Despite their importance to the European economy, SMEs are facing “major uncertainties, supply constraints and labour shortages”, according to the European Commission. This is why, on Tuesday 12 September, the Commission proposed the ‘SME Relief Package’ which is a package of measures designed to relieve the burden on SMEs. It includes two key proposals: a regulation on late payments and a directive to simplify taxation for SMEs. Reducing administrative burdens and providing access to a skilled workforce are also among the measures detailed in the package.
Reducing payment times
To replace the current directive dating from 2011, the European Commission is proposing a regulation that will further shorten the maximum time limits for paying invoices. This applies both to public authorities that call on the services of a private company and to companies between themselves.
The Commission is proposing to set a maximum period of 30 days for honouring invoices (companies previously had 60 days between themselves). It removes the possibility of extending this period by contract. In the past, this possibility has often led to unfair terms that are difficult to enforce.
The regulation only maintains the possibility of extending the 30-day period for verification procedures when this is strictly necessary due to the nature of the goods or services.
If the payment deadline is not met, the settlement proposal introduces automatic interest, payable to the creditor without him having to claim it. The rate is set at 8% above the ECB reference rates (outside the euro area, the reference rate is set by the national central bank). The flat-rate compensation payable to the creditor is also increased from €40 to €50 per invoice.
When it comes to settling disputes, the Commission is calling for the presence of enforcement authorities in the Member States, in a free form (agencies, existing authorities, etc.). They should be able to initiate investigations whether or not a report has been made, gather information and, if necessary, take decisions and impose penalties in the event of non-compliance with the regulations. The aim is to offer an alternative to legal action and to encourage creditors to defend their case. SMEs often shy away from legal action for fear of losing customers.
The regulation and its measures aim to reduce late payments by 35%. According to Commission data, late payment is the biggest problem facing a third of SMEs.
The new rules proposed by the Commission are therefore “a good basis”, according to the envoy for SMEUnited, who nevertheless insists that the Member States must have the option of adopting even stricter rules, as is currently the case for some of them.
For the representative of European companies, BusinessEurope, on the other hand, care must be taken not to hinder the freedom of contract between players. “This is crucial in allowing the flexibility to capture business-to-business specific circumstances”, according to Markus Beyrer, Director General of BusinessEurope. This is also the opinion of the EuroCommerce organisation, which is concerned about the potential negative consequences for its members.
The European Commission provides for an adaptation period of one year after the adoption of the regulation before it applies.
To see the draft regulation: https://aeur.eu/f/8il
Simplifying taxation for SMEs
Even before late payment, administrative and regulatory burdens are the first obstacle identified by SMEs. This discourages them from exporting to other EU Member States, says the Commission. This is why it is proposing to simplify the taxation system for these companies at EU level.
In practical terms, the profits of SMEs should be taxed entirely in the country where they are based, rather than in all the Member States to which they export their products or services. A single administration will then be responsible for redistributing the income to which other member countries are entitled. This is known as the “head office tax system”.
According to the Commission, SMEs spend around 2.5% of their turnover on complying with tax obligations. The new directive could reduce these costs by a third, it claims.
The directive does not apply to SME groups with subsidiaries. An SME that grows to the point of becoming a group will no longer be able to benefit from the single taxation system.
Once again, SMEUnited welcomes the proposed directive: “It has the potential to significantly reduce administrative burdens and compliance costs for SMEs if Member States agree to introduce such a system”, said the organisation’s Chair, Petri Salminen.
To see the proposed directive: https://aeur.eu/f/8io
Reducing the administrative burden on SMEs
The work to remove obstacles for SMEs must not stop there, insists the Commission in its communication. It plans, for example, to establish a ‘once-only technical system’) by the end of the year to enable the exchange of administrative documents between authorities in Member States.
The Commission is also considering extending the scope of the ‘single digital gateway’ to adapt it to the needs of SMEs.
It also intends to tackle reporting obligations, with the aim of reducing them by 25%. The European Commissioner for Internal Market, Thierry Breton, explained to the press that this work was currently being overseen by the Commission’s Secretariat-General, so as to ensure a horizontal vision.
Strengthening skills
Lack of skills is the main obstacle for 17% of SMEs. To address this problem, the Commission intends to present an initiative for the recognition of qualifications and skills in the EU for third country nationals by the end of 2023.
Reviewing the definition of SMEs
In the longer term, the Commission states that it is necessary to assess the relevance of the definition of SMEs and that of mid-cap companies. The latter fare better than SMEs, but still face obstacles, particularly in terms of skills and administrative burden, according to the Commission.
In the future, the EU intends to develop a harmonised definition for mid-caps and assess possible ways of supporting them.
To see the Communication on the ‘SME Relief Package’: https://aeur.eu/f/8ip (Original version in French by Léa Marchal)