Abstract
The recording of operations in the ESA 2010 is carried out using the “accrual” principle (when the expenditure is recorded, that is to say, when the economic value is created/transferred/extinguished, or when the obligation is assumed, changed, or cancelled), except for the case of taxes, where the “adjusted cash” principle is followed. The output is recorded when it is produced, rather than when it is paid for by a purchaser. The sale/purchase of an asset is recorded at the moment when its legal ownership is transferred, rather than at the moment of the respective payment. Interest is accounted for on an accrual basis, rather than when paid. Eurostat only considers as “extraordinary” those expenditures that result from non-controllable events, such as court decisions or natural disasters. The revenues and expenditures from non-repeatable events are considered as “one-off”; however, from a statistic/accounting point of view, these are considered for the calculation of the deficit in the National Accounts.
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- 1.
Definitions from Eurostat (2016): “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. Some economic activities, transactions or events, which generate an obligation to pay taxes, escape the notice of the tax authorities. Such activities, transactions or events do not give rise to financial assets or liabilities in the form of payables or receivables. The amounts recorded are only those evidenced by tax assessments, declarations or other instruments which create liabilities in the form of obligations to pay on the part of taxpayers. No imputations are made for taxes not evidenced by tax assessments. Taxes recorded in the accounts are derived from two sources: amounts evidenced by assessments and declarations or cash receipts. (a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. An alternative treatment is that a capital transfer (D.995), as described in point (j) of paragraph 4.165, to the relevant sectors is recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of taxes. (b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activity took place to generate the tax liability. This adjustment is based on the average time difference between the activity and cash tax receipt.
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 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. The amounts to be recorded 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. Missing taxes are not imputed if not evidenced by tax assessments. Taxes recorded in the accounts are derived from two sources: amounts evidenced by assessments and declarations, and cash receipts. (a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors is recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of taxes; (b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activities, transactions or other events took place to generate the tax liability (or when the amount of tax was determined, in the case of some income taxes). This adjustment is based on the average time difference between the activities, transactions or other events (or the determination of the amount of tax) and cash tax receipt. When retained at source by an employer, current taxes on income, wealth, etc. are included in wages and salaries even if the employer did not pass them on to the general government. The households sector is shown as paying the full amount to the general government sector. The amounts actually unpaid are neutralised under D.995 as a capital transfer from general government to the employers’ sectors. 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 concerning the point in 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. Current taxes on income, wealth, etc. are recorded as: (a) uses in the secondary distribution of income account of the sectors in which the taxpayers are classified; (b) resources in the secondary distribution of income account of general government; (c) uses and resources in the external account of primary incomes and current transfers.
Time of recording: employers’ actual social contributions (D.611) are recorded at the time when the work that gives rise to the liability to pay the contributions is carried out. Social contributions payable to the general government sector recorded in the accounts are derived from two sources: amounts evidenced by assessments and declarations or cash receipts. (a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors could be recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of social contributions. (b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activity took place to generate the social contribution liability (or when the liability is created). This adjustment may be based on the average time difference between the activity (or the creation of the liability) and cash receipt. When retained at source by the employer, social contributions payable to the general government sector are included in wages and salaries irrespective of whether the employer passed them to the general government. The households sector is then shown as paying the full amount to the general government sector. The amounts actually unpaid are neutralised under D.995 as a capital transfer from general government to the employers’ sectors.
Time of recording: employers’ imputed social contributions which represent the counterpart of compulsory direct social benefits are recorded in the period during which the work is done. Employers’ imputed social contributions which represent the counterpart of voluntary direct social benefits are recorded at the time the benefits are provided.
Households’ actual social contributions are social contributions payable on their own behalf by employees, self-employed or non-employed persons to social insurance schemes.
Households’ actual social contributions (D.613) are split into two categories: (a) households’ actual pension contributions (D.6131); (b) households’ actual non-pension contributions (D.6132). Time of recording: households’ actual social contributions are recorded on an accrual basis. For those in work, this is at the time when the work that gives rise to the liability to pay the contributions is carried out. For non-employed persons, this is at the time where the contributions are to be made. In the system of accounts, households’ actual 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. Households’ social contribution supplements consist of the property income earned during the accounting period on the stock of pension and non-pension entitlements. This heading is split into two categories: (a) households’ pension contribution supplements (D.6141); (b) households’ non-pension contribution supplements (D.6142). The heading D.6142 corresponds to households’ contributions supplements related to social risks and needs other than pensions, such as sickness, maternity, industrial injury, disability, redundancy, etc. Households’ social contribution supplements are included in property income payable by the administrators of pension funds to households in the allocation of primary income account (investment income payable on pension entitlements D.442). As this income is retained by the administrators of pension funds in practice, it is treated in the secondary distribution of income account as being paid back by households to pension funds in the form of households’ social contributions supplements. Time of recording: households’ social contribution supplements are recorded when they accrue.
Taxes recorded in the accounts come from two sources: amounts evidenced by assessments and declarations, or cash receipts. (a) If assessments and declarations are used, the amounts are adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors is recorded equal to the same adjustment. The coefficients are estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They are specific to different types of taxes; (b) If cash receipts are used, they are time-adjusted so that the cash is attributed to when the activity took place to generate the tax liability, or if this is not known, when the amount of tax was determined. This adjustment is based on the average time difference between the activity (or the determination of the amount of tax) and cash tax receipt.
Accrual accounting records flows at the time economic value is created, transformed, exchanged, transferred or extinguished. It is different from cash recording and, in principle, from due-for-payment recording, defined as the latest time payments can be made without additional charges or penalties. Any period of time between the moment a payment accrues and the moment it is actually made is accounted for by recording a receivable or a payable in the financial accounts. The ESA recording is on an accrual basis. For some transactions such as payment of dividends or some specific transfers, the due for payment time is used.
In practice, when taxes are based on assessments, some flexibility is permitted concerning the time of recording where the measurement cannot be made in a reliable way before the time of assessment. In particular, for taxes on income, tax systems may require the development of a tax roll or another form of tax assessment before the amounts of tax due will be known in a reliable way, taking into account the changes in tax rates and final settlements. This moment, which might be the one where the economic behaviour of households is affected, is an acceptable time of recording. It is not necessarily the accounting period in which the payment is received”.
- 2.
Definitions from Eurostat (2016): “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 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. The amounts to be recorded 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. Missing taxes are not imputed if not evidenced by tax assessments. Taxes recorded in the accounts are derived from two sources: amounts evidenced by assessments and declarations, and cash receipts. (a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors is recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of taxes; (b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activities, transactions or other events took place to generate the tax liability (or when the amount of tax was determined, in the case of some income taxes). This adjustment is based on the average time difference between the activities, transactions or other events (or the determination of the amount of tax) and cash tax receipt. When retained at source by an employer, current taxes on income, wealth, etc. are included in wages and salaries even if the employer did not pass them on to the general government. The households sector is shown as paying the full amount to the general government sector. The amounts actually unpaid are neutralised under D.995 as a capital transfer from general government to the employers’ sectors. 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 concerning the point in 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. Current taxes on income, wealth, etc. are recorded as: (a) uses in the secondary distribution of income account of the sectors in which the taxpayers are classified; (b) resources in the secondary distribution of income account of general government; (c) uses and resources in the external account of primary incomes and current transfers.
Social contributions payable to the general government sector recorded in the accounts are derived from two sources: amounts evidenced by assessments and declarations or cash receipts. (a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors could be recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of social contributions. (b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activity took place to generate the social contribution liability (or when the liability is created). This adjustment may be based on the average time difference between the activity (or the creation of the liability) and cash receipt. When retained at source by the employer, social contributions payable to the general government sector are included in wages and salaries irrespective of whether the employer passed them to the general government. The households sector is then shown as paying the full amount to the general government sector. The amounts actually unpaid are neutralised under D.995 as a capital transfer from general government to the employers’ sectors”.
- 3.
“Although one-off and temporary measures are not always associated with an intention to make the figures look better, it is clear that the temptation exists for policy-makers to lower the budget deficit or public debt through ‘easy’ measures, which leave the government’s net worth unchanged and imply no political cost” (European Commission, Public finances in EMU—2006, European Economy, 3, January 2006). However, it could be framed in the category of temporary legislative changes relative to the timing of the expenditure and revenue with positive impact on the budgetary balance (In the original, «Temporary legislative changes in the timing of outlays or revenues with a positive impact on the general government balance» from the same publication cited). Effectively the current classification leads to consider as ‘structural’ the effect of rules precisely delimited in its application period to a single year, which can move apart from the concept underlying the structural balance (Eurostat 2016).
References
ESA (2010) European System of Accounts 2010. https://ec.europa.eu/eurostat/cache/metadata/Annexes/nasa_10_f_esms_an1.pdf
European Commission (2012a) Occasional Paper nº 92/2012
European Commission (2012b) Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and content of Stability and Convergence Programmes
European Commission (2015) Making the best use of the flexibility within the existing rules of the stability and growth pact. COM
Eurostat (2016) Manual of government deficit and debt. https://ec.europa.eu/eurostat/documents/3859598/7203647/KS-GQ-16-001-EN-N.pdf/5cfae6dd-29d8-4487-80ac-37f76cd1f012. Accessed 1 Nov 2016
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Miranda Sarmento, J. (2018). The Time of Recording of Operations. In: Public Finance and National Accounts in the European Context . Financial and Monetary Policy Studies, vol 47. Springer, Cham. https://doi.org/10.1007/978-3-030-05174-7_10
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