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Authorities

The term “authorities” encompasses the government, provinces and municipalities. According to Article 1 (4) a) EMIR does not apply for bodies (in the European Union) that are responsible or involved in public debt management.

Authorities are also responsible for their own debt management as a task falling within their budget management within their own autonomous scope. Therefore the provisions pursuant to Article 1 (4) a) EMIR do not apply to themas bodies that are charged with or intervene in public debt management. Persons upon whom the responsibility for public debt management has been confirmed by the authority are also covered by this exemption. For example, this covers the Austrian Treasury (OeBFA – Österreichische Bundesfinanzierungsagentur GmbH) which is charged with this task on behalf of and on the account of the government.

Furthermore, authorities, that establish positions in derivative contracts, are not considered as undertakings under EMIR, and therefore are not considered as non-financial counterparties (“NFCs”), and therefore are not subject to EMIR requirements (e.g. reporting and clearing obligations).

However, commercially active operations that belong to the authorities (with their own legal personality), that enter into derivative contracts, may be subject, as NFCs to these obligations under EMIR.

Reporting requirements under EMIR for all derivative contracts entered into effect on 12 February 2014. EMIR also prescribes a retrospective reporting requirement in this regard for open contracts since 16 August 2012. The first clearing obligations are expected to become effective in the first half of 2016, according to the current status.

According to Article 1 (4) a) EMIR, EMIR does not apply to among others for bodies (in the European Union) that are responsible or involved in public debt management. From the perspective of the European Commission, which has also in particular considered the question of whether municipalities fall within the scope of application of EMIR, those municipalities fall under this exemption provision, that are considered competent for the management of government debt or such bodies that could be deemed to be involved (see the explanations covered in Part II point 15 of the Frequently Asked Questions of the European Commission).

Under Austrian Federal Constitutional Law, budget management, which also includes debt management, is the responsibility of the relevant authority as task within its effective scope (Article 13 and Article 116 para. 2 in conjunction with Article 118 para. 2 B-VG). The authorities may therefore apply the exemption from Article 1 para. 4 a) EMIR to themselves. Consequently authorities do not fall within the scope of EMIR pursuant in accordance with this provision governing the provision and therefore are not subject to any obligations (e.g. reporting or clearing obligations) on the basis of EMIR.

This exemption also applies for public bodies/persons, who are entrusted by an authority, in the case of the latter being charged with public debt management (the Österreichische Bundesfinanzierungsagentur GmbH, is charged with this task on behalf of and on the account of the government), since such bodies are also covered by the term “bodies (of the European Union), which are charged with or intervene in public debt management”.

A non-financial counterparty as defined in Article 2 (9) EMIR is an undertaking established within the European Union, that is not a financial counterparty. In relation to the assessment, of whether there is an undertaking as defined in this provision, according to the case-law of the Court of Justice of the European Union it does not depend on the legal status or the type of financing being conducted by the person in question, but depends instead on the type of activity being conducted, specifically on the provision of goods and services on a market (see the explanations contained in Part II point 14 of Frequently Asked Questions of the European Commission.

The performance of a public authority activity may, however, not be considered as a commercial activity in any case.

An authority may be commercially active, in that it offers goods and services on a market, and even as an economically independent operation (c.f. operations of a commercial nature as defined in Article 2 of the Corporation Tax Act).

With regard to such activities of a commercial nature it is necessary to remember the following points: Unlike the situation under corporation tax law (where an operation of a commercial nature itself is the taxable entity) under civil law there is only one legal person, namely the authority itself (see margin note 64 of the Guidelines on Corporation Tax (Körperschaftssteuerrichtlinien – KStR 2013)). As a result the respective authority itself is always where applicable the party of any derivative contract.

Consequently, for the evaluation of whether there is an undertaking, and as a consequence an NFC pursuant to Article 2 no. 9 EMIR, it may depend on whether the authority itself (and where applicable including all operations of a commercial nature) as a whole can be considered to be an undertaking or not.

Such a classification of the authority concerned as being an undertaking may not usually be questioned, since in an overall view of authorities, their public authority activities or the activities and tasks that are not based around the provision of goods and services on a market outbalance those that are. Moreover, on the income side, the income from the provision of public services vastly outweighs the income resulting from the provision of goods and services on a market.

Authorities, since they are not considered as undertakings, and therefore are not an NFC, are not subject to reporting and clearing obligations under EMIR.

This applies to a greater extent for the activities of authorities, that may not been seen as being “commercial”, in particular public authority operations (including public authority operations as defined in Article 2 para. 5 KStG). Such authorities do not fall within the definition of an undertaking pursuant to Article 2 no. 9 EMIR.

A municipality operates a public authority operation (without a separate legal personality, cf. Article 2 para. 5 KStG), which supplies the population with services, the provision of which the public is obliged to accept on the basis of a legal instruction, e.g. for refuse collection or street cleaning. Within this public authority operation, the municipality enters into positions in derivative contracts (since the utility company itself does not have a legal personality under civil law):

For the municipality, as a public body charged with or intervening in public debt management, EMIR does not apply. Furthermore, the municipality is not active in a commercial manner, and therefore cannot be considered to be a non-financial counterparty. For this reason, EMIR is not applicable for the municipality.

A municipality operates a utility company (without a separate legal personality cf. Article 2 para. 3 KStG), which supplies the population with electricity (or gas or heating). As part of operating the utility company, the municipality itself establishes positions in derivative contracts (since the utility company itself does not have its own legal personality under civil law):

For the municipality, as a public body charged with or intervening in public debt management, EMIR does not apply. Furthermore, it must also be assessed whether the municipality itself is to be classified as an “undertaking”. Based on the explanations above, this is indeed not the case.

Consequently, in this case too, the municipality also does not constitute a non-financial counterparty, and therefore EMIR also does not apply for this reason.

In the event that an authority divests activities to undertakings with a separate legal personality (= legal persons) it therefore remains to check, to what extend these legal entities themselves (and not, however, the authority) are to be qualified as NFCs as defined under EMIR. It should be noted, that in this instance the evaluation regarding corporation tax is divergent from the evaluation of whether an undertaking exists as defined in Article 2 point 9 EMIR. This is due to the fact that while the public authority activity in the form of a legal person under private law is taxable for the purposes of corporation tax, it does not, however, count as a commercial activity under EMIR.

A municipality owns a public utility company in the form of a stock company for supplying electricity (or gas or heating) within the municipality. This stock company (as a separate legal person) holds positions in derivative contracts:

The stock company, but not however the municipality itself (since only the stock company is a contractual party of the derivative contract), is a non-financial counterparty and is subject to EMIR reporting requirements, and provided that clearing thresholds are exceeded, is subject to clearing obligations.

A municipality owns a stock company that is responsible for refuse collection or street cleaning within its municipal territory, with the population being required to make use of their services. This stock company (as a separate legal person) holds positions in derivative contracts:

Neither the stock company, which is not active in a commercial manner, since it does not perform services on any market, nor the municipality itself (which under civil law is not a party to the derivative contract) are non-financial counterparties. EMIR therefore does not apply.