COMMISSION WORKING DOCUMENT on calculation, financing, payment and entry in the budget of the correction of budgetary imbalances in favour of the United Kingdom ("the UK correction") in accordance with Articles 4 and 5 of Council Decision 2014/xxx/EU, Euratom on the system of own resources of the European Union
Date: 2014-05-14
Institutions: European Commission
Subjects: EU budget, European Union membership, Member States' contribution, United Kingdom, budgetary equilibrium, own resources













EUR-Lex - 52014DC0271 - EN











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52014DC0271

COMMISSION WORKING DOCUMENT on calculation, financing, payment and entry in the budget of the correction of budgetary imbalances in favour of the United Kingdom ("the UK correction") in accordance with Articles 4 and 5 of Council Decision 2014/xxx/EU, Euratom on the system of own resources of the European Union /* COM/2014/0271 final */









INTRODUCTION
In accordance with the conclusions of the European Council of 7-8 February
2013 and the Council Decision on the system of  own resources of the European
Union of (.........), this document replaces the Commission working document 9851/07
of 23 May 2007[1].
Unless otherwise stated, any references to Articles relate to the Own Resources
Decision of (…..), hereinafter referred to as the 2014 ORD.
This document
lays down the following provisions for the UK correction:
·   
The calculation of the amount of the correction
of a given year,
·   
Its financing in the following year,
·   
Definitions of budgetary aggregates,
·   
The entry of the correction in the budget.
The modifications to the own resources system deriving from the
conclusions of the European Council of 7-8 February 2013 have no impact on the
UK correction for the years prior to 2014. Having regard to the entry into
force of the 2014 ORD, the provisions of the present document shall take effect
on 1 January 2014. They shall, therefore, apply starting with the calculation
of the UK correction originating in the year 2014, to be budgeted for the first
time in 2015.
Any use of the
general budget of the Union giving rise to compensation under the terms of
article 12 of the Intergovernmental Agreement on the functioning of the Single
Resolution Fund[2]
('SRM-related expenditure') shall not have an impact on the UK correction. Both
the SRM-related expenditure and the corresponding additional use of the GNI
resource shall therefore be excluded from the calculation.    
1.       THE UK CORRECTION
1.1.    The calculation of the correction (Article 4 of the 2014 ORD)
The calculation of the
amount of the correction of year t in accordance with Article 4 shall be
established by:
(a)     Calculating the
difference between:
-        The
percentage share of the United Kingdom in the total sum of uncapped VAT bases,
and
-         The percentage
share of the United Kingdom in total allocated expenditure;
(b)     Multiplying
the difference thus obtained under (a) by total allocated expenditure;
(c)     Multiplying the
result obtained under (b) by 0.66;
·               
The result obtained in steps (a) to (c) shall be
called the original amount of the UK correction;
(d)     Subtracting from
the result obtained under (c) the difference between
-        The
product of the percentage share of the United Kingdom in the uncapped VAT bases
times the total payments by all Member States referred to in Article 2(1)(b)
and (c) excluding payments to finance SRM-related expenditure relating to the
financial year t in question (i.e. the payments that the United Kingdom would
have made had the GNI resource not existed and the VAT resource not been
capped) for the financing of total expenditure (as defined in point 3.1 hereunder);
and
-        The
payments by the United Kingdom referred to in Article 2(1)(b) and (c) relating
to the financial year t for the financing of total expenditure (as defined in
point 3.1 hereunder), excluding payments to finance the gross reductions in the
GNI-based contributions of  Austria, Denmark, the Netherlands and Sweden
referred to in Article 2(5) and excluding payments to finance SRM-related
expenditure;
·               
The difference referred to in step (d) will be
called the UK advantage (because it is the advantage that the UK derives from
the VAT capping, the reduction of the VAT uniform rate and the introduction of
the GNI resource);
·               
The result obtained by subtracting the UK
advantage from the original amount (i.e. the result of step (d)) shall be
called the core UK correction;
(e)     Subtracting from the result under (d) the gains for the
United Kingdom resulting from the increase (from 10% to 20%) in the percentage
of resources referred to in Article 2(1)(a) retained by Member States to cover
their collection costs.
         This
implies deducting from the result obtained under (d) the result of the multiplication
between:
-        12.5%[3] of the net total
resources referred to in Article 2(1)(a) entered into the EU budget after
deduction of the collection costs, and
-        The
difference between the United Kingdom's share in the resources referred to in
Article 2(1)(a) and its share in the uncapped EU VAT base.
·               
The gains referred to in step (e) will be called
the TOR (traditional own resources) windfall gains;
·               
Subtracting the TOR windfall gains from
the core UK correction will complete the calculation of the UK
correction (i.e. the result under (e));
(f)     Total
allocated expenditure, referred to above under (a) second hyphen and (b), shall
be reduced by total allocated expenditure in Member States that have acceded to
the EU after 30 April 2004, except for agricultural direct payments and
market-related expenditure as well as that part of rural development
expenditure originating from the EAGGF guarantee section.
         The
shares as included in the table below shall be used to calculate the part of
rural development expenditure originating from EAGGF guarantee for each MS
concerned. 
1.2.    Formalisation
of the calculation of the UK correction
The UK correction of a
year t (to be budgeted for the first time in year t+1) is equal to:
The precise determination
of each element is as follows:
ORIGINAL AMOUNT (points 1.1(a) to
1.1(c), and 1.1(f))
where:
: Non-capped
VAT base of Member State/group of Member States XX (where XX = UK or EU) in
year t;
: EU
expenditure allocated to XX (where XX = UK or EU) in year t;
: Non-agricultural
EU expenditure (as defined in point 1.1.(f) above) allocated in year t to
Member States which have acceded to the EU after 30 April 2004;
UK ADVANTAGE (point 1.1(d) above)
where:
: Non-capped
VAT base of Member State/group of Member States XX (where XX = UK or EU) in
year t;
: Total
GNI payments made by XX (where XX = UK or EU) in year t;
: Total
capped VAT payments made by XX (where XX = UK or EU) in year t;
TOR WINDFALL
GAINS (point 1.1(e) above)
where:
: Net
traditional own resources of Member State/group of Member States XX (where XX=
UK or EU) in year t;
: Non-capped
VAT base of Member State/group of Member States XX (where XX = UK or EU) in
year t;
2.       FINANCING OF THE UK CORRECTION IN THE FOLLOWING
YEAR (ARTICLE 5 OF THE 2014 ORD)
The cost of the UK
correction of year t shall be borne by the other Member States in year t+1
in accordance with the following arrangements:
a)       The
distribution of the cost shall be calculated by reference to each Member
State's share in the payments referred to in Article 2(1)(c) relating to year t+1,
the United Kingdom being excluded and without taking account of the gross
reductions in the GNI-based contributions of Austria, Denmark, the Netherlands
and Sweden referred to in Article 2(5);
b)      It
shall then be adjusted in such a way as to allow the restriction of the share
of Germany, of the Netherlands, of Austria and of Sweden to one-fourth of the
shares resulting from the calculation under (a);
The amount of the correction is granted to the United Kingdom by a
reduction in its VAT payments; if the amount of the correction exceeds the VAT
payments, the correction is granted by a reduction in its GNI payments.
The costs borne by the
other Member States shall be added to their VAT and GNI payments.
          The
following table presents an example to illustrate the implementation of the
above calculation method on the basis of the GNI estimates entered in the 2013
adopted budget.
 CALCULATION OF THE FINANCING OF THE UK CORRECTION 
 Member State || Percentage share in GNI ||  Shares without the UK || 3/4 of the share of DE, NL, AT and SE in column (2) || Column 3 distributed among MS other than UK, DE, NL, AT and SE || Financing scale 
   || (1) || (2) || (3) || (4) || (5)=(2)+(3)+(4) 
 Belgium || 2.95 || 3.47 ||   || 1.51 || 4.98 
 Bulgaria || 0.30 || 0.36 ||   || 0.16 || 0.51 
 Czech Republic || 1.08 || 1.27 ||   || 0.56 || 1.83 
 Denmark || 1.95 || 2.29 ||   || 1.00 || 3.29 
 Germany || 20.93 || 24.59 || -18.44 || 0.00 || 6.15 
 Estonia || 0.13 || 0.15 ||   || 0.07 || 0.22 
 Ireland || 1.02 || 1.20 ||   || 0.52 || 1.72 
 Greece || 1.39 || 1.63 ||   || 0.71 || 2.34 
 Spain || 7.86 || 9.24 ||   || 4.03 || 13.27 
 France || 15.97 || 18.76 ||   || 8.19 || 26.95 
 Croatia || 0.16 || 0.19 ||   || 0.08 || 0.28 
 Italy || 11.87 || 13.94 ||   || 6.09 || 20.03 
 Cyprus || 0.12 || 0.14 ||   || 0.06 || 0.20 
 Latvia || 0.18 || 0.21 ||   || 0.09 || 0.30 
 Lithuania || 0.25 || 0.30 ||   || 0.13 || 0.43 
 Luxembourg || 0.25 || 0.29 ||   || 0.13 || 0.42 
 Hungary || 0.72 || 0.85 ||   || 0.37 || 1.22 
 Malta || 0.05 || 0.06 ||   || 0.03 || 0.08 
 Netherlands || 4.65 || 5.46 || -4.10 || 0.00 || 1.37 
 Austria || 2.42 || 2.85 || -2.13 || 0.00 || 0.71 
 Poland || 2.93 || 3.45 ||   || 1.51 || 4.95 
 Portugal || 1.21 || 1.43 ||   || 0.62 || 2.05 
 Romania || 1.05 || 1.24 ||   || 0.54 || 1.78 
 Slovenia || 0.26 || 0.31 ||   || 0.14 || 0.44 
 Slovak Republic || 0.55 || 0.65 ||   || 0.28 || 0.93 
 Finland || 1.52 || 1.79 ||   || 0.78 || 2.56 
 Sweden || 3.31 || 3.89 || -2.92 || 0.00 || 0.97 
 United Kingdom || 14.89 || 0.00 ||   || 0.00 || 0.00 
 Total || 100.00 || 100.00 || -27.59 || 27.59 || 100.00 
GNI forecast entered in DAB 6/2013.
Member States' shares in
GNI payments (Article 2(1)(c)) in year t+1 are shown in the first column
of the table. The second column presents the shares obtained according to point
(a) here above. The third column shows the reduction in the shares of Germany,
the Netherlands, Austria and Sweden (three-fourth of their shares resulting
from point (a) here above). 
The fourth column reflects the distribution of the reductions for
Germany, the Netherlands, Austria and Sweden among the other Member States
excluding these four countries and the United Kingdom. Finally, column 5 shows
the shares in the financing of the UK correction resulting from this
calculation.
3.       DEFINITION OF BUDGETARY AGGREGATES
3.1     Total
expenditure of year t
The concept of
expenditure to be used in the calculation of the UK correction corresponds to
actual payments (execution of appropriations for payments) relating to the year
in question (year t), pursuant to either that year's budget
appropriations or to carryovers of non-executed appropriations to the following
year (from year t to the year t+1). Only utilised appropriations
for payments, that is the amount of payments actually made, shall be taken into
account.
3.2.    Total
allocated expenditure
The allocation across
Member States of total expenditure, as defined under point 3.1 above, is
governed by the following rules:
In general, payments are
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 must be allocated whenever it is
possible to the Member State(s) in which the final beneficiary(ies) is (are)
resident, in accordance with their shares in these payments.
SRM-related expenditure
shall be excluded.
Certain components of
expenditure cannot be allocated either fully or partially to the Member States.
Starting from total expenditure of the general budget of the European Union as
the basis, at least two main categories of expenditure need to be excluded
(though this list is indicative and not necessarily exhaustive):
1.      External
expenditure, corresponding mainly to heading 4 – EU as a global player - of
the financial framework for 2014–2020. This category also includes expenditure
under other headings benefiting recipients outside the Union, such as
development co-operation, research expenditure spent outside the EU,
administrative expenditure paid to recipients outside the Union, etc. 
2.      Expenditure
that can not be allocated or identified. This could be due to conceptual
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.
The definition of allocated expenditure corresponds in principle to
Headings 1, 2, 3, 5 and 6 of the financial framework for 20014–2020.
4.       ENTERING THE UK
CORRECTION OF YEAR t INTO
THE BUDGET
4.1.    Provisional
estimate (to be entered in the Draft Budget of year t+1)
A provisional
calculation of the amount of the UK correction of year t shall be
performed on the occasion of the draft budget (DB) of year t+1. The
calculation shall be based on the most recent and available data for both
contributions and expenditure.
The amount of the UK
correction shall take the form of a reduction of the UK VAT and GNI
payments. The other Member States shall see their VAT and GNI payments
increased by the amount of their respective share in the financing.
4.2.    Update
of the provisional estimate (between the year t+1 and the year t+3)
If need be, the Commission
has the possibility to propose an update of the provisional estimate at any
time between the year t+1 and the year t+3. Such an update shall
be entered in a draft amending budget (DAB).
The update shall be
proposed if the Commission has ground to believe that the initial forecast of
the provisional calculation will differ significantly from the definitive
calculation (see hereunder) of the UK correction to be proposed in the DAB of
year t+4.
An update could also be
proposed if it emerges that the estimated GNI bases entered in the DB of year t+1
will differ significantly from the definitive GNI bases, thus changing
significantly the sharing of the financing of the UK correction.
4.3.    Definitive
calculation of the UK correction (to be entered in a DAB of year t+4)
4.3.1. Calculation
of the definitive amount
The procedure to
calculate the definitive amount of the correction is set out in section 1 of
this document.
The data to be used in
the calculation of the definitive UK correction are the VAT and GNI bases and
the allocated expenditure estimates relating to year t as they are
known at 31 December t+3 and shall be converted to euro at the annual
average exchange rate of the year t.
In order to estimate the
"UK advantage" for the definitive calculation (section 1.1(d))
contributions of traditional own resources and other revenues in year t must be
taken into account. This implies that it is necessary to recalculate a notional
budget on the basis of definitive data for any type of resource and revenue.
4.3.2. Calculation
of the definitive financing of the correction and its entering in the budget
Section 2 previously
sets out the procedure to calculate the financing of the definitive correction.
The definitive financing data shall be the VAT and GNI bases of year t+1
as they are known at 31 December t+3.
The final financing data
shall be compared to the payments already entered in the budget (i.e. in the
budget of t+1 and possibly in the budget of t+2 or t+3 if
an update has been made in those years).
The differences per Member State shall be entered in an appropriate
budget chapter of a DAB of the year t+4 and converted into national
currency at the annual average exchange rate of the year of the financing of
the correction (year t+1).
[1]
       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, 9851/07 ADD 2, of 23 May
2007.
[2]        Covering
cases of non-contractual liability and costs related thereto, in respect of the
exercise of powers by the institutions of the Union under Regulation (xx SRM)
[3]The percentage of 12.5% being the ratio of the
additional share of TOR (10%) retained as collection costs divided by net TOR
collected (80%)