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Financial transparency between EU countries and public undertakings and within certain undertakings

The transparency of financial relations between public authorities and public undertakings and of the financial and organisational structures of certain undertakings is essential in ensuring the fair and effective application of State aid rules by the Commission.

ACT

Commission Directive 2006/111/EC of 16 November 2006 on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings.

SUMMARY

Public undertakings * play an important role in the national economies of the European Union (EU) countries and, like undertakings which have been granted special * or exclusive * rights, are subject to the rules of competition in the same way as private undertakings, pursuant to Article 106(1) of the Treaty on the Functioning of the European Union (TFEU) (ex-Article 86(1) of the Treaty establishing the European Community (TEC)). Article 345 TFEU (ex-Article 295 TEC) provides that the Treaty in no way prejudices the rules in EU countries governing the system of property ownership. There should therefore be no unjustified discrimination between public and private undertakings in applying the rules on competition. However, Article 106(2) TFEU makes provision for exceptions where public or private undertakings operate services of general economic interest.

Fair and effective application of the Treaty's provisions on State aid necessitates transparency in the often very complex financial relations between public undertakings and public authorities.

It is also necessary, on the basis of an obligation to keep separate accounts, to ensure the transparency of the financial and organisational structures of public and private undertakings to which special or exclusive rights are granted or which are responsible for operating services of general economic interest for which they receive compensation in any form whatsoever and which also perform other activities. In particular, it is necessary to ensure that compensation does not exceed the cost of providing the service of general economic interest and that there is no cross-subsidising of the undertaking’s other economic activities.

The Commission therefore needs the detailed information which will allow it to ensure that EU countries do not grant either public or private undertakings aid which is incompatible with the common market.

Financial relations between public authorities and public undertakings

EU countries must ensure the transparency of financial relations between public authorities and public undertakings so that public funds made available to public undertakings by public authorities directly or indirectly (through public undertakings or financial institutions) are disclosed and their effective use is made clear.

The transparency of financial relations must be ensured in particular in respect of:

  • the setting-off of operating losses;
  • the forgoing of a normal return on public funds used;
  • the provision of capital;
  • non-refundable grants or loans on privileged terms;
  • the granting of financial advantages by forgoing profits or the recovery of sums due;
  • compensation for financial burdens imposed by the public authorities.

EU countries must ensure that information concerning financial relations between public undertakings and public authorities remains available to the Commission for five years and is forwarded to the Commission at its request.

Obligation on certain undertakings to keep separate accounts

Separate accounts must be kept by public and private undertakings which have been granted special or exclusive rights by an EU country or which are responsible for operating a service of general economic interest and which receive public service compensation in any form whatsoever in relation to such service and at the same time perform other activities. These separate accounts must reflect the different activities performed by the undertaking, showing the costs and revenues associated with each activity and the methods of cost and revenue assignment and allocation.

EU countries must ensure that information regarding the financial and organisational structures of the undertakings concerned remains available to the Commission for five years and is forwarded to the Commission at its request.

Manufacturing

Specific provisions apply to public undertakings operating in the manufacturing sector if their annual turnover exceeds €250 million, as incompatible aid is likely to give rise to significant distortions of competition.

EU countries must provide, on an annual basis and for all undertakings concerned, the annual reports, annual accounts, notices of shareholders’ meetings and any other relevant information. EU countries must also provide the Commission with a list of the companies concerned by 31 March of each year.

Conditions for exemption

This directive does not apply to:

  • public and private undertakings supplying services which are unlikely to affect trade between EU countries to an appreciable extent;
  • central banks;
  • public credit institutions, as regards deposits of public funds placed with them by public authorities on normal commercial terms;
  • public undertakings whose net annual turnover in the two financial years preceding that in which the public resources were made available was less than €40 million (in the case of public credit institutions, the corresponding threshold is a balance sheet total of €800 million);
  • public and private undertakings whose net annual turnover in the two financial years preceding any year in which it enjoys special or exclusive rights granted by an EU country or in which it is entrusted with the operation of a service of general economic interest was less than €40 million (in the case of public credit institutions, the corresponding threshold is a balance sheet total of €800 million);
  • undertakings which have been entrusted with the operation of services of general economic interest if the compensation they receive in any form whatsoever was fixed for an appropriate period following an open, transparent and non-discriminating procedure.

Background

This directive repeals Directive 80/723/EEC on the transparency of financial relations between public authorities and public undertakings.

Key terms used in the act
  • Public undertaking: any undertaking over which the public authorities can exercise a dominant influence, directly or indirectly, by virtue of their ownership of it, their financial participation in it, or the rules which govern it.
  • Special rights: rights that are granted by an EU country to a limited number of undertakings, through any legislative, regulatory or administrative instrument, which within a given geographical area: limits to two or more the number of undertakings authorised to provide a service or perform an activity according to criteria that are not objective, proportional and non-discriminatory; or designates, according to such criteria, several competing undertakings as being authorised to provide a service or perform an activity; or confers on any undertaking or undertakings, according to such criteria, any legal or regulatory advantages which substantially affect the ability of any other undertaking to provide the same service or to perform the same activity in the same geographical area under substantially equivalent conditions.
  • Exclusive rights: rights that are granted by an EU country to one undertaking through any legislative, regulatory or administrative instrument, reserving it the right to provide a service or perform an activity within a given geographical area.

REFERENCES

ActEntry into forceDeadline for transposition in the Member StatesOfficial Journal

Directive 2006/111/EC

20.12.2006

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OJ L 318, 17.11.2006

Last updated: 15.11.2011
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