Revising the EU small business definition: opening a Pandora’s box?

Plans are in the making for a revision of the EU’s SMEs definition. The idea is for the European Commission to open a consultation on the definition of small and medium-sized enterprises next year. The consultation would open up all aspects of the SME definition as currently prescribed by EU legislation to public debate with any changes to the definition arising from the consultation to be auctioned upon in 2013.

Some organisations have reacted with an outright questioning of the reasoning and purpose behind the potential revision of the SME definition. Others have cautiously welcomed the initiative as a way to better take into account the specificities of certain business categories which are not adequately addressed by the current rules.

The core issue rotates around the position and recognition of the special needs of micro-enterprises within the EU SME definition which currently holds three broad parameters differentiating between micro-enterprises as companies with up to 10 employees, small companies employing up to 50 workers, and medium-sized businesses engaging up to 250 workers.

A revision of the SME definition would have considerable implications for Maltese business. The EU SME definition has a direct bearing for the determination of which fiscal, administrative and legal obligations hold for the business in question.

This touches upon a whole array of matters such as the establishment of a company’s tax dues, the kind and scope of regulatory requirements the company has to respect, its eligibility for certain direct EU funding programmes as well as the level of state aid support it can claim for its participation in public support schemes whether these are intended for operational upgrading or for (re)-training of employees.

Exemptions for micro-enterprises

The campaign for micro-enterprises to be treated distinctly from the broader category of SMEs as defined in a 2003 Commission recommendation is gaining ground following the adoption of European Council conclusions on the matter at the end of June.

The European Council called for the “regulatory burden on SMEs to be further reduced and where appropriate for micro-enterprises to be exempted from certain future regulations or at least be subject to a lighter regime”. Consequently, the Commission is mandated to assess the impact of future regulations on micro-enterprises and to screen the acquis to identify existing obligations from which micro-enterprises could be excluded.

This renewed political impetus towards a differentiated regulatory approach within EU policy-making addressing the specific realities of micro-enterprises does not necessarily yield the desired balance between the necessity of regulation and flexibility for the smallest business categories. It is argued that a systematic application of exemptions for micro-enterprises could undermine the “think small first principle”.

EU policy-makers could fail to adopt legislation taking into proper consideration the whole spectrum of small businesses, which, irrespective of the number of employees they employ, all have the same needs and challenges in terms of critical issues such as access to finance, government-induced costs and business sustainability.

In this regard, a tailor-made approach to micro-enterprises would be counter-productive to an EU SME policy supposedly conceived to distinguish between the regulatory requirements and obligations of the large corporate business set-up and the smaller enterprise categories as recently enshrined in the ‘Small Business Act’. EU policy-making should design policies and create rules from the SMEs viewpoint, representing the majority of all businesses.

Nevertheless, the option of exemptions should not be completely discarded since indeed certain EU legislative provisions particularly in the fields of employment and environmental laws procure disproportionate obligations on micro and small businesses alike.

The Maltese business community can provide several testimonials in this respect and therefore calls for exemptions to be considered on a case-by-case basis without overtly differentiating between ‘micros’ and ‘small’ businesses since the operational situations of such enterprises is the same.

For more information on EU affairs related to business, contact the MBB on 2125 1719, e-mail info@mbb.org.mt, or visit www.mbb.org.mt