The IMF's Statistical Systems in Context of Revision of the United Nations' A System of National Accounts

32 Fixed Capital Formation by Owner and User

Vicente Galbis
Published Date:
September 1991
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Heinrich Lützel

The United Nations' A System of National Accounts (SNA) and the Provisional Guidelines (M 60)1 do not distinguish between the concepts of owner and user when allocating fixed capital formation or fixed assets to investing sectors (producers). It seems to be obvious that in the SNA fixed assets have to be attributed to the owner.2 For many purposes of the data, this way of recording should indeed be given priority and be included as the predominant concept in the revised SNA. In particular, the owner concept should be used for recording the financing of fixed capital formation, calculating the operating surplus (allocation of fixed capital consumption), and drawing up property balance sheets recording the net worth.

If fixed capital formation and the stock of fixed capital are analyzed in conjunction with the production of goods and services (capital stock, capital as a factor of production), it is expedient to record these commodities where they are actually used in production for a long period. This is also what the Guidelines on Statistics of Tangible Assets suggest.3 For the recording of fixed assets, a distinction between the two concepts has always to be made if tangible assets are recorded in the balance sheets of their owner while they are actually being used in production for a long period by other economic units (in other words, if producers are using fixed assets that are not part of the property of these users). As a rule, the fixed assets thus are rented to producers.

Over the past few years, the renting of fixed assets in the form of financial leasing has gained considerable importance (see Chapters 25 and 26 of this volume). This is, from an economic point of view, a special form of financing of fixed capital formation rather than a type of renting in the normal sense of the word. Therefore, it has been suggested that the revised SNA should consider financial leasing as a pure financial activity, on the one hand, and as an acquisition of a fixed asset on credit, on the other. Thus, the assumption is made that the investor immediately takes ownership of the commodity purchased on credit and that this commodity is shown neither as part of the fixed capital formation nor as part of the fixed capital of the lender.

Because of these changes in the treatment of financial leasing, the differences between the owner concept and the user concept are substantially reduced in terms of quantity (especially with respect to machinery and equipment). It has to be examined whether the remaining differences owing to the renting of tangible assets are so large that a clear distinction between the two concepts should be drawn in the revised SNA. In the following, some types of renting will be studied, and suggestions will be made about how rented objects should be recorded according to the owner concept and the user concept in the revised SNA.

The user concept should be applied only to fixed assets that are employed in production by the user. This is not the case with housing; the lessee is not a producer, but acts as the final consumer of the services rendered by the lessor. According to the user concept, rented dwellings would therefore also have to be attributed to the lessor.

The user concept should relate only to fixed assets rented (or leased) for a long period. A period of one year could be chosen as a minimum limit. This would entail that for several types of renting—such as renting a car, the renting of film studios, and the short-term “renting” of agricultural or construction machines (including, perhaps, the operating staff)—the rented fixed assets would have to be attributed to the lessor according to the user concept as well. This norm seems to be favorable with regard to both theoretical considerations (“renting” including personnel probably is not renting at all) and practical reasons concerning the statistical realization.

As regards application of the owner concept or user concept, three types of leasing have to be distinguished.

•Leasing to households is always considered as purchasing goods on credit, irrespective of the kind of leasing arrangement. Neither the owner concept nor the user concept provides for a recording of fixed capital formation. A passenger car leased by a household is part of household consumption.

−In the case of financial leasing, the revised SNA is to proceed from the assumption that the fixed asset purchased on credit immediately passes into the ownership of the lessee. These fixed assets are allocated to the purchaser (lessee) according to both the owner concept and the user concept.

−In the case of operation leasing, the leased object remains the property of the lessor. According to the owner concept, the leased assets thus are allocated to the lessor; according to the user concept, they are attributed to the lessee.

Apart from leasing, the “normal” renting of commercial rooms, or rooms used by general government, of buildings or built-up land is of considerable significance in terms of quantity. For this type of renting, too, the recording of fixed assets differs with regard to the owner concept and the user concept. If the user concept is applied, in the first year of renting an addition to the stock of fixed assets of the lessee and a corresponding loss of fixed assets for the lessor would have to be shown.

With respect to the application of the owner concept and the user concept, leased agricultural land, farms, and so on should be treated the same way as rented fixed assets.

In isolated cases, which nevertheless may have considerable quantitative effects, legally independent enterprises are founded that only make investments and then rent the assets to another legally independent enterprise. Thus it may occur that an enterprise is subdivided into two corporate enterprises: a producer unit and an investor unit. According to the owner concept, there is no fixed capital formation (or capital stock) attributed to the producer unit. It is even for large-scale investment projects, such as the construction of a nuclear power plant, that such investing enterprises are founded, which then rent the asset to another enterprise (frequently the parent company). In this case it is particularly controversial to use the owner concept, for the fixed capital formation would then have to be allocated to service industries. A possible solution for this problem would be to attribute legally independent enterprises, which render services usually considered as intrafirm ancillary activities and provide these services only to one other enterprise, to the industry to which the enterprise receiving the services belongs.

When disaggregating fixed capital formation by investing producers (industries and other producers in the present SNA), the question arises whether the owner concept may be applied to establishments at all. From a legal point of view an enterprise consisting of several establishments as a whole, and not the individual establishment, is considered to be the owner. Despite this difficulty, the owner concept must also be used for establishments in order to calculate their fixed capital consumption and operating surplus. Therefore, it should be agreed by convention that, in an enterprise with several establishments, fixed assets are allocated to that part of the enterprise where they are used. The individual establishment should always be considered as the owner if the enterprise owns the capital good. This convention seems to be expedient because all other solutions (for example, the enterprise “rents” to its establishments) would entail considerable complications. If, however, the enterprise has rented or leased reproducible assets or land, the establishment should also be considered as lessee.

In conclusion, it primarily depends on the intended purpose of the data whether the owner concept or the user concept should be applied for recording fixed capital formation by investors. In the revised SNA the owner concept should prevail, including also the classification of fixed capital formation by producers. The user concept, in contrast, is suitable for analyzing production processes and should be included in the revised SNA as an additional way of recording. In this context, it will be important to show the additions to and the losses of fixed capital as well as the fixed capital (capital stock) in the breakdown by investing producers.

It is a quite conceivable and consistent approach to apply the user concept also in the production accounts and the input-output tables. In this case the consumption of fixed capital would have to be reclassified from the lessor to the lessee, and the value of the renting service would have to be reduced accordingly. But because of the additional imputations, the effects on gross output of the renting industry, and the poor additional knowledge to be gained, it is proposed here that the user concept should not be extended in the revised SNA to the core accounts and the input-output tables.

In those cases where the user is not the owner, the user concept should be confined strictly to the renting of fixed assets for production purposes on a long-term basis (for a period of at least one year). With respect to the application of the user concept, taking land on lease and renting should be treated in the same way.

Despite the fact that it is intended to treat financial leasing as a pure financial activity, the remaining types of renting of capital goods are sufficiently important to necessitate an application of the user concept. In Germany, for instance, more than 5 percent of the stock of buildings (excluding dwellings and public civil engineering) are rented by other producers, not including financial leasing.

United Nations, Provisional International Guidelines on the National and Sectoral Balance-Sheet and Reconciliation Accounts of the System of National Accounts, Statistical Papers, Series M, No. 60 (New York, 1977).

The term “owner” is not used here in the strict legal sense, but rather in an economic one. As a rule, the enterprise that enters the capital good on the asset side of its balance sheet is considered as its owner.

United Nations, Guidelines on Statistics of Tangible Assets, Statistical Papers, Series M, No. 68 (New York, 1979).

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