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Commission unveils relief package for EU SMEs

Author: ICAEW Insights

Published: 19 Sep 2023

Plans for new late payments regulation and Head Office Tax System lead the way, as the European Commission sets out measures to help SMEs manage a range of economic challenges.

Amid the unpredictable and volatile trading conditions that have stemmed from recent economic crises, the European Commission has announced a special package of support aimed at EU SMEs.

Issued on 12 September, the Commission’s SME Relief Communication sets out a range of measures designed to provide companies with short-term relief, boost their long-term competitiveness and strengthen fairness throughout the Single Market’s business environment.

Both of the flagship measures proposed in the package will have significant resonance with finance teams and accountants in the EU’s SME community.

Certainty and fairness

A new regulation on combating late payments in commercial transactions, which would repeal and replace the bloc’s 2011 Late Payment Directive, introduces a stricter maximum term limit of 30 days, as well as eliminating ambiguities and resolving legal gaps lurking in the current directive.

The draft text also proposes ensuring that late-paid SMEs would receive an automatic payment of accrued interest and compensation, while new enforcement and redress measures would protect firms against bad payers.

At the same time, a new Head Office Tax System for SMEs would provide businesses that run cross-border operations between member states from permanent premises the option to interact with only one tax administration, rather than having to comply with multiple systems.

In the Commission’s view, this measure would increase tax certainty and fairness, cut compliance costs, reduce the sort of market distortions that could influence commercial decisions and minimise the risk of double- and over-taxation – thereby lowering the frequency of disputes.

“The expected decrease in compliance costs should, in particular, foster investment and cross-border expansion in the EU,” the Commission said. “SMEs operating in different member states will be able to fully maximise the freedom of establishment and the free movement of capital without being hindered by unnecessary, tax-related obstacles.”

On the same day, the Commission published a separate statement announcing proposals for its Business in Europe: Framework for Income Taxation (BEFIT) initiative: a set of reforms to cut tax compliance costs for larger EU businesses.

Simplifying procedures

Alongside its flagship proposals, the Commission has a series of non-legislative measures in mind to ensure that SMEs are able to harness their full, economic potential. The Commission intends to:

  • Improve the current regulatory environment for SMEs: Building on the EU’s ‘one in, one out’ principle – which is designed to minimise the costs of aligning with new compliance burdens – the Commission will improve the application of the SME Test and consistently consider SME needs across all future EU legislation. A new EU SME envoy – who will report directly to the president and internal market commissioner – will provide the Commission with guidance and advice on relevant issues and advocate for SME interests externally. In tandem, the Commission will promote the use of regulatory sandboxes to foster experimentation and innovation among SMEs.
  • Simplify administrative procedures and reporting requirements for SMEs: Set to launch by the end of this year, a new Once-Only Technical System will enable SMEs to complete cross-single market administrative procedures – such as declarations and certificates for the posting of workers – without the need to resubmit documents in multiple member states. The Commission will also build on initial steps it has taken towards the 25% reduction in company reporting obligations that it announced in March – including measures to systematically map current burdens and develop targeted rationalisation plans.
  • Boost investments available to SMEs: Building on the success of post-COVID initiative InvestEU’s SME window, the Commission will encourage member states to make transfers to the scheme’s national compartments. In addition, it will ensure that SMEs are able to access part of a proposed €7.5bn EU guarantee under the scheme’s Strategic Technologies for Europe Platform (STEP) window. To facilitate access to sustainable finance, a simple, standardised methodology will support SMEs’ reporting on sustainability topics.
  • Enable a skilled SME workforce to flourish: The Commission will continue to back training provided by large-scale skills partnerships under the European Pact for Skills and other similar schemes to match talent from the EU’s labour market with SME needs.
  • Support SMEs’ growth: By the end of this year, the Commission will review current SME category thresholds and develop a harmonised definition – potentially adapting certain obligations for small mid-caps in order to unleash their full economic potential.

Survive and thrive

In a statement, Commission Vice President Věra Jourová said that life has been tough for SMEs over the past few years – particularly in light of the pandemic and Russia’s war against Ukraine. As such, she noted: “We need to step up our support for SMEs. We want to make things easier for them, bring more oxygen to help them survive and thrive.”

Access to talent and finance, she pointed out, will help small companies develop their digital and green capabilities.

Meanwhile, Commissioner for Economy Paolo Gentiloni focused on the need to pare down the tax-related rule systems currently facing SMEs that work across member states’ borders. “The cost of complying with these rules amounts to 2.5% of their turnover – money they cannot spend on investing or hiring new staff.” He said the savings and simplification that would emerge from the support package “will encourage more SMEs to expand across national borders, creating more jobs for Europeans”.

ICAEW Head of European Policy Dr Susanna Di Feliciantonio said: “As a response to growing competitiveness concerns across the EU, the Commission’s SME relief package contains some important proposals.

“Those that are legislative in nature will need to progress quickly through the system before the European Parliament elections next spring. Some measures – such as an adjustment of accounting directive thresholds and a harmonised definition for small mid-cap companies – should be in place next month.

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