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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS CONSOLIDATED ANNUAL ACCOUNTS OF THE EUROPEAN UNION 2016

COM/2017/0365 final
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Brussels, 26.6.2017

COM(2017) 365 final

COMMUNICATION FROM THE COMMISSION

CONSOLIDATED ANNUAL ACCOUNTS OF THE EUROPEAN UNION 2016


STATEMENT OF CHANGES IN NET ASSETS STATEMENT OF CHANGES IN NET ASSETS

NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS

FINANCIAL STATEMENT DISCUSSION AND ANALYSIS    

BUDGETARY IMPLEMENTATION REPORTS AND EXPLANATORY NOTES    

GLOSSARY    

 

FOREWORD

It is my pleasure to present the 2016 annual accounts of the European Union. These accounts provide a complete overview of the finances of the EU for 2016 – this includes information on the financial position of the Union, how the budget has been implemented for the year, its contingent liabilities, as well as the financial commitments and obligations that the Union has undertaken. Reflecting the multiannual nature of the Union's activities, the accounts include explanations of the key financial figures and their evolution.

2016 was a year full of achievements but also challenges for the European Union. The EU budget focused on strengthening economy, boosting jobs and growth and investing in research. The European economy and labour market conditions improved and unemployment in the EU went down.

Less than a year and a half after its launch, the European Fund for Strategic Investments (EFSI), the centrepiece of the Investment Plan for Europe, has already delivered tangible results. Active in all 28 Member States this Fund mobilized more than EUR 190 billion of investments by mid May 2017, which is more than half of the target of EUR 315 billion set for mid-2018, contributing to the economic recovery. At the end of 2016, the guarantee fund which covers the EFSI operations undertaken by the EIB group had been provisioned by funds from the EU budget and totalled EUR 1 billion in these annual accounts.

Boosting jobs, growth and investment remains the overarching priority for the EU budget. The Commission continues its efforts to strengthen EU's economic recovery and to invest in its youth and jobseekers, as well as in start-ups and small and medium sized enterprises (SMEs). A good example is the Loan Guarantee Facility under the ‘COSME’ programme (‘Competitiveness of enterprises and small and medium-sized enterprises’) which continued to be very successful in 2016, also thanks to the additional risk-bearing capacity from EFSI. At the end of 2016, more than 143 000 small and medium sized enterprises in 21 countries have already received financing of more than EUR 5.5 billion with the support of the COSME programme.

The research and innovation programme Horizon 2020 is key for building an innovation and knowledge-based economy and society within the EU. It succeeded in reaching 49 000 participations and grant agreements were signed for a total amount of EUR 20.5 billion. Over 21 % of all participations were SMEs. The increase of the Horizon 2020 activities is evidenced by the almost 40 % increase in the Horizon 2020 guarantee instruments included in these accounts when compared to last year.

Following the declaration of Initial Services in 2016, the Galileo-programme, setting up Europe's own global satellite navigation system, transitioned from the deployment to the exploitation phase in 2016. The value of the operational Galileo satellites and ground infrastructure included in these accounts amounted to EUR 2 billion at the end of 2016. The implementation of projects under Horizon 2020 encouraged the development of new Galileo applications. These projects have already led to 13 innovations being brought to the market, 5 patents, 34 advanced prototypes, two products on the market and 223 published scientific papers. The Global Navigation Satellite System market is expected to grow from 5.8 billion devices in use in 2017 to an estimated 8 billion by 2020.

The Connecting Europe Facility (CEF) for Transport with its objective to facilitate infrastructure projects’ access to financing in the sectors of transport, telecommunications and energy contributed to the 64 km long Brenner Base Rail tunnel which will be the longest high capacity rail tunnel in the world. The CEF debt instrument included in the accounts offers risk-sharing for debt financing in the form of senior and subordinated debt or guarantee as well as support for project bonds.

In 2016 the European response to new challenges emerging from the shifting geopolitical situation continued. The EU budget provided support to Member States in properly managing migration flows, addressing the root causes of migration and safeguarding the Schengen area. The implementation of Member States' national programmes under the Asylum, Migration and Integration Fund and the Internal Security Fund gathered pace in 2016.

The Commission also established the Facility for refugees in Turkey which became operational on 17 February 2016 and for which the accounts include EUR 630 million of Member States contributions cashed in 2016. This enabled the Commission, among other initiatives, to launch an innovative programme called the Emergency Social Safety Net, aiming at assisting up to one million of the most vulnerable refugees in Turkey with regular cash allocations. This is an example of an increasing use of assistance from the EU budget as an efficient and effective way of getting aid to people in emergency situations.

In June 2016, the Commission proposed a new Partnership Framework with third countries under the European Agenda on Migration. The Framework is a European approach to deepening cooperation with countries of origin, transit and destination of migratory flows. It is supported by most of the 'Global Europe' programmes of the budget, and also by the relevant EU Trust Funds, in particular the Trust Fund for Syria, which is included in the annual accounts. Adequate funding for the Partnership Framework is essential to be able to intensify cooperation with the priority partner countries and continue the efforts on the Central Mediterranean migration route.

Other global challenges, such as addressing climate change, continued to be a priority of the EU budget. In 2016 the total contribution to climate mainstreaming was estimated at 20.9 %, in line with the target set for the current MFF period 2014-2020. 

In budgetary terms, the European Structural and Investment Funds and the Common Agricultural Policy remain the main investment instruments of the EU. The EU budget spent EUR 57.4 billion in 2016 on farming and rural development and, despite earlier delays in the start-up and implementation of the current MFF, EUR 37.8 billion was spent on the Economic, Social and Territorial Cohesion. 

The Commission has launched a debate on the future and priorities of an EU with 27 Member States. We will continue working together to build a more prosperous, competitive and secure future. 

Günther H. Oettinger

Commissioner for Budget and Human Resources, European Commission

EUROPEAN UNION POLITICAL FRAMEWORK, GOVERNANCE AND ACCOUNTABILITY

The European Union (EU) is a union on which its 28 1  European countries (the Member States) confer competences to attain objectives they have in common. The Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail.

1.POLITICAL FRAMEWORK

EU Treaties

The overarching objectives and principles that guide the Union and the European Institutions are defined in the Treaties. The Union and the EU institutions may only act within the limits of the competences conferred by the Treaties so as to attain the objectives set out therein and must do this in accordance with the principles 2 of subsidiarity and proportionality.

To attain its objectives and carry out its policies, the Union provides itself with the necessary financial means. The Commission is responsible for implementing the objectives in cooperation with the Member States and in accordance with the principle of sound financial management.

The EU pursues the objectives established in the Treaty with a number of tools, one of which is the EU budget. Others are, for example, proposing legislation or pursuing policy strategies.

Europe 2020
strategy

The Europe 2020 strategy agreed in 2010 by the Heads of State or Government of EU Member States defines a 10 year jobs and growth strategy at EU level for the EU 3 . The strategy put forward three mutually reinforcing priorities of smart, sustainable and inclusive growth with five EU headline targets. Its success depends on all the actors of the Union, acting collectively.

The EU budget is only one of the EU levers contributing to the delivery of the Europe 2020 objectives. A wide range of actions at national, EU and international levels are being mobilised to deliver concrete results on the Europe 2020 strategy.

Commission political priorities

The Commission's political priorities are defined in the political guidelines set by the President of the Commission, providing a roadmap for the Commission's action that is fully consistent and compatible with Europe 2020 as Europe's long-term growth strategy.



10 PRIORITIES

A new boost for jobs, growth and investment.

A reasonable and balanced free trade agreement with the United States.

A connected digital single market.

An area of Justice and Fundamental Rights based on mutual trust.

A resilient Energy Union with a forward-looking climate change policy.

Towards a new policy on migration.

A deeper and fairer internal market with a strengthened industrial base.

Europe as a stronger global actor.

A deeper and fairer Economic and Monetary Union (EMU).

A Union of democratic change.

The policies supported by the EU budget are implemented in accordance with the multiannual financial framework (MFF).

MFF

The MFF translates the EU’s political priorities into financial terms for at least 5 years. It sets maximum annual amounts (ceilings) for EU expenditure as a whole and for the main categories of expenditure (headings). The sum of the ceilings of all headings gives the total ceiling of commitment appropriations.

The MFF supports EU actions to deliver on the objectives of EU policies over a period long enough to be effective and to provide a coherent long-term vision for its beneficiaries and co-financing national authorities. The 2014-2020 MFF and its constituent programmes, which set maximum budget commitments for the period at EUR 960 billion and payments at EUR 908 billion (at 2011 prices), have been designed with a strong European logic and focus on added value to help deliver on the commonly agreed goals of the Europe 2020 jobs and growth strategy.

The MFF is agreed by unanimity indicating the agreement of all Member States to the objectives and spending. The EU budget finances a wide range of policies and programmes throughout the EU. In accordance with the priorities set by the European Parliament and the Council in the MFF, the Commission implements spending programmes, activities and projects. Under the main spending area of the European Structural and Investment Funds (ESIF), the EU legally commits to implementing these actions by adopting the operational programmes.

Interinstitutional agreement

The MFF is complemented with the interinstitutional agreement on budgetary discipline on cooperation in budgetary matters and on sound financial management 4 which is a political agreement between the European Parliament, the Council and the Commission. The purpose of this agreement,

adopted in 2013 in accordance with Article 295 of the TFEU, is to implement budgetary discipline and improve the functioning of the annual budgetary procedure and cooperation between the institutions on budgetary matters as well as to ensure sound financial management.

Annual budget

The annual budget is prepared by the Commission and usually agreed by mid-December by the European Parliament and the Council, based on the procedure of Art. 314 TFEU. According to the principle of budget equilibrium, total revenue must equal total expenditure (payment appropriations) for a given financial year.

The main source of funding of the EU are own resources revenues which are complemented by other revenues. There are three types of own resources: traditional own resources (such as custom duties and sugar levies), the own resource based on value added tax (VAT) and the own resource based on gross national income (GNI). Other revenues arising from the activities of the EU (e.g. competition fines) normally represent less than 10 % of total revenue. The overall amount of own resources needed to finance the budget is determined by total expenditure less other revenue. The total amount of own resources cannot exceed 1.23 % of the sum of gross national income (GNI) of the Member States.

The EU's operational expenditure covers the various headings of the MFF and takes different forms, depending on how the money is paid out and managed. The EU budget is implemented in three management modes:

Shared management: under this method of budget implementation tasks are delegated to Member States. About 80 % of the expenditure falls under this management mode covering such areas as agricultural spending and structural actions.

Direct management: this is where the budget is implemented directly by the Commission services.

Indirect management: this refers to cases where the Commission confers tasks of implementation of the budget to bodies of EU law or national law, such as the EU agencies or international organisations.

Financial Regulation

The Financial Regulation (FR) applicable to the general budget is a central act in the regulatory architecture of the EU´s finances defining EU financial rules. It provides the general rules governing the EU budget.

2.GOVERNANCE AND ACCOUNTABILITY IN THE EU

2.1.INSTITUTIONAL STRUCTURE

The organisational governance of the EU consists of institutions, agencies and other EU bodies which are listed in note 9 of the notes to the consolidated financial statements. The main institutions, in the sense of being responsible for drafting policies and taking decisions, are the European Parliament, the European Council, the Council and the Commission.

The Commission is the executive of the EU and promotes its general interest. It does this by proposing legislation; implementing EU policies; overseeing the correct implementation of the Treaties and European law; managing the EU budget; and by representing the Union outside Europe.

The Commission's internal functioning is based on a number of key principles underpinning good governance: clear roles and responsibilities, a strong commitment to performance management and compliance with the legal framework, clear accountability mechanisms, a high quality and inclusive regulatory framework, openness and transparency, and high standards of ethical behaviour.

2.2.THE COMMISSION'S GOVERNANCE STRUCTURE

The European Commission has a unique governance system, with a clear distinction between political and administrative oversight structures and well-defined lines of responsibility and financial accountability. The system is based on the Treaties and the structure has evolved to adapt to a changing environment and to remain in line with best practice as set out in relevant international standards 5 .

§The College of Commissioners assumes collegial political responsibility for the work of the Commission. Operational implementation of the budget is delegated to Directors-General and Heads of Service who lead the administrative structure of the Commission 6 .

§The College delegates financial management tasks to the Directors-General or Heads of Service who thereby become Authorising Officers by Delegation (AOD). These tasks can further be delegated to Directors, Heads of Unit and others, who thereby become Authorising Officers by Sub-Delegation. The responsibility of the Authorising Officers covers the entire management process, from determining what needs to be done to achieve the policy objectives set by the institution to managing the activities launched from both an operational and budgetary standpoint.

In the Commission, the roles and responsibilities in financial management are thus clearly defined and applied. This is a decentralised approach with clear responsibilities with the aim of creating an administrative culture that encourages civil servants to take responsibility for activities over which they have control and to give them control over the activities for which they are responsible.

Within the context of the Commission's Strategic Planning and Programming cycle, each authorising officer is required to prepare an "annual activity report" (AAR) on the activities and policy achievements and results of the year where he/she declares that resources have been used based on the principles of sound financial management and that he has set in place control procedures which provide the necessary guarantee concerning the legality and regularity of the underlying transactions. At Commission's level these results are adopted and published in an aggregated form in the Annual Management and Performance Report for the budget and sent to the European Parliament and the Council and is the main instrument through which the College of Commissioners takes political responsibility for the management of the budget.

The Accounting Officer of the Commission is centrally responsible for the treasury management, recovery procedures, laying down accounting rules based on International Public Sector Accounting Standards and methods, validating accounting systems and the preparation of the Commission's and consolidated annual accounts of the EU. Furthermore, the Accounting Officer is required to sign the annual accounts declaring that they present fairly, in all material aspects, the financial position, the results of the operations and the cash flows. The Accounting Officer is an independent function and bears a major responsibility as regards financial reporting in the Commission. The Internal Auditor of the Commission is likewise a centralised and independent function.

The Corporate Management Board plays a role in the corporate governance of the Commission by providing oversight and strategic orientations on major corporate management issues, including in relation to the management of financial and human resources. Chaired by the Secretary-General, it brings together on a regular basis Directors-General and Cabinets responsible for budget, human resources and IT to ensure that the necessary organisational and technical structures are in place in the Commission to deliver on the political priorities of the President in an efficient and effective manner.

2.3.ROBUST PERFORMANCE FRAMEWORK

Implementing robust performance frameworks is essential for ensuring a strong focus on results, EU added value and sound management of EU programmes. The performance of the EU budget must consider the multiplicity of objectives as well as the complementarity and mainstreaming of policies and programmes and the key role of the Member States in implementing the EU Budget. The Commission is committed to ensuring that the EU budget achieves better outcomes for citizens and that supports the political priorities. To ensure resources are allocated to priorities and that every action brings high performance and added value, the Commission implements its EU Budget Focused on Results initiative. Building on the 2014–2020 performance framework, it promotes a better balance between compliance and performance. The 2014-2020 performance frameworks have been included as a new compulsory element and as a key pillar of the increased result orientation of this programming period. It foresees the establishment of clear and measureable objectives, indicators and targets as well as monitoring, reporting and evaluation arrangements.

The Annual Management and Performance Report for the EU budget provides a comprehensive overview on the performance, management and protection of the EU budget. It explains how the EU budget supports the European Union’s political priorities, the results achieved with the EU budget, and the role the Commission plays in ensuring and promoting the highest standards of budgetary and financial management.

2.4.FINANCIAL REPORTING

The main element of EU financial reporting is the Integrated Financial Reporting Package (IFRP) of the EU which comprises the consolidated annual accounts of the EU and other reports accompanying the accounts, i.e. the Annual Management and Performance Report for the budget and the report on the follow-up to the discharge. The IFRP provides the public with a comprehensive view of the financial and operational situation of the EU each year.

The consolidated annual accounts of the EU provide financial information on the activities of the institutions, agencies and other bodies of the EU from both an accrual accounting and budgetary perspective. These accounts do not comprise the annual accounts of Member States.

The consolidated annual accounts of the EU consist of two separate but linked parts:

a)    the consolidated financial statements; and

b)    the reports on implementation of the budget, which provide an aggregated record of budget implementation.

In addition, the consolidated annual accounts of the EU are accompanied by a Financial Statement Discussion and Analysis (FSDA) which summarises significant changes and trends in the financial statements and explains significant risks and uncertainties the EU has faced and needs to address in future.

Reporting and Accountability in the Commission:

Integrated Financial Reporting Package

Consolidated Annual Accounts of the EU

Annual Management and Performance Report for the budget

Report on the follow up to the discharge

Other reports

General Report on the activities of the EU

Annual Activity Reports of the Directorates-General

Report on Budgetary and Financial Management

 

2.5.CONTROLS

External audit

The European Court of Auditors (the Court) is the external auditor of the EU institutions (and bodies). The Court's mission is to contribute to improving EU financial management, promote accountability and transparency, and act as the independent guardian of the financial interests of the citizens of the EU. The Court’s role as the EU’s independent external auditor is to check that EU funds are correctly accounted for, are raised and spent in accordance with the relevant rules and regulations and have achieved value for money.

The EU’s annual accounts and its resource management are audited by the Court, which, as part of its activities, draws up for the EP and the Council:

(1)    an annual report on the activities financed from the general budget, detailing its observations on the annual accounts and underlying transactions;

(2)    an opinion, based on its audits and given in the annual report in the form of a statement of assurance, on (i) the reliability of the accounts and (ii) the legality and regularity of the underlying transactions involving both revenue collected and payments to final beneficiaries; and

(3)    special reports covering specific areas.

Discharge

The final step of a budget lifecycle is the discharge of the budget for a given financial year. A discharge is given to the Commission and all other EU institutions and bodies. The discharge represents the political aspect of the external control of budget implementation and is the decision by which the European Parliament , acting on a Council recommendation, "releases" the Commission (and other EU bodies) from its responsibility for management of a given budget by marking the end of that budget's existence. The European Parliament is the discharge authority within the EU. This means that following the audit and finalisation of the annual accounts it falls to the Council to recommend and then to the European Parliament to give a discharge to the Commission and other EU bodies for implementing the EU budget for a given financial year. This decision is based on an examination of the annual accounts, the Commission's annual management and performance report for the budget, the annual report, the audit opinion and special reports of the Court, and replies of the Commission to questions and further information requests.

This discharge procedure may produce three outcomes: the granting, postponement or the refusal of the discharge. Integral to the annual budgetary discharge procedure in the European Parliament are the hearings with Commissioners who are questioned by the MEP's in the Budgetary Control Committee regarding the policy areas under their responsibility. The final discharge report including specific recommendations to the Commission for action is adopted in Plenary of the European Parliament. The Council discharge recommendations are adopted by the Economic and Financial Affairs Council (ECOFIN). Both, the European Parliament's discharge report as well as the Council discharge recommendations are subject to an annual follow up report in which the Commission outlines the concrete actions it has taken to implement the recommendations made.

 

NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS

The consolidated annual accounts of the European Union for the year 2016 have been prepared on the basis of the information presented by the institutions and bodies under Article 148(2) of the Financial Regulation applicable to the general budget of the European Union. I hereby declare that they were prepared in accordance with Title IX of this Financial Regulation and with the accounting principles, rules and methods set out in the notes to the financial statements.

I have obtained from the accounting officers of these institutions and bodies, who certified its reliability, all the information necessary for the production of the accounts that show the European Union's assets and liabilities and the budgetary implementation.

I hereby certify that based on this information, and on such checks as I deemed necessary to sign off the accounts of the European Commission, I have a reasonable assurance that the accounts present fairly, in all material aspects, the financial position, the results of the operations and the cashflows of the European Union.

[signed]

Rosa ALDEA BUSQUETS

Accounting Officer of the Commission

23 June 2017

 

EUROPEAN UNION

FINANCIAL YEAR 2016

CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES

It should be noted that due to the rounding of figures into millions of euros, some financial data in the tables below may appear not to add-up.

CONTENTS

 

EUR millions

Note

31.12.2016

31.12.2015

NON-CURRENT ASSETS

Intangible assets

2.1

381

337

Property, plant and equipment

2.2

10 068

8 700

Investments accounted for using the equity method

2.3

528

497

Financial assets

2.4

62 247

56 965

Pre-financing

2.5

21 901

29 879

Exchange receivables and non-exchange recoverables

2.6

717

870

95 842

97 248

CURRENT ASSETS

Financial assets

2.4

3 673

9 907

Pre-financing

2.5

23 569

15 277

Exchange receivables and non-exchange recoverables

2.6

10 905

9 454

Inventories

2.7

165

138

Cash and cash equivalents

2.8

28 585

21 671

66 897

56 448

TOTAL ASSETS

162 739

153 696

NON-CURRENT LIABILITIES

Pension and other employee benefits

2.9

(67 231)

(63 814)

Provisions

2.10

(1 936)

(1 716)

Financial liabilities

2.11

(55 067)

(51 764)

(124 234)

(117 293)

CURRENT LIABILITIES

Provisions

2.10

(675)

(314)

Financial liabilities

2.11

(2 284)

(7 939)

Payables

2.12

(40 005)

(32 191)

Accrued charges and deferred income

2.13

(67 580)

(68 402)

(110 544)

(108 846)

TOTAL LIABILITIES

(234 778)

(226 139)

NET ASSETS

(72 040)

(72 442)

Reserves

2.14

4 841

4 682

Amounts to be called from Member States*

2.15

(76 881)

(77 124)

NET ASSETS

(72 040)

(72 442)

*    The European Parliament adopted a budget on 1 December 2016 which provides for the payment of the Union's short-term liabilities from own resources to be collected by, or called up from, the Member States in 2017. Additionally, under Article 83 of the Staff Regulations (Council Regulation 259/68 of 29 February 1968 as amended), the Member States shall jointly guarantee the liability for pensions.

 

STATEMENT OF FINANCIAL PERFORMANCE

 

EUR millions

Note

2016

2015

REVENUE

Revenue from non-exchange transactions

GNI resources

3.1

95 578

95 355

Traditional own resources

3.2

20 439

18 649

VAT resources

3.3

15 859

18 328

Fines

3.4

3 858

531

Recovery of expenses

3.5

1 947

1 547

Other

3.6

5 740

5 067

143 422

139 478

Revenue from exchange transactions

Financial income

3.7

1 769

1 846

Other

3.8

996

1 562

2 765

3 408

Total Revenue

146 187

142 886

EXPENSES

Implemented by Member States

3.9

European Agricultural Guarantee Fund

(44 152)

(45 032)

European Agricultural Fund for Rural Development and other rural development instruments

(12 604)

(16 376)

European Regional Development Fund and Cohesion Fund

(35 045)

(38 745)

European Social Fund

(9 366)

(9 849)

Other

(1 606)

(2 380)

Implemented by the Commission, executive agencies and trust funds

3.10

(15 610)

(15 626)

Implemented by other EU agencies and bodies

3.11

(2 547)

(1 209)

Implemented by third countries and international organisations

3.11

(3 258)

(3 031)

Implemented by other entities

3.11

(2 035)

(2 107)

Staff and pension costs

3.12

(9 776)

(10 273)

Changes in employee benefits actuarial assumptions

3.13

(1 068)

(2 040)

Finance costs

3.14

(1 904)

(1 986)

Share of result of joint ventures and associates

3.15

2

(641)

Other expenses

3.16

(5 486)

(6 623)

Total Expenses

(144 454)

(155 919)

ECONOMIC RESULT OF THE YEAR

1 733

(13 033)

 

CASHFLOW STATEMENT

 

EUR millions

2016

2015

Economic result of the year

1 733

(13 033)

Operating activities

Amortisation

88

74

Depreciation

575

489

(Increase)/decrease in loans

1 774

1 591

(Increase)/decrease in pre-financing

(314)

7 439

(Increase)/decrease in exchange receivables and
non-exchange recoverables

(1 297)

5 253

(Increase)/decrease in inventories

(26)

(10)

Increase/(decrease) in pension and employee benefits liability

3 417

5 198

Increase/(decrease) in provisions

581

(253)

Increase/(decrease) in financial liabilities

(2 351)

(977)

Increase/(decrease) in payables

7 813

(10 989)

Increase/(decrease) in accrued charges and deferred income

(821)

12 429

Prior year budgetary surplus taken as non-cash revenue

(1 349)

(1 435)

Other non-cash movements

18

32

Investing activities

(Increase)/decrease in intangible assets and property, plant and equipment

(2 073)

(1 381)

(Increase)/decrease in investments accounted for using
the equity method

(31)

(87)

(Increase)/decrease in available for sale financial assets

(822)

(213)

(Increase)/decrease in financial assets at fair value through surplus or deficit

(0)

-

NET CASHFLOW

6 914

4 126

Net increase/(decrease) in cash and cash equivalents

6 914

4 126

Cash and cash equivalents at the beginning of the year

21 671

17 545

Cash and cash equivalents at year-end

28 585

21 671

STATEMENT OF CHANGES IN NET ASSETS

 

EUR millions

Reserves (A)

Amounts to be called from Member States (B)

Net Assets =(A)+(B)

Fair value reserve

Other reserves

Accumulated Surplus/(Deficit)

Economic result of the year

BALANCE AS AT 31.12.2014

238

4 197

(51 161)

(11 280)

(58 006)

Movement in Guarantee Fund reserve

189

(189)

Fair value movements

54

54

Other

2

(24)

(22)

Allocation of the 2014 economic result

3

(11 283)

11 280

2014 budget result credited to Member States

(1 435)

(1 435)

Economic result of the year

(13 033)

(13 033)

BALANCE AS AT 31.12.2015

292

4 390

(64 091)

(13 033)

(72 442)

Movement in Guarantee Fund reserve

82

(82)

Fair value movements

33

33

Other

39

(54)

(15)

Allocation of the 2015 economic result

5

(13 038)

13 033

2015 budget result credited to Member States

(1 349)

(1 349)

Economic result of the year

1 733

1 733

BALANCE AS AT 31.12.2016

325

4 516

(78 614)

1 733

(72 040)

 

NOTES TO THE FINANCIAL STATEMENTS

 

1.SIGNIFICANT ACCOUNTING POLICIES

 

1.1.LEGAL BASIS AND ACCOUNTING RULES

The accounts of the EU are kept in accordance with Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002 (OJ L 298, 26 October 2012, p. 1) hereinafter referred to as the 'Financial Regulation' and Commission Delegated Regulation (EU) No 1268/2012 of 29 October 2012 (OJ L 362, 31 December 2012, p. 1) laying down detailed rules of application of this Financial Regulation.

In accordance with article 143 of the Financial Regulation, the EU prepares its financial statements on the basis of accrual-based accounting rules that are based on International Public Sector Accounting Standards (IPSAS). These accounting rules, adopted by the Accounting Officer of the Commission, have to be applied by all the institutions and EU bodies falling within the scope of consolidation in order to establish a uniform set of rules for accounting, valuation and presentation of the accounts with a view to harmonising the process for drawing up the financial statements and consolidation.

1.2.ACCOUNTING PRINCIPLES

The objective of financial statements is to provide information about the financial position, performance and cashflows of an entity that is useful to a wide range of users. For the EU as a public sector entity, the objectives are more specifically to provide information useful for decision making, and to demonstrate the accountability of the entity for the resources entrusted to it. It is with these goals in mind that the present document has been drawn up.

The overall considerations (or accounting principles) to be followed when preparing the financial statements are laid down in EU accounting rule 1 "Financial Statements" and are the same as those described in IPSAS 1: fair presentation, accrual basis, going concern, consistency of presentation, materiality, aggregation, offsetting and comparative information. The qualitative characteristics of financial reporting according to article 144 of the Financial Regulation are relevance, reliability, understandability and comparability.

1.3.CONSOLIDATION

Scope of consolidation

The consolidated financial statements of the EU comprise all significant controlled entities (i.e. the EU institutions (including the Commission) and the EU agencies), associates and joint ventures. The complete list of consolidated entities can be found in note 9 of the EU financial statements. It now comprises 52 controlled entities and 1 associate. Entities that fall under the consolidation scope, but which are immaterial to the EU consolidated financial statements as a whole, need not be consolidated or accounted for using equity method where to do so would result in excessive time or cost to the EU. Those entities are referred to as 'Minor entities' and are separately listed in note 9. In 2016, 7 entities have been classified as minor entities.

Controlled entities

The decision to include an entity in the scope of consolidation is based on the control concept. Controlled entities are all entities for which the EU is exposed, or has right, to variable benefits from its involvement and has the liability to affect the nature and amount of those benefits through its power over the other entity. This power must be presently exercisable and must relate to the relevant activities of the entity. Controlled entities are fully consolidated. The consolidation begins at the first date on which control exists, and ends when such control no longer exists.



The most common indicators of control within the EU are: creation of the entity through founding treaties or secondary legislation, financing of the entity from the EU budget, the existence of voting rights in the governing bodies, audit by the European Court of Auditors and discharge by the European Parliament. An individual assessment for each entity is made in order to decide whether one or all of the criteria listed above are sufficient to result in control.

Under this approach, the EU's institutions (except the European Central Bank) and agencies (excluding the agencies of the former 2nd pillar) are considered as under the exclusive control of the EU and are therefore included in the consolidation scope. Furthermore the European Coal and Steel Community (ECSC) in Liquidation is also considered as a controlled entity.

All material "inter-entity transactions and balances" between EU controlled entities are eliminated, while unrealised gains and losses on such transactions are not material and so have not been eliminated.

Joint Arrangements

A joint arrangement is an agreement over which the EU and one or more parties have joint control. Joint control is contractually agreed sharing of control over an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of parties sharing control. Joint agreements can be either joint operations or joint ventures. In case a joint arrangement is structured through a separate vehicle and parties to the joint arrangement have rights to the net assets of the arrangement, this joint arrangement classifies as a joint venture. Participations in joint ventures are accounted for using the equity method (see note 1.5.4). In case the parties have rights to the assets, and obligations for the liabilities, related to the arrangement, this joint arrangement is classified as a joint operation. In relation to its interest in joint operations, the EU recognises in its financial statements: its assets and liabilities, revenue and expense, as well as its share of assets, liabilities, revenue and expense held or incurred jointly.

Associates

Associates are entities over which the EU has, directly or indirectly, significant influence but not control. It is presumed that significant influence exists if the EU holds directly or indirectly 20 % or more of the voting rights. Participations in associates are accounted for using the equity method (see note 1.5.4).

Non-consolidated entities the funds of which are managed by the Commission

The funds of the Joint Sickness Insurance Scheme for staff of the EU, the European Development Fund and the Participants Guarantee Fund are managed by the Commission on their behalf. However, since these entities are not controlled by the EU, they are not consolidated in its financial statements.

1.4.BASIS OF PREPARATION

Financial statements are presented annually. The accounting year begins on 1 January and ends on 31 December.

2.Currency and basis for conversion

Functional and reporting currency

The financial statements are presented in millions of euros, unless stated otherwise, the euro being the EU's functional and reporting currency.

Transactions and balances

Foreign currency transactions are translated into euros using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the re-translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of financial performance. Translation differences on non-monetary financial instruments classified as available for sale financial assets are included in the fair value reserve.

Different conversion methods apply to property, plant and equipment and intangible assets, which retain their value in euros at the rate that applied at the date when they were purchased.

Year-end balances of monetary assets and liabilities denominated in foreign currencies are converted into euros on the basis of the European Central Bank (ECB) exchange rates applying on 31 December:

Euro exchange rates

 

Currency

31.12.2016

31.12.2015

Currency

31.12.2016

31.12.2015

BGN

1.9558

1.9558

PLN

4.4103

4.2639

CZK

27.0210

27.0230

RON

4.5390

4.5240

DKK

7.4344

7.4626

SEK

9.5525

9.1895

GBP

0.8562

0.7340

CHF

1.0739

1.0835

HRK

7.5597

7.6380

JPY

123.4000

131.0700

HUF

309.8300

315.9800

USD

1.0541

1.0887

3.Use of estimates

In accordance with IPSAS and generally accepted accounting principles, the financial statements necessarily include amounts based on estimates and assumptions by management based on the most reliable information available. Significant estimates include, but are not limited to: amounts for employee benefit liabilities, provisions, financial risk on inventories and accounts receivable, accrued income and charges, contingent assets and liabilities, degree of impairment of intangible assets and property, plant and equipment and amounts disclosed in the notes concerning financial instruments. Actual results could differ from those estimates. Changes in estimates are reflected in the period in which they become known.

3.1.BALANCE SHEET

4.Intangible assets

Acquired computer software licences are stated at historical cost less accumulated amortisation and impairment losses. The assets are amortised on a straight-line basis over their estimated useful lives (311 years). The estimated useful lives of intangible assets depend on their specific economic lifetime or legal lifetime determined by an agreement. Internally developed intangible assets are capitalised when the relevant criteria of the EU accounting rules are met and relate solely to the development phase of the asset. The costs capitalisable include all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Costs associated with research activities, non-capitalisable development costs and maintenance costs are recognised as expenses as incurred.    

5.Property, plant and equipment

All property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition, construction or transfer of the asset.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits or service potential associated with the item will flow to the EU and its cost can be measured reliably. Repairs and maintenance costs are charged to the statement of financial performance during the financial period in which they are incurred.



Land and works of art are not depreciated as they are deemed to have an indefinite useful life. Assets under construction are not depreciated as these assets are not yet available for use. Depreciation on other assets is calculated using the straight-line method to allocate their cost less their residual values over their estimated useful lives, as follows:

Type of asset

Straight line depreciation rate

Buildings

4 % to 10 %

Space assets

8 % to 20 %

Plant and equipment

10 % to 25 %

Furniture and vehicles

10 % to 25 %

Computer hardware

25 % to 33 %

Other

10 % to 33 %

Gains or losses on disposals are determined by comparing proceeds less selling expenses with the carrying amount of the disposed asset and are included in the statement of financial performance.

Leases

Leases of tangible assets, where the EU has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease’s commencement at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The interest element of the finance lease payment is charged to expenditure over the period of the lease at a constant periodic rate in relation to the balance outstanding. The rental obligations, net of finance charges, are included in financial liabilities (non-current and current). The interest element of the finance cost is charged to the statement of financial performance over the lease period so as to produce a constant periodic interest rate on the remaining balance of the liability for each period. The assets held under finance leases are depreciated over the shorter of the asset's useful life and the lease term.

Leases where the lessor retains a significant portion of the risks and rewards inherent to ownership are classified as operating leases. Operating lease payments are recognised as an expense in the statement of financial performance on a straight-line basis over the lease term.

6.Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation/depreciation and are tested annually for impairment. Assets that are subject to amortisation/depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable (service) amount. The recoverable (service) amount is the higher of an asset’s fair value less costs to sell and its value in use.

Intangible assets and property, plant and equipment residual values and useful lives are reviewed, and adjusted if appropriate, at least once per year. An asset’s carrying amount is written down immediately to its recoverable (service) amount if the asset’s carrying amount is greater than its estimated recoverable (service) amount. If the reasons for impairments recognised in previous years no longer apply, the impairment losses are reversed accordingly.

7.Investments accounted for using the equity method

Participations in associates and joint ventures

Investments accounted for using the equity method are initially recognised at cost. The EU's interest in these investments is recognised in the statement of financial performance, and its share in the movements in reserves is recognised in the fair value reserve in net assets. The initial cost together with all movements (further contributions, share of economic results and reserve movements, impairments, and dividends) give the book value of the investment in the financial statements at the balance sheet date. Distributions received from the investment reduce the carrying amount of the asset.

If the EU's share of deficits of an investment accounted for using the equity method equals or exceeds its interest in the investment, the EU discontinues recognising its share of further losses ("unrecognised losses"). After the EU's interest is reduced to zero, additional losses are provided for and a liability is recognised, only to the extent that the EU has incurred legal or constructive obligation or made payments on behalf of the entity.

If there are indications of impairment, a write-down to the lower recoverable amount is necessary. The recoverable amount is determined as described under note 1.5.3. If the reason for impairment ceases to apply at a later date, the impairment loss is reversed to the carrying amount that would have been determined had no impairment loss been recognised.

In cases where the EU holds 20 % or more of an investment capital fund, it does not seek to exert significant influence. Such funds are therefore treated as financial instruments and categorised as available for sale financial assets.

Associates and joint ventures classified as minor entities are not accounted for under the equity method. EU contributions to those entities are accounted for as an expense of the period.

8.Financial assets

Classification

The EU classifies their financial assets in the following categories: financial assets at fair value through surplus or deficit; loans and receivables; held-to-maturity investments; and available for sale financial assets. The classification of financial instruments is determined at initial recognition and re-evaluated at each balance sheet date.

(I)Financial assets at fair value through surplus or deficit

A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by the EU. Derivatives are also categorised in this category. Assets in this category are classified as current assets if they are expected to be realised within 12 months of the balance sheet date.

(II)Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the EU provides money, goods or services directly to a debtor with no intention of trading the receivable, or in case the EU is subrogated to the rights of the original lender following a payment made by the EU under a guarantee contract. Payments due within 12 months of the balance sheet date are classified as current assets. Payments due after 12 months from the balance sheet date are classified as non-current assets. Loans and receivables include term deposits with the original maturity above three months.

(III)Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the EU has the positive intention and ability to hold to maturity. During this financial year, the EU did not hold any investments in this category.

(IV)Available for sale financial assets

Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are classified as either current or non-current assets, depending on the period of time the EU expects to hold them, which is usually the maturity date. Investments in entities that are neither consolidated nor accounted for using the equity method and other equity-type investments (e.g. Risk Capital Operations) are also classified as available for sale financial assets.

Initial recognition and measurement

Purchases and sales of financial assets at fair value through surplus or deficit, held-to-maturity and available for sale are recognised on trade-date – the date on which the EU commits to purchase or sell the asset. Cash equivalents and loans are recognised when cash is advanced to the borrowers. Financial instruments are initially recognised at fair value. For all financial assets not carried at fair value through surplus or deficit transactions costs are added to the fair value at initial recognition. Financial assets carried at fair value through surplus or deficit are initially recognised at fair value and transaction costs are expensed in the statement of financial performance.

The fair value of a financial asset on initial recognition is normally the transaction price (i.e. the fair value of the consideration received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets (e.g. in case of some derivative contracts). However, when a long-term loan that carries no interest or an interest below market conditions is granted, its fair value can be estimated as the present value of all future cash receipts discounted using the prevailing market rate of interest for a similar instrument with a similar credit rating.

Loans granted are measured at their nominal amount, which is considered to be the fair value of the loan. The reasoning for this is as follows:

-The “market environment” for EU lending is very specific and different from the capital market used to issue commercial or government bonds. As lenders in these markets have the opportunity to choose alternative investments, the opportunity possibility is factored into market prices. However, this opportunity for alternative investments does not exist for the EU which is not allowed to invest money on the capital markets; it only borrows funds for the purpose of lending at the same rate. This means that there is no alternative lending or investment option available to the EU for the sums borrowed. Thus, there is no opportunity cost and therefore no basis of comparison with market rates. In fact, the EU lending operation itself represents the market. Essentially, since the opportunity cost "option" is not applicable, the market price does not fairly reflect the substance of the EU lending transactions. Therefore, it is not appropriate to determine the fair value of EU lending with reference to commercial or government bonds.

-Furthermore as there is no active market or similar transactions to compare with, the interest rate to be used by the EU for fair valuing its lending operations under the EFSM, BOP and other such loans, should be the interest rate charged.

-In addition, for these loans, there are compensating effects between loans and borrowings due to their back-to-back character. Thus, the effective interest for the loan equals the effective interest rate for the related borrowings. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance.

Financial instruments are derecognised when the rights to receive cashflows from the investments have expired or the EU has transferred substantially all risks and rewards of ownership to another party.

Subsequent measurement

(I)Financial assets at fair value through surplus or deficit are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the ‘financial instruments at fair value through surplus or deficit’ category are included in the statement of financial performance in the period in which they arise.

(II)Loans and receivables are carried at amortised cost using the effective interest method. In the case of loans granted on borrowed funds, the same effective interest rate is applied to both the loans and borrowings since these loans have the characteristics of 'back-to-back operations' and the differences between the loan and the borrowing conditions and amounts are not material. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance.

(III)Held to maturity assets are carried at amortised cost using the effective interest method. The EU currently holds no held to maturity investments.

(IV)Available for sale financial assets are subsequently carried at fair value. Gains and losses arising from changes in the fair value of available for sale financial assets are recognised in the fair value reserve, except for translation differences on monetary assets which are recognised in the statement of financial performance. When assets classified as available for sale financial assets are derecognised or impaired, the cumulative fair value adjustments previously recognised in the fair value reserve are recognised in the statement of financial performance. Interest on available for sale financial assets calculated using the effective interest method is recognised in the statement of financial performance. Dividends on available for sale equity instruments are recognised when the EU's right to receive payment is established.



The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities and over-the–counter derivatives), the EU establishes a fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cashflow analysis, option pricing models and other valuation techniques commonly used by market participants.

Investments in Venture Capital Funds, classified as available for sale financial assets, which do not have a quoted market price in an active market are valued at the attributable net asset value, which is considered as an equivalent of their fair value.

In cases where the fair value of investments in equity instruments that do not have a quoted market price in an active market cannot be reliably measured, these investments are valued at cost less impairment losses.

Impairment of financial assets

The EU assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. A financial asset is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event (or events) has an impact on the estimated future cashflows of the financial asset that can be reliably estimated.

(a)Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cashflows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the statement of financial performance. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The calculation of the present value of the estimated future cashflows of a collateralised financial asset reflects the cashflows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the statement of financial performance.

(b)Assets carried at fair value

In the case of equity investments classified as available for sale financial assets, a significant or permanent (prolonged) decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available for sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the statement of financial performance – is removed from reserves and recognised in the statement of financial performance. Impairment losses recognised in the statement of financial performance on equity instruments are not reversed through the statement of financial performance. If, in a subsequent period, the fair value of a debt instrument classified as available for sale financial asset increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the statement of financial performance.

9.Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other directly attributable costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. When inventories are held for distribution at no charge or for a nominal charge, they are measured at the lower of cost and current replacement cost. Current replacement cost is the cost the EU would incur to acquire the asset on the reporting date.



10.Pre-financing amounts

Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of payments over a period defined in the particular contract, decision, agreement or basic legal act. The float or advance is either used for the purpose for which it was provided during the period defined in the agreement or it is repaid. If the beneficiary does not incur eligible expenditure, they have the obligation to return the pre-financing advance to the EU. The amount of the pre-financing may be reduced (wholly or partially) by the acceptance of eligible costs (which are recognised as expenses).

Pre-financing is, on subsequent balance sheet dates, measured at the amount initially recognised on the balance sheet less eligible expenses (including estimated amounts where necessary) incurred during the period.

Interest on pre-financing is recognised as it is earned in accordance with the provisions of the relevant agreement. An estimate of the accrued interest revenue, based on the most reliable information, is made at the year-end and included on the balance sheet.

Other advances to Member States which originate from reimbursement by the EU of amounts paid as advances by the Member States to their beneficiaries (including "financial instruments under shared management") are recognised as assets and presented under the pre-financing heading. Other advances to Member States are subsequently measured at the amount initially recognised on the balance sheet less a best estimate of the eligible expenses incurred by final beneficiaries, calculated on the basis of reasonable and supportable assumptions.

The EU contributions to the trust funds of the European Development Fund or other unconsolidated entities are also classified as pre-financing since their purpose is to give a float to the trust fund to allow it to finance specific actions defined under the trust fund's objectives. The EU contributions to trust funds are measured at the initial amount of the EU contribution less eligible expenses, including estimated amounts where necessary, incurred by the trust fund during the reporting period and allocated to the EU contribution in accordance with the underlying agreement.

11.Exchange receivables and non-exchange recoverables

As the EU accounting rules require a separate presentation of exchange and non-exchange transactions, for the purpose of drawing up the accounts, receivables are defined as stemming from exchange transactions and recoverables are defined as stemming from non-exchange transactions, i.e. when the EU receives value from another entity without directly giving approximately equal value in exchange (for example recoverables from Member States related to own resources).

Receivables from exchange transactions meet the definition of financial instruments and are thus classified as loans and receivables and measured accordingly (see note 1.5.5). The financial instruments notes disclosures concerning receivables from exchange transactions include accrued income and deferred charges from exchange transactions as they are not material.

Recoverables from non-exchange transactions are carried at original amount (adjusted for interest and penalties) less write-down for impairment. A write-down for impairment of recoverables from
non-exchange transactions is established when there is objective evidence that the EU will not be able to collect all amounts due according to the original terms of recoverables from non-exchange transactions. The amount of the write-down is the difference between the asset’s carrying amount and the recoverable amount. The amount of the write-down is recognised in the statement of financial performance. A general write-down, based on past experience, is also made for outstanding recovery orders not already subject to a specific write-down. See note
1.5.14 concerning the treatment of accrued income at year-end. Amounts displayed and disclosed as recoverables from non-exchanges transactions are not financial instruments as they do not arise from a contract that would give rise to a financial liability or equity instrument. However, in the notes to the financial statements recoverables from non-exchange transactions are disclosed together with receivables from exchange transactions where appropriate.



12.Cash and cash equivalents

Cash and cash equivalents are financial instruments and include cash at hand, deposits held at call or at short notice with banks and other short-term highly liquid investments with original maturities of three months or less.

13.Pension and other employee benefits

Pension obligations

The EU operates defined benefit pension plans. Whilst staff contribute from their salaries one third of the expected cost of these benefits, the liability is not funded. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of any plan assets. The defined benefit obligation is calculated by actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised immediately in the statement of financial performance. Past-service costs are recognised immediately in statement of financial performance, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period.

Post-employment sickness benefits

The EU provides health benefits to its employees through the reimbursement of medical expenses. A separate fund has been created for its day-to-day administration. Both current employees, pensioners, widowers and their relatives benefit from the system. The benefits granted to the "inactives" (pensioners, orphans, etc.) are classified as "Post-Employment Employee Benefits". Given the nature of these benefits, an actuarial calculation is required. The liability in the balance sheet is determined on a similar basis as that for the pension obligations (see above).

14.Provisions

Provisions are recognised when the EU has a present legal or constructive obligation towards third parties as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating losses. The amount of the provision is the best estimate of the expenses expected to be required to settle the present obligation at the reporting date. Where the provision involves a large number of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities (“expected value” method).

15.Financial liabilities

Financial liabilities are classified as financial liabilities at fair value through surplus or deficit or as financial liabilities carried at amortised cost. Borrowings are composed of borrowings from credit institutions and debts evidenced by certificates. They are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred, then subsequently carried at amortised cost using the effective interest method; any difference between proceeds, net of transaction costs, and the redemption value is recognised in the statement of financial performance over the period of the borrowings using the effective interest method.

Financial liabilities are classified as non-current liabilities, except for maturities less than 12 months after the balance sheet date. In the case of loans granted on borrowed funds, the effective interest method may not be applied to loans and borrowings, based on materiality considerations. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance.

EU trust funds that are considered as part of the Commission's operational activities are accounted for in the Commission accounts and further consolidated in the EU annual accounts. Therefore, contributions from other donors to the EU trust funds fulfil the criteria of revenues from non-exchange transactions under conditions and they are presented as financial liabilities until the conditions attached to the contributions transferred are met, i.e. eligible costs are incurred by the trust fund. The trust fund is required to finance specific projects and return remaining funds at the time of winding-up. At the balance sheet date the outstanding contribution liabilities are measured at contributions received less the expenses incurred by the trust fund, including estimated amounts when necessary. For reporting purposes the net expenses are allocated to the contributions of other donors in proportion to net contributions paid as at 31 December. This allocation of contributions is only indicative. When the trust fund is wound up the actual split of remaining resources will be decided by the trust fund board.

Financial liabilities categorised at fair value through surplus or deficit include derivatives when their fair value is negative. They follow the same accounting treatment as financial assets at fair value through surplus or deficit, see note 1.5.5.

16.Payables

A significant amount of the payables of the EU are unpaid cost claims from beneficiaries of grants or other EU funding (non-exchange transactions). They are recorded as payables for the requested amount when the cost claim is received. Upon verification and acceptance of the eligible costs, the payables are valued at the accepted and eligible amount.

Payables arising from the purchase of goods and services are recognised at invoice reception for the original amount and corresponding expenses are entered in the accounts when the supplies or services are delivered and accepted by the EU.

17.Accrued and deferred income and charges

Transactions and events are recognised in the financial statements in the period to which they relate. At year-end, if an invoice is not yet issued but the service has been rendered, the supplies have been delivered by the EU or a contractual agreement exists (e.g. by reference to a treaty), an accrued income will be recognised in the financial statements. In addition, at year-end, if an invoice is issued but the services have not yet been rendered or the goods supplied have not yet been delivered, the revenue will be deferred and recognised in the subsequent accounting period.

Expenses are also accounted for in the period to which they relate. At the end of the accounting period, accrued expenses are recognised based on an estimated amount of the transfer obligation of the period. The calculation of accrued expenses is done in accordance with detailed operational and practical guidelines issued by the Commission which aim at ensuring that the financial statements provide a faithful representation of the economic and other phenomena they purport to represent. By analogy, if payment has been made in advance for services or goods that have not yet been received, the expense will be deferred and recognised in the subsequent accounting period.

17.1.STATEMENT OF FINANCIAL PERFORMANCE

18.Revenue

REVENUE FROM NON-EXCHANGE TRANSACTIONS

The vast majority of the EU's revenue relates to non-exchange transactions:

GNI based resources and VAT resources

Revenue is recognised for the period for which the Commission sends out a call for funds to the Member States claiming their contribution. They are measured at their “called amount”. As VAT and GNI resources are based on estimates of the data for the budgetary year concerned, they may be revised as changes occur until the final data are issued by the Member States. The effect of a change in estimate is included when determining the net surplus or deficit for the period in which the change occurred.

Traditional own resources

Recoverables from non-exchange transactions and related revenues are recognised when the relevant monthly "A" statements (including duties collected and amounts due that are guaranteed and not contested) are received from the Member States. At the reporting date, revenue collected by the Member States for the period but not yet paid to the Commission is estimated and recognised as accrued income. The quarterly "B" statements (including duties neither collected nor guaranteed, as well as guaranteed amounts that have been contested by the debtor) received from the Member States are recognised as revenue less the collection costs to which they are entitled. In addition, a value reduction is recognised for the amount of the estimated recovery gap.

Fines

Revenue from fines is recognised when the EU's decision imposing a fine has been taken and it is officially notified to the addressee. If there are doubts about the undertaking's solvency, a value reduction on the entitlement is recognised. After the decision to impose a fine, the debtors have two months from the date of notification:

-either to accept the decision, in which case they must pay the fine within the time limit laid down and the amount is definitively collected by the EU;

-or not to accept the decision, in which case they lodge an appeal under EU law.

However, even if appealed, the fine must be paid within the time limit of three months laid down as the appeal does not have suspensory effect (Article 278 of the EU Treaty) or, under certain circumstances and subject to the agreement of the Commission's Accounting Officer, the debtor may present a bank guarantee for the amount instead.

If the undertaking appeals against the decision, and has already provisionally paid the fine, the amount is disclosed as a contingent liability. However, since an appeal against an EU decision by the addressee does not have suspensory effect, the cash received is used to clear the recoverable. If a guarantee is received instead of payment, the fine remains as a recoverable. If it appears probable that the General Court may not rule in favour of the EU, a provision is recognised to cover this risk. If a guarantee had been given instead, then the recoverable outstanding is written-down as required. The accumulated interest received by the Commission on the bank accounts where received payments are deposited is recognised as revenue, and any contingent liability is increased accordingly.

Since 2010, all provisionally cashed fines are managed by the Commission in a specifically created fund (BUFI) and invested in financial instruments.

REVENUE FROM EXCHANGE TRANSACTIONS

Revenue from the sale of goods and services is recognised when the significant risk and rewards of ownership of the goods are transferred to the purchaser. Revenue associated with a transaction involving the provision of services is recognised by reference to the stage of completion of the transaction at the reporting date.

Interest income and expense

Interest income and expense are recognised in the statement of financial performance using the effective interest method. This is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. When calculating the effective interest rate, the EU estimates cashflows considering all contractual terms of the financial instrument (for example prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest to discount the future cashflows for the purpose of measuring the impairment loss.

Dividend income

Dividend income is recognised when the right to receive payment is established.

19.Expenses

Expenses from non-exchange transactions account for the majority of the EU's expenses. They relate to transfers to beneficiaries and can be of three types: entitlements, transfers under agreement and discretionary grants, contributions and donations.

Transfers are recognised as expenses in the period during which the events giving rise to the transfer occurred, as long as the nature of the transfer is allowed by regulation (Financial Regulation, Staff Regulations, or other regulation) or an agreement has been signed authorising the transfer; any eligibility criteria have been met by the beneficiary; and a reasonable estimate of the amount can be made.

When a request for payment or cost claim is received and meets the recognition criteria, it is recognised as an expense for the eligible amount. At year-end, incurred eligible expenses due to the beneficiaries but not yet reported are estimated and recorded as accrued expenses.

Expenses from exchange transactions arising from the purchase of goods and services are recognised when the supplies are delivered and accepted by the EU. They are valued at original invoice amount. Furthermore, at the balance sheet date expenses related to the service delivered during the period for which an invoice has not yet been received or accepted are estimated and recognised in the statement of financial performance.

19.1.CONTINGENT ASSETS AND LIABILITIES

20.Contingent assets

A contingent asset is a possible asset that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the EU. A contingent asset is disclosed when an inflow of economic benefits or service potential is probable.

21.Contingent liabilities

A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the EU; or a present obligation that arises from past events but is not recognised because: it is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation or in the rare circumstances where the amount of the obligation cannot be measured with sufficient reliability.

21.1.CASHFLOW STATEMENT

Cashflow information is used to provide a basis for assessing the ability of the EU to generate cash and cash equivalents, and its needs to utilise those cashflows.

The cashflow statement is prepared using the indirect method. This means that the economic result for the financial year is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of revenue or expense associated with investing cashflows.

Cashflows arising from transactions in a foreign currency are recorded in the EU’s reporting currency (Euro), by applying to the foreign currency amount the exchange rate between the euro and the foreign currency at the date of the cashflow.

The cashflow statement reports cashflows during the period classified by operating and investing activities (the EU does not have financing activities).

Operating activities are the activities of the EU that are not investing activities. These are the majority of the activities performed. Loans granted to beneficiaries (and the related borrowings, when applicable) are not considered as investing (or financing) activities as they are part of the general objectives and thus daily operations of the EU. Operating activities also include investments such as investments in the European Investment Fund (EIF), the European Bank for Reconstruction and Development (EBRD) and venture capital funds. Indeed, the aim of these activities is to contribute to the achievement of policy objectives.

Investing activities are the acquisition and disposal of intangible assets and property, plant and equipment and of other investments which are not included in cash equivalents. Investing activities do not include loans granted to beneficiaries. The objective is to show the real investments made by the EU.

 

22.NOTES TO THE BALANCE SHEET

 

ASSETS

 

22.1.INTANGIBLE ASSETS

EUR millions

Gross carrying amount at 31.12.2015

698

Additions

137

Disposals

(22)

Transfer between asset categories

0

Other changes

7

Gross carrying amount at 31.12.2016

820

Accumulated amortisation at 31.12.2015

(361)

Amortisation charge for the year

(88)

Disposals

12

Transfer between asset categories

0

Other changes

(2)

Accumulated amortisation at 31.12.2016

(439)

Net carrying amount at 31.12.2016

381

Net carrying amount at 31.12.2015

337

The above amounts relate primarily to computer software.

 

22.2.PROPERTY, PLANT AND EQUIPMENT

The Space assets category covers fixed assets related to the two EU space programmes: the Global Navigation Satellite Systems (GNSS) – Galileo and EGNOS, and the Copernicus European Earth observation programme. In 2015 fixed assets related to EGNOS and Copernicus, amounting to EUR 584 million, had been included under the Plant and Equipment category.

For Galileo, following the declaration of the Galileo Initial Services on 15 December 2016, a balance of EUR 2 165 million of satellites and ground segment assets was transferred from assets under construction to fixed assets, including 14 operational Galileo satellites as well as ground infrastructure. The Galileo operational fixed assets amounted to EUR 2 146 million at 31 December 2016, net of depreciation. The remaining assets under construction totalling EUR 756 million (2015: EUR 2 110 million) include 4 satellites launched in 2016 but for which the in-orbit testing had not yet been completed at the balance sheet date. The development of the Galileo system will continue until the system reaches its full operational capacity. When completed, the Galileo constellation will comprise 30 satellites.

Regarding Copernicus, EUR 1 073 million concerning the Copernicus satellites in operation (Sentinels 1A, 2A, 3A and 1B) are recognised under the heading Space assets (2015: EUR 498 million), net of accumulated depreciation. Another EUR 1 133 million related to Copernicus satellites is recognised as assets under construction (2015: EUR 1 188 million).

Fixed assets related to the European Geostationary Navigation Overlay System (EGNOS) ground infrastructure of EUR 83 million (2015: EUR 85 million) are also included under the Space assets heading. In addition, EGNOS assets under construction amount to EUR 21 million (2015: EUR 14 million).

The assets related to the EU space programmes are being built with the assistance of the European Space Agency (ESA).

 

Property, plant and equipment

EUR millions

Land and Buildings

Space assets

Plant and Equipment

Furniture and Vehicles

Computer Hardware

Other

Finance leases

Assets under construction

Total

Gross carrying amount at 31.12.2015

4 856

725

563

248

627

277

2 784

3 832

13 911

Additions

145

14

28

22

73

20

5

1 639

1 945

Disposals

(2)

(1)

(14)

(10)

(49)

(10)

(3)

0

(90)

Transfer between asset categories

294

2 864

3

6

3

9

(2)

(3 177)

Other changes

5

1

4

3

4

2

0

(3)

16

Gross carrying amount at 31.12.2016

5 297

3 603

583

269

658

298

2 783

2 292

15 783

Accumulated depreciation at 31.12.2015

(2 701)

(141)

(440)

(176)

(517)

(182)

(1 054)

-

(5 211)

Depreciation charge for the year

(166)

(160)

(47)

(19)

(62)

(29)

(100)

-

(583)

Depreciation written back

-

-

1

0

6

1

-

-

8

Disposals

2

0

13

10

42

7

3

-

77

Transfer between asset categories

0

-

0

0

(2)

0

2

-

Other changes

0

0

(2)

(1)

(2)

0

(1)

-

(6)

Accumulated depreciation at 31.12.2016

(2 865)

(301)

(474)

(186)

(535)

(203)

(1 150)

(5 715)

NET CARRYING AMOUNT AT 31.12.2016

2 432

3 302

109

83

122

95

1 633

2 292

10 068

NET CARRYING AMOUNT AT 31.12.2015

2 155

584

124

72

110

94

1 730

3 832

8 700

 

22.3.INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

EUR millions

Note

31.12.2016

31.12.2015

Participations in joint ventures

2.3.1

5

Participations in associates

2.3.2

528

491

Total

528

497

23.Participations in joint ventures

There are a number of entities partially funded by the EU that meet the requirements to be accounted for using the equity method in the EU consolidated financial statements but are immaterial to the financial statements as a whole, and therefore have not been accounted for using the equity method in the 2016 consolidated financial statements. These entities are referred to as 'Minor Entities' - see note 1.3. An annual assessment of immateriality is performed to determine whether this exclusion continues to be justified. The EU contributions to these entities have been accounted for as an expense. Note 9 includes the list of those entities in 2016.

24.Participations in associates

The participation of the EU in the European Investment Fund (EIF) is treated as an associate using the equity method of accounting. The EIF is the EU's financial institution specialising in providing risk capital and guarantees to Small and Medium-sized Entities (SMEs). The EIF is located in Luxemburg and operates as a private-public partnership, whose members are the European Investment Bank (EIB), the EU and a group of financial institutions. At 31 December 2016 the EU held 28.1 % of ownership interests in EIF (2015: 26.5 %) and 28.1 % of the voting rights (2015: 26.5 %). In accordance with its statutes, the EIF is required to allocate to a statutory reserve at least 20 % of its annual net profit until the aggregate reserve amounts to 10 % of subscribed capital. This reserve is not available for distribution.

EUR millions

European Investment Fund

Participation at 31.12.2015

491

Contributions

41

Dividends received

(6)

Share of net result

34

Changes in fair value reserve

(0)

Other equity movements

(32)

Participation at 31.12.2016

528

The following carrying amounts are attributable to the EU based on its percentage of participation:

EUR millions

31.12.2016

31.12.2015

Total EIF

EU's share

Total EIF

EU's share

Assets

2 301

647

2 183

578

Liabilities

(423)

(119)

(328)

(87)

Revenue

240

67

192

51

Expenses

(118)

(33)

(95)

(25)

Surplus/(deficit)

122

34

97

26

The EU has paid in 20 % of its participation, the balance being uncalled, corresponding to an amount of EUR 986 million.

EUR millions

Total EIF capital

EU subscription

Total share capital

4 382

1 232

Paid-in

(876)

(246)

Uncalled

3 506

986

 

24.1.FINANCIAL ASSETS

EUR millions

Note

31.12.2016

31.12.2015

Non-current financial assets

Available for sale financial assets

2.4.1

9 131

7 222

Financial assets at fair value through surplus or deficit

2.4.2

Loans

2.4.3

53 116

49 743

62 247

56 965

Current financial assets

Available for sale financial assets

2.4.1

1 311

2 399

Financial assets at fair value through surplus or deficit

2.4.2

0

Loans

2.4.3

2 361

7 508

3 673

9 907

Total

65 920

66 871

25.Available for sale financial assets

EUR millions

31.12.2016

31.12.2015

BUFI investments

2 013

2 647

ECSC in Liquidation

1 685

1 699

European Bank for Reconstruction and Development

188

188

3 886

4 534

Guarantee Funds for budgetary guarantees:

Guarantee Fund for external actions

2 069

2 002

EFSI Guarantee Fund

948

-

3 017

2 002

Financial Instruments financed by the EU budget:

Horizon 2020

1 213

765

Risk Sharing Finance Facility

719

773

Connecting Europe Facility*

483

425

ETF Start up

476

485

Risk Capital Operations

132

152

European Fund for South East Europe

118

118

Other

398

366

3 539

3 084

Total

10 442

9 620

Non-current

9 131

7 222

Current

1 311

2 399

*    Previous year amounts relate to Project Bond Initiative and Loan Guarantee Instrument for TEN-T projects. These two instruments were merged in 2016 into the Connecting Europe Facility.

Out of the total of EUR 10 442 million, the EU holds available for sale financial assets in the form of debt securities (e.g. bonds) of EUR 8 920 million, equity instruments of EUR 1 302 million and investments in the EIB Unitary Fund (money market fund) of EUR 221 million. The debt securities and units in the EIB Unitary Fund are mainly used to temporarily invest the amounts allocated to the EU guarantee and risk-sharing instruments until they are used to satisfy the guarantee calls.

BUFI investments

Provisionally cashed fines related to competition cases are allocated to a dedicated fund (BUFI Fund - 'Budget Fines' Fund) and invested by the Commission in debt instruments categorised as available for sale financial assets.

ECSC in Liquidation

Regarding the European Coal and Steel Community (ECSC) in liquidation, all available for sale financial assets are debt securities denominated in EUR and quoted in an active market.

European Bank for Reconstruction and Development

As the European Bank for Reconstruction and Development (EBRD) is not quoted on any stock exchange and in view of the contractual restrictions included in the EBRD’s articles of incorporation relating, amongst others, to the sale of participating interests, capped at acquisition cost and only authorised to existing shareholders, the EU's shareholding is valued at cost.

EUR millions

Total EBRD capital

Commission subscription at 31.12.2016

Total subscribed share capital

29 703

900

Paid-in

(6 207)

(188)

Uncalled

23 496

712

 

GUARANTEE FUNDS FOR BUDGETARY GUARANTEES

Guarantee Fund for external actions

The Guarantee Fund for external actions covers loans guaranteed by the EU budget, in particular EIB lending operations outside the EU financed from the EIB's own resources and loans under macro-financial assistance (MFA) and Euratom loans outside the EU – see note 4.1.1. It is a long-term instrument (non-current part: EUR 1 946 million) managed by the EIB and intended to cover any defaulting loans guaranteed by the EU. The Fund is endowed by payments from the EU budget, the proceeds from interest on investments made from the Fund's assets, and sums recovered from defaulting debtors for whom the Fund has had to activate its guarantee. The Fund should be maintained at a target amount corresponding to the 9 % of the guaranteed loans outstanding at year-end. The difference between the target amount and the value of the Fund's assets at year-end shall be covered from the EU budget in year n+2, while any surplus is paid back to the EU budget.

EFSI Guarantee Fund

Pursuant to the EFSI Regulation the EFSI Guarantee Fund has been established to provide a liquidity cushion against potential losses incurred by the EIB in relation to its financing and investment operations eligible for the EFSI EU guarantee under the EFSI Agreement - see note 4.1.1. The EFSI Guarantee Fund is financed by contributions from the EU budget. It is also endowed by returns on guarantee fund resources invested, revenues received by the EU as remuneration for the guarantee under the EFSI Agreement, and amounts recovered by the EIB from defaulting debtors in respect of previous guarantee calls. The fund is managed by the Commission, which is authorised to invest the assets of the EFSI Guarantee Fund on the financial markets in accordance with the principle of sound financial management following appropriate prudential rules. The EFSI Guarantee Fund started its operations in April 2016. It will be progressively provisioned and gradually reach EUR 8 billion, i.e. 50 % of the total EU EFSI guarantee over a time horizon spanning from 2016 to 2022.

FINANCIAL INSTRUMENTS FINANCED BY THE EU BUDGET

For an overview of all financial instruments financed by the budget see the Financial Statement Discussion and Analysis.

Horizon 2020

Under the EU Regulation establishing Horizon 2020 – the Framework Programme for Research and Innovation (2014-2020), new financial instruments have been established in order to enhance access to finance to entities engaged in research and innovation (R&I). These instruments are: the InnovFin Loan and Guarantee Service for R&I under which the Commission shares the financial risk related to a portfolio of new financing operations entered into by the EIB; the InnovFin SME Guarantee including the SME Initiative Uncapped Guarantee Instrument (SIUGI) – guarantee facilities managed by the EIF providing guarantees and counter-guarantees to the financial intermediaries for the new portfolios of loans (under SIUGI the Commission shares the financial risk related to the guarantee given with Member States, EIF and EIB); and the InnovFin Equity Facility for R&I providing for investments in venture capital funds and managed by the EIF.

Risk-Sharing Finance Facility

The Risk-Sharing Finance Facility (RSFF) is managed by the EIB and the Commission's investment portfolio is used to provision financial risk for loans and guarantees given by the EIB to eligible research projects. In total, an EU budget of up to EUR 1 billion was allocated to the RSFF under the 2007-2013 MFF. Under the 2014-2020 MFF, there are no new budget contributions foreseen to the RSFF. The EU overall risk is limited to the amount it contributes to the Facility.

Connecting Europe Facility

Pursuant to Regulation (EU) No 1316/2013, the Connecting Europe Facility (CEF) debt instrument has been established with the objective to facilitate infrastructure projects’ access to financing in the sectors of transport, telecommunications and energy. It is managed by the EIB under an agreement with the EU. The CEF debt financial instrument is the continuity of the Loan Guarantee Instrument for TEN-T projects (LGTT) and of the pilot phase of the Project Bond Initiative (PBI). The LGTT and the PBI Portfolio were merged into the CEF financial instrument with effect from 1 January 2016. It offers risk-sharing for debt financing in the form of senior and subordinated debt or guarantee as well as support for project bonds.

ETF Start up

These are equity instruments that were financed by the Growth & Employment programme, the MAP programme, the CIP programme and the Technology Transfer Pilot Project, under the trusteeship of the EIF, supporting the creation and financing of Start-Up SMEs by investing in suitable specialised venture capital funds.

26.Financial assets at fair value through surplus or deficit

EUR millions

31.12.2016

31.12.2015

Notional amount receive leg

Notional amount pay leg

Fair value

Notional amount receive leg

Notional amount pay leg

Fair value

Foreign currency
forward contract

50

(50)

0

In 2016 the EU entered into two foreign currency forward contracts in order to hedge the foreign currency risk related to USD denominated debt securities held in the EFSI Guarantee Fund. Under these currency forward contracts the EU shall deliver the contractually agreed notional amount in foreign currency ('pay leg') and will receive the notional amount in EUR ('receive leg') at the maturity date. These derivative contracts are measured at fair value at the balance sheet date and classified as either financial assets or financial liabilities at fair value through surplus or deficit depending on whether their fair value is positive or negative. At 31 December 2016, one foreign currency forward contract, with a notional amount of EUR 50 million, resulted in positive fair value of EUR 0.5 million and has been recognised under financial assets. The other contract, for the notional amount of EUR 101 million, resulted in negative fair value and as such has been recognised as a financial liability - see note 2.11.2.

At 31 December 2016 all financial assets at fair value through surplus or deficit are categorised into level 2 of the fair value hierarchy – see table below.

Fair value hierarchy of financial assets measured at fair value

EUR millions

31.12.2016

31.12.2015

Level 1: Quoted prices in active markets

8 910

8 123

Level 2: Observable inputs other than quoted prices

231

188

Level 3: Valuation techniques with inputs not based on observable market data

1 302

1 310

Total

10 442

9 620

During the period there were no transfers between level 1 and level 2.

Reconciliation of financial assets measured using valuation techniques with inputs not based on observable market data (level 3)

EUR millions

Opening balance at 31.12.2015

1 310

Purchases and sales

32

Gains or losses for the period in financial income or finance costs

(54)

Gains or losses in net assets

13

Transfers into level 3

Transfers out of level 3

Other

Closing balance at 31.12.2016

1 302

 

27.Loans

EUR millions

Note

31.12.2016

31.12.2015

Loans for financial assistance

2.4.3.1

55 134

56 874

Other loans

2.4.3.2

343

377

Total

55 477

57 251

Non-current

53 116

49 743

Current

2 361

7 508

28.Loans for financial assistance

EUR millions

EFSM

BOP

MFA

Euratom

ECSC in Liqui- dation

Total

Total at 31.12.2015

47 509

5 811

3 024

301

229

56 874

New loans

4 750

-

10

-

4 760

Repayments

(4 750)

(1 500)

(70)

(49)

-

(6 369)

Exchange differences

-

-

(33)

(33)

Changes in carrying amount

(53)

(40)

(5)

(98)

Impairment

-

-

-

Total at 31.12.2016

47 456

4 272

2 964

252

191

55 134

Non-current

46 800

3 050

2 889

199

101

53 039

Current

656

1 222

75

53

90

2 096

The change in carrying amount corresponds to the change in accrued interests.

Nominal value of loans for financial assistance at 31 December 2016 total EUR 54 373 million (2015: EUR 56 011 million).

EFSM enables the granting of financial assistance to a Member State in difficulties or seriously threatened with severe difficulties caused by exceptional circumstances beyond its control. The assistance may take the form of a loan or credit line. The ECOFIN Council conclusions of 9 May 2010 restrict the facility to EUR 60 billion but the legal limit restricts the outstanding amount of loans or credit lines to the margin available under the own resources ceiling. Borrowings related to loans disbursed under the EFSM are guaranteed by the EU budget. It is not foreseen that the EFSM will engage in new financing programmes or enter into new loan facility agreements.

The BOP facility, a policy-based financial instrument, provides medium-term financial assistance to Member States of the EU that have not adopted the Euro. It enables the granting of loans to Member States who are experiencing, or are seriously threatened with, difficulties in their balance of payments or capital movements. The maximum outstanding amount of loans granted under the instrument is limited to EUR 50 billion. Borrowings related to these BOP loans are guaranteed by the EU budget.

MFA is a policy-based financial instrument of untied and undesignated balance of payment and/or budget support to partner countries currently following an IMF programme. It takes the form of medium/long term loans or grants or an appropriate combination of both and generally complements financing provided in the context of an IMF-supported adjustment and reform program. These loans are guaranteed by the Guarantee Fund for external actions. At 31 December 2016, EUR 1 313 million relating to a loan facility agreement under MFA assistance were granted to Ukraine (EUR 1 200 million), to Tunisia (EUR 100 million), to Georgia (EUR 13 million) but not yet disbursed – see note 4.1.2.

The Euratom legal entity (represented by the Commission) lends money to both Member States and non-Member States to finance projects relating to energy installations. At 31 December 2016, loans of EUR 300 million were granted to Ukraine but not yet disbursed – see note 4.1.2. Guarantees from third-parties of EUR 252 million (2015: EUR 301 million) have been received covering Euratom loans.

ECSC in Liquidation loans were granted on borrowed funds in accordance with articles 54 and 56 of the ECSC Treaty.

Loans effective interest rates (expressed as a range of interest rates)

31.12.2016

31.12.2015

Macro Financial Assistance (MFA)

0 % - 4.54 %

0 % - 4.54 %

Euratom

0 % - 5.76 %

0.08 % - 5.76 %

Balance of Payment (BOP)

2.37 % - 3.37 %

2.37 % - 3.62 %

European Financial Stability Mechanism (EFSM)

0.62 % - 3.75 %

0.62 % - 3.75 %

ECSC in Liquidation

5.23 % - 5.81 %

5.23 % - 5.81 %

29.Other loans

EUR millions

31.12.2016

31.12.2015

Loans with special conditions

93

113

Subrogated loans

ECSC in liquidation housing loans

5

6

Term deposits between 3 and 12 months

245

257

Total

343

377

Non-current

77

88

Current

266

290

Nominal value of other loans at 31 December 2016 total EUR 673 million (2015: EUR 609 million).

Loans with special conditions are granted at preferential rates as part of co-operation with non-Member States.

Subrogated loans are defaulting loans which were granted by the EIB and for which all rights have been subrogated to the EU following the payment from the Guarantee Fund for external actions. These loans are fully impaired for an amount of EUR 332 million (2015: EUR 218 million).

Impairment on other loans

EUR millions

31.12.2015

Additions

Reversals

Write-off

Other

31.12.2016

Loans with special conditions

13

0

(6)

0

0

7

Subrogated loans

218

114

0

0

0

332

ECSC in liquidation housing loans

Total

231

114

(6)

0

0

339

29.1.PRE-FINANCING

EUR millions

Note

31.12.2016

31.12.2015

Non-current pre-financing

Pre-financing

2.5.1

20 219

28 543

Other advances to Member States

2.5.2

1 651

1 332

Contribution to Trust Funds

31

4

21 901

29 879

Current pre-financing

Pre-financing

2.5.1

21 386

11 498

Other advances to Member States

2.5.2

2 183

3 779

23 569

15 277

Total

45 470

45 156

The level of pre-financing amounts in the various programmes must be sufficient to ensure the necessary funding for the beneficiary to start the project, while also safeguarding the financial interests of the EU and taking into consideration legal, operational and cost-effectiveness constraints. All these elements have been given due consideration by the Commission in an effort to improve the follow-up of pre-financing.

30.Pre-financing

EUR millions

Gross amount

Cleared via cut-off

Net amount at 31.12.2016

Gross amount

Cleared via cut-off

Net amount
at 31.12.2015

Shared management

EAFRD & other rural develop-ment instruments

3 955

3 955

4 726

(1 629)

3 097

ERDF & CF

19 858

(4 727)

15 131

24 268

(7 416)

16 852

ESF

6 477

(617)

5 860

7 251

(1 325)

5 926

Other

4 219

(2 393)

1 826

4 359

(2 365)

1 994

34 509

(7 737)

26 772

40 604

(12 735)

27 869

Direct Management

Implemented by:

Commission

12 424

(8 843)

3 581

12 512

(9 536)

2 976

EU executive agencies

13 136

(8 348)

4 788

11 065

(7 767)

3 298

Trust funds

142

(82)

60

14

(5)

9

25 701

(17 273)

8 429

23 591

(17 308)

6 283

Indirect Management

Implemented by:

Other EU agencies & bodies

616

(157)

459

627

(95)

532

Third countries

1 861

(1 135)

726

2 151

(1 229)

922

International organisations

7 230

(4 432)

2 797

6 640

(4 014)

2 626

Other entities

6 498

(4 077)

2 422

5 330

(3 521)

1 809

16 206

(9 801)

6 404

14 748

(8 859)

5 889

Total

76 416

(34 811)

41 605

78 943

(38 902)

40 041

Non-current

20 219

20 219

28 543

28 543

Current

56 197

(34 811)

21 386

50 401

(38 902)

11 498

 

Pre-financing represents money paid out, and thus implementation of payment appropriations. As explained in note 1.5.7, these are advances and so not yet expensed. Thus while pre-financing reduces outstanding RAL (see note 5.1) it represents expenses still to be recognised in the statement of financial performance.

The closure of programming period 2007-2013 and the gradual set-up of programs under the period 2014-2020 are the major factors influencing the amounts on the balance sheet: pre-financing related to the old programs is decreasing due to the acceptance of costs, while further pre-financings have been paid out concerning the new programming period.

For shared management this transition between programming periods also explains the movement between current and non-current balances. The programming period 2007-2013 is in its closing phase and thus more amounts become due within twelve months. Concerning the programming period 2014 - 2020, the initial pre-financing paid is booked as non-current, while the annual pre-financing is booked as current.

The table above shows a significant decrease in the gross pre-financing amounts under shared management, which is explained by the clearing of EUR 18 521 million of costs offset partially by the payment of new pre-financing of EUR 12 426 million.

Guarantees received in respect of pre-financing

These are guarantees that the Commission requests from beneficiaries that are not Member States in certain cases when paying out advance payments (pre-financing). There are two values to disclose for this type of guarantee, the “nominal” and the “on-going” values. For the nominal value, the generating event is linked to the existence of the guarantee. For the on-going value, the guarantee’s generating event is the pre-financing payment and/or subsequent clearings. At 31 December 2016 the nominal value of guarantees received in respect of pre-financing amounted to EUR 683 million while the on-going value of those guarantees was EUR 496 million (2015: EUR 844 million and EUR 626 million respectively).

Certain pre-financing amounts paid out under the 7th Research Framework Programme for research and technological development (FP7) and under Horizon 2020 are effectively covered by a Participants Guarantee Fund (PGF). The PGF is a mutual benefit instrument set up to cover the risks relating to non-payment of amounts by the beneficiaries during the implementation of the indirect actions of FP7 and Horizon 2020. All participants of indirect actions receiving a grant from the EU contribute 5 % of the total amount received to the PGF's capital.

At 31 December 2016 pre-financing amounts covered by the PGF totalled EUR 1.8 billion (2015: EUR 1.7 billion). The EU (represented by the Commission) acts as an executive agent of the participants of the PGF, but the fund is owned by the participants.

At year-end, the PGF had total assets of EUR 1 951 million (2015: EUR 1 838 million). The assets of the PGF also include financial assets that are managed by the Directorate-General for Economic and Financial Affairs of the Commission. As the PGF is a separate entity the assets of the fund are not consolidated in these EU annual accounts.

31.Other advances to Member States

EUR millions

31.12.2016

31.12.2015

Advances to Member States for financial instruments
under shared management

2 534

3 287

Aid Schemes

1 300

1 824

Total

3 834

5 111

Non-current

1 651

1 332

Current

2 183

3 779

Advances to Member States for financial instruments under shared management

Under the framework of the European Structural and Investment Funds (ESIF) programmes, it is possible to make advance payments from the EU budget to Member States so as to allow them to contribute to financial instruments (i.e. loans, equity investments or guarantees). These financial instruments are set up and managed under the responsibility of the Member States, not the Commission. Nevertheless, monies that are unused by these instruments at year-end are the property of the EU (as with all pre-financing) and are thus treated as an asset on the EU’s balance sheet.

2014-2020 Period:

Under cohesion policy the Member States have contributed an amount of EUR 3 681 million, of which it is estimated that EUR 1 842 million was still to be implemented at 31 December 2016. This includes the contribution of the Member States to the SME Initiative, an instrument aimed at stimulating additional lending by the banking sector to SMEs (EUR 745 million paid, out of which EUR 481 million is estimated as not yet implemented).

For rural development, EUR 6 million remained unused at year-end.

2007-2013 Period:

In the previous programming period, the basic legal acts do not oblige the Member States to provide periodic reports to the Commission on the use of these advances, and in some cases not even to identify them in the statements of expenditure submitted to the Commission.

For cohesion policy, every year the Commission collects information from the Member States on these financial instruments and consolidates it in an annual implementation report. The next report will be the final implementation report but this report will not be available in time for inclusion in these accounts. Consequently, and consistent with previous years, the measurement is estimated on the basis of the most recent reliable information available, i.e. the annual implementation report as at 31 December 2015 and disbursements made during 2016. The estimate also relies on the assumption that funds will be used in full and used evenly over the remaining period of operation (ending 31 March 2017). It is estimated that at year-end 2016 an amount of EUR 686 million was still to be used for investments in final beneficiaries.

For rural development, at year-end, all amounts have been implemented or re-allocated to other measures before the end of the programming period.

Aid Schemes

Similar to the above, advances paid by the Member States for various aid schemes (state aid, market measures of EAGF or investment measures of EAFRD) that were not used at year-end are recorded as assets on the EU's balance sheet. The Commission has estimated the value of these advances based on information provided by the Member States; the resulting amounts are included under the Aid Schemes sub-heading above.

2014-2020 Period:

For cohesion policy, EUR 117 million was unused at year-end.

For agriculture policy, the Commission requested information on the unused amounts directly from the paying agencies in the Member States. On the basis of this information, it is estimated that EUR 721 million remained unused at year-end.

2007-2013 Period:

It is estimated that EUR 461 million representing advances paid in the context of the agricultural policy remained unused at the end of 2016.

31.1.EXCHANGE RECEIVABLES AND NON-EXCHANGE RECOVERABLES

EUR millions

Note

31.12.2016

31.12.2015

Non-current

Recoverables from non-exchange transactions

2.6.1

700

857

Receivables from exchange transactions

2.6.2

16

13

717

870

Current

Recoverables from non-exchange transactions

2.6.1

10 347

8 882

Receivables from exchange transactions

2.6.2

558

572

10 905

9 454

Total

11 621

10 324

32.Recoverables from non-exchange transactions

EUR millions

Note

31.12.2016

31.12.2015

Non-current

Member States

2.6.1.1

700

857

700

857

Current

Member States

2.6.1.1

8 162

6 845

Fines

2.6.1.2

1 808

1 601

Accrued income and deferred charges

2.6.1.3

329

369

Other recoverables

47

67

10 347

8 882

Total

11 047

9 739

33.Recoverables from Member States

EUR millions

31.12.2016

31.12.2015

TOR established in the A account

3 261

3 041

TOR established in the separate account

1 437

1 283

Own resources to be received

1 764

-

Impairment

(753)

(760)

Other

36

10

Own resources recoverables

5 745

3 573

European Agricultural Guarantee Fund (EAGF)

2 606

3 846

European Agricultural Fund for Rural Development (EAFRD)

924

750

Temporary Rural Development Instrument (TRDI)

30

26

Special Accession Programme for Agriculture and Rural Development (SAPARD)

167

175

Impairment

(999)

(1 092)

EAGF and rural development recoverables

2 729

3 705

Pre-financing recovery expected

293

313

VAT paid and recoverable

41

36

Other recoverables from Member States

55

75

Total

8 863

7 701

Non-current

700

857

Current

8 162

6 845

The non-current amounts due from Member States relate to non-executed conformity clearance decisions for the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD) to be implemented in annual instalments and/or deferrals.

Own resources recoverables

Traditional own resources (TOR), composed of customs duties and sugar levies, are collected by Member States on behalf of the Commission. Member States establish TOR and communicate the amounts of the entitlements established to the Commission by means of monthly 'A account' statements. Established entitlements that have not been included in the 'A accounts', because they have not been recovered by Member States and no security has been provided (or if security has been provided but are anyway contested), are shown in the 'separate account'.

The Member States’ contribution based on VAT and GNI is subject to an annual adjustment which takes place every year on the first working day of December. The own resources to be received included also the adjustments for the financial years 2014, 2015 and 2016 related to the new provisions introduced by the Own Resources Decision (ORD) 2014 following the completion of the ratification process and the entry into force on 1 October 2016, which were due for payment by Member States on 1 January 2017.

Corrections may still be made to the actual VAT and GNI bases during the subsequent four years, unless a reservation is issued. These reservations have to be seen as potential claims on the Member States for uncertain amounts as their financial impact cannot be estimated with accuracy. When the exact amount can be determined, the corresponding VAT and GNI-based resources are called either in connection with VAT and GNI balances or by individual calls for funds.

EAGF and Rural Development recoverables

This item primarily covers the amounts owed by Member States at 31 December 2016, as declared and certified by the Member States at 15 October 2016. An estimation is made for the recoverables arising after this declaration and up to 31 December 2016. The Commission also estimates a write-down for the amounts owed by beneficiaries that are unlikely to be recovered. The fact that such an adjustment is made does not mean that the Commission is waiving future recovery of these amounts. A deduction of 20 % is also included in the adjustment, and corresponds to what Member States are allowed to retain to cover administrative costs.

34.Fines

This refers to fines issued by the Commission which were not (provisionally) cashed at year end (EUR 1 986 million) less amounts written-down (EUR 178 million). Guarantees totalling EUR 1 012 million were received for the fines outstanding at year-end (2015: EUR 1 428 million). It should be noted that EUR 651 million of these receivables were due for payment after 31 December 2016.

35.Accrued income and deferred charges

EUR millions

31.12.2016

31.12.2015

Cohesion, agriculture and rural development funds: Financial corrections

9

10

Other accrued income

64

162

Deferred charges relating to non-exchange transactions

256

196

Total

329

369

Non-current

Current

329

369

36.Receivables from exchange transactions

EUR millions

31.12.2016

31.12.2015

Non-current

Other receivables

16

13

16

13

Current

Customers

246

225

Impairment on receivables from customers

(128)

(107)

Deferred charges relating to exchange transactions

250

228

Other

191

227

558

572

Total

574

585

The impairment on receivables from customers disclosed above includes EUR 55 million of impairment determined on an individual basis.

 

36.1.INVENTORIES

 

EUR millions

31.12.2016

31.12.2015

Scientific materials

54

55

Other

111

83

Total

165

138

 

36.2.CASH AND CASH EQUIVALENTS

EUR millions

Note

31.12.2016

31.12.2015

Accounts with Treasuries and Central Banks

24 566

17 119

Current accounts

127

110

Imprest accounts

5

4

Transfers (cash in transit)

Other term deposits

28

Bank accounts for budget implementation and
other term deposits

2.8.1

24 698

17 262

Cash belonging to financial instruments

2.8.2

1 390

1 298

Cash relating to fines

2.8.3

1 325

1 908

Cash relating to other institutions, agencies
and bodies

1 006

1 012

Cash relating to trust funds

167

192

Total

28 585

21 671

37.Bank accounts for budget implementation and other term deposits

This heading covers the funds which the Commission keeps in its bank accounts in each Member State and EFTA country (treasury or central bank), as well as in commercial bank current accounts, imprest accounts and petty cash. The exceptionally high treasury balance at the end of 2016 is due to the following main elements:

·As regards own resources, the end of year balance includes a total net amount of EUR 7.7 billion to be returned to Member States in early 2017 as result of amending budgets adopted late in 2016. In addition, advances on own resources amounting to EUR 1.5 billion were received in the final days of 2016.

·A significant amount of fines imposed by the Commission for breach of competition rules of EUR 4.3 billion were definitively cashed in 2016 and are part of the year-end treasury balance.

·The treasury balance also includes the assigned revenue and payment appropriations not spent by the end of 2016 of EUR 11 billion.

38.Cash belonging to financial instruments

Amounts shown under this heading primarily concern cash equivalents managed by fiduciaries on behalf of the Commission for the purpose of implementing particular financial instrument programmes funded by the EU budget (see note 2.4.1). The cash belonging to financial instruments can only be used in the programme concerned.

39.Cash relating to fines

This is cash received in connection with fines issued by the Commission for which the case is still open. These amounts are kept in specific deposit accounts that are not used for any other activities. Where an appeal has been lodged or where it is unknown if an appeal will be made by the other party, the underlying amount is shown as contingent liability in note 4.1.4.

The decrease in this balance is due to the fact that since 2010, all new provisionally cashed fines are managed by the Commission in the BUFI fund and invested in financial instruments categorised as available for sale (see note 2.4.1).

 

LIABILITIES

 

39.1.PENSION AND OTHER EMPLOYEE BENEFITS

Net employee benefit scheme liability

EUR millions

Pension Scheme of European Officials

Other retirement benefit schemes

Joint Sickness Insurance Scheme

31.12.2016 Total

31.12.2015 Total

Defined Benefit Obligation

58 746

1 882

7 036

67 664

64 242

Plan assets

N/A

(139)

(293)

(432)

(428)

Net liability

58 746

1 743

6 742

67 231

63 814

The increase in the total employee benefits liability is primarily due to an increase in the net liability of the Pension Scheme of European Officials. This increase is mainly due to the reduction in the real discount rate from 0.6 % to 0.3 %, together with the fact that additional rights gained by scheme members exceeded benefit payments out of the scheme.

40.Pension Scheme of European Officials

This defined benefit obligation represents the present value of expected future payments that the EU is required to make so as to settle the pension obligations resulting from employee service in the current and prior periods. The scheme is ongoing, and as such, all payments required to be made from the scheme on an annual basis are included in the EU budget each year.

In accordance with Article 83 of the Staff Regulations, the payment of the benefits provided for in the staff pension scheme constitutes a charge to the EU's budget. The scheme is unfunded, but the Member States guarantee the payment of these benefits collectively. A compulsory pension contribution is deducted from the basic salaries of active members, currently 9.8 %. These contributions are treated as budget revenue of the year and contribute to the funding of EU expenditure in general, see also note 3.6.

The liabilities of the pension scheme were assessed on the basis of the number of staff and retired staff at 31 December 2016 and on the rules of the Staff Regulations applicable at this date. This valuation was carried out in accordance with the methodology of IPSAS 25 (and therefore also EU accounting rule 12). During 2016, the Commission has taken steps to strengthen the processes and the reliability of the basic data collection used for calculating the employee benefits liability. The work will continue during 2017 – possible results, where appropriate, will be reflected in the 2017 accounts.

41.Other retirement benefit schemes

This refers to the liability relating to the pension obligations towards Members and former Members of the Commission, the Court of Justice (and General Court) and the Court of Auditors, the Secretaries General of the Council, the Ombudsman, the European Data Protection Supervisor, and the European Union Civil Service Tribunal. Also included under this heading is a liability relating to the pensions of Members of the European Parliament.

42.Joint Sickness Insurance Scheme

In addition to the above retirement benefit schemes, a valuation is made for the estimated liability that the EU has regarding the Joint Sickness Insurance Scheme in relation to healthcare costs which must be paid during employees' post-activity periods (net of their contributions).

Movement in present value of employee benefits defined benefit obligation

The present value of the defined benefit obligation is the discounted, without deducting any plan assets, expected future payments required to settle the obligation resulting from employee service in the current and prior periods.

 

An analysis of the current year movement in the defined benefit obligation is shown below:

EUR millions

Pension Scheme of European Officials

Other retirement benefit schemes

Joint Sickness Insurance Scheme

Total

Present value as at 31.12.2015

54 967

1 613

7 662

64 242

Current Service Cost

2 267

83

283

2 634

Interest cost

1 264

29

161

1 454

Net Actuarial (gains) and losses

2 142

148

(1 039)

1 251

Contributions from members

24

24

Benefits paid

(1 330)

(44)

(55)

(1 429)

Liability increase/(decrease) due to taxes on pensions

(565)

52

(513)

Present value as at 31.12.2016

58 746

1 882

7 036

67 664

 

Current service costs are the increase in the present value of the defined benefit obligation arising from current members' service in the current period.

Interest costs are the increase during the period in the present value of the defined benefit obligation because the benefits are one period closer to settlement.

Net Actuarial gains and losses comprise:

-Experience adjustments (the effects of differences between the previous actuarial assumptions for 2016 and what has actually occurred in 2016); and

-Effects of changes in actuarial assumptions, either financial (such as projected salary increases) or demographic (such as mortality rates). These assumptions are inherently uncertain and therefore can show significant movements from year to year.

Benefits are paid during the year according to the rules of the scheme. These benefits paid lead to a decrease in the defined benefit obligation as they are no longer to be paid in the future.

Actuarial assumptions - employee benefits

The principle actuarial assumptions used in the valuation of the two main employee benefit schemes of the EU are shown below:

Pension Scheme of European Officials

Joint Sickness Insurance Scheme

2016

Nominal discount rate

1.7 %

1.9 %

Expected inflation rate

1.4 %

1.5 %

Real discount rate

0.3 %

0.4 %

Expected rate of salary increases

1.2 %

1.1 %

Medical cost trend rates

N/A

3.0 %

Retirement age

63/64/66

63/64/66

2015

Nominal discount rate

2.0 %

2.1 %

Expected inflation rate

1.4 %

1.4 %

Real discount rate

0.6 %

0.7 %

Expected rate of salary increases

1.2 %

1.2 %

Medical cost trend rates

N/A

3.0 %

Retirement age

63/64/65

63/64/66

Mortality rates are based on the International Civil Servants Life Table (ICSLT 2013).

The nominal discount rate is determined as the value of the Euro zero-coupon yield (with a maturity of 21 years as of December 2016 for the Pension Scheme of European Officials (PSEO), and 26 years for the Joint Sickness Insurance Scheme). The inflation rate used is the expected inflation rate over the equivalent period. It must be determined empirically, based on prospective values as expressed by index-linked bonds on the European financial markets. The real discount rate is calculated from the nominal discount rate and the expected long-term inflation rate.

Movement in present value of plan assets

EUR millions

Other retirement benefit schemes

Joint Sickness Insurance Scheme

Total

Present value as at 31.12.2015

149

280

428

Net movement in plan assets

(10)

14

4

Present value as at 31.12.2016

139

293

432

5 year trend

EUR millions

2012

2013

2014

2015

2016

Employee benefits liability

42 503

46 818

58 616

63 814

67 231

The significant increase in the employee benefits liability over the five years can largely be explained by a reduction in the real discount rate used to discount the future cash flows. This reduction is linked to the underlying economic conditions, particularly the fall in interest rates. For the main PSEO scheme, for example, the real discount rate fell from 1.6 % at the end of 2012 to 0.3 % at the end of 2016.

Amounts recognised in the Statement of Financial Performance

EUR millions

Pension Scheme of European Officials

Other retirement benefit schemes

Joint Sickness Insurance Scheme

Total

2016

Current service cost

2 042

97

283

2 422

Interest cost

1 138

33

161

1 332

Past service cost

Change in plan assets

(7)

(45)

(52)

Staff and pension costs

3 180

124

399

3 702

Actuarial gains and losses

1 929

179

(1 039)

1 068

Total

5 108

302

(640)

4 770

 

Joint Sickness Insurance Scheme sensitivity

A one percentage point change in assumed medical cost trend rates would have the following effects:

EUR millions

One percentage point increase

One percentage point decrease

The aggregate of the current service cost and interest cost components of net periodic post-employment medical costs

89

(74)

The accumulated post-employment benefit obligation for medical costs

2 201

(1 828)

42.1.PROVISIONS

EUR millions

Amount at 31.12.2015

Additional provisions

Unused amounts reversed

Amounts used

Transfer between categories

Change in estimation

Amount at 31.12.2016

Legal cases:

Agriculture

40

(21)

0

129

149

Cohesion

19

198

217

Other

459

8

(2)

(33)

(327)

(2)

102

Nuclear site dismantling

1 078

(29)

64

1 113

Financial

411

536

(7)

(53)

(6)

880

Fines

4

20

23

Other

79

24

9

(23)

38

127

Total

2 030

647

(21)

(138)

94

2 611

Non-current

1 716

491

(22)

(9)

(304)

65

1 936

Current

314

156

1

(128)

304

29

675

 

Provisions are amounts, arising from past events, that will probably have to be paid by the EU budget in the future.

Legal cases

This is the estimate of amounts that will probably have to be paid out after the year-end in relation to a number of on-going legal cases.

Nuclear site dismantlement

In 2014 the basis for the provision was updated as per the "2014 updated JRC Strategy on Decommissioning and Waste Management" (D&WM). It represents the follow up of the comments raised by the Review of the JRC D&WM programme made by external experts in 2012. In accordance with EU accounting rules, this provision is indexed for inflation and then discounted to its net present value (using the Euro zero-coupon swap curve). At 31 December 2016, this resulted in a provision of EUR 1 113 million, split between amounts expected to be used in 2016 (EUR 27 million) and afterwards (EUR 1 086 million).

In view of the estimated duration of this programme (around 20 years), it should be pointed out that there is some uncertainty about this estimate, and the final cost could be different from the amounts currently recorded.

Financial provisions

These concern mainly provisions which represent the estimated losses that will be incurred in relation to the guarantees given by the different financial instruments, where the EIF and the EIB are empowered to issue guarantees in their own name but on behalf of and at the risk of the EU. The financial risk of the EU linked to the guarantees is, however, capped. Non-current financial provisions are discounted to their net present value (using the Euro Swap annual rate).

The increase in financial provisions relates mainly to additional provisions for outstanding loans to Syria guaranteed under the EIB external lending mandate guarantee and to increased activities under H2020 and COSME guarantee instruments.

42.2.FINANCIAL LIABILITIES

EUR millions

Note

31.12.2016

31.12.2015

Non-current financial liabilities

Financial liabilities at amortised cost

2.11.1

55 067

51 764

Financial liabilities at fair value
through surplus or deficit

2.11.2

Financial guarantee liabilities

2.11.3

55 067

51 764

Current financial liabilities

Financial liabilities at amortised cost

2.11.1

2 283

7 939

Financial liabilities at fair value
through surplus or deficit

2.11.2

1

Financial guarantee liabilities

2.11.3

2 284

7 939

Total

57 351

59 703

43.Financial liabilities at amortised cost

EUR millions

Note

31.12.2016

31.12.2015

Borrowings for financial assistance

2.11.1.1

55 128

56 860

Other financial liabilities

2.11.1.2

2 222

2 842

Total

57 350

59 703

Non-Current

55 067

51 764

Current

2 283

7 939

44.Borrowings for financial assistance

EUR millions

EFSM

BOP

MFA

Euratom

ECSC in Liquid- dation

Total

Total at 31.12.2015

47 509

5 811

3 024

301

215

56 860

New borrowings

4 750

10

4 760

Repayments

(4 750)

(1 500)

(70)

(49)

(6 369)

Exchange differences

(30)

(30)

Changes in carrying amounts

(53)

(40)

(1)

(94)

Total at 31.12.2016

47 456

4 272

2 964

252

184

55 128

Non-current

46 800

3 050

2 889

199

96

53 034

Current

656

1 222

75

53

88

2 094

Borrowings mainly include debts evidenced by certificates amounting to EUR 54 951 million (2015: EUR 56 656 million). The changes in carrying amount correspond to the change in accrued interests.

Aside from ECSC in liquidation, the repayment of the above borrowings are ultimately guaranteed by the EU budget – see note 4.1.2, and by extension each Member State.



Borrowings effective interest rates (expressed as a range of interest rates)

31.12.2016

31.12.2015

Macro Financial Assistance (MFA)

0 % - 4.54 %

0 % - 4.54 %

Euratom

0 % - 5.68 %

0 % - 5.67 %

Balance of Payment (BOP)

2.37 % - 3.37 %

2.37 % - 3.62 %

European Financial Stability Mechanism (EFSM)

0.62 % - 3.75 %

0.62 % - 3.75 %

ECSC in Liquidation

6.92 % - 9.78 %

6.92 % - 9.78 %

 

45.Other financial liabilities

EUR millions

31.12.2016

31.12.2015

Non-current

Finance lease liabilities

1 545

1 648

Buildings paid for in instalments

329

352

Other

160

122

2 034

2 122

Current

Fines to be reimbursed

25

625

Finance lease liabilities

84

75

Buildings paid for in instalments

22

21

Other

58

(0)

189

721

Total

2 222

2 842

 

Finance lease liabilities

EUR millions

Description

Future amounts to be paid

< 1 year

1-5 years

> 5 years

Total Liability

Land and buildings

80

403

1 136

1 619

Other tangible assets

4

6

10

Total at 31.12.2016

84

409

1 136

1 629

Interest element

72

269

304

645

Total future minimum lease payments at 31.12.2016

156

678

1 439

2 274

Total future minimum lease payments
at 31.12.2015

132

658

1 608

2 396

 

The lease and building related amounts above will have to be funded by future budgets.

 

46.Financial liabilities at fair value through surplus or deficit

EUR millions

31.12.2016

31.12.2015

Notional amount receive leg

Notional amount
pay leg

Fair value

Notional amount receive leg

Notional amount
pay leg

Fair value

Foreign currency forward contract

99

(101)

1

Financial liabilities at fair value through surplus or deficit at 31 December 2016 relate to a foreign currency forward contract in which the EU entered into in 2016 in order to hedge foreign currency risk related to USD denominated debt securities held in the EFSI Guarantee Fund – see note 2.4.2. 

At 31 December 2016 all financial liabilities at fair value through surplus or deficit are categorised into level 2 of the fair value hierarchy (valuation based on observable inputs other than quoted prices).

47.Financial guarantee liabilities

The financial guarantee liability relates to the guarantee given under EFSI. At 31 December 2016 the EFSI financial guarantee liability total EUR zero, as the revenues to be received under the guarantee exceed expected losses (see note 4.1.1).

 

47.1.PAYABLES

EUR millions

Gross Amount

Adjust-

ments*

Net Amount at 31.12.2016

Gross Amount

Adjust-

ments*

Net Amount
at 31.12.2015

Cost claims and invoices received from:

Member States:

EAFRD & other rural develop-ment instruments

500

(34)

467

2 621

(230)

2 391

ERDF & CF

10 663

(793)

9 871

8 361

(950)

7 411

ESF

4 145

(95)

4 050

3 355

(2)

3 353

Other

793

(47)

747

434

(102)

332

Private and public entities

1 677

(169)

1 507

1 928

(223)

1 705

Total costs claims & invoices received

17 779

(1 138)

16 641

16 699

(1 507)

15 192

EAGF

12 193

N/A

12 193

6 851

N/A

6 851

Own Resources Payables

10 441

N/A

10 441

9 506

N/A

9 506

Sundry Payables

364

N/A

364

356

N/A

356

Other

364

N/A

364

286

N/A

286

Total

41 142

(1 138)

40 005

33 698

(1 507)

32 191

* Estimated non-eligible amounts and pending other advances to Member States.

Payables include cost statements received by the Commission under the framework of grant activities. They are credited for the amount being claimed from the moment the demand is received. If the counterpart is a Member State, they are classified as such. It is the same procedure for invoices and credit notes received under procurement activities. The cost claims concerned have been taken into account through the year-end cut-off procedures. Following these cut-off entries, estimated eligible amounts have therefore been recorded in the accounts as expenses, while the remaining part is disclosed as “Estimated non-eligible amounts and pending other advances to Member States” (see below).

Almost all of the cost claims are included in the budgetary RAL figure at year-end: all Member States amounts and a large portion of other entity invoices.

The biggest movement concerns the European Agricultural Guarantee Fund and is due to a better implementation of the payments at the Member States level in 2016 compared to 2015 – this meant that actual claims were submitted and did not need to be estimated at year-end. The increase of EUR 5.3 billion is, therefore, counter-balanced by a similar decrease in accruals - see note 2.13.

The significant decrease in payables under EAFRD is due primarily to a reduction in the claims received for the period 2007-2013 which is in the advanced stages of closure.

The other major increase in payables concerns cohesion policy (EUR 13.9 billion in 2016 compared to EUR 10.8 billion in 2015) and mostly relates to the previous programming period, 2007-2013. The cost statements submitted in relation to the programming period 2014-2020 remain limited, for several reasons e.g. the non-designation of several managing authorities.

In the 2014-2020 programming period, the Common Provisions Regulation applicable to the Structural Funds (ERDF and ESF), Cohesion Fund and to the European Maritime and Fisheries Fund (EMFF) foresees that the EU budget is protected by means of a systematic retention of 10 % of the interim payments made. By February following the end of the accounting year (1 July - 30 June), the control cycle is complete both through management verifications by the managing authorities and audits by the audit authorities. The Commission examines the assurance documents and the accounts provided by the relevant authorities in the Member States. The payment / recovery of the final balance is made only after this assessment is finalised and the accounts are accepted. The amount retained according to this disposition at end 2016 totalled EUR 1 billion.

Own resources payables refer to the contribution of Member States to the EU budget to be reimbursed at year-end following the 4th and 5th amending budget of 2016. The significant amount is due to the late adoption of amending budget 4 and 5/2016 which were based on the own resource regulation and the adjustments related to the new provisions introduced by the new own resources decision 2014 only paid to Member States in January 2017.

Estimated non-eligible amounts and pending other advances to Member States

Payables are reduced by that part of the requests for reimbursement received, but not yet checked, that was estimated to be non-eligible. The largest amounts concern the Structural Actions DGs. Payables are also reduced by the part of requests for reimbursement received concerning other advances to Member States (see note 2.5.2) still to pay at year end (EUR 395 million).

Requests for pre-financing

In addition to the above amounts, EUR 594 million of requests for pre-financing have been received and were not yet paid at year-end. According to the EU accounting rules, these amounts are not booked as payables.

 

47.2.ACCRUED CHARGES AND DEFERRED INCOME

EUR millions

31.12.2016

31.12.2015

Accrued charges

66 800

67 358

Deferred income

638

869

Other

143

175

Total

67 580

68 402

The split of accrued charges is as follows:

EUR millions

31.12.2016

31.12.2015

EAGF

33 033

38 263

EAFRD and other rural development instruments

17 024

14 806

ERDF and CF

7 157

5 026

ESF

3 473

2 636

Other

6 112

6 627

Total

66 800

67 358

The biggest movement concerns the European Agricultural Guarantee Fund (EAGF) and is due to a better implementation in 2016 of the payments at the Member States level compared to 2015 – this meant that actual claims were submitted and did not need to be estimated at year-end. The decrease of EUR 5.2 billion is, therefore, counter-balanced by a similar increase in payables - see note 2.12.

The increase of EUR 3 billion in cohesion is due to increasing implementation at final beneficiaries level.

The increase in accruals concerning EAFRD (EUR 2.2 billion) is linked to a lower level of claims received for the 2014-2020 period meaning that more amounts had to be accrued at year-end.

Aside from EAGF, all other Member State accruals are included in the budgetary RAL, as are most of the 'other' accruals – see note 5.1.

NET ASSETS

47.3.RESERVES

EUR millions

Note

31.12.2016

31.12.2015

Fair value reserve

2.14.1

325

292

Guarantee Fund reserve

2.14.2

2 643

2 561

Other reserves

2.14.3

1 873

1 829

Total

4 841

4 682

48.Fair value reserve

In accordance with the EU accounting rules, the adjustment to fair value of available for sale financial assets is accounted for through the fair value reserve.

Movements of the fair value reserve during the period

EUR millions

2016

2015

Available for sale financial assets:

Included in fair value reserve

34

79

Included in the statement of financial performance

0

(33)

34

46

Relating to participations accounted for
using the equity method

(0)

7

Total

33

53

49.Guarantee Fund reserve

This reserve reflects the 9 % target amount of the outstanding amounts guaranteed by the EU budget under the EIB external lending mandate, that is required to be kept as assets in the Guarantee Fund for external actions (see note 2.4.1).

50.Other reserves

The amount relates primarily to the ECSC in liquidation reserve (EUR 1 524 million) for the assets of the Research Fund for Coal and Steel, which was created in the context of the winding-up of the ECSC.

 

50.1.AMOUNTS TO BE CALLED FROM MEMBER STATES

EUR millions

Amounts to be called from Member States at 31.12.2015

77 124

Return of 2015 budget surplus to Member States

1 349

Movement in Guarantee Fund reserve

82

Other reserve movements

58

Economic result of the year

(1 733)

Total amounts to be called from Member States at 31.12.2016

76 881

This amount represents that part of the expenses incurred by the EU up to 31 December that must be funded by future budgets. Many expenses are recognised under accrual accounting rules in the year N although they may be actually paid in year N+1 (or later) and therefore funded using the budget of year N+1 (or later). The inclusion in the accounts of these liabilities coupled with the fact that the corresponding amounts are financed from future budgets, results in liabilities greatly exceeding assets at the year-end. The most significant amounts to be highlighted concern the European Agricultural Guarantee Fund activities and employee benefit liabilities.

It should also be noted that the above has no effect on the budget result – budget revenue should always equal or exceed budget expenditure and any excess of revenue is returned to Member States.

 

51.NOTES TO THE STATEMENT OF FINANCIAL PERFORMANCE

 

REVENUE

REVENUE FROM NON-EXCHANGE TRANSACTIONS: OWN RESOURCES

 

51.1.GNI RESOURCES

Own resources revenue is the primary element of the EU's operating revenue. Of the three categories of own resources, traditional own resources ("TOR"), the VAT-based resources and the GNI-based resources, the GNI revenue of EUR 95 578 million (2015: EUR 95 355 million) is the most significant.

 

51.2.TRADITIONAL OWN RESOURCES

EUR millions

2016

2015

Customs duties

20 301

18 524

Sugar levies

138

125

Total

20 439

18 649

Traditional own resources comprise custom duties and sugar levies. Member States retain, by way of collection costs, 20 % of traditional own resources, and the above amounts are shown net of this deduction.

 

51.3.VAT RESOURCES

The VAT resource is levied on Member States’ VAT bases, which are notionally harmonised in accordance with EU rules for this purpose. The VAT contribution is calculated applying a uniform rate of call of 0.3 % to the base of each Member State. For the period 2014-2020, the Council Decision 2014/335/EU, Euratom, foresees a reduced rate of call of 0.15 % for Germany, the Netherlands and Sweden. The decrease of VAT revenue in 2016 is primarily explained by the fact that the reduced call rate was for the first time applicable in 2016, following the entry into force of the own resource decision (ORD) 2014.

 

REVENUE FROM NON-EXCHANGE TRANSACTIONS: TRANSFERS

 

51.4.FINES

These revenues of EUR 3 858 million (2015: EUR 531 million) relate to fines imposed by the Commission for breach of infringement rules, mainly related to competition cases. Receivables and related revenues are recognised when the Commission decision imposing a fine has been taken and it is officially notified to the addressee. The main amounts in 2016 and thus the significant increase as compared to the fines revenue of 2015 concern fines in the markets for trucks (EUR 2 927 million) and the banking sector (EUR 485 million).

 

51.5.RECOVERY OF EXPENSES

EUR millions

2016

2015

Shared management

1 876

1 465

Direct management

56

76

Indirect management

15

6

Total

1 947

1 547

This heading mainly represents the recovery orders issued by the Commission that are cashed or offset against (i.e. deducted from) subsequent payments recorded in the Commission's accounting system, made so as to recover expenditure previously paid out from the general budget. Recoveries are based on controls, audits or eligibility analysis and therefore, these actions are an important consideration in implementing the EU budget. These operations protect the EU budget from expenditure incurred in breach of law and are particularly important since the audit results of the European Court of Auditors have found a material level of error in payments made from the EU budget – see the Court's annual report including the statement of assurance on the legality and regularity of the underlying transactions.

Recovery orders issued by Member States to beneficiaries of EAGF expenditure, as well as the variation of accrued income estimations from the previous year-end to the current, are also included.

The amounts included in the above table represent revenue incurred through the issuance of recovery orders. For this reason, these figures cannot and do not show the full extent of the measures taken to protect the EU budget, particularly for cohesion policy where specific mechanisms are in place to ensure the correction of ineligible expenditure, most of which do not involve the issuance of a recovery order. Not included are amounts recovered through offsetting with expenses, amounts recovered by way of withdrawals and recoveries of pre-financing amounts.

Shared management recoveries make up the bulk of the total:

Agriculture: EAGF and rural development

In the framework of the EAGF and the EAFRD, amounts accounted for as revenue of the year under this heading are financial corrections of the year and reimbursements declared by Member States and recovered during the year, as well as the net increase in the outstanding amounts declared by Member States to be recovered at year-end concerning fraud and irregularities.

Cohesion policy

The main amounts related to cohesion policy include recovery orders issued by the Commission to recover undue expenditure made in previous years and deductions from expenditure less the decrease in accrued income at year-end.

51.6.OTHER REVENUE FROM NON-EXCHANGE TRANSACTIONS

EUR millions

2016

2015

Budgetary adjustments

1 956

984

Staff taxes and contributions

1 189

1 115

Contributions from third countries

953

946

Contributions from Member States for external aid

732

0

Transfer of assets

147

197

Adjustment of provisions

14

71

Agricultural levies

5

814

Other

744

939

Total

5 740

5 067

The budgetary adjustments include the budget surplus from 2015 (EUR 1 349 million) which is indirectly refunded to Member States by deduction of the amounts of own resources they have to transfer to the EU in the following year – thus it is a revenue for 2016.

Staff taxes and contributions revenue arises primarily from deductions from staff salaries and is made up of two significant amounts – staff pension contributions and taxes on income.

Contributions from third countries are contributions from EFTA countries and accession countries.

Contributions from Member States for external aid are mainly the amounts received to set up the Facility for Refugees in Turkey.

Transfer of assets revenue relates mainly to the transfer of satellites under the Copernicus programme (former GMES programme) from the European Space Agency (ESA) to the Commission (see note 2.2). This transfer is a non-exchange transaction according to the EU accounting rules and will occur in future periods for the remaining Copernicus satellites currently under construction.

Agricultural levies concern milk levies which are a market management tool aimed at penalising milk producers who exceed their reference quantities. As it is not linked to prior payments by the Commission, it is in practice considered as revenue for a specific purpose. The large amount for milk levies last year was due primarily to the superlevy of EUR 811 million.

 

REVENUE FROM EXCHANGE TRANSACTIONS

 

51.7.FINANCIAL INCOME

EUR millions

2016

2015

Interest income on:

Pre-financing

(0)

9

Late payments

108

20

Available for sale financial assets

24

56

Loans

1 446

1 616

Cash and cash equivalents

6

14

Impaired financial assets

9

7

Other

0

0

Interest income

1 592

1 721

Dividend income

13

8

Realised gains on sale of financial assets

35

50

Financial income from financial assets or liabilities
at fair value through surplus or deficit

0

Other financial income

128

66

Total

1 769

1 846

Interest income on loans relates mainly to loans granted for financial assistance (see note 2.4.3).

 

51.8.OTHER REVENUE FROM EXCHANGE TRANSACTIONS

EUR millions

2016

2015

Foreign exchange gains

331

970

Fee revenue for rendering of services

267

358

Fee and premium revenue related to financial instruments

48

43

Sales of goods

46

43

Property, plant and equipment related revenue

17

4

Other

288

145

Total

996

1 562

 

EXPENSES

 

51.9.SHARED MANAGEMENT

EUR millions

Implemented by Member States

2016

2015

European Agricultural Guarantee Fund

44 152

45 032

European Agricultural Fund for Rural Development and other rural development instruments

12 604

16 376

European Regional Development Fund and Cohesion Fund

35 045

38 745

European Social Fund

9 366

9 849

Other

1 606

2 380

Total

102 772

112 382

The transition from the former programming period 2007-2013 to the period 2014-2020 explains the reduction of expenses of EUR 4.2 billion for the cohesion area: as would be expected, the costs declared for the previous period are decreasing, while the costs related to the current period are increasing but remain lower. The same reason explains the decrease of expenses incurred under European Agricultural Fund for Rural Development (EAFRD) and other rural development instruments by EUR 3.8 billion – see also note 2.13.

The sub-heading ‘Other’ mainly includes: Fisheries and Maritime Affairs (EUR 756 million), Asylum and Migration (EUR 310 million) and Fund for European Aid to the Most Deprived (EUR 178 million).

 

51.10.DIRECT MANAGEMENT

EUR millions

2016

2015

Implemented by the Commission

9 254

10 089

Implemented by EU Executive Agencies

6 259

5 532

Implemented by Trust funds

97

6

Total

15 610

15 626

These amounts mainly concern the implementation of Research Policy (EUR 7.1 billion) and Networks Programmes (EUR 2.0 billion), as well as European Neighbourhood Policy (EUR 1.0 billion), Development Co-operation Instruments (EUR 1.2 billion) and Humanitarian Aid (EUR 0.7 billion).

 

51.11.INDIRECT MANAGEMENT

EUR millions

2016

2015

Implemented by other EU agencies and bodies

2 547

1 209

Implemented by third countries

876

905

Implemented by international organisations

2 382

2 127

Implemented by other entities

2 035

2 107

Total

7 840

6 348

 

51.12.STAFF AND PENSION COSTS

EUR millions

2016

2015

Staff costs

6 074

5 838

Pension costs

3 702

4 435

Total

9 776

10 273

Pension costs represent elements of the movements that have arisen following the actuarial valuation of the employee benefits liabilities other than actuarial assumptions.

51.13.CHANGES IN EMPLOYEE BENEFITS ACTUARIAL ASSUMPTIONS

The actuarial loss of net EUR 1 billion shown under this heading relates to the employee benefits liabilities recognised on the balance sheet (see note 2.9).

51.14.FINANCE COSTS

EUR millions

2016

2015

Interest expenses:

Borrowings

1 440

1 607

Other

57

21

Finance leases

67

91

Impairment losses on available for sale financial assets

40

27

Impairment losses on loans and receivables

184

174

Realised loss on sale of financial assets

0

3

Loss on financial assets or liabilities at fair value through surplus or deficit

1

Other finance costs

116

63

Total

1 904

1 986

The amount of interest expense on borrowings corresponds to interest income on loans for financial assistance (back-to-back transactions).

 

51.15.SHARE OF RESULT OF JOINT VENTURES AND ASSOCIATES

In accordance with the equity method of accounting, the EU includes in its statement of financial performance its share of the result of its joint ventures and associates - see note 2.3.

 

51.16.OTHER EXPENSES

EUR millions

2016

2015

Administrative and IT expenses

2 455

2 419

Property, plant and equipment related expenses

1 404

1 304

Adjustment of provisions

685

520

Foreign exchange losses

505

785

Reduction of fines by the Court of Justice

18

1 137

Other

419

458

Total

5 486

6 623

The decrease in other expenses is mainly due to write-off of fines imposed in 2015, where the Court of Justice had decided in favour of the fined undertaking.

Included under Property, plant and equipment related expenses are EUR 383 million (2015: EUR 373 million) relating to operating leases.

Expenses relating to research and development are included in administrative and IT expenses and are as follows:

EUR millions

2016

2015

Research costs

344

384

Non-capitalised development costs

88

60

Total

431

443

 

51.17.SEGMENT REPORTING BY MULTIANNUAL FINANCIAL FRAMEWORK HEADING (MFF)

EUR millions

Smart and inclusive growth

Sustainable growth

Security and citizenship

Global Europe

Administration

Not assigned to MFF heading*

Total

GNI resources

95 578

95 578

Traditional own resources

20 439

20 439

VAT

15 859

15 859

Fines

3 858

3 858

Recovery of expenses

48

1 871

4

23

1

1 947

Other

785

171

28

105

4 750

(97)

5 740

Revenue from non-exchange transactions

834

2 041

32

128

4 750

135 638

143 422

Financial income

87

0

0

21

0

1 661

1 769

Other

121

(11)

(7)

(5)

307

592

996

Revenue from exchange transactions

208

(11)

(7)

16

307

2 253

2 765

Total revenue

1 041

2 030

25

144

5 057

137 891

146 187

Expenses implemented by Member States:

EAGF

(44 152)

(44 152)