COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS

Consolidated annual accounts of the European Union for the financial year 2021

(2022/C 399/01)

CONTENTS

FOREWORD

2

FINANCIAL HIGHLIGHTS OF THE YEAR

3

NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS

31

CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES

32

BALANCE SHEET

33

STATEMENT OF FINANCIAL PERFORMANCE

34

CASHFLOW STATEMENT

35

STATEMENT OF CHANGES IN NET ASSETS

37

NOTES TO THE FINANCIAL STATEMENTS

38

BUDGETARY IMPLEMENTATION REPORTS AND EXPLANATORY NOTES

146

GLOSSARY

232

LIST OF ABBREVIATIONS

236

FOREWORD

In 2021, Europe defied the ongoing pandemic. Solidarity was key to contain the COVID-19 challenge and to mitigate its economic and social impact. The European budget mobilised all available means to support citizens, businesses and Member States whilst making Europe fit for the future: greener, more digital and more resilient.

The European Union launched the dedicated recovery instrument NextGenerationEU to support Europe’s recovery and to tackle current and future challenges. With extraordinary amounts of funding raised on the financial markets as from June 2021 the EU budget proved one more time to be an important tool the Union has at its disposal to tackle crisis situations and provide clear added value to people’s lives.

In addition the SURE programme (Support to mitigate Unemployment Risks in an Emergency), continued to support Member States both to maintain people in work and help jobs affected by the pandemic.

On top of tackling the crisis with rapid responses and ongoing adjustments to the political and financial situation, the European Union kept its promise and delivered on its policy objectives. Therefore, it has made best use of the 2021 budget — the first of the current multiannual financial framework, with budget implementation amounting to EUR 268,3 billion in commitments made.

It is my pleasure to present the 2021 annual accounts of the European Union. They provide a complete overview of EU finances and the implementation of the EU budget for the past year, including information on contingent liabilities, financial commitments and other obligations of the Union. The consolidated annual accounts of the European Union are part of the Commission’s integrated financial and accountability reporting package and form an essential part of our highly developed system of fiscal transparency and accountability.

FINANCIAL HIGHLIGHTS OF THE YEAR

The objective of this Financial Highlights section, which has been prepared on the basis of the principles outlined in the IPSASB Recommended Practice Guideline (RPG) 2 ‘Financial Statement Discussion and Analysis’ is to assist readers to understand how the operational, financial and investment activities of the EU are reflected in the different elements of the consolidated financial statements of the EU. The information presented in this section has not been audited 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

1.

KEY FIGURES AND HIGHLIGHTS OF THE YEAR

4

2.

THE 2021–2027 MULTIANNUAL FINANCIAL FRAMEWORK AND NextGenerationEU

6

2.1.

MFF 2021–2027 and NextGenerationEU — Key Figures

6

2.2.

NextGenerationEU — overview

7

2.3.

Financial situation of NGEU at 31 December 2021

8

3.

SUMMARY OF BUDGET IMPLEMENTATION

13

3.1.

Revenue

13

3.2.

Expenditure

15

4.

FINANCIAL INSTRUMENTS AND BUDGETARY GUARANTEES

16

4.1.

Financial instruments financed by the EU budget

16

4.2.

Budgetary guarantees: Financial assets held in guarantee funds

17

4.3.

Loans and related borrowings for financial assistance programmes

17

4.4.

Budgetary contingent liabilities for financial assistance programmes

21

5.

FINANCIAL STATEMENTS ANALYSIS

21

5.1.

REVENUE

21

5.2.

EXPENSES

23

5.3.

ASSETS

23

5.4.

LIABILITIES

26

6.

EU POLITICAL AND FINANCIAL FRAMEWORK, GOVERNANCE AND ACCOUNTABILITY

27

6.1.

POLITICAL AND FINANCIAL FRAMEWORK

27

6.2.

GOVERNANCE AND ACCOUNTABILITY

29

1.   KEY FIGURES AND HIGHLIGHTS OF THE YEAR

Consolidated financial statements

The consolidated financial statements of the EU comprise more than 50 entities (including the European Parliament, the Council, the Commission and EU agencies) and are prepared according to the highest available standards, the International Public Sector Accounting Standards (IPSAS).

The year 2021, which was the first year of the EU’s 2021–2027 MFF, was exceptional in many aspects. As can be seen on the balance sheet below and further detailed in the Financial Statements Analysis (Section 5), the 2021 EU consolidated financial statements were particularly impacted by the successful launch of NextGenerationEU in 2021 (EUR 71,6 billion disbursed to Member States) and the additional borrowing and lending activities under the SURE instrument (EUR 50 billion):

(EUR billion)
	2021	2020
ASSETS
Financial Assets	188,6	113,1
Pre-financing	93,4	62,7
Receivables	72,4	74,5
Cash and cash equivalents	44,9	16,7
Property, Plant and Equipment and other assets	14,7	13,0
Total	414,1	280,0
LIABILITIES
Post-employment benefits	122,5	116,0
Financial liabilities	246,1	95,0
Payables	46,4	32,4
Accruals	78,1	64,6
Other liabilities	3,3	5,4
Total	496,4	313,5
NET ASSETS
Reserves	1,3	5,1
Amounts to be called from Member States	(83,6 )	(38,5 )
Total	(82,3 )	(33,4 )
⇨ see Financial Statement Analysis, Section 5

Successful launch of NextGenerationEU

Disbursements under NextGenerationEU — EUR 71,6 billion split between:

⇨	see Financial situation of NGEU at 31 December 2021, Section 2.3

2.   THE 2021–2027 MULTIANNUAL FINANCIAL FRAMEWORK AND NextGenerationEU

2.1.   MFF 2021–2027 AND NextGenerationEU — KEY FIGURES

The EU’s 2021–2027 long-term budget, together with the NextGenerationEU (‘NGEU’) recovery instrument, amounts to EUR 2,018 trillion in current prices (EUR 1,8 trillion in 2018 prices). This unprecedented financial response to the crisis will help repair the economic and social damage caused by the coronavirus pandemic and support the transition towards a greener, more digital and more sustainable Europe.

The package consists of the long-term budget, the 2021–2027 multiannual financial framework (‘MFF’), made up of EUR 1,211 trillion in current prices (EUR 1,074 trillion in 2018 prices), combined with the temporary recovery instrument, NGEU of up to EUR 806,9 billion in current prices (EUR 750 billion in 2018 prices).

This is a truly modernised budget:

—	More than 50 % of the total amount of the next long-term budget and NGEU will support the modernisation of the European Union through research and innovation, fair climate and digital transitions, preparedness, and recovery and resilience actions,

—	30 % of the EU budget will be spent to fight climate change — the highest share of the largest EU budget ever,

—	20 % of the Recovery and Resilience Facility (RRF) — which accounts for 90 % of NGEU — will be invested in digital transformation,

—	In 2026 and 2027, 10 % of the annual spending under the long-term budget will contribute to halting and reversing the decline of biodiversity, and

—	For the first time ever, new and reinforced priorities have the highest share within the long-term budget, 32 %.

Political priorities underlying the 2021–2027 MFF

The political priorities of the Commission are defined in the political guidelines set by the President of the Commission. Under President von der Leyen, the Commission which took office on 1 December 2019 focuses on the following six headline ambitions:

SIX HEADLINE AMBITIONS

A European Green Deal

—	Striving to be the first climate-neutral continent

A Europe fit for the digital age

—	Empowering people with a new generation of technologies

An economy that works for people

—	Working for social fairness and prosperity

A stronger Europe in the world

—	Europe to strive for more by strengthening our unique brand of responsible global leadership

Promoting our European way of life

—	Building a Union of equality in which we all have the same access to opportunities

A new push for European democracy

—	Nurturing, protecting and strengthening our democracy

2.2.   NextGenerationEU — OVERVIEW

With a budget of EUR 806,9 billion, NGEU is designed to help repair the immediate economic and social damage brought about by the coronavirus pandemic, thus building a post-COVID-19 Europe that is greener, more digital, more resilient and better fit for the current and forthcoming challenges.

Part of the funds, up to EUR 338,0 billion, are provided in the form of non-repayable support, or grants. The other part, up to EUR 385,8 billion, is used to provide loans from the Union to individual Member States. These loans will be repaid by those Member States starting only after the current MFF period and extending over a long time period, with current loans for example maturing only in 2051 (see Section 2.3.3).

In addition, NGEU reinforces several existing EU programmes and policies, as follows:

—	The Cohesion policy under the recovery assistance for cohesion and the territories of Europe (REACT-EU), to help address the economic consequences of COVID-19 in the first years of the recovery,

—	The Just Transition Fund, to guarantee that the transition to climate neutrality works for all,

—	The European Agricultural Fund for Rural Development, to further support farmers,

—	InvestEU, to support the investment efforts of our businesses,

—	Horizon Europe, to make sure the EU has the capacity to fund more excellence in research, and

—	RescEU, safeguards that the EU Civil Protection Mechanism has the capacity to respond to large scale emergencies.

2.3.   FINANCIAL SITUATION OF NGEU AT 31 DECEMBER 2021

2.3.1.   Overview

From the launch of the NGEU funding operations on 15 June 2021 to the end of 2021, the Commission has raised EUR 71,0 billion of long-term funding, mainly by issuing bonds in syndicated transactions. In addition, as of December 2021, the Commission has EUR 20 billion of short-term EU-Bills outstanding. Up to year-end 2021, the Commission had disbursed a total of EUR 71,6 billion of financial support. The majority of this amount, EUR 64,3 billion, was disbursed to 20 Member States under the RRF (thereof EUR 46,4 billion as non-repayable support and EUR 18,0 billion as loans). A further EUR 7,2 billion was disbursed as MFF payments under existing programmes. The remaining liquidity of EUR 19,4 billion is held in the NGEU bank account with the ECB and in the Commission’s central treasury account, pending disbursement to the budget for MFF programmes.

NGEU — Outstanding borrowings and disbursements at 31 December 2021

2.3.2.   Borrowings

To meet the NGEU funding needs, the Commission issues securities on the international capital markets. Based on a diversified funding strategy, the Commission combines the use of different funding instruments and funding techniques with an open and transparent communication to market participants.

In 2021, the annual Borrowing Decision (1) allowed the Commission to issue up to a maximum amount of EUR 125 billion in long-term funding and to have up to a maximum outstanding amount of EUR 60 billion in short-term funding.

Long-term funding — Syndicated transactions and auctioning of EU bonds

As of 31 December 2021, the Commission borrowed EUR 66,0 billion through five bond issuances via syndicated transactions (including one dual-tranche transaction) as well as EUR 5,0 billion through the auctioning of EU bonds:

(EUR billion)
Long-term funding transactions (including taps)	Maturity	Issued/Raised	Total repaid at year-end	Outstanding at year-end
NGEU#1	4.7.2031	20,0	0,0	20,0
NGEU#2a (including taps)	6.7.2026	11,5	0,0	11,5
NGEU#2b	6.7.2051	6,0	0,0	6,0
NGEU#3	4.7.2041	10,0	0,0	10,0
NGEU#4 (including taps)	4.10.2028	11,5	0,0	11,5
NGEU Green bond #1	4.2.2037	12,0	0,0	12,0
Total		71,0	0,0	71,0

The first syndicated transaction in June 2021 raised EUR 20,0 billion. It was the largest-ever institutional bond issuance in Europe, the largest ever institutional single tranche transaction and the largest amount the EU has ever raised in a single transaction.

In October 2021 the Commission issued the first NGEU green bond, raising EUR 12,0 billion to be used exclusively for green and sustainable investments across the EU. This issuance, which represented the world’s largest green bond issuance ever, created visibility for the green policies financed by green bonds and supported the European Green Deal and the green transition. The issuance of green bonds requires the implementation of reporting on the precise use of green bond proceeds and on the impact of investments that are financed through green bonds.

Short-term funding — Auctioning of EU-Bills

As of 31 December 2021, the outstanding amount of short-term funding, raised via the auctioning of EU-bills with a maturity of three or six months, amounted to EUR 20,0 billion:

(EUR billion)
Auctioning of EU-bills	Outstanding at year-end
Maturity of 3 months	8,5
Maturity of 6 months	11,5
Total	20,0

While syndicated transactions will remain the mainstay of the NGEU issuance programme, at least in the initial phases, the capacity to raise money quickly and cheaply via auctioning significantly enhances the Commission’s ability to service its NGEU payment needs on the most advantageous terms for the Union budget and/or beneficiary Member States.

Furthermore, short-term financing of EUR 16 billion was raised via money-market transactions, all of which was repaid at year-end.

2.3.3.   Disbursements

By year-end 2021, the Commission had received 26 Member States’ recovery and resilience plans, of which 22 were positively assessed and subsequently approved by the Council (Belgium, Croatia, Cyprus, Czechia, Denmark, Germany, Greece, Spain, Portugal, France, Ireland, Italy, Latvia, Luxembourg, Austria, Slovakia, Lithuania, Malta, Slovenia, Romania, Estonia and Finland). Four further Member States (Bulgaria, Hungary, Poland and Sweden) submitted plans for which the assessments were still ongoing at year-end. The submission of one further plan (the Netherlands) was pending. The total financial support approved under the 22 endorsed plans amounted to EUR 291,2 billion of non-repayable support (of which the financing agreements signed by year-end covered EUR 195,4 billion) and EUR 153,9 billion of financial loan support (of which the loan agreements signed by year-end covered EUR 153,2 billion).

Non-repayable support

In 2021 the Commission disbursed a total of EUR 46,4 billion of non-repayable support to 20 of the 22 Member States with submitted and approved recovery and resilience plans. Out of this amount, EUR 36,4 billion had been paid as pre-financing. Following the fulfilment of milestones by Spain, a further EUR 10 billion was paid out before year-end, with EUR 1,5 billion of the original pre-financing being cleared. A further EUR 0,3 billion in pre-financing, relating to the non-repayable support to Finland, had not yet been disbursed at year-end. In the case of Ireland, non-repayable support of EUR 1,0 billion had been approved, but no financing agreement was signed at year-end.

(EUR billion)
Member State	Maximum non-repayable support (2)	Total signed at 31.12.2021	Budgetary Commitments in 2021	Total disbursed at 31.12.2021
Austria	3,5	2,2	1,1	0,4
Belgium	5,9	3,6	1,8	0,8
Croatia	6,3	4,6	2,3	0,8
Cyprus	1,0	0,8	0,4	0,1
Czechia	7,0	3,5	1,8	0,9
Denmark	1,6	1,3	0,6	0,2
Estonia	1,0	0,8	0,4	0,1
Finland	2,1	— (†)	0,8	— (†)
France	39,4	24,3	12,0	5,1
Germany	25,6	16,3	8,1	2,3
Greece	17,8	13,5	6,7	2,3
Ireland	1,0	— (‡)	0,5	—
Italy	68,9	47,9	23,7	9,0
Latvia	1,8	1,6	0,8	0,2
Lithuania	2,2	2,1	1,0	0,3
Luxembourg	0,1	0,1	0,0	0,0
Malta	0,3	0,2	0,1	0,0
Portugal	13,9	9,8	4,8	1,8
Romania	14,2	10,2	5,1	1,9
Slovakia	6,3	4,6	2,3	0,8
Slovenia	1,8	1,3	0,6	0,2
Spain	69,5	46,6	23,1	19,0
Approved	291,2	195,4	98,0	46,4
Bulgaria	6,3	—	—	—
Hungary	7,2	—	—	—
Netherlands	6,0	—	—	—
Poland	23,9	—	—	—
Sweden	3,3	—	—	—
Not yet approved	46,6	—	—	—
Total	338,0	195,4	98,0	46,4

Loans

In 2021 the Commission disbursed a total of EUR 18,0 billion in the form of a pre-financing to four Member States (Cyprus, Greece, Italy and Portugal), equivalent to 13 % of their respective loan allocations. A further EUR 1,9 billion in pre-financing, relating to the financial loan support to Romania, had not yet been disbursed at year-end. In the case of Slovenia, financial loan support of EUR 0,7 billion had been approved, but no loan agreement was signed at year-end:

(EUR billion)
Member State	Maximum financial loan support	Total signed at 31.12.2021	Total disbursed at 31.12.2021	Total repaid at 31.12.2021	Total outstanding at 31.12.2021
Cyprus	0,2	0,2	0,0	—	0,0
Greece	12,7	12,7	1,7	—	1,7
Italy	122,6	122,6	15,9	—	15,9
Portugal	2,7	2,7	0,4	—	0,4
Romania	14,9	14,9	— (1)	—	—
Slovenia	0,7	— (†)	—	—	—
Approved	153,9	153,2	18,0	—	18,0
Reserve	231,9	—	—	—	—
Total	385,8	153,2	18,0	—	18,0

According to the loan agreements, Member States will make annual repayments of 5 % of the disbursed amounts starting 10 years after the disbursement date. Thus Portugal, Greece, Italy and Cyprus will start repaying the loans as from 2032, with the loans maturing in 2051. The repayment schedule for the nominal amounts outstanding at year-end is as follows:

(EUR million)
Member State	Repayment period	Annual repayment	Total repayment
Cyprus	2032–2051	1	26
Greece	2032–2051	83	1 655
Italy	2032–2051	797	15 938
Portugal	2032–2051	18	351
Total		899	17 970

NGEU contribution to other programmes under the EU budget

At year-end 2021, the Commission had disbursed a total of EUR 7,2 billion as payments to other programmes under the MFF, mainly relating to REACT-EU which finances the European Regional Development Fund (ERDF) and the European Social Fund (ESF):

(EUR billion)
MFF-Programme	Total approved MFF contributions	Budgetary Commitments in 2021	Total disbursed at 31.12.2021
REACT-EU	50,6	39,5	7,0
— of which ERDF	31,5	24,0	4,9
— of which ESF	19,2	15,4	2,1
Just Transition Fund	10,9	0,0	0,0
Rural development (EAFRD)	8,1	2,4	0,1
InvestEU	6,1	1,7	0,2
Horizon Europe	5,4	1,8	0,0
RescEU	2,1	0,1	0,0
Total	83,1	45,5	7,2

2.3.4.   Liquidity

Loans provided under NGEU do not follow the strict back-to-back principle of other financial assistance instruments. Instead, a diversified and pooled funding strategy has been developed for the NGEU that has required the implementation of an efficient liquidity management. The objective of the NGEU liquidity management is to ensure that the amounts held on the NGEU bank account are sufficient to meet all upcoming disbursement needs and to maintain a defined safety buffer, while avoiding any excess balances. For the liquidity management, the Commission has developed an IT tool that allows for the monitoring of the NGEU account on a daily basis. At year-end 2021 the total funds held in the NGEU off-budget account amounted to EUR 18,0 billion. In addition, EUR 1,4 billion of funds were held in the Commission’s central treasury account pending disbursement to the budget for MFF-programmes.

3.

SUMMARY OF BUDGET IMPLEMENTATION

3.1.   REVENUE

In the initial adopted EU budget, signed by the President of the European Parliament on 18 December 2020, the total amount of payment appropriations for 2021 was EUR 166 060 million and the total amount to be financed by own resources totalled EUR 156 867 million. The revenue and expenditure estimates in the initial budget are typically adjusted during the budgetary year by way of amending budgets. Adjustments in the GNI-based own resources ensure that budgeted revenue matches exactly budgeted expenditure. By doing so, the principle of budget equilibrium is respected, and budget revenue and expenditure (payment appropriations) amounts are equal.

During 2021, six amending budgets were adopted. Taking them into account, the final adopted revenue for 2021 amounted to EUR 168 011 million and the total to be financed by own resources was EUR 156 993 million. Member States’ contributions in 2021 remained stable. The increase of payment appropriations (EUR 1 950 million) was mainly financed by the surplus from the previous year.

Revenue comes from six sources (titles):

Title 1: Own resources

The collection of Traditional own resources (EUR 158 632 million) was 1,0 % above the amounts in the budget (EUR 156 993 million). This was due mainly to a higher amount collected than expected in the last two months of the year.

The final Member States’ VAT, GNI and Plastics payments correspond closely to the final budgetary estimate. The differences between the forecasted amounts and the amounts actually paid are due to the differences between the euro rates used for budgetary purposes and the rates in force at the time when the Member States outside the euro area actually made their payments.

Title 2: Surpluses, balances and adjustments

The surplus of the previous financial year amounted to EUR 1 769 million. This amount was inscribed in the budget 2021 through an amending budget and the own resources contribution from the Member States was reduced accordingly.

For the VAT and GNI balances the rules are set out in Article 10b of the Making Available Regulation (Council Regulation (EU, Euratom) No 609/2014) (3). According to these rules the total sum of the balances are calculated in order that the impact on the EU budget be zero (‘netting system’) and the procedure does not entail a budgetary amendment. The Commission therefore directly requests the Member States to pay the net amounts.

Title 3: Administrative revenue

This title comprises revenue from taxes and levies on the remuneration of staff, amounting to EUR 2 230 million.

Title 4: Financial revenue, default interest and fines

In Title 4 the difference between budgeted amount (EUR 515 million) and outturn (EUR 1 633 million) refers mainly to fines in the field of competition.

Title 5: Budgetary guarantees, borrowing and lending operations

This title has increased significantly with the advent of the NGEU. NGEU funds within this title are assigned revenue. Title 5 covers revenue related to guarantees and interest and repayments of loans granted. It also channels funds (for the NGEU non-repayable support under the Recovery and Resilience Facility and for reinforcement of MFF programmes) from earmarked revenue that Member States receive under the European Union Recovery Instrument (EURI). See Financial Highlights of the Year, Sections 2.2 and 2.3 for a comprehensive overview of the NGEU.

Title 6: Revenue, contributions and refunds related to Union policies

This title mainly concerns revenue from financial corrections related to structural and agricultural funds (ESIF, EAGF and EAFRD). It also includes the participation of third countries in research programmes, the clearance of accounts in agricultural funds and other contributions and refunds to EU programmes/activities. A substantial part of this total is made up of assigned revenue, which gives rise to the entering of additional appropriations on the expenditure side.

Total 2021 budget revenue amounted to EUR 239 596 million

3.2.   EXPENDITURE

3.2.1.   Budget implementation

In 2021, the first year of the new MFF 2021–2027, the final adopted budget amounted to EUR 166,8 billion of commitment appropriations and EUR 168,0 billion of payment appropriations. NGEU reinforced the key programmes by an additional EUR 421,1 billion of commitment appropriations and EUR 55,5 billion of payment appropriations inscribed in the EU budget as external assigned revenue (4).

The implementation of the 2021 budget was significantly impacted by the delays in the adoption of new legal bases and the new rules for structural funds. The majority of the 2021 commitment appropriations for structural funds (with a net value of EUR 49 billion) were re-programmed to 2022–2025 according to Article 7 of the MFF Regulation. In cases allowed by the Financial Regulation and/or new legal bases, the appropriations not implemented were carried over to 2022: EUR 4,1 billion of commitment and EUR 4,2 billion of payment appropriations. In 2021 for the first time the possibility to carry over unused adopted budget appropriations to the subsequent year was used by the Neighbourhood, Development and International Cooperation Instrument — Global Europe (NDICI — Global Europe) (5), (6). Similar provisions apply and were used for the Brexit Adjustment Reserve and Solidarity and Emergency Aid Reserve (SEAR).

The implementation of the total commitment appropriations in 2021 totalled EUR 268,3 billion:

—	EUR 113,4 billion from the final adopted budget,

—	EUR 0,6 billion from appropriations carried-over from 2020,

—	EUR 154,3 billion from appropriations stemming from assigned revenue, — of which EUR 143,5 billion from NGEU.

Total payments made in 2021 totalled EUR 228,0 billion:

—	EUR 163,6 billion from the final adopted budget,

—	EUR 1,8 billion from appropriations carried-over from 2020,

—	EUR 62,6 billion from appropriations stemming from assigned revenue, — of which EUR 53,6 billion from NGEU.

Total 2021 commitment appropriations implementation per EU policy objectives

The 2021 implementation for all types of appropriations (budget, carry-overs from previous year and assigned revenue) was 44 % for commitments and 92 % for payments. Implementation rates 2021 excluding assigned revenue showed 68 % for commitment appropriations and 97 % for payment appropriations. An important share of the payments made in 2021 related to the completion of MFF 2014–2020.

Taking into account in addition the carry overs and the commitments under shared management which were reprogrammed in accordance with MFFR Article 7, the implementation of the voted budget would have reached nearly 100 % for both commitment and payment approprations.

The implementation of the NGEU appropriations reached 34 % for the total commitment and 97 % for the total payment appropriations inscribed in the EU budget. The NGEU committed amount represented 87 % of the amount authorised (7) for commitment in 2021, which stood at EUR 164,6 billion.

3.2.2.   Outstanding commitments

Outstanding commitments (commonly referred to as RAL — reste à liquider), which are committed amounts not yet paid, stood at EUR 341,6 billion at the end of 2021. The outstanding commitments increased as compared to 2020 (by EUR 38,4 billion) but this increase was smaller than initially forecast, as most of the commitments for programmes under shared management (with net value of EUR 49 billion) planned for 2021, were postponed to 2022 and following years, in accordance with Article 7 of the MFF Regulation. The reprogramming of the shared management implementation will contribute to a further RAL increase in the coming years.

The main driver of the 2021 increase of the RAL was the start of the NGEU (non-repayable part) implementation — contributing EUR 89,9 billion (26 %) to the total RAL at the end of 2021. The NGEU assigned revenue will lead to the increase of the RAL in the coming years as all commitments will be entered by the 31 December 2023 and will be honoured by payments up to 31 December 2026, in accordance with Articles 3(4) and 3(9) of the EURI Regulation (8).

3.2.3.   Budget result

The budget result (surplus) increased from EUR 1,8 billion in 2020 to EUR 3,2 billion in 2021, due to the higher than expected revenue from customs duties and fines.

4.   FINANCIAL INSTRUMENTS AND BUDGETARY GUARANTEES

4.1.   FINANCIAL INSTRUMENTS FINANCED BY THE EU BUDGET

Financial instruments financed by the EU budget exist in the form of guarantee instruments, equity instruments and loan instruments. Under the 2021–2027 MFF the use of budgetary guarantees is expected to increase in comparison to the use of financial instruments fully financed or provisioned from the EU budget. In particular, under the InvestEU programme, EUR 26,2 billion of EU guarantees will be provided to the EIB group and other financial institutions, to support various policy objectives of the Union by means of financing and investment operations. The basic concept behind this approach, in contrast to the traditional method of budget implementation of giving grants and subsidies, is that for each euro spent from the budget via financial instruments, the final beneficiary receives more than EUR 1 as financial support due to the leverage effect.

Under this type of budget implementation, funds are either already disbursed to the fiduciary accounts managed by the entrusted entities and stay available (as cash and cash equivalents, debt securities or investments in money market funds or pooled portfolios of assets) to cover future guarantee calls or have been invested in equity. The significance and volume of financial instruments financed by the EU budget under direct and indirect management has been increasing in recent years.

4.2.   BUDGETARY GUARANTEES: FINANCIAL ASSETS HELD IN GUARANTEE FUNDS

Under this type of budget implementation the EU provides guarantees to counterparts for which the funding is only partially provisioned via guarantee funds set up by the Commission, thus creating contingent liabilities for the EU budget, in case the provisioning is not sufficient to cover the calls. The EU has given guarantees on loans granted outside of the EU (the so-called External Lending Mandate, or ELM, of the EIB) and on debt and equity operations covered by the EFSI guarantee to the EIB Group, as well as guarantees on operations covered by the EFSD and NDICI-External Action Guarantee, given to the EIB Group and other financial institutions.

As of 2021, the provisioning via guarantee funds is held in the Common Provisioning Fund (CPF). The CPF is established by the Financial Regulation (9) to hold the provisions made (i.e. funds held) to cover the financial liabilities arising from financial instruments, budgetary guarantees and financial assistance loans as of the 2021–2027 MFF. It also includes some assets of provisioning covering financial liabilities from previous MFFs.

The CPF is created and functions as a single portfolio, currently combining provisions for different EU budgetary guarantees and financial assistance programmes. The resources of the CPF are allocated into compartments for the purpose of tracing the amounts relating to the various CPF contributing instruments (budgetary guarantees and financial assistance programmes).

Following the entry into force of the 2021–2027 MFF, the net assets of the EFSI Guarantee Fund were transferred as from 1 January 2021 into the CPF. The net assets of the EFSD Guarantee Fund and the Guarantee Fund for external actions were transferred to the CPF in the course of 2021.

At 31 December 2021, the Commission holds financial assets in the CPF for the following compartments:

—	Guarantee Fund for external actions — EUR 2,7 billion,

—	EFSI Guarantee Fund — EUR 8,5 billion,

—	EFSD Guarantee Fund — EUR 0,8 billion, and

—	InvestEU Guarantee Fund — EUR 0,3 billion.

In addition, EUR 92 million is held in the Commission central treasury as a liquidity buffer to cover for immediate guarantee calls.

4.3.   LOANS AND RELATED BORROWINGS FOR FINANCIAL ASSISTANCE PROGRAMMES

The EU borrowing and lending activities for financial assistance programmes are non-budget operations. In general and except for NGEU, funds raised are on-lent back-to-back to the beneficiary country, i.e. with the same coupon, maturity and amount. Notwithstanding the back-to-back methodology, the debt service of the funding instruments is a legal obligation of the EU, which will ensure that all payments are made fully and in a timely manner. The Commission has put procedures in place to ensure the repayment of borrowings even in case of a loan default.

The financial support for Member States and third countries in the form of bilateral loans financed from the capital markets with the guarantee of the EU budget is provided by the Commission under decisions of the European Parliament and of the Council. In 2021 the Commission, acting on behalf of the EU, operated five main programmes under which it may grant loans:

—	Balance of Payments (BOP) assistance,

—	European Financial Stabilisation Mechanism (EFSM) assistance,

—	Macro-financial assistance (MFA),

—	SURE assistance, and

—	NGEU — for further information on NGEU see Section 2.

At 31 December 2021, the nominal amount of the loans granted for financial assistance, excluding NGEU (see Section 2), were:

(EUR billion)
	Total granted	Total disbursed at year-end	Total repaid at year-end	Outstanding at year-end
SURE
Belgium	8,2	8,2	—	8,2
Bulgaria	0,5	0,5	—	0,5
Croatia	1,0	1,0	—	1,0
Cyprus	0,6	0,6	—	0,6
Czechia	2,0	2,0	—	2,0
Estonia	0,2	0,2	—	0,2
Greece	5,3	5,3	—	5,3
Hungary	0,5	0,5	—	0,5
Ireland	2,5	2,5	—	2,5
Italy	27,4	27,4	—	27,4
Latvia	0,3	0,3	—	0,3
Lithuania	1,0	1,0	—	1,0
Malta	0,4	0,4	—	0,4
Poland	11,2	8,2	—	8,2
Portugal	5,9	5,4	—	5,4
Romania	4,1	3,0	—	3,0
Slovakia	0,6	0,6	—	0,6
Slovenia	1,1	1,1	—	1,1
Spain	21,3	21,3	—	21,3
	94,3	89,6	—	89,6
EFSM
Ireland	22,5	22,5	—	22,5
Portugal	24,3	24,3	—	24,3
	46,8	46,8	—	46,8
MFA
Ukraine	5,0	5,0	(0,6 )	4,4
Tunisia	1,4	1,1	—	1,1
Jordan	1,1	0,9	—	0,9
Other	1,5	1,2	(0,2 )	1,0
	9,0	8,2	(0,8 )	7,4
BOP
Latvia	2,9	2,9	(2,7 )	0,2
	2,9	2,9	(2,7 )	0,2
Total	153,0	147,5	(3,5 )	144,0

The repayment schedule for the amounts outstanding at year-end is as follows:

(EUR billion)
	SURE	EFSM	MFA	BOP	TOTAL
2022	—	2,7	—	—	2,7
2023	—	3,5	0,1	—	3,6
2024	—	2,6	0,6	—	3,2
2025	8,0	2,4	—	0,2	10,6
2026	8,0	4,0	0,1		12,1
2027	—	3,0	0,2		3,2
2028	10,0	2,3	0,2		12,5
2029	8,1	1,4	0,9		10,4
2030	10,0	—	0,1		10,1
2031	—	7,3	1,2		8,5
2032	—	3,0	0,1		3,1
2033	—	2,1	0,5		2,6
2034	—	—	0,1		0,1
2035	8,5	2,0	2,0		12,5
2036	9,0	5,7	1,3		16,0
2037	—	—	—		—
2038	—	1,8	—		1,8
2039					—
2040	7,0	—	—		7,0
2041					—
2042	—	3,0	—		3,0
2043					—
2044					—
2045					—
2046	5,0				5,0
2047	6,0				6,0
2048					—
2049					—
2050	10,0		—		10,0
2051	—				—
Total	89,6	46,8	7,4	0,2	144,0

SURE

SURE was established in 2020 to provide financial assistance to Member States who are experiencing, or are seriously threatened with, a severe economic disturbance caused by the COVID-19 pandemic in their territory. The instrument complements the national measures taken by affected Member States. The maximum amount of financial assistance shall not exceed EUR 100 billion for all Member States.

At the end of 2021, Member States signed loan facility agreements amounting to EUR 94,3 billion and out of this amount EUR 89,6 billion were disbursed by year-end 2021. The amount of new loans disbursed in 2021 amounted to EUR 50,1 billion. The maturity of loans varies between 5, 10, 15, 20 and 30 years.

EFSM

EFSM was created to provide financial assistance to all Member States experiencing or seriously threatened by a severe economic financial disturbance caused by exceptional occurrences beyond their control. The EFSM was used to provide financial assistance, conditional on the implementation of reforms, to Ireland and Portugal between 2011 and 2014. This programme has expired and no additional loans can be drawn, though it remains in place for specific tasks such as the lengthening of maturities for loans to Ireland and Portugal and providing bridging loans. In 2021, an amount of EUR 9,8 billion maturing during the year was extended until 2036 (EUR 3 billion for Ireland and EUR 1,8 billion for Portugal) and until 2031 (EUR 5 billion for Portugal).

The amount granted to Portugal was reduced from EUR 26 billion to EUR 24,3 billion as an amount of EUR 1,7 billion expired and no further disbursements were possible. In December 2021, Portugal requested the maturity lengthening for EUR 2,2 billion of the total EUR 2,7 billion loan due in April 2022. In February 2022, the Commission has borrowed EUR 2,2 billion to roll-over the loan, which has been extended by 4,5 years.

MFA

The MFA programme is a form of financial assistance extended by the EU to partner countries outside the EU experiencing a balance of payments crisis (including EUR 4,4 billion outstanding to Ukraine). It takes the form of medium-/long-term loans or grants, or a combination of these, and is only available to countries benefiting from a disbursing International Monetary Fund (IMF) programme.

In 2020, the Commission adopted a proposal for a EUR 3 billion MFA package to 10 enlargement and neighbourhood partners to help them limit the economic fallout of the coronavirus pandemic. The decision was adopted by the European Parliament and the Council on 25 May 2020. Under this decision, in 2021, the Commission disbursed 10 new loans of a total nominal amount of EUR 1,7 billion to nine MFA beneficiaries. The maturity of the new loans varies between 10 and 15 years.

BOP

The BOP is an assistance programme designed for countries outside the euro area that are experiencing or are threatened by difficulties regarding their balance of payments. BOP assistance takes the form of medium-term loans that are conditional on the implementation of policies designed to address underlying economic problems. Typically, BOP assistance from the EU is offered in cooperation with the IMF and other international institutions or countries.

The amount granted to Latvia under BOP was reduced from EUR 3,1 billion to EUR 2,9 billion as the available amount of EUR 0,2 billion lapsed and could no longer be disbursed. No new operations or loan repayments occurred in 2021.

4.4.   BUDGETARY CONTINGENT LIABILITIES FOR FINANCIAL ASSISTANCE PROGRAMMES

Borrowings of the EU constitute direct and unconditional obligations of the EU and are guaranteed by the EU Member States (budgetary contingent liabilities). Borrowings undertaken to fund loans to countries outside the EU are covered by the Guarantee Fund for external actions. Should a beneficiary Member State default, the debt service will be drawn from the available treasury balance of the Commission, if possible. If that is not possible at that time, the Commission would draw the necessary funds from the Member States. EU Member States are legally obliged, according to the EU own resources legislation (Article 14 of Council Regulation (EU, Euratom) No 609/2014), to make available sufficient funds to meet the EU’s obligations. Thus investors are only exposed to the credit risk of the EU, not to that of the beneficiary of loans funded. ‘Back-to-back’ lending ensures that the EU budget does not assume any interest rate or foreign exchange risk.

Loans provided to Member States under the SURE instrument are underpinned by a system of voluntary guarantees from Member States amounting to 25 % of the maximum amount of financial assistance. Each Member State’s contribution to the overall amount of the guarantee corresponds to its relative share in the total gross national income (GNI) of the European Union, based on the 2020 EU budget.

For each country programme, the European Parliament, the Council and the Commission decisions determine the overall granted amount, the number of instalments to be disbursed, and the maximum (average) maturity of the loan package. Subsequently, the Commission and the Member State concerned, agree the loan/funding parameters, in particular the maturity of instalments. In addition, except for the first one, all instalments of the loan depend on compliance with policy conditions, in the context of a joint EU/IMF financial assistance, which is another factor influencing the timing of funding operations. This implies that the timing and maturities of issuances are dependent on the related EU lending activity. Funding is exclusively denominated in euro and the maturity spectrum is from 3 to 30 years.

5.   FINANCIAL STATEMENTS ANALYSIS

5.1.   REVENUE

The consolidated revenue of the EU incorporates amounts related to exchange transactions and non-exchange transactions, the latter being the most significant. The five-year trend of the main non-exchange revenue categories (comprising GNI resources, Traditional own resources, VAT resources, the new Plastics own resources, Fines and Recovery of expenses) is as follows:

Five-year trend of revenue from main non-exchange transactions (10)

As budget revenue should equal (or exceed) budget expenditure, the main driver in the revenue trend shown above is the payments made each year.

Consolidated revenue — main developments in 2021

In 2021, the consolidated revenue, comprising all revenue categories, amounted to EUR 178,9 billion, compared to EUR 224,0 billion the previous year. The main reason for the decrease of EUR 45,1 billion or 20,1 % was the decreasing impact of the UK’s withdrawal from the European Union, which had increased the 2020 revenues by EUR 47,5 billion, but contributed only EUR 1,1 billion to the 2021 revenues. Excluding this specific revenue, the consolidated revenue of 2021 amounts to EUR 177,8 EUR billlion, which is comparable to the adjusted consolidated revenue of the previous year (EUR 176,5 billion).

As regards the remaining revenue categories, the main developments were the introduction of the new plastics own resources, an increase in revenues from fines and a decrease in the revenues from GNI:

—

Revenue from the new plastics own resource, which was introduced in 2021 with the entry into force of the new Own Resources Council Decision (EU, Euratom) 2020/2053 (11), amounted to EUR 5,8 billion. A uniform call rate of EUR 0,80 per kilogram applies to the weight of plastic packaging waste generated in each Member State that is not recycled. The plastic packaging waste that is not recycled in a given year is calculated as the difference between the plastic packaging waste generated and the plastic packaging waste recycled in that year in a Member State. Bulgaria, Czechia, Estonia, Greece, Spain, Croatia, Italy, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Portugal, Romania, Slovenia and Slovakia are entitled to specific annual lump sum reductions in their respective plastics own resource contributions,

—

Fines revenue increased from EUR 0,5 billion in 2020 to EUR 2,0 billion in 2021. The increase of EUR 1,5 billion is due to both the higher number and the higher amounts of fines issued in 2021. In 2021 the main fines issued were: EUR 875 million imposed on BMW and the Volkswagen group (Volkswagen, Audi and Porsche) for colluding on technical development in the area of nitrogen oxide cleaning and EUR 371 million imposed on Nomura, UBS and UniCredit for the participation of a group of traders in a cartel in the primary and secondary market for European Government Bonds,

—

Revenue from GNI (gross national income), the primary element of the EU’s operating revenue, decreased from EUR 125,4 billion in 2020 to EUR 116,0 billion in 2021. The decrease of EUR 9,4 billion or 7,5 % is linked to the increase of the other revenue categories (and the new plastics own resource revenues), as the revenue from GNI funds the part of the budget which is not covered by other sources of income.

5.2.   EXPENSES

The main component of expenses recognised in the consolidated financial statements are expenses under the shared management mode, which includes the following funds: (i) European Agricultural Guarantee Fund (EAGF); (ii) European Agricultural Fund for Rural Development (EAFRD) and other rural development instruments; (iii) European Regional Development Fund (ERDF) and Cohesion Fund (CF); and (iv) European Social Fund (ESF). These funds made up EUR 119,9 billion or 54,3 % of the total expenses of EUR 221,0 billion incurred in 2021 (2020: EUR 109,7 billion, 65,9 % of the total expenses). The split of expenses under the shared management mode and their relative weights are presented below:

Main expenses under the shared management mode for the financial year 2021

The increase of expenses under the shared management mode is mainly due to increased expenses relating to the ERDF and Cohesion Fund (EUR 5,8 billion) and the ESF (EUR 3,0 billion). This reflects the increased implementation towards the end of the programming period of the 2014–2020 MFF as well as the temporary increase of the co-financing rate following the implementation of the CRII+ measures. Expenses relating to the EAFRD and other rural development instruments and the EAGF increased by EUR 1,0 billion and EUR 0,3 billion, respectively.

Following the successful launch of NGEU (see Section 2), expenses under the direct management mode, which represents budget implementation by the Commission, executive agencies and trust funds, increased from EUR 22,1 billion in 2020 to EUR 63,0 billion in 2021. The increase of EUR 40,9 billion is mainly due to the non-repayable support granted under the NGEU’s RRF, which amounted to EUR 42,9 billion. Direct management expenses relating to COVID-19 vaccination programmes decreased from EUR 1,6 billion in 2020 to EUR 0,7 billion in 2021.

Expenses under the indirect management mode represent the budget implementation by EU agencies, EU bodies, third countries, international organisations and other entities. In 2021 the expenses under the indirect management mode amounted to EUR 10,9 billion, similar to the previous year figure of EUR 11,0 billion.

5.3.   ASSETS

As at 31 December 2021 total assets amounted to EUR 414,1 billion (2020: EUR 280,0 billion) — the significant increase is due to further lending from the SURE instrument and the lending and advances paid under the new NGEU instrument. The most significant items were financial assets other than cash and cash equivalents (EUR 188,6 billion), pre-financing (EUR 93,4 billion), receivables and recoverables (EUR 72,4 billon) and cash and cash equivalents (EUR 44,9 billion). Other assets, amounting to EUR 14,7 billion, mainly included property, plant and equipment and intangible assets.

Composition of assets at 31 December 2021

The significant increase in total assets of EUR 134,0 billion or 47,9 % from the previous year was mainly due to the following effects:

—

Loans outstanding increased from EUR 93,3 billion in 2020 to EUR 163,6 billion in 2021. The increase of EUR 70,3 billion or 75,3 % mainly reflects the issuance of further loans for financial assistance under the SURE instrument (EUR 50,1 billion) and the issuance of loans under the new RRF (EUR 18,0 billion),

—	Total pre-financing increased from EUR 62,7 billion in 2020 to EUR 93,4 billion in 2021. The increase of EUR 30,7 billion or 49,0 % reflects the non-repayable financial support granted under the RRF (EUR 30,8 billion),

—

Cash and cash equivalents increased from EUR 16,7 billion in 2020 to EUR 44,9 billion in 2021. The increase of EUR 28,2 billion is mainly due to the liquidity relating to NGEU (EUR 18,0 billion held in the NGEU account, as well as EUR 1,4 billion of funds held in the Commission’s central treasury account pending disbursement to the budget for MFF programmes). The remaining increase was caused by the higher amount of non-implemented payment appropriations in 2021, fines becoming definitive at year-end and additional Traditional own resources cashed but not yet budgeted at year-end,

UK withdrawal from the EU

On 31 January 2020, the United Kingdom (UK) withdrew from the European Union. The terms of its departure are defined in an Agreement on the withdrawal of the UK from the EU and the European Atomic Energy Community, also known as the ‘Withdrawal Agreement’ or ‘WA’. As part of this deal, the UK agreed to honour all financial obligations undertaken while it was a member of the EU. The agreement entered into force on 31 January 2020. The UK will continue to contribute to the EU budget and to benefit from pre-2021 EU programmes and expenditure as if it were a Member State. The UK will also receive back certain defined monies it paid into the EU budget or monies received by the EU budget linked to its period of membership. The EU reports twice a year to the UK on the amounts due and the UK pays these on a monthly basis. The reporting is updated each year based on actual figures.

The obligations under the Withdrawal Agreement create liabilities and receivables for the EU which have to be calculated and reflected in the EU’s annual accounts and cover in particular the following areas:

—	Own resources (Article 136)

—	Outstanding commitments (Article 140)

—	Competition fines (Article 141)

—	Union Liabilities (Article 142)

—	Contingent financial liabilities and financial instruments (Articles 143 & 144)

—	Net assets of the European Coal & Steel Community (Article 145)

—	EU investment in the European Investment Fund, EIF (Article 146)

—	Contingent liabilities concerning legal cases (Article 147).

(EUR million)
	Article 140	Article 142	Other	31.12.2021	31.12.2020
Due from the UK	28 620	14 751	610	43 982	49 579
Due to the UK	—	—	(2 229 )	(2 229 )	(2 122 )
Total	28 620	14 751	(1 618 )	41 753	47 456
Non-current	17 064	14 486	(711)	30 839	40 629
Current	11 556	265	(908)	10 913	6 827

Pre-financing

In 2021, pre-financing, excluding other advances to Member States and contributions to the trust funds Bêkou and Africa, amounted to EUR 86,2 billion (2020: EUR 55,5 billion), almost all of which related to Commission activities. The increase of EUR 30,7 billion or 55,3 % is almost entirely related to the non-repayable support granted under the RRF, which resulted in an increase of pre-financing related to direct management from EUR 14,3 billion in 2020 to EUR 43,7 billion in 2021:

Commission pre-financing by management mode

The level of pre-financing granted under MFF programmes is significantly influenced by the respective MFF cycle — for example at the beginning of an MFF period large advances are expected to be paid to Member States under cohesion policy and these amounts remain available to Member States until the closure of the programmes. An annual pre-financing is also paid out, which must be used within the year or be recovered the following year as part of the annual closure of the accounts cycle. The Commission makes every effort to ensure that pre-financing is maintained at an appropriate level. A balance has to be struck between ensuring sufficient funding for projects and the timely recognition of expenditure.

5.4.   LIABILITIES

As at 31 December 2021 the total liabilities were EUR 496,4 billion (2020: EUR 313,5 billion) — the huge increase is driven by the borrowings taken out in 2021 under the SURE and NGEU instruments. The most significant items were borrowings for NGEU and financial assistance (EUR 236,7 bíllion), pension obligations and other post-employment benefits liabilities (EUR 122,5 billion), accrued charges and deferred income (EUR 78,1 billion), and payables to third parties (EUR 46,4 billion):

Composition of liabilities at 31 December 2021

The significant increase of EUR 82,9 billion or 58,3 % over the previous year was mainly due to the following effects:

—	Borrowings increased from EUR 93,2 billion in 2020 to EUR 236,7 billion in 2021. The increase of EUR 143,5 billion mainly relates to the RRF (EUR 91,0 billion) and to additional borrowings under SURE (EUR 50,1 billion),

—	Accrued charges and deferred income increased from EUR 64,6 billion in 2020 to EUR 78,1 billion in 2021. The increase of EUR 13,5 billion or 20,9 % mainly relates to the new RRF (EUR 8,2 billion) and the implementation of the 2014–2020 MFF under the ERDF and the Cohesion Fund (EUR 1,9 billion),

—

Payables increased from EUR 32,4 billion in 2020 to EUR 46,4 billion in 2021. The increase of EUR 14,0 billion or 43,2 % is primarily due to the RRF (EUR 19,1 billion) and a decrease in amounts payable in the area of cohesion, where the amount of cost claims that were received before the year-end was lower than in the previous year (EUR 5,3 billion).

Total cost claims and invoices received and recognised in the Balance Sheet under the heading ‘Payables’

Net assets

The excess of liabilities over assets at 31 December 2021 amounted to EUR 82,3 billion (2020: EUR 33,4 billion). The considerable increase of EUR 48,9 billion is mainly due to the borrowings in relation to non-repayable support taken out under NGEU in 2021 (resulting in an increase of direct management expenses of EUR 42,9 billion). It is noted that the excess of liabilities over assets does not mean that the EU institutions and bodies are in financial difficulties, rather it means that certain liabilities will be funded by future annual budgets. Many expenses are recognised under accrual accounting rules in the current year although they may be actually paid in following years and funded using future budgets; the related revenues will only be accounted for in future periods. Apart from the borrowings for NGEU, which are to be repaid between 2028 and 2051, and the employee benefits liability, which is to be paid over several decades, the most significant amounts to be highlighted are the activities relating to the EAGF, the bulk of which is usually paid in the first quarter of the following year.

6.   EU POLITICAL AND FINANCIAL FRAMEWORK, GOVERNANCE AND ACCOUNTABILITY

The European Union (EU) is a Union on which 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.

6.1.   POLITICAL AND FINANCIAL 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 (12) of subsidiarity and proportionality. In order to attain its objectives and carry out its policies, the Union provides itself with the necessary financial means. The Commission is responsible for promoting the general interest of the Union which includes executing the budget and managing programmes in cooperation with the Member States and in accordance with the principle of sound financial management.

The EU pursues the objectives established by the Treaty with a number of tools, one of which is the EU budget. Others are, for example, a common legislative framework or joint policy strategies.

Multiannual financial framework and spending programmes

The policies supported by the EU budget are implemented in accordance with the multiannual financial framework (MFF) and corresponding sectoral legislation defining spending programmes and instruments. These translate the EU’s political priorities into financial terms over a period long enough to be effective and to provide a coherent long-term perspective for beneficiaries of EU funds and co-financing national authorities. Maximum annual amounts (ceilings) are set 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 for commitment appropriations. The MFF is adopted by the Council by unanimity of all Member States, with the consent of the European Parliament. The current 2021–2027 multiannual financial framework was adopted on 17 December 2020. The 2021–2027 multiannual financial framework is complemented by the temporary recovery instrument NextGenerationEU.

Annual budget

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

The main sources of funding of the EU are own resources revenues which are complemented by other revenues. There are four types of own resources: Traditional own resources (mainly custom duties), the own resource based on value added tax (VAT), the own resource based on non-recycled plastic packaging waste (introduced in 2021) 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.

Management modes

The EU budget is implemented in three management modes which determine how the money is paid out and managed:

—	Shared management: the vast proportion of the budget (around 3/4 of the budget) is managed under a system of shared management by the Commission in cooperation with the Member States, notably in the areas of structural funds and agriculture.

—	Direct management: the Commission also manages programmes itself and can delegate the implementation of specific programmes to executive agencies.

—

Indirect management: Expenditure decisions can also be indirectly managed via other bodies within or outside the EU. The Financial Regulation and/or contribution agreements define the necessary control and reporting mechanisms by these entities and the supervision by the Commission where budget implementation tasks are entrusted to national agencies, the European Investment Bank Group, third countries, international organisations (e.g. the World Bank or the United Nations) and other entities (e.g. EU decentralised agencies, Joint Undertakings).

Financial Regulation

The Financial Regulation (FR) (13) applicable to the general budget is a central act in the regulatory architecture of the EU’s finances. It defines in detail the financial rules applicable to the execution of the EU budget and the roles of the different actors involved in ensuring that the money is used soundly and achieves the objectives set.

6.2.   GOVERNANCE AND ACCOUNTABILITY

6.2.1.   Institutional structure

The EU has an institutional framework through which it aims to promote its values, advance its objectives, serve its interests, those of its citizens and those of the Member States, and ensure the consistency, effectiveness and continuity of its policies and actions. The organisational structure consists of institutions, agencies and other EU bodies. The Financial Regulation, together with the applicable accounting rules, defines which of these entities are included in the EU consolidated accounts (please see note 9 of the EU consolidated annual accounts for the list of entities included in the scope of consolidation).

The European Parliament, jointly with the Council, exercises legislative and budgetary functions. The Commission is politically accountable to the European Parliament. The Council also carries out policymaking and coordinating functions within the general political direction and priorities of the Union set by the European Council.

The European Commission is the executive arm of the European Union. It promotes the Union’s general interest and takes appropriate initiatives to that end. It ensures the application of the Treaties and oversees the application of Union law by Member States under the control of the Court of Justice of the European Union. It exercises coordinating, executive and management functions, executes the budget and manages programmes.

The Commission implements the budget, in large part in cooperation with the Member States (14). Together, they ensure that the appropriations are used in accordance with the principles of sound financial management. Regulations lay down the control and audit obligations of the Member States when they share the implementation of the budget and the resulting responsibilities. They also lay down the responsibilities and detailed rules for each of the EU’s institutions as concerns their own expenditure.

6.2.2.   The Commission’s governance structure

The Commission’s governance arrangements and how these ensure that the Commission functions as a modern, accountable and performance-oriented institution are described in the Communication (15) on Governance in the European Commission.

The Commission performs its functions under the leadership of the College of Commissioners, which sets priorities and takes overall political responsibility for the work of the Commission. As a College, the Commission works under the political guidance of its President, who presents, as part of his or her nomination to the European Parliament the objectives he or she intends to pursue in the form of political guidelines. The President decides on the internal organisation of the Commission, ensuring that it acts consistently, efficiently and as a collegiate body.

The College delegates the operational implementation of the budget and financial management to the Directors-General and Heads of Service who lead the administrative structure of the Commission. This decentralised approach creates an administrative culture that encourages civil servants to take responsibility for activities over which they have control and requires them to provide assurance as concerns the activities for which they are accountable.

Under the authority of the President and in close cooperation with the Member of the Commission in charge of budget, human resources and administration, and with the involvement of the Presidential and central services, the Corporate Management Board provides coordination, oversight, advice and strategic orientations.

The internal arrangements define a coherent set of robust controls and management tools which allow the College of Commissioners to assume political responsibility for the work of the Commission (16).

6.2.3.   The Commission’s financial management

In the Commission, the roles and responsibilities in financial management are clearly defined (e.g. in the Financial Regulation and the Internal Rules (17)) and applied accordingly. As authorising officers by delegation, the Commission’s Directors-General and Heads of Service are responsible for the sound financial management of EU resources, compliance with the provisions of the Financial Regulation, risk management and establishing an appropriate internal control framework.

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 from both an operational and a sound financial management standpoint. Tasks can further be sub-delegated to Directors, Heads of Unit and others, who thereby become Authorising Officers by Sub-Delegation. Each authorising officer by delegation may rely on one or two directors in charge of risk management and internal control to oversee and monitor the implementation of internal control systems.

The Commission’s central services provide guidance and advice and promote best practices, including through the work of the Corporate Management Board.

The Financial Regulation requires each authorising officer to prepare an annual activity report (AAR) detailing achievements, internal control and financial management activities during the year. The AAR includes a declaration that resources have been used based on the principles of sound financial management and that control procedures are in place which provide the necessary guarantees concerning the legality and regularity of the underlying transactions. The Annual Management and Performance Report for the EU budget (18) is the main instrument through which the College of Commissioners assumes political responsibility for the financial management of the EU budget.

The Accounting Officer of the Commission is centrally responsible for treasury management, recovery procedures, laying down accounting rules based on International Public Sector Accounting Standards (IPSAS), 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 of the Union. The annual accounts are adopted by the College of Commissioners. 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 and provides independent advice, opinions and recommendations on the quality and functioning of internal control systems inside the Commission, EU agencies and other autonomous bodies.

The Audit Progress Committee ensures the independence of the Internal Auditor and monitors the quality of internal audit work and the follow-up given by the Commission services to internal and external audit recommendations, as well as to the European Court of Auditors’ discharge related findings and recommendations on the reliability of the annual consolidated EU accounts. The advisory role of the committee contributes to the overall further improvement of the Commission’s effectiveness and efficiency in achieving its goals and facilitates the College’s oversight of the Commission’s governance, risk management, and internal control practices.

6.2.4.   External audit and discharge procedure

In line with the principles of sound financial management, funds must be managed in an effective, efficient and economic manner. An accountability framework based on comprehensive reporting, external audit and political control exists to provide reasonable assurance that EU funds are spent in a proper manner.

The European Parliament decides, after a recommendation by the Council, on whether or not to provide its final approval, known as ‘granting discharge’, on the way the Commission implemented the EU budget in a given year. The annual discharge procedure ensures that the Commission is held politically accountable for the implementation of the EU budget.

Every year the European Court of Auditors examines the reliability of the accounts, whether all revenue has been received and all expenditure incurred in a lawful and regular manner and whether the financial management and the qualitative aspects of budgeting, including the performance dimension, have been sound. The publication of the annual report of the European Court of Auditors is the starting point for the discharge procedure. The auditors also prepare special reports on specific spending or policy areas, or on budgetary or management issues.

The decision on the discharge is also based on the Commission’s integrated financial and accountability reporting, on hearings of Commissioners in the European Parliament and on the replies provided to written questions addressed to the Commission.

NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS

The consolidated annual accounts of the European Union for the year 2021 have been prepared on the basis of the information presented by the institutions and bodies under Article 246(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 XIII 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 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.

CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES (2)

CONTENTS

BALANCE SHEET

33

STATEMENT OF FINANCIAL PERFORMANCE

34

CASHFLOW STATEMENT

35

STATEMENT OF CHANGES IN NET ASSETS

37

NOTES TO THE FINANCIAL STATEMENTS

38

1.

SIGNIFICANT ACCOUNTING POLICIES

38

2.

NOTES TO THE BALANCE SHEET

57

3.

NOTES TO THE STATEMENT OF FINANCIAL PERFORMANCE

99

4.

CONTINGENT LIABILITIES AND ASSETS

109

5.

BUDGETARY AND LEGAL COMMITMENTS

116

6.

FINANCIAL RISK MANAGEMENT

120

7.

RELATED PARTY DISCLOSURES

141

8.

EVENTS AFTER THE BALANCE SHEET DATE

143

9.

SCOPE OF CONSOLIDATION

143

BALANCE SHEET

(EUR million)
	Note	31.12.2021	31.12.2020
NON-CURRENT ASSETS
Intangible assets	2.1	769	620
Property, plant and equipment	2.2	12 669	11 682
Investments accounted for using the equity method	2.3	1 192	588
Financial assets	2.4	181 874	99 214
Pre-financing	2.5	60 792	34 519
Exchange receivables and non-exchange recoverables	2.6	40 642	45 813
		297 938	192 434
CURRENT ASSETS
Financial assets	2.4	6 744	13 881
Pre-financing	2.5	32 656	28 229
Exchange receivables and non-exchange recoverables	2.6	31 796	28 681
Inventories	2.7	84	80
Cash and cash equivalents	2.8	44 860	16 742
		116 141	87 613
TOTAL ASSETS		414 078	280 047
NON-CURRENT LIABILITIES
Pension and other employee benefits	2.9	(122 466 )	(116 020 )
Provisions	2.10	(2 950 )	(3 878 )
Financial liabilities	2.11	(214 974 )	(84 399 )
		(340 391 )	(204 297 )
CURRENT LIABILITIES
Provisions	2.10	(398)	(1 527 )
Financial liabilities	2.11	(31 149 )	(10 649 )
Payables	2.12	(46 372 )	(32 408 )
Accrued charges and deferred income	2.13	(78 068 )	(64 584 )
		(155 987 )	(109 167 )
TOTAL LIABILITIES		(496 377 )	(313 464 )
NET ASSETS		(82 299 )	(33 418 )
Reserves	2.14	1 325	5 062
Amounts to be called from Member States  (3)	2.15	(83 624 )	(38 480 )
NET ASSETS		(82 299 )	(33 418 )

STATEMENT OF FINANCIAL PERFORMANCE

(EUR million)
	Note	2021	2020
REVENUE
Revenue from non-exchange transactions
GNI resources	3.1	115 955	125 393
Traditional own resources	3.2	20 590	19 559
VAT resources	3.3	18 340	17 858
Plastics own resources	3.4	5 831	—
Fines	3.5	1 990	452
Recovery of expenses	3.6	1 794	1 355
UK Withdrawal Agreement	3.7	1 122	47 456
Other	3.8	6 737	7 116
		172 357	219 190
Revenue from exchange transactions
Financial revenue	3.9	5 092	3 434
Other	3.10	1 497	1 404
		6 589	4 838
Total revenue		178 946	224 028
EXPENSES
Implemented by Member States	3.11
European Agricultural Guarantee Fund		(40 829 )	(40 461 )
European Agricultural Fund for Rural Development and other rural development instruments		(15 451 )	(14 467 )
European Regional Development Fund and Cohesion Fund		(46 932 )	(41 118 )
European Social Fund		(16 727 )	(13 677 )
Other		(4 835 )	(2 701 )
Implemented by the Commission, executive agencies and trust funds	3.12	(63 000 )	(22 094 )
Implemented by other EU agencies and bodies	3.13	(3 154 )	(3 530 )
Implemented by third countries and international organisations	3.13	(4 512 )	(4 178 )
Implemented by other entities	3.13	(3 225 )	(3 257 )
Staff and pension costs	3.14	(12 417 )	(11 995 )
Finance costs	3.15	(4 201 )	(2 188 )
Other expenses	3.16	(5 762 )	(6 946 )
Total expenses		(221 046 )	(166 612 )
ECONOMIC RESULT OF THE YEAR		(42 100 )	57 416

CASHFLOW STATEMENT

(EUR million)
	2021	2020
Economic result of the year	(42 100 )	57 416
Operating activities
Amortisation	116	113
Depreciation	1 054	1 047
(Reversal of) impairment losses on investments	—	—
(Increase)/decrease in loans	(70 259 )	(40 624 )
(Increase)/decrease in pre-financing	(30 699 )	(11 301 )
(Increase)/decrease in exchange receivables and non-exchange recoverables	2 055	(50 519 )
(Increase)/decrease in inventories	(4)	(12)
Increase/(decrease) in pension and other employee benefits	6 447	18 360
Increase/(decrease) in provisions	(2 057 )	581
Increase/(decrease) in financial liabilities (other than NGEU borrowings)	60 075	40 531
Increase/(decrease) in payables	13 964	5 166
Increase/(decrease) in accrued charges and deferred income	13 484	(2 645 )
Prior year budgetary surplus taken as non-cash revenue	(1 769 )	(3 218 )
Remeasurements in employee benefits liabilities (non-cash movement not included in statement of financial performance)	(3 257 )	(15 155 )
Other non-cash movements	(1 757 )	63
Investing activities
(Increase)/decrease in intangible assets and property, plant and equipment	(2 307 )	(1 566 )
(Increase)/decrease in investments accounted for using the equity method	(604)	3
(Increase)/decrease in non-derivative financial assets at fair value through surplus or deficit  (19)	(4 636 )	(1 180 )
(Increase)/decrease in derivative financial assets at fair value through surplus or deficit	(629)	(62)
Financing activities
Increase/(decrease) in borrowings related to NGEU	91 000
NET CASHFLOW	28 118	(3 004 )
Net increase/(decrease) in cash and cash equivalents	28 118	(3 004 )
Cash and cash equivalents at the beginning of the year	16 742	19 745
Cash and cash equivalents at year-end	44 860	16 742

STATEMENT OF CHANGES IN NET ASSETS

(EUR million)
	Amounts to be called from Member States Accumulated Surplus/(Deficit)	Other reserves	Fair value reserve	Net Assets
BALANCE AS AT 31.12.2019	(77 560 )	4 646	391	(72 523 )
Movement in Guarantee Fund reserve	(173)	173	—	—
Fair value movements	—	—	105	105
Remeasurements in employee benefits liabilities	(15 155 )	—	—	(15 155 )
Other	210	(252)	—	(42)
2019 budget result credited to Member States	(3 218 )	—	—	(3 218 )
Economic result of the year	57 416	—	—	57 416
BALANCE AS AT 31.12.2020	(38 480 )	4 566	496	(33 418 )
Impact of revised EAR 11 (see Note 1)	1 719	(3 043 )	(496)	(1 820 )
BALANCE AS AT 1.1.2021	(36 761 )	1 523	—	(35 238 )
Movement in Guarantee Fund reserve	—	—	—	—
Fair value movements	—	—	—	—
Remeasurements in employee benefits liabilities	(3 257 )	—	—	(3 257 )
Other	262	(198)	—	63
2020 budget result credited to Member States	(1 769 )	—	—	(1 769 )
Economic result of the year	(42 100 )	—	—	(42 100 )
BALANCE AS AT 31.12.2021	(83 624 )	1 325	—	(82 299 )

NOTES TO THE FINANCIAL STATEMENTS

Note that in the following tables amounts concerning the UK in relation to MFFs up to end 2020 are still shown under the heading Member States as although the UK withdrew from the Union on 1 February 2020, in accordance with the Withdrawal Agreement, it continues to have a financial relationship with the Union equivalent to that of a Member State for these periods.

1.   SIGNIFICANT ACCOUNTING POLICIES

1.1.   LEGAL BASIS AND ACCOUNTING RULES

The accounts of the EU are kept in accordance with Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012 hereinafter referred to as the ‘Financial Regulation’ (FR).

In accordance with Article 80 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 ensure the internal consistency of the EU consolidated accounts.

Application of new and amended European Union Accounting Rules (EAR)

New EAR adopted but not yet effective at 31 December 2021

There are no new EAR adopted but not yet effective at 31 December 2021.

Revised EAR effective for annual periods beginning on or after 1 January 2021

On 17 December 2020, the Accounting Officer of the Commission adopted the revised EAR 11 ‘Financial instruments’, which establishes the financial reporting principles for financial assets and financial liabilities and is based on the new IPSAS 41 ‘Financial Instruments’, the amended IPSAS 28 ‘Financial Instruments: Presentation’ and the amended IPSAS 30 ‘Financial Instruments: Disclosures’ (issued in August 2018).

The revised EAR 11 is mandatorily effective as of 1 January 2021, with any changes from the initial application accounted for on that date, thus not requiring restatement of prior period amounts. As a result, the financial assets, financial liabilities, exchange receivables and interest revenue/expense as at 31 December 2020 presented in these accounts have been accounted for in accordance with the accounting policies as stated in the 2020 EU financial statements under notes 1.5.5, 1.5.8 (only for exchange transactions), 1.5.12 and 1.6.1 (only for exchange transactions).

The main changes and their impacts on the EU 2021 accounts are as follows:

New classification and measurement principles for financial assets

The revised EAR 11 introduces a principles-based approach to the classification of financial assets and requires the use of two criteria: the entity’s model for managing its financial assets and the contractual cash-flow characteristics of those assets. Depending on these criteria, financial assets are classified in the following categories: ‘financial assets at amortised cost’ (AC), ‘financial assets at fair value through net assets/equity’ (FVNA), or ‘financial assets at fair value through surplus or deficit’ (FVSD).

On 1 January 2021, the application of the new criteria led to the reclassification of all equity investments and debt securities from ‘available for sale’ to financial assets at FVSD. The related fair value reserve was reclassified — within Net Assets — to accumulated surplus or deficit.

New impairment model

Whereas the previous impairment model was based on incurred losses, the revised EAR 11 has introduced a forward-looking impairment model based on expected credit losses (ECL) over the lifetime of the financial asset. The ECL takes into account possible default events and the evolution of the credit quality of the financial assets. The new impairment model applies to all financial assets measured at AC or at FVNA as well as to loan commitments and financial guarantee contracts.

In particular, on 1 January 2021, the application of the new impairment model to the financial assets classified as AC, led to the recognition of impairment on the loans for financial assistance provided to partner countries under the MFA and Euratom programmes.

Financial guarantee accounting

Under the previous EAR 11, most financial guarantees — in particular those provided at no or nominal consideration — were accounted for in accordance with the principles of EAR 10 ‘Provisions, contingent liabilities and contingent assets’, hence either recognised as provisions or disclosed as contingent liabilities depending on the probability of a loss.

The revised EAR 11 requires the application of the financial guarantee accounting requirements to all financial guarantee contracts. The measurement of the financial guarantee liability relies on the fair value of the guarantee at initial recognition and the evolution of the expected credit losses from the guaranteed debts portfolio. See note 1.5.12.

As a consequence, on 1 January 2021 the existing financial guarantee contracts were reclassified from financial provisions to the financial guarantee liability category and re-measured in accordance with the requirements of the revised EAR 11. This change led to an increase in the financial liabilities, in particular in relation to the guarantees provided to the EIB Group under the External Lending Mandate. Following the accounting treatment change and the recognition of the financial guarantee contract liability for the ELM, the reserve for the Guarantee Fund for external actions — in Net Assets until 31 December 2020 — has been released to the accumulated surplus or deficit.

The following table shows the original measurement categories under the EAR 11 as applied to the 2020 EU financial statements and the new measurement categories under the revised EAR 11 for the European Union's financial assets and liabilities as at 1 January 2021:

(EUR million)
	Measurement Category Prior EAR 11	Net carrying amount 31.12.2020	Measurement Category Revised EAR 11	Net carrying amount 1.1.2021
Financial assets
Loans	Loans and receivables	93 309	Amortised Cost	93 575
			FVSD	2
Debt and equity investments	Available for Sale	19 587	FVSD	19 587
Derivative assets	FVSD	199	FVSD	199
Receivables	Loans and receivables	3 450	Amortised Cost	3 485
			FVSD	3 482
Cash and cash equivalents	Available for Sale	16 742	Amortised Cost	16 742
Financial liabilities
Financial guarantees	Financial Guarantee Liability	(90)	Financial Guarantee Liability	(7 889 )
	Provisions (EAR10)	(2 523 )
Borrowings	Amortised Cost	(93 192 )	Amortised Cost	(93 521 )
Other financial liabilities	Amortised Cost	(1 761 )	Amortised Cost	(1 761 )
Derivative liabilities	FVSD	(4)	FVSD	(4)
Payables	Amortised Cost	(32 408 )	Amortised Cost	(32 408 )

The following table analyses the impact of the transition to the revised EAR 11 on the European Union’s financial assets, receivables, financial provisions and financial liabilities. It reconciles the carrying amounts from their previous measurement category under the EAR 11 as applied to the 2020 EU financial statements, to their new measurement categories upon transition to the revised EAR 11 on 1 January 2021:

(EUR million)
	Balance at 31.12.2020	Reclassification	Remeasurement	Balance at 1.1.2021
Available for sale financial assets
Opening balance brought forward	19 587
Transfer from AFS to FVSD		(19 587 )
Adjusted opening balance				—
Financial assets at FVSD
Opening balance brought forward	199
Transfer from AFS to FVSD		19 587
Transfer from loans to FVSD		2
Adjusted opening balance				19 788
Financial assets at amortised cost (in 2020 accounts: Loans)
Opening balance brought forward	93 309
Remeasurement: Effective Interest Rate			329
Remeasurement: Expected Credit Loss			(60)
Reclassification to FVSD		(2)
Adjusted opening balance				93 575
Total Financial Assets (Note 2.4)	113 095	—	269	113 363
Receivables
Opening balance brought forward	3 450
Remeasurement: Expected Credit Loss			33
FGC — receivable leg: remeasurement			3 484
Adjusted opening balance				6 967
Total Receivables (Note 2.6.2)	3 450	—	3 517	6 967
Financial Provisions
Opening balance brought forward	(2 523 )
Transfer to Financial Guarantee Liabilities		2 522
Adjusted opening balance				(1)
Total Financial provisions (Note 2.10)	(2 523 )	2 522	—	(1)
Financial guarantee liabilities
Opening balance brought forward	(90)
Transfer from Financial Provisions		(2 522 )
FGC — payable leg: remeasurement			(5 277 )
Adjusted opening balance				(7 889 )
Financial liabilities at Amortised cost
Opening balance brought forward	(94 954 )
Remeasurement: Effective Interest Rate			(329)
Adjusted opening balance				(95 283 )
Financial liabilities at FVSD
Opening balance brought forward	(4)
Adjusted opening balance				(4)
Total Financial liabilities (Note 2.11)	(95 048 )	(2 522 )	(5 606 )	(103 175 )
Total impact of the EAR 11 revision			(1 820 )

The following table analyses the impact of the transition to the revised EAR 11 on the European Union’s Net Assets as at 1 January 2021:

(EUR million)
	Balance at 31.12.2020	Release of reserves	Other impacts on net assets	Balance at 1.1.2021
Reserves
Opening balance brought forward	5 062
Release of FV reserve		(496)
Release of GF reserve		(3 043 )
Adjusted opening balance				1 523
Accumulated Surplus/(Deficit)
Opening balance brought forward	(38 480 )
Release of FV reserve		496
Release of GF reserve		3 043
Remeasurement of assets and liabilities			(1 820 )
Adjusted opening balance				(36 761 )
Total net assets	(33 418 )	—	(1 820 )	(35 238 )

The following table reconciles the prior period’s closing impairment allowance measured in accordance with the EAR 11 as applied to the 2020 EU financial statements and financial provisions measured in accordance with EAR 10 to the new impairment allowance measured in accordance with the revised EAR 11 at 1 January 2021:

(EUR million)
	31.12.2020	1.1.2021
	Impairment allowance/ Financial provisions	12-months Expected Credit Loss	Life-time Expected Credit Loss	Total impairment allowance
Financial assets at amortised cost, of which:	(739)	(49)	(25)	(73)
Subrogated loans  (20)	(726)	—	—	—
Other loans	(13)	(49)	(25)	(73)
Receivables	(190)		(156)	(156)
Financial guarantee contracts	(2 523 )	(859)	(5 143 )	(6 002 )

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 are relevance, faithful representation (reliability), understandability, timeliness, comparability and verifiability.

1.3.   CONSOLIDATION

Scope of consolidation

The consolidated financial statements of the EU comprise all significant controlled entities, joint arrangements and associates. The complete list of entities falling under the scope of consolidation, which now comprises 55 controlled entities and one associate (2020: 52 controlled entities and one associate), can be found in note 9. Among the controlled entities are the EU institutions (including the Commission, but not the European Central Bank) and the EU agencies (except those of the Common and Foreign Security Policy). The European Coal and Steel Community in Liquidation (ECSC i.L.) is also considered as a controlled entity. The EU’s only associate is the European Investment Fund (EIF).

Entities falling under the scope of consolidation but immaterial to the EU consolidated financial statements as a whole need not be consolidated or accounted for using the equity method where to do so would result in excessive time or cost to the EU. These entities are referred to as ‘Minor entities’ and are separately listed in note 9. In 2021, 8 entities have been classified as such minor entities (2020: 8 entities).

Controlled entities

In order to determine the scope of consolidation, the control concept is applied. Controlled entities are entities for which the EU is exposed, or has right, to variable benefits from its involvement and has the ability 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.

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 of which the EU and one or more parties have joint control. Joint control is the agreed sharing of control of an arrangement by way of a binding arrangement, which exists only when decisions about the relevant activities require the unanimous consent of parties sharing control. Joint agreements can be either joint ventures or joint operations. A joint venture is a joint arrangement that is structured through a separate vehicle and whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Participations in joint ventures are accounted for using the equity method (see note 1.5.4). A joint operation is a joint arrangement whereby the parties that have joint control of the arrangements have rights to the assets, and obligations for the liabilities, related to the arrangement. Participations in joint operations are accounted for by recognising in the EU’s financial statements its assets and liabilities, revenues and expenses, as well as its share of assets, liabilities, revenues and expenses jointly held or incurred.

Associates

Associates are entities over which the EU has, directly or indirectly, significant influence but not exclusive or joint 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 behalf of these entities. 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 in accordance with Article 243 of the Financial Regulation. The accounting year begins on 1 January and ends on 31 December.

1.4.1.   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 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.

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	31.12.2021	31.12.2020	Currency	31.12.2021	31.12.2020
BGN	1,9558	1,9558	PLN	4,5969	4,5597
CZK	24,8580	26,2420	RON	4,949	4,8683
DKK	7,4364	7,4409	SEK	10,2503	10,0343
GBP	0,8403	0,8990	CHF	1,0331	1,0802
HRK	7,5156	7,5519	JPY	130,3800	126,4900
HUF	369,1900	363,8900	USD	1,1326	1,2271

1.4.2.   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, financial risk of accounts receivable and the amounts disclosed in the notes concerning financial instruments, impairment allowance for financial assets at amortised cost and for financial guarantee contract liabilities, accrued revenue and charges, provisions, degree of impairment of intangible assets and property, plant and equipment, net realisable value of inventories, contingent assets and liabilities. Actual results could differ from those estimates. Changes in estimates are reflected in the period in which they become known, if the change affects that period only, or that period and future periods, if the change affects both.

1.5.   BALANCE SHEET

1.5.1.   Intangible assets

An intangible asset is an identifiable non-monetary asset without physical substance. An asset is identifiable if it is either separable (i.e. it is capable of being separated or divided from the entity, e.g. by being sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so), or arises from binding arrangements (including rights from contracts or other legal rights), regardless of whether those rights are transferable or separable from the entity or from other rights and obligations).

Acquired intangible assets are stated at historical cost less accumulated amortisation and impairment losses. Internally developed intangible assets are capitalised when the relevant criteria of the EU Accounting Rules are met and the expenses relate solely to the development phase of the asset. The capitalisable costs 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.

Intangible assets are amortised on a straight-line basis over their estimated useful lives (3 to 11 years). The estimated useful lives of intangible assets depend on their specific economic life time or legal life time determined by an agreement.

1.5.2.   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 is not depreciated as it is 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 25 %
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

A lease is an agreement whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Leases are classified as either finance leases or operating leases.

Finance leases are leases where substantially all the risks and rewards incidental to ownership are transferred to the lessee. When entering a finance lease as a lessee, the assets acquired under the finance lease are recognised as assets and the associated lease obligations as liabilities as from the commencement of the lease term. The assets and liabilities are recognised at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. Over the period of the lease term, the assets held under finance leases are depreciated over the shorter of the asset’s useful life and the lease term. The minimum lease payments are apportioned between the finance charge (the interest element) and the reduction of the outstanding liability (the capital element). The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability, which is presented as current/non-current, as applicable. Contingent rents are charged as expenses in the period in which they are incurred.

An operating lease is a lease other than a finance lease, i.e. a lease where the lessor retains substantially all the risks and rewards incidental to ownership of an asset. When entering an operating lease as a lessee, the operating lease payments are recognised as an expense in the statement of financial performance on a straight-line basis over the lease term with neither a leased asset nor a leasing liability presented in the statement of financial position.

1.5.3.   Impairment of non-financial assets

An impairment is a loss in the future economic benefits or service potential of an asset, over and above the systematic recognition of the loss of the asset's future economic benefits or service potential through amortisation or depreciation (as applicable). 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 tested for impairment whenever there is an indication at the reporting date that an asset may be impaired. 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. If the reasons for impairments recognised in previous years no longer apply, the impairment losses are reversed accordingly.

1.5.4.   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, with the initial carrying amount subsequently being increased or decreased to recognise further contributions, the EU’s share of the surplus or deficit of the investee, any impairments and dividends. The initial cost together with all movements give the carrying amount of the investment in the financial statements at the balance sheet date. The EU’s share of the investee’s surplus or deficit is recognised in the statement of financial performance, and its share of investee’s movements in equity is recognised in the reserves within net assets. 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 financial assets at FVSD.

Associates and joint ventures classified as minor entities (see note 1.3) are not accounted for under the equity method. EU contributions to those entities are accounted for as an expense of the period.

1.5.5.   Financial assets

Classification at initial recognition

The classification depends on two criteria:

—	The financial assets management model. This requires an assessment of how the EU manages the financial assets to generate cash flows and to achieve its objectives and how it evaluates the performance on financial assets.

—

The asset contractual cash-flow characteristics. This requires an assessment of whether the contractual cash flows are solely payments of principal and interest on the principal outstanding. The interest is the consideration for the time value of money, credit risk and other basic lending risks and costs.

Following assessment based on these criteria, the financial assets can be classified in three categories: Financial assets at amortised cost (‘AC’), financial assets at fair value through net assets/equity (‘FVNA’) or financial assets at fair value through surplus or deficit (‘FVSD’).

Financial assets with contractual cash flows that represent solely principal and interests are classified depending on the entity’s management model. If the management model is to hold the financial assets in order to collect contractual cash flows, the financial assets are classified at AC. If the management model is to hold the financial assets both to collect contractual cash flows and to sell the financial assets, the classification is FVNA. If the management model is different to these two models (e.g. the financial assets are held for trading or held in a portfolio managed and evaluated on a fair value basis), the financial assets are classified as FVSD.

Financial assets with contractual cash flows that do not represent only principal and interests, but introduce exposure to risks and volatility other than those present in a basic lending arrangement (e.g. changes in equity prices), are classified as FVSD regardless of the management model.

At initial recognition, the EU classifies the financial assets as follows:

(i)   Financial assets at amortised cost

The EU classifies in this category:

—	Cash and cash equivalents,

—	Loans (including term deposits with original maturity of more than three months),

—	Exchange receivables, except for the financial guarantee contract receivable leg classified as financial asset at fair value through surplus or deficit.

These non-derivative financial assets meet two conditions: The EU’s management model is to hold them in order to collect the contractual cash flows. Furthermore, on specified days, there are contractual cash flows that represent only principal and interest on the outstanding principal.

Financial assets at amortised cost are included in current assets, except for those with maturity of more than 12 months from the reporting date.

(ii)   Financial assets at fair value through net assets/equity

These non-derivatives financial assets have contractual cash flows that represent only principal and interest on the outstanding principal. In addition, the management model is to hold the financial assets both to collect contractual cash flows and to sell the financial assets.

Assets in this category are classified as current assets, if they are expected to be realised within 12 months from the reporting date.

The EU does not hold such assets at 31 December 2021.

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

The EU classifies the following financial assets as FVSD because the contractual cash flows do not represent only principal and interests on the principal:

—	Derivatives,

—	Equity investments and investments in money market funds or in pooled portfolio funds,

—	Other equity-type investments (e.g. Risk Capital Operations).

In addition, the EU classifies the debt securities it holds as FVSD because the portfolios of debt securities are managed and evaluated on a portfolio fair value basis (e.g. Common Provisioning Fund under Article 212 of the Financial Regulation).

Assets in this category are classified as current assets, if they are expected to be realised within 12 months from the reporting date.

Initial recognition and measurement

Purchases of financial assets at fair value through net assets/equity and at fair value through surplus or deficit are recognised on their trade-date — the date on which the EU commits to purchase the asset. Cash equivalents and loans are recognised when cash is deposited in a financial institution or advanced to borrowers.

Financial assets are initially measured at fair value. For all financial assets not carried at fair value through surplus or deficit, the transactions costs are added to the fair value at initial recognition. For financial assets carried at fair value through surplus or deficit the 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 unless the transaction is not at arm’s length, i.e. at no or at nominal consideration for public policy purposes. In this case, the difference between the fair value of the financial instrument and the transaction price is a non-exchange component which is recognised as an expense in the statement of financial performance. In this case, the fair value of a financial asset is derived from current market transactions for a directly equivalent instrument. If there is no active market for the instrument, the fair value is derived from a valuation technique that uses available data from observable markets.

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 under the Recovery and Resilience Facility and loans for financial assistance are initially measured at their nominal amount, with the transaction price considered the fair value of the loan. This is because:

—

The ‘market environment’ for EU lending is very specific and different from the capital market used to issue commercial or government debt. As lenders in these markets have the opportunity to choose alternative investments, the opportunity of doing so is factored into market prices. However, this opportunity for alternative investments does not exist for the EU, which is not allowed to invest money in the capital markets; it only borrows funds for the purpose of lending. 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 should be the interest rate charged.

Subsequent measurement

Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method.

Financial assets at fair value through net assets/equity are subsequently measured at fair value. Gains and losses from changes in the fair value are recognised in the fair value reserve, except for foreign exchange translation differences on monetary assets, which are recognised in the statement of financial performance.

Financial assets at fair value through surplus or deficit are subsequently measured at fair value. Gains and losses from changes in the fair value (including those stemming from foreign currency translation and any interests earned) are included in the statement of financial performance in the period in which they arise.

Fair value at subsequent measurement

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 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.

Impairment of financial assets

The EU recognises and measures an impairment loss for expected credit losses on financial assets that are measured at amortised cost and at fair value through net assets/equity.

The expected credit loss (ECL) is the present value of the difference between the contractual cash flows and the cash flows that the EU expects to receive. The ECL incorporates reasonable and supportable information that is available without undue cost or effort at the reporting date.

The ECL is measured with a three stage model that takes into account probability weighted default events during the lifetime of the financial asset and the evolution of credit risk since the origination of the financial asset. For loans, origination is the date of the irrevocable loan commitment.

If there is no significant increase in credit risk since origination (‘stage 1’), the impairment loss is the ECL from possible default events in the next 12 months from the reporting date (‘12-month ECL’). If there is a significant increase in credit risk since origination (‘stage 2’), or if there is objective evidence of a credit impairment (‘stage 3’), the impairment loss equals the ECL from possible default events over the whole lifetime of the financial asset (‘lifetime ECL’) (see note 6.5).

For assets at amortised cost, the asset’s carrying amount is reduced by the amount of the impairment loss which is recognised in the statement of financial performance. For assets at fair value through net assets/equity the loss allowance is recognised in net assets/equity and does not reduce the carrying amount of the financial asset in the statement of financial position. If, in a subsequent period, the amount of the impairment loss decreases, the previously recognised impairment loss is reversed through the statement of financial performance.

(a)   Loans to sovereigns

The EU bases its assessment of loans’ impairment, in the context of the nature of the EU’s financing and its unique institutional status.

For the impairment of loans to non-Member States, the EU calculates the expected credit losses using external credit quality data, however taking into account its preferred creditor status, which reduces the credit risk. For the calculation of the present value, the discount rate is the loan’s original effective interest rate. If a loan has a variable interest rate, the discount rate is the current effective interest rate determined under the contract.

For loans to Member States, the EU has never incurred any impairment losses, nor faced any defaults on payments. For these loans, in addition to the preferred creditor status, the EU takes into account the relationships with its Member States. These two elements, in principle, guarantee the full recovery of the loans to Member States, on maturity. Therefore, the EU considers the expected credit losses from loans to Member States to be negligible, and a statistical approach to calculate expected credit losses as inappropriate for these loans. Thus no expected credit losses are recognised in the statement of financial performance for the loans to Member States.

(b)   Receivables

The EU measures the impairment loss at the amount of lifetime ECL, using practical expedients (e.g. provision matrix).

(c)   Cash and cash equivalents

The EU holds cash and cash equivalents in current bank accounts and term deposits of up to 3 months. The cash is held in banks with very high credit ratings (see note 6.5), thus having very low default probabilities. Given the short duration and low default probabilities, the expected credit losses from cash and cash equivalents are negligible. As a result, no impairment allowance is recognised for cash equivalents.

Derecognition

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. Sales of financial assets at fair value through net assets/equity and through surplus or deficit are recognised on their trade-date.

1.5.6.   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.

1.5.7.   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 in accordance with the principle of sound financial management over a period defined in the particular contract, decision, agreement or basic 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 to the EU. As the EU retains control over the pre-financing and is entitled to a refund for the ineligible part, the amount is presented as an asset.

Pre-financing is initially recognised on the balance sheet when cash is transferred to the recipient. It is measured at the amount of the consideration given. In subsequent periods pre-financing is measured at the amount initially recognised on the balance sheet less the 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 in 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 heading ‘Pre-financing’. 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 contributions to EU trust funds (as established under Article 234 of the Financial Regulation) not consolidated in the European Commission, or to other unconsolidated entities, are 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.

1.5.8.   Exchange receivables and non-exchange recoverables

The EU Accounting Rules require a separate presentation of exchange and non-exchange transactions. To distinguish between the two categories, the term ‘receivables’ is reserved for exchange transactions, whereas for ‘non-exchange transactions’, i.e. when the EU receives value from another entity without directly giving approximately equal value in exchange, the term ‘recoverables’ is used (e.g. recoverables from Member States related to own resources).

Receivables from exchange transactions are financial assets measured at amortised cost, except for certain amounts of financial guarantee contract receivable leg which are classified as financial asset at fair value through surplus or deficit (see note 1.5.5).

Recoverables from non-exchange transactions are carried at fair value as at the date of acquisition 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 revenue at year-end. Amounts displayed and disclosed as recoverables from non-exchange 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.

1.5.9.   Cash and cash equivalents

Cash and cash equivalents are financial assets at amortised cost 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.

1.5.10.   Employee benefits

The EU provides a set of benefits (emoluments and social security) to employees. For accounting purposes these have to be classified into short-term and post-employment benefits.

Short-term employee benefits

Short-term employee benefits are those benefits due to be settled before twelve months after the end of the reporting period in which employees rendered the service, such as salaries, annual and paid sick leaves, and other short-term allowances. Short-term employee benefits are recognised as an expense when the related service is provided. A liability is recognised for the amount expected to be paid if the EU has a present legal or constructive obligation to pay as a result of past service provided by the employee and the obligation can be estimated reliably.

Post-employment benefits

The EU grants a set of post-employment benefits to employees, which include retirement, invalidity and survival pensions provided under the Pension Scheme of the European Officials (PSEO), as well as health insurance coverage provided under the Joint Sickness Insurance Scheme (JSIS) (see note 2.9). These benefits are provided under a single plan — although split in two schemes — and they must be treated similarly so as to give a fair presentation of the situation and reflect the economic reality:

(i)

Pension Scheme of European Officials (PSEO): The benefits granted under this notionally funded (21) scheme relate to seniority, invalidity and survival, as well as, family allowances, death before retirement to those employees that work or worked in the EU Institutions, Agencies and other EU bodies or are survivors of deceased officials or pensioners. Staff contribute one third of the expected cost of these benefits from their salaries.

(ii)

Joint Sickness Insurance Scheme (JSIS): Under this scheme, the EU provides health insurance coverage for staff of the European Commission, Institutions, Agencies and other EU bodies through the reimbursement of medical expenses. The benefits granted to the ‘inactives’ of this scheme (i.e. pensioners, orphans, etc.) are classified as post-employment benefits.

The EU also provides post-employment benefits to Members and former Members of the EU institutions via separate pension schemes. These are shown under the heading ‘Other retirement benefit schemes’. Under these schemes the EU provides pension benefits to members of the Commission, European Court of Justice, Court of Auditors, Council, European Parliament, European Ombudsman, and the European Data Protection Supervisor. The EU provides health coverage to the members of the EU Institutions via the JSIS.

The above post-employment benefits qualify as defined benefit obligations of the EU and are calculated at each reporting date by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The calculation of defined benefit obligation is performed annually 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.

The post-employment benefits provided to EU staff are incorporated in a single plan comprising both a pension scheme (PSEO) and a sickness insurance scheme (JSIS), with the right to coverage under the JSIS scheme being dependent on having acquired the right to coverage under the PSEO scheme. Under the terms of this single plan, as set out in the Staff Regulation, certain entitlements, such as the right to a deferred and reduced pension under the PSEO scheme, are acquired after 10 years of service. However, the entitlements acquired under the single plan by the employee’s subsequent service are materially higher than those initial entitlements as reflected by subsequent annually accrued pension rights.

Therefore, in order to depict the economic substance of the underlying transaction required by the faithful representation qualitative characteristic of financial reporting as outlined in both EAR 1 and the IPSAS Conceptual Framework, the service cost incurred is accrued on a straight-line basis over staff’s estimated active service period, i.e. the period from the date when service by the employee first leads to benefits under the plan (whether or not the benefits are conditional on further service) until the date when further service by the employee will lead to no material amount of further benefits under the plan, other than from further salary increases. This approach is applied consistently to the benefits provided for under the single plan.

Remeasurements in the net defined benefit liabilities comprise actuarial gains and losses and the return on plan assets, and are recognised immediately in net assets.

The EU recognises the net interest expense (income) and other expenses related to the defined benefit plans in the statement of financial performance within the heading ‘Staff and pension costs’.

When benefits provided are changed or curtailed, the resulting change in benefits that relates to past service or the gain or loss on curtailment is recognised immediately in the statement of financial performance. Gains and losses on settlement are recognised when the settlement occurs. Past service cost is recognised immediately in the statement of financial performance, unless the changes are conditional on the employees remaining in service for a specified period of time.

1.5.11.   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).

Provisions for onerous contracts are measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract.

1.5.12.   Financial liabilities

Financial liabilities are classified as financial liabilities at fair value through surplus or deficit, financial liabilities carried at amortised cost, or as financial guarantee contract liabilities.

Borrowings are composed of borrowings from credit institutions and debts evidenced by certificates (EU bonds, EU deposits and EU-bills). 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. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are immaterial and are directly recognised in the statement of financial performance.

Financial liabilities at fair value through surplus or deficit include derivatives where the 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.

The EU recognises a financial guarantee contract liability when it enters into a contract that requires the EU to make specified payments to reimburse the guarantee holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Where the guarantee contract requires the EU to make payments in response to financial instruments price changes or changes to other underlyings, the guarantee contract is a derivative, i.e. a financial liability at fair value through surplus or deficit. All other guarantee contracts are accounted for as financial provisions.

Financial guarantee contract liabilities are initially recognised at fair value. This equals the net present value of the premium receivable, if it is at market terms. When no guarantee premium is charged or where the consideration is not fair value, the fair value is determined based on the quoted prices in an active market for financial guarantee contracts directly equivalent to that entered into the financial guarantee liability, if available, or using a valuation technique. If no reliable measure of fair value can be determined either by direct observation of an active market or through another valuation technique, the financial guarantee contract liability is initially measured at the amount of the lifetime expected credit losses.

The subsequent measurement depends on the evolution of the credit risk exposure from the financial guarantee. If there is no significant increase in credit risk (‘stage 1’), financial guarantee liabilities are measured at the higher of the 12 months’ expected credit losses and the amount initially recognised less, when appropriate, cumulative amortisation. If there is a significant increase in credit risk (‘stage 2’), financial guarantee liabilities are measured at the higher of the lifetime expected credit losses and the amount initially recognised less, when appropriate, cumulative amortisation (see note 6.5).

Financial liabilities are classified as non-current liabilities, except for maturities less than 12 months after the balance sheet date. Financial guarantee contracts are classified as current liabilities except if the EU has an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date.

EU trust funds that are considered as part of the Commission’s operational activities (i.e. trust funds Madad and Colombia) 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 distribution of the remaining resources will be decided by the trust fund board.

1.5.13.   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 eligible amount.

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

1.5.14.   Accrued and deferred revenue 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 revenue 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 a 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.

1.6.   STATEMENT OF FINANCIAL PERFORMANCE

1.6.1.   Revenue

REVENUE FROM NON-EXCHANGE TRANSACTIONS

The vast majority of the EU’s revenue relates to non-exchange transactions as follows:

GNI based resources, VAT and Plastics own resources

Revenue is recognised for the period for which the Commission sends out a call for funds to the Member States claiming their contribution. The revenue is measured at its ‘called amount’. As VAT, GNI and Plastics own resources are based on estimates of the data for the budgetary year concerned, they may be revised since 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 revenue. 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 adopted and it is officially notified to the addressee. After the decision to impose a fine, the fined entities have two months from the date of notification:

(a)	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

(b)	not to accept the decision, in which case they challenge it in accordance with EU law.

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 TFEU). The cash received is used to clear the recoverable. However, subject to the agreement of the Commission’s Accounting Officer, the undertaking may present a bank guarantee for the amount instead. In that case the fine remains as a recoverable. If neither cash nor a guarantee is received and there are doubts about the undertaking’s solvency, a value reduction on the entitlement is recognised.

If the undertaking appeals against the decision, and has already provisionally paid the fine, the amount is disclosed as a contingent liability, or, 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 is given instead, the outstanding recoverable is written down.

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 revenue and expense

Interest revenue 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 revenue 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 interest rate 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 is considered credit impaired (‘stage 3’), the interest revenue is recognised using the rate of interest to discount the future cashflows for the purpose of measuring the impairment loss.

Revenue from dividends

Revenue from dividends and similar distributions is recognised when the right to receive payment is established.

Revenue and expense from financial assets through surplus or deficit

This refers to the fair value gains (revenue) and fair value losses (expense) from these financial assets, including those stemming from foreign exchange translation. For interest-bearing financial assets, this also includes interest. See also note 3.9.

Revenue from financial guarantee contracts

The revenue from financial guarantee contracts (guarantee premium) is recognised over the time the EU stands ready to compensate the holder of the financial guarantee contract for the credit loss it may incure. The amortisation schedule applied takes into account the passage of time and the volume of the guaranteed exposure. Revenue from financial guarantee contracts include also amortisation of financial guarantee contracts liability in cases when the guarantee was provided at no or nominal consideration.

1.6.2.   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: (i) entitlements; (ii) transfers under agreement and discretionary grants; as well as (iii) 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 their 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.

1.7.   CONTINGENT ASSETS AND LIABILITIES

1.7.1.   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.

1.7.2.   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, either 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. A contingent liability is disclosed unless the possibility of an outflow of resources embodying economic benefits or service potential is remote.

1.8.   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, investing and financing activities.

Operating activities are the activities of the EU that are not investing or financing activities. These are the majority of the activities performed.

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 as they are part of the general objectives and thus daily operations of the EU. The objective is to show the real investments made by the EU.

Financing activities are activities that result in changes in the size and composition of borrowings other than those granted to beneficiaries on a back-to-back basis or for the acquisition of properaty, plant and equipment (which are included under operating activities).

2.   NOTES TO THE BALANCE SHEET

ASSETS

2.1.   INTANGIBLE ASSETS

(EUR million)
Gross carrying amount at 31.12.2020	1 409
Additions	276
Disposals	(32)
Transfer between asset categories	0
Other changes	(18)
Gross carrying amount at 31.12.2021	1 636
Accumulated amortisation at 31.12.2020	(789)
Amortisation charge for the year	(119)
Amortisation written back	3
Disposals	36
Transfer between asset categories	0
Other changes	3
Accumulated amortisation at 31.12.2021	(867)
Net carrying amount at 31.12.2021	769
Net carrying amount at 31.12.2020	620

The above amounts relate primarily to computer software.

2.2.   PROPERTY, PLANT AND EQUIPMENT

The space assets category covers operational fixed assets related to the two EU space programmes: the Global Navigation Satellite Systems (GNSS), i.e. Galileo and European Geostationary Navigation Overlay System (EGNOS), and the Copernicus European Earth observation programme. Assets of the space systems which are not yet operational are included under the heading ‘Assets under construction’. The assets related to the EU space programmes are being built with the assistance of the European Space Agency (ESA).

For Galileo, two satellites have been launched in December 2021. They are expected to be declared operational in the first semester of 2022. At the same time a new generation 1.7 of the ground infrastructure was successfully deployed. The constellation currently includes 26 satellites. When completed, the Galileo constellation will comprise 30 satellites (including six spare satellites). The Galileo operational fixed assets, covering both satellites and ground installations, amounted to EUR 3 413 million at 31 December 2021, net of accumulated depreciation (2020: EUR 2 145 million). The remaining assets under construction total EUR 1 344 million (2020: EUR 1 872 million).

Regarding Copernicus, satellite 6A has been declared operational in June 2021. The total value of Copernicus operational fixed assets is EUR 937 million (2020: EUR 877 million), net of accumulated depreciation. A further EUR 2 115 million related to Copernicus satellites is recognised as assets under construction (2020: EUR 1 894 million).

Fixed assets related to the EGNOS ground infrastructure of EUR 130 million (2020: EUR 24 million) are also included under the heading ‘Space assets’. In addition, EGNOS assets under construction amount to EUR 189 million (2020: EUR 273 million).

PROPERTY, PLANT AND EQUIPMENT

(EUR million)
	Land and Buildings	Space assets	Plant and Equipment	Furniture and Vehicles	Computer Hardware	Other	Finance leases	Assets under construction	Total
Gross carrying amount at 31.12.2020	5 924	5 670	546	272	727	332	2 650	4 748	20 868
Additions	100	269	45	19	114	20	9	1 472	2 049
Disposals	(12)	—	(24)	(12)	(60)	(7)	(7)	—	(122)
Transfer between asset categories	535	1 791	1	1	(0)	2	(0)	(2 329 )	0
Other changes	—	—	—	—	(0)	0	—	(1)	(1)
Gross carrying amount at 31.12.2021	6 547	7 730	568	281	781	347	2 651	3 890	22 793
Accumulated depreciation at 31.12.2020	(3 676 )	(2 625 )	(465)	(203)	(557)	(259)	(1 402 )		(9 186 )
Depreciation charge for the year	(187)	(625)	(38)	(16)	(84)	(23)	(92)		(1 065 )
Depreciation written back	5	—	0	0	6	0	—		10
Disposals	12	—	24	11	55	7	7		116
Transfer between asset categories	(0)	—	(0)	—	(0)	0	0		(0)
Other changes	0	—	0	—	(0)	(1)	—		(1)
Accumulated depreciation at 31.12.2021	(3 846 )	(3 250 )	(479)	(208)	(581)	(276)	(1 487 )		(10 126 )
NET CARRYING AMOUNT AT 31.12.2021	2 701	4 480	89	73	199	72	1 164	3 890	12 669
NET CARRYING AMOUNT AT 31.12.2020	2 249	3 045	81	69	170	73	1 248	4 748	11 682

2.3.   INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

The participation of the EU, represented by the Commission, 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 Luxembourg and operates as a private-public partnership, whose members are the European Investment Bank (EIB), the EU and a group of financial institutions.

In 2021, the EIF shareholders have approved a capital increase from EUR 4,5 billion to EUR 7,4 billion. The subscribed capital at 31 December 2021 is EUR 7,3 billion (while another EUR 70 million is authorised but not yet subscribed). This increase will enable the EIF to play a key role in rolling out InvestEU, the EU’s investment programme for 2021–2027 (see note 4.1.1). It will also contribute to the response to the COVID-19 crisis where the EIF is also putting in place significant packages to support small businesses across Europe. The EU participated in the capital increase, contributing EUR 372 million. At 31 December 2021, it held 30 % of ownership interests in the EIF (2020: 29,7 %) and 30 % of the voting rights (2020: 29,7 %). In accordance with its statutes, the EIF is required to allocate at least 20 % of its annual net result to a statutory reserve, until the aggregate reserve amounts to 10 % of subscribed capital. This reserve is not available for distribution.

(EUR million)
	European Investment Fund
Participation at 31.12.2020	588
Contributions	372
Dividends received	—
Share of net result	169
Share in the net assets	63
Participation at 31.12.2021	1 192

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

(EUR million)
	31.12.2021	31.12.2020
	Total EIF	Total EIF
Assets	5 187	3 256
Liabilities	(1 213 )	(1 277 )
Revenue	781	322
Expenses	(217)	(194)
Surplus/(deficit)	564	129

The reconciliation of the above summarised financial information to the carrying amount of the interest held in the EIF is as follows:

(EUR million)
	31.12.2021	31.12.2020
Net assets of the associate	3 974	1 979
EC ownership interests in EIF	30,0  %	29,7  %
Carrying amount	1 192	588

The EU, represented by the Commission, has paid in 20 % of its subscribed shares in the EIF capital at 31 December 2021, the uncalled amount is as follows:

(EUR million)
	Total EIF capital	EU subscription
Total share capital	7 300	2 190
Paid-in	(1 460 )	(438)
Uncalled	5 840	1 752

2.4.   FINANCIAL ASSETS

(EUR million)
	Note	31.12.2021	31.12.2020
Non-current
Financial assets at amortised cost	2.4.1	160 214	82 887
Financial assets at fair value through surplus or deficit  (22)	2.4.2	21 660	16 327
		181 874	99 214
Current
Financial assets at amortised cost	2.4.1	3 353	10 422
Financial assets at fair value through surplus or deficit  (22)	2.4.2	3 391	3 459
		6 744	13 881
Total		188 618	113 095

2.4.1.   Financial assets at amortised cost

(EUR million)
	Note	31.12.2021	31.12.2020
Loans for RRF (NGEU) and financial assistance	2.4.1.1	163 392	93 193
Other loans	2.4.1.2	176	116
Total		163 568	93 309
Non-current		160 214	82 887
Current		3 353	10 422

2.4.1.1.   Loans for RRF (NGEU) and financial assistance

(EUR million)
	RRF (NGEU)	SURE	EFSM	BOP	MFA	Euratom	Total
Total at 31.12.2020	—	39 503	47 396	201	5 813	279	93 193
Revision of EAR 11	—	420	(114)	(1)	(27)	(1)	276
New loans (nominal)	17 970	50 137	9 750	—	1 665	100	79 622
Repayments	—	—	(9 750 )	—	(14)	(29)	(9 793 )
Changes in carrying amount	8	507	(144)	0	(24)	—	347
Changes in impairment	—	—	—	—	(243)	(11)	(254)
Total at 31.12.2021	17 978	90 567	47 138	201	7 170	338	163 392
Non-current	17 970	90 502	43 969	200	7 132	314	160 087
Current	8	65	3 169	1	38	24	3 305

The nominal value of loans at 31 December 2021 is EUR 162 394 million, out of which EUR 144 424 million refers to loans for financial assistance (2020: EUR 92 565 million) and EUR 17 970 million to RRF (2020: none). The significant increase from the previous year is due to further loans given out under SURE and the launch of the RRF (NGEU) instrument in 2021.

The line ‘revision of EAR 11’ shows the impact of the revised EAR 11 on the loans amounts at 1 January 2021. For SURE, EFSM and BOP the impact refers to the application of the effective interest rate method. For MFA and Euratom the impact refers to the application of the effective interest rate and the impairment allowance as at 1 January 2021.

—

Effective interest rate impact: The abovementioned programmes, except for RRF (NGEU), operate on a ‘back-to-back’ basis. This means that the premiums, discounts, interests and transactions costs the EU incurs for borrowing are recharged to the loan beneficiary. As a result the effective interest rate of a loan is the effective interest rate of the respective borrowing that financed the loan. The premiums or discounts on borrowing transactions and their recharging to the loan beneficiaries were previously immediately expensed in the statement of financial performance. By applying the effective interest rate method, the unamortised premiums and discounts as at 1 January 2021 have been added to the outstanding borrowings and loans. The net impact on the accumulated results is zero. The unamortised premiums and discounts will now be amortised until maturity.

—	Impairment allowance impact: This has been calculated using an expected credit loss model, applying the policies for the impairment of loans (see note 6.5). The Commission has thus recognised an impairment allowance for expected credit losses for MFA and Euratom loans, as at 1 January 2021.

The line ‘changes in impairment’ corresponds to the remeasurement of the expected credit losses as at 31 December 2021.

The line ‘changes in carrying amount’ corresponds to the change in accrued interests and the change in premiums/discounts (new premiums/discounts and amortisation).

Recovery and Resilience Facility (RRF)

In 2021, the EU set up the RRF as a temporary instrument to help the Member States’ economies recover from the coronavirus pandemic and become resilient to green and digital transitions. Under the EU Recovery Instrument (NGEU), the Commission borrows funds which the RRF uses to finance Member States’ reforms and investments. These have to be in line with EU priorities and have to address the challenges identified in country-specific recommendations under the European Semester framework of economic and social policy coordination. The financing can be either a loan (repayable support) or a grant (non-repayable support, see note 2.5). The Member States can receive financing up to a previously agreed allocation for loans and grants. To benefit from the support, the Member States have to submit their national recovery and resilience plans to the European Commission. Each plan sets out the reforms and investments to be implemented by the end of 2026 defining clear milestones and targets to be analysed by the European Commission and approved by the European Council. The RRF loans can be disbursed until 31 December 2026 only after the achievement of the agreed milestones and targets. However, up to 31 December 2021, the Commission could advance up to 13 % of the approved loan amounts in order to initiate economic recovery.

At 31 December 2021 loan agreements of EUR 153,2 billion have been signed. Out of these, the Commission has disbursed EUR 18 billion. There is no back-to-back relationship between the RRF loans and the NGEU borrowings (see note 2.11).

Support to mitigate Unemployment Risks in an Emergency (SURE)

SURE is a European instrument that helps to maintain people in work and jobs affected by the coronavirus pandemic. The instrument enables Member States to request EU financial assistance to help finance sudden and severe increases of national public expenditure related to national short-time work schemes and similar measures, including for self-employed persons, or to some health-related measures, in particular in the work place in response to the crisis. It can provide financial assistance of up to EUR 100 billion in the form of loans to affected Member States. The instrument is underpinned by EUR 25 billion of guarantees that the Member States have provided to the Commission for the repayment of the related borrowings. In accordance with Council Regulation (EU) 2020/672 (23), the Commission can enter into a loan agreement with a Member State only after the Commission has proposed, and the Council has adopted, an implementing decision for SURE financial assistance.

At 31 December 2021 the Council had approved and the Commission had signed loan agreements for EUR 94,3 billion of financial assistance. Out of these, the Commission had disbursed EUR 89,6 billion to Member States (nominal amounts). The remaining amounts under signed loan agreements are being disbursed in 2022.

European Financial Stabilisation Mechanism (EFSM)

The EFSM enabled the granting of financial assistance to a Member State in difficulties, or seriously threatened by 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. It is not foreseen that the EFSM will engage in new financing programmes or enter into new loan facility agreements. There are no undrawn amounts from signed loan agreements.

Balance of Payments (BOP)

This is a policy-based financial instrument that provides medium-term financial assistance to Member States that have not adopted the Euro. It enables the granting of loans to Member States who are experiencing, or are seriously threatened by, 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. There are no undrawn amounts from signed loan agreements.

Macro-Financial Assistance (MFA)

The MFA is a form of financial assistance from the EU to partner countries experiencing a balance of payment crisis. It takes the form of medium- or 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 programme. The borrowings for these loans are guaranteed by the Guarantee Fund for external actions and then by the EU budget.

During 2021, additional loans of EUR 1,7 billion were disbursed, including EUR 0,6 billion to Ukraine. There are EUR 0,6 billion conditional undrawn amounts from signed loan agreements.

At 31 December 2021, the impairment allowance for MFA loans is EUR 293 million, out of which EUR 197 million refer to the loans to Ukraine (totalling EUR 4,4 billion (nominal value) at year-end). In accordance with the EU accounting rules (and IPSAS), this impairment allowance does not take into account the non-adjusting post balance sheet events related to the war in Ukraine in 2022 (see note 8), only the significant increase in risk that was noted at the end of 2021.

European Atomic Energy Community loans (Euratom)

The European Atomic Energy Community (Euratom, represented by the Commission) lends money to both Member States and non-Member States, and to entities of both, to finance projects relating to energy installations. Out of the total Euratom loans outstanding at 31 December 2021, EUR 300 million (nominal value) relates to loans with Ukraine, for which an impairment allowance of EUR 13 million has been recognised. At 31 December 2021, the Commission had received guarantees from third parties of EUR 350 million (2020: EUR 279 million) to cover Euratom loans. There are no undrawn amounts from signed loan agreements.

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

	31.12.2021	31.12.2020
RRF (NGEU)	0,11  % — 0,12  %	—
SURE	(0,48 ) % — 0,77  %	0,00  % — 0,30  %
EFSM	(0,03 ) % — 3,79  %	0,50  % — 3,75  %
BOP	2,95  %	2,88  %
MFA	(0,14 ) % — 3,70  %	0,00  % — 3,69  %
Euratom	(0,08 ) % — 1,66  %	0,00  % — 5,76  %
The 2020 figures refer to nominal interest rates, while 2021 figures are effective interest rates in line with the revised EAR 11.

2.4.1.2.   Other loans

These include three types of loans:

(a)	Loans of EUR 74 million as at 31 December 2021 (2020: EUR 75 million) granted from EU budget programmes (e.g. the MEDA programme Euro-Mediterranean Partnership and the EU Employment and Social Innovation programme).

(b)

Defaulted loans originally granted by implementing partners where the Commission has paid a guarantee call and now holds the recovery rights (subrogated loans). At 31 December 2021, the Commission holds the recovery rights for EUR 855 million of such loans (including accrued interests). However, after taking into account the expected credit losses, the carrying amount recognised on the balance sheet is EUR 48 million. These loans were granted by the EIB and guaranteed by the EFSI and ELM programmes.

(c)	Term deposits of EUR 54 million, with maturity of over 3 months that do not meet the definition of cash equivalents.

2.4.2.   Financial assets at fair value through surplus or deficit (FVSD)

(EUR million)
	Note	31.12.2021	31.12.2020
Financial assets at FVSD non-derivatives  (24)	2.4.2.1	24 223	19 587
Financial assets at FVSD derivatives	2.4.2.2	828	199
Total		25 051	19 786
Non-current		21 660	16 327
Current		3 391	3 459

2.4.2.1.   Financial assets at FVSD non-derivatives

Financial assets at FVSD non-derivatives by type

(EUR million)
	31.12.2021	31.12.2020
Debt securities	19 326	14 862
Money market funds and investments in pooled portfolios	2 513	3 038
Other equity investments	2 384	1 686
Total	24 223	19 587
Non-current	20 834	16 134
Current	3 390	3 453
The 2020 figures relate to amounts previously classified as AFS assets in the 2020 EU Consolidated Annual Accounts.

Debt securities are mainly sovereign and corporate bonds. These investments are held in the funds (portfolios) managed by the Commssion, or by the EIB on behalf of the EU and mainly refer to the CPF, H2020, BUFI and the Innovation Fund (see below). The asset portfolios’ performance is evaluated on a fair value (market value) basis.

Money market funds are mutual funds that invest in short-term debt securities (e.g. the EIB unitary fund). The investments in pooled portfolios are EU funds of CEF and H2020 programmes pooled together with Member States’ funds from the NER 300 programme. They are used to provide guarantees to the EIB’s financing and investment operations.

The ‘other equity investments’ mainly refer to investing EU budget money — via implementing partners — in venture capital or other types of investment funds for pursuing EU policy objectives. For example, enhancing access to finance for start-up SMEs, research and innovation as well as infrastructure both inside and outside the EU.

Financial assets at FVSD non-derivatives by programme

(EUR million)
	31.12.2021	31.12.2020
Innovation Fund	4 195	—
BUFI investments	1 257	1 598
ECSC in Liquidation	1 382	1 445
European Bank for Reconstruction and Development	188	188
EEAS local staff pension plan	69	73
	7 091	3 304
Budgetary Guarantee Funds:
Common Provisioning Fund	11 272	—
EFSI Guarantee Fund	—	7 526
Guarantee Fund for external actions	—	2 794
EFSD Guarantee Fund	—	692
	11 272	11 012
Financial Instruments financed by the EU budget:
Horizon 2020	3 342	3 097
Connecting Europe Facility	762	764
EU SME Equity Facilities	684	533
European Fund for South East Europe	213	163
Green for Growth Fund	146	143
Energy Efficiency Finance Facility	107	104
Other	606	467
	5 861	5 271
Total	24 223	19 587
Non-current	20 834	16 134
Current	3 390	3 453
The 2020 figures relate to amounts previously classified as AFS assets in the 2020 EU Consolidated Annual Accounts.

Innovation Fund (IF)

The Innovation Fund was set up by Directive (EU) 2018/410 of the European Parliament and of the Council (25) amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowances trading within the Union. It supports innovation in low-carbon technologies and processes in certain economic sectors. The Innovation Fund is to be endowed with the revenue from the progressive monetisation of 450 million allowances and also with any unspent funds from the 300 million allowances available for NER300 programme (see note 3.8). The Innovation Fund started its operations in 2020, but the amounts were held in cash. As of 2021, the EIB manages the monies of the Innovation Fund by investing them in bonds.

BUFI investments

The Commission has established the Budget Fines fund (‘BUFI’) for managing the money it provisionally receives for competition fines under appeal. Until the final court decision, the Commission invests the money in debt instruments.

ECSC in Liquidation

The ECSC Treaty expired on 23 July 2002 and all the ECSC assets were transferred to the European Union and were earmarked for research in the sectors associated with the coal and steel industries. The Commission manages the portfolio, and invests in debt securities denominated in EUR and quoted in an active market.

European Bank for Reconstruction and Development

The EU holds a financial investment in the capital of the European Bank for Reconstruction and Development (EBRD), in which the number of shares held at 31 December 2021 were 90 044 (2020: 90 044 shares), representing 3 % of the total subscribed share capital. The EU subscribed for a total amount of EUR 900 million of share capital, out of which EUR 713 million is currently uncalled. According to the agreement establishing the EBRD, the shareholders have some contractual restrictions such as the fact that the shares are not transferable and their redemption is capped at the maximum of the original purchase cost. The EU measures its investment in the EBRD at fair value. The original purchase cost is considered the best estimate of the fair value, in particular due to the contractual restrictions referred to above. Although the EBRD's shares are not quoted on any stock exchange market, there were recent transactions in the investee's equity (issuance of capital at par value), indicating that cost is the best estimate of the fair value in this situation.

Common Provisioning Fund (CPF)

The EU guarantees equity investments and loans that implementing partners provide to sovereigns and companies. In order to pay the claims from defaults or other losses, the EU Budget, in accordance with the legal acts, is gradually setting money aside to build a capital buffer, i.e. the CPF. The CPF also covers borrowings the Commission issues to finance MFA and Euratom loans to non-Member States.

Until 2020, there was a separate fund for each budgetary guarantee (EFSI Guarantee Fund, EFSD Guarantee Fund, Guarantee Fund for External actions-covering also the financial assistance loans to third countries under MFA and Euratom).

As of 1 January 2021, in compliance with the Financial Regulation, the Commission has set up the CPF to manage the capital buffer (‘provisioning’) for all budgetary guarantees and financial assistance loans to third countries, in one common portfolio. In addition to the EU budget provisioning, the CPF receives recoveries from defaulted operations, the returns on its investments and the receipts from the EU budgetary guarantees remuneration. The CPF may also receive voluntary contributions from Member States and other contributors who are –in this way- increasing the available EU budget guarantees.

The CPF allocates the incoming contributions into compartments where each compartment refers to one contributing programme. At 31 December 2021, the CPF consists of four compartments. Out of these, three compartments refer to legacy instruments established under previous MFFs (EFSI, EFSD and ELM). These three contributing programmes have transferred their existing provisioning at the date they joined the CPF. In addition, there is a compartment for InvestEU, a new instrument established under the current MFF. The legal acts of these instruments set out the necessary provisioning for the guarantees provided. The EU budget pools these individual provisions in the CPF and optimises the asset management.

At 31. December 2021 the assets of the CPF were EUR 12,3 billion out of which EUR 11,3 billion were invested in financial assets at FVSD non-derivatives (debt securities).

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 and the SME Initiative Uncapped Guarantee Instrument (SIUGI) — guarantee facilities managed by the EIF providing guarantees and counter-guarantees to financial intermediaries for new portfolios of loans (under SIUGI the Commission shares the financial risk related to the guarantee given with Member States, EIF and EIB),

—	The InnovFin Equity Facility for R&I providing for investments in venture capital funds which is managed by the EIF, and

—

The EIC Fund (European Innovation Council Fund) which provides equity financing to accelerate innovation and market deployment actions. The EIC fund will be primarily funded from the 2021–2027 MFF under the Horizon Europe framework programme. However, to date, the Commission has used resources available under the H2020.

Connecting Europe Facility

Pursuant to Regulation (EU) No 1316/2013 of the European Parliament and of the Council (26), 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. It offers risk sharing for debt financing in the form of senior and subordinated debt or guarantee as well as support for project bonds guaranteed by the EU.

EU SME Equity Facilities

These are equity instruments financed by the COSME, CIP and MAP programmes and the Growth and Employment Initiative, under the trusteeship of the EIF, supporting the creation and financing of EU SMEs in their early (start-up) and growth stages by investing in suitable specialised venture capital funds.

Fair value hierarchy of non-derivative financial assets at FVSD (in 2020 classified as AFS)

(EUR million)
Type of financial asset	31.12.2021	31.12.2020
Level 1: Quoted prices in active markets	19 336	15 383
Level 2: Observable inputs other than quoted prices	2 698	2 706
Level 3: Valuation techniques with inputs not based on observable market data	2 190	1 498
Total	24 223	19 587

During the period, there were no transfers between level 1 and level 2 of the fair value hierarchy.

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

(EUR million)
Fair value movements
Opening balance at 1.1.2021	1 498
Revision EAR 11	2
Investments during the period	505
Capital repayments	(111)
Revenues settled	(30)
Gains or losses for the period in surplus or deficit	326
Transfers into level 3	—
Transfers out of level 3	—
Other	—
Closing balance at 31.12.2021	2 190

The net gains for level 3 non-derivative assets held at end of 2021 were EUR 295 million. They are included as financial revenue under ‘Gains on financial assets or liabilities at FVSD non-derivatives’ (see note 3.9) and as finance costs under ‘Losses from on financial assets or liabilities at FVSD non-derivatives’ (see note 3.15).

2.4.2.2.   Financial assets and liabilities at FVSD derivatives

Financial assets and liabilities at FVSD derivatives by type

(EUR million)
Type of derivative	31.12.2021			31.12.2020
	Notional amount	Fair Value Asset	Fair Value Liability	Notional amount	Fair Value Asset	Fair Value Liability
Foreign currency forward contract	646	2	—	417	6	—
Guarantee on equity portfolio	4 148	826	(1)	3 412	193	(1)
Guarantees on FX risk	28	—	(4)	14	—	(4)
Total	4 822	828	(5)	3 843	199	(4)
Non-current		826	(5)		193	(4)
Current		2	—		6	(0)

Foreign currency forward contract

The EU enters into 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 the foreign currency forward contracts, the EU delivers the contractually agreed notional amount in foreign currency (‘pay leg’), as presented in the table above, and will receive the notional amount in EUR (‘receive leg’) at the maturity date. Such 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.

Guarantees on equity portfolios

The heading ‘Guarantee on equity portfolio’ comprises guarantees given by the EU to financial institutions on portfolios of equity investments. These guarantees are classified as derivative financial instruments and accounted for as a financial asset or financial liability at fair value through surplus or deficit, since they do not meet the definition of a financial guarantee liability — see note 1.5.12. The EU financial liability is measured based on the value of the underlying investments.

The total amount represents mainly the EFSI guarantee given by the EU to the EIB Group with underlying equity investments disbursed by the EIB and EIF amounting to EUR 3 068 million (2020: EUR 2 223 million). The fair value of the EU guarantee on the EFSI equity portfolios totalled EUR 763 million (2019: EUR 164 million).

Guarantee on foreign currency risk

The EU guarantees foreign currency (‘FX’) risk under the EFSD Guarantee, where it guarantees swap and forward contracts that aim at hedging against foreign currency risks for investing operations in emerging markets. The EU also covers the devaluation of the foreign exchange currency (UHA) related to loans given by financial institutions to SMEs to Ukraine under the Eastern Partnership SME Finance Facility.

Fair value hierarchy of derivative financial assets and liabilities

(EUR million)
Type of derivative	31.12.2021		31.12.2020
	Fair Value Asset	Fair Value Liability	Fair Value Asset	Fair Value Liability
Level 1: Quoted prices in active markets	—	—	—	—
Level 2: Observable inputs other than quoted prices	2	(2)	6	(4)
Level 3: Valuation techniques with inputs not based on observable market data	826	(2)	193	(1)
Total	828	(5)	199	(4)

During the period, there were no transfers between level 1 and level 2. Derivatives in Fair Value level 3 include mainly guarantees on equity portfolios.

Reconciliation of derivative financial assets and liabilities measured using valuation techniques with inputs not based on observable market data (Level 3)

(EUR million)
Fair value movements
Opening balance asset/(liability) as at 1.1.2021	192
Guarantee call claims paid	5
Guarantee calls returned	(1)
Revenues from guarantee settled	(160)
Gains or losses for the period in surplus or deficit	788
Transfers into level 3	—
Transfers out of level 3	—
Other	—
Closing balance at 31.12.2021	824

The net gains for level 3 derivative assets held at end of 2021 were EUR 777 million. This amount is presented as financial revenue and included under ‘Gains on financial assets or liabilities at FVSD derivatives’ (see note 3.9).

2.5.   PRE-FINANCING

(EUR million)
	Note	31.12.2021	31.12.2020
Non-current
Pre-financing	2.5.1	57 764	30 574
Other advances to Member States	2.5.2	2 901	3 825
Contribution to Trust Funds		126	119
		60 792	34 519
Current
Pre-financing	2.5.1	28 427	24 902
Other advances to Member States	2.5.2	4 229	3 327
		32 656	28 229
Total		93 447	62 748

The level of pre-financing in the various programmes must be sufficient to ensure the necessary funding for the beneficiary to initiate and advance the project, while also safeguarding the financial interests of the EU and taking into consideration legal, operational and cost-effectiveness constraints.

The significant increase from the previous year is primarily a result of the launch of the RRF (NGEU) instrument in 2021, where EUR 36,4 billion of pre-financing was initially paid out.

2.5.1.   Pre-financing

(EUR million)
	Gross amount	Cleared via accruals	Net amount at 31.12.2021	Gross amount	Cleared via accruals	Net amount at 31.12.2020
Shared management
EAFRD & other rural development instruments	3 172	(208)	2 965	3 193	—	3 193
ERDF & CF	23 531	(4 571 )	18 960	23 074	(3 846 )	19 229
ESF	9 085	(1 823 )	7 263	8 222	(1 348 )	6 874
Other	4 836	(2 263 )	2 572	4 192	(1 520 )	2 672
	40 624	(8 865 )	31 760	38 681	(6 713 )	31 967
Direct Management
Implemented by:
Commission	46 494	(11 970 )	34 525	17 031	(10 648 )	6 382
of which RRF (NGEU)	34 879	(4 065 )	30 814	—	—	—
EU executive agencies	23 931	(15 030 )	8 901	18 565	(10 931 )	7 633
Trust funds	1 140	(847)	293	1 121	(843)	278
	71 565	(27 847 )	43 718	36 716	(22 423 )	14 294
Indirect Management
Implemented by:
Other EU agencies & bodies	1 657	(687)	971	1 243	(781)	462
Third countries	1 874	(1 261 )	614	1 515	(1 043 )	471
International organisations	9 545	(5 955 )	3 590	9 068	(6 020 )	3 048
Other entities	12 992	(7 453 )	5 539	11 665	(6 432 )	5 233
	26 069	(15 356 )	10 713	23 491	(14 276 )	9 215
Total	138 258	(52 068 )	86 191	98 888	(43 412 )	55 476
Non-current	57 764	—	57 764	30 574	—	30 574
Current	80 494	(52 068 )	28 427	68 314	(43 412 )	24 902

Pre-financing represents money paid out, and thus the 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 accepted and recognised in the statement of financial performance.

For shared management, almost all pre-financing relates to the programming period 2014–2020. There is an initial pre-financing which will not be cleared (i.e. recognised in the statement of financial performance) before the closure of the programming period and is shown as a non-current pre-financing.

For the cohesion area, there is also an annual pre-financing which is cleared on a yearly basis and is shown as a current pre-financing. New pre-financing payments made in the cohesion area include the 2021 annual pre-financing (EUR 7,3 billion), but also payments from the EU Solidarity Fund (EUR 0,8 billion). The new payments have been counterbalanced by clearings of approximately similar values, therefore the level of outstanding prefinancing remains stable for this area overall.

For direct management, the biggest amounts of pre-financing are those related to the non-reimbursable support concerning the RRF instrument which began in 2021, net EUR 30,8 billion at year-end. Other significant amounts, EUR 8,5 billion (2020: EUR 9,3 billion), refer to the Research area (mainly Horizon 2020 and Horizon Europe, implemented by the EU executive agencies and the Commission).

For indirect management, the pre-financing covers mainly internal policies programmes like Galileo and EGNOS (Space Programmes), but also instruments related to Global Europe (including neighbourhood, development and international cooperation instruments). The most notable increase in pre-financing under this heading is related to the Space Programmes.

Guarantees received in respect of pre-financing

These are guarantees that the Commission requests in certain cases from beneficiaries that are not Member States when making advance payments (pre-financing). There are two values to disclose for this type of guarantee, the ‘nominal’ and the ‘ongoing’ values. For the nominal value, the generating event is linked to the existence of the guarantee. For the ongoing value, the guarantee’s generating event is the pre-financing payment made against the guarantee, then reduced by subsequent clearings. At 31 December 2021 the nominal value of guarantees received in respect of pre-financing amounted to EUR 433 million while the ongoing value of those guarantees was EUR 383 million (2020: EUR 466 million and EUR 402 million respectively).

Certain pre-financing amounts paid out under the 7th Research Framework Programme for research and technological development (FP7) and under the Horizon 2020 and Horizon Europe Programmes are effectively covered by the Mutual Insurance Mechanism (MIM), previously known as the Participants Guarantee Fund (PGF). The MIM 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 under those programmes. All participants of indirect actions receiving a grant from the EU contribute 5 % of the maximum EU contribution to the MIM's capital, which is invested in the financial markets by the Commission in order to generate interest. The interest may be used to cover debts not honoured by a defaulting participant towards the Union. At the end of the indirect action the contributions are paid back to the participants. The EU (represented by the Commission) acts as an executive agent of the participants of the MIM, but the fund is owned by the participants. The MIM is thus a separate entity that is not consolidated in these EU annual accounts.

At 31 December 2021, pre-financing amounts covered by the MIM totalled EUR 2,4 billion (2020: EUR 2,3 billion). The MIM total assets, including financial assets managed by the Commission, amounted to EUR 2,5 billion (2020: EUR 2,4 billion).

2.5.2.   Other advances to Member States

(EUR million)
	31.12.2021	31.12.2020
Advances to Member States for financial instruments under shared management	3 647	3 520
Aid Schemes	3 483	3 633
Total	7 130	7 153
Non-current	2 901	3 825
Current	4 229	3 327

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, out of EUR 14 692 million paid, it is estimated that EUR 3 547 million was unused at 31 December 2021. 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 1 326 million paid excluding amounts still in pre-financing, out of which EUR 366 million is estimated as unused).

For rural development, EUR 97 million remained unused at year-end.

2007–2013 Period:

All amounts related to cohesion policy are considered to have been either implemented or re-allocated to other measures, therefore no assets remain on the balance sheet at 31 December 2021. It should be noted that the actual implementation by the various instruments will be reviewed as part of the closure process of the programmes in the coming years.

Aid Schemes

Similar to the above, reimbursed amounts corresponding to 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 (advances) 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:

The unused amounts at year-end were estimated at EUR 1 768 million for cohesion policy and for agriculture and rural development at EUR 1 649 million.

2007–2013 Period:

It is estimated that EUR 66 million paid in the context of rural development remains unused at the end of 2021.

2.6.   EXCHANGE RECEIVABLES AND NON-EXCHANGE RECOVERABLES

(EUR million)
	Note	31.12.2021	31.12.2020
Non-current
Recoverables from non-exchange transactions	2.6.1	34 892	44 128
Receivables from exchange transactions	2.6.2	5 750	1 685
		40 642	45 813
Current
Recoverables from non-exchange transactions	2.6.1	29 473	26 915
Receivables from exchange transactions	2.6.2	2 323	1 766
		31 796	28 681
Total		72 438	74 493

2.6.1.   Recoverables from non-exchange transactions

(EUR million)
	Note	31.12.2021	31.12.2020
Non-current
Member States	2.6.1.1	2 497	2 237
UK Withdrawal Agreement	2.6.1.2	30 839	40 629
Accrued income and deferred charges	2.6.1.4	1 556	1 261
Other recoverables		—	1
		34 892	44 128
Current
Member States	2.6.1.1	5 682	7 213
UK Withdrawal Agreement	2.6.1.2	10 913	6 827
Competition fines	2.6.1.3	11 698	11 295
Accrued income and deferred charges	2.6.1.4	1 097	787
Other recoverables	2.6.1.5	83	792
		29 473	26 915
Total		64 365	71 043

2.6.1.1.   Recoverables from Member States

(EUR million)
	31.12.2021	31.12.2020
TOR A accounts	6 137	5 297
TOR separate accounts	1 405	1 460
Own resources to be received	15	2 188
Impairment	(875)	(892)
Other	—	—
Own resources recoverables	6 683	8 053
European Agricultural Guarantee Fund (EAGF)	1 525	1 378
European Agricultural Fund for Rural Development (EAFRD) and other rural development instruments	668	720
Impairment	(843)	(837)
EAGF and rural development recoverables	1 350	1 260
Pre-financing recovery	26	53
VAT paid and recoverable	45	35
Other recoverables from Member States	73	49
Total	8 178	9 450
Non-current	2 497	2 237
Current	5 682	7 213

The largest amount included under non-current relates to amounts due from Member States, specifically EUR 2,1 billion concerning the United Kingdom (UK) infringement case (explained below). Also included as non-current, as in previous years, are amounts relating to non-executed conformity clearance decisions for the European Agricultural Guarantee Fund (EAGF) as well as for the European Agricultural Fund for Rural Development (EAFRD). The amounts related to these decisions are being recovered in annual instalments.

Own resources recoverables

The ‘A accounts’ refer to the monthly statements in which the Member States communicate the established Traditional own resources (TOR) entitlements. The table lists the ‘A accounts’ amounts that have not yet been paid to the Commission. TOR are mainly customs duties collected by Member States on behalf of the Commission.

The ‘A accounts’ have tended to have a level in the range of EUR 3 to 3,5 billion at year-end. However, in the past two years 2021 and 2020, the total amount included additional TOR amounts related to the UK infringement case (see below) and other TOR inspection reports. As late payment interest of EUR 2,2 billion is applicable (2020: EUR 1,7 billion), those amounts are therefore also reported in these annual accounts (see notes 2.6.2 and 3.9).

Concerning the UK infringement case, on 8 March 2018, the Commission sent a letter of formal notice (Infringement No 2018/2008) to the UK because it failed to make the correct amount of Traditional own resources available to the EU budget. As the UK did not provide a satisfactory reply, neither to the letter of formal notice nor to the reasoned opinion sent on 24 September 2018, the Commission decided to refer the infringement to the Court of Justice of the EU and lodged its application on 7 March 2019. The case originated in a 2017 OLAF report, that found that importers in the UK had evaded a large amount of customs duties by using fictitious and false invoices and incorrect customs value declarations at importation. Based on a methodology developed by OLAF and the JRC and on the information available, the Commission estimated that the infringement by the UK resulted, during the period November 2011 to October 2017, in losses to the EU budget amounting to EUR 2,1 billion (net, i.e. after deducting the collection costs to be retained by the UK from the gross amount of EUR 2,7 billion). On 8 March 2022, the Court issued the related judgement and confirmed that the UK had infringed its obligations to protect the Union budget. However, it requested the Commission to re-calculate the amount claimed. The Commission will now assess the judgment and in particular the comments of the Court with respect to the determination of the amounts at stake. A detailed legal and operational analysis is thus currently being performed, the conclusions of which are not yet available. Therefore, both the principal of EUR 2,1 billion and the estimated late payment interest of EUR 2,1 billion accrued until end 2021 (compared to EUR 1,6 billion interest accrued and recognised until end 2020) continue to be classified as long-term assets, being the best estimate available.

This year, at 31 December 2021, the recoverables include also an amount of EUR 0,4 billion in estimated TOR losses due by some Member States for textile and footwear imports from China at significantly understated value. These estimates are subject to revision, in particular after the Court judgement for the UK infringement case.

In addition, the Commission included in the accounts a receivable of EUR 0,17 billion for established customs duties and late payment interest which is based on the latest available information.

‘Separate accounts’ refers to established entitlements that have not been included in the ‘A accounts’, because they have not been recovered by Member States and no security (i.e. guarantee) has been provided (or security has been provided but the amounts are contested). These entitlements are subject to impairment based on information provided every year by the Member States. The impairment amounts are generally at a similar level at each year-end, as can be seen from the table.

‘Own resources to be received’ in 2021 refer to recoverables as a result of the amending budget No 6/2021 adopted on 24 November 2021. The amounts were entered by Member States on the first working day of January 2022.

EAGF and Rural Development recoverables

This item primarily covers the amounts owed by Member States at 31 December 2021, as declared and certified by the Member States as at 15 October 2021. An estimation is made for the recoverables arising after this declaration and up to 31 December 2021. 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.

2.6.1.2.   UK Withdrawal Agreement

The ‘Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community’ (ref. 2019/C 384 I/01) (the ‘Withdrawal Agreement’ or ‘WA’) signed between the EU and the UK establishes various financial obligations on both parties. As at 31 December 2021, the net receivable from the UK based on these obligations amounted to EUR 41 753 million (2020: EUR 47 456 million), of which EUR 10 913 million is to be paid within the 12 months following the reporting date (2020: EUR 6 827 million):

(EUR million)
	Article 140	Article 142	Other	31.12.2021	31.12.2020
Due from the UK	28 620	14 751	610	43 982	49 579
Due to the UK	—	—	(2 229 )	(2 229 )	(2 122 )
Total	28 620	14 751	(1 618 )	41 753	47 456
Non-current	17 064	14 486	(711)	30 839	40 629
Current	11 556	265	(908)	10 913	6 827

Adjustment of UK share (Article 139)

According to Article 139, the United Kingdom’s share of the financial obligations arising out of the WA shall be a percentage calculated as the ratio between the own resources made available by the United Kingdom in the years 2014 to 2020 and the own resources made available during that period by all Member States and the United Kingdom. This had been calculated in March 2021 as being 12,358072326018200 %. However, in accordance with Article 139, the share has to be adjusted by the amount of the VAT and GNI balances (2014–2020) communicated to the Member States before 1 February 2022. Therefore, the final UK share has been calculated to be 12,431681219587700 %. Following the adjustment of the UK share in relation to the calculations underlying the amounts already invoiced to the UK in 2021, an additional amount of EUR 67 million was invoiced to the UK in April 2022.

Payments under the Withdrawal Agreement

The payment mechanism to be applied to the obligations provided for between the two parties is laid out in Article 148. In summary, the EU invoices the net amounts due from the UK in April and September of each year and the UK pays these on a monthly basis. The amounts reported in April of a given year are to be paid in four equal monthly instalments from June to September of that year. The amounts reported in September are to be paid in eight equal monthly instalments from October of that year to May of the following year. Since some amounts reported are necessarily based on forecasts and estimates, the reporting is updated each year based on actual figures.

In 2021 the total amount reported to the UK under Article 136, and Articles 140 to 147, was EUR 11 930 million, of which EUR 3 763 million was reported in April 2021 and EUR 8 166 million was reported in September 2021. The total payments received in 2021 amounted to EUR 6 826 million, of which EUR 3 763 million related to the April report (paid in four equal monthly instalments in the period June to September 2021) and EUR 3 062 related to the September report (paid in three equal instalments in the period October to December 2021):

(EUR million)
	April 2021 report (due and paid from June to September 2021)	September 2021 report (due and paid from October to December 2021	Total
Article 140	3 696	3 054	6 750
Article 142	—	11	11
Article 136	230	18	247
Article 147	21	—	21
	3 946	3 083	7 029
Article 141	—	(20)	(20)
Article 143	(93)	—	(93)
Article 144	(46)	—	(46)
Article 145	(37)	—	(37)
Article 146	(7)	—	(7)
	(183)	(20)	(203)
Total	3 763	3 062	6 826

The remaining balance of the September 2021 invoice at the end of the year, amounting to EUR 5 104 million, was paid in five equal monthly instalments in the period January to May 2022.

Article 140 — Outstanding Commitments

The UK has committed to pay to the EU its share of the outstanding budgetary commitments at 31 December 2020 (the so called ‘Brexit RAL’), as adjusted by the requirements of Article 140. At 31 December 2021, the total amount recognised as a receivable amounted to EUR 28 620 million (2020: EUR 34 966 million), of which EUR 11 556 million is payable within the 12 months following the year-end. The following table presents the main movements between the total amount recognised as a receivable at 31 December 2020 (calculated based on the unadjusted UK share) and the total amount recognised as a receivable at 31 December 2021:

(EUR million)
Amount owed by the UK at 31.12.2020 (based on unadjusted UK share)	34 966
Adjustment of UK share	208
Amount owed by the UK at 31.12.2020 (based on adjusted UK share)	35 174
Net financial corrections related to 2014–2020 or previous programme periods (including adjustment of 2020 deductions)	(58)
TOR relating to 2020 and made available to the Union in 2021 (including adjustment of 2020 deductions)	(82)
Net payments received from the UK in 2021	(6 750 )
Adjustment of estimated non-implementation	337
Total	28 620
Non-current	17 064
Current	11 556

The year-on-year decrease of the total amount recognised as a receivable amounted to EUR 6 346 million and was mainly due to the payments received from the UK in 2021 (EUR 6 750 million).

The adjustment of the amount owed by the UK at 31 December 2020, resulting in an increase of EUR 208 million, reflects the adjustment of the UK share of the adjusted budgetary commitments at 31 December 2020 on which the UK share is applied (EUR 216,7 million). Also included are the adjustments of the deductions included in the 2020 EU Annual Accounts for net financial corrections related to 2014–2020 or previous programme periods and TOR relating to 2020 and made available to the Union in 2021 (EUR 2,4 million), and the adjustment of the deduction for the estimated non-implementation (EUR 6,0 million).

The total deduction for net financial corrections related to 2014–2020 or previous programme periods, amounting to EUR 58,5 million, comprises the amounts invoiced in September 2021 which were not yet included in the 2020 annual accounts (EUR 34,8 million, of which EUR 12,8 million was paid by the UK in the period October to December 2021 and EUR 22,0 million from January to May 2022), the adjustment of the UK share of these amounts (EUR 0,2 million) and the amounts to be invoiced in September 2022 and payable in October to December 2022 (EUR 23,5 million).

The total deduction for TOR relating to 2020 and made available to the Union in 2021, amounting to EUR 82,0 million, comprises the amounts invoiced in September 2021 which were not yet included in the 2020 annual accounts (EUR 16,7 million, of which EUR 6,3 million was paid by the UK in the period October to December 2021 and EUR 10,4 million from January to May 2022), the adjustment of the UK share of these amounts (EUR 0,1 million), and the amounts invoiced in April 2022 (EUR 65,2 million).

The amount to be paid within 12 months from the reporting date (EUR 11 556 million), comprises the remaining balance of the September 2021 invoice (EUR 5 090 million), the amount invoiced in April 2022 (EUR 4 029 million) and the amount to be invoiced in September 2022 and payable in the period October to December 2022 (EUR 2 437 million). The amount invoiced in April 2022 is composed of EUR 3 280 million relating to the UK’s share of the estimated RAL implementation in 2022, EUR 65,2 million to the deductions for TOR, EUR 70,5 million to the adjustment of the UK share of the amounts invoiced in 2021, and EUR 743,6 million relating to the adjustment of the UK share of the RAL due to implementation in 2021. The amount to be invoiced in September 2022 and payable in the period October to December 2022 is made up of EUR 2 460 million relating to the UK’s share of the estimated RAL implementation in 2022 and EUR 23,5 million relating to the deductions for net financial corrections.

Following the update of the official Commission forecast of decommitments of the entire stock of RAL at 31 December 2020, the UK amounts owed increased by EUR 337 million due to the updated estimated non-implementation.

Article 142 — Union liabilities at end 2020

The UK has committed to pay the EU its share of Union liabilities at end 2020 with the exception of liabilities: (a) with corresponding assets; and (b) relating to the operation of the budget and the management of own resources (including amounts already covered by the outstanding commitments, see Article 140 above). The main amount here concerns the EU post-employment benefit liabilities (pensions and sickness insurance) existing at 31 December 2020.

Outstanding 2020 liabilities under Article 142(6)

(EUR million)
	Pension Scheme of European Officials	Joint Sickness Insurance Scheme	31.12.2021	31.12.2020
Outstanding 2020 liabilities	104 832	9 675	114 507	113 676
UK Share	13 032	1 203	14 235	14 048
PSEO/JSIS contributions	227	8	236	0
Total	13 260	1 211	14 471	14 048
Non-current	13 032	1 203	14 235	14 048
Current	227	8	236	0

According to the default payment mode laid out in Article 142(6), the UK contributes annually to the net payments made from the Union budget in the preceding year to each beneficiary of the Pension Scheme of European Officials (PSEO) and to the related contribution of the Union budget to the Joint Sickness Insurance Scheme (JSIS) for each beneficiary or person who benefits through a beneficiary. The payment of these annual contributions are scheduled to start as from June 2022 (with each annual instalment payable in four monthly instalments from June to September of the respective year).

The adjusted UK share of the net payments made from the Union budget in 2021 to the beneficiaries of the PSEO and to JSIS amounted to EUR 227 million and EUR 8 million, respectively. These amounts were communicated to the UK as part of the April 2022 invoice (and thus be payable in four equal monthly instalments in the period June to September 2022).

In addition, at 31 December 2021 the outstanding 2020 UK liabilities under Article 142(6), relating to the Pension Scheme of the European Officials (PSEO) and the Joint Sickness Insurance Scheme (JSIS) amounted to EUR 13 032 million and EUR 1 203 million, respectively (2020: EUR 12 450 million and EUR 1 599 million). The increase for the PSEO scheme was primarily driven by the actuarial loss from changes in financial assumptions — see note 2.9 for more details. It is noted that while the actuarial loss from changes in financial assumptions impacts the present value of the outstanding 2020 liabilities calculated on the basis of IPSAS 39/EAR 12, it does not change either the amount of benefits that will have to be actually paid by the EU, or, by implication, the UK contributions to these payments as due under the default settlement mechanism of Article 142(6).

As at 31 December 2021, the UK has not made use of the early settlement option providing for the payment of the outstanding 2020 PSEO and JSIS liabilities, calculated using actuarial valuations made in accordance with IPSAS 39/EAR 12, in five equal instalments following the procedure laid out in the last subparagraph of Article 142(6).

Outstanding 2020 liabilities under Article 142(5)

According to Article 142(5), the UK contributes to the liabilities relating to the Other retirement (pension) schemes as they were recorded in the consolidated accounts of the Union for the financial year 2020 in 10 instalments starting on 31 October 2021 (with each annual instalment payable in eight monthly instalments from October to May the following year). These liabilities in the consolidated accounts of the Union for the financial year 2020 amounted to EUR 2 344 billion, resulting in an adjusted UK share at 31 December 2020 of EUR 291 million. Taking into account the amounts received from the UK during 2021, totalling EUR 11 million, the outstanding UK share of the Other retirement (pension) schemes decreased to EUR 281 million at 31 December 2021, of which EUR 29 million is to be paid within the 12 months following the year-end.

For more information regarding the employee benefit schemes, please see note 1.5.10 and note 2.9.

Other articles

(EUR million)
	31.12.2021	31.12.2020
Due from the UK:
Article 136	557	230
Article 147	53	46
	610	275
Due to the UK:
Article 141	(1 818 )	(1 766 )
Article 143	(163)	(93)
Article 144	(73)	(46)
Article 145	(148)	(183)
Article 146	(27)	(33)
	(2 229 )	(2 122 )
Total	(1 618 )	(1 847 )
Non-current	(711)	(1 894 )
Current	(908)	47

Article 136 — Provisions applicable in relation to own resources

Article 136 establishes the provisions applicable after 31 December 2020 in relation to own resources. The UK is entitled to receive or obliged to pay, as the case may be, its share where the own resources related to the financial years up to and including 2020 are to be made available, corrected or subject to adjustments after 31 December 2020. Furthermore, it will receive its share of adjustments related to the opt-out for the year 2020. It is also subject to any adjustments of VAT and GNI own resources that relate to the financial years up to and including 2020. These VAT and GNI adjustments will be calculated yearly until 31 December 2028. The updates of the UK correction of 2018–2019 are also to be taken into account.

The UK is required to pay the Traditional own resources collected by them after 28 February 2021, but related to the years 2020 and earlier. Their share of the total made available by them is then deducted from this amount. The separate account for Traditional own resources shall be fully liquidated at 31 December 2025.

The net amount due from the UK outstanding at 31 December 2021 is EUR 557 million, of which EUR 544 million will have to be paid to the UK within the 12 months following the year-end and EUR 1 101 million will have to be paid by the UK afterwards:

(EUR million)
Amount due from the UK at 31.12.2020	230
Adjustment of UK share	(2)
Amount invoiced to the UK in September 2021	47
Payments received in 2021	(247)
UK correction	(497)
Opt-out	(105)
VAT and GNI adjustments (related to 2020 and before)	1 101
UK net Traditional own resources after 28 February 2021	31
Amount due from the UK at 31.12.2021	557
Non-current	1 101
Current	(544)

Article 141 — Fines

The UK is entitled to its share of fines decided before 31 December 2020 and also those decided upon by the Union after 31 December 2020 in a procedure referred to in Article 92(1) when these become definitive. The amount of UK relevant fines which were outstanding at 31 December 2021 is EUR 13,8 billion (2020: EUR 14,3 billion). The decrease of EUR 0,5 billion is mainly due to the increase in the impairment of fines of EUR 0,9 billion, counterbalanced by the net increase in fines of EUR 0,3 billion (EUR 1,7 billion of fines issued in 2021 less EUR 1,4 billion of fines confirmed and paid, reduced or cancelled by court decisions during 2021). The adjusted UK share of these fines outstanding at 31 December 2021 is EUR 1,7 billion (2020 (unadjusted share): EUR 1,8 billion), out of which an amount of EUR 80,8 million will be included in the September 2022 invoice and paid to the UK in the period October 2022 to May 2023. In addition, the UK is entitled to the adjusted UK share of definitive fines which were not yet invoiced (EUR 69,2 million, also to be included in the September 2022 invoice and paid to the UK in the period October 2022 to May 2023), the unadjusted UK share of definitive fines that was invoiced in September 2021 but not yet paid at year-end (EUR 33,6 million, paid to the UK in the period January to May 2022), and the adjustment of the UK share of the fines which was invoiced in September 2021 (EUR 0,3 million, included in the April 2022 invoice and payable to the UK in the period June to September 2022). The total UK share of fines thus amounts to EUR 1,8 billion (2020: 1,8 billion), of which EUR 90,2 million is to be paid within the 12 months following the reporting date (2020 (unadjusted share): EUR 20 million).

Articles 143 — Contingent financial liabilities: loans for financial assistance, EFSI, EFSD & ELM

Under this article the UK shall be liable to fund its share of the contingent liabilities of the EU in relation to its borrowing, lending and guarantee activities should these crystallise and should they not be covered by existing guarantee funds — see note 4.1 for the related contingent liabilities. The EU will refund to the UK amounts which the UK has already contributed to guarantee funds and which are no longer needed. The UK also has a right to the reflows from operations for which it shares the liability. At 31 December 2021 the amount to be paid to the UK, all within the next 12 months, is EUR 163 million (2020 (unadjusted share): EUR 93 million).

Articles 144 — Financial instruments

Under this article, the EU has committed to refund to the UK its share of the reflows stemming from financial operations approved by the withdrawal date, as well as its share of the disbursements made to financial operations approved after the withdrawal date. At 31 December 2021 the amount to be paid to the UK, all within the next 12 months, is EUR 73 million (2020 (unadjusted share): EUR 46 million).

Article 145 — European Coal and Steel Community in Liquidation (ECSC i.L.)

The UK is entitled to its share of the net assets of ECSC in Liquidation at 31 December 2020, to be paid back in five instalments on 30 June each year, starting in 2021. The net assets of the ECSC in Liquidation at 31 December 2020 amounted to EUR 1,5 billion of which the adjusted UK share is EUR 184 million (2020 (unadjusted share): EUR 183 million). Following the payment of the first instalment of EUR 37 million in 2021, the outstanding amount at 31 December 2021 is EUR 148 million, of which EUR 37 million is to be paid within 12 months following the reporting date.

Article 146 — Investment in the European Investment Fund (EIF)

The UK is entitled to its share of the EU’s investment in the paid-in share capital of the EIF at 31 December 2020, to be paid back in five instalments on 30 June each year, starting in 2021. The EU’s investment in the EIF paid-in share capital at 31 December 2020 was EUR 267 million of which the adjusted UK share is EUR 33 million (2020 (unadjusted share): EUR 33 million). Following the payment of the first instalment of EUR 7 million, the outstanding amount at 31 December 2021 is EUR 27 million, of which EUR 7 million is to be paid within 12 months following the reporting date.

Article 147 — Legal cases

The UK has committed to contribute its share of EU payments arising from legal cases concerning the financial interests of the Union that become due, provided that the facts forming the subject matter of those cases occurred no later than 31 December 2020. Taking into account the provisions and accruals at year-end, as well as actual payments made by the EU for legal cases in 2021 (excluding those already reported to and paid by the UK in 2021) the estimated amount that the UK will have to pay is EUR 53 million (2020 (unadjusted share): EUR 46 million), of which EUR 6 million is to be paid within 12 months following the reporting date.

2.6.1.3.   Recoverables from competition fines

(EUR million)
	31.12.2021	31.12.2020
Recoverable from fines gross amount	14 922	14 503
Provisional payments	(2 100 )	(3 023 )
Impairment	(1 125 )	(186)
Total	11 698	11 295
Non-current	—	—
Current	11 698	11 295

Fined companies who have launched or are planning to launch an appeal have an option to either make provisional payments or to provide bank guarantees to the Commission. For the total outstanding fines at year-end, EUR 2 100 million (2020: EUR 3 023 million) has been received as provisional payments while EUR 11 067 million (2020: EUR 11 004 million) of guarantees have been received.

The amounts written down due to impairment reflect the Commission's case-by-case assessment of fines amounts not cashed or not covered by a guarantee, which the Commission expects not to recover.

A contingent liability is disclosed for the possibility of having to pay back provisionally paid amounts to the fined companies — see note 4.2.1.

2.6.1.4.   Accrued income and deferred charges

(EUR million)
	31.12.2021