COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 03.05.1995 
COM(95) 162 final 
Communication from the Commission to the Council 
and the European Parliament 
on the role of penalties in implementing 
Community internal market legislation 
Communication from the Commission to the Council 
and the European Parliament 
on the role of penalties in implementing 
Community internal market legislation 
INTRODUCTION 
Following the intense legislative activity required in order to establish the internal market, 
the Community is now focusing on the effective operation of the common rules introduced. 
In particular, it needs to ensure that Directives are correctly incorporated into national law 
and, more generally, that Community measures are effectively implemented. This involves, 
among other things, deploying appropriate human and material resources, expanding 
administrative cooperation between the various bodies responsible for implementing the 
common rules, and providing natural and legal persons who suffer harm as a result of 
breaches of internal market rules with access to effective means of redress. 
As regards the last area mentioned, in its communication to the Council entitled "Making 
the most of the Internal Market: Strategic programme" (COM(93) 632 final of 
22 December 1993) the Commission stressed the need to improve the transparency of 
national arrangements for imposing penalties in the event of non-compliance with 
requirements deriving from the common rules. 
Section B.III of the strategic programme ("Redress: Access to justice and judicial 
cooperation") expressly provides for the Commission to recommend: 
"improving the transparency of national sanctions by requiring that they be 
systematically notified [by the Member States] with transposition measures; 
appropriate provisions will be written into future legislative proposals in the Internal 
Market area and Member States will be asked to communicate information in 
relation to existing legislation. " 
Since the effectiveness of penalties forms an integral part of the overall machinery for 
ensuring that the internal-market rules are implemented, the purpose of this communication 
is to inform the Council and the European Parliament of the Commission's reasoning and 
plans with regard to this particular aspect of the strategic programme. This communication 
constitutes initial guidelines in a more comprehensive framework for discussions. 
I. PENALTIES THAT ARE EFFECTIVE, PROPORTIONATE AND DISSUASIVE 
Article 5 of the Treaty establishing the European Community stipulates that: 
"Member States shall take all appropriate measures, whether general or particular, to 
ensure fulfilment of the obligations arising out of this Treaty or resulting from action taken 
by the institutions of the Community." 
The Court of Justice has ruled that, where Community legislation does not specifically 
provide any penalty for an infringement or refers for that purpose to national laws, 
regulations and administrative provisions, Article 5 of the Treaty requires the 
Member States to take all measures necessary to guarantee the application and effectiveness 
of Commumty law, in particular by making the penalty chosen effective, proportionate and 
dissuasive.1 
As in any legal system, it is important to deter those bound by Commumty law from 
neglecting their obligations and to ensure that any infringement is duly penalized. 
Accordingly, only a consistent approach to the question of penalties in the infernal-market 
context is capable of ensuring both fair competition under fair trading conditions and the 
protection of those aspects of the general good covered by common rules. 
Ensuring fair competition under fair trading conditions 
Since compliance with internal-market legislation imposes direct or indirect costs on 
businesses, the potential benefits of non-compliance (short-term profit or evasion of 
common restrictions) should not outweigh the penalties incurred - as is the case, for 
example, if penalties are insignificant or only hypothetical. 
In some cases, the conditions of fair competition would be undermined or harmed by 
deficient national rules on penalties. This could also lead, in certain circumstances, to. 
distortions of competition prejudicial to the free movement of goods and services in the 
Community - something which is totally unacceptable in the internal market. 
Protecting those aspects of the general good covered by common rules 
Yet the importance of ensuring compliance with internal-market legislation extends far 
beyond the economic issues relating to the free movement of persons, goods, services and 
capital. 
In particular, the internal-market rules require the attainment of a high level of protection 
with regard to health, safety, the environment and consumers. 
See, in particular, paragraphs 23 and 24 of the judgment in Case 68/88 Commission v Greece [1989] 
ECR2965. 
2 
The absence of effective, proportionate and dissuasive penalties for infringing Community 
law would, therefore, damage the very credibility of common legislation by exposing the 
Union's citizens and their environment to risks that are unacceptable to the individual and 
to society as a whole. 
II. THE LIMITS OF REFERRAL TO NATIONAL SYSTEMS OF PENALTIES 
Under Community law, implicit referral - via straightforward application of Article 5 of the 
Treaty - or explicit referral to national systems of penalties is regarded as the norm, 
whereas defining common penalties remains the exception. This general state of affairs is 
fully in accordance with the subsidiarity principle. 
The Community's legislative activity in the internal-market field is based on need and 
proportionality. 
However, such a position is politically and socially tenable only if national systems of 
penalties and the way in which they are applied do not jeopardize the effectiveness, 
proportionality and dissuasiveness of the penalties in question. 
Consequently, the existence of different national systems of penalties is compatible with the 
proper functioning of the internal market only if those characteristics are respected by all 
concerned, if need be via adaptation of those national systems. 
It follows from the case-law of the Court of Justice that, where Community legislation does 
not specifically provide any penalty for an infringement or refers for that purpose to 
national laws, regulations and administrative provisions, the Member States, while 
remaining free in their choice of penalties, must ensure in particular that infringements of 
Community law are penalized under conditions, both procedural and substantive, which are 
analogous to those applicable to infringements of national law of a similar nature and 
importance and - the Court adds - "which, in any event, make the penalty effective, 
proportionate and dissuasive".2 
Accordingly, where the effectiveness, proportionality and dissuasiveness of the penalty 
would not be guaranteed by applying an existing national system of penalties, the 
Member State concerned must either choose another system of penalties that satisfies those 
criteria, adapt its existing system or introduce a special system in order to meet the 
requirements deriving from Article 5 of the Treaty. 
According to the well-established case-law of the Court of Justice, a Member State may not 
plead provisions, practices or circumstances existing in its internal legal system in order to 
See paragraph 24 of the judgment referred to in footnote 
3 
justify applying a national system of penalties that does not comply with its obligations 
under Commumty law.3 
There is no apparent reason to believe that, where a Member State determines the penalties 
relating to the Community or national rules applicable, those penalties will not be effective, 
proportionate and dissuasive, since it is in that country's interest as a State based on the 
rule of law - in terms of the confidence both of its -own nationals and of the other 
Member States of the Union - to ensure that the rules applicable on its territory are 
effectively enforced. 
Nevertheless, given the - in some cases - significant differences noted by the Commission in 
the course of assessing the transposai and application of the common rules, it is important 
to ensure that national systems of penalties are sufficiently transparent. for their 
effectiveness, proportionality and dissuasiveness to be confirmed. 
A particularly good example: public procurement 
The internal market comprises an area without internal frontiers within which goods, 
persons, services and capital are able to move freely in accordance with the provisions of 
the Treaty. Community internal-market legislation, therefore, covers a diversity of fields 
including foodstuffs, financial services, the recognition of diplomas, means of transport and 
communication, direct and indirect taxation, and the right of residence. It takes into account 
the need to protect such important aspects of the general good as public health and human 
life, the environment, industrial and commercial property, the fairness of commercial 
transactions, and consumers. 
However, it is not necessary to look at each of these areas in order to understand the limits 
of referral to national systems of penalties. Community legislation on public procurement 
provides by itself an example that is all the more significant because it expressly requires 
Member States to provide for remedies and to impose certain penalties if the rules 
applicable are breached. 
In spite of these specific provisions, the transposai of the directives concerned4 is hardly 
satisfactory and has already led the Commission to institute infringement proceedings 
against several Member States. 
See, in particular, the judgment in Case C-74/89 Commission v Belgium 119901 ECR 1-491, confirmed 
inter alia by that in Case C-217/88 Commission v Germany [1990] ECR 1-2879. 
Council Directive 89/665/EEC of 21 December 1989 on the coordination of the laws, regulations and 
administrative pre virions relating to the application of review procedures to the award of public supply 
and public work' ontracts, and Council Directive 92/13/EEC of 25 February 1992 coordinating the 
laws, regulations arid administrative provisions relating to the application of Community rules on the 
procurement procedures of entities operating in the water, energy, transport and telecommunications 
sectors. 
4 
The Commission's reasons for doing so include the following: 
the review body is not an independent court or tribunal within the meaning of 
Article 177 of the EC Treaty; 
that body has insufficient powers (in certain cases, it is unable to order interim 
measures or has difficulty in doing so), or its powers are confined to certain types of 
contract. 
Consequently, firms do not always have access to effective means of redress when they 
consider that their interests have been harmed, and the effectiveness of the relevant national 
penalties is weakened as a result. 
In some instances, the penalties' proportionality and dissuasiveness can likewise be 
jeopardized: compensation arrangements are a case in point. 
The public procurement directives do not lay down detailed rules regarding the amount of 
compensation. Consequently, in some Member States it is minimal, covering -for example -
only the costs incurred in the course of submitting a bid, while in others it covers the firm's 
loss of earnings (i.e. the profit that the firm would have made had it been awarded the 
contract). 
Given the economic importance of each contract covered by the directives (more than ECU 
200 000 for each supply contract, and more than ECU 5 million for each works contract), it 
can hardly be disputed that the significant difference in compensation arrangements affects 
how awarding authorities and firms behave. 
This situation can sometimes create distortions in competition, thereby jeopardizing the free 
movement of the goods and services concerned within the internal market. 
That is why, in addition to examining national legislation, the Commission is attempting to 
assess their actual implementation. Accordingly, an analytical grid has been proposed 
within the framework of the Advisory Committee for Public Procurement, but it has not yet 
been possible to perfect the grid owing to inexplicable difficulties experienced by the 
national authorities in transmitting the relevant data. 
III. LESSONS AND CONCLUSIONS 
A Community issue 
In public procurement, as in the other areas of the internal market, the effective 
implementation of Community legislation depends on several indissolubly linked factors. 
The effectiveness, proportionality and dissuasiveness of the penalties for breaching 
Community law depend, in the first place, on the common rules being transposed and/or 
implemented correctly and effectively, and on sound administrative cooperation which is 
itself based on transparency. 
In its communication to the Council and the European Parliament on the development of 
administrative cooperation in the implementation and enforcement of Community legislation 
in the internal market (COM(94) 29 final of 16 February 1994), the Commission stressed 
that uneven or incomplete application of Community law would not only reduce the overall 
benefits of the internal market and affect the interests of the citizens or enterprises 
concerned but also jeopardize the mutual confidence which underlies the whole 
internal-market structure.5 
In its resolution on the same subject, the Council itself noted that it is essential for the 
proper functioning of the Community to increase mutual confidence and transparency 
between administrations and thereby ensure that Community legislation is enforced 
effectively, efficiently and uniformly in all Member States.6 
The penalties issue is not, therefore, one which is purely national in scope and which can 
be viewed separately from the general problems associated with the operation of the internal 
market. 
Sectoral solutions 
Nevertheless, as explained above, both the scope of internal-market legislation and the 
specific nature of the areas it covers necessitate a pragmatic and sectoral approach to the 
question of penalties. 
In some cases custodial penalties may be necessary (as in the suppression of the 
money-laundering operations addressed by Directive 91/308/EEC7), while in others civil 
liability may be appropriate (such as for the non-fulfilment of obligations under contracts 
concerning package travel, package holidays and package tours as provided for in Directive 
90/314/EEC8) 
This pragmatic, sectoral approach is already illustrated in other areas of Community 
legislation, such as the Common Agricultural Policy, the Common Fisheries Policy and the 
Common Transport Policy (areas in which penalties often range from pecuniary sanctions to 
the withdrawal of a "licence", a "permit" or an "authorization"), or in the work in progress 
on the protection of the Community's financial interests. 
See point 11 of Annex 1 ("state of play") to the communication. 
Council resolution of 16 June 1994 on the development of administrative cooperation in the 
implementation and enforcement of Community legislation in the internal market (OJ No C 179, 
1.7.1994, p. 1). 
Council Directive of 10 June 1991 on prevention of the use of the financial system for the purpose of 
money laundering, OJ No L 166 , 28.6.91 p. 77 
Council Directive of 13 June 1990 on package travel, package holidays and package tours, OJ No L 
158, 23.6.90 p; 59 
6 
The advent of the internal market has highlighted the fact that Member States are jointly 
responsible for administering the common external frontier. It was this consideration, in 
particular, which led the Heads of Member States' Customs Administrations to declare, in 
their December 1993 statement concerning a framework strategy for Customs 2000, that 
"our services will, in cooperation with the Commission, examine and report in 1994 on the 
range, classification and degree of seriousness of customs infractions ... taking account of 
the provisions of the Community Customs Code". 
The public-procurement field is a further example which clearly demonstrates that the 
possibility of introducing common penalties or systems of penalties within the internal 
market should not be dismissed out of hand. 
Only if the national systems of penalties for non-fulfilment of obligations under Community 
law are transparent can the Commission 
ensure that those national systems are effective, proportionate and dissuasive, and 
thereby confine Community action as regards penalties to what is strictly necessary 
in order for the internal market to function properly in each sector concerned. 
Transparency alone is the key to mutual confidence and an indication of a common desire 
not to conceal any problems. 
At the same time, transparency in no way prejudges any action which the Community might 
choose to take in individual sectors so as to ensure that the internal market functions 
properly. 
Practical measures for the Commission to consider 
In its role as guardian of the Treaty, the Commission is required to ensure that directives 
are correctly incorporated into national law and, more generally, that Community law is 
implemented effectively and efficiently. 
Accordingly, the Commission will see to it that, from now on, measures whose notification 
is expressly required by Community provisions stipulate the relevant penalties. As stated in 
the strategic programme on the internal market, appropriate provisions will inter alia be 
written into future proposals for directives or regulations relating to the internal market (see 
examples of standard clauses given in the annex to this communication). 
However, transparency is also called for in administering the existing body of Community 
law. That is why, in the context of monitoring the transposai and implementation of 
Community law, Member States will be called on to notify - where they have not already 
done so - all relevant information regarding their systems of penalties, and research will be 
undertaken in the sectors requiring further work. 
Where necessary, and within the limits of its power of initiative, the Commission will take 
measures and/or make proposals with a view to resolving in an appropriate manner any 
sectoral problems that arise in connection with penalties. If need be, those measures and/or 
proposals may mvolve the introduction of common penalties that satisfy the criteria of 
effectiveness, proportionality and dissuasiveness required in order to implement Community 
internal-market legislation. 
Practical measures for the Council and the Member States to consider 
When discussing the memorandum from the French Presidency on penalties for breaches of 
Community law and its effective implementation , the Council will have the opportunity to 
stress the political importance of this issue for the proper functioning of the Community in 
general, and the internal market in particular. 
A clear and firm political commitment by the ministers responsible for the internal market, 
supported by the Heads of State or Government of the Member States within the European 
Council, should make it possible to rally support among the national authorities for mutual 
transparency with regard to penalties and should enable the Council and the Member States 
to discuss openly and constructively the solutions which the Commission will, if necessary, 
propose in this area. 
Such a commitment would be in line with the declaration on the implementation of 
Community law (No 19) annexed to the final act of the Treaty on European Union 
CONCLUSION 
By means of this communication, the Commission calls on the Council and the 
European Parliament: 
to take note of its initial guidelines on penalties in the Internal Market field; 
to confirm the need for national systems of penalties in this area to be transparent: 
to give a firm commitment to supporting work on penalties, particularly in the 
following sectors: public procurement, customs legislation; 
to undertake to discuss openly and constructively the sectoral proposals which the 
Commission will be called upon to make during the coming months in order to ensure that 
penalties for breaching the internal-market rules are effective, proportionate and dissuasive. 
ANNEX 
Examples of standard clauses that the Commission intends to include 
in its future proposals for EC regulations and directives 
The following examples, which are purely indicative, in no way prejudge the appropriate 
provisions that the Commission might wish to include in specific or sectoral legislation. 
For regulations: 
"Member States shall lay down the system of penalties for breaching this Regulation and 
shall take all the measures necessary to ensure that those penalties are applied. The 
penalties thus provided for shall be effective, proportionate and dissuasive/Member States 
shall notify the relevant provisions to the Commission not later than ... and shall notify any 
subsequent changes as soon as possible." 
For directives: 
"Member States shall lay down the system of penalties for breaching the national provisions 
adopted pursuant to this Directive and shall take all the measures necessary to ensure that 
those penalties are applied. The penalties thus provided for shall be effective, proportionate 
and dissuasive. Member States shall notify the relevant provisions to the Commission not 
later than the date specified in Article ... (deadline for transposai of the Directive) and shall 
notify any subsequent changes as soon as possible." 
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ISSN 0254-1475 
COM(95) 162 final 
EN M 10 
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ISBN 92-77-88412-6 
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