Opinion No 8/99 on a Council proposal for a decision concerning the European Union's system of own resources
Date: 1999-10-07
Institutions: European Court of Auditors
Subjects: EC Decision, European Union, own resources, proposal (EU)

28.10.1999

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Official Journal of the European Communities

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(Information)

COURT OF AUDITORS

on a Council proposal for a decision concerning the European Union(cid:146)s system of own resources

OPINION No 8/99

(submitted pursuant to Article 248(4) second subparagraph, EC)

(1999/C 310/01)

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commun-
ity and in particular Articles 248(4) and 269 thereof,

Having regard to the Treaty establishing the European Atomic
Energy Community and in particular Article 173 thereof,

Having regard to the Financial Regulation applicable to the gen-
eral budget of the European Communities (1), as last amended by
Council Regulation (EC, ECSC, Euratom) No 2779/98 of 17
December 1998 (2), and in particular Articles 2 and 4(1) thereof,

Having regard to the proposal for a Council decision on the Euro-
pean Union(cid:146)s system of own resources submitted by the Commis-
sion (5),

Having regard to the Council(cid:146)s request for the Court of Auditors(cid:146)
opinion, dated 4 August 1999 and received on 9 August 1999,

Whereas the Berlin European Council of 24 and 25 March 1999
concluded that changes to the system of own resources were
desirable, stating that the said system must be equitable, transpar-
ent, satisfactorily cost effective and simple and that it must be
based on criteria that best reflect each Member State(cid:146)s ability to
contribute;

Having regard to Council Directive No 89/130/EEC, Euratom of
13 February 1989 concerning the harmonisation of the calcula-
tion of gross national product at market prices (3),

Whereas the European Council decided that it would be expedi-
ent to increase the share of traditional own resources retained by
the Member States by way of collection expenses from 10 % to
25 %;

Having regard to the European System of Integrated Economic
Accounts (ESA, 1995),

Having regard to Council Regulation (EC) No 2223/96 of 25 June
1996, concerning the European system of national and regional
accounts in the Community (4),

Whereas it is in the European Union(cid:146)s interest to have a stable
system of financing, in which all the Member States contribute
towards funding the budget in accordance with the same prin-
ciples, and that this system must show consistency between the
resources chosen and the relevant collection and control proced-
ures;

Having regard to the Commission(cid:146)s working document on the
procedures for calculating the correction of budgetary imbal-
ances,

(1) OJ L 356, 31.12.1977, p. 1.
(2) OJ L 347, 23.12.1998, p. 3.
(3) OJ L 49, 21.2.1989, p. 26.
(4) OJ L 310, 30.11.1996, p.1.

Whereas the most appropriate information as to any budgetary
imbalances is provided by the effects of budgetary policies rather
than simple financial flows and it is at the moment of the adop-
tion of the financial perspectives and the budget that the budget-
ary authorities are able to direct (geographically and otherwise)
the effects of Community funding,

(5) Commission document, ref 99/0139 (CNS) (cid:151) doc 10029/99 (cid:151) COM

(1999) 333 final of 8 July 1999.

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HAS ADOPTED THE FOLLOWING OPINION:

system more transparent, and this could have been done, inter
alia, on the basis of the Commission(cid:146)s previous proposals (4).

GENERAL OBSERVATIONS

The question of budgetary imbalances

Maintenance of the existing system

1. Following the Berlin European Council(cid:146)s conclusions, the pro-
posal for a decision substantially preserves the existing system of
own resources, with some adjustments aimed at modifying the
distribution of the financial burden among the Member States.
Essentially, this system remains the one that has been in force
since 1988. Numerous problems, in particular regarding admin-
istration, consistency and lack of transparency, have been brought
up in the past, not only by the Court of Auditors (1), but also by
the European Parliament, the Commission, the Economic and
Social Committee and the Committee of the Regions.

A complex system

2. As the Court has already noted (2), the structure and work-
ings of the current system, which is as detailed as a traditional
budgetary system based on tax revenue, appeared to be dispro-
portionate to the fact that the VAT and GNP resources are finan-
cial contributions.

3. For example, the maintenance of both the VAT and GNP
resources has the effect of consolidating a structure that is both
complicated and not very consistent. Indeed, the VAT resource
assessment base, which is not directly based on a tax base declared
by taxpayers, is heavily influenced by statistical data. In order to
reduce the weight of the VAT resource in the funding of the
budget, the system provides that its assessment base should be
capped at 50 % of GNP. This will be the case for seven Member
States in the year 2000 (3). The contributions based on the VAT
resource are therefore largely based on the same data as the GNP
resource.

4.
In order to solve the problem of budgetary imbalances, the
system provides that a Member State(cid:146)s payments may be reduced
by way of a correction. The calculation of this correction is com-
plex and covers several financial years, given that it is first esti-
mated, then revised and, finally, definitively established. The adop-
tion of this decision could have been an opportunity for simplifying
the calculation and funding of this correction, thus making the

(1) Opinion No 8/93 on an assessment of the system of own resources
introduced in 1998 in the light of the conclusions of the Edinburgh
European Council meeting (not published in the Official Journal);
Special Report No 6/98 on the system of own resources based on
VAT and the GNP (OJ C 241, 31.7.1998, pp. 58 to 80).

(2) Special Report No 6/98, paragraph 5.2.
(3) Greece, Spain, Ireland, Luxembourg, the Netherlands, Portugal, the
United Kingdom. Draft general budget for the financial year 2000,
volume 1, table 1.

In 1984 (5), the European Union recognised that (cid:145)any Member
5.
State sustaining a budgetary burden which is excessive in relation
to its relative prosperity may benefit from a correction at the
appropriate time(cid:146). At the same time, it had also been pointed out
that, in the long term, the question of budgetary imbalances could
only be resolved by way of expenditure policy.

6. Since then it has not been possible to solve this problem by
way of expenditure policy. The principle of a correction on the
revenue side has therefore prevailed for 15 years.

7. There is still no precise and objective definition of the notions
of (cid:145)excessive budgetary burden(cid:146) and (cid:145)the relative prosperity(cid:146) of a
Member State. This also means that it has been impossible to
introduce a generalised system, bearing in mind that, in theory,
any Member State may benefit from a correction of this sort.

8. The calculation of this correction is based on the net differ-
ence between the revenue paid in to the Community budget and
the payments received from the European Union. As the Court of
Auditors and the Commission have already had occasion to
note (6), net gains or losses are not good indicators of the advan-
tages to be gained from Community policies. The Berlin European
Council also acknowledged that there were (cid:145)various factors which
act directly or indirectly on budgetary imbalances, such as the
overall level of spending, the content of policy reforms, the com-
position of expenditure, and the own resources structure(cid:146) (7).

SPECIFIC OBSERVATIONS

Articles 2, 3, 4, 8, 10

9. The entry into force of the new decision would render Council
Regulation (EC) No 2223/96, concerning a European system for
national and regional accounts (ESA 1995), applicable to own
resources. The text of the proposed decision refers to gross national
product (GNP). This aggregate does not figure among those defined

(4) The financing of the European Union, in particular paragraph 1.3.1

and Annex 4; COM (1998) 560 final of 7 October 1998,
(5) Fontainebleau European Council of 25 and 26 June 1984.
(6) Special Report No 6/98, paragraphs 3.29 to 3.33. The financing of
the European Union, COM(1998) 560 final of 7 October 1998, para-
graph 2, pages 17 to 20.

(7) Presidency conclusions, paragraph 68.

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by the Regulation in question, although it does specify that it is
conceptually similar to gross national income (GNI) (1).

10. The reference to GNP is therefore not relevant in this con-
text. In the decision proposal, it would therefore be appropriate
to refer to GNI. This would also mean that the Council would not
subsequently have to be asked to establish the aggregate appli-
cable to own resources.

Article 2.3

expenditure other than that directly related to the recovery of
own resources is to be financed, the creation of appropriate
budget expenditure headings constitutes the only lawful and trans-
parent means of doing this in accordance with the principles of
Article 271 EC and the Financial Regulation.

15. With regard, in particular, to anti-fraud measures, Article
280 of the EC Treaty in itself constitutes an obligation for the
Member States to act against any fraud that might damage the
Community(cid:146)s financial interests above and beyond the individual
field of traditional own resources.

11.
It is proposed that the share of traditional own resources
(agricultural levies, sugar and isoglucose levies and customs duties)
retained by Member States from the funds they collect for and on
behalf of the European Union to cover expenses for collection,
monitoring, fraud fighting and reporting expenses should be
increased from 10 % to 25 %.

16. The fact of keeping the 10 % rate of retention for amounts
that have been or should have been established before 31 Decem-
ber 2000 complicates the calculation of the amounts to be made
available over a period of several years, whereas its financial
impact is small. For this reason, it would be better to limit its
effects to a transitory period like the one for the amounts estab-
lished in the financial year 2001 in respect of previous years.

12. The current percentage of 10 % is granted as a flat rate to
cover all collection expenses, without the Member States having
to supply any supporting documents. This appropriation, which
actually constitutes an item of expenditure, is entered in the
budget as negative revenue (cid:151) a departure from the principle that
revenue and expenditure should be entered without any adjust-
ment against each other (2).

13. Given its scope, its flat-rate character and the fact that it is
the same for all Member States, the proposed increase should be
explained further. Given that the expenditure in question would
amount to several thousand million euro (3), the principle of
sound financial management enshrined in the Financial Regula-
tion requires that it should be linked to a precise and measurable
objective (4). In actual fact, in the absence of any evaluation of the
effectiveness of the national authorities and any procedure to
verify real costs and the progress achieved in recovery, this mea-
sure is more like a rebate than compensation for collection
expenses.

Article 2.4

17. The calculation of the uniform rate for the VAT resource con-
tinues to depend on three factors: the maximum rate provided for
in Article 2.4 (a) of the proposed decision, the amount of the cor-
rection and its financing. For this reason, a certain amount (the
so-called (cid:145)frozen rate(cid:146)) is excluded from the maximum rate every
year to cover the financing of the correction. This situation is a
source of needless complications and is based on calculations that
are less than transparent. As pointed out in paragraph 4 above, it
would have been useful if the simplification proposals put for-
ward by the Commission itself had been taken into account.

If Article 2.4 is kept in its current form, it would be useful if
18.
the underlying reasons for the existence of the (cid:145)frozen rate(cid:146) were
made explicit, for example in the preamble to the decision pro-
posal.

14. Furthermore, whereas the European Council had stated that
the aim of the increase was merely to cover collection expend-
iture (5), the proposed decision broadens this aim to include other
fields like the fight against fraud or even health and safety (6). If

Article 2.7

(1) Regulation (EC) No 2223/96, paragraph 8.94 (OJ L 310, 30.11.1996,

19. The Court would once again point out its observations in
paragraph 10.

pages 243 and 244).

(2) Principle laid down in Article 4 of the Financial Regulation.
(3) An amount of EUR 1 600 000 000 was allocated to the Member
States for the financial year 1998 as expenses for the collection of tra-
ditional own resources. In 1998, the application of a rate of 25 %
would have involved an amount of EUR 3 900 000 000.

(4) The second sentence of the first subparagraph of Article 2 of the
Financial Regulation: (cid:145)quantified objectives must be identified and the
progress of their realisation monitored.(cid:146)
(5) Presidency conclusions, paragraph 71.
(6) COM(1999) 333 final of 8 July 1999, paragraph 2, subparagraph 3,

page 4.

Articles 3.1 and 3.2

20.
In order to take existing terminology into account, the term
(cid:145)commitment appropriations(cid:146) should be replaced with (cid:145)appropria-
tions for commitments(cid:146) and (cid:145)payment appropriations(cid:146) with (cid:145)appro-
priations for payments(cid:146). The same applies to the 10th recital of
the proposed decision.

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Article 3.4

Article 5.2

21. The notion of (cid:145)significant changes(cid:146) should be defined so as to
specify a threshold or identify who is responsible for taking deci-
sions on this point.

27.
In order to take current practice into account, it should be
specified that the funding of the correction is already entered
under a specific chapter of the budget.

Article 4

Article 5.3

22. See the Court(cid:146)s observations in paragraphs 4 and 8.

23. The decisions of the Berlin European Council (1) confirmed
the conclusions of the Fontainebleau Council of 1984 and extended
the possibility of benefiting from such a correction to all Member
States. It would therefore be useful to specify under which condi-
tions a Member State may take advantage of this possibility with-
out an amendment having to be made to the decision on own
resources, whose adoption would then be subject to national rati-
fication procedures.

Article 4(b)

24. The decision proposal does not give a definition of (cid:145)allocated
expenditure(cid:146). It should therefore specify the criteria for allocating
Community expenditure to the Member States.

Article 4(f)

25. The proposed text would not enable the complete neutralisa-
tion of the effect of enlargement expenditure on the correction.
Indeed, the expenditure to be taken into account for the calcula-
tion of the correction would be limited, after accession, to the
expenditure for the year preceding accession. However, in accord-
ance with the financial perspectives (2), post-accession expend-
iture would, in the long term, be five times higher than pre-
accession expenditure. The Berlin European Council wished to
guarantee that unabated expenditure should remain unabated
after accession (3). The question remains as to whether the pro-
posed text complies with this condition.

Article 5.1

26.
It is suggested that the first sentence of the second sub-
paragraph should be worded as follows: (cid:145)the distribution of the
cost shall first be calculated with reference to each Member State(cid:146)s
gross national income(cid:146)s (GNI) share of the total of the GNIs of the
European Union, the United Kingdom being excluded; it shall
then be adjusted...(cid:146).

(1) Presidency conclusions, paragraph 68.
(2)

Interinstitutional agreement of 6 May 1999 between the European
Parliament, the Council and the Commission on budgetary discipline
and the improvement of the budgetary procedure, OJ C 172, 18.6.1999,
p. 15.

(3) Presidency conclusions, paragraph 72.

28. Although the decision provides that (cid:145)the Commission shall
perform the calculations required(cid:146), it does not completely specify
the criteria for this, as is shown, for example, in paragraph 24.
This leads to an ambiguous situation as to the nature of the task
entrusted to the Commission. It is unclear whether it is supposed
to carry out a simple calculation or is competent to supplement
the decision in such a way as to make this calculation possible.

29. Current practice shows that a (cid:145)calculation method(cid:146) has been
established by the competent Commission department so as to
specify the procedures for the calculation, revision and financing
of the correction. This internal document completes, de facto, cer-
tain criteria laid down in the decision on own resources, includ-
ing the definition of (cid:145)allocated expenditure(cid:146).

30.
It is understandable that, for practical reasons in particular,
it should be considered preferable to further specify certain cri-
teria necessary for the calculation of the correction in another
document. Such an eventuality should take account of the require-
ment for transparency and legal safety. The Court notes that
Article 8(2) of the proposed decision is intended to allow the
Council to adopt implementing provisions.

Article 6

31.
In an equivalent provision to this Article, the current deci-
sion on own resources mentions the rule that revenue should not
be allocated to expenditure. This reference to this principle should
be kept here.

Article 8.1, first subparagraph

In the French version, the last sentence reads (cid:145)points a) et b)(cid:146).

32.
It should read (cid:145)points a) (cid:224) d)(cid:146).

Article 8.2

33. Article 248(2) EC entrusts the Court with the task of exam-
ining the legality, regularity and sound financial management of
revenue and expenditure. The second subparagraph of this pro-

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vision provides that revenue shall be audited on the basis both of
the amounts established as due and the amounts actually paid to
the Community.

34. Article 8(2) of the proposed Decision, in so far as it inter-
prets the subject of the Court(cid:146)s checks and audits, would be tan-
tamount to amending a provision of the Treaty outside the pro-
cedure laid down for that purpose.

Article 9

36. The Commission already submitted a report on the func-
tioning of the system of own resources in 1998 (1). It would be
useful to specify the nature of the examination that it is asked to
carry out with regard to the question of budgetary imbalances.

Article 10.1

35.
In any case, the Court feels that the proposed provision can-
not have the effect of limiting its audit powers under the Treaty.

37. The last sentence of the third paragraph should read (cid:145)Article
2(3) and Article 4(cid:146).

This opinion was adopted by the Court of Auditors in Luxembourg at the Court meeting of 7 October 1999.

For the Court of Auditors

Jan O. KARLSSON

President

(1) The financing of the European Union, COM(1998) 560 final of 7

October 1998.