Vince Farrugia | Sunday, 15 March 2009

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Bringing the European Union reality home to small businesses

I have for a long time been advocating that the Maltese government should abolish completely financial reporting obligations for all micro enterprises, those firms with less than 10 employees.
I have persistently striven, both at European level through our representations at UEAPME (the European organisation representing SMEs and Craft Enterprises) and at EuroCommerce (the European federation of national organisations representing retailers and traders) and in various interventions in workshops and consultation sessions organized by the European Commission, and with the Ministry of Finance and all authorities striving to reduce bureaucratic burdens on small businesses, that the European Commission should adopt a harmonized policy to cause member states` governments to get rid of unnecessary accounting requirements for micro-enterprises. This action will be a major contribution to the efforts needed to ensure that small businesses have more of their time devoted to actually running their business and not to the production of lengthy accounting procedures.

The response of the Maltese authorities so far is the publication of MARSSE, the Malta Accounting and Reporting Standards for Smaller Entities. This is a less voluminous burden then what originally existed but I believe, and I stated this publicly often enough, that though most welcome, it is still not good enough.

The reason given by the Maltese Authorities for opting, following years of deliberations, for a reduction in accounting and reporting standards and not for a complete abolition is that it would not generate a net cost reduction for small businesses since most enterprises will have to keep filing accounts anyway for national administration purposes, banking reasons, suppliers demands and competition rules.

My advice has been that we should design a really simplified form that is easy enough for small business owners to fill without the necessary costs and burden of having to appoint accountancies and auditors to satisfy the legal requirements imposed by Government. I believe that the authorities are still in time to produce such a document without the need of any pressure from the European Commission, but the best the local authorities could do is MARSSE. Meeting MARSSE requirements is still a laborious task and its design was more an effort not to disturb unduly the banks and the taxation chiefs rather then really to liberate small business owners. In my view the MARSSE still poses a huge burden and rather then really relieving micro-enterprises, it satisfies the accountant’s fear of loss of revenue and the bank’s insistence on more detailed accounting by firms.

At UEAPME many delegates from other countries argue that abolition or simplified accounting requirements, simple enough to be complied with without the need for expensive accounting services, may cause a competition threat as cross-border consistency will no longer be guaranteed. Member States will be tempted to use such measures to protect their own micro-enterprises to the detriment of foreign competitors.

Now the European Commission, faced with pressure from representatives of small and medium enterprises at a time when economic recession is causing many business owners to desperateley strive to reduce current expenditure, has put forward a bold 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, which was flagged in the European Economic Recovery Plan in November 2008, now pass to the European Parliament and the Council of Ministers for consideration.
Internal Market and Services Commissioner Charlie McCreevy said: “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. This is a real opportunity to make life easier for the EU’s smallest companies. We intend to do whatever we can to encourage maximum take-up of this exemption by our Member States. As I said last year, when I announced my intention to bring forward this proposal, in the current climate, that is no mean saving. We will follow this up with more simplification efforts in the field of financial reporting by the end of 2009. This represents the Commission’s continued commitment to simplification and burden reduction. “
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 €1200 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 €500.000, net turnover of €1.000.000 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 the companies that have a key role in creating new jobs and economic activities but also have limited resources to comply with demanding regulatory requirements.
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).
In my view Malta should know move forward and accept the new European Commission proposal and remove the requirement on Maltese small businesses to produce annual audited accounts reporting requirements.
In consultation with GRTU we can then agree on a much reduced version of MARSSE. MARSSE is an acountants’ proposal. Government should now introduce a micro-enterprises` proposal in line with what the European Commission is advocating.
This is one occasion where small business owners must feel that the European Union has been brought home to them.

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