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

Consolidated annual accounts of the European Union 2019

(2020/C 384/01)

CONTENTS

FOREWORD 2

EUROPEAN UNION POLITICAL AND FINANCIAL FRAMEWORK, GOVERNANCE AND ACCOUNTABILITY 3

NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS 10

HIGHLIGHTS OF THE FINANCIAL YEAR 2019 11

CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES 13

BALANCE SHEET 14

STATEMENT OF FINANCIAL PERFORMANCE 15

CASHFLOW STATEMENT 16

STATEMENT OF CHANGES IN NET ASSETS 17

NOTES TO THE FINANCIAL STATEMENTS 18

FINANCIAL STATEMENT DISCUSSION AND ANALYSIS 100

BUDGETARY IMPLEMENTATION REPORTS AND EXPLANATORY NOTES 114

GLOSSARY 173

LIST OF ABBREVIATIONS 177

FOREWORD

It is my pleasure to present the 2019 annual accounts of the European Union. They provide a complete overview of the EU finances and the implementation of the EU budget for the last year, including information on contingent liabilities, financial commitments and other obligations of the Union. Reflecting the multiannual nature of the Union’s activities, they offer explanations of the key financial figures and their evolution. The consolidated annual accounts of the European Union are part of the Commission’s integrated financial and accountability reporting package and form an essential part of our highly developed system of financial accountability.

The EU budget proved once more that it means added value for citizens, companies and regions: despite its limited amount, representing around 2 % of all public spending in the Union, it complements national budgets and supports our common political priorities.

The 2019 budget was the penultimate budget of the current multiannual financial framework (MFF). The implementation of almost all programmes was at cruising speed, with the exception of new programmes, such as the European Defence Industrial Development Programme (EDIDP), or actions for which the legislative process finished recently. The implementation of the EU budget totalled EUR 178,8 billion in commitment appropriations, and EUR 159,1 billion in payment appropriations.

In line with the European Commission proposal of May 2018, a significant portion of the 2019 budget went to programmes to stimulate the creation of jobs, especially for young people, and to boost growth, strategic investments and convergence. The EU has also continued supporting the efforts to effectively deal with the migration challenge, both inside and outside the EU.

Measures to support economic growth and reduce the economic gaps between regions amounted to nearly half of the funds committed. EU funding contributed EUR 12,4 billion to research and innovation under Horizon 2020, including in the field of high-performance computing. The budget also proved in other areas that it is an investment in the future: it increased expenditure on education and training by 20 % for Erasmus+ as compared to 2018 and by 37 % for the Connecting Europe Facility, which fosters transport and digital infrastructure. Support for agriculture and rural areas remained stable at EUR 57,9 billion, contributing also to the fight against climate change and to the promotion of sustainable growth.

The 2019 budget provided the necessary flexibility to address the internal aspect of migration issues, with a total of EUR 1,2 billion support from the Asylum, Migration and Integration Fund, along with EUR 533 million for border management and security from the Internal Security Fund. A total of EUR 5 million was also allocated to the creation of the new European Public Prosecutor’s Office, set up to prosecute crimes against the EU budget, including fraud, money laundering and corruption.

Even before the Coronavirus crisis the EU Budget 2019 showed the importance of a functioning multiannual financial framework which provides the necessary means and flexibility to act and to react to upcoming challenges. This flexibility will also play a role for the next multiannual financal framework, which is at the heart of the recovery plan for Europe.

The consolidated annual accounts of the European Union are produced in accordance with International Public Sector Accounting Standards. In order to uphold these standards, the Commission is consistently improving its rules and procedures, organisational structure and agility. Reporting consistently and effectively ensures legal compliance and increases the accountability of EU spending. It helps to engage with citizens and with other stakeholders, and to maintain their confidence and trust in the European Union.

Johannes HAHN Commissioner for Budget and Human Resources

EUROPEAN UNION POLITICAL AND FINANCIAL FRAMEWORK, GOVERNANCE AND ACCOUNTABILITY

The European Union (EU) is a Union on which the Member States confer competences to attain objectives they have in common. The Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail.

1. POLITICAL AND FINANCIAL FRAMEWORK

EU Treaties

The overarching objectives and principles that guide the Union and the European institutions are defined in the Treaties. The Union and the EU institutions may only act within the limits of the competences conferred by the Treaties so as to attain the objectives set out therein and must do this in accordance with the principles (1) of subsidiarity and proportionality. To attain its objectives and carry out its policies, the Union provides itself with the necessary financial means. The Commission is responsible for promoting the general interest of the Union which includes executing the budget and managing programmes in cooperation with the Member States and in accordance with the principle of sound financial management.

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

Commission political priorities

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

SIX HEADLINE AMBITIONS

A European Green Deal

— Striving to be the first climate-neutral continent

An economy that works for people

— Working for social fairness and prosperity

A Europe fit for the digital age

— Empowering people with a new generation of technologies

Promoting our European way of life

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

A stronger Europe in the world

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

A new push for European democracy

— Nurturing, protecting and strengthening our democracy

The previous Commission focused on ten priorities set by former President Jean-Claude Juncker and in line with Europe 2020, the EU’s long-term growth strategy at the time:

— A new boost for jobs, growth and investment,

— A connected digital single market,

— A resilient Energy Union with a forward-looking climate change policy,

— A deeper and fairer internal market with a strengthened industrial base,

— A deeper and fairer Economic and Monetary Union (EMU),

— A balanced and progressive trade policy to harness globalisation,

— An area of justice and fundamental rights based on mutual trust,

— Towards a new policy on migration,

— Europe as a stronger global actor,

— A Union of democratic change.

2030 Agenda for Sustainable Development

The 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals, adopted by the United Nations in September 2015, have given a new impetus to global efforts to achieve sustainable development. The EU played an important role in shaping the 2030 Agenda, reflecting the fact that sustainable development has long been at the heart of the European project. The Sustainable Development Goals are firmly anchored in the EU Treaties and mainstreamed in all the EU policies and initiatives. The EU budget plays an essential role in addressing many sustainability challenges including poverty, youth unemployment, health and well-being, climate change, loss of biodiversity, sustainable energy and migration.

Multiannual financial framework and spending programmes

The policies supported by the EU budget are implemented in accordance with the multiannual financial framework (MFF) and corresponding sectoral legislation defining spending programmes. These translate the EU’s political priorities into financial terms over a period long enough to be effective and to provide a coherent long-term perspective for beneficiaries of EU funds and co-financing national authorities. Maximum annual amounts (ceilings) are set for EU expenditure as a whole and for the main categories of expenditure (headings). The sum of the ceilings of all headings gives the total ceiling for commitment appropriations. The multiannual financial framework is adopted by unanimity indicating the agreement of all Member States to the objectives and the level of spending (maximum level of budget commitments and payments), with the consent of the European Parliament. The current MFF covers the period 2014-2020.

Interinstitutional agreement

The multiannual financial framework is complemented by the interinstitutional agreement (2), which is a political agreement between the European Parliament, the Council and the Commission. The purpose of this agreement, adopted in 2013 in accordance with Article 295 of the Treaty on the Functioning of the European Union (TFEU), is to implement budgetary discipline, to improve the functioning of the annual budgetary procedure and cooperation between the institutions on budgetary matters, as well as to ensure sound financial management.

Annual budget

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

The main sources of funding of the EU are own resources revenues which are complemented by other revenues. There are three types of own resources: traditional own resources (such as custom duties and sugar levies), the own resource based on value added tax (VAT) and the own resource based on gross national income (GNI). Other revenues arising from the activities of the EU (e.g. competition fines) normally represent less than 10 % of total revenue. The overall amount of own resources needed to finance the budget is determined by total expenditure less other revenue. In the current MFF the total amount of own resources cannot exceed 1,20 % of the sum of gross national income (GNI) of the Member States.

Management modes

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

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

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

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

Financial Regulation

The Financial Regulation (FR) (3) applicable to the general budget is a central act in the regulatory architecture of the EU’s finances. It defines in detail the financial rules applicable to the execution of the EU budget and the roles of the different actors involved in ensuring that the money is used soundly and achieves the objectives set.

2. GOVERNANCE AND ACCOUNTABILITY

2.1. INSTITUTIONAL STRUCTURE

The EU has an institutional framework which aims to promote its values, advance its objectives, serve its interests, those of its citizens and those of the Member States, and ensure the consistency, effectiveness and continuity of its policies and actions. The organisational structure consists of institutions, agencies and other EU bodies, which are included in the EU consolidated accounts as far as the consolidation criteria as set out in the Financial Regulation and the applicable accounting rules are met (please refer to note 9 for the list of entities included in the scope of consolidation).

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

The Commission is responsible for planning, preparing and proposing legislation; for managing EU policies, including the monitoring of implementation of EU legislation and ensuring its enforcement; for allocating EU funding and managing financing programmes; and for representing the EU internationally.

The Commission implements the budget, in large part in cooperation with the Member States (4). Together, they ensure that the appropriations are used in accordance with the principles of sound financial management. Regulations lay down the control and audit obligations of the Member States when they share the implementation of the budget and the resulting responsibilities. They also lay down the responsibilities and detailed rules for each of the EU’s institution as concerns their own expenditure.

2.2. THE COMMISSION’S GOVERNANCE STRUCTURE

The Commission has a unique governance system, with a clear distinction between political and administrative oversight structures and well-defined lines of responsibility and financial accountability (5).

The Commission’s internal functioning is based on a number of key principles underpinning good governance: clear roles and responsibilities, a strong commitment to performance management and compliance with the legal framework, clear accountability mechanisms, a high quality and inclusive regulatory framework, openness and transparency, and high standards of ethical behaviour.

The Commission performs its functions under the leadership of the College of Commissioners, which sets priorities and takes overall political responsibility for the work of the Commission. The President decides on the internal organisation of the Commission, ensuring that it acts consistently, efficiently and as a collegiate body. The internal arrangements create a structure of robust controls and management tools which allow the College of Commissioners to take political responsibility for the work of the Commission, namely the decisions it takes as well as for coordinating, executive and management functions, as laid down in the Treaties.

The College delegates the operational implementation of the budget and finanical management to the Directors-General and Heads of Service who lead the administrative structure of the Commission (6). This decentralised approach creates an administrative culture that encourages civil servants to take responsibility for activities over which they have control and requires them to provide assurance as concerns the activities for which they are accountable.

The central services support the Directors-General and Heads of Service in the exercise of their responsibilities. In particular, the Corporate Management Board provides coordination, oversight, advice and strategic orientations on corporate management issues, in areas including the management of financial and human resources, risk management, performance management, IT governance, cyber- and physical security, business continuity, communication and information management (7).

This governance system is based on the Treaties and has evolved over time to adapt to a changing environment and to remain in line with best practice as set out in relevant international standards (8). The further streamlining and strengthening of the arrangements introduced in 2018 (9) took into account audit work by the European Court of Auditors (10) and the Commission’s Internal Audit Service. As required by the Financial Regulation (Article 247), the Annual Management and Performance Report for the EU budget includes information on the key governance arrangements in the Commission.

2.3. PERFORMANCE FRAMEWORK OF THE EU BUDGET

Implementing robust performance frameworks is essential for ensuring a strong focus on results, European level added value and the sound management of EU programmes. The performance framework for the EU budget is highly developed, and ranks higher than that of any individual country assessed by the Organisation for Economic Co-operation and Development (OECD) in its standard index of performance budgeting frameworks.

The EU budget performance framework reports on several types and levels of strategic goals, objectives and indicators. It also takes account of the complementarity and mainstreaming of policies (such as addressing climate change or gender equality) and programmes and the key role of the Member States in implementing the EU budget.

— Objectives, indicators and targets are included in the programmes’ legal bases and every year the Commission reports on them through the programme statements that accompany the draft budget. The latter provide the information necessary for understanding the execution of programmes and measuring their performance; this includes the long-term financial commitments under the multiannual financial framework, programme performance baselines (starting points for policy action), targets (to be achieved at the end of the multi-annual programming period), and intermediate milestones.

— To ensure resources are allocated to priorities and that every action brings high performance and added value, the Commission promotes a performance culture. Moreover, over the past years it has developed an approach that promotes a better balance between compliance and performance.

— The Annual Management and Performance Report for the EU budget provides a comprehensive overview on the performance, management and protection of the EU budget. It explains how the EU budget supports the European Union’s political priorities, the results achieved with the EU budget, and the role the Commission plays in ensuring and promoting the highest standards of budgetary and financial management.

These elements place the budget authority in a strong position to factor in performance information during the annual budgetary procedure.

2.4. THE COMMISSION’S FINANCIAL MANAGEMENT

In the Commission, the roles and responsibilities in financial management are clearly defined (e.g. in the Financial Regulation and the Internal Rules (11)) and applied accordingly. As authorising officers by delegation, the Commission’s Directors-General and Heads of Service are responsible for the sound financial management of EU resources, compliance with the provisions of the Financial Regulation, risk management and establishing an appropriate internal control framework.

The responsibility of the Authorising Officers covers the entire management process, from determining what needs to be done to achieve the policy objectives set by the institution to managing the activities from both an operational and a sound financial management standpoint. Tasks can further be delegated to Directors, Heads of Unit and others, who thereby become Authorising Officers by Sub-Delegation. Each authorising officer by delegation may rely on one or two directors in charge of risk management and internal control to oversee and monitor the implementation of internal control systems.

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

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

The Accounting Officer of the Commission is centrally responsible for treasury management, recovery procedures, laying down accounting rules based on International Public Sector Accounting Standards and methods, validating accounting systems and the preparation of the Commission’s and consolidated annual accounts of the EU. Furthermore, the Accounting Officer is required to sign the annual accounts declaring that they present fairly, in all material aspects, the financial position, the results of the operations and the cash flows of the Union. The annual accounts are adopted by the College of Commissioners. The Accounting Officer is an independent function and bears a major responsibility as regards financial reporting in the Commission.

The Internal Auditor of the Commission is likewise a centralised and independent function and provides independent advice, opinions and recommendations on the quality and functioning of internal control systems inside the Commission, EU agencies and other autonomous bodies.

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

2.5. FINANCIAL REPORTING

Reporting on the EU budget is delivered through the Integrated Financial and Accountability Reporting package which brings together comprehensive information on the implementation, performance, results, financial management and protection of the EU budget. This comprises the consolidated annual accounts of the EU, the Annual Management and Performance Report for the EU budget (which includes an evaluation on the Union’s finances based on the results achieved), the annual report on internal audits carried out, a long-term forecast of future inflows and outflows covering the next five years and the report on the follow-up to the discharge. The Integrated Financial and Accountability Reporting package provides the public with a comprehensive view of the financial and operational situation of the EU budget each year.

The consolidated annual accounts of the EU provide financial information on the activities of the institutions, agencies and other bodies of the EU from both an accrual accounting and budgetary perspective. These accounts do not encompass the annual accounts of Member States.

The consolidated annual accounts of the EU consist of two separate but linked parts:

— the consolidated financial statements, and

— the reports on implementation of the budget, which provide an aggregated record of budget implementation.

In addition, the consolidated annual accounts of the EU are accompanied by a Financial Statement Discussion and Analysis (FSDA), which summarises significant changes and trends in the financial statements and explains significant risks and uncertainties the EU has faced and needs to address in future.

Reporting and Accountability in the Commission:

Integrated Financial & Accountability Reporting Article 247 FR — Consolidated Annual Accounts of the EU — Annual Management and Performance Report for the EU budget (incl. reporting on the evaluation of the EU finances) — Annual internal audit report — A long-term forecast of future in- and outflows for five years — Report on the follow up to the discharge Other reports — Communication package at the occasion of the State of the Union address — General Report on the activities of the EU — Annual Activity Reports of the Directorates-General — Report on Budgetary and Financial Management

2.6. EXTERNAL AUDIT AND DISCHARGE PROCEDURE

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

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

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

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

NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS

The consolidated annual accounts of the European Union for the year 2019 have been prepared on the basis of the information presented by the institutions and bodies under Article 246(2) of the Financial Regulation applicable to the general budget of the European Union. I hereby declare that they were prepared in accordance with Title XIII of this Financial Regulation and with the accounting principles, rules and methods set out in the notes to the financial statements.

I have obtained from the accounting officers of these institutions and bodies, who certified its reliability, all the information necessary for the production of the accounts that show the European Union’s assets and liabilities and the budgetary implementation.

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

Rosa ALDEA BUSQUETS Accounting Officer of the Commission 18 June 2020

HIGHLIGHTS OF THE FINANCIAL YEAR 2019

Implementation of the 2019 Union budget

The EU budget has an important role to support the delivery of the Union’s policies and priorities. Despite its limited amount, representing around 2 % of all public spending in the Union, it complements national budgets and has a clear focus on investment and additionality. It is a key tool among the wide set of European-level policy and regulatory instruments, to implement policy priorities which all EU members have agreed upon, translated into a Multiannual Financial Framework containing the different programmes and maximum expenditure ceilings.

The EU budget for 2019, adopted on 12 December 2018, confirms that the EU is directing money to where the needs are. In 2019, and in line with the European Commission proposal of May 2018, the biggest part of the EU budget went to stimulate the creation of jobs, especially for young people, and to boost growth, strategic investments and convergence. The EU has also continued supporting the efforts to effectively deal with the migration challenge, both inside and outside the EU.

The 2019 adopted budget contributed to the strength and resilience of the European economy and to promoting solidarity and security both within and beyond its borders. The 2019 budget was the penultimate budget of the current multiannual financial framework (MFF). The implementation of almost all programmes was at cruising speed, with the exception of new programmes, such as the European Defence Industrial Development Programme (EDIDP), or actions for which the legislative process finished recently.

The implementation of the EU budget in 2019 totalled EUR 178,8 billion in commitment appropriations, and EUR 159,1 billion in payment appropriations. This implementation can be considered satisfactory, with only minor adjustments made throughout the year. After amounts carried over to 2020, the implementation reached 99,4 % of commitment appropriations and 99,5 % of payment appropriations.

Measures to support economic growth and reduce the economic gaps between regions amounted to nearly half of the funds committed. EU funding contributed EUR 12,4 billion to research and innovation under Horizon 2020, including in the field of high-performance computing. The budget increased for education and training (20 % more for Erasmus+ than in 2018) and transport and digital infrastructure (37 % more for the Connecting Europe Facility). Support for agriculture and rural areas remained stable at EUR 57,9 billion, contributing also to the fight against climate change and to the promotion of sustainable growth.

The 2019 budget provided the necessary flexibility to address the internal aspect of migration issues, with a total of EUR 1,2 billion support from the Asylum, Migration and Integration Fund, along with EUR 533 million for border management and security from the Internal Security Fund. A total of EUR 5 million was also allocated to the creation of the new European Public Prosecutor’s Office, set up to prosecute crimes against the EU budget, including fraud, money laundering and corruption.

Financial Statements — highlights

Balance sheet

— Under Property, Plant and Equipment, the four satellites launched in 2018 successfully passed the in-orbit testing in 2019. They have been added to the operational constellation in 2019, bringing it up to 26 satellites — see note 2.2.

— Available for Sale financial assets increased by EUR 3,0 billion, due to the continued funding of the EFSI & EFSD guarantee funds, as well as Horizon 2020 Financial Instruments. Loans decreased by EUR 1,3 billion following the repayment of BOP loans by Romania and Latvia, offset somewhat by new MFA loans granted — see note 2.4.

— Pre-financing (i.e. advances paid to beneficiaries of EU funds) increased slightly by EUR 1,5 billion to EUR 51,4 billion — see note 2.5.

— Overall the total Receivables & Recoverables amounts remained at a similar level to last year, being EUR 24,0 billion — see note 2.6.

— A fall in the long-term interest rate used to value employee benefit obligations (the so-called discount rate), becoming negative for the first time, led to a significant increase in the year-end liability, an increase of EUR 17,2 billion — see note 2.9.

— The repayment of BOP borrowings of EUR 1,5 billion drove the decrease in financial liabilities, somewhat offset by new borrowings linked to MFA loans granted — see note 2.11.

— Payables and accruals remained at a similar level to 2018, EUR 94,1 billion in total — see notes 2.12 and 2.13.

Statement of Financial Performance

— On the revenue side there were EUR 3,0 billion higher GNI revenue following adjustments made for past amounts (mostly for years 2012 to 2017) as GNI bases were updated with real data. Fines income was EUR 4,3 billion in 2019 — see note 3.1/3.4.

— Expenses incurred under shared management increased by EUR 4,8 billion, led by better implementation of programmes under ERDF & Cohesion fund as the current MFF advances — see note 3.9.

Contingent Liabilities

— Budgetary guarantees increased by EUR 2,7 billion due to the signing of new EFSI and ELM operations in 2019 that are guaranteed by the EU budget — see note 4.1.1.

CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES (1)

CONTENTS

BALANCE SHEET 14

STATEMENT OF FINANCIAL PERFORMANCE 15

CASHFLOW STATEMENT 16

STATEMENT OF CHANGES IN NET ASSETS 17

NOTES TO THE FINANCIAL STATEMENTS 18

1. SIGNIFICANT ACCOUNTING POLICIES 18

2. NOTES TO THE BALANCE SHEET 32

3. NOTES TO THE STATEMENT OF FINANCIAL PERFORMANCE 63

4. CONTINGENT LIABILITIES AND ASSETS 72

5. BUDGETARY AND LEGAL COMMITMENTS 76

6. FINANCIAL RISK MANAGEMENT 80

7. RELATED PARTY DISCLOSURES 93

8. EVENTS AFTER THE BALANCE SHEET DATE 95

9. SCOPE OF CONSOLIDATION 97

BALANCE SHEET

EUR million Note 31.12.2019 31.12.2018 NON-CURRENT ASSETS Intangible assets 2.1 515 446 Property, plant and equipment 2.2 11 380 11 185 Investments accounted for using the equity method 2.3 591 591 Financial assets 2.4 66 714 65 231 Pre-financing 2.5 26 240 26 006 Exchange receivables and non-exchange recoverables 2.6 3 607 416 109 047 103 875 CURRENT ASSETS Financial assets 2.4 4 514 4 168 Pre-financing 2.5 25 206 23 968 Exchange receivables and non-exchange recoverables 2.6 20 367 24 248 Inventories 2.7 68 73 Cash and cash equivalents 2.8 19 745 18 113 69 900 70 570 TOTAL ASSETS 178 947 174 444 NON-CURRENT LIABILITIES Pension and other employee benefits 2.9 (97 659 ) (80 456 ) Provisions 2.10 (3 710 ) (3 281 ) Financial liabilities 2.11 (53 071 ) (53 289 ) (154 440 ) (137 025 ) CURRENT LIABILITIES Provisions 2.10 (1 116 ) (852) Financial liabilities 2.11 (1 446 ) (2 617 ) Payables 2.12 (27 241 ) (32 227 ) Accrued charges and deferred income 2.13 (67 227 ) (63 186 ) (97 030 ) (98 882 ) TOTAL LIABILITIES (251 470 ) (235 907 ) NET ASSETS (72 523 ) (61 463 ) Reserves 2.14 5 037 4 961 Amounts to be called from Member States (2) 2.15 (77 560 ) (66 424 ) NET ASSETS (72 523 ) (61 463 )

STATEMENT OF FINANCIAL PERFORMANCE

EUR million Note 2019 2018 REVENUE Revenue from non-exchange transactions GNI resources 3.1 108 820 105 780 Traditional own resources 3.2 21 235 22 767 VAT resources 3.3 18 128 17 624 Fines 3.4 4 291 6 740 Recovery of expenses 3.5 2 627 2 215 Other 3.6 2 072 3 312 157 174 158 438 Revenue from exchange transactions Financial revenue 3.7 1 817 3 115 Other 3.8 1 298 1 379 3 116 4 494 Total Revenue 160 289 162 932 EXPENSES Implemented by Member States 3.9 European Agricultural Guarantee Fund (43 951 ) (43 527 ) European Agricultural Fund for Rural Development and other rural development instruments (13 541 ) (13 149 ) European Regional Development Fund and Cohesion Fund (35 178 ) (30 230 ) European Social Fund (11 218 ) (11 935 ) Other (2 608 ) (2 826 ) Implemented by the Commission, executive agencies and trust funds 3.10 (18 942 ) (17 551 ) Implemented by other EU agencies and bodies 3.11 (3 131 ) (3 396 ) Implemented by third countries and international organisations 3.11 (4 085 ) (4 016 ) Implemented by other entities 3.11 (2 875 ) (3 569 ) Staff and pension costs 3.12 (11 366 ) (10 929 ) Finance costs 3.13 (1 491 ) (1 677 ) Other expenses 3.14 (7 109 ) (6 208 ) Total Expenses (155 493 ) (149 014 ) ECONOMIC RESULT OF THE YEAR 4 796 13 918

CASHFLOW STATEMENT

EUR million 2019 2018 Economic result of the year 4 796 13 918 Operating activities Amortisation 107 104 Depreciation 1 022 998 (Increase)/decrease in loans 1 255 1 041 (Increase)/decrease in pre-financing (1 472 ) (947) (Increase)/decrease in exchange receivables and non-exchange recoverables 691 (12 299 ) (Increase)/decrease in inventories 5 222 Increase/(decrease) in pension and other employee benefits 17 203 7 334 Increase/(decrease) in provisions 693 594 Increase/(decrease) in financial liabilities (1 389 ) (1 007 ) Increase/(decrease) in payables (4 985 ) (6 821 ) Increase/(decrease) in accrued charges and deferred income 4 041 (716) Prior year budgetary surplus taken as non-cash revenue (1 803 ) (556) Remeasurement of employee benefits liability (non-cash movement not included in statement of financial performance) (14 164 ) (4 396 ) Other non-cash movements 111 (71) Investing activities (Increase)/decrease in intangible assets and property, plant and equipment (1 392 ) (1 583 ) (Increase)/decrease in investments accounted for using the equity method (1) (9) (Increase)/decrease in available for sale financial assets (2 964 ) (1 811 ) (Increase)/decrease in financial assets at fair value through surplus or deficit (121) 7 NET CASHFLOW 1 633 (5 998 ) Net increase/(decrease) in cash and cash equivalents 1 633 (5 998 ) Cash and cash equivalents at the beginning of the year 18 113 24 111 Cash and cash equivalents at year-end 19 745 18 113

STATEMENT OF CHANGES IN NET ASSETS

EUR million Amounts to be called from Member States Accumulated Surplus/(Deficit) Other reserves Fair value reserve Net Assets BALANCE AS AT 31.12.2017 (75 234 ) 4 598 278 (70 359 ) Movement in Guarantee Fund reserve (186) 186 — — Fair value movements — — (47) (47) Remeasurements in employee benefits liabilities (4 396 ) — — (4 396 ) Other 30 (54) — (24) 2017 budget result credited to Member States (556) — — (556) Economic result of the year 13 918 — — 13 918 BALANCE AS AT 31.12.2018 (66 424 ) 4 730 231 (61 463 ) Movement in Guarantee Fund reserve (21) 21 — — Fair value movements — — 160 160 Remeasurements in employee benefits liabilities (14 164 ) — — (14 164 ) Other 56 (105) — (49) 2018 budget result credited to Member States (1 803 ) — — (1 803 ) Economic result of the year 4 796 — — 4 796 BALANCE AS AT 31.12.2019 (77 560 ) 4 646 391 (72 523 )

NOTES TO THE FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

1.1. LEGAL BASIS AND ACCOUNTING RULES

The accounts of the EU are kept in accordance with Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012 (3), hereinafter referred to as the ‘Financial Regulation’ (FR).

In accordance with Article 80 of the Financial Regulation, the EU prepares its financial statements on the basis of accrual-based accounting rules that are based on International Public Sector Accounting Standards (IPSAS). These accounting rules, adopted by the Accounting Officer of the Commission, have to be applied by all the institutions and EU bodies falling within the scope of consolidation in order to ensure the internal consistency of the EU consolidated accounts.

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

New EAR which are effective for annual periods beginning on or after 1 January 2019

The following new EAR, adopted by the Accounting Officer of the Commission, became mandatorily effective for annual periods beginning on or after 1 January 2019:

— EAR 20 ‘Public Sector Combinations’, which is based on IPSAS 40 ‘Public Sector Combinations’, establishes the requirements for classifying, recognising and measuring public sector combinations, i.e. the bringing together of separate operations into one public sector entity. The standard distinguishes beween two types of public sector combinations: amalgamations and acquisitions. An amalgamation is a public sector combination in which either no party to the combination gains control on one or more operations, or, in case one party to the combination does gain control, there is evidence that the combination has the economic substance of an amalgamation (the standard provides several indicators relating to the consideration and the decision-making process to allow for that assessment). An acquisition is a public sector combination in which one party to the combination gains control of one or more operations and there is evidence that the combination is not an amalgamation. Public sector combinations which are classified as an amalgamation are accounted for by appliyng the modified pooling-of-interests method, which requires that the resulting entity shall recognise the identifiable assets, liabilities and any non-controllling interests subject to the combination at their carrying amount with a corresponding increase or decrease in net assets (i.e. without giving rise to goodwill). Public sector combinations which are classified as acquisitions are accounted for by applying the acquisition method, which requires that the identifiable assets acquired and liabilities assumed are recognised at their acquisition-date fair-values, and any non-controlling interest in the acquired operation is recognised at the proportionate share of the acquired operations’ identifiable net assets. Unlike an amalgamation an acquisition gives rise to goodwill (measured as the excess of the consideration transferred and any non-controlling interest over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed). The standard foresees distinct disclosure requirements in order to enable the users of the EU financial statements to evaluate the nature and financial effects of an amalgamation or acquisition, as well as the financial effects of adjustments recognised in the current reporting period relating to such transactions that occurred during the period or previous reporting periods. Since there were no public sector combinations during the reporting period the new standard has no effect on the 2019 financial statements.

New EAR adopted but not yet effective at 31 December 2019

There are no new EAR adopted but not yet effective at 31 December 2019.

1.2. ACCOUNTING PRINCIPLES

The objective of financial statements is to provide information about the financial position, performance and cashflows of an entity that is useful to a wide range of users. For the EU as a public sector entity, the objectives are more specifically to provide information useful for decision-making, and to demonstrate the accountability of the entity for the resources entrusted to it. It is with these goals in mind that the present document has been drawn up.

The overall considerations (or accounting principles) to be followed when preparing the financial statements are laid down in EU accounting rule 1 ‘Financial Statements’ and are the same as those described in IPSAS 1: fair presentation, accrual basis, going concern, consistency of presentation, materiality, aggregation, offsetting and comparative information.

The qualitative characteristics of financial reporting are relevance, faithful representation (reliability), understandability, timeliness, comparability and verifiability.

1.3. CONSOLIDATION

Scope of consolidation

The consolidated financial statements of the EU comprise all significant controlled entities, joint arrangements and associates. The complete list of consolidated entities can be found in note 9. It now comprises 52 controlled entities and 1 associate. Among the controlled entities are the EU institutions (including the Commission, but not the European Central Bank) and the EU agencies (except those of the former 2nd pillar, i.e. the Common and Foreign Security Policy). The European Coal and Steel Community in Liquidation (ECSC i.L.) is also considered as a controlled entity. The EU’s only associate is the European Investment Fund (EIF).

Entities falling under the scope of consolidation but immaterial to the EU consolidated financial statements as a whole need not be consolidated or accounted for using the equity method where to do so would result in excessive time or cost to the EU. Those entities are referred to as ‘Minor entities’ and are separately listed in note 9. In 2019, 7 entities have been classified as such minor entities.

Controlled entities

In order to determine the scope of consolidation the control concept is applied. Controlled entities are entities for which the EU is exposed, or has right, to variable benefits from its involvement and has the ability to affect the nature and amount of those benefits through its power over the other entity. This power must be presently exercisable and must relate to the relevant activities of the entity. Controlled entities are fully consolidated. The consolidation begins at the first date on which control exists, and ends when such control no longer exists.

The most common indicators of control within the EU are: creation of the entity through founding treaties or secondary legislation, financing of the entity from the EU budget, the existence of voting rights in the governing bodies, audit by the European Court of Auditors and discharge by the European Parliament. An individual assessment for each entity is made in order to decide whether one or all of the criteria listed above are sufficient to result in control.

All material inter-entity transactions and balances between EU controlled entities are eliminated, while unrealised gains and losses on such transactions are not material and so have not been eliminated.

Joint Arrangements

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

Associates

Associates are entities over which the EU has, directly or indirectly, significant influence but not exclusive or joint control. It is presumed that significant influence exists if the EU holds directly or indirectly 20 % or more of the voting rights. Participations in associates are accounted for using the equity method (see note 1.5.4).

Non-consolidated entities the funds of which are managed by the Commission

The funds of the Joint Sickness Insurance Scheme for staff of the EU, the European Development Fund and the Participants Guarantee Fund are managed by the Commission on their behalf. However, since these entities are not controlled by the EU, they are not consolidated in its financial statements.

1.4. BASIS OF PREPARATION

Financial statements are presented annually. The accounting year begins on 1 January and ends on 31 December.

1.4.1. Currency and basis for conversion

Functional and reporting currency

The financial statements are presented in millions of euros, unless stated otherwise, the euro being the EU’s functional currency.

Transactions and balances

Foreign currency transactions are translated into euros using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the re-translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of financial performance. Translation differences on non-monetary financial instruments classified as available for sale financial assets are included in the fair value reserve.

Different conversion methods apply to property, plant and equipment and intangible assets, which retain their value in euros at the rate that applied at the date when they were purchased.

Year-end balances of monetary assets and liabilities denominated in foreign currencies are converted into euros on the basis of the European Central Bank (ECB) exchange rates applying on 31 December:

Euro exchange rates

Currency 31.12.2019 31.12.2018 Currency 31.12.2019 31.12.2018 BGN 1,9558 1,9558 PLN 4,2568 4,3014 CZK 25,4080 25,7240 RON 4,783 4,6635 DKK 7,4715 7,4673 SEK 10,4468 10,2548 GBP 0,8508 0,8945 CHF 1,0854 1,1269 HRK 7,4395 7,4125 JPY 121,9400 125,8500 HUF 330,5300 320,9800 USD 1,1234 1,145

1.4.2. Use of estimates

In accordance with IPSAS and generally accepted accounting principles, the financial statements necessarily include amounts based on estimates and assumptions by management based on the most reliable information available. Significant estimates include, but are not limited to: amounts for employee benefit liabilities, financial risk of accounts receivable and the amounts disclosed in the notes concerning financial instruments, accrued revenue and charges, provisions, degree of impairment of intangible assets and property, plant and equipment, net realisable value of inventories, contingent assets and liabilities. Actual results could differ from those estimates. Changes in estimates are reflected in the period in which they become known, if the change affects the period only, or that period and future periods, if the change affects both.

1.5. BALANCE SHEET

1.5.1. Intangible assets

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

Acquired intangible assets are stated at historical cost less accumulated amortisation and impairment losses. Internally developed intangible assets are capitalised when the relevant criteria of the EU Accounting Rules are met and the expenses relate solely to the development phase of the asset. The capitalisable costs include all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Costs associated with research activities, non-capitalisable development costs and maintenance costs are recognised as expenses as incurred.

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

1.5.2. Property, plant and equipment

All property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition, construction or transfer of the asset.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits or service potential associated with the item will flow to the EU and its cost can be measured reliably. Repairs and maintenance costs are charged to the statement of financial performance during the financial period in which they are incurred.

Land is not depreciated as it is deemed to have an indefinite useful life. Assets under construction are not depreciated, as these assets are not yet available for use. Depreciation on other assets is calculated using the straight-line method to allocate their cost less their residual values over their estimated useful lives, as follows:

Type of asset Straight line depreciation rate Buildings 4 % to 10 % Space assets 8 % to 25 % Plant and equipment 10 % to 25 % Furniture and vehicles 10 % to 25 % Computer hardware 25 % to 33 % Other 10 % to 33 %

Gains or losses on disposals are determined by comparing proceeds less selling expenses with the carrying amount of the disposed asset and are included in the statement of financial performance.

Leases

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

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

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

1.5.3. Impairment of non-financial assets

An impairment is a loss in the future economic benefits or service potential of an asset, over and above the systematic recognition of the loss of the asset’s future economic benefits or service potential through amortisation or depreciation (as applicable). Assets that have an indefinite useful life are not subject to amortisation/depreciation and are tested annually for impairment. Assets that are subject to amortisation/depreciation are tested for impairment whenever there is an indication at the reporting date that an asset may be impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable (service) amount. The recoverable (service) amount is the higher of an asset’s fair value less costs to sell and its value in use.

Intangible assets and property, plant and equipment residual values and useful lives are reviewed, and adjusted if appropriate, at least once per year. If the reasons for impairments recognised in previous years no longer apply, the impairment losses are reversed accordingly.

1.5.4. Investments accounted for using the equity method

Participations in associates and joint ventures

Investments accounted for using the equity method are initially recognised at cost, with the initial carrying amount subsequently being increased or decreased to recognise further contributions, the EU’s share of the surplus or deficit of the investee, any impairments and dividends. The initial cost together with all movements give the carrying amount of the investment in the financial statements at the balance sheet date. The EU’s share of the investee’s surplus or deficit is recognised in the statement of financial performance, and its share of investee’s movements in equity is recognised in the reserves within net assets. Distributions received from the investment reduce the carrying amount of the asset.

If the EU’s share of deficits of an investment accounted for using the equity method equals or exceeds its interest in the investment, the EU discontinues recognising its share of further losses (‘unrecognised losses’). After the EU’s interest is reduced to zero, additional losses are provided for and a liability is recognised only to the extent that the EU has incurred legal or constructive obligation or made payments on behalf of the entity.

If there are indications of impairment, a write-down to the lower recoverable amount is necessary. The recoverable amount is determined as described under note 1.5.3. If the reason for impairment ceases to apply at a later date, the impairment loss is reversed to the carrying amount that would have been determined had no impairment loss been recognised.

In cases where the EU holds 20 % or more of an investment capital fund, it does not seek to exert significant influence. Such funds are therefore treated as financial instruments and categorised as available for sale financial assets.

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

1.5.5. Financial assets

Classification

The EU classifies their financial assets in the categories ‘financial assets at fair value through surplus or deficit’, ‘loans and receivables’, ‘held-to-maturity investments’ and ‘available for sale financial assets’. The classification of financial instruments is determined at initial recognition and re-evaluated at each balance sheet date.

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

A financial asset is classified in the category ‘fair value through surplus or deficit’ if acquired principally for the purpose of being sold in the short term, or if so designated by the entity. Derivatives are also presented in this category. Assets in this category are classified as current assets if they are expected to be realised within 12 months of the balance sheet date.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the EU provides money, goods or services directly to a debtor with no intention of trading the receivable, or in case the EU is subrogated to the rights of the original lender following a payment made by the EU under a guarantee contract. Payments due within 12 months of the balance sheet date are classified as current assets. Payments due after 12 months from the balance sheet date are classified as non-current assets. Loans and receivables include term deposits with the original maturity above three months.

(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the EU has the positive intention and ability to hold to maturity. During this financial year, the EU did not hold any investments in this category.

(iv) Available for sale financial assets

Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are classified as either current or non-current assets, depending on the period of time the EU expects to hold them. Investments in entities that are neither consolidated nor accounted for using the equity method and other equity-type investments (e.g. Risk Capital Operations) are also classified as available for sale financial assets.

Initial recognition and measurement

Purchases and sales of financial assets classified as ‘at fair value through surplus or deficit’, ‘held-to-maturity’ or ‘available for sale’ are recognised on their trade-date — the date on which the EU commits to purchase or sell the asset. Cash equivalents and loans are recognised when cash is deposited in a financial institution or advanced to borrowers. Financial instruments are initially recognised at fair value. For all financial assets not carried at fair value through surplus or deficit, transactions costs are added to the fair value at initial recognition. Financial assets carried at fair value through surplus or deficit are initially recognised at fair value and transaction costs are expensed in the statement of financial performance.

The fair value of a financial asset on initial recognition is normally the transaction price (i.e. the fair value of the consideration received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets (e.g. in case of some derivative contracts). However, when a long-term loan that carries no interest or an interest below market conditions is granted, its fair value can be estimated as the present value of all future cash receipts discounted using the prevailing market rate of interest for a similar instrument with a similar credit rating.

Loans granted are measured at their nominal amount, which is considered to be the fair value of the loan. The reasoning for this is as follows:

— The ‘market environment’ for EU lending is very specific and different from the capital market used to issue commercial or government bonds. As lenders in these markets have the opportunity to choose alternative investments, the opportunity possibility is factored into market prices. However, this opportunity for alternative investments does not exist for the EU, which is not allowed to invest money on the capital markets; it only borrows funds for the purpose of lending at the same rate. This means that there is no alternative lending or investment option available to the EU for the sums borrowed. Thus, there is no opportunity cost and therefore no basis of comparison with market rates. In fact, the EU lending operation itself represents the market. Essentially, since the opportunity cost ‘option’ is not applicable, the market price does not fairly reflect the substance of the EU lending transactions. Therefore, it is not appropriate to determine the fair value of EU lending with reference to commercial or government bonds.

— Furthermore, as there is no active market or similar transactions to compare with, the interest rate to be used by the EU for fair valuing its lending operations under the EFSM, BOP and other such loans, should be the interest rate charged.

— In addition, for these loans, there are compensating effects between loans and borrowings due to their back-to-back character. Thus, the effective interest for the loan equals the effective interest rate for the related borrowings. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance.

Financial instruments are derecognised when the rights to receive cashflows from the investments have expired or the EU has transferred substantially all risks and rewards of ownership to another party.

Subsequent measurement

(a) Financial assets at fair value through surplus or deficit are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the ‘financial instruments at fair value through surplus or deficit’ category are included in the statement of financial performance in the period in which they arise.

(b) Loans and receivables are carried at amortised cost using the effective interest method. In the case of loans granted on borrowed funds, the same effective interest rate is applied to both the loans and borrowings since these loans have the characteristics of ‘back-to-back operations’ and the differences between the loan and the borrowing conditions and amounts are not material. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance.

(c) Held to maturity assets are carried at amortised cost using the effective interest method. The EU currently holds no held to maturity investments.

(d) Available for sale financial assets are subsequently carried at fair value. Gains and losses arising from changes in the fair value of available for sale financial assets are recognised in the fair value reserve, except for translation differences on monetary assets, which are recognised in the statement of financial performance. When assets classified as available for sale financial assets are derecognised or impaired, the cumulative fair value adjustments previously recognised in the fair value reserve are recognised in the statement of financial performance. Interest on available for sale financial assets calculated using the effective interest method is recognised in the statement of financial performance. Dividends on available for sale equity instruments are recognised when the EU’s right to receive payment is established.

The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities and over-the-counter derivatives), the EU establishes a fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cashflow analysis, option pricing models and other valuation techniques commonly used by market participants.

Investments in Venture Capital Funds, classified as available for sale financial assets, which do not have a quoted market price in an active market are valued at the attributable net asset value, which is considered as an equivalent of their fair value.

In cases where the fair value of investments in equity instruments that do not have a quoted market price in an active market cannot be reliably measured, these investments are valued at cost less impairment losses.

Impairment of financial assets

A financial asset is impaired and a loss is recognised if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event (or events) has an impact on the estimated future cashflows of the financial asset that can be reliably estimated. The EU assesses at each reporting date whether there is objective evidence that a financial asset is impaired.

(a) Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cashflows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the statement of financial performance. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The calculation of the present value of the estimated future cashflows of a collateralised financial asset reflects the cashflows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the statement of financial performance.

(b) Assets carried at fair value

In the case of equity investments classified as available for sale financial assets, a significant or permanent (prolonged) decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available for sale financial assets, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the statement of financial performance — is removed from reserves and recognised in the statement of financial performance. Impairment losses recognised in the statement of financial performance on equity instruments are not reversed through the statement of financial performance. If, in a subsequent period, the fair value of a debt instrument classified as available for sale financial asset increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the statement of financial performance.

1.5.6. Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other directly attributable costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. When inventories are held for distribution at no charge or for a nominal charge, they are measured at the lower of cost and current replacement cost. Current replacement cost is the cost the EU would incur to acquire the asset on the reporting date.

1.5.7. Pre-financing amounts

Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of payments over a period defined in the particular contract, decision, agreement or basic legal act. The float or advance is either used for the purpose for which it was provided during the period defined in the agreement or it is repaid. If the beneficiary does not incur eligible expenditure, they have the obligation to return the pre-financing advance to the EU. As the EU retains control over the pre-financing and is entitled to a refund for the ineligible part, the amount is presented as an asset.

Pre-financing is initially recognised on the balance sheet when cash is transferred to the recipient. It is measured at the amount of the consideration given. In subsequent periods pre-financing is measured at the amount initially recognised on the balance sheet less the eligible expenses (including estimated amounts where necessary) incurred during the period.

Interest on pre-financing is recognised as it is earned in accordance with the provisions of the relevant agreement. An estimate of the accrued interest revenue, based on the most reliable information, is made at the year-end and included in the balance sheet.

Other advances to Member States which originate from reimbursement by the EU of amounts paid as advances by the Member States to their beneficiaries (including ‘financial instruments under shared management’) are recognised as assets and presented under the heading ‘Pre-financing’. Other advances to Member States are subsequently measured at the amount initially recognised on the balance sheet less a best estimate of the eligible expenses incurred by final beneficiaries, calculated on the basis of reasonable and supportable assumptions.

The EU contributions to the trust funds of the European Development Fund or other unconsolidated entities are also classified as pre-financing since their purpose is to give a float to the trust fund to allow it to finance specific actions defined under the trust fund’s objectives. The EU contributions to trust funds are measured at the initial amount of the EU contribution less eligible expenses, including estimated amounts where necessary, incurred by the trust fund during the reporting period and allocated to the EU contribution in accordance with the underlying agreement.

1.5.8. Exchange receivables and non-exchange recoverables

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

Receivables from exchange transactions meet the definition of financial instruments and are thus classified as loans and receivables and measured accordingly (see note 1.5.5). The financial instruments notes disclosures concerning receivables from exchange transactions include accrued revenue and deferred charges from exchange transactions, as they are not material. A general write-down based on past experience is made for outstanding recovery orders not already subject to a specific write-down.

Recoverables from non-exchange transactions are carried at fair value as at the date of acquisition (adjusted for interest and penalties) less write-down for impairment. A write-down for impairment of recoverables from non-exchange transactions is established when there is objective evidence that the EU will not be able to collect all amounts due according to the original terms of recoverables from non-exchange transactions. The amount of the write-down is the difference between the asset’s carrying amount and the recoverable amount. The amount of the write-down is recognised in the statement of financial performance. A general write-down, based on past experience, is also made for outstanding recovery orders not already subject to a specific write-down. See note 1.5.14 concerning the treatment of accrued revenue at year-end. Amounts displayed and disclosed as recoverables from non-exchanges transactions are not financial instruments, as they do not arise from a contract that would give rise to a financial liability or equity instrument. However, in the notes to the financial statements recoverables from non-exchange transactions are disclosed together with receivables from exchange transactions where appropriate.

1.5.9. Cash and cash equivalents

Cash and cash equivalents are financial instruments and include cash at hand, deposits held at call or at short notice with banks and other short-term highly liquid investments with original maturities of three months or less.

1.5.10. Employee benefits

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

Short-term employee benefits

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

Post-employment benefits

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

(i) Pension Scheme of European Officials (PSEO): The benefits granted under this notionally funded (4) scheme relate to seniority, invalidity and survival, as well as, family allowances, death before retirement to those employees that work or worked in the EU Institutions, Agencies and other EU bodies or are survivors of deceased officials or pensioners. Staff contribute one third of the expected cost of these benefits from their salaries.

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

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

The above post-employment benefits qualify as defined benefit obligations of the EU and are calculated at each reporting date by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The calculation of defined benefit obligation is performed annually using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

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

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

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

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

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

1.5.11. Provisions

Provisions are recognised when the EU has a present legal or constructive obligation towards third parties as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating losses. The amount of the provision is the best estimate of the expenses expected to be required to settle the present obligation at the reporting date. Where the provision involves a large number of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities (‘expected value’ method).

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

1.5.12. Financial liabilities

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

Borrowings are composed of borrowings from credit institutions and debts evidenced by certificates. They are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred, then subsequently carried at amortised cost using the effective interest method; any difference between proceeds, net of transaction costs, and the redemption value is recognised in the statement of financial performance over the period of the borrowings using the effective interest method. In the case of loans granted on borrowed funds, the effective interest method may not be applied to loans and borrowings, based on materiality considerations. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance.

Financial liabilities categorised at fair value through surplus or deficit include derivatives where fair value is negative. They follow the same accounting treatment as financial assets at fair value through surplus or deficit, see note 1.5.5.

Financial guarantee liabilities are initially recognised at fair value, being the premium received. Subsequently, financial guarantee liabilities are measured at the higher of the best estimate of the expenses expected to be required to settle the financial guarantee liability and the amount initially recognised less, when appropriate, cumulative amortisation. The EU recognises a financial guarantee liability when it receives consideration for granting of the guarantee, that is at market terms, or when the fair value of the guarantee can be measured reliably. In case no active market for a directly equivalent guarantee contract exists, the EU discloses the guarantee given as a contingent liability (see note 1.7.2) or — when it is more likely than not that an outflow of resources will be required to settle the obligation — the EU recognises a provision (see note 1.5.11).

Financial liabilities are classified as non-current liabilities, except for maturities less than 12 months after the balance sheet date.

EU trust funds that are considered as part of the Commission’s operational activities are accounted for in the Commission accounts and further consolidated in the EU annual accounts. Therefore, contributions from other donors to the EU trust funds fulfil the criteria of revenues from non-exchange transactions under conditions and they are presented as financial liabilities until the conditions attached to the contributions transferred are met, i.e. eligible costs are incurred by the trust fund. The trust fund is required to finance specific projects and return remaining funds at the time of winding-up. At the balance sheet date the outstanding contribution liabilities are measured at contributions received less the expenses incurred by the trust fund, including estimated amounts when necessary. For reporting purposes the net expenses are allocated to the contributions of other donors in proportion to net contributions paid as at 31 December. This allocation of contributions is only indicative. When the trust fund is wound up the actual split of remaining resources will be decided by the trust fund board.

1.5.13. Payables

A significant amount of the payables of the EU are unpaid cost claims from beneficiaries of grants or other EU funding (non-exchange transactions). They are recorded as payables for the requested amount when the cost claim is received. Upon verification and acceptance of the eligible costs, the payables are valued at the accepted and eligible amount.

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

1.5.14. Accrued and deferred revenue and charges

Transactions and events are recognised in the financial statements in the period to which they relate. At year-end, if an invoice is not yet issued but the service has been rendered, the supplies have been delivered by the EU or a contractual agreement exists (e.g. by reference to a treaty), an accrued revenue will be recognised in the financial statements. In addition, at year-end, if an invoice is issued but the services have not yet been rendered or the goods supplied have not yet been delivered, the revenue will be deferred and recognised in the subsequent accounting period.

Expenses are also accounted for in the period to which they relate. At the end of the accounting period, accrued expenses are recognised based on an estimated amount of the transfer obligation of the period. The calculation of accrued expenses is done in accordance with detailed operational and practical guidelines issued by the Commission which aim at ensuring that the financial statements provide a faithful representation of the economic and other phenomena they purport to represent. By analogy, if payment has been made in advance for services or goods that have not yet been received, the expense will be deferred and recognised in the subsequent accounting period.

1.6. STATEMENT OF FINANCIAL PERFORMANCE

1.6.1. Revenue

REVENUE FROM NON-EXCHANGE TRANSACTIONS

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

GNI based resources and VAT resources

Revenue is recognised for the period for which the Commission sends out a call for funds to the Member States claiming their contribution. They are measured at their ‘called amount’. As VAT and GNI resources are based on estimates of the data for the budgetary year concerned, they may be revised as changes occur until the final data are issued by the Member States. The effect of a change in estimate is included when determining the net surplus or deficit for the period in which the change occurred.

Traditional own resources

Recoverables from non-exchange transactions and related revenues are recognised when the relevant monthly ‘A’ statements (including duties collected and amounts due that are guaranteed and not contested) are received from the Member States. At the reporting date, revenue collected by the Member States for the period but not yet paid to the Commission is estimated and recognised as accrued revenue. The quarterly ‘B’ statements (including duties neither collected nor guaranteed, as well as guaranteed amounts that have been contested by the debtor) received from the Member States are recognised as revenue less the collection costs to which they are entitled. In addition, a value reduction is recognised for the amount of the estimated recovery gap.

Fines

Revenue from fines is recognised when the EU’s decision imposing a fine has been taken and it is officially notified to the addressee. After the decision to impose a fine, the undertakings have two months from the date of notification:

(a) either to accept the decision, in which case they must pay the fine within the time limit laid down and the amount is definitively collected by the EU; or

(b) not to accept the decision, in which case they lodge an appeal under EU law.

Even if appealed, the fine must be paid within the time limit of three months laid down as the appeal does not have suspensory effect (Article 278 TFEU). The cash received is used to clear the recoverable. However, subject to the agreement of the Commission’s Accounting Officer, the undertaking may present a bank guarantee for the amount instead. In that case the fine remains as a recoverable. If neither cash nor a guarantee is received and there are doubts about the undertaking’s solvency, a value reduction on the entitlement is recognised.

In case the undertaking appeals against the decision, and has already provisionally paid the fine, the amount is disclosed as a contingent liability, or, if it appears probable that the General Court may not rule in favour of the EU, a provision is recognised to cover this risk. If a guarantee had been given instead, the outstanding recoverable is written down as required.

The accumulated interest received by the Commission on the bank accounts where received payments are deposited is recognised as revenue, and any contingent liability is increased accordingly.

Since 2010, all provisionally cashed fines are managed by the Commission in a specifically created fund (BUFI) and invested in financial instruments.

REVENUE FROM EXCHANGE TRANSACTIONS

Revenue from the sale of goods and services is recognised when the significant risk and rewards of ownership of the goods are transferred to the purchaser. Revenue associated with a transaction involving the provision of services is recognised by reference to the stage of completion of the transaction at the reporting date.

Interest revenue and expense

Interest revenue and expense are recognised in the statement of financial performance using the effective interest method. This is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest revenue or interest expense over the relevant period. When calculating the effective interest rate, the EU estimates cashflows considering all contractual terms of the financial instrument (for example prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest revenue is recognised using the rate of interest to discount the future cashflows for the purpose of measuring the impairment loss.

Revenue from dividends

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

1.6.2. Expenses

Expenses from non-exchange transactions account for the majority of the EU’s expenses. They relate to transfers to beneficiaries and can be of three types: entitlements, transfers under agreement and discretionary grants, contributions and donations.

Transfers are recognised as expenses in the period during which the events giving rise to the transfer occurred, as long as the nature of the transfer is allowed by regulation (Financial Regulation, Staff Regulations, or other regulation) or an agreement has been signed authorising the transfer, any eligibility criteria have been met by the beneficiary, and a reasonable estimate of the amount can be made.

When a request for payment or cost claim is received and meets the recognition criteria, it is recognised as an expense for the eligible amount. At year-end, incurred eligible expenses due to the beneficiaries but not yet reported are estimated and recorded as accrued expenses.

Expenses from exchange transactions arising from the purchase of goods and services are recognised when the supplies are delivered and accepted by the EU. They are valued at their original invoice amount. Furthermore, at the balance sheet date expenses related to the service delivered during the period for which an invoice has not yet been received or accepted are estimated and recognised in the statement of financial performance.

1.7. CONTINGENT ASSETS AND LIABILITIES

1.7.1. Contingent assets

A contingent asset is a possible asset that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the EU. A contingent asset is disclosed when an inflow of economic benefits or service potential is probable.

1.7.2. Contingent liabilities

A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the EU, or a present obligation that arises from past events but is not recognised either because it is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation, or in the rare circumstances where the amount of the obligation cannot be measured with sufficient reliability. A contingent liability is disclosed unless the possibility of an outflow of resources embodying economic benefits or service potential is remote.

1.8. CASHFLOW STATEMENT

Cashflow information is used to provide a basis for assessing the ability of the EU to generate cash and cash equivalents, and its needs to utilise those cashflows.

The cashflow statement is prepared using the indirect method. This means that the economic result for the financial year is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of revenue or expense associated with investing cashflows.

Cashflows arising from transactions in a foreign currency are recorded in the EU’s reporting currency (Euro), by applying to the foreign currency amount the exchange rate between the euro and the foreign currency at the date of the cashflow.

The cashflow statement reports cashflows during the period classified by operating and investing activities (the EU does not have financing activities).

Operating activities are the activities of the EU that are not investing activities. These are the majority of the activities performed. Loans granted to beneficiaries (and the related borrowings, when applicable) are not considered as investing (or financing) activities as they are part of the general objectives and thus daily operations of the EU.

Investing activities are the acquisition and disposal of intangible assets and property, plant and equipment and of other investments which are not included in cash equivalents. Investing activities do not include loans granted to beneficiaries. The objective is to show the real investments made by the EU.

2. NOTES TO THE BALANCE SHEET

ASSETS

2.1. INTANGIBLE ASSETS

EUR million Gross carrying amount at 31.12.2018 1 073 Additions 178 Disposals (20) Transfer between asset categories 0 Other changes (1) Gross carrying amount at 31.12.2019 1 230 Accumulated amortisation at 31.12.2018 (627) Amortisation charge for the year (107) Amortisation written back 0 Disposals 19 Transfer between asset categories 0 Other changes 0 Accumulated amortisation at 31.12.2019 (715) Net carrying amount at 31.12.2019 515 Net carrying amount at 31.12.2018 446

The above amounts relate primarily to computer software.

2.2. PROPERTY, PLANT AND EQUIPMENT

The space assets category covers operational fixed assets related to the two EU space programmes: the Global Navigation Satellite Systems (GNSS), i.e. Galileo and EGNOS, and the Copernicus European Earth observation programme, while assets of the space systems which are not yet operational are included under the assets under construction heading.

For Galileo, the four satellites launched in 2018 successfully passed the in-orbit testing.They have been added to the operational constellation in 2019 bringing the total to 26 satellites. The Galileo operational fixed assets, covering both satellites and ground installations, amounted to EUR 2 489 million at 31 December 2019, net of accumulated depreciation (2018: EUR 2 410 million). The remaining assets under construction total EUR 1 361 million (2018: EUR 1 324 million). The development of the Galileo system will continue until the system reaches its full operational capacity. When completed, the Galileo constellation will comprise 30 satellites (including 6 spare satellites).

Regarding Copernicus, no new satellites became operational in 2019. The total value of Copernicus operational fixed assets is EUR 1 153 million (2018: EUR 1 455 million), net of accumulated depreciation. A further EUR 1 453 million related to Copernicus satellites is recognised as assets under construction (2018: EUR 1 207 million).

Fixed assets related to the European Geostationary Navigation Overlay System (EGNOS) ground infrastructure of EUR 37 million (2018: EUR 52 million) are also included under the Space assets heading. In addition, EGNOS assets under construction amount to EUR 238 million (2018: EUR 130 million).

The assets related to the EU space programmes are being built with the assistance of the European Space Agency (ESA).

Property, plant and equipment

EUR million Land and Buildings Space assets Plant and Equipment Furniture and Vehicles Computer Hardware Other Finance leases Assets under construction Total Gross carrying amount at 31.12.2018 5 626 5 259 641 270 634 327 2 620 3 199 18 575 Additions 117 10 24 14 60 21 118 941 1 306 Disposals (1) (0) (117) (28) (58) (29) (3) — (236) Transfer between asset categories 154 411 (7) 3 7 7 (98) (477) 0 Other changes (0) —