments of insurance premiums result from the fact that insurance premiums are, in general, due to be paid at the start of the period covered by the insurance, and this period does not normally coincide with the accounting period itself. Therefore, at the end of the accounting period when the balance sheet is drawn up, parts of the insurance premiums payable during the accounting period are intended to cover risks in the subsequent period. The prepayments of insurance premiums are determined on the basis of the proportion of the risks involved in relation to time for the period remaining to run until the contract expires.In the financial account, the prepayments of insurance premiums recorded between policy holders and insurance corporations consist of those parts of the premiums that are payable in the current accounting period and that are intended to cover risks outstanding during the following period.5.116. The prepayments of insurance premiums are financial assets of the policy holders. If these prepayments relate to life insurance, the policy holders are resident or non-resident households. If they relate to non-life insurance, the policy holders may belong to any sector of the economy or to the rest of the world. The insurance premiums or social contributions paid by the policy holders may be taken as the criterion to distribute the prepayments of insurance premiums among the sectors of the economy and the rest of the world.5.117. Reserves for outstanding claims are held by insurance corporations in order to cover the amounts they expect to pay out in respect of claims that are not yet settled, for example, because they are disputed. Valid claims accepted by insurance corporations are considered due for payment when the event that gives rise to the claim occurs, however long it takes to settle disputed claims.5.118. Reserves for outstanding claims are financial assets of the beneficiaries that may belong to any sector of the economy or to the rest of the world.5.119. Sub-category AF.62 includes provisions for unearned premiums, other technical provisions, claims outstanding and equalization provisions as defined in Articles 25, 26, 28 and 30 of Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and consolidated accounts of insurance undertakings.OTHER ACCOUNTS RECEIVABLE/PAYABLE (F.7)5.120. Definition: The category other accounts receivable/payable (F.7) consists of all transactions in other accounts receivable/payable (AF.7) that is financial claims which are created as a counterpart of a financial or a non-financial transaction in cases where there is a timing difference between this transaction and the corresponding payment.5.121. Category F.7 includes transactions in financial claims which stem from the early or late payment for transactions in goods or services, distributive transactions or secondary trade in financial assets. They consist of the counterpart transactions in case payment is due and not yet paid. Debts arising from income accruing over time and arrears are also classified under this category.5.122. Category F.7 does not include:(a) statistical discrepancies other than timing differences between transactions in goods and services, distributive transactions or financial transactions and the corresponding payments;(b) items about which there is not enough information for them to be classified. The classification should be based on whatever information is available;(c) items about whose nature nothing whatsoever is known;(d) the miscellaneous item of the balance of payments described as net errors and omissions;(e) early or late payment (inclusive of arrears) in case of the creation of financial assets or the redemption of liabilities other than classified in category F.7. They remain classified in their category.5.123. Category F.7 is divided into two sub-categories of financial transactions:(a) trade credits and advances (F.71);(b) other accounts receivable/payable, excluding trade credits and advances (F.79).Trade credits and advances (F.71)5.124. Definition: The sub-category trade credits and advances (F.71) consists of all transactions in trade credits and advances (AF.71) that is financial claims arising from the direct extension of credit by suppliers and buyers for goods and services transactions and advance payments for work that is in progress or to be undertaken and associated with such transactions.5.125. Sub-category AF.71 includes:(a) financial claims relating to the delivery of goods or services where payment has not taken place;(b) trade credit accepted by factoring corporations except when regarded as a loan;(c) rent of buildings accruing over time;(d) arrears concerning the payment of goods and services, when not evidenced by a loan.5.126. Sub-category AF.71 does not include loans to finance trade credits. They are classified in category AF.4 (see paragraph 5.81. h).5.127. Trade credits and advances may be financial assets or liabilities of all sectors and the rest of the world.Other accounts receivable/payable, excluding trade credits and advances (F.79)5.128. Definition: The sub-category other accounts receivable/payable excluding trade credits and advances (F.79) consists of all transactions in other accounts receivable/payable excluding trade credits and advances (AF.79) that is financial claims which arise from timing differences between distributive transactions or financial transactions on the secondary market and the corresponding payment. It includes also financial claims due to income accruing over time.5.129. Sub-category AF.79 includes financial claims created as a result of the timing difference between accrued transactions and payments made in respect of, for example:(a) taxes;(b) social contributions;(c) wages and salaries;(d) rents on land and subsoil assets;(e) dividends;(f) interest;(g) transactions in financial assets on the secondary market.5.130. Preferably, the counterpart financial transaction of interest accruing on financial assets (see paragraph 5.17) should be recorded as being reinvested in that financial asset. The recording of interest will, however, have to follow national practices. If the interest accrual is not recorded as being reinvested in the financial asset, it should be classified in sub-category F.79.5.131. At the date due for payment of interest, two financial transactions are recorded (see paragraph 5.17): firstly, in the event of payment, a transaction in the financial asset used for payment, or, in the event of non-payment, an increase of interest arrears to be recorded in sub-category F.79; secondly, the counterpart financial transaction reducing the net financial claim of the creditor against the debtor.MEMORANDUM ITEM: DIRECT FOREIGN INVESTMENT (F.m)5.132. Definition: Direct foreign investment (F.m) consists of all transactions in direct foreign investment (AF.m) that is investment involving a long-term relationship reflecting a lasting interest of a resident institutional unit in one economy ('direct investor`) in an institutional unit resident in an economy other than that of the investor ('direct investment enterprise`). The direct investor's purpose is to exert a significant degree of influence on the management of the enterprise resident in the other economy. Direct investment involves both the initial transaction between the direct investor and the direct investment enterprise and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated (75).5.133. Transactions in financial assets and liabilities that constitute direct foreign investment are to be recorded under the appropriate categories of financial transactions, i.e. loans (F.4), shares and other equity (F.5) and other accounts receivable/payable (F.7). However, the amounts of direct foreign investment included within each of those categories should also be recorded separately as a memorandum item.ACCOUNTING RULES FOR FINANCIAL TRANSACTIONSVALUATION5.134. Financial transactions are recorded at the transaction values, that is, the values in national currency at which the financial assets and/or liabilities involved are created, liquidated, exchanged or assumed between institutional units, or between them and the rest of the world, on the basis of commercial considerations only.5.135. Financial transactions and their financial or non-financial counterpart transactions are recorded at the same transaction value. Three possibilities can be envisaged:(a) the financial transaction is a transaction in means of payment in national currency (see paragraphs 5.04 and 5.23): the transaction value is equal to the amount of the means of payment exchanged;(b) the financial transaction is a transaction in means of payment in foreign currency (see paragraphs 5.04 and 5.23) and the counterpart transaction is not a transaction in means of payment in national currency: the transaction value is equal to the amount of the means of payment exchanged converted into national currency applying the market rate prevailing when the payment takes place;(c) neither the financial transaction nor its counterpart transaction is a transaction in means of payment (see paragraph 5.04): the transaction value is identified with the current market value of the financial assets and/or liabilities involved.5.136. The transaction value refers to a specific financial transaction and its counterpart transaction. In concept, the transaction value is to be clearly distinguished from a value based on a price quoted in the market, a fair market price, or any price that is intended to express the generality of prices for a class of similar or even identical financial assets and/or liabilities. However, in cases where the counterpart transaction of a financial transaction is, for example, a transfer and therefore the financial transaction is undertaken other than for purely commercial considerations, the transaction value is identified with the current market value of the financial assets and/or liabilities involved.5.137. The transaction value does not include service charges, fees, commissions, and similar payments for services provided in carrying out the transactions; these are to be recorded as payments for services. Taxes on financial transactions are also excluded and treated as taxes on services within taxes on products. When a financial transaction involves a new issue of liabilities, the transaction value is equal to the amount of the liability incurred exclusive of any prepaid interest. Similarly, when a liability is extinguished, the transaction value for both creditor and debtor must correspond to the reduction of the liability.Special valuation criteria for some sub-categories of financial transactions5.138. Securities other than shares, excluding financial derivatives (F.33)(a) When securities are marketed by issuers through underwriters or other intermediaries and then sold at higher prices to final investors, the financial assets and liabilities are to be recorded at the values paid by the investors. The differences between the amounts paid by the investors and those received by the issuers should be treated as service payments paid by the issuers to the underwriters.(b) Security issues are recorded at the issue value. When securities are issued at a discount or at a premium, the proceeds to the issuer at the time of sale, and not the face value, are recorded in the accounts as the actual issue value. The difference between the issue value and the redemption value is treated as interest that is accrued over the life of the security.(c) Deep-discount or zero-coupon bonds should be treated as securities issued at a discount. The interest is accrued over the life of the bonds and treated as being reinvested in such bonds (see paragraph 4.46).(d) When long-term securities are issued at a discount, which is not significant, the difference between the issue value and the redemption value can be imputed at the date of issue.(e) In case of securities where the value of the principal is linked to a price index, the price of a commodity or an exchange rate index, the issue price of the security is recorded as the principal and the index payment paid periodically and/or at maturity is treated as interest that is accrued over the life of the security, and the counterpart is recorded as reinvestment in securities other than shares in the financial account.(f) Investment in securities in circulation on the secondary market is recorded at the stock exchange quotation or market price.(g) Securities which have reached maturity are recorded at redemption value, which includes redemption premiums but excludes payments by lottery and savings premiums, which are recorded as interest.(h) The conversion of bonds into shares should be treated as a sale of bonds and a purchase of shares (see paragraph 5.62. l). The transaction value is to be derived from the market value of the bonds disposed of, possibly implying a holding gain or loss on shares to be recorded in the revaluation account (see paragraph 6.54).5.139. Financial derivatives (F.34)(a) Secondary trade in options and closing out options prior to delivery involve financial transactions. If an option proceeds to delivery, it may be exercised or not exercised. In cases where the option is exercised, there may be a payment from the option writer to the option holder equal to the difference between the prevailing market price of the underlying asset and the strike price, or, alternatively, there may be the acquisition or sale of the underlying financial or non-financial asset recorded at the prevailing market price and a counterpart payment between the option holder and the option writer equal to the strike price. The difference between the prevailing market price of the underlying asset and the strike price is in both cases equal to the liquidation value of the option, that is the option price at delivery. In cases where the option is not exercised, no transaction takes place. However, the option writer makes a holding gain and the option holder makes a holding loss to be recorded in the revaluation account.(b) Financial derivatives other than options typically involve contracts where two parties agree to exchange specified assets, either real or financial, at some future point or points in time. The transactions which are to be recorded against such financial derivatives include any trading in the contracts as well as the net value of settlements made. There may also be the need to record transactions associated with the establishment of derivative contracts. However, in many cases, the two parties will enter into a derivative contract without any payment by one party to the other; in these cases the value of the transaction establishing the contract is nil and no entry is actually required in the financial account.(c) Any explicit commissions paid to or received from brokers or other intermediaries for arranging options, futures, swaps, and other derivatives contracts are treated as payments for services in the appropriate accounts. Streams of interest payments resulting from swap arrangements are to be recorded as property income and repayments of principal are to be recorded as transactions in the appropriate underlying instrument within the financial account. The parties to a swap are not considered to be providing a service to each other, but any payment to a third party for arranging the swap should be treated as payment for a service (see paragraph 4.47). While the premium paid to the seller of an option can conceptually be considered to include a service charge, in practice, it is usually not possible to distinguish the service element. Therefore, the full price is to be recorded as acquisition of a financial asset by the buyer and as incurrence of a liability by the seller.(d) Where swap contracts involve an exchange of principal amounts, for example as occurs with currency swaps, the initial exchange is to be recorded as a transaction in the underlying instrument exchanged and not a transaction in financial derivatives (F.34). Implicitly, a financial derivative with zero initial value is created at that point. Subsequently, the value of the derivative will include at least the following components:1. the current market value of the difference between the expected future market values of the principal amounts to be re-exchanged and the principal amounts specified in the contract; and2. the current market value of the future stream of any interest and other cash flows specified in the contract.Changes in the value of the derivative over time should be recorded in the revaluation account.Subsequent re-exchanges of principal will be governed by the terms and conditions of the swap contract and may imply financial assets being exchanged at a price different from the prevailing market price of such assets. The counterpart payment between the parties to the swap contract will be that specified within the contract. The difference between the market price and the contract price is then equal to the liquidation value of the asset/liability as it applies on the due date and should be recorded as a transaction in financial derivatives (F.34). This final derivative transaction and any final net interest flow must match the total revaluation gain or loss throughout the duration of the swap contract. This treatment is analogous to that set out with respect to options which proceed to delivery (see (a) above).5.140. Shares and other equity, excluding mutual funds shares (F.51)(a) New shares are recorded at issue value, which normally corresponds to nominal value plus the issue premium.(b) Transactions in shares in circulation are to be recorded at their transaction value. When it is not known, it may be approximated by the stock exchange quotation or market price for quoted shares and by the book value for unquoted shares.(c) Scrip dividend shares are valued at the price implied by the issuer's dividend proposal.(d) Issues of bonus shares are not recorded in the system (see paragraph 5.93). However, in cases where the issue of bonus shares involves changes in the total market value of the shares of a corporation, the changes are to be recorded in the revaluation account (see paragraph 6.56).(e) The transaction value of other equity (F.513) is the amount of funds transferred by the owners to their corporations or quasi-corporations. In some cases, funds can be transferred by assuming liabilities of the corporation or quasi-corporation.5.141. Mutual funds shares (F.52)(a) Transactions in mutual funds shares include the value of net contributions to a fund.(b) Property income received by mutual funds, net of a part of management costs, and assigned to shareholders, even though it is not distributed, has a counterpart entry in the financial account under mutual funds shares. The effect is that property income is reinvested.TIME OF RECORDING5.142. Financial transactions and their counterpart transactions are to be recorded at the same point in time.5.143. When the counterpart of a financial transaction is a non-financial transaction, both are recorded at the time the non-financial transaction takes place. For example, when sales of goods or services give rise to a trade credit, this financial transaction is to be recorded when the entries are made in the relevant non-financial account.5.144. When the counterpart of a financial transaction is also a financial transaction, three possibilities can be envisaged:(a) both financial transactions are transactions in means of payment (see paragraph 5.04): they are recorded at the time the first payment is made;(b) only one of the two financial transactions is a transaction in means of payment (see paragraph 5.04): they are recorded at the time payment is made;(c) neither of the two financial transactions is a transaction in means of payment (see paragraph 5.04): they are recorded at the time the first financial transaction takes place.COMPILING FINANCIAL TRANSACTIONS FROM CHANGES IN BALANCE SHEETS5.145. In cases where basic statistics on financial transactions are not available, financial transactions may be compiled based on changes in financial balance sheets, that is changes in the amount of financial assets held and liabilities outstanding between the closing balance sheet and the opening balance sheet. The difference between the amount of financial transactions and the changes in financial balance sheets consists of entries in the revaluation account and the other changes in the volume of assets account.Annex 5.1 Link with measures of money 5.146. This Annex explains a method which allows measures of money to be shown in the balance sheets and the financial accounts.5.147. The definitions of the measures of money applied vary among countries and over time. In addition, these definitions are not necessarily based on the classification of financial assets and the classification of sectors as defined in the system. Therefore, measures of money are not defined in the system.5.148. The following problems appear in integrating measures of money in the balance sheets and the financial accounts. Firstly, the measures of money may be composed of components which do not correspond with the classes, that is to say the categories, sub-categories and sub-positions, of financial assets and liabilities as defined in the system. For example, a measure of money may include only a sub-class of the category currency and deposits (AF.2). The sub-class may be defined by a reference to maturity and/or by a reference to the institutional units holding or issuing currency and deposits. Secondly, the measures of money may imply money-creating, money-holding and money-neutral sectors which cannot be composed of the sectors and subsectors as defined in the system. Thirdly, the data sources used for compiling monetary aggregates may in practice differ from the data sources used for compiling the balance sheets and the financial accounts of the sectors and the rest of the world.5.149. In order to identify a measure of money MX in the balance sheets or the financial accounts, it may be necessary to subdivide any class i of financial assets and liabilities defined in the system into two sub-classes:(a) MXi: sub-class of financial assets (liabilities) classified in class i and included in the measure of money MX;(b) MX-i: sub-class of financial assets (liabilities) classified in class i but not included in the measure of money MX.In practice, some classes of financial assets (liabilities) do not contribute even to broad measures of money, for example, monetary gold and SDRs (AF.1) or insurance technical reserves (AF.6). Therefore, MX1 and MX6 would be zero, that is to say a breakdown of AF.1 in MX and MX-1 or of AF.6 in MX6 and MX-6 is not necessary.5.150. The measure of money MX is equal to the sum of all sub-classes of financial assets MXi of the money-holding sectors and MX is equal to the sum of all sub-classes of liabilities MXi of the money-creating sectors.5.151. A main advantage of this method is its flexibility. In cases where the definition of a measure of money is changed, only the breakdowns of some classes of financial assets and liabilities into MXi and MX-i have to be adapted.>TABLE>CHAPTER 6 OTHER FLOWS 6.01. Other flows cover consumption of fixed capital (K.1), acquisitions and disposals of non-financial non-produced assets (K.2) and other changes in assets (K.3 to K.12).The other changes in assets consist of different kinds of changes in assets, liabilities and net worth which are not the result of transactions being recorded in the capital and financial accounts. They cover other changes in volume (K.3 to K.10 and K.12) and also holding gains and losses (K.11).CONSUMPTION OF FIXED CAPITAL (K.1)6.02. Definition: Consumption of fixed capital (K.1) represents the amount of fixed assets used up, during the period under consideration, as a result of normal wear and tear and foreseeable obsolescence, including a provision for losses of fixed assets as a result of accidental damage which can be insured against.6.03. Consumption of fixed capital must be calculated for all fixed assets (except animals), including both tangible fixed assets and intangible fixed assets such as mineral exploration costs and software, major improvements to non-produced assets and costs of ownership transfers associated with non-produced assets.6.04. Consumption of fixed capital (which should be distinguished from the depreciation allowed for tax purposes or the depreciation shown in business accounts) should be estimated on the basis of the stock of fixed assets and the probable average economic life of the different categories of those goods. For the calculation of the stock of fixed assets, the perpetual inventory method (PIM) is recommended whenever direct information on the stock of fixed assets is missing. The stock of fixed assets should be valued at the purchasers' prices of the current period.Losses of fixed assets occurring as a result of accidental damage which can be insured against are taken into account in calculating the average service life of the goods in question. For the economy as a whole the actual normal accidental damage within a given accounting period may be expected to be equal, or close, to the average. However, for individual units and groupings of units actual normal and average accidental damage may differ. In this case, for sectors, any difference is recorded as other changes in volume of fixed assets.Consumption of fixed capital is calculated according to the 'straight line` method, by which the value of a fixed asset is written off at a constant rate over the whole lifetime of the good.However, depending on the pattern of decline in the efficiency of a fixed asset the calculation of consumption of fixed capital according to the geometric depreciation method may be required.6.05. In the system of accounts consumption of fixed capital is recorded below each balancing item, which is shown gross and net. Recording 'gross` means without deducting consumption of fixed capital, while recording 'net` means after deducting consumption of fixed capital.ACQUISITIONS LESS DISPOSALS OF NON-FINANCIAL NON-PRODUCED ASSETS (K.2)6.06. Definition: Non-financial non-produced assets (76) consist of land and other tangible non-produced assets that may be used in the production of goods and services, and intangible non-produced assets.6.07. Land is defined as the ground itself, including soil covering and associated surface water (77). The associated surface water includes any inland waters (reservoirs, lakes, rivers, etc.) over which ownership rights can be exercised.6.08. The following items are not included in land:(a) buildings or other structures on the land or through it (roads, tunnels, etc.);(b) vineyards, orchards, or other plantations of trees and any growing crops, etc.;(c) subsoil assets;(d) non-cultivated biological resources;(e) water resources below the ground.Items (a) and (b) are produced fixed assets, items (c), (d) and (e) belong to tangible non-produced assets.6.09. Acquisitions and disposals of land are valued at current market prices prevailing at the time the acquisitions/disposals occur. Transactions in land are recorded at the same value both in the accounts of the purchaser and in those of the seller. This value excludes the costs involved in the transfer of ownership of land, which are treated as gross fixed capital formation.6.10. Acquisitions and disposals of other tangible non-produced assets cover subsoil assets, non-cultivated biological resources and water resources. Subsoil assets include coal, oil and natural gas reserves, metallic mineral reserves and non-metallic mineral reserves (78).6.11. Acquisitions and disposals of other tangible non-produced assets are valued at current market prices prevailing at the time the acquisitions/diposals occur. Acquisitions and disposals exclude the associated costs of ownership transfer. The latter are recorded as gross fixed capital formation.6.12. Intangible non-financial non-produced assets consist of patented entities, leases or other transferable contracts, purchased goodwill and other intangible non-produced assets. Such leases are on land, subsoil assets and residential and non-residential buildings (79). Further examples include transferable contracts with athletes and authors. The value of the acquisitions or disposals of leases or other transferable contracts consists of payments made to the original or subsequent tenants or lessees when the leases or concessions are sold or transferred to other institutional units. The value of acquisitions and disposals of intangible non-produced assets excludes the associated costs of ownership transfer. The costs of ownership transfer are a component of gross fixed capital formation.6.13. Acquisitions less disposals of non-financial non-produced assets are recorded in the capital account of the sectors, the total economy and the rest of the world.OTHER CHANGES IN ASSETS (K.3 to K.12)6.14. Definition: Other changes in assets are flows which are not the result of transactions recorded in the capital and financial accounts. Two kinds of other changes are distinguished. The first kind consists of changes in the volume of assets. The second consists of changes in the value of assets, liabilities and net worth due to changes in the level and structure of prices leading to holding gains or losses.OTHER CHANGES IN VOLUME (K.3 to K.10 AND K.12)6.15. Other changes in volume are flows with different functions. One important function is to allow certain assets to enter and leave the system in the normal course of events - e.g. entrances and exits of naturally occurring assets. This is important for recording the discovery, depletion and degradation of natural assets. A second function is to record the effect of exceptional, unanticipated events that affect the economic benefits derivable from assets.6.16. The other changes in volume cover nine categories:(a) economic appearance of non-produced assets (K.3);(b) economic appearance of produced assets (K.4);(c) natural growth of non-cultivated biological resources (K.5);(d) economic disappearance of non-produced assets (K.6);(e) catastrophic losses (K.7);(f) uncompensated seizures (K.8);(h) other volume changes in non-financial assets n.e.c. (K.9);(i) other volume changes in financial assets and liabilities n.e.c. (K.10);(j) changes in classifications and structure (K.12).ECONOMIC APPEARANCE OF NON-PRODUCED ASSETS (K.3)6.17. Economic appearance of non-financial non-produced assets (K.3) represents the increase in the volume of this kind of assets that is not the result of production.Included are:(a) gross increases in the level of exploitable subsoil resources: proven reserves of coal, oil, natural gas, metallic minerals or non-metallic minerals that are economically exploitable. This also covers the increase in reserves for which exploitation becomes economic as a result of technological progress or relative price changes;(b) transfers of other natural assets to economic activity: naturally occuring entities that change status to qualify as economic assets, economic assets being entities over which ownership rights are enforced by institutional units and from which economic benefits may be derived by their owners (e.g. exploitation of virgin forests, transfer of land from a wild or waste state to land that can be put to economic use, land reclamation);(c) quality changes in non-produced assets due to changes in economic uses. Changes in quality are treated as changes in volume. The quality changes recorded here occur as the counterpart of the changes in economic use that are shown as changes in classification (see paragraph 6.32.) - e.g. from cultivated land to land underlying buildings;(d) appearance of intangible non-produced assets. Intangible non-financial non-produced assets arise when entities are patented or transferable contracts are written. Also when enterprises are sold at prices that exceed their own funds (see paragraph 7.05), the excess of purchase price over own funds is the asset 'purchased goodwill`. Goodwill not evidenced by a sale/purchase is not considered as an economic asset.ECONOMIC APPEARANCE OF PRODUCED ASSETS (K.4)6.18. Economic appearance of produced assets (K.4) occurs in the case of goods that are not already recorded in the Balance Sheets. It is the recognition of a significant or special value that is considered an economic appearance to be recorded under other changes in volume.Economic appearance of produced assets includes:(a) valuables, such as precious stones and art objects, when the high value or artistic significance of an object not already recorded in the Balance Sheets is first recognized;(b) historic monuments, when the special archaeological, historical or cultural significance of a structure or site not already recorded in the Balance Sheets is first recognized.NATURAL GROWTH OF NON-CULTIVATED BIOLOGICAL RESOURCES (K.5)6.19. Natural growth of non-cultivated biological resources (K.5) is not under the direct control, responsibility and management of an institutional unit and thus is not production. The increment in these economic assets such as standing natural timber, or fish in the estuaries, must then be regarded as an economic appearance.6.20. Natural growth should be recorded as an addition (K.5); the depletion of these resources should be recorded as an economic disappearance (K.61). In practice, however, natural growth can only be recorded net because the physical measurements that are likely to be the only basis available for the recording are, in effect, net measurements.ECONOMIC DISAPPEARANCE OF NON-PRODUCED ASSETS (K.6)6.21. Economic disappearance on non-financial non-produced assets (K.6) includes:(a) depletion of natural economic assets (K.61), which covers the reduction of deposits of subsoil assets and the depletion of non-cultivated biological resources included in the asset boundary (see paragraph 6.19);(b) other economic disappearance of non-produced assets (K.62):1. other reductions in the level of exploitable subsoil resources (reassessments of exploitability due to changes in technology or relative prices);2. quality change in non-produced assets due to changes in economic uses;3. degradation of non-produced assets due to economic activity. Covered is degradation of land, water resources and in principle of other natural assets;4. write-off of purchased goodwill, cancellation of transferable contracts and exhaustion of patent protection.CATASTROPHIC LOSSES (K.7)6.22. Catastrophic losses (K.7) recorded as other changes in the volume of assets are the result of large-scale, discrete and recognizable events that may destroy items within any of the categories of economic (non-financial or financial) assets.6.23. Such events include major earthquakes, volcanic eruptions, tidal waves, exceptionally severe hurricanes, drought and other natural disasters; acts of war, riots and other political events; and technological accidents such as major toxic spills or release of radioactive particles into the air.Included here are in particular:(a) deterioration in the quality of land caused by abnormal flooding or wind damage;(b) destruction of cultivated assets by drought or outbreak of disease;(c) destruction of buildings, equipment or valuables in forest fires or earthquakes;(d) accidental destruction of currency or bearer securities as a result of natural catastrophes or political events.UNCOMPENSATED SEIZURES (K.8)6.24. Uncompensated seizures (K.8) occur when governments or other institutional units take possession of the assets of other institutional units, including non-resident units, without full compensation, for reasons other than the payment of taxes, fines or similar levies. The uncompensated part of such unilateral seizures is not a capital transfer recorded in the capital account.OTHER VOLUME CHANGES IN NON-FINANCIAL ASSETS N.E.C. (K.9)6.25. Under other volume changes in non-financial assets (K.9) are recorded the effects of unexpected events on the economic benefits derivable from assets.Included are:(a) unforeseen obsolescence. Consumption of fixed capital does not cover unforeseen obsolescence in fixed assets, and the amount included for their normally expected obsolescence may fall short of the actual obsolescence. Entries must, therefore, be made for the decline in the value of the fixed assets resulting from the introduction of improved technology;(b) differences between allowances included in consumption of fixed capital for normal damage and actual losses. Consumption of fixed capital does not cover unforeseen damage, and the amount included for their normally expected damage may fall short (or exceed) the actual damage. Adjustments must therefore be made for the unforeseen decline (or increase) in the value of the fixed assets due to these events;(c) degradation of fixed assets not accounted for in consumption of fixed capital: decline in the value of fixed assets from, for example, the unforeseen effects of acidity in air and rain on building surfaces or vehicle bodies;(d) abandonment of production facilities before completion or being brought into economic use;(e) exceptional losses in inventories (e.g. from fire damage, from robberies, from insect infestation of grain stores);(f) statistical discrepancies concerning non-financial assets between the closing balance sheet and the corresponding opening balance sheet.OTHER VOLUME CHANGES IN FINANCIAL ASSETS AND LIABILITIES N.E.C. (K.10)6.26. Any changes in financial assets and liabilities that are not due to financial transactions recorded in the financial account, that are not attributed to holding gains and losses recorded in the revaluation account, that are not changes in classifications and structure and that are not due to catastrophic losses and uncompensated seizures are to be recorded here.6.27. Category K.10 includes:(a) allocations and cancellations of SDRs (AF.12) (see paragraphs 5.33 to 5.35):For SDRs not even a notional liability exists. Therefore, the mechanism by which SDRs are created (referred to as allocations of SDRs) and extinguished (cancellations of SDRs) is not treated as one that gives rise to transactions but rather to entries in the other changes in the volume of assets account. Allocations of SDRs increase the financial assets of the monetary authorities, cancellations of SDRs decrease their financial assets;(b) other volume changes related to defined benefit pension funds.Defined benefit pension schemes are those in which the level of pension benefits promised to participating employees is guaranteed. Benefits are related by some formula to participants' length of service and salary and are not totally dependent on the assets in the fund. For defined benefit schemes, an entry in the other changes in the volume of assets account captures changes in the actuarially determined liability that result from changes in benefits structure, which are to be distinguished from changes in the age and service composition of the beneficiary pool. Examples of changes in benefit structure include changes in the formula, reductions in the pensionable age, or funding for an annual increase (usually defined as constant x per cent per year) in future pensions or in all pensions in the course of payment;(c) exceptional losses of currency or bearer securities because of, e.g., fire damage or theft;(d) writing-off or writing-down of bad debts by creditors.Unilateral recognition by a creditor that a financial asset can no longer be collected, due to bankruptcy or other factors, and the consequent removal by the creditor of that financial asset from his balance sheet should be accounted for here, along with the removal of the counterpart liability of the debtor. However, in cases where the debtor institutional unit is controlled by the creditor, the writing-off or writing-down of debt by the creditor, not due to bankruptcy, is recorded in the accumulation accounts;(e) statistical discrepancies concerning financial assets and liabilities between the closing balance sheet and the corresponding opening balance sheet.6.28. Category K.10 does not include:(a) cancellation of debt by mutual agreement between debtor and creditor (debt cancellation or debt forgiveness): it is treated as a transaction between the creditor and the debtor (see paragraph 4.165. f and 5.16) and not as another change of volume;(b) debt repudiation: the unilateral cancellation of a liability by a debtor is not recognized in the system.CHANGES IN CLASSIFICATIONS AND STRUCTURE (K.12)6.29. Changes in classifications and structure (K.12) comprise changes in sector classification and structure of institutional units (K.12.1) and changes in classification of assets and liabilities (K.12.2).CHANGES IN SECTOR CLASSIFICATION AND STRUCTURE (K.12.1)6.30. Reclassifying an institutional unit from one sector to another transfers its entire balance sheet, e.g. an institutional unit classified in the household sector becomes a quasi-corporation to be reclassified in the corporations sector.Changes in structure of institutional units cover appearance and disappearance of certain financial assets and liabilities arising from corporate restructuring. When a corporation disappears as an independent legal entity because it is absorbed by one or more corporations, all financial assets/liabilities including shares and other equity that existed between that corporation and those that absorbed it, disappear from the system. However, the purchase of shares and other equity of a corporation as part of a merger is to be recorded as a financial transaction between the purchasing corporation and the previous owner. Replacement of existing shares by shares in the take-over or new corporation are to be recorded as redemptions of shares accompanied by the issue of new shares. Financial assets/liabilities that existed between the absorbed corporation and third parties remain unchanged and pass to the absorbing corporation(s).Symmetrically, when a corporation is legally split up into two or more institutional units, new financial assets and liabilities (appearance of financial assets) are recorded in this category (K.12.1).CHANGES IN CLASSIFICATION OF ASSETS AND LIABILITIES (K.12.2)6.31. Category K.12.2 distinguishes monetization/demonetization of gold (K.12.21) and changes in classification of assets or liabilities other than monetization/demonetization of gold (K.12.22).6.32. Monetization/demonetization of gold (K.12.21) is recorded in the other changes in the volume of assets account of the monetary authorities, that is to say in the subsector the central bank (S.121) or central government (S.1311).Monetization of gold occurs when the monetary authorities reclassify gold from stocks of valuables to reserve assets held by the monetary authorities. The other changes in the volume of assets account records then a decrease in their holding of valuables and an increase in their holding of monetary gold.Purchases of monetary gold directly from other monetary authorities are classified as transactions in monetary gold (F.11). All other purchases, including those from financial intermediaries or via an organized gold market must be recorded as purchase of valuables followed by a classification change.Demonetization of gold occurs when the monetary authorities transfer gold from reserve assets to valuables. Holdings of monetary gold by monetary authorities then decrease and valuables show an increase. Sales of monetary gold directly to other monetary authorities are classified as transactions in monetary gold (F.11). All other sales, including those to financial intermediaries or via an organized gold market must be recorded as sales of valuables preceded by a classification change.6.33. Changes in classification of assets or liabilities other than monetization/demonetization of gold (K.12.22): examples are changes in land use or conversions of dwellings to commercial use or vice versa. In the case of land both entries (a negative entry for the old category, a positive one for the new category) have to be made with the same value in the category K.12.22. The change in land value resulting from this change in use is recorded in economic appearance (see paragraph 6.17 c) or disappearance of non-produced assets (see paragraph 6.21 c) considered as volume changes.K.12.22 does not include the conversion of bonds into shares. This conversion is recorded as two financial transactions (see paragraph 562. l).6.34. Entries for other changes in volume (K.3 to K.10 and K.12) are recorded in the other changes in the volume of assets accounts of the sectors, the total economy and the rest of the world.NOMINAL HOLDING GAINS/LOSSES (K.11)6.35. Nominal holding gains (80) are that category of other changes in the value of assets, liabilities and therefore net worth which reflects the changes in the level and structure of their prices. Nominal holding gains are broken down into neutral holding gains and real holding gains.6.36. Definition: The nominal holding gain (K.11) on a given quantity of an asset is defined as the change in value for the owner of that asset as a result of a change in its price. The nominal holding gain on a liability is defined as the change in value of that liability as a result of a change in its price, but with the sign reversed.6.37. A positive holding gain is due to an increase in the value of a given asset or to a reduction in the value of a given liability. A negative holding gain, i.e. a holding loss, is due to a reduction in the value of a given asset or an increase in the value of a given liability.6.38. The nominal holding gains recorded in the revaluation account are those accruing on assets or liabilities, whether realized or not. A holding gain is said to be realized when the asset in question is sold, redeemed, used or otherwise disposed of, or the liability repaid. An unrealised gain is therefore one accruing on an asset that is still owned or a liability that is still outstanding at the end of the accounting period. A realized gain is usually understood as the gain realized over the entire period over which the asset is owned or liability outstanding whether this period coincides with the accounting period or not. However, as holding gains are recorded on an accruals basis in the system, the distinction between realized and unrealized gains, although useful for some purposes, does not appear in the classifications and accounts.6.39. Holding gains include gains on all kinds of assets: non-financial produced and non-produced assets, and financial assets. Thus, holding gains on inventories of all kinds of goods held by producers, including work in progress, are also covered.6.40. Nominal holding gains may accrue on assets held for any length of time during the accounting period and not merely on assets that appear in the opening and/or closing balance sheets. The nominal holding gain accruing to the owner of a particular asset, or given quantity of a specific type of asset, between two points of time is defined as:the current value of that asset at the later point of time,minusthe current value of that asset at the earlier point of time,assuming that the asset itself does not change, qualitatively or quantitatively, in the meanwhile. The nominal holding gain (G) accruing on a given quantity q of some asset between times o and t can be expressed as follows:G = (pt - p°) × qwhere p° and pt are the prices of the asset at times o and t respectively. For financial assets and liabilities with fixed current values for which both p° and pt are unity by definition, nominal holding gains are always zero.6.41. For purposes of calculating nominal holding gains, acquisitions and disposals of assets must be valued in the same way as in the capital and financial accounts and stocks of assets must be valued in the same way as in the balance sheets. In the case of fixed assets the value of an acquisition is the amount paid by the purchaser to the producer, or seller, plus the associated costs of ownership transfer incurred by the purchaser. The value of a disposal of an existing fixed asset is the amount received by the seller from the purchaser minus the costs of ownership transfer incurred by the seller.Four different situations giving rise to nominal holding gains may be distinguished:1. an asset held throughout the accounting period: the nominal holding gain accruing during the accounting period is equal to the closing balance sheet value minus the opening balance sheet value. These values are the estimated values of the assets if they were to be acquired at the times the balance sheets are drawn up. The nominal gain is unrealized;2. an asset held at the beginning of the period that is sold during the period: the nominal holding gain accruing is equal to the actual or estimated disposal value minus the opening balance sheet value. The nominal gain is realized;3. an asset acquired during the period and still held at the end of the period: the nominal holding gain accruing is equal to the closing balance sheet value minus the actual, or estimated, acquisition value of the asset. The nominal gain is unrealized;4. an asset acquired and disposed of during the accounting period: the nominal holding gain accruing is equal to the actual, or estimated, disposal value minus the actual, or estimated, acquisition value. The nominal gain is realized.6.42. The nominal holding gains included are those accruing on assets and liabilities, whether realized or not. They are recorded in the revaluation account of the sectors, the total economy and the rest of the world.NEUTRAL HOLDING GAINS/LOSSES (K.11.1)6.43. Definition: The neutral holding gain (K.11.1) on an asset is defined as the value of the holding gain that would accrue if the price of the asset changed over time in the same proportion as the general price level.Neutral holding gains are identified to facilitate the derivation of real holding gains which redistribute real purchasing power between sectors.6.44. Let the general price index be denoted by r. The neutral holding gain (NG) on a given quantity q of an asset between times o and t is then given by the following expression:NG = p° × q (>NUM>rt/>DEN>r° - 1)where p° × q is the current value of the asset at time o and >NUM>rt/>DEN>r° the factor of the change in the general price index between times o and t. The same term >NUM>rt/>DEN>r° is applied to all assets and liabilities.6.45. There is no ideal general price index appropriate to calculate neutral holding gains. By convention, the general price index to be applied for the calculation of neutral holding gains is the price index for final national uses excluding changes in inventories.6.46. Neutral holding gains are recorded in the neutral holding gains/losses account, which is a sub-account of the revaluation account of the sectors, the total economy and the rest of the world.REAL HOLDING GAINS/LOSSES (K.11.2)6.47. Definition: The real holding gain (K.11.2) on an asset is defined as the difference between the nominal and the neutral holding gain on that asset.The real holding gain (RG) on a given quantity q of an asset between times o and t is given by:RG = G - NGorRG = (>NUM>pt/>DEN>p° - >NUM>rt/>DEN>r°) × p° × qThe values of the real holding gains on assets thus depend on the movements of their prices over the period in question, relative to movements of other prices, on average, as measured by the general price index.6.48. Real holding gains are recorded in the real holding gains/losses account, which is a sub-account of the revaluation account of the sectors, the total economy and the rest of the world.HOLDING GAINS BY TYPE OF FINANCIAL ASSETCurrency and deposits (AF.2)6.49. The current values of currency and deposits denominated in national currency remain constant over time. The 'price` of such an asset is always unity while the quantity is given by the number of units of the currency in which they are denominated. The nominal holding gains on such assets are always zero. For this reason, the difference between the values of the opening and closing stocks of such assets is, with the exception of the other changes in the volume of assets, entirely accounted for by the values of the transactions in the assets. This being one case in which it is normally possible to deduce the latter from the balance sheet figures.6.50. In order to calculate the neutral and real holding gains on assets of fixed current value, however, data on the times and values of transactions are needed as well as the opening and closing balance sheet values. Suppose, for example, a loan is made and repaid within the accounting period while the general price level is rising. The neutral gain on the loan is positive and the real gain negative from the creditor's point of view, the amount depending upon the length of time the loan is outstanding and the rate of inflation. It is impossible to record such real losses without data on the value of the loans made and repaid during the accounting period and the times at which they are made and repaid. In general, it may be inferred that if the total absolute value of the positive and negative transactions is large in relation to the opening and closing balance sheet levels, approximate estimates of the neutral and real holding gains on financial assets and liabilities with fixed current values derived from balance sheet data alone may not be very satisfactory. Even recording the values of financial transactions on a gross basis, i.e. recording loans made and repaid separately as distinct from the total value of loans minus repayments, may not be sufficient without information on the timing of the loans.Loans (AF.4) and other accounts receivable/payable (AF.7)6.51. The same as for currency and deposits applies for loans and other accounts receivable/payable, which are not traded. However, when an existing loan or trade credit is sold to another institutional unit the difference between the redemption price and the transaction price should be recorded under the revaluation account of the seller and the purchaser at the time of transaction.Securities other than shares (AF.3)6.52. When a bond is issued at premium or discount, including deep discounted and zero coupon bonds, the difference between its issue price and its face or redemption value when it matures measures interest that the issuer is obliged to pay over the life of the bond. Such interest is recorded as property income payable by the issuer of the bond and receivable by the holder of the bond in addition to any coupon interest actually paid by the issuer at specified intervals over the life of the bond. The interest accruing is recorded in the financial account as being simultaneously reinvested in the bond by the holder of the bond (see paragraph 5.17). It is, therefore, recorded in the financial account as the acquisition of an asset which is added to the existing asset (81). Thus the gradual increase in the market value of a bond that is attributable to the accumulation of accrued, reinvested interest reflects a growth in the principal outstanding - that is, in the size of the asset. It is essentially a quantum or volume increase and not a price increase. It does not generate any holding gain for the holder of the bond or holding loss for the issuer of the bond. The situation is analogous to that of a good, such as wine, that matures while it is being stored. Any increase in the price of the wine that is attributable to an improvement in its quality reflects an increase in volume and not price. Bonds change qualitatively over time as they approach maturity and it is essential to recognize that increases in their values due to the accumulation of accrued interest are not price changes and do not generate holding gains.6.53. The prices of fixed-interest bonds also change, however, when the market rates of interest change, the prices varying inversely with the interest rate movements. The impact of a given interest rate change on the price of an individual bond is less, the closer the bond is to maturity. Changes in bond prices that are attributable to changes in market rates of interest constitute price and not quantum changes. They therefore generate nominal holding gains or losses for both the issuers and the holders of the bonds. An increase in interest rates generates a nominal holding gain for the issuer of the bond and an equal nominal holding loss for the holder of the bond, and vice versa in the case of a fall in interest rates.Nominal holding gains or losses may accrue on bills in the same way as for bonds. However, as bills are short-term securities with much shorter times to maturity, the holding gains generated by interest rate changes are generally much smaller than on bonds with the same face values.6.54. The conversion of bonds into shares is recorded as two financial transactions (see paragraph 5.62.1). It will usually take place at a price below the market price of the shares and the resulting holding gains are to be recorded as a price change under the revaluation account.6.55. The value of financial derivatives (AF.34) may change as a result of changes in the value of the underlying instrument, changes in the volatility of the price of the underlying instrument, or approaching the date of execution or maturity. All such changes in value should be regarded as price changes and recorded under K.11.Shares and other equity (AF.5)6.56. Bonus shares (see paragraph 5.93) increase the number of shares and the nominal value of the shares issued but do not in theory alter the market value of the totality of shares. By convention, they do not enter the accounts at all. However, these issues are designed to improve the liquidity of the shares on the market and hence the total market value of shares issued may rise as a result: any such change should be recorded as a revaluation effect.Insurance technical reserves (AF.6)6.57. Changes in the net equity of households in life insurance reserves and in pension funds reserves (AF.61) that occur between the beginning and the end of the accounting period and that result from nominal holding gains or losses on the reserves invested by insurance corporations and pension funds are recorded in the revaluation account, as well as changes in prepayments of insurance premiums and reserves for outstanding claims (AF.62) resulting from holding gains or losses.FINANCIAL ASSETS IN FOREIGN CURRENCY6.58. The value of financial assets in foreign currency is measured by their current market value in foreign currency converted into national currency at the current exchange rate. Nominal holding gains may therefore occur not only because the price of the asset in local currency changes but also because the exchange rate changes. The total value of the nominal holding gains accruing over the accounting period may be calculated in the usual way by subtracting the value of transactions from the difference between the opening and closing balance sheet values. For this purpose, transactions in the financial assets in foreign currency must be converted into the national currency using the exchange rates at the time the transactions occur, while the opening and closing balance sheet values must be converted using the exchange rates prevailing at the dates to which the balance sheets relate. This implies that the total value of the transactions - acquisitions less disposals - expressed in foreign currency is, in effect, converted by a weighted average exchange rate in which the weights are given the values of transactions conducted on different dates.CHAPTER 7 BALANCE SHEETS 7.01. Definition: A balance sheet is a statement, drawn up at a particular point in time, of the values of assets owned and of liabilities outstanding. The balancing item is called net worth (B.90).The stock of the assets and liabilities recorded in the balance sheet is valued at the market prices prevailing on the date to which the balance sheet relates.7.02. A balance sheet is drawn up for sectors, the total economy and the rest of the world.For a sector the balance sheet provides as a balancing item what is often referred to as national wealth - the sum of non-financial assets and net financial assets with respect to the rest of the world.The balance sheet for the rest of the world, called the external assets and liabilities account, consists entirely of financial assets and liabilities.7.03. Corporations are seen to have a net worth in addition to the value of the shares and other equity issued. In the case of quasi-corporations, net worth is zero, because the value of the owners' equity is assumed to be equal to its assets less its liabilities. Therefore, the net worth of resident direct investment enterprises, which are branches of non-resident enterprises and are therefore treated as quasi-corporations, is zero.7.04. The difference between total financial assets and total liabilities is called net financial assets (see paragraph 7.67).7.05. For the non-financial and the financial corporations sectors the calculation of own funds provides an analytically meaningful indicator.Own funds are the sum of net worth (B.90) and shares and other equity (AF.5) issued.7.06. The balance sheet completes the sequence of accounts, showing the ultimate result of the entries in the production, distribution and use of income, and accumulation accounts (see chapter 8: Sequence of accounts and balancing items).7.07. A balance sheet relates to the value of assets and liabilities at a particular moment of time. Balance sheets are to be compiled at the beginning of the accounting period (the same as the end of the preceding period) and at its end.7.08. A basic accounting identity links the opening balance sheet and the closing balance sheet:the value of the stock of a specific type of asset in the opening balance sheet;plus transactions: the total value of the assets acquired, less the total value of those disposed of, in transactions that take place within the accounting period: transactions in non-financial assets are recorded in the capital account and transactions in financial assets in the financial account;minus consumption of fixed capital;plus other volume changes: the value of other positive or negative changes in the volume of the assets held (for example, as a result of the discovery of a subsoil asset or the destruction of an asset as a result of war or a natural disaster): these changes are recorded in the other changes in volume of assets account;plus revaluations: the value of the positive or negative nominal holding gains accruing during the period resulting from a change in the price of the asset: these changes are recorded in the revaluation account;is identical with the value of the stock of the asset in the closing balance sheet.The accounting links between the opening and closing balance sheets via transactions and other changes in assets (other changes in volume and holding gains) are shown schematically in Annex 7.2.TYPES OF ASSETS7.09. The assets recorded in the balance sheets are economic assets.7.10. Definition: Economic assets are entities functioning as a store of value over which ownership rights are enforced by institutional units, individually or collectively, and from which economic benefits may be derived by their owners by holding them or using them over a period of time.7.11. The economic benefits consist of primary incomes (operating surplus by using, property income by letting others use) derived from the use of the asset and the value, including possible holding gains/losses, that could be realized by disposing of the asset or terminating it.7.12. An overview of the classification and coverage of economic assets is given in the table 7.1. The detailed definition of each asset category is set out in the Annex 7.1 to this chapter.Excluded from the asset boundary are:(a) human capital;(b) natural assets that are not economic assets (e.g. air, river water);(c) contingent assets, which are not financial assets (see paragraph 7.22).7.13. Three categories of assets are distinguished:(a) non-financial produced assets;(b) non-financial non-produced assets;(c) financial assets.NON-FINANCIAL PRODUCED ASSETS (AN.1)7.14. Definition: Produced assets (AN.1) are non-financial assets that have come into existence as outputs from production processes.7.15. The classification of produced assets is designed to distinguish among assets on the basis of their role in production. It consists of: fixed assets (82) which are used repeatedly or continuously in production for more than one year; inventories which are used up in production as intermediate consumption, sold or otherwise disposed of; and valuables. The latter are not used primarily for production or consumption, but are instead acquired and held primarily as stores of value.NON-FINANCIAL NON-PRODUCED ASSETS (AN.2)7.16. Definition: Non-produced assets (AN.2) are economic assets that come into existence other than through processes of production. They consist of tangible assets and intangible assets as defined below.7.17. The classification is designed to distinguish assets on the basis of the way they come into existence. Some of these assets occur in nature, others, which may be referred to as constructs devised by society, come into existence by legal or accounting actions.7.18. All tangible non-produced assets are natural assets. Which natural assets are included is determined, in compliance with the general definition of an economic asset, by whether the assets are subject to effective ownership and are capable of bringing economic benefits to their owners, given the existing technology, knowledge, economic opportunities, available resources, and set of relative prices. Moreover, natural assets over which ownership rights have not, or cannot, be established, such as open seas or air, are excluded.7.19. Intangible non-produced assets include patented entities, transferable contracts, purchased goodwill, etc. Entities not evidenced by legal or accounting actions - that is, such actions as the granting of a patent or the conveyance of some economic benefit to a third party - are excluded.FINANCIAL ASSETS AND LIABILITIES (AF.)7.20. Definition: Financial assets (AF.) are economic assets, comprising means of payment, financial claims and economic assets which are close to financial claims in nature.7.21. Means of payment consist of monetary gold, special drawing rights, currency and transferable deposits. Financial claims entitle their owners, the creditors, to receive a payment or series of payments without any counter-performance from other institutional units, the debtors, who have incurred the counterpart liabilities.Examples of economic assets which are close to financial claims in nature are shares and other equity and partly contingent assets. The institutional unit issuing such a financial asset is considered to have incurred a counterpart liability.7.22. Contingent assets are contractual arrangements between institutional units, and between them and the rest of the world, which specify one or more conditions which must be fulfilled before a financial transaction takes place. Excamples are guarantees of payment by third parties, letters of credit, lines of credit, underwritten note issuance facilities (NIFs) and many of the derivative instruments. In the system, a contingent asset is a financial asset in cases where the contractual arrangement itself has a market value because it is tradable or can be offset on the market. Otherwise, a contingent asset is not recorded in the system (83).7.23. In the system, each financial asset has a counterpart liability, with the exception of those financial assets classified in the category monetary gold and special drawing rights (AF.1).7.24. The classification of financial assets and liabilities corresponds to the classification of financial transactions. Therefore, the definitions of the categories, sub-categories and sub-positions of financial assets and liabilities and the supplementary explanations are provided only once in the ESA - in the financial transactions chapter. The balance sheets chapter does not repeat the definitions and their explanations in its main text but it provides in its Annex 1 a summary of all assets and liabilities defined in the system.>TABLE>VALUATION OF ENTRIES IN THE BALANCE SHEETSGENERAL VALUATION PRINCIPLES7.25. A particular item in the balance sheet should be valued as if it were being acquired on the date to which the balance sheet relates, including any associated costs of ownership transfer in the case of non-financial assets. This implies that assets and liabilities are to be valued using current market prices on the date to which the balance sheet relates.This means that assets should be valued on the basis of(a) purchasers' prices if they are bought;(b) basic prices if they are own-account produced and on the basis of basic prices of similar goods or of the sum of its cost if no basic prices are available.7.26. Ideally, these prices should be prices observable on the market. When there are no observable prices - as may be the case if no purchases/sales of the items in question have been observed in the recent past - an attempt has to be made to estimate what the prices would be if the assets were acquired on the market on the date to which the balance sheet relates.7.27. In addition to prices observed on markets or estimated from observed prices or costs incurred, current prices may be approximated for balance sheet valuation by:(a) revaluing and accumulating acquisitions less disposals or(b) the present, or discounted, value of future returns.7.28. Market prices are usually available for many of the financial assets, existing real estate (buildings and other structures plus the underlying land), existing transport equipment, crops and livestock as well as for newly produced fixed assets and inventories.7.29. For some assets revalued initial acquisition prices are written off over the asset's expected life. The value of such an asset at a given point in its life is given by its current acquisition price less the accumulated value of these write-offs. Most fixed assets can be recorded in balance sheets at current purchasers' prices written down for the accumulated consumption of fixed capital (written-down replacement cost) (84).7.30. In the case of assets for which the returns either are delayed (as with timber) or are spread over a lengthy period (as with subsoil assets), a rate of discount must be used to compute the present value of the expected future returns.The rate of discount should be derived from information based on transactions in the particular type of assets under consideration - forests, mines and quarries - rather than using a general rate of interest.7.31. The value of assets and liabilities denominated in foreign currencies should be converted into the national currency at the market exchange rate prevailing on the date to which the balance sheet relates. This rate should be the midpoint between the buying and the selling spot rates for currency transactions.7.32. Alternatives to current market values might be useful for some analytical purposes and may be shown as memorandum items in the balance sheets. Examples of alternative valuation include nominal value for long-term bonds and revalued paid-in and equivalent value for corporate equity.NON-FINANCIAL ASSETS (AN.)PRODUCED ASSETS (AN.1)Fixed assets (AN.11)Tangible fixed assets (AN.111)7.33. Tangible fixed assets have to be recorded at market prices if possible (or basic prices in the case of own-account production of new assets), if not then at current purchasers' prices written down by the accumulated consumption of fixed capital. Purchasers' costs of ownership transfer associated with these assets, appropriately written down, are included in the balance sheet value.Intangible fixed assets (AN.112)7.34. Mineral exploration should be valued either on the basis of the accumulated amounts paid under contracts awarded to other institutional units for the purpose, or on the basis of the costs incurred for exploration undertaken on own account. That part of exploration undertaken in the past that has not yet been fully written off should be revalued at the prices and costs of the current period.7.35. Computer software should be valued on the basis of the purchasers' price paid on the market, on the basis of estimated basic prices when produced in house, or on the basis of costs of production when such prices are not available. Software acquired in previous years and not yet fully written down should be revalued at current prices or costs (which may be less then the original price or cost).7.36. Entertainment, literary or artistic originals and other intangible fixed assets should be valued at the acquisition price when these intangible assets are actually traded on markets. In the case of intangible assets that have been produced on own account, it may be necessary to value them on the basis of their costs of production, appropriately revalued at prices of the current period and written down. Otherwise, it may be necessary to use estimates of the present value of the expected future receipts to be received by owners of such assets.Inventories (AN.12)7.37. Inventories should be valued at prices prevailing on the date to which the balance sheet relates, and not at the prices at which the products were valued when they entered inventory.7.38. Inventories of materials and supplies are valued at purchasers' prices, and inventories of finished goods and work in progress are valued at basic prices. Inventories of goods intended for resale without further processing by wholesalers and retailers are valued at the prices prevailing on the date to which the balance sheet relates, excluding any transportation costs incurred by the wholesalers or retailers. For work-in-progress inventories, the value of the closing balance sheet can be calculated by applying the fraction of the total production cost incurred by the end of the period to the basic price of a similar finished product on the date to which the balance sheet relates. If the basic price of the finished products is not available, it can be estimated by the value of the production cost with a mark-up for expected net operating surplus or (estimated net) mixed income.Growing single-use crops (except timber) and livestock being raised for slaughter can be valued by reference to the prices of such products on the markets. Standing timber is valued by discounting the future proceeds of selling the timber at current prices after deducting the expenses of bringing the timber to maturity, felling, etc.Valuables (AN.13)7.39. Valuables (works of art, antiques, jewellery, precious stones, non-monetary gold (see paragraph 5.30) and other metals) are to be valued at current prices. To the extent that organized markets exist for these assets, they should be valued at the actual or estimated prices that would be paid for them were they purchased on the market, including any agents' fees or commissions, on the date to which the balance sheet relates. Otherwise, they should be valued at acquisition prices revalued to the current price level.NON-PRODUCED ASSETS (AN.2)Tangible non-produced assets (AN.21)Land (AN.211)7.40. In the capital account, expenditures on land improvements and the costs of ownership transfer on land are recorded as gross fixed capital formation, separately from land itself.If the value of the land cannot be separated from that of the buildings or other structures situated on it, the assets have to be classified together on the basis of which is likely the larger value.In the balance sheet land is valued at its current market price.This price does not necessarily equal the sum of all components constituting the costs of acquiring the land at the time of acquisition. Particularly the current market price may not cover the costs of ownership transfer or expenditures on land improvements not already written off to zero. So it may be necessary to enter these amounts, either completely or in part, as holding losses in the revaluation account.Subsoil assets (AN.212)7.41. Proven reserves of mineral deposits located on or below the earth's surface that are economically exploitable given current technology and relative prices are valued by the present value of expected net returns resulting from the commercial exploitation of those assets.Other natural assets (AN.213 and AN.214)7.42. As observed prices for these assets are not likely to be available, they have to be valued by the present value of future returns expected from them.Intangible non-produced assets (AN.22)7.43. Intangible non-produced assets (patented entities, leases or other transferable contracts, and purchased goodwill) should be valued at current prices when they are actually traded on markets. Otherwise, estimates of the present value of the expected future returns to be received by the owners of such assets will have to be made.FINANCIAL ASSETS AND LIABILITIES (AF.)7.44. Financial assets and liabilites should in principle be valued at current prices. They should be assigned the same value whether they appear as financial assets or liabilities. The prices should exclude service charges, fees, commissions and similar payments which are recorded as services provided in carrying out the transactions.Monetary gold and SDRs (AF.1)7.45. Monetary gold (AF.11) is to be valued at the price established in organized gold markets.The value of SDRs (AF.12) is determined daily by the IMF and the rates against domestic currencies are obtainable from foreign exchange markets.Currency and deposits (AF.2)7.46. For currency (AF.21), the valuation is the nominal or face value of the currency.For deposits (AF.22, AF.29), the values to be recorded in the balance sheets are the amounts of principal that the debtors are contractually obliged to repay the creditors under the terms of the deposits when the deposits would be liquidated on the date the balance is set up. The values may include accrued interest (see paragraph 5.130).Securities other than shares (AF.3)7.47. The valuation adopted must be consistent with the treatment of accrued interest and its classification to specific asset headings (see paragraph 5.128, 5.130, 5.138). If accrued interest has been treated in the financial account as being reinvested in the corresponding securities, then, in the balance sheet, securities other than shares, excluding financial derivatives, (AF.33) should be valued at current market prices in such a way that they include the value of the accrued interest. The global current market value of these securities has two distinct volume components, one representing the principal and the other the accrued interest. The global total volume thus includes the accrued interest (i.e., it is the number of units of securities in issue plus the supplementary volume resulting from accrued interest, see paragraph 6.52) and the price to be applied to each of those units of volume excludes accrued interest.If, in the financial account, the value of accrued interest has been included under F.79 (Other accounts receivable/payable) rather than F.33 (Securities other than shares, excluding financial derivatives), then the value of accrued interest should also be included under AF.79 in the balance sheet.7.48. Short-term securities other than shares excluding financial derivatives (AF.331) are to be valued at their current market values.If current market values are not available:(a) short-term securities issued at par should be valued at face value plus accrued interest not due for payment or not paid;(b) discounted securities should be valued at the issue price plus accrued interest.These approximations should be restricted to securities whose original maturity does not exceed three months.7.49. Long-term securities other than shares excluding financial derivatives (AF.332) are always to be valued at their current market values, whether they are bonds on which interest is paid regularly or deep-discounted or zero-coupon bonds on which little or no interest is paid.7.50. Financial derivatives (AF.34) should be included in the balance sheets at their current market prices. In the case that no quoted market price exists (e.g. OTC options), a financial derivative should be valued at either the amount required to buy out or to offset the contract or the amount of premium paid.By convention, the issuer of a financial derivative is considered to have incurred a counterpart liability.Loans (AF.4)7.51. The values to be recorded in the balance sheets of both creditors and debtors are the amounts of principal that the debtors are contractually obliged to repay the creditors, even in cases where the loan was traded at a discount or premium.Shares and other equity (AF.5)7.52. Shares and other equity are to be valued at their current prices. The same current price is adopted for both the asset side and the liability side, although shares and other equity are not, legally, a liability of the issuer, but an ownership right on the liquidation value of the corporation, whose amount is not known in advance.7.53. Quoted shares (AF.511) are to be valued at a representative mid-market price observed on the stock exchange or other organized financial markets.7.54. The values of unquoted shares (AF.512), which are not regularly traded on organized markets, should be estimated with reference to the values of quoted shares. However, these estimates should take into account differences between the two types of shares, notably their liquidity, and they should consider the reserves accumulated over the life of the corporation and its branch of business.7.55. The estimation method applied depends very much on the basic statistics available. It may take into account, for example, data on merger activities involving unquoted shares. Furthermore, in cases where the reserves of corporations, which issue unquoted shares, differ on average, and in proportion to their nominal capital, from that of corporations, which issue unquoted shares, it would be appropriate to calculate the current price of unquoted shares in proportion to figures including reserves, such as net worth given by the corporation balance sheet, or as own funds compiled according to ESA principles:current price of unquoted shares =current price of quoted shares ×>NUM>own funds (unquoted corporations)>DEN>own funds (quoted corporations)The ratio of current price to own funds may vary with the branch of business. Therefore, it is preferable to calculate the current price of unquoted shares branch by branch. There may be other differences between quoted and unquoted corporations, which may have an effect on the estimation method.7.56. Other equity (AF.513) is very often a liability of specific institutional units (quasi-corporations, corporations owned by the state, international organizations, notional units, etc.). In general, they have to be valued according to specific methods, such as own funds or nominal value. The own funds method is notably to be used systematically for quasi-corporations, since their net worth is by convention equal to zero.7.57. Mutual funds shares (AF.52) are to be valued at their current stock exchange price, if they are quoted, or at their current redemption value, if they are redeemable by the fund itself.Insurance technical reserves (AF.6)7.58. In the case of net equity of households in life insurance reserves (AF.611), the present value of the individuals' actuarially determined claims to the payment of capital or income can be ascertained. This value includes the liability of life insurance corporations for reserves against outstanding risks and reserves for with-profit insurance that add to the value on maturity of with-profit endowments or similar policies. In the case of with-profit insurance, the reserves include holding gains.7.59. In the case of net equity of households on pension funds reserves (AF.612), the nature of the liability of the funds - and financial asset of the households - depends on the kind of pension scheme.Defined benefit pension schemes are those in which the level of pension benefits promised to participating employees is guaranteed. The liability of a defined benefit pension scheme is equal to the present value of the promised benefits. As the scheme may be temporarily over or underfunded, a defined benefit pension scheme may have a positive or negative net worth.Money purchase pension schemes are those for which benefits are directly dependent on the assets of the fund. The liability of a money purchase pension scheme is the current market value of the funds' assets. The funds' net worth is always zero.7.60. The value of the prepayments of insurance premiums, which are part of AF.62, is determined on the basis of the proportion of the risks involved in relation to time for the time remaining on the contract. The value of the reserves for outstanding claims, which are also part of AF.62, is the present value of the amounts expected to be paid out in settlement of claims, including disputed claims.Other accounts receivable/payable (AF.7)7.61. Trade credits and advances (AF.71) or other items receivable/payable (AF.79) are to be valued for both creditors and debtors at the amount the debtors are contractually obliged to pay the creditors when the obligation is extinguished.MEMORANDUM ITEMS7.62. In order to show items of more specialized analytic interest for particular sectors, two memorandum items are to be included in the balance sheets:(a) consumer durables (AN.m);(b) direct foreign investment (AF.m).Consumer durables (AN.m)7.63. Consumer durables are durable goods used by households repeatedly over periods of time of more than one year for final consumption. They are included in the balance sheets only as memorandum items. Their inclusion as a component of the balance sheet would be appropriate if the system postulated that the durables were gradually used up in production processes whose outputs consist of services. But consumer durables are not treated in this way.7.64. The stocks of consumer durables held by households - transport equipment and other machinery and equipment - are to be valued at current prices, both gross and net of accumulated charges equivalent to consumption of fixed capital. The figures shown as memorandum items in the balance sheet should be net of these accumulated charges.7.65. Durable goods owned by owners of unincorporated enterprises may be used partly by the enterprise for production and partly by members of the household for final consumption. The values shown in the balance sheet for the enterprise should reflect the proportion of the use that is attributable to the enterprise.Direct foreign investment (AF.m).7.66. Direct investment consists of financial assets, not physical capital, because the direct investment enterprise is a corporation or quasi-corporation resident in another country. Financial assets and liabilities that constitute direct investment are to be recorded according to the nature of the financial assets in the categories shares and other equity, loans, and other accounts receivable/payable. The amounts of direct investment included within each of those categories should be recorded separately as a memorandum item.FINANCIAL BALANCE SHEETS7.67. The financial balance sheet (of a sector or the rest of the world) shows on its left side financial assets and on its right side liabilities. The balancing item of the financial balance sheet is net financial assets (BF.90).7.68. The financial balance sheet of a sector may be consolidated or non-consolidated. The non-consolidated financial balance sheet shows the financial assets and liabilities of the institutional units classified in the sector. Compared to the non-consolidated financial balance sheet, those financial assets and liabilities are eliminated from the consolidated financial balance sheet, the counterparts of which are respectively liabilities or financial assets of institutional units classified in the same sector. The external assets and liabilities account, that is the financial balance sheet of the rest of the world (see paragraph 8.77), is consolidated by definition.7.69. The financial balance sheet by debtor/creditor (of a sector or the rest of the world) is an extension of the financial balance sheet, showing in addition a breakdown of financial assets by debtor sector and a breakdown of liabilities by creditor sector. Therefore, it provides information on debtor/creditor relationships and it is consistent with the financial account by debtor/creditor (see paragraph 5.13).>TABLE>>TABLE>Balancing itemsB.10.1 Changes in net worth due to saving and capital transfersB.10.2 Changes in net worth due to other changes in volume of assetsB.10.31 Changes in net worth due to neutral holding gains/lossesB.10.32 Changes in net worth due to real holding gains/lossesB.90 Net worthTransactions in financial assets and liabilitiesF. Transactions in financial assets and liabilitiesF.1 Monetary gold and SDRsF.2 Currency and depositsF.3 Securities other than sharesF.4 LoansF.5 Shares and other equityF.6 Insurance technical reservesF.7 Other accounts receivable/payableTransactions in goods and servicesP.5 Gross capital formationP.51 Gross fixed capital formationP.511 Acquisitions less disposals of tangible fixed assetsP.512 Acquisitions less disposals of intangible fixed assetsP.513 Additions to the value of non-produced non-financial assetsP.52 Changes in inventoriesP.53 Acquisitions less disposals of valuablesOther accumulation entriesK.1 Consumption of fixed capitalK.2 Acquisitions less disposals of non-financial non-produced assetsK.21 Acquisitions less disposals of land and other tangible non-produced assetsK.22 Acquisitions less disposals of intangible non-produced assetsK.3 Economic appearance of non-produced assetsK.4 Economic appearance of produced assetsK.5 Natural growth of non-cultivated biological resourcesK.61 Depletion of natural assetsK.62 Other economic disappearance of non-produced assetsK.7 Catastrophic lossesK.8 Uncompensated seizuresK.9 Other volume changes in non-financial assets n.e.c.K.10 Other volume changes in financial assets and liabilities n.e.c.K.11 Nominal holding gains/lossesK.11.1 Neutral holding gains/lossesK.11.2 Real holding gains/lossesK.12 Changes in classifications and structureK.12.1 Changes in sector classification and structureK.12.21 Monetization/demonetization of goldK.12.22 Changes other than monetization/demonetization of gold in classifications of assets or liabilitiesCHAPTER 8 SEQUENCE OF ACCOUNTS AND BALANCING ITEMS 8.01. The ESA records flows and stocks in an ordered set of accounts describing the economic cycle from the generation of income, through its distribution and redistribution and finally to its accumulation in the form of assets.8.02. Each of the accounts shows transactions which balance out, either because of the definitions used or because a significant balance is carried forward to the next account.8.03. The structured recording of transactions according to a logical analysis of economic life provides the aggregates required for the study of an industry, an institutional sector or subsector, or the total economy. The breakdown of the accounts was designed to reveal the most significant economic information.8.04. The accounts are grouped in three categories:(a) current accounts;(b) accumulation accounts;(c) balance sheets.Current accounts concern the generation, distribution and redistribution of income and its use in the form of final consumption. Finally, they permit the calculation of saving, which is an essential factor in accumulation.Accumulation accounts analyse the various components of changes in the assets and liabilities of the various units and enable changes in net worth (the difference between assets and liabilities) to be recorded.Balance sheets show the total assets and liabilities of the various units at the beginning and the end of the accounting period, together with their net worth. The flows for each asset and liability item recorded in the accumulation accounts are seen again in the changes in balance sheets account.8.05. The sequence of accounts applies, wholly or partly, to institutional units, institutional sectors and subsectors, industries and the total economy.8.06. The balancing items are established both gross and net. They are gross if calculated before deduction of consumption of fixed capital and net if calculated after this deduction. It is more significant to express income balancing items in net terms.8.07. The accounts are presented in various ways:(a) in the form of integrated economic accounts, showing the accounts for all the institutional sectors, the total economy and the rest of the world in a single table;(b) in the form of a sequence of accounts, giving more detailed information. The tables showing the presentation of each account are given in the section of this chapter entitled 'Sequence of accounts`;(c) in the form of matrices, in which each account is represented by a row/column pair.8.08. Synoptic presentation of the accounts, balancing items and main aggregates:>TABLE>SEQUENCE OF ACCOUNTS8.09. The sequence of accounts is composed of three main categories of accounts:(a) Current accounts:1. production account (I);2. distribution and use of income accounts (II);(b) accumulation accounts (III);(c) balance sheets (IV).CURRENT ACCOUNTSProduction account (I) (85)8.10. The production account (I) shows the transactions relating to the production process proper. It is drawn up for institutional sectors and for industries. Its resources include output and its uses include intermediate consumption.8.11. The production account can be used to obtain one of the most important balancing items in the system - value added, or the value generated by any unit engaged in a production activity - and a vital aggregate: gross domestic product. Value added is economically significant for both the institutional sectors and the industries.8.12. As with the balancing items of the following accounts, value added (the balancing item of the account) may be calculated before or after consumption of fixed capital, i. e. gross or net. Given that output is valued at basic prices and intermediate consumption at purchaser's prices, value added does not include taxes less subsidies on products.8.13. The production account at the level of the total economy includes in resources, in addition to the output of goods and services, taxes less subsidies on products. It thus enables gross domestic product (at market prices) to be obtained as a balancing item.8.14. As financial intermediation services indirectly measured (Fisim) are not allocated to user sectors, the whole of the value of the output of Fisim is treated as the intermediate consumption of a nominal sector with zero output and negative value added equal in size but opposite in sign to intermediate consumption. In this way, the value added of all sectors and industries together is reduced in total by this amount. To lighten the presentation of accounts, it is possible not to insert a supplementary column for the nominal sector, but instead to take into account the corresponding figure in the column total economy.Distribution and use of income accounts (II)8.15. Distribution and use of income are analysed in four stages: primary distribution, secondary distribution, redistribution in kind and use of income.The first stage concerns the generation of income resulting directly from the production process and its distribution between the production factors (labour, capital) and general government (via taxes on production and imports, and subsidies). It enables the operating surplus (or mixed income in the case of households) and primary income to be determined.The second stage traces redistribution of income via transfers other than social transfers in kind. This yields the disposable income.The third stage describes redistribution via social transfers in kind, yielding the adjusted disposable income.The fouth stage describes how the income is consumed and saved, yielding the saving.>TABLE>Primary distribution of income accounts (II.1)Generation of income account (II.1.1)The layout of the generation of income account by institutional sector is as shown in the table 8.3.8.16. The generation of income account is also presented by industries, in the columns of the supply and uses tables.8.17. The generation of income account presents the sectors, subsectors and industries which are the source, rather than the destination, of primary income.8.18. It analyses the extent to which value added can cover compensation of employees and other taxes less subsidies on production. It measures the operating surplus, which is the surplus (or deficit) on production activities before account has been taken of the interest, rents or charges which the production unit:(a) must pay on financial assets or on tangible non-produced assets which it has borrowed or rented;(b) must receive on financial assets or on tangible non-produced assets of which it is the owner.The operating surplus corresponds to the income which the units obtain from their own use of their production facilities. It is the last balancing item which can be calculated for both the industries and the institutional sectors and subsectors.8.19. In the case of unincorporated enterprises in the households sector, the balancing item of the generation of income account implicitly contains an element corresponding to remuneration for work carried out by the owner or members of his family which cannot be distinguished from his profits as entrepreneur. This is referred to as 'mixed income`.8.20. In the case of own account production of accommodation services by owner-occupier households, the balancing item of the generation of income account is an operating surplus.Allocation of primary income account (II.1.2)8.21. Unlike the generation account, the allocation of primary income account concerns the resident units and institutional sectors as recipients rather than producers of primary income.8.22. 'Primary income` is the income which resident units receive by virtue of their direct participation in the production process, and 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.8.23. The allocation of primary income account (II.1.2) can be calculated only for the institutional sectors and subsectors because, in the case of industries, it is impossible to break down certain flows connected with financing (capital loans and borrowings) and assets.8.24. As financial intermediation services indirectly measured (Fisim) are not allocated to user sectors, the entries shown for interest are those for actual interest payable and receivable. An adjustment is made to resources in the column financial corporations (with a negative sign) and in the column nominal sector (with a positive sign). To lighten the presentation of accounts, it is possible not to insert a supplementary column for the nominal sector, but instead to present the corresponding figure in the column total economy.8.25. The allocation of primary income account is broken down into an entrepreneurial income account (II.1.2.1) and an allocation of other primary income account (II.1.2.2).Entrepreneurial income account (II.1.2.1)8.26. The purpose of the entrepreneurial income account is to determine a balancing item corresponding to the concept of current profit before distribution and income tax, as normally used in business accounting.>TABLE>>TABLE>8.27. In the case of general government and non-profit institutions serving households, this account concerns only their market activities.8.28. Entrepreneurial income corresponds to the operating surplus or mixed income (on the resources side):plus property income receivable in connection with financial and other assets belonging to the enterprise (on the resources side);minus interest on debts payable by the enterprise and rents payable on land and other non-produced tangible assets rented by the enterprise (on the uses side).Property income payable in the form of dividends or reinvested earnings on direct foreign investment is not deducted from entrepreneurial income.Allocation of other primary income account (II.1.2.2)8.29. The purpose of the allocation of other primary income account is to return from the concept of entrepreneurial income to the concept of primary income. It therefore contains the elements of primary income not included in the entrepreneurial income account:(a) in the case of corporations, distributed dividends and reinvested earnings on direct foreign investment (on the uses side);(b) in the case of households:1. property income payable, excluding rents and interest payable in connection with the entrepreneurial activity (on the uses side);2. compensation of employees (on the resources side);3. property income receivable, excluding that receivable in connection with the activity of the enterprise (on the resources side);(c) in the case of general government:1. property income payable, excluding that payable in connection with market activities (on the uses side);2. taxes on production and imports less subsidies (on the resources side);3. property income receivable, excluding that receivable in connection with market activities (on the resources side).Secondary distribution of income account (II.2)8.30. The secondary distribution of income account shows how the balance of the primary income of an institutional sector is allocated by redistribution: current taxes on income, wealth etc., social contributions and benefits (excluding social transfers in kind) and other current transfers.8.31. The balancing item of the account is disposable income, which reflects current transactions and explicitly excludes capital transfers, real holding gains and losses and the consequences of events such as natural disasters.8.32. Social contributions are recorded (86) on the uses side of the secondary distribution of income account of households and on the resources side of the secondary distribution of income account of the institutional sectors responsible for management of social insurance. When payable by employers for their employees, they are first included under compensation of employees, on the uses side of the employers' generation of income account, since they form part of wage costs; they are also recorded, as compensation of employees, on the resources side of the households' allocation of primary income account, since they correspond to benefits to households.>TABLE>>TABLE>>TABLE>Redistribution of income in kind account (II.3)8.33. The redistribution of income in kind account gives a broader picture of households' income by including the flows corresponding to the use of individual goods and services which these households receive free of charge, i. e. social benefits in kind and transfers of individual non-market goods and services, these two categories of flows being grouped together under the concept of social transfers in kind. This facilitates comparisons over time when there are differences or changes in economic and social conditions, and supplements the analysis of the role of general government in the redistribution of income.8.34. Social transfers in kind are recorded on the resources side of the redistribution of income in kind account in the case of households, and on the uses side in the case of general government and non-profit institutions serving households.8.35. The balancing item in the redistribution of income in kind account is adjusted disposable income.Use of income account (II.4)8.36. For the institutional sectors with final consumption, the use of income account shows how disposable income (or adjusted disposable income) is divided between final consumption expenditure (or actual final consumption) and saving.8.37. In the system, only government, NPISHs and households have final consumption. In addition, the use of income account includes, for households and for pension funds, an adjustment item (D.8 Adjustment for the change in the net equity of households in pension funds reserves) which relates to the way that transactions between households and pension funds are recorded (87).Use of disposable income account (II.4.1)8.38. The use of disposable income account includes the concept of final consumption expenditure financed by the various sectors concerned: households, general government and non-profit institutions serving households.8.39. The balancing item in the use of disposable income account is saving.Use of adjusted disposable income account (II.4.2)8.40. The use of adjusted disposable income account includes the concept of actual final consumption, which corresponds to the value of the goods and services actually at the disposal of households for final consumption, even if their acquisition is financed by general government or non-profit institutions serving households.Consequently, the actual final consumption of general government corresponds only to collective final consumption. Since final consumption expenditure by non-profit institutions serving households is regarded as entirely individual, their actual final consumption is zero.8.41. At the level of the total economy, final consumption expenditure and actual final consumption are equal; it is only the distribution over the institutional sectors which differs. The same is true of disposable income and adjusted disposable income.8.42. Saving is the balancing item in both versions of the use of income account. Its value is identical for all sectors, regardless of whether it is obtained by subtracting final consumption expenditure from disposable income or by subtracting actual final consumption from adjusted disposable income.>TABLE>8.43. Saving is the (positive or negative) amount resulting from current transactions which establishes the link with accumulation. If saving is positive, non-spent income is used for the acquisition of assets or for paying off liabilities. If saving is negative, certain assets are liquidated or certain liabilities increase.ACCUMULATION ACCOUNTS (III) (88)8.44. The accumulation accounts are flow accounts. They record the various causes of changes in the assets and liabilities of units and the change in their net worth.8.45. Changes in assets are recorded on the left-hand side of the accounts (plus or minus), changes in liabilities and net worth on the right-hand side (plus or minus).Capital account (III.1)8.46. The capital account records acquisitions less disposals of non-financial assets by resident units and measures the change in net worth due to saving (final balancing item in the current accounts) and capital transfers.8.47. The capital account makes it possible to determine the extent to which acquisitions less disposals of non-financial assets have been financed out of saving and by capital transfers. It shows a net lending corresponding to the amount available to a unit or sector for financing, directly or indirectly, other units or sectors, or a net borrowing corresponding to the amount which a unit or sector is obliged to borrow from other units or sectors.Change in net worth due to saving and capital transfers account (III.1.1)8.48. This account makes it possible to determine the change in net worth due to saving and capital transfers, which corresponds to net saving plus capital transfers receivable, minus capital transfers payable.Acquisitions of non-financial assets account (III.1.2)8.49. This account records acquisitions less disposals of non-financial assets in order to return from the concept of change in net worth due to saving and capital transfers to net lending or borrowing.Financial account (III.2)8.50. The financial account records, by type of financial instrument, the changes in the financial assets and liabilities that compose net lending or borrowing.8.51. The classification of assets and liabilities used in the financial account is identical to that used in the balance sheets.Other changes in assets account (III.3)8.52. The other changes in assets account records changes in assets and liabilities of units, other than in connection with saving and voluntary transfers of wealth, these being recorded in the capital and financial accounts. It is divided into two: the other changes in volume of assets account (III.3.1) and the revaluation account (III.3.2).>TABLE>>TABLE>>TABLE>>TABLE>Other changes in volume of assets account (III.3.1)8.53. The movements recorded in the other changes in volume of assets account affect the net worth of the balance sheets of the units, sectors and subsectors concerned. This change, called change in net worth due to other volume changes of assets, is the balancing item in the account.Revaluation account (III.3.2)8.54. The revaluation account records changes in the value of assets and liabilities due to changes in their prices.For a given asset or liability, this change is measured as:(a) either the difference between its value at the end of the accounting period and its value at the start of the accounting period or the date on which it was first entered in the balance sheet;(b) or the difference between its value at the date on which it was written out of the balance sheet and its value at the start of the accounting period or the date on which it was first entered in the balance sheet.This difference is called 'nominal holding gain (or loss)`.A nominal holding gain corresponds to the positive revaluation of an asset or the negative revaluation of a (financial) liability.A nominal holding loss corresponds to the negative revaluation of an asset or the positive revaluation of a (financial) liability.8.55. The flows recorded in the revaluation account change the net worth of the balance sheets of the units concerned. This change, called 'change in net worth due to nominal holding gains and losses`, is the balancing item in the account. It is recorded on the changes in liabilities and net worth side.8.56. The revaluation account is broken down into two sub-accounts: the neutral holding gains and losses account (III.3.2.1) and the real holding gains and losses account (III.3.2.2).Neutral holding gains and losses account (III.3.2.1)8.57. The neutral holding gains and losses account records changes in the value of assets and liabilities in proportion to changes in the general price level. Such changes correspond to the revaluation necessary to maintain the general purchasing power of assets and liabilities. The general index price to be applied for this calculation is the price index for final national uses, excluding changes in inventories.Real holding gains and losses account (III.3.2.2)8.58. Real holding gains and losses measure the difference between nominal holding gains and losses and neutral holding gains and losses.8.59. If the nominal holding gains net of the nominal holding losses on a given asset exceed the neutral holding gains net of the neutral holding losses, there is a real holding gain on the asset for the unit holding it. This gain reflects the fact that the actual price of the asset has, on average, risen faster than the general price level. Conversely, a drop in the relative price of the asset produces a real holding loss for the unit holding it.By the same token, a rise in the relative price of a liability produces a real holding loss on liabilities, while a drop in the relative price of a liability generates a real holding gain on liabilities.>TABLE>>TABLE>BALANCE SHEETS (IV) (89)8.60. The aim of the balance sheets is to give a picture of the assets, liabilities and net worth of units at the start and end of the accounting period and of changes between balance sheets. The sequence is as follows:(a) opening balance sheet (IV.1);(b) changes in balance sheet (IV.2);(c) closing balance sheet (IV.3).Opening balance sheet (IV.1)8.61. The opening balance sheet records the value of assets and liabilities held by units at the start of the accounting period.These items are categorized on the basis of the classification of assets and liabilities.They are valued at prices current at the start of the accounting period.The difference between assets and liabilities - the balancing item in the account - is the net worth at the start of the accounting period.Changes in balance sheet (IV.2)8.62. The changes in balance sheet account records changes in the value of assets and liabilities in the course of the accounting period and aggregates the amounts recorded in the various accumulation accounts, i. e. change in net worth due to saving and capital transfers, change in net worth due to other volume changes in assets and change in net worth due to nominal holding gains and losses.Closing balance sheet (IV.3)8.63. The closing balance sheet records the value of assets and liabilities held by units at the end of the accounting period. These items are categorised on the basis of the same classification used in the opening balance sheet and are valued at prices current at the end of the period.The difference between assets and liabilities is the net worth at the end of the accounting period.8.64. The value of an asset or liability in the closing balance sheets is equal to the sum of its value in the opening balance sheets and the amount recorded for the said item in the changes in balance sheet account.REST OF THE WORLD ACCOUNTS (V)8.65. The Rest of the World accounts record transactions between resident and non-resident units. The rest of the world does not constitute an institutional sector as such, but in the structure of the system it plays a similar role.8.66. The sequence of Rest of the World accounts follows the same general pattern as the institutional sector accounts, i. e.:(a) current accounts,(b) accumulation accounts,(c) balance sheets.8.67. These accounts are drawn up from the point of view of the rest of the world. Thus, what is a resource for the rest of the world is a use for the total economy and vice versa. By the same token, a financial asset held by the rest of the world is a liability for the total economy and vice versa (except monetary gold and special drawing rights). >TABLE>CURRENT ACCOUNTSExternal account of goods and services (V.I)8.68. Imports of goods and services are recorded on the resources side of the account and exports of goods and services on the uses side. The difference between resources and uses is the balancing item in the account, called 'external balance of goods and services`. If it is positive, there is a surplus for the rest of the world and a deficit for the total economy and vice versa if it is negative.8.69. In order to be consistent with measures of the output of resident units, imports are valued at an equivalent of the basic price, i. e. net of import taxes but including import subsidies.Imports of goods recorded in the external account of goods and services are valued fob, i. e. at the border of the country of export. Exports of goods are also valued fob.When transport and insurance services included in the fob value of imports of goods (i. e. between the factory and the border of the country of export) are provided by resident units, they must be included in the value of exports of services by the economy importing the goods. Conversely, when transport and insurance services included in the fob value of exports of goods are provided by non-resident units they must be included in the value of imports of services by the economy exporting the goods.External account of primary incomes and current transfers (V.II)8.70. The purpose of the external account of primary incomes and current transfers is to determine the current external balance, which, in the structure of the system, corresponds to saving by the institutional sectors. This account is a condensed version of the sequence, for an institutional sector, extending from the allocation of primary income account to the use of income account.8.71. On the resources side, the external account of primary incomes and current transfers shows the external balance of goods and services. It also records, on the resources or uses side, all distributive transactions which may involve the rest of the world, apart from capital transfers.EXTERNAL ACCUMULATION ACCOUNTS (V.III)Capital account (V.III.1)8.72. The Rest of the World capital account records acquisitions less disposals of non-produced non-financial assets by non-resident units and measures the changes in net worth due to saving and capital transfers.8.73. The balancing item of the capital account is the net lending or borrowing of the rest of the world. It is equal, but has the opposite sign, to the sum of the net lending or borrowing of the resident institutional sectors.Financial account (V.III.2)8.74. The layout of the Rest of the World financial account is identical to that of the institutional sectors' financial account.Other changes in assets account (V.III.3)8.75. As for the institutional sectors, the changes in net worth due to other changes in volume of assets and due to nominal holding gains and losses are determined successively, holding gains and losses themselves being broken down into neutral and real holding gains and losses.8.76. The absence of produced assets in the accumulation accounts and balance sheets of the rest of the world is due to the convention whereby a notional institutional unit is created, the rest of the world being deemed to have acquired a financial asset - and vice versa for assets held in other economies by resident units.BALANCE SHEETS (V.IV)8.77. The balance sheets of the rest of the world contain financial assets and liabilities. On the assets side, they record the total acquisitions less disposals between non-resident and resident units of monetary gold and SDRs.Table 8.16 - Full sequence of accounts for the rest of the world (external transactions account) >TABLE POSITION>>TABLE>>TABLE>>TABLE>>TABLE>>TABLE>>TABLE>>TABLE>>TABLE>>TABLE>>TABLE>>TABLE>GOODS AND SERVICES ACCOUNT (0)8.78. The purpose of the goods and services account is to show, by product group and for the total economy, how the products available are used.8.79. It therefore shows, by product group and for the total economy, the resources (output and imports) and the uses of goods and services (intermediate consumption, final consumption, gross fixed capital formation, changes in inventories, acquisitions less disposals of valuables, exports).8.80. Given the way in which output is valued at basic prices and uses at purchaser's prices, taxes less subsidies on products must be included in the resources section.8.81. Uses are recorded on the right-hand side of the goods and services account and resources on the left, i.e. on the opposite side from that used in the current accounts for the institutional sectors, since the product flows are the counterparts of the monetary flows.8.82. The goods and services account is by definition in balance and therefore has no balancing item.>TABLE>INTEGRATED ECONOMIC ACCOUNTS8.83. The integrated economic accounts give a concise overview of the accounts of an economy: current accounts, accumulation accounts and balance sheets.They bring together in the same table the accounts of all the institutional sectors, the total economy and the rest of the world, and balance all the flows and all the assets and liabilities. They also enable the aggregates to be read off directly.8.84. In the table of integrated economic accounts, uses, assets and changes in assets are recorded on the left-hand side, while resources, liabilities, changes in liabilities and net worth are recorded on the right-hand side.8.85. To make the table readable while giving a picture of the whole economic process, the levels of aggregation used are the highest compatible with an understanding of the structure of the system.8.86. The columns in the table represent the institutional sectors, namely: non-financial corporations, financial corporations, general government, non-profit institutions serving households, and households. There are also a column for the total economy, a column for the rest of the world, and a column which balances uses and resources of goods and services.8.87. The rows in the table represent the various categories of transactions, assets and liabilities, balancing items and certain aggregates.>TABLE>AGGREGATES8.88. The aggregates are summary indicators of the result of the activity of the total economy and key magnitudes for purposes of macro-economic analysis and comparisons over time and space.GROSS DOMESTIC PRODUCT AT MARKET PRICES (GDP)8.89. Gross domestic product at market prices is the final result of the production activity of resident producer units. It can be defined in three ways:(a) GDP is the sum of gross value added of the various institutional sectors or the various industries plus taxes and less subsidies on products (which are not allocated to sectors and industries). It is also the balancing item in the total economy production account.(b) GDP is the sum of final uses of goods and services by resident institutional units (actual final consumption and gross capital formation), plus exports and minus imports of goods and services.(c) GDP is the sum of uses in the total economy generation of income account (compensation of employees, taxes on production and imports less subsidies, gross operating surplus and mixed income of the total economy).8.90. By deducting consumption of fixed capital from GDP, we obtain net domestic product at market prices (NDP).OPERATING SURPLUS OF THE TOTAL ECONOMY8.91. The gross (or net) operating surplus of the total economy is the sum of the gross (or net) operating surpluses of the various industries or the various institutional sectors.MIXED INCOME OF THE TOTAL ECONOMY8.92. The gross (or net) mixed income of the total economy is identical with the gross (or net) mixed income of the household sector.ENTREPRENEURIAL INCOME OF THE TOTAL ECONOMY8.93. The gross (or net) entrepreneurial income of the total economy is the sum of the gross (or net) entrepreneurial incomes of the various sectors.NATIONAL INCOME (AT MARKET PRICES)8.94. Gross (or net) national income (at market prices) represents total primary income receivable by resident institutional units: compensation of employees, taxes on production and imports less subsidies, property income (receivable less payable), (gross or net) operating surplus and (gross or net) mixed income.Gross national income (at market prices) equals GDP minus primary income payable by resident units to non-resident units plus primary income receivable by resident units from the rest of the world.Gross national income (at market prices) is conceptually identical with gross national product (GNP) (at market prices), as hitherto understood in national accounts generally.However, the GNP was calculated differently in 1979 ESA (90).National income is not a production concept but an income concept, which is more significant if expressed in net terms, i. e. after deduction of the consumption of fixed capital.NATIONAL DISPOSABLE INCOME8.95. Gross (or net) national disposable income is the sum of the gross (or net) disposable incomes of the institutional sectors. Gross (or net) national disposable income equals gross (or net) national income (at market prices) minus current transfers (current taxes on income, wealth etc., social contributions, social benefits and other current transfers) payable to non-resident units, plus current transfers receivable by resident units from the rest of the world.SAVING8.96. This aggregate measures the portion of national disposable income that is not used for final consumption expenditure. Gross (or net) national saving is the sum of the gross (or net) savings of the various institutional sectors.CURRENT EXTERNAL BALANCE8.97 The balancing item in the external account of primary income and current transfers represents the surplus (if it is negative) or the deficit (if it is positive) of the total economy on its current transactions (trade in goods and services, primary incomes, current transfers) with the rest of the world.NET LENDING (+) OR BORROWING (-) OF THE TOTAL ECONOMY8.98. The net lending (+) or borrowing (-) of the total economy is the sum of the net lending or borrowing of the institutional sectors. It represents the net resources that the total economy makes available to the rest of the world (if it is positive) or receives from the rest of the world (if it is negative). The net lending (+) or borrowing (-) of the total economy is equal but of opposite sign to the net borrowing (-) or lending (+) of the rest of the world.NET WORTH OF THE TOTAL ECONOMY8.99. The net worth of the total economy is the sum of the net worth of the institutional sectors. It represents the value of the non-financial assets of the total economy minus the balance of financial assets and liabilities of the rest of the world.MATRIX PRESENTATION8.100. Previous parts of this chapter have presented a sequence of (T-)accounts. At the same time, the concepts and definitions of the system allow other methods of presentation. These serve to provide additional insights and to enable different types of analysis.8.101. The input-output table is a widely used matrix framework to supply detailed and coherently arranged information on the flow of goods and services and on the structure of production costs. This matrix contains more information than (T-)accounts for goods and services, production and the generation of income; for example, final consumption expenditure is shown by product group or industry of origin and intermediate consumption is shown both by product group or industry of origin and by product group or industry of destination. Disaggregated linkages between these accounts are further developed in the ESA's supply and use tables, through a specification of output of product groups by industry.8.102. The rest of this section will demonstrate, first, that the full sequence of accounts and balancing items can also be presented in a matrix format. In this table, all transactions are presented for the total economy and for the rest of the world, respectively. In addition, an aggregate goods and services account is included.8.103. Next, the general purposes that can be served by an accounting matrix will be discussed. A crucial feature is the wide range of possibilities for expanding or condensing such a matrix in accordance with specific circumstances and needs. Finally, it will be illustrated how this works out in practice. In particular, the linkages between the supply and use tables and the sectoral accounts will be elaborated through the insertion of labour accounts, to arrive at a Social Accounting Matrix (SAM) framework. A SAM serves, among other things, to enable a more integrated analysis of economic and social policy issues, including unemployment.MATRIX PRESENTATION OF ESA ACCOUNTS8.104. Table 8.19 presents the full sequence of accounts and balancing items in a matrix. For this purpose, the accounts for the primary distribution of income, for use of income and for other changes in assets have not been subdivided. Besides, the option is left open whether or not to combine the account for the redistribution of income in kind with the secondary distribution of income. Finally, an account that records net worth has been inserted.8.105. The figures which are presented in the tables of this section correspond exactly to the numerical example worked out in the preceding part of this chapter. In all matrices, the boxes containing a balancing item have been framed with bold lines.8.106. A matrix presentation permits each transaction to be represented by a single entry and the nature of the transaction to be inferred from its position. Each account is represented by a row and column pair and the convention is followed that resources are shown in the rows and uses are shown in the columns. For instance, net domestic product (1602) is payable by the economy's producers and received on the primary distribution of income account. Table 8.19 shows this in cell (3,2), that is, in row 3 and column 2. Since this table distinguishes transactions with the rest of the world in a separate account, its diagonal items, that is cells (3,3), (4,4), (5,5), (6,6), (7,7) and (8,8), contain only transactions among resident institutional units.8.107. The row and column totals have not been named. Their main function in matrix accounting is to ensure that all accounts indeed represent complete balances, in the sense that total incomings (row sums) equal total outgoings (column sums). In turn, meaningful balancing items, which connect successive accounts, can only be derived if this condition is fulfilled.8.108. Row 1 shows the uses of goods and services, at purchaser's prices: intermediate consumption (1904) in column 2, final consumption (1371) in column 5, gross capital formation (414) in column 7 and exports (536) in column 14.8.109. The elements in row 1 add up to total use of goods and services, at purchaser's prices (4225). Column 1 presents the supply of goods and services (also totalling 4225, of course). Output (at basic prices) plus taxes less subsidies on products (3728) is shown at the intersection with row 2. Imports (497) originate from the external account of goods and services (row 14).8.110. Row 2 shows output (at basic prices) plus taxes less subsidies on products. Because of this valuation, the sum of row 2 (3728), and the concomitant sum of column 2, are inclusive of taxes less subsidies on products. This ensures that these taxes are incorporated in the balancing item of account 2, net domestic product (NDP), see cell (3,2). Most balancing items can be calculated gross or net. In this matrix, all balancing items are shown net. Consumption of fixed capital (222) is put directly on the capital subaccount for the acquisition of non-financial assets (row 7 and column 2).8.111. Row 3 shows the receipts of primary income by the total economy: net domestic product in cell (3,2), property income from other resident sectors (341) on the diagonal, and primary income flows from the rest of the world (72) in cell (3,15). As this matrix does not subdivide the account for primary distribution of income, it does not break down value added payable by producers into various categories of value added, as recorded in the generation of income account.8.112. Apart from the diagonal item, column 3 contains primary income payable to the rest of the world (41) in cell (15,3) and the balancing item, net national income (1633), that connects this account and the next one.8.113. This matrix leaves open the option whether or not to combine the account for the redistribution of income in kind with the secondary distribution of income. If redistribution of income in kind is not shown, then the diagonal contains current transfers, excluding social transfers in kind, between resident sectors (1096). These transfers consist of current taxes on income, wealth, etc., social contributions and benefits other than social transfers in kind, and other current transfers. If redistribution of income in kind is incorporated, then the diagonal of account 4 also records social transfers in kind; aggregated with the other current transfer flows, this equals 1315. In both cases, row 4 opens with net national income, while current transfers from the rest of the world (10) are recorded in cell (4,15). Column 4 shows, in addition to the diagonal item, current transfers to the rest of the world (39), in cell (15,4), while the balancing item, (adjusted) net disposable income (1604), is put on the use of (adjusted) disposable income account.8.114. If redistribution of income in kind is incorporated, then account 5 is the use of adjusted disposable income account. Otherwise, this account is the use of disposable income account. At the aggregate level, this is only a matter of terminology, for total disposable income equals total adjusted disposable income and total final consumption expenditure equals total actual final consumption. Apart from disposable income, the row of this account records an adjustment for changes in net equity of households on resident pension funds (11) on the diagonal and an adjustment for changes in net equity of households on non-resident pension funds (0) in column 15. The column contains, in addition to final consumption (1371) and the diagonal item, an adjustment for changes in net equity of non-resident households on resident pension funds (0), see cell (15,5), and the balancing item, net saving (233), which is put on the first capital subaccount (account 6).8.115. For the capital account, two subaccounts have been distinguished. First, in the row of the account for change in net worth due to saving and capital transfers, net saving is augmented with capital transfers receivable from resident sectors (61), see cell (6,6), and from abroad (1), see cell (6,16).In the column of this account, capital transfers payable are shown, to resident sectors and to abroad (4), see cell (16,6). This yields a balancing item, change in net worth due to saving and capital transfers (230), that is transferred to the changes in balance sheet account (account 11).8.116. Next, the row of the account for acquisition of non-financial assets presents consumption of fixed capital (cell 7,2), the acquisitions less disposals of non-produced non-financial assets by resident units (0), see cell (7,7), and by non-resident units (0), see cell (7,17) and the changes in assets due to saving and capital transfers (833), see cell (7,12). This yields the total sum that is available to residents for the acquisition of assets. That acquisition is shown in two stages: first the acquisition of non-financial assets, in the column of this account, and then the acquisition of financial assets (including external financial assets), in the column of the next account. The column of this account, account 7, thus contains gross capital formation (cell 1,7), the diagonal item (7,7) discussed above, the changes in liabilities due to saving and capital transfers (603), see cell (12,7), and a balancing item, net lending of the total economy (38), that is put on the next account, for financial transactions.8.117. Account 8, the financial account, opens with net lending of the total economy (cell 8,7) and adds financial transactions between resident sectors (553) on the diagonal and also the net incurrence of external liabilities (50), see cell (8,18). The column contains the diagonal item and the net acquisition of external financial assets (88) in cell (18,8). Of course, the net incurrence of external liabilities plus net lending of the total economy equals the net acquisition of external financial assets, so that in this account too the balance between row and column totals is maintained.8.118. The account for other changes in assets, account 9, records in the row the changes in assets due to other changes (379), see cell (9,12), and in the column the changes in liabilities due to other changes (74), see cell (12,9), and the balancing item, changes in net worth due to other changes (305), see cell (11,9).8.119. The last four accounts for the total economy refer to the balance sheets and the changes therein. First, the opening balance sheet gives in the row the opening stock of assets (16714), see cell (10,12), and in the column the opening stock of liabilities (6298), see cell (12,10), and the opening net worth (10416), see cell (13,10). Next, the account for changes in balance sheet records both components of these changes in the row, see cells (11,6) and (11,9), and the total changes in net worth (535) in the column, see cell (13,11). Then, the closing balance sheet presents in the row the opening stock of liabilities (cell 12,10), both components of changes in liabilities (cells 12,7 and 12,9), and the closing net worth (10951), see cell (12,13). Of course, the sum of these elements equals the closing stock of assets, which is also computed in the column of this account: the opening stock of assets (cell 10,12) plus both components of changes in assets, see cells (7,12) and (9,12). Finally, the extra account for net worth gives opening net worth (cell 13,10) and total changes in net worth (cell 13,11) in the row and closing net worth in the column (cell 12,13).8.120. For the rest of the world, the same accounts have been included as for the total economy, albeit in a slightly more aggregate form. First, the external account of goods and services presents in the row imports by the total economy (cell 14,1) and in the column exports (cell 1,14) and the balancing item (cell 15,14), the external balance of goods and services (-39). Note that all balancing items of accounts for the rest of the world are viewed from the perspective of the rest of the world. In order to obtain the relevant aggregates for the total economy, the sign must therefore be reversed.8.121. Secondly, the external account of primary incomes and current transfers records the balancing item of the previous account, and also primary income, current transfers and adjustment for the change in net equity of households on pension funds, to and from the rest of the world, respectively. These items have already been discussed above. All this yields the current external balance (-41), shown in cell (16,15).8.122. Thirdly, the capital account for the rest of the world has also been split into two sub-accounts: one for the current external balance, capital transfers to and from the rest of the world and the balancing item, changes in the net external financial position due to the current external balance and capital transfers (-38), see cell (21,16); another one for changes in assets due to the current external balance and capital transfers (50), see cell (17,22), acquisitions less disposals of non-produced non-financial assets by non-resident units, see cell (7,17), changes in liabilities due to the current external balance and capital transfers (88), see cell (22,17), and the balancing item net lending of the rest of the world (-38), transferred to the next account.8.123. Fourthly, the financial account gives the net acquisition of external financial assets (cell 18,8) and net lending of the rest of the world (cell 18,17) in the row, and the net incurrence of external liabilities (cell 8,18) in the column. Fifthly, the account for other changes in assets presents in the row such changes of assets (7), see cell (19,22), and in the column such changes of liabilities (3), see cell (22,19), and also the balancing item, changes in the net external financial position due to other changes (4), see cell (21,19).8.124. Finally, the balance sheets for the rest of the world are analogous to those for the total economy. Elements not yet mentioned above are: the opening stock of external assets (573), see cell (20,22), the opening stock of external liabilities (297), see cell (22,20), the opening net external financial position of the rest of the world vis-à-vis the total economy (276), see cell (23,20), total changes in the net external financial position of the rest of the world (-34), see cell (23,21), and the closing financial position of the rest of the world vis-à-vis the total economy (242), see cell (22,23).8.125. As a next step, this reduced format matrix can be disaggregated to show the full sequence of accounts, including details for transactors and transaction categories. However, the full potential of matrix accounting can be realized if not all accounts are detailed in the same way, but instead for each account the most relevant classification is selected. This feature is dealt with at greater length in the next subsection.PROPERTIES OF ACCOUNTING MATRICES8.126. Each entry in an aggregate matrix such as table 8.19 can be considered as the grand total of a submatrix in which categories of transactors involved at either end of the set of transactions under consideration are presented. A very useful option in a matrix presentation of accounts is that different types of transactors and groupings thereof can be selected in each account, without giving up the coherence and the integration of the complete accounting system. This means that one may apply 'multiple actoring and multiple sectoring`, by choosing in each account a unit and a classification of units which are most relevant to the set of economic flows under consideration.8.127. In principle, each account can be broken down in two rather different ways: by subdividing the total economy into groups of units, or by assigning the categories of transactions shown in an account to various sub-accounts. For instance, a subdivision of the total economy in the first five accounts could run as follows:(a) distinguish products in the goods and services account and classify these by product groups;(b) distinguish local kind-of-activity units in the production account and classify these by industries;(c) distinguish institutional units in the accounts for the primary and secondary distribution of income and for the use of income and classify these by institutional (sub)sectors.8.128. these subdivisions have two major consequences. First, for all categories of transactions distinguished in a single cell of these accounts it becomes clear which group of paying units has exchanged what with which group of receiving units. Secondly, the interrelations among various economic flows are revealed through detailed cross-classifications. For instance, in the example given in the previous paragraph, a simple circular flow of income is presented, at a meso-level, through the following mappings:(a) sub-matrix (3,2) shows which institutional subsector receives primary income and disposable income from which institutional subsector (naturally, in the distribution of income accounts and in the use of income account different classifications can be applied, and then these sub-matrices are no longer diagonal);(b) sub-matrices (4,3) and (5,4) show which institutional subsector receives primary income and disposable income from which institutional subsector (naturally, in the distribution of income accounts and in the use of income account different classifications can be applied, and then these sub-matrices are no longer diagonal);(c) sub-matrix (1,5) shows which product group is consumed by which institutional subsectors; and(d) sub-matrix (2,1) shows which industry makes which product groups.8.129. When compiling such a matrix, it is convenient to start by designing an accounting structure which is relevant to the applications envisaged. Subsequently, in each account the most appropriate units and classifications of units are selected. However, in practice it will be an interactive process. Suppose, for instance, that there is a transaction category for which only total receipts and payments of transactors (the row and column totals of a sub-matrix) are known, and not who paid whom (the interior structure of the sub-matrix). This problem can be solved by the insertion of an undivided, dummy account.8.130. Among the general properties of a matrix presentation of accounts are the following:(a) a detailed matrix presentation is suitable for mathematical treatment using matrix algebra; this can also be of help when balancing the accounts;(b) a detailed matrix presents a simultaneous breakdown of interrelated transactions by paying and receiving units; as a consequence, it is an appropriate format to reveal, at a meso-level, interrelations among economic flows; this includes those flows which involve two different types of units (e. g. final consumption expenditure on various categories of goods and services by a number of household subsectors);(c) for a set of accounts giving a breakdown of transactions by paying and receiving units, a matrix presentation is more concise than other methods of presentation; the payment by one unit and the receipt by another unit involved in each transaction are represented by a single entry.8.131. An aggregate matrix for the total economy can serve as a reference table for subsequent, more detailed tables. As soon as the reader is then introduced to a detailed presentation of parts of the system (supply and use tables, sector accounts, etc.), the relation of the detailed submatrices to the aggregate matrix should be clear through a system of codes. The matrix format is particularly advantageous if it is not possible or desirable to show an equally detailed classification in all accounts of the system.8.132. The matrix presentation is a suitable tool for exploring the flexibility of the system. For instance, one may further elaborate on the interrelations between the social and economic aspects of the system to arrive at a Social Accounting Matrix. The SAM approach is set out and illustrated in the next subsection of this chapter.ADAPTATION OF THE REDUCED FORMAT MATRIX TO SPECIFIC TYPES OF ANALYSIS8.133. The supply and use tables opt for a classification of rows and columns which is most suitable to describe the economic processes under consideration, namely the processes of production and use of products. However, those matrices do not incorporate the interrelations between value added and final expenditure. By extending a supply and use table, or an input-output table, to show the entire circular flow of income at a meso-level, one captures an essential feature of a Social Accounting Matrix (SAM).8.134. A SAM is defined here as: The presentation of ESA-accounts in a matrix which elaborates on the linkages between a supply and use table and sector accounts. SAMs typically focus on the role of people in the economy, which may be reflected by, among other things, extra breakdown of the household sector and a disaggregated representation of labour markets (i. e. distinguishing various categories of employed persons).8.135. An important social concern is the level and composition of (un)employment. A SAM commonly provides additional information on this issue, via a subdivision of compensation of employees by type of person employed. This subdivision applies to both the use of labour by industry, as shown in the supply and use tables, and the supply of labour by socio-economic subgroup, as shown in the allocation of primary income account for households. It implies that the matrix presents not only the supply and use of various product groups, but also the supply and use of various categories of labour services.8.136. The classification of (self-)employed persons may be based on a combination of background and (main) job characteristics, such as sex, schooling, age and place of residence on the one hand, and occupation, type of job contract (full-time/part-time, permanent/temporary) and region and subsector of employment on the other hand. Another consideration should be that within-group variations in relative wage rate changes are smaller than between-group variations. A classification by industry of employment is less relevant, because this is already shown in the SAM by the cross-classification of value added.8.137. Both resident persons employed in non-resident enterprises and non-resident persons working for resident enterprises plus employees working temporarily abroad should be set apart. In this way, employment can be estimated by counting the number of (national) employed person units. Evidently, this includes the self-employed, for whose labour input an imputed remuneration may then be isolated from the rest of net mixed income in the SAM.8.138. In particular, comparing (1) labour incomes of all employed persons as shown in the SAM, (2) a decomposition of these incomes into hours worked and average wage rates per hour and (3) the potential supply of labour by Table 8.19 - Matrix presentation of the full sequence of accounts and balancing items for the total economy >REFERENCE TO A GRAPHIC> type of person and household group (expressed in 'full-time` equivalents) yields detailed information on the composition of unemployed and an aggregate indicator ('full-time equivalent unemployment`) which is consistent, both conceptually and numerically, with the other macro-economic indicators; these can also be derived from the SAM framework. Moreover, juxtaposing the head-count of the employed persons (excluding foreigners) and the potential labour force in this data set reveals unemployment as conventionally defined.8.139. At this stage, it is perhaps useful to work out an illustrative SAM. For this purpose, table 8.20 exemplifies the design of a SAM which records all transactions distinguished in the system (that is, all flows excluding 'other changes in assets`). The main novelty refers to a new meaning that is attached to the generation of income account, in order to facilitate a linkage of detailed labour market analyses and the national accounts. The aggregate SAM shown here is meant as a summary table, to which subsequent, more detailed tables can refer. Possible types of classification in each account are indicated in parentheses in the row and column headings.8.140. The sequence of accounts in this matrix is the same as in table 8.19. Turning that matrix into the aggregate SAM presented here implies:(a) deleting the other changes in assets account, the opening balance sheet, the changes in balance sheets account, the closing balance sheet and the net worth account, both for the total economy and for the rest of the world, and deleting the external financial account;(b) subdividing the primary distribution of income account and the second capital sub-account; and(c) combining both capital sub-accounts (excluding fixed capital formation) and combining the external account of goods and services and the external account of primary incomes and current transfers.8.141. The first two rows and columns of table 8.20 contain an aggregated version of the supply and use table, here explicitly linked up with the other accounts of the system. Note that rows and columns of the supply table (cell II,I) have been transposed.8.142. The third account records the generation of income and plays an important role. It is classified by primary input category: (1) compensation of various types of employees, (2) other taxes less subsidies on production, (3) net operating surplus and (4) net mixed income.8.143. Here, this account accommodates transactions between two different types of units. In particular, this refers to compensation of employees, which is recorded as a transaction (work in return for compensation) between an institutional unit (employer) and a person (employee). In this SAM, employed persons are considered as separate units who receive compensation of employees in the generation of income account aand distribute this income to their household in the allocation of primary income account. These units are subsequently classified into groups of (self-)employed persons. This representation serves to integrate labour market analyses and the national accounts.8.144. The (residual) mixed income and operating surplus remain with the producing unit, but the classification of producing units need not be the same as in the production account. In effect, some classification by institutional subsector is particularly relevant to operating surplus and mixed income. This implies a cross-classification of these value added components by industry and institutional subsector in the SAM.8.145. As the balancing item in cell (III,II) equals total domestic value added, the primary input categories encompass all persons employed in resident enterprises. In colum III, compensation of non-resident persons employed in resident enterprises is then handed over to the rest of the world. A meaningful, national balancing item is only obtained in account III if compensation of resident persons employed in non-resident enterprises is added first. This is done in row III and for this purpose a separate category, resident persons employed in non-resident enterprises, may be created. An additional advantage of inserting this category is that it facilitates the estimation of employment as conventionally defined.8.146. The result of all this is that the generation of income account is closed with a new balancing item (1 473), in between the total net value added and NNI. This balancing item, named total net generated income, at basic prices, gives total income earned by resident institutional units as a result of being engaged in production.8.147. The allocation of primary income account of a detailed SAM presents household labour income(s) as a contribution by one or more (self)-employed household members. Among other things, this will indicate to what extent each household group depends on multiple sources of (labour) income. Apart from this, the transaction categories in the distribution and use of income accounts are the same as in the previous table.8.148. In the design of this SAM, the capital and financial accounts have been interlaced, with the financial account classified not by institutional sector but by type of financial asset. As a consequence, a disaggregation of this SAM would show, by institutional subsector, both acquisitions less disposals of various types of financial assets, see cell (IX,VII), and incurrence less repayment of various types of liabilities, see cell (VII,IX). These two categories of transactions have been combined as far as the rest of the world is involved. This serves to include the balancing item net lending in table 8.20, though with a reverse sign when viewed from the standpoint of the national economy (cell IX,XI).8.149. A large part of total volume changes in net worth probably consists of increases in fixed assets. If one is particularly interested in the dynamics of an economy, it is important to show in which industries production capacity has been expanded. This is the aim of the fixed capital formation account (account VIII) inserted in this SAM. A more detailed table would then present:(a) who invests where in the rows of this account - cell (VIII,VII); and(b) where does one invest in what in the columns - cell (I,VII).In this case, the who refers to an institutional subsector, the where refers to an industry, and the what refers to a product group. Through this fixed capital formation account the SAM shows at a meso-level the linkages which exist between fixed capital formation by institutional sector, as presented in the capital account, and fixed capital formation by product group, as contained in the supply and use tables.8.150. Table 8.21 serves to illustrate what kind of information can be derived from a more detailed SAM. Its main purpose is to show:(a) the circular flow of income, including a subdivision of labour income by a few categories of employed persons; this enables a more detailed analysis of the linkage between value added of industries and primary income of household subgroups;(b) the interdependence between the distribution of income and the structure of production; among other things, this is related to diverging demand patterns of various household subgroups;(c) the subsectoral allocation of saving, including a subdivision of fixed capital formation by investing industry; this enables a more detailed analysis of the linkage between fixed capital formation of subsectors and fixed capital formation by product group.For purposes of presentation, the number of groups in each account is kept to a minimum. Obviously, a fully-fledged SAM should distinguish more categories per account.8.151. As a SAM integrates both income and expenditure flows and the supply and use tables at a meso-level, it may serve as a format for the estimation of a wide set of accounts. The SAM approach is particularly useful if one wants to reconcile detailed information on, for example, production and international trade with basic data from, for example, a labour force survey, a household budget survey and an investment survey for industries. In addition, casting accounts into a SAM framework implies that matrix algebra can be applied to balance them.8.152. Integration of more basic data entails the possibility of more policy issues being monitored, and analysed and interrelated. Above all, the linkage of employment and income distribution aspects to more macro-oriented objectives such as NDP growth, balance of payments equilibrium, stable price levels, etc. comes within reach with a SAM. In addition, the SAM provides a framework and consistent (base-year) data for economy-wide (general equilibrium) models with detailed classifications of actors, including industries, labour types and household subgroups.8.153. Table 8.22 shows part of the information contained in a fully-fledged SAM. It looks at total net value added, i.e. cell (3,2) of the aggregate table 8.20, through a magnifying glass. To facilitate cross-reference with the supply and use table, industries are only classified by NACE rev. 1 sections. Male and female labour incomes are broken down by category of occupation and place of residence of the employed person. Net operating surplus is shown according to the (sub)sector of the enterprise to which the establishment belongs, and net mixed income according to the location of the household enterprise. In this example, mixed income still includes an imputed remuneration for the labour of the self-employed. Obviously, the figures in this table add up to the concomitant totals shown in tables 8.20 and 8.21. For instance, total net value added appears in the bottom right-hand corner.8.154. The additional insights which can be obtained from such a table include the following:(a) the share of female labour income by industry and region;(b) the degree of concentration of female labour income in a certain occupational category, by industry and region;(c) the composition of labour income by occupation in each industry and region, for both sexes;(d) the regional split of mixed income by industry;(e) the weight of public enterprise and foreign-controlled corporations in the operating surplus of each industry.8.155. In this table, the detailed information on compensation of employees comes from labour statistics; its integration into a national accounts framework will improve the relevance as well as the reliability of both this source and the national accounts.Labour incomes as presented in this table can be decomposed into a volume and a price component by labour type and industry: full-time equivalent employment and (weighted, full-time equivalent) wage rates, respectively. Apart from that, a fully-fledged SAM also contains a table showing the allocation of these labour incomes and the concomitant employment to household groups. Similar transactions might be shown for imputed labour income of the self-employed.A data set which contains an estimate of imputed labour income of the self-employed person units as well as a split of all labour income into a volume and a price component yields detailed labour data which are quite useful for all kinds of analysis and which are directly linked to all important macro-economic aggregates, including employment (that is, the total number of employed person units) and full-time equivalent employment (that is, total labour input volume).>TABLE>Table 8.21 - Example of a more detailed social accounting matrix >REFERENCE TO A GRAPHIC> Table 8.22 - Example of a detailed submatrix: net value added (basic prices) >REFERENCE TO A GRAPHIC> CHAPTER 9 INPUT-OUTPUT FRAMEWORK 9.01. The input-output framework consists of three types of tables:(a) supply and use tables;(b) tables linking the supply and use tables to the sector accounts;(c) symmetric input-output tables.9.02. Supply and use tables are matrices by industry and product describing the domestic production processes and the transactions in products of the national economy in great detail. These tables show:(a) the structure of the costs of production and the income generated in the production process;(b) the flows of goods and services produced within the national economy;(c) the flows of goods and services with the rest of the world.9.03. A supply table shows the supply of goods and services by product and by type of supplier, distinguishing output by domestic industries and imports. A simplified example of a supply table is given in table 9.1.Table 9.1 - A simplified supply table >START OF GRAPHIC>SuppliesIndustriesRest of the WorldTotal(1)(2)(3)Products(1)Output by product and by industryImports by productTotal supply by productTotal(2)Total output by industryTotal importsTotal supply>END OF GRAPHIC>9.04. A use table shows the use of goods and services by product and by type of use, i.e. as intermediate consumption (by industry), final consumption, gross capital formation or exports. Furthermore, the table shows the components of gross value added, i.e. compensation of employees, other taxes less subsidies on production, net mixed income, net operating surplus and consumption of fixed capital. A simplified example of a use table is given in table 9.2.Table 9.2 - A simplified use table >START OF GRAPHIC>UsesIndustriesROWFinal consumptionGross capital formationTotal(1)(2)(3)(4)(5)Products(1)Intermediate consumption by product and by industryExportsFinal consumption expenditureGross capital formationTotal use by productComponents of value added(2)Value added by component and by industryTotal(3)Total inputs by industry>END OF GRAPHIC>9.05. Between the supply and use tables, two types of identities hold good (provided supplies and uses are valued consistently, see tables 9.5 and 9.6):(a) the identity by industry: Output by industry = Input by industry. In terms of our simplified supply and use table, this indicates that the row vector in cell (2,1) in table 9.1 should be equal to that in cell (3,1) in table 9.2.So, for each industry:Output = Intermediate consumption + Value added;(b) the identity by product: Total supply by product = Total use by product.In terms of our simplified tables, the column vector in cell (1,3) of table 9.1 should be equal to the column vector in cell (1,5) of table 9.2.So, for each product:Output + Imports = Intermediate consumption + Exports + Final consumption expenditure + Gross capital formation.These identities by industry and product can be used to check and improve the consistency and completeness of estimates (see paragraph 9.11).9.06. Supply and use tables are the central framework for all tables by industry, e.g. those on employment, gross fixed capital formation and capital stock.9.07. The supply and use tables contain all the flows in the following accounts:(a) the goods and services account;(b) the production account;(c) the generation of income account.9.08. A supply table and a use table can also be combined and presented as a single table. This can be achieved by adding two rows and a column to the table, for output and imports (see table 9.3). Note that the rows and columns from the supply table presented in paragraph 9.03 have been transposed here.Table 9.3 - A simplified combined supply and use table >START OF GRAPHIC>ProductsIndustriesROWFinal consumptionGross capital formationTotal(1)(2)(3)(4)(5)(6)Products(1)-Intermediate consumptionExportsFinal consumption expenditureGross capital formationTotal use by productIndustries(2)Output----Total output by industryComponents of value added(3)-Value addedROW(4)Imports-Total(5)Total supply by productTotal inputs by industry>END OF GRAPHIC>9.09. A symmetric input-output table is a product by product or industry by industry matrix describing the domestic production processes and the transactions in products of the national economy in great detail. A symmetric input-output table rearranges both supply and use in a single table. There is one major conceptual difference between a symmetric input-output table and a combined supply and use table: in the supply and use table, the statistics relate products to industries, while in the symmetric input-output table the statistics relate products to products or industries to industries. So, in a symmetric input-output table either a product or an industry classification is employed for both rows and columns (see table 9.4).Table 9.4 - A simplified symmetric input-output table (product by product) >START OF GRAPHIC>ProductsROWFinal consumption expenditureGross capital formationTotal(1)(2)(3)(4)(5)Products(1)Intermediate consumptionExportsFinal consumption expenditureGross capital formationTotal use by productComponents of value added(2)Value added----ROW(3)Imports----Total(3)Total supply by product---Total supply = Total use>END OF GRAPHIC>9.10. Most statistical information that can be obtained from producer units indicates what type of products they have produced/sold and, usually less detailed, what type of products they have bought/used. The format of the supply and use tables is designed to fit in with this type of statistical information (i.e. industry by product). By contrast, information of a product by product or industry by industry nature as required by the symmetric input-output table is not often available. For example, surveys of industries usually provide information about the type of products used and about the products produced. However, information on the inputs in terms of products and value added components for each product produced is usually not collectable. Ideally, the administration of an enterprise should show all costs allocated to the various types of output and, simultaneously, show the composition of intermediate consumption by type of product. In practice, information arranged in the form of supply and use tables is therefore a practical starting point for constructing the more analytic information in the symmetric input-output tables. The industry by product information in the supply and use tables can be converted into product by product or industry by industry statistics by adding extra statistical information on the input structures, or by assuming constant input structures by product or by industry (see paragraphs 9.54-9.60).9.11. The supply and use tables serve both statistical and analytical purposes.Important statistical purposes are:(a) identifying gaps and inconsistencies in basic data sources;(b) weighting and calculation of index numbers and price and volume measures;(c) making estimates by residual (estimating a variable by first estimating all other variables in the identity), e.g. for the production or final consumption of specific products;(d) checking and improving the consistency, plausibility and completeness of figures in the supply and use tables and the derived figures (such as those in the production accounts). To this end, the balancing process should not be limited to the supply and use tables at current prices:1. by compiling supply and use tables at current and constant prices for two or more years, estimates of changes in volumes, values and prices can be balanced simultaneously: compared to integrating supply and use tables for a single year in isolation, this is a major extension of the effectiveness of the integration framework;2. with the aid of the tables showing the linkage with the sector accounts, a direct comparison can be made with information from the latter, e.g. information on the distribution of income, on saving and on net lending (calculated as the result of financial transactions). This at least guarantees that, after the balancing process, consistency is obtained between the supply and use tables and the sector accounts;3. trying to derive symmetric input-output tables from the supply and use tables may reveal inconsistencies and weaknesses in the supply and use tables. In this respect, there is therefore also a feedback from the symmetric input-output tables to the supply and use tables;(e) estimating figures for periods on which less reliable information is available, e.g. estimating annual figures on the basis of the detailed supply and use figures for a benchmark year or estimating quarterly figures on the basis of annual supply and use tables.9.12. The supply and use tables and symmetric input-output tables give a detailed picture of the composition of the supply and use of goods, services and labour and the primary incomes involved. These tables and the ratios that can be derived from them, such as productivity figures, are an important subject for economic analysis.9.13. The supply and use tables and symmetric input-output tables can also be used as tools of economic analysis. Both types of tables have different merits. For calculating direct and indirect effects, the supply and use tables need to be accommodated with specific assumptions or extra statistical information. For calculating cumulative effects, these assumptions and extra data requirements are the strongest. In fact, the requirements for calculating cumulative effects with a supply and use table amount to constructing a symmetric input-output table. Therefore, for calculating cumulative effects, the symmetric input-output table is the preferable tool. However, for calculating direct effects and first-order effects, the supply and use tables adjusted with a selected amount of assumptions (or extra statistical information) is in general to be preferred, because:(a) the calculation is less dependent on assumptions;(b) the supply and use table provides more detail than the symmetric input-output table;(c) the information in the supply and use table can be better linked to other types of statistical data.These features are also helpful when the supply and use tables are integrated in a macro-economic model: the resulting overall model is closer to real statistics, can show a lot of detail and can relatively easily be linked to areas on which other statistical data are available, e.g. on the labour market or the environment.9.14. The supply and use tables and symmetric input-output tables can be used to calculate:(a) effects of changes in prices or tax rates on the values of supply or use;(b) effects of changes in volumes on the values of supply or use;(c) effects of changes in prices of supply on prices of use;(d) effects of changes in the volume of use on the volume of supply;(e) effects of changes in the volume of supply on the volume of use.The calculations can show indirect as well as direct effects. For example, a significant increase in energy prices will affect not only those industries that use energy intensively, but also those industries that use the outputs of the energy-intensive producers. With the aid of some assumptions, estimates of the size of such indirect effects can be deduced from the supply and use and symmetric input-output tables. Examples of common assumptions are:(a) a constant input structure in terms of values;(b) a constant composition of the value of output by industry and by product;(c) a constant composition of the value of final consumption expenditure of households by product.These assumptions are rather rigid as they imply that relative prices do not change, that the production processes remain technically the same and that no substitution occurs between categories of final consumption expenditure by households. However, these general assumptions can be modified by allowing first for changes in relative prices, e.g. the Leontief-price model. This can then be extended with econometric or other estimates of the influence of relative prices and other variables on technical coefficients or final consumption expenditure by households.The calculations need to be confined to the supply and use of goods and services. They could also be applied to the supply and use of labour and the components of value added.9.15. The supply and use tables and the symmetric input-output table can be integrated into macro-economic models to provide the latter with a detailed meso-economic foundation. Specific types of analysis served by supply and use tables and the symmetric input-output table are, for example:(a) analysis of production, cost structures and productivity(b) analysis of prices;(c) analysis of employment;(d) analysis of the structure of capital formation, final consumption, exports, etc.;(e) analysis of the relationship between domestic production and the environment (e.g. focusing on the use of specific products like fuel, paper and glass);(f) analysis of imports of energy required;(g) impact analysis of new technologies;(h) sensitivity analysis of the effects of changes in tax rates and regulation.SUPPLY AND USE TABLES9.16. Tables 9.5 and 9.6 show the supply and use tables in more detail.9.17. The classification used for industries in the NACE rev. 1 and the classification employed for products is the CPA; these classifications are fully aligned to each other: at each level of aggregation, the CPA shows the principal products of the industries according to the NACE rev. 1.9.18. In the supply and use tables, the classification for products is at least as detailed as the classification for industries, e.g. the three digit-level of the CPA and the two digit-level of the NACE rev. 1.9.19. The distinction between market output, output for own final use and other non-market output is only to be used for the total output by industry; the distinction is not required for each product group.9.20. The distinction between market producers and producers for own final use on the one hand and other non-market producers on the other hand should only be used by industry when both types of producers are present within one industry. In general, this distinction will therefore only be used for subclassifying a very limited number of industries, e.g. health care and education (see paragraph 3.66.).9.21. Imports and exports should be subdivided into:(a) intra-European Union deliveries;(b) imports and exports with other countries.Table 9.5 - A supply table at basic prices, including a transformation into purchasers' prices >START OF GRAPHIC>Industries (NACE)1 2 3 4 . . . . . . nÓ (1)Imports cifTotal supply at basic pricesTrade and transport marginsTaxes less subsidies on productsTotal supply at purchasers' prices(1)(2)(3)(4)(5)(6)(7)1234...Products (CPA)(1)Output by product and by industry at basic prices...m(Adjustment items)Ó (1)(2)Total output by industry0Total of which:Market outputFor own final use(3)00Other non-market output00>END OF GRAPHIC>Table 9.6 - A use table at purchasers' prices >START OF GRAPHIC>Industries (NACE)1 2 3 . . . . . . nÓ (1)Final uses (a) (b) (c) (d) (e) (f)Ó (3)Ó (1) + Ó (3)(1)(2)(3)(4)(5)1234...Products (CPA)(1)Intermediate consumption at purchasers' prices by product and by industry..m(Adjustment items)Final uses at purchasers' prices/fob:Final consumption expenditure:(a) by households(b) by NPISH(c) by governmentGross capital formation:(d) gross fixed capital formation and valuables(e) changes in inventories(f) exports (fob)Ó (1)(2)Total intermediate consumption by industryTotal final uses by typeTotal useCompensation of employeesOther net taxes on productionComponents of value added by industryConsumption of fixed capital(3)Operating surplus, netÓ (3)(4)Value added by industryÓ (1) + Ó (3)(5)Output at basic prices by industrySupplementary information:Gross fixed capital formationStocks of fixed assets(6)Labour inputs>END OF GRAPHIC>9.22. In the supply table, flows of goods and services are valued at basic prices. In the use table, the flows of goods and services are valued at purchasers' prices. In order to attain identities between supply and use, table 9.5 also shows the transition of supply at basic prices to supply at purchasers' prices. As supply should be equal to use, the table reveals also the transition of uses at purchasers' prices to uses at basic prices. As a consequence, two identities can be derived from this transition:(a) supply at purchasers' prices is equal to use at purchasers' prices;(b) supply at basic prices is equal to use at basic prices.9.23. Value added is recorded at basic prices. It is the net result of output valued at basic prices less intermediate consumption valued at purchasers' prices.9.24. Value added at factor cost is not a concept in the ESA. Nevertheless, it could be derived from value added at basic prices by subtracting other taxes less subsidies on production.9.25. GDP is valued at market prices. This aggregate can be derived from the supply and use tables in three different ways:(a) the aggregate of output at basic prices by industry minus the aggregate of intermediate consumption at purchasers' prices by industry plus net taxes on products (the production approach); the intermediate consumption by industry includes the use of financial intermediation services indirectly measured that are recorded in a nominal industry (see paragraph 9.33);(b) the aggregates of the various components of value added at basic prices by industry minus the use of financial intermediation services indirectly measured (recorded in a nominal industry, see paragraph 9.33) plus the net taxes on products (the income approach);(c) the sum of final uses categories minus imports: exports - imports + final consumption expenditure + gross capital formation (all at purchasers' prices) (the expenditure approach).9.26. The use table 9.6 also contains some supplementary information: gross fixed capital formation, stocks of fixed asssets and labour inputs by industry. This information is crucial for productivity analysis and may also serve several other types of analyses, e.g. analysis of employment.9.27. In the ESA, the stocks of fixed assets are valued at the market prices prevailing on the data of the balance sheet. For fixed assets bought in earlier years, this implies that consumption of fixed capital of the foregoing years is to be deducted from the current market prices of new assets of the same type and quality. This net concept of fixed capital stock could be used in calculating capital intensity. However, for productivity analysis more often a specific gross concept of fixed capital stock is used. According to this gross concept all fixed assets should be valued at the current market prices of new assets of the same type and quality; no deduction should be made for capital consumption in the last and earlier years. This gross concept of fixed capital stock is not a standard concept in the ESA, but can easily be calculated with the aid of the Perpetual Inventory Method. Considering the great use of such gross figures, it is recommended that both gross and net figures on fixed capital stock be included as supplementary information.9.28. For productivity analysis, hours worked is the preferable labour input variable. In drawing inferences about employed persons, however, the number of jobs may also be relevant. Both variables can be subclassified, e.g. into the part pertaining to employees and to self-employed persons.9.29. For a proper compilation and understanding of the supply and use tables, it is important to recall some of the accounting conventions employed in the ESA:(a) the outputs of ancillary activities are not recorded separately; all the inputs consumed by an ancillary activity are treated as inputs into the principal or secondary activity which it supports. Ancillary activities may be, for example, marketing, accounting, storage and cleaning (see paragraphs 3.12 and 3.13);(b) goods or services produced and consumed within the same accounting period and within the same local KAU are not separately identified. They are therefore not recorded as part of the output or intermediate consumption of that local KAU. This may pertain for example to:1. seeds and plans for sowing and planting;2. hard coal consumed in the production of briquettes by coal mines;3. electrical energy consumed by power stations;(c) minor processing, maintenance, servicing or repair on behalf of other local KAUs is to be recorded net, i.e. excluding the value of the goods involved. By contrast, when the goods are subject to a substantial physical change, the transaction should be recorded gross, i.e. as the purchase and sale of the goods involved;(d) durable goods can be rented or be subject to operating leasing. In such instances, they are recorded as fixed capital formation and fixed capital stock in their owner's industry; in the industry of the user intermediate consumption by amount of the rent is recorded;(e) persons working via temporary agencies are recorded as being employed in the industry of these agencies and not the industries in which they are actually working. As a consequence, in the latter industries, the payments for these persons are recorded as intermediate consumption and not as compensation of employees. Labour contracted out is treated similarly;(f) employment and compensation of employees in the ESA are broad concepts:1. employment for social reasons is also counted as employment; this applies, for example, to work placements for disabled people, employment projects for people who have been unemployed for a long time and employment programmes for young people seeking jobs. As a consequence, the people involved are employees and receive compensation of employees (not social transfers), though their productivity may be (much) lower than that of the other employees;2. employment includes also some cases in which the persons involved are not expected to work at all, e.g. persons dismissed but receiving for some period payments from their former employer. However, labour input in terms of hours worked is not distorted by this convention, as no hours are actually worked.9.30. In the supply and use tables, two adjustment items should be introduced for reconciling the valuation of imports in the supply and use tables and in the sector accounts (see also tables 9.5 and 9.6).In the supply table, imports of goods are valued at cif values. This is an overstatement of the costs of imports when the transport and insurance services incorporated in the cif value are provided by residents (e.g. own-account transport or transport by specialized resident carriers). In order to obtain the right balance between imports and exports, exports of services should thus also be increased by amount of this overstatement of imports. In the sector accounts, imports of goods are valued at fob values. This is an overstatement of imports as in the case of cif valuation. However, in the case of fob valuation the overstatement is smaller, which implies that the imputed increase in exports is smaller too. The results of employing different valuation principles is thus that net total imports are the same, but that both total imports and total exports are larger for cif valuation. The two valuation principles can be reconciled in the supply and use tables by introducing adjustment items for imports as well as exports. The adjustment items should be equal to the value of the transport and insurance services by residents incorporated in the cif value but not in the fob value, i.e. referring to the transport and insurance from the border of the exporting country to the border of the importing country. These adjustment items, once incorporated in the supply and use tables, need no special treatment in the input-output calculations.9.31. The transfer of existing goods is recorded in the use table as a negative expenditure for the seller and a positive expenditure for the purchaser. For the product group involved, the transfer of an existing good amounts to a reclassification among uses. Only the transaction costs are not a reclassification: they are recorded as a use of business or professional services. For the purposes of description and analysis, it can be useful to show for some product groups the relative size of the transfer of existing goods separately, e.g. the importance of second-hand cars or the importance of recycled paper.9.32. Direct purchases abroad by residents and purchases on the domestic territory by non-residents are commonly estimated as a special exercise in the statistical compilation process. They are introduced as adjustments to initial estimates of imports, exports and, by amount of the consumption part of the purchases abroad, final consumption expenditure. In order to obtain a balance between supply and use by product, all these purchases should be split over the various product groups involved. For the product groups where these types of purchases are important, they could be shown as a subcategory, e.g. expenditure on accommodation.9.33. Throughout the supply and use tables, the NACE rev. 1 industry classification is extended with a nominal industry for the use of financial intermediation services indirectly measured. In the supply table, no transactions are recorded at all for this industry. In the use table, the total use of financial intermediation services indirectly measured is recorded as the intermediate consumption of this nominal industry. As this nominal industry does not have any other transactions, its net operating surplus is negative by the amount of its intermediate consumption; all other components of its value added are zero. As a consequence, its total gross value added is equal to its (negative) net operating surplus.9.34. The transition from supply and use at basic prices to purchasers' prices involves:(a) reallocating trade margins;(b) reallocating transport margins;(c) adding taxes on products (except deductible VAT);(d) deducting subsidies on products.The estimation of this transition is an important part of the balancing process. Separate tables can show the transition in more detail (see tables 9.7 and 9.8). These tables can also serve important analytical purposes, e.g. analysis of prices and analysis of the consequences of changes in the rates of taxes on products.9.35. In general, when preparing supply and use tables and making the proper balancing between the two sides, there is always a choice of emphasis between two opposite ways of adjusting statistical data:(a) supply of each product at basic prices could be adjusted to a purchasers' price valuation to allow balancing with uses at purchasers' prices;(b) each of the uses at purchasers' prices could be adjusted to a basic prices' valuation to match with supply at basic prices.9.36. In practice, both types of balances may be needed to build up a supply and use table. Both alternatives deal with or require similar kinds of adjustments, i.e. for taxes less subsidies on products and trade and transport margins by products. In fact, the first alternative is not possible without the second, since it is usually not possible to know the columns of taxes on products, subsidies on products and trade and transport margins broken down by products in the supply table unless the distribution among uses of the individual products is known from the use table at purchaser's prices (table 9.6).9.37. Thus, the following tables are involved in the balancing process:(a) the supply and use tables 9.5 and 9.6 showing the final results of balancing totals of supply and use by products at purchasers' prices and at basic prices;(b) the tables on trade and transport margins and on taxes less subsidies on products (tables 9.7 and 9.8).9.38. The transition of supply and use from basic prices to purchasers' prices (see paragraph 9.34) amounts to reallocating trade margins: valuation at basic prices implies that the trade margins are recorded as part of the product trade, while valuation at purchasers' prices implies that the trade margins are allocated to the products to which they pertain. An analogous situation holds for transport margins.9.39. The total of trade margins by product is equal to the total of trade margins by the trade industries plus the secondary trade margins by other industries. An analogous equation holds for the transport margins.Table 9.7 - A simple trade and transport margins table >START OF GRAPHIC>Industries (NACE)1 2 3 . . . . . . nÓ (1)Final uses (a) (b) (c) (d) (e) f)Ó (3)Ó (1) + Ó (3)(1)(2)(3)(4)(5)123...Products (CPA)(1)Trade and transport margins on intermediate consumption by product and by industry...mTrade and transport margins on final uses:Final consumption expenditure:(a) by households(b) by NPISH(c) by governmentGross capital formation:(d) gross fixed capital formation and valuables(e) changes in inventories(f) exportsÓ (1)(2)Trade and transport margins on intermediate consumption by industryTrade and transport margins on final uses by typeTotal trade and transport margins>END OF GRAPHIC>Table 9.8 - A simple taxes less subsidies on products table >START OF GRAPHIC>Industries (NACE)1 2 3 . . . . . . nÓ (1)Final uses (a) (b) (c) (d) (e) (f)Ó (3)Ó (1) + Ó (3)(1)(2)(3)(4)(5)123...Products (CPA)(1)Taxes less subsidies on products on intermediate consumption by product and by industry...mTaxes less subsidies on products for final uses:Final consumption expenditure:(a) by households(b) by NPISH(c) by governmentGross capital formation:(d) gross fixed capital formation and valuables(e) changes in inventories(f) exportsÓ (1)(2)Taxes less subsidies on products for intermediate consumption by industryTaxes less subsidies on products for final uses by typeTotal taxes less subsidies on products>END OF GRAPHIC>9.40. The transport margins include transportation costs paid separately by the purchasers and included in the use of products at purchasers' prices but not in the basic prices of a manufacturers' output or in the trade margins of wholesale or retail traders. Such transport margins include in particular:(a) transport of goods from the place where it is manufactured to the place where the purchaser takes delivery of it in case the manufacturer pays a third party for the transport, if this amount is invoiced separately to the purchaser;(b) transport of goods arranged by the manufacturer or by the wholesale or retail trader in such a way that the purchaser has to pay separately for the transport costs even when the transport is done by the manufacturer or the wholesale or retail trader himself.All other costs of transporting goods are not recorded as transport margins, e.g.:(a) if the manufacturer transports the goods himself, these transportation costs will be included in the basic prices of the manufacturer's output; this transport represents an ancillary activity and the individual costs of transport will be not identifiable as transportation costs;(b) if the manufacturer arranges for the goods to be transported without a separate invoice for the transport services, these transportation costs will be included in the basic prices of the manufacturer's output; these transportation costs will be identifiable as such and be recorded as part of the manufacturer's intermediate consumption;(c) if wholesale and retail traders arrange for goods to be moved from where they take delivery of them to where another purchaser takes delivery, these costs will be included in the trade margin if no separate charge is made for transportation to the purchaser. Again, as with manufacturers, these costs may represent ancillary activity of wholesale and retail traders or the purchasers of an intermediate service, thus entering trade margins but not transport margins;(d) if a household buys goods for final consumption purposes and arranges for transport by a third party, these transport costs are recorded as final consumption expenditure on transport services and not included in some trade or transport margin.9.41. Table 9.7 shows a somewhat simplified picture of a trade and transport margins matrix, because:(a) no explicit distinction is made between trade and transport margins. Both types of margins could be shown for each product group. Another solution is to have separate tables: one for trade margins and one for transport margins;(b) for trade margins, a distinction between wholesale trade and retail trade should be made in order to take account of the differences in their prices. In drawing up the tables, it should be realized that wholesale traders may also sell directly to households (e.g. furniture) and that retail traders may also sell to industries (e.g. to cafes and restaurants);(c) in calculating and analysing trade margins on products for final consumption expenditure by households, for each product group the most important distribution channels could also be distinguished in order to take account of the differences in their prices; the distinction between wholesale trade and retail trade is in fact too rough. For example, goods and services can be bought by households in the supermarket, the grocery, flower shop, department store, abroad or obtained as income in kind. Furthermore, for some products, secondary sales may be very important, e.g. in the case of cigarettes this can pertain to the sales by cafes, restaurants and petrol stations. Of course, such more refined distinctions can only be introduced if the available data sources provide sufficient information for at least rough estimates of the importance of each of the distribution channels;(d) in calculating transport margins, a distinction by type of transport (e.g. by rail, air, sea/inland waterway or road) could be very useful.9.42. Taxes on production and imports consist of:(a) taxes on products (D.21):1. value-added-type taxes (VAT) (D.211);2. taxes and duties on imports; except VAT (D.212);3. taxes on products, except VAT and import taxes (D.214);(b) other taxes on production (D.29).Similar categories are distinguished for subsidies on production and imports. Subsidies are treated as if they were negative taxes on production and imports.The definitions of all these categories are given in paragraphs 4.14 to 4.39.9.43. Supply at basic prices includes net other taxes on production, i.e. less other subsidies on production. In order to make the transition from basic prices to purchasers' prices (or vice versa; see paragraph 9.34), the various taxes on products should be added and the subsidies on products should be deducted (or vice versa).9.44. VAT may be deductible, non-deductible or just not applicable:(a) deductible VAT usually applies to most of intermediate consumption, most of gross fixed capital formation and part of changes in inventories;(b) non-deductible VAT often applies to final consumption expenditure, parts of gross fixed capital formation, part of changes in inventories and part of intermediate consumption;(c) VAT is in general not applicable for:1. exports (at least those to countries outside the European Union);2. any goods or services subject to a zero rate of VAT regardless of their use;3. any producers exempted from VAT registration, e.g. small business and religious organizations.9.45. VAT is recorded net in the ESA: all supplies are valued at basic prices, i.e. excluding invoiced VAT; intermediate and final uses are recorded at purchasers' prices, i.e. excluding deductible VAT.9.46. Table 9.8 on taxes less subsidies on products is simplified, because:(a) the different types of taxes on products are not distinguished and subsidies are not shown separately;(b) different tax rates and subsidies can apply to different distribution channels; the latter should therefore also be distinguished when relevant and sufficient information exists.9.47. Taxes and subsidies on products are the amounts due for payment only when evidenced by tax assessments, declarations, etc, or the amounts actually paid (see paragraph 4.27). Taxes (and subsidies) on products are usually estimated by product by applying the official tax (subsidy) rates to the various flows. Afterwards an analysis should be made of the differences with the tax assessments or the amounts actually paid.(a) Some of these differences indicate that the initial estimate of taxes on products does not comply to the ESA definitions:1. in case of exemption the initial estimate of taxes on products should therefore be lowered;2. in case of evasion of the payment of taxes on products (e.g. the payment of taxes is compulsory but there is no tax assessment), the estimate of taxes on products should therefore be lowered;3. in case of fines the estimate of taxes on products should be increased.Changes in the estimates of taxes on products have concomitant effects on variables estimated by adding up or deducting the estimates of taxes on products. For example, output at basic prices of a specific product group may be estimated by deducting inter alia taxes on products from the estimated use at purchasers's prices. However, an estimate of output at basic prices may also be combined with inter alia estimates of taxes on products to arrive at an estimate of uses at purchasers' prices.(b) Several other types of differences should not be accounted for in the supply and use table:1. differences in timing, e.g. payments may relate to tax assessments of several years;2. enterprises being unable to pay (bankruptcies): this should be recorded as an other change in the volume of financial assets and liabilities, i.e. not in the supply and use table.(c) In some instances, the differences may also indicate that the initial estimate for taxes and subsidies on products is subject to serious error, e.g. because the output of some product is underestimated. Then also modifications of the estimates of the flows of goods and services can be justified.In the transition from uses by product at purchasers' prices to basic prices, the modification of the initial estimate of taxes and subsidies on products may be shown as a separate item. However, for all input-output calculations it will be necessary to allocate this modification by product, even if this can only be based on a simple mathematical device, e.g. proportional allocation.9.48. The use table 9.6 does not show to what extent the goods and services used have been produced domestically or imported. This information is necessary for all analyses in which the link between supply and use of goods and services within the national economy plays a role. A case in point is the analysis of the impact of changes in exports or final consumption expenditure on imports, domestic production and related variables such as employment. In fact, it applies to most analyses indicated in paragraphs 9.14 and 9.15. The input-output framework therefore contains also a use table for imported products and one for domestically produced goods and services (see tables 9.9 and 9.10).9.49. The use table for imported products should be compiled by exploiting all information available on the uses of imports, e.g. for some products the major importing enterprises may be known and for some producers information on the amount of imports may exist. However, in general, direct statistical information on the use of imports in scarce. This information has therefore usually to be supplemented by assumptions by product group.9.50. The use table for goods and services produced domestically can then be obtained by deducting the use table for imported products from the general use table.Table 9.9 - A use table for imports >START OF GRAPHIC>Industries (NACE)1 2 3 . . . . . . nÓ (1)Final uses (a) (b) (c) (d) (e) (f)Ó (3)Ó (1) + Ó (3)(1)(2)(3)(4)(5)123...Products (CPA)(1)For imported products: Intermediate consumption at cif values by product and by industry..mFor imported products: Final uses at cif values:Final consumption expenditure:(a) by households(b) by NPISH(c) by governmentGross capital formation:(d) gross fixed capital formation and valuables(e) changes in inventories(f) exportsÓ (1)(2)Total intermediate consumption of imported products by industryTotal final uses of imported products by typeTotal imports>END OF GRAPHIC>Table 9.10 - A use table at basic prices for domestic output >START OF GRAPHIC>Industries (NACE)1 2 3 . . . . . . nÓ (1)Final uses (a) (b) (c) (d) (e) (f)Ó (3)Ó (1) + Ó (3)(1)(2)(3)(4)(5)123...Products (CPA)(1)For domestic output: Intermediate consumption at basic prices by product and by industry..mFor domestic output: Final uses at basic prices:Final consumption expenditure:(a) by households(b) by NPISH(c) by governmentGross capital formation:(d) gross fixed capital formation and valuables(e) changes in inventories(f) exportsÓ (1)(2)Total intermediate consumption of domestic output at basic prices by industryFinal use of domestic output at basic pricesTotal domestic outputUse of imported products(3)Total intermediate consumption of imported products by industryFinal use of imported products at basic pricesTotal importsNet taxes on products(4)Net taxes on products for intermediate consumption by industryNet taxes on products for final useTotal net taxes on productsÓ (1) + (3) + (4)(5)Total intermediate consumption at purchasers' prices by industryTotal final uses by typeTotal useCompensation of employees(6)Components of value added by industryOther net taxes on productionConsumption of fixed capitalOperating surplus, netÓ (6)(7)Value added by industryÓ (1) + (3) + (4) + Ó (6)(8)Output at basic prices by industryFixed capital formation(9)Fixed capital stockLabour inputs>END OF GRAPHIC>9.51. In order to serve more specific purposes, the supply and use tables presented above can be modified by introducing alternative and supplementary classifications. Important cases in point are:(a) more detailed product and industry classifications based on national classifications or to take account of specific purposes, e.g. for the analysis of the role of research and development in the national economy;(b) more detailed geographical breakdown of imports and exports, e.g. intra-European Union trade subclassified by country and extra-European Union trade subclassified by economic regions and some specific countries such as the United States and Japan;(c) classification of imports into:1. imports of products that are also domestically produced ('competitive imports`);2. imports of products that are not domestically produced ('complementary imports`).Both types of imports can be expected to have a different relationship with and importance for the national economy. Competitive imports can be the subject of analysis and economic policy as they may be a substitute for domestic output; they could therefore be incorporated as a separate category of (potential) final use in the use tables. For complementary imports, analyses will mainly focus on the impact of changes in their prices or volume (e.g. in the case of an oil crisis) on the national economy;(d) classification of compensation of employees by criteria such as level of education, part-time/full-time, age and sex. This classification could then also be applied to the supplementary information on employment. In this way, the supply and use tables can also be used for all kinds of analyses of the labour market.(e) breakdown of compensation of employees into:1. wages and salaries, of which:- social contributions by employees (91);2. employers' social contributions.This breakdown permits analysis of the role of social contributions for the price of labour inputs and the shifting of this burden towards gross operating surplus;(f) classification of final consumption by purpose (for households: Coicop and for government: Cofog). The functional classification of this expenditure enables the impact of each function of the rest of the economy to be assessed. For example, the importance of public and private expenditure on health care, transport and education can then be assessed. Another case in point is the analysis of the impact of government expenditure on defence for some domestic industries, in particular the producers of aircraft, trucks and weapons;(g) reclassification of fixed capital formation and fixed capital stock for fixed assets that are rented out by the owner, e.g. in the case of operating leasing: the fixed assets can be recorded as if owned by the user (unlike the standard treatment in the ESA). The purpose of this reclassification is to make the cost structures of industries that rent fixed assets and those that own similar fixed assets comparable. For a consistent accounting treatment, this reclassification requires also the modification of the intermediate consumption of the lessee and the output of the lessor by the amount of the rent of the fixed asset;(h) reclassification of employment and compensation of employees for labour contracted out and persons working via temporary employment agencies: the purpose of this reclassification is to make the cost structure of industries more comparable by recording persons as employees in the industries 'where they actually work`. This reclassification also amounts to a modification of the concepts of intermediate consumption and output of the industries involved.TABLES LINKING THE SUPPLY AND USE TABLES TO THE SECTOR ACCOUNTS9.52. The information in the supply and use tables should be linked to the sector accounts, to ensure that the supply and use table is consistent with the sector accounts. This is achieved by introducing a table with variables cross-classified by industry and by sector (see table 9.11).Table 9.11 - Table linking the supply and use tables to the sector accounts >START OF GRAPHIC>aeFN1,àSektorenaeBOà>Industries (NACE)1 2 3 . . . . . . nÓ (1)(1)(2)I. Non-financial corporationsTotal outputMarket outputOutput for own final useOther non-market outputIntermediate consumptionGross value addedCompensation of employeesOther net taxes on productionConsumption of fixed capitalOperating surplus, net(1)Gross fixed capital formationII. Financial corporationsTotal output. . .Gross fixed capital formationIII. General governmentIV. HouseholdsV. NPISHTotal of sectorsOutput(2). . .Gross fixed capital formation>END OF GRAPHIC>SYMMETRIC INPUT-OUTPUT TABLES9.53. In the ESA, the product-by-product input-output table is the most important symmetric input-output table and this table is described here.9.54. The product-by-product input-output table (see tables 9.4 and 9.12) can be compiled by converting the supply and use tables, both at basic prices. This involves a change in format, i.e. from two asymmetric tables to one symmetric table (see paragraph 9.09). The conversion can be divided into three steps:(a) allocation of secondary products in the supply table to the industries of which they are the principal products;(b) rearrangement of the columns of the use table from inputs into industries to inputs into homogeneous branches (without aggregation of the rows);(c) aggregation of the detailed products (rows) of the new use table to the homogeneous branches shown in the columns, if appropriate.9.55. Step (a) involves transfers of outputs in the form of secondary products in the supply table. Since secondary products appear as 'off-diagonal` entries in the supply table, this kind of transfer is a comparatively simple matter. These secondary products are treated as additions into the industries for which they are principal and removed from the industries in which they were produced.9.56. Step (b) is more complicated, as the basic data on inputs relate to industries and not to each individual product produced by each industry. The kind of conversion to be made here entails the transfer of inputs associated with secondary outputs from the industry in which that secondary output has been produced to the industry to which they principally (characteristically) belong. In making this transfer, two different approaches might be taken:1. by means of supplementary statistical and technical information;2. by means of assumptions.9.57. Supplementary statistical and technical information should be utilized as much as possible. For example, it might be possible to obtain specific information on the inputs required to produce certain kinds of output. However, information of this kind is usually incomplete. Ultimately it will usually be necessary to resort to simple assumptions to make the transfers.Table 9.12 - A symmetric input-output table at basic prices (product by product) >START OF GRAPHIC>Product (CPA)1 2 3 . . . . . . nÓ (1)Final uses(a) (b) (c) (d) (e) (f)Ó (3)Ó (1) + Ó (3)(1)(2)(3)(4)(5)Products(CPA)123......n(1)Intermediante consumption at basic prices by product and by productFinal uses at basic prices:Final consumption expenditure:(a) by households(b) by NPISH(c) by governmentGross capital formation:(d) gross fixed capital formation and valuables(e) changes in inventories(f) exportsÓ (1)(2)Total intermediate consumption at basic prices by productFinal use at basic prices by typeTotal use at basic pricesTaxes on productsSubsidies on product (-)(3)Net taxes on products by productNet taxes on products by type of final useTotal net taxes on productsÓ (1) + (3)(4)Total intermediate consumption at purchasers' prices by productTotal final uses by type at purchasers' pricesTotal net taxes at purchasers' pricesCompensation of employeesOther net taxes on productionConsumption of fixed capitalOperating surplus, net(5)Components of value added by productÓ (5)(6)Value added by productÓ (1) + (3) + Ó (5)(7)Output at basic prices by productImports(8)Imports cif by product(7) + (8)(9)Supply at basic prices by productFixed capital formationFixed capital stockLabour inputs(10)>END OF GRAPHIC>9.58. The assumptions used to transfer outputs and associated inputs hinge on two types of technology assumptions:(a) industry technology, assuming that all products produced by local KAUs in an industry are produced with the same input structure;(b) product technology, assuming that all products in a product group have the same input structure, whichever industry produces them.The choice of the best assumption to apply in each case is not an easy one. It must, in fact, depend on the structure of national industries, e.g. the degree of specialization, and on the homogeneity of the national technologies used to produce products within the same product group. For example, boots may be made from leather and from plastic. Assuming the same product technology for all boots (or, when a higher level of aggregation is used, e.g. footwear) can thus be problematic; assuming industry technology can then be a better alternative.Simple application of the product technology assumption has often shown results that are unacceptable, insofar as the input-output coefficients sometimes generated are improbable or even impossible, for example, negative coefficients. Improbable coefficients may be due to errors in measurement and to heterogeneity (product-mix) in the industry of which the transferred product is the principal product. This might be overcome by making adjustments based on supplementary information or exploiting informed judgment to the fullest extent possible. Of course, another solution is to apply the alternative assumption of industry technology. In practice, employing mixed technology assumptions combined with supplementary information is the best strategy for compiling symmetric input-output tables.9.59. The importance of the role played by the assumptions depends on the extent of secondary production, which in turn depends not only on how production is organized in the economy but also on the product breakdown. The more detailed the product breakdown, the more secondary output can be expected.9.60. Step (c) involves the aggregation of the products in the new use table to the industries that generate them according to step (a) and this results in a symmetric input-output table with products cross-classified against by-products. While these amendments start from data based on local KAUs, the resulting entries are made to conform to those of 'homogeneous units of production`.9.61. The classifications in the symmetric input-output table coincide with those in the supply and use tables, as the former is a transformation of the latter (except of course the classification by industry/homogeneous branch).9.62. The symmetric input-output table 9.12 should be accompanied by at least two tables:(a) a matrix showing the use of imports; the format of this table is the same as that of the import table supporting the supply and use tables (see table 9.10), except that the product-by-product classification is used;(b) a symmetric input-output table for domestic output (table 9.13).The latter table should be used in calculating the cumulated coefficients, i.e. the Leontief-inverse. In terms of table 9.13, the Leontief-inverse is the inverse of the difference between the identity matrix I and the matrix of technical coefficients obtained from the matrix ((1), (1)). The Leontief-inverse could also have been calculated for domestic output and competitive imports (see paragraph 9.51). It should then be assumed that the competitive imports have been produced in the same way as the competing domestic produce.Table 9.13 - A symmetric input-output table for domestic output (product by product) >START OF GRAPHIC>Products (CPA)1 2 3 . . . . . . nÓ (1)Final uses(a) (b) (c) (d) (e) (f)Ó (3)Ó (1) + Ó (3)(1)(2)(3)(4)(5)Products(CPA)123......n(1)For domestic output: Intermediate consumption at basic prices by product and by productFor domestic output: Final uses at basic prices:Final consumption expenditure:(a) by households(b) by NPISH(c) by governmentCross capital formation:(d) gross fixed capital formation and valuables(e) changes in inventories(f) exportsÓ (1)(2)Total intermediate consumption of domestic output at basic prices by productFinal use of domestic output at basic pricesTotal domestic outputUse of imported products(3)Total intermediate consumption of imported products by productFinal use of imported products at basic pricesTotal importsNet taxes on products(4)Net taxes on products for intermediate consumption by productNet taxes on products for final useTotal net taxes on productsÓ (2) + (3) + (4)(5)Total intermediate consumption at purchasers' prices by productTotal final uses by typeTotal useCompensation of employeesOther net taxes on productionConsumption of fixed capitalOperating surplus, net(6)Components of value added by productÓ 6(7)Value added by productÓ (1) + (3) + (4) + Ó (6)(8)Output at basic prices by productFixed capital formationFixed capital stockLabour inputs(9)>END OF GRAPHIC>CHAPTER 10 PRICE AND VOLUME MEASURES 10.01. In a system of economic accounts, all the flows and stocks are expressed in monetary units. The monetary unit is the only common denominator which can be used to value the extremely diverse transactions recorded in the accounts and to derive meaningful balancing items.The problem when using the monetary unit as a measuring unit is that this unit is neither a stable nor an international standard. A major concern in economic analysis is to measure economic growth in volume terms between different periods. It is then necessary to distinguish, in the value changes for certain economic aggregates, the changes arising solely from price changes from the remainder which is called the change in 'volume`.Economic analysis is also concerned with comparisons in space, i.e. between different national economies. These focus on international comparisons in volume terms of the level of production and income, but the level of prices is also of interest. It is therefore necessary to factor the differences in value of economic aggregates between pairs or groups of countries into components, which reflect the differences in volume and the differences in price.10.02. When time comparisons of flows and stocks are concerned, equal importance should be attached to the accurate measurement of changes in prices and in volumes. In the short term, observation of price changes is of no less interest than the measurement of the volume of supply and demand. On a longer term basis, the study of economic growth has to take account of movements in the relative prices of the different types of goods and services.The primary objective is not simply to provide comprehensive measures of changes in prices and volumes for the main aggregates of the system but to assemble a set of interdependent measures which make it possible to carry out systematic and detailed analyses of inflation and economic growth and fluctuations.10.03. The general rule for comparisons in space is that accurate measures must be made for both the volume and the price components of the economic aggregates. As the spread between the Laspeyres and Paasche formulae is often significant in spatial comparisons, the Fisher index formula is the only acceptable one for this purpose.10.04. The economic accounts have the advantage of providing a suitable framework for constructing a system of volume and price indices as well as ensuring the consistency of the statistical data.The advantages of an accounting approach can be summarized as follows:(a) on a conceptual level, the use of an accounting framework covering the entire economic system requires the prices and physical units for the different products and flows in the system to be specified consistently. In a framework of this type it is imperative that, for example, the price and volume concepts for a given group of products should be defined identically in both resources and uses;(b) on a statistical level, the use of the economic accounts framework imposes accounting constraints which must be respected at both current and constant prices and will normally require some adjustments to be made to ensure consistency of the price and volume data;(c) furthermore, the creation of an integrated system of price and volume indices in the context of a system of economic accounts provides the national accountant with extra checks. Assuming the existence of a balanced system of supply and use tables at current prices, the construction of such balanced tables at constant prices means that a system of implicit price indices can be automatically derived. Examination of the plausibility of these derived indices can lead to revision and correction of the data at constant prices and even, in some cases, of the values at current prices;(d) finally, the accounting approach permits the measurement of price and volume changes for certain balancing items in the accounts, the latter being derived by definition from the other elements in the accounts.10.05. Despite the advantages of an integrated system based on the balance, both overall and by industry, of transactions in goods and services, it has to be acknowledged that the price and volume indices thus obtained do not meet all needs or answer all possible questions on the subject of change in prices or volume. Accounting constraints and the choice of price and volume index formulae, although essential for the construction of a coherent system, can sometimes be a hindrance. There is also a need for information for shorter periods such as months or quarters. In these cases, other forms of price and volume indices may prove useful.SCOPE OF PRICE AND VOLUME INDICES IN THE ACCOUNTS SYSTEM10.06. Among the flows which appear in economic accounts at current prices, there are some (mainly concerning products) where the distinction between changes in price and volume is similar to that made at microeconomic level. For many other flows in the system, the distinction is far less obvious.In the former case, the flows cover a group of elementary transactions in goods and services, the value of each being equivalent to the product of a number of physical units and their respective unit price. In this case it is sufficient to know the breakdown of the flow in question into elementary transactions in order to determine its average variation in price and volume.In the latter case, which concerns a number of transactions relating to distribution and financial intermediation as well as to balancing items such as value-added, it is difficult or even impossible to separate directly current values into price and volume components and special solutions have to be adopted.There is also a need to measure the real purchasing power of a number of aggregates, such as compensation of employees, disposable income of households or national income. This can be done, for example, by deflating them by means of an index of the prices of the goods and services which can be bought with them.10.07. It must be emphasized that the objective and the procedure followed when measuring the real purchasing power are fundamentally different from those followed when deflating goods and services and balancing items. For these an integrated system of price and volume indices can be established, which is useful, among other things, for measuring economic growth. The valuation in real terms of flows of the last type uses price indices of flows other than those considered, which may differ according to the objectives of the analysis: it can only be a convention and cannot be done in a unique way within an integrated system of price and volume indices.THE INTEGRATED SYSTEM OF PRICE AND VOLUME INDICES10.08. The systematic division of changes in current values into the components 'changes in price` and 'changes in volume` is restricted to flows representing transactions, recorded in the goods and services accounts (0) and in the production accounts (I); it is carried out both for the data relating to individual industries and for those relating to the total economy. Flows representing balancing items, for example value added, cannot be directly factored into price and volume components; this can only be done indirectly using the relevant flows of transactions.The use of the accounting framework imposes a double constraint on the calculation of the data:(a) the balance of the goods and services account must for any sequence of two years be obtained at both constant and current prices;(b) each flow at the level of the total economy must be equal to the sum of the corresponding flows for the various industries.A third constraint, not inherent in the use of an accounting framework but resulting from a deliberate choice, is that every change in the value of transactions must be attributed either to a change in price or to a change in volume, or to a combination of the two.If these three requirements are fulfilled, valuation of the goods and services accounts and production accounts at constant prices means that an integrated set of price and volume indices can be obtained.10.09. The items to be considered when constructing such an integrated set are as follows:>TABLE>PRICE AND VOLUME INDICES FOR OTHER AGGREGATES10.10. In addition to the price and volume measures considered above, the following aggregates can also be decomposed into their own price and volume components. The objectives for these measures vary.>TABLE>Inventories at the beginning and at the end respectively of each period may have to be calculated at constant prices in order to estimate the volume change in inventories during the period.The stock of produced fixed assets has to be calculated at constant prices to estimate capital output ratios, as well as to obtain a basis for estimating consumption of fixed capital at constant prices.Compensation of employees has to be calculated at constant prices for purposes of measuring productivity and in some instances also when outputs have been estimated by using constant price data on inputs.10.11. Compensation of employees is an element of income. For the purpose of measuring purchasing power it can be valued in real terms by deflating with an index reflecting the prices of products purchased by employees. Other income elements too, such as disposable income of households and national income, can be measured in real terms in the same general way.GENERAL PRINCIPLES OF MEASURING PRICE AND VOLUME INDICESDEFINITION OF PRICES AND VOLUMES OF MARKET PRODUCTS10.12. The creation of an integrated system of price and volume indices is based on the assumption that, at the level of a single homogeneous good or service, value (v) is equal to the price per unit of quantity (p), multiplied by the number of quantity units (q), that isv ≡ p × q10.13. Definition: Price is defined as the value of one unit of a product, for which the quantities are perfectly homogeneous not only in a physical sense but also in respect of a number of other characteristics described in paragraph 10.16. To be additive in an economic sense, quantities must be identical and have the same unit price. For each aggregate of transactions in goods and services shown in the accounts, price and quantity measures have to be constructed so thatvalue index = price index × volume indexThis means that each and every change in the value of a given flow must be attributed either to a price change or to a change in volume or to a combination of the two.10.14. For transactions in goods it is in many cases easy to define the physical unit involved in the transaction and hence the price per unit. In a number of cases, for example for unique capital goods, it is more difficult and special solutions have to be adopted.For transactions in services it is frequently more difficult to specify the characteristics which determine the physical units and differences of opinion on the criteria to be used may arise. This may concern important industries such as financial intermediation services, wholesale and retail trade, services to enterprises, education, research and development, health or recreation. In view of the growing importance of the service industries, it is essential to find common solutions to the problem of the choice of physical units, even if they are only conventional ones.DIFFERENCES IN QUALITY AND DIFFERENCES IN PRICE10.15. The physical and other characteristics to be taken into consideration when identifying products constitute differences in quality and play an important role, while at the same time raising difficult statistical problems.The fact is that for many goods and services intended for a specific purpose there exist several varieties of differing qualities, each with its own price.10.16. Differences in quality are reflected by the following factors:(a) physical characteristics;(b) deliveries in different locations;(c) deliveries at different times of the day or at different periods of the year;(d) differences in conditions of sale or the circumstances or environment in which goods or services are supplied.With given physical characteristics, the differences in the other factors imply that the physical units are not identical in an economic sense, and that the value differs among the units. These differences in unit values are considered to be differences in volume and not as differences in price.In reality, the payment made when a good is purchased covers not only the price of a good but also the price of the services associated with the supply of goods. This means that in principle identical goods sold at different prices and in different circumstances should be considered to be different products. This conclusion is explicitly acknowledged in the supply and use tables, where the value of trade and transport margins (which represent the main services associated with the provision of goods) is recorded separately.10.17. Within a given market and in a single period, the coexistence of several unit values can, except in the cases described in paragraph 10.19, be considered as evidence of the existence of quality differences. Accordingly, the various models of cars and even different versions of the same model must be treated as different products: similarly, a distinction must be made between first-class and second-class railway journeys.For the purposes of calculating price and volume measures, it is necessary to use as detailed a product classification as possible so that each product identified has maximum homogeneity, regardless of the level of detail used in the presentation of results.10.18. The dimension of quality has to be taken into account also when changes over time are to be recorded. The change in quality due, for example, to the modification of the physical characteristics of a product must be considered to be a change in volume and not in price. Also the effects of aggregation have to be considered. Variations in the composition of a flow which imply, for example, a shift in favour of higher average quality have to be recorded as a volume increase and not as a price increase. It follows that for outputs, the effect of shifts between markets with differing prices, for example domestic versus external, or industrial uses versus markets for consumer products, will be treated as changes in volume and not as changes in price. It also follows that a price change for a given flow can occur only as result of changes in prices at the level of individual transactions.10.19. Definition: The existence of observed unit value differences is not to be considered as an indicator of differences in quality when the following circumstances apply, namely lack of information, price discrimination reflecting limitations in freedom of choice and the existence of parallel markets. In these cases, the unit value differences are considered as differences in price.10.20. Lack of information means that purchasers may not always be properly informed about existing price differences and may therefore inadvertently buy at higher prices. This, or the opposite, may occur also in situations where individual buyers and sellers negotiate or bargain over the price. On the other hand, the difference between the average price of a good purchased in a market or a bazaar, where such bargaining often occurs, and the price of the same good sold in a different type of retail outlet, such as a department store, should normally be treated as reflecting differences in quality due to different sales conditions.10.21. Price discrimination implies that sellers may be in a position to charge different prices to different categories of purchasers for identical goods and services sold under exactly the same circumstances. In these cases, there is no or limited freedom of choice on the part of a purchaser belonging to a special category. The principle adopted is that variations in price are to be regarded as price discrimination when different prices are charged for identical units sold under exactly the same circumstances in a clearly separable market. Price variations due to such discrimination do not constitute differences in volume.The possibility of the retrading of goods in a given market implies that price discrimination for these types of products in most cases can be assumed to be insignificant. The price differences that may exist for goods can normally be interpreted as due to lack of information or to the existence of parallel markets.In service industries, for example in transportation, producers may charge lower prices to groups of individuals with typically lower incomes, such as pensioners or students. If these are free to travel at whatever time they choose, this must be treated as a price discrimination. However, if they are charged lower fares on condition that they travel only at certain times, typically off-peak times, they are being offered lower-quality transportation.10.22. Parallel markets may exist for several reasons. Buyers may be unable to buy as much as they would like at a lower price because there is insufficient supply available at that price, and a secondary, parallel market, where higher prices are quoted, may exist. There is also the possibility that a parallel market exists, where sellers can charge lower prices because they can avoid certain taxes. In these cases too, a price variation constitutes a difference in price and not in volume.10.23. A change in the structure of a flow affecting its total value may occur when in the circumstances of lack of information, price discrimination and the existence of parallel markets identical products are sold at different prices.Suppose that a certain quantity of a particular good or service is sold at a lower price to a particular category of purchaser without any difference whatever in the nature of the good or service offered, location, timing or conditions of sale, or other factors. A subsequent decrease in the proportion sold at the lower price raises the average price paid by purchasers of the good or service. This must be recorded as a price and not a volume increase.PRINCIPLES FOR NON-MARKET SERVICES10.24. The establishment of a comprehensive system of price and volume indices covering all supply and uses of goods and services encounters a particular difficulty when measuring the output of non-market services. These services differ from market services in that they are not sold at a market price and their value at current prices is calculated by convention as the sum of the costs incurred. These costs are intermediate consumption, compensation of employees, other taxes less subsidies on production and consumption of fixed capital.10.25. In the absence of a unit market price, the change in the 'unit cost` of a non-market service can be considered as an approximation of the change in the price. If non-market services are consumed on an individual basis, it is in principle possible to estimate quantities which are homogeneous and which reflect the utilization of these services and apply the unit costs of a base year to obtain data in constant prices. By such type of output-measurement it will be possible to analyse changes in productivity for individual non-market services. For collective services it is generally not possible to establish unit costs and quantities reflecting their utilization. If attempts are made to account for changes in productivity for collective services by indirect methods, users should be made aware of this.10.26. In the context of the economic accounts, it is of prime importance to adopt the principle that the production and consumption of non-market services, like the production and consumption of goods and market services, must be defined in terms of the actual flows of these goods and services and not in terms of final results obtained from their use. As these results depend on several other factors as well, it is not possible to measure, for example, the volume of teaching services by the rise in the level of education, or the volume of health services by the improvement in the health of the population.PRINCIPLES FOR VALUE-ADDED AND GDP10.27. Value-added, the balancing item in the production account, is the only balancing item to form part of the integrated system of price and volume indices. The very special characteristics of this item must, however, be emphasized, as must the significance of its related volume and price indices.Unlike the various flows of goods and services, value-added does not represent any single category of transaction. It cannot, therefore, be directly broken down into a price component and a volume component.10.28. Definition: Value-added at constant prices is defined as the difference between output at constant prices and intermediate consumption at constant prices.VA = ÓP(0)Q(1) - Óp(0)q(1)where P and Q are prices and quantities for output and p and q are prices and quantities for intermediate consumption. The theoretically correct method to calculate value-added at constant prices is by double deflation, i.e. deflating separately the two flows of the production account (output and intermediate consumption) and calculating the balance of these two revalued flows.10.29. In some cases, where the statistical data remain incomplete or not sufficiently reliable, it may be necessary to use a single indicator. If there are good data on value-added at current prices, one alternative to double deflation is to deflate current value-added directly by a price index for output. This implies the assumption that prices for intermediate consumption change at the same rate as for output. Another possible procedure is to extrapolate value-added in the base year by a volume index for output. This volume index can be calculated either directly from quantity data or by deflating the current value of output by an appropriate price index. This method in fact assumes that the volume changes are the same for output and for intermediate consumption.For certain market and non-market service industries, such as finance, business services, education or defence, it may not be possible to obtain satisfactory estimates of price or volume changes for output. In these cases the movements of value-added at constant prices can be estimated by means of changes in compensation of employees at constant wage rates and consumption of fixed capital at constant prices. Compilers of data may be forced to adopt such expedients, even when there is no good reason to assume that labour productivity remains unchanged in the short or long term.10.30. By their very nature, therefore, the indices of volume and price for value-added are different from the corresponding indices for the flows of goods and services.The same applies to price and volume indices of aggregate balancing items such as gross domestic product. The latter is equivalent to the sum of all the values added minus Fisim, i.e. to an addition of balancing items, plus taxes less subsidies on products and from another point of view can be seen to represent the balancing item between total final uses and imports.PROBLEMS IN THE APPLICATION OF THE PRINCIPLES10.31. To apply the principles of price and volume to the different flows in the system it is necessary to specify the solutions to be adopted for a number of problems which arise in this connection.GENERAL APPLICATION10.32. The need to determine which of the various factors described in the previous section explain differences in price arises whenever one studies time series of value data and has to separate price changes and volume changes. It follows that, even at a fine level of detail, series of quantity data may give only crude measures of volume changes, as they do not properly reflect changes that may have occurred in the mix of different qualities. This means that, for example, a constant number of physical units, recorded for a certain flow, understates the volume change if the composition has changed in favour of units with higher quality. This shift implies a change in average quality and must be registered as an increase in the volume index. In general, the best method of estimating volume changes for flows of goods and services is deflating value data with price indices. Since all changes in average quality are correctly reflected in the value series, dividing by a representative price index, which is adjusted for quality changes, gives a correct volume index.10.33. Deflation with price indices may not always be best in practice and other methods have to be adopted. Value series may, for example, have been established by multiplying price and quantity data and constant price data can then be obtained by using prices from the base year. Alternatively, some value series may be of an inferior quality or difficulties may exist in obtaining reliable price indices. Estimates can then be made on the basis of quantity indicators. In these cases care must be taken that the quantities refer to products that are as homogeneous as possible. If none of the methods described above are applicable, constant price data on outputs may have to be based on estimates of inputs at constant prices.10.34. For non-market services the possibility of deflating values by using price indices does not exist and other solutions have to be applied. These are described in paragraphs 10.41 to 10.46.APPLICATION TO SPECIFIC FLOWSFlows of goods and market services10.35. Of all the flows in the economy, the changes in the value of the flows of goods and market services are the most readily broken down into price and volume changes. In this context a clear distinction should be made between:(a) flows representing transactions actually carried out on the market at a certain price;(b) flows representing output for own final use (e.g. own-account production of agricultural products and services from owner-occupied dwellings);(c) flows whose value is defined as a balance between transactions in goods and services (e.g. trade margins);(d) flows whose value is defined as a difference between distributive and/or financial transactions (e.g. financial intermediation services indirectly measured and insurance services).10.36. The flows in category (a) are by far the most numerous and commonplace. Changes in the values of these flows can, by their very nature, be split into volume and price changes. The general method of deflating the current value of these flows by price indices is applicable in all cases where goods and services can be expressed in units, the majority of which are homogeneous from one year to the next.10.37. The flows in category (b), which are notional transactions, are typified by the absence of an actual price for the transaction. This is the case for such goods as agricultural products for own final use and goods for fixed capital formation on own-account. For services, the most important type refers to owner-occupied dwellings. Values for these imputed flows are to be obtained by applying prices of similar products when marketed and the deflator should therefore be the same. Since it is usually necessary to value output of own-account construction by costs of production rather than prices, the deflator has to be adjusted in this respect.10.38. The most important flows in category (c) are those whose value at current prices is obtained as a difference between the values of two flows of goods. This arises in the case of trade margins, whose value at current prices is defined as the difference between the actual or imputed price realized on a good purchased for resale by the wholesale and retail trades and the price that would have to be paid by the distributor to replace the good at the time it was sold or otherwise disposed of. By one method, estimates of trade margins at constant prices can therefore also be made by difference, by subtracting the constant-price value of goods bought for resale from the constant-price value of goods resold by these trades. An alternative method of measurement would be to extrapolate the trade margins of the base year either by the volume of sales or by the volume of purchases made by the wholesale and retail trades. To be correct, this alternative has to take into account the fact that trade margins vary among different products and uses. This is explicitly acknowledged in the supply and use tables.10.39. Category (c) also includes output of travel agency services measured as the value of service charges of agencies (fees and commission charges). These services can also be measured as the difference between two flows: the full payment made by the purchaser and the expenditure made for transport and accommodation by the producer. The volume measure can be obtained as the difference between these flows calculated at constant prices. Alternatively, the fee or commission can be defined as the price per unit of the type of transportation or accommodation arranged and the volume indicator for the service charge would therefore move in the same way as these flows.10.40. The flows in category (d) consist of financial intermediation services: service charges from insurance and pension funds are also included. Financial intermediation services are provided by banks and other financial corporations and consist of lending money to businesses or households, providing a safe and convenient means of saving, safeguarding money and other valuables, buying and selling foreign currencies, clearing cheques, providing general economic intelligence, dealing in stocks and bonds, and offering investment advice. In some cases these services are easily defined and specifically paid for, for example in the case of renting space in bank vaults, or when fees are charged in connection with issues of stocks, bonds or loans. The current value of transactions can then be defined, as well as prices and quantities necessary for price and volume measurement. However, a breakdown into price and volume components for financial intermediation services indirectly measured and for insurance services can usually only be made on arbitrary grounds and would have to be based on conventions.Flows of non-market services10.41. The non-market services produced by general government and non-profit institutions serving households (NPISH) cover a vast range of services both necessary and useful to society. They fall into two main categories:(a) services provided to individuals, i.e. whose consumers or beneficiaries are individually identifiable. Consumption of these services requires individual initiative on the part of those concerned;(b) pure collective services, i.e. services which are consumed jointly by the entire population.10.42. The services provided to individuals can be given to single individuals (e.g. medical care) or to groups of individuals (e.g. teaching). By their nature, these services can be supplied on a market or a non-market basis; in many cases, the individual can obtain services of this type either by applying to a market unit (paying the price) or by turning to a non-market unit of general government or NPISH (getting the services free, or almost free).For market units the method of deflating current values by price indices should be used, since the variations in the mix of products with differing prices are then correctly shown as influencing volumes rather than prices. For non-market services provided to individuals, output estimates can be based on quantity indicators. For education these may relate to numbers of hours spent by pupils in classes or in individual tutoring, and for non-market health services the indicators should reflect treatment in hospitals or visits to doctors or nurses. In both cases there is a quality dimension reflected in the amount of resources provided per pupil or patient. Care must be taken to use data with a detailed breakdown so that each indicator for which calculations are made is as homogeneous as possible in respect of costs. It is only then that changes in the mix of products are shown correctly as volume changes.In the case of services provided to individuals, changes in the volume of their output and consumption should, in principle, be measured on the basis of the use which is made of these services; this will avoid using different criteria for the same services depending on whether they are market or non-market. Of course, any change in quality must be treated as a change in volume; but this applies as much to market services as to non-market services provided to individuals.10.43. The pure collective services are produced by general government for the benefit of the entire population. In fact, they cover a vast range of activities such as general public services, national defence, foreign affairs, justice and the police, town planning and the environment, economic policy, etc. Since these services are consumed collectively, indirectly and continuously, the volume of their output cannot be measured by the extent to which they are utilised.10.44. It may not be possible in practice to obtain reliable quantity indicators for non-market services provided for individuals and these may therefore have to be measured in terms of volume by the same methods as for pure collective services. It is then necessary to start from a valuation at constant prices of the different cost elements of this output, i.e.:(a) intermediate consumption;(b) compensation of employees;(c) other taxes on production, less other subsidies on production;(d) consumption of fixed capital.The use of input-measures as proxies for output implies that analysis of productivity is not possible.10.45. The calculation of intermediate consumption at constant prices poses no particular theoretical problems base-year since intermediate consumption relates to goods and market services. It can be done either by deflating current values by a price index of intermediate consumption or on the basis of quantities revalued at base-year prices.10.46. Calculation at constant prices of the compensation of employees and the consumption of fixed capital in non-market service industries is done by the general methods described in paragraphs 10.53 and 10.54 for example. Other taxes on production are often of a type that can be related to a volume indicator, for example volume of employment, number of cars used.Taxes and subsidies on products and imports10.47. Although essentially limited to transactions involving goods and services, the integrated system of price and volume indices does not exclude the possibility of calculating measures of changes in price and volume for certain other transactions. This possibility exists, in particular, in the case of taxes and subsidies directly linked to the quantity or value of the goods and services which are the subject of certain transactions. In the supply and use tables, the values of these are shown explicitly. By applying the rules described below, it is possible to obtain price and volume measures for the categories of taxes and subsidies which are recorded in the goods and services accounts, namely:(a) taxes on products, excluding VAT (D.212 and D.214);(b) subsidies on products (D.31);(c) VAT on products (D.211).10.48. The simplest case is that of taxes which represent a fixed amount per unit of quantity of the product which is the subject of the transaction. The value of the revenue from such a tax depends on:(a) the quantity of products involved in the transaction;(b) the amount levied per unit, i.e. the taxation price.The breakdown of the value change into its two components presents virtually no difficulties. The variation in volume is determined by the change in the quantities of products taxed; the price variation corresponds to the change in the amount levied per unit, i.e. to the change in the taxation price.10.49. A more frequent case is that in which the tax represents a certain percentage of the value of the transaction. The value of the revenue from such a tax then depends on:(a) the quantity of products involved in the transaction;(b) the price of the products involved in the transaction;(c) the tax rate (as a percentage).The taxation price is then obtained by applying the rate to the price of the product. The change in value of the revenue from a tax of this type can also be divided into a volume change, determined by the change in the quantities of products taxed, and a price change corresponding to the change in the taxation price (b × c).10.50. The amount of tax on products (excluding VAT) (D.215 and D.214) is measured in terms of volume by applying to the quantities of products produced or imported the taxation prices of the base year or by applying to the value of output or imports, revalued at the prices of the base year, the tax rates of the base year. Attention has to be paid to the fact that taxation prices may differ among different uses. This is taken into account in the supply and use tables.10.51. Similarly, the amount of subsidies on products (D.31) is measured in terms of volume by applying to the quantities of products produced or imported the subsidy prices of the base-year or by applying to the value of output or imports, revalued at the prices of the base-year, the rates of subsidy of the base-year, taking into account different subsidy prices for different uses.10.52. VAT on producs (D.211) is, both for the whole economy and for individual industries and other users, calculated on a net basis and refers only to non-deductible VAT. This is defined as the difference between VAT invoiced on the products and VAT deductible by the users of these products. Alternatively, it is also possible to define VAT on products as the sum of all non-deductible amounts which have to be paid by users.Non-deductible VAT at constant prices can be calculated by applying the VAT rates in force in the base-year to the flows expressed in the prices of the base-year. Any change in the rate of VAT for the current year will therefore be reflected in the price index and not in the volume index of non-deductible VAT.The fraction of deductible VAT in invoiced VAT and hence non-deductible VAT may change:(a) either because of a change in the right to deduct VAT, resulting from a change in tax laws or regulations, taking effect with or without a time lag;(b) or because of changes in the pattern of uses of the product (e.g. increase in the proportion of uses on which VAT may be deducted).A change in the amount of deductible VAT resulting from a change in the right to deduct VAT will by the method described be treated as a change in the taxation price, as will a change in the rate of invoiced VAT.On the other hand, a change in the amount of deductible VAT resulting from a change in the pattern of uses of the product constitutes a change in the volume of deductible VAT to be reflected in the index of the volume of VAT on products.Consumption of fixed capital10.53. The calculation of volume measures of the consumption of fixed capital poses few problems when good data on the composition of the stock of fixed capital goods are available. The perpetual inventory method, used by most countries, already implies, for the estimation of the consumption of fixed capital at current prices, the need to pass via a calculation of the stock of fixed capital goods at constant prices. To go from a valuation at historic cost to one at replacement cost, it is first necessary to value capital goods acquired over a number of different periods on a homogeneous basis, i.e. base-year prices. The price and volume indices derived in the process can therefore be used to calculate the value of the consumption of fixed capital at constant prices and the associated price index.Where there is no perpetual inventory of the stock of fixed capital goods, the change in the consumption of fixed capital at constant prices can be obtained by deflating the current price data by price indices derived from data on gross fixed capital formation by product. Account has then to be taken of the age structure of the capital goods acquired.Compensation of employees10.54. For the purpose of measuring the volume of input from employee labour, the quantity unit for compensation of employees may be considered to be an hour's work of a given type and level of skill. As with goods and services, different qualities of work must be recognized and quantity relatives calculated for each separate type of work. The price associated with each type of work is the compensation paid per hour, which may vary, of course, between different types of work. A volume measure of work done may be calculated as a weighted average of the quantity relatives for different kinds of work, weighted by the values of compensation of employees in the previous year or fixed base year. Alternatively, a wage rate index may be calculated for work by calculating a weighted average of the proportionate changes in hourly rates of compensation for different types of work, again using compensation of employees as weights. If a Laspeyres-type volume index is calculated indirectly by deflating the changes in compensation of employees at current values by an index of the average change in hourly compensation, the latter should be a Paasche-type index.10.55. For the purpose of measuring the real purchasing power of compensation of employees, this flow can be deflated by an index reflecting the uses made of these earnings. The price index normally chosen for this purpose is the implicit deflator for individual consumption expenditure or the consumer price index.Stocks of produced fixed assets and inventories10.56. Constant-price data are needed both for stocks of produced fixed assets and for inventories. For the former, such data as are necessary for the calculation of capital output ratios are available if use is made of the perpetual inventory method. In other cases information on the values of stocks of assets may be collected from producers and deflation made by the price indices used for fixed capital formation, taking into account the age structure of stocks.Changes in inventories are measured by the value of entries into inventories less the value of withdrawals from inventories, and the value of any recurrent losses of goods held in inventories during a given period. Constant-price estimates can be derived by the deflation of these components. When changes in the volume and the prices of inventories are fairly regular, estimates of changes in inventories can also be obtained by multiplying the volume change of inventories by average prices for the current year or the base year. As a second alternative and as a cross-check, estimates of changes in inventories can also be obtained as the difference between stocks of inventories held at the end and the beginning of the period, respectively. For this purpose the value of inventories minus revaluation according to the accounts of producers has to be revalued and expressed at the average prices, either relating to the current year or to the base-year. If they refer to the current year, the value measures the volume changes in inventories at current prices. If the average prices refer to a base-year, the value corresponds to volume changes in inventories at base-year prices.Measures of real income for the total economy10.57. It is not possible to divide income flows into a price and a quantity component and for this reason price and volume measures cannot be defined in the same way as for the flows and stocks described earlier. Income flows can be measured in real terms only if one chooses some selected basket of goods and services on which the income is typically spent and uses the price index for this basket as a deflator of current incomes. The choice is always arbitrary in the sense that income is seldom spent specifically for purchases during the period in question. Some of it may be saved for purchases in later periods or, alternatively, the purchases during the period may be partly financed from savings made earlier.10.58. Gross domestic product at constant prices measures the total production (less the intermediate consumption) in volume terms for the total economy. The total real income of residents is influenced not only by this volume of production but also by the rate at which exports can be traded against imports from the rest of the world. If the terms of trade improve, fewer exports are needed to pay for a given volume of imports, so that at a given level of domestic production goods and services can be reallocated from exports to consumption or capital formation.10.59. The real gross domestic income can be derived by adding the so-called trading gain to volume figures on gross domestic product. The trading gain - or, as the case may be, loss - is defined as:T = >NUM>X - M>DEN>P - [>NUM>X>DEN>Px - >NUM>M>DEN>Pm]i.e. the current balance of exports less imports, deflated by a price index P, less the difference between the deflated value of exports and the deflated value of imports. The choice of an appropriate deflator P for the current trade balances should be left to the statistical authorities in a country, taking account of the particular circumstances of that country. In the circumstances in which there is uncertainty about the choice of deflator an average of the import and the export price indices is likely to provide a suitable deflator.10.60. Various real income aggregates are identified and defined in the way shown in the following.Gross domestic product at constant pricesplus the trading gain or loss from changes in the terms of tradeequals real gross domestic incomeplus real primary incomes receivable from abroadminus real primary incomes payable to abroadequals real gross national incomeplus real current transfers receivable from abroadminus real current transfers payable to abroadequals real gross national disposable incomeminus consumption of fixed capital at constant pricesequals real net national disposable income.To be able to express the various national income aggregates in real terms, it is recommended that receivables and payables of primary incomes and transfers from and to abroad should be deflated with an index of gross domestic final expenditure. Real national disposable income is to be expressed on a net basis by deducting from its gross value the consumption of fixed capital at constant prices.CHOICE OF INDEX NUMBER FORMULAE AND THE BASE YEAR10.61. The construction of an integrated system of price and volume indices entails a deliberate choice as to the types of indices to be used.10.62. The preferred measure of year-to-year changes in volume is a Fisher volume index which is defined as the geometric mean of the Laspeyres and the Paasche indices. Changes in volume over longer periods are obtained by chaining, i.e. by cumulating the year-to-year volume movements.10.63. The preferred measure of year-to-year changes in prices is a Fisher price index. Price changes over long periods are obtained by chaining the year-to-year price movements.10.64. Chain indices that use Laspeyres volume indices to measure changes in volume and Paasche price indices to measure year-to-year price movements provide acceptable alternatives to Fisher indices.10.65. Although the preferred measure of volume and price is a chain index, it must be recognized that the lack of additive consistency can be a serious disadvantage for many types of analysis.An aggregate is defined as the sum of its components. Additivity requires this identity to be preserved when the values of both an aggregate and its components in some reference period are extrapolated over time using a set of volume index numbers.10.66. It is therefore recommended that disaggregated constant price data, i.e. direct valuation of current quantities at base-year prices, are compiled in addition to the chain indices for the main aggregates.Estimating accounts data in constant prices has to be done at the finest level of detail possible if the data are to be consistent within the framework of an integrated system of price and volume measures. The supply and use tables form the central, conceptual and statistical framework for all the measures at constant prices. Additional data are found in supplementary tables.Constant price series have nevertheless to be rebased in the course of time. The ESA has adopted the principle of changing the base year every five years as from 1995. When the base year is changed it is customary to link the data on the old base to the date on the new base rather than to carry the rebasing backwards. When the base year is updated additivity is lost as a result of linking.10.67. When base-year values are extrapolated by chain volume indices, it will have to be explained to users why there is no additivity in the tables.The non-additive 'constant price` data is published without any adjustment. This method is transparent and indicates to users the extent of the problem.This does not preclude the possibility that there may be circumstances in which compilers may judge it preferable to eliminate the discrepancies in order to improve the overall consistency of the data.INTERSPATIAL PRICE AND VOLUME INDICES10.68. Comparisons of prices and volumes between countries have to overcome the difficulty in comparing different national currencies. Since exchange rates are not sufficiently stable for this purpose and do not reflect differences in purchasing power in a correct way, it is necessary to use a methodology similar to the one used for intertemporal comparisons between different periods within a single country. Price and volume indices have therefore to be compiled between pairs of countries, applying the same kinds of index number formulae as when measuring changes between time periods. Either of the two countries A and B can be used to give the weights and, viewed from the angle of country A, a Laspeyres-type index with weights from country A can be calculated as well as a Paasche-type using weights from country B.10.69. If the economies of the two countries differ much from one another, the spread between these two indices may be quite large and the results would depend too much on which one is chosen. For binary comparisons the ESA therefore requires an average between the two, in the form of a Fisher index.10.70. Direct quantitative comparisons between economic situations that have little in common with each other are inherently difficult and the method of deflation of current values with price indices is therefore the best alternative. This applies even more in international than in intertemporal comparisons. By careful specification and identification of products, price relatives can be calculated from information collected in price surveys in each country. As prices are quoted in national currencies, the interpretation of the price relatives introduces the concept of purchasing power parity (PPP). For a given product the PPP between two currencies of countries A and B is defined as the number of units of country B's currency that are needed in country B to purchase the same quantity of the product as one unit of country A's currency will purchase in country A. PPPs for groups of products and successively higher levels of aggregation up to GDP are obtained by weighting PPPs for products by their share in expenditure. In order to arrive at a price level index between the two countries, the PPP index has to be divided by the current exchange rate between the two currencies concerned.10.71. For non-market services, international comparisons face the same problem as intertemporal comparisons. This means that outputs are measured as the sum of inputs. The method used at present in interspatial comparisons is to obtain PPPs on the basis of price relatives for important elements in these inputs. This method, which implies volume comparisons of inputs, fails to take into account differences in productivity in non-market service production in the countries compared. It is important, therefore, to develop methods which instead lead to comparisons of the volume of output of non-market services. This should in principle be feasible for individual non-market services, in the same general way as when intertemporal comparisons are concerned.10.72. The need to make international comparisons of prices and volumes between countries is recognized in the ESA. The main objective is volume comparisons of GDP and its uses and the condition of transitivity must be met. Transitivity means that the direct index for country C based on country A is equal to the indirect index obtained by multiplying the direct index for country B based on country A by the direct index for country C based on country B.10.73. The approach adopted in the ESA to the calculation of a set of multilateral volume measures and PPPs is to start from binary comparisons between all possible pairs of countries considered. The Fisher indices used for this purpose are not transitive, but it is possible to derive from them a set of transitive indices that resemble the original Fisher indices as closely as possible, using the traditional criterion of least squares for this purpose. Minimising the deviations between the original Fisher indices and the desired transitive indices leads to the so-called EKS formula.10.74. The EKS index utilizes all the indirect indices linking country i to country k as well as the direct index between them. Between countries i and k it is the geometric mean of the direct index between i and k and every possible indirect index connecting countries i and k. The direct index is given twice the weight of each indirect index. Transitivity is achieved by involving every other country in the EKS index for any given pair of countries.CHAPTER 11 POPULATION AND LABOUR INPUTS 11.01. Certain comparisons between countries, or between industries or sectors within the same economy, become meaningful only when the aggregates in the national accounts (for example, gross domestic product, the final consumption of households, the value-added of an industry, compensation of employees) are considered in relation to the number of inhabitants and labour input variables. It is therefore necessary to have definitions of the total population, employment, jobs, total hours worked, full-time equivalence and employee labour input at constant compensation, which are closely linked to the concepts used in the national accounts.11.02. These titles are defined in the system on the basis of the concepts of economic territory and centre of interest.11.03. Labour inputs must be classified on the basis of the same statistical units as used for the analysis of production, namely the local kind-of-activity unit and the institutional unit.11.04. The aggregates to which the figures for population and labour inputs are related are annual totals. Therefore, average population and labour inputs during the year should be used.When inquiries are conducted at several times during the course of the year, the figure taken is the average of the results obtained on these various dates.When a single inquiry is made, is is important to examine if the period used is fully representative; the last available information on variations throughout the year should be used in estimating data for the year as a whole. For example, when estimating the mean employment, some allowance should be made for the fact that certain people do not work throughout the whole year (casual and/or seasonal workers).TOTAL POPULATION11.05. Definition: On a given date, the total population of a country consists of all persons, national or foreign, who are permanently settled in the economic territory of the country, even if they are temporarily absent from it. For some purposes, an annual average of head counts will provide an appropriate basis for estimating national accounts variables or for use as a denominator in comparisons.11.06. Total population is defined for national accounts according to the concept of residence (see units and grouping of units chapter).A person who is staying, or intends to stay, on the economic territory of the country for a period of one year or more is regarded as permanently settled there.A person is regarded as being temporarily absent if he or she is permanently settled in the country but is staying, or intends to stay, in the rest of the world for a period of less than one year.All individuals who belong to the same household (92) are resident where the household has a centre of economic interest: this is where the household maintains a dwelling, or succession of dwellings, which members of the household treat, and use, as their principal residence. A member of a resident household continues to be a resident even if that individual makes frequent journeys outside the economic territory because its centre of economic interest remains in the economy in which the household is resident.11.07. The total population of a country includes:(a) nationals settled in the country;(b) national civilians who are staying abroad for a period of less than one year (frontier workers, seasonal workers, tourists, patients, etc.);(c) foreign civilians settled in the country for a period of one year or more (including the personnel (93) of the institutions of the European Communities and of international civilian organizations located within the geographic territory of the country);(d) foreign military personnel (94) working with international military organizations located within the geographic territory of the country;(e) foreign technical assistance personel (95) on long-term assignments who work in the country and are deemed to be employed by their host government on behalf of the government, or international organization, which is actually financing their work.By convention, the total population also includes the following, irrespective of the length of their stay outside the country:(a) national students however long they study abroad;(b) members (96) of the country's armed forces stationed in the rest of the world;(c) nationals (97) who are on the staff of national scientific bases established outside the geographic territory of the country;(d) nationals (98) who are on the staff of diplomatic missions abroad;(e) nationals (99) who are members of the crews of fishing boats, other ships, aircraft and floating platforms operating partly, or wholly, outside the economic territory.11.08. Conversely, the total population of a country does not include:(a) foreign civilians staying on the territory for less than a year (frontier workers, seasonal workers, tourists, patients, etc.);(b) national civilians staying abroad for a period of one year or more;(c) national military personnel working with international organizations located in the rest of the world;(d) national technical assistance personnel on long-term assignments who work abroad and are deemed to be employed by their host government on behalf of the government, or international organization, which is actually financing their work.and also, by convention:(a) foreign students however long they study in the country;(b) members of the armed forces of a foreign country who are stationed in the country;(c) the foreign personnel of foreign scientific bases located on the geographic territory of the country;(d) members of foreign diplomatic missions stationed in the country.11.09. The definition given above differs from the present (or de facto) population, which consists of persons actually present on the geographic territory of a country at a given date.ECONOMICALLY ACTIVE POPULATION11.10. Definition: The economically active population comprises all persons of either sex, and above a certain age, who furnish the supply of labour for the productive activities (falling in the production boundary of the system), during a specified time-reference period. It includes all persons who fulfil the requirements for inclusion among the employed (employees or self-employed) or the unemployed.The 'employees` and 'self-employed` are defined under the title 'employment`.The 'unemployed` are defined under the title 'unemployment`.EMPLOYMENT11.11. Definition: Employment covers all persons - both employees and self-employed - engaged in some productive activity that falls within the production boundary of the system.EMPLOYEES (100)11.12. Definition: Employees are defined as all persons who, by agreement, work for another resident institutional unit and receive a remuneration (recorded as D.1 compensation of employees).The relationship of employer to employee exists when there is an agreement, which may be formal or informal, between an enterprise and a person, normally entered into voluntarily by both parties, whereby the person works for the enterprise in return for remuneration in cash or in kind.Employees are classified here if they are not also in self-employment which constitutes their principal activity: in that case they are classified under self employed persons.11.13. The following categories are included:(a) persons (manual and non-manual workers, management personnel, domestic staff, people carrying out remunerated productive activity under employment programs) engaged by an employer under a contract of employment;(b) civil servants and other government employees whose terms and conditions of employment are laid down by public law;(c) the armed forces, consisting of those who have enlisted for both long and short engagements and also conscripts (including conscripts working for civil purposes);(d) ministers of religion, if they are paid directly by general government or a non-profit institution;(e) owners of corporations and quasi-corporations if they work in these enterprises;(f) students who have a formal commitment whereby they contribute some of their own labour as an input into an enterprise's process of production in return for remuneration and (or) education services;(g) outworkers (101) if there is an explicit agreement that the outworker is remunerated on the basis of the work done: that is, the amount of labour which is contributed as an input into some process of production;(h) disabled workers, provided the formal or informal relationship of employer to employee exists;(i) persons employed by temporary employment agencies, who are to be included in the industry of the agency which employs them, and not in the industry of the enterprise for which they actually work. But for input-output analysis, reclassifications of these people and of all the related costs can be considered (see paragraph 9.51).11.14. Persons temporarily not at work are also considered as employees provided they have a formal job attachment. This formal attachment should be determined according to one or more of the following criteria:(a) the continued receipt of wage or salary;(b) an assurance of return to work following the end of the contingency, or an agreement as to the date of return;(c) the elapsed duration of absence from the job which, wherever relevant, may be that duration for which workers can receive compensation benefits without obligations to accept other jobs.This covers persons temporarily not at work because of illness or injury, holiday or vacation, strike or lockout, educational or training leave, maternity or parental leave, reduction in economic activity, temporary disorganization or suspension of work due to such reasons as bad weather, mechanical or electrical breakdown, or shortage of raw materials or fuels, or other temporary absence with or without leave.SELF-EMPLOYED PERSONS11.15. Definition: Self-employed persons are defined as persons who are the sole owners, or joint owners, of the unincorporated enterprises in which they work, excluding those unincorporated enterprises that are classified as quasi-corporations. Self-employed persons are classified here if they are not also in a paid employment which constitutes their principal activity: in that latter case they are classified as employees.They may be temporarily not at work during the reference period for any specific reason. The compensation for self-employment is mixed income.11.16. Self-employed persons also include the following categories:(a) unpaid family workers, including those working in unincorporated enterprises engaged wholly or partly in market production;(b) outworkers whose income is a function of the value of the outputs from some process of production for which they are responsible, however much, or little work was put in;(c) workers engaged in production undertaken entirely for their own final consumption or own capital formation, either individually or collectively.Unpaid voluntary workers are included with self-employed persons if their volunteer activities result in goods, for example the construction of a dwelling, church or other building. But if their volunteer activities result in services, for example care taking or cleaning without payment, they are not included with employment, because those volunteer services are excluded from production (see paragraph 3.08).There is no labour input into the production of the services of owner-occupied dwellings; the owner-occupiers of dwellings are not, as such, considered as self-employed persons.EMPLOYMENT AND RESIDENCE11.17. The results of the activity of producer units can only be compared with employment if the latter includes both the residents and the non-residents who work for resident producer units.Employment therefore also includes the following categories:(a) non-resident frontier workers, i.e. persons who cross the border each day to work in the economic territory;(b) non-resident seasonal workers, i.e. persons who move into the economic territory and stay there for less than one year in order to work in industries which periodically require additional labour;(c) members of the country's armed forces stationed in the rest of the world;(d) nationals who are on the staff of national scientific bases established outside the geographic territory of the country;(e) nationals who are on the staff of diplomatic missions abroad;(f) members of the crews of fishing boats, other ships, aircraft and floating platforms operated by resident units;(g) local employees of general government bodies situated outside the economic territory.11.18. On the other hand, the following are excluded from employment:(a) residents who are frontier workers or seasonal workers, i.e. who work in another economic territory;(b) nationals who are members of the crews of fishing boats, other ships, aircraft and floating platforms operated by non-resident units;(c) local employees of foreign government agencies located on the geographic territory of the country;(d) the personnel of the institutions of the European Communities and international civilian organizations located within the geographic territory of the country (including local employees directly recruited);(e) members of the armed forces working with international military organizations located on the geographic territory of the country;(f) nationals working in foreign scientific bases established in the economic territory.11.19. In order to be able to make the transition to the concepts generally used in labour force statistics (employment on a national basis), the ESA especially provides for the following items to be shown separately:(a) the conscripted forces (not included in the labour force statistics, but included in the ESA under general government services);(b) residents working for non-resident producer units (included in labour force statistics but not included in employment as defined in the ESA);(c) non-residents working with resident producer units (not included in labour force statistics but included in employment as defined in the ESA);(d) resident workers living permanently in an institution;(e) resident workers under the age considered in labour force statistics.UNEMPLOYMENT11.20. Definition: In accordance with the norms established by the International Labour Organization (13th International Conference of Labour Statisticians), the 'unemployed` comprise all persons above a specified age who during the reference period were:(a) 'without work`, i.e. not in paid employment or self-employment;(b) 'currently available for work`, i.e. were available for paid employment or self-employment during the reference period; and(c) 'seeking work`, i.e. had taken specific steps in a specified recent period to seek paid employment or self-employment.The specific steps may include registration at a public or private employment exchange; application to employers; checking at worksites, farms, factory gates, market or other assembly places; placing or answering newspaper advertisements; seeking assistance of friends or relatives; looking for land, building, machinery or equipment to establish own enterprise; arranging for financial resources; applying for permits and licences, etc.11.21. Definition: Unemployment rates represent unemployed persons as a percentage of the economically active population.They are usually calculated for sex-age groups and sometimes further cross-classified by other demographic variables such as marital status, qualifications or nationality.JOBS11.22. Definition: A job is defined as an explicit or implicit contract (102) between a person and a resident institutional unit to perform work (103) in return for compensation (104) for a defined period or until further notice.In that definition, both employee and self-employment jobs are covered: that is, an employee job if the person belongs to another institutional unit than the employer and a self-employment job if the person belongs to the same institutional unit as the employer.11.23. The concept of jobs differs from the concept of employment as defined above:(a) it includes second, third, etc. jobs of the same person. Those second, third, etc. jobs of a person may either successively follow one another within the reference period (usually, a week) or, as when someone has an evening job as well as a daytime job, run in parallel;(b) on the other hand, it excludes persons temporarily not at work but who have a 'formal attachment to their job` in the form, for instance, of 'an assurance of return to work or an agreement as to the date of return`. Such an understanding between an employer and a person on lay-off or away on training is not counted as a job in the system.JOBS AND RESIDENCE11.24. A job in the economic territory of the country is an explicit or implicit contract between a person (who may be resident in another economic territory) and an institutional unit resident in the country.For measuring labour input into economic activity, only the residence of the producer institutional unit is relevant, because resident producers alone contribute to gross domestic product.11.25. Moreover:(a) jobs are included in the count of jobs in the economic territory when the employees of a resident producer are working temporarily in another economic territory and when the nature and duration of the activity do not warrant its treatment as a notional resident unit of that other territory;(b) jobs are excluded from the count of jobs in the economic territory when performed for non-resident institutional units, that is, for units with a centre of interest in another country which have no intention of being active on the domestic territory for a year or more;(c) the jobs of the staff of international organizations and those of locally recruited staff engaged by foreign embassies are excluded from the count, since the employing units are not resident.TOTAL HOURS WORKED11.26. Definition: Total hours worked represent the aggregate number of hours actually worked as an employee or self-employed during the accounting period, when their output is within the production boundary.Because of the broad definition of employees which covers persons temporarily not at work but with a formal attachment, and part-time workers, the ESA recommends that the appropriate measure for productivity calculation is not a head count but total hours worked.Total hours worked is the preferred measure of labour inputs for the system.11.27. In accordance with the norms established by the International Labour Organization (10th International Conference of Labour Statisticians), total hours actually worked cover:(a) hours actually worked during normal working hours;(b) hours worked in addition to those worked during normal working hours, and generally paid at higher rates than normal rate (overtime);(c) time which is spent at the place of work on tasks such as preparing the site, repair and maintenance work, the preparation and cleaning of tools, and the making-out of receipts, invoices, records of the length of time worked and other reports;(d) idle time spent at the place of work waiting or standing by because, for example, of temporary lack of work, the breakdown of machinery or accidents, or time spent at the place of work during which no work is done but for which payment is made under a guaranteed employment contract;(e) time corresponding to short periods of rest at the work place, including refreshment breaks.11.28. On the other hand, hours actually worked do not include:(a) hours which are paid but not worked, such as paid annual holidays, public holidays, or sick-leave;(b) breaks for meals;(c) time spent travelling between home and the place of work, even when paid (construction workers). However, such travel organized in employers' time is included in hours of work.11.29. Total hours worked is the aggregate number of hours actually worked during the accounting period in employee and self-employment jobs within the economic territory:(a) including work outside the economic territory for resident employer institutional units who have no centre of economic interest there;(b) excluding work for foreign employer institutional units who have no centre of economic interest within the economic territory.11.30. Many surveys of enterprises record hours paid not hours worked.In those cases, hours worked have to be estimated for each job group, using whatever information is available about paid leave etc.11.31. For business cycle analysis, it may be useful to adjust total hours worked by adopting a standard number of working days per year.FULL-TIME EQUIVALENCE11.32. Definition: Full-time equivalent employment, which equals the number of full-time equivalent jobs, is defined as total hours worked divided by the average annual number of hours worked in full-time jobs within the economic territory.11.33. This definition does not necessarily describe how the concept is estimated: since the length of a full-time job has changed through time and differs between industries, methods which establish the average proportion and average hours of less than full-time jobs in each job group have to be used. A normal full time week must first be estimated in each job group. If possible, a job group can be defined, inside an industry, according to sex and (or) kind of work of people. Hours contractually agreed upon constitute, for employee jobs, the appropriate criteria for determining those figures. Full-time equivalent is calculated separately in each job group, then summed.11.34. In spite of the fact that total hours worked are the best measure of labour inputs, there are some advantages in the full-time equivalence: it can be estimated more easily and this facilitates international comparisons with countries which can only estimate full-time equivalent employment.EMPLOYEE LABOUR INPUT AT CONSTANT COMPENSATION11.35. Definition: Employee labour input at constant compensation measures current labour inputs valued at the levels of compensation of employee jobs ruling during a selected base period.11.36. Compensation of employees at current prices divided by employee labour input at constant prices yields an implicit compensation price index comparable with the implicit price index of final uses.11.37. The purpose of the concept of employee labour input at constant compensation is to express the changes in the composition of the work force, for example from lower paid to higher paid workers. To be effective, the analysis should be undertaken on an industry basis.CHAPTER 12 QUARTERLY ECONOMIC ACCOUNTS 12.01. The quarterly economic accounts form an integral part of the system of national accounts and, among other uses, are very important for the analysis of the current year and calculation of provisional estimates for the last year. The quarterly economic accounts constitute a coherent set of transactions, accounts and balancing items, defined in both non-financial and financial domains, recorded on a quarterly basis. They adopt the same principles, definitions and structure as the annual accounts, subject to certain modifications, due to the period of time covered.12.02. The importance of quarterly economic accounts derives essentially from the consideration that they are the only coherent set of indicators, available with a short time lag, able to provide a short term overall picture of both non-financial and financial economic activity.12.03. The period of time to which the quarterly accounts relate and the need to have reliable information as quickly as possible determine certain typical features. These features include statistical methods of compiling accounts, seasonality and the treatment thereof, consistency of quarterly and annual accounts and some account particularities related to the reference period. These typical features will be extensively analysed in a handbook of quarterly accounts that Eurostat intends to publish before the application of this methodology.12.04. The statistical methods used for compiling quarterly accounts may differ quite considerably from those used for the annual accounts. They can be classified in two major categories: direct procedures and indirect procedures. Direct procedures are based on the availability at quarterly intervals, with appropriate simplifications, of the similar sources as used to compile the annual accounts. On the other hand, indirect procedures are based on time disaggregation of the annual accounts data in accordance with mathematical or statistical methods using reference indicators which permit the extrapolation for the current year. The choice between the different indirect procedures must above all take into account the minimization of the forecast error for the current year, in order that the provisional annual estimates correspond as closely as possible to the final figures. The choice between these approaches depends, among other things, on the information available at quarterly level.12.05. The quarterly accounts series quite often show very short-term variations due to weather, habits, legislation, etc., usually defined as seasonal fluctuations. Although seasonality is an integral part of quarterly data, it is often an impediment to the correct identification and analysis of the cycle-trend component. From this consideration follows the need to compile both raw and seasonally adjusted accounts. The accounting consistency of seasonally adjusted figures should be ensured. A closely related problem to seasonal adjustment is that of the working days correction, which needs further consideration in the Eurostat handbook.12.06. Since quarterly accounts adopt the same framework as annual accounts they have to be consistent over time with them. This implies, in the case of flow variables, that the sum of the quarterly data is equal to the annual figures for each year. In principle there are no obstacles to this condition being met for previous years. However, for the current year there is a problem of time priority between quarterly and annual data as quarterly data are normally available earlier than the annual figures. This problem may be solved by agreeing that the provisional estimates of annual figures are obtained by the aggregation of quarterly figures. When new annual information becomes available resulting in a revision of the provisional figures, the quarterly data have to be modified accordingly. Within some systems, the annual accounts are a by-product of the quarter system and there is no separate annual calculation.12.07. The time consistency must be ensured for raw data and, compatibly with the seasonally adjustment procedures, for adjusted figures too.12.08. If, in principle, most of the operations and balancing items are distributed with a certain regularity on all the quarters, there are anyway some operations that appear concentrated in one or two quarters of the year. This is the case for taxes on income, dividends, interest, etc. The treatment of these cases depends essentially on the underlying generation process.12.09. From a theoretical point of view there are no obstacles to the layout used for the quarterly accounts being the same as that used for the annual accounts. However, in practice, it is useful to simplify and aggregate this scheme in order to obtain reliable quarterly figures as quickly as possible (see programme of tables and data to be supplied in the framework of the 1955 ESA).CHAPTER 13 REGIONAL ACCOUNTS 13.01. Regional accounts are a regional specification of the corresponding accounts of the total economy. The regional accounts make use of the concepts used for the accounts of the total economy unless indicated otherwise in this section.13.02. A full set of accounts at the regional level implies treating each region as a separate economic entity. In this context, transactions with other regions become a kind of external transaction. External transactions of the region should of course, be distinguished according to transactions with other regions of the country and transactions with the rest of the world.13.03. Conceptual difficulties (see paragraphs 13.10 to 13.14) partly explain why regional accounts are limited to recording production activities by industry and to accounts for some institutional sectors like households.REGIONAL TERRITORY13.04. The regional economy of a country is part of the total economy of that country. The total economy is defined in terms of institutional units. It consists of all the institutional units which have a centre of interest in the economic territory of a country (see paragraph 2.04). The economic territory, although consisting essentially of the geographic territory, does not coincide exactly (see paragraph 2.05). The economic territory of a country can be divided into regional territories and the 'extraregio` territory.13.05. The regional territory includes:(a) the region that is part of the geographic territory of a country;(b) any free zones, including bonded warehouses and factories under customs control in the region.13.06. The extraregio territory is made up of parts of the economic territory of a country which cannot be attached directly to a single region. It consists of:(a) the national air-space, territorial waters and the continental shelf lying in international waters over which the country enjoys exclusive rights;(b) territorial enclaves (i.e. geographic territories situated in the rest of the world and used, under international treaties or agreements between States, by general government agencies of the country (embassies, consulates, military bases, scientific bases, etc.);(c) deposits of oil, natural gas, etc. in international waters, outside the continental shelf of the country, worked by resident units.13.07. The nomenclature of territorial units for statistics (NUTS) provides a single, uniform breakdown of the economic territory of the European Union. The NUTS is the territorial classification for the compilation of regional accounts.UNITS AND RESIDENCE13.08. Two types of unit are distinguished. First of all the local KAU for the analysis of flows occurring in the process of production and in the use of goods and services. Secondly the institutional unit to analyse flows affecting income, capital and financial transactions, other flows and balance sheets.13.09. The local KAU is the part of a KAU which corresponds to a local unit. The local unit is an institutional unit producing goods and services or a part thereof situated in a geographically identified place (see paragraph 2.106). Therefore, in principle the regional residence of a local KAU can be unambiguously determined.Regarding the transactions with relation to the production activities, it is necessary to record flows between local KAUs, which belong to the same institutional unit and are located in different regions. The ESA recommends including deliveries between local KAUs in the definition of output and this is especially important in regional accounts.13.10. In the case of institutional units two types of institutional units have to be considered in the context of regional accounts. First of all, there are uniregional units, the centre of economic interest of which is in one region and most of their activities take place in this region. Among uniregional units are households, corporations whose local KAUs are all located in the same region, local and State governments, at least part of social security and many NPIs serving households.Secondly, there are multiregional units, the centre of economic interest of which is in more than one region. Many corporations and a number of NPIs are in this situation. To a greater extent, this is also the case for institutional units whose activities span the whole country such as central government and a small number of corporations, generally in a monopolistic or quasi-monopolistic situation, like the national railway corporation or the national electricity corporation.13.11. All transactions of the uniregional institutional units are allocated to the region in which they have their centre of economic interest. Regarding households, the centre of economic interest is the region where they live, not the region where they work. Other uniregional units have their centre of economic interest in the region where they are located.13.12. Some of the transactions of multiregional units cannot, strictly speaking, be regionalized. This is the case for most distributive and financial transactions. Consequently, balancing items of multiregional units may not be unambiguously defined at the regional level for multiregional units.13.13. One may think of allocating all transactions of multiregional units between regions according to some rules of thumb. However, this should not be considered simply as a practical approximation. It implies a conceptual adaptation of the ESA, since the reasons which prevent including a full sequence of accounts for local KAUs/industries in the central framework also forbid, in principle, completely distributing all institutional units and their accounts between regions; for this would mean, in principle, building up a full set of accounts for local KAUs.13.14. Due to the abovementioned considerations, the system of regional accounts is limited to:(a) regional industry aggregates on production activities:(1) gross value-added;(2) compensation of employees;(3) employment;(4) employees;(5) gross fixed capital formation;(b) gross domestic product per region (GDPR);(c) regional household accounts.METHODS OF REGIONALIZATION13.15. Regional accounts are based on the transactions of units that are resident in a regional territory. In general the regionalization can be done by using bottom-up methods, top-down methods or mixed methods. The methods may be described as follows:(a) bottom-up methods:the bottom-up methods of estimation involve the use of information on units that are resident in the region, and ascending by addition until the regional value of the aggregate is established. The regional values must add up to the corresponding national value;(b) top-down methods:the top-down methods involve the distribution of a national figure among regions, without attempting to single out resident units, by means of a distribution key which reflects as closely as possible the feature to be estimated. The methods are called top-down because the aggregate is allocated to a region and not to a single unit. However, the notion of a resident unit is needed in order to have a correct regional coverage of the key to be used;(c) mixed methods:the bottom-up methods are rarely encountered in their pure form. Therefore mixed methods may also be considered. For example, it can occur that a variable or an aggregate of variables can only be regionalized with the help of the bottom-up method at level NUTS-1. For a further regionalization at level NUTS-2 or NUTS-3 a top-down method has to be used.13.16. In principle, the advantage of bottom-up methods is that they directly employ relevant sources at the regional level. An advantage of top-down methods is the guaranteed numerical consistency between national and regional accounts. A disadvantage is that the estimates are not produced with direct data but with a key that is supposedly correlated with the phenomenon to be measured.13.17. Whenever possible regional values which directly correspond in concept with the national values should be estimated directly by means of the bottom-up methods. The top-down procedures do not lead to a solid, reliable data basis for judging the accuracy of the estimated values, whereas in the bottom-up methods attention is drawn to a possible divergence with the national totals.AGGREGATES BY INDUSTRY13.18. An industry for a region consists of a group of local KAUs engaged in the same, or similar, kind of activity (see paragraph 2.108). The local KAU is the unit on which the data related to production activities (output, intermediate consumption, etc.) are based.13.19. As a general principle, aggregates on production activities should be allocated to the region where the unit carrying out the relevant transactions is resident. The residence of the local KAU is an essential criterion for the allocation of these aggregates to a particular region.13.20. The general principle of allocating gross fixed capital formation by region is ownership, just as in the accounts of the total economy (see paragraph 2.05, footnote (1)). Fixed assets owned by a multiregional unit are allocated to the local KAUs where they are used. As in national accounts fixed assets obtained through operational leasing are recorded in the region of the owner and those obtained through financial leasing in the region of the user.13.21. In practice, it may be that information is only available at the level of units which contain several local KAUs engaged in different activities and/or regions. In this case, available indicators (e.g. compensation of employees or employment per region) have to be used to regionalize the figures by industry.13.22. When defining a local KAU three situations can be distinguished:(a) a production activity with significant (105) labour input at a fixed location raises no problems. However, in some cases further clarification is needed (see paragraphs 13.24 to 13.27);(b) a production activity without significant labour input at a fixed location is not considered as a separate local KAU and the production should be attributed to the local unit that is responsible for managing this production;(c) for a production activity without a fixed location the concept of residence at the national level should be applied.13.23. Ancillary activities are not isolated to form distinct entities or separated from the principal or secondary activities or entities they serve (see paragraph 2.104). Accordingly, ancillary activities should be integrated with the local KAUs they serve.Ancillary activities may be carried out in separate locations, located in another region than the local KAUs they serve. The strict application of the abovementioned rule for the geographical allocation of the ancillary activities would result in the underestimation of the aggregates in the regions where ancillary activities are concentrated. Therefore according to the principle of residence, they have to be allocated to the region where the ancillary activities are situated; they remain in the same industry as the local KAUs they serve.13.24. For some industries, the methods for regionalization need some further clarification. The industries are:(a) construction;(b) transport storage and communication;(c) financial intermediation.13.25. For the construction industry, building sites should be treated as independent local KAUs when the activity is significant (see paragraph 2.09, footnote (4)). Given the mobility of some equipment, for example pile-drivers and cranes, between local units of the same KAU and the absence of information at site level, it is recommended that gross fixed capital formation of such equipment be allocated to the headquarters of the KAU.13.26. For transport industries including pipeline transport it is essential to define the local KAUs to which the production and capital formation should be attached. For land transport industries (excluding railways) the production and capital formation should be attached to depots or similar local KAUs where the equipment is based. For water transport industries the production and mobile equipment should be allocated to the home base of the unit. Pipeline networks should be attached to the local KAU that exploits it.For rail and air transport industries top-down methods, breaking down the national aggregates into regions according to suitable indicators, should be used. Compensation of employees should be allocated to the region where the people are employed. The gross operating surplus should be allocated to the regions according to indicators relating to the activity of the train or air routes.Regarding communication industries, telephone boxes, telephone sets, telecommunication lines, etc. perform only a supporting role. Therefore, they do not form distinct entities and should be attributed to the local KAU responsible for managing them. The investment in infrastructure should also be allocated to these local units.13.27. For financial intermediation industries, value-added should be allocated according to the income approach. Compensation of employees should be allocated to the local KAUs where the people are employed. Gross operating surplus of credit institutions should be distributed between local KAUs in proportion to the sum of loans and deposits, and gross operating surplus of insurance institutions in proportion to the premiums received. Gross fixed capital formation mainly consists of buildings; therefore, it should be allocated to the region where they are situated.13.28. Output is to be valued at basic prices (see paragraph 3.47). Products used for intermediate consumption are to be valued at purchasers' prices at the time they enter the process of production (see paragraph 3.72). As a consequence gross value-added per industry is valued at basic prices.Gross fixed capital formation is valued at purchasers' prices including installation charges and other costs of ownership transfer. When produced on own-account it is valued at basic prices of similar fixed assets or at costs of production if such prices are not available (see paragraph 3.113).13.29. The regional equivalent of GDP is GDPR (gross domestic product per region). GDPR is valued at market prices by adding the regionalized taxes less subsidies on products and imports to values added per region at basic prices. The sum of GDPR at market prices per region, including GDPR of the extraregio territory, equals GDP at market prices.HOUSEHOLD ACCOUNTS13.30. Gross domestic product per region is the result of the productive activities of the local KAUs resident in a region. The processes of distribution and redistribution of income result in other meaningful balancing items, namely primary income and disposable income. Due to the considerations mentioned in paragraphs 13.10 to 13.14, in regional accounts these income concepts are limited to households.13.31. Regional accounts of households are a regional specification of the corresponding accounts at the national level. For practical reasons the accounts are limited to:(a) allocation of primary income account;(b) secondary distribution of income account.In general terms, they aim at measuring primary income and disposable income of households which are resident in a region.13.32. The regional household accounts are based on the households that are resident in a regional territory. For the definition of households as institutional units and for the definition of the institutional sector households, see paragraphs 2.13, 2.16, 2.75 and 2.76. The number of persons that are members of the resident households add up to the total resident population of the region.13.33. In general the rules for determining the residence of households at national level also apply to the regional accounts of households. However, concerning the residence of students and long-term patients an exception is made when the host region is in the same country. In regional accounts, they are treated as resident of the host region if they stay there more than one year.13.34. In the regional accounts of households, two considerations have to be made regarding households owning an unincorporated enterprise, land and/or a second dwelling in another region:(a) a household owning an unincorporated enterprise (not viewed as a quasi-corporation at the national level) in another regionthe unincorporated enterprise is considered to be a resident (notional unit) in the host region. As a consequence, mixed income resulting from the compilation of aggregates by industry is part of the mixed income of the host region. However mixed income as registered in the allocation of primary income account of households per region is to be equal to total mixed income received by households resident in a region, irrespective of the region in which this income is generated;(b) a household owning land and/or a second dwelling in another regionhere, the land and/or the second dwelling are also considered to be notional units resident in the host region. Consequently, the rents payable by the tenants of the land and/or the dwelling are paid to the notional unit. If the second dwelling is used by the owner for own final consumption, the rental value should be registered as an interregional export from the region where the dwelling is located to the region where the owner resides. The latter region thus imports this service and uses it for final consumption expenditure of households. As in the case of mixed income, the operating surplus resulting from this production process will differ from the operating surplus in the allocation of primary income accounts of households; for the total economy, both are equal.(1) See chapter 8: 'Sequence of accounts and balancing items`.(2) See chapter 9: 'The input-output framework`.(3) See chapter 8: 'Sequence of accounts and balancing items`.(4) See chapter 11: 'Population and labour inputs`.(5) See chapter 12: 'Quarterly economic accounts`.(6) See chapter 13: 'Regional accounts`.(7) See chapter 8: 'Sequence of accounts and balancing items`.(8) See chapter 2: 'Units and groupings of units`.(9) See chapter 3: 'Transactions in products`.(10) See chapter 4: 'Distributive transactions`.(11) See chapter 5: 'Financial transactions`.(12) See chapter 6: 'Other flows`.(13) See chapter 6: 'Other flows`.(14) The consequences of minor crimes, such as shoplifting, may be recorded as part of change in inventories and thus as a transaction.(15) See chapter 7: 'Balance sheets`.(16) See chapter 7: 'Balance sheets`, and chapter 8: 'Sequence of accounts and balancing items`.(17) See chapter 3: 'Transactions in products`.(18) See chapter 10: 'Price and volume measures`.(19) See chapter 11: 'Population and labour inputs`.(20) See chapter 9: 'The input-output framework`.(21) Fishing boats, other ships, floating platforms and aircraft are treated in the ESA just like any other mobile equipment, whether owned and/or operated by units resident in the country, or owned by non-residents and operated by resident units. Transactions involving the ownership (gross fixed capital formation) and use (renting, insurance, etc.) of this type of equipment are attributed to the economy of the country of which the owner and/or operator respectively are resident. In cases of financial leasing a change of ownership is assumed.(22) The territories used by the institutions of the European Union and international organizations thus constitute the territories of States sui generis. The feature of such States is that the only residents are the institutions themselves (see paragraph 2.10. e).(23) Consumption is not the only possible activity of households. Households may as entrepreneurs engage in any kind of economic activity.(24) It is only where such activity is carried on for less than a year that it should not be separated from the activities of the producer institutional unit. This may also be done where the activity, though conducted for a year or more, is insignificant, and in all circumstances for the installation of equipment abroad. But a unit which is resident in another country and which is carrying out a construction activity in the country for a duration of less than a year is deemed to have a centre of economic interest on the economic territory of the country if the output of the construction activity constitutes gross fixed capital formation. Such a unit should therefore be treated as a notional resident unit.(25) Students are always treated as residents, however long they study abroad.(26) By convention, market regulatory agencies whose sole or principal activity is to buy, hold and sell agricultural and other food products are classified under S.11 (see paragraph 2.69 (a) note (11)).(27) Including institutions financed by voluntary contributions of a quasi-fiscal nature, levied on producers by units whose principal activity is to provide services in exchange. These contributions are considered as purchases of market services.(28) By convention, sector S.12 includes holding corporations which only control and direct a group of subsidiaries principally engaged in financial intermediation and/or in auxiliary financial activities (see paragraph 2.43) and non-profit institutions recognized as independent legal entities serving financial corporations (see paragraph 2.44).(29) The classification of holding corporations within the financial corporations sector deviates from the 1993 SNA 4.100 in order to maintain consistency with the monetary financial institutions for statistical purposes as defined by the EMI and with official statistics on insurance corporations.(30) This is a deviation from the 1993 SNA 4.86 and 4.101 in order to maintain consistency with the monetary financial institutions for statistical purposes as defined by the EMI.(31) By convention, market regulatory organizations which are either exclusively or principally simple distributors of subsidies are classified in S.13, subsector central government S.1311. However, those organizations which are exclusively or principally engaged in buying, holding and selling agricultural or food products are classified in S.11 (see paragraph 2.21, note 6).(32) NPIs controlled and mainly financed by general government are classified in the general government sector (see paragraph 2.69 b).(33) Included are the institutions of the EU and international organizations (see also paragraph 2.06).(34) NACE Rev. 1: Statistical Classification of Economic Activities in the European Community in accordance with the Council Regulation (EEC) No 3037/90 of 9 October 1990.(35) The local KAU is called establishment in the SNA and ISIC Rev. 3.(36) Services for own final use concern only housing services produced by owner-occupiers and domestic services produced by employing paid staff (see paragraph 3.21).(37) Services for own final use concern only housing services produced by owner-occupiers and domestic services produced by employing paid staff (see paragraph 3.21).(38) CPA: Classification of Products by Activity in accordance with the Council Regulation (EEC) No 3696/93 of 29 October 1993.(39) Though these revenues may not be sufficient to cover 50 % of all the costs of the museum shop, e.g. because that also includes compensation of employees of the museum shop personnel.(40) For the trade and transport margins included, see also table 3.5, third column in second part of the table.(41) Employers' imputed social contributions include an amount equal in value to the wages and salaries which employers temporarily continue to pay in the event of the sickness, maternity, industrial injury, disability, redundancy, etc. of their employees, if that amount can be separated.(42) Subsidies are granted by the institutions of the European Union to units resident anywhere in the Community.(43) However, when a grant serves the dual purpose of financing both the amortization of the debt and the payment of interest on it, and when it is not possible to apportion it between the two elements, the whole of the grant is treated as an investment grant.(44) This practice differs from that of most business accounting, where interest paid is normally shown as a fixed charge similar to other costs of production in the operating account.(45) The borderline between taxes and purchases of services from government is defined according to the same criteria as those used in the case of payments made by enterprises: if the licences are being granted automatically on payment of the amounts due, their payment is treated as taxes. But if the government uses the issue of licences to organize some proper regulatory function (such as checking the competence, or qualifications, of the person concerned), the payments made should be treatead as purchases of services from government rather than payments of taxes, unless the payments are clearly out of all proportion to the cost of providing the services.(46) The borderline between taxes and purchases of services from government is defined according to the same criteria as those used in the case of payments made by enterprises: if the licences are being granted automatically on payment of the amounts due, their payment is treated as taxes. But if the government uses the issue of licences to organize some proper regulatory function (such as checking the competence, or qualifications, of the person concerned), the payments made should be treatead as purchases of services from government rather than payments of taxes, unless the payments are clearly out of all proportion to the cost of providing the services.(47) In the case of housing, payments made by public authorities to tenants in order to reduce their rents are social benefits, with the exception of special benefits paid by public authorities in their capacity as employers.(48) Life insurance premiums do not appear as such in the system of accounts. They are divided into: (a) premiums constituting a form of social contribution (they are paid to social insurance schemes); (b) individual life insurance premiums. The former are included under the heading actual social contributions and the latter are not treated as distributive transactions. Both categories of life insurance premiums increase the insurance technical reserves which appear in the financial account and in the balance sheet.(49) Life insurance claims do not appear as such in the system of accounts. They are divided into: (a) claims constituting a form of social benefits; (b) individual life insurance claims. The former are included under the heading social benefits other than social transfers in kind and the latter are not treated as distributive transactions. Both categories of life insurance claims reduce the insurance technical reserves which appear in the financial account, and in the balance sheet.(50) Current transfers within general government are flows internal to the general government sector, and do not appear in a consolidated account for the sector as a whole.(51) International organisations, in the sense used in the system, derive their authority either directly from the national States which are their members or indirectly from them through other international organisations whose members are national States.(52) The levies paid by resident producer units to the Institutions of the European Union are recorded in the accounts as taxes on production paid to the rest of the world; GNP based fourth own resource created by the Council Decision of 24 June 1988 on the system of the Communities' own resources is classified in D.75 Miscellaneous current transfers.(53) The current transfers which the Institutions of the European Union make directly to resident market producer units are shown as subsidies paid by the rest of the world.(54) However, capital gain taxes are shown in the accounts under the heading current taxes on income, wealth, etc.(55) Investment grants made by the rest of the world include those paid directly by the institutions of the European Union (e.g. certain transfers made by the European Agricultural Guidance and Guarantee Fund, EAGGF Guidance Section).(56) Investment grants within general government are flows internal to the general government sector and do not appear in a consolidated account for the sector as whole.(57) These transfers between subsectors of general government are flows within the general government sector and do not appear in a consolidated account for the sector as a whole.(58) Insurance technical reserves (AF.6) are unconditional liabilities of insurance corporations and pension funds. However, the counterpart financial assets of individual policy holders and beneficiaries are contingent assets in most cases.(59) The 1993 SNA (11.103 to 11.111) uses the term detailed flow of funds account.(60) In certain cases, securities other than shares issued by the general government sector with a maturity up to five years may be classified as short-term.(61) The 1993 SNA (11.32, 11.72 and 11.83) classifies repurchase agreements under loans unless they involve bank liabilities and are classified in national measures of broad money; in the latter case, repurchase agreements are classified under other deposits.(62) Articles 6.2 and 6.3 of the Protocol on the Statute of the European Monetary Institute annexed to the Treaty establishing the European Community.(63) Article 6.1 second indent of the Protocol on the Statute of the European Monetary Institute annexed to the Treaty establishing the European Community.(64) The 1993 SNA (11.79, 11.80 and 11.81) recommends an optional subclassification of transactions in securities other than shares by maturity into short-term (F.31) and long-term (F.32). However, the 1993 SNA (11.82) provides for an additional optional subclassification of transactions in securities other than shares showing transactions in financial derivatives separately where they are important from the point of view of analysis and policy. This second option is adopted in the ESA. It also facilitates the linkage to the sub-category debt securities as defined in the 1993 Balance of Payments Manual, which divides debt securities into bonds, notes, money market instruments and financial derivatives. The codes F.31 and F.32 are not used in the ESA to avoid confusion with the 1993 SNA codes.(65) Foreign exchange swaps between the central bank and other monetary financial institutions, that is a central bank acquires foreign exchange from another monetary financial institution in return for a deposit at the central bank and there is a commitment to reverse the transaction at a later date, are not classified in the category loans. This is a deviation from the 1993 SNA (11.33).(66) See Annex II 'Leasing and hire purchase of durable goods`.(67) Article 6.1 third indent of the Protocol on the Statute of the European Monetary Institute annexed to the Treaty establishing the European Community.(68) Consumer credit are loans granted to households, which in the case of these transactions are acting for purposes outside their business and profession. Mortgage loans for financing house building or buying (amongst others bridging loans) are excluded. It is the intention that consumer credit relates exclusively to credits used for buying goods and/or services which are consumed by the households individually. National practices might necessitate a somewhat different definition.(69) Mortgage loans are long-term loans secured by a mortgage on a dwelling used by the borrower for its own accommodation. National practices might necessitate a somewhat different definition.(70) Net assets in the event of liquidation are defined as the amount of assets of an enterprise less all liabilities other than liabilities to the owners themselves in respect of their invested capital.(71) Article 16.2 of the Protocol on the Statute of the European Monetary Institute annexed to the Treaty establishing the European Community.(72) See Annex III on insurance for a description of the treatment of social insurance and other insurance in the system.(73) OJ No L 374, 31. 12. 1991, pp. 7-31.(74) OECD benchmark definition of foreign direct investment, third edition.(75) For the definition of assets, see Annex 7.1 to chapter 7.(76) For the definition of assets, see Annex 7.1 to chapter 7.(77) The term 'holding gain` is used to cover both holding gains and losses on the clear understanding that holding gains may be negative as well as positive. Similarly, the term 'asset` may be used collectively to cover both assets and liabilities.(78) The system recommends this treatment, but allows for recording of such interest under other accounts receivable/payable (AF.7) where required to conform to national practices (see paragraph 5.130).(79) Two kinds of durable goods used by producers are excluded from gross fixed capital formation: small tools and certain kinds of military equipment. Therefore there are no corresponding assets. In addition, transport equipment and other machinery and equipment acquired by households for final consumption are not considered fixed assets. They are included in the memorandum item 'consumer durables` in the balance sheet (see paragraph 7.63).(80) Insurance technical reserves (AF.6) are unconditional liabilities of insurance corporations and pension funds. However, the counterpart financial assets of individual policy holders and beneficiaries are contingent assets in most cases.(81) The sum of written-down values of all fixed assets still in use is described as net capital stock. Gross capital stock includes the values of the accumulated consumption of fixed capital.(82) Statistical Classification of Products by Activity (CPA), 1993.(83) See chapter 3: 'Transactions in products`.(84) The social contributions shown on the uses side of the secondary distribution of income account of households are net of the service charges of the pension funds and other insurance companies, all or part of whose resources are made up of actual social contributions.(85) See chapter 4: 'Distributive transactions`.(86) See chapter 5: 'Financial transactions` and chapter 6: 'Other flows`.(87) See chapter 7: 'Balance sheets`.(88) In 1979 ESA, GNP (at market prices) was calculated by adding to gross domestic product (at market prices) the compensation of employees and the property income received from the rest of the world and by deducting the corresponding flows paid to the rest of the world.(89) Global estimation of this concept may be necessary when the social contribution of an employee depends not only on the wage and salary but also on, e.g. the other revenues of the employee, the age and the marital status.(90) The concept of household is defined in the chapter 'Units and groupings of units`.(91) Including accompanying members of their households.(92) 'Employees` corresponds to the International Labour Organization definition of 'paid employment`.(93) An outworker is a person who agrees to work for a particular enterprise or to supply a certain quantity of goods or services to a particular enterprise by prior arrangement or contract with that enterprise, but whose place of work is not within it.(94) The explicit or implicit contract relates to the provision of labour input, not to supplying output of a good or service.(95) Work means any activity which contributes to the production of goods or services within the production boundary. The legality of the work and the age of the worker are, in principle, irrelevant.(96) Compensation must be interpreted here in a wide sense including mixed income of self-employed persons.(97) Significant labour input, in this context, has to be considered as a minimum of the yearly equivalent of one person working half-day.\n<|assistant|>\nEuropean system of national and regional accounts in the Community European system of national and regional accounts in the Community The purpose of this Regulation is to make available comparable, up-to-date and reliable information on the structure and developments in the economic situation of the Member States of the European Union (EU) and their regions. This system of national accounts meets the requirements of the Community's economic and social policy. It also contributes to management of the economic and monetary union (EMU) and is thus an important tool in analysing the economic situation in a particular country or region. ACT Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community [See amending acts]. SUMMARY The European system of national and regional accounts (\"ESA 1995\") makes it possible to describe the total economy of a region, country or group of countries, its components and its relations with other total economies. The ESA is focused on the circumstances and needs of the EU. It can therefore serve as the central framework of reference for the social and economic statistics of the European Union and its Member States. Content of the ESA The ESA 1995 comprises two sets of tables: the sector accounts *; the input-output framework * and the accounts by industry *. The purpose of this Regulation is to set up the ESA 1995 by providing for: a methodology on common standards, definitions, classifications and accounting rules, that is intended to be used for compiling accounts and tables on comparable bases between the Member States for the purposes of the Community; a programme, Eurostat, for transmitting on precise dates the accounts and tables compiled according to the ESA 1995. Use The Commission uses the national accounts aggregates for Community administrative and budgetary calculations. The ESA applies to all Community acts in which reference is made to it or to the definitions it lays down. Key terms used in the act Sector accounts: these provide, by institutional sector, a systematic description of the different stages of the economic process: production, generation of income, distribution of income, redistribution of income and use of income, as well as financial and non-financial accumulation; they also include balance sheets to describe the stocks of assets, liabilities and net worth at the beginning and at the end of the accounting period. Input-output framework and accounts by industry: these describe in more detail the production process (cost structure, income generated and employment) and the flows of goods and services (output, imports, exports, intermediate consumption and capital formation by product group). References Act Entry into force Deadline for transposition in the Member States Official Journal Regulation (EC) No 2223/96 20.12.1996 - OJ L 310 of 30.11.1996 Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal Regulation (EC) No 2516/2000 7.12.2000 - OJ L 290 of 17.11.2000 Regulation (EC) No 359/2002 20.3.2002 - OJ L 58 of 28.2.2002 Regulation (EC) No 1392/2007 30.12.2007 - OJ L 324 of 10.12.2007 Regulation (EC) No 400/2009 10.06.2009 - OJ L 126 of 21.5.2009 Regulation (EC) No 715/2010 31.08.2010 - OJ L 210 of 11.8.2010 Subsequent amendments and corrections to Regulation 2223/96 have been incorporated in the basic text. This consolidated version is for reference purpose only. Related acts Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 implementing Decision 94/728/EC, Euratom on the system of Community own resources [Official Journal L 130 of 31.5.2000].See consolidated version Council Regulation (EC) No 479/2009 of 25 May 2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community [Official Journal L 145 of 10.6.2009].See consolidated version Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax [Official Journal L 155 of 7.6.1989].See consolidated version Council Directive 89/130/EEC, Euratom of 13 February 1989 on the harmonisation of the compilation of gross national product at market prices [Official Journal L 49 of 21.2.1989].See consolidated version consolidated version Last updated: 03.11.2010\n<|endoftext|>"}}}],"truncated":false,"partial":false},"paginationData":{"pageIndex":0,"numItemsPerPage":100,"numTotalItems":1129,"offset":0,"length":100}},"jwt":"eyJhbGciOiJFZERTQSIsImtpZCI6IjVHZDBvd0g5MTM2eDZjc1FvbE1zcktNWUZoRVFoUm5PVVVybEpjOUhaUEEifQ.eyJyZWFkIjp0cnVlLCJwZXJtaXNzaW9ucyI6eyJyZXBvLmNvbnRlbnQucmVhZCI6dHJ1ZX0sImlhdCI6MTc4NjMyMzI0NCwianRpIjoiYzAyYTQ5NjMtN2ZjZS00YmRkLWE1ZWItODU3MzFkZmFmNjYxIiwic3ViIjoiL2RhdGFzZXRzL0dlZXRodXp6ei9sZWdhbC1zdW1tYXJpemF0aW9uLWZvcm1hdHRlZC1FdXJMZXhTdW0iLCJleHAiOjE3ODYzMjY4NDQsImlzcyI6Imh0dHBzOi8vaHVnZ2luZ2ZhY2UuY28ifQ.y-4aDInQuAt6o3wIdLnglAaetsSaKFr5VvKLifrdtFwDlqtEmvRIFzPgSDYOzv4T7XQC2k5yMrlktPUwuVruAg","displayUrls":true,"splitSizeSummaries":[{"config":"default","split":"train","numRows":1129,"numBytesParquet":36647734},{"config":"default","split":"test","numRows":188,"numBytesParquet":9886377}]},"discussionsStats":{"closed":0,"open":0,"total":0},"fullWidth":true,"hasGatedAccess":true,"hasFullAccess":true,"isEmbedded":false,"savedQueries":{"community":[],"user":[]}}">
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25.10.2019 EN Official Journal of the European Union L 272/74 COMMISSION REGULATION (EU) 2019/1781 of 1 October 2019 laying down ecodesign requirements for electric motors and variable ... |
<|system|>
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25.10.2019 EN Official Journal of the European Union L 272/121 COMMISSION REGULATION (EU) 2019/1784 of 1 October 2019 laying down ecodesign requirements for welding equipment pursuant t... |
<|system|>
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25.10.2019 EN Official Journal of the European Union L 272/95 COMMISSION REGULATION (EU) 2019/1782 of 1 October 2019 laying down ecodesign requirements for external power supplies pursu... |
<|system|>
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2.7.2019 EN Official Journal of the European Union L 178/1 COUNCIL REGULATION (EU) 2019/1111 of 25 June 2019 on jurisdiction, the recognition and enforcement of decisions in matrimonial... |
<|system|>
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20.6.2019 EN Official Journal of the European Union L 163/1 COUNCIL DIRECTIVE (EU) 2019/997 of 18 June 2019 establishing an EU Emergency Travel Document and repealing Decision 96/409/CF... |
<|system|>
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15.3.2019 EN Official Journal of the European Union L 73/121 COMMISSION IMPLEMENTING DECISION (EU) 2019/417 of 8 November 2018 laying down guidelines for the management of the European ... |
<|system|>
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31.12.2018 EN Official Journal of the European Union L 334/94 COMMISSION IMPLEMENTING REGULATION (EU) 2018/2067 of 19 December 2018 on the verification of data and on the accreditation ... |
<|system|>
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2.6.2017 EN Official Journal of the European Union L 142/4 COUNCIL DECISION (EU) 2017/939 of 11 May 2017 on the conclusion on behalf of the European Union of the Minamata Convention on ... |
<|system|>
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27.10.2017 EN Official Journal of the European Union L 278/3 TREATY establishing the Transport Community The Parties, being THE EUROPEAN UNION, hereinafter referred to as ‘the Union’ or... |
<|system|>
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24.10.2017 EN Official Journal of the European Union L 274/3 AGREEMENT between the European Union and Iceland on the protection of geographical indications for agricultural products and... |
<|system|>
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6.10.2017 EN Official Journal of the European Union L 258/4 BILATERAL AGREEMENT between the European Union and the United States of America on prudential measures regarding insurance an... |
<|system|>
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15.9.2017 EN Official Journal of the European Union L 237/7 FRAMEWORK AGREEMENT between the European Union and its Member States, of the one part, and Australia, of the other part The E... |
<|system|>
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14.12.2017 EN Official Journal of the European Union L 331/1 COUNCIL DECISION (EU) 2017/2307 of 9 October 2017 on the conclusion of the Agreement between the European Union and the Repu... |
<|system|>
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7.12.2017 EN Official Journal of the European Union L 322/3 AGREEMENT between the European Union and the Swiss Confederation on the linking of their greenhouse gas emissions trading sys... |
<|system|>
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21.11.2017 EN Official Journal of the European Union L 304/24 COMMISSION REGULATION (EU) 2017/2158 of 20 November 2017 establishing mitigation measures and benchmark levels for the redu... |
<|system|>
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<|user|>
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12.4.2017 EN Official Journal of the European Union L 99/1 DECISION (EU) 2017/684 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 5 April 2017 on establishing an information exchange m... |
<|system|>
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28.11.2017 EN Official Journal of the European Union L 312/54 COMMISSION REGULATION (EU) 2017/2196 of 24 November 2017 establishing a network code on electricity emergency and restorati... |
<|system|>
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25.8.2017 EN Official Journal of the European Union L 220/1 COMMISSION REGULATION (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation (... |
<|system|>
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18.7.2017 EN Official Journal of the European Union L 185/1 DECISION (EU) 2017/1324 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 4 July 2017 on the participation of the Union in the... |
<|system|>
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14.10.2017 EN Official Journal of the European Union L 265/1 COUNCIL DIRECTIVE (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union THE COUNCIL O... |
<|system|>
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13.12.2016 EN Official Journal of the European Union LI 337/3 POLITICAL DIALOGUE AND COOPERATION AGREEMENT between the European Union and its Member States, of the one part, and the Rep... |
<|system|>
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15.6.2016 EN Official Journal of the European Union L 157/1 DIRECTIVE (EU) 2016/943 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 8 June 2016 on the protection of undisclosed know-ho... |
<|system|>
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19.1.2016 EN Official Journal of the European Union L 12/1 COUNCIL REGULATION (EU) 2016/44 of 18 January 2016 concerning restrictive measures in view of the situation in Libya and repea... |
<|system|>
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21.9.2016 EN Official Journal of the European Union L 255/25 COUNCIL DECISION (CFSP) 2016/1693 of 20 September 2016 concerning restrictive measures against ISIL (Da'esh) and Al-Qaeda an... |
<|system|>
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28.11.2015 EN Official Journal of the European Union L 313/22 COMMISSION DELEGATED REGULATION (EU) 2015/2195 of 9 July 2015 on supplementing Regulation (EU) No 1304/2013 of the European... |
<|system|>
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28.1.2015 EN Official Journal of the European Union L 22/1 COUNCIL REGULATION (EU) 2015/104 of 19 January 2015 fixing for 2015 the fishing opportunities for certain fish stocks and grou... |
<|system|>
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12.11.2015 EN Official Journal of the European Union L 295/21 COMMISSION IMPLEMENTING REGULATION (EU) 2015/2017 of 11 November 2015 laying down implementing technical standards with reg... |
<|system|>
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31.3.2015 EN Official Journal of the European Union L 86/13 REGULATION (EU) 2015/534 OF THE EUROPEAN CENTRAL BANK of 17 March 2015 on reporting of supervisory financial information (ECB... |
<|system|>
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1.12.2015 EN Official Journal of the European Union L 314/1 DIRECTIVE (EU) 2015/2203 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 25 November 2015 on the approximation of the laws o... |
<|system|>
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<|user|>
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17.9.2015 EN Official Journal of the European Union L 241/1 DIRECTIVE (EU) 2015/1535 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 9 September 2015 laying down a procedure for the pr... |
<|system|>
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<|user|>
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2.2.2016 EN Official Journal of the European Union L 25/1 COMMISSION DELEGATED REGULATION (EU) 2016/127 of 25 September 2015 supplementing Regulation (EU) No 609/2013 of the European Pa... |
<|system|>
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<|user|>
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2.2.2016 EN Official Journal of the European Union L 25/30 COMMISSION DELEGATED REGULATION (EU) 2016/128 of 25 September 2015 supplementing Regulation (EU) No 609/2013 of the European P... |
<|system|>
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<|user|>
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27.7.2017 EN Official Journal of the European Union L 195/3 FRAMEWORK AGREEMENT between the European Union and Kosovo (*1) on the general principles for the participation of Kosovo in U... |
<|system|>
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<|user|>
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21.10.2016 EN Official Journal of the European Union L 287/3 STEPPING STONE ECONOMIC PARTNERSHIP AGREEMENT between Ghana, of the one part, and the European Community and its Member Stat... |
<|system|>
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<|user|>
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19.10.2016 EN Official Journal of the European Union L 282/1 COUNCIL DECISION (EU) 2016/1841 of 5 October 2016 on the conclusion, on behalf of the European Union, of the Paris Agreement... |
<|system|>
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<|user|>
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16.3.2016 EN Official Journal of the European Union L 71/3 STABILISATION AND ASSOCIATION AGREEMENT between the European Union and the European Atomic Energy Community, of the one part, ... |
<|system|>
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<|user|>
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4.2.2016 EN Official Journal of the European Union L 29/3 ENHANCED PARTNERSHIP AND COOPERATION AGREEMENT between the European Union and its Member States, of the one part, and the Repub... |
<|system|>
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<|user|>
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8.12.2015 EN Official Journal of the European Union C 407/8 COMMISSION DECISION of 24 November 2015 on the coordination of the actions of the Union and of the Member States through a co... |
<|system|>
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<|user|>
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18.11.2015 EN Official Journal of the European Union L 301/47 COUNCIL DECISION (EU) 2015/2071 of 10 November 2015 authorising Member States to ratify, in the interests of the European U... |
<|system|>
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<|user|>
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20.1.2016 EN Official Journal of the European Union L 13/2 COUNCIL REGULATION (Euratom) 2016/52 of 15 January 2016 laying down maximum permitted levels of radioactive contamination of f... |
<|system|>
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<|user|>
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28.10.2016 EN Official Journal of the European Union L 293/4 UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT INTERNATIONAL AGREEMENT ON OLIVE OIL AND TABLE OLIVES, 2015 UNITED NATION... |
<|system|>
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<|user|>
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30.7.2021 EN Official Journal of the European Union L 274/1 REGULATION (EU) 2021/1229 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 July 2021 on the public sector loan facility un... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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EUR-Lex - 31997R0515 - EN Avis juridique important | 31997R0515 Council Regulation (EC) No 515/97 of 13 March 1997 on mutual assistance between the administrative authorities of the Mem... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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13.3.1997 EN Official Journal of the European Communities L 71/1 COUNCIL REGULATION (EC) No 467/97 of 3 March 1997 providing for duty-free treatment for specified pharmaceutical active ... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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10.2.2009 EN Official Journal of the European Union L 39/1 COUNCIL REGULATION (EC) No 116/2009 of 18 December 2008 on the export of cultural goods (Codified version) THE COUNCIL OF THE ... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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31.3.2010 EN Official Journal of the European Union L 84/1 COUNCIL DIRECTIVE 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, dutie... |
<|system|>
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<|user|>
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EUR-Lex - 21999A0618(01) - EN Avis juridique important | 21999A0618(01) Agreement between the European Community and Hong Kong, China on cooperation and mutual administrative assistance... |
<|system|>
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<|user|>
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14.10.2019 EN Official Journal of the European Union L 261/37 COMMISSION IMPLEMENTING REGULATION (EU) 2019/1715 of 30 September 2019 laying down rules for the functioning of the informa... |
<|system|>
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<|user|>
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21.2.2019 EN Official Journal of the European Union L 50/55 COMMISSION IMPLEMENTING DECISION (EU) 2019/300 of 19 February 2019 establishing a general plan for crisis management in the f... |
<|system|>
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<|user|>
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2.12.2016 EN Official Journal of the European Union L 327/1 DIRECTIVE (EU) 2016/2102 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 26 October 2016 on the accessibility of the website... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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6.5.2014 EN Official Journal of the European Union L 133/1 DIRECTIVE 2014/55/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 April 2014 on electronic invoicing in public procurem... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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5.6.2019 EN Official Journal of the European Union L 147/3 VOLUNTARY PARTNERSHIP AGREEMENT between the European Union and the Socialist Republic of Viet Nam on forest law enforcement, g... |
<|system|>
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<|user|>
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11.1.2019 EN Official Journal of the European Union L 9/2 COMMISSION DELEGATED REGULATION (EU) 2019/33 of 17 October 2018 supplementing Regulation (EU) No 1308/2013 of the European Parl... |
<|system|>
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<|user|>
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17.9.2020 EN Official Journal of the European Union L 303/1 COMMISSION IMPLEMENTING REGULATION (EU) 2020/1294 of 15 September 2020 on the Union renewable energy financing mechanism (Tex... |
<|system|>
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<|user|>
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15.3.2019 EN Official Journal of the European Union L 73/1 COUNCIL DECISION (EU) 2019/407 of 4 March 2019 on the conclusion, on behalf of the European Union, of the Agreement to Prevent... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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31.1.2019 EN Official Journal of the European Union L 29/1 COUNCIL REGULATION (EU) 2019/124 of 30 January 2019 fixing for 2019 the fishing opportunities for certain fish stocks and grou... |
<|system|>
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<|user|>
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10.1.2020 EN Official Journal of the European Union L 6/15 COMMISSION DELEGATED DIRECTIVE (EU) 2020/12 of 2 August 2019 supplementing Directive (EU) 2017/2397 of the European Parliament... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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31.8.2017 EN Official Journal of the European Union L 224/1 COUNCIL REGULATION (EU) 2017/1509 of 30 August 2017 concerning restrictive measures against the Democratic People's Republic ... |
<|system|>
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<|user|>
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12.5.2017 EN Official Journal of the European Union L 121/39 COUNCIL DECISION (CFSP) 2017/809 of 11 May 2017 in support of the implementation of United Nations Security Council Resoluti... |
<|system|>
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<|user|>
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4.4.2017 EN Official Journal of the European Union L 90/12 COUNCIL DECISION (CFSP) 2017/633 of 3 April 2017 in support of the United Nations Programme of Action to Prevent, Combat and E... |
<|system|>
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<|user|>
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8.3.2017 EN Official Journal of the European Union L 62/1 COMMISSION IMPLEMENTING REGULATION (EU) 2017/373 of 1 March 2017 laying down common requirements for providers of air traffic m... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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21.5.2016 EN Official Journal of the European Union L 132/1 DIRECTIVE (EU) 2016/800 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 11 May 2016 on procedural safeguards for children wh... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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20.2.2016 EN Official Journal of the European Union C 67/1 COUNCIL RECOMMENDATION of 15 February 2016 on the integration of the long-term unemployed into the labour market (2016/C 67/01... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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14.12.2017 EN Official Journal of the European Union L 331/57 COUNCIL DECISION (CFSP) 2017/2315 of 11 December 2017 establishing permanent structured cooperation (PESCO) and determining... |
<|system|>
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<|user|>
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14.11.2017 EN Official Journal of the European Union L 295/21 COUNCIL REGULATION (EU) 2017/2063 of 13 November 2017 concerning restrictive measures in view of the situation in Venezuela... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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23.12.2015 EN Official Journal of the European Union L 337/35 DIRECTIVE (EU) 2015/2366 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 25 November 2015 on payment services in the inter... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
24.3.2016 EN Official Journal of the European Union L 78/11 COMMISSION DELEGATED REGULATION (EU) 2016/438 of 17 December 2015 supplementing Directive 2009/65/EC of the European Parliame... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
4.11.2016 EN Official Journal of the European Union L 297/1 DIRECTIVE (EU) 2016/1919 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 26 October 2016 on legal aid for suspects and accus... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
19.7.2016 EN Official Journal of the European Union L 194/1 DIRECTIVE (EU) 2016/1148 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 6 July 2016 concerning measures for a high common l... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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21.5.2016 EN Official Journal of the European Union L 132/21 DIRECTIVE (EU) 2016/801 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 11 May 2016 on the conditions of entry and residenc... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
4.5.2016 EN Official Journal of the European Union L 119/132 DIRECTIVE (EU) 2016/681 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 27 April 2016 on the use of passenger name record (... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
4.5.2016 EN Official Journal of the European Union L 119/89 DIRECTIVE (EU) 2016/680 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 27 April 2016 on the protection of natural persons w... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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11.3.2016 EN Official Journal of the European Union L 65/1 DIRECTIVE (EU) 2016/343 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 9 March 2016 on the strengthening of certain aspects ... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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10.12.2016 EN Official Journal of the European Union L 336/3 AGREEMENT between the United States of America and the European Union on the protection of personal information relating to ... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
13.3.2015 EN Official Journal of the European Union L 68/9 DIRECTIVE (EU) 2015/413 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 11 March 2015 facilitating cross-border exchange of i... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
22.5.2015 EN Official Journal of the European Union L 127/20 COUNCIL DECISION (EU) 2015/799 of 18 May 2015 authorising Member States to become party, in the interest of the European Uni... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
8.7.2016 EN Official Journal of the European Union L 183/1 COUNCIL REGULATION (EU) 2016/1103 of 24 June 2016 implementing enhanced cooperation in the area of jurisdiction, applicable la... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
26.5.2016 EN Official Journal of the European Union L 138/44 DIRECTIVE (EU) 2016/797 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 11 May 2016 on the interoperability of the rail sys... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
26.5.2016 EN Official Journal of the European Union L 138/102 DIRECTIVE (EU) 2016/798 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 11 May 2016 on railway safety (recast) (Text with ... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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26.10.2018 EN Official Journal of the European Union L 268/3 TRANSLATION COOPERATION AGREEMENT between the European Union and the Agency for Aerial Navigation Safety in Africa and Madag... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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31.10.2017 EN Official Journal of the European Union L 283/1 COUNCIL REGULATION (EU) 2017/1939 of 12 October 2017 implementing enhanced cooperation on the establishment of the European ... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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19.7.2016 EN Official Journal of the European Union L 193/1 COUNCIL DIRECTIVE (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the f... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
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25.6.2020 EN Official Journal of the European Union L 202/3 STATUS AGREEMENT between the European Union and the Republic of Serbia on actions carried out by the European Border and Coas... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
8.2.2005 EN Official Journal of the European Union L 35/23 REGULATION (EC) No 184/2005 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 12 January 2005 on Community statistics concernin... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
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Summarize the following text:
EUR-Lex - 32000L0043 - EN Avis juridique important | 32000L0043 Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective o... |
<|system|>
You are a helpful assistant that summarizes text clearly, accurately, and concisely.
<|user|>
Summarize the following text:
EUR-Lex - 31996R2223 - EN Avis juridique important | 31996R2223 Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Commun... |
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