"Business Small Tax Writeoffs"
Key Terms Direct investment. Investment in which a resident of one country obtains a lasting interest in, and a degree of influence over the management of, a business enterprise in another country. In the United States, the criterion used to distinguish direct investment from other types of investment is ownership of at least 10 percent of the voting securities of an incorporated business enterprise or the equivalent interest in an unincorporated business enterprise. U.S. direct investment abroad (USDIA). The ownership or control, directly or indirectly, by one U.S. resident of 10 percent or more of the voting securities of an incorporated foreign business enterprise or the equivalent interest in an unincorporated foreign business enterprise. Foreign direct investment in the United States (FDIUS). The ownership or control, directly or indirectly, by one foreign resident of 10 percent or more of the voting securities of an incorporated U.S. business enterprise or the equivalent interest in an unincorporated U.S. business enterprise. Foreign affiliate. A foreign business enterprise in which a single U.S. investor (that is, a U.S. parent) owns at least 10 percent of the voting securities, or the equivalent. U.S. affiliate. A U.S. business enterprise in which a single foreign investor (that is, a foreign parent) owns at least 10 percent of the voting securities, or the equivalent. Direct investment capital flows. Fundsthat parent companiespro-vide to their affiliates net of funds that affiliates provide to their parents. For USDIA, capital flows also include the funds that U.S. direct investors pay to unaffiliated foreign parties when affiliates are acquired and the funds that U.S. investors receive from them when affiliates are sold. Similarly, FDIUS capital flows include the funds that foreign direct investors pay to unaffiliated U.S. residents when affiliates are acquired and the funds that foreign investors receive from them when affiliates are sold. Direct investment capital flows consist of equity capital, intercompany debt,andreinvested earnings. Equity capital flows are the net of equity capital increases and decreases. Equity capital increases consist of payments made by parents to third parties for the purchase of capital stock when they acquire an existing business, as well as funds that parents provide to their affiliates that increase their ownership interest in the affiliates. Equity capital decreases are funds parents receive when they reduce their equity interest in existing affiliates. Intercompany debt flows result from changes in net outstanding loans and trade accounts between parents and their affiliates; they include loans by parents to affiliates and loans by af- filiates to parents. Reinvested earnings are the parents claim on the undistributed after-tax earnings of the affiliates. #NAME? in, and net outstanding loans to, their affiliates. The position may be viewed as the parents contributions to the total assets of their affiliates or as the financing provided in the form of equity (including reinvested earnings) or debt by parents to their affiliates. Financing obtained from other sources, such as local or foreign third-party borrowing, is excluded. BEA provides estimates of the positions for USDIA and for FDIUS that are valued on three baseshistorical cost, current cost, and market value. At historical cost, the positions are valued according to the values carried on the books of affiliates; thus, most investments reflect price levels of earlier time periods. At current cost, the portion of the position representing parents shares of their affiliates tangible assets (property, plant, and equipment and inventories) is revalued from historical cost to replacement cost. At market value, the owners equity portion of the position is revalued to current market value using indexes of stock prices. Valuation adjustments to the historical-cost position. Adjustments to account for the differences between changes in the position, which are measured at book value, and direct investment capital flows, which are measured at transactions value. (Unlike the positions on a current-cost and market-value basis, the historical-cost position is not adjusted to account for changes in the replacement cost of the tangible assets of affiliates or in the market value of parent companies equity in affiliates.) Valuation adjustments to the historical-cost position consist of currency translation and other adjustments. Currency-translation adjustments are made to account for changes in the exchange rates that are used to translate affiliates foreign-currency-denominated assets and liabilities into U.S. dollars. The precise effects of currency fluctuations on these adjustments depend on the value and currency composition of affiliates assets and liabilities. Depreciation of foreign currencies against the dollar usually results in negative translation adjustments because it tends to lower the dollar value of foreign-currency-denominated net assets. Similarly, appreciation of foreign currencies usually results in positive adjustments because it tends to raise the dollar value of foreign-currency-denominated net assets. Other adjustments are made to account for differences between the proceeds from the sale or liquidation of affiliates and their book values, for differences between the purchase prices of affiliates and their book values, for writeoffs resulting from uncompensated expropriations of affiliates, for changes in industry of affiliate or country of foreign parent, and for capital gains and losses (other than currency translation adjustments). These capital gains and losses represent the revaluation of the assets of ongoing affiliates for reasons other than exchange-rate changes, such as the partial sale of the assets for an amount different from their historical cost. The largest component of capital flows underlying the changes in both positions was equity capital, which includes the funds used to acquire and establish new affiliates and capital contributions to existing affiliates. Equity capital accounted for almost half of the total outflows for USDIA and over four-fifths of the total inflows for FDIUS. Technical Note The estimates for 1997-2000 of the foreign direct investment position at yearend and the estimates of capital flows, income, and services transactions presented here incorporate the results of BEAs 1997 benchmark survey of foreign direct investment in the United States (FDIUS); the previous benchmark survey covered 1992. The revisions to the estimates for 1998 forward also reflect the incorporation of new or revised data from BEAs quarterly and annual surveys of FDIUS. Benchmark surveys are normally conducted every 5 years and cover virtually the entire universe of U.S. affiliates of foreign direct investors in terms of value.4 In the 1997 survey, reports were required from all affiliates that had total assets, sales, or net income (or loss) greater than $3 million in their 1997 fiscal year. Affiliates that did not meet these criteria were exempt from reporting. In nonbenchmark years, the estimates of the direct investment position and balance of payments flows are derived from data reported quarterly by all foreignowned U.S. businesses above a size-exemption level and from estimates for smaller affiliates. The quarterly survey collects data on existing affiliates, exiting affiliates, and affiliates that entered the direct investment universe since the most recent benchmark survey. The estimates for affiliates not reporting in the quarterly surveys are derived by extrapolating data from the benchmark survey or from the prior quarterly survey, using movements in the data for affiliates that reported in the current quarterly survey. Benchmarking the 1997 quarterly survey data The benchmarking procedure for 1997 consisted of a series of four steps that mainly compared the data reported in the quarterly sample survey of FDIUS with the data reported in the 1997 benchmark survey. First, for affiliates that reported in both surveys, the data from the quarterly surveys were reconciled with the data from the benchmark survey. Significant discrepancies were investigated and resolved, usually in favor of the benchmark survey data, which are generally considered more accurate because they are reported later than the quarterly survey data. Additionally, because the benchmark survey data are more comprehensive, they can be more thoroughly edited and cross-checked. As part of this reconciliation process, the benchmark survey data were adjusted from a fiscal year basis to a calendar year basisthat is, from the basis on which the data were reported to the basis on which the U.S. international transactions accounts and the international investment position of the United States are compiled. For about three-fourths of the affiliates, the fiscal year coincided with the calendar year, so no adjustment was necessary. For affiliates whose fiscal year did not coincide with the calendar year but that reported on both the quarterly survey and the benchmark survey, the sum of the quarterly survey data for the four quarters of the affiliates 1997 fiscal year was reconciled with the fiscal year 1997 total reported in the benchmark survey. The calendar year estimates for these affiliates were derived as the sum of (1) the reconciled quarterly data for the quarters that were included in both fiscal and calendar year 1997 and (2) the data from the quarterly survey for the calendar quarters not covered by the benchmark survey. Second, data for affiliates that, for some reason, did not report in the benchmark survey but did report (or whose data was estimated based on reports they previously filed) in the quarterly survey were added to the quarterly estimates. Third, data were removed from the quarterly estimates for any affiliates that the benchmark survey indicated had either left the survey universe or been consolidated into other affiliates since the 1992 benchmark survey (and whose exit or consolidation had not already been captured by BEAs quarterly and annual surveys). Fourth, the data for affiliates that reported in the benchmark survey (or whose data were estimated based on exemption claims from that survey) but did not report in the quarterly and annual surveys were added to the quarterly estimates. The procedure used for adding the data depended on the item being estimated. For equity capital flows, intercompany debt flows, interest, royalties and license fees, and charges for other services, the data from the benchmark survey for fiscal year 1997 were used as the estimates for calendar year 1997 and were distributed evenly among the four calendar quarters of the year. For earnings and related items, the fiscal year data from the benchmark survey were distributed among the four calendar quarters on the basis of the quarterly pattern of earnings for affiliates that were reported on both surveysadjusted for outlierswithin selected major industry sectors. Estimates for 1998 forward For 1998 forward, universe estimates of the direct investment position and balance of payments flows are generally derived from (1) data reported in the quarterly surveys for a sample of the affiliates that also reported in the 1997 benchmark survey, (2) data reported in the quarterly surveys for affiliates that entered the direct investment universe since the 1997 benchmark survey and that met the reporting criteria for the quarterly survey, and (3) estimates for affiliates that did not report in the quarterly surveys. Conceptually, the estimates of the direct investment position and the balance of payments flows cover the affiliate universe. To ensure coverage that is as complete as that in the 1997 benchmark survey, estimates are prepared for affiliates that reported in the benchmark survey (or whose data were estimated based on information filed on exemption claims from that survey) but that did not report in the quarterly surveys, either because they were exempt or because they should have reported but did not. The estimates for these affiliates are derived by extrapolating the data previously reported by or estimated for themsuch as in the benchmark survey or in BEAs survey of U.S. businesses newly acquired or established by foreign direct investors based on movements in the data reported in the subsequent quarters by a matched sample of affiliates. (External, publically available information is also used in preparing the estimates.) The universe estimates are derived by adding the estimates for these affiliates to the data for the affiliates that reported in the quarterly survey. This procedure is applied to all data items except intercompany debt flows; the estimates of these flows are derived as the change in the sample data for the intercompany debt positions reported in the quarterly surveys, supplemented in some cases with data from the annual survey of FDIUS. Because intercompany debt flows are highly volatile and subject to large revisions, BEA is unable to include estimates of these flows for affiliates that do not report. Revisions to the estimates Reflecting a variety of procedures designed to keep the estimates between benchmark surveys up to date, the revisions to the estimates of the position were small for all of the years. The previously published estimates had been kept up to date not only by incorporating data reported on the quarterly survey, but also by incorporating information from the annual survey of FDIUS and the survey of U.S. businesses newly acquired or established by foreign direct investors. In addition, estimates were made of the unreported equity capital flows of U.S. affiliates that were late or delinquent in filing their quarterly survey reports or that were exempt from reporting on the quarterly survey. Finally, some information, mainly for larger affiliates, from the benchmark survey had already been incorporated in previous revisions to the estimates. Classification by industry The revised annual estimates of the foreign direct investment position and capital flows, income, and services transactions for 1997 forward and the quarterly estimates of capital flows, income, and services transactions that underlie these annual estimatesare classified by industry on the basis of classifications derived from the 1987 Standard Industrial Classification (SIC). Work is underway to reclassify these estimates on the basis of the 1997 North American Industry Classification System (NAICS). When that work is completed, the by-industry estimates of the position, capital flows, income, and services transactions for FDIUS for 1997 forward will be presented on a NAICS basis. the management om other nterprise t of the liates are ercompany ans by af- (including inancing nvestments ffiliates position of currency reciation eir book expropriations sets for Table 1280. Foreign Direct Investment in the U.S.--Gross Book Value and Employ [(578,355 represents $578,355,000,000). A U.S. affiliate is a U.S. business en one foreign owner (individual, branch, partnership, association, trust corpora indirect voting interest of 10 percent or more. Estimates cover the universe of nonbank U.S. affiliates] Gross book value of property, plant equipment (million dollars) State and other area 1990 2000 Total 578,355 1,175,628 United States 552,902 1,070,422 Alabama 7,300 16,646 Alaska 19,435 28,964 Arizona 7,234 10,716 Arkansas 2,344 4,613 California 75,768 121,040 Colorado 6,544 15,319 Connecticut 5,357 13,604 Delaware 5,818 6,114 District of Columbia 3,869 4,247 Florida 18,659 38,755 Georgia 16,729 29,510 Hawaii 11,830 10,369 Idaho 776 2,749 Illinois 23,420 48,425 Indiana 13,426 30,179 Iowa 2,712 7,186 Kansas 5,134 9,036 Kentucky 9,229 22,091 Louisiana 17,432 31,160 Maine 2,080 5,087 Maryland 5,713 13,157 Massachusetts 8,890 23,875 Michigan 12,012 39,238 Minnesota 11,972 13,472 Mississippi 2,989 4,121 Missouri 5,757 15,773 Montana 2,181 3,099 Nebraska 776 2,737 Nevada 5,450 10,128 New Hampshire 1,446 5,124 New Jersey 18,608 35,115 New Mexico 4,312 5,801 New York 36,424 68,522 North Carolina 15,234 29,931 North Dakota 1,251 1,824 Ohio 20,549 37,530 Oklahoma 6,049 7,635 Oregon 3,427 13,178 Pennsylvania 16,587 34,106 Rhode Island 1,120 3,394 South Carolina 10,067 23,563 South Dakota 553 1,011 Tennessee 10,280 20,842 Texas 57,079 110,032 Utah 3,918 14,340 Vermont 631 2,146 Virginia 10,702 23,570 Washington 7,985 22,257 West Virginia 7,975 7,061 Wisconsin 5,088 13,961 Wyoming 2,782 8,072 Puerto Rico 1,499 2,169 Other territories and offshore 18,484 34,105 Foreign 5,470 2,406 Unspecified \1 (NA) 66,526 SYMBOLS NA Not available. X Not applicable. FOOTNOTES \1 Covers property, plant, and equipment not located in a particular state, in railroad rolling stock, satellites, undersea cable, and trucks engaged in inte Source: U.S. Bureau of Economic Analysis, Survey of Current Business, August in the United States, Operations of U.S. Affiliates of Foreign Companies, ann s Book Value and Employment of U.S. Affiliates of Foreign Companies by State: 1990 to e is a U.S. business enterprise in which one ociation, trust corporation, or government) has a direct or es cover the universe alue of property, plant, and Total employment (1,000) ment (million dollars) 2001 2002 1990 2000 2001 1,181,091 1,016,004 4,734.5 6,524.6 6,268.3 1,054,827 912,452 4,704.4 6,498.3 6,237.5 17,037 15,210 55.7 77.9 92.0 (D) 30,064 13.2 12.0 12.2 9,390 8,442 57.1 73.2 65.6 6,103 4,724 29.2 40.9 40.7 118,426 91,936 555.9 749.4 707.0 12,654 12,580 56.3 102.6 91.2 14,468 12,789 75.9 118.0 126.0 6,603 6,433 43.1 31.8 28.0 5,187 4,433 11.4 17.1 18.6 35,481 28,446 205.7 312.1 305.3 29,362 24,973 161.0 227.9 220.7 9,787 8,198 53.0 44.8 41.0 2,598 2,131 11.7 14.2 14.1 48,910 41,723 245.8 325.8 315.8 29,744 28,139 126.9 168.2 164.3 7,169 6,017 32.8 40.9 45.6 5,098 4,837 29.6 61.0 39.7 23,116 23,731 65.7 106.0 100.8 32,551 27,182 61.4 61.3 58.9 5,266 5,873 26.6 33.9 34.1 12,866 10,191 79.6 112.9 114.8 25,563 23,265 131.2 226.8 221.7 52,465 40,201 139.6 249.9 220.1 12,089 9,763 89.8 106.2 102.9 4,800 4,924 23.6 24.2 27.9 14,918 15,044 73.7 107.4 113.1 (D) 1,716 5.1 6.8 7.3 2,106 1,748 14.9 21.7 23.5 8,164 6,532 22.7 36.3 31.7 5,321 4,300 25.9 46.5 42.5 36,918 31,829 227.0 272.2 268.5 5,482 4,454 17.4 16.7 15.9 68,860 63,047 347.5 479.1 469.3 22,875 20,571 181.0 264.8 238.6 1,753 830 3.1 7.7 9.7 35,158 32,000 219.1 260.3 244.1 7,743 7,301 43.6 41.9 42.2 12,265 9,286 39.1 62.1 56.3 33,528 30,666 221.6 283.4 260.4 3,310 3,055 13.3 24.2 24.1 22,762 20,272 104.7 138.4 137.7 1,157 684 4.5 6.9 7.7 20,961 18,650 116.9 153.2 150.8 103,573 85,802 299.5 445.2 417.5 13,552 10,463 21.0 38.1 34.6 2,614 1,537 7.7 11.5 11.7 20,668 15,332 113.3 181.9 171.3 18,946 16,098 77.5 106.8 99.4 7,115 7,299 34.9 28.1 28.2 15,842 17,192 81.4 110.3 111.9 10,215 10,539 5.8 7.8 10.4 2,337 2,271 16.1 17.9 18.3 35,404 40,157 9.0 7.9 12.0 3,582 2,476 5.0 0.5 0.5 84,941 58,648 (NA) (NA) (NA) a particular state, including aircraft, trucks engaged in interstate transportation. rent Business, August 2004 issue, and Foreign Direct Investment Foreign Companies, annual. anies by State: 1990 to 2002 oyment (1,000) 2002, prel. Percent Total of all businesses 5,420.3 (X) 5,394.2 4.8 72.7 4.6 11.2 5.1 55.4 2.9 32.9 3.3 616.4 4.9 76.7 4.1 113.0 7.7 23.3 6.4 17.0 3.7 244.9 3.8 190.1 5.7 38.3 8.4 12.5 2.6 268.4 5.2 137.4 5.4 37.4 3.0 33.8 3.0 87.7 5.8 48.9 3.1 33.0 6.4 106.3 5.1 191.0 6.5 204.1 5.3 93.9 4.0 22.2 2.4 96.7 4.1 5.8 1.8 19.3 2.5 26.5 2.8 38.4 7.0 228.6 6.7 12.7 2.2 394.7 5.5 212.7 6.5 7.6 2.9 212.8 4.5 36.5 3.0 48.8 3.6 233.4 4.6 21.8 5.2 123.4 8.1 7.1 2.3 131.0 5.6 351.4 4.4 31.1 3.4 12.0 4.7 146.4 5.0 84.1 3.7 22.4 3.9 112.5 4.7 8.1 4.2 15.6 (NA) 10.1 (NA) 0.4 (NA) (NA) (NA)