EU Services Rights

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 tany other EU member state.  The right includes the right for an individual to take up a business as a self employed person in an other EU state.

The rights 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.  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 Right to Provide Services and Right to Establish

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.  Notice must be given and there must be an opportunity to appeal so as to ensure that the measure is not abused.

The Services Directive

European Union law gives businesses established in one European Union country the freedom to provide services in or provide services to another European Union country. Numerous directives and laws which have been introduced by the European Union over the last 40 years in order to harmonise laws and standards in relation to many different types of goods and services.  The objective is to fully facilitate the freedom to trade and provide services.

The Services Directive 2006 is a general law which is designed to streamline, fast track and give fuller effect to the right to provide freedom of services.  Its purpose is to help service providers to benefit from the freedom to provide services across borders from one European Union country to the other or to establish themselves in the other Member States.

The Services Directive seeks to give full effect to the EU Treaty freedom of establishment and the freedom to provide services throughout in the EU. It applies in tandem with the extensive case law of the European Courts on the general freedom to provide services across the EU, provided for in the EU Treaties.

The Services Directive applies both where a service provider proposes to provide services cross border from his own Member State and where he seeks to establish a business in another Member State.


The directive defines services as any self-employed economic activity normally carried out for remuneration. A broad range of services are covered.It includes services provided to businesses and consumers such as legal and fiscal advice, real estate agency, construction services, architects, transport and distribution, trade fairs, car rental and travel agencies. It includes consumer services such as tourism, tour guides, leisure services, sport centers and amusement parks.

The list of illustrative services provided includes business services such as

  • management consultancy
  • certification and testing,
  • facilities management,
  • office management,
  • advertising
  • recruitment services
  • household support services
  • the services of commercial agents.

The directive may apply where there is a cross border element involved in the supply of the service. It is arguably also applicable to the internal provision of services.

Directive Enhances Rights of Service Providers

The Services Directive assists prospective service providers in challenging requirements which affect access to the exercise of the service activity in another EU state. A requirement is any obligation, prohibition, condition or limit provided for in the laws, regulations or administrative provisions or practice of an EU state. It may be in consequence of case law administrative practice, the rules of professional or trade bodies, organisations and associations.

The Directive potentially invalidates any requirement which impacts adversely upon access to the provision of a service by a supplier or on access a service by a user across EU state borders. A requirement includes any obligation condition, prohibition or limit in law, regulation or administrative practice. It includes the rules of professional and trade bodies and associations.

Secroral Limits on Scope

The Directive does not apply to certain sectors, most of which are subject to other specific EU legislation. They include “services of general interest” (which has a specific defined meaning; see other articles) financial services, electronic and network services, transport, temporary work agencies, private security agencies, health care services and audio-visual services. It does not apply to gambling services.

There are general derogations in relation to services of general economic interest in the utility sector and in relation to matters covered by other directive such as the Posted Workers Directive, the Professional Qualifications Directive, the Lawyers Directive and the Citizens Rights Directive.Financial services are excluded because they are dealt with by specific existing European legislation.  Electronic communications , audio visual services and mant transport services are dealt with by other EU  legislation.  Gambling activity, social services and governmental activities are excluded as they involve signigcant State policy choices..

Case-by-case derogations may apply in exceptional circumstances. They allow states to take measures in relation to the safety of a service in respect of providers established in another state. This may be done only after the exhaustion of the mutual assistance procedure.

The requirement must relate to the safety of the service. There must be no EU harmonisation in the field concerned. The measures must provide for a higher level of protection for the recipient of the service than in the home state and if the home state has not taken any measure or has taken insufficient measures prepared with those in Article 35.2 The measures must themselves be proportionate.

General Limits

The Services Directive does not apply in respect of taxation. It does not affect labour law or social security legislation. It is not to affect the exercise of fundamental rights recognised by the law of the member state or EU law, including in particular, the right to enter in collective agreements and take industrial action.

The basic and general rules of the legal system are outside the scope of the Directive. Rules which apply to all persons, irrespective of EU residence or which apply to nationals and EU nationals are presumptively lawful. If they specifically affect a service activity, they may be required to be justified under the directive.

It does not apply to rules on the use of land, planning permissions, building standards, road traffic and other rules and standards which do not specifically regulate or affect the service activity which must be respected by providers in the course of carrying out their economic activity in the same way as by individuals acting in a private capacity.

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 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 nationality of the 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:-

  • obligation to have an establishment in the territory where the service is provided;
  • obligation to obtain an authorisation or registration from an authority where the service is to be provided;
  • 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 provision of services by the self-employed;
  • 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 semi conductors;
  • statutory audit of accounts;
  • judicial recovery of debts;
  • visa requirements for third country nationals,
  • actions involving notaries;
  • registration of vehicles leased in other Member States; and
  • obligations determined by private international law.

Authorisation Scheme for Establishment

Authorisation schemes and other requirements are permitted in respect of establishment in another EU state. An establishment involves the pursuit of economic activity for an indefinite period through a stable infrastructure from where the business or provision of services is actually carried out.

Member States were required to report to the European Commission in relation to  authorisation schemes and demonstrate their compatibility with these criteria.  Authorisation refers to licences, permits or requirements which the provider of a service is required to obtain from a regulatory body in the host Member State in order to provide the service.

The authorisation scheme must not discriminate either directly or indirectly against the provider. The scheme must be justified by an overriding reason in relation to the public interest. The objective must be such that cannot be attained by means of a less restrictive measure such as monitoring the activity concerned.

Authorisation Requirement I

The criteria for granting authorisation must be consistent with the above requirements. They must also be clear unambiguous, objective, publicised in advance, transparent and accessible.The authorisation must enable the provider to provide and exercise the service activity throughout the national territory

Any requirement, which is discriminatory directly or indirectly on the grounds of the nationality of the provider, employees, shareholders, directors or managers is not permitted. A provider must not be restricted from having an establishment in more than one EU member state. It must not be required to select a principal or secondary establishment.

Authorisation may only be required in the recipient state if it is non-discriminatory, justified by an overriding reason relating to public interest and the public interest cannot be protected in any other way. The  Directive provides that they must go no more than absolutely necessary.

Authorisation Requirement II

Requirements for granting authorisation cannot duplicate requirements and controls which are equivalent to or comparable with those to which the providers are already subject in another Member State.  Each State’s regulatory body must take into account the equivalent requirements in other Member States.

In order to allow service providers to develop a long term strategy, an authorisation must be for an unlimited period unless it is automatically renewed subject to fulfilment with requirements.  Limitations of time can only be justified by an overriding reason in relation to public interest.

The Services Directive provides that the authorisation procedures must be clear,  must be made public in advance, be dealt with objectively and impartially, must not be complicated, must not be delayed and be easily accessible.   Any charges made must be reasonable and proportionate.   Applications must be processed as quickly as possible and within a reasonable period.

Potential Justifications for Authorisation

Overriding reasons relating to the public interest may justify authorisation, regulation and licensing. They include reasons recognised as such in the EU Treaty and in EU case law. They may include those relating to public policy such as

  • the protection of minors and vulnerable adults;
  • animal welfare;
  • public security;
  • public safety;
  • public health;
  • preserving the financial equilibrium of the social security system;
  • the protection of consumers, recipients of service and workers;
  • unfair trading;
  • combating fraud;
  • the protection of the environment;
  • intellectual property;
  • animal health;
  • considerations of historical and architectural heritage
  • social policy and
  • cultural policy objectives.

Any licensing, authorisation or regulatory requirements must objectively necessary. It must be objective transparent, accessible and unambiguous. It must afford access for the service provider to the territory of the state unless there is a good reason otherwise.

Authorisation Issues

Any decision to refuse authorisation / licensing must be fully reasoned and subject to judicial review. An authorisation should not be for a limited period, unless there are good reasons in the public interest. The authorisation / licensing requirement must not be unduly complicated. The application must be dealt with expeditiously.

The numbers of authorisations required must not be more than necessary. Where the availability of authorisations is limited due to considerations of capacity, any selection must be fair and transparent. Any basis in regulation on economic need or market demand must be considered on a case by case basis.

Competitors may not be involved in the granting of the authorisation. There may not be a requirement to have a guarantees or insurance from a provider in the host state.  There may not be a requirement to have had a previous establishment or registration in state within a certain period.

Permissible Requirements I

EU member states must respect the right of service providers in another EU state, to provide services in a member state other than that in which they are established. The member state in which the service is provided shall allow free access to and free exercise of the service activity within their state.

EU States shall not make access to or the exercise of a service activity in their territory subject to compliance with any requirement which does not satisfy the principles of non-discrimination and certain limited justifications. Any requirements which qualify as legitimate must also be proportionate. In effect, the host state may impose restrictions only where there is good reason to do so, in particular having taken into account the protections offered to user by the home state regulation.

Host states shall not make access to or the exercise of a service activity in their state subject to compliance with any requirements which do not conform with the principles of non-discrimination, necessity and proportionality. The requirements may be neither directly nor indirectly discriminatory with regard to the nationality or in case of legal persons the state in which they are established.

Permissible Requirements II

A number of requirements are prohibited unless saved by a derogation (Article 17) case by case derogation (Article 18) and narrow public interest requirements. They are requirements of

  • having an establishment in the territory of the hose state;
  • obtaining an authorisation from the host state’s competent authority,
  • entry on a register
  • prohibiting or requiring certain type of infrastructure, offices or establishment.

The public interest requirement may be used to justify other requirements in principle.requirements may be justified on the ground of public policy, public security, public health or the protection of the environment. This is narrower than the overriding reasons in the public interest test recognised in European Court of Justice case law. This is in contrast to the position in respect of establishment; in this latter case, the home state has greater rights based on overriding interests of policy and the public interest.

Prohibited Regulatory Requiremenrs

The Services Directive sets out requirements which Member States cannot prescribe and are therefore prohibited.   These include:

  • requirements based on nationality or residence of the service provider, staff members or board members;
  • prohibitions on having an establishment in more than one state;
  • restrictions on freedom to have its permanent establishment in a particular Member State;
  • the application of an economic test making authorisation subject to economic need or market demand;
  • the obligations to provide financial guarantee or take out insurance from a particular provider
  • an obligation to pre-register for a given time before exercising an activity.

Suspect Regulatory Requirements I

The Services Directive confirms the general principle that EU member states must respect the right of providers to provide services in a state other than that in which they have been established. The member state in which the services is provided, must ensure free access for the exercise of the activity within its territory.

The directive in effect requires that state of origin requirements be accepted as sufficient unless there is a very good reason otherwise. The services directive creates a strong presumption of equivalence of the standards of services between states. Generally, if a service is lawfully provided in accordance with the requirement of the state of origin, the home state, this will generally will suffice in the host state, unless there is good reason otherwise in accordance with the criteria in the directive.

The host state can impose restrictions/, only where there are good reasons for doing so.

Suspect Regulatory Requirements II

The Directive identifies requirements which are regarded as suspect and are not easily readily justified. These include

  • quantitative restrictions
  • territorial restrictions,
  • a requirement to assume a particular legal form,
  • a requirement that the operator be non-profit
  • having a minimum number of employees,
  • fixed prices and tariffs.
  • prohibition on the provider setting up certain forms or type of infrastructure including an office or chambers;
  • the application of specific contractual arrangements between the provider and recipient (subject to being saved by limited derogations in Article 17, or case-by-case in Article 18)

Suspect requirements maybe justified if there is an overriding reason in the public interest. They must be non-discriminatory, necessary and proportionate. States must consider whether the suspect requirements are compatible with the general requirements in relation to necessity and the prohibition on discrimination. Such requirements must be rigorously and clearly justified, if they are capable of justification at all.

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.

References and Sources

Irish Texts

Brian Doolan, A Casebook on Irish Business Law (1989)

Henry Ellis, Modern Irish Commercial and Consumer Law (2004)

Michael Forde, Commercial Law, 3rd Edition (2005)

Linehan, Irish Business and Commercial Law (1995)

Patrick O’Reilly (ed.), Commercial and Consumer Law  (Statutes) (2000)

Fidelma White, Commercial Law (2003) (2nd Ed 2012)

Fidelma White, Commercial and Economic Law In Ireland (2011)

Paul Anthony McDermott, Contract Law (Butterworths, Dublin, 2001)

UK texts

Atiyah and Adam’s Sale of Goods 13th Ed (2016)

Bridge, Benjamin’s Sale of Goods 9th Ed (2015);

Bridge, The Sale of Goods 3rd Ed (2014)

Blackstones’ Statutes Commercial and Consumer Law 2017

Goode on Commercial Law 5th Ed 2017