Tag Archives: Free movement of capital

Removing obstacles to cross-border investments by venture capital funds

Removing obstacles to cross-border investments by venture capital funds

Outline of the Community (European Union) legislation about Removing obstacles to cross-border investments by venture capital funds

Topics

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

Internal market > Single market for capital

Removing obstacles to cross-border investments by venture capital funds

Document or Iniciative

Communication from the Commission of 21 December 2007 to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions – Removing obstacles to cross-border investments by venture capital funds [COM(2007) 853 final – Non published in the Official Journal].

Summary

In this Communication, the European Commission identifies measures to encourage increased cross-border venture capital investment and fundraising in the Internal Market.

Venture capital funds are an essential form of capital for SMEs in their early stages and those with high-growth potential, a driver of the economy

Venture capital has been identified as an important form of capital for SMEs which experience problems in accessing finance, in spite of their importance for continued economic growth. It presents considerable potential for the growth of innovative SMEs. Companies backed by venture capital tend towards considerable job creation and increased research and development. They contribute to economic growth and environmental sustainability, in the form of venture capital fund investments. However, venture capital markets are currently split along national lines throughout the European Union (EU), which adversely affects both fundraising and investment.

Setting up framework conditions and removing existing barriers

Deficiencies in framework conditions and barriers in the Internal Market are hampering venture capital mobility. In this Communication, the Commission identifies various conditions, at both national and Community level, to overcome current barriers and encourage increased cross-border venture capital investment and fundraising.
Framework conditions to be put in place include:

  • developing domestic policies such as public co-funding;
  • providing targeted horizontal state aid for new innovative enterprises;
  • favouring liquid exit markets in the EU, in particular growth stock markets;
  • facilitating the development of supporting clusters to generate new ideas and entrepreneurs. Furthermore, existing Community programmes aim to encourage innovation and entrepreneurs in the context of the renewed Lisbon Strategy for Growth and Jobs, for example:
  • the Seventh Framework Programme (FP7) which aims to boost funding for collaborative research in Europe during the 2007-2013 period;
  • the Competitiveness and Innovation Programme (CIP), of which €1.1 billion has been allocated to improving access to finance for SMEs, also between 2007 and 2013;
  • in the context of JEREMIE (Joint European Resources for Micro to Medium Enterprises), Member States, if they choose it, will be able to use part of their structural funds to support SMEs.

Establishing incentives to increase private sector investment

Policies alone will not be enough, and more investment through private channels is essential. For this to happen, the Commission and Member States need to work together in order to improve the framework conditions for venture capital funds, such as facilitating cross-border operations:

  • creating an integrated financial market to ease the free movement of venture capital;
  • improving conditions for fundraising by institutional investors by extending the ‘prudent person rule’ and analysing possibilities for setting up a European private placement regime;
  • improving the regulatory framework for venture capital funds by reviewing existing legislation and adopting new laws, for greater efficiency and less administrative obstacles for investors;
  • reducing tax obstacles – simplifying the current varied, complicated national fund structures and; avoiding double taxation – the Commission has set up a working group to this end;
  • mutual recognition of existing national frameworks as the most pragmatic short term approach.

The Commission advocates an exchange of good practices at all levels. It encourages cooperation through a partnership approach between the Member States, the Commission and the industry itself. This is essential for implementing these policies and developing the venture capital market.

Context

Venture capital market development varies across Member States national policies and frameworks differ between the Member States, which hinders fundraising and investment between countries. The result is that cross-border venture capital investment is complicated and thus smaller funds tend to operate only within their own jurisdiction’.

Related Acts

Communication from the Commission of 29 June 2006 to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions – Implementing the Community Lisbon Programme: Financing SME Growth – Adding European Value [ – Non published in the Official Journal].

The European Commission outlines a set of measures to help innovative SMEs by improving accesss to finance, including cross-border investments in venture capital, both at EU and Member state levels.

A common European approach to Sovereign Wealth Funds

A common European approach to Sovereign Wealth Funds

Outline of the Community (European Union) legislation about A common European approach to Sovereign Wealth Funds

Topics

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

Internal market > Single market for capital

A common European approach to Sovereign Wealth Funds

Document or Iniciative

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 27 February 2008 – ‘A common European approach to Sovereign Wealth Funds’ [COM/2008/ 115 final – Not published in the Official Journal].

Summary

Sovereign Wealth Funds (SWFs) are state-owned investment vehicles, which manage a diversified portfolio of domestic and international financial assets, and generally accept a high level of risk in search of higher returns. SWFs have grown rapidly in recent years and today, more than thirty countries have created them. This is not a new phenomenon. The creation of the first SWF goes back to 1953. The assets managed by these funds represented, according to estimates, between 2000 and 3000 billion dollars worldwide and this volume should increase further in years to come. Sovereign Funds can be distinguished from other investment funds by the fact that they are state-funded from the foreign exchange reserves of their sponsor countries.

Up to now, SWFs have played a positive role, in particular by participating in the recapitalisation of a certain number of financial institutions in difficulty. SWFs have thus helped to strengthen the global banking system and confidence in the international financial system as a whole.

SWFs raise concerns however, in particular with regard to the opacity of the way in which some of them function and the non-commercial use that could be made of them. These SWFs sometimes trigger protectionist reactions. Some are concerned that their investments are aimed at taking strategic control of technology or expertise, or even that they may be used by certain governments as a means of pressure.

The European approach

The Commission presented the common European approach to SWFs in a Communication of 27 February 2008. The Communication is the result of an approach aimed at promoting cooperation between SWFs, sponsor countries and recipient countries in order to establish a series of principles that guarantee the transparency, predictability and accountability of investments.

According to the Commission, the common EU approach to the treatment of SWFs should be based on the following principles:

  • commitment to an open investment environment: in line with the Lisbon Strategy, the EU should reaffirm its commitment to open markets for foreign capital and to an investor-friendly investment climate;
  • support of multilateral work: the EU should actively drive forward work carried out by international organisations and instigate dialogue with SWF owner countries;
  • use of existing instruments;
  • respect of obligations related to the EC Treaty and international commitments;
  • proportionality and transparency: the measures adopted should not go beyond what is necessary to achieve the justified goal.

An international debate

The question of SWFs is also subject to international debate. Recipient countries have thus stressed their wish that SWFs should base their decisions strictly on economic and not political objectives, and have called for greater transparency on the part of the funds. Sponsor countries, under the aegis of the IMF, have developed a code of conduct for sovereign funds with voluntary application. This code, called the Generally Approved Principles and Practices (GAPP) – or even the ‘Santiago Principles’, was published in October 2008. The Commission has contributed actively to the writing of these principles and considers that they represent a further contribution to similar work undertaken at the OECD. Recipient countries of investments undertaken by SWFs adopted theDeclaration on sovereign wealth funds and recipient country policies in June 2008. This Declaration lays out the principles for policies to be applied to investments by SWFs in the recipient countries. These principles reflect long-term commitments made by the OECD to promote an open global environment for international investment.

With regard to the European contribution to work carried out on a global scale to establish a common framework for sovereign fund investments, the Commission considers that two elements play a fundamental role in the response to concerns about this question:

  • governance: the degree of possible political interference in the operation of SWFs must be assessed. Principles of good governance include in particular the allocation and clear separation of responsibilities in the management body, the preparation and publication of an investment strategy and the existence of operational autonomy.
  • transparency: this allows investors’ activities to be monitored and ensures that they do not deviate from their stated objectives. The Commission considers that transparency promotes accountability. Practices such as the annual publication of investment positions and asset allocation, the publication of information on the source and size of resources could be envisaged.

Context

Despite the debate on good governance of SWFs, they do not operate in a legal vacuum. The Commission recalls that investments made in the EU by SWFs are subject to the same rules and controls as any other form of investment, where the rules of free movement of capital (Article 56 EC) apply. The free movement of capital is however not absolute and may be regulated under Article 57 (2) EC. Member States can also take measures to protect their interests by virtue of the Regulation on Concentrations. They also have national instruments which could be used to control SWF investments.

The European Council of 13 and 14 March 2008 welcomed the Commission’s proposals and invited it to continue the work being done in this field.

The euro and the international economy

The euro and the international economy

Outline of the Community (European Union) legislation about The euro and the international economy

Topics

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

Internal market > Single market for capital

The euro and the international economy

Document or Iniciative

Commission working document of 23 April 1997 on the external aspects of Economic and Monetary Union [SEC (97) 699 final – Not published in the Official Journal].

Summary

Given the economic importance of the euro area, the introduction of the single currency will have significant effects, not only on the Member States which will not be participating but also on countries outside the European Union. This external aspect of the euro is the subject of increasing discussion in international forums such as the Organisation for Cooperation and Development (OECD) and the International Monetary Fund (IMF).

Supposing that all the Member States participate in the euro area, the economic and monetary union (EMU) will have the following characteristics:

  • Its economic and commercial weight will be comparable to that of the United States and larger than that of Japan;
  • If intra-Community trade is excluded, the degree of openness of the euro area is 10.2%, i.e. equivalent to that of the United States and Japan;
  • Greater synchronisation of the economic cycles in the different Member States due to better coordination of economic policies will make economic developments in the euro area more important to the rest of the world;
  • As a result of the disappearance of tensions between European currencies (which used potentially to stem from shocks occurring outside the European Union), the economic performance of the euro area will be less sensitive to exchange-rate fluctuations.

With the completion of EMU, the European financial market will become truly integrated:

  • the development of an efficient trans-border payment system (TARGET) connecting financial centres;
  • the harmonisation of financial instruments and convergence towards the most efficient means of financing;
  • a unified money market implying more intense competition between banks and financial intermediaries;
  • the elimination of the exchange-rate risk between participating countries.

Despite this integration, financial markets can be expected to retain some national characteristics.

The size of EMU, the stability of the currency and the wide financial market underpinning it should promote international use of the euro.

As an invoicing currency for trade, the euro should be widely used in trade relations involving the European Union directly but also, to a certain extent, in commercial transactions not involving the Member States of the Union.

As a result of the independence of the European Central Bank (ECB) and its stability-oriented policies, the euro should constitute an important reserve currency and play a key role in portfolios of financial assets on an international scale. If these same factors were to make the euro more attractive in the eyes of private investors, it would be more difficult to predict how important the euro would be in the composition of private portfolios.

The transformation of the euro into an important international currency will take place gradually; it should first show itself in the countries which have close economic links with the European Union.

The internationalisation of the euro will mean that ECB action has international repercussions. However, it will initially complicate the conduct of monetary policy as a result of the influence on monetary aggregates of decisions by external agents.

The changeover to the euro brings with it the potential risk of a period of exchange-rate instability between the euro and other major currencies due to a number of factors:

  • The perception of the future direction of the ECB´s monetary policy: the bank´s place at the centre of the European System of Central Banks (ESCB), its regulatory independance and its statutory objective of maintaining price stability should however immediately establish its credibility;
  • A possible excess stock of dollars in central banks: since the latter are fully aware of the potential impact of their transactions on exchange markets, it can be expected that operations to reduce excessive dollar holdings, if any, will be carried out gradually and in close cooperation;
  • Reallocations of private portfolios following the introduction of the euro are a complex matter: however, opposing effects should combine to balance out the net effects.

In the long term, exchange rates are determined mainly by economic fundamentals (growth, inflation, productivity, budget balances, current balances, etc.), which are in turn influenced by the economic policies of the Union and also those of its partners.

The economic policy framework laid down in the Treaty should allow for easy monetary conditions while maintaining an appropriate exchange rate. European economic policies will therefore constitute a valuable point of reference in international economic affairs.

The completion of EMU is likely to lead to important developments in the international monetary system, principally by making it more symmetrical: the potential gains from macroeconomic coordination will tend to be more uniformly distributed among the partners.

Finally, EMU will also have implications for how international institutions such as the IMF operate matters concerning the representation of the Union within these organisations will have to be discussed and the compatibility of current practice with the provisions of the Treaty will have to be verified.

Related Acts

Communication from the Commission – “The euro area in the world economy – developments in the first three years” [COM (2002) 332 final – Not published in the Official Journal].

This communication takes stock of the developments in the first three years of the economic and monetary union (EMU) and the euro area in the environment of the world economy.

Money laundering: prevention through customs cooperation

Money laundering: prevention through customs cooperation

Outline of the Community (European Union) legislation about Money laundering: prevention through customs cooperation

Topics

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

Internal market > Single market for capital

Money laundering: prevention through customs cooperation

Document or Iniciative

Regulation (EC) No 1889/2005 of the European Parliament and of the Council of 26 October 2005 on controls of cash entering or leaving the Community.

Summary

This regulation complements the provisions of Directive 91/308/EEC on prevention of the use of the financial system for the purpose of money laundering within the European Union (EU). Directive 91/308/EEC was replaced by Directive 2005/60/EC, which in particular extends the scope of the preventive measures to terrorist financing. The competent authorities * of the EU countries now have harmonised rules for the control of cash * entering or leaving the EU.

Obligation to declare

The regulation places an obligation on any natural person entering or leaving the EU and carrying cash of a value of EUR 10 000 or more to declare that sum to the competent authorities. The information provided must be correct and complete, otherwise the declaration is invalid.

The declaration is provided in writing, orally or electronically, to be determined by the EU country, and must contain information on:

  • the declarant, including full name, date and place of birth and nationality;
  • the owner and the amount and nature of the cash;
  • the intended recipient of the cash;
  • the provenance and intended use of the cash.

The information obtained, either from the declaration or as a result of controls, must be recorded and processed. It is made available to the authorities responsible for combating money laundering or terrorist financing in the EU country of entry or of exit. The information provided may be communicated to non-EU countries by the EU countries or by the Commission, subject to the consent of the competent authorities. The national and EU provisions on the transfer of personal data must be complied with.

Professional secrecy covers all information which is by nature confidential or which is provided on a confidential basis. It must not be disclosed without the express permission of the person or authority providing it. However, the competent authorities may be obliged by law to disclose this information, for instance in connection with legal proceedings. In such a case, any disclosure or communication of information must fully comply with prevailing data protection legislation.

Checking compliance with the obligation to declare

Officials of the competent authorities may check compliance with the obligation to declare by carrying out controls on natural persons. This includes controls on the natural persons themselves, their baggage and their means of transport. Such controls must comply with national legislation in this area.

In the event of failure to comply with the obligation to declare, cash may be detained by administrative decision in accordance with national legislation.

The information obtained may be made available to other EU countries, in particular where there is evidence of illegal activities. In such cases, Regulation (EC) No 515/97 on mutual assistance between the administrative authorities of the EU countries and cooperation between the latter and the Commission to ensure the correct application of the law on customs and agricultural matters applies mutatis mutandis. Where there are indications that the financial interests of the EU are adversely affected, the information will also be transmitted to the Commission.

Where it appears from the controls that a natural person is entering or leaving the EU with sums of cash lower than EUR 10 000 and where there is evidence of illegal activities associated with the movement of cash, that information may also be recorded and processed.

Penalties

By 15 June 2007, EU countries must lay down the penalties applicable in the event of failure to comply with the obligation to declare. Such penalties must be effective, proportionate and dissuasive.

Key terms used in the act
  • Competent authorities: the customs authorities of the EU countries or any other authorities empowered by EU countries to apply this regulation.
  • Cash: the term “cash” covers currency (banknotes and coins), but also other monetary instruments such as cheques, promissory notes, money orders, etc.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 1889/2005

15.12.2005

OJ L 309 of 25.11.2005

Related Acts

Commission report to the European Parliament and the Council on the application of Regulation (EC) No 1889/2005 of the European Parliament and of the Council of 26 October 2005 on controls of cash entering or leaving the Community pursuant to article 10 of this Regulation [COM (2010) 429 final – Not published in the Official Journal].
This report concludes that EU countries have effectively organised competent authorities to ensure that passengers comply with their cash declaration obligation. They have also implemented a penalty system and/or cash detention system for cases of non-compliance with the cash declaration requirements. However, in a few EU countries, some shortcomings have been detected in the recording, processing and making available of control information and in the introduction of national penalties. This report notes that EU countries need to be closely monitored to enhance the harmonisation of the implementation of Regulation (EC) No 1889/2005 (the “Cash Control Regulation”).

Iceland – Internal market

Iceland – Internal market

Outline of the Community (European Union) legislation about Iceland – Internal market

Topics

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

Internal market > Single Market for Goods > Single market for goods: external dimension

Iceland – Internal market

acquis) and, more specifically, the priorities identified jointly by the Commission and the candidate countries in the analytical assessment (or ‘screening’) of the EU’s political and legislative acquis. Each year, the Commission reviews the progress made by candidates and evaluates the efforts required before their accession. This monitoring is the subject of annual reports presented to the Council and the European Parliament.

Document or Iniciative

Commission Report [COM(2011) 666 final – SEC(2011) 1202 final – Not published in the Official Journal].

Summary

The 2011 Report reported that the country has a high level of alignment with the European Union (EU) acquis due to their participation in the European Economic Area. However, further progress must be made in order to complete alignment, particularly concerning the free movement of goods, workers, services and capital.

EUROPEAN UNION ACQUIS (according to the Commission’s words)

The principle of the free movement of goods implies that products must be traded freely from one part of the Union to another. In a number of sectors, this general principle is complemented by a harmonised regulatory framework, following the “old approach” (imposing precise product specifications) or the “new approach” (imposing general product requirements). The harmonised European product legislation, which has to be transposed, represents the largest part of the acquis under this chapter. In addition, sufficient administrative capacity to notify the restrictions to trade and to apply horizontal and procedural measures in areas such as standardisation, certification, accreditation, metrology and market surveillance is essential.

The acquis in respect of the free movement of workers states that citizens of an EU Member State have the right to work in another Member State. EU migrant workers must be treated in the same manner as national workers with regard to working conditions, social benefits and tax allowances. The acquis also provides a mechanism for coordinating national social security provisions for those tax contributors and their families who move to another Member State.

Member States are required to remove all restrictions with regard to the free movement of services. Member States must ensure that the right of establishment and the freedom to provide services anywhere in the EU is not hampered by national legislation. In some sectors, the acquis prescribes harmonised rules which must be respected if the internal market is to function; this concerns mainly the financial sector (banking, insurance, investment services and securities markets). Financial institutions may carry out their activities throughout the European Union according to the principle of ‘home country control’ by opening branches or by providing cross-border services. The acquis also provides harmonised rules for some specific professions (craftsmen, traders, farmers, commercial agents), for certain information society services, and matters relating to personal data protection.

Member States must remove all restrictions on the free movement of capital between themselves, within the European Union, but also with third countries (with some exceptions) and adopt EU rules applicable to cross-border payments and to credit transfers concerning transferable securities. The money laundering and financing of terrorism directives require banks and other economic operators to identify their clients and be aware of certain operations, particularly in the case of cash transactions for high-value items. In order to tackle financial crime, it is essential that administrative and enforcement capacities are put in place, particularly by establishing cooperation between those authorities responsible for surveillance, implementing law and carrying out criminal proceedings.

The acquis on public procurement covers the general principles of transparency, equal treatment, free competition and non-discrimination. In addition, specific Community rules apply to the coordination and granting of public works, supplies and services contracts for traditional contracting entities and specific sectors. The acquis also defines the rules relating to the court procedures and means of action available. Its implementation requires specialised bodies.

The acquis relating to intellectual property rights defines the harmonised rules for the legal protection of copyright and related rights. Specific provisions are applicable to the protection of databases, data processing programmes, topographies of semi-conductors, satellite broadcasting and cable retransmission. In the field of intellectual property rights, the acquis details harmonised rules for the legal protection of trademarks and designs. Other specific provisions apply to biotechnological inventions and to pharmaceutical and phytopharmaceutical products. The acquis also establishes a Community trademark system and a Community design system.

The acquis on company law includes rules applicable to the constitution, registration, merger and division of companies. In the field of financial information, the acquis specifies the rules to be complied with regarding the presentation of consolidated annual accounts and provides simplified rules for small and medium-sized enterprises, in particular. The application of international accounting standards is obligatory for certain entities of public interest. Furthermore, the acquis also includes provisions relating to the approval, professional integrity and independence of persons responsible for legal controls.

The Customs union
acquis consists almost exclusively of legislation which is directly binding on the Member States. It includes the Community’s Customs Code and its implementing provisions; the Combined Nomenclature, Common Customs Tariff and provisions on tariff classification, customs duty relief, duty suspensions and certain tariff quotas; and other provisions such as those on customs control of counterfeit and pirated goods, drugs precursors and the export of cultural goods and on mutual administrative assistance in customs matters and transit. Member States must also have the required implementing capacities, particularly connectivity with the EU’s computerised customs systems. Customs authorities must also have sufficient capacity for implementation and compliance with the specific provisions established in related fields of the acquis, such as foreign trade.

EVALUATION (according to the Commission’s words)

Iceland maintains a high level of alignment with the acquis on the free movement of goods. Further improvement is required concerning horizontal measures and product legislation under the ‘Old Approach’ (which imposes precise product specifications in opposition to the ‘New Approach’ which imposes general specifications which products must meet), particularly in the automobile sector.

Similarly, the country has already achieved a high level of alignment on the free movement of workers. Preparations are continuing to implement the new regulations on the coordination of social security.

Alignment concerning the right of establishment and the freedom to provide services is satisfactory. However, alignment with the Services Directive and transposition of the third postal services directive is not complete. The administrative capacity must be strengthened in order to implement the EU rules and policies effectively. Finally, the country achieved a good level of alignment on financial services, although the reforms remain partially introduced. Implementation of European provisions is incomplete in certain key sectors, such as the insurance and securities sectors, and the monitoring capacity must be improved. The Icesave dispute remains unresolved.

Iceland largely applies the acquis on the free movement of capital, although it is still incomplete due to the large restrictions still applicable to capital. The legal framework has been strengthened, and the administrative capacity of the financial information unit must be improved.

The country achieved a high level of alignment on intellectual property rights and its administrative capacity is appropriate. Measures have been taken to improve the application of provisions.

Implementation of the EU acquis is satisfactory in the field of company law. However, alignment is not yet complete concerning accounting standards and international audit standards.

Customs legislation is largely aligned, although legislative discrepancies still need to be addressed, particularly concerning customs rules, procedures with economic impact, duty free and security aspects. The administrative capacity of the country is insufficient in this field. Lastly, preparations to implement the acquis effectively must be made, particularly concerning the interconnectivity of the European and Icelandic IT customs systems.