COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT pursuant to the second subparagraph of Article 251 (2) of the EC-Treaty concerning the common position of the Council on the proposal for a European Parliament and Council Regulation modifying the principles for recording taxes and social contributions in the European System of National and Regional Accounts in the Community (ESA 95) and amending Council Regulation (EC) No 2223/96

1. Background

Proposal submitted to the European Parliament and the Council (COM(1999)488 final, 1999/0200(COD)): 18 October 1999.

Opinion of Economic and Social Committee: 26 January 2000.

European Parliament's Opinion (first reading): 13 April 2000.

Adoption of common position: 26 June 2000.

2. Purpose of Commission proposal

To define the principles for recording taxes and social contributions in the European System of National and Regional Accounts in the Community (ESA 95) so as to ensure comparability between the accounts of different Member States and, in particular, a realistic and transparent figure for government deficit.

3. Comments on the common position

3.1 General

The substantive amendments to the Commission's original proposal set out in the common position are very similar to those put forward by the European Parliament:

- the title of the proposal describes the Regulation as "clarifying" the principles for recording taxes and social contributions in the ESA 95, while according to the common position it actually changes them;

- the common position provides for a possible alternative treatment of taxes and social contributions assessed but unlikely to be collected as transfers of capital. The Commission regrets this change, since the amended draft Regulation ensures comparability of government deficits, but no longer direct comparability of tax burdens. The Commission can nevertheless accept the amendment since it intends to specify in the provisions to be included in the text of the ESA after the Regulation has been adopted that Member States applying this alternative treatment must show the amounts of capital transfers involved in a separate line in their accounts. This will guarantee transparency;

- the common position introduces a provision under which Member States may ask the Commission for a transitional period of not more than two years in which to bring their accounting systems into line with the Regulation. The Commission is concerned that this amendment would delay the comparability of public deficits and does not, moreover, think it is necessary from a technical point of view. The Commission can accept the amendment on the understanding that it would imply a right on its part to ask Member States to justify such requests and possibly to reject them or limit the transitional period to one year.

Apart from to these three substantive changes common to the European Parliament and the Council, there are differences of opinion between the two institutions on certain details - particularly the wording of the recitals. There are also formal differences. In particular:

- the common position takes account of the new "comitology" procedure (Council Decision of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission), which necessitates an amendment to the ESA Regulation;

- the common position does not incorporate the European Parliament's amendments Nos 4, 5 and 6, which concern the use of ESA 95 for determining the VAT own resource. The Commission would point out that, at the first reading of the draft Regulation, it undertook to submit a separate legal act to deal with this specific question. Work has already begun on the adoption of a Commission proposal on this matter for submission to the European Parliament and the Council.

3.2 Decisions on the European Parliament's amendments following the first reading.

3.2.1 Accepted by the Commission and incorporated into the common position

The European Parliament proposed nine amendments following its first reading of the Commission's original proposal.

The following four were accepted by the Commission and incorporated into the common position, sometimes with minor changes in wording that did not alter them substantively:

- Amendment No 1 on the title of the proposal, which now specifies that the Regulation modifies the principles for recording taxes and social contributions in ESA 95 rather than merely clarifying them;

- Amendment No 7 (concerning Article 3 of the Regulation) provides for an alternative treatment of taxes and social contributions assessed but unlikely to be collected as transfers of capital;

- Amendment No 8 makes Article 6, on the implementation of the Regulation, more specific;

- Amendment No 9 adds a new paragraph to Article 7 on the entry into force of the Regulation, under which the Member States may ask the Commission for a transitional period of not more than two years. The Commission accepts this on the understanding that it would have the right to reject such a request by a Member State.

3.2.2 Accepted by the Commission but not incorporated into the common position (the Commission's position)

The European Parliament's Amendments Nos 2 and 3, concerning the third and fourth recitals in the Commission's original proposal, have not been incorporated into the common position, in which the recitals in question have been reworded and combined into a single recital.

The Commission believes this is an improvement on both its original proposal and the European Parliament's Amendments Nos 2 and 3.

3.3 New provisions introduced by the Council and the Commission's position.

The Council has introduced six new provisions into the proposal for a Regulation, all of which have the Commission's approval:

- with the new "comitology" procedure (Council Decision 1999/468/EC of 28 June 1999) the ESA Regulation needs to be amended, as acknowledged in the title of the Regulation, the new seventh recital and the new Article 6;

- the new third recital combines the former third and fourth recitals and is a stylistic improvement;

- the former sixth recital has been deleted, since the various countries do not interpret the relevant paragraphs of SNA 93 in the same way. It is simpler, therefore, to delete this reference;

- a new fifth recital states that the SPC, the CMFB and the GNP Committee may express their opinions on treatment of taxes and social contributions in the national accounts of the various Member States;

- Article 2, which deals with general principles, has been reworded to take account of the implications of the amendment to Article 3 introducing the possibility of alternative treatment as transfers of capital. It is no longer possible to state in the general principles that taxes and social contributions do not include amounts that are unlikely to be collected, but it is still vital to confirm that government deficit does not include these amounts.

- the former Article 4 (balancing the calculation of GDP) has been deleted, since it was thought that the Regulation should contain only the general recording principles. The Commission approves of this simplification.

3.4 Problems of comitology encountered during the adoption of the common position (and the position adopted by the Commission).

None.

4. Conclusions or general remarks

The Commission takes a positive view of the entire common position, subject to its interpretation of the provision regarding the transitional period.

The Commission thinks that the amendments contained in the Council's common position take account of the prime objective of the proposal for a Regulation, which is to ensure comparability and transparency in the calculation of government deficit in all the Member States.

It should be borne in mind that ESA 95 is the tool used for calculating and comparing the accounts and economic aggregates of the Member States and that the Protocol on the excessive deficit procedure refers to it explicitly as the means of determining government deficit.

Even if the common position departs from the Commission's original proposal, it nevertheless retains the basic idea of putting the various Member States on an equal footing, regardless of the statistical sources used, i.e. the collection or notification of taxes and social contributions. Taxes and social contributions unlikely to be collected should not lead to under-evaluation of government deficit.

5. Commission statements

The Commission has made a unilateral statement for the Council minutes on its interpretation of the provisions regarding the transitional period (see Annex).