EUROPEAN COMMISSION Brussels, 10.1.2017 SWD(2016) 437 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Directive of the European Parliament and of the Council on the legal and operational framework of the European services e-card introduced by Regulation ....[ESC Regulation].... {COM(2016) 823 final}

{SWD(2016) 438 final}



Contents 1. Context and background 1.1 The Services Directive 1.2 Scope of the impact assessment – sectors covered 1.3. Scope of the impact assessment – horizontal issues 2. Problem definition 2.1. What is the problem and how important is it? 2.2. Problem drivers 2.2.1. Driver 1 – Uncertainty and administrative complexity faced by service providers when going cross-border 2.2.2. Driver 2 – Lack of well-structured cooperation mechanisms under the Services Directive 2.2.3. Driver 3 - Insurance coverage in cross-border situations 2.2.4. Driver 4 – National regulations in key business services with negative spill-over effects to other sectors 2.3. How would the problem evolve, all things being equal? 3. Need for action at EU level 3.1. Legal base for the EU to act 3.2. Value-added of action at EU-level 4. Objectives 4.1. Policy objectives 4.2. Consistency with other EU policies and the Charter for fundamental rights

5. Policy options 5.1. Baseline scenario: No EU policy change 5.2. Overview of different policy options 5.3. Description of policy options 5.3.1. Policy option 1: European services e-card attesting legal establishment 5.3.2. Policy option 2A: A European services e-card for a more ambitious administrative simplification 5.3.2.1. A European services e-card for temporary cross-border provision 5.3.2.2. A European services e-card for secondary establishment 5.3.2.3. Technical facilities linked to secondment of staff 5.3.3. Policy option 2B: Action to address regulatory obstacles for providers in key business services wanting to set up cross-border branches and agencies 5.3.4. Policy option 3: Facilitate access to insurance in a cross-border context 5.3.5. Policy option 4: Harmonisation of requirements for key business services 5.4. Combinations of policy options ("packages") 6. Analysis of impacts 6.1. Baseline scenario: No EU policy change 6.2. General considerations on the packages to be assessed 6.3. Package 1: Policy options 1 and 3.1a 6.4. Package 2: Policy options 2A and 3 6.5. Package 3: Policy options 2A, 3 and 4 6.6. Package 4: Policy options 2A, 2B, 3 and 4.

7. Comparison of packages 7.1. Comparison in terms of effectiveness, efficiency and coherence 7.2. Choice of preferred package 7.3. Choice of legal instrument 7.4. Subsidiarity and proportionality of the options 8. Monitoring and evaluation Annexes Annex 1: Procedural information (pg. 78) Annex 2: Stakeholder consultation (pg. 81) Annex 3: Who is affected and how? (pg. 99) Annex 4: Evaluation (pg. 101) Annex 5: Problem definition – additional evidence (pg. 133) Annex 6: Consistency with other EU policies (pg. 164) Annex 7: Administrative burden reductions under the different policy options (pg. 166) Annex 8: Administrative costs for authorities (pg. 196) Annex 9: Impact of addressing regulatory obstacles in business services (pg. 211) Annex 10: Choice of legal instrument (pg. 218) Annex 11: Monitoring and evaluation (pg. 219)





1.Context and background One of the 10 political priorities put forward by the Juncker Commission is to enable a deeper and fairer Internal Market. This includes improving the functioning of the internal market in services, making it a launch pad for our companies to thrive in the global economy while at the same time ensuring less abuse or circumvention of rules. Furthermore, one of the pillars of the Investment Plan for Europe consists in further reinforcing the Single Market. Articles 49 and 56 of the TFEU provide for basic fundamental freedoms of establishment and temporary cross-border provision of services across the internal market. Secondary legislation has, over the years, strived to implement these freedoms. This includes the Services Directive which has become a cornerstone to put into practice the fundamental freedoms of the Treaty. Since its adoption in 2006, the Services Directive underwent a period of implementation in partnership between the Commission and all the Member States. The Commission did not limit its efforts to supporting Member States until the transposition deadline in 2009. It undertook numerous additional efforts, notably on the basis of Communications in 2011 and 2012, to encourage Member States to continue implementing the Directive through national reforms. These efforts have also been supported under the European semester policy according to which the Commission and the Council agreed country specific recommendations. Since the autumn of 2014, the Commission has been carrying out a range of analyses and stakeholder consultations to analyse the impact of the implementation of the Services Directive. These show that despite some progress, a genuine internal market for services is far from being achieved. Instead, service providers in several important sectors still face a range of obstacles when expanding cross-border. Annex 4 (evaluation) confirms this conclusion based on an in-depth evaluation of the implementation of the Services Directive. Out of the total identified potential for growth offered by the Services Directive (2.6% of EU GDP increase) only 0.9% has been captured so far – leaving 1.7% of additional GDP growth unexploited. This is a missed opportunity. Remaining obstacles hinder an efficient allocation of resources thereby slowing down the modernisation of the EU economy. For this reason, the Commission in its Single Market Strategy adopted on 28 October 2015 announced three initiatives building on the Services Directive with a particular focus on business services and construction services: Legislative initiative introducing a services passport; Legislative action to address regulatory barriers for key business services and, if appropriate, organisational requirements in construction companies; If necessary, action on insurance requirements. 1.1 The Services Directive The Services Directive addresses a range of obstacles to free movement of services by requiring Member States to adopt reforms aimed at removing or reducing them. These include regulatory barriers but also obstacles of administrative nature dissuading in practice service providers to operate cross-border. In addition, the Directive also touches upon quality related aspects of service provision such as standards (excluded from this impact assessment) and insurance requirements. The provisions of the Services Directive most relevant for this impact assessment are shortly described below. Administrative simplification The Services Directive requires Member States to reduce administrative burden faced by services providers. Firstly, all procedures and formalities applicable to access a service activity and to the exercise thereof have to be examined by Member States and simplified if necessary (Art 5). Secondly, points of single contact have to be set up, through which service providers should be able to access information as well as complete all procedures and formalities needed for access to and exercise of their service activities (Art 6). Finally, fully functioning and interoperable electronic procedures have to be set up (Art 8). Service providers should be able to complete at a distance all formalities necessary to provide a given service. Removing barriers to the freedom of establishment Firstly, Member States are required to review existing authorisation schemes and make them compliant with Articles 9 to 13 of the Services Directive. Secondly, Art 14 of the Directive provides a list of requirements ("blacklist") which Member States are not allowed to impose for access to or exercise of a service activity under any circumstances. Finally, Art 15 of the Directive includes a list of requirements ("grey list") which are only allowed if non-discriminatory, exceptionally justified by a public interest and proportionate. These include, for example, obligations on a service provider to take a specific legal form or requirements which relate to the shareholding structure of a company. Removing barriers to the freedom to provide (temporary cross-border) services Articles 16 to 18 deal with requirements Member States may impose on service providers who provide services cross-border on a temporary basis. Member States may not impose their own requirements on incoming service providers except where these requirements are non-discriminatory, justified by reasons of public policy, public security, public health or the protection of the environment and proportionate. Professional Indemnity insurance Article 23 concerns professional liability insurance and guarantees. A Member State may only impose insurance coverage requirements when the services in question present a direct and particular risk to the health and safety of the recipient or a third person, or to the financial security of the recipient. In addition, the Member State where a service provider wants to establish will have to take into account essentially equivalent or comparable insurance or guarantee requirements to which the provider may already be subject to in the Member State of first establishment.

Multidisciplinary activities Art 25 requires in principle Member States to remove requirements on service providers to exercise a given specific activity exclusively as well as requirements restricting the exercise of different activities jointly or in partnership. Such requirements are only allowed in case of regulated professions as well as for providers of certification, accreditation, technical monitoring, test or trial services in so far as justified in order to ensure their independence and impartiality. 1.2 Scope of the impact assessment – sectors covered The purpose of this initiative is to make it easier for service providers in a number of services sectors to expand their activities to other Member States. Introducing a European services e-card would require some additional efforts also of Member States' authorities. Therefore, in order to ensure a meaningful and proportionate action there is a need to focus on those services sectors where such an initiative would have most impact. The initial focus of the initiative would be on two specific services sectors: business services and construction. The following criteria were used as a basis for selection of these sectors: The sectors are entirely covered by the Services Directive on which this initiative is building; An important amount of obstacles to the Single Market still remain in both sectors; There is potential for further single market integration; The sectors represent an important level of economic activities and economic performance in both sectors shows difficulties. The sectors are entirely covered by the Services Directive on which this initiative is building Graph 1 below shows the different services sectors that are covered by the Services Directive (in colour). Accordingly, a number of services sectors are not covered by the Services Directive. Graph 1 – Sectors covered by the Services Directive Source: Eurostat, Commission analysis, 2013 Firstly, a group of large sectors such as financial services, transport services, network services (including e.g. telecom services and energy services) and audio-visual services are excluded from the scope of the Services Directive. These sectors have more advanced harmonised rules at EU-level which govern their functioning in detail. For example, the financial services sector has a proper regime in place regarding the functioning of its single market which takes into account specific challenges of the sector (such as the financial stability of banks). For the same reason, the EU has developed sector based policies in the areas of energy, telecommunications and audio-visual services. Additional efforts have been made over recent years to further harmonise these sectors, including introducing/strengthening systems of supervision. Any problems in these sectors related to the single market (or in general competitiveness and growth) are better dealt with in the context of these sector-related policies/instruments. Secondly, other services sectors that are excluded from the Services Directive include health care, temporary employment agencies and transport. Other policies recognised in the Treaty play a major role in these sectors such as national systems of health care (Art. 168 TFEU), social protection of workers of temporary employment agencies (Art. 153 TFEU) and the common transport policy (Art. 90 TFEU). Also for these sectors, the EU has developed specific policies subject to proper evaluations and possible future initiatives. Thirdly, a final group of services excluded from the Services Directive concerns sectors such as gambling, social services mandated by a Member State, notaries and private security services. These are not governed by secondary legislation. Internal market integration for the provision of these services is governed directly by Treaty provisions. Regulatory disparity is very high in these sectors given that Member States enjoy a much larger degree of discretion when regulating these sectors at national level.

Finally, while the initiative focuses on business services at large, three specific business service activities (testing and analysis, lawyers and statutory auditors) are excluded, given that the freedom to provide services in these sectors is mostly excluded from the scope of the Services Directive, governed by sector-specific EU legislation some of which have recently been subject to evaluation. The sector of statutory auditors has furthermore been subject to major changes in the aftermath of the financial crisis. Furthermore, among construction services, natural persons providing services of installation, servicing, maintenance, repair or decommissioning of equipment that contains fluorinated greenhouse gases are also subject to sector-specific EU legislation and are excluded from the scope. An important amount of obstacles to the Single Market still remain in both sectors For those sectors covered by the Services Directive an in-depth evaluation of its implementation (see annex 4) shows that it has been only partially effective until today. Whereas in some services sectors (including tourism and real estate) many obstacles have been removed through the implementation of the Services Directive, service providers in key services sectors still face an important number of barriers. This explains also why the Commission has over recent years prioritised regarding the implementation of the Services Directive on certain services sectors including business services, retail and construction. The Services Directive offers a harmonised framework for making better use of the classical single market freedoms of physically providing services cross-border or setting up an establishment in another Member State. The key issues for exercising these freedoms differ between sectors. Ensuring a proper functioning of the single market in the retail sector requires a different discussion and assessment. Cross-border service provision in the retail sector mostly concerns e-commerce activities, which give rise to a range of issues not covered by the Service Directive. In addition, permanent market entry in the retail sector is controlled by Member States in a very specific way (often through local planning rules which regulate opening up outlets in specific locations). The Single Market Strategy of October 2015 foresees accordingly a separate action for 2017 in order to facilitate retail establishment and reduce operational restriction in the sector. The retail sector will therefore not be covered by this impact assessment. There is potential for further integration in these sectors An important number of business services as well as the construction sector are showing low levels of internal market integration. In other words, very few service providers in these sectors provide services cross-border or set up a secondary establishment. This is further discussed in section 2.1 (problem definition). The potential for further integration of the EU business services market is widely recognised. Regarding the construction sector, in their joint letter of 22 November 2016, 10 Member States identified this sector as one of the priority sectors where this initiative can bring about the greatest economic benefit. On the other hand, several stakeholders have highlighted in the public consultation (annex 2) that construction is a local business with limited potential for more cross-border activities. For some construction services, temporary cross-border provision of services by SMEs is indeed complicated, also given the importance of local networks of suppliers. Nevertheless, this is much less a problem for more specialised construction activities (e.g., in the area of energy efficiency). In addition, the limited mobility of construction companies is mostly relevant in the case of mobile entry modes. Several difficulties preventing construction companies to provide temporary cross-border services can be overcome by entering the market in a more permanent way (e.g. through a branch set up for long-term local business development in the host market). For this reason, construction companies going abroad prefer a permanent establishment when the host market is unfamiliar, risky or with intense competition. This was also confirmed by stakeholder contacts in the context of the on-going fitness check for the construction sector. Finally, it should be highlighted that posting of workers in the context of cross-border provision of services is of high importance in construction with 43% of all postings in the EU taking place in construction. The sectors represent an important level of economic activities and economic performance in both sectors shows difficulties Firstly, business services and construction represent a major part of our economy. They cover 18% of EU GDP and 20% of total employment, representing 45 million jobs. Together, these two sectors cover about 40% of all activities under the Services Directive. In addition, more than 9 million companies are active in these sectors with 1 million start-ups per year. Table 1 – Business services and construction % of EU value added Persons employed (million) Total # companies (million) Business services Computer and information services 2.3% 3.6 0.73 Professional, scientific and technical activities 6.4% 13.4 4.04 Administrative and support service activities 4.1% 13.6 1.32 Construction services 5.3% 14.4 3.27 Total 18.2% 45.1 9.37 Source: Eurostat, Commission analysis, 2013 This initiative aims to reduce obstacles for those service providers that want to go cross-border. A rough estimate on the basis of a number of surveys shows that about 10% of these companies go cross-border or might consider going cross-border in the future. Hence, the initiative would directly address a target group of almost 1 million companies and about 100,000 new potential target companies per year (assuming that 10% of the target group will go cross-border). Secondly, both sectors face important issues of competitiveness with no or limited productivity growth over the last 15 years (graph 2). Labour productivity levels in business services and construction stand respectively at 95% and 98% of what they were in 2000 (compared to for example 118% for the overall economy, 142% in the manufacturing sector, 120% in the financial services sector and 107% in the real estate sector). This shows that both sectors face important issues of competitiveness which are more problematic than in other large services sectors. These productivity problems – in particular in the area of business services – have negative effects also on industry. Graph 2 – Labour productivity growth major economic sectors Source: Eurostat, Commission analysis There are obviously many drivers to a lagging productivity performance. Nevertheless, it is well-established that increased cross-border competition leads to a better allocation of resources and gives a boost to productivity growth. Conclusion In June 2016, Member States agreed in the European Council that this initiative should focus on key services sectors. Based on the above selection criteria, an initial focus on business services and construction seems justified. A further roll-out of the initiative to other services sectors could be envisaged at a later stage.

1.3. Scope of the impact assessment – horizontal issues This impact assessment will not look into options which would amend any of the following provisions of EU law: Directive on Posting of Workers of 1996 and the related 2014 Enforcement Directive; Regulation 883/2004 on the coordination of social security rules and the Implementing Regulation 987/2009; Professional Qualification Directive of 2005 and its subsequent amendment of 2013 introducing the European Professional Card (EPC). However, the impact assessment will analyse the concrete administrative steps that these provisions require service providers to take when they have access to the market and intend seconding staff to other Member States. 2.Problem definition 2.1.What is the problem and how important is it? As highlighted in section 1.2, an important number of business services as well as the construction sector are continuing to show a lack of internal market integration. Graph 3 shows the levels of EU cross-border trade intensity for a range of services sectors in comparison to the manufacturing sector (goods), where much more trade across borders occurs. However, it is also clear that certain services are more traded across borders than others. This concerns in particular construction services and several business services which show very low levels of cross-border trade. Graph 3 – Cross-border trade intensity Source: Eurostat These findings are confirmed by looking at the behaviour of individual service providers. Different surveys confirm that export participation of service providers in general is much lower than that of manufacturers and that export participation differs significantly from sector to sector (with construction services and several business services showing the lowest levels of cross-border trade – for additional details see annex 5). Graph 4 – Cross-border investment intensity (across sectors) Source: Eurostat Graph 4 gives an indication of cross-border establishment (investment) intensity for a number of important services sectors, manufacturing and the overall economy. This shows that manufacturing is again more integrated than services with regard to cross-border investment as well. Also here there is a large variety between different services sectors. Graph 5 gives an indication of this variety for a range of different business services. Some business services (such as architects, engineers, accountants and services to buildings) are clearly characterised by much less cross-border investment than others. Graph 5 – Cross-border investment intensity (business services) Source: Eurostat

The fact that the single market for services is much less developed than the one for goods is not a new finding. The more important conclusion on the basis of the above data is that there is a large divergence between different services sectors with some sectors (in particular business services and construction) showing only little cross-border trade and investment. Why is this a problem? Firstly, lack of internal market integration in business services and construction has a negative impact on the competitiveness of the sectors concerned. Most services sectors have achieved modest productivity growth since 2000. Some services sectors have registered no or even negative productivity growth over the last 15 years, in particular business services and construction. Given the weight of these services sector in the economy of all Member States, this is a cause for concern. Improving the functioning of the single market would facilitate higher productivity growth in these sectors. Secondly, there are wider spill-over effects to other sectors that need to be taken into account. The performance of the services sector is of importance to the economy at large due to its inter-linkages with other sectors in the economy. This is in particular the case for business services which constitute key inputs into the manufacturing sector. Today, 16% of the average value of a good produced in the EU is generated from business services activities. As a result, reforms in business services have positive effects on growth and competitiveness of downstream sectors such as the manufacturing sector. Thirdly, more integrated markets enhance cross-border competition, leading to increased choice for consumers and lower prices. 2.2.Problem drivers Low cross-border trade and investment in business services and construction can be explained by a number of drivers. During the public consultation in 2016, administrative obstacles were highlighted by more than 60% of stakeholders as clear disincentives for cross-border activities. In addition, more than 65% of stakeholders confirmed that regulatory issues are highly relevant. At the same time, there are drivers that are not in scope of this initiative which potentially also influence differences in market integration between services sectors. The public consultation showed that many respondents consider other barriers (such as customer relations, languages and tax) as important obstacles to going cross-border. There is no 'silver bullet' to solve all issues. Some of these are inherent to the market (e.g. customer relations, languages) and cannot be directly changed or addressed. On the other hand, the Commission is undertaking initiatives to address several of these issues already now or in the future. This initiative focuses on complex administrative procedures and regulatory requirements that still persist. The importance of these obstacles (including in the context of other potential obstacles that might exist) has been confirmed by a large range of reports and surveys. This includes the following examples: In extensive contacts with stakeholders (including 9 workshops organised by the Commission with service providers in cross-border regions) these obstacles (administrative complexity and regulatory requirements) were consistently highlighted by service providers as important; Eurochambres 2015 research (592 participants) found that 83% of respondents considered complex administrative procedures as the main obstacle when going cross-border (as a reference, 45% considered language as a problem); Commission consultation of 2015 (293 replies) showed that authorisations are a major obstacle for cross-border service providers (more important for example than language differences); A 2015 Eurobarometer survey (more than 4,000 replies) showed similar results with administrative complexity as one of the most important obstacle for SMEs providing services that go cross-border (again more important than for example languages or identifying business partners abroad); Several studies (including by the Commission, OECD, IMF and the World Bank) have highlighted the positive potential of reducing regulatory barriers (including in business services). In view of this, the following problem drivers are considered in this impact assessment. Firstly, there is uncertainty and administrative complexity faced by service providers in the sectors concerned when offering their services cross-border. This is assessed as problem driver 1. Secondly, there is a lack of well-structured cooperation mechanisms under the Services Directive. This is assessed as problem driver 2. Thirdly, smaller undertakings in business services and construction often encounter difficulties when offering their services cross-border to access the required professional indemnity insurance. This is examined as problem driver 3. Finally, national regulations in business services are obstacles to the single market, with negative spill-over effects to other sectors. This will be assessed as problem driver 4. Accordingly, only few undertakings in the sectors of business services and construction provide temporary services cross-border or set up a secondary establishment in other Member States. Competition on these markets often remains limited, which is liable to lead to an inefficient allocation of resources, limited choice for consumers and higher prices (figure 1). Figure 1 – Problem tree 2.2.1.Driver 1 – Uncertainty and administrative complexity faced by service providers when going cross-border

1. What is the problem? Service providers face uncertainty and administrative complexity when trying to establish a permanent presence in another Member State or provide cross-border services on a temporary basis. On the one hand, it is often difficult to obtain a picture of the full range of applicable requirements and necessary procedures that need to be completed to access another Member State's market. In particular sector-specific information (e.g. how to get a specific license, how to comply with local rules governing employment conditions and qualifications of seconded staff) is not always available. Business is complaining about lack of information. In addition, national rules are often put in place accounting for purely national situations only. As a result, requirements applicable to service providers originating from other Member States are often unclear. This is notably the case for temporary cross-border service providers. Art. 16 of the Services Directive introduced the principle that host Member States' requirements should apply to temporary cross-border service providers in exceptional circumstances only under reasons of public policy, public health, public security and the protection of the environment. Other overriding reasons of public interest (such as protection of consumers) cannot be invoked. Nevertheless, sector-specific laws in almost all Member States have not been amended to make a clear distinction between requirements applicable to companies seeking to establish and those seeking to provide temporary services cross-border. As a result, incoming service providers are forced to invoke Art. 16 of the Services Directive in an attempt to have competent authorities to disregard national law which is devised for establishment situations only. This situation generates major legal uncertainty for temporary cross-border providers on the applicable requirements. On the other hand, even if a service provider is equipped with all relevant information, it needs to organise in practical terms compliance with the applicable rules – providing the necessary information and documents to authorities in another Member State. Even if all information on applicable rules and regulations is clear and readily available, compliance procedures and formalities generate administrative burden, which may be substantial. This is the case in particular for secondary establishment situations where legal certainty is less of a concern but service providers often face high administrative burden. The public consultation has shown that service providers consider a number of administrative obstacles related to compliance with host Member State rules as important costs. Both for business services and construction, the majority of respondents highlight administrative complexity as being an important challenge for temporary cross-border service provision and secondary establishment. Regarding business services specifically, nearly 3 out of 4 respondents indicated the need for offering electronic procedures when going cross-border while more than half highlighted the need for eliminating re-submissions of the same documents and a closer cooperation amongst competent authorities. For construction services, specifically important obstacles that were highlighted by stakeholders include the need to contact several authorities as well as the length and complexity of procedures. This administrative compliance burden is composed of several types of issues/obstacles. Firstly, service providers often need to complete an extensive number of different procedures when starting to provide services in another Member State. Each of these procedures involve different national authorities dealing with issues that are sector specific (such as professional chambers) or horizontal issues (e.g. formalities related to social security, tax, registration of a branch, etc.). These authorities (federal, regional or even local) are not required to coordinate amongst themselves. Instead, they leave it to the foreign service provider to take the required steps, which as a result are often repetitive. These issues also point of lack of implementation of the "once-only principle" in the area of e-government to optimize the information exchange between private parties and public authorities. Secondly, a service provider should be able not only to access online information but also to complete the necessary formalities (in his/her language) from its home Member State in an electronic way. In practice however, this remains a major deficiency across many different Member States. Whereas horizontal procedures (such as general registration of economic activity) can be done fully online in more than half of the Member States, authorities in charge of specific services sectors are currently unable to offer this. As a result, it is often not possible for service providers to complete formalities through electronic procedures when starting to provide services in another Member State. In practice, sector specific procedures often still require a physical visit to an office or sending forms by post, for example to the professional chamber involved. Finally, service providers are very often required to provide information in a foreign language. Thirdly, for many procedures that service providers face when going cross-border it is unclear by when they will receive a decision (positive or negative) regarding their application for a license or authorisation. National authorities do not announce or commit themselves to decide on applications within a predefined deadline. This creates additional complexity and uncertainty for service providers and works as a disincentive to access a foreign market. Fourthly, applications to enter a foreign market often require the service provider to submit a range of supporting documents. Service providers are also often obliged to present supporting evidence to their application in the language of the host Member State and/or in a certified/authenticated form, including certified translations. These obligations on translation and certification of supporting documents often require service providers to purchase costly external services of notaries and translators. These administrative obstacles are also relevant in the context of the ongoing agenda under the e-government action plan. Administrative costs for service providers Interviews with service providers going cross-border in the business services sector show that administrative costs involving both internal staff time as well as potential external costs (translators, notaries, legal advice, etc.) can go up to several thousands of euros. Example 1 A service provider of engineering services established in the UK wanted to set up a secondary establishment in Spain. It reported numerous complicated formalities and costs, including the following: -The company spent an important amount of time on identification and familiarisation with the Spanish requirements; -The company also had to collect different supporting documents from home country authorities as well as collect other data itself (for example on management and shareholders). This involved costs both in the form of internal staff time as well as fees paid to authorities to obtain the required evidence. Documents need to be delivered in person to the Spanish authorities; -Given the complexity of the procedure the company used external advice services to help understand and comply with the different requirements, leading to further additional costs; -The company had to look also for external translators to translate supporting documents into Spanish (representing additional costs also in the form of fees to be paid to the translator); -Finally, authorisation and registration fees had to be paid as well to the Spanish authorities. In general, these formalities represented a cost for the service provider of up to 5,000 EUR. Example 2 A German provider of mechanical and electric engineering services that wanted to establish in Austria was forced to incorporate a subsidiary, since branches are currently not allowed. Furthermore several of its staff and managers needed to undergo special training and pass exams in order to acquire specific professional qualifications, as per Austrian Law. This included managers which are not involved in service performance in Austria. These obstacles also lead to significant administrative costs for the service provider, that could go up to 10,000 EUR. Example 3 A provider of certain construction services that wants to provide services on a temporary basis in Bulgaria needs to complete a prior notification for each construction project. The notification form is available only in Bulgarian. It needs to submit a range of documents (proof of legal establishment in the home Member State, details of envisaged construction project, proof of professional and technical capacity). While simple copies of these documents are accepted, translations must be submitted in original format and certified by a translator registered in BG. Further examples are included in annex 5. Finally, service providers going cross-border often experience administrative burden specifically in relation to formalities and procedures regarding secondment of staff. For the same employee/worker that is posted abroad, in practice a service provider currently needs to complete three independent formalities/processes involving different authorities in relation to the following: Employment conditions under the posting of workers rules where the vast majority of Member States require or will require advance notifications under the 2014 Enforcement Directive; Formalities related to proof of professional qualifications, if applicable; Social security rules where A1 forms should be issued to provide evidence about social security coverage in the home Member State. Service providers often consider that seconding staff gives rise to continuous practical difficulties, including burdensome and disparate administrative requirements across Member States. This was confirmed during nine stakeholder workshops between September and November 2014 in the context of the Single Market Forum, as well as through a subsequent stakeholder questionnaire. In addition, Eurochambers reported in September 2015 that 21% of SMEs which were surveyed had extremely significant problems in this area and 31% reported significant problems. A workshop held in July 2016 confirmed that secondment of staff formalities can be challenging to fulfil even between neighboring countries which speak the same language, namely Austria and Germany. Indeed, based on a recent survey, administrative aspects including the complexity of notifications came up as a significant barrier to posting workers in business services. This was for instance clearly of higher concern than the motivation of workers to go work in another Member State temporarily. All in all, Member States have the legitimate need to have in place robust controls combatting undeclared work and fraudulent behaviour (also in relation to the shadow economy ), notably in construction. Fraud in relation to posting of workers, social security issues and bogus self-employed should be tackled to ensure compliance with labour and tax regulations, including by enabling regular and effective inspections at the workplace (notably building sites) of posted employees. There are also concerns about letter-box companies that are set up to circumvent rules. However, these needs must be pursued in a proportionate manner, by reconciling them with the free movement under EU law. Overall, a clear and well-coordinated solution may foster acceptance and compliance by service providers. The administrative burden is a key aspect in this regard. Secondment of staff formalities Without prejudice to underlying legislation linked to secondment of staff, service providers are faced with considerable administrative "hassle" linked to the various formalities to be fulfilled. As stated above, service providers currently need to fulfil three fully separate formalities linked to the secondment of staff, all involving distinct authorities, supporting procedures and IT systems (where available). These formalities are particularly burdensome for companies wishing to expand to several Member States: for each one, administrative requirements look different, involving different authorities, disparate ways of submitting information, available language regimes, timelines and fees. Stakeholders often report that even finding out about applicable administrative formalities may require significant efforts. For each of the administrative formalities linked to secondment of staff, please see annex 5 for further details on administrative hurdles observed across Member States.

2. What is the impact of this problem driver? There is a negative impact of administrative burden and complexity on business growth and market dynamics. The public consultation in 2016 confirmed that tackling these types of barriers would have a positive impact in terms of saving costs for service providers (70% of the respondents confirmed this), increasing cross-border provision of services (68%) and choice for consumers (55%). 3. Why has this problem driver not been resolved by existing rules and tools? The problems highlighted above raise the question why the existing legal framework and related structures and tools have failed to deliver effective solutions for service providers. The Services Directive encompasses several provisions regarding the simplification of administrative procedures by Member States. These include an obligation to examine and, if necessary, simplify procedures and formalities applicable to access services activities. As part of this, Member States should explore less burdensome alternatives and assess whether evidence or documents are needed. Moreover, Member States should ensure that all procedures and formalities linked to accessing a service activity can be easily completed by national electronic means. Such electronic procedures need to cover the full administrative process. Moreover, the Services Directive obliges Member States to offer points of single contact (PSCs) serving as e-portals for service providers looking for clear and up-to-date information (including about applicable requirements and competent authorities) and wishing to complete formalities. PSCs should provide all necessary e-procedures for the access and exercise of a specific service activity in each sector covered by the Service Directive, thus eliminating the need to contact different competent authorities separately. So why do service providers continue to face administrative complexity and uncertainty about applicable requirements? One major factor explaining this is that the Services Directive puts forward general rules about administrative simplification. Certain aspects, such as deadlines and steps for completing procedures, are not concretely defined. These are however very important for service providers on the ground. Overall, these general rules and principles do also not allow for effective enforcement activities, given the discretion left to Member States in terms of implementation. As regards PSCs specifically, major challenges remain with a view to improving their performance across Member States. In the majority of Member States, PSCs display weaknesses in terms of information coverage (including sector relation information in foreign language(s)) and e-procedures relevant to providing services on a cross-border basis. Overall, most of the national PSCs are lacking the required resources, which is reflected especially in the lack of information and e-procedures offered for specific sectors (as opposed to general requirements such as business registration or tax formalities). Indeed, the vast amount of sectors to be covered under the Services Directive (46% of EU GDP) makes it complex to deliver the required range of information and different e-procedures in a user friendly manner. Since 2009, significant efforts have been put into making PSCs work better, including through dedicated working groups with Member States as well as enforcement action. In December 2013, Member States even agreed a Charter to improve the effectiveness of PSCs but without practical success on the ground. In addition, enforcement efforts have again proved insufficient given that the Services Directive only covers general rules on what the PSCs should offer, rather than setting more specific requirements. The upcoming Single Digital Gateway initiative aims to improve the findability, availability and quality of information, advice, assistance, problem-solving and the most relevant e-procedures based on all existing relevant tools (such as Your Europe, SOLVIT, PSCs). This should help tackle some of the challenges with which PSCs and other contact points are confronted. However, such action alone cannot ensure clarity and administrative simplification across all Member States within a reasonably short timeframe, given persisting implementation issues. Altogether, these problems underline the need for solutions which do not rely on the general administrative simplification provisions of the Services Directive, nor on well-functioning PSCs. These do not provide the necessary clarity and administrative simplification, which can only be reached through introducing specific rules on practical aspects such as procedural steps, timelines and information requirements, underpinned by well-defined responsibilities for Member States. Given that the current shortcomings linked to PSCs are partly or even largely explained by the significant number of sectors and the variety of national sector-specific procedures, a more targeted solution limited to selected key sectors would be less complex and costly to implement by Member States. As regards e-procedures, a common and centrally provided EU-level procedure with a clear workflow, timelines and obligations could also facilitate practical implementation and therefore require less investment by Member States. 2.2.2.Driver 2 – Lack of well-structured cooperation mechanisms under the Services Directive The Services Directive obliges Member States to assist each other and to exchange information whenever this is necessary to ensure a proper enforcement of applicable rules. Such an explicit obligation is set out under Article 29 of the Services Directive under which the home Member State shall supply information if requested by another Member State. The objective of setting up this system of administrative cooperation was to avoid a proliferation of rules applicable to providers coming from abroad and a duplication of controls for cross-border activities. Daily cooperation between Member States would also enhance trust regarding service providers coming from other Member States. The Internal Market Information system (IMI) has been put in place to enable an electronic exchange of information between Member States. 1. What is the problem? Firstly, there has been very little exchange of information between different Member States under the area of the Services Directive. This stands in sharp contrast to the use of IMI by other authorities in the context of other pieces of EU legislation. Exchange of information under the Services Directive has stagnated at the level of around 400 contacts between Member States per year since 2011 (the starting year of IMI use) while it increased nine times during the same period in the area of posting of workers and tripled (at an already very high level) in the area of professional qualifications (graph 6). This shows that there is no problem with the IMI system itself but rather that Member States are not using it to cooperate in the area of the Services Directive. Graph 6 – IMI number of information exchanges Source: Commission analysis (Internal market information system statistics) In addition, the use of the IMI system for exchange of information on incoming service providers in the context of the Services Directive is very uneven across Member States. In fact, during 2015 22 Member States requested less than 10 times other Member States to supply information on an incoming service provider (see annex 5). 8 Member States even did not request any information at all. The data is similar for 2014. Even though there is a very large number of authorities registered in IMI under the Services Directive area, surveys carried out by the Commission show that these authorities in many cases consider that there is no need to use IMI or even communicate with other Member States. These authorities –often at a local level – might not have the internal capacity for continuous cooperation with other Member States. In addition, they might not be aware of the benefits of administrative cooperation or even the obligations set out in the Services Directive. In general, there is not a lack of willingness by Member States to cooperate but rather a lack of a structured workflow to support such cooperation. As a result, in cases of secondary establishment Member States often require incoming service providers to show that they comply with requirements very similar to those applied to them in their Member State of primary establishment, disregarding the situation in the home Member State. In addition, temporary cross-border service providers are sometimes asked to comply with authorisations in the country of destination that are not clearly justified under Article 16 of the Services Directive. The Member States that do use IMI for administrative cooperation in the context of the Services Directive mostly ask questions that are related to the situation of the service provider in its home Member (see annex 5).

In March 2014, the Commission highlighted this problem publicly and subsequently reminded Member States of the issue in the expert group on the implementation of the Services Directive. No change has however been seen since. In addition, also the European Court of Auditors in a recent report has highlighted that cooperation in the context of the Services Directive is not working properly. 2. What is the impact of this problem driver? More day-to-day cooperation between Member States would contribute to enhancing trust in each other's legal and administrative systems. This would be to the benefit of cross-border service providers which face administrative and regulatory obstacles (but also issues of languages for example) when going cross-border. In addition, a lack of cooperation between Member States also has negative effects for the Member States' authorities themselves as well as for consumers. Currently, information on the cross-border service provider is often only available to the home Member States' authorities. This includes information regarding the good repute of the provider (such as its track record on criminal, administrative and disciplinary sanctions relevant for the activities carried out by a service provider). This information is not always offered to the host Member States' authorities. As a result, it is also not easily available to consumers in the host Member State. This potentially harms confidence with consumers towards foreign service providers. This shortcoming is clearly emphasized by stakeholders who responded to the public consultation. 55% of respondents active in business services indicated that ensuring close cooperation between the home and host Member State should be addressed; 61% of them active in construction services indicated so as well. 3. Why has this problem driver not been resolved by existing rules and tools? The Services Directive sets out general rules concerning administrative cooperation between Member States' authorities. These include an obligation for Member States to provide mutual assistance (replying to information requests, carrying out checks and investigations, etc.). However, as is the case for administrative simplification provisions, the implementation of such general rules relies on the good will and efforts by Member States to make it happen. The Services Directive does not provide sufficient detail to allow for effective enforcement action by the Commission or even by service providers before Courts. Regarding cooperation and exchange of information in the Internal Market Information (IMI) system specifically, the above section already highlights the limited and uneven use of IMI in the context of the Services Directive. However, this trend does not imply that the IMI system itself is malfunctioning, but rather that Member States are not making use of its potential to cooperate in the area of the Services Directive. The main reason is the absence of a clear framework with procedural steps to follow for exchanging information. On the contrary, the IMI system itself has proved an effective and reliable tool in other areas, for which it is also used much more intensely. The European Professional Card (EPC) procedure for the recognition of professional qualifications is a good example of this, demonstrating that the IMI system can truly facilitate cooperation and enhance mutual trust between Member States through the secured and multilingual communication channel it provides. European Professional Card (EPC) The EPC facilitates the recognition of professional qualifications for selected professionals. It is a successful example of a centrally provided EU-level procedure with a clearly defined procedure run within the IMI system. The obligations of Member States in the procedural workflow are set out in detail, thus overcoming the ambiguity of more general rules. It provides a targeted solution underpinned by specific rules on practical issues such as documents, deadlines for treating applications and tacit approval in case host country authorities do not take a final decision within deadline (in such cases, recognition is granted automatically). In this way, the EPC provides an easier, quicker and more transparent way to have qualifications recognised. Apart from primarily building on pre-translated forms for which high quality is guaranteed across all EU languages, the EPC solution incorporates a machine translation functionality for information and messages provided in free text. This reduces significantly the need for translation or even makes it redundant. The IMI system makes use of the Commission's machine translation service, thus ensuring data protection and privacy within a secure environment. The service, which is continuously developed and has improved in quality over the past years, is also used for notifications concerning the content of national regulations under the Services Directive. A formal evaluation of the EPC functioning is foreseen for one year after its launch (2017). Nevertheless, the implementation of the EPC can be considered as successful so far. Difficulties are limited and mostly related to late notifications by some Member States of their requirements (for example regarding documents and fees) and some technical improvements to the IMI system. Since the EPC was made available in January 2016, more than 560 EPCs have already been issued (as of 20/10/17). This significant take-up of the EPC reflects a high demand among professionals. The key features of an EPC have also proved operational on the ground: for instance, tacit approval with ensuing automatic recognition represents up to 15% of the cases. Deadlines for handling applications by Member States have not been an issue in the vast majority of cases, since the IMI provides for an effective monitoring system, including automatic reminders and the involvement of national IMI coordinators in each Member State. 2.2.3.Driver 3 - Insurance coverage in cross-border situations Professional indemnity insurance as compulsory insurance aims to cover risks related to professional liability of service providers and thus functions as a guarantee towards clients for the quality of services. Nevertheless, such insurance may become an impediment to the proper functioning of the Single Market in services, both as regards secondary establishment in another Member State as well as for temporary cross-border services. 1. What is the problem? Professional indemnity insurance is in principle easy to obtain in a domestic market, but can be substantially burdensome in situations in which Member States impose an insurance requirement to providers established in other Member States. There are a number of reasons for this. First, there is a lack of transparency for services providers going abroad. Insurance policies are not always clear regarding whether cross-border activities are covered and, if so, in which specific Member States. This is the case both for mandatory and voluntary insurance covers. This lack of transparency also has a negative effect on consumers, who want a clear confirmation that the service provider has an adequate insurance coverage. In addition, the level of information provided by national authorities on insurance obligations lags behind the expectations and the needs of service providers, in particular SMEs that do not necessarily have the resources to collect the necessary information. InsuranceEurope has therefore already made a call asking for the Points of Single Contact under the Services Directive to offer more information related to national rules on insurance. Second, host Member States do not take into consideration the insurance coverage previously acquired in other Member States. In those cases in which the Services Directive allows Member States to impose an insurance requirement on cross-border service providers, Art. 23 of the Directive requires the host Member State to consider the existing insurance policy of a foreign service provider, in order to avoid duplication of insurance obligations. This is based on elements such as the insured risk, the insured sum and possible exclusions from the cover. Member States have nevertheless only transposed this rule formally with no practical effect for cross-border service providers on the ground. Member States confirmed in the expert group on the implementation of the Services Directive (in 2014 and 2015) that they did not undertake any concrete steps to make any equivalence assessment work in practice. Third, there are large differences regarding obligations on professional indemnity insurance between different Member States within the same services sector (see annex 5). To adapt to the local circumstances in host Member States will evidently be more difficult for SMEs and small insurers than for big companies and insurers with large international networks and experience. 2. What is the impact of this problem driver? It is not possible to quantify the number of cross-border transactions that have been annulled or frustrated because of problems of obtaining adequate coverage for professional indemnity, but it is recurring theme in the contacts that the Commission has with stakeholders: A public consultation conducted in 2013 confirmed that many SMEs and professionals continue to find it hard to obtain insurance cover for their activities in other Member States. More than 20% of service providers active cross-border highlighted that they face difficulties in obtaining the necessary insurance cover; Insurance requirements as an obstacle to cross-border activities were also highlighted in workshops carried out by the Commission in 2014 and 2015 in the context of the Single Market forum;

A public consultation in the context of the Green paper on retail financial services confirmed this (2016); The 2016 public consultation in the context of this impact assessment showed that 44% of the respondents – mainly the demand side – favour action at EU level to address these issues. 2.2.4.Driver 4 – National regulations in key business services with negative spill-over effects to other sectors The Services Directive obliged Member States to eliminate from their legal orders or make less stringent a number of requirements for provision of services in their territory. Nevertheless, implementation of the Directive has been only partially successful. Key business services are among the sectors where the largest number of barriers remains across the EU. 1. What is the problem? Section 1.2 explained why this initiative focuses on business services and construction. Problem drivers 1 to 3 are relevant for these two sectors. This problem driver on the other hand has a more narrow scope on a number of particular business services sectors. The reasons for this are the following. Firstly regarding construction services, some construction service providers and national construction federations signalled that restrictive regulatory issues were still in place in many Member States. This is also in line with a recent Commission study looking into the regulatory framework of construction markets across the EU. Nevertheless, the social partners in the construction sector and associations at EU level have indicated the need for additional clarifications. They do not support an initiative that would address regulatory obstacles in construction. In this context, national regulations governing access and exercise of construction services as well as their impact require further analysis and discussion with stakeholders. These issues could be treated in an upcoming Action Plan for the construction sector which would follow up to the 2012 Communication on sustainable competitiveness of the construction sector. Secondly, the business services sector includes a large range of services sectors. On the one hand, there are business services (including management consultancy, computer services, services to buildings, office administrative and support activities) where specific regulatory obstacles to enter the market are inexistent or very rare. On the other hand, there are highly regulated business services where regulatory obstacles are widespread across Member States. This mainly concerns large business services (in scope of the Services Directive) of accounting, architectural and engineering services. These sectors cover about 20% of all business services activities. The focus of this problem driver is therefore on these three business services specifically where regulatory obstacles are widespread and internal market integration remains limited (table 2). Table 2 – Business services Business services sector Proportion of business services sector Regulatory obstacles covered by the Services Directive Internal market integration Computer services 16% Limited High Legal and accounting activities 14% Widespread Low Architectural and engineering activities 12% Widespread Low Management consultancy activities 12% Limited High Services to buildings and landscape activities 7% Limited Low Rental and leasing activities 7% Some Medium Office administrative and support activities 7% Limited Medium Advertising and market research 4% Limited/Some High Information service activities 3% Limited Medium Scientific research and development 2% Limited High Other 17% N/A N/A Source: Eurostat, Commission analysis Some of the regulatory obstacles in accounting, architectural and engineering services have been almost completely removed following the introduction of the Services Directive (such as restrictions on advertising or tariffs) or are being addressed by recent infringement action by the Commission. Nevertheless, there are a number of regulatory obstacles in these sectors that are still widespread across many Member States. These include: Authorisation requirements for companies; Restrictions on legal form, shareholding/voting rights and management structures; Limitations on multidisciplinary activities. Several Member States impose restrictions through authorisation schemes on service providers as regards their legal form, their shareholding structure, the allocation of voting rights, management positions and multidisciplinary activities. These rules are meant to protect the independence of the professionals. Nevertheless, they are potentially serious obstacles for service providers that want to become active cross-border, given that such restrictions might oblige them to change their legal form, shareholding or management structure or even their overall business model. This is de facto a prohibition of entry because a company would be forced to change its corporate structure or even to replace shareholders by others in order to establish in another Member State. Requirements of this type are present in 17 Member States for architectural services, 14 Member States for engineering services and 10 Member States for accounting services. These requirements present very different levels of restrictiveness. They are in place for secondary establishment situations. Regarding temporary provision of services, the regulatory framework in many Member States is unclear as legislation does not refer to this manner of service provision at all (as highlighted in problem driver 1). In exceptional cases, these restrictions are even explicitly imposed on temporary cross-border service providers. Annex 5 gives more detailed information on the presence of these requirements and of their degree of restrictiveness across Member States for the three business services sectors covered (accountants, architects and engineers), including the most restrictive ones that are currently the object of an infringement procedure. Some aspects of these barriers could be addressed by enforcing Article 14, 15 and 25 of the Services Directive. Building on the results of the 2012 peer review with Member States, enforcement action against some of the most restrictive requirements of this type has been launched by the Commission and is ongoing. Enforcement may however not be suitable to ensure full regulatory convergence in all Member States. 3. What is the impact of this problem driver? Regulatory obstacles in business services (and in particular the sectors of accountants, architects and engineers) are leading to less cross-border trade and investment and in general limit productivity growth with negative spill-over effects to other sectors.

First, stakeholder feedback shows that these regulatory obstacles make it difficult to become active cross-border: Workshops and surveys held by the Commission throughout the EU in 2014 and 2015 showed that 79% of companies have encountered problems with registration and authorisations when providing cross-border services. In addition, stakeholders also indicated that the variation of legal form and shareholding requirements across Member States is a barrier, both to cross-border provision and to establishment; The public consultation in 2016 showed that more than 60% of respondents consider regulatory barriers in business services to be an issue of concern. For example, more than 40% consider legal form requirements as an obstacle and about 30% consider shareholding restrictions as a barrier to cross-border activities. Second, the presence of barriers such as authorisations and restrictions on corporate form and multidisciplinary activities represent market-entry costs for undertakings which increase with the overall level of regulation in the host Member State but also with differences in regulation between Member States. These differences require the service provider to make an additional "investment" for each Member State it enters. As a result, these obstacles limit cross-border activities in several ways. Firstly, they reduce cross-border trade in these sectors. Secondly, also sales through foreign establishment in business services are negatively impacted by obstacles such as legal form requirements and restrictions on multi-disciplinary activities. Finally, they also make entry in the market or scaling up by national players more difficult. Regulatory obstacles in these sectors have a larger impact on SMEs than on large multinational companies. Currently, these sectors are characterised by micro undertakings focusing only on domestic clients on the one hand and large multinational companies on the other. Only few SMEs providing business services such as accounting, architecture and engineering services are operating in other Member States. This lack of medium sized companies in the business services sector has been identified as the "missing middle" by the 2014 HLG on business services. On a more macro-economic level, the presence of these regulatory obstacles limits competition and productivity growth in these sectors. Member States with more restrictive regulatory barriers see on average less new companies entering the market hereby limiting competition. As a result, these sectors experience a less efficient flow of resources leading to lower levels of allocative efficiency. In addition, a malfunctioning business services sector has a wider effect on users of such services. Regulatory barriers in business services have a negative impact on the value added, productivity growth and exports growth rates of the economic sectors using these services. More restrictive regulation in business services such as accounting, architecture and engineering services lead to larger-than-average profit rates in the sectors concerned. More intensive competition is liable to drive prices down to the benefit of its users. 2.3.How would the problem evolve, all things being equal? All things being equal the problem and underlying problem drivers described and explained above would remain largely in place. First, regarding problem drivers 1 and 2 the principles and rules in the Services Directive calling for administrative simplification and administrative cooperation do not allow for enforcement activities. Progress in this regard without a new tailored policy initiative would remain dependent on the good will of Member States. A particular concern is the lack of structured workflows to facilitate cooperation between Member States. Second, regarding problem driver 3 a general principle of mutual recognition of insurance coverage obtained in another Member State is established but Member States have not put it into practice. Insurers are mostly driven by domestics markets and have no incentive to help SMEs going cross-border with proportionate solutions. Without the introduction of specific rules to address these issues, the situation is likely to continue, making it difficult for cross-border service providers to get the required insurance coverage or forcing them to acquire expensive coverage, not suited to their needs. Finally, regarding problem driver 4 a few of the restrictive regulatory conditions identified could also be addressed through enhanced and continued enforcement action against Member States. For example, about 40 EU pilot procedures have been launched in relation to compliance with Articles 14, 15, 16 and 25 of the Directive. This includes, for example, enforcement action against unjustified or disproportionate legal form, shareholding, management and multidisciplinary restrictions. Nevertheless, while enforcement may help remove disproportionate restrictions, it would not eliminate all regulatory divergence across Member States. Service providers would thus continue to face diverging access conditions for the foreseeable future. In addition, the Commission also issued country specific recommendations related to these issues which were not implemented by Member States or only to a limited extent. This work stream will soon be complemented through forthcoming specific recommendations to Member States as regards specific reform needs on the regulation of seven professions, including architects, engineers and accountants. These specific recommendations take account of the whole regulatory framework applicable to the profession in question in each Member State, including legal form, shareholding and multidisciplinary restrictions. 3.Need for action at EU level 3.1. Legal base for the EU to act Depending on the policy option chosen, this initiative could propose that the Union takes legislative action in accordance with Article 4(2)(a) TFEU in order to facilitate the free movement of services within the single market, further developing and implementing the general principles of right of establishment and freedom to provide cross-border services enshrined in Articles 49 and 56 TFEU, respectively, as well as in the Services Directive. This legislative initiative could be comprised of a Directive, introduced under Articles 50(1) and 53(1) TFEU, for matters dealing with access to services markets, and a Regulation, introduced under Article 114 TFEU, including provisions facilitating administrative formalities. 3.2.Value-added of action at EU-level There is value added in addressing the problems described at EU level rather than through individual Member States’ actions. Many Member States have not specifically tackled the barriers addressed by this initiative. The current situation is characterised by insufficient common trust, as a result of which Member States continue to impose their domestic requirements on service providers with little or no regard to the regulatory framework already imposed on the service provider in other Member States where he/she is established. Potential Member States' solutions for regulatory and administrative simplification would also differ across Member States. EU action would ensure that service providers can benefit from a less divergent approach across Member States when expanding across borders. Against this background, various political calls have been made by the European Council and the Competitiveness Council to provide targeted solutions to simplifying access to services sectors. 4.Objectives

4.1. Policy objectives The general objectives of this initiative are to enhance market integration in business services and construction and improve productivity growth in both sectors. Building on the identified problem drivers which identified certain obstacles to the single market in business services and construction, the specific objectives of this initiative are to: Objective 1: Make it easier and less costly for companies to provide services in other Member States. Problem drivers 1, 3 and 4 highlighted concrete difficulties that individual service providers potentially face when starting to provide services in another Member State. These are of administrative and regulatory nature (including insurance requirements). This initiative aims to provide practical solutions that make it easier and less costly for a service provider to go cross-border. Objective 2: Inject more confidence in the market towards foreign service providers by increasing transparency and available information A lack of well-structured mechanisms for cooperation between Member States (problem driver 2) and specific issues related to insurance (problem driver 3) create obstacles for service providers to go cross-border. In addition, they also limit information available for consumers and overall transparency on cross-border service providers. On the one hand, the lack of cooperation between Member States leads to a situation whereby existing information on service providers is not always offered to the host Member State and their consumers in a transparent way. This includes information available to the home Member States' authorities on the track record and good repute of the service provider. In addition, this also includes specific issues on insurance (e.g., information on whether service providers have an adequate insurance coverage). This lack of information and transparency potentially harms confidence in the market towards foreign service providers. This initiative aims to provide practical solutions for this as well. Objective 3: Enable increased market dynamics and competition leading to more choice and value added for customers (linked to problem drivers 1 and 4). Problem drivers 1 and 4 make it difficult for service providers to go cross-border. This not only increases costs for these individual service providers but also leads to more macro-economic effects of subdued competition, with negative effects for consumers. In particular regarding problem driver 4, these effects are not constrained to the single market but also have a negative influence on the domestic market. In view of this, this initiative tries to enable increased market dynamics and competition leading to more choice and value added for customers. 4.2.Consistency with other EU policies and the Charter for fundamental rights There are a number of forthcoming initiatives of the Commission which are related to the initiative under analysis here. As regards IT platforms, these include the Electronic Exchange of Social Security Information (EESI) system, initiatives on the interconnection of company registers (BRIS) and the extension of the Mini One Stop Shop for VAT. The EESI system brings together more than 15,000 social security institutions through an electronic network as of 2019. The transmission of A1 documents will happen exclusively through this channel and not through the European Services e-card (IMI). BRIS will be operational as of mid-2017 and offer wider access to company data. VAT MOSS will reduce costs for foreign service providers in the area of VAT formalities as of 2021 onwards. In addition, a few actions announced in the Single Market Strategy are also related to this initiative. The Single Digital Gateway (SDG) aims at improving access to online information for all cross-border situations business and citizens are facing in the Single Market. As to business, this concerns information regarding starting and scaling up a business, employment of staff, taxation, selling products and providing services abroad, certification and labelling as well as funding opportunities. The initiative would also cover information relevant for citizens (such as travelling, work and retirement, health care, etc.). In the same vein, the initiative might cover obligations for Member States to put in place and to optimise national online procedures such as tax registration and public procurement. Finally, existing national and European e-government portals (such as points of contact under the Services Directive, the product contact points, European Consumer Centres, YourEurope) would be strengthened and synergies built. The initiative is planned to be presented in spring 2017. Its scope (all business as well as citizens) is much broader compared to the two services sectors dealt with in this impact assessment. It does not foresee an EU-level procedure allowing for case-by-case cooperation between Member States. On the other hand, both initiatives are building a more coordinated e-governance structure at European level and in Member States for all relevant single market areas, including services. They will therefore complement each other in reducing administrative burden for service providers. Whereas the initiative under analysis in this impact assessment aims to simplify sector-specific procedures (e.g. sector-specific licences), the SDG aims to allow service providers better access to information on applicable rules and more straightforward ways to complete horizontal procedures (e.g., registering for VAT). Under the Single Market Strategy, the Commission also announced guidance on reform needs for regulation of professional services. The Directive on the recognition of professional qualifications (Directive 2005/36/EC) was subject to a major reform in 2013. That reform not only introduced the European Professional Card, it also imposed obligations for Member States to launch a major transparency process and to undertake a mutual evaluation of all regulated professions (also covering areas of business services). In December, the Commission will present the results of the mutual evaluation and whether it sees further need for reforms of regulated professions. The purpose of this guidance is primarily to promote national reforms (through recommendations rather than regulatory means) alongside the country specific recommendations the Commission presents in the framework of the European Semester. Accordingly, it is also complementary to the present impact assessment. Consistency with these initiatives will be ensured by close cooperation with all departments and DGs concerned within the Commission. Regarding the Charter of fundamental rights, several of its provisions will be implemented by this initiative. Further information is provided in annex 6. 5.Policy options 5.1.Baseline scenario: No EU policy change This option means no new action will be taken at EU level and serves as the benchmark against which the other options will be assessed, as described under section 2.3. This includes continuing the recent active enforcement policy against the most restrictive requirements. 5.2.Overview of different policy options

The policy objectives can be addressed through a combination of different policy options. These options will be described in section 5.3. Potential combinations of the options ("packages") will be outlined in section 5.4. The impact of these packages of options will be described in section 6. The following policy options will be outlined: 1.A European Services e-card attesting legal establishment; 2A. A European Services e-card for a more ambitious administrative simplification; 2B. Action to address regulatory obstacles for providers in key business services wanting to set up foreign branches and agencies; 3.Actions to facilitate access to insurance in a cross-border context; 4.Harmonisation of requirements for certain business services. The scope of sectors addressed by the options 1, 2A and 3 is business services and construction. These options focus on administrative simplification. Options 2B and 4 have a more narrow scope, focusing on a limited number of regulatory obstacles in certain business services (accountants, architects and engineers). The reasons for this more narrow scope (regarding options that address regulatory obstacles) have been outlined in problem driver 4. 5.3.Description of policy options 5.3.1.Policy option 1: European services e-card attesting legal establishment Purpose The purpose of this option would be to offer an electronic certificate to a service provider to demonstrate in which Member State he/she is established. To this end, he/she would be entitled to obtain a standardised electronic certificate, called a European services e-card. The certificate would attest to legal establishment in a ("home") Member State within the framework of the Services Directive. By doing so, it would also increase trust with regard to the service provider in the host Member State. In addition, if (in compliance with data protection rules) the fact that a service provider holds a card is made known to service recipients, these service recipients may feel more willing to hire them. The card would be issued by the home Member State' authorities to the service provider and would be valid throughout the European Union. Any Member State to which the service provider would like to expand operations, temporarily or through a secondary establishment, ("the host member State") would have to accept the certificate as proof of establishment. Accordingly, a host Member State would not (within the framework of the Services Directive) be allowed to contest or require further evidence in relation to the fact that the provider is legally established in the home Member State. A host Member State would continue to impose on service providers those requirements under its national law that apply in line with the Services Directive before he/she/it can start doing business. As a result, Option 1 would not facilitate life for service providers in those situations in which a host Member State requires a prior authorisation before a service activity can commence in its territory. Voluntary nature The certificate would be a voluntary tool the service provider can use or not. The home Member State would be required to issue it if a service provider requests so. If a service has not requested such certificate, a host Member State should allow him/her to proof legal establishment by other appropriate means. Contents The certificate would include the following information about a service provider: Identification, such as name, legal form, registered office (address), business registration number; VAT registration number . Legal establishment in the home Member State for the provision of the service in question, such as mandatory licences, mandatory chamber membership(s). In the case of companies, the corporate structure of the service provider such as legal form, shareholding/voting rights structure, management and (corporate) purpose of the company;

Information about the good repute of the provider (track record about criminal, administrative and disciplinary sanctions relevant for the activities carried out by a service provider). Member States would be required to screen and inform the Commission of all the conditions relevant for attesting legal establishment under their legislation in the implementation phase prior to the launch of the initiative. The goal is to offer a uniform certificate containing the information above. Scope Such certificate would be offered to service providers in business services and construction which are currently governed by the Services Directive and are not subject to specific EU legislation pertaining to internal market integration. It would be available to both natural persons (self-employed, including those involved in unincorporated partnerships) and legal persons (companies, including incorporated partnerships). Operational part 1) A service provider can apply for such a certificate online. To this end, an application form would be offered. The form should be the same for all Member States and it should reflect all components relevant for each Member State in relation to the service(s) in question. 2) When an application is made, the home Member State would be required to issue a certificate if the conditions of legal establishment in its jurisdiction are met. All other Member States should accept such a certificate as proof of legal establishment in the home Member State. 3) The entire workflow would be an electronic process using the functionalities of the Internal Market Information System (IMI) and a public interface linked to it, available online to interested service providers. 4) A coordinating authority in the home Member State should be designated as the single interlocutor for the service provider. Such authority would ultimately be responsible for verifying and completing the information provided by the service provider. To this end, it would communicate with the competent authorities in the home Member State (either through IMI or national channels). 5) The home Member State should ask for documents supporting an application for a European services e-card. It may require that such documents are available in its official language. It may not require translation to the language of other (host) Member States. Those documents would remain available to the home Member State only and would not be transmitted to other Member States. 6) In order to reduce the need for supporting documents, information already available to competent authorities of the home Member State would not have to be submitted by the service provider when submitting the application: -The home MS should use information available to other national authorities to complete the application, unless specific national laws (tax secrecy, data protection) prevent such data processing. This information includes data previously made available by the service provider to the authorities as well as information already available in the administrations themselves if this information is updated; -Similarly, information available via the Business Registers Interconnection System (BRIS)– to be operational in 2017 – and the interconnection of insolvency registers should also be used if technically feasible by coordinating authorities to complete the application or cross-check information. -If applicable, the service provider can also reuse data already provided under the European Single Procurement Document (ESPD) introduced in April 2016. 7) The coordinating authority in the home Member States can charge fees proportionate to the cost for issuing a certificate. 8) A certificate must be issued within one week of submission of a complete application. 9) The certificate under the name European Services e-card would be accessible in all official languages of the European Union, by making use of multilingual forms. It would be made available via IMI to all other Member States. 10) The certificate would be valid for as long as legal establishment in the home Member State persists. It should be updated by the coordinating authority in the event of information changes (for instance change of corporate structure and registration numbers), either ex officio or upon request of the card holder. 11) The certificate would be suspended or revoked by the home Member State if changes to the underlying facts require so, again either ex officio or upon request of the card holder: (i) determination that the holder of the card made use of fraudulent, inaccurate or falsified information while applying for the card;

(ii) sanctions imposing a temporary or permanent ban on provision of services; (iii) permanent shut down of activities in that Member State, including winding-up and dissolution of a legal person; (iv) displacement of place of establishment to another Member State or to a third country; (v) determination that the holder of the card is a worker, rather than a self-employed person; (vi) cessation of establishment for any other reason. 12) Depending on the technical functionalities of interconnected registers such as BRIS and insolvency registers, updates to the information contained in the certificate may occur automatically. The service provider will in any event be obliged to report to the coordinating authority any relevant event impacting the information contained in the certificate. The service provider would be subject to fines for not doing so. The host Member States which received the European services e-card would also be required to exchange relevant information with the home Member State regarding their own supervision of service providers holding a card and providing services in their territory without any delay. 5.3.2.Policy option 2A: A European services e-card for a more ambitious administrative simplification Purpose The purpose of this option 2 would be to build on the certificate presented under option 1 but to be more ambitious. The European Services e-card should not only attest, throughout the Union, to legal establishment of its holder in the home Member State, but also be a tool to support service providers who intend to expand operations in their relations with host Member States. Therefore the underlying procedure prior to the issuance of such a Card would be different compared to option 1. In contrast to option 1, the European services e-card offers additional legal certainty to service providers within a short timeframe about whether they are deemed to comply with any requirements that may apply before they can expand activities to another Member State or not. The European services e-card shall prove this compliance vis a vis authorities and service recipients on the territory of the host Member State. Service providers holding the card will acquire the right to start provision of services in the host Member State, either temporarily or through a secondary establishment. Service recipients will gain enhanced trust in cross-border service providers holding the card and may thus feel more willing to hire their services. When indicating which requirements are applicable in its territory and which requirements are deemed to be complied with by the card holder, the host Member State must fully respect the provisions of the Services Directive. Voluntary nature The European services e-card would be a voluntary tool that service providers can use or not. If a service provider has not requested a card, host Member States would require that the provider shows compliance with those requirements that may apply in line with the Services Directive before he/she/it can start doing business in the same way as they do now. Scope There would be no differences in scope compared to option 1. The scope of this option would also be the same for cases of temporary cross-border provision and secondary establishment. Impact on prior control schemes in the host Member State More generally, the host Member State would not be allowed to use this initiative for introducing new prior controls that are not in line with EU law on foreign service providers. If national law, including administrative practice, currently imposed such prior controls to start doing business, the future card procedure would replace such controls . In assessing applications for the European services e-card, Member States shall retain the right to invoke overriding reasons of public interests recognised under Directive 2006/123/EC, in particular Article 16 thereof, or other acts of EU law. In addition, service providers would benefit from the following simplification : uncertainty as to which requirements apply when going cross-border (host Member States will be obliged to clarify which requirements apply in their specific situation); filling-in disparate forms in foreign languages (applicants would rather fill-in one harmonized form in their own language, to be automatically translated as a multilingual form and partially completed by the home MS); producing various supporting documents (the declarations in the form, attested by the home MS, will serve as sufficient proof in most cases - exceptionally documents will need to be uploaded, but the administration in the home Member State administration will upload documents in its possession);

translating, certifying/authenticating documents (documents would be accepted in simple format); producing original or certified copies of documents (documents would be accepted in simple copy format); non-electronic procedural steps, sometimes requiring the physical presence of the service provider (all card procedural steps will be fully electronic and at a distance) relating to foreign and foreign-speaking host MS authorities (card applicants would instead talk to just one coordinating authority, in their home MS, in the language of that home MS). The holder of a European services e-card would however not been exempted from ex-post controls which may be applicable to service providers to the extent that they are compliant with EU law. Host Member States will, however, not be allowed to replicate controls on issues already addressed by the issuance of a European services e-card. For instance, if a host Member State failed to act within the prescribed timelines, it cannot come back on the grounds on which it could have opposed the issuance of a European services e-card, retroactively revoking it, unless it is proved that the information provided to it was erroneous. Other controls schemes and formalities required when starting doing business under national law governed by other horizontal pieces of legislation rather than the Services Directive, such as recognition of professional qualifications under the Directive on recognition of professional qualifications, registration of legal persons and branches under EU (and national) company law and tax and social security registrations, would however remain applicable. These additional control schemes and formalities should still be complied with, including once the card has been issued and before service provision has started. However, the host Member State would be obliged to accept the information in the certificate of legal establishment in the context of these other control schemes and formalities. This way, the service provider would be required to submit the same information only once. At the same time, this would not prejudice the ability of competent authorities responsible to ask the service provider for other information that is required under national substantive requirements under these other control schemes and formalities. Furthermore, technical facilities regarding the secondment of staff could also be made available as associated modules to the card. The functionalities of this option for temporary cross-border provision (5.3.2.1) and secondary establishment (5.3.2.2) will be described separately. The possible technical facilities linked to secondment of staff will be described in section 5.3.2.3. 5.3.2.1.A European Services e-card for temporary cross-border provision A service provider holding a European services e-card issued by the home Member State for temporary cross-border provision would be allowed to start doing business in a given host Member State without further control schemes and formalities falling under the Services Directive. Existing controls that may exceptionally apply to start doing temporary cross-border business would be replaced by the controls prior to issuing the card introducing a streamlined EU-level procedure. This procedure would frame the application of Art. 16 of the Services Directive in order to remove the current uncertainty temporary cross-border providers face. In the few Member States where specific rules for temporary cross-border services have been introduced, current controls in the host Member State would be simpler and faster. Impact on prior controls and requirements applicable in the host Member State If a service provider chooses to apply for a European services e-card, he chooses a European workflow in which the home Member State clarifies the legal situation in its home Member State and the host Member State needs to react quickly whether there are reasons to object to the service provider starting doing business and judge within a short timeframe whether such refusal is justified within the boundaries of the Services Directive, notably Article 16 thereof. If the host Member State fails to act within prescribed time limits, a European services e-card is issued to the interested service provider by the home Member State and the host Member State can no longer challenge such a card unless it is proved that it was issued on the basis of erroneous information or that the provider no longer meets the necessary conditions. This does not preclude a host Member State from applying requirements and ex-post controls if compatible with Article 16 of the Services Directive. Contents of a European services e-ca