Week 5 Lecture on Freedom of Establishment and Services PDF

02.10.24 Dr. Calum Alasdair Young FREEDOM OF ESTABLISHMENT AND SERVICES  Learning Goals Identify and analyse key concepts, legal provisions and CJEU landmark cases in the area of the EU internal m...

02.10.24 Dr. Calum Alasdair Young FREEDOM OF ESTABLISHMENT AND SERVICES  Learning Goals Identify and analyse key concepts, legal provisions and CJEU landmark cases in the area of the EU internal market law to advise potential clients on matters related to the four freedoms. Freedom of Establishment Free Movement of Services Secondary legislation covering these Treaty freedoms 2 Free Movement of Establishment and Services - Young  Framework Much like last week, parallel and overlapping areas of law Services and Establishment can seem very similar based on the factual scenario in question However here we have more secondary legislation covering similar things to the Treaties 3 Free Movement of Establishment and Services - Young  Framework First we’re going to cover Treaty rights Treaties apply where secondary legislation doesn’t. Secondary legislation must comply with the Treaty rights As you will see, secondary legislation is limited in a number of ways 4 Free Movement of Establishment and Services - Young  Main pieces of law Article 49-62 TFEU – framework covering establishment and services Article 49 – Freedom of Establishment Article 56 – Free Movement of Services Directive 2006/123 (The Services Directive) 5 Free Movement of Establishment and Services - Young  Overarching Structure of Treaty Rights 1. Does EU law apply at all? 2. Which area of free movement law applies? 3. Is the national restriction in breach of EU law? 4. Is there a justification for that national restriction? 5. Is that restriction proportional? 6 Free Movement of Establishment and Services - Young  1. Does EU law apply at all – citizenship and interstate element EU citizenship or location required (given this also applies to legal persons) Interstate element – very little movement required for EU law to apply (Carpenter) However, unlike with regards to citizenship, the Walloon Case establishes that there are still purely internal situations with regards to services and establishment 7 Free Movement of Establishment and Services - Young  1. Does EU law apply at all – citizenship and interstate element ‘Reverse Discrimination’ of someone leaving, qualifying, then returning No longer ‘wholly internal’ Interstate element fulfilled, don’t want to deter citizens from exercising freedoms Koller 8 Free Movement of Establishment and Services - Young  1. Does EU law apply at all – economic activity Economic activity required to engage Articles 49, and 56 TFEU Jundt – no need to for someone to be seeking a profit, but the activity ‘must not be provided for nothing’ 9 Free Movement of Establishment and Services - Young  1. Does EU law apply at all – scope Even if Member States are free to act, as its outside of the EU’s competences, they must bear in mind the four freedoms – Viking Internal market remains some of if not the most significant elements of EU law 10 Free Movement of Establishment and Services - Young  2. Which area of free movement applies – freedom of establishment Article 49 – freedom of establishment - right for natural and legal persons to set up in other Member States (primary establishment) - right for legal persons to set up agencies, branches, or subsidiaries in another Member State (secondary establishment) Articles 54 and 55 refer to companies more specifically 11 Free Movement of Establishment and Services - Young  2. Which area of free movement applies – free movement of services Article 56 TFEU – free movement of services - freedom to travel cross-border and provide services - freedom to travel cross-border to receive services - cross-border services where neither provider nor recipient travels (Alpine Investments) 12 Free Movement of Establishment and Services - Young  2. Which area of free movement applies – free movement of services Article 57 TFEU provides us with a partial definition of service, and a few examples Service provided for remuneration, where not covered by provisions on goods, capital or persons Article 58 TFEU adds that transport, banking, and insurance services are covered by provisions on transport and capital respectively Now can mostly rely on a previous case establishing that something is a service for the purposes of free movement of services 13 Free Movement of Establishment and Services - Young  2. Which area of free movement applies – services or establishment? Obviously, some factual overlap between establishment and services, e.g. setting up something for a short time Gebhard – is it being provided on a stable and continuous basis? If so, establishment Schnitzer – must be temporary in order to be services, but you can create infrastructure to support the provision of that service 14 Free Movement of Establishment and Services - Young  2. Which area of free movement applies – free movement of services Recall the Posted Workers Directive from last week Covers a situation where a company sends its workers to provide services Not necessarily the free movement of services or establishment, but can involve service elements 15 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law - discrimination Discriminatory provisions obviously prohibited (Factortame) Indirect discrimination also prohibited (Tax Credits) Covers indirect discrimination based on nationality but also discrimination based on establishment in another state (Svensson and Gustafsson) 16 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law – restrictions and market access Once again, a broad shift over time to ‘market access’- based approach Begins in Säger, followed by several other cases Language becomes simpler over time Viking prohibits ‘obstacles’ or ‘restrictions’ to free movement Obviously quite a broad test Applied differently in the areas of taxation, and company incorporation 17 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law – restrictions and market access Broad test can have regulatory implications Lots of legitimate public regulatory decisions fall under this test Court has limited its effects in a few ways - excluded if the effect on free movement is too uncertain and indirect (Volksbank Romania) - suggested de minimis test, although not applied consistently 18 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law – incorporation Establishing a new branch or company falls within freedom of establishment EU company law contains extensive secondary legislation Where national law applies, can interfere with freedom of establishment by placing regulatory limits on the requirements to set up a company However, this is an important element of regulating companies Balance must be struck 19 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law – incorporation Two predominant legal theories of incorporation, used in different Member States Real Seat theory – company is to be established under the law of the state where its operational headquarters is, even if formally incorporated elsewhere Incorporation theory – a company is governed by the law of the state where it is formally incorporated. Case law often emerges from clashes between these theories 20 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law – incorporation Daily Mail Despite freedom of establishment, CJEU has declined to recognise an unrestricted right to transfer your management, control, and administration from state A to state B whilst retaining their status in state A. Thus, states can still have limitations on company movement, provided they are proportional and legitimate 21 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law – incorporation Cartesio elaborated on this Yes, Daily Mail applies, but only to situations where the law governing the company will remain the same Can potentially be a restriction on freedom of establishment if it concerns reincorporation, i.e a change in the law governing the company Centros - can be restriction on freedom of establishment based on refusal to recognize new branch Much more elaborate jurisprudence follows 22 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law – taxation Obviously significant Potentially frequent barrier – higher taxes disincentivise movement No power to harmonise Companies only likely to challenge higher taxes, resulting in cherry-picking Movement towards EU law following internationally-agreed upon norms ACT Group Litigation and FII (No 1) mark a move back towards a discrimination-based approach in this area 23 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law – horizontal effect Most judgments concern vertical effects – actions by states/organs of government Can also concern actions by private actors, resulting in potentially problematic implications 24 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law – horizontal effect Viking and Laval Both cases, use of posted workers or internal market freedoms resulted in strike action, due to attempts to use these freedoms to implement lower wages and working conditions Strike action, in attempting to limit the use of internal market freedoms, could constitute a restriction to those freedoms 25 Free Movement of Establishment and Services - Young  3. Is the national restriction in breach of EU law – horizontal effect Viking and Laval a very significant development Significant expansion of the scope of EU law Yes, horizontal effect had existed previously, but in a quasi- regulatory context (see Bosman from last week) Still unclear exactly how far horizontal effect goes 26 Free Movement of Establishment and Services - Young  4. Is there a justification for that national restriction? Directly discriminatory measures require express derogations Article 52(1) - public policy, public security, public health 27 Free Movement of Establishment and Services - Young  4. Is there a justification for that national restriction? Article 51 - public service exception once more ‘Direct and specific connection with official authority’ – Reyners Article 62 applies these Treaty justifications to services as well as Establishment 28 Free Movement of Establishment and Services - Young  4. Is there a justification for that national restriction – public interest justifications Similar to previous areas, non-discriminatory measures can be justified with a wide range of ‘objective justifications’ (Gouda) Also known as ‘imperative reasons in the public interest’ with regards to services (Van Binsbergen) Examples include: - safeguarding financial markets (Alpine Investments) - prevention of gambling (Schindler) - reducing crime and fraud (Schindler) - press pluralism (Gouda) - combating money laundering (Jyske Bank Gibraltar) 29 Free Movement of Establishment and Services - Young  5. Is that restriction proportional? Legitimate aim (see section 4) Suitable to achieve that aim No more restrictive that necessary Often repeat lines of case law in this area, e.g. gambling case law Results in detailed precedent on proportionality calculations 30 Free Movement of Establishment and Services - Young  5. Is that restriction proportional? Viking and Laval Fundamental right to collective action and striking balanced against the freedoms of EU law Judgment faced extensive criticisms on labour rights grounds Demonstrates extent of CJEU’s commitments to internal market freedoms, even when clashing with human rights 31 Free Movement of Establishment and Services - Young  BREAK 32 Free Movement of Establishment and Services - Young  Secondary Legislation Reasonably heavily regulated area, numerous pieces of secondary legislation Often broad goals, but with multiple and detailed exceptions Some basics of some covered here, but many more 33 Free Movement of Establishment and Services - Young  Secondary Legislation – Services Directive The Services Directive (Directive 2006/123) Covers establishment and services Extremely controversial piece of legislation Services 2/3rds of Europe’s GDP Areas frequently seen at risk from foreign competition from other EU Member States Often sensitive areas where undercutting of standards seen to be a particular risk 34 Free Movement of Establishment and Services - Young  Secondary Legislation – Services Directive As a result, many areas excluded from the Directive (Article 2) - health-care - financial services - private security - audiovisual services - gambling - temporary work services - services of a general interest Often these areas are instead subject to their own specific legislation Specific provisions on social policy and strikes also excluded from the Directive 35 Free Movement of Establishment and Services - Young  Secondary Legislation – Services Directive What does it include? Services not excluded explicitly (Recital 33 of the Directive for examples) As a result, somewhat eclectic collection of services covered - business services - legal and fiscal advice - real estate - tourism - tour guides - elderly support services - construction 36 Free Movement of Establishment and Services - Young  Secondary Legislation – Services Directive Four main pillars Easing freedom of establishment and provision of services Administrative simplification Strengthening rights of recipients of services Promoting quality of services 37 Free Movement of Establishment and Services - Young  Secondary Legislation – Services Directive Establishment provisions cover - authorisation schemes - other requirements Authorisation schemes must be: non-discriminatory; justified by an overriding reason relating to the public interest; and with no less restrictive measure available (Article 10) Article 14 lists eight requirements that are prohibited Article 15 lists eight more which are ‘suspect’ based on the CJEU’s establishment case law 38 Free Movement of Establishment and Services - Young  Secondary Legislation – Services Directive Services provisions contain several things A requirement to ‘respect the right of providers’ A requirement for the Member States to ensure free access to service activities Seven particularly suspect requirements Express derogations (Article 17) Case-by-case derogations (Article 18) 39 Free Movement of Establishment and Services - Young  Secondary Legislation – Services Directive What does this add up to? Covers a potentially large number of service areas, but many important ones excluded Aimed at liberalisation, did not go as far as initially envisaged Multiple political objections greatly limited its effects 40 Free Movement of Establishment and Services - Young  Secondary Legislation – Company Law Public and private companies generally established under national law However, the logic of the internal market justifies many pieces of harmonisation legislation If you want to have companies operate across the entire market, this is much easier with a unified set of rules Article 50 TFEU, in particular 50(2)(g), provide legal basis 41 Free Movement of Establishment and Services - Young  Secondary Legislation – Company Law Examples have included legislation covering the following: Disclosure requirements Maintenance of capital Mergers Take-over bids Shareholders rights Use of digital tools and processes Many more 42 Free Movement of Establishment and Services - Young  Secondary Legislation DSA and DSM Various specific obligations for large service providers in a given sector Specific approach to companies of specific significance See last year 43 Free Movement of Establishment and Services - Young  Secondary Legislation – Recognition of Professional Qualifications Directive 2005/36 Followed by other pieces of legislation Aimed at helping those seeking to practice in another Directive 2013/55 – ‘European Professional Card’ and ‘Common Training Frameworks’ 44 Free Movement of Establishment and Services - Young  Conclusions What does this all add up to? Complicated, controversial area of law, lots of exceptions and carve-outs Surprisingly wide-ranging Treaty freedoms Multiple justifications available for restrictions Area of law with extensive secondary legislation Specific regulations to provide specific solutions 45 Free Movement of Establishment and Services - Young