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Transparency of financial relations between public authorities and public undertakings

Transparency of financial relations between public authorities and public undertakings

 

SUMMARY OF:

Directive 2006/111/EC — clear accounting for state-owned companies

WHAT IS THE AIM OF THIS DIRECTIVE?

It aims to ensure transparency in financial relations between European Union (EU) countries and state-owned companies so as to ensure there is fair competition with, and no discrimination against, private companies.

KEY POINTS

  • Specifically, EU countries are required to ensure the transparency of any public funds which are made available to state-owned companies, how they are used and ensure that the costs and income of such companies are clearly set out in separate accounts.
  • The kinds of financial relations covered by the directive include the provision of capital, grants or loans on privileged terms and the setting-off of operating losses*.
  • EU countries must ensure that the internal accounts of the companies concerned are kept separate in relation to their different activities, and that all costs and income are correctly set out according to proper cost accounting principles.
  • Certain kinds of financial relations are excluded from the directive, e.g. between EU countries and central banks, or with state-owned companies involving the supply of services which are unlikely to have a significant impact on trade between EU countries.
  • EU countries must ensure that the relevant financial information is made available to the European Commission for up to 5 years after the public funds were provided to the company. The Commission, however, must not disclose any information covered by the obligation of professional secrecy.
  • Regarding the manufacturing sector, this information has to be provided to the Commission on an annual basis and should include the annual report and annual accounts.

FROM WHEN DOES THE DIRECTIVE APPLY?

It has applied since 20 December 2006. Directive 2006/111/EC codifies and replaces Directive 80/723/EEC and its subsequent amendments. The original Directive 80/723/EEC had to become law in the EU countries by 1981.

BACKGROUND

For more information, see:

KEY TERMS

Setting off of losses: accounting term whereby if a loss is recorded, it is set against a profitable item in order to cancel out its effect.

MAIN DOCUMENT

Commission Directive 2006/111/EC of 16 November 2006 on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings (Codified version) (OJ L 318, 17.11.2006, pp. 17-25)

last update 24.05.2019

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