31997H0344

COMMISSION RECOMMENDATION of 22 April 1997 on improving and simplifying the business environment for business start-ups (97/344/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to the Council Resolution of 10 October 1994 on giving full scope to the dynamism and innovatory potential of small and medium-sized enterprises, including the craft sector and micro-enterprises, in a competitive economy (1),

Having regard to the Commission Report presented to the Madrid European Council of 15 and 16 December 1995 on small and medium-sized enterprises: a dynamic source of employment, growth and competitiveness in the European Community (2),

Having regard to the Commission Communication on an integrated programme in favour of small and medium-sized enterprises (SMEs) and the craft sector (3) and the Council Resolution of 9 December 1996 (4),

Having regard to the Council Resolution of 8 July 1996 on legislative and administrative simplification in the field of the Single Market (5),

Having regard to the European Parliament Legislative Resolution of 19 September 1996 embodying Parliament's opinion on the proposal for a Council Decision on a third multiannual programme for small and medium-sized enterprises (SMEs) in the European Union (1997 to 2000) (6),

Having regard to the Commission Action Plan for Innovation (7) which inter alia underlines that cumbersome administrative formalities can have a negative effect on businesses' potential for innovation,

Having regard to Council Decision 97/15/EC of 9 December 1996 on a third multiannual programme for SMEs in the European Community (1997-2000) (8),

Whereas:

I. INTRODUCTION

(1) Improving and simplifying the business environment is considered by European business organizations to be of the highest priority as business today has to operate in a complex and ever changing environment. Many regulations have been brought into force over the last twenty years and, together with administrative procedures, they have a cumulative effect on enterprises which stifles their daily operations and affects their competitiveness. Moreover, the burden is disproportionately heavy on smaller enterprises which, in comparison to large enterprises, do not have the human or financial resources to cope with it (9). Since it is widely acknowledged that SMEs (10) are the greatest potential job creators, public authorities should now consider, as a matter of priority, ways of reducing the administrative burden on these enterprises. It is vital that their potential for growth and job creation is encouraged and supported.

II. A FRAMEWORK FOR A SIMPLIFICATION POLICY

(2) Regulatory and administrative burdens stem mainly from the Member States' regulations. Through the application of the subsidiarity principle, decisions and measures are taken at all levels, national, regional and local. The number of regulations issued by Member States is higher by far than the number of Community regulations and directives.

(3) A framework for a simplification policy therefore requires coordination between the public authorities in the Member States, not only between the central departments but also between them and local authorities. France, Portugal and the United Kingdom have set up a specific department, under the responsibility of the Prime Minister, whereas most of the other Member States have set up advisory committees which often do not have the same authority. The task of simplification is difficult and requires authority and power with respect to ministerial departments, as well as adequate financial and human resources (11). The awareness of officials should be raised with the help of information campaigns and officials who handle SME matters should receive appropriate training (12). There needs to be a change of culture towards a more customer-oriented approach between administrations and businesses with public administrations proactively thinking more about how to help business rather than how to control it (13). Finally, a successful simplification policy is dependent on continuous and systematic assessment and the monitoring of the results achieved in consultation with business organizations.

III. THE REGULATORY ENVIRONMENT

(4) A difficult or complex regulatory environment can discourage entrepreneurship and the creation of new businesses. This is particularly the case when a business decides to develop its operations in another Member State, where it is not so familiar with the language, the culture, or how foreign administrations work. Whereas the need for appropriate regulations is not questioned, it is the cumulative effect of regulations, their complexity and their compliance costs which cause concern, and risk making the impact on business disproportionate to the objective of the regulations. In the end, complex and costly regulations are difficult to implement and lead to criticism and avoidance.

(5) Member States should therefore be more aware of the effects of regulation on business. The aim should be to identify the improvements that are necessary, bearing in mind that a balance has to be struck between the need for changes and the burden imposed on business because it has to assimilate the change, even if it is a positive one.

(6) When proposing new legislation, the legislator should have full knowledge of the impact the regulation will have on businesses in terms of compliance costs and administrative burdens. Business-impact assessments and cost-benefit analyses, where appropriate, should be carried out in close cooperation with the business community. In doing so, the legislator should give special attention to the compliance requirements for SMEs. If SMEs can comply with the regulation at a reasonable cost, then so too can large firms, whereas the reverse is not necessarily true. This 'think small first` principle should act as a litmus test (14).

(7) The compliance costs for business resulting from necessary regulations have to be balanced against other policy requirements, for example in respect of health and safety or the environment. Member States should consider introducing, where appropriate, derogations or simplified procedures to help SMEs which do not unacceptably reduce the objective of the regulation. For example, in regulations dealing with taxation, company law, statistics or the environment, the introduction of threshold levels or reduced monitoring and reporting requirements can significantly reduce the burden and compliance costs for SMEs. Threshold levels should not, however, act as a disincentive to growth and should be applied with some flexibility. For example, enterprises should be allowed to remain in a specific SME scheme as long as their turnover does not exceed the turnover threshold level of the scheme by a certain percentage (15).

IV. SIMPLIFYING BUSINESS START-UP FORMALITIES

(8) In addition to the general principle mentioned above, the Commission wants to highlight some practices which it considers useful to promote in the Member States because they are important elements in facilitating the start-up phase of a business. The first part concerns better coordination of the way public authorities deal with the start-up process and simplification of the administrative procedures.

(9) Most Member States require a number of different kinds of registration, (tax, social security, statistical, business and trade registers, and so forth). The number of different contact points for registration purposes varies from one Member State to another, but can easily be in as many as ten different locations which makes registration time consuming for the businessman/woman, particularly when the same registration point has to be revisited. At each registration point a form has to be filled in, often containing similar requests for information. The number of formalities and procedures depends on the legal structure that a business chooses. It is the highest for limit companies, for which in one Member State, for example, 23 different procedures and forms are necessary (16). In addition, authorizations to start up a business are delivered by different authorities, which again makes it complicated for the new businessman/woman to find his/her way quickly. As a result, it can take weeks or even months before a business can actually start operating. This first exposure to bureaucracy, together with the cost of registration which varies from one Member State to another but can be as high as ECU 2 000 (17), is very discouraging and sets the scene for future relations between the new business and the administration.

Single contact points

(10) The Commission proposes that Member States should identify all the formalities at all levels that are required when starting up a business and consider ways to coordinate and simplify them. A good example is the Belgian Auditform project which includes an inventory of all the procedures and administrative formalities imposed on business, with a view to assessing their efficiency and the burdens they cause for SMEs. A further example of coordination can be found in the French system of Enterprise Formalities Centres, (Centres de formalités des entreprises - CFEs) (18) and in the German 'Gewerbeämter`. These systems are based on the principle of a single contact point or communication point between business - according to their type and/or nature - and public authorities at all levels.

(11) Experience shows that administrative start-up formalities in Member States can be dealt with in between one and five days, as compared to a delay of 120 days which is the longest period reported to the Commission.

(12) Such a single contact point for business start-ups can play an even more important role if it becomes an intermediary for all the formalities that have to be complied with during the life of a business, e.g. change of address or statutes, transfer of ownership, employment issues, permits and licences, etc. In France, for example, discussions are underway to integrate into the CFEs the formalities relating to employment. While reaching such a level of coordination between public authorities requires a high degree of determination and persuasion, the Commission knows from its contacts with business that such a single contact point is very welcome.

A single registration form

(13) Another important element is the need to coordinate the information that is requested from business, not only in the start-up phase, but also in the development phase. France has interesting experience to share in this area as well. Information requested from a new business is incorporated into a single questionnaire managed by the CFEs (19). This questionnaire is developed by CERFA (20) which is the central authority responsible for all information-gathering formalities.

(14) A single form constitutes a major simplification for the new entrepreneur as it gathers all the information required by any part of the administration to register the new enterprise. The advantage of such a system is that the information necessary for registration purposes is given only once and queries about the filling-in of the form can be answered by the CFE. However, the single form system in France has a drawback in that the form has to be accompanied by supporting documents which take time to gather and authenticate. Administrations should avoid sending a newly registered business large numbers of forms and questionnaires from different authorities as this significantly reduces the advantages of the single form.

(15) Public administrations should be encouraged to share information and to make greater use of available databases and information technology and should adapt, where appropriate, their regulations regarding data protection (21). It is to be understood that this sharing of information relates to non-confidential data. In Italy, Law No 241 of 1990 introduced various administrative simplification measures. For example, it states that whenever a person who is being asked for specific information declares that the information is contained in documents which are already in the hands of the administration that is asking for it, or in another branch of the administration, then the administration itself must obtain the information. Similarly, in Denmark, a Bill is in preparation which would prohibit public authorities from requesting information from a business if that information can be obtained elsewhere in the administration. It would seem to follow that businesses are allowed to remain silent if information requested has already been given to another public authority.

A single identification number

(16) In line with the proposals for a single contact point and a single form, a single identification number for enterprises is a useful simplification measure. Such a system exists in France, Sweden, Portugal, and Denmark (22). The basic advantage for business is that it can use the same number for all its contacts with different administrations. It is also very useful for public authorities as it simplifies the management of databases and the sharing of information.

Authorizations, licences and permits

(17) Apart from the abovementioned registration formalities, a new business also has to obtain a number of authorizations giving it the right to start-up an activity and/or access to a specific occupation. This can be a general authorization to start an economic activity, as is the case in Luxembourg, or a more specific authorization to pursue a particular occupation, e.g. tourist guide, hairdresser, or travel agent. Permits or licences are also often needed for construction works, environmental protection purposes or health and safety reasons, etc. The type and complexity of authorizations necessary vary considerably from one to another. Sometimes, establishment criteria have to be satisfied, e.g. good repute, financial soundness, professional qualifications or experience. The Commission is concerned to ensure the general freedom of establishment in the Single Market, notably through the mutual recognition of professional qualifications. It considers that the Member States should regularly review and simplify, where appropriate, their authorization procedures in order to maximise the potential for the creation of new business.

(18) Lengthy procedures, the need to obtain authorizations, and the number of different awarding authorities can constitute a disincentive to business. Italy has adopted two laws (23) which set out in general terms, principles designed to simplify authorization procedures. These include the possibility of starting an economic activity without an explicit authorization order, and the principle of consent by silence (24). This means that if the administration concerned fails to take a decision before a fixed deadline, the application for an authorization is deemed accepted. In January 1996, Germany adopted a series of laws to speed up authorization procedures with the objective of reducing the length of time taken for planning procedures. This was seen as making Germany more attractive as a business location, and part of its programme to generate higher investment and more jobs.

(19) It is difficult to assess the results of the laws in Italy. On the other hand, some positive experience is reported from Baden-Württemberg which launched such simplification reforms in 1992. The underlying principles of these initiatives in respect of authorizations are worth promoting in other Member States (see Annex I). The simplification of authorization procedures often requires a change of working practices and culture in the civil service, and a move towards more self-regulation on the part of business.

(20) The aforementioned proposals should greatly simplify the development of trading activities in the European Community. It will be much easier for a businessman/woman to start operating in another Member State if he/she can turn to a single contact point, only has one form to fill in, receives a single identification number in that Member State, and is quickly granted the necessary authorizations to start operating. Moreover, the single identification number could be used for other policy areas, such as VAT, which is the case in France and would be a relatively easy simplification measure for other Member States. Finally, these measures should greatly facilitate the work of any private or public organizations which are advising businesses interested in establishing an activity in the European Community.

V. STIMULATING NEW BUSINESS

(21) There are other areas where best practice could be promoted from one Member State to another. These relate to taxation, social security, accounting and statistical requirements as well as company law. Some Member States (25) have introduced incentives or simplification measures in these fields, notably for new enterprises as well as with a view to encouraging self-employment (see Annex II). Most of these measures relate to the first years of development of a business rather than the start-up phase. These measures are important bearing in mind that although approximately 80 % of new firms are still in existence after the first year, only 65 % are still in business after three years, and only 50 % after five years (26). Measures in this field are also of importance because very often the legislation they cover (taxation, company law, employment issues, etc.) discourages those who wish to start up a company. For example, taking-on an employee means filling in over ten different forms. Mandatory filing requirements vary from one field of regulation to another (27), and procedures required in company law for shareholders' meetings are often inappropriate for small companies. This is why Germany adopted legislation simplifying procedures in the kleine Aktiengesellschaft (28).

(22) In respect of improving the fiscal environment, a large number of Member States have introduced some kind of tax relief for SMEs or for new business (29) (see Annex III). In addition, France, the United Kingdom and the Netherlands have introduced tax reductions for private individuals investing in start-ups, rather similar to the Business Angels concept in the United States (30).

(23) Tax administration is also an area which needs reform as the number of different taxes that have to be paid, the different dates for payment, the long delays for reimbursement of taxes, the use of stamps and other administrative procedures are time consuming and cumbersome.

(24) In the view of the Commission, tax obligations will be substantially simplified by the implementation of the proposals set out in its Programme for the introduction of the New Common System for VAT (31). The cost of compliance with tax obligations borne by all businesses should be reduced by these proposals, and proportionally to a greater extent for SMEs. In this respect, the most significant element in the proposals is the principle of a single place of supply. This will mean that any business trading in more than one Member State will need to account for the tax on all its activities to the Member State in which it is established, thus eliminating the need to deal with more than one tax authority. In addition, it will be accompanied by a radical review of reporting and accounting obligations which will achieve a better balance between the needs of the tax administration and those of business.

(25) In the current VAT system, there is scope to alleviate the burden on SMEs. Most Member States exempt micro-enterprises from VAT liability, although the threshold for such an exemption varies widely, e.g. a turnover of ECU 2 500 in Denmark and ECU 56 850 in the United Kingdom.

(26) For those enterprises which are liable for VAT, the frequency of VAT declarations and payments can be a great burden. Some Member States have introduced simplification measures including a VAT declaration on an annual basis for small companies and/or a payment term which is identical to the declaration term. In the case of monthly payments, small enterprises are often paying VAT on invoices where payment has not yet been received from their client. This is why many Member States require only quarterly and, for micro businesses, yearly payments (32). In addition a number of Member States permit small enterprises to pay VAT after receipt of the client's payment rather than when establishing the invoice (cash accounting) (33). The European Parliament has published a working paper on the impact of VAT and Intrastat obligations on SMEs (34) which gives an outline of potential measures including switching to a system of quarterly VAT declarations.

(27) Administrative obligations arising from intra-Community trade is another field for possible simplification. France and Italy have integrated the Intrastat obligation and the recapitulative statement required by the Sixth Council Directive on VAT (35). This means that enterprises only have to fill in a single form which can be used by both competent authorities. The French and Italian system is not at present ideal because both can require monthly returns for the combined Intrastat/VAT declaration, and the threshold below which SMEs are exempted is still quite low. Another simplification relates to consolidation of the time periods adopted for returning the Intrastat declarations and VAT recapitulative statements following the implementation of different kinds of regulations. Where Member States still apply different time periods for Intrastat declarations and VAT recapitulative statements using different threshold levels, they are invited to align these requirements and to adopt quarterly or annual returns for SMEs.

(28) Member States should consider the benefit of specific cooperation between the social security and taxation departments. These departments constantly interact with business and impose most of the administrative burdens on enterprises. Such cooperation can result in both administrations using a common identification number, sharing information and criteria, deciding to fix the same payment dates or to collect income tax and social security contributions through one system (36). The fact that employment is the major priority for the European Community and the governments of the Member States makes it all the more important that time is devoted by public authorities to examining why employers are discouraged from taking on employees. Member States should take the necessary steps to remove the administrative burdens which accompany taking on employees (37) and encourage a more flexible labour market (38).

(29) Some Member States have also introduced schemes where businesses which take on one or more employees for the first time (39) have their social security contributions reduced or even waived.

(30) Most of the Member States have regulations limiting access to certain occupations, such as hairdressing, plumbing, operating travel agencies or taxis, etc., which often act as a barrier to entry. Often these regulations have been requested by business themselves as a form of protection against bad or illegal operators. The Commission recommends that these regulations should be re-examined on a case-by-case basis, and assessed to see that the right balance exists between protection for the consumer and necessary competition.

(31) Micro enterprises, in particular self-employed entrepreneurs, face particular problems and probably represent the category of SMEs which, proportionately, suffer most from administrative burdens and regulations, because they have to deal with both the relevant legislation and the attendant administrative burdens on their own. This, together with the financial risks and the lack of social security, discourages many young people from starting a business on their own. Some Member States have specifically addressed this problem and have adopted tax incentives, accounting simplifications, and pension schemes, with a view to encouraging young people and the unemployed to develop their own businesses (40).

VI. CONCLUSION

(32) The exchange of best practice on improving and simplifying the environment for new businesses showed that there is substantial interest from public authorities and business representatives concerning simplification measures experienced elsewhere. Although similar simplification initiatives in Member States are implemented in different ways and the regulatory environment for business start-ups differs widely in the Member States, it is possible to identify some best practice which can be used as a benchmark by the other Member States. Some general principles were identified and should be brought to the attention of the Member States and other interested parties. Concrete measures should therefore be adopted by the Member States to reduce and simplify the administrative and regulatory burdens imposed on new firms, with the practical effect of saving time and reducing the costs that are imposed on these enterprises,

HEREBY RECOMMENDS:

Article 1

Objectives

Member States should take the necessary measures to improve and simplify the business environment, in particular relating to the establishment of new businesses and their first years of development, thus stimulating their potential for innovation and encouraging the growth of enterprises and subsequent job creation.

Member States are invited to take the most appropriate measures to reorganize, simplify and update their own administrative, legal and fiscal systems, in order to:

(a) improve the interface between the administration and the business community, become more customer-oriented, reduce the time taken to process requests from businesses, and give authorizations within a specified time;

(b) encourage business start-ups by means of a favourable regulatory environment and simplify, amend or abolish existing regulations that hamper the creation of businesses and their first years of existence.

Article 2

Framework for a simplification policy

A long-term and coherent policy is needed to implement simplification measures successfully and to ensure effective coordination between public administrations. To this end, the Commission recommends that Member States and public authorities at all levels develop in consultation with the business community a simplification policy to which they are strongly committed and which should comprise:

(a) the setting-up of a specific department or unit at the appropriate level with the authority to coordinate the simplification policy and measures;

(b) proper information and training of officials with a view to developing a service-oriented attitude towards business, thus improving the interface between public administrations and enterprises.

Article 3

Regulatory environment

1. The impact of regulation on businesses, in particular on SMEs, should be continuously assessed in full consultation with the business community and in particular:

(a) Member States should apply 'the think small first` concept which takes account of the interests of SMEs at the earliest stage of considering new legislation and its accompanying administrative procedures;

(b) where appropriate, derogations, thresholds or simplified procedures benefiting SMEs should be introduced. However, thresholds should allow the necessary flexibility so that they do not act as a disincentive to growth;

(c) the effects of regulation and administrative procedures on enterprises should be assessed wherever appropriate with the assistance of a Committee composed of government and business representatives.

2. Member States should consider introducing a systematic evaluation procedure to asses the impact on business of regulatory proposals to ensure that the appropriate balance between the objectives and the means is achieved and the compliance costs and administrative burdens understood.

3. Business impact assessment systems should include cost-effectiveness analysis or cost-benefit analysis as appropriate, and there should be comprehensive consultation procedures with business organizations, including those representing SMEs.

Article 4

Simplifying business formalities at the start-up phase

1. Administrative procedures which are required for starting up a new business should be simplified and made more user-friendly, so that entrepreneurs can obtain a quicker and more efficient service and are encouraged in their new business venture. The Commission therefore recommends that Member States, or any appropriate level of public authority, consider the advantages of:

(a) introducing a single business registration form;

(b) setting up single contact points where enterprises can deposit the single registration form mentioned in point (a). The contact points would be responsible for forwarding the information contained in the application to all other administrative departments within a fixed period of one or two working days;

(c) introducing a system whereby a business is identified by a single number which it can use with any public or government department;

(d) ensuring that the different government departments avoid introducing duplicated or superfluous forms and/or contact points;

(e) allowing business to reject a demand for non-confidential information, if this information is available from another government department;

(f) using information technology and databases as much as possible for the transmission and authentication of the information supplied and for the sharing of information between departments, subject to appropriate safeguards protecting private data;

(g) setting clear targets in terms of deadlines for the processing of enterprises' requests and the granting of licences or authorizations;

(h) introducing, where appropriate, a system whereby an application is deemed to have been automatically granted if the administration has not responded within a fixed deadline.

2. Member States are also invited to examine the possibility of extending the scope of the contact points so as to cover the whole life cycle of an enterprise, not only the start-up phase, and any administrative interface between public authorities and enterprises.

Article 5

Stimulating businesses in their first years of development

1. Constraints of a tax, social, environmental and statistical nature that hamper the establishment and first years of development of an enterprise should be alleviated or abolished. Member States are invited to:

(a) examine any possible improvements in the fiscal treatment of newly established enterprises;

(b) take the appropriate fiscal measures to encourage outside investment in start-ups, e.g. the 'business angel` concept;

(c) alleviate employers' social security contributions, at least for a certain period, when employees are taken on;

(d) examine possible improvements to the administrative or legal provisions which can discourage companies from taking on employees in order to promote a more flexible labour market;

(e) establish a dialogue between social security and taxation offices with a view to reaching a coordinated interface with business;

(f) examine the different reporting requirements to which SMEs are subject, e.g. the nature of the reports, their frequency, and the period of time that records have to be kept, in order to simplify and consolidate requirements as much as possible;

(g) examine existing administrative or legal provisions with a view to simplifying or abolishing those which unnecessarily limit access to certain occupations.

2. Member States are invited to reduce the impact of VAT and/or Intrastat obligations on SMEs. Small enterprises should be allowed to make quarterly VAT returns, and an optional VAT exemption should be offered.

3. Member States are invited to examine ways of improving the situation for micro-enterprises, in particular for self-employed entrepreneurs, in the fields of taxation, social security and pension schemes.

Article 6

Coordination at Community level

1. The Commission will continue its coordinating role with the Member States and the European business organizations within the framework of the group on improving and simplifying the business environment, to establish benchmarking of best practice.

2. To enable the Commission to evaluate the progress that has been made, Member States are requested to report to the Commission, on a yearly basis, concerning the measures which they have adopted in order to put this Recommendation into effect.

The Commission will keep the European network of Euro Info Centres fully informed of those developments in order to enable them to supply information to enterprises required to comply with administrative formalities in other Member States.

Article 7

This Recommendation is addressed to the Member States.

Done at Brussels, 22 April 1997.

For the Commission

Christos PAPOUTSIS

Member of the Commission

(1) OJ No C 294, 22. 10. 1994, p. 6.

(2) CSE(95) 2087, European Commission, DG XXIII, 1995.

(3) COM(96) 329 of 9 July 1996.

(4) OJ No C 18, 17. 1. 1997, p. 1.

(5) OJ No C 224, 1. 8. 1996, p. 5.

(6) OJ No C 320, 28. 10. 1996, p. 163.

(7) COM(96) 589 of 20 November 1996.

(8) OJ No L 6, 10. 1. 1997, p. 25.

(9) According to three studies, the average cost of administrative burdens is between 6 and 30 times higher for SMEs than that for larger businesses (EIM: Administratieve lasten bedrijven 1993; G. Barbieri and V. Lo Moro: Utenti e Pubblica Amministrazione, il Mulino, 1996; Institut für Mittelstandsforschung: Bürokratie - ein Kostenfaktor: eine Belastungsuntersuchung bei mittelständischen Unternehmen, 1995).

(10) Defined by the Commission recommendation of 3 April 1996 concerning the definition of small and medium-sized enterprises, OJ No L 107, 30. 4. 1996, p. 4.

(11) An interesting example is the United Kingdom's Deregulation Unit which is charged with coordinating the UK Government's deregulation policy between all government departments and ensuring that the business community's point of view is taken into account and that compliance costs and administrative burdens are minimized. The Unit comes under the responsibility of the Deputy Prime Minister and the Cabinet office, which gives it the necessary authority vis-à-vis other ministerial departments.

(12) The Flemish Institute for Self-employed Entrepreneurs - VIZO - in Belgium is a government institution founded in 1991. Its mission is to promote and stimulate free and creative entrepreneurship, notably by training and by simplifying administration. VIZO gives advice, undertakes research and takes initiatives in raising awareness among those concerned, while at the same time developing methods and techniques for simplifying administrative tasks. For example, VIZO has organized a training course for civil servants who handle SME matters within the Flemish administration. The aim is to provide these civil servants with an insight into, and knowledge of, the basic principles and techniques involved in simplification and quality services, and to demonstrate how they themselves can function as initiators within their administration.

(13) The Municipality of Korsør, in Denmark, is a municipality with a population of 20 000. The municipality has set up a development department which acts as a consultancy partner providing qualified know-how and expertise to the business sector. This requires both training for the employees and changes in the organizational set-up in order to meet demands. The department functions as the coordinating body for all business matters with the local authority.

(14) As part of its task the United Kingdom Deregulation Unit is responsible for ensuring that new regulations and administrative procedures are introduced only when strictly necessary. Before any new regulation is made the Government must assess its cost to business and publish the results. Ministers must satisfy themselves that the cost is justified by the benefits. Because SMEs are most vulnerable to overregulation and red-tape, Ministers must also carry out the 'small business litmus test`. This means that small businesses must be consulted on every new regulation to ensure that they will be able to cope. In Germany, it was recently decided that a similar assessment be made relating to the administrative costs imposed by new legislation, in particular on SMEs.

(15) An example of this is the United Kingdom annual accounting scheme for VAT where there is flexibility in the upper threshold of £ 300 000 so that firms can remain in the scheme until their turnover exceeds £ 375 000.

(16) Study by Logotech Étude comparative des dispositions légales et administratives nécessaires pour la formation de PME dans six pays de l'Union européenne (FR, DE, GR, IT, IRL, UK) and IDEM CD-ROM by the Paris Chamber of Commerce and Industry.

(17) Id.

(18) The Centres de Formalités des Entreprises were set up in France in 1981 with a view to simplifying the completion of some of the formalities that an enterprise has to comply with, for example, legal, fiscal, social and statistical formalities linked to events in the lifetime of a business, including the creation or start-up phase. The CFEs act as single contact points to the various administrations, such as the local trade register, the taxation office, the administrations in charge of social security and pensions, the statistical office, etc. Once the enterprise has given the required information to the CFE, the latter transmits this information to the other relevant administrations, including the Statistical Office (Insee). Insee also plays an important role as it is in a charge of the national enterprise discretory (Sirene) and gives a national identification number (Siren) to the new enterprises.

(19) The French questionnaires M0 and P0 (one for individual entrepreneurs, one for corporate bodies) issued by the Centre for the registration and revision of forms (CERFA) gather, on a single page, all the information required by any administrative body to register the new enterprise and to apply the relevant rules to this new enterprise. The applicant must attach to the completed questionnaire a number of relevant documents. These documents, which may be the original or a certified copy, are usually the birth and nationality certificates for natural persons and members of a partnership and articles of association for corporate bodies. They may also be proof of preliminary registration for regulated professions.

(20) Cerfa: Centre d'enregistrement et de révision des formulaires administratifs/Committee for the registration and revision of forms.

(21) For example, the Business Register in Italy, administered by the Chambers of Commerce, gives information about all enterprises (name, address, statutes, annual accounts). Part of this information was previously stored, in paper form, at the local court. This new register offers in a single database information regarding business which should systematically be used by the public administration. This is unlikely to raise any concern regarding data protection principles. See also Directive 95/46/EC of the European Parliament and of the Council on the protection of individuals with regard to the processing of personal data and on the free movement of such data, OJ No L 281, 23. 11. 1995, p. 31.

(22) In Sweden, a single identification number has existed since 1975. This number is used by the enterprise from the start-up phase until its dissolution. The number can be kept by the company even if it changes its name and is used for administrative purposes in areas such as taxation, insurance, banking and telecommunications. In France, the single number 'Siren` was established by decree in 1974.

(23) Law No 241 of 1990 and Financial Law No 537 of 1993.

(24) In the view of the Commission, this possibility would not cover authorizations dealing with such issues as emissions of dangerous substances. In this case, according to Community law and national law, an explicit authorization is necessary and is in the interests of the business itself.

(25) In the framework of the Danish 'new business creation` policy, the Danish Government has proposed an action plan, including actions to lighten the administrative burdens by:

- removing or simplifying existing administrative regulations,

- removing or simplifying taxes and duties,

- setting up a single information point,

- developing new procedures to assess the administrative consequences of new legislation.

(26) Enterprises in Europe - Fourth Report, p. 62.

(27) According to a publication entitled Überprüfung von administrativen Pflichten für Unternehmen by the German Independent Commission Rechts- und Verwaltungs-vereinfachung des Bundes, the so-called Waffenschmidt-Kommission (Federal Ministry of the Interior, 1994) there is a large variety of requirements for maintaining records. For example, in the area of personnel and salary administration, the publication indicates that the conditions for maintaining 119 different records could be alleviated.

(28) See also Article 4 (b) of the Commission Recommendation on the transfer of SMEs of 7 December 1994, OJ No L 385, 31. 12. 1994, p. 14.

(29) In Belgium, a system of reduced corporation tax is available for SMEs. Provided certain conditions are met, a company whose assessable profit does not exceed ECU 25 733 is charged at the reduced rate of 28,84 % instead of the standard rate of 40,17 %. In addition, there is some flexibility in the system for advance payment of income tax for persons aged under 35 setting up in business as a sole trader or as an active member of a company. They pay no penalty during the first three years for unpaid or insufficient advance payments.

(30) Commission Communication on the improvement of the fiscal environment of small and medium-sized enterprises, OJ No C 187, 9. 7. 1994, p. 5, paragraph 6.

(31) COM(96) 328 of 22 July 1996.

(32) The United Kingdom annual accounting scheme allows one VAT return each year (rather than quarterly). There is flexibility in the upper threshold of £ 300 000 so that firms can remain in the scheme until their turnover exceeds £ 375 000.

(33) The United Kingdom cash accounting scheme allows SMEs with a turnover below £ 350 000, to account for VAT on the basis of payments made and received, rather than on invoices. Germany has a similar scheme. See also Article 2 (3) (a) of the Commission recommendation on payment periods in commercial transactions of 12 May 1995, OJ No L 127, 10. 6. 1995, p. 19.

(34) European Parliament, Directorate-General for Research, Economic Affairs Series W-25, 5-1996.

(35) OJ No L 145, 13. 6. 1977, p. 1.

(36) In the UK and Ireland, separate departments are responsible for income tax and social security contributions, but both contributions are collected together via the payroll system 'PAYE`.

(37) Since January 1996, businesses in France only have to fill in one form, (déclaration d'embauche unique), instead of the eleven that were previously necessary when taking on an employee. A single contact point for social security contributions dealing with all the formalities required in this field is also planned. Moreover, a pilot scheme is currently underway where seasonal or part-time work within enterprises can be paid for with a 'service voucher`. There is no need for a contract and the formalities with the authorities are reduced because the voucher is both a means of payment and an instrument for informing the relevant authorities.

(38) Germany has raised the threshold below which the unfair dismissal law is inapplicable from five to ten employees with a view of increasing micro-enterprises' propensity to take on employees.

(39) In Belgium, the Plan Plus Un grants reductions in employer's social security contributions for businesses who hire a first employee. No social security contributions are due for the first year, 75 % and 50 % reductions are foreseen for the second and third years respectively. A similar scheme exists when a second and a third employee is taken-on (Plan plus-deux, plus-trois). The Plan Avantage à l'embauche involves cuts in employer's social security contributions for the hiring of long-term unemployed.

(40) In Belgium and Finland, for example, self-employed persons who start a business for the first time can maintain the right to unemployment benefit. In France, self-employed persons can benefit from simplified accounting rules which are harmonized with the taxation requirements. As a result, only one accounting book has to be kept instead of three.

ANNEX I

SEVEN BASIC PRINCIPLES FOR PROMPT AUTHORIZATION

- The decision should be 'centralized` at one point (for example, the single contact point).

- Where appropriate, the principle of, 'consent by silence`, should be applied.

- The licensing authorities should operate strict management systems, in particular:

- someone must be appointed to take specific charge of the licensing procedures and should be responsible for completing them on time,

- a target deadline must be set for the completion of the procedures and should be binding on the decision-making authorities. Unless otherwise stated, the deadline should be 30 days,

- advice should be given to the entrepreneur even before his application has been submitted. This includes advice on the type and extent of the documents required for the application.

- The licensing authorities should have adequate staff and resources to be able to attend to procedures quickly. Provision should be made so that flexible human-resource allocation is possible for authorization procedures for large projects.

- The licensing authorities should hold regular discussions with their 'clients` to receive feedback about how the procedures are going, to identify weaknesses in the authorization procedures and to receive suggestions for improvement.

- The central authorities should support the local licensing authorities when they are implementing difficult administrative procedures. An especially effective way of doing so is by producing clear internal rules, guidelines and check lists.

- The legal provisions on which the authorities base their decisions must allow authorization to be as rapid as possible.

ANNEX II

IMPROVING THE BUSINESS ENVIRONMENT: BEST PRACTICE FOR START-UPS

Overview of measures taken by Member States

A. POLICY COORDINATION

>TABLE>

A. POLICY COORDINATION (continued)

>TABLE>

B. COMPANY REGISTRATION AND FORMS

>TABLE>

B. COMPANY REGISTRATION AND FORMS (continued)

>TABLE>

C. SIMPLIFICATION OF REGULATIONS AND DEROGATIONS FOR SMEs

>TABLE>

C. SIMPLIFICATION OF REGULATIONS AND DEROGATIONS FOR SMEs (continued)

>TABLE>

D. LABOUR MARKET FLEXIBILITY

>TABLE>

D. LABOUR MARKET FLEXIBILITY (continued)

>TABLE>

ANNEX III

SIMPLIFYING TAX ADMINISTRATION IN THE MEMBER STATES

>TABLE>