EU countries slap red-tape back on micro-entities

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Measures designed to slash bureaucracy for micro-entreprises are set to be drastically diluted by EU countries after national governments blocked the proposals, fearing that they would make them less competitive as business locations.

The Hungarian EU Presidency is in the process of finalising a compromise on draft measures exempting micro-businesses from obligations to prepare annual accounts.

The initiative is part of a broader aim to cut red tape pushed by the EU's High Level Group of Independent Stakeholders on Administrative Burdens. But the proposals have been drastically watered down during discussions in the Council working party on company law.

In the proposal micro-businesses are defined by their turnover and balance sheets, which in the first draft – already agreed by the European Parliament at first reading – stood at €1,000,000 and €500,000 respectively.

After wrangling in the Council working party the most recent draft – seen by EURACTIV – has slashed these figures in half to €500,000 and €250,000 respectively.

This would mean many more companies continuing to lodge accounts, and although the measures have yet to be formally adopted by the Council, member states have indicated that they will accept the draft on the current basis.

'Better than nothing,' say UK, Germany

The original proposals were watered down at the instigation of a series of countries including Austria, Belgium, France and Luxembourg.

The proposals would not be obligatory and would offer member states the option of exempting such companies falling within the definition from accounting reporting obligations.

These countries felt that national obligations already in place within their jurisdictions would require the companies to continue lodging accounts anyway, discounting any positive effects from the new rules and making other member states more attractive locations for such small businesses.

However, member states in favour of making the proposals benefit a greater number of micro-entities – including Germany and the United Kingdom – have accepted the diluted proposals.

A British diplomat told EURACTIV: "We want to see as many people [member states] on board as possible, and in terms of the number of companies which are involved we think that the proposal gives us something, which is better than nothing."

Germany also believes that accepting the diluted proposals is the only way of avoiding a stalemate in the negotiations.

Protecting interests of small accountants

One MEP, who preferred not to be named, said that the proposals had also been watered down to protect the position of smaller accounting practices, many of whom rely for their livelihoods on drawing up accounts for smaller companies.

Although the draft has yet to be adopted formally by the working party on company law within the Council, the current thresholds are now almost certain to be approved before the summer. However, when the draft subsequently returns to Parliament, the changes will meet with opposition.

Klaus-Heiner Lehne MEP (European People's Party; Germany), who steered the proposals through first reading in the Parliament, told EURACTIV that since the first draft had been adopted by almost a two-thirds majority there, the changes made by the Council would "not be accepted".

Since the proposals were not designed to be binding on member states, he described as "dog in the manger" those countries that watered down the measures.

Patrick Gibbels, the Brussels representative of the European Small Business Alliance, said: "The compromise agreement as it stands now is a disappointment to micro-businesses throughout the EU. What should have been the flagship proposal from the High Level Group on Administrative Burdens and the first real tangible burden reduction for micro-businesses specifically, has been watered down severely." 

"Particularly in light of recent commitments by a number of member states, led by the UK and the Netherlands, to significantly reduce administrative burdens on micro-enterprises, we hope that the Council will reconsider their current compromise position and return to the original proposal as approved overwhelmingly by the European Parliament," Gibbels said. 

Erik Berggren, who represents BusinessEurope on internal market issues, said: "We have always been very much in favour of administrative burden reduction and this has been one of the many proposals which fall within this category. So it is important that the Council passes the proposal. We regret that it will bring about less reduction of administration than was originally envisaged. The Commission will have to find additional proposals to reduce the administrative burdens now that this amendment has gone through."

German MEP Klaus Heiner Lehne (European People's Party), who chairs the influential legal affairs committee, said: "Given that a two-thirds majority in the Parliament voted in favour of the original thresholds, the Parliament cannot accept this. We will have a second reading for it but we are pressed for time […] The states that are opposed to the measure do not even have to introduce it themselves. It is simply a 'dog-in-the-manger' attitude and Parliament cannot accept this."

German MEP Burkhard Balz (European People's Party), who sits on the internal market committee, said: "Reduced thresholds go against the majority vote of the European Parliament last year. It is more than regrettable that the Council now objects to anti-bureaucratic measures. There is little understanding for the approach of the Council, as the measures concerned were kept as a member-state option anyway. In the second reading, the European Parliament will then have to face the challenge of remedy against the Council's decisions."

A High-Level Group of Independent Stakeholders on Administrative Burdens supported the idea of allowing member states to exempt micro-entities from EU financial reporting rules. 

The EU's economic recovery plan, issued by the European Commission in November 2008, called on the EU and member states to remove the requirement for micro-enterprises to prepare annual accounts (EURACTIV 27/11/08).

In line with the Commission's Better Regulation strategy, this proposal – as all major policy initiatives and legislative proposals – is accompanied by an impact assessment. The proposal would be a significant contribution to efforts aimed at reducing overall administrative costs by 25% by 2012. 

The Commission planned to ditch accounting requirements for the EU's smallest companies in an effort to ease the administrative burden and save each business up to €1,200 per year, or a total of €6.3 billion.

The proposal is subject to co-decision procedure and, after agreement of a draft in the Council, it will return to the Parliament for a second reading.

  • Before summer: EU Council of Ministers to agree final draft of proposals.
  • Subsequently: Draft will return to Parliament for second reading.

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