Introduction
Article 49 of the Treaty on the Functioning of the European Union (TFEU) establishes the fundamental right of freedom of establishment within the European Union. This principle prohibits restrictions on the freedom of nationals of a Member State to establish themselves in the territory of another Member State. It includes the right to set up agencies, branches, or subsidiaries by nationals of any Member State already established within the EU. Freedom of establishment entails the ability to take up and pursue activities as self-employed individuals, as well as to set up and manage undertakings, specifically companies or firms, under the conditions laid down by the law of the host country. The provision allows for business activities to be conducted under the same conditions as those applied to the host state's own nationals, with the primary exception being activities directly related to the exercise of official authority. The establishment of this right ensures a level playing field for economic actors across the EU.
Scope of Article 49 TFEU
The scope of Article 49 TFEU extends beyond simply granting the right of entry. It encompasses the right to access and engage in economic activities within another Member State. This freedom is not just about a physical presence; it also includes the right to perform business activities on a continuous and stable basis in a host country. According to Case C-215/01, Schnitzer, a service provider is considered established in another Member State when it pursues professional activity there on a stable and continuous basis, holding themselves out to nationals of that state through an established professional base. This differentiation is significant because it draws a line between the freedom to provide services and the right of establishment. The former concerns temporary activities, while the latter involves creating a lasting presence in the host state. Moreover, Article 49 applies to both natural persons and legal persons such as companies. This ensures that both individual entrepreneurs and corporations can benefit from this freedom to establish and conduct their activities across the EU.
Conditions for Freedom of Establishment
The conditions under which freedom of establishment can be exercised are governed primarily by the laws of the host Member State. Article 49 TFEU explicitly states that the right of establishment should occur under the same conditions as those imposed on nationals of that country. This principle of national treatment requires that EU nationals receive no less favorable treatment than the citizens of the host country when engaging in economic activity. While the host state’s laws define the specifics, they cannot undermine the fundamental right to establishment established by the EU Treaties. However, this does not imply that national authorities are entirely restricted, especially where the activities involve exercising official authority.
Activities Connected with Official Authority
Article 51 of the TFEU provides a specific exception to Article 49 concerning activities that are connected, even occasionally, with the exercise of official authority. This exception limits the right of establishment for certain activities, especially where those activities involve directly exercising the power of the state. In Case 2/74, Reyners v Belgium, the Court of Justice determined that the entire profession of lawyers did not fall within this exemption. It clarified that only those parts of a profession directly involved in the exercise of official authority were excluded from the scope of Article 49. This means that while activities such as consultation and legal assistance are covered, those involving direct judicial or regulatory authority are not. The court concluded that where such activities connected with the exercise of official authority are separable from the professional activity as a whole, then the entire profession cannot be excluded from the ambit of Article 49. This interpretation ensures that the freedom of establishment is interpreted broadly and covers a range of activities, limiting restrictions only to the core functions related to state authority.
Recognition of Qualifications
A significant aspect of freedom of establishment involves the recognition of professional qualifications. If a national of one Member State has lawfully obtained professional qualifications in another Member State, these qualifications must be appropriately recognized to facilitate establishment. This principle was articulated in Case 340/89, Vlassopoulou, where the court held that national authorities are obligated to compare foreign diplomas to domestic diplomas when assessing applications for admission to a regulated profession. If the knowledge and qualifications certified by the foreign diplomas correspond with those required by national law, then the Member State must recognize that diploma. If they only correspond partially, the national authority can demand that the applicant provide proof of the lacking knowledge and qualifications. This ensures that individuals moving between countries can exercise their right of establishment without needing to requalify in each new host state. This principle of comparative analysis was extended in Case C-234/97 Teresa Fernández de Bobadilla, where it was applied to situations in which an individual was seeking to practice their profession in their own Member State, but having obtained their qualification in another Member State. Therefore, it is no longer a question of cross border migration for the principle of comparative analysis to be engaged. Moreover, in Case 71/76, Thieffry, the court further established that the right to recognition of equivalence of diplomas can be derived from Article 49, even without specific directives adopted under Article 51. This means that the principle of equivalence of qualification is part of the core freedom of establishment itself.
Free Movement of Workers vs. Freedom of Establishment
Although Article 49 TFEU is concerned with the freedom of establishment, it is imperative to distinguish it from the free movement of workers under Article 45 TFEU. Article 45 concerns employed workers who are engaged in a relationship of subordination, whereas Article 49 applies to self-employed individuals and businesses. The distinction between the two is that the former involves performing services for and under the direction of another person in exchange for remuneration, whereas the latter entails activities undertaken outside a relationship of subordination. Joined Cases C-151/04 & C-152/04, Nadin, made this distinction explicitly. In Nadin, a case concerned with company vehicles used in Belgium but belonging to companies established in other Member States, the Court clarified that the Belgian provisions limiting certain freedoms depending on whether an individual was deemed self-employed or employed, fell within the scope of Article 49 and not Article 45 TFEU. Therefore, the right of establishment protects the self-employed whereas the right to the free movement of workers protects the employed. This distinction is important in determining which rights and protections are applicable to individuals engaged in cross-border activities.
Limitations to Article 49
It is also worth noting that while the right of establishment is a fundamental freedom, it is not absolute. Restrictions may be justified when they pursue a legitimate objective that is in the public interest and are proportionate to achieving that objective. These restrictions cannot unduly impinge upon the exercise of the freedom of establishment and must not be discriminatory. Any justification must also be based on reasons such as public policy, public security, or public health, and be strictly interpreted to avoid undermining the overall purpose of the treaty. The principle of proportionality requires that the measures chosen are no more restrictive than needed to protect the public interest in question. Such justifications have to be interpreted narrowly to avoid an erosion of the freedom of establishment. Any restriction should also be objectively justified and proportionate to the aim that is sought. The core principles of Article 49 remain intact when such conditions are met.
Article 49 and the Internal Market
Article 49 plays a key role in the internal market’s operation. It supports the free movement of capital and services and contributes to a more unified and efficient EU economy. The freedom of establishment ensures that businesses can operate within the EU without facing discrimination and undue obstacles to their activities. This promotes competition and innovation, leading to a more dynamic and integrated market. The enforcement of Article 49 benefits both the businesses that operate freely and the consumers who have a wider choice of goods and services. It contributes to the overarching goal of economic integration within the EU, fostering a cohesive and productive economic space. By promoting a level playing field, this freedom also helps reduce disparities between Member States and encourages investment in less developed regions. This encourages both business and entrepreneurship and has a key role in the development of the internal market.
Conclusion
In conclusion, Article 49 TFEU provides a robust framework for the freedom of establishment within the European Union. It protects the rights of individuals and businesses to establish themselves in other Member States, subject to conditions of non-discrimination. By defining the rights and obligations of both EU nationals and Member States, Article 49 serves as a critical component of the internal market, supporting its goals of economic integration, equal opportunities, and the free movement of resources. The case law of the Court of Justice has continued to develop these principles, ensuring that the freedom of establishment continues to be an effective tool for business and individual expansion across the Union. Whilst there are certain restrictions based on public policy and matters pertaining to official authority, these are interpreted narrowly, thereby ensuring that the principles and fundamental freedom espoused by Article 49 are protected, and that businesses and individuals are free to establish themselves within any part of the European Union under equivalent conditions as national businesses.
