This document discusses Eurostat's Multinational Enterprises (MNE) Pilot project, which aims to analyze how globalization affects the reliability of GDP and GNI data reported by EU member states. The project was launched in response to recommendations from the European Court of Auditors to better account for the activities of multinational corporations. The pilot involves profiling sample multinational cases and examining how their value added, R&D, intellectual property, and trade flows are recorded in member states' national accounts. Member states take lead and partner roles in analyzing assigned multinational cases. Secure information exchange procedures and early lessons emphasize the need for legal frameworks, technical systems, cooperation and flexibility. Interim reports are due in 2018

1. GDP/GNI: challenges arising from
globalisation
Eurostat’s Multinationals (MNE) Pilot project
Bogdan Marola
Marcin Bujnowski
Pekka Alajääskö
European Commission
DG Eurostat: GNI/VAT Team
The 16th IAOS Conference - Paris, 19-21 September 2018

2. Outline
• Globalisation and the EU budget
• The European approach to globalisation
• MNE Pilot: motivation and objectives
• Roles, responsibilities and schedule
• Procedures for secure exchange of information
• Lessons learned so far
• Way forward

3. Globalisation and the EU budget
• ESA 2010: globalisation-related issues affect the quality of national
accounts, e.g.:
• (i) transfer pricing between affiliated corporations,
• (ii) goods for processing and merchanting,
• (iii) trade and use of intellectual property assets across the world
• (iv) use of offshore financial vehicles (special purpose entities).
• GNI used to determine Member States contributions to EU budget
• European Commission (Eurostat) responsible to verify the sources and
methods used in calculating GNI
• Globalisation – a "cross-cutting issue" to be analysed within the current
(2016-2019) GNI verification cycle
• European Court of Auditors recommendations on GNI

4. The European approach to globalisation
• Analysis of relocation or restructuring events concerning multinational
groups: the "Early Warning System"
• Analysis of the current treatment of multinationals which are not
relocating or restructuring - two workstreams:
• Methodological (interpretation) workstream
• Verification (implementation) workstream:
• MNE Pilot Design
• Identification of globalisation cases – a sample of 25 cases selected from a list of
239 MNEs
• Development of MNE Pilot Studies
• Analysis of decisions, implementation into regular data production and reporting

5. MNE Pilot: motivation and objectives (i)
• The European Court of Auditors issued two globalisation
recommendations in 2016:
• Recommendation 1: "analyse all potential implications of multinational
activities on the estimation of GNI with Member States and provide them
with guidance";
• Recommendation 2: "confirm that research and development assets
have been correctly included in Member States’ national accounts, paying
particular attention to the assets’ valuation and to residency criteria where
multinational activities have relocated".

6. MNE Pilot: motivation and objectives (ii)
• The GNI Committee (national accounts representatives of Member States,
chaired by Eurostat) and Directors of Macroeconomic Statistics (senior
national accounts managers in EU NSIs) proposed a pilot project
• Endorsed by heads of EU NSIs (European Statistical System Committee, or
ESSC) in February 2018
• General aim: gain a "reasonable understanding of the reliability of the
recording of globalisation issues in GNI data" by end of 2019
• Specific aim: assess the MNEs value added (using the business statistics
definition as proxy) and the plausibility of its distribution within the EU
• Secondary aims: analyse the MNEs R&D, location of intellectual property
products, intra- and extra-company trade flows and methodological
consistency across Member States.

7. Roles, responsibilities and schedule (i)
• The Joint BSDG/DMES Task Force (senior managers of business statistics
and national accounts) monitors the MNE pilot exercise.
• Ensure consistency with the Euro Group Register, EU Profiling and Large
Cases Unit work programmes
• MNE pilot exercise scheduled to run between March 2018 and June 2019,
split into two phases
• Phase 1 - MNEs profiled between 2015 and 2017;
• Phase 2 - MNEs yet to be profiled

8. • Member States roles as:
• Lead country (global decision centre of the MNE)
• Partner country (affiliates of the MNE)
• Member States nominated one coordinator (with a back-up) - single
overall contact point for the pilot exercise.
• For each pilot case (as a lead or partner country), the Member States
nominated a pilot case contact with a back-up.
Roles, responsibilities and schedule (ii)

9. Procedures for secure exchange of
information
• A secure version of the CIRCABC environment.
• Pilot participants exchange confidential information by uploading
password-protected files on the secure S-CIRCABC environment.
• S-CIRCABC is accessed via a two-step authentication procedure: password
+ code sent via SMS to phone registered in the system.
• Exchange system proven reliable for sharing confidential information.

10. Lessons learned so far
• The project work still in its early stages.
• Several lessons already emerging for any future similar cross-border
initiative.
• Two pre-requisites for successful secure information exchange stand out:
legal basis + secure medium of exchange.
• ESSC agreed to share microdata on a trust-based approach, based on
Regulation 223/2009
• Secure version of CIRCABC for data exchange.
• Participants need face-to-face meetings for projects dealing with novel
issues requiring learning by doing
• Need for cooperation, flexibility and pragmatism.

11. Way forward
• Countries in phase 1 to provide interim reports by September 2018.
• The reports to present findings so far and problems encountered +
proposed solutions to be discussed at the progress meeting in October.
• Final reports for phase 1 by end 2018.
• Experience from phase 1 to benefit phase 2 (final reports by April 2019).
• Final reports to provide the information needed to reach a "reasonable
understanding of the reliability of the recording of multinationals in GNI
data" by end 2019.

12. Thank you for your attention!
Any questions or comments?