Legal issues in the EURO changeover process

1. Legal issues in the EURO changeover process Experience of Belgium : Rounding and smoothing rules Prague, January 14th en 15th, 2008 Christiaan DELAERE Director of Administration of Fiscal Affaires former Chairman of Administrative Committee of Regulation

2. Content • Conversion rules • Mathematical conversion • Recommendations • Legal conversion • Legal conversion – acceptance • Special problems related to taxes and excises

3. Conversion rules • Principles: • No prohibition, no compulsion • Continuity of legal instruments • All amounts in the national currency are read as they were converted in euro • Art. 14 Council Regulation n° 974/98 of 3 May 1998 on the introduction of the euro • If nothing is mentioned : mathematical conversion (2 digits)

4. Conversion rules • Problem of readability: • 1 EUR = 40,3399 Belgian francs (BEF) • Result : 1.000.000 BEF = 24.789,35 EUR • No more transparent amounts: • e.g.1: minimum capital of limited companies by share: 2.500.000 BEF = 61.973,38 EUR?? • e.g.2: exemption of tax on interest from saving deposits: 50.000 BEF = 1.239,47 EUR??

5. Conversion: 2 types • Mathematical conversion: used for conversion of amounts expressed in BEF towards a system expressed in EUR • Legal conversion: used to change amouts in the legal framework from BEF towards EUR

6. Mathematical conversionlegal framework • Basis: Council Regulation n° 1103/97 of 17 June 1997 on the introduction of the euro • Contunuity of contracts and legal instruments (art. 3) • Conversion rate = 6 significant figures • After conversion, amounts are rounded up or rounded down to the nearest cent • 1 EUR = 40,3399 EUR • decimals of BEF passed out of use in most applications • EUR with 2 decimal figures is same order of magnitude as BEF

7. Mathematical conversionrecommendations • 10 recommendations for general use (private sector, public administrations, ...) • Document issued in November 1997 by General Commission for the euro • based on European Council Regulation 1103/97 of 17 June 1997

8. Mathematical conversionrecommendations Recommendation 1 • Since most prices in BEF are expressed in units of BEF, prices in EUR would normally be expressed with two decimal places. Recommendation 2 • For (unit) prices expressed with higher precision in BEF (decimal places for BEF price), the same precision should be maintained for EUR price : as a rule 2 more decimal places for EUR price than for BEF price. • e.g. • 1 screw : 0,35 BEF = 0,0087 EUR • 1 megajoule gas : 0,22911 BEF = 0,0056795 EUR • 1 litre Super +95 : 38,1 BEF = 0,944 EUR

9. Mathematical conversionrecommendations Recommendation 3 • Amounts to be paid or recorded in accounting : after conversion from EUR to BEF to be rounded off to nearest unity • < .50 : rounding down • ≥ .50 : rounding up • Inversely no problem since EUR with 2 decimal places allows higher precision than BEF. Recommendation 4 • Crossed conversions (from a national currency to another national currency via EUR) using computers or calculators : use highest possible precision for intermediary result.

10. Mathematical conversionrecommendations Recommendation 5 • Reconstitution of amount in EUR after having been converted to BEF (EUR  BEF  EUR) : loss of precision of ± 0,01 EUR can not be avoided and has to be tolerated. • 871,55 EUR  35.051 BEF  871,54 EUR • This tolerance has to be integrated in computer applications. Recommendation 6 • During the 3 years transitional period, it is recommended to initiate payment in same currency (EUR or BEF) in which the amount to be paid is expressed on the invoice or the cash register receipt, in order to minimise effect of loss of precision (cf recommendation 5).

11. Mathematical conversionrecommendations Recommendation 7 • When elements of a mathematical operation (such as a sum) are converted and rounded off individually, it is as a rule recommended that the result is converted and rounded off also, instead of making the mathematical operation (sum) on the converted elements.

12. Mathematical conversionrecommendations Recommendation 8 • There can however be reasons to act in the way opposite to recommendation 7, certainly when the individual elements are obviously more important than the result of the operation (sum); e.g. in statistical series. • Adopted by Tax Administration for conversion of individual entries in tax declaration.

13. Mathematical conversionrecommendations Recommendation 9a • Limits in (continuous) scales are ordinarily mathematically converted into EUR and rounded off. • e.g.

14. Mathematical conversionrecommendations Recommendation 9b • However, limits in discrete scales can cause problems: gaps between limits may appear. In that case it is recommended to use as the lower limit of a parcel the higher limit of the underlying parcel plus 0.01 EUR, in order to avoid gaps.

15. Mathematical conversionrecommendations Recommendation 10 • Since small differences are unavoidable when converting and rounding off amounts, and differences of 0.01 EUR have to be tolerated (cf recommendation 5), the Belgian Accounting Standards Board issued a recommendation to enter all differences as benefits or losses on dedicated sub-accounts of the financial results accounts of the Minimum Standard Chart of Accounts.

16. Legal conversions • Changes the legal instruments • Objectives: • obtain again rounded amounts in EUR • give legal security to all parties • create acceptance • Mainly used in taxes

17. Legal conversions - legal framework • Special laws (June 26 and 30, 2000): • Commission to the King • Establish limits within which He was authorized to converse amounts (transparency rules) • Establish rules for the rounding off of certain amounts (principles) • Has to be ratified by parliament before 31 December 2002 • Executed: • 83 royal decrees • Thousands of amounts that are converted

18. Legal conversions - legal framework • Limits within amounts could be legally rounded up and rounded down:

19. Legal conversions - Acceptance • Principle: to the BENEFIT of the taxpayer • Exception : fines and penalty clauses • Budgetary cost price ! 35.000.000 EUR • Conversion laws and decrees contains only changes relating to the euro conversion; no hidden changes relating to other reasons or decisions • Euro starter kits: benefits exemption of taxation

20. Legal conversions - Acceptance • Tax reduction for family charges:

21. Legal conversions - Acceptance • Tax scale individual income tax : • Exceptions: fines Fine 10.000 BEF (247,89 EUR) becomes 250,00 EUR

22. Conversion: special problems related to taxes • Exceptions: excise duties • Round up or down until 4 digits after decimal point whether 5th digit is more or less than 5. • f.e. 278 BEF/1.000 cigarettes is 6,89143999 EUR and is converted in: 6,8914 EUR • 11.900 BEF/1.000 l. unleaded petrol is 294,993294 EUR and is converted in: 294,9933 EUR • Excise duties are still expressed with 4 digits after decimal point

23. Conversion: special problems related to taxes • Transitional period: from 01/01/1999 till 31/12/2001 • Before: all in BEF • After: all in EUR • In the transitional period: • choice by the taxpayer • Once chosen for EUR: choice is irreversible • Acounting in EUR = taxation in EUR • Income tax return: choice box for BEF or EUR

24. Conversion: special problems related to taxes • Income tax in Belgium: determined by “fiscal year” • e.g.1: revenues 1998 = fiscal year 1999 • e.g.2: revenues accounting period 01/07/2001 – 30/06/2002 = fiscal year 2002 • Transitional period for income taxes in Belgium: • Revenue period or accounting period ending before 01/01/2002 • Taxable actions taken before 01/01/2002 • Accounting of tax collection: • Before 01/01/2002: in BEF • As from 01/01/2002: in EUR

25. Conversion: special problems related to taxes • Income tax returns:

26. Accountancy and statistics in taxes • General rules: • Data converted automatically in EUR • Conversion from BEF into EUR on 31/12/2001 • Consequences for the tax collector: • Accountancy transactions aand operations since 01/01/2002 exclusively in EUR • Reports, lists and statistics since the budget year 2002 in EUR • Recommendations 7 and 8 are used

27. Accountancy and statistics in taxes • 2 ways of conversion: • Mathematically • By composing amounts on 2 levels • Mathematically: applied on “isolated” amounts: • Amounts not in relation of equality with other converted amounts • Amounts of which accountable interpretation has no specific requirements of equality

28. Accountancy and statistics in taxes • Conversion bij composing the amounts on 2 levels: • 1. On the level of individual amount (top down): • Conversion of rights and payments • From the final result toward the composing particles (recommendation 7) • Differences added to the biggest composing particle

29. Accountancy and statistics in taxes • Conversion by composing the amounts on 2 levels: • 2. On the level of the accountancy (bottom up): • Conversion of fixed rights and incomes • Bij recomposing the amounts (recommendation 8) • Differences: accepted in the accountancy

30. Rounding and smoothing rules QUESTIONS?????