BRUSSELS DIARY

Exempting micro-entities from accounting requirements is not progress but risks fragmentation of the single market

While welcoming the Commission's 'European Economic Recovery Plan' to restore consumer and business confidence – in which the Commission pledges to reduce the burden on small and medium-sized enterprises (SMEs) – and supporting initiatives to simplify company law, it appears that the current Commission Proposal to exempt micro-entities from annual accounts requirements precisely fails to address these two issues, and could even lead to the fragmentation of the single market caused by the uneven application of the proposed option to exempt micro-entities left to members states' choice.

There are concerns that the accompanying impact assessment amplifies the advantages and fails to quantify and consequently under-estimates the disadvantages of exempting micro-entities from accounting requirements.

According to Dr Steve Priddy, ACCA director – technical policy and research, 'only relevant, light touch regulation will bring benefits; what we need before that is a more rigorous, transparent cost-benefit assessment capable of independent evaluation'.

It is therefore crucial to conduct empirical research on the way small businesses work and on processes they find vital (eg keeping an order book and managing cash flow) before premature decisions are made. This need is now even more keenly felt in the current economic climate where prolonged recession is a distinct possibility.

Last but not least, the reduction of administrative burdens for SMEs must be realised in a coherent and comprehensive manner. The Commission should therefore withdraw its current proposal and come back with a comprehensive proposal of revision of the 4th and 7th Company Law Directives in 2010.

---

Existing subscribers to this blog feed
Due to the changes in our format, please re-register to continue receiving your blog feeds.

A need for coordination in the field of taxation?

We can only welcome the G20 leaders proposal to improve coordination between national authorities as a key aspect of restoring confidence in global financial regulation.

The question is however now if there is a need for similar action in the field of taxation. It is hence crucial to determine if, under current global economic conditions, tax policy has helped or hindered national economies, as well as to understand whether greater global coordination between governments is a positive or negative influence on policy.

According to a paper entitled Competition or Coordination? Reassessing Tax in a Global Environment recently that ACCA (the Association of Chartered Certified Accountants) is about to publish, tax policy has encouraged companies to use debt rather than equity. This has inadvertently fuelled the global financial crisis, and is an example of how distortions in tax treatment of business activities should be removed.

Tax policy is and must remain in the hands of sovereign national governments, which should be able to run regimes suited to their stages of economic development, such as the flat-tax systems in post-communist countries in Eastern Europe. Powerful nations should not seek to bully or influence low-tax developing nations; however, coordination can play a useful part in areas such as green taxation, where only international action will be successful in achieving societal objectives. In the long term, a more radical approach to taxation, such as the establishment of a tax policy committee, may be necessary.

---

Existing subscribers to this blog feed
Due to the changes in our format, please re-register to continue receiving your blog feeds.