Explanatory Memorandum to COM(2018)375 - Common provisions on and financial rules for various European Funds

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dossier COM(2018)375 - Common provisions on and financial rules for various European Funds.
source COM(2018)375 EN
date 29-05-2018


1. CONTEXT OF THE PROPOSAL

On 2 May 2018, the Commission adopted a proposal for the next multi-annual financial framework for the period 2021-2027 1 . Administrative simplification has been defined as a key objective in reflection paper on EU finances, by the ex post evaluation and by the public consultation. Experience suggests that the rules are over-complex and fragmented between funds and forms of finance, leading to an unnecessary burden on programme managers and final beneficiaries.

This proposal for a Common Provisions Regulation (CPR) will set out common provisions for seven shared management funds. This proposal will not replace the existing Regulation EU No 1303/2013 which will continue to govern programmes adopted in the 2014-2020 period. The proposal reduces fragmentation of rules, delivering a common set of basic rules for seven funds:

·CF: Cohesion Fund

·EMFF: European Maritime and Fisheries Fund

·ERDF: European Regional Development Fund

·ESF+: European Social Fund Plus 2

·AMIF: Asylum and Migration Fund 3

·BMVI: Border Management and Visa Instrument 4

·ISF: Internal Security Fund

These proposals provide for a date of application as of 1 January 2021 and are presented for a Union of 27 Member States, in line with the notification by the United Kingdom of its intention to withdraw from the European Union and Euratom based on Article 50 of the Treaty on European Union received by the European Council on 29 March 2017.

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

Article 317 of the Treaty on the Functioning of the European Union (TFEU) provides that the Commission is to implement the budget in cooperation with the Member States, in accordance with the provisions of the regulations made pursuant to Article 322 TFEU. Article 322(1)(a) TFEU provides the legal basis for the adoption of regulations establishing the financial rules which determine in particular the procedure to be adopted for establishing and implementing the budget and for presenting and auditing accounts. The principle of subsidiarity does not extend to the financial rules, for which it is clear that only the Union can, or even has to act.

EU action for the European Structural and Investment Funds is justified on the grounds of the objectives laid out in Article 174 TFEU. The right to act is enshrined in Article 175 TFEU which explicitly calls on the Union to implement this policy by means of Structural Funds, in conjunction with Article 177, which defines the role of the Cohesion Fund. The aims of the ESF, ERDF and the Cohesion Fund are defined in Articles 162, 176 and 177 TFEU respectively. The actions related to fisheries are justified by Article 39 TFEU.

Article 174 TFEU states that particular attention shall be paid to rural areas, areas affected by industrial transition, and regions which suffer from severe and permanent natural or demographic handicaps. These latter include the northernmost regions with very low population density and island, cross-border and mountain regions.

Article 349 TFEU states that specific measures shall be adopted to take account of the structural social and economic situation of the outermost regions, which is compounded by certain specific features which severely restrain their development.

The Regulation establishing the Asylum and Migration Fund is based on Articles 78 i and 79 i and i of the TFEU. A Regulation establishing, as part of the Integrated Border Management Fund, the instrument for financial support for border management and visa, is based on Article 77 i of the TFEU. The Regulation establishing the Internal Security Fund is based on Articles 82 i, 84 and 87 i of the TFEU. Article 317 of the TFEU provides for the legal base for the common set of rules regarding the implementation of the budget, in cooperation with Member States. Article 322 of the TFEU defines the scope and the procedures to establish it.

Subsidiarity and proportionality of the individual funds above is set out in the explanatory memorandum for each fund. However, the CPR makes additional contributions:

·To subsidiarity by promoting shared management: insofar as programmes are not managed directly by the European Commission, but instead implemented in partnership with the Member States.

·To proportionality, by unifying and consolidating rules (and therefore reducing the burden on stakeholders).

Article 11 of the TFEU states that environmental protection requirements should be integrated into the definition and implementation of the Union policies and activities in particular with a view to promote sustainable development and this is addressed in this Regulation.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

The various funds have their own evaluations and many of the findings are most relevant to their specific regulations. The following are the key findings applicable to the CPR.

1. Simplification: the need to reduce the administrative burden. This was a key and repeated finding in the evaluation of all funds:

·The ex post evaluations of the ERDF and the Cohesion Fund found that management, control and audit systems were over-complex. This was a source of administrative uncertainty and delays in implementation. Complexity was a particular issue in EU-15 countries where the funding was relatively smaller, suggesting a need for proportionality.

·The ESF evaluation found that both the funding landscape (ie the range and mix of instruments) and the implementation process needed to be simplified.

·The EMFF evaluation also found that the administrative burden was too high. At the application stage it acted as a disincentive for applying for support. Moreover, the complexity of certain projects seemed to have created disincentives for potential beneficiaries, in particular in cases where a large network of partners was involved.

·Interim evaluations for relevant components of the AMF, BMVI and ISF also found a need for simplification. The use of simplified cost options was a particular recommendation.

This point is addressed throughout the CPR. Notable examples include Title V (e.g. simplified cost options, payments based on conditions, elimination of specific rules for major projects and revenue generating investments) and Title VI (simplified and more proportionate control and audit).

2. The need for flexibility to respond to emerging needs:

·The ex post evaluation of ERDF and the Cohesion Fund found that the adaptation of programmes in the economic crisis was one of the success stories in the 2007-2013 period and should be built upon.

·The ex post evaluation of the ESF named flexibility as one of the key points for improvement.

·The interim evaluations of the predecessors of AMIF, BMVI and ISF indicate that these funds responded adequately to the migration and security crises. However, more flexible mechanisms to allocate funding are needed.

This point is addressed in Title III (which enables relatively small transfers without the need for programme modification) and II (programme allocations are set out for the first 5 years, and then the last 2 years allocated on the basis of a review) while complementary rules for the AMIF, BMVI and ISF are outlined in the Fund-specific Regulations. Further, the possibility to use the InvestEU guarantee facility increases flexibility for Member States.

3. The potential of financial instruments (FIs):

·The ex post evaluation of ERDF and the Cohesion Fund found that FIs have the potential to be a more efficient means of funding investment in some policy areas, but there are delays in implementation and it is a challenge to spread their use.

·The EaSI mid-term evaluation found that different rules made it difficult to tap into complementarities between funds. The evaluation recommended streamlining and alignment of FI rules.

This point is addressed in Title V which simplifies the implementation of FIs, aligning many of the provisions with those for grants.

• Public consultations

The Commission carried out the following public consultations:

·EU funds in the area of cohesion policy (10 January 2018 to 9 March 2018)

·A stakeholder consultation in the context of the ex post evaluation of the EMFF (February to May 2016).

·EU funds in the area of migration (10 January 2018 to 9 March 2018)

·EU funds in the area of security (10 January 2018 to 9 March 2018)

Stakeholder consultations struck a similar note to the ex post evaluations – the main conclusion of relevance for the CPR is simplification (especially in terms of audit and control procedures), followed by flexibility:

·In the consultation on cohesion policy, stakeholders found complex procedures to be by far the main obstacle to success, followed by heavy audit and control requirements, lack of flexibility, difficulty to ensure financial sustainability and delays in payments

·For EMFF, complex administrative delivery is seen as the biggest shortcoming and many stakeholders call for radical simplification and flexibility. The intervention logic is considered too rigid, not allowing Member States to address their own specificities.

·The consultations in the areas of migration and security found that respondents strongly supported simpler delivery and greater flexibility (specifically in relation to the ability to respond to migration and security related crises).

The concerns raised by stakeholders are addressed in the various simplification measures throughout the CPR (see below).

• Expertise and administrative costs

In terms of expertise, the 'High Level Group' of experts was convened to discuss the simplification of cohesion policy. It concluded the following 5 :

·Alignment of rules between EU Funds. This concern is partly addressed by the scope of the current regulation.

·Fewer, clearer, shorter rules. As noted above, the current regulation includes numerous simplifications.

·Genuine subsidiarity and proportionality: reliance on national management and control systems and procedures to a much larger extent. This is addressed in Title VI (see below).

·A stable yet flexible framework: no need to re-appoint institutions for the next programming period. Programmes should also be modified more easily. This is addressed in Titles VI and III respectively.

·Single audit principle: extension of the single audit principle. This is addressed in Title VI.

Indeed, there is evidence of substantial administrative costs associated with the ERDF and the Cohesion Fund, estimated in a recent study 6 at 3% of average programme costs for the ERDF and 2.2% for the Cohesion Fund. The administrative burdens on beneficiaries (including SMEs) are higher.

Contents

1.

Many of the simplifications in the CPR are difficult to quantify financially in advance, but the study made the following estimates


·Greater use of simplified cost options (or payments based on conditions) for the ERDF and the Cohesion Fund could substantially reduce total administrative costs – by 20-25% if these options are applied across the board.

·The more proportionate approach to control and audits would imply a major reduction in the number of verifications and the audit burden for “low risk” programmes thus reducing total administrative costs of the ERDF and the Cohesion Fund by 2-3% and costs for affected programmes by a much greater amount.

• Impact assessment

The CPR itself is not the subject of an impact assessment, since it sets common rules and a delivery mechanism for other policies. The related funds are each accompanied by their own impact assessments.

• E-cohesion and data exchange

The 2014-2020 programmes, except for the predecessors of the AMIF, BMVI and ISF, required a system of electronic data exchange between beneficiaries and managing authorities, and between different authorities of the management and control system. The current regulation builds on this and further develops certain aspects of data collection. All data necessary for monitoring progress in implementation including results and performance of programmes will now be transmitted electronically and every two months to the Commission, meaning the open data platform will be updated in almost real time.

Beneficiary and operations data will similarly be made public in electronic form, on a dedicated website run by the managing authority. This will give greater visibility to achievements and allow better communication.

• Fundamental rights

By introducing an enabling condition to ensure the respect of the Charter of Fundamental Rights of the EU, this Regulation will have a positive impact on the respect and protection of all fundamental rights in the managements of all seven funds.

Respect for the rule of law is covered in a self-standing regulation based on Article 322 TFEU.

4. BUDGETARY IMPLICATIONS

The Commission's proposal for a multi-annual financial framework sets out an amount of EUR 330 billion for economic, social and territorial cohesion for the period 2021-2027.


ERDF, CF and ESF+ envelopes for 2021-27 in millions

Cohesion policy total330 624
European Regional Development Fund (ERDF)200 629
·Investment for jobs and growth190 752
·European territorial cooperation8 430
·Outermost regions and sparsely populated areas1 447
Cohesion Fund (CF)41 349
·of which contribution to CEF Transport10 000
European Social Fund+ (1)88 646

This amount does not include the amount for health, employment and social innovation (EUR 1 042 million).

These are the largest financial headings covered by the CPR. The Commission's proposal for the financing of the EMFF, AMIF, BMVI and ISF will be included in the Fund-specific Regulations for each Fund.


5. SUMMARY OF THE CONTENT OF THE REGULATION

The main objectives of the architecture and provisions of the proposed CPR are to:

1. Substantially reduce unnecessary administrative burden for beneficiaries and managing bodies while maintaining a high level of assurance of legality and regularity. This is the key guiding principle of the reform, and includes a large number of simplifications and alignments across the regulations – but especially in terms of:

i. The roll-over of management and control systems (and other measures which facilitate programme launch). Greater use of 'proportionate arrangements', where lower risk programmes can rely more on national systems.

ii. The use of simplified cost options and payments based on conditions.

iii. Financial instruments.

2. Increase flexibility to adjust programme objectives and resources in the light of changing circumstances and also in terms of voluntary contributions to EU-level directly managed instruments.

3. Align the programmes more closely with EU priorities and increase their effectiveness. This includes:

i. Aligning the intervention logic and reporting with the MFF headings and increasing concentration requirements on priority areas.

ii. Forging a closer link with the European Semester process.

iii. Setting more meaningful enabling conditions that need to be maintained throughout the implementation period.

2.

Title I: Objectives and general support


The CPR brings together seven European Funds delivered through shared management. The goal is to create a common set of simplified and consolidated rules, reducing the administrative burden for programme authorities and beneficiaries.

The basis is laid here for the strong emphasis on shared management and partnership, which runs throughout the regulations. Article 5 provides the basis for shared management, Article 6 for partnership with regional and local authorities, urban and public authorities, economic and social partners, civil society and bodies promoting social inclusion, fundamental rights, gender equality, non-discrimination and rights of people with disabilities.

The Commission proposal for the 2021-2027 Multiannual Financial Framework set a more ambitious goal for climate mainstreaming across all EU programmes, with an overall target of 25% of EU expenditure contributing to climate objectives. The contribution of this programme to the achievement of this overall target will be tracked through an EU climate marker system at an appropriate level of disaggregation, including the use of more precise methodologies where these are available. The Commission will continue to present the information annually in terms of commitment appropriations in the context of the annual draft budget.

To support the full utilisation of the potential of the programme to contribute to climate objectives, the Commission will seek to identify relevant actions throughout the programme preparation, implementation, review and evaluation processes.


3.

Title II: Strategic approach


Eleven thematic objectives used in 2014-2020 have been simplified to five clear policy objectives in this regulation:

1. A smarter Europe - innovative and smart economic transformation.

2. A greener, low-carbon Europe.

3. A more connected Europe - mobility and regional ICT connectivity.

4. A more social Europe - implementing the European Pillar of Social Rights.

5. Europe closer to citizens – sustainable and integrated development of urban, rural and coastal areas through local initiatives.

In addition, policy objectives of the AMIF, BMVI and ISF have been set out in the Fund-specific Regulations.

This simplification enables synergies and flexibility between various strands within a given objective, removing artificial distinctions between different policies contributing to the same objective. It also lays the basis for thematic concentration for the ERDF and the ESF.

"Ex ante conditionalities" in the 2014-2020 period are replaced by 'enabling conditions'. These are fewer, more focussed on the goals of the fund concerned and – in contrast to the 2014-2020 period – monitored and applied throughout the period. The principle will be strengthened: Member States will not be able to declare expenditure related to specific objectives until the enabling condition is fulfilled. This will ensure that all co-financed operations are in line with the EU policy framework.

To build on the good practice of performance orientation it is proposed to maintain the performance framework in a streamlined, clearer manner. Conditionality linked to the European Semester is similarly maintained but simplified. In particular, Country-Specific Recommendations (CSRs) will be taken into account in programming at least on two occasions: at the beginning of the programming and during the mid-term review.

Measures to promote sound economic governance are maintained. However suspensions will be linked to commitments only, not payments, in order to avoid aggravating economic crises.

The CPR creates flexibility for the ERDF, ESF+ and the Cohesion Fund. Only the first 5 years will be programmed initially. Allocations for the last 2 years will be made on the basis of a substantial and in-depth mid-term review leading to corresponding reprogramming in 2025. The review will revisit the initial priorities and objectives of the programmes taking account of: progress in achieving objectives by end-2024; changes in the socio-economic situation; new challenges identified in country specific recommendations. This builds on the concept of the performance framework and the performance reserve and further reinforces the performance angle of the policy including through reprogramming. The performance reserve is however discontinued.

Synergies between different EU instruments will be encouraged through the strategic planning process, which will identify common objectives and common areas for activities across different programmes, e.g. with the Common Agricultural Policy (CAP); Horizon Europe; the Connecting Europe Facility (CEF); the Digital Europe Programme (DEP); the Erasmus+ Programme; the InvestEU Fund; LIFE; Erasmus+ and with the External Instrument.

4.

Title III: Programming


The content of programmes will be more streamlined and strategic. To harmonise and speed up the programming process and implementation at the beginning of the period, a common programme template for the ERDF, the Cohesion Fund, ESF+ and EMFF programmes and a separate one for the AMIF, BMVI and ISF are annexed to this Regulation. To make programming more flexible, there will be a 5% threshold at priority level below which it will be possible to adjust allocations within the programme without the need for formal programme amendment.

To address specific challenges at the sub-regional and local level, the CPR introduces a simplified approach to community-led local development (including the possibility of naming a lead fund, reducing the administrative burden for beneficiaries). The CPR also harmonizes the approach to other territorial tools, including the existing integrated territorial investments.

The CPR also includes provisions to enable voluntary transfer of resources towards the five policy windows of the InvestEU instruments to benefit from an EU-level budgetary guarantee mechanism. Furthermore, Member States could request the transfer of up to 5 % of programme financial allocations from any of the funds to any other fund under shared management or to any instrument under direct or indirect management. This should facilitate attaining the objectives set for the programmes during their implementation.

The approach to technical assistance of Member States has been simplified. A flat rate mechanism is introduced which enables topping up each interim payment by a percentage between 2.5% and 6% depending on the fund and thus links the EU payment of technical assistance to progress in implementation. In addition, administrative capacity building actions may continue in form of payments based on conditions.

5.

Title IV: Monitoring, evaluation, information and communication


Electronic data enables the combination of simplification and transparency. In the 2014-2020 period, except for the predecessors of the AMIF, BMVI and ISF, it was a requirement to establish a system of electronic data exchange between beneficiaries and managing authorities as well as between different authorities of the management and control system. The current regulation builds on this and develops further certain aspects in terms of gathering data. All data necessary for monitoring progress in implementation including results and performance of programmes will now be transmitted electronically and every two months, meaning the open data platform will be updated in almost real time.

It is proposed to give a more prominent role to the monitoring committees in supervising the programme performance and all the factors influencing this. For transparency, documents submitted to the monitoring committees will be required to be publicly available.

For all funds, the annual performance review will be an occasion for a policy dialogue on key issues of programme implementation and performance. Frequent data transmission enables a simplification of the performance review process. For cohesion policy funds this enables eliminating the annual report document – the annual review meeting will be on the basis of the latest results and limited set of qualitative information submitted.

Responsibilities of both programme authorities and beneficiaries regarding visibility and communication have been reinforced. Common communication, transparency and visibility requirements ensure more coherent, effective and efficient communication actions.

Evaluations will be carried out in line with paragraphs 22 and 23 of the Interinstitutional Agreement of 13 April 2016 7 , where the three institutions confirmed that evaluations of existing legislation and policy should provide the basis for impact assessments of options for further action. The evaluations will assess programme effects on the ground based on the programme indicators and targets and a detailed analysis of the degree to which the programme is relevant, effective, efficient, provides EU added value and is coherent with other EU policies. Evaluations will include lessons learned, problems and opportunities to further improve the actions and their impacts.

6.

Title V: Financial support


To reduce the administrative burden, the CPR systematises and increases the use of simplified cost options, i.e. flat-rate reimbursement, standard scales of unit costs or lump sums. To make such options easier to apply, the CPR simplifies rules and calculation methods, providing more off-the-shelf options building on the Commission's Omnibus proposal 8 .

The option of payments based on conditions will also contribute to the performance orientation, allowing for payments based on achieved and verified performance.

Financial instruments will be a key delivery mechanism for 2021-2027 investments generating revenue or costs savings; the provisions for their use have been streamlined and updated to ensure better and easier implementation as well as quicker set-up:

·Financial instruments will be better integrated into the programming and implementation process from the outset and the ex-ante assessment streamlined accordingly;

·Managing authorities will have the same basic flexible implementation options – management under the responsibility of the managing authority or direct management by the managing authority – but the related conditions have been simplified;

·Combination of EU resources will be possible under one set of rules; there will be no more multiplication of diverse rules applied to similar situations;

·Flexibility is proposed for the combination of grants with financial instruments;

·The eligibility rules have been clarified, and rules on management costs and fees have been simplified while keeping them performance based to encourage efficient management;

·The rules on payments have been considerably simplified while maintaining the all-important link between payments to financial instruments and the corresponding disbursements to final recipients;

·Reflows and fund recycling have been simply codified, to enable a smoother flow from one period to next.

·There will be no additional separate reporting on financial instruments as these are incorporated under the same reporting system as all other forms of finance.

Further simplifications include:

·The combination of different funds – and of financial instruments and grants – is codified in simple rules;

·There will no longer be specific rules for revenue generating investments;

·There will be no major project process (instead, strategic projects will be followed by the monitoring committee).

·Funding will be simplified, for example through the seal of excellence approach.

To avoid wasteful subsidy competitions provisions on business relocation have been strengthened.

7.

Title VI: Management and control


The tasks and responsibilities of different bodies in the management and control system are set out in a clearer way. There is no requirement to undertake the designation process; the provisions promote the roll-over of existing systems and simpler rules for identifying new bodies.

Eligibility requirements will help ensure that only quality operations, making the highest contribution to agreed objectives with the best cost-benefit ratio, are received for support. It is also proposed to systematically check whether the operation is financially sustainable and its environmental screening was based on the latest requirements.

The number of controls and audits will be significantly reduced. This will decrease the administrative burden for programme authorities and beneficiaries. In addition to provisions in previous titles which reduce the audit burden, this title further reduces the burden by:

·Extension of the single audit principle;

·Fewer controls;

·For programmes with a low error rate, an enhanced proportionate approach based on a well-functioning national system with a minimum audit arrangement for assurance purposes.

Project proposals which have received a Seal of Excellence under Horizon Europe will not need to pass another application and selection process if they are consistent with the programme's smart specialisation strategy. This reduces the burden on both managers and beneficiaries. Similarly, this approach could be extended to other EU instruments, like LIFE+ or Erasmus+.

Title VII – Financial management, submission and examination of accounts and financial corrections

The system of annual accounts is maintained including the retention of 10% of the amounts declared in interim payments. The submission of payments requests will follow a regular schedule and will take place four times a year. Zero accounts will not require a corresponding procedure.

This section also includes decommitment rules. Since simplification will make it easier for programmes to reduce delays and in order to promote sound financial management as well as timely implementation, the CPR includes an "n+2" rule. For the same reason, the level of pre-financing has been reduced to an annual payment of 0.5% based on the total support from the Funds. In this context, in order to ensure sufficient resources, a revision of the 2014-2020 annual pre-financing arrangements for the ERDF, the ESF+, the Cohesion Fund and the EMFF may be necessary.

Title VIII – financial framework

This sets out financial allocations and co-financing based on categories of regions and applies to the ERDF, ESF+ and Cohesion Fund.

The CPR also returns co-financing rates for these three Funds to pre-financial crisis levels. EU co-financing rates increased for these three Funds in the 2007-2013 period. This was a response to the financial crisis, to maintain essential investments in a time of tight public budgets. High EU co-financing rates are no longer necessary and lower rates promote 'ownership'. Lower EU co-financing rates also increase the overall cohesion policy budget, taking account of the national contributions. This also adds to financial flexibility Member States have as the co-financing rates at programme and priority level could be established flexibly.

Title IX – delegation of power, implementing, transitional and final provisions

To ensure an early start for implementation in the next period all necessary legislative provisions will be included in the legislative package (either in the CPR or the Fund-specific regulations).

Notably, the number of empowerments is substantially reduced and kept to a minimum. This will prevent possible delays in drawing up and adopting secondary legislation. It also ensures an internal coherence of legislative provisions and predictability for stakeholders as all applicable EU rules will be found in one place.

Conditions for operations subject to phased implementation are introduced to provide clarity and legal certainty on the circumstances where phasing is accepted.