EU Internal Market Law– The Differences Between Relocation of a Company and Second Establishment (Part III)

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2.3  Klopp: freedom of secondary establishment

[1]Taking into account the difference between primary and secondary establishment set in Section 1, it is not clear if the freedom of establishment could be guaranteed also with restriction to second establishment. I have already mentioned some concerns about this fact in the previous section. It is now the moment to address more directly this issue. Can a State oblige a company to abandon the place of business in its home State to set a business in its territory? That was the question raised in Case 107/83 Klopp. The case concerned a German lawyer who practiced in Dusseldorf applying to register with the Paris Bar Association (PBA) to work in France. His request was declined by the PBA because of a French law which prohibited people to practice at the Paris Bar unless their principal office was set in Paris and the other in its environs. Both the AG[2] and the ECJ rejected the argumentation raised by the PBA. Article 49 TFUE must be interpreted not only regarding the primary establishment but also the second establishment: no restriction can be justified. It is now relevant to underline the fact that hindering measures against the exercise of fundamental freedoms must fulfil four condition, not present in this case:

“[T]hey must be applied in a non-discriminatory; they must be justified by imperative requirements in the general interest; they must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain it”.[3]

The ECJ rejects this kind of restrictions also in other cases, such as Case C-351/90 Commission v Luxemburg and Case 96/85 Commission v France, which is about a similar prohibition for dentists and doctors, asserting that patients often desire to relate with the same professional[4]. In the Case C-150/04 Commission v Denmark, this State set tax breaks for companies and firms upon incorporation in Denmark, arguing to prevent fraud because of the lack of control to companies based abroad. The ECJ, remarking the importance of an information-based approach to the matter between MS, rejected the argument sustaining that it was disproportionate[5].

To conclude, I would like to point out the fact that the modality of establishment are not considered a relevant argument to hinder the freedom of establishment: both by relocation or by a second establishment is possible to set a business activity in another MS. Furthermore, this kind of provisions could affect particularly SMEs and they could be considered “unnecessary burdens”[6] and because of this prohibited. 

2.4 Interrelated aspects

In the latter sections, I have discussed about the main aspects of reincorporation, relocation and second establishment. The Court clearly adopts the widest interpretation of Articles 49 and 54 TFEU, in order to concretely develop the internal market. The freedom of establishment is guaranteed, especially towards SMEs as pointed out in Klopp and in Directive 2006 /123/ EC. Also in Klopp is present an example of the teleological reasoning of the ECJ that anticipate and stimulate the legislator[7].  Lastly, it is relevant to highlight the fact that no discrimination could be used against the freedom of establishment, in particularly regarding the principle of equal treatment[8], concerning a mere instrumental exercise of the rights, and the modality of setting a business activity (i.e. second establishment or relocation). Furthermore, the barriers which focus merely on the modality of setting a business activity in other MS (i.e. relocation and secondary establishment) could not be considered lawful, even though they are applied both to national and foreign companies[9]. Hindering measures have to comply with objective reasons (such as public security etc.) and only if they are necessary and not disproportionate they are legitimate. In this context there are relevant the four criteria mentioned in the previous section[10].

3. Conclusions

In this final section I would like to summarize the main topics reasoning and relevant topics illustrated by this essay with personal considerations.

I have started my reasoning giving the reading tools and the basic word meanings and legal framework. Then I focused my attention on concrete concerns about the subject and on the solution raised by EU authorities, in particular the continue teleological reasoning of the ECJ that, as in case Klopp, arrives before the legislator and promote its intervention to guarantee the basic rights stated in the EU Treaties. With deep interested in SMEs, the intervention of the Court guarantees these rights, facing unmotivated hindering measures and simplifying administrative processes in order to stimulate the cross border activities which are fundamental to create a competitive internal market. Finally, it is fundamental to underline again that the freedom of establishment includes the modality offsetting economic activities (i.e. relocation and second establishment).

To conclude this paper, I present my personal reflections. As already pointed out by Maduro [11], a common market, especially regarding an optimum currency area, will not be efficient if there aren’t the same external inputs or if the freedom of movement of economic actors is not perfectly guaranteed. At least one of these two conditions has to be realized. EU countries economies are very different from each other and react in many different ways against the external menaces (e.g. Russia´s sanction against EU regarding the Ukrainian crisis and, in the past, the reunification of Germany). So, only through an effectively movement of economic actors our market could be an optimum region. The solution is strengthen and “reflexively harmonize” our economy. The creation of a strong economic area in a long term prospective is based on high standards and rights for workers according to the human rights and principles of the EU Treaties. It is neither adequate to face the global market challenges to compete in a “race to the bottom” with third countries and between MS nor to try to harmonize indiscriminately, without taking into account experimentation and particularities.  “Co -evolution” is the future of the internal market and it is necessary to apply this principle also to the freedom of establishment: of course it is necessary to allow all the economic actors to set their economic activities in the MS, but it is also required that MS don´t develop their economy independently and, above all, with the aim to exclude and be more competitive than other MS: EU countries are partners, not competitors. The balancing of harmonization and particular interests is fundamental also to develop the four freedoms of the internal market. From this perspective, economic and political values are strictly connected and inseparable.

Finally, I would like to recall the fact that the EU is an experimental international organization, “a new legal order”[12], which has to be an example for the international community. To have an important rule from a global prospective is a great opportunity, of course, but it is also a deep responsibility.

Arnaldo Mitola

Con amicizia letto da Valeria Schiavo

Hearthfelt thanks to Professor Claes Granmar

 

[1] This section is based on D. Chalmers, G. Davies, G. Monti, European Union Law, Cambridge University Press, Cambridge, 2014, pp. 864-66.

[2] Opinion of Advocate General Sir Gordon Slynn on Case 107/83 Ordre des Avocats au Bareau de Paris v Klopp [1984] ECR 2971delivered on 10 May 1984.

[3] Case C-212/97 Centros v Erhvervs-og Selskabsstyrelsen [1999] ECR I-1459, para. 34.

[4] The latter two cases are about free movement of natural persons.

[5] Chalmers D., Davies G., Monti G., European Union Law (Cambridge, Cambridge University Press, 2014), pp. 883-90.

[6] See Directive 2006/123/EC on services in the internal market, Official journal of the European Union (OG) L 376/36, para. 97.

[7]  v. supra note 2.

[8] v. supra note 13.

[9] See Case 107/83 Ordre des Avocats au Bareau de Paris v Klopp [1984] ECR 2971.

[10] v. Supra note 41.

[11] C. Imbriani, A. Lopes, Macroeconomia: mercati, istituzioni finanziarie e politiche, UTET Università, Torino, 2013, pp. 415 ss; and R. Mundell, A Theory of Optimum Currency Areas in American Economic Review, vol. 51, nº 4, 1961, pp. 657-665.

[12] Case 26/62 Van Gend en Loos v Nederlandse Administratie der Belastingen [1963] ECR 1.

 

References

 

Chalmers D., Davies G., Monti G., European Union Law Cambridge, Cambridge University Press, Cambridge, 2014

Imbriani C., Lopes A., Macroeconomia: mercati, istituzioni finanziarie e politiche, UTET Università, Torino, 2013

Shuibhne N., The Coherence of EU Free Movement Law, Oxford University Press, Oxford, 2013

Wahl N. (red.), Treaty on European Union, Stockholm, Norstedts Juridik AB, 2010

Wittgenstein L., Tractatus logico-philosophicus e quaderni 1914 – 1916, Einaudi, Torino, 2009

 

Bernard C., Social dumping and the race to the bottom: some lessons for the European Union from Delaware?, 2000 25 ELRev. 57

Deakin S., Legal Diversity and Regulatory Competition: Which model for Europe?”, 2006, 12 European Law Journal 440, 444-5

Gary W., Federalism and Corporate Law: Reflection upon Delaware (1974) 83 Yale Law Journal 663

Maduro M. P., Interpreting European Law-judicial Adjudication in a Context of Constitutional Pluralism, Instituto de Empresa. Law School, IE, 2008

Majone G., The Common Sense of European Integration, 2006, 13 Journal of European Public Policy 607, 624

Marenco G., The notion of Restriction on the Freedom of Establishment and Provision of Services in the Case-law of the Court, (1991) 11 Yearbook of European Law 111

Mundell R., A Theory of Optimum Currency Areas, American Economic Review, vol. 51, nº 4, 1961, pp. 657-665

Nizzo C., L’abuso dei diritti comunitari; un quesito non risolto, in Dir. Comm. Internaz., 1997, pp.776 ss

 

Consolidated version of the Treaty of the European Union and the Treaty of the Functioning of the European Union [2008] Official journal of the European Union (OJ) C 115/47

 

Directive 2006/123/EC on services in the internal market, Official journal of the European Union (OG) L 376/36

 

Case 26/62 Van Gend en Loos v Nederlandse Administratie der Belastingen [1963] ECR 1

Case 115 /78 J. Knoors v Staatssecretaris vanEconomische Zaken [1979] ECR 399

Case 120/78 Rewe-Zentral v Bundesmonopolverwaltung für Branntwein [1979] ECR 649.

Case 107/83 Ordre des Avocats au Bareau de Paris v Klopp [1984] ECR 2971

Case 79/85 Serges v Bestuur van de Bedrijfsvereniging voor Bank-en Verzekeringswezen, Groothandel en Vrije Beroepen [1986] ECR 2375

Case 96/85 Commission v France [1986] ECR 1475

Case 270/83 Commission v. France [1986] ECR 273

Case 81 / 87 R v HM Treasury ex parte Daily Mail (1988) ECR 5483

Case C-351/90 Commission v Luxemburg [1992] ECR I-3945

Case C-55/94 Gebhard v Consiglio dell’ordine degli avvocati e procuratori di Milano [1995] ECR I-4165

Case C-212/97 Centros v Erhvervs-og Selskabsstyrelsen [1999] ECR I-1459

Case C  208 /00 Űberseering v NCC [2002] ECR I  9919

Case C 157 /01 Kamer van Koophandel en Fabrieken voor Amsterdam v Inspire Art [2003] ECR I- 10195

Case C-299 /02 Commission v Netherlands (2004) ECR I-9761

Case C-150/04 Commission v Danmark [2007] ECR I-1163

Case C- 378/10 Vale, Judgement of 22 July 2012

 

Opinion of Advocate General Sir Gordon Slynn on Case 107/83 Ordre des Avocats au Bareau de Paris v Klopp [1984] ECR 2971, delivered on 10 May 1984

Opinion of Advocate General La Pergola on Case C-212/97 Centros v Erhvervs-og Selskabsstyrelsen [1999] ECR I-1459, delivered on 16 July 1998

 

 

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