Changes from plenary report to plenary report

AddedSHORT JUSTIFICATION

RemovedRecital 3: (3) While there is no hierarchy among Union values, respect for the rule of law is essential for the protection of the other fundamental values on which the Union is founded, such as freedom, democracy, equality and respect for human rights. Respect for the rule of law is intrinsically linked to respect for democracy and for fundamental rights: there can be no democracy and respect for fundamental rights without respect for the rule of law and vice versa. Coherence and consistency of internal and external democracy, rule of law and fundamental rights policy is key to the credibility of the Union.

AddedThe Council position at first reading reflects the agreement reached between Parliament and the Council in interinstitutional negotiations at early second reading stage, after legal-linguistic verification. Since the Committee on Budgets (BUDG) and the Committee on Budgetary Control (CONT), at their vote of 12 November 2020, already confirmed the outcome of those interinstitutional negotiations, as your rapporteurs we are proposing that BUDG-CONT recommend that the Plenary confirms the position of the Council at first reading, without amending it.

RemovedRecital 6: (6) Independence and impartiality of the judiciary should always be guaranteed and investigation and prosecution services should be able to properly execute their function. They should be endowed with sufficient resources and procedures to act effectively and in full respect of the right to a fair trial. These conditions are required as a minimum guarantee against unlawful and arbitrary decisions by public authorities that could impair these fundamental principles and harm the financial interests of the Union.

RemovedRecital 7 a (new): (7a) The independence of the prosecution and the judiciary comprises both the formal (de jure) and actual (de facto) independence of the prosecution and the judiciary and the individual prosecutors and judges.

RemovedRecital 8: (8) Respect for the rule of law is not only essential for citizens of the Union, but also for business initiatives, innovation, investment, economic, social and territorial cohesion and the proper functioning of the internal market, which will flourish sustainably only where a solid legal and institutional framework is in place.

RemovedRecital 8 a (new): (8a) Integrating existing Union monitoring mechanisms, such as the Cooperation and Verification Mechanism, the Justice Scoreboard and the Anti-Corruption reports, into a broader rule of law monitoring framework could provide more efficient and effective control mechanisms for the protection of the financial interest of the Union.

RemovedRecital 8 b (new): (8b) Lack of transparency, arbitrary discrimination, distortion of competition and an uneven playing field within and outside the internal market, impact on the integrity of the single market and on the fairness, stability and legitimacy of the tax system, increased economic inequalities, unfair competition between states, social dissatisfaction, mistrust and democratic deficit are some of the negative effects of harmful tax practices.

RemovedRecital 10 a (new): (10a) The Union has at its disposal a multitude of instruments and processes for ensuring full and proper application of the principles and values laid down in the TEU, but there is currently no swift, effective response coming from the Union institutions, in particular to ensure sound financial management. The existing instruments should be enforced, evaluated and complemented in the framework of a rule of law mechanism to be adequate and effective.

RemovedRecital 11: (11) Generalised deficiencies in the Member States as regards the rule of law which affect in particular the proper functioning of public authorities and effective judicial review, can seriously harm the financial interests of the Union. Efficient investigations into such deficiencies, and the application of effective and proportionate measures when a generalised deficiency is established, are needed not only to secure the financial interests of the Union, including the effective collection of revenue, but also to ensure public trust in the Union and its institutions. Only an independent judiciary that upholds the rule of law and legal certainty in all Member States can ultimately guarantee that money from the Union budget is sufficiently protected.

RemovedRecital 11 a (new): (11a) The scale of tax evasion and avoidance is estimated by the Commission to be up to EUR 1 trillion a year. The negative impacts of such practices on the Member States' and Union budgets and on citizens are evident and could undermine trust in democracy.

RemovedRecital 11 b (new): (11b) Corporate tax avoidance has a direct impact on Member States’ and Union budgets and on the breakdown of the tax effort between categories of tax payers as well as between economic factors.

RemovedRecital 11 c (new): (11c) Member States should fully apply the principle of sincere cooperation in matters of tax competition.

RemovedRecital 11 d (new): (11d) The Commission, as the guardian of the Treaties, should ensure that Union law and the principle of sincere cooperation between Member States are fully complied with.

RemovedRecital 11 e (new): (11e) Assessing and monitoring Member States' tax policies at Union level would ensure that no new harmful tax measures are implemented in Member States. Monitoring compliance of Member States, their jurisdictions, regions or other administrative structures with the common Union list of non-cooperative jurisdictions would safeguard the single market and ensure its proper and coherent functioning.

RemovedRecital 12: (12) The identification of a generalised deficiency requires a thorough qualitative assessment by the Commission. That assessment should be objective, impartial and transparent and be based on information from all relevant sources, taking into account the criteria used in the context of Union accession negotiations, in particular the chapters of the acquis on judiciary and fundamental rights, on justice, freedom and security, on financial control and on taxation, as well as the guidelines used in the context of the Cooperation and Verification Mechanism to track the progress of a Member State, and from recognised institutions, including judgments of the Court of Justice of the European Union and the European Court of Human Rights, resolutions of the European Parliament, reports of the Court of Auditors, and conclusions and recommendations of relevant international organisations, such as the bodies of the Council of Europe, including in particular the Venice Commission’s Rule of Law Checklist, and of relevant international networks, such as the European networks of supreme courts and councils for the judiciary.

RemovedRecital 12 a (new): (12a) An advisory panel of independent experts in constitutional law and financial and budgetary matters should be established with the objective to assist the Commission in its assessment of generalised deficiencies. That panel should undertake an independent annual assessment of the issues as regards the rule of law in all Member States that affect or risk affecting the sound financial management or the protection of the financial interests of the Union, taking into account information from all relevant sources and recognised institutions. The Commission, when taking a decision about adopting or lifting of possible measures, should take relevant opinions expressed by that panel into account.

RemovedRecital 13: (13) The measures to be adopted in the event of generalised deficiencies and the procedure to be followed to adopt them should be determined. Those measures should include the suspension of payments and of commitments, a reduction of funding under existing commitments, and a prohibition to conclude new commitments with recipients.

RemovedRecital 14 a (new): (14a) It is essential that the legitimate interests of final recipients and beneficiaries are properly safeguarded when measures are adopted in the event of generalised deficiencies. When considering the adoption of measures, the Commission should take into account their potential impact on final recipients and beneficiaries. To strengthen the protection of the final recipients or beneficiaries, the Commission should provide information and guidance via a website or internet portal, together with adequate tools to inform the Commission about any breach of the legal obligation of government entities and Member States to continue making payments after measures on the basis of this Regulation are adopted. Where necessary, in order to ensure that any amount due by government entities or Member States is effectively paid to final recipients or beneficiaries, the Commission should be able to recover payments made to those entities, or, as appropriate, to make a financial correction by reducing support to a programme, and to transfer an equivalent amount to the Union reserve to be used for the benefit of final recipients or beneficiaries.

RemovedRecital 15: (15) In order to ensure uniform implementation of this Regulation and in view of the importance of the financial effects of measures being imposed pursuant to this Regulation, implementing powers should be conferred on the Commission.

RemovedRecital 15 a (new): (15a) In view of their effect on the Union budget, measures imposed pursuant to this Regulation should only enter into force after the European Parliament and the Council have approved a transfer to a budgetary reserve of an amount equivalent to the value of the measures adopted. To facilitate the adoption of decisions which are required to protect the financial interests of the Union, such transfers should be considered to be approved unless, within a set period, the European Parliament or the Council, the latter acting by qualified majority, amend or reject them.

RemovedRecital 16: (16) Before proposing the adoption of any measure pursuant to this Regulation, the Commission should inform the Member State concerned why it considers that a generalised deficiency regarding the rule of law might exist in that Member State. The Commission should without delay inform the European Parliament and the Council about any such notification and its contents. The Member State concerned should be allowed to submit its observations. The Commission should take those observations into account.

RemovedRecital 17: (17) The Commission should lift measures with suspensive effect and propose to the European Parliament and the Council to lift in full or in part the budgetary reserve of the measures in question, if the situation leading to the imposition of those measures has been sufficiently remedied.

RemovedRecital 18: deleted

RemovedArticle 2 – paragraph 1 – point a: (a) 'the rule of law' shall be understood having regard to the Union values enshrined in Article 2 TEU and in the criteria for Union membership referred to in Article 49 TEU; it includes the principles of legality, implying a transparent, accountable, democratic and pluralistic process for enacting law; legal certainty; prohibition of arbitrariness of the executive powers; access to justice and effective judicial protection before independent and impartial courts, including of fundamental rights as stipulated in the Charter of Fundamental Rights of the European Union and in international human rights treaties; separation of powers; non-discrimination and equality before the law;

RemovedArticle 2 – paragraph 1 – point b: (b) 'generalised deficiency as regards the rule of law' means a widespread or recurrent practice or omission, or measure by public authorities which affects the rule of law, where it affects or risks affecting the principles of sound financial management or the protection of the financial interests of the Union; a generalised deficiency as regards the rule of law may also be the consequence of a systemic threat to the Union values enshrined in Article 2 TEU that affects or risks affecting the principles of sound financial management or the protection of the financial interests of the Union;

RemovedArticle 2 – paragraph 1 – point c: (c) 'government entity' means any public authority at all levels of government, including national, regional and local authorities, as well as Member State organisations within the meaning of point 42 of Article 2 of Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council1a (the ‘Financial Regulation’). / 1a Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012 (OJ L 193, 30.7.2018, p. 1).

RemovedArticle 2 a (new): Article 2 a / Generalised deficiencies / The following shall, in particular, be considered generalised deficiencies as regards the rule of law where they affect or risk affecting the principles of sound financial management or the protection of the financial interests of the Union: / (a) endangering the independence of judiciary, including setting any limitations on the ability to exercise judicial functions autonomously by externally intervening in guarantees of independence, by constraining judgement under external order, by arbitrarily revising rules on the appointment or terms of service of judicial personnel, by influencing judicial staff in any way that jeopardises their impartiality or by interfering with the independence of attorneyship; / (b) failing to prevent, correct and sanction arbitrary or unlawful decisions by public authorities, including by law enforcement authorities, withholding financial and human resources affecting their proper functioning or failing to ensure the absence of conflicts of interests; / (c) limiting the availability and effectiveness of legal remedies, including through restrictive procedural rules, lack of implementation of judgments, or limiting the effective investigation, prosecution or sanctioning of breaches of law; / (d) endangering the administrative capacity of a Member State to respect the obligations of Union membership, including the capacity to effectively implement the rules, standards and policies that make up the body of Un…

Removed(See amendment relating to Article 3 – paragraph 2.)

RemovedArticle 3 – title: Risks for the financial interests of the Union

RemovedArticle 3 – paragraph 1 – introductory part: 1. A generalised deficiency as regards the rule of law in a Member State may be established when one or more of the following, in particular, are affected or risk being affected:

RemovedArticle 3 – paragraph 1 – point a: (a) the proper functioning of the authorities of that Member State implementing the Union budget, in particular in the context of public procurement or grant procedures;

RemovedArticle 3 – paragraph 1 – point a a (new): (aa) the proper functioning of the market economy, thereby respecting competition and market forces in the Union as well as implementing effectively the obligations of membership, including adherence to the aim of political, economic and monetary union;

RemovedArticle 3 – paragraph 1 – point a b (new): (ab) the proper functioning of the authorities carrying out financial control, monitoring and internal and external audits, and the proper functioning of effective and transparent financial management and accountability systems;

RemovedArticle 3 – paragraph 1 – point b: (b) the proper functioning of investigation and public prosecution services in relation to the prosecution of fraud, including tax fraud, corruption or other breaches of Union law relating to the implementation of the Union budget;

RemovedArticle 3 – paragraph 1 – point c: (c) the effective judicial review by independent courts of actions or omissions by the authorities referred to in points (a), (a b) and (b);

RemovedArticle 3 – paragraph 1 – point d: (d) the prevention and sanctioning of fraud, including tax fraud, corruption or other breaches of Union law relating to the implementation of the Union budget, and the imposition of effective and dissuasive penalties on recipients by national courts or by administrative authorities;

RemovedArticle 3 – paragraph 1 – point e a (new): (ea) the prevention and sanctioning of tax evasion and tax competition and the proper functioning of authorities contributing to administrative cooperation in tax matters;

RemovedArticle 3 – paragraph 1 – point f: (f) the effective and timely cooperation with the European Anti-fraud Office and, subject to the participation of the Member State concerned, with the European Public Prosecutor’s Office in their investigations or prosecutions pursuant to their respective legal acts and to the principle of loyal cooperation;

RemovedArticle 3 – paragraph 1 – point f a (new): (fa) the proper implementation of the Union budget following a systemic violation of fundamental rights.

RemovedArticle 3 – paragraph 2: deleted / (deleted) / (deleted) / (deleted)

Removed(See amendment relating to Article 2 a (new).)

RemovedArticle 3 a (new): Article 3 a / Panel of independent experts / 1. The Commission shall establish a panel of independent experts (‘the Panel’). / The Panel shall be composed of independent experts in constitutional law and financial and budgetary matters. One expert shall be appointed by the national parliament of each Member State and five experts shall be appointed by the European Parliament. The composition of the Panel shall ensure gender balance. / Whenever appropriate, representatives of relevant organisations and networks, such as the European Federation of Academies of Sciences and Humanities, the European Network of National Human Rights Institutions, the bodies of the Council of Europe, the European Commission for the efficiency of justice, the Council of Bars and Law Societies of Europe, the Tax Justice Network, the United Nations, the Organization for Security and Co-operation in Europe and the Organisation for Economic Co-operation and Development, may be invited as observers to the Panel in accordance with the rules of procedures referred to in paragraph 6. / 2. The advisory tasks of the Panel shall have as their objective to assist the Commission in identifying generalised deficiencies as regards the rule of law in a Member State that affect or risk affecting the principles of sound financial management or the protection of the financial interests of the Union. / The Panel shall assess the situation in all Member States annually on the basis of quantitative and qualitative criter…

RemovedArticle 4 – title: Measures for the protection of the Union budget

RemovedArticle 4 – paragraph 1 – introductory part: 1. When the conditions of Article 3 are fulfilled, one or more of the following measures may be adopted:

RemovedArticle 4 – paragraph 3: 3. The measures taken shall be proportionate to the nature, gravity, duration and scope of the generalised deficiency as regards the rule of law. They shall, insofar as possible, target the Union actions affected or potentially affected by that deficiency.

RemovedArticle 4 – paragraph 3 a (new): 3a. The Commission shall provide information and guidance for the benefit of final recipients or beneficiaries on the obligations by Member States referred to in paragraph 2 via a website or internet portal. / The Commission shall also provide, on the same website or portal, adequate tools for final recipients or beneficiaries to inform the Commission about any breach of these obligations that, in the view of these final recipients or beneficiaries, directly affects them. This paragraph shall be applied in a manner that ensures protection of persons reporting on breaches of Union law, in line with the principles set out in Directive XXX (Directive on the protection of persons reporting on breaches of Union law). Information provided by final recipients or beneficiaries in accordance with this paragraph may only be taken into account by the Commission if accompanied by a proof that the concerned final recipient or beneficiary has lodged a formal complaint to the competent authority.

RemovedArticle 4 – paragraph 3 b (new): 3b. Based on the information provided by the final recipients or beneficiaries in accordance with paragraph 3 a, the Commission shall ensure that any amount due by government entities or Member States in accordance with paragraph 2 is effectively paid to final recipients or beneficiaries. Where necessary: / (a) with reference to funds from the Union budget managed in accordance with Article 62(1)(c) of the Financial Regulation, the Commission shall: / (i) recover the payment made to any of the bodies referred to in points (v) to (vii) of Article 62(1)(c) of the Financial Regulation for an amount equivalent to the amount not paid to final recipients or beneficiaries, in breach of paragraph 2 of this Article; / (ii) transfer an amount equivalent to the amount referred to in the previous point to the Union reserve referred to in Article 12 of Council Regulation XXX (MFF Regulation). Such amount shall be considered margin left available within the meaning of point (a) of Article 12(1) of Council Regulation XXX (MFF Regulation) and shall be mobilised in accordance with Article 12(2) of Council Regulation XXX (MFF Regulation), for the benefit, to the possible extent, of the final recipients or beneficiaries referred to in paragraph 2 of this Article; / (b) with reference to funds from the Union budget managed in accordance with Article 62(1)(b) of the Financial Regulation: / (i) the obligation of government authorities or of Member States referred to in paragraph 2 of this Article …

RemovedArticle 5 – paragraph 1: 1. Where the Commission, taking into account any opinions of the Panel, finds that it has reasonable grounds to believe that the conditions of Article 3 are fulfilled, it shall send a written notification to that Member State, setting out the grounds on which it based its finding. The Commission shall without delay inform the European Parliament and the Council of such notification and its contents.

RemovedArticle 5 – paragraph 2: 2. When assessing whether the conditions of Article 3 are fulfilled, the Commission shall take into account all relevant information, including opinions of the Panel, decisions of the Court of Justice of the European Union, resolutions of the European Parliament, reports of the Court of Auditors, and conclusions and recommendations of relevant international organisations and networks. The Commission shall also take into account the criteria used in the context of Union accession negotiations, in particular the chapters of the acquis on judiciary and fundamental rights, justice, freedom and security, financial control and taxation, as well as the guidelines used in the context of the Cooperation and Verification Mechanism to track the progress of a Member State.

RemovedArticle 5 – paragraph 4: 4. The Member State concerned shall provide the required information and may make observations within a time limit specified by the Commission, which shall not be less than one month nor more than three months from the date of notification of the finding. In its observations, the Member State may propose the adoption of remedial measures.

RemovedArticle 5 – paragraph 5: 5. The Commission shall take into account the information received and any observations made by the Member State concerned, as well as the adequacy of any proposed remedial measures, when deciding whether or not to adopt a decision on any measures referred to in Article 4. The Commission shall decide on the follow-up to be given to the information received within an indicative time limit of one month, and in any case within a reasonable timeframe from the date of receipt of that information.

RemovedArticle 5 – paragraph 5 a (new): 5a. When assessing the proportionality of the measures to be imposed, the Commission shall have due regard to the information and guidance referred to in paragraph 2.

RemovedArticle 5 – paragraph 6: 6. Where the Commission considers that the generalised deficiency as regards the rule of law is established, it shall adopt a decision on the measures referred to in Article 4 by means of an implementing act.

RemovedArticle 5 – paragraph 6 a (new): 6a. At the same time as it adopts its decision, the Commission shall simultaneously submit to the European Parliament and to the Council a proposal to transfer to a budgetary reserve an amount equivalent to the value of the measures adopted.

RemovedArticle 5 – paragraph 6 b (new): 6b. By way of derogation from Article 31(4) and (6) of the Financial Regulation, the European Parliament and the Council shall deliberate upon the transfer proposal within four weeks of its receipt by both institutions. The transfer proposal shall be considered to be approved unless, within the four-week period, the European Parliament, acting by majority of the votes cast, or the Council, acting by qualified majority, amend or reject it. If the European Parliament or the Council amend the transfer proposal, Article 31(8) of the Financial Regulation shall apply.

RemovedArticle 5 – paragraph 6 c (new): 6c. The decision referred to in paragraph 6 shall enter into force if neither the European Parliament nor the Council reject the transfer proposal within the period referred to in paragraph 6b.

RemovedArticle 5 – paragraph 7: Deleted

RemovedArticle 5 – paragraph 8: deleted

RemovedArticle 6 – paragraph 1: 1. The Member State concerned may, at any time, submit to the Commission a formal notification including evidence to show that the generalised deficiency as regards the rule of law has been remedied or has ceased to exist.