As regards the European Agricultural Guarantee Fund (EAGF), pursuant to the exceptions referred to in the first paragraph of Article 40 of Regulation (EU) No 1306/2013 and in accordance with the principle of proportionality, expenditure effected after the payment deadlines shall be eligible for Union payments under the conditions laid down in paragraphs 2 to 6 of this Article.

Where expenditure effected after the deadlines is equal to 5 % or less of the expenditure effected before the deadlines, no reduction of the monthly payments shall be made.

Where expenditure effected after the deadlines is above the threshold of 5 %, all further expenditure effected late shall be reduced in accordance with the following rules:

1. (a)

   expenditure effected in the first month following the month in which the payment deadline expired, shall be reduced by 10 %,

2. (b)

   expenditure effected in the second month following the month in which the payment deadline expired, shall be reduced by 25 %,

3. (c)

   expenditure effected in the third month following the month in which the payment deadline expired, shall be reduced by 45 %,

4. (d)

   expenditure effected in the fourth month following the month in which the payment deadline expired, shall be reduced by 70 %,

5. (e)

   expenditure effected later than the fourth month following the month in which the payment deadline expired, shall be reduced by 100 %.

By way of derogation from paragraph 2, in the case of the direct payments falling under the ceiling referred to in Article 7 of Regulation (EU) No 1307/2013 of the European Parliament and of the Council15 the following conditions shall apply:

1. (a)

   where the threshold referred to in the first subparagraph of paragraph 2 has not been used in full for payments made in respect of calendar year N no later than 15 October of year N + 1 and the remainder of the threshold exceeds 2 %, that remainder shall be reduced to 2 %;

2. (b)

   during a financial year N+1, direct payments, other than payments provided for in Regulation (EU) No 228/2013 of the European Parliament and of the Council16 and in Regulation (EU) No 229/2013 of the European Parliament and of the Council17, in respect of calendar years N-1 or earlier made after the payment deadline will only be eligible for financing by EAGF if the total amount of direct payments made within financial year N+1, where applicable corrected to amounts before the adjustment provided for in Article 26 of Regulation (EU) No 1306/2013, does not exceed the ceiling laid down in Annex III of Regulation (EU) No 1307/2013 in respect of calendar year N, in accordance with Article 7 of that Regulation;

3. (c)

   expenditure exceeding the limits referred to in point (a) or (b) shall be reduced by 100 %.

The amounts of the reimbursements referred to in Article 26(5) of Regulation (EU) No 1306/2013 shall not be taken into account to check whether the condition laid down in point (b) of the first subparagraph of this paragraph is fulfilled.

The Commission shall apply a different time scale from those laid down in paragraphs 2 and 3, and/or lower reductions or no reduction at all, if exceptional management conditions are encountered for certain measures or if justified reasons are advanced by the Member States.

However, the first subparagraph shall not apply for expenditure exceeding the limit referred to in point (b) of paragraph 3.

Checks on compliance with the payment deadlines, in the context of the monthly payments, shall be made twice each financial year:

1. (a)

   on expenditure effected by 31 July,

2. (b)

   on expenditure effected by 15 October.

Any overrun of deadlines in August, September and October shall be taken into account in the accounts clearance decision referred to in Article 51 of Regulation (EU) No 1306/2013.

The reductions referred to in this Article shall be applied without prejudice to the subsequent decision on conformity clearance, as referred to in Article 52 of Regulation (EU) No 1306/2013.