Summary
The aim of the study is to present the law and economic conditions of taking ad-vantage of the freedom of establishment by foreigners expressed in Articles 49–55 of the Treaty on the Functioning of the European Union. The regulation gives individu-als and companies created within the law of one of the Member States, both placed on a territory of the European Union the right to transfer economic activity or its part to another Member State. Developing this entitlement with accessory rights of the freedom of establishment gives the abovementioned entities direct access to all Member States’ markets, with no barriers, and creates an European Union internal market.
Additional aims of the study are to present and analyse crucial judgments and the judiciary of the EU Court of Justice in the scope of the freedom of establishment and to present how the exercise of the freedom influences domestic Polish economy in general.
Keywords: freedom of establishment, European Union, internal market 1. Introduction
Problems of establishment freedom, which is an element of the initial law of the European Union, has an increasingly direct impact not only at a level of life of all citizens of the Member States of the EU but also on competitiveness of the economy of the old continent in a global con-text.
The present freedom in combination with other Treaty freedoms contributes to the develop-ment of economic relations, as well as range of social relations between actors from different Eu-ropean countries which is a historical precedent according to the scope of these freedoms. Freedom of establishment by being a part of the Community's internal market allows unlimited access of entrepreneurs offering their products and services to about 500 million consumers. There is not without significance the fact that such a large market is also very attractive for foreign investors of which Poland is largely a beneficiary.
2. Sources of the freedom of establishment
One of the fundamentals of today’s European Union is the internal market. To enforce its principles in the widest range, freedom of establishment was introduced to the EU system of law. It has been expressed in Articles 49 – 55 of the Treaty on the Functioning of the European Union. [12] This freedom, however, cannot be interpreted without referring to the law systems of the Member States. In Poland the most significant for this freedom is Article 13 of the Freedom of Business Act [11] that besides expressing the principle of the National Treatment for entities be-longing to the European Economic Area contains almost the same regulations as those from the Article 49 and following that constitutes freedom of business activity. The National Treatment principle expressed in both the abovementioned Article 13 and treaty law comes down to guaran-teeing the EEA’s entities starting and running business activity with the rules applied as if it con-cerned Polish citizens with the additional provision so that foreigners can be more privileged but never treated worse. Similarly, Polish entrepreneurs doing business as a registered member and operates in compliance with Polish provisions can transfer his/her activity to any other Member State and he/she has to be treated the same way that a domestic entrepreneur is. The principle, however, is not expressed directly but by forbidding any restrictions for a citizen of one Member State who runs business activity abroad.
This refers also to discrimination of legal entities and entities with legal capacity. The Treaty of Lisbon enumerates exceptions for the National Treatment principle. They consider circumstanc-es under which Member Statcircumstanc-es can limit freedom of busincircumstanc-ess activity run on its territory. To be specific, restrictions concern public order, public health and public safety. It should be stressed here that both the Court of Justice and doctrine interpret these examples narrowly, as in the case of the European Commission vs. Spain [1]. According to Spanish law, only an entity with its head-quarters in Spain and hiring Spanish citizens could apply for permission to run a security compa-ny. The court stated clearly that, referring to these exceptions in this state of facts, limiting EEA entities in its freedom of business activity is not justified.
It is worth noting here the subjective scope of the freedom of establishment and at the same time bearing in mind the National Treatment principle. At first there are individuals having citi-zenship in one of the EEA Member States. Secondly, there are legal entities and entities with legal capacity, constituted in compliance with the legal system of one of the EEA Member States and having its headquarters, board or main activity in an EEA territory (such entities are described by TFEU as companies). Finally, there are also entities belonging to the State that do not belong to the EEA but have the appropriate agreements with the EU and its Member States. It is significant to stress here that according to Art. 49, TFEU entrepreneurs can exercise the freedom of not only turning to hosting a Member State but also to the authorities of his or her domestic country. 3. Historical circumstances
Taking into consideration historical background, one of the aims of the Treaty of Rome was to realise freedom of establishment by unifying corporate law of the Treaty signatories. The freedom guaranteed investors the possibility to choose a legal order that would be the basis of a company’s activities – respectively to the choice of one Member State’s system of law. But even then there were negative consequences and dangers of such solutions recognized. There was a justified as-sumption that applied regulations may cause unimpeded competition among states of which any
would aim to attract as many companies as possible to establish its territory by liberalization of corporation provisions. This phenomenon was correctly expected to disturb the internal EU mar-ket, bearing in mind the case of the United States, by decreasing protection of partners and third parties. To prevent negative changes there was unification of legal orders in the appropriate scope introduced, and therefore some minimum standards were settled. A negative attitude toward com-petition those days was caused by the example of a rivalry between the highly independent states of America in the area of companies. In the United States, companies were subject to the law of state in which there were created (incorporation theory). Consequently, stockholders had the pos-sibility to select the most appropriate from their point of view of the legal system, wherever com-pany had its premises. This regulation brought about at the beginning of the 20th century rises from the tendency to conquer among single state law that ended with the liberalisation of corporate legal acts. Delaware became the leader in the matter and nowadays most stock trading companies of the NYSE are run in compliance with Delaware law. Europe recognized this tendency rather negative-ly and therefore there were regulations introduced: Art. 44, p. 2; subparagraph G of TEC (today Art. 50, p. 2; subparagraph G of TUE) that enabled unification of corporate law. What is more, those days legal orders of Member States made it impossible to take real advantage of the freedom of establishment. This was caused by the fact that domestic legislatures did not allow for the set-tling down of the central activities of a company in one Member State, created in compliance with the legal order of another. This approach was because of the method of defining personal status of the company by the link of real premises [8, 49–51].
The main influence on lack of possibility for a company to operate accordingly to another le-gal system other than the one of a Member State in which it was established had those days con-flict rules and essentially different systems of corporation law that were additionally blocking the possibility of transferring a company’s premises and cross-border fusions and transformations. Consequently, freedom of establishment was limited to so-called secondary freedom – entitlement to create dependant companies in different Member States, subject to domestic law or branches or agencies. It has led to a situation where competition among Member States’ corporate law systems was impossible. This conjuncture lasted until ECJ pronounced some precedent judgments. Enrich-ing this with some doctrine opinions there has been a standpoint created, accordEnrich-ing to which none of the Member States can prohibit a foreign company to establish its territory and moreover, bod-ies of the state in which the main activity is run are obliged to acknowledge its legal subjectivity imposed by the state in which it was created and cannot deny a company’s legal capacity applying its collision regulations, procedure or material law.
According to the author, competition should not be interchangeably considered as a negative phenomenon. Taking into account and analysing the United States, for example, it should be rather stated that competition has positive influence on the quality of corporate law and has simplified its operations in the market. American doctrine claims that described occurrence has many positive aspects. Among others, thanks to the legislative actions of Delaware there was significant im-provement in the quality of legal service and protection of partners and third parties, where spe-cialised courts arose and a wide judiciary developed in the matter. At the same time, the uncon-trolled evolution of American corporate law was limited by the capital market. In summary, it all proves that the existence of separate corporate law systems of Member States does not cause their depreciation [8, 50–52].
4. Scope of the freedom of establishment.
Provisions expressed in Articles 49 – 55 of TEU have a direct effect. They state freedom of establishment that, together with other freedoms, namely: freedom of services, freedom of move-ment of capital and paymove-ments, freedom of movemove-ment of goods, freedom of movemove-ment of workers and accessory rights, creates an EU internal market. Freedom of business activity means running businesses independently by regular companies in the territory of another Member State for an indefinite period. Both objective and subjective scopes of freedom of establishment have been specified by Advocate General A. Tizzano in his opinion from July 7, 2005 [10]. He claimed that scope of the freedom includes all measures that enable or at least make it easier to access a Member State other than the state of the headquarters and to run activity in this state, allowing interested entrepreneurs to genuinely participate in the economic cycle of the State on equal terms that other citizens do.
An important fact is that Art. 49 of TEU prohibits restrictions on the freedom of establishment of citizens of a Member State in the territory of another Member State. It is therefore assumed that the inherent element of freedom is present as a cross-border element. Rights which result directly from the freedom of establishment are entitled to only if within the facts a cross-border element occurs, as opposed to internal situations, subject only to national law.
Purely internal situations, characterized by a lack of cross-border elements, mean that it does not apply to the rules of EU law constituting the freedom of establishment [13, 862]. This interpre-tation is clearly confirmed by the judgment of the CJEU on Bekaert [16].
4.1. Objective scope
Definition of the enterprise. Article 43 of TEC (Art. 49 of TEU) normatively regulating freedom of establishment does not contain the definition of enterprise itself. It states therefore that it refers to starting and running a business independently (on one’s own account), as well as estab-lishing and managing enterprises under the terms created by the legislature of Member State for its own citizens. Taking this into account and comparing the considered freedom with freedom of service, it is possible to differentiate components of the enterprise definition. Consequently, divi-sion or branches will be a persistent organisational unit that, after incorporating it to a national economy, will indeed operate for its own profit. Joining a trade association in a host state does not mean that entity has its branch there. (ECJ C-55/94, Gebhard, ECR 1995, I-4165) [17].
Entitlements driven from the freedom of establishment could be given only to someone who indeed exercises commercial activity run on one’s own account or intends to run it in the future. This regulation is to exclude activities that, as a rule, do not fall within the scope of freedoms.
Commercial activity. Freedom of establishment similar to other personal freedoms includes only these activities that are practically run to gain profit. Article 43 of TEC (Art. 49 of TEU) includes the definition of “activity run on one’s own account”, but to define exactly its meaning it is necessary to review the Community’s duties expressed in Article 3, p. 3 of TEU. It claims that every business activity will be commercial activity, and vice versa – every commercial activity will be business activity. Analysing previous ECJ judiciary in this matter brings a conclusion that the definition of “activity run on one’s own account” should be interpreted most extensively as it is possible and applied to the areas such as sports, social security, culture, religious communities,
education and the like. The exception for this kind of interpretation would be the weapons industry (according to Art. 296 of TEC) [3, 367–369].
4.2. Subjective scope
Personal scope of freedom of establishment applies to both individuals as well as the widely understood legal persons. For individuals the prerequisite for the freedom of establishment is to have, as a rule, nationals of a Member State of the EU. At the same time, the EU primary law does not say how to understand the concept of citizenship. Therefore, each Member State retains the power to regulate its own on this issue, taking into account the norms of international law. That does not change the facts of the law of treaties defining the concept of citizenship of the Union as it is a legal relationship ancillary and subsidiary. Citizenship of the Union shall be an additional element with structures built up on the nationality of the Member States. In other words, to be a citizen of the Union it is necessary to have the nationality of a Member State [2, 43–44].
Treaty law principles concerning freedom describe the definition of a company in a specific way. According to them companies are: enterprises constituted according to civil or trade law, cooperative society and other legal entities excluding entities, whose activity is not set up for a profit. This proves that the catalogue of entities that meet the requirements and constitutes a company is wide – wider than the appropriate catalogues in most domestic law systems. Provi-sions of the TEU have a direct effect. Criteria for a provision to have this effect were claimed in the crucial CJ judgments. The Van Gend en Loos 26/62 Court case [14] stated that the EU provi-sion has a direct effect if it is clear – it definitely and precisely describes an individual’s right and unconditional – applying a provision is not dependant on subjective recognition of the exercising body. Moreover, the provision must be complete – independent on any actions taken by EU insti-tutions or a Member State. Considering the abovementioned, having the provisions referring to the freedom of establishment (expressed in Art. 49 – 55 TEU) direct effect, individuals and legal enti-ties can call upon them during a trial or any other proceedings, executing from them subjective rights. The Court made an identical statement in the case Sevic [19]. ECJ explained that right to make cross-border fusions by companies coming from different Member States is nothing else but exercising freedom of establishment guaranteed by the treaty.
What’s significant is that ECJ did not limit the catalogue of companies entitled to cross-border fusion to the capital companies only. “Since ECJ’s judgment in the Sevic case was based on the assumption that when domestic companies have fewer entitlements while fusing with foreign companies than fusing with domestic ones it means violating the freedom of business activity. This makes judgment in a Sevic case a precedent one in the area of cross-border fusions of compa-nies." [7, 5–7].
5. Influence of priority principle on freedom of establishment
The treaty of freedom that constitutes the EU's single market could not function without the introduction of legal tools to enable their practical use on the basis of the legal systems of the Member States.
The final step of formulating the EU law priority principle was ECJ’s judgment in the Sim-menthal case [15]. Main points raised in the judgement are to follow. At first, judges emphasised that in the scope of European law domestic constitutions may not be the most significant legal
acts. Secondly, they claimed that according to the principle, if domestic provisions are contrary to European treaty or secondary law, they are not applied. Finally, it was stated in the judgment that the priority principle refers not only to existing provisions but also to any law enacted in the future by domestic bodies. Moreover, according to the author, national courts are obliged to guarantee direct and immediate exercising of the EU provision that is clear and unconditional if there is a conflict between EU provision and domestic law, even at the constitutional level. Courts of every Member State have to reject applying any domestic provision if it is contrary to EU law. It is im-portant to mention here that there is no need for national court to abrogate the provision first – through legislative or aggravated (constitutional) procedure. This is the only method for European Union law to be completely effective and, consequently, for EU integration to proceed. It needs to be emphasised that the priority principle does not directly effect in derogation (this is the invalidity of domestic provisions that does not comply with EU law) but imposes a duty on all Member States to guarantee the complete effectiveness of EU law by appropriate adjustments of the nation-al law system [4, 7–8].
5.1. Priority principle on the ground of Polish law
The Polish Constitution from 1997 [6] enumerates the law of the European Union as a law that binds Polish citizens. It is expressed in Articles 87 and 91, p. 1 and Article 93, p. 3 of the constitu-tion. The Polish Constitutional Tribunal gives its opinion on this matter in a judgment from May 11, 2005 [18] which was short after the Polish accession to the EU. These circumstances highlight the urgency of the problem and the urgent need for interpretation of the priority principle on the grounds of domestic legislation. The Tribunal used a phrase of “multi-component Polish law” and expressed need for “mutual friendly interpretation” and “cooperative co-application” of Polish and EU law. According to the author the subject of a friendly interpretation is domestic law. This means that every provision of the national law, even constitutional, can and should be pro-EU interpreted in the scope that is declared in the ECJ judiciary.
The conclusion is that the main and primary goal of “friendly” interpretation is to resolve con-flicts between domestic and EU law. According to the Constitutional Tribunal, referring to its judgment from November 16, 2011 r., [5] if there is a conflict between EU and domestic provi-sions there should be firstly applied the interpretation that guarantees relative autonomy of these two legal orders. Next, there should be the interpretation applied that assumes mutual loyalty be-tween EU institutions and Member states. There are therefore situations when conflict is unresolv-able while applying ‘friendly’ interpretation. One of the authors, A. Wyrozumska [20, 41], pro-posed in a glossary for the CT ruling from October 19, 2006 a solution for such cases. In her opin-ion, in every case national courts should apply domestic law as long as it is possible and as long as there is no conflict with European law. Only in situations where the incompatibility could not be precluded by appropriate interpretation, the court should apply the EU provision on the condition that it is clear, precise, unconditional and complete. Moreover, in cases like this, a domestic legis-lator is obliged (as a consequence of joining the EU) to execute appropriate modifications in the legal order to eliminate provisions incompatibilities. Taking no actions for further standardization of these two legal orders can cause a breach of the European Union law.
6. Conclusion
It should be recognized that the freedom of establishment which is part of the EU's legal sys-tem is undoubtedly one of the achievements of modern consolidated Europe. Its realization, as well as to safeguard of the observance by all Member States of the European Union, is not an easy task. Currently, especially in times of global economic crisis, some Member States submit to the populist vision of a protectionist policy.
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TRAKTATOWA SWOBODA PRZEDSIĉBIORCZOĝCI (FREEDOM OF ESTABLISHMENT) JAKO PODSTAWA PROWADZENIA DZIAŁALNOĝCI GOSPODARCZEJ PRZEZ OSOBY ZAGRANICZNE ORAZ JEJ WPŁYW NA ROZWÓJ
EKONOMICZNY POLSKI Streszczenie
Celem pracy jest przedstawienie prawnych i ekonomicznych uwarunkowaĔ korzystania przez osoby zagraniczne ze swobody przedsiĊbiorczoĞci wyraĪanej w art. 49–55 Traktatu o funkcjonowaniu Unii Europejskiej. DziĊki regulacjom wspólnoto-wym, zarówno osoby fizyczne, jak i spółki utworzone zgodnie z prawem jednego z paĔstw członkowskich i posiadające siedzibĊ na terytorium Unii uprawnione są do przeniesienia czĊĞci lub całoĞci prowadzonej działalnoĞci gospo-darczej do innego paĔstwa członkowskiego. W połączeniu z uprawnieniami akceso-ryjnymi wzglĊdem swobody przedsiĊbiorczoĞci, podmioty te uzyskują bezpoĞredni dostĊp do wszystkich rynków paĔstw członkowskich, z pominiĊciem barier wystĊpu-jących na tych rynkach, tworząc rynek wewnĊtrzny Unii Europejskiej.
Dodatkowo celem pracy jest przedstawienie i analiza najwaĪniejszych orzeczeĔ oraz wykładni ETS w zakresie dotyczącym swobody przedsiĊbiorczoĞci oraz ukazanie wpływu jej realizacji na gospodarkĊ narodową.
Słowa kluczowe: swoboda przedsibiorczoci, Unia Europejska, wspólny rynek
Mieszko Bojar Wydział Zarzdzania
Uniwersytet Technologiczno-Przyrodniczy w Bydgoszczy e-mail: bojar.utp@gmail.com
