Explanatory memorandum

Accompanying the draft Regulation of the European Parliament and of the Council on harmonised rules for citizen participation in automated productivity gains.

This memorandum follows the structure the Commission uses for its own proposals. It is written by citizens, not by the Commission, and it is not required: Regulation (EU) 2019/788 permits a citizens' initiative to attach a draft legal act and asks nothing of this kind. It exists because the questions the Commission's services would have to answer about this instrument are worth answering before they are asked, and because a file that cannot answer them is not ready to be acted on. Where an answer does not exist yet, this memorandum says so rather than filling the heading.

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1. Context of the proposal

1.1 Reasons for and objectives of the proposal

Automated cognitive systems are beginning to produce output at a scale that does not require a corresponding quantity of human labour. Where that decoupling occurs, the returns to production accrue to the holders of the capital that embodies the automation, and the share reaching citizens through wages falls with the labour share.

The problem this Regulation addresses is not that outcome in itself, which is a matter for many instruments, but a narrower one within the Union's competence: the ownership of the capital in which those returns concentrate is extremely narrow, and Member States have begun to respond separately, with divergent national levies, participation schemes and proposals for taxing automated output. Those divergences fragment the internal market for exactly the undertakings that operate across all of it.

The objective is stated and quantified in Article 1(2): participation of citizens of the Union in the capital value created by hyper-automated production, at a scale where the holdings behind each citizen's entitlement reach the order of six months of median equivalised disposable income in the Union within a generation of the first designations.

1.2 Consistency with existing provisions in the policy area

The designation architecture follows Regulation (EU) 2022/1925 (the Digital Markets Act): cumulative qualitative criteria, quantitative thresholds giving rise to a rebuttable presumption, self-notification, a below-threshold designation route on the facts, and an anti-circumvention power. That is a deliberate reuse of a structure the Union legislature has already adopted and the Court has not disturbed.

The company-law interface is drafted as express, narrow derogation from Directive (EU) 2017/1132 rather than as general override, following the formula of the resolution acquis. The prospectus interface is an express exemption under Regulation (EU) 2017/1129. Article 1(5) preserves Directive (EU) 2016/2341 and Regulation (EU) 2019/1238 save as Article 11 provides.

Five acquis interface points remain open and are listed in section 5.4. They are recorded rather than resolved, which is the honest state.

1.3 Consistency with other Union policies

The instrument takes non-voting equity and confers no governance right, which keeps it outside the field the Court's case law on special public shareholdings occupies (Commission v Germany, C-112/05, and the line following it). That choice has a cost, examined at objection 20: voteless shares raise the relative voting weight of the remaining holders, and the Union has lately legislated in the other direction on multiple-vote share structures in Directive (EU) 2024/2810. The interaction with that Directive is an open interface point, not a resolved one.

Nothing in this Regulation creates a Union own resource, and nothing enters the Union budget. That is a design constraint, not an incidental property: see section 4.

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2. Legal basis, subsidiarity and proportionality

2.1 Legal basis

The legal basis is stated by layer, not as a single centre of gravity for the whole act, because incompatible legislative procedures cannot be fused into one basis (Titanium Dioxide, C-300/89) and because a unitary argument would concede the weakest layer's characterisation to the strongest layer's opponents. The severability memorandum sets the layers out; decomposition rule 3 requires this treatment. Article 114 TFEU carries the designation regime, the transparency obligations and the warrant: rules addressed to undertakings operating across the whole internal market, removing the divergence that separate national participation and automation levies are already creating. Article 352 TFEU carries the elements Article 114 does not reach, namely the establishment of the Reserve as a Union-level body and the individual entitlement of citizens. Those elements are drafted to be severable precisely so that the unanimity they require cannot hold the Article 114 layers hostage, and so that partial registration or partial annulment trims the instrument rather than destroying it.

Article 114(2) excludes fiscal provisions, and the characterisation question that follows is the most serious legal risk this instrument carries. It is stated at full strength and answered at objection 2, and that objection, not this memorandum, is where the argument lives. The short form: the obligation takes an asset and not a flow, is payable in shares and never in cash, funds no budget, passes through no treasury and confers no revenue on the Union.

2.2 Choice of the instrument

A Regulation, and not a Directive, for three reasons. The obligation attaches to a small number of undertakings operating across the entire internal market, and transposition into twenty-seven national regimes would reproduce exactly the divergence the measure exists to remove. The warrant must have identical content in every Member State because a single undertaking issues one instrument to one Reserve. And the entitlement is held directly by citizens against a Union body, which requires direct applicability rather than national implementing law. Chapter V leaves the administration of entitlements to national vehicles, which is where national variation belongs and is permitted.

2.3 Subsidiarity

The objective cannot be sufficiently achieved by Member States acting separately, because the undertakings concerned operate across the entire internal market and national measures would create the very divergence the Regulation removes. A national participation scheme would apply to undertakings whose value arises from Union-wide activity, which either under-reaches or produces twenty-seven incompatible claims on the same capital. Recital 34 carries the formal statement.

2.4 Proportionality

The interference with the right to property under Article 17 of the Charter is real and is not minimised in this file. Proportionality is carried by five features of the drafting: the percentage is fixed and small; the obligation is prospective and attaches only to value formed after designation; it crystallises only when the undertaking's own owners realise value; the valuation is independent and separately justiciable under Articles 6 and 7; and the holding is passive, with no vote, no board seat and no direction of management.

On the necessity limb, this memorandum records a limit rather than claiming a strength. Article 1(2) now states a quantified objective, and three per cent is the smallest integer percentage that approaches it on the published model, so necessity can for the first time be argued from a stated quantity rather than asserted. But the model is linear in the percentage, so the target itself is chosen rather than derived. Objection 21 sets this out in full, including the circularity, before a reviewer does.

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3. Results of ex-post evaluations, stakeholder consultations and impact assessments

3.1 Ex-post evaluations

None. There is no existing Union instrument in this field to evaluate.

3.2 Stakeholder consultations

No formal consultation has been held, and none could be: this is a citizens' draft and no institution has consulted on it. Saying "stakeholders were consulted" would be false and this memorandum will not say it.

What exists instead is adversarial review, run against the text at every stage and published in full: six review gates covering legal form, constraint compliance, legal basis, hostile counsel, acquis coherence and layer fidelity, with every verdict committed including the failures, and a public ledger recording what each round changed and what was refused with reasons. Twenty-one objections are stated at their strongest and answered, several of them fatal-if-true, and at least two whole design alternatives were killed in that process before reaching publication.

That is not a substitute for consulting the people an instrument would bind, and this memorandum does not present it as one. It is what a file can do before it has standing to consult anybody. A registrability enquiry is pending with the European Citizens' Initiative Forum.

3.3 Impact assessment

No formal impact assessment under the Better Regulation guidelines has been carried out, and a citizens' initiative is not required to carry one. What follows is the analysis that does exist, in the form those guidelines use, with its limits stated.

Policy options considered.

Option 0, no Union action. Member States continue to legislate separately on automation levies and participation schemes. The divergence grows, the undertakings concerned face twenty-seven regimes or none, and the ownership question is answered nationally where it can only be answered at the scale the undertakings operate. This is the baseline against which the others are measured, and it is the option hostile review consistently identifies as the safest for the Union legislature and the worst for the objective.

Option 1, a tax on automated output or on tokens of inference. This is the live competing family: legislative proposals of this kind exist in third countries, including one introduced in the United States in August 2026 with a rate that escalates as unemployment rises. It raises money sooner and in larger amounts in the early decades, which the warrant does not. It was rejected on two substantive grounds, and a third observation is recorded separately because it must not be mistaken for a reason. First, it is a flow and not an asset, so citizens receive a transfer rather than a holding, and the distinction between a benefit and a stake is the entire thesis of this instrument: a transfer is renegotiated annually and cancellable by simple majority, a holding is property. Second, and for the same reason, it is repealable by the majority that enacts it, which the raid history in the evidence base shows is not a theoretical risk. The separate observation is that a consumption or output levy is unambiguously fiscal and would require unanimity under Article 113 TFEU. That is a consequence of what such an instrument is, not a reason for preferring this one, and this memorandum does not offer it as one. The ownership thesis is prior to any competence question and would be the same if both routes required the same majority. A reader is entitled to test that claim against the four tests in GOVERNANCE.md, which were adopted before any legal basis was chosen and which reject flow-based instruments on their own terms. The full comparison, including the magnitudes, is published at evidence/token-taxes.md.

Option 2, a Union sovereign wealth fund capitalised from the budget. This requires the money the Union does not have, competes directly with every other budget line, and produces a fund owned by the Union rather than by citizens, which fails the ownership objective and exposes the assets to exactly the raid history the evidence base documents.

Option 3, a voting stake. A Reserve holding voting shares would give the Union influence over the undertakings it regulates. Rejected: it is objection 9's honeypot with a lever attached and objection 16's golden share, which the Court has struck down in every form it has taken.

Option 4, the citizens' capital warrant, preferred. Non-voting, fixed percentage, prospective, crystallising only at the owners' own realisation, payable only in shares. It is chosen because it is the only option identified that transfers ownership rather than income and converts repeal into expropriation: a future legislature can still take it, but it must do so as a taking of property, meeting Article 17 and Article 52(1) of the Charter, rather than by amending a budget line. DC-23 states the rule this reflects, that raid resistance is friction and never impossibility, and this memorandum does not claim more than friction.

Economic impacts. The designated undertakings bear a dilution of three per cent of capital, once, crystallising on their own liquidity event, on shareholder extraction above the stated threshold, or at the seven-year long stop, whichever comes first, so the timing is theirs only until the long stop reaches it. Investors will price mandatory future dilution from designation onward, which is a real cost and is examined at objection 4. Nine undertakings are presumptively designated on August 2026 figures, with roughly EUR 20,5 trillion of combined value; the calculation is at evidence/designation-count.md. The instrument has no effect on any undertaking outside that set, and small and medium-sized enterprises fall far outside it: the most capital-intensive labour-reliant undertakings observed reach a value-to-payroll ratio in the thirties, against a threshold of eighty.

Social impacts. The intended social impact is the distribution of an ownership stake equally to citizens of the Union, without means test, application or condition, the entitlement attaching by virtue of Union citizenship and distributions being made from the age of majority under Article 10, and its expected magnitude is stated honestly in Article 1(2) and in the simulator: near zero for years, growing to something of the order of a few hundred euros a year across decades, and materially more only if automation transforms the economy far beyond its present state. This Regulation does not promise status, purpose or meaning, and recital 5 says so in terms. It is not an income-replacement measure and cannot become one at any percentage this instrument could carry: the arithmetic is at evidence/sizing-the-ask.md.

Environmental impacts. Assessed as not significant, against the do no significant harm principle and the consistency duty in Article 6(4) of Regulation (EU) 2021/1119 (the European Climate Law), rather than dismissed. The instrument regulates neither what an undertaking produces, nor how, nor what energy it uses. It transfers a share of ownership and creates no physical activity, no infrastructure, no transport and no change in any production decision, so none of the six environmental objectives is adversely affected by any operative provision. The channels worth naming are indirect and are named here so that a reader can weigh them rather than discover them. First, the designated undertakings include operators of energy-intensive computing infrastructure, and the Regulation neither increases nor restrains that consumption; it is neutral to it, which is a statement of no effect and not a claim of benefit. Second, a Reserve holding equity in such undertakings acquires an exposure to their transition risk, which its capital-preservation duty under Annex II obliges it to manage; Article 9 forbids it from using that holding to direct any undertaking's conduct, environmental or otherwise. Third, distributions to citizens are property income of a magnitude stated elsewhere in this memorandum, too small in the relevant decades to produce a measurable consumption effect. No positive environmental benefit is claimed, and no climate-proofing assessment under the Better Regulation toolbox has been carried out. On the evidence available the instrument is environmentally neutral by construction.

Fundamental rights. Article 17 (property) is engaged by the issuance obligation and examined at length above and at objection 1. Article 16 (freedom to conduct a business) is engaged by compelling issuance. Article 41 (good administration) is engaged by the individual designation decisions under Article 3 and the market investigations under Article 4, and is served by the right to be heard on the Commission's preliminary findings in Article 4(4), by the fixed decision deadlines and by the duty to state reasons. Article 47 (effective remedy and fair trial) is engaged by those same decisions once taken, by the binding independent valuation under Articles 6 and 7 and by the penalties under Article 13; it is served by full judicial review before the Court of Justice, and Article 7 makes the valuation separately justiciable so that a dispute about value need not be carried inside a dispute about designation. Articles 20 and 21 (equality and non- discrimination) are engaged by the threshold criteria in Article 3(2), which apply identically to Union and third-country undertakings. Article 8 (protection of personal data) is engaged by the administration of entitlements and addressed in recital 33 and Article 11(5). Article 34 (social security and social assistance) is referenced in the Charter recital as context, not as a basis.

Budgetary implications: see section 4.

3.4 Regulatory fitness and simplification

The instrument imposes a notification duty on undertakings meeting the thresholds and nothing on anyone else. Both figures in the designation test are already in audited accounts, so compliance requires no new measurement. Designation itself is a Commission decision with a fixed deadline, and the rebuttal route is cabined.

3.5 What this section cannot claim

There has been no consultation of the undertakings that would be designated, no macroeconomic modelling beyond the published simulator, no Regulatory Scrutiny Board opinion, and no assessment by anyone who does this professionally. Every quantitative statement above rests on the four evidence notes and the published model, all reproducible, none audited. A reader relying on this memorandum should treat it as a well-tested draft and not as an impact assessment.

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4. Budgetary implications

The Regulation creates no Union own resource, no revenue for the Union budget and no expenditure obligation on the Member States. No cash flows from any undertaking to any public authority at any point: the obligation is discharged in shares, to the Reserve, which is owned by citizens.

Two costs are real and should not be hidden by that architecture. The Commission bears administrative costs for designation decisions, market investigations, the independent valuation regime and the periodic evaluation under Article 14. The Reserve bears the costs of custody, administration and distribution, which Annex II point 2 deducts from realised income before anything is distributed, and Article 10(6) caps the fees national vehicles may levy so that administration cannot erode the entitlement.

Neither figure has been estimated. A Commission proposal would require a legislative financial statement quantifying the first; this file cannot produce one credibly and does not attempt it. What can be said is the structural point: the running costs fall on the fund's own income and on the Commission's existing administrative envelope, not on a new appropriation, and the instrument is designed so that a year in which the Reserve earns nothing is a year in which it distributes nothing rather than a year in which someone is billed.

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5. Other elements

5.1 Implementation plans and monitoring

Article 14 obliges the Commission to monitor the diffusion of automated cognitive systems, household equity holdings, the labour and capital shares of value added in the sectors concerned, the Regulation's own operation, and the evolution of the Union labour share against 2025 in either direction. It must evaluate and report by 31 December 2032 and every three years thereafter.

The falsification condition is the unusual part and is deliberate. Article 14(3) obliges the report to state expressly where the evidence does not support the Regulation's own premise, and to propose amendment or repeal. Article 1(2) obliges the same report to assess whether the quantified objective is manifestly unattainable or manifestly exceeded, and to propose amending the percentage or the thresholds in either direction. A regulation resting on a falsifiable empirical claim should carry its own test.

5.2 Explanatory documents

The whole file is public: the enacting terms, the recitals, the annexes, this memorandum, the counter-arguments memorandum, the severability memorandum, the evidence base and every review verdict including the ones the text failed. The drafting history is a public commit log.

5.3 Detailed explanation of the specific provisions

Chapter I (Articles 1 to 2) states the subject matter, the quantified objective and the definitions. Chapter II (Articles 3 to 4) designates covered undertakings on cumulative qualitative criteria with a rebuttable quantitative presumption, and provides for market investigation and review. Chapter III (Articles 5 to 7) creates the citizens' capital warrant, its crystallisation events including the extraction trigger and the seven-year long stop, the independent valuation and the safeguards. Chapter IV (Articles 8 to 9) establishes the Reserve and prohibits it from voting, directing, acquiring beyond the warrant, or leveraging. Chapter V (Articles 10 to 11) creates the individual entitlement and its administration through national vehicles. Chapter VI (Article 12) protects the Reserve and the entitlements. Chapter VII (Articles 13 to 16) provides penalties, monitoring, delegation and committee procedure. Chapter VIII (Articles 17 to 18) contains the transitional provisions and entry into force. Annex I carries the counting methodology; Annex II the retention and distribution arithmetic.

The severability memorandum sets out how the instrument decomposes if a part fails, in four layers, so that partial registration or partial annulment trims rather than destroys.

5.4 Open points, stated rather than concealed

• Whether Article 5(10)'s protection of the Reserve's rank requires a carve-out for genuine rescue financing.
• The position of a sub-threshold transferee under Article 5(11).
• Five acquis interface points, including the interaction with Directive (EU) 2024/2810 on multiple-vote share structures.
• Whether a segment-level limb should return as a second presumption in Article 3(2) if pre-designation dilution by acquisition is observed.
• Whether the instrument should reach semiconductor fabrication at all, which the qualitative limb and the Article 3(5) rebuttal currently leave to be decided case by case.
• No estimate of the administrative cost of the designation and valuation regime.

Each of these is on the record in the review ledger or the drafting notes with the reasoning that left it open.