Category Archives: Budget

Own resources
Own resources mechanism
Decision on the system of own resources
Report on the system of own resources
Harmonisation of the compilation of GNP
European system of national and regional accounts in the Community
Common rules for the provision of basic information on Purchasing Power Parities and for their calculation and dissemination
The financial perspectives
Financial perspectives system and the multiannual financial framework
A budget for Europe (2014-2020)
Interinstitutional Agreement on cooperation in budgetary matters
Towards a new financial framework 2007-2013
New interinstitutional agreement and financial perspective (2000-2006)Archives
The financial framework of 2000-06 (Agenda 2000)Archives
The financial regulation
Financial Regulation
The Former Financial RegulationArchives
Guarantee Fund for external actions
Commission Action Plan towards an Integrated Internal Control Framework
Mutual administrative assistance in the fight against fraud

Financial perspectives system and the multiannual financial framework

Financial perspectives system and the multiannual financial framework

Outline of the Community (European Union) legislation about Financial perspectives system and the multiannual financial framework

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Budget

Financial perspectives system and the multiannual financial framework

 

The political and institutional balance of the Community’s system of finance gradually was marked by ever-increasing strains in the 1980s. The conflict between the two arms of the budgetary authority (the European Parliament and the Council) meant that the annual budgetary procedure became increasingly difficult to administer and resulted in budgetary imbalances and a growing mismatch between Community resources and requirements. This prompted the Community to introduce a system designed to improve the budgetary procedure.

Through an interinstitutional agreement (IIA), the European Parliament, the Council and the Commission agree in advance on the main budgetary priorities for a period covering a number of years. These budgetary priorities establish a framework for Community expenditure (the multiannual financial framework) in the shape of a financial perspective. The system of financial perspectives thus improves the budgetary procedure whilst ensuring budgetary discipline. The multiannual financial framework is not mentioned in the treaties.

Financial perspective and multiannual financial framework: a means of ensuring budgetary discipline

The multiannual financial framework indicates the maximum amount and the composition of foreseeable Community expenditure. The first Interinstitutional Agreement was concluded in 1988 for the application of the 1988-92 financial perspective (Delors I package), which was intended to provide the resources needed for the budgetary implementation of the Single European Act. Since then, the financial perspectives have been updated in 1992 for the period 1993-99 (Delors II package), in 1999 for the period 2000-06 (” Agenda 2000 “) and in 2006 for the period 2007-13.

The purpose of the financial perspective is therefore to strengthen budgetary discipline, to keep the total increase in expenditure under control and to ensure that the procedure runs smoothly. The multiannual financial framework imposes a dual ceiling on expenditure: one for total expenditure and one for each category of expenditure.

Structure of the mutiannual financial framework

For each programming period, the multiannual financial framework determines “ceilings” (the maximum amounts of commitment appropriations and payment appropriations) per “heading” (the categories of expenditure) for each year. The annual budgetary procedure determines the exact level of expenditure and the breakdown between the various budget lines for the year in question.

The expenditure allocated to each heading is based on the Union’s political priorities for the period in question. The structure of the multiannual financial framework for 2007-13 is as follows:

1. Sustainable growth
1 a. Competitiveness for growth and employment
1 b. Cohesion for growth and employment
2. Conservation and management of natural resources (including market expenditure and direct payments)
3. Citizenship, freedom, security and justice
3 a. Freedom, security and justice
3 b. Citizenship
4. EU as a world player
5. Administration
6. Compensation

The ring-fencing of expenditure headings means that a budget line is financed only from a given heading. Each heading should be well enough financed to allow redeployment of expenditure between operations under the same heading where necessary in order to tackle unforeseen issues.

The “margin for unforeseen expenditure” between the own resources ceiling and the ceiling for payment appropriations has a dual role:

  • to allow the multiannual financial framework to be revised if necessary so as to cover any expenditure which is unforeseen when the financial perspective is adopted;
  • to leave a safety margin should economic growth be lower than forecast; should this be the case, actual GNI will be lower than expected and the ceiling for payment appropriations, which is an absolute amount, can be financed from the own resources margin, within the limits of the own resources ceiling expressed as a percentage of GNP.

Link with the own resources system

The overall ceiling for commitment appropriations is obtained by adding together the various ceilings for individual expenditure headings. To check the compatibility of the financial perspective with the ceiling for own resources, which constitutes the absolute limit on the resources that the Member States can make available to the Union, an annual ceiling is also established for payment appropriations. This is an overall ceiling not broken down by expenditure heading. It is also expressed as a percentage of the Community’s estimated gross national product (GNP).

Rules for applying the financial framework

The rules for applying the financial framework are laid down in the Interinstitutional Agreement, which contains the rules and procedures for the annual management of the financial framework (e.g. technical adjustments, adjustments connected with the conditions of implementation or with enlargement of the Union, and revision of the financial perspective). This makes it possible to improve the annual budgetary procedure.

Each year the Commission, under its own responsibility, makes a technical adjustment to the multiannual financial frameworkfor the coming year. This adjustment concerns the following operations:

  • as the multiannual financial framework is drawn up at constant prices, it has to be adjusted each year to take account of inflation so as to ensure that each expenditure heading retains its initial purchasing power. The technical adjustment is generally made at the beginning of year n-2 for a given year n on the basis of the most recent economic data and forecasts available. No subsequent technical adjustment is made for the year in question;
  • the ceiling on own resources is expressed as a percentage of GNI. Translation of this ceiling into an absolute figure means that, for the purposes of the technical adjustment, the calculation has to be based on the most recent data on Community GNI. It is at this point that compatibility between the total payment appropriations and available own resources is verified.

The Commission can also propose changes to the multiannual financial framework to the two arms of the budgetary authority in two cases:

  • re-scheduling of the payment appropriations available for structural operations where delays have been identified in the programming of such operations;
  • re-evaluation of the needs relating to certain headings as a result of the accession of new Member States.

The two arms of the budgetary authority may, following a proposal from the Commission, decide to revise the multiannual financial framework. This will enable the Community, while respecting the own resources ceiling, to take necessary action not foreseen at the time the financial perspective was drawn up.

The Former Financial Regulation

The Former Financial Regulation

Outline of the Community (European Union) legislation about The Former Financial Regulation

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Budget

The Former Financial Regulation

1) Objective

To lay down the procedures for drawing up, adopting and implementing the budget of the European Union.

2) Community Measure

Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities.

Amended by:
CouncilRegulation (ECSC, EEC, Euratom) No 1252/79 of 25 June 1979
Financial Regulation of 16 December 1980 (80/1176 /EEC, Euratom, ECSC)
Council Regulation (ECSC, EEC, Euratom) No 1600/88 of 7 June 1988
Council Regulation (ECSC, EEC, Euratom) No 2049/88 of 24 June 1988
Council Regulation (Euratom, ECSC, EEC) No 610/90 of 13 March 1990
Council Regulation (ECSC, EC, Euratom) No 1923/94 of 25 July 1994
Council Regulation (ECSC, EC, Euratom) No 2730/94 of 31 October 1994
Council Regulation (EC, Euratom, ECSC) No 2333/95 of 18 September 1995
Council Regulation (EC, Euratom, ECSC) No 2334/95 of 18 September 1995
Council Regulation (EC, Euratom, ECSC) No 2335/95 of 18 September 1995
Council Regulation (EC) No 2444/97 of 22 September 1997
Council Regulation (EC, ECSC, Euratom) No 2548/98 of 23 November 1998
Council Regulation (EC, ECSC, Euratom) No 2779/98 of 17 December 1998
Council Regulation (EC, ECSC, Euratom) No 2673/1999 of 13 December 1999

3) Contents

“The budget of the European Communities is the instrument which sets out the forecasts of, and authorises in advance, the expected revenue and expenditure of the Communities for each year”. It is on the basis of this definition (given in Article 1) that the Financial Regulation goes on toshape the European Union’s financial architecture step by step. Subsequent articles of the Regulation introduce the key concepts underlying the budget and lay down the procedures and rules for its establishment and implementation. The main features of the Financial Regulation are summarised below. More detailed questions can be answered by referring to the text of the Regulation itself.

I. European budgetary law in 16 definitions

The financial year: The financial year runs for 12 months from 1 January to 31 December. The budget comprises all expenditure and revenue authorised for that year. The appropriations entered in the budget are authorised only for the duration of one financial year. (See point 12 – Carryover of appropriations).

Differentiated appropriations: One of the principles governing the Community’s financial system is annuality. This means that operations relate to a given financial year, making it easier to control the work of the Community executive. However, multiannual operations are often necessary (e.g. research programmes, structural measures, etc), in which case the notion of differentiated appropriations is used. Differentiated appropriations, as opposed to non-differentiated appropriations, are split into commitment appropriations and payment appropriations. Operations extending over more than one financial year have a deadline attached, i.e. a date by which the relevant projects must be completed.

Commitment appropriations: Commitment appropriations cover the total cost, in the current financial year, of the legal obligations entered into for operations to be carried out over more than one financial year. This type of appropriation constitutes the upper limit of expenditure which can be committed during the financial year.

Payment appropriations: Payment appropriations cover expenditure arising from commitments entered into during the current financial year or preceding years.

Appropriations for commitment: This term refers to the sum of commitment appropriations and non-differentiated appropriations.*

Appropriations for payment: This term refers to the sum of payment appropriations and non-differentiated appropriations. *In effect, non-differentiated appropriations authorise an equal amount of commitments and payments, so that both aspects must be fully taken into account.

Principles of sound financial management: Principles underlying the use of budget appropriations, including economy, cost-effectiveness, evaluation prior to mobilisation of Community resources, regular review of operations, etc.

Financial statement: The financial statement sets out the various financial aspects of an operation (financial consequences, links with financial instruments, schedule, etc). Any proposal or communication which may have budgetary consequences must include a financial statement.

No offsetting: According to this principle, all revenue and expenditure must be entered in full with no adjustment against each other, thus ensuring an exhaustive and complete presentation of the budget.

No assignment of revenue: This rule prevents specific revenue from being used to finance specific expenditure. Total revenue covers total expenditure. There are exceptions to this principle: for example Member States’ financial contributions to certain research programmes and contributions from non-member countries to Community activities under the Agreement on the European Economic Area.

Booking of revenue and expenditure to articles: Revenue can be collected and expenditure effected only if it is booked to an article in the budget. This means that all financial operations (revenue or expenditure) must have a budgetary basis, i.e. a specific article in the budget. In addition, no expenditure may exceed the authorised appropriations.

Carryover of appropriations: As a general rule, non-differentiated appropriations lapse if they are not used at the end of the financial year for which they are entered. However, in the case of payments outstanding in respect of commitments entered into before the end of the financial year, appropriations left unused must be transferred to the budget of the following year. Optional carryovers are possible when requirements cannot be met from the budget of the following financial year. Differentiated appropriations (consisting of commitment appropriations and payment appropriations) also lapse if they are not used at the end of the financial year, although a decision may be taken to carry them over in certain instances (e.g. where the basic legislative instrument is adopted at the end of December and the Commission is unable to commit the amounts before 31 December).

Provisional twelfths: If the budget is not finally adopted by the beginning of the financial year, i.e. 1 January, the “provisional twelfths” system comes into operation. In this case, payments may be made monthly up to a limit of one twelfth of the appropriations entered in the budget of the previous financial year.

Adoption of the budget: The adoption of the budget marks the end of the budget procedure. The budget, which is drawn up in euros, is declared adopted by the President of Parliament and then published in the Official Journal. Once the budget has been finally adopted, each Member State is required to make available to the Community its own resources payments with effect from 1 January of the following financial year.

Reserves: Under European budgetary law, there are six types of reserves, of which three are expressly provided for by the Financial Regulation:

  1. provisional appropriations;
  2. The contingency reserve;
  3. The negative reserve: a mechanism whereby new expenditure is financed by anticipating savings which will be made during the financial year, even though it is impossible to tell, when the budget is adopted, which items will generate these savings. A negative amount is therefore entered in the budget and offset during the year by transfers from chapters which are in surplus.

These reserves are designed to facilitate budget management. They can be drawn on – during the financial year – to enter amounts in a budget line for an operation that was not entirely finalised when the budget was adopted, to increase the authorised appropriations in order to deal with unforeseen circumstances or to reduce the authorised appropriations for the sake of economy, taking into account the progress made in implementation. The reserves can be used only by implementing a transfer procedure.

The financial perspective provides for three other reserves designed to create room for manoeuvre, so that expenditure can be covered even where the requirements could not easily have been foreseen when the financial perspective was drawn up:

  1. The monetary reserve is designed to offset the effects on agricultural spending of significant and unexpected movements in the dollar/euro parity, compared with the value used in drawing up the budget.
  2. The reserve for loan guarantees for non-member countries is used to transfer amounts to the budget lines, which cover payments to the guarantee fund and payments in the event of default by debtors.
  3. The emergency aid reserve is designed to enable the Community to react quickly to specific aid requirements in non-member countries, mainly in the form of humanitarian aid.

Discharge: The European Parliament, acting on a recommendation by the Council, grants the Commission discharge for its implementation of the budget, after examining a series of reports, in particular that of the Court of Auditors. The purpose is to bring the financial year to a close in both formal and political terms. The discharge decision covers the accounts of all Community revenue and expenditure and the situation described in the balance sheet (statement of assets and liabilities). It consists of an appraisal of how the Commission has discharged its responsibility for budget management over the past financial year.

II. Establishment of the budget

The first stage in the process leading to the establishment of the budget is that each institution (Parliament, the Council, the Court of Justice, the Court of Auditors, the Economic and Social Committee and Committee of the Regions and the Ombudsman) draws up estimates of its expenditure and revenue for the following year and sends them to the Commission.

After receiving the various estimates, the Commission draws up the preliminary draft budget, which must be presented by 1 September and contains:

  • a general statement of the revenue of the Communities;
  • a statement of estimates;
  • a general introduction including financial tables covering the entire budget and a description of the policies for which the appropriations are requested;
  • an introduction to each section, drafted by the institution concerned;
  • a working paper on the staff of the institutions (staff policy, variation in staff numbers, etc);
  • a working paper on subsidies to decentralised bodies (agencies, European schools etc);
  • an analysis of financial management over the past year and a balance sheet setting out the Communities’ assets and liabilities;
  • an opinion on the estimates of the other institutions.

During the procedure, the Commission may amend this preliminary draft by sending a letter of amendment to the Council at least 30 days before Parliament’s first reading of the draft budget.

In exceptional circumstances, the Commission may present preliminary draft supplementary and/or amending budgets, which are examined according to the usual budgetary procedure. A preliminary draft supplementary budget either increases the total amount of appropriations or finances new operations without increasing appropriations. A preliminary draft amending budget makes technical changes, without increasing the overall budget or providing for new operations. These preliminary drafts must be accompanied by statements of justification.

The budgetary procedure is laid down in Article 272 of the EC Treaty. After examining the preliminary draft budget, the Council sends Parliament a draft budget, accompanied by an explanatory memorandum explaining why it has departed from the preliminary draft budget, if it has done so.

III. Structure and presentation of the budget

The budget contains a general statement of revenue (estimated revenue of the Communities for the financial year in question and actual revenue in the previous financial year), plus a number of sections subdivided into statements of revenue (revenue for the financial year in question and the previous year, together with the relevant remarks) and expenditure. The various sections cover:

  1. The European Parliament
  2. The Council
  3. The Commission
  4. The Court of Justice
  5. The Court of Auditors
  6. The Economic and Social Committee
  7. The Committee of the Regions
  8. The Ombudsman.

The Commission section contains a Part A (staff and administrative expenditure) and a Part B (operational expenditure). Part B is broken down into several sub-sections, according to requirements. These subsections, which correspond to European Union policies, are shown in the table below. The figures are taken from the 1999 budget.

Policies (sub-sections) Amount in 1999 budget (EUR million) Percentage of the total budget
Common agricultural policy (CAP)
European Agricultural Guidance and Guarantee Fund, Guarantee Section
40 940.0 42.2
Structural operations
structural and cohesion expenditure
39 260.0 40.5
Training, youth, culture, audiovisual media, information, social dimension and employment 812.0 0.8
Energy and environment 235.4 0.2
Consumer protection, internal market, industry and trans-European networks 1129.1 1.2
Research and technological development 3450.0 3.6
External action 6223.8 6.4
Common foreign and security policy 30.0 0.0
Guarantees and reserves 346.0 0.4

Each section or subsection is divided into titles, chapters, articles and items. The statement of expenditure in each section (i.e. for each institution) includes, for the various titles, chapters, articles and items (each subdivision being accompanied by remarks):

  • the appropriations made available for the financial year in question;
  • the appropriations made available for the previous financial year;
  • actual expenditure in the last financial year (= actual payments plus carryovers to the following financial year).

IV. Implementation of the budget

The implementation of the budget is based on a fundamental principle – the need for a legislative basis – which has been both the cause and the result of a series of crises between the two arms of the budgetary authority. The implementation of appropriations entered in the budget for “significant” Community action requires the prior adoption of a basic act, i.e. a legal provision such as a regulation, a decision, etc., providing for the expenditure. Pilot schemes and certain kinds of information activities are deemed not to be “significant”, so that they can be put into effect merely on the basis of the relevant line in the Community budget.

The Community budget is implemented by the European Commission, acting under its own responsibility, in accordance with the Financial Regulation and within the limits of the appropriations entered in the budget. But while the Commission’s implementing responsibilities cover its own internal operations and Community policies, the other institutions (Parliament and the Council, etc.) implement the sections of the budget which concern them. This power to implement the budget cannot be delegated to external bodies, at least in relation to the tasks of the European civil service (e.g. public procurement). Implementing powers may be delegated within the European administration so that certain officials act as authorising officers, accounting officers and financial controllers. In practical terms, it is they who implement the budget. This internal delegation of powers is subject to strict conditions in order to avoid conflicts of interest or abuse of power.

Within the European administration the implementation of the Community budget rests on the existence of three different functions, which must be performed separately: authorising officer, accounting officer and financial controller.

The authorising officer administersthe appropriations. He alone has the power to “commit” expenditure, i.e. to give the initial authorisation for expenditure. The authorising officer is liable to disciplinary action and may be held financially liable if he fails to comply with the Financial Regulation or neglects tasks relating to his function.
The accounting officer makes the payments. He is the only person empowered to handle monies and other assets and is also responsible for their safekeeping. The accounting officer is liable to disciplinary action and may be held financially liable for payments in which a procedural error is detected. Officials performing accounting functions receive a special allowance to compensate for their increased responsibility vis-à-vis “ordinary” officials.
The financial controller carries outmonitoring and audit tasks. He checks the commitment and authorisation of all expenditure and ensures that revenue is properly collected. In short, he checks the legality of operations. To carry out this task, the financial controller has access to all the necessary documents and information. In his capacity as auditor, he is also regularly consulted on and evaluates changes to financial management systems. Commission staff exercising this function are governed by special rules guaranteeing their independence (for example, in certain cases they may bring actions before the Court of Justice). The financial controller is liable to disciplinary action and may be held financially liable if he grants his approval to expenditure in excess of the budget appropriations.

In a stricter sense, implementation of the Community budget consists mainly of expenditure, which, under budgetary law, is broken down into various stages: commitment, validation, authorisation and payment:

1 Commitment Prior to any measure which may give rise to expenditure (in particular legal commitments vis-à-vis third parties), the authorising officer must draw up a proposal for a budgetary commitment on which the financial controller must grant his approval. The purpose of the financial controller’s approval is to establish that the appropriations are available and that the expenditure is consistent with the relevant legislation and correctly charged to the budget. If some of these conditions are not met, the financial controller may refuse to grant his approval. The superior authority may overrule such a refusal, informing the Court of Auditors of its decision, but this hypothetical facility is rarely used in practice.
2 Validation Validation is the act whereby the authorising officer checks the claim of the creditor (the recipient of expenditure), the amount of that claim and the conditions under which payment falls due. Validation is subject to presentation of supporting documents.
3 Authorisation Authorisation is the act whereby the authorising officer instructs the accounting officer to pay an item of expenditure which he has validated. Payment orders are sent for prior approval to the financial controller, the purpose being to establish, among other things, that the payment order agrees with the commitment of expenditure and that the amount is correct. After approval, the order is forwarded to the accounting officer.
4 Payment Payment is the final action whereby the institution is discharged of its obligations towards its creditors. It is carried out by the accounting officer.

Appropriations are classified under chapters and articles. Parliament and the Council may transfer appropriations from one chapter to another and from one article to another within their own section of the budget. The Commission may, within its section of the budget, transfer appropriations from one article to another within each chapter and from one chapter to another within each of the titles relating to staff and administrative expenditure. The Commission informs the budgetary authority of these transfers, giving a statement of the grounds.

The balance from each financial year is entered in the budget of the following financial year as revenue or expenditure, depending on whether it represents a surplus or a deficit.

During the financial year, the Commission sends Parliament, the Council and the Court of Auditors figures on the implementation of the budget in the form of:

  • monthly reports on both revenue and expenditure, together with information on the use of appropriations carried over from previous financial years;
  • a report every four months on revenue and expenditure, together with information on the use of appropriations carried over from previous financial years.

In the course of the year, following a given financial year, the Commission produces several documents describing its financial activities in that financial year. By no later than 1 May of the following year, it draws up a consolidated revenue and expenditure account comprising:

  1. a table of revenue;
  2. tables showing movements in appropriations for the financial year, indicating payment appropriations and non-differentiated appropriations;
  3. tables of expenditure showing the use of appropriations allocated for the financial year, indicating payment appropriations and non-differentiated appropriations;
  4. tables showing the use of the appropriations available from previous years;
  5. a document showing capital operations and debt management.

The revenue and expenditure account encompasses all revenue and expenditure operations relating to the past financial year for each institution. It is presented in the same form as the budget. At the same time, the Commission presents a consolidated balance sheet setting out the Communities’assets and liabilities, including borrowing and lending operations, and an analysis of financial management.

The institutions comply with existing European legislation regarding public procurement.

The Communities’ movable and immovable property is recorded in an inventory, which is used in drawing up each institution’s balance sheet.

The Community accounts are kept in euros, using the double entry method, on the basis of the calendar year. The accounts show all revenue and expenditure for the financial year and are supplemented by supporting documents.

The Court of Auditors monitors the implementation of the Community budget. The institutions send it all the supporting documents required for that purpose. The object of the Court’s supervision is to ensure that revenue and expenditure is legal and consistent with the Treaties, the budget and Community legislation. The Court also ensures that sound financial management is practiced. The Court’s comments are set out in its annual report. It may present special reports when it wishes to comment on specific matters. Special reports may also be drawn up at the request of an institution.

V. Special status of certain areas of the Community’s financial activities

The very nature of certain operations or policies means that their financial management receives special treatment:

  1. Research and technological development (R&TD) appropriations

    Appropriations earmarked for projects under the framework programme of R&TD activities are entered separately in a special subsection in Part B of the Commission section of the budget.
  2. European Agricultural Guidance and Guarantee Fund, Guarantee Section (EAGGF)

    One of the peculiarities of the agricultural budget is that provisional overall commitments are made corresponding to the advances to be paid to Member States. There is also an early warning system designed to rein in agricultural spending.
  3. External aid

    External aid is granted as part of the Community’s cooperation policy, either under cooperation agreements or independently. In many cases financing agreements are drawn up between the Commission and the government of the recipient country.
  4. Financial contributions from third parties
    As an exceptionto the principles of specification and non-assignment, contributions to the Community budget from third parties constitute revenue earmarked for specific purposes. This applies in particular to countries which are parties to the Agreement on the European Economic area.
  5. Office for Official Publications of the European Communities
    The budget appropriations relating to the Publications Office are shown in an annex setting out its expenditure and revenue, as it is the only Community body to generate revenue.

4) Deadline For Implementation Of The Legislation In The Member States

Not applicable.

5) Date Of Entry Into Force (If Different From The Above)

  • Financial Regulation of 21 December 1977:
  • Regulation (ECSC, EEC, Euratom) No 1252/79: 01.07.1979
  • Regulation (EEC, Euratom, ECSC) No 80/1176: 12.05.1980
  • Regulation (ECSC, EEC, Euratom) No 1600/88: 13.06.1988
  • Regulation (ECSC, EEC, Euratom) No 2049/88: 18.07.1988
  • Regulation (Euratom, ECSC, EEC) No 610/90: 19.03.1990
  • Regulation (ECSC, EC, Euratom) No 1923/94: 02.08.1994
  • Regulation (ECSC, EC, Euratom) No 2730/94: 19.11.1994
  • Regulation (EC, Euratom, ECSC) No 2333/95: 10.10.1995
  • Regulation (EC, Euratom, ECSC) No 2334/95: 10.10.1995
  • Regulation (EC, Euratom, ECSC) No 2335/95: 10.10.1995
  • Regulation (EC) No 2444/97: 18.12.1997
  • Regulation (EC, ECSC, Euratom) No 2548/98: 05.12.1998
  • Regulation (EC, ECSC, Euratom) No 2779/98: 01.01.1999
  • Regulation (EC, ECSC, Euratom) No 2673/1999: 01.01.2000

6) References

  • Financial Regulation of 21 December 1977: Official Journal L 356, 31.12.1977
  • Regulation (ECSC, EEC, Euratom) No 1252/79: Official Journal L 160, 28.06.1979
  • Regulation (EEC, Euratom, ECSC) No 80/1176: Official Journal L 345, 20.12.1980
  • Regulation (ECSC, EEC, Euratom) No 1600/88: Official Journal L 143, 10.06.1988
  • Regulation (ECSC, EEC, Euratom) No 2049/88: Official Journal L 185, 15.07.1988
  • Regulation (Euratom, ECSC, EEC) No 610/90: Official Journal L 70, 16.03.1990
  • Regulation (ECSC, EC, Euratom) No 1923/94: Official Journal L 198, 30.07.1994
  • Regulation (ECSC, EC, Euratom) No 2730/94: Official Journal L 293, 12.11.1994
  • Regulation (EC, Euratom, ECSC) No 2333/95: Official Journal L 240, 07.10.1995
  • Regulation (EC, Euratom, ECSC) No 2334/95: Official Journal L 240, 07.10.1995
  • Regulation (EC, Euratom, ECSC) No 2335/95: Official Journal L 240, 07.10.1995
  • Regulation (EC) No 2444/97: Official Journal L 340, 11.12.1997
  • Regulation (EC, ECSC, Euratom) No 2548/98: Official Journal L 320, 28.11.1998
  • Regulation (EC, ECSC, Euratom) No 2779/98: Official Journal L347, 23.12.1998
  • Regulation (EC, ECSC, Euratom) No 2673/1999: Official Journal L 326, 18.12.1999

7) Follow-Up Work

8) Commission Implementing Measures

Report on the system of own resources

Report on the system of own resources

Outline of the Community (European Union) legislation about Report on the system of own resources

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Budget

Report on the system of own resources

Document or Iniciative

Commission report of 14 July 2004, “The financing of the European Union – Report on the operation of the own resources system” [COM(2004) 505 final – Not published in the Official Journal].

Summary

In response to the call in the current own resources decision of 2000 for a general review of the own resources system before 1 January 2006, the Commission committed itself to presenting a report before the end of January 2004. This follow-up document sets out the two key issues, namely the need to reform the existing mechanism for correcting negative budgetary imbalances and the insufficient transparency of the system for citizens, combined with limited financial autonomy for the EU in relation to national treasuries.

The current own resources system

At present, the system is divided into three main categories of own resources:

  • traditional own resources (TOR), mainly customs duties;
  • the VAT-based resource, which is levied on the statistical, “notional” and harmonised bases of Member States;
  • the GNI-based resource, which is the residual resource used to balance the budget of each Member States and currently constitutes the system’s main resource.

The total amount of all own resources may not exceed 1.24% of the European Union’s GNI.

Before proposing its reforms, the Commission assesses the current own resources system. It considers that, although the system satisfies the sufficiency and stability criteria, it fails the visibility and simplicity test and does not contribute to more efficient allocation of economic resources. Moreover, financial autonomy is becoming more and more limited.

The correction of budgetary imbalances

Following the observation that some countries contributed more to the Community budget than they received, the Fontainebleau European Council in 1984 introduced a correction mechanism in favour of the United Kingdom, which is reimbursed to the extent of some two thirds of its net contributions.

Over time, enlargement and changes in the structure of the budget have modified the unique position of the United Kingdom and so the existing mechanism should be transformed into a generalised correction mechanism. For the Commission, this reflects the twin goals of:

  • preventing excessive negative budgetary deficits and reducing the differences between net contributors;
  • ensuring that the financing costs of the mechanism are kept at a reasonable level.

At present, the net British position has improved significantly. If the current mechanism remains in force, the correction will increase by more than 50% after enlargement, accentuating the existing differences between net contributors. Further consequences of enlargement are the deterioration of the net balances of all the old Member States and the increased cost of the correction mechanism.

The generalised correction mechanism proposed by the Commission involves:

  • setting a threshold level, expressed as a percentage of gross national income (GNI), above which a Member State would be entitled to reimbursement of part of its contribution;
  • capping the total volume of corrections;
  • simplifying the financing of the corrections, with all Member States participating in proportion to their GNI.

By comparison with the current system, the proposed mechanism would reduce the differences between net contributors and lighten the financing burden of those Member States that do not benefit from it.

The modification of own resources

Before proposing the reform of the own resources system, the Commission reviewed three possible alternatives for the financing of the EU budget, while safeguarding traditional own resources. The alternatives are:

  • maintaining the present financing system unchanged. The Commission rejects this option because, in its present form, the system lacks a direct link to citizens, who tend to judge EU policies and initiatives exclusively in terms of their national allocation;
  • adopting a purely GNI-based financing system: The EU would depend entirely on contributions from Member States. This would be simple and easy to understand but does not reflect the status of the EU, which is more than an international organisation. It would imply an idea of the Union in which citizens would be only indirectly represented by their Member State, something which is unacceptable to the Commission;
  • adopting a financing system based on fiscal own resources: This system could increase the financial autonomy of the EU and introduce a direct link to citizens. The participation of citizens and economic operators in the EU budget would go hand in hand with a reduction in the level of contributions by Member States and ensure higher visibility and increased political accountability for expenditure decisions. However, a fully tax-based system does not appear appropriate to the Commission because of the threat to balanced budgets. Therefore, the retention of a limited GNI resource together with an increase in the share of taxed-based resources seems preferable.

The Commission proposes the introduction of a new taxed-based own resource accounting for up to half of the budget. This resource requires sufficient prior harmonisation of the tax base. The increase of tax-based own resources does not call for any new taxes because the EU share could be levied as part of the national rate paid by taxpayers. The Commission proposes three options, which all maintain the current GNI-based resource and traditional own resources but replace the statistical VAT-based resource with a new fiscal resource. The three options are:

  • fiscal resources related to energy consumption: Under the new directive on energy taxation, most energy products are subject to Community taxation. However, the Commission proposes limiting the Community levy to the tax base related to motor fuel used for road transport, which is already harmonised at a Community level. It could be supplemented with a levy on aviation fuel or the related emissions. This option could be implemented within a short period of time (around 3 to 6 years);
  • a fiscal VAT resource: In place of the present statistical VAT resource, the EU rate would be levied as part of the national VAT rate paid by taxpayers, together with the national rate on the same taxable base. Citizens would not have to bear an additional tax burden as the EU rate would be offset by an equivalent decrease in the national VAT rate. The main stumbling block to this measure is the incomplete harmonisation of Member States’ VAT systems. Technically, the introduction of this option would be possible within a period of up to 6 years;
  • a resource based on corporate income. This option would require a prior definition of a common consolidated tax base, thereby boosting cross-border economic activity, which is hampered by 25 national tax systems and a myriad of laws. This option would imply setting a minimum tax rate for the harmonised tax base and would be the longest to implement.

Conclusions

The Commission invites the Council to examine the proposed options in order to achieve a genuinely tax-based own resource by 2014. It recommends the introduction of a generalised correction mechanism to correct excessive budgetary imbalances as a short-term solution.

Related Acts

Report from the Commission to the European Parliament AND to the Council Sixth Report from the Commission on the operation of the inspection arrangements for traditional own resources (2006-2009) (Article 18(5) of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000) [COM(2010) 219 final – Not published in the Official Journal].

Report from the Commission – Fifth Report from the Commission on the operation of the inspection arrangements for traditional own resources (2003-2005) (Article 18(5) of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000) [COM(2006) 874 final – Not published in the Official Journal].

Report from the Commission – Fourth Report from the Commission on the operation of the inspection arrangements for traditional own resources (2000 2002) (Article 18(5) of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000) [COM(2003) 345 final – Not published in the Official Journal].

Report from the Commission – Third Report from the Commission on the operation of the inspection arrangements for traditional own resources (1997-1999) – (Article 18(5) of Council Regulation (EC, Euratom) No 1150/00 of 22 May 2000) [COM(2001) 32 final – Not published in the Official Journal].

Report from the Commission – Second report from the Commission on the operation of the inspection arrangements for traditional own resources (for the period 1993-96) – (Article 18(5) of Council Regulation (EC, Euratom) No 1150/00 of 22 May 2000) [COM(97) 673 final – Not published in the Official Journal].

REPORT FROM THE COMMISSION on the functioning of the inspection arrangements for traditional own resources (Article 18(5) of Council Regulation (EEC, Euratom) N° 1552/89) [COM(93) 691 final – Not published in the Official Journal].

Commission Action Plan towards an Integrated Internal Control Framework

Commission Action Plan towards an Integrated Internal Control Framework

Outline of the Community (European Union) legislation about Commission Action Plan towards an Integrated Internal Control Framework

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Budget

Commission Action Plan towards an Integrated Internal Control Framework

Document or Iniciative

Communication from the Commission to the Council, the European Parliament and the European Court of Auditors of 17 January 2006 entitled “Commission Action Plan towards an Integrated Internal Control Framework” [COM(2006) 9 final – Not published in the Official Journal].

Summary

For each financial year, the European Court of Auditors (ECA) issues a Statement of Assurance (DAS) as regards implementation of the budget for which the Commission is responsible. In this connection, the Commission must provide the ECA with audit evidence for each financial year. Given the present Commission’s objective of obtaining a positive DAS during its term of office, it is proposing to introduce an integrated internal control framework.

The communication reports on the progress made since the roadmap and on the gaps identified and lays down the main practical measures to be taken in 2006-07 with a view to introducing a coherent internal control framework. The concrete proposals for action have been grouped around four themes:

  • simplification and common control principles;
  • management declarations and audit assurance;
  • single audit approach: sharing results and prioritising cost-benefit;
  • sector-specific gaps.

Simplification and common control principles

The Commission is aiming to simplify as much as possible the regulatory framework proposed for the period 2007-13, including expenditure eligibility rules. Integrating common internal control principles will ensure that all stakeholders will be bound by a fundamental set of control principles. These common principles will also provide the ECA with a clearer basis for auditing management processes and procedures.

In order to ensure that supervisory and control systems are in place to limit the risk of any irregularity, it is necessary to demonstrate the assurance and to provide evidence that the control strategy is effective.

The Commission wishes to initiate an inter-institutional dialogue on the definition of reasonable assurance in terms of tolerable risk in underlying transactions.

Management declarations and audit assurance

In order to promote management declarations and audit assurance, the Commission intends to encourage declarations at operational level and the drawing up of synthesis reports at national level for each policy area.

Other measures proposed by the Commission in order to promote management declarations and audit assurance are aimed at:

  • examining the utility of management declarations outside shared and indirect centralised management mode;
  • promoting best practices for increasing the cost-benefit of audits at project level;
  • facilitating additional assurance from supreme audit institutions (SAIs) regarding the management of Community funds.

Single audit approach; sharing results and prioritising cost-benefit

In order to avoid duplication of control work, sharing control information makes for greater effectiveness at each level in the chain. In the single audit approach, the sharing of audit and control data is key to improving the targeting of audit and control efforts.

A model for determining costs and for estimating and making an initial analysis of the costs of controls must be introduced for shared management and centralised indirect management.

The Commission stresses the importance of initiating pilot projects for evaluating the benefits to be gained from the different controls.

Sector-specific gaps

The proposed integrated framework must be capable of flexible application given the varying nature of individual EU policies. The Commission proposes measures for closing the gaps via management plans, with back-up in the form of annual activity reports from its participating departments.

The controls under shared management (in particular as regards the Structural Funds) at regional level must be analysed, and especially the existing statements. In this connection, promotion of the “contracts of confidence” initiative for the Structural Funds provides audit assurance on an annual basis.

Lastly, the Commission proposes establishing common guidelines per policy family in 2006 and 2007 in order to adopt consistent approaches, notably with regard to management of the risk of errors in the Structural Funds.

Background

For the Action Plan, the Commission has based itself primarily on:

  • ECA Opinion No 2/2004 on the “single audit” model (and a proposal for a Community internal control framework);
  • the Commission communication of June 2004 on a roadmap to an integrated internal control framework;
  • the assessment of gaps between the internal control framework within the Commission departments and the control principles set out in Opinion No 2/2004 of the Court of Auditors;
  • four Commission working groups that helped in October 2005 to draft the questions to be addressed in the communication;
  • the conclusions of the ECOFIN Council of 8 November 2005;
  • the reactions of the European Parliament and the Court of Auditors.

Related Acts

Report from the Commission to the Council, the European Parliament and the European Court of Auditors on the progress of the Commission Action Plan towards An Integrated Internal Control Framework [COM(2007) 86 final – Not published in the Official Journal].

Communication from the Commission to the Council, the European Parliament and the European Court of Auditors of 15 June 2005 on a roadmap to an integrated internal control framework [COM(2005) 252 final – Not published in the Official Journal].

Opinion No 2/2004 of the Court of Auditors of the European Communities on the “single audit” model (and a proposal for a Community internal control framework) [Official Journal C 107, 30.04.2004].

These two documents provide the reference framework for the Action Plan. They should help to set in place an integrated framework for ensuring effective and efficient internal control of European funds. This framework should be the basis on which the ECA will draw up the DAS.

New interinstitutional agreement and financial perspective

New interinstitutional agreement and financial perspective

Outline of the Community (European Union) legislation about New interinstitutional agreement and financial perspective

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Budget

New interinstitutional agreement and financial perspective (2000-2006)

The purpose of the agreement is to implement, on a multiannual basis, budgetary discipline at Community level. It seeks to improve the functioning of the annual budgetary procedure and cooperation between the institutions on budgetary matters.

Document or Iniciative

Interinstitutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the budgetary procedure.

This Agreement repeals and replaces the following measures:

Joint Declaration by the European Parliament, the Council and the Commission of 30 June 1982 [Official Journal C 194 of 28.07.1982];
Interinstitutional Agreement of 29 October 1993 [Official Journal C 331 of 07.12.1993];
Declaration by the European Parliament, the Council and the Commission of 6 March 1995 [Official Journal C 102 of 04.04.1996];
Joint Declaration of 12 December 1996 [Official Journal C 20 of 20.01.1997];
Interinstitutional Agreement of 16 July 1997 [Official Journal C 286 of 22.09.1997];
Interinstitutional Agreement of 13 October 1998 [Official Journal C 344 of 12.11.1998].

Decision 2003/429/EC of the European Parliament and the Council of 19 May on the adjustment of the financial perspective for enlargement.

Summary

Since 1988 Community expenditure and the annual budgetary procedure have been based on interinstitutional agreements on budgetary discipline and the improvement of the budgetary procedure.

These agreements, which cover several years and have been adopted jointly by Parliament, the Council and the Commission, have been traditionally divided into two types of provision:

  • the financial perspective, which sets the budgetary ceilings for the major categories of Union expenditure in order to keep expenditure within the limits of the own resources available (“budgetary discipline”);
  • arrangements between the institutions to improve the annual budgetary procedure (“functioning of the budgetary procedure”).

Under Agenda 2000, and with a view to the expiry of the financial perspective (1993-99), a new interinstitutional agreement has been adopted for the period 2000-2006. This agreement, which is the core of the Agenda 2000 financial package, should enable the Union to expand and strengthen its policies while remaining within a rigorous financial framework.

Financial perspective

The first part of the agreement consists of the financial perspective and its implementing details.

The 2000 to 2006 financial perspective establishes, for each of the years covered and for each heading and subheading, the amounts of expenditure in terms of appropriations for commitments. Overall annual totals of expenditure are also shown in terms of both appropriations for commitments and appropriations for payments.
The institutions undertake to comply with the various annual expenditure ceilings during each budgetary procedure and when implementing the budget for the year concerned.

The ceilings in the financial perspective were set initially in 1999. They were adapted for enlargement of the Union to include ten new Member States (Europe 25) in 2003.

The new perspective contains eight main headings (agriculture, structural operations, internal policies, external action, administration, reserves, pre-accession strategy, compensations), divided in some cases into subheadings. Ceilings are expressed in 1999 prices.

Agriculture and structural operations (headings 1 and 2) account for the bulk of expenditure under the financial perspective.
The reform of the common agricultural policy under Agenda 2000 will require an initial increase in agricultural expenditure (from EUR 40.92 billion in 2000 to EUR 45.8 billion in 2006), following the adaptation of the financial perspective for Europe 25, which has raised the amounts for this heading provided for in 1999. Approximately one tenth of the agricultural expenditure will be used for rural development.
Enlargement also has a highly visible impact on expenditure for structural operations, which the 2003 decision raises from the initial 1999 amounts to EUR 37.94 billion in 2006.
Given the importance of some of the Union’s internal policies (trans-European networks, research and innovation, education and training, measures in support of small and medium-sized enterprises) heading 3 of the financial perspective will have its financial allocation increased from EUR 5.93 billion in 2000 to EUR 8.21 billion in 2006.
The same applies to external action (from EUR 4.55 billion to EUR 4.61 billion) and administrative expenditure (from EUR 4.56 billion to EUR 5.71 billion).
With regard to the reserves, the monetary reserve was abolished in 2003, as provided in 2006. The emergency aid reserve and the loan guarantee reserve will remain at a steady level (EUR 200 billion in both cases) throughout the period 2000-2006.
The seventh heading, “Pre-accession strategy“, is allocated EUR 3.12 billion per year.

Heading 8, “Compensations”, covers transitional budgetary compensations for the ten new Member States decided on at the Copenhagen European Council on 12 and 13 December 2002.

The table below traces the development of the headings of the financial perspective for 2004-2006 following adaptation to Europe 25, in million euros at 1999 prices.

2004 2005 2006
1) Agriculture 42760 – 44657 41930 – 45677 41660 – 45807
2) Structural operations 29595 – 35665 29595 – 36502 29170 – 37940
3) Internal policies 6370 – 7877 6480 – 8098 6600 – 8212
4) External action 4590 4600 4610
5 Administration 4900 – 5403 5000 – 5558 5100 – 5712
6) Reserves 400 400 400
7) Pre-accession strategy 3120 3120 3120
8) Compensations 0 – 1273 0 – 1173 0 – 940

This adaptation of the financial perspective also includes the figures emerging from the technical adjustment for 2004 to trends in gross national income (GNI) and prices. The following are the figures at 2004 prices:

2004 2005 2006
1) Agriculture 49305 50431 50575
2) Structural operations 41035 41685 42932
3) Internal policies 8722 8967 9093
4) External action 5082 5093 5104
5 Administration 5983 6154 6325
6) Reserves 442 442 442
7) Pre-accession strategy 3455 3455 3455
8) Compensations 1410 1299 1041

In accordance with the recommendations made in the Commission report, the interinstitutional agreement also provides for various mechanisms enabling the financial perspective to be adjusted along the way, thereby increasing its flexibility.

As before, the agreement, in addition to the annual technical adjustment to movements in prices and GNI, makes provisions for a revision of the ceilings in the event of unforeseen circumstances.
These revisions will be adopted by joint decision of the Council (acting on a qualified majority in the case of revisions of less than 0.03% of Community GNP and unanimously in other cases) and Parliament (acting by a majority of its members and 3/5 of the votes) on a proposal from the Commission.

Revision may take the form of a reallocation of appropriations between different headings or subheadings of the financial perspective. Amounts available under headings 1 to 6 cannot at any time be used for heading 7 (pre-accession strategy) of the financial perspective. Expenditure provided for the Union of Fifteen and that for enlargement are thus kept rigorously separate.
The interinstitutional agreement specifies that any revision of the compulsory expenditure may not lead to a reduction of the amount available for non-compulsory expenditure.

The three reserves appearing in heading 6 of the financial perspective make for flexibility in the management of the Union’s finances. They are the monetary reserve (to cover the impact of unforeseen movements in the euro/dollar parity on agricultural expenditure, abolished in 2003), the loan guarantee reserve for non-member countries (to provision the Guarantee Fund) and the emergency aid reserve (to meet specific and unforeseen aid requirements of non-member countries).

In addition, a general flexibility instrument with an annual ceiling of EUR 200 million is intended to cover specific expenditure which cannot be financed within the limits of the ceilings set. The unused part of the instrument may be carried over to the following two years’ budgets. A decision to use this instrument is taken during the budgetary procedure by joint agreement between Parliament and the Council, on a proposal from the Commission. It must as a rule avoid being used to cover the same needs two years running. This instrument was drawn on fully in December 1999 in respect of the 2000 budget in order to finance the reconstruction of Kosovo following an examination of all the possibilities for reallocating appropriations (Parliament and Council Decision of 16 December 1999, to reallocate appropriations in order to finance the reconstruction of Kosovo, Official Journal C 41 of 14.02.2000).

The Interinstitutional Agreement provides for two types of procedure to meet requirements which exceed the ceiling of a heading in the financial perspective: the flexibility instrument and revision of the financial perspective. The order in which the various financing sources are to be mobilised is as follows:

(1) reallocate appropriations within the heading in question;

(2) if that is not enough, mobilise all or part of the flexibility instrument subject to the conditions governing its use;

(3) if that is not enough or if the criteria for using the flexibility instrument are not met, revise the financial perspective, raising the ceiling of the heading in question and offsetting this by lowering the ceiling of another heading;

(4) if that cannot be done, increase the ceiling of the heading in question with no offsetting compensation, provided the overall own resources ceiling is not exceeded.

Improvement of the budgetary procedure

The second part of the agreement lays down the rules designed to improve the functioning of the annual budgetary procedure.
These rules relate to interinstitutional cooperation in general and to more specific problems (classification of expenditure, the matter of legal bases, incorporation of financial provisions in legislative acts, etc.) which had not been resolved by the 1993 agreement or which were dealt with under other arrangements (agreements or joint declarations) agreed between the institutions.

The agreement strengthens interinstitutional collaboration.
Trialogue meetings (between the President of the Council (Budget), the Chairman of Parliament’s Committee on Budgets and the Member of the Commission with responsibility for the budget), generally followed by conciliation between the Council and a delegation from Parliament with the Commission as a participant, are planned in accordance with the following schedule:

  • before the establishment of the preliminary draft budget by the Commission;
  • before the establishment of the draft budget by the Council;
  • before the first reading by Parliament;
  • after the first reading by Parliament;
  • the day preceding the second reading in the Council.

The conciliation procedure, which has to date been limited to non-compulsory expenditure, is extended to include all expenditure and the classification of expenditure as compulsory or non-compulsory expenditure.
This is facilitated by the inclusion in the Agreement of a definition of “compulsory expenditure” and a list classifying each heading or subheading of the financial perspective.

With regard to the incorporation of financial provisions in legislative acts, the agreement makes a distinction between acts concerning multiannual programmes adopted under the co-decision procedure and other legislative acts.
Only the first category of acts can contain financial provisions (financial allocation to the programme for its entire duration) which are binding on the institutions during the budgetary procedure.
If financial provisions are incorporated in other kinds of acts, they serve only as an illustration.

The agreement also clarifies to what extent the utilisation of appropriations entered in the budget require the prior adoption of a basic act. Only four categories of appropriations are exempt from the general requirement of a legal basis:

  • appropriations for pilot schemes of an experimental nature: these appropriations may be entered in the budget for no more than two financial years and may not exceed EUR 32 million.
  • appropriations relating to preparatory acts intended to prepare legislative proposals: these proposals may not be entered for more than three years and may not exceed EUR 30 million per year and EUR 75 million in all;
  • appropriations concerning actions carried out by the Commission by virtue of tasks resulting from its prerogatives at institutional level or specific powers conferred upon it by the EC Treaty (studies and opinions relating to social policy, initiatives to boost coordination with regard to trans-European networks, etc.);
  • appropriations intended for the operation of each institution under its administrative autonomy.

The Interinstitutional Agreement also contains provisions making it possible to distribute expenditure relating to fisheries agreements between the budget headings concerned and the reserve on the basis of the date of entry into force of the agreements during the budgetary procedure. All expenditure relating to new or renewable agreements which enter into force after 1 January of the year in question is placed in the reserve until the time comes to transfer it to the corresponding budget heading.

With regard to the operational expenditure of the common foreign and security policy (CFSP), the institutions will endeavour to secure each year, by means of the conciliation procedure, agreement on the amount to be charged to the Community budget and on the distribution of this amount between the articles of the CFSP budget chapter (observation and organisation of elections, prevention of conflicts, financial aid to the enlargement process, urgent actions, etc.). The amount allocated to urgent actions may not exceed 20% of the overall amount of the CFSP budget chapter.
Whenever it adopts a decision in the field of CFSP entailing expenditure, the Council will immediately send the European Parliament an estimate of the costs envisaged.
The Commission will inform the budgetary authority about the implementation of CFSP actions and the financial forecasts for the remaining period of the year.

Several declarations are attached to the agreement.
The following should be mentioned, among others, the Declaration on the agricultural guideline (which confirms the principles and mechanisms) and the Declaration on the Balkan situation (which points to a possible revision of the financial perspective in order to cover additional expenditure).

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Interinstitutional Agreement of 6 May 1999 01.01.2000 OJ C 172 of 18.06.1999
Decision 2003/429/EC 19.05.2003 OJ L 147 of 14.06.2003

Related Acts

of 10 February 2004, Building our common Future – Policy challenges and Budgetary means of the Enlarged Union, 2007-2013 [COM(2004) 101 final – Not published in the Official Journal].

 

European system of national and regional accounts in the Community

European system of national and regional accounts in the Community

Outline of the Community (European Union) legislation about European system of national and regional accounts in the Community

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Budget

European system of national and regional accounts in the Community

Document or Iniciative

Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community [See amending acts].

Summary

The European system of national and regional accounts (“ESA 1995”) makes it possible to describe the total economy of a region, country or group of countries, its components and its relations with other total economies.

The ESA is focused on the circumstances and needs of the EU. It can therefore serve as the central framework of reference for the social and economic statistics of the European Union and its Member States.

Content of the ESA

The ESA 1995 comprises two sets of tables:

  • the sector accounts *;
  • the input-output framework * and the accounts by industry *.

The purpose of this Regulation is to set up the ESA 1995 by providing for:

  • a methodology on common standards, definitions, classifications and accounting rules, that is intended to be used for compiling accounts and tables on comparable bases between the Member States for the purposes of the Community;
  • a programme, Eurostat, for transmitting on precise dates the accounts and tables compiled according to the ESA 1995.

Use

The Commission uses the national accounts aggregates for Community administrative and budgetary calculations. The ESA applies to all Community acts in which reference is made to it or to the definitions it lays down.

Key terms used in the act
  • Sector accounts: these provide, by institutional sector, a systematic description of the different stages of the economic process: production, generation of income, distribution of income, redistribution of income and use of income, as well as financial and non-financial accumulation; they also include balance sheets to describe the stocks of assets, liabilities and net worth at the beginning and at the end of the accounting period.
  • Input-output framework and accounts by industry: these describe in more detail the production process (cost structure, income generated and employment) and the flows of goods and services (output, imports, exports, intermediate consumption and capital formation by product group).

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 2223/96 20.12.1996 OJ L 310 of 30.11.1996
Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 2516/2000 7.12.2000 OJ L 290 of 17.11.2000
Regulation (EC) No 359/2002 20.3.2002 OJ L 58 of 28.2.2002
Regulation (EC) No 1392/2007

30.12.2007

OJ L 324 of 10.12.2007

Regulation (EC) No 400/2009

10.06.2009

OJ L 126 of 21.5.2009

Regulation (EC) No 715/2010

31.08.2010

OJ L 210 of 11.8.2010

Subsequent amendments and corrections to Regulation 2223/96 have been incorporated in the basic text. This consolidated version  is for reference purpose only.

Related Acts

Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 implementing Decision 94/728/EC, Euratom on the system of Community own resources [Official Journal L 130 of 31.5.2000].
See consolidated version

Council Regulation (EC) No 479/2009 of 25 May 2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community [Official Journal L 145 of 10.6.2009].
See consolidated version

Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax [Official Journal L 155 of 7.6.1989].
See consolidated version

Council Directive 89/130/EEC, Euratom of 13 February 1989 on the harmonisation of the compilation of gross national product at market prices [Official Journal L 49 of 21.2.1989].
See consolidated version consolidated version

Guarantee Fund for external actions

Guarantee Fund for external actions

Outline of the Community (European Union) legislation about Guarantee Fund for external actions

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Budget

Guarantee Fund for external actions

Document or Iniciative

Council Regulation (EC, Euratom) No 480/2009 of 25 May 2009 establishing a Guarantee Fund for external actions (Codified version).

Summary

As a result of its loans to third countries and guarantees covering loans to finance investment operations in these countries, the European Union (EU) is exposed to considerable financial risks. It was with the aim of protecting against such risks that the EU adopted this Regulation establishing a Guarantee Fund for external actions.

This Regulation describes how the Fund operates and lays down the procedure for endowing the Fund and the rules for its management. The main aim of the Fund is to protect European budget appropriations and to contribute to compliance with budgetary discipline.

Mission

The mission of the Guarantee Fund for external actions is to pay the EU’s creditors in the event of default by the beneficiary in respect of:

  • a loan granted or guaranteed by the EU;
  • a guaranteed loan granted by the European Investment Bank (EIB) for which the EU acts as guarantor.

Moreover, the Guarantee Fund can cover only loans and guarantees carried out for the benefit of a third country or for the purpose of financing projects in a third country.

Management and financial endowment

The Commission entrusts the financial management of the Fund to the EIB under a mandate from the EU. The Guarantee Fund is endowed by:

  • direct payments from the general budget of the EU;
  • interest on Fund resources invested;
  • amounts recovered from defaulting debtors.

Pursuant to the interinstitutional agreement of May 2006, which contains the Community financial framework for 2007-2013, financing of the Fund is guaranteed as compulsory expenditure from the general budget of the EU.

Target amount and annual transfer

The target amount refers to the amount of resources required by the Fund in order to fulfil its mission. The Fund’s target amount is set at 9 % of the EU’s total outstanding capital liabilities arising from each loan or guarantee operation, increased by unpaid interest due. The annual transfer from the EU budget to the Fund is calculated by applying the target amount to the outstanding amount of loans granted and guaranteed. The difference between the target amount and the actual value of the Fund’s assets is paid from the general budget of the EU into the Fund, or to the budget in the event of a resulting surplus in the Fund.

The provisioning amount is calculated during financial year “n” on the basis of loans granted and guaranteed during the previous financial year (“n-1”). There is therefore a delay of approximately one year between the time when the amounts become outstanding and the actual provisioning of the Fund.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC, Euratom) No 480/2009

30.6.2009

OJ L 145 of 10.6.2009

Related Acts

Report from the Commission of 2 July 2010 – Annual Report from the Commission on the Guarantee Fund and the management thereof in 2009 [COM(2010) 805 final – Not published in the Official Journal].

Council Regulation (EC) No 1934/2006 of 21 December 2006 establishing a financing instrument for cooperation with industrialised and other high-income countries and territories [Official Journal L 405 of 30.12.2006].

Regulation (EC) No 1717/2006 of the European Parliament and of the Council of 15 November 2006 establishing an Instrument for Stability [Official Journal L 327 of 24.11.2006].
This Regulation establishes an instrument for stability which includes development cooperation measures and measures for financial, economic and technical cooperation with third countries.

This summary is for information only. It is not designed to interpret or replace the reference document, which remains the only binding legal text.

Decision on the system of own resources

Decision on the system of own resources

Outline of the Community (European Union) legislation about Decision on the system of own resources

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Budget

Decision on the system of own resources

Document or Iniciative

Council Decision 2007/436/EC, Euratom of 7 June 2007 on the system of the European Communities’ own resources.

Summary

The budget of the EU is financed wholly from own resources in order to ensure the orderly development of the Union’s policies. There are three categories of own resources: “traditional own resources”, the own resource based on value added tax (VAT) and the own resource based on gross national income (GNI). Other revenue sources include taxes paid by officials, fines imposed on firms by the Community and interest on late payments.

Own resources ceiling

The own resources ceiling is maintained at 1.24% of the sum of all the EU Member States’ GNIs. The ceiling on annual appropriations for payments is set at 1.31% of that figure. Own resources finance all the expenditure entered in the EU’s general budget. Any surpluses are carried over to the following financial year.

Traditional own resources

Traditional own resources consist of Common Customs Tariff duties and of levies under the common organisation of the market for sugar (“sugar” levies). Member States may retain, by way of collection costs, 25% of the amounts raised.

VAT resource

The own resource based on VAT are levied on Member States’ VAT bases, which have been harmonised for this purpose.

The maximum rate of call of the VAT resource is 0.30%. The maximum VAT base to be taken into account in calculating the rate of call is set at 50% of each Member State’s GNI (“capping of the VAT resource”). For the period 2007-2013 the rate of call of the VAT resource is set at 0.225% for Austria, 0.15% for Germany and 0.10% for the Netherlands and Sweden.

The resource based on GNI

In the light of the revenue generated by the other own resources, the GNI resource is based on the application of a uniform rate to the sum of the GNIs of all the Member States.

For the period 2007-2013, two Member States will benefit from a gross reduction in their annual GNI contribution: an annual reduction of EUR 605 million for the Netherlands and of EUR 150 million for Sweden.

Correction in favour of the United Kingdom

The correction in respect of budgetary imbalances in the United Kingdom is calculated on the basis of the difference between the share of the UK VAT base in the EU’s total VAT base and the share of the United Kingdom in total allocated expenditure.

Germany, Austria, the Netherlands and Sweden are entitled to a reduction in their share of the financing of the correction in favour of the United Kingdom, which is reduced to one quarter of its normal value.

Collection of own resources

The method for collecting own resources will continue to be determined by national provisions. The Commission will carry out a regular examination of those provisions. The Member States will regularly inform the Commission of any anomalies having a financial impact with respect to collection.

References

Act Entry into force – Date of expiry Deadline for transposition in the Member States Official Journal
Decision 2007/436/EC, Euratom OJ L 163 of 23.6.2007

Related Acts

Council Regulation (EC, Euratom) No 1287/2003 of 15 July 2003 on the harmonisation of gross national income at market prices (GNI Regulation) [Official Journal L 181 of 19.07.2003].

A growing share of the European Communities’ own resources is based on gross national income at market prices. The Regulation further reinforces the comparability, reliability and exhaustiveness of this aggregate.

Commission Decision 97/245/EC, Euratom of 20 March 1997 laying down the arrangements for the transmission of information to the Commission by the Member States under the Communities’ own resources system [Official Journal L 97 of 12.4.1997].
See consolidated version

Council Regulation (EEC, Euratom) No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from value added tax [Official Journal L 155 of 7.6.1989].
The Regulation lays down a single method for determining the VAT bases in a uniform manner.
See consolidated version

Follow-up reports:

Commission report on the follow-up of traditional own resources in cases of fraud and irregularities [COM(2004)850 final – Not yet published in the Official Journal].
Under Regulation (EC) No 1150/2000, Member States are required to inform the Commission of cases of fraud or irregularity with a potential financial impact of over 10 000. The report reviews the situation as regards the system for recovering unpaid customs duties. Such duties form part of the own resources allocated directly to the Community budget. The Member States are responsible for the procedures for recovering customs debt under the control of the Commission. The Commission notes that amounts not recovered are relatively small compared with the total amount involved (160 million).

Commission report to the Council and the European Parliament: Fifth report under Article 12 of Regulation (EEC, Euratom) No 1553/89 on VAT collection and control procedures [COM(2004)855 final – Not published in the Official Journal].
Every three years the Commission draws up a report analysing the procedures applied by Member States for registering taxable persons and for determining and collecting VAT. It also analyses the modalities and results of their VAT control systems and suggests improvements.

Harmonisation of the compilation of GNP

Harmonisation of the compilation of GNP

Outline of the Community (European Union) legislation about Harmonisation of the compilation of GNP

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Budget

Harmonisation of the compilation of GNP

Document or Iniciative

Council Directive 89/130/EEC on the harmonization of the compilation of gross national product at market prices [See amending acts]

Summary

Firstly, the Directive defines GNPmp in accordance with the current European System of Integrated Economic Accounts (ESA). GNPmp is calculated by adding to gross domestic product at market prices (GDPmp, ESA code: N 1) the compensation of employees (R 10) and the property and entrepreneurial income (R 40) received from the rest of the world less the corresponding flows paid to the rest of the world. GDPmp represents the final result of productive activity by resident production units. Referring to the ESA, GDPmp may be presented in three ways:

  • from the output angle: GDPmp (N 1) is the difference between output of goods and services (P 10) and intermediate consumption (P 20) plus VAT on products (R 21) and net taxes linked to imports (excluding value added tax (VAT)) (R 29);
  • from the expenditure angle: GDPmp (N 1) is the sum of final consumption (P 30) on the economic territory by households and private non-profit institutions and general government, gross fixed capital formation (P 41), change in stocks (P 42), and the difference between exports (P 50) and imports (P 60);
  • from the income angle: GDPmp (N 1) is the sum of compensation of employees (R 10), gross operating surplus of the economy (N 2), and taxes linked to production and imports (R 20) less subsidies (R 30).

Member States establish GNPmp in accordance with the definition given in the Directive. Before 1 October each year, they provide the Commission, in the context of national accounting procedures, with figures for the GNPmp aggregate and its components according to the ESA definitions referred to above. Member States also supply the information necessary to show how the aggregate was found. The figures cover the preceding year and any changes made to the figures for previous financial years. The Commission is assisted by a committee.

The Agreement on the European Economic Area amends the Directive. It states that Liechtenstein is exempt from providing the data required by the Directive and that Austria, Finland, Iceland, Norway and Switzerland will provide the data as from 1995 at the latest.

Background

In practice, the Directive has been replaced de facto but not de jure since 2002 by Council Regulation (EC, Euratom) No 1287/2003 of 15 July 2003 on the harmonisation of gross national income at market prices (GNI Regulation).

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Directive 89/130/EEC 13 March 1989 16 February 1990 OJ L 49 of 21.2.1989
Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 1882/2003 20.11.2003 OJ L 284 of 31.10.2003

Related Acts

Implementing measures:

Decision 93/475/EEC, Euratom [Official Journal L 224 of 3.9.1993]

Commission Decision of 22 July 1993 defining production and import subsidies for the purpose of the implementation of Council Directive 89/130/EEC, Euratom on the harmonization of the compilation of gross national product at market prices.

Decision 93/570/EC, Euratom [Official Journal L 276 of 9.11.1993]

Commission Decision of 4 October 1993 defining the distinction between ‘other taxes linked to production’ and ‘intermediate consumption’ for the purpose of the implementation of Council Directive 89/130/EEC, Euratom on the harmonization of the compilation of gross national product at market prices.

Decision 94/168/EC [Official Journal L 77 of 19.3.1994]

Commission Decision of 22 February 1994 on measures to be taken for the implementation of Council Directive 89/130/EEC, Euratom on the harmonization of the compilation of gross national product at market prices. The purpose of this Decision is to improve the exhaustiveness of GDPmp as a major component of the GNPmp of the Member States as regards economic activity within the production boundary of the European system of integrated economic accounts (“ESA”). This includes economic activity which is lawful in itself but which is not carried on in conformity with tax and social security regulations. Economic activity which is unlawful as such according to national legislation is outside the scope of the measures provided for by this Decision.

Decision 95/309/EC, Euratom [Official Journal L 186 of 5.8.1995]

Commission Decision of 18 July 1995 specifying the principles for estimating dwelling services for the purpose of implementing Council Directive 89/130/EEC, Euratom on the harmonization of the compilation of gross national product at market prices.

Decision 97/157/EC, Euratom [Official Journal L 60 of 1.3.1997]

Commission Decision of 12 February 1997 defining the treatment of the income of undertakings for collective investment for the purpose of the implementation of Council Directive 89/130/EEC, Euratom on the harmonization of the compilation of gross national product at market prices.

Decision 97/619/EC, Euratom [Official Journal L 252 of 16.9.1997]

Commission Decision of 3 September 1997 on changes to the Member States’ GNP estimates for the purpose of implementing Council Directive 89/130/EEC, Euratom on the harmonization of the compilation of gross national product at market prices.

Decision 98/501/EC, Euratom [Official Journal L 225 of 12.8.1998]

Commission Decision of 24 July 1998 concerning certain specific transactions identified within the work on the protocol of the Excessive Deficit Procedure, for the application of Article 1 of Council Directive 89/130/EEC, Euratom on the harmonisation of the compilation of gross national product at market prices.

Decision 1999/622/EC, Euratom [Official Journal L 245 of 17.9.1999]

Commission Decision of 8 September 1999 on the treatment of repayments of VAT to non-taxable units and to taxable units for their exempt activities, for the purpose of implementing Council Directive 89/130/EEC, Euratom on the harmonisation of the compilation of gross national product at market prices.

Commission Regulation (EC) No 109/2005 of 24 January 2005 on the definition of the economic territory of Member States for the purposes of Council Regulation (EC, Euratom) No 1287/2003 on the harmonisation of gross national income at market prices [Official Journal L 021 of 25.01.2005].

 

Own resources mechanism

Own resources mechanism

Outline of the Community (European Union) legislation about Own resources mechanism

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Budget

Own resources mechanism

The 1970 decision on own resources set the Communities apart from other international organisations, which all rely for funding on contributions from their members.

Towards financial autonomy for the EU: the national contributions to own resources

Under the Treaty of Rome of 25 March 1957 the European Economic Community was to be financed by national contributions for a transitional period before changing over to a system of own resources. The principle was set down in Article 201 of the Treaty, which stated: “Without prejudice to other revenue, the budget shall be financed wholly from own resources.” Own resources can be taken to mean a source of finance separate and independent of the Member States, some kind of revenue assigned once and for all to the Community to fund its budget and due to it by right without the need for any subsequent decision by the national authorities. The Member States, then, would be required to make payments available to the Community for its budget.

In 1965 a first attempt to transfer customs duties and agricultural levies – the “natural” own resources deriving from Community policies (the customs union and the common agricultural policy) – foundered in the face of French opposition, which prompted the Luxembourg compromise. But the 1966 target date for the changeover to a system of financing that would guarantee the Community some measure of independence was not kept. It was not until the Hague summit in 1969 that the Heads of State or Government, in an effort to revive the Community after some years of difficulty, finally took the decision to go ahead with the change. On 21 April 1970 the Council adopted a decision assigning to the Communities (with a single budget following the Merger Treaty of 8 April 1965) own resources to cover all their expenditure. The Decision marked the end of national contributions, through which the Member States had enjoyed some scope for controlling the policies undertaken by the Communities, and the beginning of an independent system of financing by “traditional” own resources (agricultural levies and customs duties) and a resource based on value added tax (VAT).

Where do own resources come from?

Traditional own resources are considered as the “natural” own resources, since they are revenue collected by virtue of Community policies rather than revenue obtained from the Member States as national contributions. Own resources currently come from customs duties, agricultural levies, sugar contributions, a fixed-rate portion of value-added tax (VAT) receipts and a fixed-rate levy on gross national income (GNI).

  • Customs duties are levied at external frontiers on imports under the common customs tariff that was introduced in 1968 (two years ahead of schedule). The Treaty of Rome had earmarked customs duties as the principal resource to be assigned to the European Economic Community (EEC) to finance its expenditure. European Coal and Steel Community (ECSC) customs duties have been included since 1988.
  • Agricultural resources: the most important of these are the agricultural duties earlier known as levies. They were introduced in 1962 and assigned to the Community by the Decision of 21 April 1970. Originally they were charges in amounts varying according to price levels on the world and European markets. Following transposal of the multilateral trade agreements (Uruguay Round, April 1994) into Community law, there is no longer any difference between agricultural duties and customs duties. Agricultural duties are nothing more than import duties charged on agricultural products imported from non-member countries.

Besides agricultural duties, there are also levies on the production of sugar, isoglucose and inulin syrup. But unlike the levies on agricultural imports, they are charged on Community sugar producers. The 2000 own-resources decision that is currently in operation allows Member States to retain 25% of traditional own resources to cover collection costs.

  • Value added tax (VAT). VAT resources were introduced by the 1970 Decision because the traditional own resources were not sufficient to finance the Community budget. But the need to harmonise the VAT base meant more delay, with the result that this complex resource did not come into use until 1980. It is obtained by applying a given rate to a base determined in a uniform manner. From 1988 to 1994 the base could not exceed 55% of the Member States’ gross national product (GNP). After 1995 the limit was lowered to 50% of GNP for Member States with a per capita GNP below 90% of the Community average. Between 1995 and 1999 the new limit was gradually extended and now applies to all the Member States.

The 1970 Decision limited the maximum call-in rate of VAT to 1% of the base. The second own resources Decision of 7 May 1985 raised the ceiling to 1.4% from 1 January 1986 to coincide with the accession of Spain and Portugal. This increase was designed to meet the costs of enlargement. The 2000 own-resources decision finally cut the maximum call-in rate to the current level of 0.5% of the harmonised and capped VAT base.

  • Gross national income (GNI). In 1988 the Council decided to introduce a fourth own resource based at the time on gross national product (GNP), which was meant to replace VAT as the resource for balancing the budget. The decision of 24 June 1988 also set the ceiling for own resources as a percentage of GNP. The figure was 1.14% for 1988 and 1.27% for 1999. The current own-resources decision extends the application of the European System of Accounts 1995 (ESA95) to the EU budget. In ESA95, the concept of gross national product has been replaced by gross national income, and the reference to GNP has accordingly been replaced by GNI in the own-resources decision. But to leave the amount of own resources made available to the Communities unchanged, the ceiling on own resources as a percentage of EU GNI has been adapted, the new ceiling being 1.24%.

The GNI-based resource is obtained by applying a rate fixed each year under the budget procedure to a base representing the sum of the gross national incomes at market prices. It is calculated by reference to the difference between expenditure and the yield of all the other own resources. It is the “key” resource, not only because it finances the bulk of the budget but also determines the cap on the VAT base, how the cost of the UK rebate is shared out, and the ceiling on total resources that the Community can receive.

Own resources are collected by the Member States and made available to the Community every month, being credited to an “own resources” account opened by the Commission at each national treasury or national bank. Traditional own resources are credited each month as they are collected. VAT own resources and the GNI-based resource, on the other hand, are made available to the Commission on the first working day of each month at the rate of one twelfth of the estimate entered in the Community budget. Given the specific needs involved in payment of agricultural expenditure, the Commission sometimes calls on the Member States to pay VAT and GNI resources a month or two in advance in the first quarter of the year.

Other revenue. The budget is not financed entirely from own resources but also by taxes and deductions from staff remuneration, bank interest, third-country contributions to certain Community programmes (research, for instance), reimbursement of Community grants not used, interest on late payments and balances from previous years.

The exceptional measure for the UK

In 1984 the Fontainebleau European Council decided to introduce a correction for the United Kingdom. This mechanism gives the United Kingdom a rebate equivalent to 0.66% of its negative net balance. The cost of financing the UK rebate is shared between the other Member States according to their share of GNI (except in the case of Austria, Germany, the Netherlands and Sweden, whose share is reduced by three quarters). The cost is spread over the other twenty-two Member States.