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Summaries of EU Legislation

Interinstitutional agreement on budgetary discipline, cooperation, sound financial management and own resources

SUMMARY OF:

Interinstitutional Agreement between the European Parliament, the Council and the European Commission on budgetary discipline, cooperation in budgetary matters and sound financial management

WHAT IS THE AIM OF THIS INTERINSTITUTIONAL AGREEMENT?

Over the period of the multiannual financial framework (MFF) 2021-2027, the interinstitutional agreement (IIA) aims to:

set out rules on cooperation between the European Parliament, the Council and the European Commission on budgetary matters, in line with the principles of budgetary discipline and sound financial management;
improve the functioning of the European Union (EU) annual budgetary procedure and the cooperation between the 3 relevant institutions during this procedure;
implement cooperation and draw up a roadmap towards introducing new own resources. These may contribute to covering the repayment of the expected expenditure mobilised through the EU Recovery Instrument under Regulation (EU) 2020/2094 (see summary), which supports recovery in the aftermath of the COVID-19 crisis.

KEY POINTS

The agreement is made up of 4 parts.

Part I: The MFF and special instruments

This part contains complementary details regarding the 2021-2027 MFF, including the mobilisation procedures of special instruments not included in the MFF:

the European Globalisation Adjustment Fund;
the Solidarity and Emergency Aid Reserve, designed to tackle, among other things, major disasters in the EU or in candidate countries under the EU Solidarity Fund (see summary);
the Brexit Adjustment Reserve;
the Single Margin Instrument;
the Flexibility Instrument.

Part II: Interinstitutional cooperation in budgetary matters

This part aims to improve the cooperation between the Parliament, the Council and the Commission in relation to budgetary matters. This includes the following.

The 3 institutions agree to facilitate the adoption of a proposed new MFF or a proposed revision to the current MFF by taking necessary measures, such as meetings and exchange of information.
Budgetary transparency means the Commission must prepare an annual report on:
- the assets and liabilities of the EU, including those arising from borrowing and lending operations,
- EU financial interventions which are not included in the EU’s general budget (such as the previous European Development Fund),
- the expenditure incurred by Member States in the context of enhanced cooperation, where it is not included in the general budget,
- how the EU budget contributes to:
  - the fight against climate change,
  - halting and reversing the decline of biodiversity,
  - promoting equality between women and men, and rights and equal opportunities for all,
  - the implementation of the UN sustainable development goals.
  The Commission will also prepare an annual report on the implementation of the European Union Recovery Instrument (NextGenerationEU).
How financial rules are incorporated in legislative acts and how these are dealt with in the annual budget procedure.
Specific rules on expenditure relating to fisheries agreements and the financing of the common foreign and security policy (CFSP).

Part III: Sound financial management of EU funds

This part deals with financial programming, which means the Commission must submit to the Council and the Parliament financial programming for the MFF twice a year (with some category exemptions), structured by heading, policy area and budget line, and should identify the legislation in force, distinguishing between multiannual programmes and annual actions.

This part also deals with the cooperation procedures which apply when a new agency is created, or when an amendment to a legal act concerning an agency would have an impact on that agency’s resources. A similar procedure applies when the creation of a new European school is envisaged.

Part IV: Protecting the EU budget: data on beneficiaries

To enhance the protection of the EU budget and the EU Recovery Instrument against fraud and irregularities, the institutions agree to introduce standardised measures to collect, compare and aggregate data on the final recipients and beneficiaries of EU funding for the purposes of controls and audits. In particular:

to ensure effective controls and audits, it is necessary to collect data on those ultimately benefitting, directly or indirectly, from EU funding under shared management and from projects and reforms supported under the Recovery and Resilience Facility;

the Commission will make available an integrated and interoperable information and monitoring system, including a single data-mining and risk-scoring tool to access and analyse the data. The Commission, the European Anti-Fraud Office (OLAF) and other EU investigative and control bodies should have access to the data to exercise their supervision over Member States’ audits.

Two Annexes form an integral part of the IIA.

Annex I lays down additional detailed rules for cooperation between the institutions during the budgetary procedure. These cover:

agreement on a pragmatic calendar;
priority setting;
establishing the draft budget and updating of estimates;
specific decision-making procedures at different stages of the budget process;
amending budgets;
the issue of outstanding commitments (not yet translated into payments);
cooperation as regards the European Union Recovery Instrument.

Annex II sets out principles of the interinstitutional cooperation in order to introduce new own resources with a view to covering the expected expenditure related to the repayment of NextGenerationEU.

As a first step, a new own resource will be introduced from 1 January 2021 made up of a share of revenues from national contributions, calculated on the weight of non-recycled plastic packaging waste.

Moreover, the Commission will propose to the Council the introduction of new own resources based on a digital levy and on a carbon border adjustment mechanism. The Commission will also review the Emissions Trading System in spring 2021 and propose to the Council a new own resource on that basis in June 2021.

These 3 new own resources are envisaged to be introduced by 1 January 2023, provided the necessary legislative procedures are completed. This would constitute the second step.

As a third step, the Commission aims to propose to the Council by June 2024 an additional new own resource. This proposal could take the form of a Financial Transaction Tax and a financial contribution linked to the corporate sector or a new common corporate tax base. These are envisaged to be introduced by 2026, provided the necessary legislative procedures are completed.

FROM WHEN DOES THE AGREEMENT APPLY?

The IIA entered into force on 16 December 2020.

BACKGROUND

In December 2020, the European Parliament, the Council and the Commission concluded an IIA on budgetary discipline, cooperation on budgetary matters and sound financial management as well as on new own resources, including a roadmap towards the introduction of new own resources.

The IIA was adopted in parallel to the multiannual financial framework (MFF) Regulation, the EU’s 7-year plan covering the 2021-2027 period.

The IIA forms part of a package of legislation associated with the MFF:

The MFF 2021-2027 is set out in detail in Regulation (EU, Euratom) 2020/2093 (see summary).
New rules on how the EU is funded are set out in the decision on own resources: Decision (EU, Euratom) 2020/2053 (see summary).
The EU Recovery Instrument is set out in Regulation (EU) 2020/2094 and supports recovery in the aftermath of the COVID-19 pandemic.

For more information, see:

2021-2027 long-term EU budget (European Commission)
Multiannual financial framework 2021-2027 (European Commission)
EU’s next long-term budget & NextGenerationEU: Key facts and figures (European Commission)
Recovery plan for Europe (European Commission).

MAIN DOCUMENT

Interinstitutional Agreement of 16 December 2020 between the European Parliament, the Council of the European Union and the European Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management, as well as on new own resources, including a roadmap towards the introduction of new own resources (OJ L 433I, 22.12.2020, pp. 28-46)

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