SME update

October 2023


  • European Commission to propose measures to reduce SMEs’ reporting burdens
  • European Commission makes new proposals on SME Head Office Tax System and Late Payments
  • Accountancy Europe and two partner organisations publish SME sustainability guidance

Feature story

European Commission publishes SME relief package

On 12 September, the European Commission (EC) launched a relief package to support SMEs in times of energy crisis, inflation, uncertainty and more.

The package includes the Directive setting up a so-called Head Office Tax System (HOT) for SMEs, revisions to the Late Payments Directive which will become a Regulation, and a Delegated Act to adjust EU SME thresholds for inflation (see more details on all three further below).

The SME Relief Package Communication, for its part, describes additional measures that the EC plans to undertake to further support Europe’s SMEs. There are in total 19 measures, including:

  • “further measures” to simplify reporting requirements alongside the EC 2024 work programme, which is currently scheduled for 17 October
  • a commitment to “systematically consider” specific SME-friendly provisions in new legislative proposals
  • the appointment of a dedicated EU SME Envoy to provide guidance and advice to EC on SME issues and advocate SME interests externally
  • ‘on the spot’ assessment of SME impacts from proposed substantial amendments to EC proposals during the co-legislative process
  • the promotion of experimentation and innovation for start-ups through regulatory sandboxes
  • a Once-Only Technical System (OOTS) enabling cross-border exchange of key documents among public authorities, avoiding the need for SMEs to re-submit documents in different Member States (to be implemented by December 2023)
  • the adoption of SME-friendly standardised procurement provisions and conditions to enhance SME participation in public procurement

European Commission

Commission draft Delegated Act SME thresholds

EC launched a draft Delegated Act (DA) for stakeholder consultation on 13 September as part of the SME relief package (see above), proposing to increase the balance sheet and turnover thresholds in the 2013 EU Accounting Directive by an average of 25% to adjust them for inflation. This is a technical measure outlined in the Accounting Directive. The EC states that these size thresholds have remained unchanged since 2013 and that this will reduce the scope of companies having to comply with requirements on publication of financial statements, audit, as well as sustainability reporting.

The ‘final’ DA will be issued for the scrutiny of the European Parliament (EP) and the Council potentially on 17 October (see above).

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Commission proposal on SME Head Office Tax System (HOT)

The HOT proposal, also launched as part of the SME relief package, would give SMEs operating cross-border through permanent establishments the option to interact with only one tax administration – that of the head office – instead of having to comply with multiple tax systems. SMEs would calculate their taxes based only on the tax rules of the member state of their Head Office. SMEs would file one single tax return with the tax administration of their head office, which would then share this return with the other member states where the SME is operating. The member state of the head office would subsequently transfer any resulting tax revenues to the countries where the permanent establishments are located.

The proposal needs to be adopted by unanimity in the EU Council.

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Commission proposal on Late Payments Regulation

The major modification involves transforming the Late Payments Directive into a Regulation, allowing for immediate implementation in EU Member States, eliminating the necessity for national transposition, as required by Directives.

EC outlines that delayed payments in commercial transactions is a big concern for businesses and particularly SMEs. With these revised rules, EC aims to step up its fight against late payments in commercial transactions, thereby promoting SME liquidity.

Some of the key measures include the following:

  • maximum payment term of 30 days that cannot be derogated from
  • compulsory payment of interest in case of late payment, which will be automatically due without the need of a reminder by the creditor
  • additional measures to protect creditors against bad payers (e.g., setting out criteria for unfair contractual terms)
  • member states shall designate one or more authorities responsible to ensure implementation of the rules
  • providing Alternative Dispute Resolution (ADR) that should be fast, efficient, and cost-effective

The European Parliament (EP) and the Council must approve the proposal via the co-legislative process.

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European Parliament

Cumulative effect of due diligence EU legislation on SMEs

The European Parliament’s research services released a study examining the anticipated impact of the EU’s Corporate Sustainability Due Diligence Directive (CS3D) on SMEs.

The study examines the German supply chain act (Lieferkettengesetz) to draw potential insights for EU due diligence legislation. It incorporates a review of existing literature on sustainability regulations and expert interviews with German business associations, German foreign chambers of commerce in emerging economies, and German supporting agencies.

The aim was to identify key challenges that SMEs in the EU and third countries encounter when navigating the supply chain act’s demands.

The study provides recommendations as to how the EU can alleviate the challenges for SMEs during the implementation of the proposed CS3D. These include targeted capacity-building measures for SME suppliers in developing countries, often unfamiliar with European due diligence legislation, as well as streamlining reporting requirements for SMEs in Europe.

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5 first steps for SMEs to kick-start their sustainability journey

Accountancy Europe and – representing European sustainable businesses – published a joint guidance document aiming at SMEs to support their sustainable transition. The guidance received input from and is supported by the European Association of Cooperative Banks (EACB).

It suggests initiating the sustainability journey for SMEs by implementing 5 initial and relatively uncomplicated steps. The steps encompass activities such as reaching out to relevant contact points and support, mapping what sustainability data the SME may already have even without realising it, what data it could obtain with relative ease, and analysing one’s value chain.

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IASB publishes amendments to the IFRS for SMEs regarding the OECD pillar two model rules

The International Accounting Standards Board (IASB) published on 29 September the ‘International Tax Reform — Pillar Two Model Rules (Amendments to the ‘IFRS for SMEs’ Standard)’ to align the standard’s requirements with similar amendments to IAS 12 ‘Income Taxes’ issued in May 2023.

The amendments include the following points:

  • introducing a temporary exception from the IFRS for SMEs, where SMEs are not required to recognise or disclose information about deferred tax assets and liabilities tied to OECD pillar two income taxes. SMEs should disclose their application of this exception
  • providing clarification that ‘other events’ mentioned in the disclosure objective of section 29 of the standard include enacted or substantively enacted tax rates and tax laws, such as pillar two legislation
  • mandating SMEs to distinctly disclose their current tax expense (income) tied to pillar two income taxes when pillar two legislation is in effect.

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French SMEs cry for help amid ‘regulatory tsunami’

The French Federation of SMEs cautioned that French SMEs are ready to fight climate change, provided there is no “regulatory tsunami”. This call comes ahead of the introduction of the EU’s new sustainability reporting requirements.

The plea for assistance follows the EU’s upcoming Corporate Sustainability Reporting Directive (CSRD) effective from 1 January 2024, set to be adopted into French national law by December. “We do not want to be crushed and knocked out” by burdensome regulations, stated François Asselin, President of French SME confederation CPME, on 28 September.

Asselin acknowledges climate change but warns that the new regulations are too burdensome for SMEs to efficiently implement due to time constraints and lack of suitable methods to enforce new rules.

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This curated content was brought to you by Johan Barros, Accountancy Europe Senior Manager, Head of Advocacy & Policy, since 2015. You can send him tips by email, follow him on Twitter and connect with him on LinkedIn.