Commission Delegated Regulation (EU) No 480/2014 of 3 March 2014 supplementing Regulation (EU) No 1303/2013 of the European Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund

CHAPTER I

GENERAL PROVISIONS

Article 1

Subject matter

This Regulation lays down the following provisions supplementing Regulation (EU) No 1303/2013^:

(a) provisions supplementing Part Two of that Regulation applicable to the ERDF, the ESF, the Cohesion Fund, the EAFRD and the EMFF (hereinafter referred to as the ‘ESI Funds’) as regards the following: (i) criteria for determining the level of financial correction to be applied under the performance framework; (ii) rules in relation to financial instruments as regards the following: — additional specific rules on the purchase of land and on combining technical support with financial instruments, — additional specific rules on the role, liabilities and responsibility of bodies implementing financial instruments, related selection criteria and products that may be delivered through financial instruments, — rules concerning the management and control of certain financial instruments, including controls to be performed by managing and audit authorities, arrangements for keeping supporting documents, elements to be evidenced by supporting documents, and management and control and audit arrangements, — rules for withdrawal of payments made to financial instruments and consequent adjustments in respect of applications for payment, — specific rules concerning the establishment of a system of capitalisation of annual instalments for interest rate subsidies and guarantee fee subsidies, — specific rules setting out the criteria for determining management costs and fees on the basis of performance and the applicable thresholds, as well as rules for the reimbursement of capitalised management costs and fees for equity-based instruments and micro-credit; (iii) the method for calculating the discounted net revenue of operations generating net revenue after completion; (iv) the flat rate for indirect costs and the related methods applicable in other Union policies;

(b) provisions supplementing Part Three of that Regulation applicable to the ERDF and the Cohesion Fund as regards the methodology to be used in carrying out the quality review of major projects;

(c) provisions supplementing Part Four of that Regulation applicable to the ERDF, the ESF, the Cohesion Fund and the EMFF as regards the following: (i) rules specifying the information in relation to the data to be recorded and stored in computerised form within the monitoring system established by the managing authority; (ii) detailed minimum requirements for the audit trail in respect of the accounting records to be maintained and the supporting documents to be held at the level of the certifying authority, managing authority, intermediate bodies and beneficiaries; (iii) the scope and content of audits of operations and audits of the accounts and the methodology for the selection of the sample of operations; (iv) detailed rules on the use of data collected during audits carried out by Commission officials or authorised Commission representatives; (v) detailed rules concerning the criteria for determining serious deficiencies in the effective functioning of management and control systems, including the main types of such deficiencies, the criteria for establishing the level of financial correction to be applied and the criteria for applying flat rates or extrapolated financial corrections.

CHAPTER II

PROVISIONS SUPPLEMENTING PART TWO OF REGULATION (EU) No 1303/2013 APPLICABLE TO THE ESI FUNDS

SECTION I

Criteria for determining the level of financial correction to be applied under the performance framework

(Fourth subparagraph of Article 22(7) of Regulation (EU) No 1303/2013)

Article 2

Determination of the level of financial correction

(Fourth subparagraph of Article 22(7) of Regulation (EU) No 1303/2013)

The achievement/absorption coefficient shall be calculated in the following way:

(a) the final value achieved for each output indicator and key implementation step selected for the performance framework under a given priority shall be divided by the respective target values in order to obtain their final achievement rate expressed as a percentage of the target;

(b) the average of the final achievement rates for all the output indicators and key implementation steps selected for the performance framework under a given priority shall be determined. For that purpose, where a final achievement rate is calculated to be in excess of 100 %, it shall count as 100 %;

(c) the final value achieved for the financial indicator selected for the performance framework under a given priority shall be divided by the respective target value in order to obtain its final achievement rate expressed as a percentage of the target. For that purpose, where a final achievement rate is calculated to be in excess of 100 %, it shall count as 100 %;

(d) the average of the final achievement rates for all the output indicators and key implementation steps selected for the performance framework under a given priority shall be divided by the final achievement rate for the financial indicator selected for the performance framework under a given priority.

Article 3

Level of financial correction

(Fourth subparagraph of Article 22(7) of Regulation (EU) No 1303/2013)

The level of financial correction is fixed as follows:

(a) for an achievement/absorption coefficient below 65 % but not less than 60 %, a flat rate of 5 % shall be applied;

(b) for an achievement/absorption coefficient below 60 % but not less than 50 %, a flat rate of 10 % shall be applied;

(c) for an achievement/absorption coefficient below 50 %, a flat rate of 25 % shall be applied.

For priorities concerning more than one ESI Fund or category of region, the flat rate shall be applied to each ESI Fund and/or category of region.

SECTION II

Financial instruments

Article 4

Specific rules on the purchase of land

(Article 37(13) of Regulation (EU) No 1303/2013)

Article 5

Combination of technical support with financial instruments

(Article 37(13) of Regulation (EU) No 1303/2013)

Grants for technical support may be combined with financial instruments in a single operation pursuant to Article 37(7) of Regulation (EU) No 1303/2013 only for the purpose of technical preparation of the prospective investment for the benefit of the final recipient to be supported by that operation.

Article 6

Specific rules on the role, liabilities and responsibility of bodies implementing financial instruments

(Third subparagraph of Article 38(4) and Article 39a(7) of Regulation (EU) No 1303/2013)

The bodies implementing financial instruments shall perform their obligations in accordance with applicable law and act with the degree of professional care, efficiency, transparency and diligence expected from a professional body experienced in implementing financial instruments. They shall ensure that:

(a) final recipients receiving support from financial instruments are selected with due account taken of the nature of the financial instrument and the potential economic viability of investment projects to be financed. The selection shall be transparent and justified on objective grounds and shall not give rise to a conflict of interest;

(b) final recipients shall be informed that funding is provided under programmes co-financed by the ESI Funds, in accordance with the requirements laid down: (i) in Article 115 of Regulation (EU) No 1303/2013 for the ERDF, the ESF and the Cohesion Fund; (ii) in Article 66(1)(c)(i) of Regulation (EU) No 1305/2013 of the European Parliament and of the Council (¹) for the EAFRD; (iii) in Article 97(1)(b) of Regulation (EU) No 508/2014 of the European Parliament and of the Council (²) for the EMFF;

(c) financial instruments provide support in a way which is proportionate and has the least distortive effect on competition;

(d) differentiated treatment of investors operating under the market economy principle and of the EIB, when using the EU guarantee pursuant to Regulation (EU) 2015/2017, as referred to in Article 37(2)(c) and Article 43a of Regulation (EU) No 1303/2013, is proportionate to the risks taken by these investors and is limited to the minimum necessary to attract such investors, which shall be ensured through terms and conditions and procedural safeguards.

Nevertheless the bodies implementing financial instruments shall not be liable for reimbursement of the amounts referred to in the first subparagraph provided that they demonstrate for a given irregularity that the following cumulative conditions are fulfilled:

(a) the irregularity occurred at the level of final recipients or, in the case of a fund of funds, at the level of financial intermediaries or final recipients;

(b) the bodies implementing financial instruments complied with paragraph 1 of this Article in relation to the programme contributions affected by the irregularity;

(c) the amounts affected by the irregularity could not be recovered notwithstanding that the bodies implementing financial instruments pursued all applicable contractual and legal measures with due diligence.

Article 7

Criteria for the selection of bodies implementing financial instruments

(Third subparagraph of Article 38(4) and Article 39a(7) of Regulation (EU) No 1303/2013)

When selecting a body to implement a financial instrument in accordance with point (a) of Article 38(4), subpoint (iii) of point (b) of Article 38(4), point (c) of Article 38(4) and Article 39a(5) of Regulation (EU) No 1303/2013, the managing authority shall satisfy itself that this body fulfils the following minimum requirements:

(a) entitlement to carry out relevant implementation tasks under Union and national law;

(b) adequate economic and financial viability;

(c) adequate capacity to implement the financial instrument, including organisational structure and governance framework providing the necessary assurance to the managing authority;

(d) existence of an effective and efficient internal control system;

(e) use of an accounting system providing accurate, complete and reliable information in a timely manner;

(f) agreement to be audited by Member State audit bodies, the Commission and the European Court of Auditors.

When selecting a body referred to in paragraph 1, the managing authority shall take due account of the nature of the financial instrument to be implemented, the body's experience with the implementation of similar financial instruments, the expertise and experience of proposed team members, and the body's operational and financial capacity. The selection shall be transparent and justified on objective grounds and shall not give rise to a conflict of interest. At least the following selection criteria shall be used:

(a) robustness and credibility of the methodology for identifying and appraising financial intermediaries or final recipients as applicable;

(b) the level of management costs and fees for the implementation of the financial instrument and the methodology proposed for their calculation;

(c) terms and conditions applied in relation to support provided to final recipients, including pricing;

(d) the ability to raise resources for investments in final recipients additional to programme contributions;

(e) the ability to demonstrate additional activity in comparison to present activity;

(f) in cases where the body implementing the financial instrument allocates its own financial resources to the financial instrument or shares the risk, proposed measures to align interests and to mitigate possible conflicts of interest.

Article 8

Specific rules on guarantees delivered through financial instruments

(Third subparagraph of Article 38(4) and Article 39a(7) of Regulation (EU) No 1303/2013)

Where financial instruments provide guarantees, the following requirements shall be fulfilled:

(a) an appropriate multiplier ratio shall be achieved between the amount of the programme contribution set aside to cover expected and unexpected losses from new loans or other risk-sharing instruments to be covered by the guarantees and the value of corresponding disbursed new loans or other risk-sharing instruments;

(b) the multiplier ratio shall be established through a prudent ex ante risk assessment for the specific guarantee product to be offered, taking into account the specific market conditions, the investment strategy of the financial instrument, and the principles of economy and efficiency. The ex ante risk assessment may be reviewed where it is justified by subsequent market conditions;

(c) the programme contribution committed to honour guarantees shall reflect that ex ante risk assessment;

(d) if the financial intermediary or the entity benefiting from the guarantees has not disbursed the planned amount of new loans or other risk-sharing instruments to final recipients, the eligible expenditure shall be reduced proportionally.

Article 9

Management and control of financial instruments referred to in points (b) and (c) of Article 38(1) of Regulation (EU) No 1303/2013

(Article 40(4) of Regulation (EU) No 1303/2013)

For operations involving support from programmes to financial instruments referred to in points (b) and (c) of Article 38(1) of Regulation (EU) No 1303/2013, the managing authority shall ensure that:

(a) the operation complies with applicable law, the relevant programme and the relevant funding agreement, both during the appraisal and selection process of the operation and during the set-up and implementation of the financial instrument;

(b) funding agreements contain provisions on audit requirements and on the audit trail in accordance with point 1(e) of Annex IV to Regulation (EU) No 1303/2013;

(c) management verifications are carried out throughout the programming period and during the set-up and implementation of the financial instruments in accordance with Article 125(4) of Regulation (EU) No 1303/2013 for the ERDF, the ESF, the Cohesion Fund and the EMFF, and in accordance with Article 58(1) and (2) of Regulation (EU) No 1306/2013 for the EAFRD;

(d) supporting documents for expenditure declared as eligible are: (i) kept for the operation by the managing authority, the financial intermediary, or the body that implements the fund of funds where the financial instrument is implemented through a fund of funds, in order to provide evidence of the use of the funds for the intended purposes, of compliance with applicable law and of compliance with the criteria and the conditions for funding under the relevant programmes; (ii) available to allow verification of the legality and regularity of expenditure declared to the Commission;

(e) supporting documents allowing verification of compliance with Union and national law and with the conditions of funding include at least: (i) documents on the establishment of the financial instrument; (ii) documents identifying the amounts contributed by each programme and under each priority axis to the financial instrument, the expenditure that is eligible under the programmes and the interest and other gains generated by support from the ESI Funds and re-use of resources attributable to the ESI Funds in accordance with Articles 43, 43a and 44 of Regulation (EU) No 1303/2013; (iii) documents on the functioning of the financial instrument, including those related to monitoring, reporting and verifications; (iv) documents demonstrating compliance with Articles 43, 43a, 44 and 45 of Regulation (EU) No 1303/2013; (v) documents concerning exits of programme contributions and the winding-up of the financial instrument; (vi) documents on the management costs and fees; (vii) application forms, or equivalent, submitted by final recipients with supporting documents, including business plans and, when relevant, previous annual accounts; (viii) checklists and reports from the bodies implementing the financial instrument, where available; (ix) declarations made in connection with de minimis aid, if applicable; (x) agreements signed in connection with the support provided by the financial instrument, including for equity, loans, guarantees or other forms of investment provided to final recipients; (xi) evidence that the support provided through the financial instrument was used for its intended purpose; (xii) records of the financial flows between the managing authority and the financial instrument, and within the financial instrument at all levels, down to the final recipients, and in the case of guarantees proof that underlying loans were disbursed; (xiii) separate records or accounting codes for programme contribution paid or guarantee committed by the financial instrument for the benefit of the final recipient.

For operations involving support from programmes to financial instruments under the EAFRD, the audit bodies shall ensure that financial instruments are audited throughout the programming period until closure in the framework of systems audits and audits of operations in accordance with Article 9(1) of Regulation (EU) No 1306/2013 of the European Parliament and of the Council (³).

Article 10

Rules for withdrawal of payments to financial instruments and consequent adjustments in respect of applications for payment

(Article 41(3) of Regulation (EU) No 1303/2013)

Member States and managing authorities may withdraw contributions from programmes to the financial instruments referred to in points (a) and (c) of Article 38(1) and the financial instruments referred to in point (b) of Article 38(1) implemented in accordance with points (a), (b), and (c) of Article 38(4) of Regulation (EU) No 1303/2013 only if the contributions have not already been included in an application for payment as referred to in Article 41 of that Regulation. However, as regards financial instruments supported by the ERDF, the ESF, the Cohesion Fund and the EMFF, contributions may also be withdrawn if the next payment application is amended to withdraw or replace the corresponding expenditure.

Article 11

System of capitalisation of annual instalments for interest rate subsidies and guarantee fee subsidies

(Third subparagraph of Article 42(1) of Regulation (EU) No 1303/2013)

Article 12

Criteria for determining management costs and fees on the basis of performance

(Article 42(6) of Regulation (EU) No 1303/2013)

The managing authority shall calculate management costs and fees which can be declared as eligible expenditure pursuant to Article 42(1)(d) of Regulation (EU) No 1303/2013 on the basis of the following performance based criteria as referred to in Article 42(5) of that Regulation:

(a) the disbursement of contributions provided by the ESI Funds programme;

(b) the resources paid back from investments or from the release of resources committed for guarantee contracts;

(c) the quality of measures accompanying the investment before and after the investment decision to maximise its impact; and

(d) the contribution of the financial instrument to the objectives and outputs of the programme.

Article 13

Thresholds for management costs and fees

(Article 42(5) and (6) of Regulation (EU) No 1303/2013)