Proposal for a Council Decision on the system of the European Communities' own resources
Date: 2004-07-14
Institutions: European Commission
Subjects: Community budget, European Union membership, Member States' contribution, United Kingdom, budget policy, budgetary equilibrium, own resources

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 3.8.2004 
COM(2004) 501 final/2 

2004/0170 (CNS) 
2004/0171 (CNS) 

CORRIGENDUM 
Annule et remplace la page 8 du document  
COM(2004) 501 final du 14.7.2004. 
Concerne uniquement la version EN. 

Proposal for a 

COUNCIL DECISION 

on the system of the European Communities’ own resources 

Proposal for a 

COUNCIL REGULATION 

on the implementing measures for the correction of budgetary imbalances in accordance 
with Articles 4 and 5 of the Council decision of (…) on the system of the European 
Communities’ own resources 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

INTRODUCTION 

The  European  Union  creates  a  community  of  shared  aims.  Parts  of  the  EU  budget 
serve a clear cohesion goal. Other parts fund the achievement of specific objectives 
through  EU  agreed  programmes.  As  a  result,  net  beneficiaries  of,  and  net 
contributors to, the EU budget will always exist, although the policy benefits accrue 
to the Union as a whole. 

Budgetary  balances  (also  called  net  balances),  measured  by  the  difference  between 
contributions to and receipts from the EU budget, fail to account fully for the benefits 
accruing  to  Member  States  from  participating  in  the  EU.  For  example,  research  or 
border  protection  expenditure  benefits  not  only  the  immediate  recipients  but  also 
gives rise to spill-over effects transcending national borders1. It may not be possible 
to quantify the extent of these spill-overs, but their consideration would modify the 
assessment of the accounting imbalances. 

The definition of budgetary balances is also fraught with significant conceptual and 
accounting  problems.  Numerous  choices  have  to  be  made  in  computing  budgetary 
balances on the items to be included in the receipts and expenditure flows, and on the 
reference periods (e.g. cash vs. accrual figures, surpluses from previous years, etc.). 
The resulting budgetary balances vary significantly depending on the choices made. 

Nevertheless,  the  size  of  some  of  these  imbalances  has  been  at  the  centre  of 
discussions. After years of budgetary stalemate and agonizing discussions, the 1984 
Fontainebleau  agreement  introduced  the  existing  UK  correction,  which  was  given 
effect by the own resources decision of 7 May 1985. The decision was based on the 
following general principle2: 

'… any Member State sustaining a budgetary burden which is excessive in relation to 
its relative prosperity may benefit from a correction at the appropriate time.' 

The principle of a generalised correction was therefore already acknowledged by the 
European  Council  in  1984  ('any  Member  State').  The  decision  for  granting  a 
correction  should  be  based  on  two  criteria:  the  size  of  the  budgetary  imbalance 
('excessive')  and  the  wealth  of  a  Member  State  compared  to  the  EU  as  a  whole 
('relative prosperity').  

The justifications for granting a correction on an exclusive basis to the UK are today 
less  relevant  than  at  the  time  of  the  Fontainebleau  European  Council,  since  several 
other Member States can legitimately claim that their current situation is comparable 
to the UK's (section 2). Furthermore, the cost of enlargement should be fairly shared. 
Consequently,  it  is  argued  that,  in  light  of  the  principle  set  in  the  Fontainebleau 

1 

2 

These  spill-over  effects  include  the  spending  of  income  generated  in  the  receiving  Member  State  on 
goods  or  services  produced  in  another  Member  State,  the  purchase  of  financial  asset  denominated  in 
various Member States currencies etc.  
See  Fontainebleau  European  Council,  ‘Conclusions  of  the  Presidency’,  Bulletin  of  the  European 
Communities, 6-1984.  

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conclusions,  the  conditions  exist  for  the  introduction  of  a  generalised  correction 
mechanism. The parameters defining such a correction mechanism are examined and 
a proposal is made which would respect the twin goals of: 

•  preventing  excessive  negative  budgetary  balances  combined  with  a  reduction  of 

differences between net contributors at comparable levels of prosperity; 

•  ensuring that the financing costs of the mechanism are kept at a reasonable level. 

2. 

CURRENT SITUATION OF THE UK COMPARED TO OTHER NET CONTRIBUTORS 

The following two subsections examine the relative prosperity and the size of the net 
budgetary balances for all net contributors to the EU budget3. 

2.1.  Relative degree of prosperity 

The  table  below  gives  an  overview  of  the  gross  national  income  (GNI)  per  capita 
expressed  in  purchasing  power  standards  (PPS4)  for  the  year  2003  for  all  Member 
States that were net contributor in the year 20025. 

Table 1. GNI per capita of net contributors (in PPS) 
(EU-15 average. = 100) 

United Kingdom 
Denmark 
Austria 
Netherlands 
Sweden 
France 
Germany 
Italy 

2003 
111.2 
111.1 
109.8 
106.6 
104.6 
104.2 
98.6 
97.3 

1984 
90.6 
104.0 
-- 
95.0 
-- 
104.0 
109.6 
92.9 

This table clearly illustrates that in 2003- GNI per capita, expressed in PPS, ranges 
between  97%  and  111%  of  the  EU-15  average  for  all  net  contributors  to  the  EU 
budget. At 111.2%, the UK's relative prosperity is at the top of the range. This is in 
sharp contrast with the situation in 1984, when the UK was the least prosperous of 
the net contributors. 

In  view  of  the  dramatic  shift  in  the  UK's  position  compared  to  the  other  net 
contributors, it is legitimate to re-consider the existing correction system, in light of 
the Fontainebleau principle whereby a Member State's net balance should be viewed 
in relation to its relative prosperity. 

3 

4 

5 

The assessment and proposal made in this communication are based on the more detailed information 
and analysis contained in the technical annex to the Commission’s own resources report. 
The PPS is an artificial currency that reflects differences in national price levels that are not taken into 
account  by  exchange  rates.  This  unit  allows  meaningful  volume  comparisons  of  economic  indicators 
among countries. Data on PPS are calculated by Eurostat. 
Net balances presented in this document, like those used for the UK correction, are calculated including 
administrative  expenditure.  For  this  reason,  Belgium  and  Luxembourg  do  not  appear  among  the  net 
contributors. 

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2.2.  Net budgetary balances before UK correction 

The net budgetary balance of the UK for the year 1985 (the first year for which the 
correction was calculated) amounted to -0.48% of GNI before correction. (Although 
accurate data are not available for the other Member States, Germany was the only 
other major net contributor to the EU budget at that time.) As illustrated in the table 
below, the UK’s net balance has on average remained at a comparable level in recent 
years. Over the period 1996-2002 the net budgetary balance – before UK correction 
and including administrative expenditure - of EU-15 net contributors, was on average 
the following: 

Table 2. Net budgetary balances before UK correction  
for EU-15 selected members (annual averages 1996-2002) 

United Kingdom 
Germany 
Netherlands 
Sweden 
Austria 
Italy 
France 

in % of GNI 
-0.47% 
-0.44% 
-0.43% 
-0.38% 
-0.24% 
-0.06% 
-0.04% 

If  the  current  system  remained  unchanged,  average  net  budgetary  balances  for  the 
period  2008-20136  would  deteriorate  for  all  net  contributors  across-the-board 
because  of  the  financing  cost  of  enlargement.  According  to  Commission  estimates 
and  assuming  expenditure  levels  equal  to  the  financial  perspective  ceilings  as 
proposed  by  the  Commission  in  its  communication  of  10  February  20037,  the 
estimated net balances of the net contributors would be the following. 

Table 3. Estimated net budgetary balances before UK correction 
for  EU-15  selected  members  (annual  averages  2008-
20138) 

United Kingdom 
Netherlands 
Germany 
Sweden 
Austria 
Italy 
France 
Denmark 
Finland 

In % of GNI 
-0.62% 
-0.55% 
-0.52% 
-0.47% 
-0.37% 
-0.29% 
-0.27% 
-0.20% 
-0.14% 

Under the assumption that the level of agricultural expenditure for the EU-25 agreed 
by  the  Brussels  European  Council  in  October  2002  and  the  ‘cohesion’  expenditure 

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8 

Details on the hypotheses used in calculating these estimates are presented in the technical annex to the 
own resources report.  
COM(2004) 101 final. 
As  corrections  are  reimbursed  one  year  later,  averages  in  this  table  and  the  following  ones  are 
calculated over a six-year period since the 2007 correction is to be paid in 2008 and the 2013 correction 
would take place in 2014. 

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proposed  by  the  Commission  under  the  so-called  Objective  1  and  Cohesion  fund 
remained unchanged, a reduction of the overall level of payment appropriations from 
the 1.14% of GNI proposed by the Commission to, say, 1.00%, would only have a 
very  limited  impact  on  the  size  of  the  estimated  net  balances.  This  is  because  the 
expenditure  for  the  new  Member  States  would  in  essence  not  be  touched  and  the 
reduction  would  be  achieved  by  drastically  cutting  the  other  non-agricultural 
expenditure  going  to  the  EU-15  and/or  external  actions  that  do  not  enter  into  the 
allocated  expenditure.  As  a  consequence,  the  resulting  reduction  of  own  resources 
payments  for  the  net  contributors  would  to  a  large  extent  be  offset  by  a 
corresponding reduction in EU allocated expenditure in these same Member States. 

In the absence of any correction mechanism, the UK would have been on average the 
largest net contributor over the last 7 years, and would probably remain the largest 
net contributor to the EU budget over the period till 2013. However, the net balances 
of  NL,  DE  and,  to  a  lesser  extent,  SE  have  been  and  are  expected  to  remain  of  a 
comparable  order  of  magnitude.  As  shown  in  the  previous  section,  all  these  three 
Member States are currently relatively less prosperous than the UK. 

Whether  the  size  of  net  budgetary  balances  is  ‘excessive’  in  view  of  the  relative 
prosperity  of  the  Member  States  concerned  largely  depends  on  the  political 
perception  of  the  acceptable  degree  of  financial  solidarity  within  the  Union.  If  the 
UK  net  balance  was  judged  ‘excessive’,  then  the  application  of  the  Fontainebleau 
principle  would  rather  point  to  the  extension  of  a  correction  mechanism  to  other 
Member States, who – at lower levels of prosperity - bear negative net balances of a 
similar order of magnitude. 

In  any  event,  granting  a  correction  on  an  exclusive  basis  to  one  Member  State 
appears to be unjustified, especially when taking into account the expected evolution 
of the net budgetary balances in the enlarged Union under unchanged conditions, as 
illustrated in the next section. 

3. 

ESTIMATED NET BALANCES WITH UNCHANGED OWN RESOURCES DECISION 

Estimates indicate that over the period 2007-2013 the UK correction will increase by 
more than 50% compared to the average over the latest 7 years to reach an estimated 
€ 7.1 billion from € 4.6 billion in the period 1997-2003. 

As a result of the additional expenditure required for enlargement, net balances of all 
the EU-15 will deteriorate. Although the enlargement to 10 new Member States was 
unanimously agreed at the Berlin European Council in March 1999, the UK insisted 
and  obtained  that  enlargement-related  expenditure  be  taken  into  account9  when 
calculating  the  UK  correction,  thus  shielding  it  from  most  of  the  financial 
consequences  of  enlargement.  That  is  the  main  reason  for  the  expected  future 
increase in the UK correction. 

9 

Pre-accession expenditure relating to actual payments in the last year before accession of any acceding 
country is permanently deducted from the allocated expenditure. 

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As  a  consequence,  the  cost  for  the  Member  States  that  pay  a  full  share  in  the 
financing of the UK correction, including all the new Member States, will increase 
proportionally. 

Should the current own resources decision remain in force, the average net balance 
for the net contributors over the 2007-2013 period after UK correction is estimated to 
be as follows: 

Table 4. Estimated net budgetary balances after UK correction  
(annual averages 2008-2013) 

Netherlands 
Germany 
Sweden 
Austria 
Italy 
Cyprus10 
France 
Denmark 
Finland 
United Kingdom 

in % of GNI 
-0.56% 
-0.54% 
-0.50% 
-0.38% 
-0.41% 
-0.37% 
-0.37% 
-0.31% 
-0.25% 
-0.25% 

According  to  these  estimates,  the  UK  will  become  (together  with  Finland)  the 
smallest  net  contributor  to  the  EU  budget,  in  evident  contradiction  with  the 
Fontainebleau principle mentioned above. The current system of a unique correction 
for  the  UK  therefore  must  be  reconsidered.  Instead,  the  generalization  of  the 
correction  mechanism,  evolving  from  the  existing  correction  would  allow  bringing 
the system closer to the original objective of avoiding excessive budgetary burdens 
in  relation  to  the  relative  prosperity  of  Member  States.  By  introducing  a  sort  of 
‘safety net’ for large net contributors beyond a certain level, it may also facilitate a 
more  constructive  approach  to  ensure  the  budgetary  means  to  meet  the  policy 
challenges of the enlarged Union. 

4. 

OUTLINING A GENERALISED CORRECTION MECHANISM 

4.1.  General outline of the mechanism 

The proposed generalised correction mechanism has to be seen in the context of the 
Commission overall ‘package’ for the post-2006 financial framework. The final net 
position of Member States before and after correction is thus likely to be affected by 
decisions to be taken on the expenditure side of the package. 

The  generalised  correction  mechanism  is  to  be  calculated  on  the  basis  of  the  net 
budgetary  balance  of  each  Member  State  in  relation  to  the  budget  of  the  EU.  The 
mechanism  should  be  triggered  beyond  a  threshold,  expressed  as  a  percentage  of 
each  Member  State’s  GNI,  reflecting  the  minimum  accepted  level  of  unlimited 
financial  solidarity  between  Member  States.  and  representing  a  sort  of  basic 
reasonable net contribution. Net positions exceeding such a threshold will be eligible 

10 

Throughout this document estimates are based on areas controlled by the Republic of Cyprus. 

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for a correction (partial refund). The amount of the correction is to be based on the 
part of the net balance exceeding this threshold, multiplied by a refund rate (i.e. the 
percentage of the amount in excess of the agreed threshold to be compensated). If the 
sum  of  all  corrections  exceeds  a  total  predetermined  volume,  the  refund  rate  is 
reduced accordingly. Annex 1 explains the steps required and the functioning of the 
proposed correction mechanism. 

4.2  The level of the threshold 

Simulations have been run for different levels of the threshold (using a refund rate of 
66%) ranging from zero to 0.50% of GNI. 

The total sum of the corrections at different threshold levels is estimated as follows: 

Table 5. Estimated gross corrections (average 2008-2013) 

Level of the threshold  
(as a % of GNI, EU-27) 
0.00% 
0.10% 
0.20% 
0.25% 
0.30% 
0.40% 
0.50% 

Sum of all corrections 
(in billion of euros) 
25.8 
19.8 
13.8 
11.1 
8.8 
5.2 
1.9 

A threshold level of around -0.25% would represent a sort of neutral point whereby 
the estimated future cost of financing the generalised correction mechanism would be 
equal to the estimated future cost of financing the current UK correction mechanism. 
A threshold lower than 0.25% would mean that the Member States paying in full the 
UK rebate (they currently bear more than 90% of the total cost) would have to pay 
more  than  the  estimated  cost  of  financing  the  current  UK  correction  mechanism  in 
the future. With a threshold higher than 0.25%, the mechanism would be less costly 
than  financing  the  estimated  future  UK  correction  for  those  Member  States, 
including all net recipients from the EU budget. 

The  table  above  illustrates  that  the  total  sum  of  the  corrections  with  a  0.25% 
threshold  would  be  substantially  higher  than  the  estimated  level  of  the  future  UK 
correction  with  the  current  own  resources  decision  (ORD)  unchanged.  Applying  a 
threshold of -0.25% would generate a level of (gross) corrections slightly above € 11 
billion, which is significantly higher than the approximately € 7 billion average (net) 
UK correction for the same period. This difference is linked to the assumption that 
the financing of the corrections would be shared by all Member States according to 
their share in GNI (see section 4.3 below). 

So an overall volume of up to € 11 billion of corrections could be financed before the 
GCM  became  more  expensive  than  the  continuation  of  the  current  ORD  for  those 
Member States who would not benefit from the GCM. 

The  impact  of  introducing  a  generalised  mechanism  with  a  threshold  is  not  linear. 
The  effect  on  Member  States’  net  balances,  compared  to  the  current  situation,  is 
influenced by a combination of the following elements: a) the level of the Member 

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States’  budgetary  imbalance  before  correction;  b)  the  level  of  the  threshold;  and  c) 
the financing rules under the existing UK correction. 

All major net contributors to the EU budget (UK, DE, NL, SE) would benefit from 
the  correction  mechanism  with  thresholds  lower  than  or  equal  to  0.50%  of  GNI. 
Smaller net contributors would receive corrections depending on the threshold level. 
The relative position of each individual net contributor, compared to their estimated 
future  position  under  the  current  ORD,  is  determined  by  a  combination  of  the 
following two factors: 

(cid:190) 

(cid:190) 

the size of the negative net balance before correction, whereby larger net 
contributors such as DE, NL, SE tend to benefit more at lower threshold 
levels (compared to smaller net contributors); 

the  current  financing  regime  of  the  UK  correction,  whereby  Member 
States currently benefiting from a special arrangement (DE, NL, SE, AT) 
tend  to  benefit  less  at  higher  threshold  levels  (compared  to  smaller  net 
contributors). 

Any future ‘fairer’ mechanism should ensure in particular that the resulting financing 
cost  does  not  lead  to  a  heavier  burden  than  under  the  current  UK  correction 
mechanism for ‘cohesion’ Member States. 

4.3.  Financing rules 

Technically the correction could be financed in three different ways: 

•  Member States who receive a correction do not participate in the financing. Under 
this option the entire burden of the financing would be concentrated on countries 
representing less than 50% of the total EU-27 GNI, many of them with relatively 
low levels of prosperity. Consequently, their net budgetary position would either 
deteriorate  in  an  unacceptable  manner,  or  the  volume  of  the  corrections  would 
have  to  be  severely  restricted.  Furthermore,  distortions  could  result  when  a 
Member  State  with  a  net  position  just  below  the  threshold  would  have  to 
participate  in  the  financing  of  the  corrections  and  another  Member  State  just 
above the threshold would be excluded from the financing. 

•  Member  States  participate  in  the  financing  of  all  corrections  except  their  own. 
This alternative would add considerable complexity to the proposal, since it would 
entail a separate financing round for each of the corrections. 

•  All Member States participate in the financing of all corrections. Their financing 
share in the global amount of the corrections would be determined by their share 
in GNI. 

For  sake  of  feasibility,  transparency  and  simplicity,  all  Member  States  should 
participate in the financing of all corrections (third option). 

Although these financing rules are equivalent to adding the amount of the corrections 
to the expenditure side of the budget (whereby it would also be financed exclusively 
through  an  increase  of  the  marginal  resource  GNI),  it  is  proposed  to  maintain  the 

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GCM  on  the  revenue  side  of  the  budget,  as  done  for  the  existing  UK  correction. 
Adding the corrections to expenditure would artificially inflate the level of budgetary 
expenditure  with  a  corresponding  decrease  of  available  margins  under  the  global 
expenditure ceilings. 

4.4.  Comparing corrections levels 

A threshold  set  at  -0.35% of GNI will give rise to an estimated  average  volume of 
gross  corrections  of  around  €  7  billion  for the  period  2007-2012  (to  be  financed  in 
2008-2013). 

The  generalisation  of  the  correction  mechanism  combined  with  the  change  in  the 
financing rules means that the comparison with the level of the correction under the 
current  system  is  somewhat  blurred.  As  all  Member  States,  including  those 
benefiting from such a mechanism, will participate in the financing of all corrections, 
the  overall  net  correction  will  always  be  lower  than  the  gross  correction,  whereas 
under  the  current  system  there  is  no  difference  between  net  and  gross  correction 
(what the UK gets is what other Member States pay). 

The  resulting  net  balances  of  the  large  net  contributors  after  the  correction  will  be 
higher  than  the  established  threshold  because  of  the  combined  effect  of  the  partial 
refund  and  the  participation  in  the  financing  of  the  correction  system.  Conversely, 
the  burden  for  Member  States  having  to  pay  fully  their  share  of  the  financing  cost 
and  not  benefiting  from  the  correction  is  lower  than  at  present  even  if  the  overall 
gross  correction  is  larger.  Thus,  with  a  threshold  set  at  0.35%  of  GNI  and  a 
maximum predetermined correction volume set at € 7.5 billion, the combined burden 
for these Member States would be even lower (by about € 1 billion) than the average 
level  paid  during  the  2001-2004  period  and  much  lower  when  compared  to  the 
estimated  cost  of  the  continuation  of  the  current  system  over  the  next  financial 
framework (see table 6). 

5. 

THE COMMISSION’S PROPOSAL 

Any correction mechanism entails an additional complication to the financing of the 
budget. Therefore the basic proposal should be relatively and sufficiently transparent. 
In  this  respect,  the  current  parameters  of  the  UK  correction  calculation  should  be 
modified only where necessary and simplified whenever feasible. 

The  Commission  therefore  proposes  to  use  the  following  parameters  for  a 
generalised correction mechanism: 

–  keeping  the  categories  of  revenue  to  be  taken  into  account  (VAT  +  GNI) 

unchanged. Any other existing complication11 should be abolished; 

–  keeping 

the  expenditure  headings 

included 

in 

the  allocated  expenditure 

unchanged; 

11 

Such as the calculation of the 'UK advantage' and the TOR windfall gains. 

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–  simplifying the financing by basing it only on GNI shares, whereby all Member 
States would participate in the financing of the global amount of the corrections in 
proportion to their relative prosperity; 

–  setting the threshold level at -0.35% of GNI; 

–  using the refund rate as the adjustment variable with a maximum rate of 66%, to 
be reduced automatically when the agreed maximum refund volume is exceeded 
in a given year; 

–  capping the maximum available refund volume at € 7.5 billion. 

In  absolute  terms,  the  UK  would  be  by  far  the  largest  beneficiary  from  the 
generalised  correction  mechanism,  receiving  on  average  a  net  compensation  in 
excess  of  €  2  billion  per  year,  approximately  twice  as  much  as  the  net  amount  DE 
would receive. 

The table below illustrates the estimated net budgetary balances for the period under 
consideration  with  the  proposed  GCM  and  compares  them  with  the  other  two 
alternative scenarios. 

Table 6. Estimated net budgetary balances (average 2008-2013) 

United Kingdom 
Netherlands 
Germany 
Sweden 
Austria 
Italy 
France 
Cyprus 
Denmark 
Finland 
Spain 
Ireland 
Malta 
Belgium12
Slovenia 
Portugal 
Greece 
Hungary 
Czech Republic 
Slovakia 
Estonia 
Poland 
Lithuania 
Latvia 
Luxembourg13

GCM 
-0.51% 
-0.48% 
-0.48% 
-0.45% 
-0.41% 
-0.35% 
-0.33% 
-0.33% 
-0.25% 
-0.19% 
0.26% 
0.51% 
1.10% 
1.27% 
1.34% 
1.54% 
2.20% 
3.09% 
3.21% 
3.31% 
3.79% 
3.80% 
4.44% 
4.45% 
5.84% 

in % of GNI 
Current ORD  No correction 

-0.25% 
-0.56% 
-0.54% 
-0.50% 
-0.38% 
-0.41% 
-0.37% 
-0.37% 
-0.31% 
-0.25% 
0.23% 
0.47% 
1.06% 
1.21% 
1.31% 
1.50% 
2.16% 
3.06% 
3.17% 
3.27% 
3.76% 
3.76% 
4.41% 
4.40% 
5.80% 

-0.62% 
-0.55% 
-0.52% 
-0.47% 
-0.37% 
-0.29% 
-0.27% 
-0.28% 
-0.20% 
-0.14% 
0.32% 
0.56% 
1.16% 
1.32% 
1.40% 
1.60% 
2.25% 
3.15% 
3.26% 
3.36% 
3.85% 
3.85% 
4.50% 
4.51% 
5.89% 

12 

When excluding administrative expenditure, Belgium and Luxembourg appear as net contributors. 

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With  the  proposed  mechanism,  on  average,  the  net  balances  of  the  largest  net 
contributors  would  be  at  comparable  levels,  with  the  UK,  DE,  NL  and  SE  all 
between  -0.51%  and  -0.45%,  to  be  compared  with  a  range  between  -0.56%  and  -
0.25%  under  the  UK  correction  mechanism  (and  between  -0.62%  and  -0.47%  with 
no correction). Several Member States (FR, IT, CY and AT) would have net balances 
averaging between -0.40% and -0.30%, with A somewhat higher than the other three. 
DK  and  FI  would  be  the  two  remaining  smaller  net  contributors  with  estimated 
average net balances of -0.19% and -0.25%, respectively. 

Even with a threshold level of -0.35%, the largest net contributors will end up having 
net balances above the threshold because of the combined effect of the partial refund 
and  the  participation  in  the  financing  of  the  correction  system.  Nonetheless,  the 
resulting net budgetary balances for net contributors would be more in line with the 
Fontainebleau principle when compared to the current system. 

On the other hand, the estimated burden of financing the overall correction for all the 
other Member States would be lower than under the current system. 

6. 

TRANSITIONAL MEASURES 

It  is  appropriate  that  the  introduction  of  the  generalised  system  for  correcting 
budgetary imbalances (GCM) shall be accompanied by transitional measures for the 
UK  to  alleviate  the  financial  impact  of  the  changeover  for  this  Member  State.  In 
order not to increase excessively the total cost of the corrections, the application of 
the  generalised  system  should  be  progressively  phased  in  for  the  other  eligible 
Member States. 

The option presented here is relatively straightforward and is based on the one hand 
on additional top-up payments for the UK and on the other hand a phasing-in of the 
other Member States into the GCM (while the UK would enter immediately into the 
GCM). 

6.1  Additional top-up payments for the UK 

In addition to the corrections the UK will receive under the GCM, it is proposed to 
grant the following top-up payments to the UK over a 4-year period: 

•  in 2008:  € 2.0 billion 

•  in 2009:  € 1.5 billion 

•  in 2010:  € 1.0 billion 

•  in 2011:  € 0.5 billion 

These top-up payments would alleviate the financial impact of the introduction of the 
GCM  for  the  UK  in  4  gradual  steps.  The  UK  has  received  in  recent  years  a  net 
correction of on average € 4.6 billion annually over the period 1997-2003. Under the 
GCM  the  UK  is  expected  to  receive  €  2.1  billion  annually  on  average  over  the 
period. The proposed transitional measures raise this annual average amount to € 3.1 
billion. 

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11 

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Since these lump sum payments represent a phasing-out of the current system, they 
would continue to be financed according to the current financing rules, i.e.: the UK 
does  not  participate  in  the  financing  and  the  share  of  DE,  NL,  AT  and  SE  in  the 
financing is restricted to 25% of their normal share. 

It  is  further  proposed  that  neither  these  payments  to  the  UK  nor  their  financing 
should  impact  the  calculation  of  the  corrections  under  the  proposed  generalised 
correction mechanism (GCM). Specifically this means: 

•  the  corrections  under  the  GCM  will  be  based  on  Member  State's  net  balances 

excluding the effect of the top-up payments; 

•  the  top-up  payments  to  the  UK  will  not  be  taken  into  account  for  the  maximum 

available refund volume (the cap). 

6.2  Phasing-in of the GCM for the other Member States 

In order to offset the increased cost brought about by the proposed top-up payments 
for the UK so as to limit the overall financing cost during the transitional period, it is 
appropriate to foresee a phasing-in period for the other Member States into the GCM. 
(In  order  to  preserve  the  logic  presented  in  the  previous  paragraph,  the  UK  should 
fully enter into the GCM immediately.) 

To this effect it is proposed to phase-in the refund rate, which is applied to the part of 
any Member State's net balance in excess of the threshold, in the following way for 
all Member States (except the UK, which would be granted 66% as of the first year): 

•  in 2008:  33% 

•  in 2009:  50% 

•  in 2010:  50% 

•  in 2011:  66% 

6.3  Results of simulation 

The overall volume of the corrections (so including both the top-up payments to the 
UK and the GCM) resulting from this proposal for a transitional regime would be € 
7.205 million compared to € 6.771 million under the proposed GCM on average over 
the period 2008-2013. This represents an increase of approx. € 430 million per year. 

The  net  balances  resulting  from  the  application  of  this  combined  phasing-in  are 
presented in the table below. The table allows for the comparison with the situation 
before  correction,  the  situation  under  the  current  own  resources  decision  and  the 
situation under the GCM without transitional period. 

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12 

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Estimated net budgetary balances for net contributors (average 2008-2013) 
in % of GNI 

Without 
correction 

Current UK 
correction 

GCM with 
0.35% 
threshold & 
cap at € 7.5 bn 

Belgium 
Czech Republic 
Denmark 
Germany 
Estonia 
Greece 
Spain 
France 
Ireland 
Italy 
Cyprus 
Latvia 
Lithuania 
Luxembourg 
Hungary 
Malta 
Netherlands 
Austria 
Poland 
Portugal 
Slovenia 
Slovakia 
Finland 
Sweden 
United Kingdom 

(1) 

1,32% 
3,26% 
-0,20% 
-0,52% 
3,85% 
2,25% 
0,32% 
-0,27% 
0,56% 
-0,29% 
-0,28% 
4,51% 
4,50% 
5,89% 
3,15% 
1,16% 
-0,55% 
-0,37% 
3,85% 
1,60% 
1,40% 
3,36% 
-0,14% 
-0,47% 
-0,62% 

(2) 
1,21% 
3,17% 
-0,31% 
-0,54% 
3,76% 
2,16% 
0,23% 
-0,37% 
0,47% 
-0,41% 
-0,37% 
4,40% 
4,41% 
5,80% 
3,06% 
1,06% 
-0,56% 
-0,38% 
3,76% 
1,50% 
1,31% 
3,27% 
-0,25% 
-0,50% 
-0,25% 

(3) 

1,26% 
3,20% 
-0,26% 
-0,48% 
3,79% 
2,19% 
0,26% 
-0,33% 
0,51% 
-0,35% 
-0,33% 
4,45% 
4,44% 
5,83% 
3,09% 
1,10% 
-0,48% 
-0,41% 
3,79% 
1,54% 
1,34% 
3,30% 
-0,20% 
-0,45% 
-0,51% 

Commission 
Proposal: 
GCM + 
transitional 
period 
(4) 
1,26% 
3,20% 
-0,26% 
-0,49% 
3,78% 
2,19% 
0,25% 
-0,34% 
0,50% 
-0,36% 
-0,34% 
4,44% 
4,43% 
5,83% 
3,09% 
1,09% 
-0,50% 
-0,41% 
3,79% 
1,53% 
1,33% 
3,30% 
-0,20% 
-0,46% 
-0,46% 

7. 

CONCLUSION 

On the basis of its review of the own resource system, the Commission is of the view 
that  the  existing  correction  mechanism  on  an  exclusive  basis  is  no  longer  justified 
and  proposes  the  introduction  of  a  generalised  mechanism  to  correct  excessive 
negative budgetary imbalances. 

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13 

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ANNEX 1 

Key features of the proposed generalised correction mechanism 

Under  the  proposed  mechanism,  calculating  the  corrections  involves  the  following 
steps: 

1. 

2. 

Calculate  the  aggregate  amount  of  all  expenditure  allocated  to  each  Member 
State. Allocated expenditure, as for the current correction mechanism, includes 
all categories of expenditure that are ‘internal’ to the EU13. 

Calculate  the  percentage  share  of  each  Member  State  in  total  allocated 
expenditure. 

3.  Determine  the  percentage  share  of  each  Member  State  in  own  resources 
payments. Since traditional own resources are excluded from the categories of 
revenue  to  be  taken  into  account,  the  combined  share  in  VAT  and  GNI  own 
resources  is  used  to  calculate  any  Member  States’  share  in  EU  budgetary 
revenue14. 

4.  Deduct (2) from (3) above for each Member State, to obtain the corresponding 

percentage showing the corresponding positive/negative balance. 

5. 

For  each  Member  State,  multiply  the  percentage  resulting  from  (4)  above  by 
total  allocated  expenditure,  to  obtain  the  net  budgetary  contribution/benefit 
expressed in euros. 

6.  Multiply the threshold corresponding to the reasonable net contribution (RNC) 
by  the  GNI  (in  €)  of  each  Member  State  and  deduct  from  the  result  obtained 
under (5). 

7. 

If  the  result  obtained  under  (6)  is  greater  than  zero,  multiply  the  result  under 
(6)  by  the  refund  rate  to  obtain  the  correction  for  each  Member  State  and 
reduce  the  refund  rate  as  necessary  if  the  sum  of  all  corrections  exceeds  the 
predetermined maximum refund volume (see below). 

13 

14 

This  includes  virtually  the  total  amount  of  the  current  expenditure  headings  1  (agriculture)  and  2 
(structural operations) as well as the vast majority of expenditure under headings 3 (internal policies) 
and  5  (administration),  excluding  only  some  minor  items  of  expenditure  that  cannot  be  reasonably 
allocated  to  any  individual  Member  State.  Headings  4  (external  policies),  6  (reserves)  and  7  (pre-
accession  expenditure)  relate  explicitly  to  ‘external’  expenditure  and  are  therefore  not  taken  into 
account. 
A  proposal  for  a  generalised  correction  mechanism  should  be  as  simple  and  transparent  as  possible. 
Therefore all existing complications in the UK rebate calculation which are related to the preservation 
of the UK’s 1984 revenue position (share in uncapped VAT, calculating the ‘advantage’ as well as the 
‘TOR windfall gains’), should be abolished. 

EN 

14 

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The total cost of the correction mechanism, i.e. the sum of all corrections is limited 
by a maximum available refund volume (MARV). The MARV should be determined 
ex-ante for the period of the financial perspective as a yearly ad-hoc amount15. 

Net  positions  exceeding  the  RNC  are  eligible  for  a  partial  refund:  the  corrective 
percentage or the refund rate (RR), to be applied to the part of the Member State's 
net  budgetary  balance  exceeding  the  threshold  (RNC).  This  refund  rate  is  a 
dependent  variable  for  which  an  upper  limit  of  66%  (currently  used  for  the  UK 
correction) applies. The actual refund rate will be derived from the available refund 
volume.  Thus,  the  refund  rate  is  automatically  reduced  when  the  application  of  the 
66% maximum refund rate breached the MARV. 

The partial refund is made ex-post as currently done for the UK correction. 

The  resulting  formula  for  calculating  the  generalised  correction  mechanism  is  the 
following: 

RR
xC  = 








TP
x
TP

−

E
x
E





*

E

−

RNC

*

Y
x

*

RR





if 

RR

xC  > 0 

where RR = 0.66 if ∑

x

xC 66.0

≤  MARV and 

RR = 

MARV
∑
66.0
xC

x

* 0.66 if ∑

x

xC 66.0

 > MARV 

RR

Where: TP = Total VAT- and GNI-based payments made by all Member States in respect of year t 
TPx = VAT- and GNI-based payments made by Member State x in respect of year t 
E = Total allocated expenditure in respect of year t 
Ex = Expenditure allocated to Member State x in respect of year t 
xC  = Correction (at refund rate RR) to be granted to Member State x in respect of year t 
RNC = Reasonable net contribution (= threshold) expressed in % of GNI 
Yx = GNI of year t of Member State x 
RR = Refund rate 
MARV = Maximum available refund volume 
∑

xC 66.0 = Total sum of corrections if RR is equal to 0.66 

x

15 

Fixing  the  level  of  the  MARV  is  clearly  a  discretionary  decision  which  is  not  a-priori  subject  to  any 
binding constraint. However, political realism would suggest that the cost of financing the corrections 
should not exceed the equivalent of the estimated future financing cost of the UK correction for those 
Member States currently financing a full share (i.e. all except UK, D, NL, S and A). 

EN 

15 

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2004/0170 (CNS) 

Proposal for a 

COUNCIL DECISION 

on the system of the European Communities’ own resources 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
269 thereof, 

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

Having regard to the proposal from the Commission16, 

Having regard to the opinion of the European Parliament17, 

Having regard to the opinion of the Court of Auditors18, 

Having regard to the opinion of the European Economic and Social Committee19, 

Whereas: 

(1) 

(2) 

(3) 

The European Council meeting in Berlin on 24 and 25 March 1999 concluded, inter 
alia,  that  the  system  of  the  Communities'  own  resources  should  be  equitable, 
transparent,  cost-effective,  simple  and  based  on  criteria  which  best  express  each 
Member State's ability to contribute. 

The  Communities'  own  resources  system  must  ensure  adequate  resources  for  the 
orderly  development  of  the  Communities'  policies,  subject  to  the  need  for  strict 
budgetary discipline. 

According to Council Decision 2000/597/EC, Euratom of 29 September 2000 on the 
system of the European Communities' own resources20, gross national income (GNI) 
for the year is defined at market prices as provided by the Commission in application 
of the European system of integrated economic accounts (hereinafter referred to as the 
‘ESA 95’) in accordance with Regulation (EC) No. 2223/96. 

16 
17 
18 
19 
20 

OJ C […], […], p. […]. 
Opinion delivered on (OJ C […], […], p. […]). 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ L 253, 7.10.2000, p. 42. 

EN 

16 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

(10) 

It is appropriate, should modifications to the ESA 95 result in significant changes in 
GNI as provided by the Commission in accordance with Regulation (EC) No 2223/96, 
that  the  Council  decide  whether  these  modifications  apply  for  the  purposes  of  own 
resources. 

According to Article 3(1) and 3(2) of Council Decision 2000/597/EC, the Commission 
calculated  the  new  percentages  of  the  ceiling  for  own  resources  and  the  ceiling  for 
appropriations for payments, expressed in two decimal places, in December 2001 on 
the basis of the formula therein. 

According  to  the  communication21  from  the  Commission  to  the  Council  and  the 
European Parliament on the adaptation of the ceiling of own resources and the ceiling 
for  appropriations  for  commitments  following  the  entry  into  force  of  Decision 
2000/597/EC, Euratom of 12 December 2001, the maximum ceiling of own resources 
is set equal to 1.24 % of the Communities' GNI at market prices and an overall ceiling 
of 1.31 % of the Communities' GNI was set for appropriations for commitments. 

It is appropriate that a similar method be used in the future on the occasion of changes 
in the ESA 95 which may have effects on the level of GNI should Council decide that 
these modifications apply for the purposes of own resources. 

Following  the  implementation  in  EU  law  of  the  agreements  concluded  during  the 
Uruguay round of multilateral trade there is no longer any material difference between 
agricultural  duties  and  customs  duties.  It  is  therefore  appropriate  to  eliminate  this 
distinction in the area of the EU budget. 

It  is  appropriate  that  the  value  added  tax  bases  of  the  Member  States  continue  to  be 
restricted to 50 % of their GNI. 

In  the  interest  of  transparency  and  simplicity  it  is  proposed  to  establish  the  uniform 
rate of VAT as a fixed percentage. In order to avoid that this technical change has an 
impact on Member States’ payments of the VAT resource, the fixed rate should reflect 
the current uniform rate of call. The uniform rate of VAT should therefore be fixed at 
0.30 %. 

(11)  The  European  Council  of  25  and  26  June  1984  concluded  that  'any  Member  State 
sustaining a budgetary burden which is excessive in relation to its relative prosperity 
may benefit from a correction at the appropriate time'. Since several Member States at 
comparable  levels  of  prosperity  are  sustaining  a  similar  budgetary  burden,  it  is 
appropriate  to  replace  the  correction  for  budgetary  imbalances  granted  to  the  UK 
under  Article  (4)  of  Council  Decision  2000/597/EC  with  a  generalised  system  for 
correcting budgetary imbalances. 

(12) 

It  is  appropriate  that  the  introduction  of  the  generalised  system  for  correcting 
budgetary  imbalances  shall  be  accompanied  by  transitional  measures  for  the  UK  to 
alleviate the financial impact of the changeover for this Member State. In order not to 
increase excessively the total cost of the corrections, the application of the generalised 
system should be progressively phased in for the other eligible Member States. 

21 

COM(2001) 801 final. 

EN 

17 

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(13)  The  Commission  shall  continue  to  examine  the  possibilities  of  modifying  the  own 
resources  structure  by  introducing  a  genuinely  tax-based  own  resource  to  be 
operational  from  1  January  2014  and  shall  submit  a  corresponding  proposal  to  the 
Council. 

(14)  Provisions must be laid down to cover the changeover from the system introduced by 

Decision 2000/597/EC, Euratom to that arising from this Decision. 

HAS  LAID  DOWN  THESE  PROVISIONS,  WHICH  IT  RECOMMENDS  TO  THE 
MEMBER STATES FOR ADOPTION: 

Article 1 

The Communities shall be allocated own resources in accordance with the rules laid down in 
the  following  Articles  in  order  to  ensure,  in  accordance  with  Article  269  of  the  Treaty 
establishing the European Community (hereinafter referred to as the ‘EC Treaty’) and Article 
173 of the Treaty establishing the European Atomic Energy Community (hereinafter referred 
to as the ‘Euratom Treaty’), the financing of the budget of the European Union. 

The  budget  of  the  European  Union  shall,  without  prejudice  to  other  revenue,  be  financed 
wholly from the Communities' own resources. 

Article 2 

Revenue from the following shall constitute own resources entered in the budget of the 

1. 
European Union: 

(a)  levies,  premiums,  additional  or  compensatory  amounts,  additional  amounts  or  factors, 
Common  Customs  Tariff  duties  and  other  duties  established  or  to  be  established  by  the 
institutions of the Communities in respect of trade with non-member countries, customs duties 
on  products  coming  under  the  former  Treaty  establishing  the  European  Coal  and  Steel 
Community as well as contributions and other duties provided for within the framework of the 
common organisation of the markets in sugar; 

(b)  the  application  of  a  uniform  rate  valid  for  all  Member  States  to  the  harmonised  VAT 
assessment bases determined according to Community rules. The assessment base to be taken 
into account for this purpose shall not exceed 50 % of GNI for each Member State, as defined 
in paragraph 7; 

(c) the application of a rate — to be determined pursuant to the budgetary procedure in the 
light of the total of all other revenue — to the sum of all the Member States' GNIs. 

2. 
Revenue  deriving  from  any  new  charges  introduced  within  the  framework  of  a 
common policy, in accordance with the EC Treaty or the Euratom Treaty, provided that the 
procedure laid down in Article 269 of the EC Treaty or in Article 173 of the Euratom Treaty 
has been followed, shall also constitute own resources entered in the budget of the European 
Union. 

Member States shall retain, by way of collection costs, 25 % of the amounts referred 

3. 
to in paragraph 1(a). 

EN 

18 

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4. 

5. 

The uniform rate referred to in paragraph 1(b) shall correspond to 0.30 %. 

The rate fixed under paragraph 1(c) shall apply to the GNI of each Member State. 

6. 
If, at the beginning of the financial year, the budget has not been adopted, the previous 
uniform VAT rate and rate applicable to Member States' GNIs shall remain applicable until 
the entry into force of the new rates. 

For  the  purposes  of  applying this  Decision,  GNI  for  the  year  is  calculated  at  market 
7. 
prices  as  provided  by  the  Commission  in  application  of  the  ESA  95  in  accordance  with 
Regulation (EC) No 2223/96. 

Should modifications to the ESA 95 result in significant changes in the GNI as provided by 
the Commission, the Council, acting unanimously on a proposal of the Commission and after 
consulting the European Parliament, shall decide whether these modifications shall apply for 
the purposes of this Decision. 

Article 3  

The  total  amount  of  own  resources  assigned  to  the  Communities  to  cover 

1. 
appropriations for payments may not exceed 1.24 % of the total GNIs of the Member States. 

Appropriations for commitments entered in the general budget of the European Union 
2. 
must follow an orderly progression resulting in a total amount, which does not exceed 1.31 % 
of the total GNIs of the Member States. 

An  orderly  ratio  between  appropriations  for  commitments  and  appropriations  for  payments 
shall  be  maintained  to  guarantee  their  compatibility  and  to  enable  the  ceiling  pursuant  to 
paragraph 1 to be respected in subsequent years. 

In the case of modifications to the ESA 95 which result in changes in the level of GNI 
3. 
that  apply  for  the  purposes  of  this  Decision,  the  ceilings  for  payments  and  commitments  as 
determined in paragraphs 1 and 2 shall be recalculated by the Commission on the basis of the 
following formula: 

24.1

31.1%(

*%)

2tGNI

+−

1tGNI

+−

tGNI

ESA

current

2tGNI

+−

1tGNI

+−

tGNI

ESA

modified

where t is the latest full year for which Eurostat data are available. 

Article 4 

1. 
Any Member State sustaining a negative budgetary imbalance in excess of a threshold 
equivalent to a certain percentage of its GNI shall be granted a correction. The total amount of 
the  corrections  in  a  given  year  shall  not  exceed  a  maximum  available  refund  volume 
expressed in euro. The Council, in accordance with the procedure laid down in Article 279(2) 
of  the  EC  Treaty,  shall  lay  down  the  implementing  measures  for  the  calculation  of  the 
corrections and their financing, in particular the threshold and the maximum available refund 
volume. 

EN 

19 

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The corrections shall be established by: 

(a) calculating for each Member State the budgetary imbalance as the difference, in a financial 
year, between: 

- the percentage share of that Member State in the sum of the total VAT-based and GNI-based 
own resources payments, and 

- the percentage share of that Member State in total allocated expenditure; 

(b) multiplying the difference thus obtained by total allocated expenditure; 

(c) deducting from the result under (b) the value of that Member State's GNI multiplied by the 
threshold;  

(d) if the result obtained under (c) is positive, multiplying this result by a refund rate, fixed at 
a  maximum  of  0.66  and,  if  necessary,  reduced  proportionally  to  respect  the  maximum 
available refund volume. 

2. 

The following transitional measures shall apply: 

(a)  In  addition  to  the  corrections  resulting  from  the  application  of  Article  4(1)  of  this 
Decision, the United Kingdom shall receive the following payments: 

in 2008:  € 2.0 billion 

in 2009:  € 1.5 billion 

in 2010:  € 1.0 billion 

in 2011:  € 0.5 billion 

These  amounts  shall  be  financed  in  accordance  with  the  rules  laid  down  in  Article  5  of 
Council Decision 2000/597/EC, Euratom. 

These amounts and their financing shall not be taken into account for the calculation of the 
corrections mentioned under Article 4(1)(d) of this Decision. 

(b)  The  maximum  refund  rate  mentioned  under  Article  4(1)(d)  of  this  Decision  shall  be 
phased-in  for  all  Member  States  other  than  the  United  Kingdom  according  to  the  following 
schedule: 

in 2008:  33% 

in 2009:  50% 

in 2010:  50% 

in 2011:  66% 

Article 5 

The cost of the corrections shall be borne by all Member States in accordance with the 
1. 
following arrangements: the distribution of the cost shall be calculated by reference to each 
Member State's share in total EU GNI. 

EN 

20 

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2. 
The  correction  shall  be  granted  to  any  Member  State  by  a  reduction  in  its  payments 
resulting  from  the  application  of  Article  2(1)(c).  The  costs  borne  by  all  the  Member  States 
shall  be  added  to  their  payments  resulting  from  the  application  for  each  Member  State  of 
Article 2(1)(c). 

The Commission shall perform the calculations required for the application of Article 

3. 
4 and this Article. 

If,  at  the  beginning  of  the  financial  year,  the  budget  has  not  been  adopted,  the 
4. 
correction  granted  to  any  Member  State  and  the  costs  borne  by  all  the  Member  States  as 
entered in the last budget finally adopted shall remain applicable. 

The  revenue  referred  to  in  Article  2  shall  be  used  without  distinction  to  finance  all 
expenditure entered in the budget. 

Article 6 

Any surplus of the Communities' revenue over total actual expenditure during a financial year 
shall be carried over to the following financial year. 

Article 7 

Article 8 

The  Communities'  own  resources  referred  to  in  Article  2(1)(a)  shall  be  collected  by 
1. 
the Member States in accordance with the national provisions imposed by law, regulation or 
administrative action, which shall, where appropriate, be adapted to meet the requirements of 
Community rules. 

The Commission shall examine at regular intervals the national provisions communicated to it 
by the Member States, transmit to the Member States the adjustments it deems necessary in 
order to ensure that they comply with Community rules and report to the budget authority. 

Member States shall make the resources provided for in Article 2(1)(a) to (c) available to the 
Commission. 

Without  prejudice  to  the  auditing  of  the  accounts  and  to  checks  that  they  are  lawful 
2. 
and  regular  as  laid  down  in  Article  248  of  the  EC  Treaty  and  Article  160C  of  the  Euratom 
Treaty, such auditing and checks being mainly concerned with the reliability and effectiveness 
of national systems and procedures for determining the base for own resources accruing from 
VAT and GNI and without prejudice to the inspection arrangements made pursuant to Article 
279(1)(b) of the EC Treaty and Article 183 point (c) of the Euratom Treaty, the Council shall, 
acting  unanimously  on  a  proposal  from  the  Commission  and  after  consulting  the  European 
Parliament,  adopt  the  provisions  necessary  to  apply  this  Decision  and  to  make  possible  the 
inspection  of  the  collection,  the  making  available  to  the  Commission  and  payment  of  the 
revenue referred to in Articles 2 and 5. 

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21 

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The Commission shall submit to the Council a proposal to modify the own resources structure 
by introducing a genuinely tax-based own resource to be operational from 1 January 2014. 

Article 9 

Article 10 

Member  States  shall  be  notified  of  this  Decision  by  the  Secretary-General  of  the 

1. 
Council and the Decision shall be published in the Official Journal of the European Union. 

Member  States  shall  notify  the  Secretary-General  of  the  Council  without  delay  of  the 
completion  of  the  procedures  for  the  adoption  of  this  Decision  in  accordance  with  their 
respective constitutional requirements. 

This Decision shall enter into force on the first day of the month following receipt of the last 
of  the  notifications  referred  to  in  the  second  subparagraph.  It  shall  take  effect  on  1  January 
2007. 

2. (a) Subject to (b), Decision 2000/597/EC, Euratom shall be repealed as of 1 January 2007. 
Any  references  to  the  Council  Decision  of  21  April  1970  on  the  replacement  of  financial 
contributions from Member States by the Communities' own resources22, to Council Decision 
85/257/EEC,  Euratom  of  7  May  1985  on  the  Communities'  system  of  own  resources23,  to 
to  Decision 
Decision  88/376/EEC,  Euratom, 
2000/597/EC, Euratom shall be construed as references to this Decision. 

to  Decision  94/728/EC,  Euratom,  or 

(b)  Articles  2,  4  and  5  of  Decisions  88/376/EEC,  Euratom,  94/728/EC,  Euratom  and 
2000/597/EC,  Euratom  shall  continue  to  apply  to  the  calculation  and  adjustment  of  revenue 
accruing from the application of a uniform rate valid for all Member States to the VAT base 
determined  in  a  uniform  manner  and  limited  between 50 % to 55 % of  the  GNP or  GNI of 
each Member State, depending on the relevant year, and to the calculation of the correction of 
budgetary imbalances granted to the United Kingdom for the years 1988 to 2006. 

(c) For amounts referred to in Article 2(1)(a) which should have been made available by the 
Member States before 28 February 2001 in accordance with the applicable Community rules, 
Member States shall continue to retain 10 % of these amounts by way of collection costs. 

Done at Brussels,  

For the Council 
The President 

22 
23 

OJ L 94, 28.4.1970, p. 19. 
OJ L 128, 14.5.1985, p. 15. Decision repealed by Decision 88/376/EEC, Euratom. 

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EXPLANATORY MEMORANDUM 

The purpose of this proposal is to lay down the implementing measures for the correction of 
budgetary imbalances laid down in the Council Decision on the system of the Communities' 
own  resources  of  (.........).  The  present  proposal  for  a  Council  Regulation  replaces  the 
“Calculation Method" of 29 September 200024. 

24 

Calculation, financing, payment and entry in the budget of the correction of budgetary imbalances in 
accordance  with  Articles  4  and  5  of  the  Council  Decision  on  the  system  of  the  EU´s  own  resources 
(Council of the European Union, 10646/00 ADD 2). 

EN 

23 

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2004/0171 (CNS) 

Proposal for a 

COUNCIL REGULATION 

on the implementing measures for the correction of budgetary imbalances in accordance 
with Articles 4 and 5 of the Council decision of (…) on the system of the European 
Communities’ own resources 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 279(2), 

Having  regard  to  the  Treaty  establishing  the  European  Atomic  Energy  Community,  and  in 
particular Article 183 thereof, 

Having  regard  to  Council  Decision  200x/xxx/EC,  Euratom  of  (…)  on  the  system  of  the 
European Communities' own resources25, and in particular Articles 4 and 5 thereof, 

Having regard to the proposal from the Commission26, 

Having regard to the opinion of the European Parliament,27 

Having regard to the opinion of the Court of Auditors,28 

Whereas: 

(1) 

(2) 

(3) 

According  to  Council  Decision  of  (…)  the  correction  for  budgetary  imbalances 
granted  to  the  UK  under  Article  (4)  of  Council  Decision  2000/597/EC  shall  be 
replaced  with  a  generalised  system  for  correcting  excessive  negative  budgetary 
imbalances. 

According to Council Decision of (…), the Council shall lay down the implementing 
measures for the calculation of these corrections and their financing, in particular the 
threshold and the maximum available refund volume. 

It is appropriate to define the categories of expenditure and revenue to be taken into 
account for the calculation of the corrections. 

(4) 

It is appropriate to lay down the rules for entering the corrections in the budget. 

25 
26 
27 
28 

OJ L […], […], p. […]. 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 

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24 

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HAS ADOPTED THIS REGULATION: 

Article 1 

The calculation of the amount of the correction based on the budgetary imbalances of 
1. 
Member  States  of  year  t  in  accordance  with  Article  4  of  Council  decision  (…)  shall  be 
established by: 

(a) 

calculating for each Member State the budgetary imbalance as the difference between: 

- the percentage share of that Member State in the sum of the total VAT-based and GNI-based 
own resources payments relating to year t, and 

- the percentage share of that Member State in total allocated expenditure; 

(b) 

multiplying the difference thus obtained by total allocated expenditure; 

deducting  from  the  result  under  (b)  the  value  of  that  Member  State's  gross  national 

(c) 
income (GNI) multiplied by the threshold;  

(d) 
if  the  result  obtained  under  (c)  is  positive,  multiplying  this  result  by  a  refund  rate, 
fixed at a maximum of 0.66 and, if necessary, reduced proportionally to respect the maximum 
available refund volume. 

2. 

The result obtained by steps (a) to (d) above corresponds to the following formula: 

RR
xC  = 








TP
x
TP

−

E
x
E





*

E

−

RNC

*

Y
x

*

RR





if 

RR

xC  > 0 

where RR = 0.66 if ∑

x

xC 66.0

≤  MARV and 

RR = 

MARV
∑
66.0
xC

x

* 0.66 if ∑

x

xC 66.0

 > MARV 

RR

Where: TP = Total VAT- and GNI-based payments made by all Member States in respect of year t 
TPx = VAT- and GNI-based payments made by Member State x in respect of year t 
E = Total allocated expenditure in respect of year t 
Ex = Expenditure allocated to Member State x in respect of year t 
xC  = Correction (at refund rate RR) to be granted to Member State x in respect of year t 
RNC = Reasonable net contribution (= threshold) expressed in % of GNI 
Yx = GNI of year t of Member State x 
RR = Refund rate 
MARV = Maximum available refund volume 
∑

xC 66.0 = Total sum of corrections if RR is equal to 0.66 

x

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For the purposes of calculating the corrections, VAT-based and GNI-based payments 

3. 
shall not include the payments relating to the corrections. 

Article 2 

The  threshold  referred  to  in  Article  1  shall  be  equal  to  0.35 %  of  the  GNI  of  the 

1. 
relevant Member State. 

The maximum available refund volume (MARV) referred to in Article 1 shall be equal 

2. 
to euro 7.5 billion. 

Article 3 

1. 
The  distribution  of  the  total  cost  of  the  corrections  in  accordance  with  Article  5  of 
Council decision (…) shall be calculated in proportion to each Member State's share in total 
EU GNI in year t. 

The  correction  shall  be  granted  to  any  Member  State  by  a  reduction  in  its  payments 

2. 
resulting from the application of Article 2(1)(c) of Council decision (…). 

3. 
The  cost  of  the  corrections  borne  by  all  Member  States  shall  be  added  to  their 
payments resulting from the application for each Member State of Article 2(1)(c) of Council 
decision (…). 

Article 4 

1. 
The  concept  of  expenditure  to  be  used  in  the  calculation  of  the  corrections  shall 
correspond to actual payments (execution of appropriations for payments) made in the year in 
question  (year  t)  under  that  year's  appropriations  for  payments  as  well  as  payments  under 
carryovers of non-executed appropriations for payments to the following year (from year t to 
year  t+1).  Only  utilised  appropriations  for  payments,  i.e.  the  amount  of  payments  actually 
made, shall be taken into account. 

The  allocation  of  expenditure  across  the  Member  States  shall  be  governed  by  the 

2. 
following rules:  

In general, payments shall be allocated to the Member State in which the principal recipient 
resides. However, in those cases where the Commission is aware that the recipient in question 
acts  as  an  intermediary,  the  payments  shall  be  allocated  whenever  this  is  possible  to  the 
Member State(s) in which the final beneficiary(ies) is(are) resident, in accordance with their 
shares in these payments. 

Total  allocated  expenditure  shall  be  based  on total  expenditure  of  the  general  budget  of  the 
European Union, excluding the following two main categories of expenditure: 

Expenditure  on  external  policies,  including  pre-accession  or  enlargement-related 
- 
expenditure  in  non-member  countries  as  well  as  other  expenditure  benefiting  recipients 
outside the Union, such as development co-operation expenditure, research expenditure spent 
outside the EU, administrative expenditure paid to recipients outside the Union, etc. 

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- 
Expenditure  that  cannot  be  allocated  or  identified  due  to  conceptual  or  other 
difficulties,  such  as  expenditure  on  representation,  on  missions  and  on  formal  and  other 
meetings  as  well  as  payments  related  to  cross-border  Community  initiatives,  promotion  of 
inter-regional co-operative operations and other cross-border actions. 

Article 5 

1. 

The amount of the corrections shall be budgeted in two steps: 

The result of the first provisional calculation of the amount of the corrections for year t 
(a) 
shall be entered in the preliminary draft budget of year t+1. The calculation shall be based on 
the most recent data available for both revenue and expenditure. 

The result of the definitive calculation of the amount of the corrections for year t shall 
(b) 
be budgeted in an amending budget of year t+3. The calculation shall be based on the data on 
VAT bases, GNI and allocated expenditure relating to year t as known at 31 December of year 
t+2,  which  shall,  where  applicable,  be  converted  into  euro  according  to  the  annual  average 
exchange rate of the year t. 

In  order  to  calculate  the  share  of  each  Member  State  in  the  sum  of  the  total  VAT-
based and GNI-based own resources  payments  the budget of year t shall  be  recalculated on 
the basis of the outturn of appropriations for payments for year t, reduced by  other revenue 
relating  to  year  t  (not  including  the  balance  of  the  previous  exercise  or  other  balances  or 
adjustments of balances relating to previous years) and the actual amount of traditional own 
resources  made  available  in  year  t.  The  remaining  amount  shall  be  financed  by  the  VAT-
based own resource up to the uniform rate of call of VAT and by the GNI-based resource for 
the residual amount necessary to balance the budget. 

2. 
The  financing  of  the  corrections  referred  to  in  paragraph  (1)(a)  above  shall  be 
calculated on the basis of the latest data on Member States GNI for year t, available when the 
preliminary draft budget is drawn up. 

3. 
A  definitive  calculation  shall  also  be  made  in  respect  of  the  financing  of  the 
corrections for year t referred to in paragraph (1)(b) above. The calculation shall be based on 
Member  States’  GNI  in  year  t,  as  known  at  31  December  of  year  t+2,  which  shall,  where 
applicable, be converted into euro according to the annual average exchange rate of the year t. 
The definitive financing data shall be compared with the payments relating to the corrections 
for year t already entered in the budget in year t+1. The balances per Member State shall be 
entered  in  an  appropriate  budgetary  chapter  of  the  amending  budget  referred  to  under 
paragraph (1)(b) above and converted into national currency according to the annual average 
exchange rate of the year t. 

Article 6 

This  Regulation  shall  enter  into  force  on  the  day  following  that  of  its  publication  in  the 
Official  Journal  of  the  European  Union.  It  shall  take  effect  as  stipulated  in  Article  10  of 
Council decision (…). 

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27 

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

Done at Brussels,  

For the Council 
The President 

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28 

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