The European Commission has put forward a new proposal which would allow Member States to completely abolish financial reporting obligations for the EU's smallest companies. In a deteriorating economic climate, the new rules are designed to alleviate the regulatory burden on micro entities. The aggregate administrative burden reduction potential is estimated at around € 6.3 billion.

The Proposal on the annual accounts of certain types of companies as regards micro-entities, presented by the Commission on February 26th 2009, was flagged in the European Economic Recovery Plan in November 2008 and now will pass to the European Parliament and the Council of Ministers for consideration.

The purpose of the proposed amendment to the Fourth Council Directive (78/660/EEC) on the annual accounts of certain types of companies, is to allow Member States to relieve the EU's smallest companies (commonly referred to as "micro-entities") from the requirements of this Directive. Rough estimates show that if Member States implement this exemption, the savings potential for micro entities could amount to as much as 1,200 € per year on average.

Micro entities would be defined as those companies that on their balance sheet dates do not exceed the limits of two of the three following criteria: balance sheet total of 0.5 M€, net turnover of 1 M€ and an average number of employees during the financial year of 10.

Micro-entities are mostly engaged in business at local or regional level with no or limited cross-border activity. At the same time, micro entities are often subject to the same reporting rules as larger companies. This creates a disproportionate burden on these companies. They have a key role in creating new jobs and economic activities but they also have limited resources to comply with demanding regulatory requirements.

Internal Market and Services Commissioner Charlie McCreevy highlighted that “in a time of economic uncertainty, this micro entities proposal can relieve the burden on the smallest companies in the European Union on a large scale. The Commission has delivered this proposal in a short time period; it is now up to the Member States and the European Parliament to give full and rapid backing to it”. Commissioner McCreevy also pointed out that this is a real opportunity to make life easier for the EU's smallest companies. The Commission aims to do whatever is possible to encourage maximum take up of this exemption by Member States.

The European Commission will follow up this Proposal with more simplification efforts in the field of financial reporting by the end of 2009, as part of the Commission's continued commitment to simplification and burden reduction.

Now that this proposal has been adopted, the Commission will also launch a stakeholder consultation on what is left of the accounting rules in a drive to identify further areas which are ripe for simplification. Contributors will be asked to provide input for the review of the Fourth and Seventh Council Directives (83/349/EEC on consolidated accounts).

Micro-entities and EU-level financial reporting rules

The High Level Group of Independent Stakeholders on Administrative Burdens supported the idea of allowing the Member States to exempt micro-entities from EU-level financial reporting rules.

The European Economic Recovery Plan, issued by the Commission in November 2008, called on the EU and the Member States to "remove the requirement on micro-enterprises to prepare annual accounts".

In line with the European 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.