European Commission Financial Regulation (Recast) PDF

Ref. Ares(2024)366396 - 17/01/2024 EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR BUDGET Central Financial Service The Director...

Ref. Ares(2024)366396 - 17/01/2024 EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR BUDGET Central Financial Service The Director Brussels BUDG.D/ME NOTE FOR THE ATTENTION OF RESOURCE DIRECTORS GROUP MEMBERS Subject: Outcome of the negotiations on the Financial Regulation (recast) and next steps Following the political agreement on the Financial Regulation (recast) in December 2023, please find attached an overview of the changes to the rules agreed and of the next steps. The new Financial Regulation is expected to enter into force in May 2024. Further information will be shared through the usual channels, including BudgPedia where the attached note will also be available. A presentation made to the RUF network on 12 January 2024 can also be found there. BUDG will also provide training. I take this opportunity to thank you and your services for all your contributions to this important file and the support during negotiations! Michael ERHART c.c.: RUF members - PLEES Yves ; TOME Branka ; ROSSI PRIETO Manuel ; ABATE Marco ; GOMEZ MASCARELL Ana Maria ; JURADO Guillermo; BALL Joachim; GAYRAND Jean-Christophe; VANDRECHE TENIERS Celine; LEON François; CHAKAROVA Milena; ASIMAKIS Yiannos; VAN CAENEGEM Gregory ; SION Claire; ZIEMER Sonja; VERDERAME Pierluigi; VLACHOPOULOS Stergios; BEUCKELAERS Tim; ERIKSSON Cicilia; BERNOT Christine; LEFEBVRE Olivier; BRIAN Fabrice; SCHIVI Costanza; QUIQUEMPOIS Alexandre; DIANISKOVA Natalia; CHARLIER Pierre; BARATA Horacio; OGNYANOV Miroslav; FIMEYER Frédéric; SINKOVITS Henrietta; VAN DER LINDEN Gerco; TALEBZADEH Djahanguir; CARNACCINI Marco; CARBUNARU Nicoleta; MEUWIS Koen; SEMPELS Jan ; DUPONT Arnaud ; LANGEROVA Alice; CHATZIGEORGIADIS Vasileios; RANGUELOV Stanislav; BONIFAIT Jean-Noel; DI PIETRANTONIO Loris; VEREECKE Pascaline; VAKROU Alexandra; PRILIDIS Konstantinos; TIBORCZ Agnes; CERVOVA Daniela ; BALTHAZART Ingrid ; CID Pascale; LEVACHER Claire ; WALA Soudaina; PAPATHANASIOU Athanasia; BRIOL Luc; GEERAERTS Robert; KUTI Orsolya ; LUPO Fabrizio; Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË – Tel. +32 22991111 Office: MO15 07/045 – Tel. direct line +32 229-59617 [email protected] MELOT Anne-Françoise ; DAVIES Alan Simon; MAC AONGUSA Ronan; ILLES Laszlo; VILJANEN Maarit; PETRE Olivier ; GORKA Maciej; IATROU Alexandros; GROS TCHORBADJIYSKA Angelina; DEL PRETE Salvatore; VLASSIS Christina; SONMEREYN Thierry; VAN ROMPUY Georgiana; SIMEON Anne-Catherine; VILA NUNEZ Sonia; DECLERE Isabelle; D'AMICO Daniele; TIELEMANS Yves; FORMOSA Iain; DRAPAL Stanislav; COLBERG Franka; MANICOLO Romilda; GIANDOMENICO Davide; TOMASSETTI Maria; MATHISON Andrew; GEORGIEVA Rumjana; CUADRA GARCIA Cristina; VOISEUX Anne-Laurence; DEMOULIN Cécile; KONTOGIANNIS Vasileios; TROTEMANN Eric ; SAN EMETERIO CORDERO Bernard; GIDROL Eric; WYGANOWSKI Maria Luisa ; THIBERGE Nathalie ; BINDELS Pierre-Olivier; VANDER SCHUEREN Dirk; MEULEMAN Stijn ; GILQUIN Xavier; JUERGES Hinrich ; COMNINOU Efrossini; NYKANEN Helka ; DEDRIE Johan; DULEVICIUTE Zivile; TILOV Dinko; POPA Adrian; SEMERARO Anna ; VAN CAENEGEM Griet; STROUZAS Konstantinos; BYRNE Louise; SIMOVA Elena; REYMOND Olivia; OIKONOMIDI Themis; MENCHI Giuseppe; DE BOCK Marleen; SABEV Momchil ; HELLA Maxime ; ATIENZA MORALES Marisa; SEBASTIANI Cristiano; LETTENS Jeroen; ANTHIS Stamatios; SETTEMBRI Francesco; REVESZ Dora; DESURMONT Benjamin; SUBHAN Christopher; KOVACSOVA Adriana; GANTELET Gilles; WEIZENBACH Emiel ; ROSSI Pierpaolo; CATTOIR Philippe; ARABATZIS Alexandros; BAULE Sylvia; LOULA Marek. 2 Annex Outcome of the negotiations on the Financial Regulation (recast) and next steps I. State of play and next steps Calendar for adoption and entry into force: A political agreement on the Financial Regulation (recast)1 was reached on 7 December and confirmed by Coreper on 20 December. The Parliament will formally endorse it by early February. The current version of the text is not final as it is being revised by the lawyer-linguists. The final text is expected to be formally adopted at a Parliament’s plenary session in April. The new Financial Regulation should thus enter into force in May 2024. Some provisions will apply later, in some cases as from 2028 (details below). Preparatory work in view of the entry into force: DG BUDG has started the preparatory work in view of the entry into force of the new Financial Regulation. The Central Financial Service will update as necessary the applicable framework, as well as our guidance notes, templates, training courses, the information on BudgPedia etc. We will also prepare a note on the transition between the current and future rules and will offer information sessions. This note provides general information on the outcome of the negotiations. Further information on these upcoming events and resources shall be shared via the usual channels (BUDGPEDIA dedicated page, RUF, EU Learn…). II. Main elements of the political agreement A. Elements accepted with no or only minor changes As explained in the GRI Fiche2 the vast majority of the changes proposed by the Commission have been adopted with no or only minor changes compared to the proposal, in particular (NB. all articles are numbered as in the Commission proposal and will be renumbered following the revision by the lawyer-linguists): - Enhanced public transparency on beneficiaries of EU funding (changes proposed in Article 38 to widen the scope of the information provided to the public through an improved Financial Transparency System) – only changes are related to the concept of recipient/beneficiaries and the automatic retrieval through communication between IT systems (instead of a yearly transmission obligation) 1 Proposal for a Regulation of the European Parliament and of the Council on the financial rules applicable to the general budget of the Union (Recast), COM/2022/223 final. 2 SI(2023) 522, presented at the GRI meeting of 15 December 2023 3 - Technical updates, clarifications, corrections and simplification in relation with grants: o Clarification of the rules on simplified forms of grants (Article 184(3) and Article 187) o 50% limit for volunteers’ costs to apply to the total financing of an action (Article 194(2)) o Adversarial procedure not systematically required to reject a participant from an award procedure (Article 135) o Simplification of the calculations under the no-profit principle (Article 196(4)) and the provision of financial support to third parties for special cases (Article 208, third subparagraph). On the latter, it was however necessary to accept that the authorising officers concerned will provide information on such cases in their annual activity reports. o Definition and use of ‘public contracts’ under Title VIII corrected (Article 2(16) and Article 205(1) and (2)) - Clarifications and simplification in indirect management: o Option to exempt Member State managing authorities from pillar assessment where they have already been assessed under shared management. o Extension of current possibility for decentralised agencies to be exempted from pillar assessment to an exemption by default and to fully self-financed agencies and Common Foreign Security Policy (CFSP) missions. o Additional wording strengthening the application of proportionality as a general principle of law, notably when assessing partners and imposing contractual obligations. - Strengthening public procurement rules in case of crises and professional conflicts of interests (as well as other clarifications and simplifications): o Enabling EU institutions or bodies to procure on behalf of Member States or to act as a central purchasing body (Article 169(1) and (2), new Article 169(3), and point 11.1(f) and point 12.2(a) of Annex I) o Update of the definition of crisis (Article 2(22)) o Simplification via further alignment with the procurement rules of the Financial Regulation with Directive 2014/24/EU on public procurement and Directive 2014/55/EU on electronic invoicing (Article 117(3), Article 176(2), new Article 176(4) and (5), and Article 179(1)) o Addition of a definition and explicit ground for rejecting participants from award procedures based on professional conflicting interests, obligation for participants to provide information ((point 18.4 of Annex I)) and for the contracting authority to assess whether there are such interests (point 20.1 of Annex I) o Other simplification measures and technical corrections and updates enabling multi-sourcing contracts, correct inconsistencies and omissions, and clarifying digitisation of procurement procedures (new Article 2(46), Article 2(76), Article 164(5), Article 168(3), Article 171(1), Article 173(1), Article 174(2) and (3), Article 175, and point 1.2, , point 6.4, point 9.3, 4  point 9.4, point 9.5, point 11.1(a) and (c), point 11.1(h)(iv), point 11.1(j) and (m), point 11.2, point 16.3(f) and (g), point 18.1, point 18.7, point 19.2, point 20.2, point 21.1, point 24.3, point 27, point 28.1, point 28.2, new point 29.4, point 30.2, point 31.1, new point 34, point 35.1 and point 39.3 of Annex I). o More flexible rules for Union delegations in third countries, factoring in local market conditions and practices of Member States (Article 153(5)) o EU Institutions to apply the measures taken under the International Procurement Instrument (Article 179(1), new, and point 14 of Annex I) o Extension of the duration of remunerated external experts lists and alignment of their remuneration with market reality where justified (Article 242) The only proposed change related to procurement which has not been retained in the agreed text is the simplification proposed in relation with procurement of EU buildings (the removal of the obligation to prospect the local market has been rejected by the legislators). - Improvements to the Early Detection and Exclusion System (EDES): o Novel autonomous grounds for exclusion based on the refusal to cooperate in investigations, on-the-spot checks and inspections or audits carried out by an authorising officer, OLAF, EPPO or the Court of Auditors or the incitement to hatred or discrimination (new Article 139(1)(i) and 139(1)(c)(vi), respectively), as well as explicit mention of the breach of conflict of interest rules as an autonomous ground of exclusion within the notion of grave professional misconduct (Article 139(1)(c)(iv)) o Introduction of an expedited procedure for cases whose nature or circumstances so require (new Article 139(6)) o possibility to exclude beneficial owners and affiliated entities under certain conditions (new Article 138(2)(h) and (i), Article 139(2) and new Article 139(5)) o Other changes addressing shortcomings in the system, for example by creating a legal presumption of notification of the content of adversarial letters and administrative decisions (new Article 138(2)(g), Article 139(1), Article 139(1)(d)(i), Article 139(1)(e), Article 139(7), Article 140(1), Article 143, Article 145(5), Article 146(2), new Article 147, new Article 152(3), Article 152(2)(h), Article 153 and new Article 156(6)) - Introduction of the possibility to set specific conditions for participation of third country entities in Union award procedures that concern security or public order (new Article 137); - New budget implementation instruments in the form of non-financial donations by EU institutions (Article 2(1), (2), (3), (38), (50) and (58), Article 133, Article 154(3) and new Article 244) and prizes which are not financial (Articles 2(52), 210(4) and 211(1)). On the former, it was however necessary to accept that the authorising officers concerned will provide information on such cases in their annual activity reports; 5 - Simplification of the legal framework on donations to the Union, when rapid reaction is needed, in exceptional circumstances and with appropriate safeguards (Article 25(3)). It was however necessary to accept that the authorising officers concerned will provide information on such cases in their annual activity reports. - Clarification of the notion of applicable law in relation with conflict of interest (Article 61); - Introduction of the principle of compliance with the rules of the General Conditionality Regulation under Title II when establishing or implementing the budget; - Addition of a definition of Non-governmental organisation (NGOs), with a declaration from grant applicants on their legal status, including whether they are NGOs (new Article 2(46) and Article 200(1)(a)). - Giving more visibility to the Commission commitment to be digital by default (Article 36, Article 63(4)(a), Article 74(5) and (6), Article 150(1) and 158(4(a)); - Green transition: o Introduction of an explicit reference to the do-no-significant-harm principle in Article 33(2), o Possibility to use loans to finance building renovation inserted in Article 271, o Emphasis on the interest to include green award or selection criteria to incentivise economic operators to offer more sustainable options; - Increasing transparency and facilitating cooperation with the budgetary authority in relation with borrowing and lending (by enhancing reporting in line with the joint declaration 2020/C 444 I/065) (Article 52(1)(d)(iii)); - In relation with assigned revenue: o increasing the transparency and visibility of external assigned revenue in the documents accompanying the budget, in line with the joint declaration accompanying the MFF regulation (Article 22(1) and Article 41(3) and (8)); o facilitating the management of additional contributions (including voluntary ones) from Member States (Article 21(2)); - Increasing legal certainty in relation with financial instruments and budgetary guarantees by: o Addressing inconsistencies and redundancies in the current Financial Regulation, o Better reflecting the functioning of provisioning and of budgetary guarantees, o Updating relevant rules (Article 2(9), new Article 2(15), new Article 2(33), new Article 212(3), Article 212(5), Article 213(4), Article 221 and Article 223(6), and new Article 213(5)), o Clarifying how the provisioning and budgetary guarantees interact with the definitions and rules on budgetary commitments, legal commitments, recipients and publication of information on recipients (Article 2(38) and (58), Article 7(4), Article 10(3), Article 38(3)(c), Article 112(2), Article 113(1)(a), Article 113(4), Article 115(2) and Article 163). - Several more technical changes: 6  o Completing the list of working documents accompanying the draft budget by a document on building policy (Articles 41(3)(e) and 271); o Technical update to reflect the evolution of accounting practices, in line with International Public Sector Accounting Standards (Article 41(4)(j)); o Adjusting specific commitment rules for the European Agricultural Guarantee Fund to facilitate better alignment with standard accounting practices (Articles 114 and 270); o Formalisation of advanced deadlines for the Court of Auditors and the Commission for the approval of the consolidated accounts (Article 252 on advanced deadlines) as from 2026; o Simplifying the rules on imprest accounts to address issues encountered by EU delegations (Articles 88 and 89) and on treasury management, notably the use of credit cards and modern payment methods (Article 86); o Corrections to address omissions and wrong cross-references in certain existing provisions (Article 49(1), Article 71, Article 114(4), Article 154(3), Article 163(4) and Article 253(1)(d) and (f)), as well updates of references to repealed Union legislation. B. Compromises found to reach an overall agreement Compulsory use of a data-mining and risk-scoring tool for audit and control purposes (Article 36) A final agreement has been reached on the compulsory feeding of the tool as from the post-2027 MFF programmes. This means that the Member States and other entities implementing the EU budget would share (give access to) the data stored and collected in accordance with the requirements set out in the sectoral basic acts as from 1 January 2028. This agreement is fully in line with the initial Commission proposal. No agreement could however be reached on the compulsory use of the tool. The final compromise consists in a Commission assessment of the readiness of the tool, in time for the post-2027 MFF, based on a clear list of criteria set out in the Financial Regulation. In addition, a joint declaration will state that the three institutions will examine the compulsory use based on and following that assessment. In the meantime, the use of the tool will remain voluntary. Extension of the Early detection and Exclusion System (EDES) As mentioned above, the improvements of the existing system (expedited procedure, legal presumption of notification, possibility to exclude beneficial owners, additions to the list of grave professional misconducts that can lead to exclusion etc.), have been accepted without or with very limited changes. The extension of EDES to shared management (and direct management with the Member States) was agreed with a slightly more limited scope, as follows (changes compared to the Commission original proposal): 7  i) Member States to check the EDES database at the moment of the award and on the first level (only direct applicant/participants/beneficiaries, but not sub- contractors); voluntary checks remain possible at any point in time; ii) application only as from 1/1/2028; and, iii) no application to expenditure relating to the Recovery and Resilience Facility – contrary to the Commission original proposal (voluntary application remains possible). A statement will explain the support the Commission will provide to the Member States during the transition until 2028. Stand-alone proposal addressing the budgetary impact of the recent Printeos case-law on annulled competition fines The proposal to limit the future EU budget exposure due to the obligation to pay interest when reimbursing a competition fine amount that has been annulled by a Court judgment, by setting an interest rate which is lower than the one that the Court has applied (1.5% vs 3.5% on top of the European Central Bank refinancing rate (REFI)) was accepted (Articles 99(4) and 108(1)). The negative revenue mechanism (Articles 48), 107(2) and 108), namely the possibility to offset interest to be paid to companies against definitive fines, was also agreed but only until the end of 2027. A joint statement will confirm the commitment to examine a solution to apply post-2027. This will allow taking into consideration the experience gained and the clarifications that will be provided by the Union Courts on the Commission’s obligations in case of repayment of competition fines. Union participation in global initiatives (Article 240) The only substantive addition to the Commission proposal is an obligation to inform the Parliament and the Council. Other minor amendments to the text have also been made too. Very low value grants Following Parliament’s request, a package of simplification in relation with very low value grants was agreed to reduce administrative burden as for the applicants and for the Commission: - A definition of the concept of “very low value grant” aligned with the same concept in procurement (so bellow 15 000 EUR) (Article 2(74); - Waiver of the declaration on honour requirement in relation with these grants (Article 140(1) and 199(1)(b)). This change would however only be applicable as from the start of the next MFF, as it will require IT adaptations; - The possibility for the authorising officer responsible to decide, based on risk assessment, whether to verify the financial capacity of co-beneficiaries within a consortium (Article 201(5)). EU values and fundamental rights A general reference to the obligation for the Commission and Member States to respect EU values and the Charter of Fundamental Rights, when implementing the budget was 8 agreed (Articles 6 and 139(1)(a)(vi)). The wording maintains a strict link with the performance of legal commitments to avoid legal and implementation difficulties. Programme performance (gender equality and social rights) References to social rights and to gender equality were added under the concept of performance (Article 33(2)). They will apply to future sectoral basic acts “where feasible and appropriate”, which leaves sufficient flexibility. In addition, a reference to gender was also added in relation with the indicators referred to in Article 33(3), again for future sectoral legislation and only “where appropriate”. It was also added that information collected by indicators should be broken down by gender and should allow aggregation of such data across all relevant programmes. Foreign subsidies (Article 2(78) and 143) In line with what was announced in the Explanatory Memorandum of the proposal and following adoption of the Foreign Subsidies Regulation3 on 14 December 2022, wording was inserted to prevent third country participants who benefit from foreign financial support from obtaining EU procurement awards. Changes in recitals Several changes to the recitals were made added upon Parliament’s request: - Recalling the applicability of the proportionality principle also to conflict of interest rules; - Limited changes to the recitals related to Regulation 2022/24344 on a diversified funding strategy for borrowing; - Recalling the importance to avoid gold-plating; - A factual clarification on financing not linked to cost. Finally, it must also be mentioned that, despite the Commission’s best effort (and the support of the Parliament for these changes) some elements of the Commission proposal were rejected: - The Member States assistance on the recovery of EU claims (Article 104 of the proposal) - The streamlining of reporting obligations for budgetary guarantees, financial instruments, contingent liabilities and common provisioning fund borrowing and lending operations (changes proposed to Articles 41(5), 247(1) and deletion of Article 250) - In relation with the alignment to the 2020 MFF package, no agreement could be found on the integration in the Financial Regulation of derogations from budgetary 3 Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (OJ L 330, 23.12.2022, p. 1). 4 Regulation (EU, Euratom) 2022/2434 of the European Parliament and of the Council of 6 December 2022 amending Regulation (EU, Euratom) 2018/1046 as regards the establishment of a diversified funding strategy as a general borrowing method, OJ L 319, 13.12.2022, p. 1–4. 9  principles agreed in the sectoral basic acts. While this departs from the “single rule book” approach (having all rules related to budgetary principles in the Financial Regulation itself) thus reducing transparency, it has no impact on the validity of these derogations set out in sectoral legislation. 10 Electronically signed on 17/01/2024 09:52 (UTC+01) in accordance with Article 11 of Commission Decision (EU) 2021/2121