EUROPEAN COMMISSION

Brussels, 14.9.2016

COM(2016) 605 final

2016/0282(COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the financial rules applicable to the general budget of the Union and amending Regulation (EC) No 2012/2002, Regulations (EU) No 1296/2013, (EU) 1301/2013, (EU) No 1303/2013, EU No 1304/2013, (EU) No 1305/2013, (EU) No 1306/2013, (EU) No 1307/2013, (EU) No 1308/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014,(EU) No 283/2014, (EU) No 652/2014 of the European Parliament and of the Council and Decision No 541/2014/EU of the European Parliament and of the Council

EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

The Financial Regulation 1 sets out the principles and procedures governing the establishment and implementation of the EU budget and the control of the EU funds. Over the last 30 years, the number of general financial rules contained in the Financial Regulation has increased sharply 2 . In addition, a number of sectoral financial rules have emerged: the rules for participation to the Framework Programme for Research and Innovation 3 , the Common Provisions to the European Structural and Investment Funds 4 and the Common Implementing Rules for the External Action 5 .

Users of EU funds have repeatedly complained about the proliferation of rules both at general and at sectoral level, their heterogeneity and their complexity due to the fact that they follow the architecture of the programme and multiple layers of controls. In addition, the complexity of the financial set of rules has slowed down implementation of the EU funds, making it costly and prone to errors.

A first step towards more coherent and simpler financial rules was achieved in 2012: the Commission tabled proposals for the programmes covered by the MFF 2014-2020 which reduced the number of programmes and instruments, grouped them under a single framework with common rules, simplified procedures for application and declaration of costs by final beneficiaries, facilitated the deployment of innovative financial instruments, enabled EU Trust-Funds and improved the cost-efficiency of controls. Recent revisions have aligned the Financial Regulation on the results of the negotiation to the MFF 2014-2020 (2013 revision) as well as to the new Procurement Directive (2015 revision).

However, there is room for further simplification. This is confirmed by the experience gained since 2014 and by the work of the High Level Group of Independent Experts on Monitoring Simplification for Beneficiaries of the European Structural and Investment Funds 6 . The public consultation on the revision of the Financial Regulation 7 also shows stakeholders’ clear expectations in the area.

Efforts must therefore continue in order to remove bottlenecks, ensure synergies and complementarities between ESI Funds and the other EU funds and improve efficiency of delivery and control requirements. Simpler and more flexible financial rules will contribute to optimising spending and impact of the MFF 2014-2020 and constitute as such one of the key elements of the Commission's initiative for a Budget Focused on Results (BFOR) which aims at making sure that resources are allocated to priorities and that every action delivers maximum performance and added value 8 . In addition, this will reduce the costs related to implementation of EU rules as well the number of errors.

Simpler and more flexible EU financial rules are key in enhancing EU budget’s ability to adapt to changing circumstances and to respond to unexpected developments.

The present legislative proposal forms an integral part of the mid-term review/revision of the multiannual financial framework (MFF) 2014-2020 9 . It contributes to two of its main objectives: simplification and flexibility.

The Commission therefore proposes in a single act an ambitious revision of the general financial rules accompanied by corresponding changes to the sectorial financial rules set out in 15 legislative acts concerning multiannual programmes. The inclusion of sectoral changes in the same legislative proposal aims at ensuring a coherent negotiation process as well as at facilitating a speedy adoption by the legislator. The focus is put on the following key areas:

1.    Simplification for recipients of EU funds: many measures aim at simplifying life for recipients of EU funds. They relate to grants (removal of the non-cumulative award check for low-value grants and of the non-profit principle; simpler rules for "contribution in kind" valuation; recognition of volunteer work; grant awards without calls for proposal under specific conditions) and simplified forms of grants (Title VIII).

2.    From multiple layers of controls to cross reliance on audit, assessment or authorisation, and harmonisation of reporting requirements: the aim of these measures is to encourage reliance as far as possible on one single audit, assessment or authorisation (conformity to State aids for instance), when the audit, assessment or authorisation meets the necessary conditions to be taken into account in the EU system. More generally, rules for implementing partners (international organisations, EIB/EIF, national promotional banks, national agencies, NGOs) will be simplified by relying increasingly on their procedures and policies once assessed positively. Financial framework partnership agreements concluded with long term partners will allow progressing in the harmonisation of audit, reporting and other administrative requirements among donors (Title V Articles 122, 123 and 126).

3.    Allowing the application of only one set of rules to hybrid actions or in the case of combination of measures or instruments: the proposal aims at achieving further simplification for the partners of the EU by a number of measures to avoid the parallel application of different rules and procedures, notably through facilitating the combination of European Structural and Investment Funds (ESIF) funding with financial instruments and the European Fund for Strategic Investments (Title V).

4.    More effective use of financial instruments: optimise use of reflows, ensuring a level playing field among key EU implementing partners, reducing burdensome requirements related to publication of individual data of final recipients or to the exclusion criteria (Title X).

5.    More flexible budget management: the proposal sets out several ways for more budgetary flexibility, in order to allow the Union to respond to unforeseen challenges and new tasks more effectively and to achieve swifter crisis management - among which the creation of a "flexibility cushion" for unforeseen needs and new crises in the external actions geographic instruments budget, a more efficient activation of the solidarity and globalization adjustment funds, and the extension of Trust-Funds to internal policies (Articles 14 and 227), the creation of a EU crisis reserve with the reuse of decommitted appropriations, and for the next Multiannual Financial Framework, the possibility that financial operations other than financial instruments generate a contingent liability for the Union exceeding the financial assets provided to cover the financial liability of the Union (Article 203) and the creation of a common provisioning fund holding the resources provisioned for financial operations (Article 205). Recent initiatives (such as the European Fund for Strategic Investments (EFSI) or the European Fund for Sustainable Development (EFSD)), have indeed shown the need to fully use the leverage of the EU budget by creating non-provisioned contingent liabilities. Title X sets the framework to authorise, manage and control these financial risks.

6.    Focus on results and streamlining of reporting: a stronger focus on results through lump sums, prizes, payment based on output and results rather than on reimbursement of costs, payment against conditions to be fulfilled (Article 121, Title XIII). This should contribute to further reducing the costs of implementing EU funds as well as the number of errors. On the reporting side, reports are regrouped around the draft budget and the integrated financial reporting package, in order to increase efficiency and transparency both towards the general public and the budgetary authority (Articles 39 and 239-245).

7.    Simpler and leaner EU administration: facilitating agreements or delegations between Institutions or bodies in order to pool the implementation of administrative appropriations in European Offices or within Executive Agencies (Articles 57, 58, 64, 65 and 68); merging consultative panels competent for financial irregularities (Article 73 (6)) with the EDES panel (Article 139) and moving from annual to multiannual financing decisions (Article 108).

8.    Providing possibility for citizen engagement: the proposal provides a possibility for citizens to be consulted on the implementation of the Union budget by the Commission, Member States and any other entity implementing the Union budget (Аrticle 54).

In simplifying and making EU financial rules more flexible, the present proposal paves the way for the preparation of the next generation of spending programmes (post-2020).

•Consistency with existing provisions on the policy area

In designing simpler and more flexible EU financial rules the Commission has made sure that it does not weaken sound financial management which remains a key objective. Quite to the contrary, the present proposal also strengthens rules on tax avoidance to be respected by EU implementing partners and clarifies that the duty to avoid conflicts of interest fully applies to all modes of implementation of EU funds (including at the level of Member States). It also consolidates the systems in place to protect EU budget against fraud and financial irregularities (extending the authorising officer's competence to take action with regard to the Early Detection and Exclusion System in indirect implementation).The simplification of EU financial rules will also contribute to reduce the costs and time needed to implement EU funds as well as the number of errors. It should also increase the impact of the policies and their results on the ground.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis

The proposal is based on Article 322 of the Treaty on the Functioning of the European Union (TFEU) for the part relating to the revision the Financial Regulation and on the sectoral legal basis for the legislative acts modified by the second part.

•Subsidiarity (for non-exclusive competence) 

•Proportionality

3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

•Stakeholder consultations

A public consultation on the revision of the Financial Regulation was carried out in April/May 2016. A total of 111 contributions were received from a wide range of stakeholders.

The replies show overall support for the simplification (65%) and flexibility (79%) measures proposed. With respect to simplifying EU grant rules, stakeholders continue to prefer the reimbursement of actual costs but do not oppose simplified reimbursement through unit costs, lump sums or flat rates or reimbursement on the basis of pre-defined results as long as those are not compulsory. These concerns are reflected in the proposal. In particular, simplified reimbursement of costs will remain only an additional option to be used by the authorising officer with regards to the nature of the supported actions and recipients. Implementing partners of the EU (national development agencies, international organizations, EIB/EIF, NGOs) request the Commission to rely more on their rules and policies once positively assessed. They complain about multiple prior assessments of their systems or procedures or repeated audits of the same activities by the EU and other donors, when cross-reliance on such assessments and audits could be possible. They also criticize different reporting requirements among donors 10 .

An Awareness Raising Event took place on 6 April 2016 in Brussels to allow stakeholders to voice their concerns/suggestions about the Financial Regulation. Their comments made are in line with the replies to the public consultation.

The measures contained in this proposal address these concerns.

•Impact assessment

No impact assessment for this revision of the Financial Regulation has been carried out. The Financial Regulation as such has a limited economic, environmental or social impact (it provides the general rules for the implementation of the spending programmes, but the concrete economic or social impact incurs when making policy choices implementing the sectorial programmes). Changes proposed to the sectoral legislative acts are merely consequential to the simplifications proposed in the Financial Regulation

•Regulatory fitness and simplification

While the revision of the Financial Regulation and the corresponding changes to the sectoral legislative acts do not fall under the Regulatory Fitness Programme, they are in line with – and contribute significantly to – the Better Regulation agenda: indeed, this proposal reduces the overall number of general financial rules applicable to the EU budget by some 25% and regroups them in a single rule book which will replace both the Financial Regulation and its Rules of Application:

·Key provisions of the Rules of Application are moved into the Financial Regulation, while less important elements will be integrated if needed and on a case by case basis in Commission’s internal rules or in guidelines made public by the Commission.

·The detailed procurement rules applicable to EU institutions and bodies are consolidated in an annex of the revised Financial Regulation, which could be modified by delegated act.

·Provisions of Part Two of the Financial Regulation relating to special provisions applicable to the European Agricultural Guarantee Fund, to Research, external action and to other specific EU funds are inserted in the relevant parts of the Financial Regulation unless they are no longer relevant.

The proposal to revise the Financial Regulation also stresses commonalities and reduces specificities to the minimum so as to make the rules easier to apply for the users: emphasis is put on common rules applicable to all methods of implementation (direct, indirect and shared) as well as for all legal instruments by regrouping them in dedicated chapters. Provisions on European offices, executive agencies, decentralised agencies and public-private partnership bodies currently spread over the Financial Regulation are pulled into the same chapter. Rules on EU trust funds, budget support and experts (including research experts) are regrouped under a new title “Other budget implementation instruments”.

The proposal also strongly focuses on achieving substantive simplification of the current EU financial rules. As mentioned in point 1 above, it contains numerous elements reducing the administrative burden for applicants and recipients of EU funds.

The proposal does not exempt micro-enterprises from its scope. Such enterprises can be beneficiaries of EU funds and must therefore be subject to the rules. However, in certain areas, it reduces the costs for businesses which are often SMEs (replacing in the area of financial instruments the publication of individual data of beneficiaries by aggregate statistics) and more generally the numerous simplification measures should benefit to all enterprises

•Fundamental rights

4.BUDGETARY IMPLICATIONS

•Detailed explanation of the specific provisions of the proposal

1. Simplification for recipients of EU funds

1.1. Simplify grant use, lump sums and cost calculations

Many measures aim at simplifying life for recipients of EU funds. They relate to the content of grant applications, the value of contributions in kind, recognition of volunteers work, the conditions for award of grants without a call for proposals to Member States under specific conditions, the principle of no profit, the principles of non-cumulative award and the phasing out of grant decisions. Other measures demonstrate the move towards a simpler and leaner administration.

1.1.1. General financial rules

The proposal promotes the use of simplified forms of grants, open to all EU funded programmes where the nature of the actions and underlying expenditure allow such approach (e.g. training and mobility actions, travel costs, etc.). This would alleviate the administrative burden, reinforce certainty on the reimbursed amount to beneficiaries and stimulate the up-take of simplified forms of grants and their combinations (Article 175).

Use of expert judgment: the implementation of simplified forms of grants has been hampered by the lack of data needed to establish a reasonable approximation of the actual costs. This is often due to the innovative nature of the actions concerned or to the fact that actions are implemented only in certain countries and no data are available for other countries. In order to bridge this gap, it is proposed to make use of expert judgement in complement of or as an alternative to the statistical or historical data, depending on the nature of the action (Article 175).

Simplifying the authorisation of lump sums, unit costs and flat rates: to replace the lengthy and burdensome process of authorisation (College decision for amounts higher 60.000 EUR per grant) by enabling the responsible authorising officer to adopt decisions authorising simplified forms. This level is more appropriate given the highly technical content (calculation methodologies, overviews of data, etc.) of the decision (Article 175).

Simplifying and clarifying the content of grant applications including the accompanying supporting documents: no obligation to provide information demonstrating the applicants' financial and operational capacity if those are not verified (e.g. for public bodies); aligning the obligation to provide an audit report with the applicable EU and national law in the area of accounting (Article 189).

Simplification of the principle of non–cumulative award: grants like scholarships to natural persons, direct support to refugees, unemployed and other persons in most need will be exempted from this rule since traditionally their value is quite low (Article 185).

Removing the no profit principle: the practical importance of the no-profit principle has diminished substantially: revenue-generating projects are in principle supported throughfinancial instruments. For projects that are in principle not revenue-generating, the no profit principle creates disincentives: beneficiaries are not encouraged to ensure that their projects become sustainable or profitable. This has in turn a negative impact on the economy.

Simplifying the determination of the value of contributions in kind: these contributions do not constitute eligible costs. Therefore, their exact value is irrelevant. However, they may continue to be accepted as part of the co-financing. Any value reasonably established by the authorising officer at the time of acceptance of the estimated budget can demonstrate that there are other sources of financing of the action, apart from the EU grant, and that the co-financing principle is complied with (Article 184).

Recognition of volunteer work: In order to facilitate the participation of small organisations in the implementation of the EU policies in an environment of limited availability of resources, it is necessary to recognise the value of the work provided by volunteers as eligible costs. As a result, such organisations may rely to a greater extent on volunteers' work for sake of providing co-financing to the action (Articles 175, 180 and 184 ).

Simplifying and harmonising the conditions for award of grants without a call for proposals: it is proposed to extend the possibility to award direct grants to entities mandated by the Member States to the cases of a de facto or de jure monopoly or where direct beneficiaries have been chosen for their technical competencies, high degree of specialisation or administrative powers. In addition, the authorising officer would be authorised to combine the evaluation report and the award decision in one document. This will alleviate the administrative burden and will speed up the award of direct grants (Article 188).

Simpler record-keeping: the record-keeping period shall be a uniform five years (three years if the funding is of an amount lower than or equal to € 60.000), also for indirect implementation (Article 128).

Notional approach for grants: where grants are expressed only as an absolute value (not as a percentage of eligible costs), the eligibility of costs shall be verified at the latest at the time of the payment of the balance (Article 180). For this verification, a simplified ("notional") approach can be used (Article 150). Phasing out of grant decisions: it is proposed to phase out grant agreement and use predominantly grant agreements, subject to a review in the progress made towards e-grants at the end of the current MFF (Article 277). 

1.1.2. Sectoral rules

The improvements for using simplified cost options in the Financial Regulation are complemented by changes proposed for sectorial legislation extending the use of simplified cost options in

·Regulation (EU) No. 1303/2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund,

·European Social Fund Regulation (EU) No 1304/2013, 

·Regulation (EU) No 223/2014 on the Fund for European Aid for the most deprived.

2. From multiple layers of controls to cross reliance on audit, assessment or authorisation, and harmonised reporting requirements

The aim of these measures is to encourage reliance as far as possible on one single audit, assessment or authorisation (conformity to State aids for instance), when they meet the necessary conditions to be taken into account in the EU system. In order to avoid multiple layers of controls, the Commission shall promote the recognition of internationally accepted standards or international best practices in that area, as well as common reporting requirements among donors:

·Cross-reliance on ex-ante assessments and checks of recipients already conducted by other entities (donors) with regard to conditions equivalent to the EU ones (Article 122).

·Cross-reliance on audits conducted in accordance with internationally accepted standards is also encouraged always with a view of avoiding multi-audits of the same persons/entities for the same activities. This would allow the Commission to rely on independent audits conducted on the use of the EU funds by international partners (UN, World Bank etc.) or Member States (Article 123).

·Harmonisation of its reporting requirements with those of other donors: the Commission shall promote the adoption of common reporting requirements through the financial framework partnership agreements concluded with its main international partners (Article 126).

·Allowing the Commission to rely possible on the systems and procedures of the partners of the EU under indirect implementation if they have been positively assessed (Article 149) and impose remedies if certain rules/procedures are not sufficient to protect the EU financial interests; where the Commission requires the use of its own or specific procedures no assessment will be carried out. In all cases the level of supervision/control exercised should be adapted on the basis of the principle of proportionality.

·Enhancing Financial framework partnership agreements (Article 126): such agreements established with trusted partners for long term cooperation will in the future cover all the actions in direct and indirect implementation and reflect the extent to which the Commission may rely on the systems and procedures positively assessed as well as the application of a single set of rules for all legal instruments. Long term partnership agreements will offer a flexible framework for cross-reliance on assessments and audits where possible as well as for harmonising audit, reporting and other administrative requirements among donors.

3. Allowing the application of only one set of rules to hybrid actions or in the case of combination of measures or instruments

The proposal aims at achieving further simplification for the partners of the EU under indirect implementation to the maximum extent possible.

3.1. General financial rules

·The application to an implementation partner of the Commission of only one set of rules instead of two would be allowed in certain cases – regardless of the nature of the action and of the role of the partner as a manager of funds or a "do-er". Where hybrid actions combine indirect and direct implementation and currently imply two sets of rules, accessory elements that are currently submitted to direct implementation rules (very often the case for technical assistance) would follow the rules of the main elements of the action (e.g. the running of a financial instrument with guarantees or else (Article 208(2)).

·In order to facilitate combinations between grants and financial instruments, a single set of rules (those of the financial instruments) shall apply to grants complementary to financial instruments if combined in a single action (Article 208(2));

·The period for record-keeping for grants and financial instruments shall be aligned to five years (three years for amounts up to € 60.000 Article 128).

3.2. Sectoral rules

·Limiting state aid verifications to the state aid consistency check for the EU-level financial instruments foreseen under the Financial Regulation when ESI funds contribute to EU- level financial instruments (no double verification): Member States contributions to EU-level financial instruments which are made without any additional conditions as to the use of the contributions other than in relation to the geographic area for the use of the contribution shall not require another separate state aid verification as the financial instrument is already consistent with state aid rules based on the Financial regulation. This will be clarified through appropriate guidance.

·Extension of SME Initiative(SMEI), allowing for the use of the SME Initiative beyond 2016, making it possible for Member States to commit funding to the SMEI up to 2020.

·Extension and clarifications of CPR provisions on combinations between financial instruments and grants in order to facilitate their combined use.

·Introducing a new possibility to combine ESI Funds/EFSI and a new structure for combining ESI Funds with EIB and EIF: ESI Funds programmes should be able to contribute to financial instruments combined with EIB financing under EFSI.

4. More effective use of financial instruments

4.1. General financial rules

Experience with financial instruments and in particular input from key implementation partners (EIB/EIF) point at the following possibilities to improve further their management and effectiveness:

·All reflows (revenues + repayments) generated by a financial instrument should be used for the same instrument to pursue efficiency gains; full transparency is guaranteed through reporting (Article 202(2));

·EIB /EIF would retain their status as key EU partners in implementation but direct negotiations should be authorised between the Commission and a greater number of potential entities, to ensure a level-playing field amongst them (Article 149);

·Given the impossibility to impose the full respect of EU rules where the EU participates in a financial instrument as minority shareholder of a fund, it is proposed to allow a proportionate application of EU rules in such cases instead (Article 208(4));

·The publication of individual data of final recipients would be replaced with statistical data, aggregated per relevant criteria proposed for final beneficiaries receiving EU support of less than € 500.000 (policy area, type of support, type of beneficiary, geographical distribution (Article 36(5)).

·Final beneficiaries and intermediaries shall not be required to provide a declaration of honour confirming that they are not in one of the exclusion situations where the implementing partner has an exclusion policy considered equivalent to that of the EU (Article 131).

·Two new sections are proposed to regulate other instruments bearing a financial risk, such as budgetary guarantees and financial assistance to Member Stets or third countries (Sections 2 and 3 of Chapter 2 of Title X).

·Rules to authorise, manage and control non-provisioned contingent liabilities have been introduced (Articles 203 to 206).

4.2. Sectoral rules

To further optimise management and use of financial instruments in shared implementation, changes to the Common Provisions Regulation 1303/2013 (CPR) are proposed:

·Clarifying the possibility for Member State Management Authorities to directly award a contract, including technical assistance, to the EIB/EIF, other International Financial Institutions as well as National Promotional Banks.

·Treasury management: where the temporary investment of ESI Fund money paid into a Financial Instrument before the investments in final recipients generates negative interests, their payment from resources paid back when at least one cycle of investments has been carried out shall be authorised.

·Certain EAFRD measure specific rules shall be removed that have hindered the programming of financial instruments in Rural Development and their implementation by the fund managers, to increase the leverage effect of the EAFRD funding through a higher use of financial instruments.

5. More flexible budget management

5.1. General financial rules

The proposal sets out several ways for more budgetary flexibility, in order to allow the Union to respond to unforeseen challenges and new tasks more effectively:

·Allow for the establishment of EU trust funds also for emergency, post-emergency or thematic actions within the EU (and not only for third countries). Recent events in the European Union show the need for increased flexibility for funding within the EU. As the boundaries between external and internal policies are increasingly blurred, this would also provide a tool for replying to challenges crossing the borders (Article 227).

·Increase the "negative reserve" from EUR 200 million to EUR 400 million and thus also follow up to a Council request to limit the number of Draft Amending Budgets linked to payments (Article 48).

·Create a flexibility cushion for external action via the carry-over of non-allocated funds for the Instrument for Pre-accession Assistance (IPAII) , the European Neighbourhood Instrument (ENI) and the financing instrument for development cooperation (DCI) to year N+1 in the limit of 10% of the initial appropriations of each instrument (Article 12).

·Foresee more flexibility for crisis and emergency situations and humanitarian aid in grants: Administrative procedures are simplified to enable quick and efficient response (e.g. retroactive eligibility before the submission of the application to be decided by the authorising officer responsible, Article 186).

·Use of imprest accounts in the Union Delegations would be allowed for payment of limited amounts by budgetary procedures. Non-statutory staff in the field of crisis management aid and humanitarian aid operations could administrate such accounts and sign legal commitments executed from them up to EUR 2 500 (Article 109).

·Increase flexibility for autonomous transfers by the Commission by enlarging the current scope, i.e. by also allowing transfers of operational expenditure between different titles if they are covered by the same basic act, including support chapters, and from the administrative support lines to the corresponding operational lines (Article 28).

·Simpler mobilisation of the EU Solidarity Fund EUSF via an autonomous transfer from the reserve to the budget line once the decision of mobilisation has been adopted by the European Parliament and the Council (Article 28).

·Simpler mobilisation of the European Globalisation Fund EGF via automatic approval of transfers from the reserve to the budget line upon adoption by the Budgetary Authority on the mobilisation of the Fund (Article 30).

·Clarify that amounts corresponding to commitment appropriations for the Emergency Aid Reserve and the EU Solidarity Fund EUSF are carried over automatically (Article 12).

·Remove the obligation to first use the appropriations authorised for the current financial year until they are exhausted before using appropriations carried over.

·Allow use of internal assigned revenue for another purpose than the one for which it is assigned in case there are no identified needs allowing such revenue to be used for the same purpose (Article 30(3)).

·Allow the institutions and bodies to accept corporate in kind sponsoring for specific events or activities (i.e. not receptions or other exclusively social events). For that provision to be implemented, each institution would first authorise the principle of acceptance of sponsoring in kind and set out specific guidelines covering notably ethical aspects (Article 24).

·Foresee that, as part of the approval procedure of the sale of buildings or land, the Budget Authority may accept, on a case by case basis that the proceed of that sale is considered assigned revenue, in order to improve facility management by the Commission and facilitate the purchase of other buildings (Article 20(3)(g)).

·Create a EU crisis reserve with the reuse of decommitted appropriations.

·For the next Multiannual Financial Framework, create the possibility that financial operations other than financial instruments generate a contingent liability for the Union exceeding the financial assets provided to cover the financial liability of the Union (Article 203) and a common provisioning fund holding the resources provisioned for financial operations (Article 205).

5.2 Sectoral rules

·The possibility for the Member States to help also in case of man-made catastrophes like the refugee crisis and to use available funds immediately (without having to wait for the submission of a programme amendment) is introduced in Regulation (EU) No 1305/2013 on support for rural development by the European Agricultural Fund for Rural Development. Also, a specific investment priority for migrants and refugees is added to simplify the programming of measures to help migrants and refugees under the European Regional Development Fund Regulation (EU) No 1301/2013.

·European Union Programme for Employment and Social Innovation (EaSI-Regulation No 1296/2013): in order to increase the adjustment capacity of EaSI to crisis and changing political priorities, flexibility is needed concerning the indicative spending levels foreseen for each of the three axis of the program and for each of the thematic priorities within these. In addition, the derogation allowing use of the European Globalisation Fund for the benefit of young people not in employment, education or training should be maintained given the current economic context.

·Connecting Europe Facility Regulation Nr 1316/2013: Given the success of the Multi-Annual Work Programmes, it is necessary to increase the flexibility so that 95% can be spent on multi-annual programmes and further projects supported with most value added for the Trans European Transport Network (Core Network Corridors, cross border projects and projects on the other sections of the Core Network).

·Management of expenditure for the food chain, animal health and animal welfare (Regulation (EU) No 652/2014): given the positive experience with the application of this rule and the substantial reduction of the related workload on the part of the beneficiaries and of Commission services, it is proposed to extend the possibility to use budgetary commitments divided into annual instalments.

·In Regulation (EU) No 1305/2013 on support for rural development, targeting mutual funds helping farmers in case of sharp drops in income in specific sectors shall be allowed, and subsidisation of the initial capital stock of such funds.

6. Focus on results and streamlining reporting

The proposal includes a series of measures aimed at focusing better the budget on results, establishing a clear performance framework, enhancing transparency and streamlining reporting.

6.1 Focus on results

A number of proposals open to all policy areas and focusing on results rather than on what has been actually spent. They demonstrate the Commission's commitment to provide the necessary conditions for a result-oriented approach:

·Allowing for payments based on conditions fulfilled, output or performance in all management modes (e.g. payments per resettled refugee in the AMIF funds or the support for young farmer setting up, Article 121). In such cases, the financing of projects is delinked from the reimbursement of the costs incurred by the recipients of EU funds: it depends directly on the results delivered on the ground. What matters is either the fulfilment of certain conditions as set out ex ante in the basic act or Commission Decisions and/or the achievement of results measured through performance indicators (ex-post). Such system enhances ownership/commitment by the recipients of funds to achieve results. They allow a significant reduction of the administrative burden and of the cost of controls. Controls can indeed be limited to verifying whether the conditions/agreed results have been met and the administrative burden. This in turn limits the risk of legality and regularity errors. It has been advocated by the European Court of Auditors under the name “entitlements”.

·Facilitating "Prizes"(Title IX): the title on “Prizes” is shortened and simplified; the obligation to announce prizes of a value of EUR 1 million or more in the statements accompanying the draft budget is replaced by prior information of the European Parliament and an explicit announcement of such prizes in the financing decision.

·Single lump sum (Article 176): a "single lump sum" could in the future cover all eligible costs of the action. Checks and controls will focus exclusively on the outputs/deliverables. The single lump sum is based on the assessment of the budget proposed by the grant applicant in view of the principles of efficiency, economy and effectiveness including by reference to relevant data and/or expert judgment.

·Priority to simplified forms of grants where payment is triggered by output and results (Article 175): an input based approach should only be considered if the output based approach is impossible or not appropriate. Currently simplified forms are predominantly used to cover the value of inputs (e.g. number of man-days, number of travels, number of days spent in mission, etc.). The possibility to pay simplified forms against the delivery of concrete outputs (e.g. a conference delivered, a festival organized, a prototype built, etc.) is similarly encouraged.

·Clarifying the scope of controls of simplified forms of grants and of their consequences if outputs are not delivered (Article 177): controls concentrate on the fulfilment of the conditions triggering the payment (e.g. whether a supported European movie was produced with the needed quality and distributed with the needed quantity, whether an Erasmus student actually studied abroad, etc.). No reporting on the costs actually incurred by the beneficiary is required. If the conditions triggering the payment were not fulfilled or if the agreed activities were implemented poorly, partially or late, the Commission shall reduce the amount of the grant proportionately to the failure and to recover amounts unduly spent.

6.2 A clear performance framework

To complement the stronger focus on results, a clear performance framework is proposed:

·Linking performance, objective-setting, indicators, results and the principles of economy, efficiency and effectiveness in the use of appropriations (Article 31).

·Providing for performance based fees to remunerate organisations for managing EU funds (Article 150);

·Considering programme statements as the main source of programme performance information (Article 39);

·Merging of the "Synthesis" and "Article 318 TFEU" reports in one “Annual Management and Performance Report for the EU Budget” to deliver annually a single performance report on the EU budget (as from the 2015 financial year, Article 239).

·Aligning the terminology on evaluation to the provisions of the 2016 Inter Institutional Agreement on better law making and creating a link between ex-ante evaluations under the Financial Regulation and Impact Assessments (Article 32).

6.3 Streamlining reporting

6.3.1. General financial rules

Successive revisions of the Financial Regulation have significantly increased the number of reports and information requested including on accounts: reporting is now provided through scattered documents, delivered along a differed calendar. In order to increasing efficiency and transparency not only towards the budgetary authority but also towards the general public, without however affecting the level of information currently provided, it is proposed:

·To gather reporting obligations around two key moments: reports accompanying

·the draft budget; all reporting on EU-level financial instruments would be merged into a single document accompanying the draft budget (Article 39).

·and those submitted as part of the discharge process: "the integrated financial reporting package” – a separate Chapter would deal with budgetary and other financial reporting (Articles 239-245).

·To make the new Annual Management and Performance Report for the EU Budget, resulting from the merge as from the 2015 financial year, of the Synthesis and of the Article 318 TFEU report is a key element of the integrated reporting package (Article 239).

·To specify that the external audit by the Court of Auditors takes account of the multiannual character of programmes (Article 247(1)).

6.3.2. Reporting:

·Reporting obligations are streamlined by eliminating certain redundancies (CPR).

7.    A simpler and leaner EU administration

7.1.    General financial rules

A series of simplification measures aims at allowing the EU institutions to work more efficiently, notably by implementing jointly administrative appropriations to achieve economies of scale:

·Providing an explicit legal basis for Service Level Agreements (SLA) between departments of the EU institutions, EU bodies and European offices and extending to all institutions the possibility to conclude service-level agreements facilitating the implementation of administrative appropriations. In the future it will also be possible to delegate implementation of administrative appropriations to an office set up by the Commission.

·Clarifying the distinction between obligatory and non-obligatory tasks of offices (Articles 64 and 65): obligatory tasks must be covered by appropriations entered in the section of the budget relating to the office. Non-obligatory tasks which an office agrees voluntarily to conduct at the request of another institution or body are covered from the budget of the respective institution or body.

·Allowing multiannual financing decisions and reducing the amount of obligatory elements in a financing decision (Article 108). In addition, it is proposed that the financing decision constitutes at the same time the annual or the multi annual work programme. These changes would speed up the implementation of the budget in years 2 and following of a programme.

·Clarifying the rules on Executive Agencies (Article 68): they shall receive an annual contribution; their director acts as authorising officer by delegation when implementing operational appropriations; the delegation of an operational programme to an executive agency may include pilot projects and preparatory actions as well as the implementation of administrative expenditure in order to achieve synergies and economies of scale.

·Merging the Article 139 of the Financial Regulation Panel with the Financial Irregularity Panel (Article 90): for efficiency reasons, the Financial Regulation Panel recommending exclusion and financial penalties on economic operators would also become competent for financial irregularities by EU staff members, while the Disciplinary Board would continue to draw the consequences of these irregularities under the Staff Regulations.

7.2. Sectoral rules

·Several changes of the Common Provisions Regulation are proposed to facilitate programme management and nation-wide programmes as well as Joint Action Plans comprising projects focussing on output and results.

·In the area of direct payments for farmers, support is granted to active farmers and certain measures focus the support on young farmers. Proportionality for financial corrections linked to public procurement errors is introduced to avoid that such errors are always considered as affecting 100% of aid concerned.

8.    Other changes

Revenue operations: the following changes are proposed:

·The provision on negative adjustments of own resources for accounting purposes is modified for reasons of transparency (Article 94).

·A new provision sets a time limit within which a debit note shall be sent to the debtor (Article 96 (2)), reflecting recent case law of the Court of Justice.

·A new Article 107 sets the rules concerning the rate to be applied for compensatory interests in cases where an amount shall be reimbursed following a judgement of the Court of Justice of the European Union or an amicable settlement.

·The provision concerning fines, other penalties or sanctions is modified to make clear that the amounts provisionally cashed shall be repaid to the third party concerned taking into account the return; and that fines imposed by institutions other than the Commission (e.g. Council in line with Regulation 1173/2011) are also covered by the Financial Regulation (currently limited to fines imposed by the Commission, Article 106).

·Wording on assigned revenue is modified to reflect contributions to measures like the Turkey refugee facility (Article 20(2)).

List of sectoral acts modified by the proposal:

·Council Regulation (EC) No 2012/2002 of 11 November 2002 establishing the European Union Solidarity Fund (OJ L 311, 14.11.2002, p.3);

·Regulation (EU) No 1296/2013 of the European Parliament and of the Council of 11 December 2013 on a European Union Programme for Employment and Social Innovation ("EaSI") and amending Decision No 283/2010/EU establishing a European Progress Microfinance Facility for employment and social inclusion (OJ L 347 20.12.2013, p. 238);

·Regulation (EU) No 1301/2013 of the European Parliament and of the Council of 17 December 2013 on the European Regional Development Fund and on specific provisions concerning the Investment for jobs and growth goal and repealing Regulation (EC) No 1080/2006 (OJ L 347, 20.12.2013, p. 289–302);

·Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347 20.12.2013, p. 320);

·Regulation (EU) No 1304/2013 of the European Parliament and of the Council of 17 December 2013 on the European Social Fund and repealing Council Regulation (EC) No 1081/2006 (OJ L 347 20.12.2013, p. 470);

·Regulation (EU) No 1305/2013 of the European Parliament and of the Council of 17 December 2013 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) and repealing Council Regulation (EC) No 1698/2005 (OJ L 347, 20.12.2013, p. 487–548);

·Regulation (EU) No 1306/2013 of the European Parliament and of the Council of 17 December 2013 on the financing, management and monitoring of the common agricultural policy and repealing Council    Regulations (EEC) No 352/78, (EC) No 165/94, (EC) No 2799/98, (EC) No 814/2000, (EC) No 1290/2005 and (EC) No 485/2008 (OJ L 347, 20.12.2013, p.549);

·Regulation (EU) No 1307/2013 of the European Parliament and of the Council of 17 December 2013 establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy and repealing Council Regulation (EC) No 637/2008 and Council Regulation (EC) No 73/2009 (OJ L 347 20.12.2013, p. 608);

·Regulation (EU) No 1308/2013 of the European Parliament and of the Council of 17 December 2013 establishing a common organisation of the markets in agricultural products and repealing Council Regulations (EEC) No 922/72, (EEC) No 234/79, (EC) No 1037/2001 and (EC) No 1234/2007 (OJ L 347, 20.12.2013, p.671);

·Regulation (EU) No 1309/2013 of the European Parliament and of the Council of 17 December    2013 on the European Globalisation Adjustment Fund (2014-2020) and repealing Regulation (EC) No    1927/2006 (OJ L 347, 20.12.2013, p. 855–864);

·Regulation (EU) No 1316/2013 of the European Parliament and of the Council of 11 December 2013 establishing the Connecting Europe Facility, amending Regulation (EU) No 913/2010 and repealing Regulations (EC) No 680/2007 and (EC) No 67/2010 Text with EEA relevance (OJ L 348, 20.12.2013, p. 129–171);

·Regulation (EU) No 223/2014 of the European Parliament and of the Council of 11 March 2014 on the Fund for European Aid to the Most Deprived (OJ L 72, 12.3.2014, p. 1–41);

·Regulation (EU) No 283/2014 of the European Parliament and of the Council of 11 March 2014 on guidelines for trans-European networks in the area of telecommunications infrastructure and repealing Decision No 1336/97/EC Text with EEA relevance (OJ L 86, 21.3.2014, p. 14–26);

·Regulation (EU) No 652/2014 of the European Parliament and of the    Council of 15 May 2014 laying down provisions for the management of expenditure relating to the food chain, animal health and animal welfare, and relating to plant health and plant reproductive    material, amending Council Directives 98/56/EC, 2000/29/EC and 2008/90/EC, Regulations (EC) No 178/2002, (EC) No 882/2004    and (EC) No 396/2005 of the European Parliament and of the Council, Directive 2009/128/EC of the    European Parliament and of the Council and Regulation (EC) No 1107/2009 of the European    Parliament and of the Council and repealing Council Decisions 66/399/EEC, 76/894/EEC and 2009/470/EC (OJ L 189, 27.6.2014, p. 1–32);

·Decision No 541/2014/EU of the European Parliament and of the Council of 16 April 2014 establishing a Framework for Space Surveillance and Tracking Support (OJ L 158, 27.5.2014, p. 227–234).

2016/0282 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the financial rules applicable to the general budget of the Union and amending Regulation (EC) No 2012/2002, Regulations (EU) No 1296/2013, (EU) 1301/2013, (EU) No 1303/2013, EU No 1304/2013, (EU) No 1305/2013, (EU) No 1306/2013, (EU) No 1307/2013, (EU) No 1308/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014,(EU) No 283/2014, (EU) No 652/2014 of the European Parliament and of the Council and Decision No 541/2014/EU of the European Parliament and of the Council

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 42, 43(2), 46(d), 149, 153(2)(a), 164, 168(4)(b), 172, 175, 177, 178, 189(2), 209(1), 212(2), 322(2) and 349 thereof, in conjunction with the Treaty establishing the European Atomic Energy Community, and in particular Articles 106athereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Economic and Social Committee 11 ,

Having regard to the opinion of the Committee of the Regions 12 ,

Having regard to the opinion of the Court of Auditors 13

Acting in accordance with the ordinary legislative procedure,

Whereas:

(1)Since following three years of implementation further amendments are to be made to the financial rules applicable to the general budget of the Union in order remove bottlenecks in implementation by increasing flexibility, to simplify delivery for the stakeholders and the services and to focus more on results, Regulation (EU, Euratom) no 966/2012 14  of the European Parliament and of the Council should be repealed and replaced by this Regulation.

(2)In order to reduce the complexity of financial rules applicable to the general budget of the Union ('the budget') and to include the relevant rules in one single regulation ("single rule book"), Commission Delegated Regulation (EU) No 1268/2012 15 should be repealed. In the interest of clarity, main rules from Regulation (EU) No 1268/2012 should be included in this Regulation, others should be included in guidance for services.

(3)The fundamental budgetary principles should be maintained. Derogations from those fundamental principles for specific areas such as research, external actions and structural funds should be reviewed and simplified as far as possible, taking into account their continuing relevance, their added-value for the budget, and the burden they impose on stakeholders.

(4)Up to 10% of the funds of the Instrument for Pre-accession Assistance (IPA II), the European Neighbourhood Instrument and the financing instrument for development cooperation (DCI) may be kept unallocated at the beginning of the financial year to allow additional funding to respond to major unforeseen needs, new crises situations or significant political shifts in third countries, in addition to the amounts already programmed. These unallocated funds, if not committed during the year, should be carried over by a Decision of the Commission.

(5)Carry-over rules should be presented more clearly, making a distinction between the automatic and non-automatic carry-overs.

(6)In order to optimise the implementation of the budget, it is important to allow for the carrying over and use of external assigned revenues for the succeeding programme or action. It should be possible to carry over internal assigned revenue for one year only, except where this Regulation provides otherwise.

(7)The rules governing transfers of appropriations should allow for greater flexibility in order to ensure better budget implementation. To that end, it is important for the Commission to have the possibility of deciding on transfers, of up to 10%, of operational appropriations between Titles when they are covered by the same basic act. Transfers from administrative support lines to the corresponding operational lines should also be done autonomously by the Commission.

(8)In order to improve agility of the implementation of special instruments, simplified mobilisation and transfer procedures are necessary for the European Globalisation Adjustment Fund and the European Union Solidarity Fund.

(9)Concerning internal assigned revenue, derogation from the principle of specification should be introduced to allow optimal use of all types of appropriations available. In this respect, in case there are no identified needs allowing such revenue to be used for the purposes for which it is assigned, its use for a different purpose should be allowed.

(10)Union institutions should be able to accept any donation made to the Union.

(11)An enabling clause should be introduced to allow for in-kind sponsoring by a legal person of an EU event or activity for promotional or corporate social responsibility purposes.

(12)The concept of performance as regards the EU budget should be clarified. Performance should be described as a direct application of the principle of sound financial management. There should be a link between performance, objective-setting, indicators, results and economy, efficiency and effectiveness in the use of appropriations. To avoid conflicts with existing performance frameworks of the different programmes, references in terms of performance terminology should be limited to objectives and monitoring progress in achieving them.

(13)Union legislation should be of high quality, focus on areas where it produces greatest added value for European citizens and is as effective and efficient as possible in delivering the common policy objectives of the Union 16 . Subjecting existing and new spending programmes and activities entailing significant spending to evaluation can help achieve these objectives.

(14)The principle of transparency, enshrined in Article 15 TFEU which requires the institutions to work as openly as possible, implies, in the area of the implementation of the budget, that citizens are able to know where, and for what purpose, funds are spent by the Union. Such information fosters democratic debate, contributes to the participation of citizens in the Union's decision-making process and reinforces institutional control and scrutiny over Union expenditure. Such objectives should be achieved by the publication, preferably using modern communication tools, of relevant information concerning all recipients of Union funds which takes into account such all recipients' legitimate interests of confidentiality and security and, as far as natural persons are concerned, their right to privacy and the protection of their personal data. Institutions should therefore adopt a selective approach in the publication of information, in accordance with the principle of proportionality. Decisions to publish should be based on relevant criteria in order to provide meaningful information.

(15)The information on the use of Union funds implemented under direct implementation should be published on an internet website of the institutions and should include at least the name, the locality, the amount and the purpose of the funds. That information should take into account relevant criteria such as the periodicity, the type and the importance of the measure.

(16)The name and locality of the recipients of Union funds should be published for prizes, grants and contracts awarded following the opening-up of a public procedure to competition, as it is the case in particular for contests, call for proposals and call for tenders, in the respect of the principles of the TFEU and in particular the principles of transparency, proportionality, equal treatment and non-discrimination. Moreover such publication should contribute to the control of the public selection procedures by the rejected applicants of the competition.

(17)The publication of personal data referring to natural persons should not exceed the duration during which the funds are being used by the recipient and should therefore be removed after two years. The same should apply to personal data referring to legal persons for whom the official title identifies one or more natural persons.

(18)In most of the cases covered by this Regulation, the publication concerns legal persons.

(19)When natural persons are concerned, such publication should only be envisaged respecting the principle of proportionality between the importance of the amount granted and the need to control the best use of the funds. Where natural persons are concerned, the publication of the region on NUTS 2 level is consistent with the objective of publication of recipients, ensures equal treatment between Member States of different sizes while respecting the recipients’ right to private life and in particular the protection of their personal data.

(20)Information on scholarships, and other direct support paid to natural persons in most need should remain exempt from publication.

(21)In order to ensure the respect of the principle of equal treatment between recipients, the publication of information related to natural persons should also be ensured in line with the obligation for the Member States to establish a large transparency of the contracts above the amount laid down in Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts.

(22)The name and the locality of the recipient and the amount and the purpose of the funds should not be published if it risks endangering the integrity of the recipient as protected by the Charter of Fundamental Rights of the European Union or would harm the legitimate commercial interests of the recipient.

(23)In the case of indirect and shared implementation, it should be for the persons, entities or designated bodies implementing Union funds to make available information on recipients and final recipients. Where applicable, the level of detail and criteria should be defined in the relevant sector specific rules and may be further defined in the financial framework partnership agreements. The Commission should make available a reference of the website where the information on recipients and final recipients can be found.

(24)In the interest of increased readability and transparency of data on financial instruments implemented under direct and indirect implementation, it is appropriate to merge all reporting requirements in one single working document attached to the draft budget.

(25)It is appropriate to provide for a possibility for the Commission to conclude service-level agreements with other insitutions in order to facilitate the implementation of administrative appropriations and also for an explicit possibility to conclude such agreements between departments of the institutions, Union bodies, European offices, bodies or persons entrusted with implementation of specific actions in the CFSP pursuant to Title V of the TEU and the Office of the Secretary General of the Board of Governors of the European schools for the provision of services, supply of products, execution of works or the implementation of building contracts.

(26)It is appropriate to define the European offices and to distinguish between obligatory and non-obligatory tasks of such offices. A possibility for the Union institutions, Union bodies and other European offices to delegate authorising officer powers to the director of the European office should be introduced. European offices should also have the possibility to conclude service-level agreements for the provision of services, supply of products, for execution of works or for implementation of building contracts. It is appropriate to set out specific rules for the provision of accounting records, provisions authorising the Commission's accounting officer to delegate some of his tasks to staff in those offices and operating procedures for the bank accounts which the European offices may be authorised to open in the Commission's name.

(27)In order to further improve the cost-efficiency of executive agencies and in the light of the practical experience gained with other Union bodies, the accounting officer of the Commission should be allowed to be entrusted with all or part of the tasks of the accounting officer of the executive agency.

(28)For reasons of legal certainty, it is necessary to clarify that the directors of executive agencies act as authorising officers by delegation when managing operational appropriations of programmes delegated to their agency. To achieve the full effect of efficiency gains resulting from a global centralisation of certain support services the possibility for executive agencies to implement administrative expenditures should be explicitly mentioned.

(29)It is necessary to establish rules on the powers and responsibilities of financial actors, in particular authorising officers and the accounting officers.

(30)The European Parliament and Council should be informed of the appointment or termination of duties of an authorising officer by delegation, internal auditor and accounting officer within two weeks.

(31)Authorising officers should be fully responsible for all revenue and expenditure operations executed under their authority, including in terms of internal control systems, and should be held accountable for their actions, including, where necessary, through disciplinary proceedings.

(32)Consequently, the tasks, responsibilities and principles of the procedures to be observed should also be laid down. It is also necessary to provide that the authorising officers by delegation shall ensure that the authorising officers by subdelegation and their staff receive information concerning the control standards and respective methods and techniques and that measures are taken in order to ensure the functioning of the control system which should replace the obligation to establish specific code of professional standards applicable to financial verifications only. The responsibilities assumed are accounted for in an annual report to the institution and the report shall include the required financial and management information to support the authorising officer by delegation’s declaration of assurance on the performance of his or her duties, including the information on the overall performance of the operations carried out. The supporting documents relating to the operations carried out should be kept. Finally, all the various forms of negotiated procedure for the award of public contracts should, since those contracts represent derogations from the usual award procedures, be the subject of a special report to the institution and of a communication to the European Parliament and Council.

(33)The double role of the Head of Union delegation, and of their deputies in their absence, as authorising officer by subdelegation for the European External Action Service (hereinafter ‘EEAS’) and, as regards operational appropriations, for the Commission should be taken into account.

(34)The delegation of powers of budget implementation by the Commission concerning the operational appropriations of its own section to the deputy Heads of Delegations is restricted to situations where the performance of these tasks by the deputy Heads of Delegations is strictly necessary in order to ensure business continuity during the absence of the Heads of Delegations. The deputy Heads of Delegations cannot exercise these powers on a systematic basis or for reasons of internal work division.

(35)The accounting officer continues to be responsible for the proper execution of payments, the collection of revenue and the recovery of amounts receivable. He/She manages the treasury, bank accounts and third party files, keeps the accounts and is responsible for drawing up the institution's financial statements. The accounting officer of the Commission is the only person who is entitled to define the accounting rules and harmonised charts of accounts, while accounting officers of all other Union institutions define accounting procedures applicable in their institutions.

(36)The arrangements for the appointment and termination of the accounting officer’s duties should also be established.

(37)It is appropriate that the accounting officer should set up procedures to ensure that the accounts opened for the requirements of treasury management and imprest accounts are not in debit.

(38)The conditions for the use of imprest accounts, a system of management which constitutes an exception to normal budgetary procedures, should also be laid down, and the tasks and responsibilities of the imprest administrators, as well as those of the authorising officer and accounting officer in connection with the control of imprest accounts, should be set out. The European Parliament and Council should be informed of any appointment or termination of duties. For reasons of efficiency, imprest accounts should be set up in Union delegations, for appropriations from both the Commission and EEAS sections of the budget. It is also appropriate to allow under specific conditions for the use of imprest accounts in the Union delegation for payments of limited amounts by budgetary procedures. As regards the appointment of imprest administrators, it has proven necessary to choose them also from personnel employed by the Commission in the field of crisis management aid and humanitarian aid operations whenever there is no Commission statutory staff available.

(39)In order to take into account the situation in the field of humanitarian aid operations whenever there is no respective Commission statutory staff available and the technical difficulties to have all legal commitments signed by the authorising officer responsible, it should be allowed for the personnel employed by the Commission in that field to sign legal commitments of a very low value up to EUR 2500 which are linked to the payments executed from the imprest accounts, and for the Heads of Union delegations or their deputies to sign legal commitments on the instruction of the authorising officer responsible.

(40)Once the tasks and responsibilities of each financial actor have been defined, they may be held liable only under the conditions laid down in the Staff Regulations of Officials of the European Union and the Conditions of Employment of Other Servants of the European Union. The specialised financial irregularities panels have been set up in the Union institutions, however due to limited number of cases submitted to them and for reasons of efficiency, it is appropriate to transfer their functions to the newly established inter-institutional panel which has been set up to assess requests and issue recommendations on the imposition on administrative sanctions (exclusion and financial penalty) referred to it by the Commission or other Union institutions and Union bodies. This transfer also aims at avoiding duplication and mitigating the risks of contradictory recommendations or opinions, in cases where both an economic operator and an EU staff member are involved. The procedure should be maintained by which an authorising officer may seek confirmation of an instruction which that officer considers to be irregular or contrary to the principle of sound financial management, and thus be released from any liability. The composition of this panel should be modified when it fulfils this role.

(41)As regards revenue, it is necessary to address negative adjustments of own resources covered by Council Regulation on the system of the European Union's own resources. Except for the special case of own resources, it is necessary to keep the tasks and controls falling within the responsibility of the authorising officers at the different stages of the procedure: establishment of the estimate of amounts receivable, recovery order, dispatch of the debit note informing the debtor that the amount receivable has been established, calculation of any default interest due, and the decision, where necessary, to waive an entitlement subject to criteria guaranteeing compliance with sound financial management in order to ensure an efficient collection of revenue.

(42)The authorising officer should be able to waive totally or partially the recovery of an established amount receivable when the debtor has entered into any of the insolvency proceeding as defined by Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, in particular in cases of judicial arrangements, compositions and analogous proceedings.

(43)Specific provisions on procedures of adjustment or cancellation of an estimate of amount receivable should be applied.

(44)Due to the recent developments on the financial markets and the ECB rate applied to its principal refinancing operations, it is necessary to review the provisions concerning interest rate for fines or other penalties and to provide for rules in cases of negative interest rate.

(45)To reflect the specific nature of receivables consisting in fines or other penalties imposed by the Institutions under the TFEU or Euratom Treaty, it is necessary to introduce specific provisions on the interest rates applicable on amounts due but not yet paid, in the case such amounts are increased by the Court of Justice of the European Union.

(46)The rules on recovery should be both clarified and strengthened. In particular, it should be specified that the accounting officer shall recover amounts by offsetting them also against amounts owed to the debtor by an executive agency when it implements the Union budget.

(47)For the sake of legal security, the rules regarding the delays when a debit note is to be sent should be defined.

(48)In order to secure the management of assets whilst also yielding financial remuneration, it is necessary to have the amounts provisionally cashed, such as competitions fines which are being contested, invested in financial assets, and to determine the assignment of the return on them. Since the Commission is not the only institution which is entitled to impose fines or other penalties, it is necessary to set provisions concerning such fines or other penalties imposed by other institutions and to set rules for their recovery which should be equivalent to those for the fines or penalties imposed by the Commission.

(49)In order to ensure that the Commission has all the necessary information for the adoption of the financing decisions, it is necessary to lay down the minimum requirements for the contents of financing decisions on grants, procurement, trust funds, prizes, financial instruments, blending facilities and budgetary guarantees. At the same time, in order to give a longer-term perspective to the potential recipients, it is necessary to allow that the financing decisions are adopted for more than one year but the implementation being subject to the availability of budget appropriations for the respective year. In order to enable such longer-term perspective it is necessary to reduce the number of the elements required for the financing decision. With the aim of simplification, the financing decision should at the same time constitute an annual or multi-annual programme. Since the contribution to the bodies referred to in Articles 69 and 70 is already established in the annual budget, it should not be required to adopt a specific financing decision in this respect.

(50)As regards expenditure, the relationship between financing decisions, global commitments and individual commitments as well as concepts of budgetary and legal commitment of expenditure should be clarified in order to establish a clear framework for the different stages of budget implementation.

(51)In order to take into account in particular the number of legal commitments concluded in the Union delegations and representations and the exchange rate fluctuations experienced by them, the provisional commitments should be possible also in cases where the final recipients and the amounts are known.

(52)In order to make better use of the appropriations available for the implementation of external actions, the time limit during which individual legal commitments may be made on the basis of global budgetary commitment should be removed as well as the obligation to conclude a contribution agreement until 31 December of year n+1 in cases where a financing agreement with the third country presents the global budgetary commitment covering also the contribution agreement.

(53)As regards the typology of payments which may be made by authorising officers, clarification of the various types of payments should, in accordance with the principle of sound financial management, be provided. The rules for clearing of pre-financing payments should further be clarified in particular for situations where no interim clearing is possible. To this effect, appropriate provisions should be included in legal commitments signed.

(54)This Regulation should stipulate that the payments must be made within a specified time limit and that in the event of failure to respect this time limit creditors will be entitled to default interests to be charged to the budget, with the exception of Member States and as newly introduced, also the European Investment Bank and the European Investment Fund.

(55)It is considered appropriate to integrate the provisions concerning validation and authorisation of expenditure in one article and to introduce a definition of de-commitments. Since the transactions are carried out in computerised systems, the concept of "signing a 'passed for payment' voucher" has been replaced by "electronically secured signature" except in a limited number of cases. It is also necessary to clarify that the validation of expenditure applies to all eligible costs, i.e. also such which are not associated with a request for payment, this being the case for the clearing of pre-financing.

(56)In order to reduce complexity, streamline existing rules and improve the readability of this Regulation rules common to more than one budget implementation instruments should be established. For those reasons certain provisions should be regrouped, the wording and scope of other provisions should be aligned and unnecessary repetitions and cross referencing should be removed.

(57)More emphasis should be put on performance and results. It is thus appropriate to define an additional form of financing not linked to costs of the relevant operations in addition to the forms of Union contribution already well established (reimbursement of the eligible costs actually incurred, unit cost, lump sums and flat-rate financing). This form of financing should be either based on the fulfilment of certain conditions ex ante or the achievement of results measured by reference to the previously set milestones or through performance indicators.

(58)Where the Commission carries out assessments of the operational and financial capacity of recipients of EU funds or of their systems and procedures, it should be able to rely on the assessments already conducted by other entities or donors such as international organizations, in order to avoid duplicating assessments of the same recipients. The possibility to cross-rely on assessments conducted by other entities should be used where these assessments were made with regard to conditions equivalent to those set out in this Regulation for the applicable method of implementation. Therefore, in order to foster cross reliance on assessments among donors, the Commission should promote the recognition of internationally accepted standards or international best practices.

(59)It is also important to avoid that recipients of EU funds are audited several times by different entities on the use of these funds. It is therefore necessary to foresee the possibility to rely on audits already carried out by independent auditors provided that they are based on internationally accepted standards, that they provide reasonable assurance, and that they have been conducted on the financial statements and reports setting out the use of the Union contribution. Such audits should then form the basis of the overall assurance on the use of EU funds.

(60)It is important to allow Member States to request that resources allocated to them under shared implementation are transferred at Union level and implemented by the Commission in direct or indirect implementation, where possible for the benefit of the Member State concerned. This would optimise the use of these resources and of the instruments established under this Regulation or under sector specific Regulations including the EFSI Regulation, to which the Member States would request these resources to be transferred. In order to guarantee an efficient implementation of these instruments, it is necessary to foresee that where resources are transferred to instruments established under this Regulation or under sector specific Regulations including the EFSI Regulation, the rules of those regulations shall apply.

(61)In order to provide for a long term cooperation mechanism with recipients of Union funding, the possibility of signing financial framework partnership agreements should be provided for. Financial framework partnerships should be implemented through grants or through cooperation agreements with entities implementing Union funds. For this purpose the minimum content of such agreements should be specified. Financial framework partnerships should not unduly restrict access to Union funding.

(62)The conditions and procedures for suspending, terminating and reducing the Union contribution should be harmonised across the different budget implementation instruments (for example grants, procurement, indirect implementation, prizes, etc.). The grounds for such suspension, termination or reduction should be defined.

(63)This Regulation should establish standard periods for which documents relating to Union contributions should be kept by recipients so as to avoid divergent or disproportionate contractual requirements while still providing the Commission, the European Anti-fraud office and the Court of Auditors with sufficient time to obtain access to such data and documents and perform the ex post checks and audits. In addition, participants and recipients should be obliged to cooperate in the protection of the Union's financial interest.

(64)In order to provide adequate information to participants and recipients and to ensure that they have the possibility to exercise their right of defence this Regulation should allow participants and recipients to submit their observations before adoption of any measure adversely affecting their rights and to be informed on the means of redress they dispose of for challenging such a measure.

(65)In order to protect the Union's financial interests, a single early detection and exclusion system should be set up by the Commission.

(66)The early detection and exclusion sytem should apply to participants, recipients, entities on whose capacity the candidate or tenderer intends to rely or to subcontractors of a contractor, any person or entity receiving Union funds where the budget is implemented under indirect implementation, any person or entity receiving Union funds under financial instruments directly implemented and participants or recipients of entities implementing the budget under shared implementation.

(67)It should be clarified that where a decision to register a person or entity in the early detection and exclusion system database is taken on the basis of the exclusion situations of a nаtural or legal person who is a member of the administrative, management or supervisory body of that person or entity, or who has powers of representation, decision or control with regard to that person or entity or a natural or legal person that assumes unlimited liability for the debts of that person or entity or a natural person who is essential for the award or for the implementation of the legal commitment, the information registered in the database shall include the information concerning these persons.

(68)The decision to exclude a person or entity from participation in award procedures or the imposition of a financial penalty and the decision to publish the related information should be taken by the authorising officer responsible, in light of their autonomy in administrative matters. In the absence of a final judgment or final administrative decision and in cases related to a serious breach of contract, the authorising officers responsible should take their decision having regard to the recommendation of the panel on the basis of a preliminary classification in law.. The panel should also assess the duration of an exclusion in cases where the duration has not been set by the final judgment or the final administrative decision.

(69)The role of the panel should be to ensure the coherent operation of the exclusion system. The panel should be composed of a standing chair, representatives of the Commission and a representative of the authorising officer responsible.

(70)The preliminary classification in law does not prejudge the final assessment of the conduct of the person or entity concerned by the competent authorities of Member States under national law. The recommendation of the panel, as well as the decision of the authorising officer responsible, should therefore be reviewed following the notification of such a final assessment.

(71)A person or entity should be excluded by the authorising officer responsible when a final judgment or a final administrative decision has been taken in the case of grave professional misconduct, non-compliance, whether intentional or not, with the obligations related to the payment of social security contributions or the payment of taxes, fraud affecting the budget , corruption, participation in a criminal organisation, money laundering, terrorist financing, terrorist related offences, child labour or other forms of trafficking in human beings or irregularity. It should also be excluded in the case of a serious breach of a legal commitment or bankruptcy.

(72)When deciding on the exclusion or the imposition of a financial penalty and on the publication thereof or on the rejection of person or entity, the authorising officer responsible should ensure compliance with the principle of proportionality by taking into particular account the seriousness of the situation, its budgetary impact, the time which has elapsed since the relevant conduct, its duration and its recurrence, the intention or degree of negligence and the degree of collaboration of the person or entity with the relevant competent authority and its contribution to the investigation.

(73)The authorising officer responsible should also be able to exclude a person or entity where a natural or legal person assuming unlimited liability for the debts of that economic operator is bankrupt or in a similar situation of insolvency or where that natural or legal person fails to comply with its obligations to pay social security contributions or taxes, where such situations impact the financial situation of the economic operator.

(74)A person or entity should not be subject to a decision of exclusion when it has taken remedial measures, thus demonstrating its reliability. That possibility should not apply in case of the most severe criminal activities.

(75)In light of the principle of proportionality, cases where a financial penalty may be imposed as an alternative to the exclusion and cases where the gravity of the conduct of the recipient concerned in respect of attempting to unduly obtain Union funds justifies the imposition of a financial penalty in addition to the exclusion so as to ensure a deterrent effect should be distinguished. The minimum and maximum financial penalty which can be imposed by the contracting authority should also be defined.

(76)A financial penalty should only be imposed on a recipient and not on a participant given that the amount of the financial penalty to be imposed is calculated on the basis of the value of the legal commitment at stake.

(77)The possibility to apply administrative and/or financial penalties on a regulatory basis is independent from the possibility to apply contractual penalties, such as liquidated damages and should be noted.

(78)The duration of exclusion should be limited in time, as is the case in Directive 2014/24/EU 17 and in accordance with the principle of proportionality.

(79)It is necessary to determine the commencement date and the duration of the limitation period for imposing administrative sanctions.

(80)It is important to be able to reinforce the deterrent effect achieved by the exclusion and the financial penalty. In that regard, the deterrent effect should be reinforced by the possibility to publish the information related to the exclusion and/or to the financial penalty, with full respect for the data protection requirements set out in Regulation (EC) No 45/2001 of the European Parliament and of the Council (6) and in Directive 95/46/EC of the European Parliament and of the Council (7). This should contribute to ensuring that the same conduct is not repeated. For reasons of legal certainty and in accordance with the principle of proportionality it should be specified in which situations a publication should not take place. In its assessment, the authorising officer responsible should have regard to any recommendation of the panel. As far as natural persons are concerned, personal data should only be published in exceptional cases justified by the seriousness of the conduct or its impact on the Union's financial interests.

(81)The information related to an exclusion or a financial penalty should only be published in the case of grave professional misconduct, fraud, a significant deficiency in complying with the main obligations of a contract financed by the budget or an irregularity.

(82)The criteria for exclusion should be clearly separated from the criteria leading to a possible rejection from a given procedure.

(83)The information on the early detection of risks and on the imposition of administrative sanctions on a person of entity should be centralised. For that purpose, related information should be stored in a database set up and operated by the Commission as the owner of the centralised system. That system should operate in full compliance with the right to privacy and the protection of personal data.

(84)While the setting up and the operation of the early detection and exclusion system should be the responsibility of the Commission, other institutions and bodies, as well as all entities implementing the budget under direct, shared and indirect implementation should participate in that system by transmitting relevant information to the Commission. The authorising officer responsible and the panel should guarantee the right of defence of economic operators. The same right should be given to a person of entity, in the context of an early detection, where an act envisaged by an authorising officer could adversely affect the rights of the person of entity concerned. In cases of fraud, corruption or any other illegal activity affecting the Union's financial interests which are not yet subject to a final judgment, the authorising officer responsible and the panel should be given the possibility to defer the opportunity given to the person of entity to submit its observations. Such deferral should only be justified where there are compelling legitimate grounds to preserve the confidentiality of the investigation.

(85)The Court of Justice of the European Union should be given unlimited jurisdiction with regard to penalties imposed pursuant to this Regulation, in accordance with Article 261 of the Treaty on the Functioning of the European Union (TFEU).

(86)In order to facilitate the protection of the Union's financial interests across all implementation modes, it should be possible for the entities involved in the implementation of the budget in shared and indirect implementation to take into account, as appropriate, exclusions decided upon by the authorising officers at Union level.

(87)This Regulation should foster the objective of e-Government, and in particular the use of electronic data in the exchange of information between the institutions and third parties.

(88)Progress towards the electronic exchange of information and electronic submission of documents, which constitute a major simplification measure, should be accompanied by clear conditions for the acceptance of the systems to be used, so as to establish a legally sound environment while preserving flexibility in the management of Union funds for the participants, recipients and the authorising offices as provided for in this Regulation.

(89)Rules on the composition and tasks of the committee in charge of assessing application documents in procurement, grant award procedures and in contests for prizes should be laid down. The committee may be composed of external experts if provided so in the basic act.

(90)In line with the principle of good administration the authorising officer should request clarifications or missing documents while respecting the principle of equality of treatment and without substantially changing the application documents. The authorising officer may decide not to do so only in duly justified cases. In addition, the authorising officer should be able to correct an obvious clerical error or request the participant to correct it.

(91)Sound financial management should require that the Commission protects itself by requesting guarantees at the time of paying pre-financing. The requirement for contractors and beneficiaries to lodge guarantees should not be automatic, but should be based on a risk analysis. Where during the course of implementation the authorising officer discovers that a guarantor is no longer authorised to issue guarantees in accordance with the applicable national law, the authorising officer should be able to require replacement of the guarantee.

(92)The different sets of rules for direct and indirect implementation, in particular the definition of budget implementation tasks, have created confusion and entailed risk in errors of qualification both for the Commission and for the partners and should thus be simplified and harmonised.

(93)The provisions on the ex-ante pillar assessment should be revised to enable the Commission to rely as much as possible on the systems and procedures of the partners which have deemed equivalent to the ones used by the Commission. In addition, it is important to clarify that where the assessment reveals areas where the procedures in place are not sufficient to protect the financial interests of the Union, the Commission may sign contribution agreements while imposing additional supervisory measures. It is also important to clarify where the Commission does not require a pillar assessment in order to sign contribution agreements.

(94)It is appropriate to indicate that the remuneration of the Organisations implementing the EU budget should, where relevant and possible, have a performance based nature.

(95)The Commission enters into partnerships with third countries by means of financing agreements. It is important to clarify the content of the financing agreement particularly for those parts that are implemented by the third country in indirect implementation.

(96)It is important to recognise the specific nature of blending facilities where the Commission blends its contribution with that of Financial Institutions and to clarify the application of Title X on Financial Instruments.

(97)Procurement rules and principles applicable to public contracts awarded by the Union institutions on their own account should be based on the rules contained in the Directive 2014/23/EU of the European Parliament and of the Council 18  and Directive 2014/24/EU.

(98)In the case of mixed contracts, the methodology of the contracting authorities for determining the applicable rules should be clarified.

(99)The ex ante and ex post publicity measures necessary to launch a procurement procedure should be clarified in the case of contracts above and below the thresholds set out in Directive 2014/24/EU and for those falling outside the scope of that Directive..

(100)This Regulation should include an exhaustive list of all the procurement procedures available to the Union institutions regardless of the thresholds.

(101)In the interests of administrative simplification and in order to encourage the participation of small and medium-sized enterprises, negotiated procedures for middle-value contracts should be provided for.

(102)As is the case in Directive 2014/24/EU, this Regulation should allow for market consultation prior to the launch of a procurement procedure. In order to ensure that the innovation partnership is used only when the desired product does not exist on the market, an obligation to carry out such preliminary market consultation before using an innovation partnership should be laid down in this Regulation.

(103)The contribution of contracting authorities the protection of the environment and the promotion of sustainable development, while ensuring that they can obtain the best value for money for their contracts, in particular through requiring specific labels or through the use of appropriate award methods, should be clarified.

(104)In order to ensure that, when executing contracts, economic operators comply with the applicable environmental, social and labour law obligations established by Union law, national law, collective agreements or the applicable international social and environmental conventions listed in Annex X to Directive 2014/24/EU, such obligations should be part of the minimum requirements defined by the contracting authority and should be integrated in the contracts signed by the contracting authority.

(105)It is appropriate that different cases usually referred to as situations of conflict of interest be identified and treated distinctly. The notion of a ‘conflict of interest’ should be solely used for cases where an entity or person with responsibilities for budget implementation, audit or control or an official or an agent of a Union institution is in such a situation. In cases where an economic operator attempts to unduly influence a procedure or obtain confidential information, this should be treated as grave professional misconduct. In addition, economic operators may be in a situation where they should not be selected to implement a contract because of a professional conflicting interest. For instance, a company should not evaluate a project in which it has participated or an auditor should not be in a position to audit accounts it has previously certified.

(106)In accordance with Directive 2014/24/EU, it should be possible to verify whether an economic operator is excluded, to apply selection and award criteria, as well as to verify compliance with the procurement documents in any order. As a result, it should be possible to reject tenders on the basis of award criteria without a prior check on exclusion or selection criteria of the corresponding tenderer.

(107)Contracts should be awarded on the basis of the most economically advantageous tender in line with Article 67 of Directive 2014/24/EU. It should be clarified that selection criteria are strictly linked to the evaluation of candidates or tenderers and award criteria are strictly linked to the evaluation of the tenders.

(108)Union public procurement should ensure that Union funds are used in an effective, transparent, and appropriate way. In that regard, electronic procurement should contribute to the better use of Union funds and enhance access to contracts for all economic operators.

(109)The existence of an opening phase and an evaluation for any procedure should be clarified. An award decision should always be the outcome of an evaluation.

(110)When notified of the outcome of a procedure, candidates and tenderers should be informed of the grounds on which the decision was taken and should receive a detailed statement of reasons based on the content of the evaluation report.

(111)Given that criteria are applied in no particular order, rejected tenderers who submitted compliant tenders should receive the characteristics and relative advantages of the successful tender if they so request.

(112)For framework contracts with reopening of competition, the obligation to provide the characteristics and relative advantages of the successful tender to an unsuccessful contractor should be waived on the basis that the receipt of such information by parties to the same framework contract each time a competition is reopened might prejudice fair competition between them.

(113)A contracting authority should be able to cancel a procurement procedure before the contract is signed, without the candidates or tenderers being entitled to claim compensation. This should be without prejudice to situations where the contracting authority has acted in such a way that it may be held liable for damages in accordance with the general principles of Union law.

(114)As is the case in Directive 2014/24/EU, it is necessary to clarify the conditions under which a contract may be modified during its performance without a new procurement procedure. In particular, cases such as administrative changes, universal succession and application of clear and unequivocal revision clauses or options do not alter the minimum requirements of the initial procedure. A new procurement procedure should be required in the case of material modifications to the initial contract, in particular to the scope and content of the mutual rights and obligations of the parties, including the distribution of intellectual property rights. Such modifications demonstrate the parties' intention to renegotiate the essential terms or conditions of that contract, in particular if the modifications would have had an influence on the outcome of the procedure had they been part of the initial procedure.

(115)It is necessary to provide for the option of a performance guarantee in relation to works, supplies and complex services in order to guarantee compliance with substantial contractual obligations and to ensure proper performance throughout the duration of the contract. It is also necessary to provide for a retention money guarantee to cover the contract liability period, in line with customary practice in these sectors.

(116)In order to determine the applicable thresholds and procedures, it is necessary to clarify whether Union institutions, executive agencies and bodies are deemed to be contracting authorities. They should not be deemed to be contracting authorities in cases where they purchase from a central purchasing body. In addition, Union institutions form a single legal entity and cannot conclude contracts but only service-level agreements between their departments.

(117)It is appropriate to include a reference in this Regulation to the two thresholds set out in Directive 2014/24/EU applicable to works and to supplies and services, respectively. Those thresholds should also be applicable to concession contracts for reasons of simplification as well as sound financial management, considering the specificities of the Union institutions' contracting needs. The revision of those thresholds as provided for in Directive 2014/24/EU should therefore be directly applicable to procurement by Union institutions.

(118)For harmonisation and simplification purposes, the standard procedures applicable for public procurement should also be applied to purchases provided for under the light regime in Directive 2014/24/EU. Therefore, the threshold for light regime purchases should be aligned with the threshold for service contracts.

(119)It is necessary to clarify the conditions of application of the standstill period.

(120)The rules applicable to procurement in the field of external actions should be consistent with the principles laid down in the Directive 2014/23/EU and Directive 2014/24/EU.

(121)In order to reduce complexity, streamline existing rules and improve the readability of the procurement rules, it is necessary to regroup the general provisions on procurement and the specific provisions applicable to procurement in external actions and to remove unnecessary repetitions and cross referencing.

(122)It is necessary to clarify which economic operators have access to procurement by Union institutions depending on their place of establishment and to provide explicitly for the possibility of such access also to international organisations.

(123)In order to achieve a balance between the need for transparency and greater coherence of procurement rules on the one hand, and the need to provide flexibility on certain technical aspects of these rules on the other hand, the technical rules on procurement should be aggregated in the Annex to this Regulation and the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of amendments to this Annex.

(124)It is necessary to clarify the scope of the Title on grants, particularly with regard to the type of action or body eligible for a grant as well as with regard to legal commitments that may be used to cover grants. In particular, grant decisions should be phased out due to their limited use and progressive introduction of e-grants. The structure should be simplified by moving the provisions on instruments which are not grants to other parts of the Regulation. The nature of bodies which may receive operating grants should be clarified since the notion of bodies pursuing an aim of general Union interest is covered by the notion of bodies having an objective forming part of and supporting a Union policy. In addition, the restrictive definition of a body pursuing an aim of general Union interests should be removed.

(125)In order to simplify procedures and improve the readability of this Regulation provisions related to the content of the grant application, of the call for proposals and of the grant agreement should be simplified and streamlined. 

(126)In order to facilitate the implementation of actions financed by multiple donors where the overall financing of the action is not known at the time of commitment of the Union contribution, it is necessary to clarify the way the Union contribution is defined and the method of verifying its use.

(127)Experience gained in the use of lump sums, unit costs or flat-rate financing has shown that, such forms of financing significantly simplified administrative procedures and reduced the risk of error substantially. Lump sums, flat rates and unit costs are a suitable form of financing independently of the area of Union intervention and in particular for standardised and recurrent actions, e.g. mobility, institutional twinning, training activities, etc. In this context, the conditions for using lump sums, unit costs and flat rates should be made more flexible. It is necessary to provide explicitely for the establishment of single lump sums covering the entire eligible costs of the action or the work programme. In addition, in order to foster focus on results, priority should be given to output-based funding. Input bаsed lump sums, unit costs and flat rates should remain an option where output based ones are not possible or appropriate.

(128)The administrative procedures for authorising lump sums, unit costs and flat rates should be simplified by vesting the power for such authorisation in the authorising officer. Where appropriate, this authorisation may be given by the Commission in light of the nature of the activities or of the expenditure or in light of the number of authorising officers concerned.

(129)In order to bridge the gap in the availability of data used to establish lump sums, unit costs and flat rates, the use of an expert judgement should be allowed.

(130)The scope of checks and controls as opposed to the periodic assessment of lump sums, unit costs or flat rates should be clarified. Those checks and controls should focus on the fulfilment of the conditions triggering the payment of lump sums, unit costs or flat-rates, including, where required, the achievement of outputs. Those conditions should not require reporting on the costs actually incurred by the beneficiary. Where the amounts of lump sums, unit costs or flat-rate financing have been decided ex ante by the authorising officer responsible or the Commission they should not be challenged by ex post controls. The periodic assessment of lump sums, unit costs or flat rates may require access to the accounts of the beneficiary for statistical and methodological purposes. The periodic assessment may lead to updates of the lump sums, unit costs or flat rates applicable to future agreements but should not be used for questioning the value of the lump sums, unit costs or flat rates already agreed upon. Access to the beneficiary's accounts is also necessary for fraud-prevention and detection purposes.

(131)In order to facilitate the participation of small organisations in the implementation of the EU policies in an environment of limited availability of resources, it is necessary to recognise the value of the work provided by volunteers as eligible costs. As a result, such organisations may rely to a greater extent on volunteers' work for sake of providing co-financing to the action. Without prejudice to the maximum co-financing rate specified in the basic act, in such cases, the Union grant needs to be limited to the estimated eligible costs other than those covering volunteers' work. As volunteers work is a work provided by third parties without a remuneration being paid to them by the beneficiary, the limitation avoids reimbursing costs which the beneficiary did not incur.

(132)As a valuable type of financial support not related to predictable costs, the use of prizes should be facilitated and the applicable rules should be clarified. Prizes should be seen as complementing, not substituting, other funding instruments such as grants.

(133)In order to allow for the more flexible implementation of prizes, the obligation to announce prizes of value of EUR 1 000 000 or more in the statements accompanying the draft budget should be replaced by prior information of the European Parliament and an explicit announcement of such prizes in the financing decision.

(134)Prizes should be subject to the principles of transparency and equal treatment. In that context, the minimum characteristics of contests should be laid down, notably the conditions for paying the prize to the winners in case of award, and the appropriate publication means. It is also necessary to establish a clearly defined award procedure, from submission of the entries to information of applicants and notification to the winning applicant, which mirrors the procedure for award of grants.

(135)This Regulation should lay down the principles and conditions for financial instruments, budgetary guarantees and financial assistance and the rules on the limitation of the financial liability of the Union, the fight against fraud and money laundering, the winding down of financial instruments and reporting.

(136)In recent years the Union has increasingly used financial instruments that allow a higher leverage of the EU budget to be achieved but, at the same time, they generate a financial risk for that budget. Among those financial instruments are not only the financial instruments already covered by the Financial Regulation, but also other instruments such as budgetary guarantees and financial assistance that previously have been governed only by the rules established in their respective basic acts. It is important to establish a common framework to ensure the homogeneity of the principles applicable to that set of instruments and to regroup them under a new Title, comprising sections on budgetary guarantees and on financial assistance to Member States or third countries in addition to the existing rules applicable to Financial Instruments.

(137)Financial instruments can be valuable in multiplying the effect of Union funds when those funds are pooled with other funds and include a leverage effect. Financial instruments should only be implemented if there is no risk of market distortion or inconsistency with state aid rules.

(138)Within the framework of the annual appropriations authorised by the European Parliament and the Council for a given programme, financial instruments should be used on the basis of an ex ante evaluation demonstrating that they are effective for the achievement of the Union's policy objectives.

(139)Financial instruments, budgetary guarantees and financial assistance should be authorised by means of a basic act. Where financial instruments are established without a basic act in duly justified cases, they should be authorised by the European Parliament and the Council in the budget.

(140)The instruments that potentially fall under Title X, such as loans, guarantees, equity investments, quasi-equity investment and risk-sharing instruments should be defined. The definition of risk-sharing instruments should allow for the inclusion of credit enhancements for project bonds, covering the debt service risk of a project and mitigating the credit risk of bond holders through credit enhancements in the form of a loan or a guarantee.

(141)Any reflow from a financial instrument should be used for the instrument which produced them with a view to enhance the efficiency of the instrument and possibly reduce the allocation of fresh resources from the budget to that instrument, unless specified otherwise in the basic act.

(142)It is appropriate to recognise the alignment of interests in pursuing Union policy objectives and, in particular, that the European Investment Bank and the European Investment Fund have the specific expertise to implement financial instruments.

(143)The European Investment Bank and the European Investment Fund, acting as a group, should have the possibility to transfer part of the implementation to each other, where it may benefit the implementation of a given action and as further defined in the relevant agreement with the Commission.

(144)It should be clarified that, where financial instruments are combined with other forms of support from the Union budget, the rules on financial instruments should apply. Such rules should be complemented, where applicable, by specific requirements stemming from the sector specific legislation.

(145)In addition, the implementation of financial instruments and budgetary guarantees should comply with Union's tax policy objectives and achievements regarding tax avoidance, in particular aggressive tax planning and tax good governance. In that respect, attention should be given to the Commission Recommendation on aggressive tax planning (C(2012)8806), the Commission Recommendation regarding measures to encourage third countries to apply minimum standards of good tax governance in tax matters (C(2012)8805), the Commission Communication on an Anti-Tax Avoidance Package: Next steps towards delivering effective taxation and greater tax transparency in the EU (COM(2016)23), includingin particular the Commission Communication on an External Strategy for Effective Taxation (COM(2016)24), and related developments at Union level.

(146)Budgetary guarantees and financial assistance to Member States or third countries are off-budget operations that have a significant impact on the balance sheet of the Union. While remaining off-budget operations, their inclusion in the Financial Regulation provides a stronger protection of the financial interests of the Union and a clearer framework for their authorisation, management and accounting.

(147)The Union has recently launched important initiatives based on budgetary guarantees such as the European Fund for Strategic Investments (EFSI) or the European Fund for Sustainable Development (EFSD). The characteristics of those instruments are that they generate a contingent liability for the Union and imply the provisioning of funds to make available of a liquidity cushion that allows the budget to respond in an orderly manner to the payment obligations that may arise from those contingent liabilities. In order to guarantee the credit rating of the Union and, hence, its capacity to deliver effective financing, it is essential that the authorisation, provisioning and monitoring of contingent liabilities follow a robust set of rules that should be applied to all budgetary guarantees.

(148)The contingent liabilities arising from budgetary guarantees may cover a wide range of financing and investment operations. The possibility of the budgetary guarantee being called cannot be scheduled with full certainty on a yearly basis as in the case of loans that have a defined schedule for repayment. It is, therefore, indispensable to set up a framework for the authorisation and monitoring of contingent liabilities ensuring the full respect, at any moment, of the annual ceiling for payments established in the Decision (EC, Euratom) 2007/436 on the system of own resources of the Union.

(149)That framework should also provide for management and control, including reporting regularly on the financial exposure of the Union. The rate of provisioning of financial liabilities should be set on the basis of a proper risk assessment of the financial risks stemming from the related instrument. The sustainability of the contingent liabilities should be assessed annually in the context of the annual budgetary procedure. An early warning mechanism should be established to avoid a shortage of provisions to cover financial liabilities.

(150)The increasing use of financial instruments, budgetary guarantees and financial assistance requires a significant volume of payment appropriations to be mobilised and provisioned. In order to deliver leverage while ensuring an adequate level of protection against financial liabilities, it is important to optimise the amount of provisioning required and to achieve efficiency gains by pooling those provisions into a common provisioning fund. In addition, the more flexible use of those pooled provisions permits an effective global provisioning rate that delivers the protection requested with an optimised amount of resources.

(151)The rules applicable to provisioning and to the common provisioning fund should provide a solid internal control framework. The guidelines for the asset management of the provisions should be established at the level of the Commission after having consulted the accounting officer. The authorising officers should actively monitor the financial liabilities under their responsibility and the authorising officer for the common provisioning fund should manage the cash and the assets in the fund following the rules and procedures set out by the accounting officer.

(152)Budgetary guarantees and financial assistance should follow the same set of principles already established for financial instruments. Budgetary guarantees, in particular, should comply with the following principles: they should be irrevocable, unconditional and on demand; they should be indirectly implemented or, only in exceptional cases, directly; they may only cover financing and investment operations and their counterparts should contribute with their own resources to the operations covered.

(153)Financial assistance to Member States or third countries should take the form of a loan, of a credit line or any other instrument deemed appropriate to ensure the effectiveness of the support. The resources to be provided are borrowed by the Commission that should be empowered to that end, on the capital markets or from financial institutions, avoiding the involvement of the Union in any transformation of maturities that would expose it to an interest risk or any other market risk.

(154)The provisions related to financial instruments should apply as soon as possible and at the latest from 1 January 2018 in order to achieve the simplification and effectiveness sought. The provisions related to the budgetary guarantees and to financial assistance, as well as the common provisioning fund, should apply as from the post 2020 multiannual financial framework. That calendar will allow a thorough preparation of the new tools for managing contingent liabilities. It will also permit an alignment between the principles set out in the Title X and, on the one hand, the proposal for the multiannual financial framework after 2020 and, on the other hand, the specific programmes related to the latter.

(155)On 22 October 2014 the European Parliament and the Council adopted Regulation (EU, Euratom) No 1141/2014 (5) repealing Regulation (EC) No 2004/2003 and laying down new rules for, inter alia, the funding of political parties and political foundations at European level, in particular with regard to funding conditions, the award and distribution of funding, donations and contributions, financing of campaigns for elections to the European Parliament, reimbursable expenditure, the prohibition of funding, accounts, reporting and audit, implementation and control, penalties, cooperation between the Authority for European political parties and foundations, the Authorising Officer of the European Parliament and the Member States, and transparency. This Regulation shall apply from 1 January 2017.

(156)Rules should be included on contributions from the general budget of the Union to European political parties as envisaged by Regulation (EU, Euratom) No 1141/2014. Those rules should allow political parties at European level to have a broader degree of flexibility as regards the time limits for using those contributions, as the nature of their activities so requires.

(157)The financial support given to European political parties should take the form of a specific contribution, to match the specific needs of the European political parties.

(158)Although financial support is awarded without an annual work programme being required, European political parties should justify ex post the sound use of Union funding. In particular, the authorising officer responsible should verify if the funding has been used to pay reimbursable expenditure as established in the call for contributions within the time limits laid down in this Regulation. Contributions to European political parties should be spent by the end of the financial year following that of their award, after which, any unspent funding should be recovered by the authorising officer responsible.

(159)Union funding awarded to finance the operating costs of the European political parties should not be used for other purposes than those established in Regulation (EU, Euratom) No 1141/2014, in particular to directly or indirectly finance other entities such as national political parties. The European political parties should use the contributions to pay a percentage of current and future expenditure and not expenditure or debts incurred before the submission of their applications for contributions.

(160)The award of contributions should also be simplified and adapted to the specificities of the European political parties, in particular by the absence of selection criteria, the establishment of a single full prefinancing payment as a general rule, and by the possibility to use lump sums, flat-rate, unit cost financing and financing not linked to costs of the relevant operations.

(161)The contributions from the general budget of the Union should be suspended, reduced or terminated if the European political parties infringe the obligations laid down in Regulation (EU, Euratom) No 1141/2014.

(162)Penalties that are based both on the Financial Regulation and on Regulation (EU, Euratom) No 1141/2014, should be imposed in a coherent way and should respect the principle of ne bis in idem. In accordance with Regulation (EU, Euratom) No 1141/2014, administrative and/or financial penalties provided for by the Financial Regulation are not to be imposed in one of the cases for which penalties have already been imposed on the basis of Regulation (EU, Euratom) No 1141/2014.

(163)This Regulation should establish a general framework under which budget support may be used as an instrument in external action including the obligation for the third country to provide the Commission adequate and timely information to evaluate the fulfilment of the agreed conditions and provisions ensuring the protection of the financial interests of the Union. 

(164)The Commission should be authorised to create and manage Union trust funds for emergency, post-emergency or thematic actions not only in external actions but also in EU-internal actions. Recent events in the European Union show the need for increased flexibility for funding within the EU. As the boundaries between external and internal policies are increasingly blurred, this would also provide a tool for replying to cross-border challenges. It is necessary to specify the principles applicable to the contributions to Union Trust Funds, to clarify the responsibilities of the financial actors and of the Board of the Trust Fund. It is also necessary to define rules ensuring a fair representation of the participating donors in the Board of the Trust Fund and a mandatory positive vote of the Commission for the use of the funds.

(165)In line with the streamlining of the existing rules and in order to avoid undue repetition, the Part two of the Financial Regulation, dedicated to special provisions applicable to the European Agricultural Guarantee Fund, to Research, external action and to specific EU funds, should be removed. The provisions of this Part two should be either introduced in the relevant parts of the Financial Regulation, or, in case the provisions are not used or no longer relevant, simply deleted.

(166)The provisions on the presentation of accounts and accounting should be simplified and clarified. It is therefore relevant to gather all provisions on annual accounts and other financial reporting under a specific Title.

(167)The manner in which the institutions currently report on building projects to the European Parliament and the Council should be maintained. Institutions should be allowed to finance new building projects with the appropriations received for buildings already sold, therefore a reference to assigned revenue provisions should be introduced. This would allow meeting the changing needs in the building policy of the institutions, while saving costs and introducing more flexibility.

(168)In order to adapt technical elements and detailed rules on procurement and on the rules applicable to certain Union bodies, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in respect of the Annex to this Regulation, the Framework Financial Regulation for bodies set up under the TFEU and the Euratom Treaty and the Model Financial Regulation for public-private partnership bodies. It is of particular importance that the Commission carries out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement on Better Law-Making of 13 April 2016. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(169)In order to improve agility of implementation of special instruments, it is appropriate to simplify mobilisation and transfer procedures by using Commission internal transfers for the European Globalisation Adjustment Fund and the European Union Solidarity Fund.

(170)In order to ensure that the European Union Programme for Employment and Social Innovation (EaSI) provides swiftly adequate resources to support changing political priorities, the indicative shares for each of the three axis and the minimum percentages for each of the thematic priorities within the individual axis should allow for a greater flexibility. This should improve the management of the Programme and allow focussing budgetary resources on actions producing better employment and social results.

(171)In order to facilitate investments in cultural and sustainable tourism infrastructure, without prejudice to the full application of EU environmental legislation, in particular the Directives on Strategic Environmental Assessment and Environmental Impact Assessment as appropriate, certain restrictions as regards the scope of support for these investments should be removed.

(172)With a view to responding to the challenges posed by increasing flows of migrants and refugees, the objectives to which the ERDF may contribute in its support of migrants and refugees should be spelled out.

(173)As the amendment of provisions of Regulation (EU) No 1303/2013 of the European Parliament and of the Council 19 provides more favourable conditions for certain revenue generating operations for which amounts or rates of support are defined in Annex II to EMFF Regulation it is necessary to establish a different date of entry into force for these provisions to ensure equal treatment of operations supported on the basis of Regulation (EU) No 1303/2013.

(174)With a view to facilitating the implementation of operations the scope of potential beneficiaries should be enlarged. Therefore, natural persons should be eligible for cohesion policy support.

(175)With a view to ensure sound financial management in ESI Funds which are managed under shared implementation, and clarify Member States obligations, the general principles should explicitly refer to the principles of internal control of budget implementation and of avoidance of conflict of interests established in the Financial Regulation.

(176)In view of maximising the synergies between all Union funds to address the challenges of migration and asylum in an effective way, it should be ensured that, when the thematic objectives are translated into priorities in the Fund-specific rules, such priorities cover the appropriate use of each Fund for these areas.

(177)In order to ensure coherence of programming, an alignment between Partnership Agreements and operational programmes should be carried out once per year.

(178)In view of optimising the use of the financial resources allocated to Member States under Cohesion policy, it is necessary to allow Member States to transfer ESI Funds allocation to instruments established under the Financial Regulation or under sector specific Regulations.

(179)In order to facilitate the preparation and implementation of community-led local development strategies the lead fund should be allowed to cover preparatory, running and animation costs.

(180)In order to facilitate the implementation of community-led local development and integrated territorial investments, the roles and responsibilities of local action groups in the case of community-led local development strategies and local authorities, regional development bodies or non-governmental organisations in the case of ITIs in relation to other programme bodies should be clarified. Designation as intermediate body should only be required in cases where the relevant bodies carry out tasks which go beyond those described in the relevant Article or where it is required by the Fund specific rules.

(181)It is necessary to clarify that managing authorities should have the possibility to implement financial instruments through a direct contract award to the EIB and to international financial institutions (IFIs).

(182)Many Member States have established publicly-owned banks or financial institutions that operate under a public policy mandate to promote economic development. Such banks or financial institutions have specific characteristics which differentiate them from private commercial banks in relation to their ownership, their development mandate and the fact that they do not have the objective of maximising profits. The role of such banks is notably to mitigate market failures, where in certain regions or for certain policy areas or sectors financial services are underprovided by commercial banks. These publicly-owned banks or financial institutions are well-placed to promote access to the ESI funds while maintaining competitive neutrality. Their specific role and characteristics can allow Member States to increase the use of financial instruments for delivering ESI funds in order to maximise the impact of these funds in the real economy. Such an outcome would be in line with the Commission policy to facilitate the role of such banks or institutions as fund managers both in the implementation of ESI funds as well as in the combination of ESI funds with EFSI financing, as set out in particular in the Investment Plan for Europe. It is justified therefore to allow managing authorities to award contracts directly to such public banks or financial institutions. Nevertheless, in order to ensure that this possibility of direct award remains consistent with the principles of the internal market, strict conditions to be fulfilled by public banks or institutions should be laid down for this provision to be applicable.

(183)In order to maintain the option of the SME Initiative as an instrument to help increase the competitiveness of the SMEs, it is necessary to provide that Member States can contribute to joint uncapped guarantee and securitisation financial instruments in favour of SMEs during the entire programming period and to update relevant provisions relating to this option, such as those on ex-ante assessments and evaluations.

(184)In adopting Regulation (EU) 2015/1017 of the European Parliament and of the Council of 25 June 2015 on the European Fund for Strategic Investments, the European Investment Advisory Hub and the European Investment Project Portal – the European Fund for Strategic Investments (EFSI) – it was desired to enable Member States to use ESI Funds to contribute to the financing of eligible projects that are supported by the EU guarantee covered by the EFSI. A specific provision should be introduced to set out the terms and conditions to allow for better interaction and complementarity that will facilitate the possibility to combine ESI funds with EIB financial products under the EFSI's Union Guarantee.

(185)In order to simplify and harmonise the control and audit requirements and to improve the accountability of the financial instruments implemented by EIB and other International Financial Institutions, it is necessary to amend the provisions on management and control for financial instruments to facilitate the assurance process.

(186)In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission in respect of the model of the control reports and the annual audit reports as defined in Article 40(1) of this Regulation. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council 20 .

(187)In order to ensure consistency with the treatment of financial corrections during the 2007-2013 programming period, it is necessary to clarify that in the case of financial instruments, it should be possible to allow for an individual irregularity to be replaced by regular expenditure within the same operation so that the related financial correction will not have the consequence of a net loss for the financial instrument operation.

(188)In order to incentivise private investors to co-invest in public policy projects, the concept of differentiated treatment of investors, which allows under specific conditions that ESI Funds can take a subordinated position to a private investor and EIB financial products under the EFSI's EU Guarantee, should be introduced. At the same time, the conditions for application of such a differentiated treatment when implementing ESI funds should be laid down.

(189)Given the protracted low interest environment and in order not to unduly penalise bodies implementing financial instruments, it is necessary, subject to active and diligent treasury management, to enable financing of negative interest generated as a result of investments of ESI Funds pursuant to Article 43 of the Common Provisions Regulation from resources paid back into the financial instrument.

(190)In order to align reporting requirements with the new Article 43(a) on differentiated treatment of investors and to avoid a duplication between the 'value of investments' in Article 46(2)(h) and 'equity investments' in Article 46(2)(i), it is necessary to update Article 46 of the Common Provisions Regulation.

(191)In order to facilitate the implementation of the ESI funds, it is necessary to grant Member States the possibility of direct award for technical assistance actions implemented by EIB/EIF, other IFIs and publicly-owned banks or financial institutions.

(192)With a view to facilitate the implementation of revenue generating operations, reduction of the co-financing rate should be allowed at any time of the programme implementation and possibilities for the establishment offlat rate net revenue percentages at national level should be provided.

(193)Due to the late adoption of the Regulation (EU) No 508/2014 of the European Parliament and of the Council and the fact that aid intensity levels have been established by that Regulation, it is necessary to set out certain exemptions for the EMFF as regards revenue generating operations.

(194)To reduce administrative burden for beneficiaries the threshold which exempts certain operations from calculating and taking into account revenue generated during their implementation should be raised.

(195)In order to facilitate synergies between ESI Funds and other Union instruments, expenditure incurred may be reimbursed from different ESI Funds and Union instruments based on a proportion agreed in advance.

(196)In order to promote the use of lump sums, and given the fact that lump sums need to be based on a fair, equitable and verifiable calculation method which should ensure sound financial management, the applicable upper limit for their use should be removed.

(197)In view of the aim to reduce the addministrative burden of the implementation of projects by beneficiairies a new form of simplified costs option for financing based on conditions others than costs of operations should be introduced.

(198)Taking into account the fact that, in accordance with Article 71 of Regulation (EU) No 1303/2013, the obligation to ensure the durability of investment operations applies from the last payment to the beneficiary, and that, when the investment consists in the lease purchase of a new machinery and equipment, the last payment occurs at the end of the contract period, this obligation should not apply to this type of investment.

(199)In order to ensure a broad application of simplified cost options, an obligatory use of standard scales of unit costs, lump sums or flat rates should be set out for operations below a certain threshold for the ERDF and ESF. At the same time the use of draft budgets as an additional methodology for determining simplified costs should be introduced.

(200)In order to facilitate earlier and more targeted application of simplified cost options, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in respect of the definition of the standard scales of unit costs or the flat rate financing, the fair, equitable and verifiable method on which they may be established, and the financing based on the fulfilment of conditions related to the realisation of progress in implementation or the achievement of objectives of programmes rather than on costs. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement on Better Law-Making of 13 April 2016. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(201)In order to reduce the administrative burden, the use of flat rates which do not require a methodology to be established by Member States should be increased. Two additional flat rates should therefore be introduced; one for calculating direct staff costs and the other one for calculating the remaining eligible costs based on staff costs. In addition, further clarification should be provided on the methods to calculate staff costs.

(202)With a view to improving the effectiveness and impact of operations implementation of nation-wide operations or operations covering different programme areas should be facilitated and possibilities for expenditure outside the Union for certain investments should be increased .

(203)In order to encourage Member States to make use of major projects appraisal by independent experts, the declaration of expenditure relating to the major project to the Commission prior to the positive appraisal by the independent expert should be allowed once the Commission has been informed about the submission of the relevant information to the independent expert.

(204)In order to promote the use of joint action plans which will reduce administrative burden for beneficiaries it is necessary to reduce regulatory requirements linked to the setting up of a joint action plan.

(205)In order to avoid unnecessary administrative burden for beneficiaries, the rules on information and communication should respect the principle of proportionality. Accordingly, it is important to clarify the scope of application of the rules on information and communication.

(206)With a view to reducing the administrative burden and ensuring the effective use of technical assistance across Funds and categories of regions flexibility for the calculation and monitoring of the respective limits applicable to technical assistance of Member States should be increased

(207)With a view to streamline implementation structures, it should be clarified that the possibility for the managing authority, certifying authority and the audit authority to be part of the same public body is also available to programmes under the European Territorial Cooperation Goal.

(208)The responsibilities of the managing authorities regarding the verification of expenditure when simplified cost options are being used should be specified more in detail.

(209)To ensure that beneficiaries can fully benefit from the simplification potential of e-governance solutions in the implementation of the ESI Funds and the Fund for European Aid to the Most Deprived (FEAD), especially with a view to facilitating full electronic document management, it is necessary to clarify that a paper trail is not necessary if certain conditions are met.

(210)In order to ensure equal treatment of operations supported on the basis of this Regulation, it is necessary to establish the date of application of certain amendments to Regulation (EU) No 1303/2013 of the European Parliament and of the Council 21 .

(211)With a view to facilitate certain target groups' access to the ESF, the collection of data for certain indicators should be based on representative samples and twice in the programming period.

(212)In order to ensure legal certainty and harmonised and non-discriminatory implementation of support to young farmers, it is necessary to provide that in the context of Rural Development the "date of setting up", referred to in the relevant rules, is the date when the setting up process begins by means of an action to be performed by the applicant, and that the application for support is to be submitted within 24 months from that date. Moreover, experience from the negotiations of the programmes has shown that rules for joint setting up of young farmers and thresholds for access to support required in Article 19(4) of Regulation (EU) No 1305/2013 should be clarified, and that provisions on duration of the business plan should be streamlined.

(213)In order to be sufficiently attractive to the private sector, it is essential that financial instruments are designed and implemented in a flexible manner. However, experience has shown that certain measure-specific eligibility rules limit the uptake of financial instruments in the rural development programmes, as well as the flexible use of financial instruments by fund managers. Therefore, it is appropriate to provide that certain measure-specific eligibility rules do not apply to financial instruments. For the same reason, it is also appropriate to provide that start-up support to young farmers under Article 19 of Regulation (EU) No 1305/2013 may also be provided in the form of financial instruments. In view of these changes, it should be provided that where support for investments under Article 17 of Regulation (EU) No 1305/2013 is granted in the form of financial instruments, the investment must contribute to one or more Union priorities for rural development.

(214)Nowadays farmers are exposed to increasing economic risks as a consequence of market developments. However, those economic risks do not affect all agricultural sectors equally. Consequently, Member States should have the possibility, in duly justified cases, to help farmers with sector-specific income stabilisation tools, in particular for sectors affected by a severe income drops, which would have a significant economic impact for a specific rural area, provided that the international obligations of the Union are respected. In addition, in order to monitor the expenditure made in relation to this new tool, the content of the financial plan of the programme should be adapted. Moreover, the specific reporting requirement for the risk management measure in 2018 referred to in Article 36(5) of Regulation (EU) No 1305/2013 is already covered by the report to the European Parliament and the Council on the monitoring and evaluation of the CAP referred to in Article 110(5) of Regulation (EU) No 1306/2013. Therefore the second subparagraph of Article 36(5) should be deleted.

(215)Concerning mutual funds, it appears that the prohibition of any contribution by public funds to initial capital stock laid down in Articles 38(3) and 39(4) of Regulation (EU) No 1305/2013 hinders the effective functioning of these funds. This prohibition should therefore be deleted

(216)Support for investments for the restoration of production potential after natural disasters and catastrophic events under Articles 18(1)(b) and 24(1)(d) of Regulation (EU) No 1305/2013 is usually granted to all eligible applicants. Therefore, Member States should not be obliged to define selection criteria for restoration operations. Moreover, in duly justified cases, where it is not possible to define selection criteria due to the nature of the operations, Members States should be allowed to define alternative selection methods.

(217)Article 59 of Regulation (EU) No 1305/2013 defines the maximum EAFRD contribution rates. In order to ease the pressure on the national budget of some Member States and to accelerate much-needed investments in Cyprus, the maximum contribution rate of 100% referred to in Article 59(4)(f) should be extended until the programme closure. In addition, a reference to the specific contribution rate introduced in Regulation (EU) No 1303/2013 for the new financial instrument referred to in point (c) of Article 38(1) of the same Regulation should be mentioned in Article 59(4).

(218)Pursuant to Article 60(1) of Regulation (EU) No 1305/2013, in cases of emergency measures due to natural disasters, eligibility of expenditure relating to programme changes may start from the date when the natural disaster occurred. This possibility to make eligible expenditure made before the submission of a programme amendment should be extended to other circumstances, such as catastrophic events or a significant and sudden change in the socio-economic conditions of the Member State or region, including sudden and significant demographic changes resulting from migration or reception of refugees.

(219)According to the second subparagraph of Article 60(2) of Regulation (EU) No 1305/2013, in respect of investments in the agricultural sector, only expenditure incurred after the submission of an application is eligible. Members States should be given the possibility to provide in their programmes that, where the investment is related to emergency measures due to natural disasters, catastrophic events or adverse climatic events or a significant and sudden change in the socio-economic conditions of the Member State or region, expenditure incurred after the occurrence of event is eligible.

(220)In order to increase the use of the simplified cost options referred to in points (b) to (d) of Article 67(1) of Regulation (EU) No 1303/2013, it is necessary to limit the EAFRD specific rules laid down in Article 62(2) of Regulation (EU) No 1305/2013 to aid granted in accordance with points (a) and (b) of Article 21(1), concerning income forgone and maintenance costs, and Articles 28 to 31, 33 and 34 of Regulation (EU) No 1305/2013.

(221)Article 74 of Regulation (EU) No 1305/2013 requires the Member States to consult the Monitoring Committee of the rural development programme on the selection criteria within four months from the approval of the programme. This creates an indirect obligation for the Member States to have defined all the selection criteria by that date even for the calls for applications which will be launched subsequently. In order to reduce unnecessary administrative burden, whilst ensuring that financial resources are used in the best possible way, the Member States should be allowed to define the selection criteria and to ask for the opinion of the Monitoring Committee at any time before the publication of the calls for applications.

(222)The financial discipline is used to ensure that the budget for the European Agricultural Guarantee Fund complies with the respective annual ceilings and to establish the reserve for crises in the agricultural sector. Given the technical character of the determination of the adjustment rate and its inherent links with the Commission's estimates of expenditure set out in its annual Draft Budget, the procedure for setting the adjustment rate should be simplified by authorising the Commission to adopt it in accordance with the advisory procedure. The new Financial Regulation does not define the population of beneficiaries eligible for reimbursement of financial discipline. The present regulation should be adapted to that while maintaining the current definition of eligible beneficiaries.

(223)In order to harmonise the rules on automatic decommitment of Article 87 of Regulation (EU) No 1303/2013 and Article 38 of Regulation (EU) No 1306/2013, the date by which Member States have to send to the Commission information on exceptions to the decommitment, referred to in Article 38(3), should be adapted.

(224)In order to provide for the legal clarity as regards the treatment of the recoveries generated from the temporary reductions under Article 41(2) of Regulation (EU) No 1306/2013, the latter should be included in the list of sources of the assigned revenue under Article 43 of that Regulation.

(225)Experience has shown that the rule, first introduced with Regulation (EU) No 1290/2005, of equally sharing between the budget and the Member States the risk of the lack of recovery of sums due for irregularities when these sums had not been recovered within reasonable deadlines (so called 50/50 rule), has worked well for the safeguarding of the budget. However, such a system entails a heavy administrative and book-keeping burden for both the European Commission and the Member States. It is therefore considered appropriate to further change this approach and charge the related sums entirely to the Member States concerned after the expiry of the related deadlines allowing them, on the other side, to keep in their national budgets the sums subsequently recovered at the end of the related recovery procedures.

(226)In order to ensure that the refusal or recovery of payments affected by a non-compliance with public procurement rules reflects the gravity of such non-compliance and respects the principle of proportionality, such refusal or recovery should be limited to the levels laid down by the Commission for financial corrections to be made to expenditure under shared implementation for non-compliance with such rules. It is further appropriate to clarify that such non-compliances affect the legality and regularity of the transactions only by the same level.

(227)The experience gained so far shows that through implementing the three criteria for being regarded an active farmer, listed in the third subparagraph of Article 9(2) of Regulation (EU) No 1307/2013 of the European Parliament and of the Council 22 , has proven difficult for many Member States. In order to reduce the administrative burden associated with the implementation of the three criteria, Member States should have the possibility of making available only one or two of them. The experience further shows that in some Member States the administrative costs of implementing the active farmer clause as a whole outweighs the benefit of excluding a very limited number of non-active beneficiaries from the direct support schemes. In order to allow Member States to address such situations in future claim years, the application of Article 9 as a whole should become optional for them.

(228)The experience gained in the first year of implementation of Regulation (EU) No 1307/2013 has shown that certain Member States applying the single area payment scheme did not use the entire amount of the funds available under the budgetary ceilings laid down in the Commission Implementing Regulation (EU) No 2015/1089. Member States applying the basic payment scheme have already the possibility, within certain limits, of distributing payment entitlements for a higher value than the amount available for their basic payment scheme in order to ensure a more efficient use of the funds. Member States applying the single area payment scheme should also be allowed, within the same common limits and without prejudice to the respect of the net ceilings for direct payments, to calculate the necessary amount by which their single area payment scheme ceiling may be increased.

(229)In order to ensure a maximum outreach of the young farmer payment under Regulation (EU) No 1307/2013, it is appropriate for Member States to limit the number of payment entitlements or eligible hectares but only in cases where this limitation serves to ensure respecting the relevant provisions on financing the young farmer payment.

(230)Pursuant to Article 52 of Regulation (EU) No 1307/2013, Member States may grant, under certain conditions, coupled support to farmers in specific agricultural sectors or types of farming, to the extent necessary to create an incentive to maintain current levels of production in the sectors or regions concerned. In order to avoid that the levels of production are to be maintained where this is not appropriate due to structural market imbalances, the Commission should be empowered to adopt delegated acts allowing that voluntary coupled support can continue to be paid until 2020 on the basis of the production units for which such support was granted in a past reference period. In the context of the current crisis this temporary derogation aims at attaining in the long term the objective of voluntary coupled support of maintaining the level of production in the areas concerned. 

(231)One of the major obstacles to the formation of producer organisations, mainly in Member States which are lagging behind as regards the degree of organisation, appears to be the lack of mutual trust and past experiences. In this context, coaching, whereby producer organisations which are functioning show the way to other producer organisations, producer groups or individual producers of fruit and vegetables, could offset that obstacle and should thus be included among the objectives of producer organisations in the fruit and vegetables sector.

(232)In addition to withdrawals for free distribution, it is also appropriate to grant coaching actions intended to encourage producers to set up organisations meeting the criteria to be recognised a full Union financing within the operational programmes of existing producer organisations.

(233)Crisis prevention and management measures should be extended to cover refilling of mutual funds which could as new instruments help to combat crises.

(234)In Member States where the organisation of production in the fruit and vegetables sector is weak, granting of additional national financial contributions should be allowed.

(235)In order to ensure an efficient, targeted and sustainable support of producer organisations and their associations in the fruit and vegetables sector, the power to adopt certain acts should be delegated to the Commission in respect of the list of Member States that may grant national financial assistance to producer organisations.

(236)In order to simplify the current procedure of first authorising Member States to grant additional national financial assistance to producer organisations in regions of the Union where the organisation degree is particularly low and second reimbursing a part of the national financial assistance if further conditions are complied with, a new system could be established. Member States where the organisation rate is particularly low was below 20% at national level in 2013 could grant an additional percentage of the value of the marketed production as national aid with a result similar to the current scheme of prior authorisation and subsequent Union reimbursement. The Commision should regularly review the list of Member States that may grant additional national assistance to keep it updated.

(237)The experience gained through the application of Article 188 of Regulation (EU) No 1308/2013 of the European Parliament and of the Council 23 has proven that the need to adopt implementing acts for the management of simple, mathematical processes linked to the way quotas are allocated is cumbersome and resource intense without any specific advantage linked to such an approach. The Commission has in fact no margin of discretion in this context considering that the related formula is already fixed by the provisions of Article 7 (2) of Commission Regulation (EC) 1301/2006 24 . In order to reduce the related administrative burden and streamline the process it should be provided that the Commission makes the results of the allocation of the import tariff quotas public through an appropriate web-publication. Moreover a specific provision should be included providing that Member States should only issue licences following the publication of the allocation results by the Commission.

(238)The EGF should continue after 31 December 2017 to temporarily provide assistance to young people not in employment, education or training (NEETs) who reside in regions eligible under the Youth Employment Initiative, since those regions are disproportionately impacted by major redundancies.

(239)In order to increase the efficiency of the intervention, a blending facility or blending facilities may be established under the Connecting Europe Facility (CEF). Such blending facilities should finance blending operations which are actions combining non-reimbursable forms of support and/or financial instruments from the Union budget, including combination of CEF equity and CEF debt financial instruments, and financing from EIB Group (including EIB financing under EFSI) development or other finance institutions as well as investors.

(240)A blending facility under CEF should aim to enhance the multiplier effect of Union spending by attracting additional resources from private investors. In addition, it should ensure that the actions supported become economically and financially viable.

(241)In order to support the implementation of projects with most value added for the Trans European Transport Network concerning the Core Network Corridors, cross border projects and projects on the other sections of the Core Network, it is necessary to allow flexibility in the use of the multiannual work programme allowing to reach up to 95% of the financial budgetary resources indicated in the Regulation (EU) No 1316/2013.

(242)Only grants and procurement may currently be used to support actions in the area of Digital Service Infrastructures. In order to ensure as efficient as possible, financial instruments should also be made available to support these actions.

(243)The intervention in the area of Digital Service Infrastructures should be based on simple and flexible principles to enable the Union react to emerging political priorities and related funding needs. In particular, to achieve the objectives of an intervention in a given area it may be necessary to finance "gateway services" linking one or more national infrastructure(s) to core service platform(s) such as elements of a given Digital Service Infrastructure: computing, data storage and management, connectivity.

(244)In order to avoid unnecessary administrative burden for managing authorities that could hinder efficient implementation of the FEAD, it is appropriate to simplify and facilitate the procedure for amendment of non-essential elements of operational programmes.

(245)With a view to further simplify the use of the FEAD, it is appropriate to establish additional provisions as regards eligibility of expenditure, in particular, as regards the use of standard scales of unit costs, lump sums and flat rates.

(246)In order to avoid unfair treatment of partner organisations, irregularities that are imputable only to the body in charge of purchasing the assistance, should not affect the eligibility of expenditure of partner organisations.

(247)It is appropriate to clarify the definition of 'eligibility rules' in order to ensure legal certainty in operations supported by the FEAD.

(248)In order to simplify the implementation of the FEAD and avoid legal uncertainty, certain responsibilities of Member States on management and control should be clarified.

(249)In order to simplify the implementation of the ESI Funds and the FEAD and avoid legal uncertainty, certain responsibilities of Member States on management and control should be clarified.

(250)Regulation (EU) No 652/2014 of the European Parliament and of the Council 25 provides for the possibility to divide budgetary commitments into annual instalments only in the case of approval of multiannual programmes for the eradication, control and surveillance of animal diseases and zoonoses, for survey programmes concerning the presence of pests and for programmes concerning the control of pests in outermost regions of the Union. In the interest of simplification and in order to reduce the administrative burden this possibility should be extended to the other actions provided for in Regulation (EU) No 652/2014.

(251)The Space Surveillance and Tracking (SST) support framework established by Decision No 541/2014/EU is financed from the budgets of three Union funding programmes, Copernicus programme established by Regulation (EU) No 377/2014, satellite navigation programmes established by Regulation (EU) No 1285/2013 and specific programme implementing Horizon 2020 established by Council Decision No 2013/743/EU. As a result, the SST support framework has been subject to three sets of applicable rules. This has led to suboptimal implementation of the framework and caused disproportionate administrative burden for the Commission and the beneficiaries. While the aims, objectives and the scope of each of the three funding programmes need to be respected, in order to simplify the implementation of the SST support framework in the future, only one set of rules should be applicable to the award and management of grants within SST support framework.

(252)This Regulation should be revised only when necessary, and at the latest two years before the end of each multiannual financial framework. Excessively frequent revisions generate a disproportionate cost in adjusting administrative structures and procedures to the new rules. Furthermore, time may be too short to allow for valid conclusions to be drawn from the application of the rules in force.

(253)Transitional provisions should be set out. In order not to hamper the application of the relevant sector-specific rules which may refer to grant decisions, it is appropriate to specify that grants decisions may still be adopted in accordance with their basic act. In order to ensure the transition with the new adoption mechanism of decisions authorising the use of lump sum, unit costs or flat rates, it is appropriate to allow the authorising officer responsible to amend the relevant existing decisions.

HAVE ADOPTED THIS REGULATION:

PART ONE
FINANCIAL REGULATION

TITLE I
SUBJECT MATTER, SCOPE AND DEFINITIONS

Article 1
Subject matter

This Regulation lays down the rules for the establishment and the implementation of the general budget of the European Union and of Euratom and the presentation and auditing of the accounts.

Article 2
Definitions

For the purposes of this Regulation, the following definitions shall apply:

1.‘applicant’ means a natural person or an entity with or without a legal personality who has submitted an application in a grant award procedure or in a contest for prizes;

2.‘application documents’ means a tender, a request to participate, a grant application or an application in a contest for prizes;

3.‘award procedure’ means a procurement procedure, a grant award procedure, a contest for prizes, or a procedure for the selection of experts or entities implementing Union funds pursuant to point (c) of Article 61 (1);

4.‘basic act’ means a legal act which provides a legal basis for an action and for the implementation of the corresponding expenditure entered in the budget or of the budgetary guarantee or financial assistance backed by the budget.

A basic act may take any of the following forms:

(a)in implementation of the Treaty on the Functioning of the European Union (TFEU) and the Treaty establishing the European Atomic Energy Community (the Euratom Treaty), the form of a regulation, a directive or a decision within the meaning of Article 288 TFEU; or

(b)in implementation of Title V of the Treaty on European Union (TEU), one of the forms specified in Articles 28(1), 31(2), 33, 42(4) and 43(1)TEU.

Recommendations and opinions shall not constitute basic acts.

5.‘beneficiary’ means a natural person or an entity with or without a legal personality with whom a grant agreement has been signed;

6.‘blending operation’ means an action carried out within a blending facility which combines non-repayable forms of support and/or financial instruments from the EU budget and financial instruments from development or other public finance institutions as well as from commercial finance institutions and investors. Blending operations may include preparatory action leading to potential investments from finance institutions;

7.‘blending facility’ means a facility established as a cooperation framework between the Commission and development or other public finance institutions as well as commercial finance institutions and investors which aims at achieving certain Union priority objectives and policies in using blending operations and other individual actions;

8.'budgetary commitment' means the operation by which the authorising officer responsible reserves appropriations in the budget for subsequent payments.

9.'budgetary guarantee' means a legal commitment of the Union to support a programme of actions by taking on the budget of the Union a financial obligation should a specified event materialise during the implementation of the programme;

10.‘building contracts’ means a contract covering the purchase, long lease, usufruct, leasing, rental or hire purchase, with or without option to buy, of land, buildings or other immovable property. It shall cover both existing buildings and buildings before completion provided that the candidate has obtained a valid building permit for it, save when the building has been designed in accordance with the specifications of the contracting authority;

11.‘candidate’ means an economic operator that has sought an invitation or has been invited to take part in a restricted procedure, a competitive procedure with negotiation, a competitive dialogue, an innovation partnership, a design contest or a negotiated procedure;

12.‘central purchasing body’ means a contracting authority providing centralised purchasing activities and, where applicable, ancillary purchasing activities;

13.‘check’ means the verification of a specific aspect of a revenue or expenditure operation;

14.‘concession contract’ means a contract for pecuniary interest concluded in writing between one or more economic operators and one or more contracting authorities within the meaning of Articles 168 and 172, in order to entrust the execution of works or the provision and management of services to an economic operator (the ‘concession’). The remuneration shall consist either solely in the right to exploit the works or services or in that right together with payment. The award of a concession contract shall involve the transfer to the concessionaire of an operating risk in exploiting those works or services encompassing demand risk or supply risk, or both. The concessionaire shall be deemed to assume an operating risk where, under normal operating conditions, there is no guarantee of recouping the investments made or the costs incurred in operating the works or the services at stake;

15.'contingent liability' is a potential financial obligation that may be incurred depending on the outcome of a future event;

16.‘contract’ means a public contract or a concession contract;

17.‘contractor’ means an economic operator with whom a procurement contract has been signed;

18.‘control’ means any measure taken to provide reasonable assurance regarding the effectiveness, efficiency and economy of operations, the reliability of reporting, the safeguarding of assets and information, the prevention and detection and correction of fraud and irregularities and their follow-up, and the adequate management of the risks relating to the legality and regularity of the underlying transactions, taking into account the multiannual character of programmes as well as the nature of the payments concerned. Controls may involve various checks, as well as the implementation of any policies and procedures to achieve the objectives described in the first sentence;

19.‘contribution agreement’ means an agreement concluded with entities and persons pursuant to points (ii) to (viii) of Article 61(1)(c);

20.'counterpart' is the other party that is granted a budgetary guarantee of the Union;

21.'Crisis situations' shall be understood as situation of immediate or imminent danger threatening to escalate into an armed conflict or to destabilise a country. Crisis situations shall also be understood as situations caused by natural disasters, manmade crisis such as wars and other conflicts or extraordinary circumstances having comparable effects related inter alia to climate change, environmental degradation, privation of access to energy and natural resources or extreme poverty.

22.‘dynamic purchasing system’ means a completely electronic process for making commonly used purchases;

23.‘economic operator’ means any natural or legal person, including a public entity, or a group of such persons, which offers to supply products, execute works or provide services or immovable property;

24.‘equity investment’ means the provision of capital to a firm, invested directly or indirectly in return for total or partial ownership of that firm and where the equity investor may assume some management control of the firm and may share the firm’s profits;

25.‘final administrative decision’ means a decision of an administrative authority having final and binding effect in accordance with the applicable law;

26.'financial asset' is any asset that is cash, an equity instrument of another entity or a contractual right to receive cash or another financial asset from another entity;

27.‘financial instruments’ means Union measures of financial support provided from the budget in order to address one or more specific policy objectives of the Union. Such instruments may take the form of equity or quasi-equity investments, loans or guarantees, or other risk-sharing instruments, and may, where appropriate, be combined with other forms of financial support or with funds under shared implementation or EDF funds;

28.'financial liability' is any liability that is a contractual obligation to deliver cash or another financial asset to another entity;

29.‘framework contract’ means a public contract concluded between one or more economic operators and one or more contracting authorities, the purpose of which is to establish the terms governing specific contracts under it to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged;

30.‘guarantee’ means a written commitment to assume responsibility for all or part of a third party’s debt or obligation or for the successful performance by that third party of its obligations if an event occurs which triggers such guarantee, such as a loan default;

31.'guarantee on demand' means a guarantee that must be honoured by the guarantor upon counterpart's demand, notwithstanding any deficiencies in the enforceability of the underlying obligation;

32.'legal commitment' means the act whereby the authorising officer responsible enters into or establishes an obligation which results in subsequent payment or payments and the recognition of expenditure a charged to the budget. For the purposes of Title V of Part I, with the exception of Article 134, 'legal commitment' encompases also financial framework partnership agreements and framework contracts;

33.'leverage effect' means the amount of finance to eligible final recipients divided by the amount of the Union contribution;

34.‘loan’ means an agreement which obliges the lender to make available to the borrower an agreed sum of money for an agreed period of time and under which the borrower is obliged to repay that amount within the agreed time;

35.‘low value grant’ means a grant lower than or equal to EUR 60 000;

36.‘method of implementation’ means the methods of budget implementation described in Articles 61, 62 or 149, i.e. direct implementation, indirect and shared implementation;

37.‘multi-donor action’ means any action where Union funds are pooled with at least one other donor;

38.'multiplier effect' means the investment by eligible final recipients divided by the amount of the Union contribution.

39.'pari passu' means an equal claim on some right;

40.‘participant’ means a candidate or tenderer in a procurement procedure, an applicant in a grant award procedure, an expert in a procedure for selection of experts, an applicant in a contest for prizes or an entity or person participating in a procedure for implementing Union funds pursuant to point (c) of Article 61(1);

41.‘procurement document’ means any document produced or referred to by the contracting authority to describe or determine elements of the procurement procedure, including:

(a)the publicity measures set out in Article 157;

(b)the invitation to tender;

(c)the tender specifications, which shall include the technical specifications and the relevant criteria, or the descriptive documents in case of a competitive dialogue;

(d)the draft contract;

42.‘public contract’ means a contract for pecuniary interest concluded in writing between one or more economic operators and one or more contracting authorities within the meaning of Articles 168 and 172, in order to obtain, against payment of a price paid in whole or in part from the budget, the supply of movable or immovable assets, the execution of works or the provision of services.

43.Public contracts comprise:

(a)building contracts;

(b)supply contracts;

(c)works contracts;

(d)service contracts;

44.‘prize’ means a financial contribution given as a reward following a contest;

45.‘procurement’ means the acquisition by means of a contract of works, supplies or services and the acquisition or rental of land, buildings or other immovable property, by one or more contracting authorities from economic operators chosen by those contracting authorities;

46.‘quasi-equity investment’ means a type of financing that ranks between equity and debt, having a higher risk than senior debt and a lower risk than common equity. Quasi equity investments can be structured as debt, typically unsecured and subordinated and in some cases convertible into equity, or as preferred equity;

47.‘recipient’ means a beneficiary, a contractor, a remunerated external expert, any person or entity receiving prizes or funds under a financial instrument or implementing Union funds pursuant to point (c) of Article 61(1);

48.'repurchase agreement' means the sale of securities for cash with an agreement to repurchase them on a specified future date, or on demand;

49.‘research and technological development appropriations’ means the appropriations entered either in one of the titles of the budget relating to the policy areas linked to "Indirect research" and "Direct research" or in a chapter relating to research activities in another title;

50.‘risk-sharing instrument’ means a financial instrument which allows for the sharing of a defined risk between two or more entities, where appropriate in exchange for an agreed remuneration;

51.‘service contracts’ means a contract covering all intellectual and non-intellectual services other than those covered by supply contracts, works contracts and building contracts;

52.‘Staff Regulations’ means the Staff Regulations of Officials of the European Union and the Conditions of Employment of Other Servants of the European Union laid down in Council Regulation (EEC, Euratom, ECSC) No 259/68;

53.‘subcontractor’ means an economic operator that is proposed by a candidate or tenderer or contractor to perform part of a contract or by a beneficiary to perform part of the tasks co-finаnced by the grant.

54.‘subscription’ means sums paid to bodies of which the Union is member, in accordance with the budgetary decisions and the conditions of payment established by the body concerned;

55.‘supply contracts’ means a contract covering the purchase, leasing, rental or hire purchase, with or without option to buy, of products. A supply contract may include, as an incidental matter, siting and installation operations.

56.‘technical assistance’ means, without prejudice to sector-specific rules, support and capacity-building activities necessary for the implementation of a programme or an action, in particular preparatory, management, monitoring, evaluation, audit and control activities.

57.‘tenderer’ means an economic operator that has submitted a tender;

58.‘Union’ means the European Union, the European Atomic Energy Community, or both, as the context may require.

59.‘Union institution’ means the European Parliament, the European Council, the Council, the European Commission, the Court of Justice of the European Union, the Court of Auditors, the European Economic and Social Committee, the Committee of the Regions, the European Ombudsman, the European Data Protection Supervisor and the European External Action Service (the ‘EEAS’); the European Central Bank shall not be considered as an institution of the Union;

60.‘vendor’ means an economic operator registered in a list of vendors to be invited to submit requests to participate or submit tenders;

61.‘work’ shall mean the outcome of building or civil engineering works taken as a whole that is sufficient in itself to fulfil an economic or technical function;

62.‘works contracts’ means a contract covering either the execution, or both the execution and design, of work(s) related to one of the activities referred to in Annex II to Directive 2014/24/EU of the European Parliament and of the Council on public procurement 26 or the realisation, by whatever means, of a work corresponding to the requirements specified by the contracting authority exercising a decisive influence on the type or design of the work;

Article 3
Compliance of secondary legislation with this Regulation

1.Provisions concerning the implementation of the revenue and expenditure of the budget, and contained in a basic act, shall comply with the budgetary principles set out in Title II.

2.Without prejudice to paragraph 1, any proposal or amendment to a proposal submitted to the legislative authority containing derogations from provisions other than those in Title II or from delegated acts adopted pursuant to this Regulation shall clearly indicate such derogations and shall state the specific reasons justifying them in the recitals and in the explanatory memorandum of such proposals.

Article 4
Periods, dates and time limits

Unless otherwise provided, Council Regulation (EEC, Euratom) No 1182/71( 27 ) shall apply to deadlines set by this Regulation.

Article 5
Protection of personal data

Personal data collected pursuant to this Regulation shall be processed in accordance with Directive 95/46/EC ( 28 )and Regulation (EC) No 45/2001.A candidate or tenderer in a procurement procedure, an applicant in a grant award procedure, an expert in a procedure for the selection of experts, an applicant in a contest for prizes or an entity or person participating in a procedure for implementing Union funds in accordance with point (c) of Article 61(1)as well as a beneficiary, a contractor, a remunerated external expert or any person or entity that receives prizes or implements Union funds pursuant to point (c) of Article 61(1) shall be informed accordingly.

TITLE II
BUDGET AND BUDGETARY PRINCIPLES

Article 6
Respect for budgetary principles

The budget shall be established and implemented in accordance with the principles of unity, budgetary accuracy, annuality, equilibrium, unit of account, universality, specification, sound financial management which requires effective and efficient internal control, and transparency as set out in this Regulation, unless otherwise provided for in this Regulation.

CHAPTER 1
Principles of unity and of budgetary accuracy

Article 7
Scope of the budget

1.For each financial year, the budget shall forecast and authorise all revenue and expenditure considered necessary for the Union. It shall comprise:

(a)the revenue and expenditure of the Union, including administrative expenditure resulting from the provisions of the TEU relating to the common foreign and security policy, and the operational expenditure occasioned by implementation of those provisions where it is charged to the budget;

(b)the revenue and expenditure of the European Atomic Energy Community.

2.The budget shall contain differentiated appropriations, which consist of commitment appropriations and payment appropriations, and non-differentiated appropriations.

The appropriations authorised for the financial year shall consist of:

(a)appropriations provided in the budget, including by amending budgets;

(b)appropriations carried over;

(c)appropriations made available again in accordance with Article 14;

(d)appropriations arising from pre-financing payments which have been repaid in accordance with point (b) of Article 12(3);

(e)appropriations provided following the receipt of revenue assigned during the financial year or during previous financial years and not used.

3.Commitment appropriations shall cover the total cost of the legal commitments entered into during the financial year, subject to Article 112(2).

4.Payment appropriations shall cover payments made to honour the legal commitments entered into in the financial year or preceding financial years.

5.Paragraphs 2 and 3 of this Article shall not prevent appropriations being committed globally or budgetary commitments being made in annual instalments as respectively provided for in point (b) of Article 110(1) and 110(2).

Article 8
Specific rules on the principles of unity and budgetary accuracy

1.All revenue and expenditure shall be booked to a line in the budget.

2.No expenditure may be committed or authorised in excess of the authorised appropriations.

3.Interest generated by pre-financing payments made from the budget shall not be due to the Union except as otherwise provided for in the contribution agreements or financing agreements.

CHAPTER 2
Principle of annuality

Article 9
Financial year

The appropriations in the budget shall be authorised for a financial year which shall run from 1 January to 31 December.

Article 10
Budgetary accounting for revenue and appropriations

1.The revenue of a financial year shall be entered in the accounts for the financial year on the basis of the amounts collected during that financial year. However, the own resources for the month of January of the following financial year may be made available in advance pursuant to Council Regulation (EU, Euratom) No 609/2014 29  .

2.The entries in respect of Value Added Tax and Gross National Income-based own resources may be adjusted in accordance with Regulation (EU, Euratom) No 609/2014.

3.Commitments shall be entered in the accounts on the basis of the legal commitments entered into up to 31 December. By way of exception, the global budgetary commitments referred to in Article 110(4) shall be entered in the accounts on the basis of the budgetary commitments up to 31 December.

4.Payments shall be entered in the accounts for a financial year on the basis of the payments made by the accounting officer by 31 December of that year.

5.By way of derogation from paragraphs 3 and 4:

(a)the expenditure of the European Agricultural Guarantee Fund (EAGF) shall be booked to the accounts for a financial year on the basis of the repayments made by the Commission to the Member States by 31 December of that financial year, provided that the payment order has reached the accounting officer by 31 January of the following financial year;

(b)expenditure managed under shared implementation with the exception of the EAGF shall be booked to the accounts for a financial year on the basis of reimbursements made by the Commission to the Member States by 31 December of that financial year, including the expenditure charged by 31 January of the following financial year as laid downin Articles 28 and 29.

Article 11
Commitment of appropriations

1.The appropriations entered in the budget may be committed with effect from 1 January, once the budget has been adopted,

2.As of 15 October of the financial year, routine administrative expenditure and routine management expenditure for the EAGF may be committed in advance against the appropriations provided for the following financial year.

Such commitments shall not, however, exceed:

a)one quarter of the appropriations decided upon by the European Parliament and the Council on the corresponding budget line for the current financial year for routine administrative expenditure provided that this expenditure has been approved in the last budget duly adopted;

b)three quarters of the total corresponding appropriations decided upon by the European Parliament and the Council for the current financial year for routine management expenditure for the EAGF provided that the principle of this expenditure is laid down in an existing basic act.

Article 12
Cancellation and carry-over of appropriations

1.Appropriations which have not been used by the end of the financial year for which they were entered shall be cancelled, unless they are carried over in accordance with paragraphs 2 and 3.

2.Appropriations may be carried over, but only to the following financial year, by a decision taken by 15 February by the institution concerned in respect of:

(a)amounts corresponding to commitment appropriations and non-differentiated appropriations, for which most of the preparatory stages of the commitment procedure have been completed by 31 December. Such amounts may then be committed up to 31 March of the following year, with the exception of the non-differentiated appropriations related to building projects which may be committed up to 31 December of the following financial year;

(b)amounts which are necessary when the legislative authority has adopted a basic act in the final quarter of the financial year and the Commission has been unable to commit the appropriations provided for this purpose by 31 December. Such amounts may be committed up to 31 December of the following financial year;

(c)payment appropriations which are needed to cover existing commitments or commitments linked to commitment appropriations carried over, where the payment appropriations provided for in the relevant budget lines for the following financial year are not sufficient to cover requirements;

(d)non-committed appropriations relating to the actions referred to in Article 4(1) of Regulation (EU) No 1306/2013 of the European Parliament and of the Council.

Such carryover shall not exceed, within a limit of 2 % of the initial appropriations voted by the Budgetary Authority, the amount of the adjustment of direct payments applied in accordance with Article 26 of Regulation (EU) No 1306/2013 during the preceding financial year. Appropriations which are carried over shall be returned to the budgetary lines which cover the actions referred to in point (b) of Article 4(1) of Regulation (EU) No 1306/2013.

(e)appropriations kept unallocated at the beginning of the financial year relating to the funds referred to in Regulation (EU) No 231/2014 of the European Parliament and of the Council of 11 March 2014 establishing an Instrument for Pre-accession Assistance (IPA II), Regulation (EU) No 232/2014 of the European Parliament and of the Council of 11 March 2014 establishing a European Neighbourhood Instrument (ENI) and Regulation (EU) No 233/2014 of the European Parliament and of the Council of 11 March 2014 establishing a financing instrument for development cooperation for the period 2014-2020 (DCI), within a limit of 10% of the initial appropriations of each instrument.

The institution concerned shall inform the European Parliament and the Council by 15 March of the carry-over decision it has taken. It shall also state, for each budget line, how the criteria in points (a), (b) and (c) have been applied to each carry-over.

3.Appropriations shall be automatically carried over in respect of:

(a)amounts corresponding to commitment and payment appropriations for the Emergency Aid Reserve and for the European Union Crisis Reserve and to commitment appropriations for the European Union Solidarity Fund;

(b)amounts corresponding to internal assigned revenue;

The amounts referred to in points (a) and (b) may be carried over only to the following financial year and may be committed up to 31 December, with the exception of the internal assigned revenue from lettings and the sale of buildings and land referred to in point (g) of Article 20(3) which may be carried over until it is fully used. Commitment appropriations, referred to in Regulation (EU) No 1303/2013 and in Regulation (EU) No 514/2014 30 ,, available on 31 December arising from repayments of pre financing payments may be carried over until the closure of the programme and used when necessary provided that other commitment appropriations are no longer available.

(c)amounts corresponding to external assigned revenue.

These amounts shall be carried over automatically and shall be fully used by the time all the operations relating to the programme or action to which it is assigned have been carried out or may be carried over and used for the succeeding programme or action.

This shall not apply to the revenue referred to in point (iii) of Article 20(2)(g) for which appropriations not committed within five years shall be cancelled.

The treatment of external assigned revenue resulting from the participation from European Free Trade Association (EFTA) States in certain Union programmes as referred to in point (e) of Article 20(2) shall be in line with Protocol 32 annexed to the Agreement on the European Economic Area (EEA Agreement).

(d)payment appropriations related to the EAGF resulting from suspensions in accordance with Article 41 of Regulation (EU) No 1306/2013.

4.Non-differentiated appropriations legally committed at the end of the financial year shall be paid until the end of the following financial year.

5.Without prejudice to paragraph 3, appropriations placed in reserve and appropriations for staff expenditure shall not be carried over. For the purposes of this Article, staff expenditure comprises the remuneration and allowances for members and staff of the institutions subject to the Staff Regulations.

Article 13
Decommitment of appropriations

1.Where appropriations are decommitted in any financial year after that in which the appropriations were committed as a result of total or partial non-implementation of the actions for which they were earmarked, the appropriations concerned shall be cancelled, unless otherwise provided for in paragraph 3 and Article 14.

2.In the case of amounts which have to be committed up to 31 March in accordance with Article 12(2), where the corresponding appropriations are decommitted after 31 March, they shall be cancelled.

3.Appropriations referred to in Regulation (EU) No 1303/2013 shall be decommitted automatically in accordance with that Regulation.

4.Appropriations referred to in Regulation (EU) No 514/2014 shall be decommitted automatically in accordance with that Regulation.

5.Paragraphs 1, 2 and 3 of this Article shall not apply to external assigned revenue referred to in Article 20(2).

Article 14
Making decommitted appropriations available again

1.The decommitted appropriations referred to in Regulation (EU) No 1303/2013 and Regulation (EU) No 223/2014 31  may be made available again in the event of a manifest error attributable solely to the Commission.

To that end, the Commission shall examine decommitments made during the preceding financial year and decide, by 15 February of the current financial year, on the basis of requirements, whether it is necessary to make the corresponding appropriations available again.

2.The decommitted appropriations shall be made available again in the event of:

(a)the decommitment of appropriations from a programme under the arrangements for the implementation of the performance reserve established in Article 20 of Regulation (EU) No 1303/2013;

(b)the decommitment of appropriations from a programme dedicated to a specific financial instrument in favour of SMEs following the discontinuance of the participation of a Member State in the financial instrument, as referred to in the seventh subparagraph of Article 39(2) of Regulation (EU) No 1303/2013.

3.Without prejudice to paragraphs (1) and (2), decommitted appropriations made in year n-2 shall be made available again to the European Union Crisis Reserve in the framework of the budgetary procedure for the year n.

When the Commission considers that the Reserve needs to be called on, it shall present to the European Parliament and the Council a proposal for a transfer from the Reserve to the corresponding budgetary lines, in line with Article 30 (4).

4.The commitment appropriations corresponding to the amount of the decommitted appropriations as a result of total or partial non-implementation of the corresponding research projects may also be made available again to the benefit of the research programme the projects belong to or its successor in the context of the annual budgetary procedure.

Article 15
Rules applicable in the event of late adoption of the budget

1.If the budget has not been definitively adopted at the beginning of the financial year, the procedure set out in the first paragraph of Article 315 TFEU (the provisional twelfths regime) shall apply. Commitments and payments may be made within the limits laid down in paragraph 2 of this Article.

2.Commitments may be made per chapter up to a maximum of one quarter of the total appropriations authorised in the relevant chapter of the previous financial year plus one twelfth for each month which has elapsed.

The limit of the appropriations provided for in the draft budget shall not be exceeded.

Payments may be made monthly per chapter up to a maximum of one twelfth of the appropriations authorised in the relevant chapter of the preceding financial year. That sum shall not, however, exceed one twelfth of the appropriations provided for in the same chapter of the draft budget.

3.The appropriations authorised in the relevant chapter of the preceding financial year, as specified in paragraphs 1 and 2, shall be understood as referring to the appropriations voted in the budget, including by amending budgets, and after adjustment for the transfers made during that financial year.

4.If the continuity of action by the Union so require, the Council, acting by qualified majority on a proposal of the Commission, may authorise expenditure in excess of one provisional twelfth but not exceeding the total of four provisional twelfths, excluding the one twelfth made automatically available, except in duly justified cases, both for commitments and for payments over and above those automatically made available in accordance with paragraphs 1 and 2. It shall forward the decision on authorisation without delay to the European Parliament.

The decision referred to in the first subparagraph shall enter into force 30 days following its adoption unless the European Parliament takes any of the following actions:

(a)acting by a majority of its component Members, decides to reduce that expenditure within that time limit, in which case the Commission shall submit a new proposal;

(b)informs the Council and the Commission that it does not wish to reduce that expenditure, in which case the decision shall enter into force before the expiry of the 30 days.

The additional twelfths shall be authorised in full and shall not be divisible.

5.If, for a given chapter, the authorisation of four provisional twelfths granted in accordance with paragraph 4 is not sufficient to cover the expenditure necessary to avoid a break in continuity of action by the Union in the area covered by the chapter in question, authorisation may exceptionally be given to exceed the amount of the appropriations entered in the corresponding chapter of the budget of the preceding financial year. The European Parliament and the Council shall act in accordance with the procedures provided for in paragraph 4. However, the overall total of the appropriations available in the budget of the preceding financial year or in the draft budget, as proposed, may in no circumstances be exceeded.

CHAPTER 3
Principle of equilibrium

Article 16
Definition and scope

1.Revenue and payment appropriations shall be in balance.

2.The Union and the Union bodies referred to in Articles 69 and 70 may not raise loans within the framework of the budget.

Article 17
Balance from financial year

1.The balance from each financial year shall be entered in the budget for the following financial year as revenue in the case of a surplus or as a payment appropriation in the case of a deficit.

2.The estimates of such revenue or payment appropriations shall be entered in the budget during the budgetary procedure and in a letter of amendment presented pursuant to Article 40. The estimates shall be drawn up in accordance with Article 1 of Council Regulation (EU, Euratom) No 608/2014 32  .

3.After the presentation of the provisional accounts for each financial year, any discrepancy between those accounts and the estimates shall be entered in the budget for the following financial year through an amending budget. In such a case, the Commission shall submit the draft amending budget simultaneously to the European Parliament and the Council within 15 days of submission of the provisional accounts.

CHAPTER 4
Principle of unit of account

Article 18
Use of euro

1.The multiannual financial framework and the budget shall be drawn up and implemented in euro and the accounts shall be presented in euro. However, for the cash-flow purposes referred to in Article 76, the accounting officer and, in the case of imprest accounts, the imprest administrators, and, for the needs of the administrative management of the Commission and the European External Action Service (EEAS), the authorising officer responsible, shall be authorised to carry out operations in other currencies.

2.Without prejudice to specific provisions arising from the application of sector-specific regulations, or from specific procurement contracts, grant agreements, contribution agreements and financing agreements, conversion by the responsible authorising officer shall be made using the daily euro exchange rate published in the C series of the Official Journal of the European Union of the day on which the payment order or recovery order is drawn up by the authorising department.

If no such daily rate is published, the responsible authorising officer shall use the one referred to in paragraph 3.

3.For the purposes of the accounts provided for in Articles 80 and 81, conversion between the euro and another currency shall be made using the monthly accounting rate of the euro. That accounting exchange rate shall be established by the Commission’s accounting officer by means of any source of information regarded as reliable, on the basis of the exchange rate on the penultimate working day of the month preceding that for which the rate is established.

4.Currency conversion operations shall be carried out in such a way as to avoid having a significant impact on the level of the Union co-financing or a detrimental impact on the Union budget. Where appropriate, the rate of conversion between the euro and other currencies may be calculated using the average of the daily exchange rate in a given period.

CHAPTER 5
Principle of universality

Article 19
Scope

Without prejudice to Article 20, total revenue shall cover total payment appropriations. Without prejudice to Article 25, all revenue and expenditure shall be entered in full without any adjustment against each other.

Article 20
Assigned revenue

1.External assigned revenue and internal assigned revenue shall be earmarked to finance specific items of expenditure.

2.The following shall constitute external assigned revenue:

(a)financial contributions from Member States, third countries and bodies not set up under the TFEU and the Euratom Treaty to certain actions or programmes financed by the Union as well as to supplementary research and technological development programmes, and managed by the Commission on their behalf;

(b)appropriations relating to the revenue generated by the Research Fund for Coal and Steel established by Protocol No 37 on the financial consequences of the expiry of the European Coal and Steel Community (ECSC) Treaty and on the Research Fund for Coal and Steel annexed to the TEU and the TFEU.

(c)interest on deposits and the fines provided for in Council Regulation (EC) No 1467/97 33 ;

(d)revenue earmarked for a specific purpose, such as income from foundations, subsidies, gifts and bequests, including the earmarked revenue specific to each institution;

(e)financial contributions to Union activities from third countries or from non-Union bodies not covered by point (b);

(f)internal assigned revenue referred to in paragraph 3, to the extent that it is ancillary to the other revenue under this paragraph;

(g)revenue from the activities of a competitive nature conducted by the Joint Research Centre (JRC) which consist of any of the following:

(i)grant and procurement procedures in which the JRC participates;

(ii)activities of the JRC on behalf of third parties;

(iii)activities undertaken under an administrative agreement with other institutions or other Commission departments, in accordance with Article 57, for the provision of technical-scientific services.

3.The following shall constitute internal assigned revenue:

(a)revenue from third parties in respect of goods, services or work supplied at their request;

(b)proceeds from the sale of, vehicles, equipment, installations, materials, and scientific and technical;

(c)revenue arising from the repayment, in accordance with Article 99, of amounts wrongly paid;

(d)revenue arising from interest on prefinancing payments, subject to Article 8(3);

(e)proceeds from the supply of goods, services and works for other departments within an institution, institutions or bodies, including refunds by other institutions or bodies of mission allowances paid on their behalf;

(f)insurance payments received;

(g)revenue from lettings and from the sale of buildings and land;

(h)revenue from the sale of publications and films, including those on an electronic medium;

(i)revenue and repayments arising from financial operations other than borrowing and lending and their assets held in the common provisioning fund;

(j)revenue arising from subsequent reimbursement of taxes pursuant to point (b) of Article 25(3). Assigned revenue shall be carried over and transferred in accordance with the provisions of points (b) and (c) of Article 12(3) and Article 30.

4.A basic act may also assign the revenue for which it provides to specific items of expenditure. Unless specified otherwise in the basic act, such revenue shall constitute internal assigned revenue.

5.The budget shall include lines to accommodate external assigned revenue and internal assigned revenue and wherever possible shall indicate the amount.

Article 21
Structure to accommodate assigned revenue and provision of corresponding appropriations

1.Without prejudice to point (c) of paragraph 2 of this Article and to Article 22, the structure to accommodate assigned revenue in the budget shall comprise:

(a)in the statement of revenue of each institution’s section, a budget line to receive the revenue;

(b)in the statement of expenditure, the budget remarks, including general remarks, showing which lines may receive the appropriations corresponding to the assigned revenue which are made available.

In the case referred to in point (a) of the first subparagraph, a token entry pro memoria shall be made and the estimated revenue shall be shown for information in the remarks.

2.The appropriations corresponding to assigned revenue shall be made available automatically, both as commitment appropriations and as payment appropriations, when the revenue has been received by the institution, save in any of the following cases:

(a)in the case provided for in point (a) of Article 20(2) for Member States and where the contribution agreement is expressed in euro, commitment appropriations may be made available upon signature by the Member State of the contribution agreement.

(b)in the case provided for in Article 20(2)(b) and points (i) and (iii) of Article 20(2)(g), the commitment appropriations shall be made available as soon as the amount receivable has been estimated.

(c)in the case provided for in point (c) of Article 20(2), the entry of those amounts in the statement of revenue shall give rise to the provision, in the statement of expenditure, of commitment and payment appropriations.

Appropriations referred to in point (c) of this paragraph shall be implemented in accordance with Article 19.

3.The estimates of amounts receivable referred to in point (b) of Article 20(2) and point (h) of Article 20(2) shall be sent to the accounting officer for registration.

Article 22
Assigned revenue resulting from the participation of EFTA States in certain Union programmes

1.The budget structure to accommodate the revenue provided for in Article 20(2)(e) shall be as follows:

(a)in the statement of revenue, a line with a token entry pro memoria shall be entered to accommodate the full amount of the EFTA States’ contribution for the financial year in question;

(b)in the statement of expenditure, an annex, forming an integral part of the budget, shall set out all the lines covering the Union activities in which the EFTA States participate.

2.Under Article 82 of the EEA Agreement the amounts of the annual participation of the EFTA States, as confirmed to the Commission by the Joint Committee of the European Economic Area in accordance with Article 1(5) of Protocol 32 annexed to the EEA Agreement, shall give rise to the provision, at the start of the financial year, of the full amounts of the corresponding commitment appropriations and payment appropriations.

Article 23
Donations

1.Union institutions may accept any donation made to the Union, such as income from foundations, subsidies, gifts and bequests.

2.Acceptance of a donation of a value of EUR 50 000 or more which involves a financial charge, including follow-up costs, exceeding 10 % of the value of the donation made, shall be subject to the authorisation of the European Parliament and of the Council. In light of such an authorisation, the European Parliament and the Council, shall act on the matter within two months of receiving the request from the Commission. If no objection is made within that period, Union institutions shall take a final decision regarding the acceptance of the donation. Union institutions shall explain the financial charges entailed by the acceptance of donations made to the Union.

Article 24
Corporate sponsoring

1.Corporate sponsoring means an agreement by which a legal person supports in-kind an event or an activity for promotional or corporate social responsibility purposes.

2.On the basis of specific internal rules Union institutions and bodies may exceptionally accept in kind corporate sponsoring provided that:

(a)there is due regard to the principles of non-discrimination, proportionality, equal treatment, transparency;

(b)it contributes to the positive image of the Union and is directly linked to the to the core objective of an event or of an action;

(c)it does neither generate conflict of interest nor concern exclusively social events.

Article 25
Rules on deductions and exchange rate adjustments

1.The following deductions may be made from payment requests which shall then be passed for payment of the net amount:

(a)penalties imposed on parties to procurement contracts or beneficiaries;

(b)discounts, refunds and rebates on individual invoices and cost statements;

(c)interest generated by pre-financing payments;

(d)adjustments for amounts unduly paid.

The adjustments referred to in point (d) of the first subparagraph may be made, by means of direct deduction, against a new interim payment or payment of a balance to the same payee under the chapter, article and financial year in respect of which the excess payment was made.

Union accounting rules shall apply to the deductions referred to in points (c) and (d) of the first subparagraph.

2.The cost of products or services, provided to the Union, incorporating taxes refunded by the Member States pursuant to the Protocol on the Privileges and Immunities of the European Union, shall be charged to the budget for the ex-tax amount.

3.The cost of products or services, provided to the Union, incorporating taxes refunded by third countries on the basis of relevant agreements, may be charged to the budget for any of the following amounts:

(a)the ex-tax amount;

(b)the tax-inclusive amount. In such a case, subsequently reimbursed taxes shall be treated as internal assigned revenue.

4.Adjustments may be made in respect of exchange differences occurring in the implementation of the budget. The final gain or loss shall be included in the balance for the year.

CHAPTER 6
Principle of specification

Article 26
General provisions

1.Appropriations shall be earmarked for specific purposes by title and chapter. The chapters shall be further subdivided into articles and items.

2.The Commission and the other institutions may transfer appropriations within the budget subject to the specific conditions laid down in Articles 27 to 30.

Appropriations may only be transferred to budget lines for which the budget has authorised appropriations or which carry a token entry pro memoria.

The percentages referred to in Articles 27 and 28 shall be calculated at the time the request for transfer is made and with reference to the appropriations provided in the budget, including amending budgets.

The amount to be taken into consideration shall be the sum of the transfers to be made on the line from which transfers are being made, after adjustment for earlier transfers made. The amount corresponding to the transfers which shall be carried out autonomously by the Commission or the institution concerned without a decision of the European Parliament and Council shall not be taken into consideration.

Without prejudice to the additional conditions for transfer requests laid down in Article 30, proposals for transfers and all information for the European Parliament and Council concerning transfers made under Articles 27, 28 and 29 shall be accompanied by appropriate and detailed supporting documents showing the most recent information available for the implementation of appropriations and estimates of requirements up to the end of the financial year, both for the lines to which the appropriations are to be transferred and for those from which they are to be taken.

Article 27
Transfers by institutions other than the Commission

1.Any institution other than the Commission may, within its own section of the budget, transfer appropriations:

(a)from one title to another up to a maximum of 10% of the appropriations for the year shown on the line from which the transfer is made;

(b)from one chapter to another without limit.

2.Three weeks before making a transfer, as referred to in paragraph 1, the institution shall inform the European Parliament and the Council of its intention to do so. In the event that duly justified reasons are raised within that period by either the European Parliament or the Council, the procedure laid down in Article 29 shall apply.

3.Any institution other than the Commission may propose to the European Parliament and the Council, within its own section of the budget, transfers from one title to another exceeding the limit of 10 % of the appropriations for the year shown on the line from which the transfer is to be made. Those transfers shall be subject to the procedure laid down in Article 29.

4.Any institution other than the Commission may, within its own section of the budget, make transfers within articles and within each chapter without informing the European Parliament and the Council beforehand. It may also make transfers from one chapter to another of the same title up to a maximum of 10% of the appropriations for the year shown on the line from which the transfer is to be made without informing the European Parliament and the Council beforehand.

Article 28
Transfers by the Commission

1.The Commission may, within its own section of the budget, autonomously:

(a)transfer appropriations within each chapter;

(b)with regard to expenditure on staff and administration which is common to several titles, transfer appropriations from one title to another up to a maximum of 10 % of the appropriations for the year shown on the line from which the transfer is made, and up to a maximum of 30 % of the appropriations for the year shown on the line to which the transfer is made;

(c)with regard to operational expenditure, transfer appropriations between chapters within the same title or between different titles covered by the same basic act, including the administrative support chapters, up to a maximum of 10 % of the appropriations for the year shown on the line from which the transfer is made;

(d)with regard to research and technological development appropriations implemented by the JRC, the Commission may, within the title of the budget relating to the "Direct research" policy area, make transfers between chapters of up to 15 % of the appropriation in the line from which the transfer is made;

(e)with regard to the European Union Solidarity Fund (EUSF), transfer appropriations from the reserve to the line upon the adoption by the Parliament and the Council of the decision of mobilisation of the Fund;

(f)with regard to operational expenditure of the funds managed under shared implementation, with the exception of the EAGF, transfer appropriations from one title to another, provided that the appropriations concerned are for the same objective within the meaning of the Regulation concerned or are technical assistance expenditure;

(g)transfer appropriations from the budgetary item of a budgetary guarantee to the budgetary item of another budgetary guarantee when the provisioned resources in the common provisioning fund of the latter are insufficient to pay a guarantee call.

For the purposes of point (c) of the first subparagraph autonomous transfers from the administrative support lines to the corresponding operational lines shall be allowed.

The Commission shall take its decisions by 31 January of the following financial year.

The expenditure referred to in point (b) of the first subparagraph of this Article shall cover, for each policy area, the items referred to in Article 45(3).

Where the Commission transfers EAGF appropriations pursuant to paragraph 1 after the 31 December, it shall take its decision by 31 January of the following financial year. The Commission shall inform the European Parliament and the Council within two weeks after its decision on those transfers.

Three weeks before making the transfers referred to in point (b) of the first subparagraph of this Article, the Commission shall inform the European Parliament and the Council of its intention to do so. In the event that duly justified reasons are raised within that period by the European Parliament or the Council, the procedure laid down in Article 29 shall apply.

By way of exception from the second subparagraph, the Commission may, during the last two months of the financial year, autonomously transfer appropriations concerning expenditure on staff, external staff and other agents from one title to another within the total limit of 5 % of the appropriations for the year. The Commission shall inform the European Parliament and the Council within two weeks after its decision on those transfers.

2.The Commission may, within its own section of the budget, decide on the following transfer of appropriations from one title to another, provided it immediately informs the European Parliament and the Council of its decision:

(a)transfer of appropriations from the ‘provisions’ title referred to in Article 47 of this Regulation, where the only condition for lifting the reserve is the adoption of a basic act pursuant to Article 294 TFEU;

(b)in duly justified exceptional cases such as international humanitarian disasters and crises occurring after 1 December of the financial year, transfer unused appropriations for that financial year still available in the budget titles falling under heading 4 of the multiannual financial framework to the budget titles concerning crisis management aid and humanitarian aid operations.

Proposals for transfers and all information for the European Parliament and Council concerning transfers made under Articles 27 and 28 shall be accompanied by appropriate and detailed supporting documents showing the implementation of appropriations and estimates of requirements up to the end of the financial year, both for the lines to which the appropriations are to be transferred and for those from which they are to be taken.

Article 29
Transfer proposals submitted to the European Parliament
and the Council by the institutions

1.Each institution shall submit its transfer proposals simultaneously to the European Parliament and the Council.

2.The Commission may submit proposals for transfers of payment appropriations to the funds managed under shared implementation with the exception of the EAGF to the European Parliament and the Council by 10 January of the following financial year. The transfer of the payment appropriations may be made from any item of the budget. The six-week period referred to in paragraph 3 shall be reduced to three weeks.

If the transfer is not approved or only partially approved by the European Parliament and the Council, the corresponding part of the expenditure referred to in point (b) of Article 10(5) shall be charged to the payment appropriations of the following financial year.

3.The European Parliament and the Council shall take decisions on transfers of appropriations as provided for in paragraphs 4 to 8.

4.Except in urgent circumstances, the European Parliament and the Council, the latter acting by qualified majority, shall deliberate upon each transfer proposal within six weeks of its receipt by both institutions.

5.Where the Commission transfers EAGF appropriations in accordance with this Article it shall submit transfer proposals to the European Parliament and the Council by 10 January of the following financial year.

The six-week period referred to in paragraph 4 shall be reduced to three weeks.

6.The transfer proposal shall be approved, if, within the six-week period, any of the following occurs:

(a)the European Parliament and the Council approve it;

(b)either the European Parliament or the Council approves it and the other institution refrains from acting;

(c)the European Parliament and the Council refrain from acting or do not take a decision to amend or refuse the transfer proposal.

7.The six-week period referred to in paragraph 4 shall be reduced to three weeks, unless either the European Parliament or the Council requests otherwise, in the following cases:

(a)the transfer represents less than 10% of the appropriations of the line from which the transfer is made or does not exceed EUR 5 000 000;

(b)the transfer concerns only payment appropriations and the overall amount of the transfer does not exceed EUR 100 000 000.

8.If either the European Parliament or the Council has amended the amount of the transfer while the other institution has approved it or refrains from acting, or if the European Parliament and the Council have both amended the amount of the transfer, the lesser of the two amounts shall be deemed approved, unless the institution concerned withdraws its transfer proposal.

Article 30
Transfers subject to special provisions

1.Appropriations corresponding to assigned revenue may be transferred only if such revenue is used for the purpose for which it is assigned.

2.A token entry pro memoria shall be added on an entry without appropriations authorised through a specific request from the Commission. The rules for adoption of the request of the Commission shall be the ones laid down in Article 29. 

3.Paragraph 1 shall not apply to internal assigned revenue in the event that there are no identified needs allowing such revenue to be used for the purpose for which it is assigned.

4.Decisions on transfers to allow the use of the emergency aid reserve and the European Union Crisis Reserve shall be taken by the European Parliament and the Council on a proposal from the Commission.

For the purposes of this paragraph, the procedure provided for in paragraphs 3 and 4 of Article 29 shall apply. If the European Parliament and the Council do not agree to the Commission proposal and cannot reach a common position on the use of this reserve, they shall refrain from acting on the Commission’s transfer proposal.

Proposals for transfers from the emergency aid reserve and the European Union Crisis Reserve shall be accompanied by appropriate and detailed supporting documents demonstarting:

(a)the most recent information available for the implementation of appropriations and the estimate of requirements up to the end of the financial year for the line to which the transfer is to be made;

(b)an analysis of the possibilities of reallocating appropriations.

5.Transfers from the reserve for the European Globalisation Adjustment Fund shall be deemed approved by the European Parliament and the Council upon the adoption of the decision to mobilise the Fund.

CHAPTER 7
Principle of sound financial management and performance

Article 31
Performance and principles of economy, efficiency and effectiveness

1.Appropriations shall respect the principle of sound financial management, and thus be implemented in accordance with the following principles:

(a)the principle of economy which requires that the resources used by the institution in the pursuit of its activities shall be made available in due time, in appropriate quantity and quality and at the best price

(b)the principle of efficiency which concerns the best relationship between resources employed and achievement of objectives.

(c)the principle of effectiveness which concerns the extent to which the intended objectives are achieved.

2.In line with the principle of sound financial management, the use of appropriations shall focus on performance and for this purpose:

(a)objectives for programmes and activities shall be established ex ante;

(b)progress in the achievement of objectives shall be monitored with performance indicators;

(c)achievements shall be reported to the European Parliament and the Council in accordance with point (h) of Article 39(3) and with point (ii) of Article 239(1)(b).

Article 32
Evaluations

1.Programmes and activities which entail significant spending shall be subject to ex-ante and retrospective evaluation ("evaluation"), which shall be proportionate to the objectives and expenditure.

2.Ex-ante evaluations supporting the preparation of programmes and activities shall be based on evidence on the performance of related programmes or activities and shall identify and analyse the issues to be addressed, EU added value, objectives, expected effects of different options and monitoring and evaluation arrangements.

3.Retrospective evaluations shall assess the performance of the programme or activity, including aspects such as effectiveness, efficiency, coherence, relevance and EU added value. They shall be undertaken periodically and in sufficient time for the findings to be taken into account in ex-ante evaluations which support the preparation of related programmes and activities.

Article 33
Compulsory financial statement

1.Any proposal or initiative submitted to the legislative authority by the Commission, the High Representative of the Union for Foreign Affairs and Security Policy (the ‘High Representative’) or by a Member State, which may have an impact on the budget, including changes in the number of posts, shall be accompanied by a financial statement and by an ex ante evaluation as provided for in Article 32.

Any amendment to a proposal or initiative submitted to the legislative authority which may have appreciable implications for the budget, including changes in the number of posts, shall be accompanied by a financial statement prepared by the institution proposing the amendment.

The financial statement shall contain the financial and economic data for the assessment by the legislative authority of the need for Union action. It shall provide appropriate information as regards coherence with other activities of the Union and any possible synergy.

In the case of multiannual operations, the financial statement shall contain the foreseeable schedule of annual requirements in terms of appropriations and posts, including for external staff, and an evaluation of their medium-term financial impact.

2.During the budgetary procedure, the Commission shall provide the necessary information for a comparison between changes in the appropriations required and the initial forecasts made in the financial statement in the light of the progress of deliberations on the proposal or initiative submitted to the legislative authority.

3.In order to reduce the risk of fraud,irregularities and non-achievement of objectives, the financial statement referred to in paragraph 1 shall provide information on the internal control system set up, an estimate of the costs and benefits of the controls implied by such system and an assessment of the expected level of risk of error, as well as existing and planned fraud prevention and protection measures.

Such analysis shall take into account the likely scale and type of errors, as well as the specific conditions of the policy area concerned and the rules applicable thereto.

4.When presenting revised or new spending proposals, the Commission shall estimate the costs and benefits of control systems, as well as the level of risk of error as referred to in paragraph 3.

Article 34
Internal control of budget implementation

1.Pursuant to the principle of sound financial management, the budget shall be implemented in compliance with effective and efficient internal control as appropriate in each method of budget implementation, and in accordance with the relevant sector-specific rules.

2.For the purposes of the implementation of the budget, internal control is defined as a process applicable at all levels of management and designed to provide reasonable assurance of achieving the following objectives:

(a)effectiveness, efficiency and economy of operations;

(b)reliability of reporting;

(c)safeguarding of assets and information;

(d)prevention, detection, correction and follow-up of fraud and irregularities;

(e)adequate management of the risks relating to the legality and regularity of the underlying transactions, taking into account the multiannual character of programmes as well as the nature of the payments concerned.

3.Effective internal control shall be based on best international practices and include, in particular, the following:

(a)segregation of tasks;

(b)an appropriate risk management and control strategy including control at recipient level;

(c)avoidance of conflict of interest;

(d)adequate audit trails and data integrity in data systems;

(e) procedures for monitoring effectiveness and efficiency and for follow-up of identified internal control weaknesses and exceptions;

(f)periodic assessment of the sound functioning of the internal control system.

4.Efficient internal control shall be based on the following elements:

(a)the implementation of an appropriate risk management and control strategy coordinated among appropriate actors involved in the control chain;

(b)the accessibility for all appropriate actors in the control chain of the results of controls carried out;

(c)reliance, where appropriate, on management declarations of implementation partners and independent audit opinions, provided that the quality of the underlying work is adequate and acceptable and that it was performed in accordance with agreed standards;

(d)the timely application of corrective measures including, where appropriate, dissuasive penalties;

(e)clear and unambiguous legislation underlying the policies;

(f)the elimination of multiple controls;

(g)improving the costbenefit ratio of controls.

5.If, during implementation, the level of error is persistently high, the Commission shall identify the weaknesses in the control systems, analyse the costs and benefits of possible corrective measures and take or propose appropriate action, such as simplification of the applicable provisions, improvement of the control systems and redesign of the programme or delivery systems.

CHAPTER 8
Principle of transparency

Article 35
Publication of accounts, budgets

1.The budget shall be established and implemented and the accounts presented in accordance with the principle of transparency.

2.The President of the European Parliament shall have the budget and any amending budget, as definitively adopted, published in the Official Journal of the European Union.

The budgets shall be published within three months of the date on which they are declared definitively adopted.

Pending official publication in the Official Journal of the European Union, the final detailed budget figures shall be published in all languages on the Internet site of the institutions, on the Commission's initiative, as soon as possible and no later than four weeks after the final adoption of the budget.

The consolidated annual accounts shall be published in the Official Journal of the European Union.

Article 36
Publication of information on recipients and other information

1.The Commission shall make available, in an appropriate and timely manner, information on recipients, as well as the nature and purpose of the measure financed from the budget, where the latter is implemented directly in accordance with point (a) of Article 61(1).

The obligation set out in the first subparagraph shall also apply to other institutions when they implement the Union budget.

The information on recipients of Union’s funds implemented under direct implementation shall be published on an internet site of the Union institutions, no later than 30 June of the year following the financial year in which the funds were legally committed.

2.The information referred to in paragraph 1 of the first subparagraph shall be made available, having due regard for the requirements of confidentiality and security, in particular the protection of personal data and shall include the following:

(a)the name of the recipient;

(b)the locality of the recipient;

(c)the amount legally committed;

(d)the nature and purpose of the measure.

For the purposes of point b) of the first subparagraph the term ‘locality’ shall mean:

(i)the address of the recipient when the latter is a legal person;

(ii)the Region on NUTS 2 level when the recipient is a natural person.

This information shall only be published for prizes, grants and contracts which have been awarded as a result of contests or grant award procedures or public procurement procedures, and for experts which have been selected pursuant to Article 230(2). The information shall not be published for:

(a)education supports paid to natural persons and other direct support paid to natural persons most in need as referred to in point (b) of Article 185(4);

(b)very low value contracts awarded to experts selected pursuant to Article 230(2) as well as very low value contracts below the amount referred to in point 14.4 of the Annex to this Regulation.

The internet site of the Union institutions shall contain at least a reference to the address of the website where the information can be found if it is not published directly on the dedicated place of the internet site of the Union institutions.

3.Where natural persons are concerned, the publication shall be limited to the name and locality of the recipient, the amount legally committed and the purpose of the measure. The disclosure of those data shall be based on relevant criteria such as the periodicity, or the type or importance of the measure. As far as personal data are concerned, the information shall be removed two years after the end of the financial year in which the amount was legally committed. The same shall apply to personal data referring to legal persons for whom the official title identifies one or more natural persons.

4.The publication shall be waived if such disclosure risks threatening the rights and freedoms of individuals concerned as protected by the Charter of Fundamental Rights of the European Union or harm the commercial interests of the recipients.

5.Persons or entities implementing Union funds pursuant to point (c) of Article 61 (1) and bodies designated pursuant to paragraph 3 of Article 62 shall make information on their recipients available in an appropriate and timely manner.

The information on final recipients of funds provided through financial instruments who receive support from the Union budget for an amount lower than EUR 500 000, shall be limited to statistical data, aggregated in accordance with relevant criteria, such as geographical situation, economic typology of recipients, type of support received and the Union policy area under which such support was provided.

Where applicable, the level of detail and criteria shall be defined in the relevant sectorspecific rules and may be further refined in the financial framework partnership agreements.

The Commission shall make information about the website where the information referred to in the first subparagraph can be found available in an appropriate and timely manner.

TITLE III
ESTABLISHMENT AND STRUCTURE OF THE BUDGET

CHAPTER 1
Establishment of the budget

Article 37
Estimates of revenue and expenditure

1.Each institution other than the Commission shall draw up an estimate of its revenue and expenditure, which it shall send to the Commission, and in parallel, for information, to the European Parliament and the Council, before 1 July each year.

2.The High Representative shall hold consultations with the Members of the Commission responsible for development policy, neighbourhood policy and international cooperation, humanitarian aid and crisis response, regarding their respective responsibilities

3.The Commission shall draw up its own estimates, which it shall also send, directly after their adoption, to the European Parliament and the Council.

In preparing its estimates, the Commission shall use the information referred to in Article 38.

Article 38
Estimated budget of the bodies referred to in Article 69

By 31 January each year, each body referred to in Article 69 shall, in accordance with the instrument establishing it, send the Commission, the European Parliament and the Council its draft single programming document.

Article 39
Draft budget

1.The Commission shall submit a proposal containing the draft budget to the European Parliament and the Council by 1 September of the year preceding that in which the budget is to be implemented. It shall transmit that proposal, for information, also to the national parliaments.

The draft budget shall contain a summary general statement of the revenue and expenditure of the Union and shall consolidate the estimates referred to in Article 37. It may also contain different estimates from those drawn up by the institutions.

The draft budget shall follow the structure and presentation set out in Articles 45 to 50.

Each section of the draft budget shall be preceded by an introduction drawn up by the institution concerned.

The Commission shall draw up the general introduction to the draft budget. The general introduction shall comprise financial tables covering the main data by titles and justifications for the changes in the appropriations from one financial year to the next by categories of expenditure of the multiannual financial framework.

2.In order to provide more precise and reliable forecasts of the budgetary implications of legislation in force and of pending legislative proposals, the Commission shall attach to the draft budget an indicative financial programming for the following years, structured by category of expenditure, policy area and budget line. The complete financial programming shall cover all categories of expenditure with the exception of agriculture, cohesion policy and administration for which only summary data shall be provided

The indicative financial programming shall be updated after the adoption of the budget, to incorporate the results of the budgetary procedure and any other relevant decisions.

3.The Commission shall attach to the draft budget

(a)the reasons for which the draft budget contains different estimates from those drawn up by other institutions;

(b)any working document it considers useful in connection with the establishment plans of the institutions. Any such working document, showing the latest authorised establishment plan, shall present:

(i)all staff employed by the Union, displayed by type of contract;

(ii)a statement of the policy on posts and external personnel and on gender balance;

(iii)the number of posts actually filled at the beginning of the year in which the draft budget is presented, indicating their distribution by grade and administrative unit;

(iv)a list of posts broken down per policy area;

(v)for each category of external staff, the initial estimated number of full-time equivalents on the basis of the authorised appropriations, as well as the number of persons actually in place at the beginning of the year in which the draft budget is presented, indicating their distribution by function group and, as appropriate, by grade.

(c)for the bodies referred to in Articles 69 and 70, a working document presenting the revenue and expenditure, as well as all information on staff as referred to in points (i) to (v) of subparagraph (b).

Where Public Private Partnershipss make use of financial instruments, the information relating to those instruments shall be included in the working document referred to in paragraph 4.

(d)a working document on the planned implementation of appropriations for the financial year and on commitments outstanding;

(e)as regards appropriations for administration, a working document presenting administrative expenditure to be implemented by the Commission under its section of the budget;

(f)a working document on pilot projects and preparatory actions which shall also contain an assessment of the results and follow-up envisaged;

(g)as regards funding to international organisations, a working document containing:

(i)a summary of all contributions, with a breakdown per Union programme or fund and per international organisation;

(ii)a statement of reasons explaining why it was more efficient for the Union to fund those international organisations rather than to act directly;

(h)programme statements or any other relevant document containing the following:

(i)an indication of which Union policies and objectives the programme shall contribute to;

(ii)a clear rationale for intervention at Union level in accordance, inter alia, with the principle of subsidiarity;

(iii)updates in achieving programme objectives;

(iv)a full justification, including a cost-benefit analysis for proposed changes in the level of appropriations;

(v)information on the implementation rates of the programme for the current and preceding years;

(i)a summary statement of the schedule of payments due in subsequent financial years to meet budgetary commitments entered into in previous financial years.

4.Where the Commission makes use of financial instruments, it shall attach to the draft budget a working document presenting for each financial instrument the following:

(a)a reference to the financial instrument and its basic act, together with a general description of the instrument, its impact on the budget and the added value of the Union contribution;

(b)the financial institutions involved in implementation, including any issues relating to the application of Article 150(2);

(c)its contribution to the achievement of the objectives of the programme concerned as measured by the established indicators including, where applicable, the geographical diversification;

(d)the envisaged operations, including target volumes based on the target leverage or, when unavailable, on the leverage effect arising from the existing financial instruments;

(e)budget lines corresponding to the relevant operations and the aggregate budgetary commitments and payments from the budget;

(f)the average duration between the budgetary commitment to the financial instruments and the legal commitments for individual projects in the form of equity or debt, where their duration exceeds three years. The Commission shall explain the reasons and provide, where appropriate, an action plan for the reduction of the duration in the framework of the annual discharge procedure;

(g)revenues and repayments under Article 202(2), including an evaluation of their use;

(h)the value of equity investments, with respect to previous years;

(i)the total amount of provisions for risks and liabilities, as well as any information on the financial risk exposure of the Union;

(j)impairments of assets and called guarantees both for the preceding year and the respective accumulated figures;

(k)the performance of the financial instrument, including the investments realised, the target leverage effect and the achieved leverage effect;

(l)the provisioned resources in the common guarantee fund and, when applicable, the balance on the fiduciary account.

This working document shall also include an overview of the administrative expenditure arising from management fees and other financial and operating charges paid for the management of financial instruments in total and per managing party and per financial instrument managed.

5.Where the Commission has given a budgetary guarantee, it shall attach to the draft budget a working document presenting for each budgetary guarantee and for the common guarantee fund the following:

(a)a reference to the budgetary guarantee and its basic act, together with a general description of the guarantee, its impact on the financial liabilities of the budget and the added value of the Union support;

(b)the counterparts for the guarantee, including any issues relating to the application of Article 150(2);

(c)its contribution to the achievement of the objectives of the budgetary guarantee as measured by the established indicators, including, where applicable, the geographical diversification and the mobilisation of private sector resources;

(d)information on operations covered by the guarantee on an aggregated basis by sectors, countries and instrument, including, where applicable, portfolios and combined support with other Union actions;

(e)the financial amount transferred to beneficiaries as well as an assessment of the leverage effect achieved by the projects supported under the guarantee;

(f)information aggregated on the same basis than in point (d) on calls on the guarantee, losses, returns, amounts recovered and any other payments received;

(g)information about the financial management, the performance and the risk of the common guarantee fund at the end of the previous calendar year;

(h)the effective provisioning rate of the common guarantee fund and, where applicable, the subsequent transfers following Article 206(3);

(i)the financial flows in the common provisioning fund during the previous calendar year as well as the significant transactions and any relevant information on the financial risk exposure of the Union;

(j)pursuant to Article 203(3), an assessment of the sustainability of the contingent liabilities borne by the budget of the Union arising from financial operations.

6.Where the Commission makes use of Union Trust Funds, it shall attach to the draft budget a working document on the activities supported by Union Trust Funds, on their implementation and performance.

7.The Commission shall also attach to the draft budget any further working document it considers useful to support its budget requests.

8.In accordance with Article 8(5) of Council Decision 2010/427/EU ( 34 ) and in order to ensure budgetary transparency in the area of external action of the Union, the Commission shall transmit to the European Parliament and the Council, together with the draft budget, a working document presenting, in a comprehensive way:

(a)all administrative and operational expenditure relating to the external actions of the Union, including common foreign and security policy (CFSP) and common security and defence policy tasks, and financed from the budget;

(b)the EEAS’ overall administrative expenditure for the preceding year, broken down into expenditure per Union delegation and expenditure for the EEAS’ central administration; together with operational expenditure, broken down by geographic area (regions, countries), thematic areas, Union delegation and mission.

9.The working document referred to in paragraph 6 shall also:

(a)show the number of posts for each grade in each category and the number of permanent and temporary posts, including contractual and local staff authorised within the limits of the appropriations in each Union delegation, as well as in the central administration of the EEAS;

(b)show any increase or reduction of posts by grade and category in the central administration of the EEAS, and in all Union delegations based on the preceding financial year.

Article 40
Letter of amendment to the draft budget

On the basis of any new information which was not available at the time the draft budget was established, the Commission may, on its own initiative or if requested by one of the other institutions in respect of its respective section, submit simultaneously to the European Parliament and the Council letters of amendment to the draft budget before the Conciliation Committee referred to in Article 314 TFEU is convened. The letters may include a letter of amendment updating, in particular, expenditure estimates for agriculture.

Article 41
Obligations of the Member States stemming from the adoption of the budget

1.The President of the European Parliament shall declare the budget definitively adopted in accordance with the procedure provided for in Article 314(9) TFEU and Article 106a of the Euratom Treaty.

2.Once the budget has been declared definitively adopted, each Member State shall, from 1 January of the following financial year or from the date of the declaration of definitive adoption of the budget if this occurs after 1 January, be bound to make the payments due to the Union, as specified in Regulation (EU, Euratom) No 609/2014.

Article 42
Draft amending budgets

1.The Commission may present draft amending budgets which are primarily revenue-driven in the following circumstances:

(a)to enter in the budget the balance of the preceding financial year, in accordance with the procedure laid down in Article 17;

(b)to revise the forecast of own resources on the basis of updated economic forecasts;

(c)to update the revised forecast of own resources and other revenue, as well as to review the availability of, and need for, payment appropriations.

As far as possible, and when justified, the Commission may propose expenditure-driven amendments combined with the revenue-driven amendments referred to in the first subparagraph.

If there are unavoidable, exceptional and unforeseen circumstances, the Commission may present draft amending budgets which are primarily expenditure-driven.

2.Requests for amending budgets, in the same circumstances as referred to in paragraph 1, from institutions other than the Commission shall be sent to the Commission.

Before presenting a draft amending budget, the Commission and the other institutions shall examine the scope for reallocation of the relevant appropriations, with particular reference to any expected under-implementation of appropriations.

Article 41 shall apply to amending budgets. Amending budgets shall be substantiated by reference to the budget the estimates of which they are amending.

3.The Commission shall, except in duly justified exceptional circumstances submit its draft amending budgets simultaneously to the European Parliament and the Council by 15 October at the latest of each financial year. It may attach an opinion to the requests for amending budgets from the other institutions.

4.Draft amending budgets shall be accompanied by statements of grounds and the information on the implementation of the budget for the preceding and current financial years available at the time of their establishment.

Article 43
Early transmission of estimates and draft budgets

The Commission, the European Parliament and the Council may agree to bring forward certain dates for the transmission of the estimates, and for the adoption and transmission of the draft budget. Such an arrangement may not, however, have the effect of shortening or extending the periods for which provision is made for consideration of those texts under Article 314 TFEU and Article 106a of the Euratom Treaty.

CHAPTER 2
Structure and presentation of the budget

Article 44
Structure of the budget

The budget shall consist of the following:

(a)a general statement of revenue and expenditure;

(b)separate sections for each institution, with the exception of the European Council and the Council which shall share the same section, subdivided into statements of revenue and expenditure.

Article 45
Budget nomenclature

1.Commission revenue and the revenue and expenditure of the other institutions shall be classified by the European Parliament and the Council according to their type or the use to which they are assigned under titles, chapters, articles and items.

2.The statement of expenditure for the Commission section shall be set out on the basis of a nomenclature adopted by the European Parliament and the Council and classified according to purpose.

Each title shall correspond to a policy area and each chapter shall, as a rule, correspond to a programme or an activity.

Each title may include operational appropriations and administrative appropriations. The administrative appropriations for a title shall be grouped in a single chapter.

The budget nomenclature shall comply with the principles of specification, transparency and sound financial management. It shall provide the clarity and transparency necessary for the budgetary process, facilitating the identification of the main objectives as reflected in the relevant legal bases, making possible choices on political priorities and enabling efficient and effective implementation.

3.When presented by purpose, administrative appropriations for individual titles shall be classified as follows:

(a)expenditure on staff authorised in the establishment plan: there shall be an amount of appropriations and a number establishment plan posts corresponding to that expenditure;

(b)expenditure on external personnel and other expenditure referred to in point (b) of the first subparagraph of Article 28(1) and financed under the "administration" heading of the multiannual financial framework;

(c)expenditure on buildings and other related expenditure, including cleaning and maintenance, rental and hiring, telecommunications, water, gas and electricity;

(d)external personnel and technical assistance directly linked to the implementation of programmes.

Any administrative expenditure of the Commission of a type which is common to several titles shall be set out in a separate summary statement classified by type.

Article 46
Negative revenue

1.The budget shall not contain negative revenue, except where it results from negative remuneration of deposits.

2.The own resources paid under the Council Decision on the system of own resources of the European Union shall be net amounts and shall be shown as such in the summary statement of revenue in the budget.

Article 47
Provisions

1.Each section of the budget may include a "provisions" title. Appropriations shall be entered in that title in any of the following cases:

(a)no basic act exists for the action concerned when the budget is established;

(b)there are serious grounds for doubting the adequacy of the appropriations or the possibility of implementing, under conditions in accordance with the principle of sound financial management, the appropriations entered on the lines concerned.

The appropriations in that title may be used only after transfer in accordance with the procedure laid down in point (c) of the first subparagraph of Article 28(1) of this Regulation, where the adoption of the basic act is subject to the procedure laid down in Article 294 TFEU, and in accordance with the procedure laid down in Article 29 of this Regulation, for all other cases.

2.In the event of serious implementation difficulties, the Commission may propose, in the course of a financial year, that appropriations be transferred to the "provisions" title. The European Parliament and the Council shall take a decision on such transfers as provided for in Article 29.

Article 48
Negative reserve

The Commission section of the budget may include a "negative reserve" limited to a maximum amount of EUR 400 000 000. Such a reserve, which shall be entered in a separate title, shall comprise payment appropriations only.

That negative reserve shall be drawn upon before the end of the financial year by means of transfer in accordance with the procedure laid down in Articles 28 and 29.

Article 49
Emergency Aid Reserve and European Union Crisis Reserve

1.The Commission section of the budget shall include a reserve for emergency aid for third countries and a European Union Crisis Reserve.

2.The reserves referred to in paragraph 1 shall be drawn upon before the end of the financial year by means of transfer in accordance with the procedure laid down in Articles 28 and 30.

Article 50
Presentation of the budget

1.The budget shall show:

(a)in the general statement of revenue and expenditure:

(i)the estimated revenue of the Union for the financial year concerned (‘year n’);

(ii)the estimated revenue for the preceding financial year and the revenue for year n – 2;

(iii)the commitment and payment appropriations for year n;

(iv)the commitment and payment appropriations for the preceding financial year;

(v)the expenditure committed and the expenditure paid in year n – 2, the latter also expressed as a percentage of the budget of year n;

(vi)appropriate remarks on each subdivision, as set out in Article 45(1). The budget remarks shall include the references of the basic act, where one exists as well as all appropriate explanations concerning the nature and purpose of the appropriations;

(b)in each section, the revenue and expenditure in the same structure as in point (a);

(c)with regard to staff:

(i)for each section, an establishment plan setting the number of posts for each grade in each category and in each service and the number of permanent and temporary posts authorised within the limits of the appropriations;

(ii)an establishment plan for staff paid from the research and technological development appropriations for direct action and an establishment plan for staff paid from the same appropriations for indirect action; the establishment plans shall be classified by category and grade and shall distinguish between permanent and temporary posts, authorised within the limits of the appropriations;

(iii)an establishment plan setting the number of posts by grade and by category for each body referred to in Article 69 which receives a contribution charged to the budget. The establishment plans shall show, next to the number of posts authorised for the financial year, the number authorised for the preceding year. The staff of the Euratom Supply Agency shall appear separately in the Commission establishment plan.

(d)with regard to financial assistance and budgetary guarantees::

(i)in the general statement of revenue, the budget lines corresponding to the relevant operations and intended to record any reimbursements received from recipients who initially defaulted. Those lines shall carry a token entry pro memoria and be accompanied by appropriate remarks;

(ii)in the Commission section:

–the budget lines containing the Union’s guarantees in respect of the operations concerned.Those lines shall carry a token entry pro memoria, provided that no effective charge which has to be covered by definitive resources has arisen;

–remarks giving the reference to the basic act and the volume of the operations envisaged, the duration and the financial guarantee given by the Union in respect of such operations;

(iii)in a document annexed to the Commission section, as an indication, also of the corresponding risks:

–ongoing capital operations and debt management;

–the capital operations and debt management for year n;

(e)with regard to the funding implemented by entities pursuant to Article 61(1)(c):

(i)a reference to the basic act of the relevant programme;

(ii)corresponding budget lines;

(iii)a general description of the action, including its duration and its impact on the budget;

(f)the total amount of CFSP expenditure entered in a chapter, entitled ‘CFSP’, with specific articles. Those articles shall cover CFSP expenditure and shall contain specific lines identifying at least the single major missions.

2.In addition to the documents referred to in paragraph 1, the European Parliament and the Council may attach any other relevant documents to the budget.

Article 51
Rules on the establishment plans for staff

1.The establishment plans described in point (c) of Article 50(1) shall constitute an absolute limit for each institution or body. No appointment may be made in excess of the limit set.

However, save in the case of grades AD 16, AD 15 and AD 14, each institution or body may modify its establishment plans by up to 10 % of posts authorised, subject to the following conditions:

(a)the volume of staff appropriations corresponding to a full financial year is not affected;

(b)the limit of the total number of posts authorised by each establishment plan is not exceeded;

(c)the institution or body has taken part in a benchmarking exercise with other institutions and bodies of the Union as initiated by the Commission's staff screening exercise.

Three weeks before making the modifications referred to in the second subparagraph, the institution shall inform the European Parliament and the Council of its intention to do so. In the event that duly justified reasons are raised within this period by either the European Parliament or the Council, the institution shall refrain from making the modifications and the procedure referred to in Article 42 shall apply.

2.By way of derogation from the first subparagraph of paragraph 1, the effects of part-time work authorised by the appointing authority in accordance with the Staff Regulations may be offset by other appointments.

CHAPTER 3
Budgetary discipline

Article 52
Compliance with the multiannual financial framework.

The budget shall comply with the multiannual financial framework.

Article 53
Compliance of Union acts with the budget

Where the implementation of a Union act exceeds the appropriations available in the budget, such an act may be implemented in financial terms only after the budget has been amended accordingly.

TITLE IV
IMPLEMENTATION OF THE BUDGET

CHAPTER 1
General provisions

Article 54
Budget implementation in accordance with the principle of sound financial management and citizens' opinion

1.The Commission shall implement the revenue and expenditure of the budget in accordance with this Regulation, under its own responsibility and within the limits of the appropriations authorised.

2.The Member States shall cooperate with the Commission so that the appropriations are used in accordance with the principle of sound financial management.

3.Citizens may be consulted on the implementation of the Union budget by the Commission, Member States or any other entity implementing the Union budget.

Article 55
Information on transfers of personal data for audit purposes

In any call made in the context of grants, procurement or prizes implemented in direct implementation, potential beneficiaries, candidates, tenderers and participants shall, in accordance with Regulation (EC) No 45/2001 of the European Parliament and of the Council ( 35 ) be informed that, for the purposes of safeguarding the financial interests of the Union, their personal data may be transferred to internal audit services, to the European Court of Auditors or to the European Anti-Fraud Office and between authorising officers of the Commission, and the executive agencies and the Union bodies referred to in Article 70.

Article 56
Basic act and exceptions

1.A basic act shall first be adopted before the appropriations entered in the budget for any action by the Union may be used.

2.By way of derogation from paragraph 1 the following may be implemented without a basic act provided the actions which they are intended to finance fall within the competences of the Union

(a)appropriations for pilot projects of an experimental nature designed to test the feasibility of an action and its usefulness. The relevant commitment appropriations may be entered in the budget for not more than two consecutive financial years;

The total amount of appropriations for the pilot projects shall not exceed EUR 40 000 000 in any financial year.

(b)appropriations for preparatory actions in the field of application of the TFEU and the Euratom Treaty, designed to prepare proposals with a view to the adoption of future actions. The preparatory actions shall follow a coherent approach and may take various forms. The relevant commitment appropriations may be entered in the budget for not more than three consecutive financial years. The procedure for the adoption of the relevant basic act shall be concluded before the end of the third financial year. In the course of that procedure, the commitment of appropriations shall correspond to the particular features of the preparatory action with regard to the activities envisaged, the aims pursued and the recipients. Consequently, the means implemented shall not correspond in volume to those envisaged for financing the definitive action itself;

The total amount of appropriations for new preparatory actions referred to under this point shall not exceed EUR 50 000 000 in any financial year, and the total amount of appropriations actually committed for preparatory actions shall not exceed EUR 100 000 000.

(c)appropriations for preparatory measures in the field of Title V of the TEU. Such measures shall be limited to a short period of time and shall be designed to establish the conditions for Union action in fulfilment of the objectives of the CFSP and for the adoption of the necessary legal instruments;

For the purpose of Union crisis management operations, preparatory measures shall be designed, inter alia, to assess the operational requirements, to provide for a rapid initial deployment of resources, or to establish the conditions on the ground for the launching of the operation.

Preparatory measures shall be agreed by the Council, on a proposal by the High Representative.

In order to ensure the rapid implementation of preparatory measures, the High Representative shall inform the European Parliament and the Commission as early as possible of the Council’s intention to launch a preparatory measure and, in particular, of the estimated resources required for this purpose. The Commission shall take all the measures necessary to ensure a rapid disbursement of the funds.

The financing of measures agreed by the Council for the preparation of Union crisis management operations under Title V of the Treaty on European Union shall cover incremental costs directly arising from a specific field deployment of a mission or team involving inter alia personnel from the Union institutions, including high risk insurance, travel and accommodation costs and per diem payments.

(d)appropriations for one-off actions, or even actions for an indefinite duration, carried out by the Commission by virtue of tasks resulting from its prerogatives at institutional level pursuant to the TFEU and the Euratom Treaty, other than its right of legislative initiative referred to in point (b), and under specific powers directly conferred on it by those Treaties, a list of which is to be given in the delegated acts adopted pursuant to this Regulation;

(e)appropriations for the operation of each institution under its administrative autonomy.

Article 57
Implementation of the budget by institutions other than the Commission

1.The Commission shall confer on the other institutions the requisite powers for the implementation of the sections of the budget relating to them.

2.The Commission may conclude agreements with the other Union institutions in order to facilitate the implementation of appropriations, in particular administrative ones governing the provision of services, supply of products, execution of works or the implementation of building contracts.

3.Such service-level agreements may also be agreed upon between departments of the Union institutions, Union bodies, European offices, bodies or persons entrusted with implementation of specific actions in the CFSP pursuant to Title V of the TEU and the Office of the Secretary General of the Board of Governors of the European schools. Those agreements shall enable the recovery of costs incurred as a result of their implementation.

Article 58
Delegation of budget implementation powers

1.The Commission and each of the other institutions may, within their departments, delegate their powers of budget implementation in accordance with the conditions laid down in this Regulation and by their internal rules and within the limits which they lay down in the instrument of delegation. Those so empowered shall act within the limits of the powers expressly conferred upon them.

2.However, the Commission may delegate its powers of budget implementation concerning the operational appropriations of its own section to the Heads of Union delegations and, in order to ensure business continuity during their absence, to the deputy Heads of Delegations. When Heads of Union delegations act as subdelegated authorising officers of the Commission and their deputies in the absence of the latter, they shall apply the Commission rules for the implementation of the budget and shall be subject to the same duties, obligations and accountability as any other subdelegated authorising officer of the Commission.

The Commission may withdraw the delegation in accordance with its own rules.

For the purposes of the first subparagraph, the High Representative shall take the measures necessary to facilitate cooperation between Union delegations and Commission departments.

3.The EEAS may exceptionally delegate its powers of budget implementation concerning the administrative appropriations of its own section to Commission staff of the delegation where this is necessary in order to ensure the continuity in the administration of Delegations in the absence of the EEAS competent authorising officer. In the exceptional cases where Commission staff of Union Delegations act as sub-delegated authorising officers of the EEAS, they shall apply the EEAS internal rules for the implementation of the budget and shall be subject to the same duties, obligations and accountability as any other sub-delegated authorising officer of the EEAS.

The EEAS may withdraw the delegation in accordance with its own rules.

Article 59
Conflict of interest

1.Financial actors as defined in Chapter 4 of Title IV and other persons involved under direct, indirect and shared implementation in budget implementation and management, including acts preparatory thereto, audit or control shall not take any action which may bring their own interests into conflict with those of the Union. They shall also take appropriate measures to prevent conflict of interest from arising in the functions under their responsibility and to address situations which may objectively be perceived as a conflict of interest.

2.For the purposes of paragraph 1, a conflict of interest exists where the impartial and objective exercise of the functions of a financial actor or other person, as referred to in paragraph 1, is compromised for reasons involving family, emotional life, political or national affinity, economic interest or any other direct or indirect personal interest.

Article 60
Conflict of interest of members of the staff

Where the risk of conflict of interest referred to in Article 59 involves a member of the staff covered by the Staff Regulations, he or she shall refer the matter to the authorising officer by delegation who shall confirm in writing whether a conflict of interest exists. The member of the staff in question shall also inform his or her hierarchical superior. Where a conflict of interest is found to exist, the Appointing Authority shall relieve the official from responsibility in this matter. The authorising officer by delegation shall personally ensure that any further appropriate action is taken.

CHAPTER 2
Methods of implementation

Article 61
Methods of implementation of the budget

1.The Commission shall implement the budget in any of the following ways:

(a)directly (‘direct implementation’), by its departments, including its staff in the Union delegations under the authority of their respective Head of delegation, in accordance with Article 58(2), or through executive agencies as referred to in Article 68;

(b)under shared implementation with Member States (‘shared implementation’);

(c)indirectly (‘indirect implementation'), where this is provided for in the basic act or in the cases referred to in points (a) to (d) of the first subparagraph of Article 56(2), with:

(i)third countries or the bodies they have designated;

(ii)international organisations or their agencies, as defined in Article 151;

(iii)the European Investment Bank or the European Investment Fund ('the EIB group');

(iv)bodies referred to in Articles 69 and 70;

(v)public law bodies;

(vi)bodies governed by private law with a public service mission to the extent that they provide adequate financial guarantees;

(vii)bodies governed by the private law of a Member State that are entrusted with the implementation of a public-private partnership and that provide adequate financial guarantees;

(viii)bodies or persons entrusted with the implementation of specific actions in the CFSP pursuant to Title V TEU, and identified in the relevant basic act.

2.The Commission is responsible for the implementation of the budget in accordance with Article 317 TFEU and shall not delegate implementation of the budget to third parties, where such tasks involve a large measure of discretion implying political choices.

The Commission shall not, through contracts in accordance with Title VII, outsource tasks involving the exercise of public authority and discretionary powers of judgement.

Article 62
Shared implementation with Member States

1.Where the budget is implemented under shared implementation the Commission and the Member States shall respect the principles of sound financial management, transparency and non-discrimination and shall ensure the visibility of Union action. To this end, the Commission and the Member States shall fulfil their respective control and audit obligations and assume the resulting responsibilities laid down in this Regulation. Complementary provisions shall be laid down in sector-specific rules.

2.Member States shall take all the necessary measures, including legislative, regulatory and administrative measures, to protect the Union's financial interests, namely by:

(a)ensuring that actions financed from the budget are implemented correctly and effectively and in accordance with the applicable sector-specific rules and, for that purpose, designating in accordance with paragraph 3, and supervising bodies responsible for the management and control of Union funds;

(b)preventing, detecting and correcting irregularities and fraud.

In order to protect the Union's financial interests, Member States shall, respecting the principle of proportionality, and in compliance with this Article, and the relevant sector-specific rules, carry out ex ante and ex post controls including, where appropriate, on-the-spot checks on representative and/or risk- based samples of transactions. They shall also recover funds unduly paid and bring legal proceedings where necessary in this regard.

Member States shall impose effective, dissuasive and proportionate penalties on recipients where provided for in sector- specific rules and in specific provisions in national legislation.

As part of its risk assessment and in accordance with sector- specific rules, the Commission shall monitor the management and control systems established in the Member States. The Commission shall, in its audit work, respect the principle of proportionality and shall take into account the level of assessed risk in accordance with the sector-specific rules.

3.In accordance with the criteria and procedures laid down in sector-specific rules, Member States shall, at the appropriate level, designate bodies to be responsible for the management and control of Union funds. Such bodies may also carry out tasks not related to the management of Union funds and may entrust certain of their tasks to other bodies, including the bodies indicated in Article 61(1) (c) (ii) and (iii).

When deciding on the designation of bodies, Member States may base their decision on whether the management and control systems are essentially the same as those already in place for the previous period and whether they have functioned effectively.

If audit and control results show that the designated bodies no longer comply with the criteria set out in the sector-specific rules, Member States shall take the measures necessary to ensure that deficiencies in the implementation of the tasks of these bodies are remedied, including by ending the designation in accordance with the sector-specific rules.

The sector-specific rules shall define the role of the Commission in the process set out in this paragraph.

4.Bodies designated pursuant to paragraph 3 shall:

(a)set up and ensure the functioning of an effective and efficient internal control system;

(b)use an accounting system that provides accurate, complete and reliable information in a timely manner;

(c)provide the information required under paragraph 5;

(d)ensure ex post publication in accordance with Article 36(2). Any processing of personal data shall comply with national provisions implementing Directive 95/46/EC.

5.Bodies designated pursuant to paragraph 3 shall, by 15 February of the following financial year, provide the Commission with:

(a)their accounts on the expenditure that was incurred, during the relevant reference period as defined in the sector-specific rules, in the execution of their tasks and that was presented to the Commission for reimbursement. Those accounts shall include pre-financing and sums for which recovery procedures are underway or have been completed. They shall be accompanied by a management declaration confirming that, in the opinion of those in charge of the management of the funds:

(i)the information is properly presented, complete and accurate,

(ii)the expenditure was used for its intended purpose, as defined in the sector-specific rules,

(iii)the control systems put in place give the necessary guarantees concerning the legality and regularity of the underlying transactions;

(b)an annual summary of the final audit reports and of controls carried out, including an analysis of the nature and extent of errors and weaknesses identified in systems, as well as corrective action taken or planned.

The accounts referred to in point (a) of the first subparagraph and the summary referred to in point (b) of the first subparagraph shall be accompanied by an opinion of an independent audit body, drawn up in accordance with internationally accepted audit standards. That opinion shall establish whether the accounts give a true and fair view, whether expenditure for which reimbursement has been requested from the Commission is legal and regular, and whether the control systems put in place function properly. The opinion shall also state whether the audit work puts in doubt the assertions made in the management declaration referred to in point (a) of the first subparagraph.

The deadline of 15 February may exceptionally be extended by the Commission to 1 March, upon communication by the Member State concerned.

Member States may, at the appropriate level, publish the information referred to in this paragraph.

In addition, Member States may provide declarations signed at the appropriate level based on the information referred to in this paragraph.

6.In order to ensure that Union funds are used in accordance with the applicable rules, the Commission shall:

(a)apply procedures for the examination and acceptance of the accounts of the designated bodies, ensuring that the accounts are complete, accurate and true;

(b)exclude from Union financing expenditure for which disbursements have been made in breach of applicable law;

(c)interrupt payment deadlines or suspend payments where provided for in the sector-specific rules.

The Commission shall end all or part of the interruption of payment deadlines or suspension of payments after a Member State has presented its observations and as soon as it has taken any necessary measures. The annual activity report referred to in Article 73(9) shall cover all the obligations under this subparagraph.

7.Sector-specific rules shall take account of the needs of European Territorial Cooperation programmes as regards, in particular, the content of the management declaration, the process set out in paragraph 3 and the audit function.

8.The Commission shall compile a register of bodies responsible for management, certification and audit activities under the sector-specific regulations.

In order to promote best practices in the implementation of the Structural Funds, the Cohesion Fund, the European Agricultural Fund for Rural Development, the EAGF and the European Fisheries Fund, the Commission may, for information purposes, make available a methodological guide setting out its own control strategy and approach, including checklists, and best practice examples to bodies responsible for management and control activities. That guide shall be updated whenever necessary.

9.Resources allocated to Member States under shared implementation may also be used in combination with operations and instruments carried out under Regulation 2015/1017 of the European Parliament and of the Council of 25 June 2015 on the European Fund for Strategic Investments, the European Investment Advisory Hub and the European Investment Project Portal and amending Regulations (EU) No 1291/2013 and (EU) No 1316/2013.

CHAPTER 3
EUROPEAN OFFICES AND UNION BODIES

Section 1
european offices

Article 63
Definition and scope

1."European offices" are administrative structures set up by the Commission or by the Commission with one or more institutions to perform specific cross-cutting tasks, provided that that can be justified by a cost-benefit study and an assessment of the associated risks.

2.Within their scope of their competences, European offices:

(a)shall perform obligatory tasks provided for in their act of establishment or in other Union legislation;

(b)may perform non-obligatory tasks authorised by their Management Committees having considered the costs-benefits and associated risks for the parties involved. For the performance of these tasks the office may receive delegation of authorising officer powers, or may conclude ad hoc service-level agreements with the Union institutions, Union bodies, other European offices or third parties.

3.This Section shall apply to the operation of European Anti-Fraud Office, with the exception of paragraph 4 of this Article, Article 65 and paragraphs 1, 2 and 3 of Article 66.

4.The internal auditor of the Commission shall exercise all responsibilities laid down in Chapter 8 of this Title.

Article 64
Appropriations regarding the European Offices

1.The appropriations authorised to implement obligatory tasks of each European office shall be entered in a specific budget line within the section of the budget relating to the Commission and shall be set out in detail in an Annex to that section.

The Annex referred to in the first subparagraph shall take the form of a statement of revenue and expenditure, subdivided in the same way as the sections of the budget.

The appropriations entered in that Annex:

(a)shall cover all the financial requirements of each European office in the performance of the obligatory tasks provided for in its act of establishment or in other Union legislation;

(b)may cover financial requirements of a European office in the performance of tasks requested by the Union institutions, Union bodies, European offices and agencies established by or under the Treaties and authorised in accordance with the act of establishment of the office;

2.The Commission shall, in respect of the appropriations entered in the Annex for each European office delegate the powers of authorising officer to the Director of the European office concerned, in accordance with Article 72.

3.Each European office's establishment plan shall be annexed to that of the Commission.

4.The Director of each European office shall take decisions on transfers within the Annex referred to in paragraph 1. The Commission shall inform the European Parliament and the Council of such transfers.

Article 65
Non-obligatory tasks

For the non-obligatory tasks referred to in point (b) of Article 63(2), a European office may:

(a)receive delegation to its Director from Union institutions, Union bodies and other European offices, together with a delegation of the authorising officer powers concerning appropriations entered in the section of the budget of the Union institution, Union body or other European office. The Union institutions, Union bodies and other European offices concerned shall set the limits and conditions for this delegation of powers. Such delegation shall be agreed in accordance with the act of establishment of the European office, notably on the conditions and modalities of this delegation;

(b)conclude ad hoc service-level agreements. In such cases, the Director of the European office shall adopt, in accordance with its act of establishment, the specific provisions governing the implementation of those tasks, the recovery of costs incurred, and the keeping of the corresponding accounts. The office shall report to the institutions, Union bodies or other European offices concerned of the results of such accounts.

Article 66
Accounts of the European offices

1.Each European office shall draw up accounting records of its expenditure, enabling the proportion of its services supplied to each of the institutions, Union bodies or other European offices to be determined. The Director of the European office concerned shall adopt, after approval by its Management Committee, the criteria upon which the accounting records shall be based.

2.The remarks concerning the specific budget line in which the total appropriations for each European office to which authorising officer powers have been delegated in accordance with point (a) of Article 65 are entered shall show an estimate of the costs of services supplied by that office to each of the Union institutions, Union bodies and other European offices concerned. This shall be based on the accounting records provided for in paragraph 1 of this Article.

3.Each European office to which authorising officer powers have been delegated in accordance with point (a) of Article 65 shall notify the Union institutions, Union bodies and other European offices concerned of the results of the accounting records provided for in paragraph 1 of this Article.

4.Each European office's accounts shall form an integral part of the Union's accounts in accordance with Article 234.

5.The Commission accounting officer, acting on a proposal from the Management Committee of the European office in question, may delegate to a member of the staff of the office some of his tasks relating to the collection of revenue and the payment of expenditure made directly by the European office in question.

6.To meet the cash requirements of the European office, bank accounts or post office giro accounts may be opened in its name by the Commission, acting on a proposal from the Management Committee. The final cash position for each year shall be reconciled and adjusted between the European office in question and the Commission at the end of the financial year. 

Section 2
Union bodies 

Article 67
Applicability to the Euratom Supply Agency 

This Regulation shall apply to the implementation of the budget for the Euratom Supply Agency.

Article 68
Executive agencies 

1.The Commission may delegate powers to the executive agencies to implement all or part of a Union programme or project, including pilot projects and preparatory actions and the implementation of administrative expenditures, on its behalf and under its responsibility, in accordance with Council Regulation (EC) No 58/2003 ( 36 ). The executive agencies shall be created by means of a Commission Decision and shall be legal persons under Union law. They shall receive an annual contribution.

2.The directors of the executive agencies shall act as authorising officers by delegation as regards the implementation of the operational appropriations relating to the Union programmes which they manage in whole or in part.