Customs duties and taxation

The customs union of the European Union removes customs barriers between member states and operates a common customs policy towards external countries, with the aim "to ensure normal conditions of competition and to remove all restrictions of a fiscal nature capable of hindering the free movement of goods within the Common Market".^[25]

Aspects of the EU Customs area extend to a number of non-EU-member states, such as Andorra, Monaco, San Marino and Turkey, under separately negotiated arrangements. The United Kingdom agreed on a trade deal with the European Union on 24 December 2020, which was signed by Prime Minister Boris Johnson on 30 December 2020.

Quantitative and equivalent restrictions

Free movement of goods within the European Union is achieved by a customs union and the principle of non-discrimination.^[34] The EU manages imports from non-member states, duties between member states are prohibited, and imports circulate freely.^[35] In addition under the Treaty on the Functioning of the European Union article 34, 'Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States'. In Procureur du Roi v Dassonville^[36] the Court of Justice held that this rule meant all "trading rules" that are "enacted by Member States" which could hinder trade "directly or indirectly, actually or potentially" would be caught by article 34.^[37] This meant that a Belgian law requiring Scotch whisky imports to have a certificate of origin was unlikely to be lawful. It discriminated against parallel importers like Mr Dassonville, who could not get certificates from authorities in France, where they bought the Scotch. This "wide test",^[38] to determine what could potentially be an unlawful restriction on trade, applies equally to actions by quasi-government bodies, such as the former "Buy Irish" company that had government appointees.^[39]

It also means states can be responsible for private actors. For instance, in Commission v France French farmer vigilantes were continually sabotaging shipments of Spanish strawberries, and even Belgian tomato imports. France was liable for these hindrances to trade because the authorities "manifestly and persistently abstained" from preventing the sabotage.^[40] Generally speaking, if a member state has laws or practices that directly discriminate against imports (or exports under TFEU article 35) then it must be justified under article 36, which outlines all of the justifiable instances.^[41] The justifications include public morality, policy or security, "protection of health and life of humans, animals or plants", "national treasures" of "artistic, historic or archaeological value" and "industrial and commercial property". In addition, although not clearly listed, environmental protection can justify restrictions on trade as an over-riding requirement derived from TFEU article 11.^[42] The Eyssen v Netherlands case from 1981 outlined a disagreement between the science community and the Dutch government whether niacin in cheese posed a public risk. As public risk falls under article 36, meaning that a quantitative restriction can be imposed, it justified the import restriction against the Eyssen cheese company by the Dutch government.^[43]

More generally, it has been increasingly acknowledged that fundamental human rights should take priority over all trade rules. So, in Schmidberger v Austria^[44] the Court of Justice held that Austria did not infringe article 34 by failing to ban a protest that blocked heavy traffic passing over the A13, Brenner Autobahn, en route to Italy. Although many companies, including Mr Schmidberger's German undertaking, were prevented from trading, the Court of Justice reasoned that freedom of association is one of the "fundamental pillars of a democratic society", against which the free movement of goods had to be balanced,^[45] and was probably subordinate. If a member state does appeal to the article 36 justification, the measures it takes have to be applied proportionately. This means the rule must be pursue a legitimate aim and (1) be suitable to achieve the aim, (2) be necessary, so that a less restrictive measure could not achieve the same result, and (3) be reasonable in balancing the interests of free trade with interests in article 36.^[46]

In Schmidberger v Austria, protests blocked trucks for goods through the Austrian Alps on the Brenner Autobahn. The Court of Justice recognised fundamental rights take priority over free trade.^[47]

Often rules apply to all goods neutrally, but may have a greater practical effect on imports than domestic products. For such "indirect" discriminatory (or "indistinctly applicable") measures the Court of Justice has developed more justifications: either those in article 36, or additional "mandatory" or "overriding" requirements such as consumer protection, improving labour standards,^[48] protecting the environment,^[49] press diversity,^[50] fairness in commerce,^[51] and more: the categories are not closed.^[52] In the most famous case Rewe-Zentral AG v Bundesmonopol für Branntwein,^[53] the Court of Justice found that a German law requiring all spirits and liqueurs (not just imported ones) to have a minimum alcohol content of 25 per cent was contrary to TFEU article 34, because it had a greater negative effect on imports. German liqueurs were over 25 per cent alcohol, but Cassis de Dijon, which Rewe-Zentrale AG wished to import from France, only had 15 to 20 per cent alcohol. The Court of Justice rejected the German government's arguments that the measure proportionately protected public health under TFEU article 36,^[54] because stronger beverages were available and adequate labelling would be enough for consumers to understand what they bought.^[55] This rule primarily applies to requirements about a product's content or packaging. In Walter Rau Lebensmittelwerke v De Smedt PVBA^[56] the Court of Justice found that a Belgian law requiring all margarine to be in cube shaped packages infringed article 34, and was not justified by the pursuit of consumer protection. The argument that Belgians would believe it was butter if it was not cube shaped was disproportionate: it would "considerably exceed the requirements of the object in view" and labelling would protect consumers "just as effectively".^[57]

In a 2003 case, Commission v Italy^[58] Italian law required that cocoa products that included other vegetable fats could not be labelled as "chocolate". It had to be "chocolate substitute". All Italian chocolate was made from cocoa butter alone, but British, Danish and Irish manufacturers used other vegetable fats. They claimed the law infringed article 34. The Court of Justice held that a low content of vegetable fat did not justify a "chocolate substitute" label. This was derogatory in the consumers' eyes. A "neutral and objective statement" was enough to protect consumers. If member states place considerable obstacles on the use of a product, this can also infringe article 34. So, in a 2009 case, Commission v Italy, the Court of Justice held that an Italian law prohibiting motorcycles or mopeds from pulling trailers infringed article 34.^[59] Again, the law applied neutrally to everyone, but disproportionately affected importers, because Italian companies did not make trailers. This was not a product requirement, but the Court reasoned that the prohibition would deter people from buying it: it would have "a considerable influence on the behaviour of consumers" that "affects the access of that product to the market".^[60] It would require justification under article 36, or as a mandatory requirement.

In contrast to product requirements or other laws that hinder market access, the Court of Justice developed a presumption that "selling arrangements" would be presumed to not fall into TFEU article 34, if they applied equally to all sellers, and affected them in the same manner in fact. In Keck and Mithouard^[61] two importers claimed that their prosecution under a French competition law, which prevented them from selling Picon beer under wholesale price, was unlawful. The aim of the law was to prevent cut throat competition, not to hinder trade.^[62] The Court of Justice held, as "in law and in fact" it was an equally applicable "selling arrangement" (not something that alters a product's content^[63]) it was outside the scope of article 34, and so did not need to be justified. Selling arrangements can be held to have an unequal effect "in fact" particularly where traders from another member state are seeking to break into the market, but there are restrictions on advertising and marketing. In Konsumentombudsmannen v De Agostini^[64] the Court of Justice reviewed Swedish bans on advertising to children under age 12, and misleading commercials for skin care products. While the bans have remained (justifiable under article 36 or as a mandatory requirement) the Court emphasised that complete marketing bans could be disproportionate if advertising were "the only effective form of promotion enabling [a trader] to penetrate" the market. In Konsumentombudsmannen v Gourmet AB^[65] the Court suggested that a total ban for advertising alcohol on the radio, TV and in magazines could fall within article 34 where advertising was the only way for sellers to overcome consumers' "traditional social practices and to local habits and customs" to buy their products, but again the national courts would decide whether it was justified under article 36 to protect public health. Under the Unfair Commercial Practices Directive, the EU harmonised restrictions on restrictions on marketing and advertising, to forbid conduct that distorts average consumer behaviour, is misleading or aggressive, and sets out a list of examples that count as unfair.^[66] Increasingly, states have to give mutual recognition to each other's standards of regulation, while the EU has attempted to harmonise minimum ideals of best practice. The attempt to raise standards is hoped to avoid a regulatory "race to the bottom", while allowing consumers access to goods from around the continent.

Establishment

In Gebhard v Consiglio dell’Ordine degli Avvocati e Procuratori di Milano^[85] the Court of Justice held that to be "established" means to participate in economic life "on a stable and continuous basis", while providing "services" meant pursuing activity more "on a temporary basis". This meant that a lawyer from Stuttgart, who had set up chambers in Milan and was censured by the Milan Bar Council for not having registered, should claim for breach of establishment freedom, rather than service freedom. However, the requirements to be registered in Milan before being able to practice would be allowed if they were non-discriminatory, "justified by imperative requirements in the general interest" and proportionately applied.^[86] All people or entities that engage in economic activity, particularly the self-employed, or "undertakings" such as companies or firms, have a right to set up an enterprise without unjustified restrictions.^[87] The Court of Justice has held that both a member state government and a private party can hinder freedom of establishment,^[88] so article 49 has both "vertical" and "horizontal" direct effect. In Reyners v Belgium^[89] the Court of Justice held that a refusal to admit a lawyer to the Belgian bar because he lacked Belgian nationality was unjustified. TFEU article 49 says states are exempt from infringing others' freedom of establishment when they exercise "official authority", but this did an advocate's work (as opposed to a court's) was not official.^[90] By contrast in Commission v Italy the Court of Justice held that a requirement for lawyers in Italy to comply with maximum tariffs unless there was an agreement with a client was not a restriction.^[91] The Grand Chamber of the Court of Justice held the commission had not proven that this had any object or effect of limiting practitioners from entering the market.^[92] Therefore, there was no prima facie infringement freedom of establishment that needed to be justified.

The Court of Justice in Centros Ltd held that people can establish a UK company or any other, to do business EU-wide, but must comply with proportionate requirements in the public interest,^[93] such as the basic labour right to a voice at work.^[94]

In regard to companies, the Court of Justice held in R (Daily Mail and General Trust plc) v HM Treasury that member states could restrict a company moving its seat of business, without infringing TFEU article 49.^[95] This meant the Daily Mail newspaper's parent company could not evade tax by shifting its residence to the Netherlands without first settling its tax bills in the UK. The UK did not need to justify its action, as rules on company seats were not yet harmonised. By contrast, in Centros Ltd v Erhversus-og Selkabssyrelsen the Court of Justice found that a UK limited company operating in Denmark could not be required to comply with Denmark's minimum share capital rules. UK law only required £1 of capital to start a company, while Denmark's legislature took the view companies should only be started up if they had 200,000 Danish krone (around €27,000) to protect creditors if the company failed and went insolvent. The Court of Justice held that Denmark's minimum capital law infringed Centros Ltd's freedom of establishment and could not be justified, because a company in the UK could admittedly provide services in Denmark without being established there, and there were less restrictive means of achieving the aim of creditor protection.^[96] This approach was criticised as potentially opening the EU to unjustified regulatory competition, and a race to the bottom in standards, like in the US where the state of Delaware attracts most companies and is often argued to have the worst standards of accountability of boards, and low corporate taxes as a result.^[97] Similarly in Überseering BV v Nordic Construction GmbH the Court of Justice held that a German court could not deny a Dutch building company the right to enforce a contract in Germany on the basis that it was not validly incorporated in Germany. Although restrictions on freedom of establishment could be justified by creditor protection, labour rights to participate in work, or the public interest in collecting taxes, denial of capacity went too far: it was an "outright negation" of the right of establishment.^[98] However, in Cartesio Oktató és Szolgáltató bt the Court of Justice affirmed again that because corporations are created by law, they are in principle subject to any rules for formation that a state of incorporation wishes to impose. This meant that the Hungarian authorities could prevent a company from shifting its central administration to Italy while it still operated and was incorporated in Hungary.^[99] Thus, the court draws a distinction between the right of establishment for foreign companies (where restrictions must be justified), and the right of the state to determine conditions for companies incorporated in its territory,^[100] although it is not entirely clear why.^[101]

Types of service

The "freedom to provide services" under TFEU article 56 applies to people who provide services "for remuneration", especially in commercial or professional activity.^[102] For example, in Van Binsbergen v Bestuur van de Bedrijfvereniging voor de Metaalnijverheid a Dutch lawyer moved to Belgium while advising a client in a social security case, and was told he could not continue because Dutch law said only people established in the Netherlands could give legal advice.^[103] The Court of Justice held that the freedom to provide services applied, it was directly effective, and the rule was probably unjustified: having an address in the member state would be enough to pursue the legitimate aim of good administration of justice.^[104]

Case law states that the treaty provisions relating to the freedom to provide services do not apply in situations where the service, service provider and other relevant facts are confined within a single member state.^[105] An early Council Directive from 26 July 1971 included works contracts within the scope of services, and provided for the abolition of restrictions on the freedom to provide services in respect of public works contracts.^[106]

The Court of Justice has held that secondary education falls outside the scope of article 56,^[107] because usually the state funds it, though higher education does not.^[108] Health care generally counts as a service. In Geraets-Smits v Stichting Ziekenfonds^[109] Mrs Geraets-Smits claimed she should be reimbursed by Dutch social insurance for the costs of receiving treatment in Germany. The Dutch health authorities regarded the treatment as unnecessary, so she argued this restricted the freedom (of the German health clinic) to provide services. Several governments submitted that hospital services should not be regarded as economic, and should not fall within article 56. But the Court of Justice held that health care was a "service" even though the government (rather than the service recipient) paid for the service.^[110] National authorities could be justified in refusing to reimburse patients for medical services abroad if the health care received at home was without undue delay, and it followed "international medical science" on which treatments counted as normal and necessary.^[111] The Court requires that the individual circumstances of a patient justify waiting lists, and this is also true in the context of the UK's National Health Service.^[112] Aside from public services, another sensitive field of services are those classified as illegal. Josemans v Burgemeester van Maastricht held that the Netherlands' regulation of cannabis consumption, including the prohibitions by some municipalities on tourists (but not Dutch nationals) going to coffee shops,^[113] fell outside article 56 altogether. The Court of Justice reasoned that narcotic drugs were controlled in all member states, and so this differed from other cases where prostitution or other quasi-legal activity was subject to restriction.

If an activity does fall within article 56, a restriction can be justified under article 52 or over-riding requirements developed by the Court of Justice. In Alpine Investments BV v Minister van Financiën^[114] a business that sold commodities futures (with Merrill Lynch and another banking firm) attempted to challenge a Dutch law prohibiting cold calling customers. The Court of Justice held the Dutch prohibition pursued a legitimate aim to prevent "undesirable developments in securities trading" including protecting the consumer from aggressive sales tactics, thus maintaining confidence in the Dutch markets. In Omega Spielhallen GmbH v Bonn^[115] a "laserdrome" business was banned by the Bonn council. It bought fake laser gun services from a UK firm called Pulsar Ltd, but residents had protested against "playing at killing" entertainment. The Court of Justice held that the German constitutional value of human dignity, which underpinned the ban, did count as a justified restriction on the freedom to provide services. In Liga Portuguesa de Futebol v Santa Casa da Misericórdia de Lisboa the Court of Justice also held that the state monopoly on gambling, and a penalty for a Gibraltar firm that had sold internet gambling services, was justified to prevent fraud and gambling where people's views were highly divergent.^[116] The ban was proportionate as this was an appropriate and necessary way to tackle the serious problems of fraud that arise over the internet. In the Services Directive^[117] a group of justifications were codified in article 16 that the case law has developed.

Digital Single Market

Diagram of the EU digital single market and the facilitation of public services across borders

In May 2015 the Juncker Commission^[118] announced a plan to reverse the fragmentation of internet shopping and other online services by establishing a Single Digital Market that would cover digital services and goods from e-commerce to parcel delivery rates, uniform telecoms and copyright rules.^[119]

Free movement of workers

Since its foundation, the Treaties sought to enable people to pursue their life goals in any country through free movement.^[123] Reflecting the economic nature of the project, the European Community originally focused upon free movement of workers: as a "factor of production".^[124] However, from the 1970s, this focus shifted towards developing a more "social" Europe.^[125] Free movement was increasingly based on "citizenship", so that people had rights to empower them to become economically and socially active, rather than economic activity being a precondition for rights. This means the basic "worker" rights in TFEU article 45 function as a specific expression of the general rights of citizens in TFEU articles 18 to 21. According to the Court of Justice, a "worker" is anybody who is economically active, which includes everyone in an employment relationship, "under the direction of another person" for "remuneration".^[126] A job, however, need not be paid in money for someone to be protected as a worker. For example, in Steymann v Staatssecretaris van Justitie, a German man claimed the right to residence in the Netherlands, while he volunteered plumbing and household duties in the Bhagwan community, which provided for everyone's material needs irrespective of their contributions.^[127] The Court of Justice held that Mr Steymann was entitled to stay, so long as there was at least an "indirect quid pro quo" for the work he did. Having "worker" status means protection against all forms of discrimination by governments, and employers, in access to employment, tax, and social security rights. By contrast a citizen, who is "any person having the nationality of a Member State" (TFEU article 20(1)), has rights to seek work, vote in local and European elections, but more restricted rights to claim social security.^[128] In practice, free movement has become politically contentious as nationalist political parties appear to have utilised concerns about immigrants taking jobs and benefits.

In Angonese the Court of Justice gave "horizontal direct effect" to free movement, so a bank could not refuse employment to a worker who lacked a language certificate that could only be obtained in Bolzano.^[129]

The Free Movement of Workers Regulation articles 1 to 7 set out the main provisions on equal treatment of workers. First, articles 1 to 4 generally require that workers can take up employment, conclude contracts, and not suffer discrimination compared to nationals of the member state.^[130] In a famous case, the Belgian Football Association v Bosman, a Belgian footballer named Jean-Marc Bosman claimed that he should be able to transfer from R.F.C. de Liège to USL Dunkerque when his contract finished, regardless of whether Dunkerque could afford to pay Liège the habitual transfer fees.^[131] The Court of Justice held "the transfer rules constitute[d] an obstacle to free movement" and were unlawful unless they could be justified in the public interest, but this was unlikely. In Groener v Minister for Education^[132] the Court of Justice accepted that a requirement to speak Gaelic to teach in a Dublin design college could be justified as part of the public policy of promoting the Irish language, but only if the measure was not disproportionate. By contrast in Angonese v Cassa di Risparmio di Bolzano SpA^[133] a bank in Bolzano, Italy, was not allowed to require Mr Angonese to have a bilingual certificate that could only be obtained in Bolzano. The Court of Justice, giving "horizontal" direct effect to TFEU article 45, reasoned that people from other countries would have little chance of acquiring the certificate, and because it was "impossible to submit proof of the required linguistic knowledge by any other means", the measure was disproportionate. Second, article 7(2) requires equal treatment in respect of tax. In Finanzamt Köln Altstadt v Schumacker^[134] the Court of Justice held that it contravened TFEU art 45 to deny tax benefits (e.g. for married couples, and social insurance expense deductions) to a man who worked in Germany, but was resident in Belgium when other German residents got the benefits. By contrast in Weigel v Finanzlandesdirektion für Vorarlberg the Court of Justice rejected Mr Weigel's claim that a re-registration charge upon bringing his car to Austria violated his right to free movement. Although the tax was "likely to have a negative bearing on the decision of migrant workers to exercise their right to freedom of movement", because the charge applied equally to Austrians, in absence of EU legislation on the matter it had to be regarded as justified.^[135] Third, people must receive equal treatment regarding "social advantages", although the Court has approved residential qualifying periods. In Hendrix v Employee Insurance Institute the Court of Justice held that a Dutch national was not entitled to continue receiving incapacity benefits when he moved to Belgium, because the benefit was "closely linked to the socio-economic situation" of the Netherlands.^[136] Conversely, in Geven v Land Nordrhein-Westfalen the Court of Justice held that a Dutch woman living in the Netherlands, but working between 3 and 14 hours a week in Germany, did not have a right to receive German child benefits,^[137] even though the wife of a man who worked full-time in Germany but was resident in Austria could.^[138] The general justifications for limiting free movement in TFEU article 45(3) are "public policy, public security or public health",^[139] and there is also a general exception in article 45(4) for "employment in the public service".

For workers not citizens of the union but employed in one member state with a work permit, there is not the same freedom of movement within the Union. They need to apply for a new work permit if wanting to work in a different state. A facilitation mechanism for this process is the Van Der Elst visa which gives easier rules should a non-EU worker already in one EU state need to be sent to another, for the same employer, because of a service contract that the employer made with a customer in that other state.

Free movement of citizens

Beyond the right of free movement to work, the EU has increasingly sought to guarantee rights of citizens, and rights simply by being a human being.^[140] But although the Court of Justice stated that 'Citizenship is destined to be the fundamental status of nationals of the Member States',^[141] political debate remains on who should have access to public services and welfare systems funded by taxation.^[142] In 2008, just 8 million people from 500 million EU citizens (1.7 per cent) had in fact exercised rights of free movement, the vast majority of them workers.^[143] According to TFEU article 20, citizenship of the EU derives from nationality of a member state. Article 21 confers general rights to free movement in the EU and to reside freely within limits set by legislation. This applies for citizens and their immediate family members.^[144] This triggers four main groups of rights: (1) to enter, depart and return, without undue restrictions, (2) to reside, without becoming an unreasonable burden on social assistance, (3) to vote in local and European elections, and (4) the right to equal treatment with nationals of the host state, but for social assistance only after 3 months of residence.

The Berlin Wall (1961–1989) symbolised a bordered globe, where citizens of East Germany had no right to leave, and few could enter. The EU has progressively dismantled barriers to free movement, consistent with economic development.

First, article 4 of the Citizens Rights Directive 2004 says every citizen has the right to depart a member state with a valid passport or national identity card. This has historical importance for central and eastern Europe, when the Soviet Union and the Berlin Wall denied its citizens the freedom to leave.^[145] Article 5 gives every citizen a right of entry, subject to national border controls. Schengen Area countries (of which Ireland is not included) have abolished the need to show travel documents, and police searches at borders, altogether. These reflect the general principle of free movement in TFEU article 21. Second, article 6 allows every citizen to stay three months in another member state, whether economically active or not. Article 7 allows stays over three months with evidence of "sufficient resources... not to become a burden on the social assistance system". Articles 16 and 17 give a right to permanent residence after 5 years without conditions. Third, TEU article 10(3) requires the right to vote in the local constituencies for the European Parliament wherever a citizen lives.

All EU citizens have the right to child support, education, social security and other assistance in EU member states. To ensure people contribute fairly to the communities they live in, there can be qualifying periods of residence and work up to five years.

Fourth, and more debated, article 24 requires that the longer an EU citizen stays in a host state, the more rights they have to access public and welfare services, on the basis of equal treatment. This reflects general principles of equal treatment and citizenship in TFEU articles 18 and 20. In a simple case, in Sala v Freistaat Bayern the Court of Justice held that a Spanish woman who had lived in (Germany) for 25 years and had a baby was entitled to child support, without the need for a residence permit, because Germans did not need one.^[146] In Trojani v Centre public d’aide sociale de Bruxelles, a French man who lived in Belgium for two years was entitled to the "minimex" allowance from the state for a minimum living wage.^[147] In Grzelczyk v Centre Public d’Aide Sociale d’Ottignes-Louvain-la-Neuve^[148] a French student, who had lived in Belgium for three years, was entitled to receive the "minimex" income support for his fourth year of study. Similarly, in R (Bidar) v London Borough of Ealing the Court of Justice held that it was lawful to require a French UCL economics student to have lived in the UK for three years before receiving a student loan, but not that he had to have additional "settled status".^[149] Similarly, in Commission v Austria, Austria was not entitled to restrict its university places to Austrian students to avoid "structural, staffing and financial problems" if (mainly German) foreign students applied, unless it proved there was an actual problem.^[150] However, in Dano v Jobcenter Leipzig, the Court of Justice held that the German government was entitled to deny child support to a Romanian mother who had lived in Germany for 3 years, but had never worked. Because she lived in Germany for over 3 months, but under 5 years, she had to show evidence of "sufficient resources", since the Court reasoned the right to equal treatment in article 24 within that time depended on lawful residence under article 7.^[151]

Schengen Area

Within the Schengen Area, 23 of the 27 EU member states (excluding Bulgaria, Cyprus, Ireland, and Romania) and the four EFTA members (Iceland, Liechtenstein, Norway, and Switzerland) have abolished physical barriers across the single market by eliminating border controls. In 2015, limited controls were temporarily re-imposed at some internal borders in response to the migrant crisis.