Future-proofing the European definition of SMEs

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The EU Commission needs to reform the definition of small and medium-sized enterprises (SMEs). BDI is advocating orientation to relevant orders of magnitude for personnel and financial thresholds as well as the introduction of qualitative criteria. It should also be reviewed whether small-mid caps should be strategically considered.

The European Commission announced a reform of its SME definition in July 2017. Currently, a recommendation with purely quantitative criteria applies: A company is classified as an SME if it does not employ more than 249 people and has an annual turnover not exceeding EUR 50 million or a balance sheet total not exceeding EUR 43 million. The thresholds apply to individual companies. If an enterprise is part of a corporate group, the number of employees and the turnover or balance sheet total of the group must also be considered, depending on the degree of the enterprise’s participation. 

Since the financial thresholds have remained unchanged since 2005 and companies have been excluded from European SME policy purely due to inflation, a reform is necessary. In addition, the current case-law of the European Court of Justice is leading to legal uncertainty, which is a burden on SMEs. Furthermore, SME support has been further developed, for example by the European Fund for Strategic Investments (EFSI). 

For the economic competitiveness of the EU as well as for local investment, jobs and growth, a practical and future-proof definition of SMEs offers a wide range of opportunities. In order to bring the group of beneficiaries more closely into line with the special features of the German Mittelstand, the BDI is advocating to significantly increase the quantitative criteria, to sever their close linkage and to include qualitative criteria in the future – in reference to ownership, management and control. 

If no such reform of the SME definition is possible, small companies with a medium capitalization (small-mid caps) and up to 500 employees could be established as a complementary category and be taken into account in selected EU policies – for example in environmental, climate or foreign trade policy. 

The BDI thus supports the German Federal Government, which stipulated in its coalition agreement (lines 2884-2887) a threshold of up to 500 employees as an appropriate delimitation for SMEs, "so that more companies are relieved of European reporting obligations".