Wednesday, 9 April 2008

EU TFEU: Right of establishment for companies and firms

It looks quite harmless: Companies and firms are offered the same freedom of establishment as natural persons within the European Community (European Union).

News and debate tend to focus on (unexpected) change, but the EU’s Treaty of Lisbon is as important for what it preserves, like the equal treatment of commercial companies.

First, we look at the treaty reform cycle from the current Treaty establishing the European Community, via the draft Constitution and the Constitutional Treaty to the Lisbon Treaty. Then, we give a few hints on further reading, which show that seemingly boring and inoffensive provisions are anything but that from the viewpoint of enterprises and tax authorities.


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When we reach Article 48 of the Treaty establishing the European Community (TEC), we see that the intergovernmental conference (IGC 2007) makes no express amendment in the Treaty of Lisbon (ToL) to what is to become the Treaty on the Functioning of the European Union (TFEU). Cf. Official Journal, OJ 17.12.2007 C 306/55.

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We find Article 48 TEC in force in the latest consolidated version of the treaties, TEU and TEC, OJ 29.12.2006 C 321 E/61:

Article 48 TEC

Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States.

‘Companies or firms’ means companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making.

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There is no express amendment and only one horizontal one (‘Community’ replaced by ‘Union’ according to point 2(a)) in the Lisbon Treaty. We check the numbering in the original Lisbon Treaty and the renumbering for the coming consolidated versions, and we add the location of the provision within the treaty for ease of reading. Here is the ‘new’ Article:

Part Three ‘Policies and internal actions of the Union’

Title III (renumbered Title IV) ‘Free movement of persons, services and capital’

Chapter 2 ‘Right of establishment’

Article 48 TFEU (ToL), renumbered Article 54 TFEU

Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Union shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States.

‘Companies or firms’ means companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making.

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The European Convention inserted the word ‘Union’ instead of ‘Community’, and ‘Chapter’ was called ‘Subsection’, but there was no material difference between Article III-27 of the draft Treaty establishing a Constitution for Europe and the current TEC provision, and even one formal difference less as regards the ToL TFEU (OJ 18.7.2003 C 169/32-33).

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Article III-142 of the Treaty establishing a Constitution for Europe took over the draft text word for word (OJ 16.12.2004 C 310/62).

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After the anodyne statements above, one could easily believe that freedom of establishment for companies is an inoffensive continuation of the principles concerning humans (natural persons), so a few references to actual tensions may be in order.

For further reading available on the web concerning the freedom of establishment as regards companies and firms, you could turn to Nicole Rothe: Freedom of establishment of legal persons within the European Union: An analysis of the European Court of Justice decision in the Überseering case; Case C-208/00:

https://www.wcl.american.edu/journal/lawrev/53/rothe.pdf?rd=1

KPMG’s Euro Tax Flash Issuue 37, 12 September 2006, comments on ‘ECJ decision in Cadbury Schweppes Case (C-196/04):

http://kpmgbe.lcc.ch/dbfetch/52616e646f6d49561b7f558b02435e7dd48a4524c074812ef9097bad01a90f9f/euro_tax_flash_2006_09_12_2.pdf

Frank Muntendam, of Ernst & Young, commented on the Cadbury Schweppes case ‘The end of CFC legislation in Europe?’:

http://www.ey.com/global/content.nsf/Luxembourg_E/Question:_The_end_of_CFC_legislation_in_Europe

A fresh overview is offered by Federico M. Mucciarelli in ‘Companies’ Emigration and EC Freedom of Establishment (15 October 2007):

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1078407#PaperDownload


Ralf Grahn