Difficult European social market economy

Legal, political and economic scholars have encountered difficulties, when dealing with the treaty based aim of the European Union as a highly competitive social market economy.

Negative integration in order to remove or to lessen obstacles in the internal market and external trade can be promoted by harmonisation and the Court of Justice of the European Union, flanked by rules to ensure fair competition.

However, despite the kind words the Treaty on the Functioning of the European Union (TFEU) offers on social policy - Title X - the real powers lie with the member states, as illustrated by Article 153. The powers for positive integration (harmonisation) are weak in the EU we have today:

Article 153 TFEU

(ex Article 137 TEC)

1. With a view to achieving the objectives of Article 151, the Union shall support and complement the activities of the Member States in the following fields:

(a) improvement in particular of the working environment to protect workers' health and safety;

(b) working conditions;

(c) social security and social protection of workers;

(d) protection of workers where their employment contract is terminated;

(e) the information and consultation of workers;

(f) representation and collective defence of the interests of workers and employers, including codetermination, subject to paragraph 5;

(g) conditions of employment for third-country nationals legally residing in Union territory;

(h) the integration of persons excluded from the labour market, without prejudice to Article 166;

(i) equality between men and women with regard to labour market opportunities and treatment at work;

(j) the combating of social exclusion;

(k) the modernisation of social protection systems without prejudice to point (c).

2. To this end, the European Parliament and the Council:

(a) may adopt measures designed to encourage cooperation between Member States through initiatives aimed at improving knowledge, developing exchanges of information and best practices, promoting innovative approaches and evaluating experiences, excluding any harmonisation of the laws and regulations of the Member States;

(b) may adopt, in the fields referred to in paragraph 1(a) to (i), by means of directives, minimum requirements for gradual implementation, having regard to the conditions and technical rules obtaining in each of the Member States. Such directives shall avoid imposing administrative, financial and legal constraints in a way which would hold back the creation and development of small and medium-sized undertakings.

The European Parliament and the Council shall act in accordance with the ordinary legislative procedure after consulting the Economic and Social Committee and the Committee of the Regions.

In the fields referred to in paragraph 1(c), (d), (f) and (g), the Council shall act unanimously, in accordance with a special legislative procedure, after consulting the European Parliament and the said Committees.

The Council, acting unanimously on a proposal from the Commission, after consulting the European Parliament, may decide to render the ordinary legislative procedure applicable to paragraph 1(d), (f) and (g).

3. A Member State may entrust management and labour, at their joint request, with the implementation of directives adopted pursuant to paragraph 2, or, where appropriate, with the implementation of a Council decision adopted in accordance with Article 155.

In this case, it shall ensure that, no later than the date on which a directive or a decision must be transposed or implemented, management and labour have introduced the necessary measures by agreement, the Member State concerned being required to take any necessary measure enabling it at any time to be in a position to guarantee the results imposed by that directive or that decision.

4. The provisions adopted pursuant to this Article:

— shall not affect the right of Member States to define the fundamental principles of their social security systems and must not significantly affect the financial equilibrium thereof,

— shall not prevent any Member State from maintaining or introducing more stringent protective measures compatible with the Treaties.

5. The provisions of this Article shall not apply to pay, the right of association, the right to strike or the right to impose lock-outs.

European social market economy reading

Already at the time of the Treaty Establishing a Constitution for Europe,

Christian Joerges and Florian Rödl discussed the social deficit of the EU, the genesis of the social market economy at the national (Germany) and the Europena level, as well as the limits of EU competences in the social field, in  “Social Market Economy” as Europe’s Social Model? EUI Working Paper LAW No. 2004/8 (25 pages).  

Klaus Dieter John discussed various forms of economic liberalism in the article The German Social Market Economy – (Still) a Model for the European Union? (8 pages)

In a December 2011 publication, the Swedish Institute for European Policy Studies (Sieps) let four authors discuss the lack of EU powers and the necessity (risk) to move towards a federal state, if Europeans want a social market economy: Giuseppe Bertola, Jörgen Hettne, Fritz W. Scharpf och Daniel Tarschys: Är EU en social marknadsekonomi? Sociala Europa – en antologi; SIEPS 2011:2op (88 pages).

Two of the contributions had been published earlier in English and are still available:

Scharpf, The Socio-Economic Asymmetries of European Integration (2010:10epa) och Bertola, Social and Employment Policy in the EU and in the Great Recession (2010:11epa).

Václav Šmejkal, Stanislav Šaroch: EU As a Highly Competitive Social Market Economy – Goal, Options, and Reality; Review of Economic Perspectives Vol. 14, Issue 4, 2014 (18 pages), another example:  

The paper is a combination of economic and legal -political analysis through which the authors try to answer three main questions: What is the contemporary meaning of the term “social market economy” in the both economic and EU-law academic theory? Can the EU within the powers conferred to it positively fulfill such an objective, or can it just approach it by weakening the still prevailing tendency towards liberalization and deregulation brought about by the construction of the EU internal market and by the promotion of its freedoms?

To round off the reading part, a few random excerpts from Floris de Witte, in The Architecture of a Social Market Economy; LSE Law, Society and Economy Working Papers 13/2015 (24 pages):  

This paper traces the evolution of the nature of the EU’s internal market, from its origin in the 1950s to its current redesign in the aftermath of the Euro-crisis. It suggests that the relationship between ‘the market’ and ‘the social’ has shifted multiple times throughout the Union’s history.  

In doing so, however, they overlook a number of institutional asymmetries, normative biases and legal implications, which mean that any attempt to create a ‘social market economy’ – as Article 3 (3) TEU commits the EU to do – is bound to be distinctively light on ‘social’ and heavy on ‘market’.

The third phase has started since the outbreak of the Euro-crisis. Increasingly, Union institutions are pushing towards social policy coordination and even harmonisation in the EU. The purpose of EU social policy here, again, is very different from the previous two phases. Social policy is now considered as an auxiliary instrument for the stabilisation of monetary and economic policy across the Eurozone. Diversity and national autonomy, on this view, are problematic.

Social policy differentiation throughout the EU, to put it as simply as possible, disrupts both the operation of the internal market and the operation of the economic and monetary union. (page 17)

In blunt terms, the current architecture of the EU simply cannot support a ‘social market economy’ – which comes with far-reaching implications for the stability of the Union’s market and polity.  (page 18)

The legitimacy of their answer presupposes that it is answered through a representative and democratic process. Allowing apolitical institutions to answer such questions will almost inevitably lead to these being answered as if they are regulatory questions.  (page 19)

In the absence of a sufficiently thick political sphere on the European level, any attempt at socialising the EU’s market will be doomed.  (page 21)

A ‘social market economy’ may simply be beyond the capacity of EU law to produce.   (page 22)

Despite the talk about the future of Europe, do we see the EU institutions forging the powers for these representative and democratic processes at the European level?

European social market economy questions

After looking at the asymmetries, I want to finish this blog post by referring to the intelligent questions posed by Stefan Collignon in the web journal Social Europe: How To Create A Real European Social Market Economy; Social Europe 3 February 2015:  

The single most important contribution to revive Europe would be starting a wide debate about who are the winners and losers in the single market; who are the extractive elites that resist a fair distribution of advantages and privileges? How is the idea of sovereignty (mis)used as an instrument to protect these elites? What mechanisms must be designed to create a fair system of distributing the net gains from integration? How can one overcome the veto power and “agency capture” of national governments by local pressure groups? The European social market economy – with new institutions – must emerge from these debates. Without them, it will fail.

Ralf Grahn

EU against tax fraud

The work programme of the Spanish presidency of the Council of the European Union has described as unfocused and full of good intentions, but the part concerning taxes, under the ECOFIN Council, is quite concrete: Taxation: The fight against fraud (pages 5 to 7).

It is worth quoting as a background note on EU aims in tax policy, both internally and with regard to third countries:

The meeting of the G-20 held in London in April 2009 and the efforts made by the OECD in order to increase the transparency of tax systems, with particular attention being paid to tax havens, have given a renewed political momentum to the fight against tax fraud within a framework that the European Union has defined as “good governance in tax matters”. In this context, achieving international transparency raises two kinds of challenges for the European Union: internal cooperation in the relations between Member States, and increasing transparency in foreign relations.

The Spanish Presidency will thus pay special attention to the cooperation of Member States in the fight against tax fraud. These efforts will be made in the fields of both direct and indirect taxation.

In the field of direct taxation the priority will be to work on three Directive proposals linked to the fight against tax evasion and to the achievement of appropriate rules governing transparency. The Savings Taxation Directive will expand its scope, both objectively (incorporating a larger number of taxable incomes), and subjectively (incorporating certain entities and legal instruments whose effective beneficiaries are natural persons), thus contributing towards increased efficiency and fairness of taxation on savings. The Directive on Administrative Cooperation will imply the adoption by all Member States of the OECD standards for the exchange of information and, therefore, the end of bank secrecy in the European Union, and it will impose a new general framework on the exchange of information on taxation that will allow the adaptation of the current regulation to the kind of automatic information we need, so that a modern efficient tool will be available in the fight against fraud. Finally, the Directive on Mutual Assistance for Tax Recovery, will improve the tools for recovery of debts that require assistance of other Member States, if either the debtors or their assets are within these states.

If these legislatory proposals are to be effective, it is also necessary for the EU to reach anti-fraud agreements with third-countries (a political agreement with Liechtenstein will be used as a model for negotiations with Andorra, Monaco, San Marino, and Switzerland). During the Spanish Presidency, we will try to achieve the signing of agreements that comply with OECD standards on transparency and information exchange.

Finally, within the field of coordination in direct taxation, the Spanish Presidency will seek to achieve a commitment on anti-abuse clauses. This will be a joint effort by Member States on matters of direct taxation in which problems may appear as a consequence of the fundamental rights contemplated in the Treaty of the EU and of the satisfactory operation of the internal market, and which may also put an end to the infringement procedures opened by the Commission. Likewise, a report will be presented to the Council on follow-up work on the application of the Code of Conduct for Business Taxation corresponding to the period of the Spanish Presidency (Report of the Council). This code of conduct refers to the suppression of tax measures that have or may have a significant harmful influence on business activities within the Union because of the tax competition they create. During the Presidency, the subgroup working on the Code of Conduct will continue its task. This subgroup is in charge of debating anti-abuse issues, such as those related with outbound and inbound dividends.

Likewise, the Spanish Presidency will boost administrative cooperation in the fight against fraud in the field of indirect taxation. In order to do so it will strive to promote the work to make EUROFISC a decentralized network for the exchange of information on VAT fraud among Member States. The EUROFISC network is based on an early warning mechanism and a multilateral risk analysis platform. Moreover, the Presidency will work on the new proposal of a Directive on VAT electronic invoicing rules, an important element of administrative simplification and cost reduction for businesses.

Likewise, the Spanish Presidency will strengthen administrative cooperation in the field of Excises, promoting the implementation of the Excise Movement Control System (EMCS), a new computerised system for monitoring movements of excise goods by electronic means, through the interconnection of customs agencies of various Member States and operators.


Towards a more efficient taxation system

The Spanish Presidency will also ensure that fiscal coordination leads to a more efficient taxation system in various fields. A well designed taxation system can make a decisive contribution to the promotion of energy efficiency, which is indispensable if sustainable long-term growth is to be achieved. The Spanish Presidency will thus give precedence to the proposals of Directives pursuing energy efficiency objectives. It is therefore important to make progress in the modification of the Directive establishing a new framework for the taxation of energy products on the basis of environmental criteria. In this context, during the Spanish Presidency the proposal for the modification of the Directive on the taxation of energy products will be addressed.

As for the VAT, work will be encouraged with respect to the interpretation of new rules of location, together with the taxation of financial services and insurance, and the Special Scheme for Travel Agencies.

Finally, in order for public finances to have a revitalising effect on the economy, it is necessary to take into account the Community budget rules, an essential element of the Union’s daily activities. The entry into force of the Lisbon Treaty requires the modification of some budget rules.

Firstly, the Spanish Presidency will push forward the negotiation of the Financial Regulation Review proposal, which will be presented by the Commission during this semester. This regulation includes the rules on the drafting, approval, execution, and monitoring of the European Union budget, and Spain’s objective will be to take a closer look at simplification, transparency, and rigour in the execution of the budget.

Secondly, the Spanish Presidency will promote the necessary work in order to adapt to the Lisbon Treaty, as soon as possible, the rules applicable to the Union budget.

In short, the next six months will pose significant challenges to the EU in economic and financial issues. The ECOFIN therefore has a considerable task ahead of it in order to successfully exit from the unprecedented economic crisis and at the same time lay the foundations of sustainable and stable growth for the future and of a more social, more competitive, and more environmentally committed Europe.

However, for the EU to move from aims – even widely supported ones – to results in the area of taxation is still a daunting task due to unanimity rules, despite the Commission booklet Achievements in the areas of taxation and customs 2004-2009, published today (8 February 2010; 75 pages including annexed speeches, from page 20).





Ralf Grahn







P.S. The Pirate Party challenges the existing order concerning intellectual property, especially copyright, and attempts to limit the freedoms of Internet users.

In the Swedish political blogosphere the Pirate Party has become the most visible political party, and in the June 2009 European Parliament elections the PP secured two MEPs, although the second one has to wait for the question of the 18 “phantom MEPs” to be resolved before she can officially take up her duties.

Henrik Alexandersson is a prolific blogger about Pirate Party and libertarian causes, from his position as assistant to the Pirate MEP Christian Engström (who blogs in Swedish and English).

Henrik Alexandersson.se (in Swedish) is listed on multilingual Bloggingportal.eu, which by now has grown to 532 great Euroblogs.

Bloggingportal.eu is your useful one-stop-shop for fact, opinion and gossip on EU affairs, i.a. politics, more than thirty policy areas, communication, economics, finance, business, civil society and law.

At the same time Euroblogs are an agreeable way to brush up one’s skills in foreign languages.

If you are interested in the EU or the euroblogosphere, you can also subscribe to the RSS feed for new blog posts appearing on Bloggingportal.eu.

By the way, I also discuss European issuesin Finnish on Eurooppaoikeus and in Swedish on Grahnblawg. At this point in time, my main themes are the European knowledge society, including data protection and intellectual property, the internal market, and the relations between the EU and Switzerland, where banking secrecy and taxation are among the topical issues.

EU free movement: Tax exemptions for personal property

Here is information for those who move to another EU member state. A new codified Directive has been published on tax exemptions for personal property:

Council Directive 2009/55/EC of 25 May 2009 on tax exemptions applicable to the permanent introduction from a Member State of the personal property of individuals (Codified version), published in the Official Journal of the European Union (OJEU) 10.6.2009 L 145/36.




However, the scope of Directive 2009/55 excludes some of the taxes and duties most interesting to individuals:



Article 1
Scope

1. Every Member State shall, subject to the conditions and in the cases hereinafter set out, exempt personal property introduced permanently from another Member State by private individuals from consumption taxes which normally apply to such property.

2. The following shall not be covered by this Directive:

(a) value added tax;

(b) excise duty;

(c) specific and/or periodical duties and taxes connected with the use within the country of property referred to in paragraph 1, such as for instance motor vehicle registration fees, road taxes and television licences.


***

Regulation 2009/55 is based on Article 93 of the Treaty establishing the European Community (TEC), on harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation.


Ralf Grahn

EU: Social rules in road transport (infringements & penalties)

The Commission has published a report on the penalties for serious infringements against the social rules in road transport provided for in the legislation of the Member States, as required by Article 10 of Directive 2006/22/EC on minimum conditions for the implementation of social legislation relating to road transport activities.

The infringements concern two regulations.


Regulation (EC) No 561/2006 on the harmonisation of certain social legislation relating to road transport contains very precise rules on the maximum driving times and the minimum rest periods and breaks for drivers engaged in professional transport.

Regulation (EEC) No 3821/85 on recording equipment in road transport concerns the instalment and use of the tachograph.


***


Penalties for infringements


Regulation (EC) No 561/2006 requires Member States to lay down rules on penalties applicable to infringements of both Regulations. The penalties have to be effective, proportionate, dissuasive and non-discriminatory.

Recital 26 of the Regulation states in addition that the possibility of immobilising the vehicle where serious infringements are detected should also be included within the common range of measures open to member states.

However, there is no definition in the Regulation of what should be considered a serious infringement.

Directive 2006/22/EC originally contained an Annex III with a non-exhaustive list of what is to be regarded as an infringement. This Annex III has recently been replaced by a new Annex by way of Commission Directive 2009/5/EC. This new Annex III contains guidelines on the categorisation of infringements against the two Regulations.


***

Conclusions


The Commission’s analysis reaches the conclusion that the penalties for serious infringements vary too much between the EU member states (page 7 and 8):

The rules on penalties applicable to serious infringements of the social legislation vary appreciably between Member States as regards the types of penalties, the level of fines and the categorisation of infringements.

While all Member States use fines as a penalty, not all of them provide for the immobilization of vehicles or imprisonment, for example. In some Member States, withdrawal of a driver’s driving licence or driver card is possible.

When looking at how the Member States grade the different types or levels of infringements, the situation becomes even more complex. The amounts of the fines vary significantly between Member States, in extreme cases by as much as 1:10. These differences can only be partly explained by the socio-economic differences that make the same fine proportionate and dissuasive in one country but not necessarily in another.

While for infringements against the driving times and rest periods, it is rather clear which infringements has to be considered to be more serious than another, the categorisation of infringements varies considerably between Member States for infringements against Regulation (EEC) No 3821/85. Some infringements are seen as serious infringements in one country, but not necessarily in another.

Moreover, the penalties applied for infringement of the rules of Regulation (EEC) No 3821/85 do not correspond in many Member States with the Community guidelines on the categorisation of infringements as contained in Commission Directive 2009/5/EC amending Annex III to Directive 2006/22/EC.

For drivers and undertakings engaged in international transport, it is therefore very difficult to receive a clear message concerning the gravity of possible infringements when they do not comply with certain provisions of Regulation (EC) No 561/2006 and Regulation (EEC) No 3821/85, as the penalties they risk in the different Member States give contradictory feedback.

The Commission considers this situation resulting of the decisions of the legislators to be unsatisfactory in terms of equal conditions for drivers and undertakings. The new Annex to Directive 2006/22/EC, introduced by Commission Directive 2009/5/EC, provides a basis for a common understanding of what should be considered as serious infringement and what not.

Member States are encouraged to take the necessary steps to provide for more harmonised application of the social rules in road transport and thus to improve observance of the social rules in road transport.

The Commission will continue to work on this issue, in particular by supporting dialogue between Member States concerning national interpretation and application of the social rules in road transport through the Committee foreseen in Regulation (EC) No 561/2006, and taking into account the limits of the competence that Member States and the legislators have decided to give to the Commission.



***

Source

Report from the Commission Analysing the penalties for serious infringements against the social rules in road transport, as provided for in the legislation of the Member States; Brussels, 15.5.2009, COM(2009) 225 final.




Ralf Grahn

EU reading for metric martyrs

If you want to experience how the style of legal texts differs from the prose of tabloids and certain blogs, you can take a look at Directive 2009/3/EC of the European Parliament and of the Council of 11 March 2009 amending Council Directive 80/181/EEC on the approximation of the laws of the Member States relating to units of measurement.



Since the subject matter is the degree of harmonisation (approximation) of laws in the internal market, this text has EEA relevance.

The text may evoke nostalgic feelings among the heroic defenders of English milk bottles and other metric martyrs.

The amending Directive was published in the Official Journal of the European Union (OJEU) 7.5.2009 L 114/10.


Ralf Grahn

EU: Directive on protection of computer programs

Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs (Codified version) has been published in the Official Journal of the European Union 5.5.2009 L 111/16.



As a harmonisation (approximation) measure in the internal market, this Directive has EEA relevance, and it replaces the amended Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs. The codified Directive 2009/24/EC enters into force on 6 May 2009.

How are computer programs protected?

Article 1 of Directive 2009/24/EC equals the legal protection of computer programs with copyright protection:

Article 1
Object of protection

1. In accordance with the provisions of this Directive, Member States shall protect computer programs, by copyright, as literary works within the meaning of the Berne Convention for the Protection of Literary and Artistic Works. For the purposes of this Directive, the term ‘computer programs’ shall include their preparatory design material.

2. Protection in accordance with this Directive shall apply to the expression in any form of a computer program. Ideas and principles which underlie any element of a computer program, including those which underlie its interfaces, are not protected by copyright under this Directive.

3. A computer program shall be protected if it is original in the sense that it is the author's own intellectual creation. No other criteria shall be applied to determine its eligibility for protection.

4. The provisions of this Directive shall apply also to programs created before 1 January 1993, without prejudice to any acts concluded and rights acquired before that date.



Ralf Grahn

EU Consumer interests (injunctions)

Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers' interests has been substantially amended several times. In the interests of clarity and rationality the Directive has now been replaced by a new and codified Directive:

Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers' interests (Codified version).


This text with EEA relevance has now been published in the Official Journal of the European Union (OJEU) 1.5.2009 L 110/30.



The approximation (harmonisation) Directive 2009/22/EC enters into force on 29 December 2009:


Article 1
Scope

1. The purpose of this Directive is to approximate the laws, regulations and administrative provisions of the Member States relating to actions for an injunction referred to in Article 2 aimed at the protection of the collective interests of consumers included in the Directives listed in Annex I, with a view to ensuring the smooth functioning of the internal market.

2. For the purposes of this Directive, an infringement means any act contrary to the Directives listed in Annex I as transposed into the internal legal order of the Member States which harms the collective interests referred to in paragraph 1.


***

Annex I

The Directives listed in Annex I offer an overview of important Community legislation in the area of consumer protection:


ANNEX I
LIST OF DIRECTIVES REFERRED TO IN ARTICLE 1
[The Directives referred to in points 5, 6, 9 and 11 contain specific provisions concerning injunctions.]


1. Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises (OJ L 372, 31.12.1985, p. 31).

2. Council Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit (OJ L 42, 12.2.1987, p. 48) [The said Directive was repealed and replaced, with effect from 12 May 2010, by Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers (OJ L 133, 22.5.2008, p. 66)].

3. Council Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities: Articles 10 to 21 (OJ L 298, 17.10.1989, p. 23).

4. Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (OJ L 158, 23.6.1990, p. 59).

5. Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (OJ L 95, 21.4.1993, p. 29).

6. Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts (OJ L 144, 4.6.1997, p. 19).

7. Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees (OJ L 171, 7.7.1999, p. 12).

8. Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects on information society services, in particular electronic commerce, in the internal market (Directive on electronic commerce) (OJ L 178, 17.7.2000, p. 1).

9. Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use: Articles 86 to 100 (OJ L 311, 28.11.2001, p. 67).

10. Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services (OJ L 271, 9.10.2002, p. 16).

11. Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (OJ L 149, 11.6.2005, p. 22).

12. Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (OJ L 376, 27.12.2006, p. 36).

13. Directive 2008/122/EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts (OJ L 33, 3.2.2009, p. 10).



Ralf Grahn

EU TFEU: Approximation of internal market laws in sensitive areas

Approximation or harmonisation of internal market laws in sensitive areas, such as company taxes, is subject to unanimous decision making by the EU Council. The Treaty of Lisbon does not change the unanimity rule, although the reform treaty tries to make the relationship between ordinary and special legislative procedures clearer.


***

Article 115 of the Treaty on the Functioning of the European Union (TFEU) is found in the consolidated version of the Treaty on European Union and the Treaty on the Functioning of the European Union, published in the Official Journal of the European Union, OJ 9.5.2008 C 115/95:

Part Three Union policies and internal actions

Title VII Common rules on competition, taxation and approximation of laws

Chapter 3 Approximation of laws

Article 115 TFEU
(ex Article 94 TEC)

Without prejudice to Article 114, the Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, issue directives for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market.

***

In Article 2, point 80 of the Treaty of Lisbon (ToL) the IGC 2007 renumbered and amended Article 94 of the Treaty establishing the European Community (TEC), and in point 82 it amended the new Article 95 TFEU (ToL) (OJ 17.12.2007 C 306/69):

APPROXIMATION OF LAWS

80) The order of Articles 94 and 95 shall be reversed. Article 94 shall be renumbered 95 and Article 95 shall be renumbered 94.

---

82) In Article 94, renumbered 95, the words ‘Without prejudice to Article 94,’ shall be inserted at
the beginning.

***

The TFEU table of equivalences confirms that Article 94 TEC first became Article 95 TFEU (ToL) in the original Treaty of Lisbon, and it tells us that it was later renumbered Article 115 TFEU in the consolidated version (OJ 17.12.2007 C 306/211).

***

The current Article 94 of the Treaty establishing the European Community (TEC) is found under Title VI ‘Common rules on competition, taxation and approximation of laws’, Chapter 3 ‘Approximation of laws’, in the latest consolidated version of the treaties in force (OJ 29.12.2006 C 321 E/79).

When the proposed TFEU Article 114 (the current Article 95 TEC) with the normal or ordinary procedures for approximation (harmonisation) of laws was lifted to the beginning of the Chapter 3, the sensitive areas, mentioned in the second paragraph, requiring unanimity, were left to be dealt with in Article 115 TFEU (the current Article 94 TEC) of the amending treaty.

The new order feels like an improvement, but in spite of the words added at the beginning of Article 115 TFEU, plain language to express the scope of the provision would not have been amiss.

The only specific amendment by the Treaty of Lisbon was to add the words ‘Without prejudice to Article 94,’ (renumbered Article 114 TFEU) at the beginning. The words ‘acting unanimously on a proposal from the Commission’ were replaced by ‘acting unanimously in accordance with a special legislative procedure’ according to horizontal amendment 3 of Article 2 of the Treaty of Lisbon (OJ 17.12.2007 C 306/42), and the words ‘common market’ at the end were replaced by ‘internal market’ in line with horizontal amendment 2(g) (OJ 17.12.2007 C 306/41).

Here is the current Article 94 TEC:

Article 94 TEC

The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee, issue directives for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the common market.

***

We have seen the minor differences between Article 94 TEC in force and Article 115 TFEU.

For the sake of systematic comparison, we look at the Article during the intervening treaty reform stages.

First, we turn to the European Convention, the closest thing to a constituent assembly EU citizens have had. The Article in question is located in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 7 ‘Approximation of legislation’.

Article III-64 of the draft Treaty establishing a Constitution for Europe was still the first Article of Section 7. The terminology of the draft Constitution differed from the TEC and there were some changes in wording, including the words ‘Without prejudice to Article III-65’ added at the beginning. But the substance remained unchanged. See OJ 18.7.2003 C 169/38.

Article III-64 Draft Constitution

Without prejudice to Article III-65, a European framework law of the Council of Ministers shall establish measures for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market. The Council of Ministers shall act unanimously after consulting the European Parliament and the Economic and Social Committee.

***

In the Treaty establishing a Constitution for Europe, approved by 18 member states, the provisions on approximation (harmonisation) were located in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 7 ‘Common provisions’.

The IGC 2004 lifted Article III-172 (the current Article 95 TEC) as the new ‘high road’ to the top of Section 7, and Article III-173 (the current Article 94 TEC) sank to become the ‘low road’ for areas requiring unanimity.

Consequently, the referral at the beginning changed. The ‘Council of Ministers’ became the ‘Council’ in the Constitutional Treaty, but otherwise the IGC 2004 took over the wording of the draft Constitution.

Article III-173 is found in OJ 16.12.2004 C 310/75:

Article III-173 Constitution

Without prejudice to Article III-172, a European framework law of the Council shall establish measures for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market. The Council shall act unanimously after consulting the European Parliament and the Economic and Social Committee.

***

What has been said about Article 115 TFEU, with the shifted position, but substantially unchanged from the current Article 94 TEC?


United Kingdom

Professor Steve Peers covered the Treaty of Lisbon in a number of Statewatch Analyses. ‘EU Reform Treaty Analysis no. 3.3: Revised text of Part Three, Titles I to VI of the Treaty establishing the European Community (TEC): Internal Market and competition’ (Version 2, 23 October 2007) includes the current Title VI Common rules on competition, taxation and approximation of laws.

Peers indicated the changing numbering of Article 94 TEC, 95 TFEU (ToL), to be renumbered Article 115 TFEU in the consolidated version, and highlighted the changes, and he added the following comment (pages 30–31):

“The draft Reform Treaty attempts to clarify the relationship between Articles 94 and 95.”

The analysis 3.3 and other useful Statewatch analyses are available through:

http://www.statewatch.org/euconstitution.htm


***

The Foreign and Commonwealth Office (FCO) offers a convenient source of brief annotations on Lisbon Treaty amendments in ‘A comparative table of the current EC and EU treaties as amended by the Treaty of Lisbon’ (Command Paper 7311, published 21 January 2008). It offers the following comment on Article 115 TFEU, Article 95 TFEU (ToL) in the original Lisbon Treaty (page 12):

“In substance the same as Article 94 TEC.”

The FCO comparative table is available at:

http://www.official-documents.gov.uk/document/cm73/7311/7311.asp

***

The UK House of Commons Library Research Paper 07/86 ‘The Treaty of Lisbon: amendments to the Treaty establishing the European Community’ (published 6 December 2007) discussed the approximation of internal market laws on page 60 (under the heading ‘2. Taxation’).

The Research Paper commented briefly on the harmonisation of internal market laws, before moving on to tax harmonisation:

“Articles 94–97 (Constitution Articles III-172 – III-176) are on the approximation of internal market laws. The general aims are unchanged and the Council will adopt measures for the approximation of laws, regulations or administrative provisions of the Member States that directly affect the internal market. The out-dated term “common market” is removed and replaced with “internal market”.”

The Reasearch Paper then proceeded to discuss the approximation (harmonisation) of tax law and the British official position (pages 60–61):

“Harmonisation in the sphere of direct taxes under Article 94 TEC is much more limited than in that of indirect taxes. Although directives introduced under Article 94 TEC may be approved under the co-decision procedure, this does not apply to fiscal provisions. The TFEU, like the Constitution, maintains the requirement for unanimity in Article 95 on any fiscal measure introduced under this Treaty base. The wording of Articles 94 and 95(2) (Constitution Articles III-173 and III-172) is fundamentally unchanged.

The possibility that all taxation measures might be subject to unanimity [sic] at some point in the future has been a controversial issue for some time. The Government’s position on the issue has been stated many times. In June 2003 the then Paymaster General, Dawn Primarolo, said the British Government would “not accept any changes that move away from unanimity on tax matters. When the then Prime Minister, Tony Blair, made a statement to the House following agreement on the Constitution in June 2004, he underlined the point that “this treaty … keeps unanimity for the most important decisions … in particular for tax, social security, foreign policy, defence and decisions on the financing of the Union affecting the British budget contribution.” Tony Blair told the Liaison Committee on 18 June 2007 shortly before the June European Council which agreed the IGC Mandate: “we will not agree to anything that moves to qualified majority voting, something that can have a big say in our own tax and benefit system”.”

(I have deleted the footnotes, but they can be found in the original document.)

The Library Research Paper 07/86 is available at:

http://www.parliament.uk/commons/lib/research/rp2007/rp07-086.pdf

***

The House of Lords European Union Committee report ‘The Treaty of Lisbon: an impact assessment, Volume I: Report’ (HL Paper 62-I, published 13 March 2008) is a valuable resource on the Treaty of Lisbon, but I found no reference to Article 115 TFEU (Article 94 TEC or Article 95 ToL).

The report is accessible at:

http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeucom/62/62.pdf


***

Sweden

The consultation paper ’Lissabonfördraget’ is still valuable as a description of the Lisbon Treaty amendments, and it is available at:

http://www.regeringen.se/content/1/c6/09/49/81/107aa077.pdf

But my standard reference is currently the Swedish government’s draft ratification bill ‘Lagrådsremiss – Lissabonfördraget’, published 29 May 2008 and sent to the Council on Legislation (Lagrådet) for an expert opinion. The draft deals with the EU’s internal policy areas in Chapter 23 ‘Unionens interna åtgärder’, and section 23.1 presents the internal market (Inre marknaden), on pages 175 to 181.

The Swedish government presents a short background paragraph on the harmonisation of laws in the internal market (page 176):

”Artiklarna 94–97 i EG-fördraget återger möjligheten att harmonisera lagstiftningen på den inre marknaden. Det finns en stor volym sekundärrätt med utgångspunkt i artikel 95 i EG-fördraget samt en omfattande praxis på området. Möjligheten till harmonisering av medlemsstaternas lagar och författningar är en förutsättning för den inre marknadens bibehållande och fortsatta funktion.”

The government later remarks on the essentially unchanged nature of most internal market provisions (e.g. page 176), but on the following page it adds a comment on the changing position of Articles 94 and 95, with the remark that the purpose is to clarify the relationship between the Articles and it mentions the words added at the beginning of Article 95 TFEU (ToL):

“Vad avser tillnärmning av lagstiftning, byter artiklarna 94 och 95 plats. Syftet med omnumreringen är att klargöra förhållandet mellan de båda artiklarna. I inledningen till artikel 95 i EUF-fördraget görs ett tillägg om att artikeln inte ska påverka tillämpningen av artikel 94 i EUF-fördraget.”

The draft bill ‘Lagrådsremiss – Lissabonfördraget’ can be downloaded through:

http://www.regeringen.se/sb/d/5676/a/106277

***

Finland

The Finnish ratification bill, ‘Hallituksen esitys Eduskunnalle Euroopan unionista tehdyn sopimuksen ja Euroopan yhteisön perustamissopimuksen muuttamisesta tehdyn Lissabonin sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta’ (HE 23/2008 vp), is the most systematic analysis of the Lisbon Treaty I have encountered.

Under the heading Approximation of laws (Lainsäädännön lähentäminen), the bill offers a description of Article 95 TFEU (ToL), renumbered Article 115 TFEU. The government explains the subsidiary nature of Article 95 TFEU (ToL) in relation to Article 94. The added words reflect the current interpretation of the relationship between the Articles (page 209):

”95 artiklassa (uusi 115 artikla) määrätään neuvoston mahdollisuudesta antaa komission ehdotuksesta yksimielisesti Euroopan parlamenttia kuultuaan direktiivejä sisämarkkinoiden vaatimaksi jäsenvaltioiden lainsäädäntöjen yhdenmukaistamiseksi. Artikla vastaa perustuslakisopimuksen III-173 artiklaa ja korvaa SEY 94 artiklan seuraavin muutoksin. SEUT 95 artiklassa on uusi määräys, jonka mukaan SEUT 95 artikla ei rajoita SEUT 94 artiklan soveltamista. Tämä tarkoittaa, että SEUT 94 artikla on ensisijainen SEUT 95 artiklaan nähden. Vastaavaa määräystä ei sisälly nykyiseen SEY 94 artiklaan, mutta määräys vastaa nykyistä oikeustilaa. Käytännössä SEY 95 artiklaa ja SEY 94 artiklaa on tulkittu siten, että SEY 95 artikla on ensisijainen SEY 94 artiklaan nähden.”

The Finnish ratification bill is available at:

http://www.finlex.fi/fi/esitykset/he/2008/20080023.pdf


The Swedish language version of the ratification bill ‘Regeringens proposition till Riksdagen med förslag om godkännande av Lissabonfördraget om ändring av fördraget om Europeiska unionen och fördraget om upprättandet av Europeiska gemenskapen och till lag om sättande i kraft av de bestämmelser i fördraget som hör till området för lagstiftningen’ (RP 23/2008 rd), makes the same remarks under ’Tillnärmning av lagstiftning’ on Article 95 TFEU (ToL), the future Article 115 TFEU, on pages 211–212:

”I artikel 95 (blivande artikel 115) föreskrivs om rådets möjlighet att på förslag av kommissionen enhälligt och efter att ha hört Europaparlamentet utfärda direktiv om tillnärmning av sådan lagstiftning i medlemsstaterna som krävs för den inre marknaden. Artikeln motsvarar artikel III-173 i det konstitutionella fördraget och ersätter artikel 94 i EG-fördraget med följande ändringar. I artikel 95 i EUF-fördraget ingår en ny bestämmelse enligt vilken artikel 95 i EUFfördraget inte begränsar tillämpningen av artikel 94 i EUF-fördraget. Detta betyder att artikel 94 i EUF-fördraget är primär i förhållande till artikel 95 i EUF-fördraget. Någon motsvarande bestämmelse ingår inte i nuvarande artikel 94 i EG-fördraget, men bestämmelsen motsvarar rådande rättsläge. I praktiken har artiklarna 95 och 94 i EG fördraget tolkats så att artikel 95 är primär i förhållande till artikel 94.”

The ratification bill in Swedish can be accessed at:

http://www.finlex.fi/sv/esitykset/he/2008/20080023.pdf

***

Both Article 114 TFEU and Article 115 TFEU are general in the sense that they provide legal bases for harmonising measures, when the treaties have not catered for special grounds for internal market legislation.

In the absence of a special base, Article 114 TFEU applies, with the ordinary legislative procedure, for internal market objectives.

When fiscal (tax) provisions, those relating to the free movement of persons and those relating to the rights and interests of employed persons, expressly excluded by Article 114(2) TFEU, directly affect the establishment or functioning of the internal market, Article 115 TFEU enters the picture. These sensitive areas are subject to unanimous decision making by the Council, and the European Parliament is only consulted.




Ralf Grahn

EU TFEU: Approximation of laws

Article 26 of the Treaty on the Functioning of the European Union (TFEU) sets out the aim to establish and to ensure the functioning of the internal market. The approximation or harmonisation of member states’ laws is one of the methods used to achieve this aim.

We look at internal market approximation of laws in the light of the EU Treaty of Lisbon, by comparing Article 114 TFEU with the current provision and the previous treaty reform stages.


***

Article 114 of the Treaty on the Functioning of the European Union (TFEU) is found in the consolidated version of the Treaty on European Union and the Treaty on the Functioning of the European Union, published in the Official Journal of the European Union, OJ 9.5.2008 C 115/94–95:

Part Three Union policies and internal actions

Title VII Common rules on competition, taxation and approximation of laws

Chapter 3 Approximation of laws

Article 114 TFEU
(ex Article 95 TEC)

1. Save where otherwise provided in the Treaties, the following provisions shall apply for the achievement of the objectives set out in Article 26. The European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market.

2. Paragraph 1 shall not apply to fiscal provisions, to those relating to the free movement of persons nor to those relating to the rights and interests of employed persons.

3. The Commission, in its proposals envisaged in paragraph 1 concerning health, safety, environmental protection and consumer protection, will take as a base a high level of protection, taking account in particular of any new development based on scientific facts. Within their respective powers, the European Parliament and the Council will also seek to achieve this objective.

4. If, after the adoption of a harmonisation measure by the European Parliament and the Council, by the Council or by the Commission, a Member State deems it necessary to maintain national provisions on grounds of major needs referred to in Article 36, or relating to the protection of the environment or the working environment, it shall notify the Commission of these provisions as well as the grounds for maintaining them.

5. Moreover, without prejudice to paragraph 4, if, after the adoption of a harmonisation measure by the European Parliament and the Council, by the Council or by the Commission, a Member State deems it necessary to introduce national provisions based on new scientific evidence relating to the protection of the environment or the working environment on grounds of a problem specific to that Member State arising after the adoption of the harmonisation measure, it shall notify the Commission of the envisaged provisions as well as the grounds for introducing them.

6. The Commission shall, within six months of the notifications as referred to in paragraphs 4 and 5, approve or reject the national provisions involved after having verified whether or not they are a means of arbitrary discrimination or a disguised restriction on trade between Member States and whether or not they shall constitute an obstacle to the functioning of the internal market.

In the absence of a decision by the Commission within this period the national provisions referred to in paragraphs 4 and 5 shall be deemed to have been approved.

When justified by the complexity of the matter and in the absence of danger for human health, the Commission may notify the Member State concerned that the period referred to in this paragraph may be extended for a further period of up to six months.

7. When, pursuant to paragraph 6, a Member State is authorised to maintain or introduce national provisions derogating from a harmonisation measure, the Commission shall immediately examine whether to propose an adaptation to that measure.

8. When a Member State raises a specific problem on public health in a field which has been the subject of prior harmonisation measures, it shall bring it to the attention of the Commission which shall immediately examine whether to propose appropriate measures to the Council.

9. By way of derogation from the procedure laid down in Articles 258 and 259, the Commission and any Member State may bring the matter directly before the Court of Justice of the European Union if it considers that another Member State is making improper use of the powers provided for in this Article.

10. The harmonisation measures referred to above shall, in appropriate cases, include a safeguard clause authorising the Member States to take, for one or more of the non-economic reasons referred to in Article 36, provisional measures subject to a Union control procedure.

***

In Article 2, point 80 and point 81 of the Treaty of Lisbon (ToL) the IGC 2007 renumbered and amended Article 95 of the Treaty establishing the European Community (TEC). Here are the specific amendments (OJ 17.12.2007 C 306/69):

APPROXIMATION OF LAWS

80) The order of Articles 94 and 95 shall be reversed. Article 94 shall be renumbered 95 and Article 95 shall be renumbered 94.

81) Article 95, renumbered 94, shall be amended as follows:

(a) at the beginning of paragraph 1, the words ‘By way of derogation from Article 94 and’ shall be deleted;

(b) at the beginning of paragraph 4, the words ‘If, after the adoption by the Council or by the Commission of a harmonisation measure,’ shall be replaced by ‘If, after the adoption of a harmonisation measure by the European Parliament and the Council, by the Council or by the Commission,’;

(c) at the beginning of paragraph 5, the words ‘Moreover, without prejudice to paragraph 4, if, after the adoption by the Council or by the Commission of a harmonisation measure,’ shall be replaced by ‘Moreover, without prejudice to paragraph 4, if, after the adoption of a harmonisation measure by the European Parliament and the Council, by the Council or by the Commission,’;

d) in paragraph 10, the words ‘Community control procedure’ shall be replaced by ‘Union
control procedure’.

***

The TFEU table of equivalences confirms that Article 95 TEC first became Article 94 TFEU (ToL) in the original Treaty of Lisbon, and it tells us that it was later renumbered Article 114 TFEU in the consolidated version (OJ 17.12.2007 C 306/211).

***

The current Article 95 of the Treaty establishing the European Community (TEC) is found under Title VI ‘Common rules on competition, taxation and approximation of laws’, Chapter 3 ‘Approximation of laws’, in the latest consolidated version of the treaties in force (OJ 29.12.2006 C 321 E/79–81).

The main difference between the proposed TFEU Article 114 and the current Article 95 TEC is that the normal or ordinary procedures for approximation (harmonisation) of laws have been lifted on top, to stand at the beginning of Chapter 3. The sensitive areas, mentioned in the second paragraph, requiring unanimity, are dealt with in the following provision, Article 115 TFEU, of the amending treaty.

Although Article 114 is long-winded, the new order feels like an improvement.

The other differences, specific and horizontal, are technical or terminological. In addition, the monster size of the Article made me refrain from reproducing it here for comparison, but the interested reader can look up the current Article 95 TEC in the consolidated version.

***

We have seen that 95 TEC in force and 114 TFEU are the same, in substance, with minor differences in wording.

Still, for the sake of systematic comparison, we look at the arcana of the Article during the intervening treaty reform stages.

First, we turn to the European Convention, the closest thing to a constituent assembly EU citizens have had. The Article in question is located in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 7 ‘Approximation of legislation’.

Article III-65 of the draft Treaty establishing a Constitution for Europe was still the second Article of Section 7. The terminology of the draft Constitution differed from the TEC, the draft Article III-65 naturally referred to Articles differently numbered, and it was sprinkled with small changes in wording. But the substance remained unchanged. See OJ 18.7.2003 C 169/38–39.

***

In the Treaty establishing a Constitution for Europe the provisions on approximation (harmonisation) were located in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 7 ‘Common provisions’.

The IGC 2004 lifted Article III-172 to the top of Section 7, renumbered the referrals to other provisions, and made some minimal adjustments to the draft text.

In the third paragraph the IGC 2004 showed concern for EU citizens by strengthening the wording on a high level of protection. ‘Will take’ and ‘will also seek’ became ‘shall take’ and ‘shall also seek’, but this potentially tougher standard and only substantial change lapsed when the Lisbon Treaty let the current TEC wording stand.

In the fourth and the fifth paragraph the IGC 2004 wanted to clarify the wording with regard to the legal instruments, so they were expressed with a few words added: ‘a European law or framework law or by means of a European regulation of the Commission’, but since the Treaty of Lisbon rejected the more developed terminology concerning legal acts as part of the ‘constitutional concept’, the IGC 2007 used its own, adapted wording.

Article III-172 is found in OJ 16.12.2004 C 310/73–75.

***

What has been said about Article 114 TFEU, with shifted position, but the wording practically unchanged from the current Article 95 TEC?


United Kingdom

Professor Steve Peers covered the Treaty of Lisbon in a number of Statewatch Analyses. ‘EU Reform Treaty Analysis no. 3.3: Revised text of Part Three, Titles I to VI of the Treaty establishing the European Community (TEC): Internal Market and competition’ (Version 2, 23 October 2007) includes the current Title VI Common rules on competition, taxation and approximation of laws.

Peers indicated the changing numbering of Article 95 TEC, 94 TFEU (ToL), to be renumbered Article 114 TFEU in the consolidated version, and highlighted the changes, but he added no comment (pages 29–30).

The analysis 3.3 and other useful Statewatch analyses are available through:

http://www.statewatch.org/euconstitution.htm


***

The Foreign and Commonwealth Office (FCO) offers a convenient source of brief annotations on Lisbon Treaty amendments in ‘A comparative table of the current EC and EU treaties as amended by the Treaty of Lisbon’ (Command Paper 7311, published 21 January 2008). It offers the following comment on Article 114 TFEU, Article 94 TFEU (ToL) in the original Lisbon Treaty (page 12):

“In substance the same as Article 95 TEC.”

The FCO comparative table is available at:

http://www.official-documents.gov.uk/document/cm73/7311/7311.asp

***

The UK House of Commons Library Research Paper 07/86 ‘The Treaty of Lisbon: amendments to the Treaty establishing the European Community’ (published 6 December 2007) discussed the approximation of internal market laws on page 60 (under the heading ‘2. Taxation’).

The Research Paper commented briefly on the harmonisation of internal market laws, before moving on to tax harmonisation:

“Articles 94–97 (Constitution Articles III-172 – III-176) are on the approximation of internal market laws. The general aims are unchanged and the Council will adopt measures for the approximation of laws, regulations or administrative provisions of the Member States that directly affect the internal market. The out-dated term “common market” is removed and replaced with “internal market”.”

The Library Research Paper 07/86 is available at:

http://www.parliament.uk/commons/lib/research/rp2007/rp07-086.pdf

***

The House of Lords European Union Committee report ‘The Treaty of Lisbon: an impact assessment, Volume I: Report’ (HL Paper 62-I, published 13 March 2008) is a valuable resource on the Treaty of Lisbon, but I found no reference to Article 114 TFEU (Article 95 TEC or Article 94 ToL).

The report is accessible at:

http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeucom/62/62.pdf


***

Sweden

The consultation paper ’Lissabonfördraget’ is still valuable as a description of the Lisbon Treaty amendments, and it is available at:

http://www.regeringen.se/content/1/c6/09/49/81/107aa077.pdf

The Swedish government’s draft ratification bill ‘Lagrådsremiss – Lissabonfördraget’, was published 29 May 2008 and sent to the Council on Legislation (Lagrådet) for an expert opinion. The draft deals with the EU’s internal policy areas in Chapter 23 ‘Unionens interna åtgärder’, and section 23.1 presents the internal market (Inre marknaden), on pages 175 to 181.

The Swedish government presents a short background paragraph on the harmonisation of laws in the internal market (page 176):

”Artiklarna 94–97 i EG-fördraget återger möjligheten att harmonisera lagstiftningen på den inre marknaden. Det finns en stor volym sekundärrätt med utgångspunkt i artikel 95 i EG-fördraget samt en omfattande praxis på området. Möjligheten till harmonisering av medlemsstaternas lagar och författningar är en förutsättning för den inre marknadens bibehållande och fortsatta funktion.”

The government later remarks on the essentially unchanged nature of most internal market provisions.


The draft bill ‘Lagrådsremiss – Lissabonfördraget’ can be downloaded through:

http://www.regeringen.se/sb/d/5676/a/106277

***

Finland

The Finnish ratification bill, ‘Hallituksen esitys Eduskunnalle Euroopan unionista tehdyn sopimuksen ja Euroopan yhteisön perustamissopimuksen muuttamisesta tehdyn Lissabonin sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta’ (HE 23/2008 vp), under the heading Approximation of laws (Lainsäädännön lähentäminen), offers a brief description of Chapter 3 and of Article 94 TFEU (ToL), renumbered Article 114 TFEU (page 208):

”Luku sisältää määräykset unionin toimivallasta sisämarkkinoita toteutettaessa sekä yhdenmukaistamistoimenpiteisiin sovellettavasta päätöksentekomenettelystä. Luvussa määrätään myös jäsenvaltioiden toimivallasta yhdenmukaistamistoimenpiteiden toteuttamisen jälkeen. Määräykset vastaavat pääpiirteissään nykyisen EY-sopimuksen kolmannen osan VI osaston 3 luvun määräyksiä. Määräyksiin on tehty eräitä muutoksia päätöksentekomenettelyiden osalta sekä eräitä
sanamuotoja koskevia ja teknisiä tarkistuksia.

94 artiklassa (uusi 114 artikla) määrätään sisämarkkinoiden toteuttamista ja toimintaa koskevista toimenpiteistä jäsenvaltioiden lainsäädäntöjen yhdenmukaistamiseksi. Artikla vastaa säädösinstrumenttien yksilöintiä lukuun ottamatta perustuslakisopimuksen III-172 artiklaa ja korvaa SEY 95 artiklan seuraavasti muutettuna. SEUT 94 artiklan 4 ja 5 kohtaan lisätään viittaukset Euroopan parlamenttiin yhtenä lainsäätäjänä.”

The Finnish ratification bill is available at:

http://www.finlex.fi/fi/esitykset/he/2008/20080023.pdf


The Swedish language version of the ratification bill ‘Regeringens proposition till Riksdagen med förslag om godkännande av Lissabonfördraget om ändring av fördraget om Europeiska unionen och fördraget om upprättandet av Europeiska gemenskapen och till lag om sättande i kraft av de bestämmelser i fördraget som hör till området för lagstiftningen’ (RP 23/2008 rd), makes the same remarks under ’Tillnärmning av lagstiftning’ on Chapter 3 and Article 94 TFEU (ToL), the future Article 114 TFEU, on page 211:

”Kapitlet innehåller bestämmelser om unionens befogenheter när den inre marknaden upprättas samt om det beslutsförfarande som ska tillämpas på harmoniseringsåtgärder. I kapitlet anges också medlemsstaternas befogenheter efter vidtagandet av harmoniseringsåtgärder. Bestämmelserna motsvarar i stora drag avdelning VI kapitel 3 i det nuvarande EG-fördragets tredje del. I bestämmelserna har företagits vissa ändringar i fråga om beslutsförfarandena samt vissa tekniska ändringar som gäller ordalydelser.

I artikel 94 (blivande artikel 114) bestäms om åtgärder för upprättande av den inre marknaden och för dess funktion för att harmonisera lagstiftningen i medlemsstaterna. Artikeln motsvarar med undantag av individualiseringen av rättsaktsinstrumenten artikel III-172 i det konstitutionella fördraget och ersätter artikel 95 i EG-fördraget med följande ändringar. Till artikel 94.4 och 94.5 i EUF-fördraget fogas hänvisningar till Europaparlamentet som en lagstiftare.”

The ratification bill in Swedish can be accessed at:

http://www.finlex.fi/sv/esitykset/he/2008/20080023.pdf

***

Before I leave the reader to study the substance of Article 114 TFEU, to say nothing about the substantive harmonisation measures, I would like to point out the scope of the Article.

First, the objectives mentioned at the beginning of this article merit a glance at Article 26 TFEU (OJ 9.5.2008 C 115/59, the consolidated version):

TITLE I
THE INTERNAL MARKET

Article 26 TFEU
(ex Article 14 TEC)

1. The Union shall adopt measures with the aim of establishing or ensuring the functioning of the internal market, in accordance with the relevant provisions of the Treaties.

2. The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties.

3. The Council, on a proposal from the Commission, shall determine the guidelines and conditions necessary to ensure balanced progress in all the sectors concerned.

***

The second important feature is the delimitation of the scope, in paragraph 2. Fiscal (tax) provisions, those relating to the free movement of persons and those relating to the rights and interests of employed persons are expressly excluded.



Ralf Grahn

EU TFEU: Tax harmonisation III

On the face of it, this could look like a road less travelled, for legal historians mainly, but the Irish referendum debate has unearthed confusions all of its own.

What did the European Convention propose with regard to harmonising taxes, and what happened to these proposals during the intergovernmental conference (IGC 2004), which led to the Treaty establishing a Constitution for Europe?

This third question and post may shed some additional light on the tensions and the exertions in the field of European taxation.


***

The European Convention, the closest thing to a constituent assembly EU citizens have had, located the provisions on tax legislation in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 6 ‘Fiscal provisions’.

There are two Articles, III-62 and III-63, of relevance in the draft Treaty establishing a Constitution for Europe (OJ 18.7.2003 C 169/38):

Article III-62 Draft Constitution

1. A European law or framework law of the Council of Ministers shall lay down measures for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation provided that such harmonisation is necessary for the functioning of the internal market and to avoid distortion of competition. The Council of Ministers shall act unanimously after consulting the European Parliament and the Economic and Social Committee.

2. Where the Council of Ministers, acting unanimously on a proposal from the Commission, finds that the measures referred to in paragraph 1 relate to administrative cooperation or to combating tax fraud and tax evasion, it shall act, notwithstanding paragraph 1, by a qualified majority when adopting the European law or framework law adopting these measures.


Article III-63 Draft Constitution

Where the Council of Ministers, acting unanimously on a proposal from the Commission, finds that measures on company taxation relate to administrative cooperation or combating tax fraud and tax evasion, it shall adopt, by a qualified majority, a European law or framework law laying down these measures, provided that they are necessary for the functioning of the internal market and to avoid distortion of competition.

That law or framework law shall be adopted after consultation of the European Parliament and the Economic and Social Committee.

***

Two contributions illustrate the forces at work at the European Convention, which changed in tenor from a constituent assembly of parliamentarians and government representatives into a preliminary intergovernmental conference during the later stages.

The French-German contribution on Economic Governance (CONV 470/02) included a section ‘3) Finalising the internal market by achieving genuine convergence of taxation’. France and Germany did not propose the wholesale scrapping of veto powers, but they presented a selective, although fairly long, list of problem areas (page 4).

They reiterated their common position on a broader use of a qualified majority vote for the tax issues directly related to the internal market, such as for the elimination of direct obstacles to the free movement of goods, persons, services or capital and, in particular, the prevention of situations involving discrimination, double taxation or double remission, for certain provisions for the harmonisation of turnover taxes and excise duties and cooperation between tax authorities, for combating fraud and tax evasion and for elimination of harmful tax competition.

Joschka Fischer and Dominique de Villepin added that it seems necessary to finalize the internal market, i.e. to limit existing divergences between taxation in the member states and to eliminate harmful tax regimes. In addition, the concluded, the most pragmatic and the most efficient medium-term approach to the creation of a single Europe is to fix a policy convergence objective focusing efforts on a number of key tax issues.

***

Through Peter Hain, Lena Hjelm-Wallen and fourteen others, the opposing view was tabled. The contribution (CONV 782/03) recognised that there could be a case for appropriate and effective European Union action in the area of administrative cooperation and in the area of tax fraud. However, measures in these areas must be decided by unanimity (page 1).

The opposing group (of member states) was ready to accept the first paragraph of the then Article III.59 of the Praesidium’s proposal, but suggested the deletion of paragraph 2 and of Article III.60.

***

The compromise or consensus view of the European Convention (above), in essence, added the words ‘and to avoid distortion of competition’ to the grounds for legislation in Article 93 TEC, in what became Article III-62(1) of the draft Constitution concerning indirect taxation.

The new Article III-62(2) incorporated something of the French and German proposal in a novel two stage procedure. First, the Council would rule by unanimity that a legislative proposal related to administrative cooperation or to combating tax fraud and tax evasion. After that, the Council could act, notwithstanding paragraph 1, by a qualified majority when adopting the European law or framework law adopting these measures.

Certain aspects of company taxation were addressed in the following Article. The new Article III-63 proposed a similar procedure for measures on company taxation relating to administrative cooperation or combating tax fraud and tax evasion. The first finding had to be unanimous, but then the measures could be decided by qualified majority, provided that they are necessary for the functioning of the internal market and to avoid distortion of competition.

***

Étienne de Poncins commented on the forces for QMV and the meagre results of the European Convention in ‘Vers une Constitution européenne’ (Éditions 10/18, 2003 ; pages 286–287):

« Commentaire : l’article 62 a été longuement débattu par la Convention. Une large majorité a plaidé pour l’application de la majorité à l’ensemble de l’article III-62. La Commission a notamment fait valoir que l’absence de règles minimales conduisait à une concurrence déloyale entre États membres en matière fiscale. De nombreux Conventionnels ont rappelé que l’unanimité conduisait à des accords minimaux à l’issue de débats et de procédures particulièrement longs se poursuivant sur de nombreuses années comme pour les directives TVA.

Aucune avancé n’a cependant été possible, les Britanniques, les Suédois et les Irlandais notamment ayant fait du statu quo un point majeur de leur position. Les tentatives et propositions de compromis pour élargir le champ d’application de la majorité qualifiée ont toutes été repoussées. À noter enfin au paragraphe 2 les mots « évasion fiscale illégale » et la procédure suivie, l’appréciation que la matière couverte entre dans le champ visé au paragraphe 2 se faisant à l’unanimité. »

***

Here are a few views on the results of the European Convention, ahead of the intergovernmental confrence (IGC 2003/2004), which led to the Constitutional Treaty.

United Kingdom

Prime Minister Tony Blair set out the UK position on the draft Constitution in the foreword to ‘A Constitutional Treaty for the EU – The British Approach to the European Union Intergovernmental Confrence 2003’ (Command Paper 5934, September), after welcoming the result (page 3):

“But the text is not perfect. Like many other Member States, there are some points in the Convention text which we will want to examine in more detail. And we could only accept a final text that made it clear that issues like tax, defence and foreign policy remain the province of the nation State.”

Point 66 on page 32 presented the view of the United Kingdom government on unanimity:

“66. But we will insist that unanimity remain for Treaty change; and in other areas of vital national interest such as tax, social security, defence, key areas of criminal procedural law and the system of own resources (the EU’s revenue-raising mechanism). Unanimity must remain the general rule for CFSP, as proposed in the final Convention text.”

***

Sweden

The government of Sweden stated that the Convention’s proposal is a good basis for the intergovernmental conference. In ‘Regeringens skrivelse 2003/04:13 Europeiska konventet om EU:s framtid’ (2 October 2003) the Swedish government added as an important point of departure that future decisions concerning taxes, defence policy and large areas of foreign policy are to be taken unanimously (page 7):

”En viktig utgångspunkt är att enhällighet i beslutsfattandet i rådet även i framtiden bör gälla beslut som rör skatter, försvarspolitik och stora delar av utrikespolitiken.”

The government later repeated the standpoint on levels of taxation, although it noted that the national tax authority (Riksskatteverket) favoured some flexibility concerning unanimity.

***

Finland

In ‘Valtioneuvoston selonteko eduskunnalle konventin tuloksista ja valmistautumisesta hallitusten väliseen konferenssiin’ (VNS 2/2003 vp), the Finnish government stated that the national participants in the Convention had proposed a move to qualified majority voting on issues regarding environment and energy taxes. The government noted that a substantial number of the delegates would have been ready to progress towards QMV in a limited way, but some member states had been totally opposed. The government found the end result acceptable (page 67):

” Sisämarkkinaluvussa on myös veroja ja maksuja koskeva jakso. Verotuksen osalta keskeisin kysymys konventissa oli siirtyminen määräenemmistöpäätöksentekoon. Suuri osa konventin jäsenistä olisi ollut valmis etenemään tässä rajatusti, esimerkiksi ympäristöverotuksen alalla, mutta muutamille jäsenvaltioille yksimielisyyden säilyttäminen verotuksessa oli täysin ehdoton vaatimus. Määräenemmistöpäätöksentekoa voidaan soveltaa ainoastaan hyväksyttäessä eurooppalakeja tai -puitelakeja jotka koskevat veronkiertoa ja veropetoksia koskevia hallinnollisia to imia. Suomen edustajat konventissa esittivät, että ympäristö- ja energiaverotuksen alalla tulisi siirtyä määräenemmistöpäätöksentekoon ministerineuvostossa.

Valtioneuvosto voi hyväksyä ehdotetut muutokset”.

***

IGC 2004

The intergovernmental conference 2003 failed, so it is more natural to speak about the IGC 2004. The Treaty establishing a Constitution for Europe was negotiated under Irish stewardship.

In essence, the Constitutional Treaty retained Article III-62(1) of the draft Constitution, but the second paragraph was deleted. Article III-171 closed the needle’s eye to QWV regarding TVA and other indirect taxes.

The IGC 2004 deleted Article III-63 on limited recourse to QWV regarding certain aspects of company tax, where the Council of Ministers, acting unanimously on a proposal from the Commission, could have found that measures on company taxation related to administrative cooperation or combating tax fraud and tax evasion, and it then could have adopted, by a qualified majority, a European law or framework law laying down these measures, provided that they were necessary for the functioning of the internal market and to avoid distortion of competition.

This left Article III-173 to cater to the needs of approximation (harmonisation) of fiscal provisions and rules relating to the free movement of persons or to those relating to the rights and interests of employed persons. These measures, including direct taxation such as company taxes, were subject to unanimous decisions by the Council.

Article III-171 Constitution

A European law or framework law of the Council shall establish measures for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation provided that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition. The Council shall act unanimously after consulting the European Parliament and the Economic and Social Committee.

Article III-173 Constitution

Without prejudice to Article III-172, a European framework law of the Council shall establish measures for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market. The Council shall act unanimously after consulting the European Parliament and the Economic and Social Committee.

***

Almost a clean sweep for the no or unanimity camp, one could say. The preservation of the words ‘and to avoid distortion of competition’, in what was to become Article 113 TFEU (ex Article 93 TEC) on indirect taxes, may look like a poor consolation prize for the supporters of change.

Perhaps this background picture goes some way towards putting the Coughlan furore into perspective.

Next time, I am going to take ‘legally accurate’ with fourscore and seven pinches of salt, if I come across opinions from that quarter.


Ralf Grahn