Definition: Special purpose entity

Category: Foreign direct investment

Multinational enterprises (MNEs) often diversify their investments geographically through various organisational structures. These may include certain types of Special Purpose Entities (SPE). Examples are financing subsidiaries, conduits, holding companies, shell companies, shelf companies and brass-plate companies. Although there is no universal definition of SPEs, they do share a number of features. They are all legal entities that have little or no employment, or operations, or physical presence in the jurisdiction in which they are created by their parent enterprises which are typically located in other jurisdictions (economies). They are often used as devices to raise capital or to hold assets and liabilities and usually do not undertake significant production.

An enterprise is usually considered as an SPE if it meets the following
criteria:

i) The enterprise is a legal entity,
-- Formally registered with a national authority; and
-- subject to fiscal and other legal obligations of the economy in which it is resident.

ii) The enterprise is ultimately controlled by a non-resident parent, directly or indirectly.

iii) The enterprise has no or few employees, little or no production in the host economy and little or no physical presence.

iv) Almost all the assets and liabilities of the enterprise represent investments in or from other countries.

v) The core business of the enterprise consists of group financing or holding activities, that is - viewed from the perspective of the compiler in a given country - the channelling of funds from non-residents to other non-residents. However, in its daily activities, managing and directing plays only a minor role. http://ec.europa.eu/eurostat/ramon/statmanuals/files/Foreign_direct_invest_EN.pdf