OECD Benchmark Definition of Foreign Direct Investment (Fifth Edition)

Annex A. Major revisions from the Benchmark Definition of Foreign Direct Investment, Fourth edition

796. The revision of the Benchmark Definition of Foreign Direct Investment, 4^th edition (BD4) had four main objectives. First, to ensure consistency and alignment across all of the updated manuals. A second objective was to enhance the analytical usefulness of foreign direct investment (FDI) statistics. A third objective was to support statisticians in compiling FDI statistics. Fourth and finally, the discussions undertaken in support of this update identified several issues that require further research.

797. This annex consists of three sections discussing the major changes introduced for the first three objectives listed above. Annex D presents the research agenda that includes the items identified under the fourth objective.

Alignment with other macroeconomic statistics

798. This revision reflects new and revised definitions, concepts, methodologies and recommendations adopted across macroeconomic statistics that are aligned with the Integrated Balance of Payments and International Investment Position Manual, Seventh Edition (BPM7, (IMF, Forthcoming[1])) and the 2025 System of National Accounts (2025 SNA, (United Nations et al., Forthcoming[2])). The revision also includes a new chapter on the relationship of FDI statistics with balance of payments (BOP) and international investment position (IIP) statistics as well as with the national accounts and with statistics on the activities of multinational enterprises (AMNE) and foreign affiliate statistics (FATS).

Integrated FDI position statement

799. One of the key changes that will be introduced in BPM7 is the much greater emphasis placed on the integrated IIP statement. This statement shows the reconciliation of opening and closing positions with financial transactions and other changes in financial assets and liabilities. Consequently, this Benchmark Definition introduces the integrated FDI position statement, that is the direct investment part of the integrated IIP statement. It explains how the beginning position changes due to financial transactions recorded in the balance of payments financial account and other flows recorded in the other changes in financial assets and liabilities account. The other changes account consists of revaluations (that are further broken down between exchange rate changes and other price changes) and other volume changes.

800. This Benchmark Definition expands the discussion of the other changes in financial assets and liabilities account for FDI. It greatly widens the scope of the discussion of other changes in volume and offers additional examples of events that are recorded as other changes in volume that are consistent with the BPM7. It describes how the use of different valuation methods for FDI positions impacts the calculation of other price changes. Finally, it explains how the recording of reinvested earnings and of complex ownership chains impact the recording of other flows.

Measurement of income

801. This revision strengthens the alignment with the national accounts in the measurement of income by clarifying several aspects of the application of the current operating performance concept (COPC). In response to the change to the 2008 SNA to capitalise research and development (R&D) expenditures, it recommends that compilers adjust income for the capitalisation and depreciation of R&D if needed.

802. This revision also makes clearer the application of the COPC to financial corporations. It clarifies the treatment of provisions, including loan loss provisions, in the measurement of income. It also notes the change in the Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6, (IMF, 2009[3])) and the System of National Accounts 2008 (2008 SNA, (United Nations et al., 2009[4])) to treat trading margins as ordinary earnings rather than as holding gains and losses. While this revision acknowledges this change in treatment, it recommends that compilers only include them in earnings if they are significant, given the practical difficulties in compilation.

803. This revision clarifies two aspects in the recording of dividends. First, it recommends that distributions of accumulated ordinary earnings be treated as distributions of earnings rather than as withdrawals of equity. Second, it clarifies the time period in which advanced and interim dividends should be recorded.

Valuation of unlisted equity

804. This revision recognises three preferred methods for the valuation of unlisted equity – recent transaction price, own funds at book value (OFBV) and the market capitalisation method – to align with BPM7 and the 2025 SNA. While the other methods that had been recommended in BD4 yield good approximations to market value, these three preferred methods are those that are most used by compilers. The objective of identifying preferred methods is to reduce bilateral asymmetries resulting from the use of different valuation methods across countries.

Treatment of collective investment institutions

805. In a change from BD4, this revision recommends that all investment in collective investment institutions (CIIs) be treated as portfolio investment even if they surpass the 10% of voting power threshold unless held as reserve assets by the monetary authorities or if the investment fund shares are non-negotiable, in which case investment in CIIs would be classified as other investment. Investment by CIIs is still included in FDI if it meets the 10% threshold. This change is in line with BPM7 (BPM7, Chapter 6, Section 1.B, paragraph 6.11, footnote 4).

New and revised definitions

806. Several new and revised definitions are introduced in this Benchmark Definition. It expands on the discussion of special purpose entities (SPEs) included in BD4 and incorporates the internationally agreed definition to ensure consistency across economies in the identification of these entities. It also introduces an operational definition to identify financial transactions for greenfield investment and extensions of capacity as well as a definition of corporate and financial restructuring. This revision also reflects the definition of multinational enterprises (MNEs) that appears in the BPM7 and 2025 SNA. Finally, it includes the definition of pass-through funds that was in BPM6 and is in BPM7.

Enhance analytical usefulness of FDI statistics

807. To enhance the analytical usefulness of FDI statistics, this revision introduces several new and revised presentations of FDI statistics. It provides definitions and methodologies to implement these breakdowns when needed. It also includes a new chapter providing guidance on communicating with data users and data suppliers, on interpreting FDI statistics, and on dissemination to encourage greater use of FDI statistics.

FDI positions and income by ultimate investing economy (UIE)

808. This Benchmark Definition recommends that inward FDI positions by UIE be part of the standard set of FDI statistics that countries compile and disseminate. It provides an additional method to allocate FDI positions to the UIE in addition to the method recommended in BD4. This enables compilers to pick the method that best suits their national circumstances and makes best use of available data sources.

809. This revision also recommends a supplementary presentation of FDI income by UIE in which compilers are encouraged to use the same method that they used to compile their inward FDI positions by UIE.

FDI by type

810. This Benchmark Definition expands on the recommendation to compile equity capital transactions for mergers and acquisitions (M&A) introduced in BD4 to include a breakdown of equity capital transactions, reinvestment of earnings, and inter-company debt for greenfield investment and extensions of capacity, and of equity capital transactions for corporate and financial restructuring as well as M&A. This breakdown of financial transactions according to the type, that is, the purpose of the investment (how the invested capital is used by the ultimate investee enterprises) sheds light on the impacts that FDI transactions are likely to have on the host economies.

811. This revision also discusses another approach to identifying greenfield investment and extensions of capacity by foreign direct investors that is called the capital approach. It can use AMNE or FATS statistics to measure the capital formation of foreign-controlled enterprises.

Ultimate host economy (UHE)

812. This revision further develops the concept of the UHE from BD4. However, it recognises that more research and practical experience needs to be acquired before detailed guidance on the compilation of outward FDI position statistics by UHE can be provided. Therefore, it encourages compilers to explore how statistics by UHE can be produced given their data sources. It provides compilers with various definitions of UHE and methods that can be experimented with, so that they can select the ones that provide the most meaningful information on the ultimate destinations of outward FDI from their economies.

Other recommendations

813. This revision makes an additional three major recommendations to enhance the analytical usefulness of FDI statistics.

814. First, it recommends that countries compile an integrated FDI position statement that shows the beginning of period and end of period FDI positions and the FDI financial transactions and other flows during the period as part of their standard presentations of FDI statistics as discussed above.

815. Second, this revision recommends a presentation of outward FDI position, financial transaction, and income statistics by the residency of the ultimate controlling parent to provide an upper-bound estimate of pass-through funds. It also includes an annex providing examples of pass-through.

816. Finally, this revision encourages countries to publish information and analysis that highlights the role of FDI companies in the domestic economy. It suggests a few ways that this could be done, including by linking FDI and AMNE/FATS statistics, linking FDI to other business surveys or national accounts surveys, or by collecting some AMNE/FATS variables on FDI surveys.

Support compilation

817. This Benchmark Definition supports compilation by clarifying recommendations, providing detailed guidance, and including numerical examples.

Integrated FDI position statement

818. This revision provides additional guidance on distinguishing between revaluations, other changes in volume, and financial transactions. It also introduces a new annex presenting numerical examples of the integrated FDI position statement demonstrating different cases to illustrate the underlying concepts and principles.

Valuation of unlisted equity

819. To assist compilers in selecting a method for valuing unlisted equity, this revision introduces a decision tree that identifies the methods that can be used depending on the information available to compilers.

Measurement of income

820. There are several changes in this revision to support the compilation of FDI income. It provides more detailed guidance on the adjustments that need to be made to business accounting data to measure FDI earnings on a COPC basis. It also introduces a box illustrating how to move from the financial statements of financial corporations to COPC earnings.

821. To assist compilers in capitalising and depreciating R&D expenditures, it includes a list of methods to determine if R&D is capitalised in company data sources. It provides options for compilers to capitalise and depreciate R&D in their FDI statistics in cases where this is not included in those company data sources and where it is significant.

822. Two additional changes include: 1) supporting the compilation of reinvested earnings by identifying additional data sources compilers can draw upon; and 2) an example of the recording of interim and advanced dividends.

Special purpose entities

823. In addition to adopting the internationally agreed definition of SPEs, this Benchmark Definition also provides a decision tree to help compilers identifying SPEs in the population of resident direct investment enterprises.

FDI statistics by ultimate partner economy

824. This revision provides examples of the second method introduced for compiling inward FDI positions by UIE. It also introduces an annex that elaborates on the possible definitions of UHE and describes methods, including numerical examples, that could be used to produce outward FDI position statistics by UHE.

825. Table A A.1 presents a summary of the main changes brought in this Benchmark Definition from BD4.

Table A A.1. Major changes from BD4

Major change	Description	Objective
Integrated FDI position statement	Introduce integrated FDI position statement Expand discussion of other changes in financial assets and liabilities account	Alignment with other macroeconomic statistics Enhance analytical usefulness of FDI statistics Support compilation
Measurement of FDI income	Capitalising and depreciating R&D expenditures Clarify measurement of FDI income for financial corporations Clarify recording of dividends Expand discussion of needed adjustments to business accounting	Alignment with other macroeconomic statistics Support compilation
Valuation of unlisted equity	Identify preferred methods for valuing unlisted equity Present a decision tree to assist compilers in selecting a method based on information they have available	Alignment with other macroeconomic statistics Support compilation
Collective investment institutions (CIIs)	Exclude investment in CIIs from FDI	Alignment with other macroeconomic statistics
Multinational enterprises (MNEs)	Introduce definition of MNEs	Alignment with other macroeconomic statistics
Ultimate investing economy (UIE)	Recommend a standard presentation of inward FDI positions and a supplementary presentation of FDI income by UIE Expand discussion of methods to reallocate FDI statistics to UIE	Enhance analytical usefulness of FDI statistics Support compilation
Ultimate host economy (UHE)	Define UHE and present possible methods to reallocate outward FDI positions to UHE	Enhance analytical usefulness of FDI statistics Support compilation
FDI by type (i.e., by purpose of the FDI transaction)	Define greenfield investment, extensions of capacity, and corporate and financial restructuring Recommend a breakdown of FDI financial transactions by type Present a decision tree to assist compilers to identify the type of FDI transaction	Enhance analytical usefulness of FDI statistics Support compilation
Pass-through funds	Define pass-through funds aligned with BPM7 Introduce a breakdown of FDI statistics by residency of the ultimate controlling parent to estimate pass-through funds	Enhance analytical usefulness of FDI statistics Support compilation
Special purpose entities (SPEs)	Introduce internationally agreed definition of SPEs Present a decision tree to assist compilers to identify SPEs	Alignment with other macroeconomic statistics Enhance analytical usefulness of FDI statistics Support compilation

Note: R&D=Research and development; CIIs= Collective Investment Institutions; UIE= Ultimate Investing Economy; UHE=Ultimate Host Economy; BPM7=Integrated Balance of Payments and International Investment Position Manual, Seventh Edition, (IMF, Forthcoming[1]); SPEs=Special purpose entities.

References

[3] IMF (2009), Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6), International Monetary Fund, Washington D.C, https://doi.org/10.5089/9781589068124.069.

[1] IMF (Forthcoming), Integrated Balance of Payments and International Investment Position Manual, Seventh Edition (BPM7), International Monetary Fund, Washington D.C.

[4] United Nations et al. (2009), System of National Accounts 2008, United Nations et al., New York, https://unstats.un.org/unsd/nationalaccount/docs/sna2008.pdf.

[2] United Nations et al. (Forthcoming), 2025 System of National Accounts, United Nations et al., New York.