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Comments from ACCA
February 2011

The Association of Chartered Certified Accountants (ACCA) is pleased to comment on the above Communication from the Commission. ACCA welcomes the publication for comment of the Commission's proposals for making further progress towards completion of the EU single market. We welcome in particular the emphasis placed in the work plan on the importance for economic recovery of encouraging growth in the private sector. Central to the recovery strategy must be a recognition that government must focus on creating the economic and regulatory conditions which will facilitate growth by individual businesses. Promoting private enterprise is crucial to the restoration of stability to government finances through tax revenue and also to employment.

We also very much welcome the prominent attention given in the Communication to the special position of SMEs within the business sector. As the document recognises, SMEs play a key role in the sector throughout the EU. They are responsible for a high proportion of employment and are major drivers of job creation. It is accordingly highly desirable that, in the context of plans to complete the single market, measures are introduced to exploit further the potential that exists for encouraging cross-border trade at this level.

We would stress, though, that in the course of bringing forward measures to encourage growth, caution needs to be shown when following the path of de-regulation and liberalisation. The cause of encouraging greater levels of investment and cross-border trade will not be helped if stakeholders feel that their vital interests are not to be protected by law or regulator measures. Accordingly, plans for new initiatives, and reforms to existing rules, must incorporate thorough impact assessments which weigh up the value of stakeholder protections against the desired deregulatory benefits for individual businesses.

We would note at this point that, since early 2010, when the Monti report pronounced the Single Market to be unpopular with the peoples of Europe, the unfolding sovereign debt crisis has further strained the perceived legitimacy of the Single Market by shining a harsh light on trade and current account imbalances within the EU. In this light it is of some concern to ACCA that the Act currently resembles a loose collection of ad-hoc announcements on (admittedly important) technical issues more than it does a robust defence of the Single Market.

We comment below on some of the individual commitments set out in the Communication.

Proposal 1: The European parliament and the Council should take the necessary steps top adopt the proposals for the EU patent, its languages and the unified patent litigation system. The aim is for the first EU patents to be issued in 2014.

We very much support this measure. We see it as a positive encouragement of business innovation and one which stands to reduce costs and administrative burdens. Moreover, by encouraging the valuation and protection of intangible assets it has the potential to greatly improve access to finance for innovative SMEs that rely on such assets. These SMEs frequently face obstacles in access to finance as uncertainty about the value of their assets gives rise to market failures.

We would urge the Commission to now look beyond patents and set its sights on harmonising the broad range of intellectual property protection available to European businesses. We are, to name one example, disappointed by the delay in the delivery of the promised Action Plan on counterfeiting and piracy, though we would stress that the Commission should wait for the research it has commissioned in this area to be ready (in late 2010 or early 2011) so that an evidence-based programme of work can be established.

Moreover, it should be clear by now that harmonizing legislation, while welcome, will not in itself improve awareness of IP protection among SMEs. We would urge the Commission to engage with the trusted advisers of businesses, including professional accountants, and explore the potential for business support in this area. The EU SME China IPR Helpdesk could be a pioneer in this regard, one whose work ACCA is observing with great interest.

Proposal No 12: The Commission will adopt an action plan for improving SME access to capital markets in 2011. This will include measures to make investors more aware of SMEs, to develop an efficient stock exchanges network or specific regulated markets focussing on SMEs and to make listing and disclosure requirements more adapted to SMEs.

Proposal No 16: The Commission will explore measures with the potential to encourage private investment - particularly in the long term - to make a more active contribution towards achieving the objectives of the Europe 2020 strategy. These measures might concern the reform of corporate governance and create incentives for the long-term, sustainable and responsible investment required by smart, green and inclusive growth. Moreover, by 2012 the Commission will ensure that venture capital funds set up in any Member State can operate and invest freely in the European Union (if necessary by adopting a new legislative framework). It will endeavour to eliminate any tax treatment that disadvantages cross-border activities.

ACCA has long awaited the Commission's response to the Demarigny report on a proportionate regulatory framework for small issuers in Europe. With regards to Demarigny, we feel that the following points warrant particular attention.

• An 'small issuer' definition is very useful but one that varies by country (as Demarigny recommends) will only give rise to regulatory arbitrage.

• IFRS for SMEs, which Demarigny recommends for use by 'small issuers', was specifically designed for businesses that have no publicly traded debt or equity. This needs to be reconsidered.

• In the US, small issuers have item-by-item discretion in the detailed disclosures they can make. Giving small issues this option is very useful and while the choice of disclosures itself costs nothing in administrative terms (in fact it delivers a saving) but can help signal earnings quality.

• Improving the liquidity of SME equity and debt markets is at least as important as reducing admin burdens and should not be overlooked. In fact, reasonable disclosure costs can improve the performance of these markets by helping SME issuers signal quality (in undertaking the cost, not just through the actual information disclosed), while poor liquidity will slowly but surely destroy the exchanges from within.

• Establishing a joint EU trading platform for small issuers and creating an EU passport for private equity funds are particularly important recommendations.

Proposal 14: The Commission will propose a review of the accounting Directives in 2014 to simplify financial reporting obligations and to reduce the administrative burden, especially for SMEs.

We will consider constructively the proposals the Commission is to bring forward on this matter. We remain strongly of the view that accountants are able to add value to businesses of all sizes, via both statutory and non-statutory forms of support. Moreover, we will continue to argue that information, including financial and credit information, is one of the most important raw materials of financial intermediation.

If the current rules in the Fourth and Seventh Company Law Directives can be amended or reduced in a way which does not adversely affect the existing protections for shareholders and creditors we will support them. But we would stress that if providers of capital, shareholders and creditors do not feel that their interests are protected this could jeopardise the achievement of the Commission's goal of promoting enterprise.

Proposal No 18: In 2011 the Commission will adopt a legislative initiative on services concessions. Clear and proportionate rules will improve market access for EU undertakings by ensuring transparency, equal treatment and a level playing field for economic operators. They will also promote public/private partnerships and boost the potential for delivery of better value for money for users of services and for contracting authorities.

We are generally supportive of the above proposal. As the publication states, over 60% of service concessions are managed as PPPs. These have been made popular because of the crisis in the supply of finance and will likely remain so well into the future. However, the extent to which these schemes represent value for money continues to be a contentious issue. More research is required in this area. ACCA is currently undertaking research into PPP/PFIs and this will be published in September 2011. We anticipate that this will highlight a number of important issues.

Proposal 19: The Commission will take steps to improve the co-ordination of national tax policies, notably by proposing a Directive introducing a CCCTB in 2011.

We welcome the proposal for a CCCTB. We suggest, however, that it should be a voluntary regime for member states to implement and it should not replace their existing Corporate Tax regimes. The CCCTB should also not be a back door means for some larger high tax member states such as France and Germany to seek to impose a minimum corporation tax level on other Member States. The Commission also needs recognise that any tax measure requires unanimity and we are currently a long way from achieving such agreement: hence it needs to be measured and realistic in its proposals.

Proposal 20: the commission will publish a new VAT strategy in 2011 on the basis of a Green Paper conducting a fundamental review of the VAT system.

As we understand it the proposals will seek to simplify administration rather than make any fundamental shift in the VAT system. Changes will probably be around simplifying such matters as invoicing, registration and documentation requirements. But we nevertheless look forward to reviewing the Commission's full proposals on this matter in due course.

Proposal 21: In 2011 the Commission will propose legislation to introduce the linking of company registers.

We very much welcome this commitment. If consumers and businesses are to approach cross-border business transactions with confidence, they need to have easy access to reliable information about the credentials and credibility of businesses with whom they are considering transacting. This information could be provided by means of an on-line portal similar to that which is provided by each member state under the Services Directive. While potentially very valuable, however, this is only one of the measures that needs to be taken to enhance the viability of cross-border trade: consumers and businesses also need certainty about their rights as transacting parties and in particular their rights of redress in the case of non-satisfaction.

Proposal No 25: The Commission undertakes to adopt, by 2011, a Communication and a series of measures on services of general interest.

This is a worthwhile aspiration and one which we support. Public services, in particular social services, should meet the needs of people and especially the most vulnerable in society. They should be accessible, of the highest quality and adhere to clear financing rules.

Proposal 31: The Commission will examine the Directive on the activities and surveillance of pension funds in 2011 and will develop other proposals based on the July 2010 Green Paper on pensions, inter alia in order to remove obstacles encountered by mobile workers when making arrangements for their retirement.

The Green Paper stressed, rightly in our view, that pensions is an issue which needs to be considered and dealt with in a way which integrates the economic, social and financial dimensions which are associated with pensions. As we said in our response to the Green Paper, the demographic changes in European society, and the immense pressures on government budgets, mean that it is essential that long-term action is planned now to ensure that citizens can expect a reasonable standard of living in their retirement. Vital to this goal, however, is that we address the deep-rooted problem of unemployment, since if people are not earning an income they will not have the resources to save towards a pension, leading to continuing pressures on the state. Therefore, moves to address this problem need to be considered in conjunction with the core issue of encouraging business and employment growth. Care will need to be taken to ensure that any new delegation of responsibility for funding workers pensions from the state to private businesses is done in a way which does not act as a material disincentive to employ people. We look forward to reviewing the Commission's proposals in this area.

Proposal No 13: The Commission will assess the Small Business Act by the end of 2010 with the aims of ensuring that the ‘Think Small First' principle is implemented in both policy and the legislative procedure in order to closely link the Small Business Act with the Europe 2020 Strategy.

Proposal No 17: After the currently ongoing assessment of European public procurement legislation, and based on wide-ranging consultation, the Commission will make legislative proposals in 2012 at the latest with a view to simplifying and updating the European rules to make the award of contracts more flexible and to enable public contracts to be put to better use in support of other policies.

Proposal No 24: In 2011, the Commission will present a legislative proposal in favour of a Community instrument drawing on the implementation of the European Union's international commitments in order to enhance its capacity to ensure improved symmetry in access to public procurement in the industrialised nations and the major emerging economies.

We note that the Commission's definition of the Think Small First principle (derived from the work of the Expert Group in 2009) allows for too much of a top-down approach to policymaking, i.e. legislating with the big firms in mind and then adjusting to smaller firms through exemptions or proportional frameworks. More emphasis should be applied to the reverse. We feel that the adherence to 'Think Small First' is best evaluated at the micro level, and if a macro-evaluation is needed, we would point the Commission in the direction of UEAPME's Think Small First scoreboard, which suggests that improving access to public procurement and improving the institutional treatment of unsuccessful entrepreneurs should be the top priorities going forward. We would particularly welcome some work on linking the Commission's agenda on SMEs and public procurement to the Access to Finance agenda - as government buyers can strengthen their entire supply chains through timely payments and innovative supply chain finance arrangements.

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