The Legal 500

The Directive of the European Parliament and of the Council 2006/123/EC of 12 December 2006, on services in the internal market ("Directive" or "Directive on services") substantially develops the freedom of establishment and freedom of cross-border provision of services under Articles 43 and 49 of the EC treaty. The Directive applies to all types of services except those which are expressly excluded. In the Czech Republic, the Directive on services was implemented by Act No. 222/2009 Coll., on Free Movement of Services that came into force on December 28, 2009.

Subject of Regulation, Exceptions and Basic Definitions

The Directive provides rights and imposes obligations on service providers and provides certain rights to service recipients. From the providers' perspective, it is a general right to settle in the territory of a member state and provide services across state borders. The related rights of providers, such as tacit consent (a right to obtain business authorisation at the end of a period of office inaction), should simplify business-related administration. On the other hand, the Directive imposes several duties on service providers and member states to enhance legal certainty and the recipients' confidence in services from providers in other member states. This particularly concerns the obligation of providers to disclose information about themselves and their businesses, and possible methods of dispute resolution, to recipients before and during the service provision. Prohibition of discrimination against service recipients' to freely receive or access services from another member state is an example of a recipient's rights towards the state.
 
The Directive lays down the areas that are wholly or partially excluded from its scope. These areas include financial services, transport services, lotteries and games, taxation, healthcare, temporary work agency services, services provided by notaries and bailiffs and other services regulated by special EU law. These services (such as electronic communications services and networks) are regulated by special law and not by the Directive on services.
 
Special arrangements apply to cross-border provision of certain other services where there is either a reason in the public interest or specific EU rules. The Directive does not apply to rules governing the stay of foreigners, which means that the obligation to have a residence permit is not a special requirement, which would hinder the free provision of services within the meaning of the Directive.
 
Regarding the concept of services, the definition covers only those services that are provided at least partially for remuneration. These are not services which in the terminology of EU law are called non-economic services of general interest, that is, services fulfilling the public interest and financed from public funds. An example of such services is those provided under a national education system.
 
Although most of the provisions concern cross-border service providers, some provisions also apply to service providers established in a member state (such as prohibition of discrimination against recipients of services, or reporting obligations to the recipients of services, and the possibility to use points of single contact).
 
Recipients of services may be both end consumers and business entities. The definition grants recipients' rights to both individuals who are citizens of a member state and legal entities established in a member state. Recipients may be natural or legal persons from a member state of the EEA (European Economic Area) or the Swiss Confederation and in specific situations of economic life also people from third countries temporarily residing in a member state, particularly long-term residents.
 
Exclusion from the Directive on services includes essentially three types:

   1. Complete exclusion (such as financial services),      
   2. Complete exclusion except for points of single contact (such as temporary work agency services and health services), and      
   3. Exclusion from the scheme of cross-border provision of services (such as from liquidators and bailiffs or social services). These services will be subject to other provisions such as the IMI system, administrative cooperation, points of single contact, recognition of compliance or submission of documents and information obligations of service providers.     

 
Freedom of Cross-Border Provision of Services
 
Freedom to provide services across borders is already established by primary EU law and developed by European Court of Justice case law. The Directive on services, however, explicitly requires member states to implement this right into domestic law (in the Czech Republic the Directive on services was implemented by Act No. 222/2009 Coll., on Free Movement of Services).
 
Freedom to provide services across borders within the meaning of the Directive on services means that a provider who is established in one EU member state may temporarily or occasionally provide its services within the territory of another member state without having to settle there. A cross-border service provider may not be subject to requirements that a member state decides otherwise apply to service providers established on its territory, including domestic providers. A cross-border service provider can ignore the fact that it is in the territory of another member state when providing services (on condition that the service is provided temporarily or occasionally). Providers do not need any special permission or authorisation from the authority of that state, so a Czech construction company may build a garden house for a customer in Poland . There are exceptions to this rule where the public interest is threatened, and the authority of a foreign state can require fulfilment of certain requirements because of overriding reasons relating to the public interest.
 
Cross-border provision of services does, however, have several restrictions, which must always be considered on a case by case basis and are based on the interpretation of "temporary or occasional service" by the European Court of Justice. The regularity, periodicity and continuity of the service should be taken into consideration (case C-55/94 Gebhard). Depending on these factors the provision of service may take from weeks and months to several years (the latter was ruled in the C-215/01 Schnitzer case). A necessary condition is that the service is also provided in the country of origin. At first sight, this construction of the cross-border provision of services "scale" is not ideal for a service providers' legal certainty. On the other hand, it is not possible to find another reliable concept which would limit cross-border provision of services (setting a specific period would not suit all types of services which range from one-day financial audits to implementing large constructions).
 
Recognition of Obligation Fulfilment and Submission of Documents
 
The Directive prohibits requiring those requirements which the provider has already fulfilled in another member state. These fulfilled requirements must be equivalent or essentially comparable as regards their purpose to those required in the member state of establishment. The purpose of this provision is to ensure that, in the process of obtaining permission, the provider will no longer have to re-meet those requirements already met. This principle applies especially where a foreign provider of services intends to settle in the territory of a member state. Exceptions to this rule are permissible only in cases provided for in other EU legislation or where such a requirement is justified by an overriding reason relating to the public interest, including public order and security.
 
According to the Directive it will be possible to submit a mere copy or a non-certified translation of documents. Authorities such as Czech ones will verify the contents of documents through the IMI system with the relevant authority of the EU member state which issued the document. This should apply to Czech businesses in other EU member states also. For reasons of legal certainty this option will be given to providers of services only if the authorising body is able to verify objectively via an electronic system that the document is genuine or that it actually contains what the service provider says.
 
Obligations of Service Providers
 
The Directive explicitly prohibits providers of services from discriminating against recipients on the basis of their nationality or place of residence. Conditions which discriminate against access to the services provided are prohibited. For example, terms and conditions that are part of a contract and which are discriminatory because they disadvantage foreign nationals or domestic citizens residing in another member state are prohibited. Dual pricing and other terms and conditions different for foreigners and residents are also prohibited. This applies, of course, to any other similar discrimination of service recipients. There is an exemption to this rule: The prohibition does not apply where the difference in terms of access to the service is justified objectively (such as services being priced according to the distance from the headquarters of the service provider). The service provider is also obliged to disclose certain information to recipients about both itself and the services provided.

Points of Single Contact
 
Points of single contact will assist applicants who want permission to carry out a service with their application by providing both information and the first draft of an application, which is then submitted to the authorities for a decision. Points of single contact will make it easier for small and medium-sized companies to access business. However, points of single contact will not have a decision-making but only an informative function.
 
From the perspective of an applicant for service performance it will be absolutely crucial for them not to have to identify which authority will assess the application. Businesses will always know that they can make a request for authorisation to perform services at the point of single contact.
 
Supervision of Service Providers in the EU Internal Market
 
The Directive contains detailed provisions on the division of powers over supervision of providers of cross-border services between the member state of establishment and the member state where the service is temporarily provided. In this regard, the Directive's transposition into EU member states domestic law should improve the supervision of service providers who enjoyed the freedom of cross-border provision of services in the past, but without a clearly-defined framework for cooperation between member states in the area of supervision. Consequently, there was often a duplication of checks or attempts to control providers by the member states that created other administrative barriers.

The Directive allows EU member state authorities to carry out inspections and take action against service providers established in another EU member state temporarily providing services within its territory. In addition to the possibility of enforcing domestic law, the Directive enables the intervention of member state authorities in cooperation with the member state of establishment if there are security threats or major emergencies. In exceptional circumstances a member state may, with respect to a provider established in another member state, take measures relating to the safety of services. The concept of threat to security is defined as the risk of damage arising to persons, the environment or property in connection with the provision of services. This danger must not exceed the acceptable level of risk assumed by law.
 
Upon gaining actual knowledge of any conduct or specific acts by a provider established in its territory which provides services in other member states, that, to its knowledge, could cause serious damage to the health or safety of persons or to the environment, the member state of establishment must inform all other member states and the Commission within the shortest possible time. There are two practical consequences of this requirement.  First, the Directive should help to avoid double supervision of businesses providing cross border services and the threat that a business could be fined both for failure to comply with the member state of establishment's requirements and for non-compliance with the law of a member state in which they provide a temporary service. The member state where the service is provided will need to cooperate with the member state of establishment on supervising a foreign provider and only in extreme cases can it take measures itself. Second, the Directive prevents the possibility of movement across the border to evade inspection. The member state of establishment will be able to supervise unfair businesses abroad through cooperation with the authorities of the state where the business provides a service without undue obstruction from either member state. The member state where the foreign business moves will be able to get information quickly in the member state of establishment and to ensure appropriate action against businessmen.
 
Exchange of Information on the EU Internal Market
 
The Directive on services demands direct communication between member states concerning the exchange of information relating to all service providers moving throughout the internal EU market. This particularly includes the exchange of information between authorities issuing permits for business in cases where a service provider wants to settle in a member state, and the exchange of information between supervisory authorities in carrying out supervision of service providers operating in several EU member states. For direct communication between the authorities of the member states a computerised information system for the internal market (the "IMI system"), created and operated by the European Commission, is used. The IMI system for exchanging information between the authorities of EU member states so far works in two areas: the provision of services and recognition of professional qualifications. Its extension in the future, for example, to include secondment of employees, is being considered.

Regarding the cross-border provision of services, the IMI system will serve in cases of ambiguity to verify whether a provider is permitted to carry out their activities, which they want to perform in another member state, in the member state of establishment. The authorities will also be provided with access to information held by other national administrative authorities. These include data contained in a commercial register or criminal record. Businesses will benefit mainly from the abolition of a number of obligations to prove facts by presenting documents and in particular certified translations and copies, for example, on whether they legitimately operate business in the member state of their establishment.
 
Should you need any further information concerning the matters discussed in this article, please contact PETERKA & PARTNERS v.o.s.
 

Pavel Jakab
Trainee Lawyer in Prague office of PETERKA & PARTNERS, www.peterkapartners.com.
Peterka & partners v.o.s. law office
Na Prikope 15, 110 00 Prague 1, Czech Republic
 
Tel.: (+420) 246 085 300
Fax: (+420) 246 085 370
email: office@peterkapartners.cz
url: www.peterkapartners.com