EU Treaty Rights to Establish and Provide Services

A key right under European Union (EU) law is the right of a business established in one EU state to establish itself in another state.  A business from outside the EU established in Ireland is entitled, on the basis of being established in Ireland, to also establish itself in any other EU member state.  The right includes the right for an individual to take up a business as a self-employed person in another EU state.

The right of establishment applies to both individuals and companies. There is a right to set up and manage a company or firm in another member state. Restrictions on setting up agencies, branches and subsidiaries are prohibited.

EU rules contemplate both primary and secondary establishments.  A primary establishment can be set up by incorporating a company in the other member states.  By setting up directly either as an individual or incorporating a company in the other member states another possibility is that the company sets up a secondary establishment such as a branch or agency or subsidiary in the host member state.

Right to Equal Treatment

The host EU member state must accord equal treatment to the person exercising the right of establishment. This must cover the full social and tax advantages which the “host” state accords to businesses and self-employed persons. Once a company has established itself either directly as a branch it must enjoy the same benefits and advantages available to national companies and bodies.

Obstacles restrictions or hindrances on the enjoyment of freedom of the establishment must be removed.

A number of important EU cases have under the right of establishment have profoundly affected taxation rules in relation to the use of losses.  Following these cases, Irish and UK Revenue have been forced to allow for losses incurred in subsidiaries established in another member state.

Limitation on Rights

Member states are allowed only to place restrictions on the persons or individuals who establish themselves in the member state or to provide services into the member state on the basis of grounds of public policy, security and health.  However, these limitations are strictly and narrowly interpreted. Any restriction must be proportionate and must have clearly demonstrable justification.

Restrictions on the basis of public policy must relate to the individual’s personal conduct and the conduct must constitute a genuine or sufficiently serious threat of affecting the interest of the society concerned.  In addition, the restrictions must be proportionate.

European Union legislation requires member states to make formal decisions where they seek to base the difference in treatment on one of the above-mentioned grounds.  The notice must be given and there must be an opportunity to appeal so as to ensure that the measure is not abused.

Providing Services Cross Border 

The Services Directive applies both where a service provider proposes to provide services cross-border from his own Member State or seeks to establish a business in another Member State.  The Directive requires the Member States to give effect to the right to provide service in a Member State other than the one in which they are established.

In broad terms, an EU established service provider need not be authorised, licensed or registered in an another EU State, before providing services into that other EU state from its EU home state in which it lawfully conducts business. It is generally obliged to comply with the “doing business” / public protection rules applicable in that other “host” state.

Any conditions imposed on incoming service providers must be strictly justified. They must be non-discriminatory with regard to national of a Member State, in which a company is incorporated.  They must be necessary for reasons of public policy, public security, public health and protection of the environment and they must be proportionate to obtain the objective concerned.

Prohibited Conditions

The following types of obligations cannot be prescribed:-

  • an obligation to have an establishment in the territory where the service is provided;
  • an obligation to obtain an authorisation or registration from an authority where the service is to be provided;
  • a requirement to set up infrastructure in the host state;
  • the application of specific contractual arrangements between the service provider and the recipient which prevent or restrict the provision of services by the self-employed;
  • an obligation to possess specific identity document issued by the competent authority;
  • requirements affecting the use of equipment e.g. requirements to use of specific brands;
  • restriction on recipients which restrict useful services.

Limits on Freedoms

There are a number of service areas to which the above-mentioned provisions do not apply so that a Member State can impose additional requirements.   These include:

  • general economic services such as post, electricity, gas, water;
  • services that are covered by existing directives;
  • protection of personal data,  social security schemes, administrative formalities regarding the free movement of persons,
  • shipment of waste;
  • legal protection of semiconductors;
  • statutory audit of accounts;
  • judicial recovery of debts;
  • visa requirements for third-country nationals,
  • actions involving notaries;
  • registration of vehicles leased in the other Member States; and
  • obligations determined by private international law.

Recipient’s Rights

The Services Directive applies equally to the recipients of services. Recipients have rights to receive services from abroad. Member States are prohibited from placing restrictions on the use of a service provided by a provider established in another Member State.  They must ensure residents obtain information in relation to access to and exercise of services means of redress in case of dispute and contact details of the organisation which can help. Requirements may not be placed on them in relation to the use of a service by a provider established in another EU state. There can be no obligation on a recipient to obtain authorisation or to make a declaration to authorities of its home state.

Non-discriminatory authorisation schemes are permitted. There can be no discriminatory limits on the grant of financial assistance by reason of the fact that the provider is established in another member state.

Member state shall ensure that the recipient is not subject to discriminatory requirements based on his nationality or place of residence. Member states shall ensure that the general conditions of access to a service which are made available to the public at large by the provider do not contain discriminatory provisions relating to the nationality or place of residence of the recipient.

This is subject to the possibility of providing for differences in the conditions of access where those differences are directly justified by objective criteria.

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