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            COUNCIL REGULATION (EC) No 1290/2005

of 21 June 2005         

on the financing of the common agricultural policy

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular the third subparagraph of Article 37(2) thereof,

Having regard to the proposal from the Commission,

Having regard to the Opinion of the European Parliament (1),

Whereas:

HAS ADOPTED THIS REGULATION:

TITLE I

GENERAL PROVISIONS

Article 1

Purpose and scope

This Regulation sets specific requirements and rules on the financing of expenditure falling under the common agricultural policy, including expenditure on rural development.

Article 2

Funds financing agricultural expenditure

1.   In order to attain the objectives of the common agricultural policy defined by the Treaty and finance the various measures falling under it, including rural development, the following are hereby set up:

2.   The EAGF and the EAFRD shall come under the general budget of the European Communities.

Article 3

EAGF expenditure

1.   The EAGF shall finance in a context of shared management between the Member States and the Community the following expenditure, which shall be effected in accordance with Community law:

2.   The EAGF shall finance the following expenditure in a centralised manner and in accordance with Community legislation:

Article 4

EAFRD expenditure

The EAFRD shall finance, in a context of shared management between the Member States and the Community, the Community's financial contribution to rural development programmes implemented in accordance with the Community legislation on support for rural development by the EAFRD.

Article 5

Other financing, including technical assistance

The EAGF and the EAFRD may each respectively finance on a centralised basis, on the initiative of the Commission and/or on its behalf, the preparatory, monitoring, administrative and technical support, evaluation, audit and inspection measures required to implement the common agricultural policy, including rural development. Those measures shall include in particular:

Article 6

Accreditation and withdrawal of accreditation of paying agencies and coordinating bodies

1.   Paying agencies shall be the departments or bodies of the Member States which, in respect of payments made by them and as regards communicating and keeping information, provide sufficient guarantees that:

With the exception of the payment of Community aid, the execution of these tasks may be delegated.

2.   Member States shall accredit as paying agencies departments or bodies which fulfil the conditions laid down in paragraph 1.

Each Member State shall, taking into account its constitutional provisions and institutional structure, restrict the number of its accredited paying agencies to the minimum necessary to ensure that the expenditure referred to in Article 3(1) and Article 4 is effected under sound administrative and accounting conditions.

3.   Where more than one paying agency is accredited, the Member State shall communicate to the Commission the particulars of the department or body to which it assigns the following tasks:

This department or body, hereinafter referred to as the ‘coordinating body’, shall be subject to specific accreditation by the Member States as regards the processing of the financial information referred to in point (a).

4.   Where an accredited paying agency does not meet or no longer meets one or more of the conditions laid down in paragraph 1, the Member State shall withdraw accreditation unless the paying agency makes the necessary changes within a period to be determined according to the severity of the problem.

Article 7

Certification bodies

The certification body shall be a public or private legal entity designated by the Member State with a view to certifying the truthfulness, completeness and accuracy of the accounts of the accredited paying agency, taking account of the management and control systems set up.

Article 8

Communication of information and access to documents

1.   In addition to the provisions laid down in the sectoral Regulations, Member States shall send to the Commission the following information, declarations and documents:

The annual accounts of accredited paying agencies relating to EAFRD expenditure shall be submitted at the level of each programme.

2.   The accredited paying agencies shall keep supporting documents relating to payments made and documents relating to the performance of the administrative and physical checks required by Community legislation, and shall make the documents and information available to the Commission.

Where those documents are kept by an authority acting under delegation from a paying agency and responsible for authorising expenditure, that authority shall send reports to the accredited paying agency on the number of checks made, their content and the measures taken in the light of their results.

Article 9

Protection of the financial interests of the Community and assurances regarding the management of Community funds

1.   Member States shall:

2.   The Commission shall ensure that Member States check the legality and compliance of the expenditure referred to in Articles 3(1) and 4, and that they observe the principles of sound financial management; it shall carry out the following measures and checks in this connection:

3.   Member States shall inform the Commission of the provisions adopted and measures taken under paragraph 1 and, with regard to rural development programmes, the measures taken for management and control in compliance with Community legislation concerning support for rural development by the EAFRD in order to protect the financial interests of the Community.

Article 10

Admissibility of payments made by the paying agencies

The expenditure referred to in Articles 3(1) and 4 may be covered by Community financing only if it has been effected by accredited paying agencies designated by Member States.

Article 11

Payment in full to beneficiaries

Save provision to the contrary under Community legislation, payments relating to the financing provided for under this Regulation or to amounts corresponding to the public financial contribution under the rural development programmes shall be disbursed in full to the beneficiaries.

TITLE II

EAGF

CHAPTER 1

Community financing

Article 12

Budget ceiling

1.   The annual ceiling for EAGF expenditure shall be constituted by the maximum amounts set for it under the multiannual financial framework provided for in the Interinstitutional Agreement, less the amounts referred to in paragraph 2.

2.   The Commission shall set the amounts which, pursuant to Articles 10(2), 143d and 143e of Regulation (EC) No 1782/2003, are made available to the EAFRD.

3.   The Commission shall set, on the basis of the data referred to in paragraphs 1 and 2, the net balance available for EAGF expenditure.

Article 13

Administrative and personnel costs

Expenditure relating to administrative and personnel costs incurred by Member States and beneficiaries of aid from the EAGF shall not be borne by the Fund.

Article 14

Monthly payments

1.   The appropriations necessary to finance the expenditure referred to in Article 3(1) shall be made available to Member States by the Commission in the form of monthly reimbursements, hereinafter referred to as ‘monthly payments’, on the basis of the expenditure effected by the accredited paying agencies during a reference period.

2.   Until transfer of the monthly payments by the Commission, the resources required to undertake expenditure shall be mobilised by the Member States according to the needs of their accredited paying agencies.

Article 15

Procedure for making monthly payments

1.   Monthly payments shall be made by the Commission, without prejudice to the decisions referred to in Articles 30 and 31, for expenditure effected by Member States' accredited paying agencies during the reference month.

2.   The Commission shall decide, in accordance with the procedure referred to in Article 41(3), the monthly payments which it makes, on the basis of a declaration of expenditure from the Member States and the information supplied in accordance with Article 8(1), taking into account reductions or suspensions applied under Article 17.

3.   Monthly payments shall be made to each Member State at the latest on the third working day of the second month following that in which the expenditure is effected.

4.   Expenditure effected by Member States between 1 and 15 October shall count as being made in the month of October. Expenditure effected between 16 and 31 October shall count as being made in the month of November.

5.   The Commission may decide to make supplementary payments or deductions. In such cases, the Committee on the agricultural funds shall be informed at its next meeting.

Article 16

Compliance with payment deadlines

Where payment deadlines are laid down by Community legislation, any overrun of those deadlines by the paying agencies shall make the payments ineligible for Community financing, except in the cases, conditions and limits determined, according to the principle of proportionality.

Article 17

Reduction and suspension of monthly payments

1.   Where the declarations of expenditure or the information referred to in Article 15(2) do not enable the Commission to establish that the commitment of funds is in accordance with the applicable Community rules, the Commission shall ask the Member State concerned to supply further information within a period which the Commission shall determine according to the severity of the problem and which generally may not be less than 30 days.

If the Member State fails to respond to the Commission request referred to in the first subparagraph, or if the response is considered unsatisfactory or demonstrates that the Community rules applicable have not been complied with or that Community funds have been improperly used, the Commission may reduce or temporarily suspend monthly payments to the Member State. It shall inform the Member State accordingly, pointing out that reduction or suspension has taken place.

2.   Where the declarations of expenditure or the information referred to in Article 15(2) enable the Commission to establish that a financial ceiling set by Community legislation has been exceeded or that the Community rules applicable have clearly not been complied with, the Commission may apply the reductions or suspensions referred to in the second subparagraph of paragraph 1 of this Article, after giving the Member State an opportunity to submit its comments.

3.   Reductions and suspensions shall be applied according to the principle of proportionality, under the decision on monthly payments referred to in Article 15(2), without prejudice to the decisions referred to in Articles 30 and 31.

CHAPTER 2

Budget discipline

Article 18

Compliance with the ceiling

1.   Throughout the budget procedure and the implementation of the budget, appropriations relating to EAGF expenditure shall not exceed the net balance referred to in Article 12(3).

All legislative instruments proposed by the Commission or adopted by the Council or the Commission and having an influence on the EAGF budget shall comply with the net balance referred to in Article 12(3).

2.   Where Community legislation stipulates a financial ceiling in euro for agricultural expenditure in respect of a Member State, such expenditure shall be reimbursed subject to that limit set in euro, with any necessary adjustments being made if Article 11 of Regulation (EC) No 1782/2003 applies.

3.   National ceilings for direct payments set by Community legislation, including those set by Articles 41(1) and 71c of Regulation (EC) No 1782/2003, corrected by the percentages and adjustments laid down in Articles 10(1) and 11(1) of that Regulation, shall be deemed to be financial ceilings in euro.

4.   If by 30 June in any year the Council has not set the adjustments referred to in Article 11(1) of Regulation (EC) No 1782/2003, the Commission shall set those adjustments in accordance with the procedure laid down in Article 41(3) of this Regulation and shall inform the Council of them immediately.

5.   Until 1 December, on a proposal by the Commission, on the basis of new information in its possession, the Council may adapt the adjustment rate for direct payments set in accordance with Article 11(1) of Regulation (EC) No 1782/2003.

Article 19

Budget discipline procedure

1.   The Commission shall present to the European Parliament and to the Council, at the same time as the preliminary draft budget for financial year N, its forecasts for financial years N — 1, N and N + 1. It shall simultaneously present an analysis of the differences observed between the initial forecasts and actual expenditure for financial years N — 2 and N — 3.

2.   If, on drawing up the preliminary draft budget for financial year N, there appears to be a risk that the net balance referred to in Article 12(3) for financial year N will be exceeded, taking account of the margin laid down in Article 11 of Regulation (EC) No 1782/2003, the Commission shall propose to the Council the measures necessary, including those required under Article 11(2) of Regulation (EC) No 1782/2003.

3.   At any time, if the Commission considers that there is a risk of the net balance referred to in Article 12(3) being exceeded and that it cannot take adequate measures to remedy the situation under its management powers, it shall propose other measures to the Council to ensure compliance with that balance.

The Council shall decide on those measures, in accordance with the procedure laid down in Article 37 of the Treaty, within two months following receipt of the proposal from the Commission. The European Parliament shall give its opinion in time for the Council to take note of it and decide within the period stated.

4.   If, at the end of financial year N, reimbursement requests from the Member States exceed or are likely to exceed the net balance set in accordance with Article 12(3), the Commission shall:

Article 20

Early-warning system

In order to ensure that the budget ceiling will not be exceeded, the Commission shall implement a monthly early-warning and monitoring system in respect of EAGF expenditure.

Before the beginning of each financial year, the Commission shall determine for that purpose monthly expenditure profiles based, if necessary, on average monthly expenditure during the previous three years.

The Commission shall present to the European Parliament and to the Council a monthly report examining the development of expenditure effected in relation to the profiles and containing an assessment of the foreseeable implementation for the current financial year.

Article 21

Reference exchange rates

1.   When adopting the preliminary draft budget, or a letter of amendment to the preliminary draft budget which concerns agricultural expenditure, the Commission shall use for EAGF budget estimates the average euro/US dollar exchange rate recorded on the market during the latest quarter ending at least 20 days before adoption of the budget document by the Commission.

2.   When adopting a preliminary draft amending and supplementary budget or a letter of amendment thereto, in so far as those documents concern appropriations relating to the measures referred to in Article 3(1)(a) and (b), the Commission shall use:

TITLE III

EAFRD

CHAPTER 1

Method of financing

Article 22

Financial contribution from the EAFRD

The financial contribution from the EAFRD towards expenditure under rural development programmes shall be determined for each programme, within the ceilings established by Community legislation concerning support for rural development by the EAFRD, plus the amounts set by the Commission under Article 12(2) of this Regulation.

Expenditure financed under this Regulation shall not be the subject of any other financing under the Community budget.

Article 23

Budget commitments

The Community's budget commitments for rural development programmes (hereinafter referred to as ‘budget commitments’) shall be made in annual instalments over the period from 1 January 2007 to 31 December 2013.

The Commission decision adopting each rural development programme submitted by a Member State shall constitute a financing decision within the meaning of Article 75(2) of Regulation (EC) No 1605/2002 and, once notified to the Member State concerned, a legal commitment within the meaning of that Regulation.

For each programme, the budget commitment for the first instalment shall follow the adoption of the programme by the Commission. The budget commitments for subsequent instalments shall be made by the Commission, before 1 May of each year, on the basis of the decision referred to in the second paragraph of this Article.

CHAPTER 2

Financial management

Article 24

Provisions applying to all payments

1.   Payment by the Commission of the EAFRD contribution shall be in line with the budget commitments.

2.   The Commission shall make the appropriations needed to cover expenditure as indicated in Article 4 available to the Member States through prefinancing, intermediate payments and the payment of a balance. Articles 25, 26, 27 and 28 shall apply to these appropriations.

3.   Payments shall be assigned to the oldest open budget commitment.

4.   The combined total of prefinancing and intermediate payments shall not exceed 95 % of the EAFRD's contribution to each rural development programme.

Article 25

Prefinancing arrangements

1.   After adopting a rural development programme, the Commission shall pay a single prefinancing amount for that programme to the Member State. This shall represent 7 % of the EAFRD contribution to the programme concerned. It may be split between two financial years depending on resource availability.

2.   The total amount paid as prefinancing shall be reimbursed to the Commission if no declaration of expenditure for the rural development programme is sent within 24 months of the date on which the Commission pays the first instalment of the prefinancing amount.

3.   Interest generated on the prefinancing shall be posted to the rural development programme concerned and deducted from the amount of public expenditure indicated on the final declaration of expenditure.

4.   The total prefinancing amount shall be cleared when the rural development programme is closed.

Article 26

Intermediate payments

1.   Intermediate payments shall be made for each rural development programme. They shall be calculated by applying the part-financing rate for each priority to the certified public expenditure pertaining to it.

2.   Subject to resource availability, the Commission shall make intermediate payments in order to reimburse the expenditure incurred by accredited paying agencies in implementing the programmes.

3.   Each intermediate payment shall be made subject to compliance with the following requirements:

4.   If one of the requirements laid down in paragraph 3 of this Article is not met and the declaration of expenditure cannot therefore be accepted, the Commission shall forthwith inform the accredited paying agency and the coordinating body, where one has been appointed.

5.   The Commission shall make intermediate payments within 45 days of registering a declaration of expenditure for which the requirements set out in paragraph 3 of this Article are met, without prejudice to the decisions referred to in Articles 30 and 31.

6.   Accredited paying agencies shall establish and forward, via the intermediary of the coordinating body or directly, where one has not been appointed, intermediate declarations of expenditure relating to rural development programmes to the Commission, at intervals set by the Commission. Declarations of expenditure shall cover expenditure that the agency has incurred during each of the periods concerned.

Intermediate declarations of expenditure in respect of expenditure incurred from 16 October onwards shall be booked to the following year's budget.

Article 27

Suspension and reduction of intermediate payments

1.   Intermediate payments shall be made on the basis of the declarations of expenditure and financial information provided by Member States. Article 81 of the Regulation (EC) No 1605/2002 shall apply.

2.   If the declarations of expenditure or financial information communicated by a Member State do not make it possible to find that the declaration of expenditure satisfies the relevant Community rules, the Member State shall be asked to provide additional information within a period set according to the seriousness of the problem but which may not normally be less than 30 days.

3.   If the Member State fails to respond to the request referred to in paragraph 2, or if the response is considered unsatisfactory or demonstrates that the rules applicable have not been complied with or that Community funds have been improperly used, the Commission may reduce or temporarily suspend intermediate payments to the Member State. It shall inform the Member State accordingly.

4.   The suspension or reduction of intermediate payments as indicated in Article 26 shall comply with the principle of proportionality and shall be without prejudice to the decisions referred to in Articles 30 and 31.

Article 28

Payment of the balance and closure of the programme

1.   After receiving the last annual execution report on the implementation of a rural development programme, the Commission shall pay the balance, subject to resource availability, on the basis of the part-financing rate per priority, the annual accounts for the last execution year for the relevant rural development programme and of the corresponding clearance decision. These accounts shall be presented to the Commission by 30 June 2016 and shall cover the expenditure incurred by the paying agency up to 31 December 2015.

2.   The balance shall be paid not later than six months after the information and documents mentioned in paragraph 1 of this Article are received. The amounts still committed after the balance is paid shall be decommitted by the Commission within a period of six months, without prejudice to Article 29(6).

3.   If by 30 June 2016 the Commission has not been sent the last annual execution report and the documents needed for clearance of the accounts of the last execution year for the programme the balance shall be automatically decommitted in accordance with Article 29.

Article 29

Automatic decommitment

1.   The Commission shall automatically decommit any portion of a budget commitment for a rural development programme that has not been used for the purpose of prefinancing or making intermediate payments or for which no declaration of expenditure meeting the conditions laid down in Article 26(3) has been presented to it in relation to expenditure incurred by 31 December of the second year following that of the budget commitment.

2.   That part of budget commitments still open on 31 December 2015 for which a declaration of expenditure has not been made by 30 June 2016 shall be automatically decommitted.

3.   If a Commission decision subsequent to the decision approving the rural development programme is needed for authorisation of assistance or of an aid scheme, the period leading to automatic decommitment shall run from the date of that subsequent decision. The amount in question shall be established using a schedule provided by the Member State.

4.   In the event of any legal proceedings or an administrative appeal having suspensory effect, the period for automatic decommitment referred to in paragraph 1 or paragraph 2 shall be interrupted, in respect of the amount relating to the operations concerned, for the duration of those proceedings or that administrative appeal, provided that the Commission receives substantiated notification from the Member State by 31 December of year N + 2.

5.   The following shall be disregarded in calculating the automatic decommitment:

6.   The Commission shall inform Member States and the authorities concerned in good time if there is a risk of automatic decommitment. It shall inform them of the amount involved as indicated by the information in its possession. The Member States shall have two months from receiving this information to agree to the amount in question or present observations. The Commission shall carry out the automatic decommitment not later than nine months after the time-limit laid down in paragraphs 1 to 4.

7.   In the event of automatic decommitment, the EAFRD contribution to the rural development programme concerned shall be reduced, for the year in question, by the amount automatically decommitted. The Member State shall produce a revised financing plan splitting the reduction of the aid between the priorities. If it does not do so, the Commission shall reduce the amounts allocated to each priority pro rata.

8.   If this Regulation enters into force after 1 January 2007, the periods on expiry of which the first automatic decommitment referred to in paragraph 1 is liable to occur shall be extended for the first commitment by the number of months between 1 January 2007 and the date of adoption by the Commission of the corresponding rural development programme.

TITLE IV

CLEARANCE OF ACCOUNTS AND COMMISSION MONITORING

CHAPTER 1

Clearance

Article 30

Clearance of accounts

1.   Prior to 30 April of the year following the budget year in question, the Commission shall take a decision concerning the clearance of the accounts of the accredited paying agencies under the procedure laid down in Article 41(3), on the basis of the information transmitted in accordance with Article 8(1)(c)(iii).

2.   The clearance decision shall cover the completeness, accuracy and veracity of the annual accounts submitted. The decision shall be without prejudice to decisions taken subsequently under Article 31.

Article 31

Conformity clearance

1.   If the Commission finds that expenditure as indicated in Article 3(1) and Article 4 has been incurred in a way that has infringed Community rules, it shall decide what amounts are to be excluded from Community financing in accordance with the procedure referred to in Article 41(3).

2.   The Commission shall assess the amounts to be excluded on the basis of the gravity of the non-conformity recorded. It shall take due account of the nature and gravity of the infringement and of the financial damage caused to the Community.

3.   Before any decision to refuse financing is taken, the findings from the Commission's inspection and the Member State's replies shall be notified in writing, following which the two parties shall attempt to reach agreement on the action to be taken.

If agreement is not reached, the Member State may request opening of a procedure aimed at reconciling each party's position within four months. A report of the outcome of the procedure shall be given to the Commission, which shall examine it before deciding on any refusal of financing.

4.   Financing may not be refused for:

5.   Paragraph 4 shall not apply in the case of:

CHAPTER 2

Irregularities

Article 32

Provisions specific to the EAGF

1.   Sums recovered following the occurrence of irregularity or negligence and the interest on these shall be made over to the paying agency and booked by it as revenue assigned to the EAGF in the month in which the money is actually received.

2.   When the Community budget is credited, the Member State may retain 20 % of the corresponding amounts as flat-rate recovery costs, except in cases of irregularity or negligence attributable to its administrative authorities or other official bodies.

3.   When the annual accounts are sent, as provided for in Article 8(1)(c)(iii), Member States shall provide the Commission with a summary report on the recovery procedures undertaken in response to irregularities. This shall give a breakdown of the amounts not yet recovered, by administrative and/or judicial procedure and by year of the primary administrative or judicial finding of the irregularity.

Member States shall make available to the Commission detailed particulars of the individual recovery procedures and of the individual sums not yet recovered.

4.   After the procedure laid down in Article 31(3) has been followed, the Commission may decide to charge the sums to be recovered to the Member State in the following cases:

5.   If recovery has not taken place within four years of the primary administrative or judicial finding, or within eight years where recovery action is taken in the national courts, 50 % of the financial consequences of non-recovery shall be borne by the Member State concerned and 50 % by the Community budget.

Member States shall indicate separately in the summary report referred to in the first subparagraph of paragraph 3 the amounts not recovered within the time-limits specified in the first subparagraph of this paragraph.

The distribution of the financial burden of non-recovery in line with the first subparagraph shall be without prejudice to the requirement that the Member State concerned must pursue recovery procedures in compliance with Article 9(1) of this Regulation. Fifty percent of the amounts recovered in this way shall be credited to the EAGF, after application of the deduction provided for in paragraph 2 of this Article.

Where, in the context of the recovery procedure, the absence of any irregularity is recorded by an administrative or legal instrument of a definitive nature, the Member State concerned shall declare as expenditure to the EAGF the financial burden borne by it under the first subparagraph.

However, if for reasons not attributable to the Member State concerned, recovery could not take place within the time-limits specified in the first subparagraph, and the amount to be recovered exceeds EUR 1 million, the Commission may, at the request of the Member State, extend the time-limits by a maximum of 50 % of the initial time-limits.

6.   If there is justification for doing so, Member States may decide not to pursue recovery. A decision to this effect may be taken only in the following cases:

The Member State shall show separately in the summary report referred to in the first subparagraph of paragraph 3 the amounts for which it has been decided not to pursue recovery and the grounds for its decision.

7.   Member States shall enter in the annual accounts to be sent to the Commission under Article 8(1)(c)(iii) the amounts to be borne by them under paragraph 5. The Commission shall check that this has been done and make any adjustments needed as part of the decision specified in Article 30(1).

8.   Following completion of the procedure laid down in Article 31(3), the Commission may decide to exclude from financing sums charged to the Community budget in the following cases:

Article 33

Provisions specific to the EAFRD

1.   Member States shall make financial adjustments where irregularities or negligence are detected in rural development operations or programmes by totally or partially cancelling the Community financing concerned. Member States shall take into consideration the nature and gravity of the irregularities detected and the level of the financial loss to the EAFRD.

2.   Where the Community funds have already been paid to the beneficiary, they shall be recovered by the accredited paying agency in accordance with its own recovery procedures and reused in accordance with paragraph 3(c).

3.   The financial adjustments and reuse of funds shall be undertaken by Member States subject to the following conditions:

4.   When the annual accounts are sent, as provided for in Article 8(1)(c)(iii), Member States shall provide the Commission with a summary report on the recovery procedures undertaken in response to irregularities. This shall give a breakdown of the amounts not yet recovered, by administrative and/or judicial procedure and by year of the primary administrative or judicial finding of the irregularity.

They shall inform the Commission how they have decided or plan to reuse the cancelled funds and, where appropriate, to amend the financing plan for the rural development programme concerned.

5.   After the procedure laid down in Article 31(3) has been followed, the Commission may decide to charge the sums to be recovered to the Member State in the following cases:

6.   Where it has been possible to effect the recovery referred to in paragraph 2 after closure of a rural development programme, the Member State shall refund the sums recovered to the Community budget.

7.   After closure of a rural development programme a Member State may decide to halt the recovery procedure, subject to the conditions laid down in Article 32(6).

8.   If recovery has not taken place prior to the closure of a rural development programme, 50 % of the financial consequences of non-recovery shall be borne by the Member State concerned and 50 % by the Community budget and shall be taken into account either at the end of the period of four years following the first administrative or judicial finding or eight years where recovery action is taken in the national courts, or on the closure of the programme if those deadlines expire prior to such closure.

However, if for reasons not attributable to the Member State concerned, recovery could not take place within the time-limits specified in the first subparagraph, and the amount to be recovered exceeds EUR 1 million, the Commission may, at the request of the Member State, extend the time-limits by a maximum of 50 % of the initial time-limits.

9.   In cases as referred to in paragraph 8, the amounts corresponding to the 50 % borne by the Member State shall be paid by the Member State to the Community budget.

10.   Where the Commission makes a financial adjustment, this shall not affect the obligations of the Member State to recover the sums paid as part of its own financial contribution under Article 14 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (14)

Article 34

Assignment of revenue from the Member States

1.   The following shall be regarded as assigned revenue within the meaning of Article 18 of Regulation (EC) No 1605/2002:

2.   The sums referred to in paragraph 1(a) and (b) shall be paid to the Community budget and, in the event of reuse, shall be used exclusively to finance EAGF or EAFRD expenditure.

Article 35

Definition of administrative or judicial finding

For the purposes of this Chapter the primary administrative or judicial finding means the first written assessment of a competent authority, either administrative or judicial, concluding on the basis of actual facts that an irregularity has been committed, without prejudice to the possibility that this conclusion may subsequently have to be adjusted or withdrawn as a result of developments in the course of the administrative or judicial procedure.

CHAPTER 3

Commission monitoring

Article 36

Access to information

1.   Member States shall make available to the Commission all information necessary for the smooth operation of the EAGF and the EAFRD and shall take all appropriate measures to facilitate the checks which the Commission deems appropriate in connection with the management of Community financing, including on-the-spot checks.

2.   Member States shall communicate to the Commission on request the laws, regulations and administrative provisions which they have adopted for implementing the Community instruments relating to the common agricultural policy, where those acts have a financial impact on the EAGF or the EAFRD.

3.   Member States shall make available to the Commission all information about irregularities detected, in accordance with Articles 32 and 33, and about the steps taken to recover undue payments in connection with those irregularities.

Article 37

On-the-spot checks

1.   Without prejudice to the checks carried out by Member States under national laws, regulations and administrative provisions or Article 248 of the Treaty, and any check organised under Article 279 of the Treaty, the Commission may organise on-the-spot checks with a view to verifying in particular:

Persons delegated by the Commission to carry out on-the-spot inspections or Commission agents acting within the scope of the powers conferred upon them shall have access to the books and all other documents, including documents and metadata drawn up or received and recorded on an electronic medium, relating to expenditure financed by the EAGF or the EAFRD.

The aforementioned powers of inspection shall not affect the application of national provisions which reserve certain acts for agents specifically designated by national legislation. Persons delegated by the Commission shall not take part, inter alia, in home visits or the formal questioning of persons within the framework of the national legislation of the Member State concerned. However, they shall have access to information thus obtained.

2.   The Commission shall give sufficient prior notice of an inspection to the Member State concerned or the Member State within whose territory the inspection is to take place. Personnel from the Member State concerned may take part in such checks.

At the request of the Commission and with the agreement of the Member State, additional checks or inquiries into the operations covered by this Regulation shall be undertaken by the competent bodies of that Member State. Commission agents or persons delegated by the Commission may take part in such checks.

In order to improve checks, the Commission may, with the agreement of the Member States concerned, enlist the assistance of the authorities of those Member States for certain inspections or inquiries.

TITLE V

TRANSITIONAL AND FINAL PROVISIONS

Article 38

Expenditure under the EAGGF Guarantee Section other than on rural development

1.   The Guarantee Section of the EAGGF shall finance the expenditure incurred by Member States in accordance with Article 2 and Article 3(2) and (3) of Regulation (EC) No 1258/1999 until 15 October 2006.

2.   Expenditure by Member States from 16 October 2006 shall follow the rules laid down in this Regulation.

Article 39

Expenditure on rural development under the EAGGF Guarantee Section

1.   For Member States belonging to the European Union before 1 May 2004, the following rules shall apply to rural development programmes for the period 2000 to 2006, which are financed by the EAGGF Guarantee Section in accordance with Article 3(1) of Regulation (EC) No 1258/1999.

2.   For Member States joining the European Union on 1 May 2004, amounts committed to finance rural development measures in accordance with Article 3(1) under a Commission decision taken between 1 January 2004 and 31 December 2006, in respect of which the documents required for closure of the assistance have not been sent to the Commission by the end of the time allowed for transmission of the final report, shall be automatically decommitted by the Commission no later than 31 December 2010 and shall result in the reimbursement by the Member States of amounts wrongly received.

3.   Amounts relating to operations or programmes which are the subject of legal proceedings or an administrative appeal which, under the legislation of the Member State, has a suspensory effect shall be excluded from the calculation of the amount to be automatically decommitted, as provided for in paragraphs 1 and 2.

Article 40

Expenditure under the EAGGF Guidance Section

1.   Amounts committed to finance rural development measures from the EAGGF Guidance Section under a Commission decision adopted between 1 January 2000 and 31 December 2006, in respect of which the documents required for closure of the assistance have not been sent to the Commission by the end of the time allowed for transmission of the final report, shall be automatically decommitted by the Commission no later than 31 December 2010 and shall result in the reimbursement by the Member States of amounts wrongly received. The documents required for closure of the assistance shall be the declaration of expenditure relating to payment of the balance, the final implementing report and the declaration provided for in Article 38(1)(f) of Council Regulation (EC) No 1260/99 of 21 June 1999 laying down general provisions on the Structural Funds (16).

2.   Amounts relating to operations or programmes which are the subject of legal proceedings or an administrative appeal which, under the legislation of the Member State, has a suspensory effect shall be excluded from the calculation of the amount to be automatically decommitted, as provided for in paragraph 1.

Article 41

Committee on the Funds

1.   The Commission shall be assisted by a Committee on the Agricultural Funds (hereinafter referred to as the ‘Committee’).

2.   Where reference is made to this paragraph, Articles 4 and 7 of Decision 1999/468/EC shall apply.

The period laid down in Article 4(3) of Decision 1999/468/EC shall be set at one month.

3.   Where reference is made to this paragraph, Articles 3 and 7 of Decision 1999/468/EC shall apply.

4.   The Committee shall adopt its Rules of Procedure.

Article 42

Scope

Detailed rules for the application of this Regulation shall be adopted by the Commission in accordance with the procedure provided for in Article 41(2). Pursuant to this Regulation and in particular Articles 6, 7, 8, 9, 16, 26, 28, 31, 32, 33, 34, 37 and 48 thereof, the Commission shall adopt:

Article 43

Annual financial report

By 1 September of each year following the budget year, the Commission shall draw up a financial report on the administration of the EAGF and the EAFRD during the previous financial year and shall submit it to the European Parliament and the Council.

Article 44

Confidentiality

Member States and the Commission shall take all necessary steps to ensure the confidentiality of the information communicated or obtained under inspection and clearance of accounts measures implemented under this Regulation.

The principles mentioned in Article 8 of Council Regulation (Euratom, EC) No 2185/96 of 11 November 1996 concerning on-the-spot checks and inspections carried out by the Commission in order to protect the European Communities' financial interests against fraud and other irregularities (17) shall apply to that information.

Article 45

Use of the euro

1.   The amounts given in the Commission decisions adopting rural development programmes, the amounts of commitments and payments by the Commission and the amounts of expenditure attested or certified and amounts in declarations of expenditure by the Member States shall be expressed and paid in euro.

2.   Where a direct payment as provided for in Regulation (EC) No 1782/2003 is made to a beneficiary in a currency other than the euro, Member States shall convert the amount of aid expressed in euro into the national currency on the basis of the most recent exchange rate set by the European Central Bank prior to 1 October of the year for which the aid is granted.

3.   Where paragraph 2 applies, reimbursements to Member States of the amounts paid to beneficiaries shall be made by the Commission on the basis of declarations of expenditure by the Member States. When drawing up those declarations of expenditure, Member States shall use the same conversion rate as that used for payment to the beneficiary.

Article 46

Amendment to Regulation (EEC) No 595/91

Regulation (EEC) No 595/91 is hereby amended as follows:

Article 47

Repeal

1.   Regulation No 25, Regulation (EC) No 723/97 and Regulation (EC) No 1258/1999 are hereby repealed.

However, Regulation (EC) No 1258/1999 shall continue to apply until 15 October 2006 to expenditure incurred by Member States and until 31 December 2006 for expenditure incurred by the Commission.

2.   References to the Regulations repealed shall be construed as references to this Regulation and shall be read in accordance with the correlation table in the Annex.

Article 48

Transitional measures

For the implementation of this Regulation, the Commission shall adopt the measures which are both necessary and duly justified to resolve, in cases of urgency, practical and specific problems, in particular those relating to the transition between the provisions of Regulations No 25, (EC) No 723/97 and (EC) No 1258/1999 and this Regulation. These measures may derogate from certain parts of this Regulation, but only to the extent and for the time strictly necessary.

Article 49

Entry into force

This Regulation shall enter into force on the seventh day following that of its publication in the Official Journal of the European Union.

It shall apply from 1 January 2007, except for Article 18(4), which shall apply as soon as it enters into force, without prejudice to the provisions of Article 47.

However, the following provisions shall apply from 16 October 2006:

This Regulation shall be binding in is entirety and directly applicable in all Member States.

Done at Luxembourg, 21 June 2005.

For the Council

The President

F. BODEN            

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(1)  Opinion delivered on 26 May 2005 (not yet published in the Official Journal).

(2)OJ L 248, 16.9.2002, p. 1.

(3)OJ L 270, 21.10.2003, p. 1. Regulation as last amended by Commission Regulation (EC) No 118/2005 (OJ L 24, 27.1.2005, p. 15).

(4)OJ C 172, 18.6.1999, p. 1. Interinstitutional Agreement as last amended by Decision 2003/429/EC of the European Parliament and of the Council (OJ L 147, 14.6.2003, p. 25).

(5)OJ L 160, 26.6.1999, p. 103.

(6)OJ L 160, 26.6.1999, p. 113.

(7)OJ  30, 20.4.1962, p. 991. Regulation as last amended by Regulation (EEC) No 728/70 (OJ L 94, 28.4.1970, p. 9).

(8)OJ L 108, 25.4.1997, p. 6. Regulation amended by Regulation (EC) No 2136/2001 (OJ L 288, 1.11.2001, p. 1).

(9)OJ L 67, 14.3.1991, p. 11.

(10)OJ L 184, 17.7.1999, p. 23.

(11)OJ C 121, 20.5.2005, p. 1.

(12)  Opinion of 9 February 2005 (not yet published in the Official Journal).

(13)OJ L 11, 16.1.2003, p. 1.

(14)OJ L 83, 27.3.1999, p. 1. Regulation as amended by the 2003 Act of Accession.

(15)OJ L 270, 21.10.2003, p. 123. Regulation as amended by Regulation (EC) No 2217/2004 (OJ L 375, 23.12.2004, p. 1).

(16)OJ L 161, 26.6.1999, p. 1. Regulation as last amended by Regulation (EC) No 173/2005 (OJ L 29, 2.2.2005, p. 3).

(17)OJ L 292, 15.11.1996, p. 2.

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ANNEX

Correlation table

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