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Document 52022DC0322

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS ANNUAL ACCOUNTS OF THE EUROPEAN COMMISSION FOR THE FINANCIAL YEAR 2021

COM/2022/322 final

Brussels, 23.6.2022

COM(2022) 322 final


COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN


PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS




ANNUAL ACCOUNTS OF THE EUROPEAN COMMISSION


FOR THE FINANCIAL YEAR 2021































































































CONTENTS

 

CERTIFICATION OF THE ACCOUNTS    

FINANCIAL STATEMENTS AND EXPLANATORY NOTES    

BALANCE SHEET    

STATEMENT OF FINANCIAL PERFORMANCE    

CASHFLOW STATEMENT    

STATEMENT OF CHANGES IN NET ASSETS    

NOTES TO THE FINANCIAL STATEMENTS    

BUDGETARY IMPLEMENTATION REPORTS    

 

CERTIFICATION OF THE ACCOUNTS

The annual accounts of the European Commission for the year 2021 have been prepared in accordance with the Financial Regulation applicable to the general budget of the European Union and the accounting rules adopted by myself in my capacity as the Commission's Accounting Officer, as are to be applied by all the institutions and Union bodies.

I acknowledge my responsibility for the preparation and presentation of the annual accounts of the European Commission in accordance with Article 77 of the Financial Regulation.

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

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

Rosa ALDEA BUSQUETS

Accounting Officer of the Commission

17 June 2022

 

EUROPEAN COMMISSION

FINANCIAL YEAR 2021

FINANCIAL STATEMENTS AND EXPLANATORY NOTES

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

CONTENTS

BALANCE SHEET    

STATEMENT OF FINANCIAL PERFORMANCE    

CASHFLOW STATEMENT    

STATEMENT OF CHANGES IN NET ASSETS    

NOTES TO THE FINANCIAL STATEMENTS    

1.    SIGNIFICANT ACCOUNTING POLICIES    

2.    NOTES TO THE BALANCE SHEET    

3.    NOTES TO THE STATEMENT OF FINANCIAL PERFORMANCE    

4.    CONTINGENT LIABILITIES AND ASSETS    

5.    BUDGETARY AND LEGAL COMMITMENTS    

6.    FINANCIAL RISK MANAGEMENT    

7.    RELATED PARTY DISCLOSURES    

8.    EVENTS AFTER THE BALANCE SHEET DATE    

 

BALANCE SHEET

EUR million

Note

31.12.2021

31.12.2020

NON-CURRENT ASSETS

Intangible assets

2.1

365

256

Property, plant and equipment

2.2

9 493

8 499

Investments accounted for using the equity method

2.3

1 192

588

Financial assets

2.4

180 637

97 945

Pre-financing

2.5

60 665

34 361

Exchange receivables and non-exchange recoverables

2.6

40 804

45 928

293 157

187 577

CURRENT ASSETS

Financial assets

2.4

6 512

13 591

Pre-financing

2.5

33 675

29 092

Exchange receivables and non-exchange recoverables

2.6

31 555

28 269

Inventories

2.7

79

74

Cash and cash equivalents

2.8

43 464

15 380

115 285

86 406

TOTAL ASSETS

408 441

273 984

NON-CURRENT LIABILITIES

Pension and other employee benefits

2.9

(121 848)

(115 408)

Provisions

2.10

(2 763)

(3 730)

Financial liabilities

2.11

(214 380)

(83 734)

(338 990)

(202 872)

CURRENT LIABILITIES

Provisions

2.10

(328)

(1 518)

Financial liabilities

2.11

(31 090)

(10 608)

Payables

2.12

(47 644)

(33 107)

Accrued charges and deferred income

2.13

(77 057)

(63 708)

(156 120)

(108 940)

TOTAL LIABILITIES

(495 111)

(311 812)

NET ASSETS

(86 669)

(37 828)

Reserves

2.14

51

3 501

Amounts to be called from Member States*

2.15

(86 721)

(41 329)

NET ASSETS

(86 669)

(37 828)

*    The European Parliament adopted a budget on 24 November 2021 which provides for the payment of the Commission's short-term liabilities from own resources to be collected by, or called up from, the Member States in 2021. Additionally, under article 83 of the Staff Regulations (Council Regulation No 259/68 of 29 February 1968 as amended), the Member States shall jointly guarantee the liability for pensions.

STATEMENT OF FINANCIAL PERFORMANCE

EUR million

Note

2021

2020

REVENUE

Revenue from non-exchange transactions

GNI resources

115 955

125 393

Traditional own resources

20 590

19 559

VAT

18 340

17 858

Plastics own resources

5 831

Fines

1 990

452

Recovery of expenses

3.1

1 762

1 355

UK Withdrawal Agreement

1 122

47 456

Other

3.2

2 753

3 263

168 342

215 337

Revenue from exchange transactions

Financial revenue

3.3

5 090

3 424

Other

3.4

727

687

5 817

4 111

Total Revenue

174 159

219 448

EXPENSES

Implemented by Member States

3.5

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 &

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

3.6

(63 025)

(22 120)

Implemented by other EU agencies and bodies

3.7

(4 211)

(4 497)

Implemented by third countries and int. organisations

3.7

(4 512)

(4 178)

Implemented by other entities

3.7

(3 225)

(3 257)

Staff and pension costs

3.8

(8 593)

(8 485)

Finance costs

3.9

(4 158)

(2 160)

Other

3.10

(3 736)

(4 976)

Total Expenses

(216 234)

(162 099)

ECONOMIC RESULT OF THE YEAR

(42 075)

57 349

CASHFLOW STATEMENT

EUR million

2021

2020

Economic result of the year

(42 075)

57 349

Operating activities

Amortisation

27

33

Depreciation

758

762

(Increase)/decrease in loans

(70 281)

(40 631)

(Increase)/decrease in pre-financing

(30 887)

(11 572)

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

1 838

(50 624)

(Increase)/decrease in inventories

(4)

(13)

Increase/(decrease) in pension and other employee benefits

6 440

18 359

Increase/(decrease) in provisions

(2 157)

662

Increase/(decrease) in financial liabilities (other than NGEU borrowings)

60 129

40 592

Increase/(decrease) in payables

14 538

5 314

Increase/(decrease) in accrued charges and deferred income

13 350

(2 667)

Prior year budgetary surplus taken as non-cash revenue

(1 769)

(3 218)

Remeasurements in employee benefits liabilities (non-cash movements not included in statement of financial performance)

(3 241)

(15 131)

Other non-cash movements

(1 757)

44

Investing activities

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

(1 888)

(1 161)

(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*

(4 703)

(1 196)

(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

28 084

(3 157)

Net increase/(decrease) in cash and cash equivalents

28 084

(3 157)

Cash and cash equivalents at the beginning of the year

15 380

18 538

Cash and cash equivalents at year-end

43 464

15 380

*The 2020 figure relates to the (increase)/decrease in available for sale financial assets.

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

(80 179)

2 930

377

(76 873)

Movement in Guarantee Fund reserve

(173)

173

Fair value movements

93

93

Remeasurements in employee benefits liabilities

(15 131)

(15 131)

Other

22

(71)

-

(49)

2019 budget result credited to Member States

(3 218)

(3 218)

Economic result of the year

57 349

57 349

BALANCE AS AT 31.12.2020

(41 329)

3 031

470

(37 828)

Impact of revised EAR 11 (see Note 1)

1 693

(3 043)

(470)

(1 820)

BALANCE AS AT 01.01.2021

(39 636)

(12)

(39 648)

Movement in Guarantee Fund reserve

Fair value movements

Remeasurements in employee benefits liabilities

(3 241)

(3 241)

Other

63

63

2020 budget result credited to Member States

(1 769)

(1 769)

Economic result of the year

(42 075)

(42 075)

BALANCE AS AT 31.12.2021

(86 721)

51

(86 669)

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

For further information in addition to the notes below, please also see the 2021 EU consolidated annual accounts.

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

The European Commission (hereinafter referred to as the Commission) applies the accounting policies of the European Union (hereinafter referred to as the EU). A summary of the significant EU accounting policies is given below.

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 (OJ L 193, 30 July 2018, p. 1) 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 01.01.2021

Financial assets 

Loans

Loans and receivables

93 268

Amortized Cost

93 535

FVSD

2

Debt and equity investments

Available for Sale

18 069

FVSD

18 069

Derivative assets

FVSD

199

FVSD

199

Receivables

Loans and receivables

3 139

Amortized Cost

3 173

FVSD

3 482

Cash and cash equivalents

Available for Sale

15 380

Amortized Cost

15 380

Financial liabilities

Financial guarantees

Financial Guarantee Liability

(90)

Financial Guarantee Liability

(7 889)

Provisions (EAR10)

(2 523)

Borrowings

Amortized Cost

(93 192)

Amortized Cost

(93 521)

Other financial liabilities

Amortized Cost

(1 055)

Amortized Cost

(1 055)

Derivative liabilities

FVSD

(4)

FVSD

(4)

Payables

Amortized Cost

(33 107)

Amortized Cost

(33 107)

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 01.01.2021

Available for sale financial assets

Opening balance brought forward

18 069

Transfer from AFS to FVSD

(18 069)

Adjusted opening balance

Financial assets at FVSD

Opening balance brought forward

199

Transfer from AFS to FVSD

18 069

Transfer from loans to FVSD

2

Adjusted opening balance

18 270

Financial assets at amortized cost (in 2020 accounts: Loans)

Opening balance brought forward

93 268

Remeasurement: Effective Interest Rate 

329

Remeasurement: Expected Credit Loss

(60)

Reclassification to FVSD

(2)

Adjusted opening balance

93 535

Total Financial Assets

(Note 2.4)

111 536

269

111 805

Receivables

Opening balance brought forward

3 139

Remeasurement: Expected Credit Loss

33

FGC - receivable leg: remeasurement

3 484

Adjusted opening balance

6 656

Total Receivables

(Note 2.6.2)

3 139

3 517

6 656

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 amortized cost

Opening balance brought forward

(94 248)

Remeasurement: Effective Interest Rate 

(329)

Adjusted opening balance

(94 577)

Financial liabilities at FVSD 

Opening balance brought forward

(4)

Adjusted opening balance

(4)

Total Financial liabilities

(Note 2.11)

(94 342)

(2 522)

(5 606)

(102 469)

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 01.01.2021

Reserves

Opening balance brought forward

3 501

Release of FV reserve

(470)

Release of GF reserve

(3 043)

Adjusted opening balance

(12)

Accumulated Surplus/(Deficit)

Opening balance brought forward

(41 329)

Release of FV reserve

470

Release of GF reserve

3 043

Remeasurement of assets and liabilities

(1 820)

Adjusted opening balance

(39 636)

Total net assets

(37 828)

(1 820)

(39 648)

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

01.01.2021

Impairment allowance/ Financial provisions

12-months Expected Credit Loss

Life-time Expected Credit Loss

Total impairment allowance

Financial assets at amortized cost, of which:

(739)

(49)

(25)

(73)

Subrogated loans

(726)

Other loans

(13)

(49)

(25)

(73)

Receivables

(182)

(149)

(149)

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 1 associate (2020: 52 controlled entities and 1 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 months 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 6.3).

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 6.3), 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 1 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 6.3).

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 twelve 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 3.8.

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

470

Additions

130

Disposals

3

Transfer between asset categories

Other changes

Gross carrying amount at 31.12.2021

603

Accumulated amortisation at 31.12.2020

(214)

Amortisation charge for the year

(27)

Amortisation written back

Disposals

3

Transfer between asset categories

Other changes

Accumulated amortisation at 31.12.2021

(238)

NET CARRYING AMOUNT AT 31.12.2021

365

NET CARRYING AMOUNT AT 31.12.2020

256

 

2.2.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

1 471

5 670

264

66

227

153

1 548

4 201

13 600

Additions

31

269

18

2

18

4

5

1 405

1 754

Disposals

(10)

(6)

(4)

(35)

(5)

(7)

(67)

Transfer between asset categories

1

1 791

0

0

1

(0)

(1 793)

Other changes

Gross carrying amount at 31.12.2021

1 492

7 730

276

64

210

153

1 546

3 814

15 286

Accumulated depreciation at 31.12.2020

(945)

(2 625)

(243)

(59)

(197)

(133)

(899)

(5 101)

Depreciation charge for the year

(38)

(625)

(14)

(3)

(18)

(8)

(53)

(758)

Depreciation written back

Disposals

10

6

4

34

5

7

66

Transfer between asset categories

(0)

0

Accumulated depreciation at 31.12.2021

(973)

(3 250)

(251)

(57)

(181)

(136)

(945)

(5 792)

NET CARRYING AMOUNT AT 31.12.2021

519

4 480

26

7

29

18

601

3 814

9 493

NET CARRYING AMOUNT AT 31.12.2020

526

3 045

20

8

29

20

649

4 201

8 499

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. At 31 December 2021, the EU holds 30% of the ownership interest in EIF (2020: 29.7 %).

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

EIF summarised financial information:

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 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 amortized cost

2.4.1

160 200

82 846

Financial assets at fair value through surplus or deficit*

2.4.2

20 437

15 099

180 637

97 945

Current

Financial assets at amortized cost

2.4.1

3 349

10 421

Financial assets at fair value through surplus or deficit*

2.4.2

3 163

3 169

6 512

13 591

Total

187 149

111 536

*    The 2020 figures include EUR 14 906 million classified as non-current AFS (Available for sale) financial assets and EUR 3 163 million classified as current AFS financial assets in the 2020 EC Annual Accounts.

2.4.1. Financial assets at amortized 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

157

75

Total

163 549

93 268

Non-current

160 200

82 846

Current

3 349

10 421

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

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.



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*

2.4.2.1

22 773

18 069

Financial assets at FVSD derivatives

2.4.2.2

828

199

Total

23 600

18 268

Non-current

20 437

15 099

Current

3 163

3 169

*    The 2020 figure relates to amounts previously classified as AFS financial assets in the 2020 EC Annual Accounts.

2.4.2.1.Financial assets at FVSD non-derivatives (in 2020 classified as AFS financial assets)

Financial assets at FVSD non-derivatives by type

EUR million

31.12.2021

31.12.2020

Debt securities

17 875

13 344

Money market funds and investments in pooled portfolios

2 513

3 038

Other equity investments

2 384

1 686

Total

22 773

18 069

Non-current

19 611

14 906

Current

3 161

3 163

The 2020 figures relate to amounts previously classified as AFS assets in the 2020 EC Annual Accounts.

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

European Bank for Reconstruction and Development

188

188

5 640

1 786

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 supported 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

22 773

18 069

Non-current

19 611

14 906

Current

3 161

3 163

The 2020 figures relate to amounts previously classified as AFS assets in the 2020 EC Annual Accounts.

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

17 886

13 864

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

22 773

18 069

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

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)

Derivative contracts for which the fair value is negative at year end are classified as financial liabilities (see note 2.11).

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.

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

2.5.PRE-FINANCING

EUR million

Note

31.12.2021

31.12.2020

Non-current

Pre-financing

2.5.1

57 637

30 417

Other advances to Member States

2.5.2

2 901

3 825

Contribution to Trust Funds

126

119

60 665

34 361

Current

Pre-financing

2.5.1

29 446

25 765

Other advances to Member States

2.5.2

4 229

3 327

33 675

29 092

Total

94 340

63 453

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

Direct Management

Implemented by:

Commission

46 852

(12 303)

34 549

17 368

(10 940)

6 428

of which RRF (NGEU)

34 879

(4 065)

30 814

EU executive agencies

23 934

(15 031)

8 903

18 567

(10 931)

7 636

Trust funds

1 140

(847)

293

1 121

(843)

278

Indirect Management

Implemented by:

Other EU agencies &

bodies

5 980

(4 150)

1 830

4 770

(3 659)

1 110

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

13 001

(7 455)

5 546

11 675

(6 433)

5 242

Total

142 950

(55 867)

87 084

102 764

(46 583)

56 181

Non-current

57 637

57 637

30 417

30 417

Current

85 313

(55 867)

29 446

72 347

(46 583)

25 765

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

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

35 108

44 279

Receivables from exchange transactions

2.6.2

5 696

1 649

40 804

45 928

Current

Recoverables from non-exchange transactions

2.6.1

29 426

26 779

Receivables from exchange transactions

2.6.2

2 129

1 490

31 555

28 269

Total

72 359

74 197

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

2 491

2 231

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

222

158

35 108

44 279

Current

Member States

2.6.1.1

5 625

7 163

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

826

572

Other recoverables

363

922

29 426

26 779

Total

64 534

71 058

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 resource 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

12

10

Other recoverables from Member States

46

17

Total

8 118

9 393

Non-current

2 491

2 231

Current

5 625

7 163

2.6.1.2.UK Withdrawal agreement

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

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

Article 140 – Outstanding Commitments

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



Article 142 – Outstanding 2020 liabilities

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

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

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)



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

2.6.1.4.Accrued income and deferred charges

EUR million

31.12.2021

31.12.2020

Other accrued income

2 301

1 754

Deferred charges relating to non-exchange transactions

81

79

Total

2 382

1 833

Non-current

1 556

1 261

Current

826

572

2.6.2.Receivables from exchange transactions

EUR million

31.12.2021

31.12.2020

Non-current

Financial guarantee receivable

2 630

Late payment interest

3 052

1 641

Other receivables

14

8

5 696

1 649

Current

Financial guarantee receivable

485

Customers

232

243

Impairment on receivables from customers

(167)

(181)

Deferred charges relating to exchange transactions

110

202

Late payment interest

1 127

1 085

Other

342

141

2 129

1 490

Total

7 825

3 139

Out of the total amount of EUR 3 115 million of the Financial Guarantee Contract receivable as at 31 December 2021, EUR 3 113 million are classified as financial assets measured at fair value through surplus or deficit (Fair value level 3).

2.7.INVENTORIES

EUR million

31.12.2021

31.12.2020

Scientific materials

58

59

Other

20

15

Total

79

74

 

2.8.CASH AND CASH EQUIVALENTS

EUR million

31.12.2021

31.12.2020

Accounts with Treasuries and Central Banks

20 121

11 342

Current accounts

453

80

Imprest accounts

8

8

Transfers (cash in transit)

0

Bank accounts for budget implementation

20 582

11 430

NGEU

18 027

Financial instruments

2 838

2 446

Fines

1 953

1 458

Trust funds

65

46

Total

43 464

15 380

 

LIABILITIES

2.9.PENSION AND OTHER EMPLOYEE BENEFITS

Net employee benefit scheme liability

EUR million

Pension Scheme of European Officials

Other retirement benefit schemes

Joint Sickness Insurance Scheme

31.12.2021

Total

31.12.2020

Total

Defined Benefit Obligation

109 679

1 907

10 647

122 234

115 762

Plan assets

N/A

N/A

(386)

(386)

(354)

Net liability

109 679

1 907

10 261

121 848

115 408

Actuarial assumptions - employee benefits

2021

2020

Pension Scheme of European Officials

Nominal discount rate

1.0%

0.4%

Expected inflation rate

2.0%

1.2%

Real discount rate

(1.0)%

(0.8)%

Expected rate of salary increases

1.8%

1.8%

Medical cost trend rates

N/A

N/A

Retirement age

63/64/66

63/64/66

Joint Sickness Insurance Scheme

Nominal discount rate

1.0%

0.5%

Expected inflation rate

2.0%

1.3%

Real discount rate

(1.0)%

(0.8)%

Expected rate of salary increases

1.9%

1.8%

Medical cost trend rates

2.5%

2.6%

Retirement age

63/64/66

63/64/66

Movement in present value of employee benefits defined benefit obligation

EUR million

Pension Scheme of European Officials

Other retirement benefit Schemes

Joint Sickness Insurance Scheme

Total

Present value as at 31.12.2020

100 741

1 732

13 289

115 762

Recognised in statement of financial performance

Current service cost

4 095

108

363

4 565

Interest expense

401

5

66

473

Recognised in net assets

Remeasurements in employee benefits liabilities

Actuarial (gains)/losses from experience

1 457

27

(209)

1 275

Actuarial (gains)/losses from demographic assumptions

Actuarial (gains)/losses from financial assumptions

4 787

73

(2 774)

2 085

Other

Benefits paid

(1 801)

(38)

(88)

(1 926)

Present value as at 31.12.2021

109 679

1 907

10 647

122 234



Movement in present value of plan assets of the Joint Sickness Insurance Scheme

EUR million

Present value as at 31.12.2020

354

Net movement in plan assets

32

Present value as at 31.12.2021

386

Pension Scheme of European Officials sensitivity

A ten basis points change in the assumed discount rate would have the following effects:

EUR million

2021

2020

Increase 0.1%

Decrease 0.1%

Increase 0.1%

Decrease 0.1%

Defined benefit obligation

(2 464)

2 544

(2 247)

2 319

A ten basis points change in the expected salary increases rate would have the following effects:

EUR million

2021

2020

Increase 0.1%

Decrease 0.1%

Increase 0.1%

Decrease 0.1%

Defined benefit obligation

2 414

(2 345)

2 206

(2 143)

A one year change in the assumed retirement age would have the following effects:

EUR million

2021

2020

One year increase

One year decrease

One year increase

One year decrease

Defined benefit obligation

(1 155)

1 527

(1 104)

1 417

Joint Sickness Insurance Scheme sensitivity

A ten basis points change in the assumed medical cost trend rates would have the following effects:

EUR million

2021

2020

Increase 0.1%

Decrease 0.1%

Increase 0.1%

Decrease 0.1%

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

13

(12)

15

(14)

Defined benefit obligation

317

(307)

397

(385)

A ten basis points change in the assumed discount rate would have the following effects:

EUR million

2021

2020

Increase 0.1%

Decrease 0.1%

Increase 0.1%

Decrease 0.1%

Defined benefit obligation

(265)

274

(348)

361

A ten basis points change in the expected salary increases rate would have the following effects:

EUR million

2021

2020

Increase 0.1%

Decrease 0.1%

Increase 0.1%

Decrease 0.1%

Defined benefit obligation

(42)

41

(38)

37



A one year change in the assumed retirement age would have the following effects:

EUR million

2021

2020

One year increase

One year decrease

One year increase

One year decrease

Defined benefit obligation

(317)

334

(401)

421

2.10.PROVISIONS

EUR million

Amount at 31.12.2020

Revision of EAR 11

Additional provisions

Unused amounts reversed

Amounts used

Transfer between categories

Change in estimation

Amount at 31.12.2021

Legal cases:

Agriculture

170

210

(25)

(1)

354

Other

17

4

(12)

(0)

9

Nuclear site dismantling

2 426

(33)

46

2 440

Financial

2 523

(2 522)

1

(1)

1

Other

112

220

(26)

(19)

287

Total

5 248

(2 522)

435

(63)

(54)

46

3 091

Non-current

3 730

(1 165)

212

(25)

(1)

(35)

46

2 763

Current

1 518

(1 357)

224

(38)

(53)

35

328

 

2.11.FINANCIAL LIABILITIES

EUR million

Note

31.12.2021

31.12.2020

Non-current

Financial liabilities at amortised cost

2.11.1

214 230

83 730

Financial liabilities at fair value through surplus or deficit

2.4.2.2

5

4

Financial guarantee liabilities

2.11.2

146

214 380

83 734

Current

Financial liabilities at amortised cost

2.11.1

23 442

10 518

Financial liabilities at fair value through surplus or deficit

2.4.2.2

0

Financial guarantee liabilities

2.11.2

7 648

90

31 090

10 608

Total

245 470

94 342

2.11.1.Financial liabilities at amortised cost

EUR million

Note

31.12.2021

31.12.2020

Borrowings for NGEU and financial assistance

2.11.1.1

236 720

93 192

Other financial liabilities

2.11.1.2

951

1 055

Total

237 672

94 248

Non-current

214 230

83 730

Current

23 442

10 518

2.11.1.1.Borrowings for NGEU and financial assistance

EUR million

NGEU

SURE

EFSM

BOP

MFA

Euratom

Total

Total at 31.12.2020

39 503

47 396

201

5 813

279

93 192

Revision of EAR 11

420

(114)

(1)

24

1

329

New borrowings - nominal

111 947

50 137

9 750

1 665

100

173 599

Repayments

(20 996)

(9 750)

(14)

(29)

(30 789)

Changes in carrying amount

49

507

(144)

0

(24)

388

Total at 31.12.2021

91 000

90 567

47 138

201

7 464

351

236 720

Non-current

70 960

90 502

43 969

200

7 425

327

213 383

Current

20 040

65

3 169

1

39

24

23 338

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

31.12.2021

31.12.2020

NGEU

(0.95)% - 0.74%

-

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)% - 1.58%

0.00% - 5.68%

The 2020 figures refer to nominal interest rates.



2.11.1.2.Other financial liabilities

EUR million

31.12.2021

31.12.2020

Non-current

Finance lease liabilities

660

729

Buildings paid for in instalments

156

184

Other

31

35

847

948

Current

Finance lease liabilities

75

72

Buildings paid for in instalments

28

26

Fines to be reimbursed

8

Other

2

2

105

108

Total

951

1 055

Finance lease liabilities

EUR million

Future amounts to be paid

< 1 year

1 - 5 years

> 5 years

Total Liability

Land and buildings

69

316

336

721

Other fixed assets

5

8

13

Total at 31.12.2021

75

324

336

735

Interest element

40

115

54

210

Total future minimum lease payments at 31.12.2021

115

439

391

945

Total future minimum lease payments at 31.12.2020

116

443

495

1 054

2.11.2.Financial guarantee liabilities

EUR million

31.12.2021

FGC receivable leg

(Note 2.6.2)

Financial guarantee

liabilities

EU budgetary guarantee programmes

EFSI guarantee

2 917

3 618

EIB ELM guarantees

106

2 569

EFSD guarantee

2

139

InvestEU guarantee

NDICI EU guarantee

4

3 024

6 330

EU financial instrument programmes

COSME

0

780

Horizon 2020

59

410

CCS

110

Other

32

165

90

1 464

Total

3 115

7 794

Non-current

2 630

146

Current

485

7 648

2.12.PAYABLES

EUR million

Gross Amount

Adjustments*

Net Amount at 31.12.2021

Gross Amount

Adjustments*

Net Amount at 31.12.2020

Cost claims and invoices received from:

Member States

EAFRD & other rural development instruments

30

(0)

30

17

(0)

17

ERDF & CF

6 484

(1 878)

4 606

12 651

(2 698)

9 954

ESF

3 311

(596)

2 715

3 479

(370)

3 109

RRF (NGEU)

19 118

19 118

Other

677

(58)

619

796

(90)

706

Private and public entities

1 563

(320)

1 244

1 485

(182)

1 302

Total costs claims & invoices received

31 183

(2 851)

28 331

18 428

(3 341)

15 088

EAGF

15 650

N/A

15 650

16 160

N/A

16 160

Sundry Payables

3 663

N/A

3 663

1 859

N/A

1 859

Total

50 496

(2 851)

47 644

36 447

(3 341)

33 107

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

 

2.13.ACCRUED CHARGES AND DEFERRED INCOME

EUR million

31.12.2021

31.12.2020

Accrued charges

76 962

63 667

Deferred income

1

1

Other

94

39

Total

77 057

63 708

The split of accrued charges is as follows:

EUR million

31.12.2021

31.12.2020

RRF (NGEU)

8 263

EAGF

25 241

24 599

EAFRD and other rural development instruments

19 245

18 622

ERDF and CF

10 710

8 766

ESF

3 499

3 009

Other

10 003

8 670

Total

76 962

63 667

 

NET ASSETS

2.14.RESERVES

EUR million

31.12.2021

31.12.2020

Fair value reserve

470

Guarantee Fund reserve

3 043

Other reserves

51

(12)

Total

51

3 501

2.15.AMOUNTS TO BE CALLED FROM MEMBER STATES

EUR million

Amounts to be called from Member States at 31.12.2020

41 329

Impact of revised EAR 11 (see Note 1)

(1 693)

BALANCE AS AT 01.01.2021

39 636

2020 budget result credited to Member States

1 769

Movement in Guarantee Fund reserve

Remeasurements in employee benefits liabilities

3 241

Other

Economic result of the year

42 075

Total amounts to be called from Member States at 31.12.2021

86 721

 

3.NOTES TO THE STATEMENT OF FINANCIAL PERFORMANCE 

REVENUE

REVENUE FROM NON-EXCHANGE TRANSACTIONS:
TRANSFERS

3.1.RECOVERY OF EXPENSES

EUR million

2021

2020

Shared management

1 682

1 281

Direct management

61

53

Indirect management

19

21

Total

1 762

1 355

3.2.OTHER REVENUE FROM NON-EXCHANGE TRANSACTIONS

EUR million

2021

2020

Contribution from Member States to the Innovation Fund

2 187

2 080

Contribution of third countries and accession countries

973

1 552

Contribution from Member States for external aid

199

1 075

Staff taxes and contributions

1 036

983

Transfer of assets

353

317

Budgetary adjustments

1 245

214

Adjustment of provisions

63

15

Agricultural levies

1

Funding of institutions

(3 660)

(3 411)

Other

356

437

Total

2 753

3 263



REVENUE FROM EXCHANGE TRANSACTIONS

3.3.FINANCIAL REVENUE

EUR million

2021

2020

Interest on:

Late payments

1 529

1 129

Loans

1 160

1 167

Borrowings

220

Other

9

60

Issue premiums

2

674

Revenue from financial guarantee contracts

987

258

Gains on financial assets or liabilities at FVSD:

Non-derivatives

324

-

Derivatives

815

70

Realised gains on available for sale financial assets

41

Dividends

30

22

Other

13

2

Total

5 090

3 424

3.4.OTHER REVENUE FROM EXCHANGE TRANSACTIONS

EUR million

2021

2020

Foreign exchange gains

284

356

Share of net result of EIF

169

38

Fee and premium revenue related to financial instruments

1

34

Sales of goods

18

17

Fixed assets related revenue

3

2

Other

252

240

Total

727

687

EXPENSES

3.5.SHARED MANAGEMENT

EUR million

Implemented by Member States

2021

2020

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

Total

124 774

112 425



3.6.DIRECT MANAGEMENT

EUR million

2021

2020

Implemented by the Commission

48 289

11 455

of which RRF (NGEU)

42 940

Implemented by EU Executive Agencies

14 233

10 029

Implemented by Trust funds

503

636

Total

63 025

22 120

3.7.INDIRECT MANAGEMENT

EUR million

2021

2020

Implemented by other EU agencies and bodies

4 211

4 497

Implemented by third countries

887

559

Implemented by international organisations

3 624

3 620

Implemented by other entities

3 225

3 257

Total

11 947

11 933

 

3.8.STAFF AND PENSION COSTS

EUR million

2021

2020

Staff costs

3 556

3 524

Pension costs

5 038

4 960

Total

8 593

8 485

 

3.9.FINANCE COSTS

EUR million

2021

2020

Interest expenses:

Borrowings

1 209

1 160

Loans

146

Finance leases

44

47

Other

96

22

Issue costs

672

Financial guarantee contracts - subsidised remuneration

233

Net impairment losses on:

Financial guarantee contracts

947

70

Loans and receivables

1 244

110

Available for sale financial assets

41

Loss on financial assets or liabilities at FVSD:

Non-derivatives

195

Derivatives

40

21

Realised loss on available for sale financial assets

5

Other

4

11

Total

4 158

2 160

 

3.10.OTHER EXPENSES

EUR million

2021

2020

Adjustment of provisions

480

1 386

Administrative and IT expenses

948

940

Fixed assets related expenses

808

832

Foreign exchange losses

156

561

Funding and contributions to other EU bodies

543

511

Land and buildings management expenses

227

230

Operating lease expenses

162

152

Reduction of fines by the Court of Justice

15

6

Other

397

358

Total

3 736

4 976

The aggregate amount of research and development expenditure recognised as an expense during 2021 is as follows:

EUR million

2021

2020

Research costs

390

391

Non-capitalised development costs

78

85

Total

469

476

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

EUR million

Single market, Innovation and Digital

Cohesion and Values

Natural Resources and Environment

Migration and Border Management

Resilience, Security and Defence

Neighbour- hood and the World

European Public Administration

Not assigned to MFF headings*

Total

GNI resources

115 955

115 955

Traditional own resources

20 590

20 590

VAT

18 340

18 340

New own resources

5 831

5 831

Fines

1 990

1 990

Recovery of expenses

24

809

893

8

0

27

0

2

1 762

UK Withdrawal Agreement

1 122

1 122

Other

384

132

46

41

(2 717)

4 866

2 753

Non-Exchange Revenue

408

941

939

8

0

68

(2 717)

168 695

168 342

Financial revenue

1 913

45

0

0

217

0

2 916

5 090

Other

257

(16)

(18)

0

(5)

8

227

273

727

Exchange Revenue

2 170

29

(17)

0

(5)

225

227

3 189

5 817

Total revenue

2 578

970

922

8

(5)

293

(2 490)

171 884

174 159

Expenses implemented by :

Member States:

EAGF

(40 829)

(40 829)

EAFRD & other

(15 451)

(15 451)

ERDF & CF

(46 932)

(46 932)

ESF

(16 727)

(16 727)

Other

24

(710)

(837)

(101)

(233)

(2 979)

(4 835)

EC, executive agencies and
trust funds

(12 207)

(45 753)

(662)

(289)

(244)

(3 954)

(25)

109

(63 025)

Other EU agencies and bodies

(2 374)

(703)

(77)

(680)

(359)

(15)

(3)

(4 211)

Third countries and int.
organisations

(243)

37

113

(171)

(213)

(4 025)

(3)

(7)

(4 512)

Other entities

573

(3 301)

73

(7)

(103)

(460)

(0)

(3 225)

Staff and pension costs

(453)

(9)

(1)

(0)

(1)

(136)

(7 994)

(8 593)

Finance costs

(771)

(43)

(24)

(0)

(0)

(445)

(57)

(2 818)

(4 158)

Other expenses

(1 609)

(134)

(251)

(5)

(52)

(240)

(1 253)

(191)

(3 736)

Total expenses

(17 083)

(113 541)

(57 820)

(1 990)

(1 071)

(9 507)

(9 332)

(5 889)

(216 234)

Economic result of the year

(14 505)

(112 571)

(56 899)

(1 982)

(1 076)

(9 215)

(11 822)

165 995

(42 075)

*    ‘Not assigned to MFF headings’ includes off-budget operations and unallocated programmes with individually immaterial amounts.

4.CONTINGENT LIABILITIES AND ASSETS

4.1.GUARANTEES GIVEN BY EU BUDGET

4.1.1.Guarantees given under the EU budgetary guarantee programmes (nominal)

EUR million

31.12.2021

Guarantees given

Assets provisioned*

Ceiling

Signed

Disbursed

EIB external lending mandate guarantees

33 026

33 026

20 835

2 700

EFSI guarantee

25 826

24 730

20 358

8 602

EFSD guarantee

1 391

611

535

796

NDICI external action guarantee

200

200

200

Total

60 442

58 566

41 928

12 098

* The EUR 2.7 bn of assets provisioned for the EIB external lending mandate guarantee also cover borrowings under MFA and Euratom (see note 4.1.2).

EUR million

31.12.2020

Guarantees given

Assets provisioned*

Ceiling

Signed

Disbursed

EIB external lending mandate guarantees

35 372

32 530

20 050

2 813

EFSI guarantee

25 543

23 831

18 590

8 028

EFSD guarantee

1 370

438

34

804

Total

62 285

56 799

38 673

11 645

* The EUR 2.8 bn of assets provisioned for the EIB external lending mandate guarantee also cover borrowings under MFA and Euratom (see note 4.1.2).

4.1.2.Guarantees given to cover NGEU and financial assistance borrowings

EUR million

31.12.2021

31.12.2020

NGEU

91 002

-

SURE

89 702

39 503

EFSM

47 270

47 396

BOP

201

201

MFA

7 466

5 813

Euratom

350

279

Total

235 991

93 193



4.1.3.Guarantees given under EU financial instrument programmes (nominal)