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Finance Helpdesk Newsletter #14

How to deal with VAT and Taxes in FP7 Projects Leaflet Published

Grant Agreement Negotiations

FP7 Uncertainty

Internal or intra participant cross purchasing

Financial Guarantee Fund


Upcoming Workshops & Events


How to deal with VAT and Taxes in FP7 Projects Leaflet Published:

VAT is frequently quoted as “the” example of unrecoverable taxes within EU funding, because organisations not registered for VAT cannot recover it but it is still a non eligible cost.


As unfair as it seems, even where the organisation cannot recover the VAT (or for that matter any other tax levied in their own or another State), the tax is not an eligible cost.


The Finance Helpdesk has produced a leaflet to provide some more information on this subject.

To download the leaflet, please click here.


Grant Agreement Negotiations:

Unfortunately, there have been delays in completing Call 1 negotiations. This is all part of the teething problems of a new framework program.

The main problem seems to be that the Commission has still not made a decision on how to deal with SMEs using the 60% derogation overhead method.

As soon as we have news then we will update you.


We are conducting a 1 Day FP7 Contract Negotiation and Project Kick-off Workshop in Brussels, Belgium., on 22/11/2007 to assist you.


The Workshop will cover:


·          Differences between FP6 and FP7

·          Negotiations with the Commission

·          Negotiation on Annex 1

·          Grant Preparation Forms

·          Technical Collective Responsibility

·          Financial Viability and Capability of the Coordinator

·          Unique Registration Facility

·          Consortium Agreement

·          Consortium Check-list

·          Distribution of the effort and funding between the partners

·          Negotiations between Partners

·          Role of the Coordinator

·          Project Initiation

·          Cash flow during a typical project

·          Kick-off Meeting


FP7 Uncertainty:

The Commission is currently trying to respond to a lot of financial questions, especially internally. It seems that there are worries about the Commission’s own interpretation of its financial rules and the impact that could have upon evaluation of proposals. They seek to allay fears saying


Evaluation experts are firmly instructed to focus on the technical content of the proposal. They may certainly analyse the use of resources being foreseen by the proposers, and suggest there are too many person-months here and not enough there, but the amount of funding which is being requested, or the cost categories under which it is being claimed, are of no concern to them.


These matters are Commission business. The final selection of proposals is made, based on the rankings supplied by the technical evaluation. The Commission analyse the funding requested by each of the successful proposals. If there are errors in the proposers' calculations –and of course these occur from time to time – they are simply re-calculated and a funding offer is made taking this into account which fully conforms to the rules’.


Of course as mentioned above many of the implementation decisions must in order to finalise contracts for projects arising from the first calls for proposals in early 2007. In particular the applicability of the derogation 60% model to SMEs. This must be resolved before the end of 2007.


Internal or intra participant cross purchasing:

In many projects the situation often arises where a participant wishes to make use of a product, equipment, service or material that it itself supplies as part of its normal business. It has traditionally been possible to put such a charge against the project for this when required if it has been foreseen in the Technical Annex and the amount can be shown not to contain any profit. This can be demonstrated if the price can be build up from its manufacturing or supply cost and not as a discount on its normal selling price. In the past we have used the “internal transfer price” that the company normally used for in house purchase of its own products.


A similar situation often arises if a partner requires to buy a product from a different partner for use in the project.  The same answer applies i.e. if a non-profit cost is used and it has been foreseen in the Technical Annex to the contract.


In all such cases, it is advisable to discuss this specifically with the Project Officer ahead of time with agreement in writing in case of any future questions on the subject. This is particularly important as it is obviously an area if not strictly supervised could lead to significant abuse.


Financial Guarantee Fund:

In FP7 this replaces financial collective responsibility. It will be established and operated by the Commission. Each participant will make a contribution to the guarantee fund of maximum of 5% of the EC contribution, to be returned at the end of the project.


If interest generated proves not to be sufficient to cover sums due to EC, a retention of a maximum of 1% of EC contribution will be made at the project end. There will be an exemption of retention for public bodies, higher and secondary education establishments, legal entities guaranteed by a MS/AC.


Ex-ante financial viability checks limited to coordinators and participants requesting > EUR 500.000 (unless exceptional circumstances)


This is a completely new facility introduced in FP7 to try to counter the many problems experienced in FP6 by the collective Financial Responsibility, especially by SMEs.


The plan is that all participants will be allocated 90% advances instead of 85% as in FP6. However 5% will be withheld and put into a central guarantee fund managed by the European Investment Bank. Thus in practice they will still receive 85% net as in FP6. The interest on the deposits will be kept by this fund.


When a project completes, this 5% will be returned to the participants with the final payment except for participants not covered by government guarantees (i.e. most commercial organisations except state owned ones). Those participants will have 1% withheld by the fund if required.


If during a project, a partner defaults financially and the partners decide as a result to terminate the project, then the fund will ensure that they are all paid for completed accepted work. If the partners decide to continue work, then the fund will compensate the project for any lost funding caused by the default. In both cases the Commission would then pursue the defaulting partner for the lost funds. Any recovered funds would go back into the guarantee fund.



One pre-financing (upon entry into force of Grant Agreement) approx 160% x Total Budget for 1st year or period - followed by interim payments calculated on last period cost times funding rate (as was in FP5).


Interest on pre-financing - the guidelines for FP6 were clear that bank interest earned by the coordinator on pre-financing monies is a receipt of the project. However under FP7 if the capital amount is less than 50,000 Euro (amount to be confirmed) the interest on it will not be regarded as income to minimise bureaucracy. However, interest earned by beneficiaries once the pre-financing has been transferred to them is never regarded as a receipt.


The pre-financing provided to the beneficiaries remains the property of the Commission until reimbursed. The pre-financing will be spent continuously from the moment it is transferred until the financial statement is accepted. On the other hand, the principle of co-financing also means that the beneficiaries should notionally draw from the pre-financing and from their own resources during each period.


Upcoming Workshops & Events:


We are pleased to announce our first open Finance Helpdesk Workshop in Israel – see below:


05/11/2007     1 Day SME Measures Workshop in Brussels, Belgium.*** Registration Closed***

06/11/2007     3 Day in-depth FP7 Financial Workshop in Brussels, Belgium.***Fully Booked***

19/11/2007     2 Day Proposal Writing Workshop in Brussels, Belgium.

21/11/2007     1 Day FP7 Financial Workshop in Brussels, Belgium.

22/11/2007     1 Day FP7 Contract Negotiation and Project Kick-off Workshop in Brussels, Belgium.
16/12/2007     3 Day in-depth FP7 Financial Workshop in Tel-Aviv, Israel.



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