6.3 Determining the Primary Beneficiary of the Host Entity and Silo

Once it is determined that both the host entity and the silo(s) are VIEs, the reporting entity must evaluate each of them separately to determine which party, if any, is the primary beneficiary of the host entity and which party, if any, is the primary beneficiary of the silo. In analyzing which party, if any, is the primary beneficiary of the host entity, the reporting entity should exclude the silo’s expected losses and residual returns (and thus the activities that give rise to these expected losses and residual returns) to determine which party has both (1) the power to direct the activities that most significantly affect the economic performance of the host entity and (2) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the host entity (see Chapter 7 for identifying the primary beneficiary). That is, only the host entity’s activities, benefits, and losses should be used in the analysis. If a related-party relationship exists such that the related-party tiebreaker test would be performed (see Section 7.4.2.4), the factors in that paragraph should be applied only to the host entity.

Likewise, in analyzing which party is the primary beneficiary of the silo, the reporting entity should exclude the host entity’s expected losses and residual returns (and thus the activities that give rise to these expected losses and residual returns) in identifying which party has both (1) the power to direct the activities that most significantly affect the economic performance of the silo and (2) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the silo.

A reporting entity that has a variable interest in a host entity should also consider the guidance in ASC 810-10-25-57, which states, “If one reporting entity is required to consolidate a discrete portion of a VIE, other variable interest holders shall not consider that portion to be part of the larger VIE.” This guidance precludes two parties from consolidating the same assets, liabilities, and equity of a silo. Further, even if no party is identified as the primary beneficiary of a silo when the host is a VIE, it would generally not be appropriate for the silo to be added back to the host entity (i.e., the assets, liabilities, and equity of the silo would not be consolidated by the primary beneficiary, if any, of the host entity).

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.