All data and documents related to the legal and financial verification communicated to the validation services shall be treated as confidential and subject to Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data. All data shall be processed in accordance with the principles of transparency, proportionality, impartiality and legality.

In compliance with Article 4 of the FP7 RP, a grant can only be awarded to an existing legal entity who:

• has submitted an eligible proposal using the procedure defined by the Commission; and

• is not in one of the situations mentioned in Articles 93(1), 94 and 96(2)(a) of the FR.

In accordance with Article 2(1) of the FP7 RP, a legal entity is any natural person, or any legal person created under the national law of its place of establishment, or under Union law or international law, which has legal personality and which may, acting in its own name, exercise rights and be subject to obligations.

Applicants, depending on their legal type, shall provide in the framework of the validation process supporting documents (except if previously provided and no changes have since taken place), which shall prove:

1. (1)

   Their legal name;

2. (2)

   Their legal form when they are legal persons;

3. (3)

   Their legal address; this shall be, by default, the address of the head office for legal persons or the address of the habitual residence for natural persons.

Documents are accepted in all the official EU languages. To facilitate the work of the validation services applicants may be requested to submit a free translation of these documents. Documents submitted in a non-EU official language may be refused if not accompanied by a certified/official/legal translation by an accredited body or translator. The supporting documents must not be over 6 months old.

Legal entities shall provide in particular the supporting documents listed in the following. An electronic version of these documents is accepted.

1. (a)

   A signed legal entity identification form.

2. (b)

   For natural persons:

   1. (i)

      A legible photocopy of the valid identity card or passport;

   2. (ii)

      If applicable, an official VAT document.

3. (c)

   For public bodies:

   1. (iii)

      A copy of the resolution, law, decree or decision establishing the legal entity in question as a public body; or, in the absence of this, any other official document attesting the establishment of the entity as a public body;

   2. (iv)

      If applicable, an official VAT document. If a legal entity is not registered for VAT, the proof of the VAT exemption may be requested by the validation services.

4. (d)

   For other legal entities:

   1. (v)

      A copy of any official document (e.g. official gazette, register of companies, etc.) showing the applicant's legal name and address and the registration number given to it by the national authorities or, depending on the country of registration, a copy of any other acceptable legal document;

   2. (vi)

      A copy of the VAT registration document, if any, and only if the VAT number does not appear on the official document referred to above. If an entity is not registered for VAT, the proof of the VAT exemption shall be requested.

5. (e)

   For SMEs:

   1. (vii)

      An annual balance sheet and profit and loss accounts for the last accounting period;

   2. (viii)

      The annexes to these accounts with the indication of downstream and upstream enterprises when this is not shown in the balance sheet;

   3. (ix)

      A declaration on the staff headcount expressed in Annual Working Units as defined in Article 5 of Recommendation 2003/361/EC;

   4. (x)

      The balance sheet and the profit and loss accounts, and their annexes, for the latest approved accounting period, as well as the staff headcount of upstream and downstream enterprises as defined in Article 6 of Recommendation 2003/361/EC.

   5. (xi)

      As laid down in Article 4(3) of Recommendation 2003/361/EC in the case of newly established enterprises whose accounts have not yet been approved, a declaration including a bona fide estimate made in the course of the financial year shall be accepted.

   6. (xii)

      A declaration shall be accepted as means of evidence to demonstrate that, in spite of lack of turnover, the enterprise is engaged in an economic activity, namely by the investments made and the likely expected return.

   7. (xiii)

      The supporting documents above can be replaced by an official certificate issued by an official authority or competent body in the Member State in which the legal entity has its legal address or habitual residence and which certifies that the enterprise is an SME in the sense of Recommendation 2003/361/EC. However, sworn or solemn statements made by the applicant before a judicial or administrative authority, a notary or a public officer in the country of origin or provenance shall not be accepted as replacement of the required supporting documents.

The validation services shall duly inform the applicants, of the outcome of the verification of the legal existence and the attributed legal status/category.

Each validated entity receives a unique validated 9-digit registration number, the ‘Participant Identification Code’ (PIC) which shall be used in any participation of the entity in subsequent FP7 proposals.

During negotiations the basic administrative and legal data registered by the legal entity in the Participant Portal will be automatically uploaded into the Grant agreement Preparation Forms (GPF).

The legal representative of the organisation is the person authorised to commit the organisation and to sign the grant agreement. He/she must:

1. (a)

   Verify that the basic administrative and legal data provided in the GPF for his/her organisation are correct; and, if not, ask for their modification via the Participant Portal.

2. (b)

   Declare on his/her honour that all the information provided in the GPF regarding his/her organisation is complete, accurate and correct, declare that it is not in one of the situations mentioned in Articles 93(1), 94 and 96(2)(a) of the FR and provide a signature certifying the above in the GPF. Supporting documents regarding the legal representatives of the legal persons mentioned in this section can be requested by the services implementing FP7.

After the validation of the legal entity, the legal representative shall appoint a Legal Entity Appointed Representative (LEAR) who will be the official contact person recognised by the validation services and authorised to request changes to validation data, on the basis of relevant supporting documents. To this end, the legal representative will send the Lear Appointment Form – by regular mail or by e-mail - duly signed and stamped, to the validation services. The nomination of a LEAR is mandatory. Being appointed as LEAR is an administrative function which may but need not be distinct from being a legal representative of the entity.

As soon as registered in the central database the LEAR becomes the official contact person to the validation services on all issues related to the legal and financial data and the FP7 status/category of the entity. The LEAR has access to a dedicated online tool on the Research Participant Portal and has to maintain the validated information of the entity up to date. He/she shall inform the validation services of any change in the legal data or legal status/category of the entity immediately following the change. Upon request, he/she provides also financial data of the entity.

In case of such changes of legal data or legal status/category, the LEAR shall request a modification of a previous validation on the basis of the legal and/or financial supporting documents.

The DGs and the Executive Agencies of the European Commission implementing FP7 shall set up an inter-service panel for coordination purposes (referred to as the validation panel) and shall delegate their representative to this panel. The validation services shall participate in the validation panel without voting rights and assure the secretariat of the validation panel under the supervision of the Chair of the validation panel. The Commission shall establish the rules of procedure for the coordination processes including a register of common practices.

In case a request for review is submitted by an applicant to the competent validation services in accordance with 1.2.7 above, these services shall refer the request to the validation panel. The validation panel shall review and decide on the referred cases of legal entity validation. The validation panel does not have the mandate to deal with cases related to the verification of the financial capacity.

The operational capacity of the consortium will be addressed at the Evaluation Stage by the independent external evaluators when assessing the evaluation criterion ‘Implementation’.

In order to allow the independent external evaluators to perform this task, the applicants will be required to provide inter alia within their proposal: at applicant level, a brief description of the organisation and a short profile of staff members who will undertake the work (See Guide for Applicants); at consortium level, the applicants will describe how they collectively constitute a consortium capable of achieving the project objectives (See Guide for Applicants).

An above-threshold score will indicate a positive assessment by the independent external evaluators.

The independent external evaluators will provide comments to the services implementing FP7 (cf Evaluation Summary Report) for any legal entity for which they consider that the necessary operational capacity to perform its foreseen tasks is obviously insufficient or not enough demonstrated.

As a general rule, the services implementing FP7 will follow the recommendations of the independent external evaluators regarding the operational capacity – including the possibility to refuse the participation of an applicant from a positively evaluated proposal because of its operational incapacity. If the services implementing FP7 are aware of any additional information that may impinge on the judgement of the independent external evaluators, the services implementing FP7 may decide not to select a legal entity and/or a proposal for EU financial contribution, on the basis of a strong and well-supported argumentation. Such additional information may come from different sources such as the findings of previous audits, management of previous (or on-going) projects, the consultation of external databases, etc.

Each applicant shall provide to the services implementing FP7 a declaration on its honour that it has, or will have in the time required, the necessary resources for the implementation of their work in the relating FP7 indirect action. This declaration is part of the GPF and will be signed by a person authorised to sign the grant agreement and to legally commit the organisation. When an applicant does not have the own operational resources for the implementation of the work, the applicant should describe how he/she intends to fulfil his/her obligations. If any task is to be subcontracted or other third parties are involved in the project, it will have to be discussed and agreed during negotiations, and clearly described in Annex I to the Grant Agreement.

In the particular case of a legal entity joining the consortium during the negotiation or during the implementation of the indirect action, the assessment of its operational capacity will be based on the same principles.

At the negotiation stage, and in compliance with FP7 RP:

• Each legal person subject to a verification of its financial capacity shall provide the validation services for the last financial year for which the accounts are closed:

  • Balance sheet;

  • Profit and loss account;

  • Statutory audit report on the 2 above financial statements if available. If the statutory reports are available, no further audit report is required.

• Each legal person subject to a verification of its financial capacity is required - by the validation services - to complete the synthesis of its last available balance sheet and profit and loss account in a specific format called ‘Simplified accounts’ (via the Research Participant Portal or by other means).

• Each legal person subject to a verification of its financial capacity requesting an estimated EU financial contribution exceeding EUR 500 000 shall provide the validation services with a full audit report certifying the accounts of the last available financial year. It can only be delivered by a professionally qualified external auditor.

As a general rule, no prospective financial data should be used, except in the case of ‘young’ legal entities (such as start-up companies) without any closed accounts. For these legal entities, a Business Plan will be required (especially ‘young’ SMEs) or (a) similar relevant document(s) of prospective activities.

Only the non-consolidated financial statements related to the validated entity are accepted for the purpose of financial viability checks even if the entity has linked or partner enterprises.

If the entity, in its capacity as a parent company (upstream enterprise) of a group of enterprises, is exempt from publishing a non-consolidated profit and loss account under its national legislation, the validation services can require the synthesis of the non-consolidated profit and loss account in a specific format (‘Simplified accounts’).

If the entity, in its capacity as a subsidiary of a parent company (downstream linked applicants), is exempt from a statutory audit under its national legislation and only the consolidated statements are available, the validation services can limit their request to the synthesis of the non-consolidated balance sheet and the profit and loss account in a specific format (‘Simplified accounts’), supported by a copy of the official consolidated financial reports of the parent company and the related audit reports. Nevertheless, if such entity requests more than EUR 500 000 EU contribution, a full audit report certifying the non-consolidated accounts of the last available financial year for the subsidiary has to be provided.

Even if the situations where a natural person will:

• request an estimated EU financial contribution exceeding EUR 500 000; and/or

• be a coordinator;

are theoretical, these possibilities must be foreseen, in order to comply with paragraph 6 of article 38 of the FP7 RP.

At the negotiation stage, and in compliance with FP7 RP and with the IR of the FR, each natural person subject to a verification of its financial capacity shall provide the validation services with:

• its last income tax declaration;

• a certified declaration of its current patrimony;

• an exhaustive list (with relevant dates and figures) of its debts, broken down in short-term debts (maximum one year) and medium/long-term debts (more than one year), as certified by its creditors;

• an audit report, as described in section 3.4.1, if requesting an estimated EU financial contribution exceeding EUR 500 000.

The verified information of the ‘Simplified accounts’ is stored in the central Commission database and is available for the LEAR of each entity via the Research Participant Portal.

The financial data has to be provided at the beginning of negotiations and in some cases additional information may be required during the implementation of the project as well.

Subject to the decision of the responsible authorising officer, a legal entity that does not provide its requested data and documents in due time will not be able to participate in the FP7 indirect action in question.

In order to be financially viable, a legal entity must be:

• liquid: capable of covering its short-term commitments;

• solvent: capable of covering its medium and long-term commitments;

• profitable: generating profits, or at least with self-financing capacity.

As a consequence, the liquidity, the financial autonomy, the profitability and the solvency of the legal entity must be assessed in the financial analysis.

The validation services provide a user-friendly electronic tool to applicants to carry out their financial viability check for their own information.

The following ratios, noteworthy value and thresholds apply for legal persons. Specific criteria will be used for natural persons (see section 3.5.4).

According to the results obtained for each of the abovementioned ratios, the following quotes are given:

The following rules are applied for the special cases where the ratio is negative, or contains a zero denominator or numerator:

• Liquidity:

  • If (Current assets-Stock-Debtors after one year) ≤ 0, the result shall be 0 with weak qualifications. The value for (Current assets-Stock-Debtors after one year) cannot be negative.

  • If the short term debt (bank and non-bank) = 0, and the above (Current assets-Stock-Debtors after one year) is not zero, the result shall be 2 with good qualifications.

• Profitability (1):

  • If GOP ≤ 0, the result shall be 0 with weak qualifications.

  • If the Turnover = 0, the Operating income shall be used for the calculation.

  • If the Operating Income = 0 or negative, the result shall be 0 with weak qualifications.

  • Turnover cannot be negative.

• Solvency:

  • If Equity = 0, the result shall be –1 with weak qualifications in all cases.

  • If Total debt = 0 and the Equity is positive, the result shall be 0 with good qualifications.

  • If Total debt = 0 and the Equity is negative, the result shall be -1 with weak qualifications.

  • The calculation of the Equity flag is based on the same principles, but it will be considered ‘positive’ if the indicator ‘Total debt/Equity’ is superior or equal to 0 and inferior or equal to 10.

The purpose of this check is to assess the co-financing capacity of an applicant.

This check will only be performed if an audit report of the accounts has been issued (i.e.: only in the case of a legal entity requesting for its participation in this FP7 indirect action an estimated EU financial contribution exceeding EUR 500 000) and this report raised also serious qualifications in terms of co-financing capacity appreciated by the Authorising Officer.

The co-financing capacity of an applicant will not only be judged on the basis of the relating FP7 indirect action, but at least on the basis of all on-going indirect actions supported by the Union requesting co-financing that the authorising officer is aware of. In this context, the authorising officer may request from an applicant a list of projects supported by the EU budget in which it is involved.This check will however not be performed for applicants authorised to receive an EU financial contribution of up to 100 % of their eligible costs.

The following ratios, noteworthy value and thresholds apply for legal persons. Specific criteria will be used for natural persons (see section 3.6.4).

According to the results obtained for each of the abovementioned ratios, the following quotes are given:

An overall score of less than 1 will be considered as a ‘weak’ co-financing capacity.

In compliance with article 38(7) of the FP7 RP, the Participants' Guarantee Fund (PGF) shall be considered as a sufficient guarantee under the FR. As a consequence, no additional financial guarantee or security (e.g. reduction of pre-financing, trust accounts, blocked accounts, financial guarantees from a bank/financial institution/mother company, etc.) may be requested from the participants or imposed on them.

Notwithstanding the previous paragraph, if the application of protection measures is deemed necessary, one or several protection measures, as listed below, may be implemented:

• A natural person cannot be the coordinator of an indirect action.

• A legal entity with a ‘weak’ financial capacity following a more in-depth analysis based on the 5 financial ratios (Liquidity, Financial Autonomy, Profitability 1, Profitability 2 and Solvency) as described in section 4.2.1 shall not be accepted as a coordinator by the services implementing FP7. This legal entity will nonetheless be able to be a participant.

• For any legal entity and without prejudice to the provisions of the respective Grant Agreement, the services implementing FP7 reserve the right to systematically initiate, during the implementation of the relating FP7 indirect action, a financial audit, which may be accompanied if necessary by a technical audit, carried out by the services implementing FP7 (including OLAF), or its duly authorised representatives, or by the Court of Auditors, if:

  • it is considered as ‘weak’ after a more in-depth financial analysis of its financial viability; or

  • the result of its co-financing capacity check is ‘weak’ (if relevant); or

  • the results obtained through Equity Flag or Financial Exposure Flag are ‘weak’; or

  • an audit report of the accounts has been issued with serious qualification;

  • it has been subject to substantial financial findings relating to its financial capacity following a financial audit carried out by the Commission (including OLAF), the Court of Auditors or their duly authorised representatives within the last 2 years; or

  • if there are findings of serious administrative errors or fraud involving the entity; or the entity is subject to pending legal procedures or judicial proceedings for serious administrative errors or fraud; or the entity is subject to an attachment order or significant recovery order for an outstanding amount issued by the Commission on which the payment is significantly overdue.

• Any legal entity with a ‘weak’ financial capacity will be subject to a reinforced monitoring during the implementation of the project (e.g.: appropriate additional reviews by the services implementing FP7 and/or independent external expert(s), including on the spot check(s)). The authorising officer could always exclude a ‘weak’ entity from being coordinator of an indirect action.

The services implementing FP7 will immediately inform:

• the coordinator of the consortium that, due to its ‘insufficient’ financial capacity, (a) legal entity(ies) involved in the proposal cannot participate in the FP7 indirect action. The coordinator will inform the consortium;

• the relevant applicant(s) of an FP7 indirect action of the results and consequences, especially any necessary protection measure, of the verification of its (their) financial capacity, if the latter is ‘weak’. However, this shall not allow the consortium to exclude this (these) applicant(s) for that single reason.