CELEX: 51977PC0396
Language: en
Date: 1977-07-29
Title: PROPOSAL FOR A REGULATION (EEC, EURATOM, ESCS), IMPLEMENTING THE DECISION OF 21 APRIL 1970 ON THE REMPLACEMENT OF FINANCIAL CONTRIBUTIONS FROM MEMBER STATES BY THE COMMUNITIES' OWN RESOURCES#SECOND AMENDED PROPOSAL UNDER ARTICLES 149 OF THE EEC TREATY AND 119 OF THE EAEC TREATY FOR A COUNCIL REGULATION (ECSC, EEC, EURATOM) AMENDING THE FINANCIAL REGULATION OF 25 APRIL 1973 APPLICABLE TO THE GENERAL BUDGET OF THE EUROPEAN COMMUNITIES#AMENDED PROPOSAL FOR A COUNCIL REGULATION IMPLEMENTING, IN RESPECT OF THE OWN RESOURCES FROM V.A.T., THE DECISION OF 21 APRIL 1970 ON THE REPLACEMENT OF FINANCIAL CONTRIBUTIONS FROM MEMBER STATES BY THE COMMUNITIES' OWN RESOURCES Presented to the Council by the Commission

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DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (77) 396
Vol. 1977/0130
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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
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     PROPOSAL FOR A REGULATION ( EEC . EURATOM , ESCS ), IMPLEMENTING THE
     DECISION OF 21 APRIL 1970 ON THE REMPLACEMENT OF FINANCIAL CONTRI A
     BUTTONS FROM MEMBER STATES BY THE COMMUNITIES * OWN RESOURCES
                                           r
     SECOND AMENDED PROPOSAL UNDER ARTICLES 149 OF THE EEC TREATY AND
     119 OF THE EAEC TREATY FOR A COUNCIL REGULATION ( ECSC , EEC , EURATOM )
     AMENDING THE FINANCIAL REGULATION OF 25 APRIL 1973 APPLICABLE TO
     THE GENERAL BUDGET OF THE EUROPEAN COMMUNITIES
     AMENDED PROPOSAL FOR A COUNCIL REGULATION IMPLEMENTING , IN RESPECT
     OF THE OWN RESOURCES FROM V.A.T. , THE DECISION OF 21 APRIL 1970 ON
    THE REPLACEMENT OF FINANCIAL CONTRIBUTIONS FROM MEMBER STATES BY THE
     COMMUNITIES' OWN RESOURCES
 ---pagebreak---                              SUMMARY
                                                                Page
 1 . Communication by the Commission to the Council
     and the Parliament                                           3
 2 . Explanatory memorandum                                       7
 3 . Preamble                                                    15
 4 . Text of the Regulation :                                    17
      TITLE I        - General provisions                        17
      TITLE II       - Provisions for making avai­               20
                        lable and paying over the
                        Communities' own resources
      TITLE III      - Management of cash resources               24
      TITLE IV       - Procedure for application                  28
                        of the financial participation
                        of the new Member States and ,
                        where appropriate , the provisions
                        of Article 4(2 ) and ( 3 ) of the
                        Decision of 21 April 1970 .
      TITLE V        - Procedure for the application of          30
                        Article 4(5 ) of the Decision of
                        21 April 1970
      TITLE VI       - Provisions concerning measures            32
                        of control
      TITLE VII      - Provisions relating to the                35
                        Advisory Committee on the
                        Communities' Own Resources ;
                        final provisions
5 . Amendments to be made to the Financial Regu­                 37
      lation ( version contained in written procedure
      No 317/ 77 of 2 March 1977 )
6 . Amendments to be made to the proposal for                   39
      a VAT Financial Regulation ( C0M(77)120 final )
7 . Second amended proposal under articles 149 of the           41
     EEC Treaty and 119 of the EAEC Treaty for a Council
     regulation ( ECSC , EEC , EURATOM ) amending the financial
     regulation of 25.4.70 applicable to the general budget
     of the European Communities .
8 . Amended proposal for a Council regulation implementing ,    47
     in respect of the own resources from V.A.T. , the decision
     of 21.4.70 on the replacement of financial contributions
     from member strates by the Communities' own resources .
 ---pagebreak---                              - 2 -
PROPOSAL FOR A REGULATION ( EEC , EURATOM , ECSC ), IMPLEMENTING THE
DECISION OF 21 APRIL 1970 ON THE REPLACEMENT OF FINANCIAL CONTRI­
BUTIONS FROM MEMBER STATES BY THE COMMUNITIES' OWN RESOURCES
 ---pagebreak--- Modification to three draft regulations caused "by the necessity to make
               changes in the methods of financing the Budget ,
      Communication "by the Commission to the Council and the Parliament
SUMMARY
1 . This communication "brings together , for approval "by the "budgetary auth­
orities , proposed changes in the following three draft Regulations already
submitted "by the Commission
 (a ) the draft regulation modifying Regulation 2/71 which implements the
        Decision of 21 April 1970 on the replacement of financial contributions
        from Member States "by the Communities' Own Resources ;
 (b ) the Draft Regulation introducing VAT as an Own Resource following approval
        of the Sixth Directive ;
 ( c ) the Draft Regulation amending the Financial Regulation of 25 April 1973 *
2 . The "budgetary authorities are asked to consider these changes as one
package "because they are linked together "by the fact that they all influence
 the methods of financing the Budget ,      They result from the following situations
which will arise for the first time on 1st January 1978 .
 (a) The end of the relative share system of financing the Budget "but the con­
        tinuation for two years , by Article 131 of the Treaty of Accession , of
        limits to the financial burdens of the three new Member States ,
 (b ) The possibility that , at least in 1978 , the part of the Budget not
        covered by customs duties , agricultural levies and miscellaneous income
        will have to be financed "by a mixture of own resources arising from VAT
        and of GNP contributions ,
 ( c ) The need to remove an. inequity among Member States which would result in
        1978 from the application of the VAT Regulation as at present drafted.
 (d) The need to find a solution to the problem of "cash flow'* resulting from
        the end of the relative share system and the introduction of VAT as an
        Own Resource ,
 Regulation 2 /71
 3,    On 2nd June 197 ^ the Commission adopted and sent to the Council and to
Parliament a draft modification of Regulation 2/7I which mainly took account
 of the introduction on 1st January 1978 of the full Own Resources system , of
 the new European Unit of Account and of the changes proposed in the Financial
 Regulation ,    The Parliament decided on 17 December 1976 to postpone its
 opinion on the draft modifications until the Council had adopted the Sixth
Directive on VAT,       The Council has not yet concluded its discussion of the
 Commission 's proposal ,
4.     It is now necessary to amend the Commission 's original proposal in the
 light of events which have since taken place and in order to find a solution
 to the "cash flow" problems referred to in paragraphs 8 "to 11 below .       The
 main modifications , which have been incorporated into a new draft regulation ,
 are as follows
 ---pagebreak---                                       - 4 -
(a ) A new proposal -that the Member States should pay one twelfth each month
       ( from January to December ) of the amount arrived at "by applying the
       Community VAT rate to the forecast amount of its tax "base .         The reasons
       for this are set out in paragraphs 5 and 6       'below .
(b ) A new proposal that temporary difficulties of "cash flow" should "be
       covered "by overdrafts ;  see paragraphs 8 to 11 below .
(c ) In its original proposal in 197^ the Commission proposed that the two-
       fifths rule of Article 131 should be applied at the time of the prepar­
       ation of the 1978 Budget and that the resulting effect should not he
       changed in the light of the actual out–turn of the 1978 accounts . The
       further study of Article 131 , which has "been necessary because of the
       disagreement among the Member States on the Commission 's interpretation ,
       has convinced the Commission that this proposal should be changed.
       Firstly , because Article 131 starts by saying that with effect from 1st
       January 1978 the Own Resources shall be due in full by the new Member
       States , subject to the 2/5ths rule ; it therefore seems to be more correct
       to apply the Own Resources system fully in the Budget and to correct the
       results after the actual out-turn of 1978 is known.           Secondly, an applic­
       ation of the 2/5ths rule at the time of the establishment of the Budget
       would result in one rate of Community VAT for the Six and one for each of
       the Three – i.e. four rates of Community VAT ; Article 4 of the Decision
       of 1970 envisaged a similar situation if VAT had been applied during the
       relative share era and provided for the application of only one VAT rate
       and for corrections at the end of the year bilaterally between Member
       States .   This latter method is now thought to be correct and it has been
       incorporated in the new text of Regulation 2/fl .         This does not , however,
       imply any change in the Commission 's interpretation of Article 131 »
   5 . The Regulation on VAT
       The draft Regulation applying VAT as an Own Resource provides that the
       "establishment" of VAT made during a budgetary year should be imputed to
       that year , as is at present the case with customs duties and agricultural
       levies ; an "establishment" is , broadly speaking, defined as the receipt by
       the national administration of a declaration by a taxpayer of his inputs
       and outputs for a prior period. The Commission was aware that this would
       mean that in the first year ( 1978 ) a proportion of the year 's VAT would
       be credited to the following year (because declarations by taxpayers are
       necessarily in arrears ) and that the proportions might be marginally dif­
       ferent for different Member States .     It has , however , recently been estab­
       lished that the proportions are so different as to produce an unacceptable
       inequity between Member States .
6.     The Commission has reconsidered this question and now proposes that each
       Member State should pay one twelfth each month (from January to December )
       of the amount arrived at by applying the Community VAT rate to the fore­
       cast amount of its tax base .    In the following year the actual amount of
       the VAT Own Resources of the first year would be established and an adjust­
       ment would be made which would be credited or debited to the accounts of the
       second year 0    This method would preserve the principle that it is the Own
       Resources which are established which should be transferred to the Community ;
       it would remove the inequity which would otherwise exist in the first year ;
       and , very importantly , it would go a long tvay towards solving the problem of
        'cash flow' , which is mentioned in paragraphs 8 "to 11 , because the
       Community would receive twelve months of VAT in the first year .
7.     The draft VAT Regulation has therefore been amended . so as to exclude reference
       to the budgetary and accounting aspects and to deal only with the principles
 ---pagebreak---                                        - 5 -
     of establishing VAT as an Own. Besourca end of -the methods of . control of this* ■
     establishment by the Commission. The opportunity has also beerv taken of incor-
     pcvr£.tmg modifications proposed by the Parliament which can be accepted by the
      Commission . The new proposals referred to in paragraph 6 above have been '
      incorporated in the revised version of Regulation 2/ 71 .
     The problems of "cash flow "
 8.  In its communication to the Joint Council meeting of 5 April 1977 the Commission
     referred to the problem of the "gap " of about 2000 m.u.a . which would occur at
     the beginning of 1978 – corresponding to about three months of payments which
     would not be covered by the flow of revenue from customs duties , agricultural
     levies and VAT established in 1978 .     The Commission said that this could be
     solved by an advance from the Member States or by borrowing on the capital
     market .    The Commission also referred to the continuing possibility that the
     flow of revenue from Own Resources would temporarily not match the expenditure
     flow and that short–term borrowings would be needed .
 9.  The Commission has been considering various solutions to this problem. It is
     now of the opinion that the * gap' is too large to be covered by borrowing and
     that to cover it by an advance from the Member States would not be consistent
     with the principle of the financial autonomy of the Community.
10 . The best solution to the problem of the 'gap * seems to be to proceed as follows;–
     (a ) Adopt the proposal referred to in paragraph 6 above which would have the
           effect that VAT payments would start in January 1978 .
     (b ) Revert to the Commission 's original proposal in the modifications to the
           Financial Regulation that the receipts side of the Budget and of the annual
           accounts should be related to the actual cash received between 1st January
           and 31 December. This would have the effect that customs duties and agric­
           ultural levies received in 1978 but relating to 1977 would be credited to
           1978 ; this would reduce by the same amount the Own Resources of 1977 but
           the difference could be covered by GNP contributions tinder the existing
           system and with the limits of the relative share of each Member State . The
           original proposal was withdrawn because of objections of principle by the
           Parliament but , in agreeing to do so , Mr. CHEYSSCN explained the "cash flow "
           difficulties which this would involve ; since no other solution to the " cash
           flow" problem can be found the Commission feels obliged to repeat its orig­
           inal proposal . This means that a modification must be made to the draft (
           Financial Regulation as it now stands ; this is shown in the document annexed
           to this communication .
11 . There are two other problems of "cash flow" :–
     (a ) Even if the total receipts for a year correspond with the forecasts in the
           Budget and there is no surplus or deficit at the end of the year , they are
           not likely to coincide month by month with the flow of payments and there
           may therefore be temporary cash deficits .
     (b ) If the receipts written into the Budget are overestimated there will be a
           structural deficit which will be carried over to the following year 's
           Budget ; this also would oroduce a cash deficit but it would be of longer
           duration –perhaps , on average , as much as 12 months .
     Resolution of this problem by a system of advances by Member States as was said
     above , would not conform with the principle of the financial autonomy of the
     Community.     It seems to be best , therefore , to make an addition to Regulation
     2/7I providing that the Commission be given the power to arrange overdrafts .
     The new Regulation 2/7I attached to this communication makes this proposal .
 ---pagebreak---                                                 - 6 -
12 . The Budgetary Authorities are therefore asked to approve
     ( a ) the new text ( attached ) of a draft Regulation replacing Regulation 2/ 71 ;
     ( b ) the attached draft regulation modifying the original draft regulation on
           VAT (a list of the modifications is attached as an aide-memoire );
     ( c ) the attached draft regulation modifying the original draft Financial Regulation
     (a list of the modifications is attached as an aide-memoire ).
 ---pagebreak---                                     - 7 -
                                               Brussels , 5 July 1 977
Proposal for a Regulation implementing the Decision of 21 April 1970
on the replacement of financial contributions from Member States by
the Communities * own resources
Explanatory memorandum
1 . As 1978 will be a turnings-point in the history of the Budget
of the European Communities , it will inevitably see changes to
Regulation No 2/71 concerning the operation of the own resources
arrangement s •
The entry into force of the Sixth VAT Directive entails the laying
down of procedures for the accounting, making available and administration
of this new own resource , since it is markedly different from the resources
accruing from customs duties and agricultural levies .     Rules must also
be laid down concerning the principles governing the determination and
control of VAT own resources : these provisions have been incorporated
in another Regulation, separate from Regulation No 2/71 , in order to
avoid a series of cross references or exceptions which would be necessary
in order to distinguish between customs resources and fiscal resources .
Although Regulation No 2/71 concerns resources which by definition are
established , collected and paid over by the Member States in their
respective national currencies , the use of the EUA in the Community
Budget as from 1 January 1978 necessitates certain provisions : although
the Sixth VAT Directive is to apply from 1 January 1978 , provision
must also be made for a Member State * s inability to fulfil this obligation .
The method of calculating the GNP scale for VAT purposes must therefore
be laid down ; it seemed appropriate to change the rules in order to
bring the calculation method more up to date as regards the value of
the various currencies .
For the original Member States , 1978 will mark the beginning of the
final period , in which the special provisions on "relative shares"
(which do not apply to the new Member States) are no longer appropriate
and must be repealed .
 ---pagebreak---                               - 8 -
                >
For the new Member States , on the other hand , 1978 marks the
"beginning of the penultimate stage in which there are still limits
to their financial contributions under certain conditions .     The
procedures for calculating the limits , entailing the application
 of Article 131 of the Act of Accession , are discussed elsewhere ,
"but Regulation No 2/71 governs how they are to be introduced into
the accounting process .
Lastly , the financing of the Community Budget from the Communities'
own resources , and certain provisions such as Article 4(5 ) of the
Decision of 21 April 1970 concerning the carrying-over of surpluses
to the following financial year , usher in a financial autonomy such
that plans must be made for abandoning the present system of advances
as from 1978 and intoducing provisions enabling there to be
autonomous and effective administration of these resources .     This
new approach does of course present cash-flow problems ; it is
 self-evident that even with a budget which is perfectly balanced
 (not only as regards revenue and expenditure but also forecasts
and results) the assets available may not be enough to cover
expenditure at certain times during the year.     If, in addition ,
the abovementioned balance is not achieved , it seems inevitable
that overdraft facilities , with their legal basis in
Article 18 of the Treaty of 10 July 1975t would be needed.    However ,
with the provisions in force at present , the main cash-flow problem
would be the existence of a very big gap due to the time lag
between the collection of revenue (two months after establishment
for customs duties and agricultural levies , and longer for VAT if
the same principles are applied) and the effecting of expenditure .
The amendment to Regulation Ho 2/71 therefore entails recasting the
arrangements in force in order to reduce this gap and proposes the
introduction of a cash budget for revenue'" necessitating an amendment
to certain provisions of the draft Financial Regulation applicable
to the Budget of the European Communities and the draft VAT
Financial Regulation which are both before the Budgetary Authority,
  This gap would be filled completely as result of an amendment to the
  draft VAT Regulation to make provision for a monthly payment ( from
  January to December) of one–twelfth of the VAT own resources forecast
  in the Budget .   Provision is also made for calling each month for
  . the advance payment of own resources other than those accruing from VAT .
 ---pagebreak--- 2,   In view of "the magnitude of tne amendments envisajod , it BQOI.. 2d
wise to withdraw the proposal for an amendment to Regulation Ivo 2/71
presented in June 1976 » which , through the force of circumstances , could
not incorporate all these amendments , and put forward a new " Regulation
implementing the Decision of 21 April 1970 on the replacement of
financial contributions from Member States by the Communities' own
resources" embodying as many of the provisions of the existing Regulation
as possible and , in its last Article , repealing Regulation No 2/71 .
The new text of the Regulation is accompanied by two papers setting out
the amendments to be made to the Financial Regulation applicable to the
General Budget of the European Communities and to the VAT Regulation.
The latter also incorporates the amendments proposed by Parliament on
16 June 1977 which the Commission can accept .
3.   The text of the new proposal has the following structure :
Title I - General provisions
Articles 1 to 5 take over virtually all the original text apart from
an amendment , for practical reasons , to two time limits in Articles 3
and 5 * and. "t^-e reference to the VAT Regulation in Article 1 to take into
account its scope .      Article 6 has been retained , apart from paragraphs 3
and 4 which are superfluous' in a cash budget system.       Fresh provisions
have been introduced in paragraph 2 and in the new paragraph 3 which
concern VAT establishments .      These nev; provisions are necessary because ,
unlike the own resources from customs duties and agricultural levies ,
the own resources accruing from VAT can legitimately be established long
after the end of the financial year in question.        For reasons of
presentation , Article 10 has been switched to Article 7 »
Title II .– Making available and paying over the own resources
Article 8 corresponds to Article 7 of Regulation No 2/7 1 .      The new
Article 9 defines the method of calculating the VAT rate , highlighting
the automatic nature of this calculation.
Article 10 derives from Article 8 of the Financial Regulation.        The
fact of embarking on the final period , when the dynamic brakes will be
taken off , entails the deletion of the references to Article 3(3 ) and.
Article 4(1 ) on the Decision of 21 April 1970 *
 ---pagebreak---                                     - 10 -
Article 11 , a new Article , is the heart of the system proposed , a system •
which is based on having a cash budget for revenue (hence the proposal for
an amendment to Article 5 of "the Financial Regulation applicable to the          *
General Budget of the European Communities ); moreover, it flows from the
need to amend the proposal for a VAT Regulation as regards the budgetary
booking of establishments . The information given by the Member States
indicates that the pattern of declaration by taxable persons differs
considerably from Member State to Member State , generating - with the
arrangements envisaged initially - distortions , directly proportional to
these differences , in the making available of the resources accruing
from VAT . The Commission therefore proposes to delete Article 5(3 ) of the
VAT Regulation which provides for VAT own resources to be included in the
Community accounts on the basis of monthly establishments , and to adopt
a system based on twelths as explained above . ( 1 )
As already mentioned , the cash budget for revenue bridges only part of the
cash-flow gap : in a year's budget this gap represents three months of
the Community 's existence – two of which arise because the revenue is
paid over two months after collection and the third because the Community
institutions need their operating funds for each month , particularly for
the EAGGP, in the month before .
Consequently, Article 11 provides for the advance payment of one month of
own resources accruing from customs duties and agricultural levies in
order that the Commission should receive , by 20 December of each year,
these own resources for January of the ensuing year (in a cash budget these
resources would therefore match the amounts established by the Member
States in November). The adjustment will be made in the following month
within the time limit of 45 days (which is increased to 50 ) laid down at
present for the making available of own resources to the Commission ;    the
advance payment of own resources for February will be made simultaneously
and in the same conditions , and so - on .
 ( 1 ) This solution involves a reductton in the rate of VAT since from the first
       year it will be possible to calculate the latter by reference to the whole
       tax-base .
 ---pagebreak---          Provision is also made for VAT resources or , where appropriate ,
_ .,; », cup contributionsto be paid in twelfths ofthe amounts budgeted for ,, in     ??'
         order to obtain a regular pattern of the payment .   Assuming a budget where
         expenditure and revenue follow the same monthly rhythm and revenue consists
         half of VAT resources and half of customs and agricultural resources , the
         Commission would have at its disposal on the twentieth day of each month
         a sum enabling it to make an appropriate downpayment on the EAGGF advances ,
         or even pay them in their entirety , the following month .   On the first
         day of the following month it would receive the remainder needed to pay the
         balance , if any , of the EAGGF advances and to finance the other expenditure ,
         the cash-flow gap being completely closed in this manner .
         The proposed provisions also include the procedures for the settlement of
         these payments :   there would be an adjustment towards the middle of the
         following financial year based , as regards VAT , on the amounts actually
         established for the preceding financial year and , as regards any
         GUP contributions, on the distribution forecast in the budget in question
         between the latter and the VAT resources .   The adjustment in question
         represents a modification of the revenue for the financial year in which
         the adjustment is made , in such a way as not to interfere with the closing
         of the accounts for the financial year just ended .
         Article 12 contains the same provisions on interest on defaulted payments
         as those of Regulation No 2/j1 , with more specific details concerning time
         limits .
         Article 13 is virtually a synthesis of the provisions of Articles 11 and 12
         of Regulation No 2/71 and Article 38 of the Financial Regulation of
         25 April 1973 , the main differences being as follows :
          (a) The text has been made more flexible to allow of the full application
              of financial autonomy .
         (b ) In view of the new arrangements , the advances on future own resources
              have been deleted .
         (c ) Provisions is made for covering exchange rate risks by spreading the
              Commission 's holdings in the various currencies in such a way as to
              reflect the structure of the European currency basket .
 ---pagebreak---                                    - 12 -
   Title III – Management of Cash Resources
  As regards the cash position , it was necessary to envisage two other
  deficit-producing situations :
   1.  Where expenditure exceeds revenue in a given month .
   2.  Where the own resources collected are "below the initial forecasts ,
       producing a deficit for the financial year (" structural deficit ").
   Article 14 makes provision not only for the first eventuality, a
_ purely cash problem , hut also for the second , a "budgetary problem which
   also has an impact on cash flow , "by allowing recourse to overdrafts .
  Budgetary provisions to cover this type of deficit are contained in
- Article 18 .    Articles 15 to 17 lay down the conditions for repaying the -
   a"bovementioned advances , and the possibility of placing sums which
  "become available in the treasury accounts j these articled also lay
  down the accounting criteria for interests , and provide for the informing
  of the Member States .           _                    -       -
  Article 18 has been worded in an attempt to bring forward as much as
  possible the time when a " structural" deficit or surplus can be corrected
   in budgetary terms . ■ Under Article 29 of the Financial Begulation
  applicable to the General Budget of the European Communities , the balance
  for a financial year "n" is carried over to the financial year "n" + 2 ,
   since this balance is not calculated until the financial year "n" + 1 .
  Article 18 lays down that , for own resources only, an estimate is to
  be made in November of the total amounts collected in the financial year ,
  an estimate based therefore on data for 11 months and thus fairly close
  to the ultimate result .
  By making a comparison with the forecasts for the financial year , it
  would be a simple matter to evaluate the probable difference , which ,
  pursuant to the same Article , would be charged to the Budget for the
  following financial year which will be in the process of adoption at
   the time of the abovementioned evaluation .    The text of Articles 14 to
   18 is new .
 ---pagebreak---                                 - 13 -
  Title IV      Procédure for application nf
                the net, Member state , and. wh.r. ...oropriat. .         ,
                of Article 4(2 ) and (3 ) of the Decision r,f pi Anri 1 1Q70
  This Title, consisting of too articles, lays do„n rules for the application
  of Articles 131 and 132 of the Act of Accession and the method of
  calculating the GNP scale when the provisions of Article 4(2) and (3)
  of the Decision of 21 April 1970 are to he applied.
  In the proposal for an amendment to Regulation No 2/71 , presented in
 June 1976. the first problem was tackled differently from the approach
 now envisaged, since at that time some of the aspects had not "been fully-
 appreciated. In the meantime , as a result of the disagreement between
 the Member States on the interpretation of Article 131 of the Act of
 Accession, the provisions in question have been analysed in greater
 depth and the logical conclusion has been to apply them subsequently
 by direct compensation between the Member States , leaving unchanged
 the total amounts collected for the Budget of the European Communities#
 This conclusion is imposed by the following factors :
     (i) if the ceiling on the shares of the new Member States in 1978
          was to be applied in the process of adopting the Budget , this
          could only be a provisional arrangement , since the ceiling must
          be calculated from data for 1977 which are not known at this time ;
   (■*■!) even if this approach had to be adopted, it would be necessary
          to apply different VAT rates , which does not seem compatible with
          the provisions of the Decision of 21 April 1970 on own resources ;
 (iii ) the situation of the new Member States is similar to that of the
          original Member States between 1975 and 1977        which similar
          provisions were adopted .
Article 20 , which concerns GUP, reproduces " the existing text of Article 22
of Regulation No 2/71 , merely amending the method of calculating the
GNP scale . It seemed fairer , in a financial year using the EUA, to
update the data used for calculating this scale by using the CTP for
 ---pagebreak---                                  - 14 -
  a year closer to thai: in question ("n" – 2 instead of the average for
  the years "n» - 5/»n» - 3) and . by applying the data in proportion to
  the average of the EUA rates for the same year ,
 gitle V • Procedure for the application of Article 4(5 ) of the Decision
                of 21 April 1970
 Article 21 corresponds to Article 24 of Regulation Ho 2/71 ; the amendments
 made are all of a technical nature to take into account the distinction
 between appropriations for commitment and appropriations for payment ,
 the creation of a cash budget for revenue and the use of the EUA in that
 budget *
 Title .V I : Provisions concerning measures of control
 Articles 22 to 24 correspond to the existing Articles 13 to 15 of
 Regulation Bo 2/71 to which some minor technical adjustments have been
 made and which have been amended to take in the creation of the European
 Court of Auditors .
Title VII : Provisions relat ing to the Advisory Committee on Own Resources :
               final provisions
Articles 25 and 26 correspond to Articles 25 and 26 of Regulation Bo 2/71 ;
Article 27 is a new one which, among other things, repeals Regulation Bo 2/71 .
Article 12 and Articles 16 to 22 of Regulation Bo 2/71 have been deleted,
the first because of the principle of financial autonomy, the others
because the "relative shares" laid down in the Decision of 21 April 1970
will cease to apply from I978 .
 ---pagebreak--- REGULATION                          ( EEC , EURATOM , ECSC ) of the Council
implementing the Decision of 21 April 1970 on the replacement of
financial contributions from Member States by the Communities'
own     resources .
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty establishing the European Coal and Steel
Community , and in particular 78f thereof ,
Having regard to the Treaty establishing the European Economic Community ,
and in particular Article 209 thereof .
Having regard to the Treaty establishing the European Atomic Energy
Community , and in particular Article 183 thereof ,
Having regard to the Treaty establishing a single Council and a single
Commission of the European Communities and in particular Article 20
thereof ,
 Having regard to the Treaty amending certain financial provisions of the
 Treaties establishing the European Communities and of the Treaty esta­
 blishing a single Council and a single Commission of the European
 Communities ,
 Having regards to the Council Decision of 21 April 1970 on the replacement
 of financial contributions from Member States by the Communities' own
 resources ( 1 ), henceforth    referred to as the Decision of 21 April 1970 ,
 and particularly Article 6 thereof .
 Having regard to the proposal from the Commission,
 Having regard to the opinion of the European Parliament ,
 Whereas the principle of the financial autonomy of the Communities is
 the fundamental element of the system of own resources , and whereas this
 system v/i 1 1 be fully applied as from 1978,
 Whereas the Communities are to have full disposal of their resources
  as referred to in Article 4 of the Decision of 21 April 1970, the
  entering as revenue of which necessarily follows from the amounts esta-
  blished ,
  ( 1 ) J.O. L.94 of 28.4.70 p. 19
 ---pagebreak---                          - 16 -
Whereas so far as own resources derived from VAT are concerned the
provisions of Article 22 of the Sixth Directive of the Council relative
to VAT can create inequalities between the Member States in the making
available of the said resources and that it is necessary to eliminate
these inequalities ,
Whereas a new unit of account , called the European unit of account ( EUA )
will be applied to the budget as from 1978,
Whereas in order to guarantee the financing of the Communities' budget
 under alL conditions it is necessary to envisage the possibility of
the payment of financial contributions based on GNP and to bring into
force the corresponding key to take account both of its comparability
with the effective level of VAT own resources and of the introduction
of the above EUA .
Whereas the Treaty of 10 July 1975 envisages the taking of appropriate
measures to meet cash requirements should the need arise .
Whereas the financing of the Communities' budget entirely from own
resources creates new cash problems the size of which imposes the need
to anticipate appropriate provisions .
Whereas it is an advantage to be able to anticipate the particular provi
 sions for the implementation of Article i$i of the Treaty of Accession
 in respect of the new Member States and for the period of time laid
down by the said article ,
Whereas the full application of the criteria set out above implies a
general amendment of Regulation 2/ 71 and that consequently it is deemed
necessary to repeal it ,
 HAS ADOPTED THIS REGULATION .
 ---pagebreak---                                                                      - 17 -
                             PROPOSAL FOR A                                                                         XIX/354/77-E
                 Regulation No        (EEC , Euratom , ECSC)                         Proposal which replaces the proposal
       implementing the Decision of 21 April 1970 on the replacement of financial    for amendment of Regulation 2/71 of
       contributions from Member States by the Communities * own resources           2 June 1976 ,
HAS ADOPTED THIS REGULATION :
                              TITLE I
                        General provisions
                             Article 1
The Communities * own resources within the meaning of the Decision of 21 April 1970  Original text amended to include
(hereinafter called * own resources' ) shall be established by Member States in      reference to the VAT Regulation.
accordance with their own provisions laid down by law , regulation or administrative
action and shall be made available to the Commission as specified in this
Regulation, without prejudice to the provisions concerning revenue derived from
value added tax adopted by Council Regulation (EEC , Euratom , ECSC) of
(hereinafter called the «VAT Regulation1 ).
                             Article 2
1 . For the purposes of application of this Regulation, an entitlement shall be      Unchanged .
deemed to be established as soon as the corresponding claim has been duly
determined by the appropriate department or agency of the Member State .
 ---pagebreak---                                                                  - 18 -
 2 . The competent department or agency of the Member State shall make a new
 establishment where it becomes necessary to rectify an entitlement
 established in accordance with paragraph 1 .
               »                   Article 3
Member States shall take all requisite measures to ensure that the supporting Proposal for amendment of 2 June 1976 ,
documents concerning established entitlements and the making available of own
resources are kept for five years .
                                   Article 4
     Each Member State shall inform the Commission , at the lattei% request : Unchanged ,
(a) of the names of the departments or agencies responsible for establishing
     own resources and , where appropriate , their status ;
(b) of the general provisions laid down by law, regulation, administrative
     action relating to accounting procedure concerning the establishment
     of own resources and their being made available to the Commission.
2 . The Commission shall pass such information to other Member States at
their request .
 ---pagebreak---                                                              - 19 -
 i                                      Article ^
 Each Member State shall draw up yearly a closing statement of account together        Original text with date changed to 30 June
 !»!. + T?l°rn °nJ ? establishmQnt and control of own resources and shall forward      to bring it in line with the time limits in
 in watiM.               0n       °              °f the year           th0             Article 11 .
                                        Article 6
1 . Accounts for own resources shall be kept by the Treasury of each Member            Unchanged ,
State and broken down by type of resouroe .
2 . The established entitlements shall be entered in these accounts at the            Original text apart from the time limit and
                   *wentieth day of tb® second month following the month during which inclusion of special wording for VAT .
the entitlements were established . However , with respect to own resources
accruing from VAT entitlements established after 31 December of each financial
                "fk opora"tlons carried out in the same financial year shall be
included in these aocounts at the latest by /fo Juni7 of the following financial
             M!f!r StJte         forward 110 "to® Commission, within the same period, Original text deleted .
•rvH + fllil  !             ^     600011111:8 showing the position as regards the
entitlements established for the month in question.
                                                                                      Para . 3 reworded .
                                                                                      Para . 4 deleted .
An annual summary statement of amounts established in each financial year in
accordance with the provisions of Article 5 of the VAT Regulation shall be
sent to the Commission at the latest by /2Q June/7 of the following year .
 ---pagebreak---                                                                - 20 -
                                                 1
                                       Article 7
 1 . The entitlements established under Article 2(2 ) shall be entered in the
 monthly return corresponding to the date of the new establishment and shall be
                                                                                    Corresponds to Article 10(1 ) of original text ,
 added to or subtracted from t.' c total amount of established entitlements .       The last subparagraph of para . 1 and para . 2
                                                                                    of this Article have been deleted .
                                       TITLE II
                 Provisions iu r making available and paying over the
                             Communities * own resources
                                       Article 8
 1.   !'-    amount of own resources established shall be credited by each Member  Corresponds to Article 7 of original text .
St a*     to the account opened with the Treasury for this purpose in the name of  Second subparagraph of para . 1 reworded to
        ,'T'iRSSion .
                                                                                   take account of VAT resources .
However , the own resources accruing from VAT shall be entered in accordance
with the procedure laid down in Article 11(3) and (4 ). This account shall be
kept free of charge .
2 . Each amount shall be entered gross . In the thirty days following notification
of any entry , the Commission shall issue a transfer order in favour
of the Member State for the amounts corresponding to the standard refund for
Uie expenses incurred in collection as referred to in the fifth subparagraph
of Article 3(1 ) of the Decision of 21 April 1970 .
 Refer to Article adjusting VAT contribution .
 ---pagebreak---                                                             - 21 -
3 . Bie payments shall be converted into , and entered in the accounts in , units of
     account as defined in Article 10 of the Financial Regulation on the basis of the
     EUA quotations obtaining on the day corresponding to the final time limit for entry
     or on first preceding day for which such quotation is available .
                                         Article 9
The rate referred to in Article 2 of the VAT Regulation , expressed as a figure to four    New text concerning the method of
decimal places , is laid down in the budget . It is calculated as a percentage of the      calculating the rate of VAT.
estimated VAT assessment base in such a manner that it fully covers that part of the
Communities' budget not financed from customs duties , agricultural levies , miscellaneous
revenue and, where appropriate , financial contributions based on GNP .
                                         Article 10
1 . An estimate of the own resources to be paid over by each Member State , where     \ «  Corresponds to Article 8 of the proposal
     applicable , together with their contributions referred to in Article 4(2) and U) of  for amendment of 2 June 1976
     the Decision of 21 April 1970 , shall be entered in the budget .                      Para . 1 unchanged
                                                                                           Para . 2 amended in order to delete the
2 . Payment of the amount actually established by the Member State for the kind of own     reference to contributions ( explained in
     resources in question pursuant to Article 11 shall be obligatory .                    Art . 11 ) and to include a reference to
                                                                                           VAT .
                                         Article 11
 1# The own resources established referred to in Article 8(1 ) shall be entered at the     Article 11 ;   Replaces Article 9 of the
      latest by the twentieth day of the second month following the month during which the proposal for amendment of 2 June 1976
                                                                                           Para . 1 deleted - Para . 2 becomes new
     entitlement was established .                                                         Para . 1
 2 . The Member States shall make payment of these resources one month in advance on the   Para . 3 transferred to Article 12 .
     basis of the information available to them on the fifteenth day of the same month .
                                                                                           New paragraphs
     Each payment shall be adjusted in the following month when the entry referred to in   Para . 2 refers to the procedure for
      para . 1 is made . This adjustment consists in making a negative entry of an amount  making an advance entry of customs duties
      equal to that of the advance payment .                                               and agricultural levies .
 ---pagebreak---                                                                 - 22 -
 3 . Nevertheless , the own resources accruing from VAT or , where appropriate , the      Para . 3 - procedure for paying "twelfths" of
      financial contributions "based on GNP , shall be entered on the first day of each   VAT or GNP.
      month , the amount being one-twelfth of the total entered under this heading in
      the budget .
      Calculation of the one-tv.t xfth for the month of January of each financial year
      shall be based on the amounts entered in the draft budget ; this amount shall be
     adjusted when the next month 1 s instalment is paid .    If the budget has not been
     adopted before the beginning of the financial year , the twelfths shall similarly
     be calculated from the amounts entered in the draft budget ; the adjustment
      shall be made on the first due date following the adoption of the budget to
     ? " low the responsible authorities one clear calendar month .
4 . Each Member State shall , in the light of the annual summary statement provided
     for in Article 6( 3 )» be debited with the amount of his establishment calcLfcated
      _jn the basis of the rate fixed for the prev.ious financial year
     and credited with the twelve payments made during that previous financial year .
     The Commission works out the balance and informs the Member States in good time
     in order that the latter may :
     - in the event of a debit balance , pay the difference on the first of "            Para . 4 & 5 - final settlement of VAT and
                  £ka.gas^J of the same year , or                                        GNP payments .
     - in the event of a credit balance , deduct the difference from the twelfths
        payable in respect of the current financial year , beginning with the payment
         scheduled for the first of           ^Augusi^of the same year .
5 . With effect from 1 January 1 979 » those Member States having paid financial
     contributions based on GNP during the previous financial year shall , on the due
     dates given in para . 4 and by the same method , adjust the said financial
     contributions so as to restore , on the basis of the actual yield from own
     resources accruing from VAT, the original distribution in the budget between *
     the latter and the financial contributions based on GNP .
 ---pagebreak---                                                                - 23 -
6.                                                                                       Para . 6 : Supplementary or
      Any change in the rate of VAT or ^ if appropriate , in the financial contributions            amending budgets .
based on GNP f occasioned by
                          "by the adoption of a supplementary or amending budget shall
give rise to a readjustment of the twelfths which have fallen due since the
beginning of the financial year
This adjustment operation shall be carried out on the first due date following the
adoption of the supplementary or amending budget in order to give the responsible
authorities a clear calendar month .
'(, The operations referred to in paragraphs 4 and 5 constitute modifications to         Para .     Incorporation of final
revenue in respect of the financial year in which they occur .                                      settlements .
                                     Article 12
                                                                                         Corresponds to Article 9 f para. 3
Any delay In making the entry in the account referred to in Article 8 shall give         of the proposal for amendment of
rise to the payment of interest by the Member State concerned at a rate equal to         2 June 1976 .
 the highest rate of discount ruling in the Member States on the due date . That
 rate shall be increased by 0.25 of a percentage point for each month of delay.
 The increased rate shall be applied to the entire period of delay.
 ---pagebreak---                                                                - 24 -
                                   TITLE III
                       MANAGEMENT OF CASH RESOURCES
                                . Article 13
 1 . The Commission shall have i,t its disposal the amounts credited to    Replaces Article 11 of the proposal for amendment of
the account referred to in Article 8 of this Regulation in order to        2 June 1976 «
replenish the accounts via whic        j makes payments arising from the
 implementation of the bud~->-: . id the transfers intended , as regards   Paragraph 1 incorporates certain provisions of
 funds held in the form     jurrency , to restore the structure of the EUA Article 38 of the Financial Regulation of 25 April 1973 .
"basket so as to cover exchange risks , in accordance with the provisions
 of Article 16 of tho Regulation on the application of the EUA .
The ordf.-s and instructions which the Commission sends to the Treasury
 or to , ne appropriate department of each Member State shall "be carried
 out   s soon as possible .
 2 . T" e adjustments provided for in Article 11(6 ), occasioned by a      Paragraph 2 has been modified to exclude advances on
 supplementary or amending budget raising the rate of VAT or of the        own resources (payment of which is always in advance
 contributions provided for in Article 4(2 ) and (3 ) of the Decision of   - Article 11 ) and also to provide the option of
 21 April 1970 , may be made in advance with the authorization of the      obtaining advances on VAT or GNP .
 Council , acting by a qualified majority .
  Reservations expressed by Legal Service on Article 16
   of the EUA Regulation .
 ---pagebreak---                                Article  1A
  1 . In order "to meet possible liquidity difficulties arising from:         New text allowing recourse to overdrafts
                                                                              to overcome temporary liquidity difficulties .
         (a) a difference between revenue and expenditure in a given month or
              own resources* receipts lower than the original estimates.
  the Commission may, having taken any appropriate steps to defer the
  expenditure , negotiate overdrafts .
  2 »_.. The geographical distribution of the overdrafts shall take account
. of the local requirements of the European Communities as well as the
  distribution of the own resources provided for in the budget or of the ""
  actual amounts collected when these are known in respect of at least three
  months ,                                             - -
 ---pagebreak---                                                       - 26 -
                           Article 15
                                                                  New text providing for the repayment of operations
                                                                  under Article 14 .
  As far as possible , any monies accruing' to the Commission 's
  treasury accounts shall , as a matter of priority, be used to
  reduce the overdrafts .
. Any monies surplus to these repayments shall he invested "by
  the Commission on the most favourable terms offered "by the
  markets of the Member States .
                          Article 16
 The debtor or creditor interest arising from the banking        New text relating to the entry into the accounts of the
 operations referred to in Articles 14 and 15 shall be           operations in question .
 respectively debited or credited to a suspense aocount ; at the
 end of the financial year the balance of this account shall be
 directly incorporated in the calculation on of the end-of-year
 balance within the meaning of Article 21 of this Regulation .
 ---pagebreak---                                     Article 17
At the end of each quarter , the Commission shall send the Member States      New text .
a cash resources statement showing debts and placings .
This statement shall also show the "balance of the suspense account
referred to in Article 16 .
                                   Article 18
                                                                              New text introducing provisions for
                                                                              correcting any imbalance between estimates
The Commission shall , before the end of November in each financial year ,    and outturn in a given financial year during
make an estimate of the own resources collected for the entire year on        the following financial year .
the basis of the information at its disposal at that time .           '
If this estimate differs appreciably from the original estimates the latter
shall , after a review of the cash situation, be the subject of a letter of
amendment  relating to the draft budget for the following financial year
which is in process of approval .
The balance to be carried forward to the second financial year following
         1^^es"t:Lon » as laid down in Article 29 of the Financial Regulation
of 25 April 1973 shall take this entry into account .
 ---pagebreak---                                                                                                            ''V ^ V                   V , í; ,;Á
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                                                                                                                   - 28 -
                                                                              TITLE IV
                                                Procedure for application of the financial
                                                participation of the new Member States and ,
                                                where appropriate , the provisions of
                                                Article 4(2 ) and ( 3 ) of the Decision of
                                                21 April 1970 *
                                                                         Article 19                                                                                                                      Replaces Article 23 of the proposal for
                                                                                                                                                                                                         amendment of 2 July 1976 ;                    contrary to
                               <^n.l relations referred to in Articles 131 and 132 of the Act of Accession                                                                                                the above proposal , this Article provides
                                                                                                                                                                                                          for the subsequent application of
                               Sde hy, the Co-ission at the time of closing the accounts for the                                                                                                         Articles 131 and 132 of the Act of
    financial years 1978 and 3-979-                                                                                                                                                                      Accession , for various reasons , i.e. to
                                • ^ , ^-p +h« provisions of Article 27 of the Financial Regulation of                                                                                                     avoid different VAT rates ; to avoid
     2. In view                                      ^Pge emulations and the resultant distribution shall include                                                                                         recalculation in the light of the results
                                                                                                                                                                                                           of the 1977 financial year - similarity
     all revenue entered in the accounts during the financial year.                                                                                                                                        with situation envisaged for the Six
                                                                                                                                                                                                           between 1975 and 1977 *
     Any requisite adjustments shall give rise to financial compensation between the
     Member States concerned.
       :> fh#> Commission shall , in the month following the establishment of "the
      3. The                                        ... account send to the Member States a statement of the
      revenue                                                                                in EUA , shoring the credit or debit
      position of each Member State and the clearing operations required for the
        final settlement of the balances .
       m_ 6ffect this final settlement , each debtor Member State shall pay to each
                j-i              Mom-hP-r q-tate a proportion of the amount shown on his debit account ,
        SK Sg PropJrWoPnalP?o the share of the creditor «e»her State in the
        overall amount shown in the credit account .
        T\e debtor Member States shall , in the month following the notification , pay to
        the creditor Member States the amount due , applying the average EUA rates for
        the financial year in question .
 ---pagebreak---                                                             - 29 -
                                  Article 20
1.   This Article shall "be applicable where it may "be necessary to take provisional   Corresponds to Article 22 of the
measures in derogation under Article 4(2 ) and ( 3 ) of the Decision of 21 April 1970 « proposal for amendment of 2 June 1976
2 . The gross national product at market prices shall "be calculated on the "basis
of statistics compiled "by the Statistical Office of the European Communities and
of the data for the financial year preceding the year in which the preliminary
draft "budget is drawn up .
3.   The gross national product shall "be calculated in terms of the European Unit
of Account defined in Article 10 of the Financial Regulation , applying the average
of the rates for the EUA in the financial year taken as the "basis for the
calculation referred to in paragraph ( 2 ) above .
4 . As long as the derogation provided for in Article 4(2 ) of the Decision of
21 April 1970 is applied to one or more Member States , the Commission shall , in its
preliminary draft budget , fix the estimated percentage of the budget to be covered
by the financial contribution(s ) of the Member State or States concerned on the
basis of the proportion of their gross national product to the sum total of the
gross national products of the Member States , and shall fix the rate of value added
tax corresponding to the remainder of the budget to be covered by the other Member
States . These figures shall be approved in accordance with budgetary procedure .
 ---pagebreak---                                                   - 30 -
 5 . For the purposes of this Regulation :
 (a ) the gross national product at market prices is equivalent to
      the gross domestic product at market prices plus compensation
      of employees , property and entrepreneurial income from the
      rest of the world less the corresponding flows towards the rest
      of the world ;
 (t>) the gross domestic product at market prices , which represents
      the final result of the production activity at resident
      producer units , is equivalent to the total production of goods
      and services "by the economy , less total intermediate consumption ,
      plus taxes linked to imports .
                                 TITLE V
Procedure for the application of Article 4(5 ) of the Decision of
21 April 1970 .
                               Article 21                                  Corresponds to Article 24 of the proposal for
                                                                           amendment of 2 June 1976 "but with fuller
                                                                           explanat ions .
For the purposes of the application of Article 4(5 )       "the
Decision of 21 April 1970 , the balance of a given financial year
shall consist of the difference "between :
- all the revenue collected in respect of the financial year
    in question , and
 ---pagebreak---                                                             - 31 -
  the total amount of payments made against appropriations for that
  financial year together with the appropriations carried over
  pursuant to Articles 6 and 95 of the Financial Regulation .
This difference shall "be adjusted to take account of the net amount
resulting from cancellations of appropriations carried forward from
previous financial years , and of sums paid in excess of these
appropriations as a result of exchange rate adjustments made between
the time when the amount of carryover was determined and the time it
was used .
Furthermore , the balance of the 1978 financial year shall "be adjusted to
take account of the surplus or deficit established when , on 1 January 1978 ,
the balance sheet drawn up in units of account on 31 December I977 is
revalued in European units of account .
 ---pagebreak---                                          - 32 -
                     TITLE VI
        Provisions concerning measures of control
                     Article 22
1 . Member States shall take all requisite measures to ensure that     Corresponds to Article 13 of the
the amounts corresponding to the entitlements established under        proposal for amendment of 2 June 1976 .
Articles 1 and 2 are made available to the Commission as specified
in this Regulation#
2 . Member States shall be free from the obligation to place at
the disposal of the Commission the amounts corresponding to
established entitlements solely where , for reasons of force majeure ,
these amounts have not been collected.
3. Every six months , Member States shall report to the Commssion,
where appropriate within the framework of existing procedures,
comprehensive information and questions of principle concerning
the most important problems arising out of the application of
this Regulation and in particular matters m dispute .
                     Article 23
1 . Member States shall carry out the verifications and inquiries      Corresponds to Article 14 of the
                                                                       proposal for amendment of 2 June 1976.
concerning established entitlements and the making available of
own resources. The Commission shall make use of its powers as
 specified in this Article .
 2. Accordingly, Member States shall s
- carry out any additional measures of control the Commission may
   ask for in a reasoned request ;
 - associate the Commission, at its request, with the measures of
   control which they carry out .
 ---pagebreak---                                                  - 33 -
Member States shall take all steps required to facilitate these measures
of control .    Where the Commission is associated with these measures .
Member States shall place at its disposal the supporting documents
referred to in Article 3 «     In order to restrict additional measures
of control to the minimum the Commission may , in specific cases ,
request that certain documents be put at its disposal .
3 . The measures of control referred to in paragraphs 1 and 2 shall
not prejudice the following measures :
(a ) the measures of control undertaken by Member States in accordance
      with their own provisions laid down by law, regulation or
      administrative action ;
(b ) the measures provided for in Articles 206 , 206(a ) and 206(b )
      of the Treaty establishing the European Economic Community and
      Articles 180 , 180(a) and 180(b ) of the Treaty establishing
      the European Atomic Energy Community ;
 (c ) the inspection arrangements made pursuant to Article 209(c )
      of the Treaty establishing the European Economic Community and
      Article 183(c ) of the Treaty establishing the European Atomic
      Energy Community .
4.    The Commission shall from time to time report to the European
Parliament and to the Council on the functioning of the system.
 ---pagebreak---                                             - 34 -
 5 . The Council , acting on a proposal from the Commission, shall
determine :
 (a) the conditions which officials appointed by the Commission
      must satisfy when they carry out the verifications provided
      for in this Article , in particular with regard to professional
      secrecy and the procedure whereby they exercise their powers
      of investigation ;
 (b ) where required, other provisions for applying this Article .
                         Article 24
The provisions of Community law applicable to the matters             Corresponds to Article 15 of the
referred to in the first paragraph of Article 2 of the Decision       proposal for amendment of 2 June 1976#
of 21 April 1970 , in particular regarding nomenclature , origin ,
value for customs purposes , Community transit and inward processing,
shall be applied by the appropriate authorities of Member States
when establishing own resources#
 ---pagebreak---                           TITLE VU
Provisions relating to the Advisory Committee on the Communities 1
              Own Resources : final provisions
                          Article 25
1.    An Advisory Committee on the Communities' Own Resources
(hereinafter called the 'Committee 1 ) is hereby set up .
2.    The Committee shall consist of representatives of the Member       Corresponds to Article 25 of the
States and of the Commission .     Each Member State shall be            proposal for amendment of 2 June 1976 .
represented on the Committee by not more than five officials .
The Chairman of the Committee shall be a representative of
the Commission .
The secretarial services for the Committee shall be provided by
the Commission .
3.    The Committee shall adopt its own rules of procedure .
                          Article 26
The Committee shall examine the questions raised by its Chairman         Corresponds to Article 26 of the
on his own initiative or at the request of the representative            proposal for amendment of 2 June 1976 .
of a Member. State , which concern the application of this Regulation ,
and in particular :
 (a ) the information provided for in Articles 4(l)(b ), 5 and
      22(3 );
 (b ) cases of force majeure referred to in Article 22(2 );
 (c ) measures of control and inspection provided for in Article 23(2 ).
 ---pagebreak---                                            - 36 -
                        Article 27
The Council Regulation Efo 2/71 of 2 April 1973 implementing the
Decision of 21 April 1970 on the replacement of financial
contributions from the Member States by the Communities 4 own
resources shall be repealed on 31 December 1977 ,
The present Regulation shall enter into force on the day following
its publication in the Official Journal of the European
Communities .
It shall have effect from 1 January 1978 .
This Regulation shall be binding in its entirety and directly
applicable in all Member States .
 ---pagebreak---    Jtaendnents to be made to the Financial Kegulation (version
   con ained in written procedure Ho 317/77 0f 2 Maroh      .
  Article 6 (page 5 )
  - paragraph 2.    Replace "by :
    »e revenue of a financial year shall be entered in the accounts for
    rr              year °n the   ws  °f the                          «-
       Dancial year, with the exception of the o™ resources for the month
       January of the next financial year, in respect of which advance
    payment ls made on 20 December of the preceding financial year
    pursuant  to Article life) of the Regulation implementing the alcision
    of 21 April 1970 .
                                                                                f
 Article 26 (page 18 )                                                          î
                                                                                ï
                                                                                i'
                                                                                I
 Delete para. 2 and amend references to Regulation 2/71 .                       l
 Article 2J (page 19 )
 Deleted
 Article 28
 Deleted
                                                                              V
Article 29 (page 19 )
                                                                              \    \
Delete second subparagraph and amend references to Reg. 2/71 .               h
Article ^0                                                                   I
Amend references to Reg. 2/71.                                              y'
                                                                            i
Article ^1                                                                 ; '
Retain
 ---pagebreak---                              - 38 -
Article 32
Delete and replace "by :
The contributions referred to in Article 4(2 ), (3 ) and ("b ) of the
Decision of 21 April 1970 shall "be expressed in European units of
account , as defined in Article 10 of the Financial Regulation . They
shall "be converted into the respective national currencies on the "basis
of the EUA rate obtaining on the first working day following the
^""fifteenthJ day of the' month preceding the payment .
Article 33
Retain
 ---pagebreak---                                           - 39 -
     Amendments to be made to the proposal for a VAT Financial
     Regulation (C0M(77)l20 final ) in the light of the proposal for a Regulation
     implementing the Decision of 21 April 1970 on the replacement of financial
     contributions from Member States by the Communities' own resources , and. to
     take into account the Resolution embodying the opinion of the European
     Parliament .
     Article 4 . P. 14
" P" Para . 2(b ) - Add at the end :
     "such as :   other tax declarations , professional accounts and complete
     statistical series ".
     Para . 3 , first subparagraph – Add at the end :
     " and an estimate of the value of the assessment base for each of these
     categories of transaction".
" P" Para . 4 - Add at the end :
     "and shall decide on the data to be used as specified in Article 12 of
     this Regulation".
     Article 5
     Para . 1 - Antepenultimate line :
     Replace "monthly statement " by "annual summary statement ".
     Penultimate line :
     Replace Regulation No 2/71 by Regulation (EEC ) No            and delete
     the rest of the sentence :    " for       in question".
     Para . 2 - Add :
     " Any correction made too late to be incorporated in the annual summary
     statement referred to in Article 6(4 ) of Regulation (EEC ) No
     shall be added to or deducted from the amount of entitlements established
     in the month in which the correction is made ."
 ---pagebreak---                                                  - 40 -
         Para .- 3 - Delete the entire paragraph .
         Article 7
         Para . 1 - Amend the references to Regulation Ko 2/71 •
         Para . 2 - Replace "the monthly statement " by "the monthly statements
         and annual summary statements ".
         Delete the last sentence :    "The monthly statement               ... financial
         year. "
         Few paragraph 3
         If the Community rate is amended during the financial year , the amount
         of own resources entered in the account kept "by the Member State shall be
         corrected accordingly .
         Article 8
         Delete this Article .
         Article 10
" p"     Para . 1 , second sentence .
         Replace " They shall associate the Commission                     the
         appropriate data have been used", by :
         "The Commission may take part in them on request . Durir.j these checks
         the Commission shall ascertain in particular that the operations involved
         in the centralization of the assessment base have been conducted in a
         proper manner , and that the appropriate data have been used ."
" P"     Para . 2 - Replace the second sentence :      "It may be associated in them on
         request " by the fo L_.owing sentence :   **It may take part in them on request ".
         Article 11
" P"     Para . 1 - Add , after Committee on VAT own resources , the words "having
         advisory capacity".
N.B. : The modifications preceded b . a " P" are those suggestec by the European Parliarr.on
       which can be accepted by the C' ~ic.-"^n ; a strict Legal definition of the VAT tax
       base seems to rule out the propo~           tbat Member' States who establish in certai
       sectors a statistical tax base she a be penalised by a 10% surcharge . For this
       and other reasons Mr.- TUGENDHAT op> ~ed this proposition in the Parliament .
 ---pagebreak--- -1
                                     - 41 -
                      SECOHD MEHEED PROPOSAL
   under Articles 149 of "the EEC Treaty and 119 of the EAEC Treaty for
   a Council Regulation (ECSC , EEC , Euratom ) amending the Financial
   Regulation of 25 April 1973 applicable to the Ceneral Budget of
                       the European Communities
                 presented to the Council cy the Commission
 ---pagebreak---                                  - 42 -
EXPLAZTATCRY ÎSMORAIHÎUM
In tlie explanatory memorandum "to its proposal for an amendment of the
Financial Regulation dated. 19 May 1976 ( C0M(76)210 final ), "the
 Commission stated that it was not a question of a general revision ,
"because further proposals for amendment would have to "be presented
 later when the principles had "been agreed upon for the solution of
 certain problems .     The Commission added that one of these problems
was that of replacing national contributions by the value added
 tax ( VAT ).   As the Sixth Directive on VAT has been adopted
meanwhile , it is now possible to propose the amendments to the
 Financial Regulation necessitated by the full system of own
resources .
When it sent to the European Parliament the text of its common
guidelines on the Financial Regulation , the Council said that it
was unable to take a decision as to Articles 26 to 39 on own
 resources .    The Council added that the Commission would shortly
 submit to the Council a new proposal on these Articles which would
take into account the adoption of the Sixth VAT Directive .
The Commission is presenting a proposal for a Regulation implementing
the Decision of 21 April 1970 on the replacement of financial
 contributions from Member States by the Communities' own resources ,
and an amended proposal for the VAT financial regulation .
The amendments to be made to the Financial Regulation , in the
amended version proposed by the Commission on 10 March 1977
 ( C0M( 77)59 final ), have been harmonized with the provisions of
 these two Regulations .     Their essential purpose is to replace
 the provisions for the entry into accounts of revenue for the
 financial year based on the entitlements established at
 31 December by entry into accounts on the basis of amounts
 collected during the financial year .     This proposal returns to
 the original proposal made on 19 Kay 1976 , which was dropped in
 response to the Opinion of the European Parliament .     The amendment
 is to the effect that the revenue section of the Eudget and the
 annual accounts should reflect the actual amounts collected between
 1 January and 31 December .       The result will be that the customs
 duties and agricultural levies collected in 197° but relating to
 1977 vri.ll be credited to the 1978 financial year ;   this will
 reduce by the same amount the own resources for 1977 > but the
 difference may be made up by G1JP contributions under the present
 system and up to the limits of the relative share of each Member
 State . - In this way a solution is found to the cash management "
 difficulties which, would result if the text based on entitlements
 established were preserved .
                                  *
                              *
 ---pagebreak--- The application of the EUA as from 1 January 197° necessitates two
proposals for amendment :
  ( i ) fixing of the rate for the conversion of contributions expressed
        in EUA into national currencies ;
( ii ) increasing the figures of certain amounts in the articles on
        contracts for supplies , work and services .
As most of the operations which must remain below the thresholds
fixed by these amounts are transacted in Belgian francs , maintenance
of the real value of these thresholds requires an increase of 25/^
before conversion into SUA , according to the rate 1 u.a . = 1 EUA .
The amounts in question are those set cut in Articles 60 , 62 and 65 .
                             *
The second amended proposal annexed hereto contains only those articles
in the amended proposal of 10 March 1977 ( C0M( 77)59 final ) which have
been further amended .     The changes are underlined .
The working paper which sums up the various texts proposed will be sent
under separate cover .
 ---pagebreak---                                            - 44 -
                          SECOND AI.-Sl-TDSD PROPOSAL
under Articles 149 of the EEC Treaty and 119                  "the EA2C Treaty for
a Council regulation ( ECSC , ESC , Euratom ) amending the Financial Regulation
of 25 April 1973 applicable to the General Budget of the European Communities
THE COUNCIL OP THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty
HAS ADOPTED THIS REGULATION :
                                     Article 1
1.   The following articles shall be worded as follows :
Article 6
1.   The financial year shall run from 1 January to 31 December .
2.   The revenue o_f_a_fjLnan£ia;l_yeari shall he_entere_d_in the_ ^account s_f£r_th_o.t_
    financi_al_ ^ear_on the_              ^f_the_ano\^t_s_co_ll_ec_t ied_<_duri>n£ the_ f,ir:an ci_al_
    .year , with the_ GXjcejDtion o_f_th9_o^_re^sourc£s^f£r^the_m£nth_.of Jaiuar^
    £_f_the__next financial ^earA i.n_r£3£.e£^_°£, 2£^:LcIL advance £a^ent i_s__made
     on 2_0_Dc_ce_3iberi o_f_t^e^rie£eding_fina^i^ia.!_ye»£>_j?^rsuant to Article 1l7*2 )
     o>f_>the_Retgulati;ion implementing the Decision of 21 April
3.   (
4-   ( no change
5-   (
Article 26
1.   Estimates of the own resources and , if appropriate , of the contributions
     referred to in Article 4(2 ) and ( 3 ) of the Decision of 21 April 1970 to
     be paid by each Member State shall be entered in the Budget , expressx :
     in units of account as defined in Article 10 .                They shall be made
     available and paid over in accordance with the_ £rovisions_o .? _Ccuncil_
     Re la £-_• •^«_(S3C.,                     ECS_C_]_ ^Tn^l^r^n^ing^he^e^c^isi^on of
     21 April 2219-.°£.        replacement^ £f_f^n^c_i^l_C£n^ributi_ons_firoi£
     Member ^tat2s__bj£ _the_ Communities' own resources .
2.   Deleted .
 ---pagebreak---                                        - 45 -
Article 29
The "balance from each financial year , calculated in accordance with
Council Regulation             ^EEC^ Euratcm ,JEGCjjLmpljBmentin^ the .Decision
of ~2 1~Apri l""_1^"70 ~£_£%, re£Tac£~£irt–£7_f^nan£ial_C£n^ri^ut^ons_f£on
Kembcr StaTes by"~the Communities^, own re£our£e_s , shall "be entered
as revenue in the case of a surplus or expenditure in the case of a
deficit in the Budget of the second subsequent financial year .
Article 30
1 . The contributions provided for in Article 4(6 ) of the Decision
      of 21 April 1970 shall "be paid over as follows :
                                                ι
     - seven-twelths of the amount shown in the Budget not later tnan
         31 January ;
     – the remaining five-twelths not later than 15 July.
2 . Any contribution or additional payment due to the Budget from the
     Member States must "be entered in the account(s ) of the Commission
     within thirty days from the date on which funds are called for .
3.    Those various payments shall "be entered in the account provided for
      in Article_ 8_(£)__of £ounci_l Ro£ul_ation__.^              £uratom « SCSC )
      implementing this Decision^o^ 2_1 _A£r il_1 2,70, £.n_^ile_r£j?ia£Gii;2E 0 i.
         n^£L£i al_C£n^rilo^ti_ons_fron I>C£b£r_G tates_ ^_the_C£ri£unit ii£3j_
      ov<n rc£our£C£ and shall be subject to the provisions of
      Ar_ti£l£ £2 0£ that Regulation .
Article 32
The contributions provided for^ i_n_A_rti_cl_e_4_(_2£, ^              )_of the
–e£^ii^£n_0;L 2_1_A£ri 1_1270 shall be e;corocs£d_in th£ 2u£°£ean u^it
£f£U£C£unt__a£ defined £n_A£tic_le_J 0_ £f_thi£ Plnanci^al^ Kc^ula^tirara^
They £hall b,e_c£nvc£t£d_in't£ th£ respe cti^e_nat_i onal_ curr£:i£i£3__on
the ba£i_s £f_>the_r£t£ fc£ the SUA ap£l^ing_on the first_ wo£lcin£ £a
fo^lwin^ the f^i,ft£Gnth da^ of the month. preceding the_;
Article 60
Contracts may be made by private treaty :
 (a ) where the contract for the purchase or hiring of goods , for the
       provision of services or for building works involves an amount
       not exceeding _6 £00 imit£ £f_a£C£unti the Institution being bound ,
       however , as far as possible and by all appropriate means , to
       enable suppliers who are likely to be able to supply the goods
       and services in question to compete ;
Subparagraphs (b ), ( c ), ( d ) and ( e ): no change .
 ---pagebreak---                                     - 46 -
Article 62
In each Institution , "before the authorizing officer takes a decision ,
 contracts involving amounts exceeding j3_000_uni^ts__of account shall
"be submitted for the opinion of an advisory committee on procurements
and contracts whose rules of procedure shall he laid down in the
measures of implementation referred to in Article 118 .
Article 65
Contracts may he made against invoice or hill of costs only where the
expected value of the goods and services supplied does not exceed
300 units of account .    This limit shall he increased to 750 units of
account for expenditure to he entered into outside the provisional
places of work of the Institution .
                              Article 2
This Regulation shall enter into force on
This Financial Regulation shall he binding in its entirety and
directly applicable in all Member States .
 ---pagebreak---                    - 47 -
               AMENDED PROPOSAL
                   for a
Council Regulation implementing, in respect of
the own resources from VAT , the Decision of
21 April 1970 on the replacement of financial
contributions from Member States ty the
Communities ' own resources
    presented to the Council by the Commission
 ---pagebreak---                                 - 48 -
                        EXPLANATORY MEMORA1TOUK
1 . The application in full from 1978 of the own resources system "based.
on the financial autonomy of the Communities has necessitated recasting
the legislation on this subject , and the corresponding proposal for a
            2
Regulation means that changes must "be made to the proposal for a
                                                                    1
Regulation on own resources from VAT , already sent to the Council .
These changes are embodied in the proposed amendments annexed hereto ,
to which have been added those suggested in the Resolution of the
European Parliament"^ which the Commission was able to accept .
2 . The amendments resulting from the recasting of the legislation on
own resources are the following:
– request - for an . estimate of the appropriate data to facilitate the
    estimating of the -amounts which the Member States will be asked to
    pay (Article 4(3 ) ) *
–   introduction of an annual summary statement of entitlements established ;
    as a result of the system of own resources from VAT , this statement
    could be produced after the closure of the financial year to which it
    refers (Article 5(l ))»
– deletion from the Commission T s original proposal of all references to
    the provisions on the payment of own resources (Articles 5 and. 8 ), as
    these provisions are incorporated in the regulation replacing
    Regulation Ho 2/jl .
10J Ho C -110, 6 May 1977, p. 2.
2
  Primarily the proposal for a Regulation No .... (EEC , Euratom , ECSC )
  implementing the Decision of 21 April 1970 on the replacement of
  financial contributions from Member States by the Communities * own
  resources .
  Doc . 759/71 (AS3 479 ), 20 June 1977-
 ---pagebreak---                                      - 49 -
3.   The amendments proposed ty the European Parliament m its Resolution
 ( embodying an Opinion) of 16 June 1977 all tend to strengthen the
Commissions original proposal ;    with one exception the Commission can
accept them and thqy have therefore "been incorporated in this proposal .
However , the Parliament 's proposal to increase by 10% the own resources
established on the basis of appropriate data cannot be accepted , for
major legal reasons .   Although it is an incentive in the direction of
the harmonization provided for in the Sixth Directive , this penalty
system does not comply with the principles laid down in the Decision
of 21 April 1970 as regards the uniform assessment base and the single
rate throughout the Community .
Its inclusion could , moreover , cause considerable delays in the
adoption of the Regulation .
This amendment has therefore not been incorporated in this proposal .
                                    *
                             *           *
The amended proposal annexed hereto incorporates only the text of
those articles of the Commission 's original proposal which have been
amended .   The changes are underlined .
 ---pagebreak---                            AMEÏÏDED FROPOSAL
                                for a
     Council Regulation implementing, m respect of the own resources
     from VAT , the Decision of 21 April 1970 on the replacement of
     financial contributions from Member States by the Communities *
                                           1
                             own resources
Introduction , recitals and Articles 1 to 3 :     no change
                             Article 4
1.   no change
2(a) no change
2(b ) transactions as set out in Annex F to the Sixth VAT Directive
       which the Member States exempt in accordance with the option
       provided for in Article 28(3 ) (b ) of that Directive ;
       shall be the added value as established from declarations to
       be made by the taxable persons or , failing these , from
       appropriate data , such as tax declarations , business accounts and
       complete statistical series .
3.     The Member States shall inform the Commission, before the
beginning of each financial year and prior to its presenting the
Preliminary Draft Budget , of the solutions they propose to adopt to
determine the assessment base for each of the categories of transaction
referred to in paragraph 2 , indicating, where applicable , the nature of
the data wh: ch they consider appropriate , and an estimate of the value
of the asser ; l ent base corresponding to each of these categories of
operations .
 Complete text :    see OJ Ho C 110 , 6 May 1977 » p. 2 .
 ---pagebreak--- This information for the financial year 197 o shall be sent as soon as
possible and not later than 1 October 1977-
4.  Either on its own initiative or at the request of a Member State ,
the Commission shall examine , on the spot if need be , problems arisin
from the implementation of the provisions of paragraph 2 , and shall
decide which data to ta2ce into consideration trader the conditions set
out in Article 12 of this Reflation .
                            Article 5
1.  VAT resources shall be determined :
    – in the cases referred to in Article 3(l ) and ( 2 ) of this
       Regulation , when the declaration is lodged by the taxable
       person, in accordance with the provisions of Article 22(4 )
       of the Sixth VAT Directive , or by the person liable for
       payment of the tax on importation , in accordance with
       Article 23 of that Directive , or , in the absence of such
       declaration , when they are established officially by the
       competent authority of the Member State ,
    – in the cases referred to in Article 4(l ) and ( 2 ), as
       soon as the assessment base has been determined by the
       competent authority of the Member State .   Such determination
       must by made as soon as possible and in any event in good time
       for inclusion of the corresponding VAT resources in the annual
       summary statement under Article 6(4 ) of Regulation ( EEC , Eurato
       ECSC ) No ...
2.  Correction by the competent authority of the Member State of an
incorrect or incomplete establishment shall be regarded as a fresh
establishment .
 ---pagebreak---                                      - 52 -
3.   Frerv e stablishment or correction made too late to "be included
     in the annual summary statement referred to in Article 6(4 ) of
     Reflation 1'To ... shall "be added to or deducted from the amount
     of entitlements established during the month in which the
     establishment or correction itself was made .
Former 3 :   deleted
                             Article 6
                             no change
                             Article 7
                                                                          ι
x . - The accounting of VAT resources shall be governed by the
      provisions of Article 5 » 6 and 7 of Régulation ( EEC , Euratom ,
      ECSC ) Bo ...
    - the making available of VAT resources shall be governed by the
      provisions of Articles 8(1 ) and ( 3 )» 9 * 10 * 11 and 12 of
      Regulation (EEC t Buratom , ECSC ) Ho ...
2.    The closing statement of account , and the monthly statements and
the annual summary statement sent to the Commission in accordance
with Articles 5       6(2 ) of Regulation ( EEC , Euratom , ECSC ) No ...
shall distinguish between VAT resources established in accordance with
the first indent of Article 5(l ) and each category established in
accordance with the second indent of the said Article 5(l )«
3.   If the Community rate is changed during the financial year , the
amount ->f own resources entered in the account held by the Member State
shall 'v " Tcrect ed accordingly as from the date of the change in the
Comrunix^ rate .
                             Article 8
                              deleted
                             Article 9
The provisions of Ar ticles 3 T 4 » 22 and 23(3 ) of Regulation (EEC , Euraton ,
ECSC ) Mo ... shall appij to 'T resources .
 ---pagebreak---                               Article 10
1.   The Member States shall conduct the verifications and. enquiries
concerning the establishment and making available of VAT resources .
The Commission shall take part therein at its oim request .     During
these checks the Commission shall ascertain that the assessment base
centralizing operations have been performed correctly , and that the
appropriate data have been used and that the calculations made to
determine the amount of own resources in the cases provided for in
Article 4(1 ) and ( 2 ) comply with the provisions of this Regulation .
2.   The Commission may request the Member States to conduct additional
checks .   It shall take Dart therein at its own reouest .
3.   ïïo change
                              Article 11
1.   A Committee on own resources from VAT (hereinafter called "the
Committee"), consultative in nature , is hereby set up .
2.   No change
3.   No change
                              Article 12
1.   The Committee shall examine questions raised "by its chairman,
on his own initiative or at the request of the representative of a
Member State , which concern the application of this Regulation ,
and in particular the following:
(a ) the information and communications provided for in
     Article 4(l)(b ), 5 and 22(3 ) of Regulation (EEC , Euratom , ECSC ) 3To ...
 ---pagebreak---                                       - 54 -
( TD ) oases of force rna.leuro as refarred "bo in Artiole 22(2 ) of
       Regulation fEEC . Euratom . ECSC ^ No.«.t
(c ) measures of control and inspection as provided for in Article 10 ;
(d ) the determination Toy the Member States of the added value
       established in accordance with the provisions of Article 4(1 )•
                                 Article 13
                                  No changé
                                                                        V