# C_2007312EN.01000101.xml

| 21.12.2007 | EN | Official Journal of the European Union | C 312/1 |
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21.12.2007

EN

Official Journal of the European Union

C 312/1

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OPINION No 7/2007

OPINION N

on a draft Council Regulation amending Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities

(pursuant to Article 279 (1) of the EC Treaty)

(2007/C 312/01)

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular Article 279 (1) thereof,

Having regard to the draft Council Regulation (1) amending Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (2) (hereinafter the Financial Regulation) resulting from a Permanent Representative Committee's decision to split a Commission proposal (3) for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 2004/2003 (4) on the regulations governing political parties at European level and the rules regarding their funding,

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Having regard to the Council's request for an opinion on the abovementioned draft Council Regulation, received at the Court on 29 October 2007,

HAS ADOPTED THE FOLLOWING OPINION:

| 1. | The draft Council Regulation on which the Court of Auditors' opinion is requested aims to introduce into Article 109 of the Financial Regulation exceptions, applicable to political parties at European level, to the general rule, set out in the same Article, that ‘grants may not have the purpose or effect of producing a profit for the beneficiary’. |
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1.

The draft Council Regulation on which the Court of Auditors' opinion is requested aims to introduce into Article 109 of the Financial Regulation exceptions, applicable to political parties at European level, to the general rule, set out in the same Article, that ‘grants may not have the purpose or effect of producing a profit for the beneficiary’.

| 2. | As the Court of Auditors has recently stressed, complicated rules or unclear eligibility criteria have a considerable impact on the legality and regularity of transactions (5). If the legislator considers that derogations from the no-profit rule in favour of political parties at European level are appropriate, it is important that such derogations are set out simply, precisely and unequivocally, so that compliance with them can be easily verified by the authorising officer when paying the grants and by the Court of Auditors when auditing the payments. |
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2.

As the Court of Auditors has recently stressed, complicated rules or unclear eligibility criteria have a considerable impact on the legality and regularity of transactions (5). If the legislator considers that derogations from the no-profit rule in favour of political parties at European level are appropriate, it is important that such derogations are set out simply, precisely and unequivocally, so that compliance with them can be easily verified by the authorising officer when paying the grants and by the Court of Auditors when auditing the payments.

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| 3. | The first derogation to the ‘no-profit rule’ enables a political party at European level having realised a surplus of income over expenditure at the end of a financial year for which it received a grant to carry over to the following year part of that surplus up to 25 % of the total income for that year, provided that the surplus carried over is used before the end of the first quarter of this following year. Compliance with this condition can be verified only if appropriate implementing rules set the obligation for the beneficiary having carried over a surplus to the following year to produce evidence that its eligible expenditure during the first quarter of that year is at least as much as the amount carried over. In order to allow the authorising officer to determine the value of the final grant payment or, if necessary, the amount of grant monies advanced that need to be recovered, such evidence should be produced shortly after the end of the quarter or, at the latest, with the claim for the balance of the grant if a balance is still outstanding. |
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The first derogation to the ‘no-profit rule’ enables a political party at European level having realised a surplus of income over expenditure at the end of a financial year for which it received a grant to carry over to the following year part of that surplus up to 25 % of the total income for that year, provided that the surplus carried over is used before the end of the first quarter of this following year. Compliance with this condition can be verified only if appropriate implementing rules set the obligation for the beneficiary having carried over a surplus to the following year to produce evidence that its eligible expenditure during the first quarter of that year is at least as much as the amount carried over. In order to allow the authorising officer to determine the value of the final grant payment or, if necessary, the amount of grant monies advanced that need to be recovered, such evidence should be produced shortly after the end of the quarter or, at the latest, with the claim for the balance of the grant if a balance is still outstanding.

| 4. | The second derogation to the ‘no-profit rule’ limits the amount of own resources to be taken into account when determining whether a surplus has been made to 15 % of the party's eligible costs so long as the ‘financial reserves’ of the party do not exceed 100 % of its average annual income. A definition of ‘financial reserves’ is not given by the accounting standards commonly applied at European Union level and so the term could be interpreted differently depending on the financial reporting framework under which the political party prepares its annual statements of revenue and expenditure and assets and liabilities. The term ‘average annual income’ is also not sufficiently defined to enable its calculation, for example no reference is made to a period of time. |
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4.

The second derogation to the ‘no-profit rule’ limits the amount of own resources to be taken into account when determining whether a surplus has been made to 15 % of the party's eligible costs so long as the ‘financial reserves’ of the party do not exceed 100 % of its average annual income. A definition of ‘financial reserves’ is not given by the accounting standards commonly applied at European Union level and so the term could be interpreted differently depending on the financial reporting framework under which the political party prepares its annual statements of revenue and expenditure and assets and liabilities. The term ‘average annual income’ is also not sufficiently defined to enable its calculation, for example no reference is made to a period of time.

| 5. | The Court concludes that more precision with regard to the procedures, as described in paragraph 3, and clear definitions of the terms ‘financial reserves’ and ‘annual average income’ are required to allow a consistent application and verification of the proposed exemptions from the ‘no-profit rule’. In order to achieve this objective, further amendments to the Financial Regulation itself or to the detailed rules for its implementaion (6) would be necessary. |
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5.

The Court concludes that more precision with regard to the procedures, as described in paragraph 3, and clear definitions of the terms ‘financial reserves’ and ‘annual average income’ are required to allow a consistent application and verification of the proposed exemptions from the ‘no-profit rule’. In order to achieve this objective, further amendments to the Financial Regulation itself or to the detailed rules for its implementaion (6) would be necessary.

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This Opinion was adopted by the Court of Auditors in Luxembourg at its meeting of 22 November 2007.

For the Court of Auditors

Hubert WEBER

President

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(1)  Council document No 14320/07 PE 341 INST 127.

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(2)  OJ L 248, 16.9.2002

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(3)  Commission document No COM(2007) 364 final.

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(4)  OJ L 297, 15.11.2003, p. 1.

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(5)  Annual Report concerning the financial year 2006, Introduction, paragraph 0.7.

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(6)  Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 (OJ L 357, 31.12.2002, p. 1).

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