Recitals

(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. Harmonised rules at Union level are therefore necessary.

(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) 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. Small and medium-sized enterprises fall far outside the thresholds and are unaffected by this Regulation.

(6) The quantitative thresholds should capture only undertakings of very substantial scale whose turnover per full-time equivalent, measured on the automated segment of their activity and counting labour in substance rather than in form, has no precedent in labour-intensive business. Counting labour in substance imposes a compliance burden that is confined to undertakings of that scale and is necessary to prevent avoidance of designation by fragmentation or subcontracting, which a form-based count would invite. For the same reason 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, so that no structuring of the group places the undertaking's Union activity beyond designation. The counting methodology is laid down in Annex I so that it can follow technological and market developments without amendment of the essential elements of this Regulation.

(7) 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.

(8) 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.

(9) The warrant should crystallise only upon the first liquidity event following designation: an admission to trading, a change of control or a substantial secondary sale. Until such an event, the founders and investors of an undertaking realise no gain from it; at such an event, they do. Attaching the public stake to that moment means the stake is claimed at the point where value is crystallised by the undertaking's own choices, interferes with no going concern and takes nothing from any undertaking that never realises such value. 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 liquidity events completed before its entry into force.

(10) 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.

(11) 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.

(12) 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. 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, or make conditional on a resolution of the general meeting, could not perform the function this Regulation assigns to it.

(13) 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 moment of realised gain by the shareholders 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.

(14) 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 liquidity event itself, and no application of this Regulation may take from shareholders more than the interference it names. That executional floor, 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.

(15) 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.

(16) 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.

(17) The Reserve should be a passive owner. It 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.

(18) 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.

(19) 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.

(20) 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. Amounts distributed, once received, are ordinary property of the holder, inheritable and freely usable.

(21) 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.

(22) 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 must be enacted expressly, in public, informed by the independent assessment its reporting provisions require.

(23) 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.

(24) 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.

(25) 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.

(26) 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.

(27) 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. The European Data Protection Supervisor was consulted in accordance with Article 42(1) of Regulation (EU) 2018/1725 of the European Parliament and of the Council and delivered an opinion on [date].

(28) 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.

(29) 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 and 47 thereof, concerning respectively the freedom to conduct a business, the right to property, equality before the law and the right to an effective remedy and to a fair trial.

(30) 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 follow without delay,