Article 162.5 of the Financial Regulation applicable to the General Budget of the European Union states that as soon as the Court of Auditors (the Court) has transmitted its annual report, the Commission shall inform the Member States concerned immediately of the details of that report which relate to management of the funds for which they are responsible, under the rules applicable. Member States should reply to the Commission within sixty days and the Commission then transmits a summary of the replies to the Court of Auditors, the European Parliament and the Council before 28 February of the following year.

Following publication on 5 November 2013 of the Court's annual report for the budgetary year 2012, the Commission duly informed Member States of details of the report. This information was presented in the form of a letter and three annexes. The annexes were questionnaires which each Member State was required to complete.

This Staff Working Document (SWD), which comprises the Member States' replies to Annex I and Annex III , accompanies the report from the Commission "Member States' replies to the Court of auditors' 2012 annual report".

ANNEX I. Paragraphs in the 2012 Annual Report and for each of the 2012 findings made by the Court referring to each particular country

Paragraph || Observation in the 2012 Annual Report || Member State reply

CHAPTER 1 – The Statement of Assurance and supporting information

Box 1.1 || Example of a prolonged financial correction procedure || Spain: The Kingdom of Spain did not during 2012 apply financial corrections amounting to 1800 M euros applied to the usage of cohesion policy funds corresponding to the scheduling period 2000-2006. This Member State feels it necessary to clarify that the financial corrections included in the Commission's 2012 Accounts correspond to withdrawals of expenditure incurred by the Spanish authorities over the course of the 2000-2006 scheduling period and which were in all cases instrumented prior to the close of 2010, the year when the 2000-2006 operational programmes were closed. In accordance with Community regulations, the withdrawals of expenditure take effect when the Member State proceeds to make its declaration to the Commission, which occurred prior to 2010. Meanwhile, as these are corrections agreed by the Member State, the funds released were reassigned to other operations, and there was therefore no net loss of assistance for Spain. The inclusion of the expenditure withdrawals in the 2012 annual accounts represents duplicate accounting of these sums on the part of the Commission, as they were imputed to Spain during the years prior to 2010 when the sums were withdrawn, and additionally imputed again in total in 2012 as a result of the change in the Commission's accounting criterion. In both cases these are at all times the same quantities voluntarily withdrawn, and in no case are new corrections. As a result, the obligation of payment of 1390 million euros from the Commission to Spain is derived from the fact that Spain presented regular expenditure covering said applications. Spain holds that the proper financial management of this Member State is being wrongly and unfairly questioned with regard to the ERDF, and these circumstances should therefore be clarified to the Council and to the Parliament.

1.2 || Examples of financial corrections - impact in the Member States || Romania: Other remarks: MFP – ACP (Ministry of Public Finance – Certifying and Paying Authority): Applying the financial correction of 25 % of the eligible expenditure authorised by the managing authority does not have as an impact the reduction in the co-funding rate but the correction of the expenditure authorised for each individual operation (project). Even if the calculation is done at the level of the priority axis, this has an impact on each project and on each expense. The largest part of the irregularities highlighted in the audit reports is due to an inefficient management and control system and to some rules that have failed to observe the principles of a healthy financial management (AM POSDRU - Managing Authority Sectoral Operational Programme Human Resources Development), Romanian authorities accepting a 25 % flat-rate correction, made on the Member State and not on the beneficiary, in particular and in general. Pursuant to the Romanian legislation, Romanian authorities (the managing authorities, respectively) are bound, further to the findings of the audit/control report, to initiate the activity to find the irregularities and to determine the budgetary receivables. This ensures that individual corrective measures are implemented (in case the Romanian law allows) and that the prejudice generated is recovered from the beneficiary further to the irregularity found. With the ESF, amounts thus recovered are intended to reduce the financial impact on the Romanian budget of the 25 % flat-rate financial correction accepted and applied by Romania in its relation with the European Commission. Romania has improved its management and control systems, including those for the assessment and selection of ESF-financed projects. However, it continued to apply the 25 % flat-rate correction on all of the eligible expenditure authorised by the MA related to “certain projects” selected until 31 August 2012, this amounting hitherto to 295 million euro. Furthermore, relative to the financial correction applied, Romanian authorities fail to report to the European Commission, 100 %, the expenditure related to the projects for which there are suspicions of fraud. Remarks: MMFPSPV-AMPOSDRU (Ministry of Labour, Family, Social Protection and Elderly – Managing Authority for the Sectoral Operational Programme Human Resources Development): box 1.2 Applying the financial correction of 25 % of the eligible expenditure authorised by the managing authority does not have as an impact the reduction in the co-funding rate but the correction of the expenditure authorised for each individual operation (project). Even if the calculation is done at the level of the priority axis, this has an impact on each project and on each expense. The largest part of the irregularities highlighted in the audit reports is due to an inefficient management and control system and to some rules that have failed to observe the principles of a healthy financial management (AM POSDRU - Managing Authority Sectoral Operational Programme Human Resources Development), Romanian authorities accepting a 25 % flat-rate correction, made on the Member State and not on the beneficiary, in particular and in general. Pursuant to the Romanian legislation, Romanian authorities (the managing authorities, respectively) are bound, further to the findings of the audit/control report, to initiate the activity to find the irregularities and to determine the budgetary receivables. This ensures that individual corrective measures are implemented (in case the Romanian law allows) and that the prejudice generated is recovered from the beneficiary further to the irregularity found. With the ESF, amounts thus recovered are intended to reduce the financial impact on the Romanian budget of the 25 % flat-rate financial correction accepted and applied by Romania in its relation with the European Commission. Romania has improved its management and control systems, including those for the assessment and selection of ESF-financed projects. However, it continued to apply the 25 % flat-rate correction on all of the eligible expenditure authorised by the MA related to “certain projects” selected until 31 August 2012, this amounting hitherto to 295 million euro. Furthermore, relative to the financial correction applied, Romanian authorities fail to report to the European Commission, 100 %, the expenditure related to the projects for which there are suspicions of fraud.

BOX 1.2 || Examples of flat-rate financial corrections affecting the level of the Member States || Czech-Republic: OP Transport: The MA for OP Transport made a 10 % financial correction through the PCA totalling CZK 8.97 billion (EU contribution). In 2012 and 2013, certifications involved corrections made on a continuous basis to all expenditure reimbursed to the beneficiaries before 31 August 2012 and those corrections were deducted from the interim payment requests sent to the Commission. Corrective measures have been adopted with a view to amending working procedures for checks, and the powers of the audit authority and the managing authorities have been reinforced. Following the adoption of the corrective measures, the suspension of certification and interim requests for payments from the Commission has been lifted. OP Environment: As regards OP Environment, since January 2012, audits have been carried out on a sample of 92 transactions as requested by DG REGIO. The sample was selected by the Commission using the statistical method on a set of certified expenses incurred under OP Environment from the start of the programming period. These audits were a pre-condition for lifting the suspension on payments by the Commission. On 20 June 2012 the Ministry of Finance submitted to Brussels the final report on checks on 92 projects (the error rate before the Ministry's correction was 3.52 %; after the Ministry's views were taken into account, the error rate fell to 3.14 %). In the period 9 July-13 July 2012 DG REGIO carried out audit mission No 2012/CZ/REGIO/J4/1114/1 at the MA for OP Environment involving a sample of 10 projects. Following a meeting of representatives of the Czech Republic and the Commission, a financial correction of 5 % applicable to all expenditure incurred by the Managing Authority until 31 August 2012, i.e. before the introduction of the new management and control system, was proposed by the Commission and accepted by the Czech Republic. As a result, the suspension on certification was lifted and on 18 October 2012 a request for payment reduced by the flat-rate correction was sent to the Commission. The flat-rate correction is applied on an ongoing basis to all subsequent statements of expenditure depending on how the expenditure concerned affects certification. As a result the above situation, corrective measures were adopted by the Ministry of the Environment. They consisted in amendments to binding documents and methodology for OP Environment that are affected by the adopted measures referred to in the Action Plan. Comprehensive amendments have been made to new management and control systems, to the irregularities system and to the check-lists to bring them into line with the model provided by the Commission. A separate control and audit unit has been set up at the EU Funds Department to reinforce in particular the control activities of the Managing Authority vis-à-vis the intermediate body and the beneficiaries. The Managing Authority and the intermediate body have established an anti-crisis working group, which has analysed the situation, set out the tasks and identified the problems in the programme administrations. This working group started its activities in April 2012 and since then it has been meeting every month to evaluate the fulfilment of the tasks that have been set out. The tasks fulfilled included tasks related to independent performance of checks on projects under OP Environment.

Table 1.3 || Quantified Reservations issued in the Commission's AAR for 2012 || Germany: Regarding No 4: In the case of a FIFG financial correction concerning the Objective 1 region Saßnitz-Mukran, no agreement has yet been reached between the European Commission and Mecklenburg-Western Pomerania. On 10.09.2013, a bilateral meeting was held on European Commission premises in Brussels to discuss the matter. The official outcome of the discussions is not yet available. Regarding No 6: Given its reservations in respect of the management and control system in North Rhine-Westphalia, Lower Saxony, Lower Saxony-Lüneburg, Mecklenburg-Western Pomerania and Thuringia, the European Commission interrupted the payment deadline in accordance with Article 91. North Rhine-Westphalia was the last Bundesland to have the interruption of the payment deadline lifted (by letter of 16.07.2013). Bulgaria: The main shortcomings in the area of direct aid that were revealed by controls during the first years following Bulgaria's accession to the EU concerned the quality of the information in the Land Parcel Identification System (LPIS) and the information provided to farmers. DG Agriculture and Rural Development notes in its annual report that the Commission's controls had established that Bulgaria's Action Plan had been completed in 2011 and that the system had been in place since the 2012 application year. However, it will not be possible to establish whether the LPIS has improved until Bulgaria reports the results of checks carried out during the 2013 financial year. The error rate calculated by Bulgaria remains high. Therefore DG AGRI believes that a reservation should be entered for Bulgaria in the 2012 annual report. After successfully implementing the Action Plan, Bulgaria completely updated the LPIS in 2011. Given the great importance of maintaining up-to-date and accurate information in the LPIS, Bulgaria has scheduled annual updates. In recent years the Bulgarian administration has systematically endeavoured to update the LPIS, ensure that applicants are better informed and measures and stabilise the requirements of the individual direct support schemes, which should translate into a lower rate of error. Estonia: The European Court of Auditors did not audit the EFF in Estonia. The reservation referred to in the report concerns DG MARE's postponing the deadline for payments with regard to Measure 1.3. There has been correspondence between DG Mare and the ministry but no final decision has been taken, meaning we have not at present introduced any additional measures. Spain: On the basis of the analysis performed by the Commission of the annual control report and the opinion regarding the year 2012 presented by the IGAE, and in particular the high error rate which revealed significant deficiencies in the functioning of management and control systems, the Commission proceeded partially to interrupt the 9th-10th-11th intermediate payment applications charged to the EFF. The Commission indicated that it did not have sufficient guarantees in place that the problems in the annual control report had been satisfactorily addressed. The actions taken in order to resolve the deficiencies were: - Autonomous Community (AC) of Andalusia. In order to rectify the problem of the systemic error in measure 1.1, the AC of Andalusia implemented an Action Plan for all non-audited operations under measure 1.1 (aside from the audited sample), which has already been referred to DG MARE and is pending approval by the Commission, or any observations to be made on the corrective measures set out in said Plan. - AC of Galicia. The Commission was requested to grant an extension to the deadline for the AC to perform the necessary actions. The deadline expires on 30 November 2013. - AC of the Balearic Islands. De-certification of €71,131.66 was required, as calculated by the Balearic Islands IG through extrapolation of the error rate in the expenditure audited. This sum was de-certified in the 12th expenditure declaration. - AC of Asturias. The Asturias IG was required to calculate the expense at risk by application of the projected error index to the audited expense. The sum calculated by the Asturias IG (€340,491.50) was de-certified in the 12th expenditure declaration. - AC of Valencia. According to the letter from the Valencia IG dated 21/02/2013, the AC made provision for an additional follow-up audit in 2013, the report and results of which will be passed on to the Commission. - On-board investments. The sum of €19,891.86 corresponding to the AC of Asturias was de-certified in the 12th expenditure declaration, this being the final sum pending de-certification, and this irregularity would therefore have been rectified. - POSA. The plan is for the Basque Country OIC to perform an audit of this case, and all cases involving the same beneficiary. As a result, all deficiencies have either been resolved or are in the process of resolution. Ireland: IE responded to the European Commission detailing its actions taken, which IE believes demonstrates a significant improvement to the functioning of the management and control systems. IE is currently awaiting the Commission’s response. Poland: Information on the actions taken are contained in Annex II - finding PF 5317 and finding PF 5429. Portugal: The reservation expressed by the Director of DG AGRI is, in the case of Portugal (PT), particularly due to the change in methodology for calculating the residual error of non-associated Direct Payments. In fact, the 5% increase in the error rate reported by the Paying Agency meant that PT had, in the case of non-associated Direct Payments, one of the three highest error rates, which resulted in this reservation. However, although the PA disagrees with the methodology used, it should be noted that, in financial terms, the amount of the residual error attributed to PT is only the 11th highest. The status of the Action Plan for updating the LPIS-GIS should also be taken into account: the PA completed the LPIS-GIS Action Plan in January 2013 on the conclusion of two measures involving the ‘creation of the reference parcel’ and ‘communication to farmers’. It should be noted that these two measures have no impact on the calculation of the maximum eligible area. The measures with the most impact on the correct calculation of parcel areas were completed and integrated into the LPIS in August 2012. In addition, there was a positive assessment by DG AGRI in the audit conducted in September 2012. Furthermore, the LPIS annual review plan is currently in hand, which will ensure that the LPIS-GIS is kept properly up to date. Romania: Remarks from MFE (Ministry of European Funds) item 6, table 1.3 Further to the auditors’ findings on the existence of some systemic weaknesses in the evaluation system, as an immediate precautionary measure to protect the EU budget, the Member State has undertaken a 25 % flat-rate correction on the expenditure declared to the EC. This measure has been adopted for the projects selected pursuant to the procedures in effect at the time of the audits. In addition, in all of the cases where national or European audit authorities have found deficiencies in the procurement process or otherwise, additional corrections have been applied individually to the projects concerned, the related amounts being recovered from the beneficiaries. At the same time, measures have been taken to substantially improve the management and control system for the implementation of SOPHRD, namely: 1. Revising the “operation evaluation and selection” methodology in order to include the following recommendations: a) to establish a minimum score for each of the four selection criteria (relevance, methodology, sustainability and cost-effectiveness) - with a focus on sustainability and cost-effectiveness criteria b) to establish minimum eligibility criteria and/or selection for applications, depending on area of expertise, the financial and operational capacity, consistent with the objectives and the specific call for project proposals c) to critically assess the budget and project resources against the targets (indicators) proposed and to argue whether the same activities could be implemented in a more economical way Date of revision approval according to the audit recommendation – 15 October 2012 Establishing in the Guide for Applicants related to project launches in 2013 of hourly rates for experts correlated to the market level for each type of services provided and of a maximum working time spent daily on a project in accordance with the European regulations. Thus, the maximum wage ceilings of based on the cost reasonableness study have been reduced by 30 %. These ceilings have been included in the Guide for Applicants, General Conditions 2013. MFE (Ministry of European Funds) Date of revision approval according to the audit recommendation – 15 October 2012 4. With regard to the improvement of the SOPHRD management and control system on the management checks, we note that MA SOPHRD has issued a number of instructions regulating the reporting by beneficiaries and the expenditure settlement under the projects funded by SOPHRD (particularly salary expenses, so as to assure that the principle of cost-efficiency and good financial management is observed). Other remarks: MFE (Ministry of European Funds) Date of the latest Instruction issued by the MA SOPHRD on the management and control system 07 June 2013 5. A protocol has been signed and operationalised with the Labour Inspectors to monitor and suspend/withhold payment of the salary expenses if the cumulation of hours allowed by the MA SOPHRD instructions is exceeded. Slovakia: Ministry of Economy No systemic deficiencies were found in the Operational Programme Competitiveness and Economic Growth in 2012. The Ministry of Education, Science, Research and Sport has not commented on this point. The Ministry of Labour, Social Affairs and Family has not commented on this point.

Box 1.3 || Examples of financial corrections affecting the level of beneficiaries || Slovakia: Ministry of the Environment – Operational Programme Environment: This is a permanent measure to re-establish a public procurement control department from 1 June 2013 with a view to developing control procedures and ensuring that multistage checks on public procurement procedures are conducted, i.e. a check on procedures prior to the announcement of tendering procedure – an ex ante check, a check on processes before a contract is signed with the successful tenderer, a check after the contract is signed with the successful tenderer

1.31 || 1.31 . The Court assessed the impact that these corrections on its audit conclusions: a ) financial corrections relating to Spain ( see Box 1.1) is related to the problems identified in 2008. Payments will be in 2013 ( and probably in other financial years ) continue and may be subject to review by the Court in the context of the current audit cycle. b ) Corrections for the ESF and the ERDF in Romania in the Czech Republic were flat . These corrections do not include recoveries ( see Box 1.2) from beneficiaries or detailed repairs at the project level . The errors identified by the Court therefore remain part výdajů21 declared by the Member States as a basis for reimbursement. c ) Correction for the ERDF in Romania and one component repairs under the ERDF in the Slovak Republic ( see Box 1.3) were conducted during 2012 and included detailed repairs at the project level . || Czech-Republic: OP Transport: The MA for OP Transport made a 10 % financial correction through the PCA totalling CZK 8.97 billion (EU contribution). In 2012 and 2013, certifications involved corrections made on a continuous basis to all expenditure reimbursed to the beneficiaries before 31 August 2012 and those corrections were deducted from the interim payment requests sent to the Commission. Corrective measures have been adopted with a view to amending working procedures for checks, and the powers of the audit authority and the managing authorities have been reinforced. Following the adoption of the corrective measures, the suspension of certification and interim requests for payments from the Commission has been lifted. OP Environment: As regards OP Environment, since January 2012, audits have been carried out on a sample of 92 transactions as requested by DG REGIO. The sample was selected by the Commission using the statistical method on a set of certified expenses incurred under OP Environment from the start of the programming period. These audits were a pre-condition for lifting the suspension on payments by the Commission. On 20 June 2012 the Ministry of Finance submitted to Brussels the final report on checks on 92 projects (the error rate before the Ministry's correction was 3.52 %; after the Ministry's views were taken into account, the error rate fell to 3.14 %). In the period 9 July-13 July 2012 DG REGIO carried out audit mission No 2012/CZ/REGIO/J4/1114/1 at the MA for OP Environment involving a sample of 10 projects. Following a meeting of representatives of the Czech Republic and the Commission, a financial correction of 5 % applicable to all expenditure incurred by the Managing Authority until 31 August 2012, i.e. before the introduction of the new management and control system, was proposed by the Commission and accepted by the Czech Republic. As a result, the suspension on certification was lifted and on 18 October 2012 a request for payment reduced by the flat-rate correction was sent to the Commission. The flat-rate correction is applied on an ongoing basis to all subsequent statements of expenditure depending on how the expenditure concerned affects certification. As a result the above situation, corrective measures were adopted by the Ministry of the Environment. They consisted in amendments to binding documents and methodology for OP Environment that are affected by the adopted measures referred to in the Action Plan. Comprehensive amendments have been made to new management and control systems, to the irregularities system and to the check-lists to bring them into line with the model provided by the Commission. A separate control and audit unit has been set up at the EU Funds Department to reinforce in particular the control activities of the Managing Authority vis-à-vis the intermediate body and the beneficiaries. The Managing Authority and the intermediate body have established an anti-crisis working group, which has analysed the situation, set out the tasks and identified the problems in the programme administrations. This working group started its activities in April 2012 and since then it has been meeting every month to evaluate the fulfilment of the tasks that have been set out. The tasks fulfilled included tasks related to independent performance of checks on projects under OP Environment.

CHAPTER 2 – REVENUE

Table 2.1 || Revenue - Key Information 2012 || Sweden: The interpretation of the paying agency responsible (the Swedish Board of Agriculture) is that the text concerning reservations relates to payments that had been halted because of differing interpretations by the certifying body (the National Financial Management Authority - ESV) and the Swedish Board of Agriculture about errors in certain cases. The cases which had led to the payments to Sweden being halted have now been investigated and deducted from the expenditure declaration. The Commission has resumed payments to Sweden.

2.13 || The Court assessed the supervisory and control systems in selected Member States (Belgium, Poland and Finland). The Member States concerned share of traditional own resources, the total amount is a total of about 13 per cent. The Court examined the said Member States accounting systems (A and B of accounts) and analyzed for traditional own resources, the cash flows amount to be paid to the Commission finding that the notification until. The aim was to provide reasonable assurance that the amounts recorded were accurate and complete. The audit involved examination of import declaration data (GSP codes, and country of origin) against the reliability of key controls, customs clearance after inspection and risk analysis, and reporting of the exemption is at the import stage inspection Member States visited. || Finland: This point provides a description of the operation carried out by the Court of Auditors. Finland has no comments in this respect. The reported audit results of the Court will be discussed below under the following points: Chapter 2: Revenue PF 5287 / 12.SYS.REV.1017 / 2501 – 2505.

2.4 || Based on its audit work, the Court concludes that, for the year ended 31 December 2012: - testing of transactions indicates that the most likely error rate present in the population is nil, - the examined supervisory and control systems are overall effective for GNI-based own resources and for TOR (see Annex 2.2), - the examined supervisory and control systems are effective for VAT-based own resources, the calculation of the UK correction, and other revenue (see Annex 2.2). Overall audit evidence indicates that revenue is not affected by a material level of error. || UK: With reference to Table 2.3 VAT reservations - The Commission visited HM Revenue & Customs from 15 – 19 October 2012 and examined the UK VAT bases for the three years 2009 – 2011. The Commission findings were issued on 17/01/2013 and resulted in 4 reservations being lifted and 2 new ones placed leaving a balance of 6 outstanding with the oldest dating back to 2002.

2.7 || The United Kingdom is granted a correction in respect of budgetary imbalances ('the UK correction') which involves a reduction in its payments of GNI-based own resources6. In addition, Germany, the Netherlands, Austria and Sweden benefit from a reduced call rate for VAT, and the Netherlands and Sweden have a gross reduction in their annual GNI contribution for the period 2007-20137. The principal risk is that the Commission makes an error in these calculations, notably in respect of the complex UK correction calculations. || Germany: Action by Germany is not required; Germany would, however, welcome a transparent presentation of the UK rebate by the European Commission, in order to be able to identify potential errors and implement timely corrections. It would be extremely helpful in this context if the most recent data for calculating the UK rebate were made available in a timely manner to the Member States in a clear and accessible format. Austria: No observations because only description of UK correction.

2.9. || Annex 1.1, part 2, of chapter 1 describes the Court's overall audit approach and methodology. For the audit of revenue, the following specific points should be noted: (a) The audit involved an examination at Commission level of a sample of 55 recovery orders . The sample is designed to be representative of the entire range of recovery orders8 within revenue. (b) The assessment of systems examined: (i) the systems for GNI-based own resources9 and VAT-based own resources at Commission level, and TOR at Commission and Member State level; (ii) the Commission systems underlying the calculation of the UK correction (including an examination of the calculation of the definitive amount in respect of 2008); (iii) the Commission's management of fines and penalties; (iv) the Commission's internal control procedures covering the determination of the yearly contributions of EFTA countries belonging to EEA (‘EFTA contributions’); (v) the Commission's management representations, in particular the annual activity reports for 2012 (AAR 2012) of the Directorate-General for Budget (DG Budget) and Eurostat. || Germany: Description of ECA activities (no requirement for Member States to reply). Spain: There are no comments as this is the specific methodology employed by the Court in its scrutiny.

2.12 || However, the Court also assessed the effectiveness of the Commission’s verification of GNI data10 of the period 2002–2010, which was completed in January 2012. The review focussed on the years 2002 to 2007, for which the GNI data, together with those of 2008, became definitive in 2012 with no further possibility of modification for the calculation of adjustments to GNI-based own resources, except for the discrete elements covered by specific reservations (see paragraph 2.25). This work is also taken into account in assessing the Commission's supervisory and control systems. || Germany: Description of ECA activities (no requirement for Member States to reply). Austria: No observations because footnote 10 merely contains an exhaustive list of Member States examined. Spain: The INE provided the European Court of Auditors on 6 February 2013 with a report in response to the preliminary findings issued by the Court in its letter dispatched on 16 October 2012 within the context of the "Audit of the efficacy of the Commission’s verification of the GNI data used for own resources" performed by the Court.

Table 2.2 || Member States’ specific GNI/GNP reservations as at 31 December 2012 || Germany: Action on specific reservations – both those in Table 2.2 which relate to Germany as a whole and those which relate to specific Bundesländer – is currently being undertaken by the Statistisches Bundesamt. During the general review of the national accounts in 2014, the results of this revision were also incorporated into the current publication of the national accounts. The main reason for the 2014 general review is the introduction of ESA 2010 methods. The first results under ESA 2010 will be published on 1 September 2014 for the whole period from Q2 2014 back to Q1 1991. Austria: The information in the table for Austria refers to a specific GNI reservation which was processed by Statistik Austria, checked by Eurostat and in the meantime withdrawn by the Commission (according to a letter from the European Commission (Ares(2013)3288858-18/10/2013)). Cyprus: Up to 31 December four reservations were pending. During February 2012, a team of inspectors from the budgetary area of the European Commission carried out an inspection relating to the VAT own-resources bases for the years 2008-10. During the inspection various points put by the European Commission inspectors were presented and explained, and there was discussion about the VAT own resources bases statements needing improvement and/or further explanation. As a result of the inspection visit to Cyprus, the European Commission withdrew the four outstanding reservations. Therefore, at 31/12/2012 Cyprus had no reservations relating to VAT own resources. Estonia: Work on the methodological developments is ongoing and in line with the agreed action plan we will publish the time series with the corrections resulting from the reservations, in compliance with ESA95, in September 2014. Spain: Spain will over the coming months, and in all cases prior to 22 September 2014, present the Commission with the changes to the GNI estimates required as a result of the specific reservations notified, or any additional methodological information clearly demonstrating that the aforementioned reservations are no longer relevant. Finland: According to the reservation concerning Finland, the estimation of output from renovations within construction activity needs to be based on more recent benchmark data (years 2002-2010). New estimates that have been amended accordingly will be published in July 2014 and sent to Eurostat within the prescribed period (by 22 September 2014). Furthermore, development work is in progress in Statistics Finland in order to improve the statistical base for calculating renovations also in future national accounts. The reason for the reservation was that the estimate of construction activity was based only on benchmark data for the year 2000, and subsequent years had been estimated on the basis of that year. Now the calculation has been made based on data from a later benchmark year. France: Avant l'audit RNB, la France faisait l'objet de deux réserves spécifiques : l’une relative au calcul de la valeur ajoutée des mutuelles et l’autre consacrée à la prise en compte des données de la balance des paiements. C'est pour la notification RNB de septembre 2014 que les pays doivent justifier de corrections permettant, si elles sont satisfaisantes, la levée des réserves. Les corrections sont mises en œuvre dans le cadre du passage au SEC 2010 (base 2010 des comptes nationaux qui sera publiée le 15 mai 2014). Les corrections que effectuées par l’Insee (département des comptes nationaux) actuellement devraient permettre la levée des deux réserves spécifiques. Greece: IN COOPERATION WITH EUROSTAT. THE CLOSING DATE IS SEPTEMBER 2014 Λοιπά σχόλια: THE HELLENIC STATISTICAL AUTHORITY (ELSTAT) WORKS WITH EUROSTAT TO ADDRESS THE RESERVATIONS. IT MAKES VISITS TO ELSTAT AND INDIVIDUAL POINTS OF ACTION ARE ESTABLISHED TO ADDRESS THE RESERVATIONS. Hungary: The Hungarian Central Statistical Office produced an action plan in June 2012 to resolve the GNI reservations and has contacted Eurostat. The answers to individual points are being prepared and the necessary changes are under way. Ireland: Ireland had one reservation for earnings of the self- employed relating to 2012. This reservation has now been addressed and lifted by Eurostat / DG Budget earlier this year. Therefore Ireland now has no country specific reservations. Italy: The reservations will be implemented by 22 September 2014, the date of submission of the GNI questionnaire to the European Commission. Lithuania: Two specific reservations were placed on Lithuania relating to the compilation of GNI statistics: 1. supply and use tables must be included in Lithuania's national accounts calculations. In view of the results of this work national accounts figures need to be revised where appropriate (applicable to the years 2004–2010); 2. the sources and methods applied for estimates relating to entertainment, literary and artistic originals need to be reviewed and clarifications provided. In view of the results of this work national accounts figures need to be revised where appropriate (applicable to the years 2004–2010). The European Commission asks that these reservations be lifted by 22 September 2014, that is by the point in time at which National Accounts System information has been drawn up and has begun to be published in line with the 2010 European System of Accounts (ESA 2010). The first GNI indicator reservation was partly implemented in 2012 by transferring 2008–2010 gross national income. An assessment of the updated statistics for 2004–2007 is anticipated in line with the 2013 GNI questionnaire and quality report submitted to the European Commission. The recommendation regarding the second GNI indicator reservation is currently being implemented: new data sources are being analysed and new assessments are being carried out. Luxembourg: Les deux réserves sont liées au même sujet et ne forment en fait qu’une seule réserve : prise en compte du travail au noir et du travail pour compte propre dans la construction de logements par les ménages. Selon l’interprétation du STATEC il ne s’agit que d’une seule réserve car le texte repris pour ladite « deuxième » réserve n’est qu’une précision de la première. D’ailleurs dans le document initial d’Eurostat soumis au comité RNB du 27 octobre 2009 il ne s’agissait que d’une seule phrase reprise en tant qu’une seule réserve. En 2012 le STATEC a transmis à Eurostat un rapport détaillant les mesures prises pour adresser la réserve sous rubrique. La Commission a dans sa lettre Ares(2013)2830371 du 5 août 2013 informé le STATEC de la levée de la première réserve, tout en précisant qu’elle maintenait la deuxième. Or selon l’interprétation du STATEC les deux réserves dont fait état la Commission concernent le même sujet. Aussi le contenu de ladite deuxième réserve a bien été adressé par les mesures prises dans le rapport transmis à la Commission. Le STATEC a d’abord consulté Eurostat de façon informelle afin d’obtenir des clarifications. Cette démarche n’ayant pas abouti, le STATEC rédige actuellement une lettre officielle à la Commission afin de demander une prise de position quant à l’interprétation faite par le STATEC. A ce stade le STATEC n’envisage pas d’entreprendre de démarche supplémentaire car il considère que la réserve a bien été adressée. Malta: Malta had a total of eight reservations at 31.12.2012, but on 03.09.2013 Malta was informed that reservation 8 had been lifted. Therefore, Malta now still has seven reservations. During 2013 and 2014 Malta will be in contact with Eurostat regarding other reservations with a view to resolving them. Netherlands: Action taken: Yes. In 2012 Statistics Netherlands (CBS) submitted proposals for corrections to 3 of the 4 specific reservations. These 3 proposals have now been approved by the Commission. In 2013 the Netherlands submitted a proposal for the fourth and last specific reservation, which is still being examined by the Commission. Action completed: No. The CBS supplied the information on time (the deadline for specific reservations is 22 September 2014). Once the Commission has produced its evaluation it will be clear whether the proposal has been approved or further work is needed on this point. Only once the proposal has been approved can it be regarded as completed. Completion date: No later than 22 September 2014, but possibly before then, depending on the Commission's reply. Any other comment: In addition to the specific reservations, 8 transversal reservations were imposed on all Member States. The proposals for resolving these transversal issues, like the specific reservations, are evaluated and approved by the Commission. 2 of the 8 have now been approved. The remaining 6 proposals will be submitted in the forthcoming period. The deadline for this is also 22 September 2014. Poland: Work is currently under way to lift reservations made in respect of GNI for Poland. Czech-Republic: Both reservations were incorporated in the national accounts in 2011 as part of an extraordinary revision linked to the transition to the new NACE, rev.2 classification. The new GNI data were sent to Eurostat in September 2011, including a Quality Report and a detailed description of methodology given in the appendix to the GNI Inventory. Slovenia: Reply from the Statistical Office of the Republic of Slovenia: Work on correcting the data on gross national income – the subject of the reservations – is under way and will be completed before the deadline for sending the next batch of data on gross national income for the purposes of determining the EU's own resources and a quality report, i.e. 22.9.2014. One of the three reservations mentioned in the table was already withdrawn in 2013.

2.25 || Commission replaced all existing general reserves for the EU- 25 with 103 specific rezervi14 . Specific reservation covers the years 2002 to 2010 for the Member States of the EU- 15 and the years from 2004 to 2010 for the Member States of the EU-10. Furthermore, although not foreseen in the Commission's procedures were put six "horizontal" specific rezervi15 of member states of the EU- 25. The Court found weaknesses in the Commission's verification of GNI data , which also affects the management of the reserves (see section 2.28 b), second and third indents, item 29 ) || Bulgaria: During the European Commission's audit missions (2010-1012) recommendations and reservations were issued in respect of the GNI data for 2007-2010. Following the completion of Eurostat's Verification Mechanism, an official letter was received from the European Commission in January 2013 containing information on the problem areas and reservations in respect of Bulgaria's GNI data. Measures should be taken to: review the methods for ensuring the completeness of the data; improve the method for the calculation of indirectly measured accommodation services, the consumption of fixed capital, gross fixed capital formation, an alternative method for calculating the production and intermediate consumption of construction services, employees' compensation receivable from/payable to the institutional sector "rest of the world", the production and distribution of the indirectly measured services of financial intermediaries, and making adjustments for illegal activities. All the reservations in respect of the GNI data are being dealt with, and the methodology applied is now in the process of being drafted and approved by Eurostat before the data are used in the official GDP and GNI estimates in September 2014. It has been agreed that Eurostat will conduct a consultancy mission in April 2014 so that the estimates obtained can be discussed and approved at the next meeting of the GNI Committee. Romania: INS (National Institute of Statistics) takes actions to improve the GNI estimates agreed with Eurostat and to resolve the reserves applied, the deadline being the end of year 2014.

2.26 || 2012 did not cause any of these specific reservations about the data on GNI. Moreover, at the end of 2012 there were still two specific concerns about the GDP data from the period 1995 to 2001. The situation per Member State is presented in Table 2.2. The Commission does not evaluate the potential impact of reservations. || Greece: IN COOPERATION WITH EUROSTAT. THE CLOSING DATE IS SEPTEMBER 2014 Λοιπά σχόλια: THE HELLENIC STATISTICAL AUTHORITY (ELSTAT) WORKS WITH EUROSTAT TO ADDRESS THE RESERVATIONS. IT MAKES VISITS TO ELSTAT AND INDIVIDUAL POINTS OF ACTION ARE ESTABLISHED TO ADDRESS THE RESERVATIONS.

2.27 || The Commission expressed a general reservation on the Greek GNI data for 2008, since the State was unable to meet the deadline of 22 September 2012 for transmission to Eurostat. Otherwise, the data for 2008 would become final and correct them would no longer be possible || Greece: IN COOPERATION WITH EUROSTAT. THE CLOSING DATE IS SEPTEMBER 2014 Λοιπά σχόλια: THE HELLENIC STATISTICAL AUTHORITY (ELSTAT) WORKS WITH EUROSTAT TO ADDRESS THE RESERVATIONS. IT MAKES VISITS TO ELSTAT AND INDIVIDUAL POINTS OF ACTION ARE ESTABLISHED TO ADDRESS THE RESERVATIONS.

2.29. || The Court also found problems in the calculation of estimates of national accounts, Eurostat had not uncovered. Some of these Probleme18 should have led to another part of the Commission relied on country-specific reservations, while the andere19 to Member State different from Member State enforcement of reservations could become clear. || Germany: The Statistisches Bundesamt does not fully share the Court's assessment. However, the experts from National Accounts have carried out thorough analyses of the shortcomings identified during the audit. The calculations were verified in particular to ensure that they were compliant with ESA procedures. If a change of methodology proves necessary, this will also be implemented as part of the 2014 general review. Spain: The INE presented the European Court of Auditors on 6 February 2013 with a report in response to the preliminary findings issued by the Court in its letter dispatched on 16 October 2012. Meanwhile, as a result of the audit conducted by the European Court of Auditors, the Commission reserves its opinion regarding the national accounting data for the years 2009 and 2010, in order to be able to perform a detailed comparative analysis of the various solutions adopted by the Member States with regard to the following transversal issues: Reservation VII: Consignment of vehicle registration tax. Reservation VIII: Calculation of intermediate consumption with regard to real and imputed rents in the estimate of the output of property rental services. Over the coming months, and in all cases prior to 22 September 2014, the Commission will be presented with evidence that a particular reservation is not relevant, or of the revised GNI estimates with regard to the pending transversal reservations. France: Avant l'audit RNB, la France faisait l'objet de deux réserves spécifiques (voir ci-dessus) et était concernée comme tous les pays de l'Union par 6 réserves transversales. Suite à l'audit RNB, la Commission a ajouté tardivement deux réserves transversales portant sur des problèmes identifiés dans plusieurs pays : - L'une sur l'enregistrement des taxes sur les certificats d'immatriculation; - L'autre sur l'estimation des consommations intermédiaires des producteurs de services de logement. C'est pour la notification RNB de septembre 2014 que les pays doivent justifier de corrections permettant, si elles sont satisfaisantes, la levée des réserves. Les corrections sont mises en œuvre dans le cadre du passage au SEC 2010 (base 2010 des comptes nationaux qui sera publiée le 15 mai 2014). Les corrections que l’Insee effectue devraient permettre non seulement la levée des deux réserves spécifiques mais également des deux réserves transversales ajoutées suite à l'audit RNB. Sur les 6 réserves transversales déjà émises avant l'audit RNB, l’Insee échange actuellement avec Eurostat. Plusieurs de ces réserves devraient être levées sans difficultés. Toutefois, l’une d'elles risque de poser plus de difficultés, celle portant sur la prise en compte des activités illégales (prostitution, trafic de drogue) : - L’Insee considère comme non pertinent (surtout après les critiques émises sur le PIB dans la démarche Stiglitz) d'inclure dans le PIB l'esclavage sexuel ou le trafic de drogues dures. L’Insee n'inclura donc pas de correction pour ces aspects dans le PIB publié mais veillera à ajouter une ligne correctrice spécifique pour passer du PIB publié au RNB notifié même si cette approche n'a pas les faveurs d'Eurostat. Par ailleurs le montant de la correction sera forcément très discutable et probablement contesté par Eurostat car les données statistiques sur les activités illégales sont évidemment peu fiables. Italy: Italy has accepted the Court of Auditors' recommendations made during its audit of 3 to 7 December 2013 and intends to implement them by 30 September 2014.

2.33 || In addition, two other Member States visited (Poland and Finland), the Court noted other minor system deficiencies related to the A and B accounts. || Finland: The matters have been described in more detail in the following points: Chapter 2: Revenue PF 5287 / 12.SYS.REV.1017 / 2501 – 2503 Poland: Re ECA preliminary finding no. 2106 In 24 cases of non-compliance, as identified during the Court's audit, concerning the time limit for the closure of transit operations, which resulted in a failure to determine the amounts of duty within the time limits specified in the regulations, actions were taken to close these operations. Only one case remains open, in which administrative proceedings are pending (suspended in accordance with national law, pending confirmation from third country authorities). In order to eliminate irregularities, customs chambers were provided with relevant guidelines indicating the need for strict application of EU regulations and a number of training courses concerning the enquiry proceedings and collection of debt in transit were conducted. Re ECA preliminary finding no. 2107 As regards customs declaration number OGL/362010/00/002120/2009 Poland provided the ECA with an explanation indicating that the audited declaration was correct. In the letter of 4 July 2013 no. REF005158PL02-13pp-RPF-5410-CL-REVDAS-PL-TR.doc, the Court reported that the above-mentioned declaration had been excluded from the findings. However, in relation to other audited customs declarations in which irregularities were found with regard to the completion of fields 15a, 34a and 36, 7 declarations were revised at the request of the interested party, while in the case of 4 declarations no application for amendment was filed, and the customs authority did not initiate proceedings to amend them due to the fact that the erroneous entries in these fields did not affect the data in other fields, and, above all, did not affect the amount of the customs debt. The decision of the customs authority was also affected by procedural economy (costs incurred without any benefit for the budget) and the general context of the Community customs regulations that, in our opinion, allow the conduct of such proceedings. It should be noted that the Community regulations provide for the option of simplifying the procedures if there is a risk of incurring costs that are disproportionate to the benefits, as well as waiving the subsequent entry in the accounts of amounts of duty in the case of a certain threshold of profitability of conducting the procedure (e.g. in accordance with Article 868 of the Regulation implementing the Community Customs Code, amounts of less than EUR 10 need not be entered in the accounts).

Table 2.3 || VAT reservations as at 31 December 2012 || Germany: Sonstige Anmerkungen: In 2013 one of the abovementioned reservations was lifted. The longest-standing reservation now dates back to 2007. In the case of four reservations, the German authorities have submitted calculations and made the relevant corrections to the VAT base. Three of these reservations concern infringement proceedings. A change in the national VAT-system is currently passing through the parliamentary legislative procedure. A further reservation concerns an infringement case which is currently dormant. For that reason legal measures in the field of own resources are not required at this juncture. Austria: Because the ECA double counts reservations on a case raised by both Commission and MS, the cases listed in the table represent only three cases: In Case 1 (weighted average rate) relating to the period 2008-09, a reservation was entered only by the Commission. With respect to a partial calculation (calculation of the weighted average rate) for the years 2008 and 2009, the Commission still has two open questions concerning the topics 'investment in cars' and 'pharmaceutical products'. It can be assumed that this open point will be eliminated in the next correction cycle. In Case 2 (infringement procedure No 2010/2055 - Application of the Sixth VAT Directive) concerning the years from 2004, the Commission and Austria entered reservations (=double counting). In Case 3 (infringement procedure No 2010/2055 - Application of the Sixth VAT Directive, VAT exemption for postal services) concerning the years 2006-09, the Commission and Austria entered reservations (=double counting). The next negotiations on Cases 2 and 3 between the Commission and Austria will take place in December 2013. Belgium: FOD Financiën : Mesure prise: oui Action achevée: non (gedeeltelijk) Autres observations : Naar aanleiding van het controlebezoek van 16-20/04/2012 formuleerden de diensten van DG Begroting van de Europese Commissie zes reserves omtrent de rapporten inzake de eigen middelen uit btw voor de jaren 2008-2010 (controlerapport van 17/07/2012). De diensten van de FOD Financiën antwoordden op 7 november 2012. Twee reserves zijn intussen opgeheven, namelijk de reserves inzake de waarborgen voor de verlegging van de btw bij invoer naar de aangifte en inzake de levering van gebouwen en bouwgronden. De berekening van de verminderde belastingbasis die door de btw-vrijstelling van advocaten wordt gecreëerd, is naar aanleiding van het verslag eigen middelen voor het jaar 2012 herbekeken. Een materiële fout werd gecorrigeerd. Bij de berekening van het gewogen gemiddeld btw-tarief stelt het prorata van de financiële sector een probleem wegens de fluctuaties in de beschikbare cijfers. Voor het verslag eigen middelen 2012 werd gebruik gemaakt van een nieuwe cijferreeks. Bij het volgende controlebezoek zal blijken of deze ingrepen zullen volstaan om de reserves op te heffen. Om de reserve inzake de berekening van de basis voor de compensatie met betrekking tot de aftrekbeperking ingesteld door artikel 45 § 2 van het Wetboek van de Belasting over de Toegevoegde Waarde, te berekenen, moeten stabielere cijferreeksen aangemaakt worden. Om deze reeksen te kunnen samenstellen (via koppeling van verschillende bestanden) moest als eerste stap aan een aantal voorwaarden inzake de bescherming van de persoonlijke levenssfeer voldaan worden. Deze stap is intussen gezet, maar de cijferreeksen moeten nog samengesteld worden. Inzake het voorbehoud inzake restaurantdiensten aan boord van schepen, treinen en vliegtuigen gedurende het binnen de Gemeenschap verrichte gedeelte van een passagiersvervoer: de inleidende besprekingen tussen de lidstaten (BE – NL – UK) in het kader van de multilaterale controle hebben aangetoond dat er onderliggende interpretatieproblemen zijn omtrent de vigerende Europese en nationale regelgeving terzake. Dienovereenkomstig werd de multilaterale controle voorlopig “on hold” geplaatst. In België werd de problematiek van de toepassing van de Europese en nationale reglementering om die reden ook volledig herbekeken. Een schrijven zal hieromtrent weldra aan de diensten van de Commissie worden gericht met verzoek tot heroverweging van het bestaande voorbehoud terzake. De effectieve controle van de betrokken operator in België werd voorlopig overgedragen naar het werkplan 2014 en zal, zo nodig, worden geactiveerd op basis van de resultaten van de contacten met de Europese Commissie (desgevallend los van de initieel beoogde multilaterale controle als blijkt dat de andere lidstaten finaal dergelijke controle niet opportuun achten). Bulgaria: The Bulgarian authorities have taken three types of measure to address all the reservations raised. Legislative amendments have been made in order to harmonise Bulgarian legislation with European VAT Directives, new methods have been developed for calculating compensations against which reservations were made, and additional or alternative information has been collected in order to check points of contention in the above-mentioned calculations. Denmark: As of 31 December 2012 six reservations had been entered regarding Danish VAT compensations. 1. One reservation concerns the correction for public radio and TV. The negative compensation was based on the annual report from DR and the VAT information supplied by SKAT. The Commission requested an explanation of the difference in input/output ratio between DR (31 %) and TV2 (73 %) in 2010 and an explanation for the drop in the input/output ratio for DR between 2009 (50 %) and 2010 (31 %). The underlying data will be examined to provide an answer to the Commission’s two questions. 2. One reservation concerns long-distance coach travel in DK. Some foreign long-distance coaches travelling through DK do not have sales offices in the country and so are not included in the Danish transport statistics. We suggested making an estimate, which has been sent to the Commission. 3. One reservation concerns a Treaty infringement case relating to VAT grouping schemes. On 25 April 2013 the Court ruled in DK’s favour (C-95/11) and the reservation was subsequently lifted. 4. One reservation concerns a disagreement over VAT exemption for charities. The Commission takes the view that the Danish exemption is too broad. No infringement procedure has been launched yet. 5. One infringement procedure concerns the exemption for aircraft repair and maintenance, which was declared unlawful in the Cimber Air judgment in relation to domestic flights (Case C-382/02). The corrections were discussed during the control visit in 2012 and one issue still outstanding that was not resolved during that visit relates to the statement produced of aircraft repair and maintenance by flying schools and clubs. 6. One reservation concerns the exemption for restaurant services supplied on board means of transport (ferries on international voyages between EU countries). There were doubts over the interpretation of the existing VAT rules in this area. There was also uncertainty as to how such a statement could be produced. Estonia: There were 10 reservations concerning VAT, 9 of these were resolved in 2012 - 2013. One reservation is still outstanding (regarding catering services on aeroplanes) and work to resolve this is ongoing. Spain: The European Court of Auditors set out in table 2.2 of Annex I reservations pending as of 31/12/2012 regarding VAT in Spain. Two of these are the result of the corresponding infringement proceedings opened against Spanish regulations on the basis of a violation of Community law regarding: - The VAT special schedule for travel agencies. Reservation established by the European Commission since the year 2003. Following the judgment of the European Court of Justice of 26 September 2013, the Spanish authorities are now working on the definitive resolution of this reservation in the calculation of Spain's VAT base. - The VAT exemption on services provided by notaries public with regard to certain financial operations. Reservation established by the Commission since the year 2008. Spain, in the document of observations presented to the Commission on 8 July 2013, in response to the Commission's control report, has already included the calculation of a compensation for the years affected by the reservation, and once the Commission has verified and approved this calculation, it will therefore be possible to raise said reservation. The third reservation established by the Commission, from the year 2009 onwards, is connected with the method for the calculation of the adjustment in the revenue of farmers under the fixed sum schedule. This reservation has now been cancelled by the Commission in its control report on the VAT base for 2009-2011, dated 13 April 2013, following the inclusion by Spain of an enhancement to the method for selection of the group affected by this regulation. As a result, the number of reservations pending in the calculation of the VAT base for Spain now amounts to two. France: Les réserves en cours émanent du rapport final de contrôle des relevés TVA 2008, 2009 et 2010 ayant eu lieu du 28 novembre au 2 décembre 2011. Un nouveau contrôle, portant sur les relevés 2011 et 2012 a eu lieu en septembre 2013. Le rapport a été transmis par la Commission Européenne le 17 décembre 2013. - Une réserve porte sur le calcul du taux moyen pondéré, et notamment sur le mode de prise en compte des terrains à bâtir. Des ajustements au calcul ainsi que les justifications demandées ont été transmises par la France suite au dernier contrôle. - Une réserve portait sur le mode de calcul de la compensation « Fourniture d’eau publique ». Les échanges sur la méthodologie lors du dernier contrôle (septembre 2013) ont amené la France à réviser en profondeur le mode de calcul de la compensation. - Les autres réserves sont essentiellement émises en lien avec une procédure d’infraction engagée par la DG Taxud. Des pièces justificatives ont été fournies lors du dernier contrôle et la France a aligné sa législation sur les exigences européennes pour d’autres. Le rapport d’inspection très récemment transmis fait état de la levée de 5 réserves (calcul du TMP, fourniture d’eau, infractions relatives aux bateaux, à l’électricité, aux soins à domicile) et du maintien de 2 réserves (infractions relative aux chevaux de courses et au transport de biens entre la France et la Corse). Une nouvelle réserve a par ailleurs été posée pour les années 2010 à 2011(offre composite). La France répondra aux questions spécifiques posées par la Commission dans ses observations au rapport d’inspection. Greece: COMMENTS OF THE GREEK AUTHORITIES HAVE BEEN SENT TO THE COMMISSION ON THE OBSERVATIONS OF THE COMMISSION'S AUDITORS FOLLOWING THE AUDIT THAT TOOK PLACE IN OUR COUNTRY IN FEBRUARY 2013. THE FINAL RESULTS OF THE COMMISSION ARE AWAITED. Hungary: The Commission examined Hungary's statements on the harmonised VAT base during its audit mission on 26-30 March 2012. The audit procedure ended with a presentation of the Commission report at the ACOR VAT meeting on 14 November 2013. During the procedure, methodological approaches were developed in the areas concerned, as a consequence of which the four reservations were lifted. The Commission raised no new reservations, so the number of reservations is currently zero. Ireland: Following the visit of the controllers from the European Commission in October 2013 the Irish Authorities are hopeful that three of the outstanding reservations on the VAT OR account ,including the one dating from the earliest year 2006, will be lifted. Italy: As regards the VAT Own Resources, the Italian authorities have made available the technical documentation for identification of methodological solutions agreed with the Commission for the purposes of lifting the reservations still pending. The reservations set in 2012 correspond to four reservations opened during the preliminary phase of the work for the audit (25-27 April), which were already lifted by the time this work was complete, and one opened at the same time as a request was sent for funds for buildings and land (call for funds letter), which was already rectified in August 2012. The concluding work of the audit mission further changed the number of reservations still pending for Italy. The draft summary sent by the Commission on 23 July 2013 (the final draft of which will also take account of the Court of Justice ruling on the infringement procedure regarding VAT rules for travel agencies) confirms the existence of eight reservations still pending, the oldest of which goes back to 1999 (while the reservation concerning cars and fuel, pending since 1995, has been lifted). Lithuania: Lifting of the reservations was officially confirmed on 3 December 2013 in the European Commission's final summary document on the 2008, 2009 and 2010 VAT base, which underlies own resources. Luxembourg: acceptation de la Commission européenne (DG BUDG) pendante - envoi du rapport de contrôle prévu pour janvier 2014 Malta: Malta is pleased to note that the reservations were reduced from 10 at the end of 2011 to 4 at the end of 2012. The National Statistical Office is addressing 3 of the 4 outstanding reservations. Concerning the other reservation, the VAT Department takes the view that it does not apply to Malta and the necessary arrangements are being made to have this reservation lifted. It should also be noted that Malta's VAT base is far higher than 50% of the GNI and is thus limited to 50% of the GNI. Netherlands: Action taken: Yes. Replies were sent in letters dated 23-5-2011 and 8-8-2011. During the two-yearly inspection (2013) 7 reservations were lifted and (2) + 3 new ones were added, leaving a total of 5 in November 2013. Action completed: partly Completion date: n/a. Any other comment: This is an ongoing process involving consultation and coordination between NL and the Commission. Every two years a final decision is taken on the provisional or definitive lifting of reservations. This process is coordinated annually with the Central Audit Service (ADR). The ADR report is appended to the calculation of the base. Poland: Given the fact that reservations may be placed by the Member States or the EC with respect to the calculation methodology or data used in the calculations for the calculation of the EU own resource based on VAT, and work to solve problems and then eliminate them is a continuous process based on close cooperation between the administrative authorities of the EU Member States and the EC, Poland believes that Table 2.3 should contain the following information: Table 2.3 - VAT reservations as at 31 December 2012 Member State || Reservations outstanding at 31.12.2011 || Reservations placed in 2012 || Reservations lifted in 2012 || Reservations outstanding at 31.12.2012 || Earliest year to which reservations apply

Poland || 5 || 6 || 2 || 9 || 2005

In addition, Poland reports that in 2013 four reservations related to the Central Statistical Office (GUS) were lifted. There remains only one reservation, in which the Central Statistical Office is involved. In a report submitted to the EU in July 2013, the methodology and data were verified in order to lift the reservation. Poland is awaiting the approval by the EU.

Portugal:

*Flat rate farmers’ scheme legislation repealed from 01.04.2013 – reservation lifted

Reduced VAT rates – babies’ diapers – reservation lifted

Rates on tolls on the Tagus Bridge – Since 01.04.2009 PT is allowed to apply reduced rates (Directive 2009/47/EC)

Travel Agency – Court Decision of 26 Sept. 2013, C-450/11 – No infringement

Romania:

MFP-UCRBUE (Ministry of Public Finance - Coordination Unit for Budgetary Relations with the EU):

The Commission Inspection concerning Romania’s VAT Basis Statements for 2007-2008 was held during 11 and 15 October 2010. The Commission representatives stated informally that following the check-up visit they will place four reserves, whereas the Romanian authorities asked for one reservation to be placed. The Commission report on the findings of the inspection conducted between 11 and 15 October 2010 was sent to the Romanian authorities (in the official version, in the Romanian language) on 22 February 2011, stating that a number of five reserves were placed (four of the Commission and one of Romania). Further to sending - on 02 February 2012 - the official version of the Commission’s conclusions on Romania’s Remarks concerning the inspection report on Romania’s VAT Basis Statements for 2007-2008, a number of 4 reserves (of which one was proposed by Romania) was noted to have remained unresolved.

Czech-Republic:

The measures adopted in 2012 were subject to a check by representatives of DG BUDGET in May 2013. If the measures adopted in 2012 end, the impact will be shown in the ECA report for 2013, i.e. in 2014.

Slovakia:

Ministry of Finance – International Relations Section

In September 2011, during a check on VAT statements for the years 2008 and 2009, Slovakia was subject to a reservation concerning a missing recalculation linked to the calculation of services provided by foreign entities operating in inland waterway services. We added this recalculation and sent it to the Commission by the set deadline. The reservation was subsequently withdrawn by the Commission in 2012.

Slovenia:

Reply from the Ministry of Finance: Slovenia is included in the table alongside all the other Member States. It has not had any reservations in respect of VAT since the 2010 inspection visit.

2.38 || In its Annual Activity Report 2012 DG " Budget " indicates that it has sufficient assurance on the accuracy and completeness of GNI data used for the purposes of own resources , considering the expression of the GNI Committee opinion and the results of verification carried out by Eurostat. Court of Auditors considers that there is a limitation in the scope of the opinion of the BND25 and the annual report of the Eurostat gives only a partial assessment of the verification of GNI for own resource purposes . The annual report of the DG " Budget " should be mentioned these limitations. || Bulgaria: Before 22 September each year Bulgaria provides the Commission (Eurostat), in the context of national accounting procedures, with figures for aggregate GNI and its components, as well as a report on the quality of the data, pursuant to Article 2(2) of Council Regulation (EC, Euratom) No 1287/2003 of 15 July 2003 on the harmonisation of gross national income at market prices. At the meeting of the GNI Committee in October each year, the Member States confirm the data provided in September and the report on the quality of these data that contains general information on the data, any changes with regard to the sources and the methods for collecting the data for the national accounts, and any changes to the policy for revising the data. Romania: INS (National Institute of Statistics) INS (National Institute of Statistics) takes actions to solve the “Action Points A” on the improvement of GNI estimates agreed with Eurostat and on the reserves applied, the deadline being the end of year 2014.

Annex 2.3 || || Bulgaria: All the reservations in respect of the GNI data are being dealt with, and the methodology applied is now in the process of being drafted and approved by Eurostat before the data are used in the official GDP and GNI estimates in September 2014. It has been agreed that Eurostat will conduct a consultancy mission in April 2014 so that the estimates obtained can be discussed and approved at the next meeting of the GNI Committee

Chapter 3 – Agriculture : Market and Direct Support

3.4 || The main measures financed by the EAGGF are: - The direct aid " Single Payment Scheme " (SPS) , in which the payments are based on the " right to payment " 4 , each of which is activated by a hectare of eligible land . In 2012, the SPS expenditure amounted to € 31.081 billion . - The direct aid scheme ' Single Area Payment Scheme ' (SAPS ), which represents a simplified scheme of income support and is targeted at farmers in 10 Member States 5 that joined the EU in 2004 and 2007 scheme for the payment of uniform amounts per eligible hectare of agricultural land. In 2012, its cost amount to € 5.916 billion . - Other direct aid schemes which provide mainly coupled plashtaniya6 . In 2012, the cost for these is € 3.883 billion . - Interventions in agricultural markets , covering measures such as intervention storage refunds , programs in the food sector , as well as specific measures to support the sector " fruits / vegetables " and " wine" (totaling € 3.516 billion in 2012 ) || Bulgaria: The Bulgarian authorities are giving this due consideration and will take prompt corrective measures following the findings of DG AGRI's audits under the conformity clearance procedure in the area of cross-compliance and specific support under Article 68 of Regulation (EC) No 73/2009. Hungary: The finding reports facts not requiring action. Latvia: No irregularities were identified in report PF5148. Romania: MADR – APIA (Ministry of Agriculture and Rural Development – Agency for Payments and Intervention in Agriculture) REPLY: APIA has implemented through the IACS control systems concerning the control of the eligibility of agricultural lands requested for payment and the eligibility of payment beneficiaries. At the same time, apart from the on-the-spot controls, administrative controls are implemented and carried out for all applicants on the cross-compliance norms. The fulfilment of cross-compliance obligations is checked based on control samples. The findings of the controls are entered in the computer system. Nonconformities found lead to the farmer being sanctioned. Sanctions are applied under the sanction system. The cross-compliance system applied in Romania has been the subject of several audits conducted by the representatives of the European Commission and of the European Court of Auditors. In 2013 the sanction system applicable in case of finding deficiencies was modified and simplified and farmers were timely informed of the sanctions and penalties applicable in case of failure to observe the requirements for eligibility. We support the EC view that “The observance of the cross-compliance requirements is not an eligibility criterion for payments under the CAP and penalties for violating the cross-compliance requirements should not be taken into account when calculating error rates for CAP.” With regard to the payment for the premiums per capita (cattle and sheep/goats) and for the specific aids granted pursuant to Article 68 of the Council Regulation (EC) No 73/2009, the management and control system is designed so as to eliminate the risk of paying premiums / aids for ineligible animals Czech-Republic: In the above point, the measures are only noted and described, so no other measures need to be adopted. Slovakia: Ministry of Agriculture and Rural Development: The European Court of Auditors did not perform any audits at the Ministry of Agriculture and Rural Development in 2012. In our view, the way the text is worded indicates that it is not a criticism, but simply an evaluation of the current situation.

3.9 || Annex 1.1, part 2, of chapter 1 describes the Court's overall audit approach and methodology. For the audit of market and direct support for agriculture the following specific points should be noted: - The audit involved examination of a sample of 180 transactions [11] as defined in Annex 1.1, paragraph 6. The sample is designed to be representative of the entire range of transactions within the policy group. In 2012 the sample consisted of transactions from 16 Member States [12], - the audit covered cross-compliance requirements (selected GAEC obligations 13 and statutory management requirement 414). Cases where cross compliance obligations were not met were treated as errors15, provided that it could be established that the infringement already existed in the year in which the farmer applied for aid[16]. In addition, the Court examined the implementation of cross-compliance standards and controls by Member States in the context of its EAFRD systems audits. The results of this work are presented in Chapter 4 at paragraph 4.24 but are also applicable to this Chapter, - reductions and exclusions (to be applied by Member States in cases where beneficiaries of EU aid over-claim the actual area or number of animals[17]) are not included in the Court’s error rate calculation[18], - the assessment of systems examined IACS in three paying agencies[19], in two Member States applying the SPS — Luxembourg and the United Kingdom (Northern Ireland and England) — and the supervisory and control systems applicable to the EU food aid scheme for the most deprived persons[20] in Spain and Italy, - the audit included a review of the annual activity report of the Commission’s Directorate-General for Agriculture and Rural Development (DG AGRI) concerning EAGF-related issues, - the Court reviewed DG AGRI’s clearance of accounts audit work and visited the certification bodies of Luxembourg and the United Kingdom (Northern Ireland). The results of this work, which also apply to this chapter, are presented in chapter 4 (see paragraphs 4.26 to 4.36). 11 In order to provide additional insight into the non-IACS component of the population, the sample was stratified and comprised 140 IACS transactions and 40 non-IACS transactions. 12 Czech Republic, Denmark, Germany, Ireland, Greece, Spain, France, Italy, Latvia, Luxembourg, Hungary, Austria, Poland, Portugal, Romania and the United Kingdom. 13 Avoiding the encroachment of unwanted vegetation, retention of terraces, maintenance of olive groves and respect of minimum livestock stocking rates or mowing obligations. 14 SMR 4 relating to Council Directive 91/676/EEC of 12 December 1991 concerning the protection of waters against pollution caused by nitrates from agricultural sources (OJ L 375, 31.12.1991, p. 1). 15 Cross-compliance obligations are substantive legal requirements that must be met by all recipients of EU direct aid. They are the basic and in many cases the only conditions to be respected in order to justify the payment of the full amount of direct aid, hence the Court’s decision to treat cross-compliance infringements as errors. 16 For each infringement, the national system for reduction of payments has been used for the quantification of the error. See also footnote 9. 17 Regulation (EC) No 1122/2009 provides that, where the claimed area is found to be overstated by more than 3 % or two hectares, the aid amount shall be calculated on the basis of the area determined reduced by twice the area claimed irregularly. If the difference is more than 20 % no aid shall be granted for the crop group concerned. Similar provisions apply to animal premia. 18 Except in cases where Member States had already found the irregularity without applying the due reductions/exclusions. 19 The paying agencies and key controls were selected on the basis of a risk analysis. 20 Article 43 of Council Regulation (EC) No 1234/2007 of 22 October 2007 establishing a common organisation of agricultural markets and on specific provisions for certain agricultural products (Single CMO Regulation) (OJ L 299, 16.11.2007, p. 1). || Austria: Footnote 12 merely contains an exhaustive list. Denmark: The Danish AgriFish Agency takes note of the comments by the Court of Auditors in point 3.9 and gives its response to the Court’s specific criticisms in Annex 2. Spain: There are no comments as this concerns the specific methodology employed by the Court in its scrutiny. Greece: GREECE SUCCESSFULLY COMPLETED (IN FEBRUARY 2013) IN COOPERATION WITH THE EUROPEAN COMMISSION AN ACTION PLAN FOR CROSS-COMPLIANCE, WHICH, AMONG OTHER THINGS, INCLUDES ACTIONS TO BETTER CONTROL THE REQUIREMENTS FOR AGRICULTURAL HOLDINGS WITHIN ZONES VULNERABLE TO POLLUTION CAUSED BY NITRATES (91/676/EEC), REGIONS OF THE NATURA 2000 NETWORK (92/43/EEC) AND SPECIAL PROTECTION AREAS (SPAS) (79/409/EEC). NEW FORMS AND CONTROL INSTRUCTIONS HAVE ALREADY BEEN PREPARED FOR THE YEAR 2013 AND THE RESPONSIBLE CONTROLLERS HAVE BEEN INFORMED. ALSO, ALL PARCELS WITHIN THESE AREAS HAVE BEEN RECORDED, AND SUCH DATA HAVE BEEN USED TO OBTAIN THE RELEVANT AUDIT SAMPLE. Hungary: The finding reports facts not requiring action. Italy: The attached replies (see Annex II) to the EU Court of Auditors offer counter-arguments concerning the results on the action of the AGEA paying agency regarding the aid scheme for most deprived persons. Romania: MADR – APIA (Ministry of Agriculture and Rural Development – Agency for Payments and Intervention in Agriculture) REPLY: APIA has implemented and applies the cross-compliance norms as defined by the Council Regulation (EC) No 73/2009. Apart from the on the spot controls, administrative controls are also implemented and carried out for all applicants on the cross-compliance norms. The fulfilment of cross-compliance obligations is checked based on control samples. The findings of the controls are entered in the computer system. Nonconformities found lead to the farmer being sanctioned. Sanctions are applied under the sanction system. The cross-compliance system applied in Romania has been the subject of several audits conducted by the representatives of the European Commission and of the European Court of Auditors. In 2013 the sanction system applicable in case of finding deficiencies was modified and simplified and farmers were timely informed of the sanctions and penalties applicable in case of failure to observe the requirements for eligibility. The European Commission has not yet set the financial sanctions applicable to the deficiencies found. We support the EC view that “The observance of the cross-compliance requirements is not an eligibility criterion for payments under the CAP and penalties for violating the cross-compliance requirements should not be taken into account when calculating error rates for CAP.” Therefore we consider that the error rate should be corrected to include the recovering of undue payments made further to the subsequent findings. Czech Republic: In the above point, the measures are only noted and described, so no other measures need to be adopted.

Box 3.1 || Examples of .accuracy errors || Austria: multiannual measures Additional administrative checks, higher control rate during on-site inspections. Spain: The Plan of measures for the Improvement of the Update to the LPIS is an action plan involving measures requiring continuity over the coming years so as to maintain the quality of the LPIS. Meanwhile, establishment of the pasture admissibility coefficient at the national level was one of the measures included in the Improvement Plan which was implemented during the 2013 season, and which will be further enhanced over the course of 2014, to which end considerable efforts are being made to update the databases and the applications associated with the LPIS. France: Les autorités françaises considèrent que les paiements ne sont pas irréguliers. En effet, conformément à l’article 40 du règlement CE 73-2009, les autorités françaises effectuent un exercice annuel conduisant à comparer les valorisations des soutiens issus des droits au paiement, des articles 52 à 54 et de l'article 68 avec le plafond national fixé à l'annexe VIII. Lorsqu’un dépassement est constaté, les autorités françaises, conformément à la réglementation, procèdent à un ajustement de la valorisation globale des droits au paiement. Les autorités françaises rappellent que l’objectif des dispositions de l’article 40 est de bien s'assurer que les paiements effectués ne vont pas au-delà des plafonds définis au titre de l'annexe VIII. Les réductions appliquées depuis 2010 sur les paiements de l’aide découplée s’inscrivent dans ce cadre. Néanmoins pour tenir compte des observation de la Cour et bien que ne partageant pas la lecture qui est faite de la réglementation, les autorités françaises vont procéder à un recalcul des droits à paiement qui sera effectué automatiquement au niveau national suite aux paiements des DPU de la campagne 2013 et avant le début de la campagne 2014. Les paiements au titre de la campagne 2014 seront effectués sur la base des valeurs des droits recalculés. Portugal: The completion of the LPIS Action Plan in January 2013 will certainly help to reduce the impact of these cases.

3.14 || The systematic weaknesses detected concerning the correct assessment of the eligibility of permanent pasture have already been reported in previous annual reports and were also found in the context of the systems audits carried out in the United Kingdom (England and Northern Ireland). || Austria: multiannual measures • Additional administrative checks, higher control rate during on-site inspections, • follow-up of areas and recovery of unduly paid sums Spain: The Plan of Measures for the Improvement of the Update to the LPIS (LPIS) is an action plan involving measures requiring continuity over the coming years so as to maintain the quality of the LPIS. Meanwhile, establishment of the pasture admissibility coefficient at the national level was one of the measures included in the Improvement Plan which was implemented during the 2013 season, and which will be further enhanced over the course of 2014, to which end considerable efforts are being made to update the databases and the applications associated with the LPIS. Portugal: Without prejudice to the LPIS update measures adopted since 2007, the completion of the LPIS Action Plan in January 2013 will certainly help to reduce the impact of these cases. UK: Please see Section 1.3 of the UK response PF5212 to the Court dated 28 March 2013 and information provided in the Area Aids 2011 Clearance of Accounts procedure.

3.23 || With regard to the accuracy of payments, the Court found deficiencies in all three paying agencies. In Luxembourg funds available in the national reserve were used to increase the value of all allocated entitlements, contrary to the provisions32 of EU legislation. In the United Kingdom (England and Northern Ireland) the Court observed several cases where the aid amount was calculated on the basis of areas larger than those actually determined by on-the-spot checks carried out by national inspectors. || UK: England: Please see paragraphs 174-192 of the UK response PF5212 to the Court dated 28 March 2013 and information provided in the Area Aids 2011 Clearance of Accounts procedure.

3.24 || The quality of the on-the-spot measurements is of key importance for the correct determination of aid amounts. The Court has re-performed a number of measurements carried out by the three paying agencies audited. In all three the Court’s measurements differed by more than applicable tolerance margins33 from the results reported by paying agency inspectors (in Luxembourg for 5 out of 61, in the United Kingdom (Northern Ireland) for 6 out of 42 and in the United Kingdom (England) for 8 out of 21 measurements). || UK: - The NI Authorities position on the 12 parcels out of 47 which the ECA have identified as being outside tolerance is a result of real world changes which took place between 2011 and the ECA audit in 2012. It also takes account of other areas which the NI Authorities consider were incorrectly assessed at the time of the ECA audit. As a result of responses from the NI Authorities the ECA withrew their observations on 6 of these measurements and maintained their observations on the remaining 6. The NI Authorities maintain the remaining 6 measurements re-performed by the Court are a result of real world changes. - The NI Authorities contend that field conditions and eligibility of land may change following the control check, and it is not possible to make allowance for real world changes introduced after the control check has taken place. Such ‘real world’ changes in land eligibility will be identified through ongoing LPIS updates which are not required within year and will impact on claims relating to future years. Northern Ireland is circa 95% grassland and a high proportion of that is permanent pasture. Permanent pasture is more prone to real world change than is the case in arable crops. For example year on year change in rush can be pronounced, particularily in wet years on heavy clay soils when farmers cannot access this land with machinery to control ineligibles including rush. The introduction of a new LPIS and ongoing refresh will address this issue in the future due to systematic updates taking place.

3.25 || EU legislation defines grassland as land covered with herbaceous vegetation. In the United Kingdom (England and Northern Ireland) SPS aid is granted for grazeable woodlands. However, when the Court re-performed on-the-spot inspections in the United Kingdom (England) several such parcels were found to contain no grass and therefore did not meet the definition of grazeable woodlands. National inspectors had reported the areas to be fully eligible for EU aid. || UK: Please see Section 1.4 of the UK response PF5212 to the Court dated 28 March 2013 and information provided in the Area Aids 2011 Clearance of Accounts procedure.

3.26 || In the three paying agencies selected for an IACS systems audit the Court examined the accounting records to establish whether the amounts to be recovered are properly accounted for and whether these amounts are correctly reported to the Commission. In Luxembourg and the United Kingdom (England) such procedures were found to operate satisfactorily || UK: Please see Section 4.1 of the UK response PF5212 to the Court dated 28 March 2013 and information in the Clearance of Accounts for Clawback and Irregularities (2010) Debt Management ARES(2012) 794135 of 6 December 2012. The Court has found that the accounting for debt was operating satisfactorily.

3.27 || In the United Kingdom (Northern Ireland) the Court observed that reconciliation of the amounts recorded in the debtor’s ledger to the underlying individual records was not always possible and accrued interests were not recorded in the table of undue payments. || UK: In 4 of the 5 cases highlighted it was not possible to reconcile the amounts from the debtors ledger to the Table of Undue Payments because these cases had been wrongly classified as administrative error and as such were incorrectly omitted from the Table of Undue payments. All have been corrected. It is also accepted that in 1 case it was not possible to reconcile between the IT system to the notification letter, as a copy of the notification letter was not held on file. As noted by the Court’s auditor reconciliation is possible for recent cases.

3.28 || the Court examined the control systems applicable to the EU food aid scheme for the most deprived persons in Spain and Italy. Under the scheme, the successful tenderer undertakes to provide a certain quantity of food to charities for distribution to the most deprived persons34 in the EU. In many cases, the tenderer is paid in the form of goods delivered from intervention stocks. Very often, these goods come from intervention storage facilities in a Member State other than that where the food is distributed. In these cases the food aid scheme requires close administrative cooperation between the Member States involved. 34 The term "Most deprived persons" is defined in Article 1(3) of Commission Regulation (EU) No 807/2010 of 14 September 2010 laying down detailed rules for the supply of food from intervention stocks for the benefit of the most deprived persons in the Union (OJ L 242, 15.9.2010, p. || Italy: The attached reply to the Court of Auditors (see Annex II) provides evidence of the AGEA Paying Agency's administrative cooperation with the Maltese authorities in the management of the aid scheme for the most deprived persons.

BOX 3.3 || Examples of incorrect data in LPIS/GIS || UK: A large proportion of the work to improve the LPIS was completed and deployed in maps to support the 2013 Single applications. Further work is due to be completed in advance of the 2015 Single Applications to bring additional detail to the capture of ineligible features and to positionally improve boundaries (NI). Any other comment: It is accepted that DARD’s LPIS was deficient in respect of the capture of ineligible features. As noted in the report, this is being addressed as part of the LPIS Improvement Project. Unfortunately, these improvements were not applicable to the time parameters associated with this report. The risk associated with the weakness is calculated for the 2011 scheme year. In respect of the findings noted for NI, comments are included below: 1) Forests captured as permanent pasture – This was caused by the fact that the 2011 scheme year was based on the old maps before the LPIS improvement process was completed. The recently completed LPIS refresh has resolved these issues and the DARD LPIS now contains an up-to-date layer of ineligible features. As a result, the woodland in the cases noted by the ECA have are captured as ineligible features in the new LPIS and the MEAs of the fields have been reduced accordingly. 2) Eligible area larger than the parcel size – The NI Authorities agree that there are some inconsistencies in the MEA that were used for the QAF exercise. The NI Authorities have looked at all of these cases noted by the ECA and are satisfied that the farm businesses were correctly paid in all cases against the correct MEA. The recent LPIS refresh has now resolved this potential issue as the MEA is now spatially linked to the field and cannot exceed the field area. Additional Information The NI Authorities consider that the on-going work on the LPIS Improvement Project has reduced the risk to the Fund. In 2012, farmers were notified of a visible eligible area for each field and in 2013 claims will be validated against a Maximum Eligible Area for each field. Claimants were provided with ortho photographs of their fields in 2011. There were wide publicity/workshops /training provided to farmers to help them assess their land eligibility and make more accurate claims England: Please see Section 1.3 of the UK response PF5212 to the Court dated 28 March 2013 and information provided in the Area Aids 2011 Clearance of Accounts procedure.

3.35 || For this policy group: - testing of transactions indicates that the most likely error present in the population is 3,8 %, - of the three IACS supervisory and control systems examined - 38, two were assessed as not effective (United Kingdom (England and Northern Ireland)) and the other was assessed as partially effective (Luxembourg); - the two examined supervisory and control systems applicable to the distribution of food to the most deprived persons were assessed as effective. Overall audit evidence indicates that accepted expenditure is affected by a material level of error. || UK: Whilst the UK Authorities accept that some shortcomings were identified by the Court, we believe that appropriate action has been taken to protect the Fund or where this has not been possible the risk has been quantified. Your services have noted the Court’s findings are similar to those contained in the Area Aids 2011 clearance procedures. The UK Authorities’ response to the Court’s letter PF 5212 and the information provided to Your services in the Area Aids Clearance procedure explain the corrective action underway, specifically Observation Letter: Ares(2011) 1137533 of 25 October 2011, the UK Authorities response CL/423 of 10 February 2012 and information provided for the Bilateral: Ares (2013) 726391 18/06/2013.

Annex 3.2 || Results of the examination of the systems for agriculture: market and direct support || Spain: The French and Irish authorities objected to the use of form T5 Ireland: Under the terms of the Plan for the Scheme for the most Deprived Scheme for 2011 Spain were allocated 23,507 tonnes of SMP which was stored in Intervention in Ireland. The relevant regulation was 945/2010. The Department of Agriculture, Food and the Marine arranged for the removal of this product on the basis of instructions received from the Spanish authorities who were responsible for all transport arrangements and costs under their own allocated budget for the scheme. In the case of transfer the MS of destination in this case Spain provided the supplier MS (Ireland) with the name of the person contracted to carry out the operation and the goods were made available on presentation of a removal warrant issued by the intervention agency of the MS of destination. Intra-Union transport costs are paid by the MS of destination. In relation to the transfer of the SMP to Spain all the requirements of the implementation regulation 945/2010 and the governing regulation 807/2010 were met in full. The Department is not aware of any request from the Spanish authorities that was refused in relation to the removal of this SMP Malta: On 31 May 2013, at their own request, Malta sent a letter to the AGEA to officially confirm that Malta had received 44 fewer tonnes of pasta than had originally been allocated. Those 44 tonnes of pasta had already been consumed in Italy by people in greater need: accordingly, since the aim of the scheme was still being achieved and because of the good working relationship between Malta and Italy, the case was closed. Portugal: Given that the POSEI can include costs related to the purchase of services needed to implement the respective Programme, an application for Technical Assistance was submitted on the basis that the tasks performed as part of the on-the-spot inspections could be defined as a provision of services. UK: The UK authorities have responded to the Court in PF5212 dated 28 March 2013. For the controls identified in Annex 3.2: 1. Incomplete or incorrect information on size and eligibility of land in the LPIS database. • RPA is aware of the specific concerns raised by the European Court of Auditors (ECA) in respect of the accuracy of the LPIS (Rural Land Register in England). These matters are being addressed and the corrective action is the subject of ongoing discussions with Your Services through the Clearance procedures. • The Agency is proactively updating the RLR using a variety of sources, including customer notifications, on the ground inspection findings, ortho-imagery and Ordnance Survey mapping data. • The LPIS incorrectly classified some woodland areas as eligible, although other controls addressed the possibility of this land being claimed upon. A new process is now in place that proactively checks customer maps against the latest Ordnance Survey mapping data and up to date ortho-imagery. • CAP payments made on Common land are controlled through means other than the LPIS. 2. Claim registration procedure does not have sufficient built-in controls to prevent the date of arrival being backdated. • This finding was based on a single case. The error was detected by RPA’s own administrative checks and corrected without any risk to the Fund. • The controls in this area have been reviewed and further audit review has confirmed that they are acceptable. 3. Errors in claims were corrected as obvious errors without application of penalties when those should have been applied. • Not applicable to England 4. Values of entitlements were increased contrary to EU legislation. • Not applicable to England 5. Incorrect application of the EU definition of farmer. • The RPA disagrees with the Court’s view that RPA’s definition of a farmer is inc