Nothing can be said to be certain, except death and taxes

Märpel shall come back to AT-ILO in a next article, but she was shortly presented with breaking news about the EPO finances.

The EPO owns lots of money. The operating surplus is about 350 millions Euros every year, and this is after paying for one of the most expensive building in Holland. The EPO cash reserves are over 2.3 BILLIONS Euros.

Märpel is not surprised. Tightening salaries, stopping all investment in training and forcing your staff to output 40% more patents while keeping fees unchanged must yield some effects. The EPO swims in money, literally.

Actually, Märpel notes that the EPO budget is world readable on https://www.epo.org/modules/epoweb/acdocument/epoweb2/289/en/CA-50-17_Add._1_B_en.pdf There are a few gems in that document, maybe someone should host a public copy just in case?



President Battistelli has decided he needed a blank check to play with that money on the stock and derivatives market. Apparently he did not learn about the toxic loans of Saint-Germain. Or maybe he knows them too well, Märpel cannot say. Usually money lost in risky investments is not lost for everybody.

The Council, in its rubber-stamping majesty, decided to approve the new investment guidelines last December. Lately the budget and finances committee cleared the small details. Interested readers having access to the EPO intranet may look for document CA/F 10/18.

Märpel finds difficult to believe what that document says. Apparently, the EPO is going to set aside "around 250 millions Euros" every year in the next 20 years and expects that the total treasury will reach EUR 12 billions Euros after a period of 20 years, which is lots of money even for cats. The expected long term return on the modelled portfolio is 4,0% and the annual risk is 15,1% of the Net Assets Value, which Märpel understands to mean that the EPO will invest in relatively high risk assets to get that level of return. Märpel's compound interests calculator also notes that the figures do not match, unless the EPO would also invest its complete cash reserve in that risky scheme (2.3 billions Euros). But then with what money shall the EPO be run, salaries paid, etc? Märpel also notes that up to 75% can be invested in risk investments (equities, commodities, real estate and "alternatives"), which probably explains the 4% annual return in times when one is lucky to get 0.5%.

Nobody knows what the EPO is going to do with 12 billions Euros in 20 years. If the scheme succeeds (and that is a big "if"), the next-next-next-next President is going to have lots of money to play with. Or will he? 



Märpel also notes that the whole scheme is going to be operated under German law by a Master-Kapitalverwaltungsgesellschaft (which is also regulated by German law). Now, that is interesting.

A particularity of German law is that the EPO is not always as immune to it as it wishes. In particular, the EPO found that the Bundesfinanzhof (the highest court responsible for taxes) can be particularly unimpressed by its immunities. Lately it decided that EPO pensions are taxable in Germany and decided so over a technicality: that the pension reserve fund was under control of the EPO president:
"Um das Versorgungssystem durch die Bildung von angemessenen Rücklagen zu sichern, hat die EPO im Rahmen ihrer Gesamtfinanzierung u.a. einen Reservefonds für Pensionen (im Folgenden: Reservefonds) gebildet (Art. 2 Abs. 2 des Statuts der Reservefonds für Pensionen und soziale Sicherheit der EPO - Reservefonds-Statut -). Der Fonds bildet ein zweckgebundenes Sondervermögen der EPO, besitzt aber keine eigene Rechtsfähigkeit. Er wird vom EPA verwaltet (Art. 2 Abs. 1 Reservefonds-Statut). Die Mittel des Fonds werden vom EPA durch Zuweisungen aus dem Haushalt der EPO gebildet. Sie sind getrennt vom übrigen Vermögen der EPO zu verwalten (Art. 3 Abs. 1 Reservefonds-Statut). Die Anlagen des Fonds werden für die Zwecke des Statuts so behandelt, als seien sie Vermögen des Fonds; sie bleiben jedoch stets Vermögen der EPO (Art. 3 Abs. 5 Reservefonds-Statut). Der Haushaltsplan der EPO weist in seinem Teil I das "Hauptbudget" und in Teil II das "Versorgungs- und Sozialversicherungssystem Budget" aus." ("besitzt aber keine eigene Rechtsfähigkeit" = "is not legally independent"). Probably the EPO pensioners would save on taxes if President Battistelli had let the pension reserve fund be independent, but this is not the subject of this post.

Back on the subject of the new investment scheme. Märpel notes that the EPO is exempt from taxes in Germany because of the PPI (protocol on privileges and immunities) signed with the FR of Germany. But the PPI does not foresee that the EPO plays in the stock market. Neither does the European Patent Convention, see Articles 37: "budgetary funding", 39 "The Organisation's own resources" and 40 "Level of fees and payments". And the EPO starts an investment company under German law, managed by a German Kapitalverwaltungsgesellschaft. Who wants to bet with Märpel that the Bundesfinanzhof finds out that the 12 billions Euros will be taxable in Germany?

Märpel also notes that the only delegate who voted against the project came from Germany. Is Germany not interested in taxes on future earnings or did Germany realise that the earnings may not be as projected?


In any case, the project is unknown in the history of civil service. Public institutions do not normally get to play on the stock and derivatives market. Märpel also reminds you that it is YOUR money, the EPO got it to actually do the work of thoroughly examining patents.