Small firms slam ‘deceptive’ EU accounting plans

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EU plans to exempt smallest firms from having to draw up annual accounts came under fire from a leading European small business group yesterday (10 March), claiming it will distort the internal market without cutting red tape. 

The European Parliament voted yesterday (10 March) to allow national governments to make "micro-companies" exempt from EU accounting rules.

Firms will still have to keep records of their business transactions and the implementation of the proposal will be left to the discretion of individual member states.

The Parliament said the exemption would primarily apply to local businesses with fewer than 10 employees, the vast majority of which are not engaged in cross-border trade.

The plan has already caused consternation among governments and received a mixed response from business groups when it was initially floated by the EU executive.

Diplomats from a number of member states have expressed concern that giving national ministers the power to exempt some businesses from European accounting directives would effectively mean falling back on national company law (EURACTIV 22/09/09).

This was echoed by UEAPME, a leading European SME group, which described the vote as a "step back for the internal market".

Andrea Bernassi, UEAPME's general-secretary, said the move is unlikely to live up to MEPs' claims that it can save money for companies, but will "decrease transparency and create an uneven playing field between businesses operating in different member states".

Firms will still have to file accounts for national administrations, banks, suppliers and customers, he said, casting doubt on suggestions that small businesses will face less red tape.

"This is not better regulation. Despite the efforts of many MEPs, the Parliament failed to nip this proposal in the bud today," said Benassi, calling on national enterprise ministers to scrap the plan.

Rapporteur hits back at criticism

German MEP Klaus-Heiner Lehne, whose report on micro-enterprises passed through the Parliament yesterday by 445 votes to 196 amid 21 abstentions, rejected criticism that the plan hampers the internal market.

"The reach of micro-entities' business is generally confined to the regional and local market. To that extent they have no cross-border impact on the single European market, and the logical conclusion, therefore, is that they need not be bound by EU-wide internal market regulations," said Lehne.

He said the Parliament had made clear in the report that micro-entities must still keep records in the interests of transparency.

Lehne said the proposal is still blocked at the European Council by a minority of governments and urged them to "rethink their position" in response to the vote by MEPs.

Business groups divided

Despite such strong criticism of the proposal by UEAPME, not all SME groups were displeased by the vote.

The European Small Business Alliance (ESBA) welcomed the decision and called it the "first real EU effort specifically aimed at micro-businesses". The measures approved by MEPs will help governments meet the target of reducing administrative burdens by 25%, said the Alliance.

ESBA President Tina Sommer said cutting red tape will help small businesses to survive the economic crisis.

"We urge the Council to follow in the Commission's and the Parliament's footsteps and to commit to the EU's promise to reduce administrative burdens," she said.  

Ian Lucas, UK Minister for Business and Regulatory Reform, welcomed the vote, adding that the UK has been in favour of the Commission's proposal from the outset. 

"Making life simpler by cutting costs and saving time is a vital step to helping the very smallest businesses, especially in the current economic climate. The UK has supported the European Commission in this simplification of regulation for micros right from the start. We look forward to further progress on this initiative," Lucas said.

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. However, its members were divided on the issue and the group ultimately decided to make the plan "optional" for member states. 

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). 

Unveiling the plan, the EU executive said its plan promises to save businesses up to €1,200 per year, or a total of €6.3 billion (EURACTIV 02/03/09). 

To qualify as a micro-enterprise, a company must have a balance sheet of no more than €500,000, a net turnover of no more than €1,000,000 and no more than ten employees. 

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