Recitals

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Economic and Social Committee,

Acting in accordance with the ordinary legislative procedure,

(1) The internal market comprises an area without internal frontiers in which the free movement of goods, services, persons and capital is ensured. The conditions under which highly automated undertakings operate in the internal market are increasingly the subject of divergent national initiatives, including proposals for levies on automated production, national social-dividend schemes and mandatory employee-participation regimes extended to undertakings with few employees. Such divergence creates fragmentation, distorts competition and gives undertakings an incentive to locate activities according to regulatory exposure rather than economic merit. That this is the pattern rather than a possibility is established by the taxation of digital activity, where the absence of a Union measure was followed by unilateral national taxes in eight Member States, at rates, on bases and with thresholds that do not correspond, so that the same undertaking falls inside one national regime and outside its neighbour's on identical revenue. Harmonised rules at Union level are therefore necessary, and are more effective before national answers multiply than after.

(2) Advances in artificial intelligence and related automation technologies enable a new category of undertaking: one which attains very substantial turnover and market value while engaging very little human labour in production. Such undertakings are lawful, productive and often beneficial. Their emergence is nevertheless economically unprecedented, because the mechanisms by which productivity gains have historically been diffused through the population, above all wages and the broad taxation of labour income, presuppose that production requires labour at scale.

(3) Where output is substantially decoupled from employment, the gains from automation accrue by default to a narrow base of shareholders. No existing instrument of Union law addresses the resulting concentration of capital ownership. Competition law addresses conduct, not ownership; Regulation (EU) 2022/1925 addresses the contestability of digital markets; Regulation (EU) 2024/1689 addresses the safety of artificial intelligence systems. This Regulation complements those instruments by addressing the distribution of the ownership of automated production itself.

(4) The appropriate response is not a tax on the flows of automated production. Taxes on flows burden activity year by year, are borne in part by consumers and employees, depend on annual political renewal and treat the gains of automation as public revenue to be spent. The response chosen by this Regulation operates on assets instead: a limited, one-time right to subscribe for equity in the most labour-decoupled undertakings, held in a common reserve for the benefit of all Union citizens. An equity stake participates in gains only where gains exist, imposes no recurring burden on production and converts the automation dividend into broadly held capital rather than public expenditure.

(5) This Regulation addresses the distribution of the capital value created by hyper-automated production and does not purport to regulate employment, wages, taxation as such, or the internal organisation of undertakings beyond what the citizens' capital warrant requires. It does not promise status, purpose, meaning or the other goods that employment supplies as a by-product, and nothing in this Regulation, and no material presenting it, should be read as making such a promise. Its object is narrower and more precise than that: a broadly held equity stake in the value that automation creates, and nothing beyond it. That object is stated in Article 1 with its scale: an ownership position for each citizen measured against a published statistic of Union living standards, reached within a generation, so that the necessity of the percentage laid down in Article 5 can be assessed against a stated objective and revisited on the evidence. The stake is the objective; distributions remain the property income that follows from ownership and are not the purpose of the obligation.

(6) So that the obligations laid down in this Regulation apply only to undertakings in which the decoupling of output from labour is extreme, durable and of Union significance, undertakings should be designated on the basis of objective qualitative criteria, accompanied by quantitative thresholds giving rise to a rebuttable presumption. That architecture, which follows the model of Regulation (EU) 2022/1925, provides legal certainty for undertakings while preserving the ability of the Commission to designate on the facts and to disregard arrangements whose main purpose or effect is the avoidance of designation. Designation should be capable of preceding any liquidity event and of applying irrespective of admission to trading, because the warrant attaches to value at its formation and a contrary rule would let an undertaking place itself beyond the Regulation by remaining private; and arrangements whose main purpose or effect is the avoidance of designation should be disregarded, while genuine increases in remuneration for work should remain recognised. Acquisitions should remain subject to the separate effects-based rule. Small and medium-sized enterprises generally fall below the presumptive thresholds; below-threshold designation and transferee rules remain applicable.

(7) The quantitative thresholds should capture only undertakings of very substantial scale whose market valuation stands in a proportion to their expenditure on human labour that has no precedent among labour-intensive undertakings. Compensation of labour is the appropriate measure of the labour actually engaged, because it is recorded in audited accounts and cannot be increased without genuine payment for genuine work, so that an undertaking reduces its decoupling ratio only by remunerating labour, which is consistent with the objectives of this Regulation. The ratio laid down in this Regulation is fixed in its own terms, so that an undertaking can establish its position from audited remuneration and turnover records together with the valuation evidence specified in Annex I: it exceeds by a margin of more than double the highest ratios observed among capital-intensive undertakings whose value remains explained by their expenditure on labour, and by an order of magnitude the prevailing ratio among large undertakings admitted to trading in the Union. That ratio should be reviewed under Article 14. For the same reasons the thresholds should be assessed at the level of the group of linked enterprises, the single economic unit to which the value of the automated services accrues.

(8) Designation should follow a notification by the undertaking itself within a fixed period, with a decision of the Commission within a fixed period thereafter. Arguments against the presumption should be taken into account only where they manifestly call it into question, and arguments based on the definition of the relevant market should not be taken into account, since designation does not depend on a finding of market power. Where a designation is repealed, a warrant not yet crystallised should lapse after five years, ensuring legal certainty for the undertaking while preserving for a reasonable period the rights acquired by the Reserve.

(9) The citizens' capital warrant should be modest, precise and singular: a right to subscribe, at nominal value, for shares representing 3 % of the fully diluted capital of the covered undertaking, once per designation. The warrant should confer no voting rights and no influence over management, so that neither the Union nor any public authority obtains control or direction of any undertaking by virtue of this Regulation. This Regulation therefore leaves untouched the rules in Member States governing the system of property ownership and does not effect any transfer of any undertaking to public ownership.

(10) The warrant should crystallise upon the first liquidity event following designation: an admission to trading, a change of control or a substantial secondary sale. It should also crystallise, on the same terms and before any liquidity event, where the covered undertaking extracts value to its own shareholders above the threshold this Regulation sets for that purpose, or where seven years have elapsed since the warrant was issued. Attaching the public stake to the point at which the undertaking's own choices, or the mere elapse of that period, make value claimable keeps the warrant dormant until one of those points is reached and interferes with no going concern before it is. For the same reason, an admission to trading which occurred before the entry into force of this Regulation should not constitute a liquidity event, and this Regulation should not apply to a liquidity event or other crystallising event completed before its date of general application. The contingent claim should arise at effective designation so that documentary delay cannot move the first qualifying event outside it. Transfers retaining the original economic participation should not restart the statutory period. Extraction and elapsed-time crystallisation should be reported using available records without waiting for annual audit.

(11) Shareholder extraction above the threshold this Regulation sets for that purpose should crystallise the warrant on the same footing as a liquidity event, because in substance it is the same event. A liquidity event realises value for the shareholders of a covered undertaking by converting an unrealised stake into cash or its equivalent; extraction realises the same value by a different route, distributing it directly to those shareholders without any sale of the undertaking itself. An instrument that crystallised only on a sale, an admission to trading or a comparable transaction would depend on the form the owners of a covered undertaking choose for taking value out of it, and owners able to achieve the same result by dividend, buy-back or capital reduction would have every reason to choose that form instead. The extraction trigger closes that route, without altering the liquidity-event trigger in any other respect.

(12) The seven-year long-stop answers a case the liquidity-event and extraction triggers do not reach: an undertaking that remains privately held indefinitely, keeps its distributions to shareholders below the extraction threshold, and so never crystallises the warrant at all, while its value continues nonetheless to accrue for the benefit of those shareholders. Absent a long-stop, such an undertaking could defeat the objective of this Regulation by the simple expedient of staying private and patient. The long-stop is the answer to that possibility, and it is proportionate under Article 52(1) of the Charter of Fundamental Rights of the European Union: it is quantified in years rather than left to discretion, it is known to the undertaking from the moment of its designation, and it is subject to the same independent valuation and the same separate right of challenge before the courts that apply to crystallisation at a liquidity event.

(13) The warrant should be incapable of settlement in cash. It confers an entitlement to shares and to nothing else. It is accordingly not a levy, not a charge on turnover or profit and not revenue of any public authority, and it is so designed that no payment obligation towards any budget can arise from it. In excluding settlement in money, the prohibition restricts the freedom of the undertaking to structure the discharge of its obligation; that restriction is justified and proportionate, because it confines the interference to capital ownership and keeps the undertaking's operating liquidity untouched, which a cash alternative would not.

(14) Undertakings within the scope of this Regulation include undertakings governed by the law of third countries which meet the thresholds through their activity in the internal market. Equal treatment and the level playing field require that such undertakings assume obligations of equivalent effect. The obligations laid down in this Regulation attach only where activity in the internal market meets the thresholds laid down in it, so that their application to such undertakings rests on the immediate, substantial and foreseeable effects of their conduct within the internal market and not on the mere accessibility of their services. Where the law governing an undertaking does not give effect to the subscription right, the undertaking should be required to procure a subscription of equivalent effect as an obligation of result, without prejudice to the company law of its incorporation, and compliance should be secured through the enforcement powers laid down in this Regulation, including, as a last resort, the power to prohibit the making available of the relevant goods and services on the internal market. Equivalent-effect arrangements should exist by crystallisation while execution follows the independent valuation, including where the governing company law does not give effect to Union statutory vesting.

(15) The issuance of shares pursuant to a citizens' capital warrant requires derogations from certain provisions of Directive (EU) 2017/1132 of the European Parliament and of the Council concerning pre-emption rights and the consideration for issued shares. Comparable derogations, adopted in the general interest, form part of the established acquis in the field of bank recovery and resolution. Because the shares subscribed by the Reserve are non-voting for as long as it holds them, provisions of the law of a Member State that restrict the proportion, issuance conditions or characteristics of non-voting shares should not apply to the extent that they would prevent the issuance or holding of those shares. The derogations provided for in this Regulation are strictly limited to what the execution of the subscription requires, and they are necessary: an issuance that existing shareholders could pre-empt, that could be made conditional on a resolution of the general meeting, or that a Member State's non-voting-share rules could block outright, could not perform the function this Regulation assigns to it.

(16) The shares subscribed pursuant to the citizens' capital warrant should rank, for the Reserve, equally with the most favourable class of shares created after the covered undertaking's designation, and otherwise equally with its ordinary shares, without affecting the ranking of any creditor. Ranking the Reserve behind classes created after designation would let the interference be diluted by the covered undertaking's own subsequent choices; ranking it above every class, including preference shares subscribed and paid for before designation, would take from those earlier investors the protection they bargained and paid for, which this Regulation does not do. Equal ranking with the most favourable class created after designation, and no disturbance of the claims of creditors, confines the interference to what the warrant is: an equity interest, not a priority claim.

(17) The obligations laid down in this Regulation would be of little value if they could be routed around by an arrangement that subordinates the Reserve's participation, by moving the automated assets on which a covered undertaking's designation rests into another entity, or by the extinguishment of the warrant in an insolvency or restructuring procedure engineered or exploited by the same persons who controlled the covered undertaking. An arrangement that subordinates, reduces or defeats the Reserve's participation should accordingly be ineffective as against the Reserve, while remaining effective between the parties to it and as against third parties, so that anti-avoidance is achieved without unwinding transactions to which the Reserve was not a party. Where a covered undertaking transfers its automated assets to another undertaking otherwise than at arm's length, or to a member of its own group or a person who controls it or is controlled by it, the obligations laid down in this Regulation should attach to the transferee as if it were the covered undertaking, so that the assets which carry the value cannot be moved beyond the warrant's reach while the covered undertaking that issued it remains bound in respect of what it retains. Anti-avoidance should not become a multiplier: a group that divides its automated assets among several entities should owe the same share of its capital as one that does not, and the stated percentage should therefore apply to the dilution borne by the shareholders of the covered undertaking and of every transferee taken together, and not separately to each of them. Where those assets are instead acquired in an insolvency or restructuring procedure and control of the transferee ends up, directly or indirectly, with the persons who controlled the covered undertaking, or with persons acting in concert or connected with them, the same obligations should reattach to the transferee, because no genuine change of ownership has in substance occurred. That reattachment should not extend to a transferee controlled by persons who did not control the covered undertaking: a genuine sale to unconnected purchasers in insolvency or restructuring is the ordinary operation of that law, not an avoidance of this Regulation, and should be left to run its course without the obligations of this Regulation attaching to it.

(18) This Regulation interferes with the right to property of the shareholders of covered undertakings, whose holdings are diluted upon crystallisation. That interference is provided for by law, genuinely meets an objective of general interest recognised by the Union and respects the essence of the right to property: it is a one-time dilution, capped at a stated percentage, borne at a statutory crystallisation event of undertakings whose value derives from an unprecedented decoupling of output from labour. The Court of Justice has consistently held that the right to property is not absolute and that its exercise may be regulated where regulation is proportionate to a legitimate aim of general interest. The interference effected by this Regulation is quantified, foreseeable from designation and less intrusive than measures already upheld in the field of bank resolution. Subscription at nominal value rather than by gratuitous transfer keeps the mechanism within the forms of company law while ensuring that the interference is the stated dilution and nothing more; requiring the Reserve to pay a market price would demand public expenditure this Regulation is designed not to need and would convert a mechanism of ownership into a budgetary one. The fair balance rests also on what the covered undertaking receives: a single harmonised regime of access to the internal market in place of divergent national levies and participation schemes, and the legal certainty of an interference fixed in advance in amount and in moment.

(19) Proportionality further requires safeguards. The dilution borne by shareholders is capped by this Regulation and verified by an independent valuation, which is challengeable separately from the transaction it accompanies and correctable in both directions. The safeguard the valuation secures is that the interference can never exceed the stated percentage in execution: the dilution is capped, its price is set by the event that crystallises it, and no application of this Regulation may take from shareholders more than the interference it names. That executional ceiling, not a crisis counterfactual, is what keeps the interference proportionate in a permanent regime. Neither designation nor crystallisation suspends, conditions or unwinds any transaction. Every decision taken under this Regulation is subject to effective judicial protection in accordance with Article 47 of the Charter of Fundamental Rights of the European Union.

(20) Where a liquidity event itself establishes a price, a valuation delivered in advance of the event would be conjecture about a number the event is about to produce. The independent valuation should therefore be delivered promptly after completion, while the legal effect of the subscription attaches at completion and its execution follows delivery of the valuation.

(21) The European Citizens' Capital Reserve should hold the warrants and the shares arising from them exclusively for the benefit of holders. Its assets and income are not public revenue: they should not enter the general budget of the Union or any national budget, and no payment should flow between the Reserve and any budget in either direction. In this the Reserve resembles a statutory funded pension scheme, whose assets are held for beneficiaries and are not at the disposal of any treasury, rather than a fund of the Union. The insulation of the Reserve from public finances is not an administrative preference but a constitutive feature: it is what makes this Regulation a mechanism of ownership rather than of taxation.

(22) Income from holdings in undertakings governed by the law of a third country may be taxed at source in that country at rates which the Reserve, being resident in no State, may be unable to reduce by treaty. The remedy, where there is one, lies in international agreements, which are concluded in accordance with the procedures laid down in the Treaties and which this Regulation neither prejudges nor requires. This Regulation does not direct the Reserve to arrange its holdings so as to reduce taxation in a third country; an instrument founded on the proposition that capital should be broadly owned is in no position to legislate its own treaty shopping. What this Regulation can do, and does, is oblige the Reserve to report each year the amount it was unable to recover, so that the cost is known rather than assumed away.

(23) The Reserve should exercise no votes, seek no influence over the management of any undertaking and pursue no industrial policy. Its function is to hold and to distribute, not to direct. The mandatory presence of the Reserve in the capital of covered undertakings restricts the free movement of capital. That restriction is justified: it serves the general interest set out in these recitals, it applies without distinction to undertakings and investors of the Union and of third countries, and it is proportionate precisely because the statutory passivity of the Reserve withholds from it every attribute of special control that has led the Court of Justice to censure public shareholdings. A holding which can neither vote nor veto nor instruct exerts no public influence for an investor to fear.

(24) The Reserve should retain from its income what is necessary to preserve the real value of its capital and distribute the remainder. That rule, drawn from the practice of long-horizon sovereign funds, means distributions grow with the portfolio and compound across decades. It also means distributions begin modestly. This Regulation makes no promise of substantial early payments and should not be presented as making one; its horizon is generational.

(25) Every citizen of the Union who has reached the age of 18 years should hold an equal entitlement in the Reserve by operation of law, without application, means test or condition. Universality is design, not generosity: a means-tested entitlement would divide the population into contributors and recipients, invite perpetual contestation of the boundary and convert an ownership stake into a welfare payment. An equal entitlement held by all is defensible by all.

(26) The entitlement should be personal. It should be incapable of transfer, assignment, pledge, attachment, surrender or redemption, so that it cannot be bought out of the hands of those it serves, whether by markets, by creditors or by the holder's own moment of hardship. That restriction on the alienability of the entitlement is a justified and proportionate limitation under Article 52(1) of the Charter and respects the essence of the right, since it attaches to the underlying entitlement only, while amounts distributed are the holder's property, freely usable and inheritable, and it is necessary so that the objective of durable, broadly held capital ownership is not defeated by immediate liquidation.

(27) Member States should administer entitlements through national vehicles, since Member States hold the civil registries and payment infrastructure that administration requires. Administration fees should be capped and entitlements portable, so that the quality of a Member State's administration cannot diminish the substance of a citizen's entitlement. The cap on fees limits the freedom of designated vehicles to set prices; that limitation is necessary and proportionate to prevent the erosion of the entitlement by administrative costs. The administration of entitlements is a service of general economic interest, and the cap is compatible with the freedom to conduct a business on the conditions Article 106(2) TFEU attaches to such services and proportionate under Article 52(1) of the Charter; Member States remain free to compensate designated vehicles for verifiable net costs above the cap.

(28) The history of pooled public assets is a history of raids. The assets of the Reserve should therefore be protected by enumerated prohibitions on lending, guarantee, transfer and encumbrance in favour of public authorities, and the Reserve should not acquire sovereign debt, so that it cannot become a captive purchaser of the obligations of any government. The exclusion of sovereign debt is a rule of portfolio governance internal to the Reserve, securing its independence, and restricts no movement of capital by any other person. An ordinary regulation cannot bind future legislatures, and this Regulation does not pretend otherwise; what it can do is ensure that no derogation from these protections arises by interpretation, and that any future weakening would need to be enacted expressly, in public, informed by the independent assessment its reporting provisions require.

(29) Penalties for non-compliance should be effective, proportionate and dissuasive, and set at a level meaningful to undertakings of the scale designated. Fines and periodic penalty payments should accrue to the general budget of the Union and not to the Reserve, so that the body holding assets for citizens never acquires a financial interest in the punishment of undertakings. Where an undertaking governed by the law of a third country persistently refuses to comply with its core obligations, the Commission should be empowered, as a measure of last resort and subject to proportionality, to prohibit the making available of the relevant goods and services on the internal market, since no other means of enforcement reaches an undertaking with no assets in the Union. Such a prohibition restricts the freedom to conduct a business recognised by Article 16 of the Charter of Fundamental Rights of the European Union, and should accordingly remain available only where no less restrictive measure can secure compliance, for as long as the refusal persists and no longer. So conditioned, the prohibition respects the essence of that freedom: it is temporary, reversible on compliance and confined to the goods and services concerned, and it leaves the undertaking's activity outside the internal market untouched. Execution and notification duties, including those of bound transferees, should be expressly enforceable; sanctions should remain proportionate to the gravity and circumstances of each breach.

(30) The premise of this Regulation, that automation at the designated scale durably decouples output from labour and concentrates ownership, is an empirical claim, and empirical claims can prove wrong. The Commission should monitor adoption, employment effects and ownership concentration, and where the evidence does not support the premise, should state so expressly and propose amendment or repeal. A regulation founded on a falsifiable claim should carry its own test. The same monitoring should extend to the share of value added accruing to labour in the Union as a whole, in both directions: where that share declines, the evidence informs the assessment under Article 1 of whether the participation secured remains adequate to its objective, and where it does not decline, the same assessment asks whether the obligations imposed remain justified at their level, so that the indicator moves no obligation of any undertaking but disciplines the instrument itself.

(31) In order to keep the methodologies for counting turnover, employment and value, and for calculating the retention necessary to preserve the real capital of the Reserve, aligned with technological and market developments, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in respect of amendments to Annexes I and II. The essential elements of this Regulation, including the designation criteria, the percentage and terms of the warrant, the entitlement and its protections, are laid down in the enacting terms and are not subject to delegation. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(32) In order to ensure uniform conditions for the implementation of this Regulation as regards the establishment of the list of independent valuers and their appointment, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council.

(33) The administration of entitlements involves the processing of personal data, limited to what the identification of holders and the execution of distributions require. That processing is necessary for the performance of a task carried out in the public interest, and no data beyond those fields should be collected or retained. Regulation (EU) 2016/679 applies to such processing. Consultation of the European Data Protection Supervisor under Article 42(1) of Regulation (EU) 2018/1725 belongs to the preparation of a Commission proposal. [The proposing institution is to insert the consultation date and opinion reference; no consultation is claimed here.]

(34) Since the objective of this Regulation, namely to ensure on the basis of harmonised rules that the gains of hyper-automated production in the internal market are broadly owned, cannot be sufficiently achieved by the Member States, because the undertakings concerned operate across the entire internal market and national measures would create the very divergence this Regulation removes, but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective.

(35) This Regulation respects the fundamental rights and observes the principles recognised by the Charter of Fundamental Rights of the European Union, in particular Articles 16, 17, 20, 34 and 47 thereof, concerning respectively the freedom to conduct a business, the right to property, equality before the law, social security and social assistance, and the right to an effective remedy and to a fair trial.

(36) Application of the substantive obligations of this Regulation should be deferred so that undertakings, Member States and the Commission can prepare, while the notification obligation applies from entry into force so that the first designations can take effect at general application. Preparatory notifications, hearings and appointment arrangements should precede general application. Early designation decisions should become effective only at general application, with no capture of liquidity events already completed,

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