Explanatory Memorandum to COM(2006)99-1 - System of the EC's own resources (EC, Euratom)

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dossier COM(2006)99-1 - System of the EC's own resources (EC, Euratom).
source COM(2006)99 EN
date 08-03-2006
1. Introduction

On 15–16 December 2005 the European Council reached a political agreement on the financial framework 2007-2013 i. It also called on the Commission to prepare a new Own Resources Decision and to modify the accompanying working paper on the UK correction in order to implement its conclusions concerning the financing of the European Union. Paragraph 78 of the agreement on the financial framework attached to the European Council conclusions states:

‘The Own Resources Decision and the accompanying Working Methods paper shall be modified so that the ratification process for the Own Resources Decision can be completed by all Member States to allow entry into force from no later than the beginning of 2009 and in order to introduce the changes below. These changes shall take effect from 1 January 2007, and will be applied retroactively if necessary…’

2.

Moreover, the European Council concluded that:


· the ceilings of own resources and of commitment appropriations should remain at their current levels (§76), and

· the own resources arrangements should be guided by the overall objective of equity. These arrangements should therefore ensure, in line with the relevant conclusions of the 1984 Fontainebleau European Council, that no Member State sustains a budgetary burden which is excessive in relation to its relative prosperity. It is therefore appropriate to introduce provisions covering specific Member States (§77).

The present proposal for a Council Decision on the system of the European Communities’ own resources and its accompanying working paper on the UK correction amend the existing own resources provisions. These amendments concern:

· Provisions implementing the conclusions of the European Council of 15-16 December 2005 in the own resources area (see sections 2 and 3 below).

· Some adjustments of existing provisions to take into account developments since the existing Own Resources Decision was adopted by Council in September 2000 and to improve the legal and linguistic consistency of the provisions (see sections 3 and 4 below).

All references to Articles below refer to the present proposal for a Council Decision on the system of the European Communities’ own resources.

2. Implementation of the European Council conclusions – proposal for a new own resources decision

2.1. Fixed rate of call of VAT – first subparagraph of Article 2(4)

The European Council concluded that the rate of call of VAT shall be fixed at 0.30 % of Member States’ capped VAT bases.

Under the current Own Resources Decision 2000/597/EC, Euratom i, the uniform rate of call of VAT actually levied on Member States’ capped VAT bases is established by deducting from the ‘maximum rate of call’ (currently 0.50 %) a ‘frozen rate’, which in turn is calculated according to a complex formula related to the size of the UK correction.

Under the new system the rate of call will be fixed permanently at 0.30 %, which corresponds to the difference between the current maximum rate of call of 0.50 % and an average past value of the frozen rate of 0.20 %.

The replacement of the current complicated and opaque system of calculating the VAT rate of call with a fixed rate of call is a welcome simplification that was long overdue. The link between the VAT rate and the UK correction via the ‘frozen rate’ is a historical relic from the pre-1988 own resources system when the UK correction was financed in proportion to Member States’ uncapped VAT bases, whereas since 1988 it is financed in proportion to Member States’ GNP/GNI i bases. The establishment of a fixed rate of call of VAT (the uniform rate) at its current level ‘is therefore a logical step, as the frozen rate’ does no longer fulfil any meaningful purpose.

2.2. Temporarily reduced rates of call of VAT for specific Member States – second subparagraph of Article 2(4)

The European Council concluded that for the period 2007–2013, four countries shall benefit from reduced rates of call of VAT to reduce their respective budgetary burden. During this period the rate of call of VAT for Austria shall be fixed at 0.225 %, for Germany at 0.15 % and for the Netherlands and Sweden at 0.10 %.

2.3. Temporary reductions in the GNI contributions for specific Member States – Article 2(5)

The European Council concluded that for the period 2007–2013, the Netherlands shall benefit from a gross annual reduction in its GNI contribution of € 605 million and Sweden from a gross annual reduction in its GNI contribution of € 150 million, expressed in 2004 prices.

These gross reductions will be financed by all Member States, i.e. including the Netherlands and Sweden. These reductions are not intended to increase the size of the UK correction, neither to reduce the shares of the Netherlands and Sweden in the financing of the UK correction. The gross reductions will therefore be granted after the calculation of the UK correction and its financing.

This measure is intended to reduce the budgetary burden of these countries.

2.4. Adjustment of the UK correction to enlargement – Article 4(1)(f), (g) and 4(2)

The European Council concluded that the correction of budgetary imbalances in favour of the United Kingdom shall remain in full except for expenditure in the Member States which have acceded to the EU after 30 April 2004.

Expenditure in these new Member States, with the exception of CAP market expenditure (agricultural direct payments and market-related expenditure as well as that part of rural development expenditure originating from the EAGGF guarantee section), shall therefore be excluded from total allocated expenditure for the purpose of calculating the UK correction.

The reduction of total allocated expenditure shall be progressively phased in, starting with the 2008 correction to be budgeted for the first time in 2009 and reaching cruising speed with the 2010 correction to be budgeted for the first time in 2011, according to the schedule below:

3.

UK correction to be budgeted for the first time in the year: Percentage of enlargement-related expenditure (as defined above) to be excluded from the calculation of the UK correction:








The European Council also concluded that during the period 2007–2013, the total adjustment of the amount of the UK correction resulting from this reduction of allocated expenditure shall not exceed € 10.5 billion, in 2004 prices. The proposed Council decision therefore lays down that the Commission services shall verify each year whether the cumulated adjustment of the UK correction exceeds this amount. If it does, the UK contribution to the budget shall be reduced accordingly. For the purpose of the calculation, the latest available GDP deflator for the EU expressed in euro as provided by the Commission shall be used.

The amount of € 10.5 billion shall, furthermore, be adjusted upwards in case of further enlargement before 2013, except for the accession of Romania and Bulgaria.

As soon as it has been phased in and provided that the ceiling of € 10.5 billion for the period 2007–2013 is not breached, this adjustment of the UK correction mechanism will ensure that the UK fully participates in the financing of enlargement, with the exception of the agricultural expenditure referred to above.

As stated in Annex III of the agreement on the financial framework attached to the European Council conclusions, the enlargement-related adjustment in the current Own Resources Decision, i.e. the reduction of total allocated expenditure by an amount corresponding to pre-accession expenditure in the acceding countries in the year preceding their accession, shall cease to apply as from the 2013 correction to be budgeted for the first time in 2014.

2.5. Review of the own resources system – Article 9

The European Council concluded (§80) that the Commission should undertake a full, wide-ranging review covering all aspects of EU funding and spending and to report in 2008/2009.

The proposal for a Council Decision therefore lays down that in the framework of this full review, the Commission shall undertake a general review of the own resources system, accompanied, if necessary, by appropriate proposals.

2.6. Entry into force and effect – Article 10

The European Council concluded that the new Own Resources Decision shall be adopted so that the ratification process for the new decision can be completed by all Member States to allow entry into force from the beginning of 2009 at the latest, with retroactive effect as from 1 January 2007.

The provisions of previous Own Resources Decisions will continue to apply to the calculation of own resources and the UK correction for years prior to 2007.

3. Implementation of the European Council conclusions – proposal for a new accompanying working document on the UK correction

4.

The accompanying working document on the UK correction has been modified in order to take into account the proposed changes in the Own Resources Decision. They concern:


– The date that the working document takes effect.

– The elimination of the adjustment related to pre-accession aid.

– The new adjustment related to expenditure in the new Member States.

– The ceiling on the total reduction of the United Kingdom correction related to the new adjustment above.

– The adjustment to further enlargement(s) of the ceiling referred to above.

– The elimination of the calculation of the ‘frozen rate’ and all references to the impact of the UK correction on the VAT call rate.

Some other modifications have also been introduced to improve the coherence of the text and to facilitate comprehension. These changes are purely presentational and have no impact on the calculation method. They concern:

– The elimination of a redundant double calculation of the financing of the correction. The current working document reproduces the financing rules of the Own Resources Decision in section 2 point a) and b), but then adds in point c) ‘In order to ensure this result, a corresponding adjustment of the GNP bases shall take place’. This provision fulfils no practical purpose and it is therefore proposed to simplify the text and only retain the calculation method laid down in the Own Resources Decision, which is also the method presented in the financing tables of the annual budget.

– The mathematical presentation of the different steps in the calculation has been improved.

– The presentation of allocated expenditure has been adapted to the nomenclature and structure of the 2007-2013 financial framework.

– Some purely linguistic and presentational improvements to the text.

Contents

1.

4. Other adjustments to the current own resources decision 2000/597/EC, Euratom


4.1. Removal of distinction between agricultural and customs duties – Article 2(1)(a) and (b)

Following the implementation in EU law of the agreements concluded during the Uruguay round of multilateral trade negotiations, there is no longer any material difference between agricultural duties and customs duties. The difference is not related to the duties themselves, but only to the character of the products (agricultural vs. non-agricultural) on which they are levied.

In order to better reflect this situation the proposal for a Council Decision merges points (a) and (b) in Article 2 i of the current Council Decision and slightly modifies the wording in order to remove any explicit distinction between import duties in the agricultural and non-agricultural field. As a consequence, the VAT-based resource becomes Article 2(1)(b) and the GNI-based resource Article 2(1)(c).

Reference is still made to other levies, duties etc. that are no longer in force, since there may still be related outstanding customs debt in the so-called B-accounts (i.e. related to outstanding disputed claims).

4.2. Application of significant statistical changes to GNI for own resources purposes – Article 2(7)

According to the second subparagraph of Article 2 i in the current Own Resources Decision ‘Should modifications to the ESA [European system of national and regional accounts] 95 result in significant changes in the GNI … the Council, acting unanimously … shall decide whether these modifications shall apply for the purposes of this Decision’.

There is, however, no reason why statistical changes adopted by the EU in order to improve the methodology of ESA and to achieve a more accurate intra-European comparison of economic activity should not apply in the own resources area. On the other hand, it is important that agreed changes are applied in a uniform manner across Member States before they are used as a basis for establishing their own resources payments. It is therefore proposed to change the wording above to:

‘Should modifications to the ESA 95 result in significant changes in the GNI … the Council, acting unanimously … shall decide when these modifications shall apply for the purposes of this Decision.’

4.3. Own resources and commitments ceilings – Article 3

In view of the change-over from ESA 79 to ESA 95 for budgetary and own resources purposes and in order to maintain unchanged the amount of financial resources put at the disposal of the Communities the Commission recalculated the ceiling of own resources and the ceiling of appropriations for commitments, expressed to two decimal places, in accordance with the formula in Article 3 i and 3 i of the current Own Resources Decision 2000/597/EC, Euratom. In December 2001 i, the Commission communicated the new ceilings to the Council and the European Parliament. The ceiling of own resources is set equal to 1.24 % of the total GNIs of the Member States at market prices and a ceiling of 1.31 % of the total GNIs of the Member States is set for appropriations for commitments.

The European Council of 15-16 December 2005 concluded that these ceilings should remain at their current percentage level, which is reflected in the present proposal for a new Council decision.

4.4. Deleted references to reserves – Articles 2 i, 6 and 7

The provisions in the current Own Resources Decision specify that revenue needed to cover the reserves shall only be called when these are needed.

However, as from 2003 the Monetary Reserve no longer exists. Furthermore, in the draft new interinstitutional agreement (IIA) it is proposed to integrate the Emergency Aid reserve in the budget as a provision and finally, as mentioned in the draft IIA presented by the Commission on 1 February 2006, the reserve for guaranteeing loans to non-member countries is to be transformed into a simplified provisioning mechanism whereby the appropriations necessary to provision the Loan Guarantee Fund will be entered in the budget, eliminating the need for any ad-hoc provision for the related call of resources.

All references to the reserves have consequently been removed in the proposed Council Decision. As a side effect, this means that possible changes in the existing reserves would no longer require a modification of the Own Resources Decision (entailing unanimity in Council and ratification by Member States).

4.5. Stream-lining of reference to adoption of implementing measures – Article 8(2)

In its opinion on the Commission’s 2004 proposal for a new Own Resources Decision, the Court of Auditors criticised the proposed wording of Article 8 i as well as its wording in the current Own Resources Decision, ‘insofar as it interprets the subject of the Court's checks and audits, is tantamount to amending a provision of the Treaty outside the procedure laid down for that purpose’ i. Furthermore, the Court criticised the fact that Article 279 of the Treaty was not referred to as the legal basis for adopting implementing measures and that the opinion of the Court was consequently not required.

Since the references to the Court’s competences are not required in this context and it is standard practice to consult the Court on the implementing measures in this field, the proposed text has been streamlined to this effect.