Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy
Date: 2005-06-21
Institutions: Council of the European Union
Subjects: EAGGF Guarantee Section, EU financing arrangements, common agricultural policy

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I

(Acts whose publication is obligatory)

COUNCIL REGULATION (EC) No 1290/2005

of 21 June 2005

on the financing of the common agricultural policy

(2) The Community budget

should finance

common
agricultural policy expenditure, including that on rural
development, through the abovementioned Funds. In line
with Article 53 of Council Regulation (EC, Euratom)
No 1605/2002 of 25 June 2002 on the Financial
Regulation applicable to the general budget of
the
European Communities (2), this is done either centrally or
in the context of shared management with the Member
States. All the types of measure that can be financed
using the said Funds should be specified.

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community, and in particular the third subparagraph of
Article 37(2) thereof,

Having regard to the proposal from the Commission,

Having regard to the Opinion of the European Parliament (1),

Whereas:

that

financing be provided for

(1) The common agricultural policy consists of a series of
measures, some of which relate to rural development. It
is important
those
measures in order to contribute to the attainment of
the objectives of the common agricultural policy. Since
the measures have certain elements in common but also
differ in a number of respects, their financing should be
combined under one regulatory framework which allows
for different treatment where necessary. In order to take
account of those differences, two European agricultural
funds should be created, namely the European Agricul-
tural Guarantee Fund (hereinafter
the
financing of market measures, and the European
Agricultural Fund for Rural Development (hereinafter
‘EAFRD’),
rural development
for
programmes.

the financing of

‘EAGF’),

for

(3) During the clearance of accounts,

if the Commission
does not have satisfactory assurance that the national
the
controls are adequate and transparent and that
paying agencies verify the legality and correctness of the
declarations of expenditure which they execute, it cannot
determine within a reasonable period of time the total
expenditure to be entered against the European Agri-
cultural Funds. Provision should therefore be made for
the accreditation of paying agencies by Member States,
the establishment by them of procedures for obtaining
the requisite declarations of assurance, and the certifica-
tion of management and control systems, as well as the
certification of annual accounts by independent bodies.

(1) Opinion delivered on 26 May 2005 (not yet published in the

Official Journal).

(2) OJ L 248, 16.9.2002, p. 1.

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(4)

In order to ensure consistency in the standards required
for accreditation in the Member States, the Commission
should provide guidance on the criteria to be applied.
Moreover, in order to ensure the transparency of national
controls, in particular as regards authorisation, validation
and payment procedures, the number of authorities and
bodies to which these responsibilities are delegated
should, where appropriate, be restricted taking account
of the constitutional arrangements of each Member State.

it

is

that

important

(5) Where a Member State accredits more than one paying
it designate a single
agency,
coordinating body to ensure consistency in the manage-
ment of
to provide liaison between the
Commission and the various accredited paying agencies
and to ensure that the information requested by the
Commission concerning the operations of several paying
agencies is made rapidly available.

the funds,

(6) To ensure harmonious cooperation between the Com-
mission and the Member States regarding the financing
of common agricultural policy expenditure and, more
particularly, to allow the Commission to monitor closely
financial management by the Member States and clear
the accounts of the accredited paying agencies, certain
information has to be communicated by the Member
States to the Commission or has to be kept available to
the Commission. Information technology must be used
as fully as possible to that end.

(7)

For the purposes of compiling the data to be sent to the
Commission, and so that
the Commission has full
immediate access to expenditure data in both paper and
electronic form, suitable rules on the presentation and
transmission of data, and also on time limits to be
observed, need to be laid down.

(10) The financial resources required to cover the expenditure
effected by the accredited paying agencies, in respect of
the EAGF, are to be made available to the Member States
by the Commission in the form of reimbursements
against the booking of the expenditure effected by these
in the form of
agencies. Until these reimbursements,
monthly payments, have been paid, financial resources
must be mobilised by the Member States in accordance
with the needs of their accredited paying agencies. The
personnel costs and the administrative costs of
the
Member States and the beneficiaries involved in the
execution of the common agricultural policy should be
borne by themselves.

(11) Community aid should be paid to beneficiaries in good
time so that they may use it efficiently. A failure by the
Member States to comply with the payment deadlines
laid down in Community legislation could create serious
difficulties for the beneficiaries and could jeopardise the
Community's yearly budgeting. Therefore, expenditure
made without respecting deadlines for payments should
be excluded from Community financing. In order to
respect the principle of proportionality, the Commission
should be able to provide for exceptions to this general
rule.

(12) Provision should be made for an administrative proce-
dure allowing the Commission to take a decision to
reduce or temporarily suspend monthly payments where
the information communicated by the Member States
does not enable it to confirm that the Community rules
applicable have been observed and indicates a clear
misuse of Community funds. In clearly defined cases, a
reduction or a suspension should also be possible
without such a procedure. In both cases, the Commission
should inform the Member State,
indicating that any
decision to reduce or suspend the monthly payments will
be without prejudice to the decisions taken in the context
of the clearance of accounts.

(8) The financing of measures and operations under the
common agricultural policy will in part involve shared
management. To ensure that Community funds are
soundly managed,
the Commission should perform
checks on the management of the Funds by the Member
State authorities responsible for making payments. It is
appropriate to define the nature of the checks to be made
by the Commission,
its
responsibilities for implementing the budget and to
clarify the Member States' cooperation obligations.

to specify the terms of

(13)

it

In the context of respecting budget discipline,
is
necessary to define the annual ceiling for the expenditure
the
financed by the EAGF by taking into account
maximum amounts laid down for this Fund in the
Financial Perspective and the
fixed by the
Commission under Article 10(2) of Council Regulation
(EC) No 1782/2003 of 29 September 2003 establishing
common rules for direct support schemes under the
common agricultural policy and establishing certain
support schemes for farmers (1) and the sums laid down
in Articles 143d and 143e of that Regulation.

sums

(9) Only paying agencies accredited by the Member States
offer reasonable assurance that the necessary controls
have been carried out before granting Community aid to
beneficiaries. It should therefore be stipulated that only
expenditure effected by accredited paying agencies should
be liable for reimbursement by the Community budget.

(1) OJ L 270, 21.10.2003, p. 1. Regulation as last amended by
Commission Regulation (EC) No 118/2005 (OJ L 24,
27.1.2005, p. 15).

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(14) Budget discipline also requires that the annual ceiling for
expenditure financed by the EAGF be respected under all
circumstances and at all stages of the budget procedure
and the execution of the budget. This requires that the
national ceiling for the direct payments per Member
State, after correction in accordance with Article 10 of
Regulation (EC) No 1782/2003, be regarded as a
financial ceiling for such direct payments for the Member
State concerned and that the reimbursement of these
payments remain within this financial ceiling. Further-
more, budget discipline demands that all the legislative
measures proposed by the Commission or adopted by
the Council or by the Commission under the common
agricultural policy and financed by the EAGF comply
with the annual ceiling for the expenditure financed by
this Fund. In the same context, it is necessary to authorise
the Commission to set the adjustments referred to in
Article 11(1) of Regulation (EC) No 1782/2003 where
the Council does not fix these before 30 June of the
calendar year in respect of which the adjustments apply.

(15) The measures taken to determine the financial contribu-
tion from the EAGF and the EAFRD in respect of the
calculation of financial ceilings do not affect the powers
of the budgetary authority designated by the Treaty.
These measures must therefore be based on the reference
amounts fixed in accordance with the Interinstitutional
Agreement of 6 May 1999 between the European
Parliament, the Council and the Commission on budget-
ary discipline and improvement of
the budgetary
procedure (1) (hereinafter referred to as ‘the Interinstitu-
tional Agreement’) and the Financial Perspective set out
in Annex I to that Agreement.

(16) Budget discipline also demands a continuous examina-
tion of the medium-term budget situation. The Commis-
sion, when submitting the preliminary draft budget for a
its forecasts and
therefore present
given year, must
analyses to the European Parliament and the Council and
propose,
to the
if necessary, appropriate measures
Council. Furthermore, the Commission should make full
use of its management powers at all times to ensure
if necessary,
compliance with the annual ceiling and,
propose appropriate measures to the Council to redress
the budget situation. If, at the end of a budget year, the
annual ceiling cannot be complied with as a result of the
reimbursements requested by the Member States, the
Commission should be able to take measures allowing,
on the one hand, provisional distribution of the available
budget among the Member States in proportion to their
requests for reimbursement not yet paid and, on the

(1) OJ C 172, 18.6.1999, p. 1. Interinstitutional Agreement as last
amended by Decision 2003/429/EC of the European Parlia-
ment and of the Council (OJ L 147, 14.6.2003, p. 25).

other hand, compliance with the ceiling fixed for the year
concerned. Payments for that year should be charged to
the following budget year and the total amount of
Community financing per Member State should be
definitively established, as should compensation between
Member States in order to comply with the established
amount.

(17) When implementing the budget, the Commission should
operate a monthly early-warning and monitoring system
for agricultural expenditure, so that, if there is a risk of
the annual ceiling being exceeded, the Commission may
at the earliest opportunity take the appropriate measures
under the management powers at its disposal, and then,
if
these measures prove insufficient, propose other
measures to the Council, which should act as soon as
possible. In order to have a smoothly functioning system,
it should allow for the comparison of actual expenditure
with profiles of expenditure established on the basis of
expenditure in preceding years. A monthly report by the
Commission to the European Parliament and the Council
should compare the evolution of the expenditure effected
so far with the profiles and give an assessment of the
foreseeable implementation for the remainder of
the
budget year.

(18) The exchange rate used by the Commission in drawing
up the budget documents which it submits to the
Council should, while making allowances for the time lag
between drafting and submission, reflect the most recent
information available.

(19) The rural development programmes are financed from
the Community budget on the basis of commitments in
annual instalments. Member States must be able to draw
on the Community funds provided for as soon as they
begin the programmes. A suitably restricted prefinancing
system ensuring a steady flow of funds so that payments
to beneficiaries under the programmes are made at the
appropriate time is therefore needed.

(20) Prefinancing apart, a distinction should be drawn
between payments by the Commission to the accredited
paying agencies, intermediate payments and payment of
balances, and rules on their payment should be set.

(21) To protect

financial

the Community's

the
Commission must be able to suspend or
reduce
intermediate payments in cases where expenditure has
been unduly incurred. A procedure for Member States to
show that their expenditure has been correct should be
set up.

interests

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(22) The automatic decommitment rule should help speed up
execution of programmes and contribute to sound
financial management.

(27) The recovery procedures used by the Member States may
have the effect of delaying recovery for a number of
years, with no guarantee that the outcome will actually
be successful. The cost of implementing these procedures
may also be out of proportion to the amounts which are
or may be collected. Consequently, Member States should
be permitted to halt recovery procedures in certain cases.

(23)

In order to establish the financial relationship between
the accredited paying agencies and the Community
budget, the Commission should clear the accounts of
these paying agencies annually. The clearance of accounts
decision should cover the completeness, accuracy and
veracity of the accounts but not the conformity of the
expenditure with Community legislation.

(24) The Commission, which is responsible for the proper
application of Community law under Article 211 of the
Treaty, should decide whether the expenditure incurred
by the Member States complies with Community
legislation. Member States should be given the right to
justify their decisions to make payments and should have
recourse to conciliation where there is no common
agreement between them and the Commission. In order
to give Member States legal and financial assurances as to
expenditure effected in the past, a maximum period
should be set
for the Commission to decide which
financial consequences should follow from non-compli-
ance.

(25)

the financial

the
interests of
In order
to protect
Community budget, measures
should be taken by
Member States to satisfy themselves that transactions
financed by the Funds are actually carried out and are
executed correctly. Member States should also prevent
and deal effectively with any irregularities committed by
beneficiaries.

(26) As regards the EAGF, sums recovered should be paid
in
back to this Fund where the expenditure is not
conformity with Community legislation and no entitle-
ment existed. Provision should be made for a system of
financial responsibility for irregularities in the absence of
total recovery. In this respect a procedure should be
established permitting the Commission to safeguard the
interests of the Community budget by deciding on a
partial charging to the Member State concerned of sums
lost as a result of irregularities and not recovered within
reasonable deadlines. In certain cases of negligence on
the part of the Member State, it is justified to charge the
full sum to the Member State concerned. However,
subject to Member States complying with obligations
under their internal procedures, the financial burden
should be divided fairly between the Community and the
Member State.

(28) As regards the EAFRD, sums recovered or cancelled
following irregularities should remain available to the
approved rural development programmes of the Member
State concerned as these sums have been allocated to that
Member State. In order to protect the financial interests
of the Community budget, provision should be made for
cases where the required measures are not taken by
Member States following the detection of irregularities.

(29)

In order to permit reuse of EAGF and EAFRD funds, rules
are needed on assignment of the sums recovered by
Member States when conformity clearance is carried out
or following proceedings in the event of discovery of
irregularity or negligence and for additional levies in the
milk and milk products sector.

(30) So that the Commission can fulfil its obligation to check
on the existence and proper functioning of management
and inspection systems for Community expenditure in
the Member States, provision should be made, irrespec-
tive of the inspection carried out by Member States
themselves,
for checks by persons delegated by the
Commission who will be able to request assistance from
the Member States in their work.

(31)

Information technology needs to be used as fully as
possible for producing the information to be sent to the
Commission. When carrying out checks, the Commis-
sion should have full and immediate access to expendi-
ture information recorded both in paper form and in
electronic files.

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(32) A date should be set for the last payments for the
approved rural development programmes for the period
2000 to 2006 financed by the European Agricultural
Guidance and Guarantee Fund (EAGGF) Guarantee
Section.
In order to allow Member States to receive
this date,
reimbursements for payments made after
specific transitional measures should be envisaged. These
measures should also include provisions for the recovery
of the advances paid by the Commission on the basis of
the second subparagraph of Article 5(1) of Council
Regulation (EC) No 1258/1999 of 17 May 1999 on the
financing of the common agricultural policy (1) and for
the amounts subjected to the voluntary modulation
arrangements referred to in Articles 4 and 5 of Council
Regulation (EC) No 1259/1999 of 17 May 1999
establishing common rules for direct support schemes
under the common agricultural policy (2) .

(38) Council Regulation No 25 on the financing of

the
common agricultural policy (3) , Council Regulation (EC)
No 723/97 of 22 April 1997 on the implementation of
Member States' action programmes on control of EAGGF
Guarantee Section expenditure (4) and Council Regula-
tion (EC) No 1258/1999 should be repealed. Certain
Articles in Council Regulation (EEC) No 595/91 of
4 March 1991 concerning irregularities and the recovery
of sums wrongly paid in connection with the financing
of the common agricultural policy and the organisation
of an information system in this field and repealing
Regulation (EEC) No 283/72 (5) should also be deleted as
this Regulation provides for their arrangements.

(33) A date should be set at which the Commission can
automatically decommit the sums committed but not
spent under
the approved rural development pro-
grammes financed by the EAGGF Guidance Section
where the necessary documents relating to the closure of
the operations have not reached the Commission by that
date. The documents which are necessary for
the
Commission to establish whether
the measures are
closed should be defined.

(39) The measures necessary for the implementation of this
Regulation should be adopted in accordance with
Council Decision 1999/468/EC of 28 June 1999 laying
down the procedures for the exercise of implementing
conferred on the Commission (6), with a
powers
distinction being made between those measures which
are subject to the management committee procedure and
those which are subject
to the advisory committee
procedure, the advisory committee procedure being, in
certain cases and with a view to increased efficiency, the
most appropriate.

(34) The Commission is responsible for managing the Funds
and close cooperation between it and the Member States
is provided for through a Committee on the agricultural
funds.

(35) The extent of Community financing makes it necessary
for the European Parliament and the Council to be kept
regularly informed by means of financial reports.

(36) As personal data or business secrets might be involved in
the application of the national control systems and the
conformity clearance,
the Member States and the
Commission should guarantee the confidentiality of the
information received in the context of these operations.

(37)

In the interests of sound financial management of the
Community budget and impartiality of treatment at both
Member State and farmer level, rules on the use of the
euro should be specified.

(40) The switch-over from the arrangements in the Regula-
tions repealed to those in this Regulation could give rise
to practical and specific difficulties, particularly in
connection with the transition to the new arrangements,
which are not dealt with in this Regulation. In order to
deal with that eventuality, provision should be made for
the Commission to adopt the necessary and duly justified
measures. Those measures should be able to derogate
from the provisions of this Regulation but only to the
extent necessary and for a limited period.

(41) As the programming period for the rural development
programmes financed on the basis of this Regulation
runs from 1 January 2007, this Regulation should be
applicable as from that date. However, certain provisions
should apply as from an earlier date.

(3) OJ 30, 20.4.1962, p. 991. Regulation as last amended by
Regulation (EEC) No 728/70 (OJ L 94, 28.4.1970, p. 9).
(4) OJ L 108, 25.4.1997, p. 6. Regulation amended by Regulation

(EC) No 2136/2001 (OJ L 288, 1.11.2001, p. 1).

(1) OJ L 160, 26.6.1999, p. 103.
(2) OJ L 160, 26.6.1999, p. 113.

(5) OJ L 67, 14.3.1991, p. 11.
(6) OJ L 184, 17.7.1999, p. 23.

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(42) The Court of Auditors has delivered an Opinion (1).

Article 3

(43) The Economic and Social Committee has delivered an

Opinion (2),

EAGF expenditure

HAS ADOPTED THIS REGULATION:

TITLE I

GENERAL PROVISIONS

Article 1

Purpose and scope

This Regulation sets specific requirements and rules on the
financing of expenditure falling under the common agricul-
tural policy, including expenditure on rural development.

1. The EAGF shall finance in a context of shared manage-
ment between the Member States and the Community the
following expenditure, which shall be effected in accordance
with Community law:

(a)

refunds for the exportation of agricultural products to
third countries;

(b)

intervention measures to regulate agricultural markets;

(c)

direct payments to farmers under the common agricul-
tural policy;

(d)

the Community's financial contribution to information
and promotion measures for agricultural products on the
internal market of the Community and in third countries,
undertaken by Member States on the basis of pro-
grammes other than those referred to in Article 4 and
selected by the Commission.

Article 2

2. The EAGF shall finance the following expenditure in a
centralised manner and in accordance with Community
legislation:

Funds financing agricultural expenditure

In order

the common
to attain the objectives of
1.
agricultural policy defined by the Treaty and finance the
various measures falling under it,
including rural develop-
ment, the following are hereby set up:

(a)

a European Agricultural Guarantee Fund, hereinafter
referred to as the ‘EAGF’;

(a)

the Community's
financial contribution to specific
veterinary measures, veterinary inspection measures,
inspection measures for foodstuffs and animal
feed,
animal disease eradication and control programmes
(veterinary measures) and plant-health measures;

(b) promotion of agricultural products, undertaken either
international

directly by the Commission or
organisations;

via

(b)

a European Agricultural Fund for Rural Development,
hereinafter referred to as the ‘EAFRD’.

(c) measures, undertaken in accordance with Community
legislation, to ensure the conservation, characterisation,
collection and utilisation of genetic
in
agriculture;

resources

2. The EAGF and the EAFRD shall come under the general
budget of the European Communities.

(d)

establishment and maintenance of agricultural account-
ing information systems;

(1) OJ C 121, 20.5.2005, p. 1.
(2) Opinion of 9 February 2005 (not yet published in the Official

Journal).

(f)

expenditure relating to fisheries markets.

(e)

agricultural survey systems,
structure of agricultural holdings;

including surveys on the

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Article 4

EAFRD expenditure

(f) measures relating to dissemination, raising awareness,
promoting cooperation and exchanging experience at
Community level, undertaken in the context of rural
development,
the parties
including networking of
concerned.

The EAFRD shall finance, in a context of shared management
between the Member States and the Community,
the
Community's financial contribution to rural development
programmes implemented in accordance with the Community
legislation on support for rural development by the EAFRD.

Article 5

Other financing, including technical assistance

The EAGF and the EAFRD may each respectively finance on a
centralised basis, on the initiative of the Commission and/or
on its behalf, the preparatory, monitoring, administrative and
technical support, evaluation, audit and inspection measures
the common agricultural policy,
required to implement
including rural development. Those measures shall
include
in particular:

(a) measures required for the analysis, management, mon-
itoring, information exchange and implementation of the
common agricultural policy, as well as measures relating
to the implementation of control systems and technical
and administrative assistance;

Article 6

Accreditation and withdrawal of accreditation of paying
agencies and coordinating bodies

1.
Paying agencies shall be the departments or bodies of the
Member States which, in respect of payments made by them
and as regards communicating and keeping information,
provide sufficient guarantees that:

(a)

the eligibility of requests and, in the framework of rural
development, the procedure for allocating aid, as well as
their compliance with Community rules are checked
before payment is authorised;

(b)

accurate and exhaustive accounts are kept of
payments made;

the

(c)

the checks laid down by Community legislation are
made;

(b) measures required to maintain and develop methods and
technical means for information, interconnection, mon-
itoring and control of the financial management of the
funds used to finance the common agricultural policy;

(d)

the requisite documents are presented within the time-
limits and in the form stipulated by Community rules;

(c)

provision of information on the common agricultural
policy, undertaken on the Commission's initiative;

(e)

the documents are accessible and kept in a manner which
ensures their completeness, validity and legibility over
time,
including with regard to electronic documents
within the meaning of Community rules.

(d)

studies on the common agricultural policy and evalua-
tion of measures financed by the EAGF and the EAFRD,
including improvement of evaluation methods and
exchange of information on practices;

With the exception of the payment of Community aid, the
execution of these tasks may be delegated.

(e) where relevant, executive agencies set up in accordance
with Council Regulation (EC) No 58/2003 of
19 December 2002 laying down the statute for executive
agencies to be entrusted with certain tasks in the
management of Community programmes (1), acting in
connection with the common agricultural policy;

(1) OJ L 11, 16.1.2003, p. 1.

2. Member States shall accredit as paying agencies depart-
ments or bodies which fulfil the conditions laid down in
paragraph 1.

Each Member State shall, taking into account its constitutional
provisions and institutional structure, restrict the number of
its accredited paying agencies to the minimum necessary to
ensure that the expenditure referred to in Article 3(1) and
and
Article 4 is
accounting conditions.

sound administrative

effected under

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3. Where more than one paying agency is accredited, the
Member State shall communicate to the Commission the
particulars of the department or body to which it assigns the
following tasks:

(b)

for certification bodies:

(a)

collecting the information to be made available to the
Commission and sending that
information to the
Commission;

(b) promoting harmonised application of the Community

rules.

This department or body, hereinafter referred to as the
‘coordinating body’, shall be subject to specific accreditation
by the Member States as regards the processing of the financial
information referred to in point (a).

4. Where an accredited paying agency does not meet or no
longer meets one or more of the conditions laid down in
paragraph 1, the Member State shall withdraw accreditation
unless the paying agency makes the necessary changes within
a period to be determined according to the severity of the
problem.

Article 7

Certification bodies

The certification body shall be a public or private legal entity
designated by the Member State with a view to certifying the
truthfulness, completeness and accuracy of the accounts of the
accredited paying agency, taking account of the management
and control systems set up.

Article 8

Communication of information and access to documents

1.
In addition to the provisions laid down in the sectoral
Regulations, Member States shall send to the Commission the
following information, declarations and documents:

(a)

for accredited paying agencies and accredited coordinat-
ing bodies:

(i)

their accreditation document;

(i)

their name;

(ii)

their address details,

(c)

for measures relating to operations financed by the EAGF
and the EAFRD:

(i)

(ii)

declarations of expenditure, which also act as
payment requests, signed by the accredited paying
agency or the accredited coordinating body and
accompanied by the requisite information;

their

estimates of
requirements, with
financial
regard to the EAGF and, with regard to the EAFRD,
an update of estimated declarations of expenditure
which will be submitted during the year and
estimated declarations of expenditure in respect of
the following financial year;

(iii)

the annual accounts of
the accredited paying
agencies with a statement of assurance signed by
the person in charge of
the accredited paying
agency, accompanied by the requisite information
for their clearance, and a certification report drawn
up by the certification body referred to in Article 7.

The annual accounts of accredited paying agencies relating to
EAFRD expenditure shall be submitted at the level of each
programme.

2. The accredited paying agencies shall keep supporting
documents relating to payments made and documents relating
to the performance of the administrative and physical checks
required by Community legislation, and shall make the
documents and information available to the Commission.

(ii)

their function (accredited paying agency or accre-
dited coordinating body);

(iii) where relevant, the withdrawal of their accredita-

tion,

Where those documents are kept by an authority acting under
delegation from a paying agency and responsible
for
authorising expenditure, that authority shall send reports to
the accredited paying agency on the number of checks made,
their content and the measures taken in the light of their
results.

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Article 9

Protection of the financial interests of the Community
and assurances regarding the management of Community
funds

measures taken for management and control in compliance
with Community legislation concerning support for rural
development by the EAFRD in order to protect the financial
interests of the Community.

Article 10

1. Member States shall:

Admissibility of payments made by the paying agencies

all

(a) within the framework of the common agricultural policy,
regulatory and administrative
adopt
provisions and take any other measures necessary to
ensure effective protection of the financial interests of the
Community, and particularly in order to:

legislative,

The expenditure referred to in Articles 3(1) and 4 may be
covered by Community financing only if it has been effected
by accredited paying agencies designated by Member States.

Article 11

(i)

check the genuineness and compliance of opera-
tions financed by the EAGF and the EAFRD;

Payment in full to beneficiaries

(ii) prevent and pursue irregularities;

(iii)

recover sums lost as a result of irregularities or
negligence,

Save provision to the contrary under Community legislation,
payments relating to the financing provided for under this
to amounts corresponding to the public
Regulation or
the rural development pro-
financial contribution under
grammes shall be disbursed in full to the beneficiaries.

(b)

set up an efficient management and control system
comprising the certification of accounts and a declara-
tion of assurance based on the signature of the person in
charge of the accredited paying agency.

2. The Commission shall ensure that Member States check
the legality and compliance of the expenditure referred to in
Articles 3(1) and 4, and that they observe the principles of
sound financial management; it shall carry out the following
measures and checks in this connection:

(a)

it shall check that management and control systems exist
and function properly in the Member States;

TITLE II

EAGF

CHAPTER 1

Community financing

Article 12

Budget ceiling

(b)

it shall reduce or suspend intermediate payments in full
or in part and apply the requisite financial corrections,
particularly where the management and control systems
fail;

1. The annual ceiling for EAGF expenditure shall be
constituted by the maximum amounts set for it under the
multiannual financial framework provided for in the Inter-
institutional Agreement,
less the amounts referred to in
paragraph 2.

(c)

it shall check that prefinancing is reimbursed and shall, if
necessary, automatically decommit budget commit-
ments.

2. The Commission shall set the amounts which, pursuant
to Articles 10(2), 143d and 143e of Regulation (EC) No 1782/
2003, are made available to the EAFRD.

3. Member States shall
the
provisions adopted and measures taken under paragraph 1
the
and, with regard to rural development programmes,

inform the Commission of

3. The Commission shall set, on the basis of
the data
referred to in paragraphs 1 and 2, the net balance available for
EAGF expenditure.

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Article 13

Article 16

Administrative and personnel costs

Expenditure relating to administrative and personnel costs
incurred by Member States and beneficiaries of aid from the
EAGF shall not be borne by the Fund.

Compliance with payment deadlines

Article 14

Monthly payments

1. The appropriations necessary to finance the expenditure
referred to in Article 3(1) shall be made available to Member
States by the Commission in the form of monthly reimburse-
ments, hereinafter referred to as ‘monthly payments’, on the
basis of the expenditure effected by the accredited paying
agencies during a reference period.

2. Until transfer of the monthly payments by the Commis-
sion, the resources required to undertake expenditure shall be
mobilised by the Member States according to the needs of
their accredited paying agencies.

Article 15

Procedure for making monthly payments

1. Monthly payments shall be made by the Commission,
without prejudice to the decisions referred to in Articles 30
and 31, for expenditure effected by Member States' accredited
paying agencies during the reference month.

2. The Commission shall decide,
in accordance with the
procedure referred to in Article 41(3), the monthly payments
which it makes, on the basis of a declaration of expenditure
from the Member States and the information supplied in
accordance with Article 8(1), taking into account reductions
or suspensions applied under Article 17.

3. Monthly payments shall be made to each Member State at
the latest on the third working day of the second month
following that in which the expenditure is effected.

4.
Expenditure effected by Member States between 1 and 15
October shall count as being made in the month of October.
Expenditure effected between 16 and 31 October shall count
as being made in the month of November.

Where payment deadlines are laid down by Community
legislation, any overrun of those deadlines by the paying
agencies shall make the payments ineligible for Community
financing,
and limits
determined, according to the principle of proportionality.

conditions

in the

except

cases,

Article 17

Reduction and suspension of monthly payments

1. Where the declarations of expenditure or the information
referred to in Article 15(2) do not enable the Commission to
establish that the commitment of funds is in accordance with
the applicable Community rules, the Commission shall ask the
Member State concerned to supply further information within
a period which the Commission shall determine according to
the severity of the problem and which generally may not be
less than 30 days.

If the Member State fails to respond to the Commission
request referred to in the first subparagraph, or if the response
is considered unsatisfactory or demonstrates that the Com-
munity rules applicable have not been complied with or that
Community funds have been improperly used, the Commis-
sion may reduce or temporarily suspend monthly payments to
the Member State.
inform the Member State
accordingly, pointing out that reduction or suspension has
taken place.

shall

It

2. Where the declarations of expenditure or the information
referred to in Article 15(2) enable the Commission to establish
that a financial ceiling set by Community legislation has been
exceeded or that the Community rules applicable have clearly
not been complied with, the Commission may apply the
reductions or
second
subparagraph of paragraph 1 of this Article, after giving the
Member State an opportunity to submit its comments.

referred to in the

suspensions

5. The Commission may decide to make supplementary
payments or deductions. In such cases, the Committee on the
agricultural funds shall be informed at its next meeting.

3. Reductions and suspensions shall be applied according to
the principle of proportionality, under
the decision on
monthly payments referred to in Article 15(2), without
prejudice to the decisions referred to in Articles 30 and 31.

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CHAPTER 2

Article 19

Budget discipline

Article 18

Compliance with the ceiling

1. Throughout the budget procedure and the implementa-
tion of
relating to EAGF
expenditure shall not exceed the net balance referred to in
Article 12(3).

appropriations

the budget,

All legislative instruments proposed by the Commission or
adopted by the Council or the Commission and having an
influence on the EAGF budget shall comply with the net
balance referred to in Article 12(3).

2. Where Community legislation stipulates a financial
ceiling in euro for agricultural expenditure in respect of a
Member State, such expenditure shall be reimbursed subject to
that limit set in euro, with any necessary adjustments being
made if Article 11 of Regulation (EC) No 1782/2003 applies.

3. National ceilings for direct payments set by Community
legislation, including those set by Articles 41(1) and 71c of
Regulation (EC) No 1782/2003, corrected by the percentages
and adjustments laid down in Articles 10(1) and 11(1) of that
Regulation, shall be deemed to be financial ceilings in euro.

4.
If by 30 June in any year the Council has not set the
adjustments referred to in Article 11(1) of Regulation (EC)
No 1782/2003, the Commission shall set those adjustments in
accordance with the procedure laid down in Article 41(3) of
this Regulation and shall
them
immediately.

inform the Council of

5. Until 1 December, on a proposal by the Commission, on
the basis of new information in its possession, the Council
may adapt the adjustment rate for direct payments set in
accordance with Article 11(1) of Regulation (EC) No 1782/
2003.

Budget discipline procedure

1. The Commission shall present to the European Parliament
and to the Council, at the same time as the preliminary draft
budget for financial year N, its forecasts for financial years N
— 1, N and N + 1. It shall simultaneously present an analysis
of the differences observed between the initial forecasts and
actual expenditure for financial years N — 2 and N — 3.

for
If, on drawing up the preliminary draft budget
2.
financial year N, there appears to be a risk that the net balance
referred to in Article 12(3)
for financial year N will be
exceeded, taking account of the margin laid down in Article 11
of Regulation (EC) No 1782/2003, the Commission shall
including
propose to the Council the measures necessary,
those required under Article 11(2) of Regulation (EC)
No 1782/2003.

3. At any time, if the Commission considers that there is a
risk of the net balance referred to in Article 12(3) being
exceeded and that it cannot take adequate measures to remedy
the situation under its management powers, it shall propose
other measures to the Council to ensure compliance with that
balance.

The Council shall decide on those measures, in accordance
with the procedure laid down in Article 37 of the Treaty,
within two months following receipt of the proposal from the
Commission. The European Parliament shall give its opinion
in time for the Council to take note of it and decide within the
period stated.

4.
If, at the end of financial year N, reimbursement requests
from the Member States exceed or are likely to exceed the net
balance set in accordance with Article 12(3), the Commission
shall:

(a)

consider the requests presented by Member States pro
rata and within the limit of the available budget, and shall
provisionally set the amount of the payments for the
month concerned;

(b) determine,

for all Member States, at

the latest by
28 February of the following year, their situation with
regard to Community financing for the previous financial
year;

(c)

set,
in accordance with the procedure laid down in
Article 41(3), the total amount of Community financing
broken down by Member State, on the basis of a single
rate of Community financing, within the limit of the
budget which was available for the monthly payments;

(d)

effect, at the latest when the monthly payments are made
for March of year N + 1, any compensations to be carried
out between Member States.

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Article 20

the latest quarter ending at least 20 days before adoption
of the budget document by the Commission.

Early-warning system

In order to ensure that the budget ceiling will not be exceeded,
implement a monthly early-warning
the Commission shall
and monitoring system in respect of EAGF expenditure.

Before the beginning of each financial year, the Commission
shall determine for that purpose monthly expenditure profiles
based, if necessary, on average monthly expenditure during
the previous three years.

The Commission shall present to the European Parliament and
to the Council a monthly report examining the development
of expenditure effected in relation to the profiles and
containing an assessment of the foreseeable implementation
for the current financial year.

Article 21

Reference exchange rates

1. When adopting the preliminary draft budget, or a letter of
amendment to the preliminary draft budget which concerns
agricultural expenditure, the Commission shall use for EAGF
budget estimates the average euro/US dollar exchange rate
recorded on the market during the latest quarter ending at
least 20 days before adoption of the budget document by the
Commission.

2. When adopting a preliminary draft amending and
supplementary budget or a letter of amendment thereto, in
so far as those documents concern appropriations relating to
the
the measures referred to in Article 3(1)(a) and (b),
Commission shall use:

(a)

firstly, the average euro/US dollar exchange rate actually
recorded on the market from 1 August of the previous
financial year until the end of the latest quarter ending at
least 20 days before adoption of the budget document by
the Commission and at the latest on 31 July of the
current financial year, and

(b)

secondly, as a forecast for the remainder of the financial
year, the average exchange rate actually recorded during

TITLE III

EAFRD

CHAPTER 1

Method of financing

Article 22

Financial contribution from the EAFRD

rural development programmes

The financial contribution from the EAFRD towards expen-
diture under
shall be
determined for each programme, within the ceilings estab-
lished by Community legislation concerning support for rural
development by the EAFRD, plus the amounts set by the
Commission under Article 12(2) of this Regulation.

Expenditure financed under this Regulation shall not be the
subject of any other financing under the Community budget.

Article 23

Budget commitments

The Community's budget commitments for rural development
programmes (hereinafter referred to as ‘budget commitments’)
shall be made in annual instalments over the period from
1 January 2007 to 31 December 2013.

The Commission decision adopting each rural development
programme submitted by a Member State shall constitute a
financing decision within the meaning of Article 75(2) of
Regulation (EC) No 1605/2002 and, once notified to the
Member State concerned, a legal commitment within the
meaning of that Regulation.

For each programme, the budget commitment for the first
instalment shall follow the adoption of the programme by the
Commission. The budget
subsequent
instalments shall be made by the Commission, before 1 May
of each year, on the basis of the decision referred to in the
second paragraph of this Article.

commitments

for

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CHAPTER 2

Article 26

Financial management

Intermediate payments

Article 24

Provisions applying to all payments

1.
Intermediate payments shall be made for each rural
development programme. They shall be calculated by applying
the part-financing rate for each priority to the certified public
expenditure pertaining to it.

Payment by the Commission of the EAFRD contribution

1.
shall be in line with the budget commitments.

2. The Commission shall make the appropriations needed to
cover expenditure as indicated in Article 4 available to the
Member States through prefinancing, intermediate payments
and the payment of a balance. Articles 25, 26, 27 and 28 shall
apply to these appropriations.

Payments shall be assigned to the oldest open budget

3.
commitment.

Subject to resource availability, the Commission shall
to reimburse the
in

2.
make intermediate payments in order
expenditure
implementing the programmes.

incurred by accredited paying agencies

Each intermediate payment shall be made subject

3.
compliance with the following requirements:

to

(a)

transmission to the Commission of a declaration of
expenditure signed by the accredited paying agency, in
accordance with Article 8(1)(c);

4. The combined total of prefinancing and intermediate
payments shall not exceed 95 % of the EAFRD's contribution
to each rural development programme.

(b) no overrun of the total EAFRD contribution to each
priority for the entire period covered by the programme
concerned;

Article 25

Prefinancing arrangements

1. After adopting a rural development programme,
the
Commission shall pay a single prefinancing amount for that
programme to the Member State. This shall represent 7 % of
the EAFRD contribution to the programme concerned. It may
be split between two financial years depending on resource
availability.

2. The total amount paid as prefinancing shall be reim-
bursed to the Commission if no declaration of expenditure for
the rural development programme is sent within 24 months
of the date on which the Commission pays the first instalment
of the prefinancing amount.

3.
Interest generated on the prefinancing shall be posted to
the rural development programme concerned and deducted
from the amount of public expenditure indicated on the final
declaration of expenditure.

(c)

transmission to the Commission of
the last annual
execution report on the implementation of the rural
development programme.

4.
If one of the requirements laid down in paragraph 3 of
this Article is not met and the declaration of expenditure
cannot therefore be accepted, the Commission shall forthwith
inform the accredited paying agency and the coordinating
body, where one has been appointed.

5. The Commission shall make intermediate payments
within 45 days of registering a declaration of expenditure
for which the requirements set out in paragraph 3 of this
Article are met, without prejudice to the decisions referred to
in Articles 30 and 31.

6. Accredited paying agencies shall establish and forward,
via the intermediary of the coordinating body or directly,
where one has not been appointed, intermediate declarations
of expenditure relating to rural development programmes to
the Commission, at
set by the Commission.
Declarations of expenditure shall cover expenditure that the
agency has incurred during each of the periods concerned.

intervals

4. The total prefinancing amount shall be cleared when the
rural development programme is closed.

Intermediate declarations of
in respect of
expenditure incurred from 16 October onwards shall be
booked to the following year's budget.

expenditure

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Article 27

clearance of the accounts of the last execution year for the
programme the balance shall be automatically decommitted in
accordance with Article 29.

Suspension and reduction of intermediate payments

Intermediate payments shall be made on the basis of the
1.
declarations of expenditure and financial
information pro-
vided by Member States. Article 81 of the Regulation (EC)
No 1605/2002 shall apply.

Article 29

Automatic decommitment

2.
If the declarations of expenditure or financial information
communicated by a Member State do not make it possible to
find that the declaration of expenditure satisfies the relevant
Community rules, the Member State shall be asked to provide
additional information within a period set according to the
seriousness of the problem but which may not normally be
less than 30 days.

1. The Commission shall automatically decommit any
portion of a budget commitment for a rural development
programme that has not been used for the purpose of
prefinancing or making intermediate payments or for which
no declaration of expenditure meeting the conditions laid
down in Article 26(3) has been presented to it in relation to
expenditure incurred by 31 December of the second year
following that of the budget commitment.

If

3.
the Member State fails to respond to the request
referred to in paragraph 2, or if the response is considered
unsatisfactory or demonstrates that the rules applicable have
not been complied with or that Community funds have been
improperly used, the Commission may reduce or temporarily
suspend intermediate payments to the Member State. It shall
inform the Member State accordingly.

2. That part of budget
still open on
31 December 2015 for which a declaration of expenditure
has not been made by 30 June 2016 shall be automatically
decommitted.

commitments

4. The suspension or reduction of intermediate payments as
indicated in Article 26 shall comply with the principle of
proportionality and shall be without prejudice to the decisions
referred to in Articles 30 and 31.

3.
If a Commission decision subsequent to the decision
approving the rural development programme is needed for
authorisation of assistance or of an aid scheme, the period
leading to automatic decommitment shall run from the date
of that subsequent decision. The amount in question shall be
established using a schedule provided by the Member State.

Article 28

Payment of the balance and closure of the programme

1. After receiving the last annual execution report on the
the
implementation of a rural development programme,
Commission shall pay the balance,
to resource
availability, on the basis of the part-financing rate per priority,
the annual accounts for the last execution year for the relevant
rural development programme and of
the corresponding
clearance decision. These accounts shall be presented to the
Commission by 30 June 2016 and shall cover the expenditure
incurred by the paying agency up to 31 December 2015.

subject

2. The balance shall be paid not later than six months after
the information and documents mentioned in paragraph 1 of
this Article are received. The amounts still committed after the
balance is paid shall be decommitted by the Commission
within a period of six months, without prejudice to Article 29
(6).

If by 30 June 2016 the Commission has not been sent the
3.
last annual execution report and the documents needed for

4.
In the event of any legal proceedings or an administrative
appeal having suspensory effect, the period for automatic
decommitment referred to in paragraph 1 or paragraph 2 shall
the amount relating to the
be interrupted,
operations concerned, for the duration of those proceedings
or that administrative appeal, provided that the Commission
receives substantiated notification from the Member State by
31 December of year N + 2.

in respect of

5. The following shall be disregarded in calculating the
automatic decommitment:

(a)

(b)

that part of
the budget commitments for which a
declaration of expenditure has been made but reimburse-
ment of which has been reduced or suspended by the
Commission at 31 December of year N + 2;

that part of the budget commitments which a paying
agency has been unable to disburse for reasons of force
majeure seriously affecting implementation of the rural
development programme. National authorities claiming
force majeure must demonstrate the direct consequences
on the implementation of all or part of the programme.

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inform Member States and the
6. The Commission shall
authorities concerned in good time if
there is a risk of
automatic decommitment. It shall inform them of the amount
involved as indicated by the information in its possession. The
Member States shall have two months from receiving this
information to agree to the amount in question or present
observations. The Commission shall carry out the automatic
decommitment not later than nine months after the time-limit
laid down in paragraphs 1 to 4.

7.
In the event of automatic decommitment, the EAFRD
contribution to the rural development programme concerned
shall be reduced, for the year in question, by the amount
automatically decommitted. The Member State shall produce a
revised financing plan splitting the reduction of
the aid
between the priorities. If it does not do so, the Commission
shall reduce the amounts allocated to each priority pro rata.

8.
If this Regulation enters into force after 1 January 2007,
the periods on expiry of which the first automatic decom-
mitment referred to in paragraph 1 is liable to occur shall be
extended for the first commitment by the number of months
between 1 January 2007 and the date of adoption by the
Commission of the corresponding rural development pro-
gramme.

TITLE IV

CLEARANCE OF ACCOUNTS AND COMMISSION
MONITORING

CHAPTER 1

Clearance

Article 30

Clearance of accounts

1.
Prior to 30 April of the year following the budget year in
question, the Commission shall take a decision concerning the
clearance of the accounts of the accredited paying agencies
under the procedure laid down in Article 41(3), on the basis of
the information transmitted in accordance with Article 8(1)(c)
(iii).

2. The clearance decision shall cover the completeness,
accuracy and veracity of the annual accounts submitted. The
taken
decision shall be without prejudice to decisions
subsequently under Article 31.

Article 31

Conformity clearance

1.
If the Commission finds that expenditure as indicated in
Article 3(1) and Article 4 has been incurred in a way that has
infringed Community rules, it shall decide what amounts are
to be excluded from Community financing in accordance with
the procedure referred to in Article 41(3).

2. The Commission shall assess the amounts to be excluded
on the basis of the gravity of the non-conformity recorded. It
the
the nature and gravity of
shall take due account of
infringement and of
the financial damage caused to the
Community.

3. Before any decision to refuse financing is taken, the
findings from the Commission's inspection and the Member
State's replies shall be notified in writing, following which the
two parties shall attempt to reach agreement on the action to
be taken.

If agreement is not reached, the Member State may request
opening of a procedure aimed at reconciling each party's
position within four months. A report of the outcome of the
procedure shall be given to the Commission, which shall
examine it before deciding on any refusal of financing.

4.

Financing may not be refused for:

(a)

expenditure as indicated in Article 3(1) which is incurred
more than 24 months before the Commission notifies
the Member State in writing of its inspection findings;

(b)

(c)

expenditure on multiannual measures falling within the
scope of Article 3(1) or within the scope of
the
programmes as indicated in Article 4, where the final
obligation on the recipient occurs more than 24 months
before the Commission notifies the Member State in
writing of its inspection findings;

expenditure on measures in programmes, as indicated in
Article 4, other than those referred to in point (b), for
which the payment or, as the case may be, the payment
of the balance, by the paying agency, is made more than
24 months before the Commission notifies the Member
State in writing of its inspection findings.

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5.

Paragraph 4 shall not apply in the case of:

(b)

(a)

irregularities covered by Articles 32 and 33;

(b) national aids or infringements for which the procedure
indicated in Article 88 or Article 226 of the Treaty has
begun.

CHAPTER 2

Irregularities

Article 32

if there has been no administrative or judicial finding, or
the delay in making it is such as to jeopardise recovery, or
the irregularity has not been included in the summary
report provided for
subparagraph of
paragraph 3 of this Article for the year in which the
primary administrative or judicial finding is made.

in the first

5.
If recovery has not taken place within four years of the
primary administrative or judicial finding, or within eight
years where recovery action is taken in the national courts,
50 % of the financial consequences of non-recovery shall be
borne by the Member State concerned and 50 % by the
Community budget.

Member States shall indicate separately in the summary report
referred to in the first subparagraph of paragraph 3 the
amounts not recovered within the time-limits specified in the
first subparagraph of this paragraph.

Provisions specific to the EAGF

1.
Sums recovered following the occurrence of irregularity
or negligence and the interest on these shall be made over to
the paying agency and booked by it as revenue assigned to the
EAGF in the month in which the money is actually received.

The distribution of the financial burden of non-recovery in
line with the first subparagraph shall be without prejudice to
the requirement
the Member State concerned must
pursue recovery procedures in compliance with Article 9(1) of
this Regulation. Fifty percent of the amounts recovered in this
way shall be credited to the EAGF, after application of the
deduction provided for in paragraph 2 of this Article.

that

2. When the Community budget is credited, the Member
State may retain 20 % of the corresponding amounts as flat-
rate recovery costs, except in cases of irregularity or negligence
attributable to its administrative authorities or other official
bodies.

Where, in the context of the recovery procedure, the absence
of any irregularity is recorded by an administrative or legal
instrument of a definitive nature, the Member State concerned
shall declare as expenditure to the EAGF the financial burden
borne by it under the first subparagraph.

3. When the annual accounts are sent, as provided for in
Article 8(1)(c)(iii), Member States shall provide the Commis-
sion with a summary report on the recovery procedures
undertaken in response to irregularities. This shall give a
breakdown of the amounts not yet recovered, by adminis-
trative and/or judicial procedure and by year of the primary
administrative or judicial finding of the irregularity.

However, if for reasons not attributable to the Member State
concerned, recovery could not take place within the time-
limits specified in the first subparagraph, and the amount to
be recovered exceeds EUR 1 million, the Commission may, at
the request of the Member State, extend the time-limits by a
maximum of 50 % of the initial time-limits.

Member States shall make available to the Commission
detailed particulars of the individual recovery procedures and
of the individual sums not yet recovered.

6.
If there is justification for doing so, Member States may
decide not to pursue recovery. A decision to this effect may be
taken only in the following cases:

4. After the procedure laid down in Article 31(3) has been
followed, the Commission may decide to charge the sums to
be recovered to the Member State in the following cases:

(a)

if the costs already and likely to be incurred total more
than the amount to be recovered, or

(a)

the Member State has not

if
for recovery purposes
initiated all the appropriate administrative or judicial
procedures
laid down in national and Community
legislation within one year of the primary administrative
or judicial finding;

(b)

if recovery proves impossible owing to the insolvency,
the
recorded and recognised under national
the
debtor or
irregularity.

law, of
legally responsible for

the persons

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The Member State shall show separately in the summary
report referred to in the first subparagraph of paragraph 3 the
amounts for which it has been decided not to pursue recovery
and the grounds for its decision.

(b) Member States shall notify the corresponding adjust-

ments to the Commission;

7. Member States shall enter in the annual accounts to be
sent to the Commission under Article 8(1)(c)(iii) the amounts
to be borne by them under paragraph 5. The Commission
shall check that this has been done and make any adjustments
needed as part of the decision specified in Article 30(1).

Following completion of the procedure laid down in
8.
Article 31(3), the Commission may decide to exclude from
financing sums charged to the Community budget in the
following cases:

(a)

under paragraphs 5 and 6 of this Article, if it finds that
the irregularity or lack of recovery is the outcome of
irregularity or negligence attributable to the adminis-
trative authorities or another official body of the Member
State;

(b) under paragraph 6 of this Article, if it considers that the
grounds stated by the Member State do not justify its
decision to halt the recovery procedure.

(c)

amounts of Community financing which are cancelled
and amounts recovered, as well as the interest thereon,
shall be reallocated to the programme concerned.
However, the cancelled or recovered Community funds
may be reused by Member States only for an operation
under
the same rural development programme and
provided the funds are reallocated to operations which
have been the subject of a financial adjustment.

4. When the annual accounts are sent, as provided for in
Article 8(1)(c)(iii), Member States shall provide the Commis-
sion with a summary report on the recovery procedures
undertaken in response to irregularities. This shall give a
breakdown of the amounts not yet recovered, by adminis-
trative and/or judicial procedure and by year of the primary
administrative or judicial finding of the irregularity.

They shall inform the Commission how they have decided or
plan to reuse the cancelled funds and, where appropriate, to
amend the
rural development
programme concerned.

financing plan for

the

Article 33

Provisions specific to the EAFRD

5. After the procedure laid down in Article 31(3) has been
followed, the Commission may decide to charge the sums to
be recovered to the Member State in the following cases:

1. Member States shall make financial adjustments where
irregularities or negligence are detected in rural development
operations or programmes by totally or partially cancelling
the Community financing concerned. Member States shall
take into consideration the nature and gravity of
the
irregularities detected and the level of the financial loss to
the EAFRD.

2. Where the Community funds have already been paid to
the beneficiary, they shall be recovered by the accredited
paying agency in accordance with its own recovery procedures
and reused in accordance with paragraph 3(c).

3. The financial adjustments and reuse of funds shall be
undertaken by Member States
to the following
conditions:

subject

(a) where the Member State has not

the
administrative or
laid down in
national and Community legislation for the recovery of
the funds paid to the beneficiaries within the year which
follows the first administrative or judicial finding;

judicial procedures

initiated all

(b) where the Member State has failed to comply with its
obligations under paragraph 3(a) and (c) of this Article.

6. Where it has been possible to effect the recovery referred
to in paragraph 2 after closure of a rural development
programme,
refund the sums
recovered to the Community budget.

the Member State shall

(a) where irregularities are detected, Member States shall
extend their inquiries to cover all operations liable to be
affected by such irregularities;

7. After closure of a rural development programme a
Member State may decide to halt the recovery procedure,
subject to the conditions laid down in Article 32(6).

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the

If recovery has not taken place prior to the closure of a
8.
rural development programme, 50 % of
financial
consequences of non-recovery shall be borne by the Member
State concerned and 50 % by the Community budget and shall
be taken into account either at the end of the period of four
years following the first administrative or judicial finding or
eight years where recovery action is taken in the national
courts, or on the closure of the programme if those deadlines
expire prior to such closure.

However, if for reasons not attributable to the Member State
concerned, recovery could not take place within the time-
limits specified in the first subparagraph, and the amount to
be recovered exceeds EUR 1 million, the Commission may, at
the request of the Member State, extend the time-limits by a
maximum of 50 % of the initial time-limits.

9.
In cases as referred to in paragraph 8, the amounts
corresponding to the 50 % borne by the Member State shall
be paid by the Member State to the Community budget.

10. Where the Commission makes a financial adjustment,
this shall not affect the obligations of the Member State to
recover the sums paid as part of its own financial contribution
under Article 14 of Council Regulation (EC) No 659/1999 of
22 March 1999 laying down detailed rules for the application
of Article 93 of the EC Treaty (1)

Article 34

Assignment of revenue from the Member States

1. The following shall be regarded as assigned revenue
within the meaning of Article 18 of Regulation (EC) No 1605/
2002:

(a)

sums which, under Articles 31, 32 and 33 of
this
Regulation, must be paid to the Community budget,
including interest thereon;

2. The sums referred to in paragraph 1(a) and (b) shall be
paid to the Community budget and, in the event of reuse, shall
be used exclusively to finance EAGF or EAFRD expenditure.

Article 35

Definition of administrative or judicial finding

For the purposes of this Chapter the primary administrative or
judicial
finding means the first written assessment of a
competent authority, either administrative or judicial, con-
cluding on the basis of actual facts that an irregularity has
been committed, without prejudice to the possibility that this
conclusion may subsequently have to be adjusted or with-
drawn as a result of developments in the course of
the
administrative or judicial procedure.

CHAPTER 3

Commission monitoring

Article 36

Access to information

1. Member States shall make available to the Commission all
information necessary for the smooth operation of the EAGF
and the EAFRD and shall take all appropriate measures to
facilitate the checks which the Commission deems appropriate
in connection with the management of Community financing,
including on-the-spot checks.

(b)

sums which are collected or recovered under Council
Regulation (EC) No 1788/2003 of 29 September 2003
establishing a levy in the milk and milk products
sector (2)

2. Member States shall communicate to the Commission on
request the laws, regulations and administrative provisions
which they have adopted for implementing the Community
instruments relating to the common agricultural policy, where
those acts have a financial impact on the EAGF or the EAFRD.

(1) OJ L 83, 27.3.1999, p. 1. Regulation as amended by the 2003

Act of Accession.

(2) OJ L 270, 21.10.2003, p. 123. Regulation as amended by
Regulation (EC) No 2217/2004 (OJ L 375, 23.12.2004, p. 1).

3. Member States shall make available to the Commission all
information about irregularities detected, in accordance with
Articles 32 and 33, and about the steps taken to recover
undue payments in connection with those irregularities.

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Article 37

On-the-spot checks

In order to improve checks, the Commission may, with the
agreement of
the
assistance of
those Member States for
certain inspections or inquiries.

the Member States concerned, enlist

the authorities of

1. Without prejudice to the checks carried out by Member
States under national
laws, regulations and administrative
the Treaty, and any check
provisions or Article 248 of
organised under Article 279 of the Treaty, the Commission
may organise on-the-spot checks with a view to verifying in
particular:

TITLE V

TRANSITIONAL AND FINAL PROVISIONS

(a)

compliance of administrative practices with Community
rules;

Article 38

(b)

the existence of the requisite supporting documents and
their correlation with the operations financed by the
EAGF or the EAFRD;

(c)

the terms on which the operations financed by the EAGF
or the EAFRD have been undertaken and checked.

Persons delegated by the Commission to carry out on-the-spot
inspections or Commission agents acting within the scope of
the powers conferred upon them shall have access to the
books and all other documents,
including documents and
metadata drawn up or received and recorded on an electronic
medium, relating to expenditure financed by the EAGF or the
EAFRD.

The aforementioned powers of inspection shall not affect the
application of national provisions which reserve certain acts
for agents specifically designated by national
legislation.
Persons delegated by the Commission shall not take part,
inter alia, in home visits or the formal questioning of persons
within the framework of
the
Member State concerned. However, they shall have access to
information thus obtained.

legislation of

the national

Expenditure under the EAGGF Guarantee Section other
than on rural development

1. The Guarantee Section of the EAGGF shall finance the
expenditure incurred by Member States in accordance with
Article 2 and Article 3(2) and (3) of Regulation (EC) No 1258/
1999 until 15 October 2006.

Expenditure by Member States from 16 October 2006

2.
shall follow the rules laid down in this Regulation.

Article 39

Expenditure on rural development under the EAGGF
Guarantee Section

For Member States belonging to the European Union
1.
before 1 May 2004, the following rules shall apply to rural
development programmes for the period 2000 to 2006,
which are financed by the EAGGF Guarantee Section in
accordance with Article 3(1) of Regulation (EC) No 1258/
1999.

2. The Commission shall give sufficient prior notice of an
inspection to the Member State concerned or the Member
State within whose territory the inspection is to take place.
Personnel from the Member State concerned may take part in
such checks.

(a)

At the request of the Commission and with the agreement of
the Member State, additional checks or inquiries into the
operations covered by this Regulation shall be undertaken by
the competent bodies of that Member State. Commission
agents or persons delegated by the Commission may take part
in such checks.

than
Payments to beneficiaries shall cease no later
15 October 2006 and related expenditure by the Member
States shall be reimbursed to them by the Commission
no later than under the declaration concerning expen-
diture for October 2006. However, the Commission may
in justified cases and in accordance with the procedure
referred to in Article 41(2) authorise payments until
31 December 2006,
to reimbursement of
subject
identical amounts to the EAGF of the advances made
to the Member States for the period of implementation
of these programmes under the second subparagraph of
Article 5(1) of Regulation (EC) No 1258/1999.

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(b) Advances made to the Member States for the period of
implementation of these programmes under the second
subparagraph of Article 5(1) of Regulation (EC)
No 1258/1999 shall be deducted by them from
expenditure financed by the EAGF at the latest with the
declaration of expenditure for December 2006.

(c) At

accredited paying

the request of
by

the Member States, expenditure
incurred
between
16 October and 31 December 2006 with the exception
of expenditure authorised in accordance with the second
sentence of point (a) of this Article shall be taken over by
the EAFRD budget under the programming of rural
development for 2007 to 2013.

agencies

(d) The financial resources available in a Member State on
1 January 2007 following reductions in or cancellations
of the amounts of payments which that State has made
voluntarily or by way of a penalty, under Articles 3, 4
and 5 of Regulation (EC) No 1259/1999, shall be used by
that Member State to finance the rural development
measures referred to in Article 4 of this Regulation.

Article 40

Expenditure under the EAGGF Guidance Section

committed to finance

rural development
1. Amounts
measures
from the EAGGF Guidance Section under a
Commission decision adopted between 1 January 2000 and
31 December 2006,
in respect of which the documents
required for closure of the assistance have not been sent to the
Commission by the end of the time allowed for transmission
of the final report, shall be automatically decommitted by the
Commission no later than 31 December 2010 and shall result
in the reimbursement by the Member States of amounts
wrongly received. The documents required for closure of the
assistance shall be the declaration of expenditure relating to
payment of the balance, the final implementing report and the
in Article 38(1)(f) of Council
declaration provided for
Regulation (EC) No 1260/99 of 21 June 1999 laying down
general provisions on the Structural Funds (1).

2. Amounts relating to operations or programmes which are
the subject of legal proceedings or an administrative appeal
which, under the legislation of
the Member State, has a
suspensory effect shall be excluded from the calculation of the
amount to be automatically decommitted, as provided for in
paragraph 1.

(e)

If Member States do not use the financial resources
referred to in paragraph (d) within a period to be
determined in accordance with the procedure laid down
in Article 41(2), the corresponding amounts shall be
repaid to the EAGF budget.

Article 41

Committee on the Funds

2.
For Member States joining the European Union on 1 May
2004, amounts committed to finance rural development
measures in accordance with Article 3(1) under a Commission
decision taken between 1 January 2004 and 31 December
2006, in respect of which the documents required for closure
of the assistance have not been sent to the Commission by the
end of the time allowed for transmission of the final report,
shall be automatically decommitted by the Commission no
later
in the
reimbursement by the Member States of amounts wrongly
received.

than 31 December 2010 and shall

result

3. Amounts relating to operations or programmes which are
the subject of legal proceedings or an administrative appeal
which, under the legislation of
the Member State, has a
suspensory effect shall be excluded from the calculation of the
amount to be automatically decommitted, as provided for in
paragraphs 1 and 2.

1. The Commission shall be assisted by a Committee on the
Agricultural Funds (hereinafter referred to as the ‘Committee’).

2. Where reference is made to this paragraph, Articles 4 and
7 of Decision 1999/468/EC shall apply.

The period laid down in Article 4(3) of Decision 1999/468/EC
shall be set at one month.

3. Where reference is made to this paragraph, Articles 3 and
7 of Decision 1999/468/EC shall apply.

4. The Committee shall adopt its Rules of Procedure.

(1) OJ L 161, 26.6.1999, p. 1. Regulation as last amended by
Regulation (EC) No 173/2005 (OJ L 29, 2.2.2005, p. 3).

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Article 42

Scope

Detailed rules for the application of this Regulation shall be
adopted by the Commission in accordance with the procedure
provided for in Article 41(2). Pursuant to this Regulation and
in particular Articles 6, 7, 8, 9, 16, 26, 28, 31, 32, 33, 34, 37
and 48 thereof, the Commission shall adopt:

1.

2.

3.

4.

the conditions applicable to the accreditation of paying
agencies and certification bodies as well as the specific
accreditation of coordinating bodies;
their respective
functions, the information required and the arrange-
ments for it to be made available or transmitted to the
Commission;

the conditions under which the tasks of the paying
agencies may be delegated;

the admissible standards for certification, the nature of
certification,
its scope, and the time-limits in which
certification must take place;

the implementing rules for the procedures for automatic
decommitment, conformity clearance and the clearance
of accounts;

5.

arrangements for receiving and assigning revenue from
the Member States;

6.

the general rules applicable to on-the-spot checks;

7.

the form, content, timing, deadlines and arrangements
for transmitting or making available to the Commission:

— declarations of

expenditure
expenditure and their updates,

and estimates of

— the statement of assurance and annual accounts of

the paying agencies,

— the account certification reports,

— the names and particulars of accredited paying
agencies, accredited coordinating bodies and certi-
fication bodies,

— notifications of

financial adjustments made by
Member States in connection with rural develop-
ment operations or programmes, and summary
reports on the recovery procedures undertaken by
the Member States in response to irregularities,

— information on the measures taken pursuant to

Article 9,

8.

rules on the conservation of documents and information;

9.

the transitional measures necessary for this Regulation to
be implemented.

Article 43

Annual financial report

By 1 September of each year following the budget year, the
report on the
Commission shall draw up a financial
administration of
the EAGF and the EAFRD during the
previous financial year and shall submit it to the European
Parliament and the Council.

Article 44

Confidentiality

to ensure the confidentiality of

Member States and the Commission shall take all necessary
steps
the information
communicated or obtained under inspection and clearance
of accounts measures implemented under this Regulation.

The principles mentioned in Article 8 of Council Regulation
(Euratom, EC) No 2185/96 of 11 November 1996 concerning
on-the-spot checks and inspections carried out by the
Commission in order to protect the European Communities'
financial interests against fraud and other irregularities (1) shall
apply to that information.

— arrangements for taking account of and paying
expenditure financed by the EAGF and the EAFRD,

(1) OJ L 292, 15.11.1996, p. 2.

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Article 45

Use of the euro

Article 48

Transitional measures

1. The amounts given in the Commission decisions adopting
rural development programmes, the amounts of commit-
ments and payments by the Commission and the amounts of
expenditure attested or certified and amounts in declarations
of expenditure by the Member States shall be expressed and
paid in euro.

2. Where a direct payment as provided for in Regulation
(EC) No 1782/2003 is made to a beneficiary in a currency
other than the euro, Member States shall convert the amount
of aid expressed in euro into the national currency on the
basis of the most recent exchange rate set by the European
Central Bank prior to 1 October of the year for which the aid
is granted.

3. Where paragraph 2 applies, reimbursements to Member
States of the amounts paid to beneficiaries shall be made by
the Commission on the basis of declarations of expenditure by
the Member States. When drawing up those declarations of
expenditure, Member States shall use the same conversion rate
as that used for payment to the beneficiary.

Article 46

Amendment to Regulation (EEC) No 595/91

Regulation (EEC) No 595/91 is hereby amended as follows:

1. Article 5(2) shall be deleted;

2. Article 7(1) shall be deleted.

Article 47

Repeal

1. Regulation No 25, Regulation (EC) No 723/97 and
Regulation (EC) No 1258/1999 are hereby repealed.

However, Regulation (EC) No 1258/1999 shall continue to
apply until 15 October 2006 to expenditure incurred by
Member States and until 31 December 2006 for expenditure
incurred by the Commission.

2. References to the Regulations repealed shall be construed
as
to this Regulation and shall be read in
accordance with the correlation table in the Annex.

references

For the implementation of this Regulation, the Commission
shall adopt the measures which are both necessary and duly
justified to resolve, in cases of urgency, practical and specific
problems,
those relating to the transition
between the provisions of Regulations No 25, (EC) No 723/
97 and (EC) No 1258/1999 and this Regulation. These
measures may derogate from certain parts of this Regulation,
but only to the extent and for the time strictly necessary.

in particular

Article 49

Entry into force

This Regulation shall enter into force on the seventh day
following that of its publication in the Official Journal of the
European Union.

It shall apply from 1 January 2007, except for Article 18(4),
which shall apply as soon as it enters into force, without
prejudice to the provisions of Article 47.

However, the following provisions shall apply from 16 October
2006:

— Articles 30 and 31, as regards expenditure incurred from

16 October 2006,

— Article 32, as regards cases notified under Article 3 of
Regulation (EEC) No 595/91 and for which full recovery
has not yet taken place by 16 October 2006,

— Articles 38, 39, 41, 44 and 45 for expenditure declared

in 2006 under the 2007 budget year.

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

Done at Luxembourg, 21 June 2005.

For the Council

The President

F. BODEN

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ANNEX

Correlation table

Article 1

Articles 2 to 8

Article 5(2)

Article 7(1)

Regulation (EEC) No 25

This Regulation

Article 2(2)
—

Regulation (EEC) No 595/91

This Regulation

Article 32(3)
Article 8

Article 32(2)

Regulation (EC) No 723/97

This Regulation

Articles 1 to 3

Article 4(1) and (2)

Article 4(3)

Articles 5 to 9

—

—

Article 5(1)(b)
—

Regulation (EC) No 1258/1999

This Regulation

Article 1(1), first subparagraph

Article 2(2)

Article 1(2)(a)

Article 1(2)(b)

Article 1(2)(c)

Article 1(2)(d)

Article 1(2)(e)

Article 1(3)

Article 1(4)

Article 2(1) and (2)

Article 2(3)

Article 3(1)

Article 3(2)

Article 3(1)(a)

Article 3(1)(b)

Article 4

Article 3(2)(a)

Article 3(1)(d)
Article 5(1)(c)
Article 5(1)(d)

Article 4

Article 13

Article 3

Article 42

Article 4

Article 3(2)(a)

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Regulation (EC) No 1258/1999

This Regulation

Article 3(3)

Article 3(4)

Article 4(1)(a)

Article 4(2)

Article 4(3)

Article 4(4)

Article 4(5)

Article 4(6)

Article 4(7)

Article 4(8)

Article 5(1), first subparagraph

Article 5(1), second subparagraph

Article 5(2)

Article 5(3)

Article 6(1)

Article 6(2)

Article 7(1)

Article 7(2), first subparagraph

Article 5

Article 42

Article 8(1)(a)
Article 8(1)(b)

Article 6(1)

Article 8(2)

Article 10

Article 6(2)

Article 8(1)(a)

Article 6(3)

Article 42

Article 14(1)

Article 25(1)

Article 14(2)

Article 42

Article 8(1)(c)

Article 42

Article 15(2)

Article 15(2)

Article 7(2), second subparagraph

Article 15(3) and (4)

Article 7(2), third subparagraph

Article 7(3), first subparagraph

Article 7(3), second subparagraph

Article 7(4), first subparagraph

Article 15(5)

Article 30(1)

Article 30(2)

Article 31(1)

Article 7(4), second subparagraph

Article 31(3), first subparagraph

Article 7(4), third subparagraph

Article 31(3), second subparagraph

Article 7(4), fourth subparagraph

Article 7(4), fifth subparagraph

Article 7(4), sixth subparagraph

Article 7(5)

Article 8(1), first subparagraph

Article 8(1), second subparagraph

Article 8(2)

Article 8(3)

Article 9(1), first subparagraph

Article 31(2)

Article 31(4)

Article 31(5)

Article 42

Article 9(1)

Article 9(3)

Article 32(1) and (8)

Article 42

Article 36(1)

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Regulation (EC) No 1258/1999

This Regulation

Article 9(1), second subparagraph
Article 9(2)
Article 9(3)
Article 10
Articles 11 to 15
Article 16
Article 17
Article 18
Article 19
Article 20

Article 36(2)
Article 37(1)
Article 42
Article 43
Article 41
Article 41
—

Article 48
—

Article 49