EU TFEU: Equality for investors

The EU Treaty of Lisbon accords capital investors from other member states equal treatment with nationals of the state of the company or firm. This declaratory or clarifying provision, Article 294 of the Treaty establishing the European Community, is moved into a more logical context within the Treaty of Lisbon, but without added substance.

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In the Treaty of Lisbon (ToL), point 55, the intergovernmental conference (IGC 2007) decided to shift the location of Article 294 of the Treaty establishing the European Community (TEC). See Official Journal, OJ, 17.12.2007 C 306/55:

55) An Article 48a shall be inserted, with the wording of Article 294.

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Our first task is to look up Article 294 TEC, in the latest consolidated version of the treaties, TEU and TEC, in OJ 29.12.2006 C 321 E/173. We notice that the Article is located in TEC Part Six ‘General and final provisions’, and the contents are the following:

Article 294 TEC

Member States shall accord nationals of the other Member States the same treatment as their own nationals as regards participation in the capital of companies or firms within the meaning of Article 48, without prejudice to the application of the other provisions of this Treaty.

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There is no express amendment of the wording and the only horizontal amendment is to replace ‘this Treaty’ by ‘the Treaties’ according to point 2(b)) in the Lisbon Treaty. We check the numbering in the original Lisbon Treaty and the renumbering for the coming consolidated versions of the provision and the referral, and we add the location of the provision within the treaty for ease of reading. The treaty itself is renamed the Treaty on the Functioning of the European Union (TFEU), and here is what the provision should look like:


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 48a TFEU (ToL), renumbered Article 55 TFEU

Member States shall accord nationals of the other Member States the same treatment as their own nationals as regards participation in the capital of companies or firms within the meaning of Article 48 [ToL, renumbered Article 54 TFEU], without prejudice to the application of the other provisions of the Treaties.

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The European Convention initiated the tidying up exercise by placing the provision at the end of Subsection 2 ‘Freedom of establishment’, as Article III-28. Naturally, the preceding Article of the draft Treaty establishing a Constitution for Europe referred to was numbered differently and it spoke of the other provisions of the Constitution, but the contents remained the same (OJ 18.7.2003 C 169/33).

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The IGC 2004 followed the lead of the draft Constitution in every aspect save one. The Treaty establishing a Constitution for Europe limited its referral to the second paragraph of the preceding Article (OJ 16.12.2004 C 310/63):

Article III-143 Constitution

Member States shall accord nationals of the other Member States the same treatment as their own nationals as regards participation in the capital of companies or firms within the meaning of the second paragraph of Article III-142, without prejudice to the application of the other provisions of the Constitution.

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In other words, the IGC 2007 followed the lead of the European Convention in finding more amenable surroundings for the Article, but by taking over the wording of the present TEC it did not follow the Constitutional Treaty in referring only to the second paragraph of the preceding Article.

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We can easily agree with the conclusion in the ‘Comparative table of the current EC and EU Treaties as amended by the Treaty of Lisbon (Cm 7311; page 8) about Article 55 TFEU (Article 48a ToL): In substance the same as Article 294 TEC.

But we would like to offer a few hints to the readers who want to know what the present (and future) provision might mean in practice.

Not much, it seems. The principle of equal treatment for capital investors follows from other treaty provisions, so the Article is only declaratory. I quote Rudolf Streinz, EUV/EGV, Vertrag über die Europäische Union und Vertrag zur Gründung der Europäischen Gemeinschaft (Verlag C.H. Beck, München 2003; page 2434):

„Art. 294 EGV hat heute keine praktische Bedeutung mehr. Bestenfalls kann der Vorschrift klarstellende Bedeutung zukommen, dass nicht nur die Gründung und Leitung von Unternehmen (vgl. Art. 43 EGV), sondern auch das Halten einer Beteiligung unter die Freiheitsberechtigungen des Vertrages fallen. In seinem persönlichen und sachlichen Anwendungsbereich ist Art. 294 EGV aber subsidiär gegenüber den Grundfreiheiten. Die dem sachlichen Anwendungsbereich nach relevante Niederlassungsfreiheit und die Kapitalverkehrsfreiheit gehen zudem über den Gewährleistungsinhalt des Art. 294 EGV hinaus, weil sie nicht nur Diskriminierungen nach der Staatsangehörigkeit, sondern jegliche Beschränkung verbieten.“

In other words, other provisions on free movement cater for this and more. In due time, we are going to look at the provisions with relevance.


Ralf Grahn

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

EU TFEU: Right of establishment

Are you interested in working as a self-employed person, setting up shop in another EU country? Do you manage an agency, a branch or a subsidiary in another member state of the European Union?

The right of establishment, also known as the freedom of establishment, is an expression of the principle of free movement within the internal market.

The EU’s Treaty of Lisbon preserves your right of establishment on equal grounds.

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In the Treaty of Lisbon (ToL) the intergovernmental conference (IGC 2007) has nothing substantial to say about Article 43 of the Treaty establishing the European Community (TEC). Cf. OJ 17.12.2007 C 306/54.

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Unchanged does not mean unimportant, so we turn to the latest consolidated version of the existing treaties, in 29.12.2006 C 321 E/59:

CHAPTER 2
RIGHT OF ESTABLISHMENT

Article 43 TEC

Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.

Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 48, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.

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Although there are no specific amendments, there are still details to check before we now for sure how the corresponding Article of the Treaty on the Functioning of the European Union (TFEU) is going to look according to the Lisbon Treaty.

The annexed Tables of equivalences tell us that we have arrived at a new chapter: Chapter 2 ‘Right of establishment’. They also tell us that Article 43 TEC first becomes Article 43 ToL, and later will be known under the new number Article 49 TFEU (17.12.2007 C 306/208).

As always, we have to watch out for possible horizontal amendments, mentioned on OJ 17.12.2007 C 306/41 and the following pages. (Here, there seem to be none.)

We notice a referral to another Article, which means that we have to check the numbering and that the referral remains substantially correct.

In order to make it easier to read this post on a stand-alone basis, we start by indicating the location of the Article (using the Tables of equivalences, OJ 17.12.2007 C 306/207-208).

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Here is what the Article should look like, according to the Treaty of Lisbon:

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 43 TFEU (ToL), renumbered Article 49 TFEU

Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.

Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 48 [ToL, renumbered Article 54 TFEU], under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.

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In Article III-22 of the draft Treaty establishing a Constitution for Europe, the European spoke more directly to the potential entrepreneurs in the second subparagraph, without altering the substance of the provision (OJ 18.7.2003 C 169/32):

Subsection 2
Freedom of establishment

Article III-22 Draft Constitution

Within the framework of this Subsection, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.

Nationals of a Member State shall have the right, in the territory of another Member State, to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article III-27, under the conditions laid down for its own nationals by the law of the Member State where such establishment is effected, subject to the provisions of the Section relating to capital.

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The IGC 2004 took over the draft text in Article III-137 of the Treaty establishing a Constitution for Europe, with only technical adjustments (OJ 16.12.2004 C 310/61).

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Even more focused on institutional questions and economical concerning amendments without substantial impact, the IGC 2007 reverted to the current TEC text.

From a reader’s point of view it was not a ‘failed Constitution’. Only ratification failed, and as a result we lost a host of small improvements, too, ending up with two slightly less well adapted treaties than the whole one on offer a few years ago.

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This time, instead of suggesting further reading from the web, I would like to recommend turning to a textbook on the subject of freedom of establishment. An alternative in English is:

Josephine Steiner, Lorna Woods and Christian Twigg-Flesner: EU Law (Oxford University Press, Ninth Edition, 2006), pages 446 to 467.


Ralf Grahn