EUROPEAN COMMISSION Brussels, 10.1.2017 SWD(2016) 434 final COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a Directive of the European Parliament and of the Council on the enforcement of the Directive 2006/123/EC on services in the internal market, laying down a notification procedure for authorisation schemes and requirements related to services, and amending Directive 2006/123/EC and Regulation (EU) No 1024/2012 on administrative cooperation through the Internal Market Information System



{COM(2016) 821 final}

{SWD(2016) 435 final}



Table of Contents 1. Context and background 1.1. Scope 1.2. Legal context 1.2.1. Services Directive 1.2.2. The Single Market Transparency Directive & other instruments 1.3. Economic context 2. Problem definition 2.1. Ineffective notification procedure fails to prevent the introduction of unjustified and disproportionate regulatory barriers in services 2.2. The drivers of the problem 2.2.1. Driver 1 Limited possibilities to prevent disproportionate national regulation 2.2.2. Driver 2 Ineffective Decision powers 2.2.3. Driver 3 Lack of thorough proportionality assessments 2.2.4. Driver 4 Limited scope of requirements covered by the current notification obligation 2.2.5. Driver 5 Unclear legal consequences when the notification obligation is not respected by Member States 2.2.6. Problem tree 2.3. Who is affected, in what ways and to what extent? 2.3.1. Services providers 2.3.2. Services recipients

2.3.3. National authorities 2.4. What is the EU dimension of the problem? 2.5. How would the problem evolve, all things being equal? 3. EU right to act 3.1. Does the EU have the right to act? 3.2. What would be the added value of action at EU level? 3.3. Consistency with other EU policies and with the Charter for fundamental rights 4. Objectives 4.1. General policy objectives 4.2. Specific policy objectives 5. Policy options 5.1. Discarded Options 5.1.1. Including services in the Single Market Transparency Directive 5.1.2. Merging the obligation under the PQD with the notification obligation of Services Directive 5.1.3. Services sectors outside the scope of the Services Directive 5.2. Policy Option 1: Baseline scenario: No EU policy change 5.3. Policy Option 2: Non-legislative initiative (guidelines) 5.4. Policy Option 3: Measures to increase the effectiveness and quality of the notification procedure 5.5. Policy Option 4: Measure to expand the scope and improve coherence of the current notification system 5.6. Policy Option 5: Additional instruments to guarantee compliance by Member States

5.6.1. Policy Option 5a: Instrument to clarify legal consequences of non-notification 5.6.2. Policy Option 5b: Instrument to render inapplicable adopted measures which are incompatible with the Services Directive 5.7. Choice of legal instrument 6. Analysis of impacts Option 1: Baseline scenario Option 2: Non-legislative initiative (guidelines) Option 3: Measures to improve the effectiveness and quality of the notification procedure Option 4: Measure to expand the scope and improve coherence of the current notification system Option 5: Additional instruments to guarantee compliance by Member States 7. Comparison of options 7.1. Comparison in terms of effectiveness, efficiency and coherence 7.2. Preferred option / Justification for no preferred option 7.3. Subsidiarity and proportionality of the preferred option 8. Monitoring and evaluation 9. Annexes 9.1. Annex 1: Procedural information 9.1.1. Identification 9.1.2. Organisation and timing 9.1.3. Consultation of the Regulatory Scrutiny Board 9.1.4. Studies to support the IA

9.2. Annex 2: Stakeholder consultation 9.3. Annex 3: Practical implications of the initiative for the affected parties: who is affected an how 9.4. Annex 4: Estimation of costs for public authorities 9.5. Annex 5: Evaluation report – notification procedure of the Services Directive 9.6. Annex 6 : Glossary



1.Context and background The objective of the Services Directive is to develop the single market for services to allow businesses and consumers to take full advantage of the opportunities stemming from an integrated and competitive services single market. On the basis of the Directive, service providers and recipients should benefit from a freedom of establishment and a freedom to provide services across borders. Generally, the Services Directive covers both purely domestic and cross-border situations. The Services Directive established that national rules restricting the right of establishment and the freedom to provide services falling under the Directive must be non-discriminatory, proportionate and justified by public interest objectives. To ensure that all new legal requirements introduced by Member States fulfil these conditions, the Services Directive provides for a procedure whereby Member States shall notify new or changed legal requirements affecting services. This allows for a verification of whether such requirements are justified, non-discriminatory and proportionate, thus preventing the introduction of new barriers contrary to the Services Directive and contributing to a more integrated and competitive single market for services. Commission assessments undertaken in 2012 and in 2015 have shown that despite a multitude of national reforms following the entry into force of the Services Directive in 2006, many national barriers remain in place - with negative impacts for businesses and citizens. Some of these barriers are due to measures newly introduced by Member States and which the existing notification procedure has not prevented. A Commission evaluation of the existing notification procedure contained in the Services Directive was undertaken in 2015/2016 and revealed a number of important shortcomings (see Annex 5). These include limited possibilities to prevent disproportionate regulation, the limited scope of requirements covered by the current notification obligation, and the absence of consequences of non-notification. Taken together, these shortcomings limit the effectiveness of the existing procedure in preventing the introduction of disproportionate regulatory barriers. A stakeholder consultation undertaken in 2016 highlighted similar shortcomings (see Annex 2). Following its evaluation and in line with calls for policy action by the European Parliament, the EU Council and the European Court of Auditors, the Commission in its Single Market Strategy adopted on 28 October 2015 announced a legislative proposal to improve the delivery of the Services Directive by reforming its notification procedure. 1.1.Scope The objective of this initiative is to improve the enforcement of the existing EU Services Directive through a more effective and efficient notification procedure. The scope of the initiative is therefore limited to the sectors falling under the Services Directive. Services not covered by the Services Directive are in many cases subject to sector-specific EU legislation with their own mechanisms, meaning it is not necessary and would be disproportionate to apply the notification procedure under the Services Directive to these sectors. This policy initiative will not touch upon national measures specifically regulating information society services covered by the notification obligation under Directive (EU) 2015/1535 (Single Market Transparency Directive, SMTD). As the SMTD is considered to be working satisfactorily, there is no need to transfer information society services to the procedure under the Services Directive. This being said, this impact assessment in places refers to the SMTD-system for comparison purposes. 1.2.Legal context 1.2.1.Services Directive According to the Services Directive, Member States have an obligation to notify legislative changes affecting the freedom of establishment (Article 15) and the free movement of services (i.e. temporary cross-border service provision - Articles 16 and 39(5)) to the Commission and to the other Member States.

The obligation regarding establishment is limited to a closed list of national requirements, whereas the obligation regarding free movement of services covers any national requirements unless specifically exempted in Article 17 of the Services Directive. As regards freedom of establishment, the scope of the existing notification obligation is thus not fully aligned to the scope of the Services Directive. Member States must according to Articles 15 and 16 assess whether the requirement in question is non-discriminatory (i.e. not directly or indirectly discriminatory with regard to nationality or place of establishment), justified by an overriding reason relating to the public interest and proportionate (i.e. suitable to achieve the objective pursued, not going beyond what is necessary to attain the objective and not replaceable by less restrictive means to attain the same objective). The Commission examines the compatibility of notified requirements with EU law, and may according to Article 15(7) of the Services Directive, where appropriate, adopt a Decision requesting the notifying Member State to refrain from adopting the requirements or to abolish already adopted national measures. The possibility for the Commission to issue Decisions, however, is limited to requirements affecting the freedom of establishment and does not cover requirements concerning temporary cross-border service provision. Such a Decision is legally binding upon the Member State concerned. Where a Member State does not comply with the Decision, the Commission may issue a letter of formal notice for non-compliance with EU law in the context of an infringement procedure, without previously launching an EU Pilot procedure. Where a Member State disagrees with a Decision taken, it has to take legal action against the Commission in front of the Court of Justice of the European Union (hereinafter 'CJEU'). Freedom of establishment Free provision of cross-border services Covered by 'notification obligation' in original proposal 'COM(2004) 2 for a Directive on services in the internal market' Yes No All measures affecting the specific freedom covered by the notification obligation of the adopted Services Directive? No Yes What needs to be notified according to the Services Directive? Any new laws, regulations or administrative provision Any changes in requirements, including new requirements Specific period for reaction from Commission foreseen in the Services Directive? Yes, 3 months from date of receipt of the notification No Possibility to adopt a Commission Decision foreseen in the Services Directive? Yes No Reference to notification obligation under the Single Market Transparency Directive? Yes No Table presenting the differences between the notification obligation of freedom of establishment and the free provision of cross-border services covered by the Services Directive In 2007, the Commission issued a Handbook on the implementation of the Services Directive. It aims to clarify inter alia the scope of application of the Services Directive and the various obligations provided for in that Directive. It also contains information on the application of the notification provisions. Further guidance was provided by the Commission at various meetings of the Expert Group on the implementation of the Services Directive. EXISTING NOTIFICATION PROCEDURE UNDER THE SERVICES DIRECTIVE The notifying Member State directly uploads a notification into the Internal Market Information system (IMI) containing the following information: • Level of requirement imposed (national, regional, local). • Status of the act with date (or expected date) of entry into force • Specific provision/article in the act that contains the notified requirement • Services activity/ies to which the notified requirement applies • Type of requirement and brief description • Indication of the justification and detailed statement of ground • Proportionality analysis All other Member States and the Commission are informed via an automatic e-mail of the notification and of any subsequent document uploaded into the system. Other Member States and the Commission can upload comments and/or questions on the respective notification in IMI. The notifying Member State is invited to consider these comments and to respond to them again via IMI. The IMI system closes the notification after 3 months from the date of the receipt of the translation of the original notification. 1.2.2.The Single Market Transparency Directive & other instruments

The notification obligation established under the Services Directive complements a previously existing notification obligation established by Directive (EU) 98/34 – now replaced by the Single Market Transparency Directive (SMTD) (EU) 2015/1535 – which establishes a notification obligation for new or changed requirements in the areas of goods and information society services. The notification procedure established under the SMTD consists of the communication by Member States of draft technical regulations to the Commission and the non-adoption of notified drafts thereof during a "standstill period". The Commission and Member States can issue comments and "detailed opinions", which should be taken into account by the notifying Member State. The "detailed opinions" prolong the initial "standstill period". Under the case law of the CJEU, in case the notification procedure is not completed by a Member State, the technical regulations in question are inapplicable by national authorities such as administration and judges. The notification system established by the SMTD ensures the transparency of notifications to stakeholders, which can gain access to notifications through an on-line tool. The revised Professional Qualifications Directive 2005/36/EC includes an obligation for Member States to report changes made to their list of regulated professions. Member States also have to provide every two years a report to the Commission about the requirements which have been removed or made less stringent. Moreover, Member States shall provide the Commission with information on requirements they introduced and the reasons for considering that those requirements are compatible with the Professional Qualifications Directive, within six months of the adoption of the measure introducing such requirements. 1.3.Economic context The EU economy is predominantly a services-based economy with services accounting for 71% of EU GDP and 68% of EU employment (excluding government and public services). Services sectors falling within the scope of the Services Directive (which among others excludes sectors such as financial services, transport services, telecommunication services and health services) amount to 46% of EU GDP. The Services Directive and national reforms adopted following its entry into force until 2014 are estimated to yield 0.9% EU GDP growth over ten years. A more ambitious implementation of the Services Directive could yield up to 1.7% EU GDP growth in addition to what has been achieved so far. Reform progress has slowed in recent years and reforms to abolish or reduce barriers in services have been undertaken by a limited number of Member States only. Some Member States have introduced important new restrictions, while other Member States backtrack on previous reform measures or introduce new barriers to limit the effects of previous reforms. Realising the 1.7% GDP growth potential will depend on both, Member States removing existing obstacles and refraining from introducing disproportionate restrictions that undo the positive impact of reforms. Economic assessments show that reducing regulatory barriers in, for example, business services would generate more intensive competition as a result of more firms entering the market. It would also lead to benefits for consumers in terms of, for example, lower prices (inter alia as a result of reduced profit rates), wider choice or better quality. Lower market access barriers would additionally lead to more performant sectors characterised by a stronger allocative efficiency. Organisations like the OECD, the World Bank and the IMF have carried out studies coming to similar results. 2.Problem definition 2.1.Ineffective notification procedure fails to prevent the introduction of unjustified and disproportionate regulatory barriers in services The objective of the notification procedure introduced in the 2006 Services Directive was to contribute to its effective implementation by preventing new unjustified and disproportionate regulatory barriers from being adopted by Member States, causing new obstacles in the services single market. The procedure was designed as an enforcement tool whereby the compliance of new regulatory measures with EU law would be verified. This would avoid costly and lengthy legal proceedings between the Commission and Member States for newly adopted national laws failing to comply with EU law (infringement proceedings) and regulatory uncertainty and unpredictability stemming from frequently changing regulation (e.g. where a recently introduced measure would have to be amended again as a result of an infringement procedure). The need for an effective notification procedure is confirmed by the fact that Member States continuously review and adjust their services regulation as they take account of new market developments (e.g. emergence of collaborative economy) and policy objectives (e.g. energy certification requirements contributing to climate change objectives). As a result, Member States notified a total of 1639 newly introduced regulatory measures between the deadline for the implementation of the Services Directive at the end of 2009 and the end of 2015. However, an evaluation of the existing notification procedure shows that its initial objective has not been met. This is confirmed by the results of the public consultation undertaken (see Annex 2). One main problem is that not all Member States fulfil the notification obligation: five Member States did not notify any regulatory measure between the end of 2009 and the end of 2015. An additional 10 Member States notified ten or less regulatory measures over this period. At the same time, the top seven notifying Member States account for 86% of all notifications (see Annex 5). As to the reasons why Member States are not notifying, discussions with representatives from Member States held both bilaterally and multilaterally in the expert group on the implementation of the Services Directive pointed to a lack of awareness of the obligation and absence of standard practices, especially among regional public authorities. A lack of any clear consequences in case of non-notification moreover fails to provide incentives for Member States to comply with the obligation. The absence of any consequence of non-notification implies a perverse incentive. Notifying Member States will have their notified measures subject to review by the Commission and other Member States, whereas non-notifying Member States do not. The Commission has undertaken a number of initiatives to ensure Member States' compliance with the notification obligation in the Services Directive. Thus, it has issued a Handbook to explain to Member States how to comply with the Services Directive. Within the context of the Expert Group on the implementation of the Services Directive the Commission also regularly presented data on notifications received, naming, shaming and faming Member States. It moreover organised discussions among Member States to share experience and best practice, and approached non-notifying Member States bilaterally to encourage notifications. Beyond this, however, the possibilities for the Commission to enforce the notification obligation are limited. It is general Commission policy not to open legal action against Member States for non-compliance with procedural obligations, unless there are substantive grounds, i.e. an infringement on substance with EU law. Only in such cases will the Commission in its infringement action addressing the substance of the non-notified requirement also add a point on the non-compliance with procedural obligations. One reason for this is that, in the absence to notify national laws at draft stage, Member State may always rapidly notify a requirement to prevent the Commission from adopting legal action solely for non-notification. Beyond non-notification, the main underlying reasons why the existing procedure has not met its objective are set out in the sub-sections below (problem drivers). As a result of the identified shortcomings, existing notifications and complaints received by the Commission show that Member States have introduced new regulatory requirements that have not met the non-discrimination, justification and proportionality criteria established by the Services Directive. This is illustrated by the fact that from 2009 to 2015 the Commission had to initiate 30 EU Pilot cases against Member States for newly introduced regulatory measures which the Commission considered not to be compatible with EU law. This represents 27% of all EU Pilot cases related to the Services Directive initiated by the Commission over this period, with this share continuously rising: in 2015 the EU Pilot cases against newly introduced regulatory measures represented 40% of all EU Pilot cases initiated under the Services Directive (based on complaints, own-initiative cases and notifications). This is evidence of regulatory requirements being introduced by Member States into their national legislation that raise important concerns over their compliance with the Services Directive.

Mechanisms such as the mutual evaluation process (2010-11), performance checks (2011-12) and peer review (2012-2013) have not reduced the need to ensure an effective notification procedure as they focussed on the reduction of existing regulatory barriers rather than the prevention of new unjustified and disproportionate regulatory measures. In comparison, the notification obligation under the Single Market Transparency Directive (SMTD) applying to information society services and goods is an example of a mechanism more effectively preventing new barriers from being introduced. This is confirmed by a calculation undertaken by CEPS, which developed an effective prevention indicator (EPI) that measured the ability of the SMTD-system to prevent barriers to intra-EU goods trade. Amounting to 9.7% in 2010 and 11.7% in 2011 for the SMTD, the indicator shows that the SMTD prevented a number of national measures from being adopted, which would have been harmful to the proper functioning of the Single Market for goods and information society services. CEPS did not extend the indicator to also cover the services notification procedure, the potential impact of which, however, is likely to be larger than in the area of goods which are subject to harmonised EU rules and the application of the mutual recognition principle in a way that is not the case in services. Several studies show the negative economic effects of restrictive regulatory barriers in services markets. Thus, the Commission using econometric modelling has established a causal link between restrictive regulatory barriers and reduced competitiveness as a result of lower market dynamics (less firms entering and exiting the market) and reduced allocative efficiency rates, and increases in consumer prices. These studies are of direct relevance to this initiative given that the shortcomings in the existing notification procedure mean it is unable to prevent the introduction by Member States of the restrictive regulatory requirements that these studies have proven to be economically harmful. 2.2.The drivers of the problem 2.2.1.Driver 1 Limited possibilities to prevent disproportionate national regulation The effectiveness of the current notification procedure suffers from limited possibilities to prevent the introduction of disproportionate national regulation. This is principally for two reasons. Firstly, there is no obligation for Member States to notify draft regulations rather than those that have already been adopted. In the period between the deadline for the implementation of the Services Directive at the end of 2009 and the end of 2015 only 13% of notified regulatory measures were at draft stage and not yet adopted. Only in these cases could comments from the Commission and other Member States on the notified act still be taken into account in the legislative process. The 13% of draft notifications originated primarily from four Member States. In 87% of all notified measures the only option for the Commission to address unjustified or disproportionate regulatory measures was thus to revert to administratively heavy and resource- and time-consuming enforcement actions (EU pilot cases and infringement procedures) (see Annex 5 for detail). By comparison, the notification system under the Single Market Transparency Directive (SMTD) obliges Member States always to notify draft measures. This allowed the Commission in 2014 to issue 62 detailed opinions on draft measures notified while limiting the number of infringement proceedings that needed to be opened to one. Secondly, the existing notification procedure does not give external stakeholders access to notifications. This limits the opportunities to hear views of stakeholders, which could provide valuable input for an assessment of the justification and proportionality of regulatory measures. A comparison to the SMTD is again illustrative. The latter allows for all interested parties, including non-institutional stakeholders, to be informed of notifications and to comment on them. Each year, stakeholders provide between 300 and 400 comments on the 600 to 700 measures notified under the TRIS system that is used for the SMTD. This confirms a considerable interest from stakeholders. The public consultation on the services notification procedure confirmed a similar stakeholder interest with nearly three quarters of respondents supporting increased transparency (see Annex 2). Also the response from the public authorities was positive with 60% in favour. 2.2.2.Driver 2 Ineffective Decision powers Regulatory requirements which concern the freedom of establishment are notified on the basis of Article 15(7) of the Services Directive. Where the Commission believes that the notified measure is not in line with the requirements of the Services Directive, it may on the basis of Article 15(7) adopt a Commission Decision requesting the Member State in question to refrain from adopting the notified measure or (where it is already adopted) to abolish it. Until today, the Commission has not made use of the possibility to adopt a Commission Decision. This is because the existing design of the notification procedure makes it impossible in practice for the Commission to adopt a Decision. Under the Services Directive, the adoption of a Decision must take place within three months after the date of the notification of a regulatory requirement. A Decision must be preceded by a dialogue between the Commission and the notifying Member State. In practice, it is not possible within this time-span for the Commission to analyse the incoming notification, to hold a dialogue with the notifying Member State on this notification and to complete applicable procedures leading up to the adoption of a Decision. Experience with the existing procedure shows that in particular the organisation of a meaningful dialogue between the notifying Member State, the Commission and other Member States on the substance, merits and justification of a notified measure requires an adequate timeframe. Notifications which concern the freedom to provide services cross-border on a temporary basis are notified on the basis of Article 39 of the Services Directive. This Article does not contain the possibility for the Commission to adopt a Decision requesting the Member State in question to refrain from adopting the notified measure or (where it is already adopted) to abolish it. The only possible option available to the Commission is opening enforcement action (EU Pilot and infringement proceedings) where it believes that a notified requirement is not in conformity with EU law. Pursuing EU Pilots and infringement proceedings, however, requires considerable time and resources for both, national authorities and the Commission. Infringement proceedings take on average 29 months, while the time necessary for a Decision procedure is fixed at 3 months to prepare the Decision. While the possibility to adopt a Decision is thus limited to notifications that concern the freedom of establishment and does not extend to the freedom to provide services cross-border on a temporary basis, 86% of regulatory measures notified between the end of 2009 and the end of 2015 concern the temporary provision of services cross-border. Of the total notifications received in 2010-2015, 226 concern establishment requirements, whereas 1413 concern requirements affecting temporary cross-border services or both temporary cross-border services and establishment cases. This shows that under the present notification procedure in only a minority of cases is the Commission actually in a position to adopt a Decision to prevent the introduction of a national regulatory requirement that contradicts the existing Services Directive. The ineffectiveness of the existing Decisions instrument was also highlighted by respondents to the public consultation: 80% of respondents agreed that the current system is not adequate to prevent the adoption of disproportionate restrictions by Member States and called to extend the possibility for Decisions to also cover notified measures concerning temporary cross-border services provision. 2.2.3.Driver 3 Lack of thorough proportionality assessments As per Articles 15 and 16 of the Services Directive, Member States may maintain certain regulatory requirements even where they constitute obstacles to the freedom of establishment and the freedom to provide services, provided they assess and show these are non-discriminatory, justified by an overriding public interest and proportionate. The corresponding assessment is thus key to establishing whether a regulatory measure is permissible or not.

Indeed, Member State's assessments confirming the proportionality of a requirement are central to the policy approach to the services single market, given limited regulatory harmonisation and the limited application of the mutual recognition principle (especially as compared to the goods sector). It is particularly important for certain sectors, such as regulated professions, retail and construction, as highlighted in the Single Market Strategy. Despite the importance of the assessment of the justification and proportionality of regulatory measures, the current notification procedure does not contain a clear obligation for Member States to provide a substantive assessment of the justification and proportionality of a regulatory measure as part of their notification. Member States must indicate whether the notified measure is proportionate, but they do not need to furnish any assessment showing how this is the case. In practice, the information provided in the notification procedure is often not sufficient for a proper assessment of the justification and proportionality of measures notified by Member States (see Annex 5). This shortcoming was also highlighted by many stakeholders during the public consultation: nearly half (45%) asserted that the assessment by Member States whether national legislation is justified and proportionate to meet public policy objectives is insufficient. An evaluation of the notifications received in 2014 and 2015 shows that approximately 50% of all received notifications did not include substantive information on the justification and proportionality of the notified requirement, with many assessments not going beyond a standard phrase stating that the notified requirement is proportionate to achieving the desired public interest objective and does not impose excessive restrictions. For other notifications received, Member States provide information allowing at least for a partial understanding how and in what way the notified measure is justified and proportionate to reach identified public interest objectives. 2.2.4.Driver 4 Limited scope of requirements covered by the current notification obligation The current notification obligation for requirements affecting temporary provision of cross-border services is much wider and more substantial than the obligation for requirements affecting the freedom of establishment. According to the Services Directive, all requirements affecting temporary cross-border service provision (such as reporting obligations, authorisation schemes, minimum number of employees, requirements on insurance, etc.) should be notified, unless they concern services which are not covered by the exemptions in the Directive (e.g. services of general economic interest, matters related to posting of workers and professional qualifications). On the other hand, the notification obligation for establishment requirements is limited to a closed list of requirements in the Directive. This approach stems from the original Commission legislative proposal for the Services Directive and changes introduced by the legislator prior to its adoption. The original Commission legislative proposal limited the notification obligation to a number of establishment requirements defined in Article 15 of the Directive. It did not extent to all establishment requirements and did not cover the temporary provision of cross-border services at all. The latter had not been foreseen in the Commission legislative proposal because the country of origin principle was to apply to such services; but when this was rejected by the legislator and instead it was agreed that Member States could keep in place requirements also for the cross-border provision of services, the scope of the notification requirement was extended to cover such requirements. Establishment requirements beyond Article 15 were not covered by the notification obligation in the original Commission proposal because their relative importance and national regulatory activity on such requirements was originally underestimated. During the negotiations of the draft Directive it was decided not to cover additional establishment requirements as the scope of the notification obligation was already being extended to cover requirements effecting temporary cross-border services provision. As a result, authorisation schemes, insurance requirements and multi-disciplinary restrictions, which are dealt with in separate Articles of the Directive, were not covered by the notification obligation. This is a major driver for the ineffectiveness of the existing notification scheme. A mutual evaluation exercise undertaken in 2010 and 2011 concluded that there were around 4400 authorisation schemes and 225 multi-disciplinary requirements in place across the EU, confirming high regulatory activity on these issues. The mutual evaluation process established that different types of horizontal authorisation schemes, i.e. schemes that apply to all or a large variety of services, exist in Member States. It further established that several layers of procedures can still apply, even though some Member States reduced the scope of authorisation schemes and/or replaced them with prior declaration obligations for some services. A recent Commission assessment confirmed that a considerable number of insurance requirements remain in place for the services provided by accountants, architects, engineers and lawyers. Although only a limited group of Member States had such requirements in place for all four business services assessed, only two Member States had no insurance requirements in place. The same Commission assessment also showed strict requirements in several Member States in relation to multidisciplinary activities. Over the past years, the Commission had to launch several enforcement actions to address authorisation requirements, multidisciplinary restrictions and professional indemnity insurance requirements constituting significant barriers preventing the establishment of services providers. If these requirements were covered by the notification obligation, the notification procedure could help ensure that any new or changed regulatory requirement introduced by Member States would comply with the principles on non-discrimination, necessity (i.e. justified by an overriding reason of public interest) and proportionality and thereby be compliant with the Services Directive. These requirements currently falling outside the scope of the notification obligation means its mechanism is not available for an important area of Member States' regulatory activity. In the public consultation many respondents highlighted the incoherence in notification obligations and stressed the need to enlarge the scope of the current notification obligation, in particular as concerns authorisation requirements (73 out of 126 respondents), requirements affecting multidisciplinary activities (71 out of 126 respondents) and professional indemnity insurance requirements (63 out of 126 respondents), which was also supported by a majority of the responding public authorities. 2.2.5.Driver 5 Unclear legal consequences when the notification obligation is not respected by Member States Under the existing rules, there is a lack of clarity and potential absence of legal consequences of a failure to notify. The Services Directive remains silent as to what the possible legal consequence could be. In the context of the public consultation and substantive debates with public institutions, most stakeholders requested the Commission to provide clear guidelines on the legal consequences when the notification obligation is not respected. 80% of the public authorities responding to the public consultation supported the need to clarify the legal consequences of not respecting the notification obligation. The lack of clarity and potential absence of legal consequences of the failure to notify a new requirement means not all Member States comply with the notification obligations. Although it is impossible for the Commission to present precise figures as to how many more notifications it should have received, the following provides an estimate: taking the average amount of notifications by the top 11 notifying Member States, Member States not notifying and the Member States providing very few notifications should have per year an average of 13 notifications (for more detail in respect of the calculations see Annex 4). On several occasions the Commission received notifications by some Member States related to the transposition of EU legislation into national law. Given the transposition obligation for all Member States, corresponding notifications should have been received by all Member States. This again confirms the uneven compliance of Member States with the notification obligation. While the SMTD on the notifications in the area of goods and information society services equally does not contain a special provision in terms of possible legal consequences of a measure not being notified, the Court of Justice in its ruling in case C-194/94 concluded that a national provision which had to be notified under Directive 98/34/EC (the predecessor of the SMTD) but was not shall be declared inapplicable to individuals by national Courts. This could also be the case when a Member State adopts a regulation in breach of the obligation to respect the standstill period (C443/98) foreseen in the SMTD. 2.2.6.Problem tree

2.3. Who is affected, in what ways and to what extent? 2.3.1.Services providers Service providers established in the EU are highly affected by a notification procedure that does not meet its objective. In the absence of an effective notification mechanism Member States may introduce requirements which are not compatible with the Services Directive and which can only be repealed following an infringement procedure. If, for example, a Member State introduces disproportionate establishment requirements banning a service provider from an activity in that country or makes certain tariffs mandatory, those obstacles apply as from the day of their adoption at national level. If those requirements were notified at draft stage, the negative effect on the companies operating on the single market could be avoided through preventive ex-ante enforcement. In the absence of an efficient notification mechanism, obstacles once created remain in place until an infringement procedure is successfully completed (taking 29 months on average). An assessment by the Commission shows, for example, that in the business services sector Member States with more restrictive barrier levels see a lower number of new service providers entering their markets. As a result, competition is lower in these Member States and market dynamics are constrained. Indeed, Member States with more restrictive regulatory barriers see a lower combined share of companies entering and exiting the market (‘churn rate’). A recent assessment of the construction services sector in the EU, published by the Commission in February 2016 also showed that there is considerable room for simplification of procedures imposed on cross-border service providers of construction services, in terms of establishment and those offering temporary cross border services. As a result service providers face obstacles while doing business in other Member States, either by trying to establish in that Member State or by providing cross-border services. This applies to both, foreign and domestic services providers, with a serious impact in particularly for SMEs. Complying with all requirements in place in the various Member States leads to a considerable cost which weighs more heavily (proportionally) on the turnover of SMEs. More specifically, due to the lack of transparency in the current system, service providers can often not be easily made aware of regulatory measures that other Member States intend to introduce, and which might impact them and their activities. Certainly, foreign services providers could participate in a domestic consultation process. However, such processes usually take place in the national languages of the Member State concerned and have a focus on domestic concerns with the cross-border dimension usually neglected. The current scope of the notification obligation is limited to certain regulatory requirements. If all requirements affecting the freedom of establishment and the freedom to provide cross-border services covered by the Services Directive were subject to the notification obligation, this would generate an important positive impact for SMEs. 2.3.2.Services recipients Services recipients are directly being given rights by the Services Directive (in respect of the prohibited restrictions under Article 19 and the non-discrimination principle in Article 20). Moreover, service recipients are also affected by the Services Directive because for example the prohibition of restrictions of the freedom to provide services cross-border under Article 16 Services Directive also target restrictions related to service recipients. This leads to the fact that in particular in Member States with more restrictive environments service recipients may not benefit (or do so to a limited extent) from the EU single market for services and thus end up paying higher prices for these services than consumers in Member States with lower barriers or have lower quality or choice . The requirements in place could very well hinder service providers willing to do business across-borders, therefore influencing what is on offer and potentially affecting the competition between service providers, which in turn will also have an impact on consumer's choice. 2.3.3.National authorities Based on information received from some Member States and follow-up reflections in the Expert Group on the Services Directive with all of them, the average time spent to comply with the current notification procedure is 12 working hours per notification. Taking the EU average of hourly earnings of civil servants with university education of €32.10, this results in an average administrative cost of €385.20 per notification. This cost varies significantly between Member States from €45.60 in Bulgaria to €426 per notification in the Netherlands, due to differences in hourly earnings between Member States(for detailed evidence overview, see Annex 4). Lack of notifications, notifications of already adopted requirements or insufficient information on notified measures are shortcomings also impacting national authorities as their information on and opportunity to input to regulatory requirements being introduced by other Member States is limited. Furthermore, a more effective notification procedure could prevent lengthy infringement proceedings between the Commission and Member States, which had in 2014 an average duration of 29.1 months. Even if the average duration would be 0 months, authorities would have more costs to follow an infringement procedure because they would have to re-launch entire national procedures for changing laws. At present the costs for running notifications are uneven between Member States given that some Member States notify while others do not. 2.4.What is the EU dimension of the problem? The ineffectiveness of the existing preventive enforcement mechanism established by the present notification procedure means the introduction of new unjustified and disproportionate regulatory barriers to the services single market by Member States is at present not avoided in an effective manner. This results in new regulatory barriers hampering the integration and competitiveness of the EU single market for services. 2.5. How would the problem evolve, all things being equal? All things being equal the problem and underlying drivers described and explained above would remain. As a result, there would be a continued risk of Member States introducing new unjustified and disproportionate barriers that are not in compliance with the Services Directive. The Commission would continue the dialogue with the Member States with the aim to improve the fulfilment of the notification obligation. It would do this by requesting clarifications and issue comments on the notifications. Furthermore, the Commission would continue the discussions in the Expert Group on the individual notifications with a particular focus on the proportionality assessment but also show statistics on the notifications per Member State per year and the amount of comments issued by both the Commission and the Member States and statistics in respect of the response performance per Member State in respect of such comments.

It is unlikely that these discussions would lead to much change in Member States complying with the notification obligation. Some Member States would continue to protect the domestic markets and lack of awareness in particular at lower levels of government would remain. Member States would likely continue introducing requirements that create barriers and hamper the further development of the single market for services, resulting in economic potential not being reached. There would be no incentive for Member States to notify, when notification leads to an immediate assessment of the notified requirement, while where this is not notified such an assessment would only take place under a potential EU Pilot or infringement procedure. Even if enforcement action in the form of infringement procedures became in future much quicker compared to the current situation (an average of 29 months), this would still result in a period of regulatory insecurity for stakeholders due to the situation remaining unclear until the proceedings coming to an end and the entry into force of possible adaptations to the national measures at stake. Parallel EU policy initiatives, such as the proportionality test would not alter the situation described above. The initiative for a proportionality test aims to improve the quality of the assessment of the proportionality of regulatory requirements that Member States must undertake under the Professional Qualifications Directive. To this end, the initiative defines minimum criteria to be followed during the assessment by Member States of the proportionality of requirements falling under the Professional Qualifications Directive. Where such requirements also fall under the notification obligation under the Services Directive, the minimum criteria for proportionality assessments to be established by the initiative for a proportionality test would also apply to the content of the proportionality assessments that Member States must undertake under the notification procedure established by the Services Directive. Therefore, although the initiative for a proportionality test will not deal with the notification obligation under the Services Directive per se, there will be measures to be notified under the Services Directive, to which the initiative for a proportionality test will apply, contributing to more thorough proportionality assessments. 3.EU right to act 3.1. Does the EU have the right to act? The provisions of the Treaty (Articles 53(1), 62 and 114 TFEU) give the EU the competence to act with regard to the single market for services. EU rules adopted under Articles 53(1) and 62 TFEU should have as the objective the coordination of the provisions laid down by law, regulation or administrative action in Member States concerning the taking-up and pursuit of activities as self-employed persons, with regard to the right of establishment and the freedom to provide services. Article 114 TFEU gives the EU the competence to adopt EU legislation for the establishment and the functioning of the single market in general. The objective of the present initiative is to ensure a smoother and speedier enforcement of the Services Directive through an improved notification procedure. The notification of national draft regulatory measures under this procedure provides for an opportunity to prevent the adoption of unjustified or disproportionate national measures. The notification mechanism thereby contributes to the overall coherence between national rules preventing the emergence of future obstacles resulting from their heterogeneous development. The notification procedure provides for a consultation mechanism that allows for the communication of information by the notifying Member States (draft regulations, information on proportionality etc.) and the possibility for the Commission, other Member States and stakeholders to enter into a dialogue with the notifying Member State. The appropriate legal basis for the initiative are therefore Articles 53(1) 62 and 114 TFEU. 3.2.What would be the added value of action at EU level? According to the principle of subsidiarity set in Article 5 TFEU, action at EU level may only be taken if the envisaged aims cannot be achieved sufficiently by Member States alone and can be better achieved at EU-level. The Services Directive has as objective to facilitate the freedom of establishment for services providers and the free movement of services in the single market. The notification procedure contributes to this objective, which by its very nature requires action at EU level as in the context of services single market, regulatory measures adopted by one Member State impact the single market as a whole. They create obstacles to services providers established in other Member States seeking to offer services cross-border or to establish in the Member State in question as well as to the services providers who want to establish in their country. Given the transnational character of the single market, the need for better performing services markets, and the objective of the notification procedure, namely to ensure its proper functioning, an action is necessary at EU level. 3.3.Consistency with other EU policies and with the Charter for fundamental rights The initiative to reform the notification procedure stems from the Single Market Strategy, adopted on 28 October 2015, which announced several actions to further develop the single market for services. These actions also feature in the Commission Work Programme 2016. One objective of any legislative proposal to improve the notification procedure for services would be to improve the consistency with the existing notification procedure for goods and information society services established by the Single Market Transparency Directive (SMTD). The SMTD covers both goods and information society services. According to the SMTD, Member States must inform the Commission of any draft technical regulation prior to its adoption. Starting from the date of notification of the draft, a three-month standstill period – during which the notifying Member State cannot adopt the technical regulation in question – enables the Commission and the other Member States to examine the notified text and to respond appropriately.

Where it emerges that the notified drafts may create barriers to the free movement of goods or to the free provision of information society services, the Commission and Member States may submit a detailed opinion to the Member State that has notified the draft. The detailed opinion has the effect of extending the standstill period by additional three months for products and by additional one month for services. In the event of a detailed opinion being issued, the Member State concerned has to explain the action that it intends to take in response to the detailed opinion. Member States are bound to inform the Commission of final texts as soon as those texts have been adopted and to indicate cases in which the notified draft has been abandoned, in order to allow the procedure under the SMTD to be closed. If the draft technical regulation undergoes substantial changes Member States are obliged to re-notify the draft measure with the application of a new standstill period. The Court of Justice in its judgement in case C-194/94 'CIA-Security’ ruled that a national provision which was not notified under the '98/34 procedure' while it should have been, can be declared inapplicable to individuals by national courts. In case C-443/98 'Unilever' it was decided that a technical regulation, adopted in breach of the obligation to postpone the adoption of a notified national legislation, i.e. to respect the standstill period, can also be declared inapplicable to individuals by national courts. The current notification procedure in the Services Directive explains that the notification of a draft national law in accordance with the SMTD shall fulfil the obligation of the notification provided for in the Services Directive. One further objective of any legislative proposal to improve the notification procedure for services would be to improve the consistency with the reporting obligation for Member States under the Professional Qualifications Directive (PQD; Directive 2005/36). This is the case notably as regards the assessment of the proportionality of national measures, mandatory both under the Services Directive and the PQD. The PQD establishes rules according to which a Member State makes access to or pursuit of a regulated profession dependent on the possession of specific professional qualifications. Under the PQD, Member States have to provide every two years a report to the Commission about the requirements which have been removed or made less stringent. Member States shall also provide the Commission with information on requirements they introduced and the reasons for considering that those requirements are compatible with the PQD, within six months of the adoption of the measure introducing such requirements. In the Single Market Strategy, an initiative was announced to improve the quality of proportionality assessments of regulations governing professional qualifications. Such an initiative would set criteria for Member States when preparing proportionality assessments of draft national laws falling under the PQD. Some measures falling under the PQD may also fall under the Services Directive and its notification obligation. In such cases, the information on the proportionality assessment to be provided following the notification procedure under the Services Directive would have to meet the requirements of the proportionality test set out in the PQD. Any services notifications initiative would promote rights enshrined in the Charter of Fundamental Rights and in particular in Article 11 on freedom of information, since a high degree of transparency would be allowed to the public by giving it access to the notification information and in Article 16 on freedom to conduct a business, since this initiative would contribute to preventing that unjustified or disproportionate barriers to the provision of services would be tabled by Member States. 4.Objectives 4.1. General policy objectives The general policy objective of this initiative is to contribute to more competitive and integrated services markets. This is to be achieved through an improved enforcement of the EU Services Directive, which prevents at an early stage the introduction of unjustified barriers at Member States' level that could hamper the freedom of establishment of services providers and the freedom to provide services cross-border. 4.2.Specific policy objectives There are 4 specific policy objectives to this initiative: 1. Increase the effectiveness of the notification procedure as a whole 2. Improve the quality and content of notifications submitted 3. Align the notification obligation closer to the scope of the Services Directive 4. Enhance compliance with the notification obligation 5.Policy options 5.1.Discarded Options

5.1.1.Including services in the Single Market Transparency Directive Experience and feedback from Member States and stakeholders show that the existing Single Market Transparency Directive (SMTD) procedure described in section 3.3 works satisfactorily. Although it also applies to information society services, its main field of application is that of goods (approximately 94% of notifications received as per the SMTD in 2015 concerned goods). Including services within the scope of the SMTD would at first seem an attractive policy option to ensure coherence of procedures and realise synergies both on the side of the Commission and with Member States. The Commission nevertheless decided to discard this policy option. The regulation of goods and services in EU law differs fundamentally. While 80% of EU goods are subject to harmonised EU rules, the remaining 20% are subject to the mutual recognition principle between Member States. In the services sector, harmonisation of applicable regulations at EU level is very limited. So is the application of the mutual recognition principle. Instead, the Services Directive establishes a legal framework with key principles for Member States to apply and implement in their national legal systems and contexts. As a consequence, the scope for and approach of national regulatory measures differs widely between goods and services. This has consequences for the demands placed on the respective notification procedures. Thus, in the absence of much regulatory harmonisation and mutual recognition, the notification procedure applicable to services aims to ensure that regulatory requirements that Member States introduce comply with the principles of non-discrimination, necessity and proportionality defined in the Services Directive. The proportionality assessment to be undertaken by Member States is particularly important to judge if the regulatory requirement is in line with the Services Directive. A summary of such an assessment must hence be supplied under the services notification procedure. It is, however, not required under the SMTD given a proportionality assessment of regulatory requirements is less relevant in the area of goods in the light of regulatory harmonisation and mutual recognition. Moreover, the existing notifications procedure under the Services Directive includes the possibility for the Commission to adopt formal Decisions in line with Article 288 TFEU, where the Commission believes that a notified regulatory requirement is not in line with the Services Directive. This provision was included in the Services Directive to provide for an effective mechanism to avoid the introduction of unjustified regulatory requirements contradicting the Services Directive by Member States not bound by the harmonisation of rules at EU level and subject only to limited mutual recognition. The possibility for the Commission to adopt formal Decisions is, however, not foreseen under the SMTD. Lastly, political considerations also played a role, namely regulatory risks stemming from a re-negotiation of the existing SMTD also with regards to its application to regulatory requirements governing the free movement of goods in the single market (e.g. the existing standstill clause). 5.1.2.Merging the obligation under the PQD with the notification obligation of Services Directive A further policy option at first considered, but then discarded was a potential merger of the reporting obligation under the Professional Qualifications Directive (PQD) with the notification obligation of the Services Directive. Several reasons led to this decision. Firstly, the services covered by the two Directives differ in scope. Several services sectors are covered by the PQD, but not by the Services Directive, including health services and transport services. Secondly, while related, the two Directives differ in their subject matter: one deals in principle with the regulation of professional qualifications of individual persons and their mobility, the other with the regulation of services markets more widely. Thirdly, the two procedures in the PQD on the one hand and the Services Directive on the other hand differ significantly. The obligation under the PQD is a reporting obligation which does not contain any consultation with the Commission and the other Member States; this is in contrast with the notification procedure under the Services Directive, which does provide for such a dialogue. Furthermore, the reporting obligation in the PQD is a result of the amending Directive 2013/55 and only entered into force in January 2016. Experience with the application of this reporting obligation should be gathered before it is amended. The identified shortcomings of the notification procedure under the Services Directive, however, require more immediate action. 5.1.3.Services sectors outside the scope of the Services Directive A third policy option discarded was an extension of the scope of the notification obligation under the Services Directive to services sectors not covered by that Directive. With the objective of this initiative being an improved enforcement of the Services Directive, the scope of services sectors covered by this initiative should be in line with the scope of services sectors covered by the Services Directive. EU legislation which covers services outside the scope of the Services Directive (e.g. financial services; transport) moreover feature their own mechanisms to ensure that the rules in the EU legislation are properly enforced, for example via specifically assigned supervisory authorities. There is no evidence available which would justify extending the scope of the notification obligation to sectors outside the scope of the Services Directive. At the same time, such a step would risk considerable regulatory complications and overlaps. 5.2.Policy Option 1: Baseline scenario: No EU policy change The baseline scenario implies no changes to the notification procedure under the Services Directive. Member States would continue to notify their measures under the obligation currently foreseen Member States and the Commission would continue to provide comments on notified measures, where appropriate, requesting the notifying Member State to take these into account. Where this would not be done and in case of an infringement with EU law, the Commission would continue to launch enforcement action, starting with EU Pilots. The assessment of the proportionality of notified measures, the results of which must be stated as part of the notification of a measure, would be improved subject to the potential parallel Commission initiative on a proportionality test, which would aim to provide guidance to Member States on their proportionality assessments. In the context of the Single Market Strategy adopted on 28 October 2015, the Commission would also seek to develop other policy initiatives intended to foster the integration of the services markets in the EU, including the European services card. Under the baseline scenario, the Commission would also continue working in cooperation with Member States on national reforms, notably in the context of the European Semester, to improve the functioning of the services markets.

5.3.Policy Option 2: Non-legislative initiative (guidelines) Under this option, the Commission would issue guidelines to Member States to improve the application of the existing notification obligations stemming from the Services Directive. This would be done via a non-legislative measure and fully reflect existing legal provisions. The guidelines would build on the Commission’s experience in handling notifications and on existing guidance given notably through the Handbook on the implementation of the Services Directive published in 2007. The guidelines would not be binding. The guidelines would offer clarifications on the exact notification obligations under Articles 15(7) and Articles 16 and 39 of the Services Directive. Member States would also be encouraged to notify new requirements as early as possible and preferably before their final adoption into national law, for the Commission and/or other Member States to submit comments where appropriate. In addition, the guidance would encourage Member States to provide substantive information on the proportionality assessment when they notify a new requirement. Finally, these guidelines would clarify the respective procedures that apply to notifications made and the differences between them as per Article 15 of the Services Directive on the one hand, and Articles 16 and 39 on the other hand. 5.4.Policy Option 3: Measures to increase the effectiveness and quality of the notification procedure Option 3 would contain measures to increase the effectiveness of the existing notification procedure, which responds to the request from the Competitiveness Council of 2 March 2015 calling upon the Commission "to increase the effectiveness of the notification procedure under Directive 2006/123/EC". An obligation to notify draft measures would be introduced (rather than measures already adopted or entered into force). Measures would have to be notified during the stage of preparation, when amendments on substance can still be made. The European Parliament in its May 2015 Report on the Single Market Strategy supported the notification of national acts introducing or changing requirements covered by the notification obligation at draft stage. Measures would have to be notified at least three months prior to their adoption. This would allow for a three months consultation period consisting of two phases. During a first phase lasting two months, Member States and the Commission would be able to comment on a notified measure. During a second phase of one month, the notifying Member State would react to comments it received. The choice of three months for the length of the consultation period is based on other notification systems and in particular the SMTD, as well as the current timeframe foreseen in the Services Directive. Experience with the application of the existing services notification procedure and the SMTD shows that a three months period allows for a dialogue between Member States, the Commission and stakeholders. Notifications would be made transparent and accessible to interested stakeholders, who would thus obtain information on the planned introduction of measures and obtain an opportunity to provide comments on them. Via IMI, a public interface would be created, which would allow stakeholders to get access to the notifications. Stakeholders would, during the three months consultation period referred to above, be able to issue comments to the Commission and the notifying Member State. The European Parliament in its above-mentioned Report on the Single Market Strategy supported making notifications transparent to stakeholders. The EU Council in its above-mentioned EU Council Conclusions also called for the transparency of notifications, which was also confirmed by a majority of public authorities supporting the transparency of notifications in their responses to the public consultation. Member States would, moreover, be required to provide detailed information on the proportionality assessments they have undertaken. The information regarding the proportionality of requirements would have to clearly outline the public interest objective pursued by the Member State and explain how the notified requirement is suitable for securing the attainment of that objective and does not go beyond what is necessary in order to attain that objective. It would also have to contain information on different policy options which were considered in order to attain the public interest objective. The importance of proportionality assessments was also underlined by the above-mentioned Council Conclusions. In addition, the existing possibility to adopt Decisions on regulatory measures concerning requirements affecting the freedom of establishment would be aligned with the scope of the notification obligation. The procedure leading up to the adoption of a Decision would moreover be clarified to make this possibility more operational and establish a procedure that provides clarity to all concerned parties. This would address shortcomings of the existing mechanism identified in its evaluation (cf. Annex 5). 5.5.Policy Option 4: Measure to expand the scope and improve coherence of the current notification system This option builds on option 3 and additionally expands the scope of requirements covered by the notification obligation to align it closer to the scope of the Services Directive. Thus, the notification obligation would be expanded to establishment requirements related to prior authorisations (as referred to in Article 9 of the Services Directive); requirements affecting multidisciplinary activities (as referred to in Article 25); and requirements to hold professional indemnity insurance (as referred to in Article 23). Of course, there are many other establishment requirements beyond those in Article 15 and authorisation schemes, multi-disciplinary restrictions and professional indemnity insurance requirements, begging the question why not other additional establishment requirements – or indeed all establishment requirements in general – should be covered by the notification obligation. The reason is that in line with the proportionality principle, this option would extent the scope of the notification obligation only to requirements where the Commission has evidence that this would be required to achieve the objective of the initiative to prevent the introduction of unjustified regulatory requirements and barriers at national level that could hamper the services single market. Judging by its experience with the application of the Services Directive over the past years, the Commission at the present stage has no indication that other establishment requirements constitute systemic and potentially unjustified regulatory barriers to the establishment of services providers and would therefore need to be covered by this initiative. As already explained under Driver 4, both the mutual evaluation process and the more recent assessment of barriers by the Commission confirmed the presence of different types of horizontal authorisation schemes, strict insurance requirements and strict requirements in relation to multidisciplinary activities in the Member States. The negative economic impact of such identified barriers is significant regarding intensity of competition, sector profitability and efficiency of resource allocation and therefore justifies the extension of the scope of the notification obligation to these requirements. 5.6.Policy Option 5: Additional instruments to guarantee compliance by Member States 5.6.1.Policy Option 5a: Instrument to clarify legal consequences of non-notification Option 5a would build on options 3 and 4 and include in addition the following element: The legal instrument would contain an explicit provision stating that breach of the obligations to notify at least three months prior to their adoption draft measures falling under the scope of the revised notification procedure and/or adoption of a notified measures within three months following the issuing of an alert by the Commission shall constitute a substantial procedural defect of a serious nature as regards its effects vis-à-vis individuals. .

5.6.2.Policy Option 5b: Instrument to render inapplicable adopted measures which are incompatible with the Services Directive Option 5b would build on options 3, 4 and 5a, and include in addition the following element. Under this option a provision could be included whereby a Commission Decision finding an individual notified measure to be non-compliant with the Services Directive would make such a notified and already adopted measure automatically and with direct effect inapplicable (without this necessitating a national legal measure to withdraw or amend it). 5.7.Choice of legal instrument The realisation of policy options 1 and 2 does not require a new legislative instrument. Elements from policy options 3, 4 and 5 can be put into practice through the adoption of an EU legislative instrument based on Articles 53(1), 62 and 114 of the Treaty, which give the competence to the EU to act for the coordination of the provisions laid down by law, regulation or administrative action in Member States concerning the taking-up and pursuit of activities as self-employed persons and for the adoption of EU rules for the establishment and the functioning of the single market in general. The realisation of objectives referred to in Articles 53(1), 62 of the Treaty requires the adoption of a Directive which is also one of the legislative instruments which may be adopted for the purpose of the Article 114 of the Treaty. The Commission may consider in that context amending the Services Directive or the Single Market Transparency Directive (SMTD). The introduction of new elements to the Services Directive would impact several provisions of that Directive, going beyond its mere technical adaptation. Re-opening of the Services Directive appears to be disproportionate and the necessary improvements can be better achieved through an enforcement instrument targeting precisely the identified issues. Amending the SMTD will not allow for the improvement of the notification procedure for services since there is no possibility for the Commission, under that Directive, to adopt legally binding Decisions requesting the Member States to refrain from adopting the notified requirements. Furthermore, the proportionality principle plays a more important role in the single market for services, which differs from the single market for goods. Much of the single market for goods is covered by harmonised rules and, for the non-harmonised area the mutual recognition principle is widely applied, which is not the case for services. Therefore information on proportionality provided by the notifying Member State should be more developed in the case of services. An amended SMTD would also cover several heterogeneous requirements in the field of goods and services which may undermine the overall clarity of the final legal text. Therefore, the realisation of the objectives will be better achieved through the adoption of a new Directive. 6.Analysis of impacts The analysis below will not assess social and environmental impacts because none of the specific policy objectives, nor the assessed policy options feature social or environmental dimensions. Option 1: Baseline scenario Impact on the specific policy objectives Option 1 is unlikely to improve the effectiveness of the notification procedure. The notification procedure will continue to be non-transparent not allowing stakeholders to provide comments on notified measures. The absence of an obligation to notify measures at draft stage would continue to limit the influence of the consultation period meaning enforcement would continue to rely on ex-post enforcement action. The quality and content of the notifications might see an improvement if the initiative on a proportionality test announced in the Single Market Strategy will be adopted. For those measures which fall under the PQD and the Services Directive, Member States will have to provide information in respect of their proportionality assessment of the notified measures following the requirements set out in the proportionality test. This will have a positive effect on the quality and content of the notified measure. Other initiatives in the Single Market Strategy, like the European services card, will not have an effect on the specific policy objectives of this initiative. Under this option, the scope of the notification obligation would continue to be limited and important regulatory requirements concerning the establishment of services providers would continue not to fall under the notification obligation. Economic Impacts Operating costs and conduct of business This option does not entail any obligation for businesses and would not entail any costs for them. The impact on their activities is equally expected to be limited due to the limited expected effect of this option on the policy objectives. Impact on the Single Market The impact of this policy option in terms of reducing unjustified and disproportionate barriers is expected to be limited. The current situation is likely to continue. Competitiveness of business The impact on the competitiveness of businesses is expected to be limited as this option would not lead to an effective enforcement tool preventing the introduction of unjustified and disproportionate regulatory barriers. Impacts on SMEs and microenterprises In the absence of any tangible impact for the competitiveness of business and on the single market for services, the impact on SMEs and microenterprises is at most limited. Impact on Member States Public Authorities Given that this option is based on the current situation, no impact is expected for public authorities. Impact on the Commission The impact on the Commission will remain the same as this option does not foresee any changes in respect of the current situation. Stakeholders views A minority of the respondents considered the current procedure under the Services Directive working well. In terms of public authorities 23% of respondents expressed this opinion and for the business community 15% agreed with this statement (Annex 2). Option 2: Non-legislative initiative (guidelines) Impact on the specific policy objectives This option would have no measurable impact on the main policy objective as it would not be possible to address key shortcomings of the existing notification procedure without legally amending it. The effectiveness of the existing notification procedure will not be improved following the adoption of guidelines. The guidelines could clarify procedural steps and include recommendations to Member States (e.g. to notify draft measures and to provide information on proportionality assessments), however the guidelines will not be able to change the design of the existing procedure, such as to extend the scope of the notification obligation to additionally cover important establishment requirements or to align the possibility to adopt Decisions to the scope of the notification obligation. Furthermore, although guidelines could suggest making the current system transparent, a separate decision from Member States would be required to realise transparency for third party stakeholders. Previous efforts to influence behaviour of Member States in terms of compliance, via the publication of the Commission handbook on the implementation of the Services Directive, have not delivered noticeable results. Also, specific discussions of the notification procedure with the responsible national experts in the Expert Group on the implementation of the Services Directive has had limited effect. Naming and shaming in order to improve compliance has not led to any impact. In the absence of any consequences of non-notification, Member States will have no reasons to notify on a more systematic basis. The impact of this policy option in terms of Member States notifying draft measures and providing more information on proportionality assessments would depend very much on the willingness of Member States to comply with the notification procedure. But above all, even if notifications would take place at draft stage, Member States would still be able to adopt notified measures, which would mean that ex-post enforcement action would be the only remaining possibility for the Commission to intervene. Economic Impacts Operating costs and conduct of business This option does not entail any obligation for businesses and would not entail any costs for them. The impact on their activities is equally expected to be limited due to the limited expected effect of this option on the policy objectives. Impact on the Single Market As this option is not considered to address the specific policy objectives, its impact on the single market in terms of reducing unjustified and disproportionate barriers is expected to be limited. Competitiveness of business The impact on the competitiveness of businesses is expected to be limited as this option would not lead to an effective enforcement tool preventing the introduction of unjustified and disproportionate regulatory barriers. Impacts on SMEs and microenterprises In the absence of tangible impacts on the competitiveness of business and on the Single Market for services, there is no noticeable impact on SMEs and microenterprises. Impact on Member States Public Authorities This option does not change the existing notification obligation and thus does not impose cost increases on Member States' public authorities. Impact on the Commission This option would not impact the Commission in a measurable way. Improved information on proportionality assessments as a result of the guidance could make it easier for the Commission to analyse incoming notifications. Stakeholders views A large majority of the respondents (both public authorities and the business community) supported elements to be included in an EU level policy action which can only be achieved through a legislative instrument. 80% of public authorities and the business community saw the need to introduce legal consequences where Member States do not fulfil the notification obligation. The obligation to notify drafts received support from almost 60 % of the public authorities and 72% of the business community (Annex 2).

Option 3: Measures to improve the effectiveness and quality of the notification procedure Impact on the specific policy objectives This option will somewhat address the specific policy objective to improve the effectiveness of the notification procedure by i) introducing the obligation to notify draft measures, ii) granting access to interested non-institutional stakeholders, iii) defining a consultation period, iv) requiring Member States to provide more detailed information on proportionality assessments, and v) allowing the Commission to adopt Decisions on regulatory measures concerning both, requirements affecting the establishment of services providers and the cross-border provision of services. Introducing an obligation to notify draft measures and clearly defining the procedure for a consultation period would constitute important improvements of the existing notification procedure, allowing for comments to be made when these can still be taken into account by the notifying Member State before it adopts the notified measure. Granting access to interested stakeholders would make the procedure more effective by allowing stakeholders to share their views on a draft notified measure, which contributes to better law making. Providing for the possibility of Commission Decisions also on regulatory measures affecting the cross-border provision of services would increase the effectiveness of the notification procedure by providing for a clear and transparent mechanism for cases where a notified measure is not compatible with EU law. It will also make the notification procedure more coherent. Providing information on proportionality assessments will improve the effectiveness of the notification procedure by allowing other Member States, the Commission and stakeholders to better understand notified measures. The positive impact of this policy option would be limited, however, by the fact that the scope of the notification obligation would continue to exclude important establishment requirements, limiting the coherence of the notification procedure. It would be further limited by the absence of any impact on the compliance by Member States with the notification obligation. Economic Impacts Operating costs and conduct of business This option does not entail any obligation for businesses and would not entail any costs for them. Where businesses decided to comment on notified measures this would entail an administrative costs in terms of resources required to do so, but providing such comments is voluntary (opportunity, no obligation). On the other hand, a more effective notification procedure would improve the application of the Services Directive and lead to fewer and less restrictive regulatory barriers being introduced, and consequently make it easier for businesses to offer their services in the single market. The transparency of notifications would provide business with more upfront information about national measures which Member States plan to introduce. A large part of the business community (almost 80%) indicated in their responses to the public consultation that increased transparency is very important for them. Impact on the Single Market This option would positively impact on the Single Market because it would make the notification procedure more effective in preventing the introduction of unjustified barriers to the services single market. The Single Market Transparency Directive (SMTD) includes several of the elements which this option would introduce and its performance in preventing barriers to the single market can therefore serve as a proxy. As mentioned previously, it achieved an effective prevention indicator of 9.7% in 2010 and 11.7% in 2011. This indicator measures the ability of the SMTD-system to prevent barriers to intra-EU goods trade. The analysis shows that a number of measures were indeed prevented from being adopted, which would have been harmful to the proper functioning of the Single Market for goods and Information Society Services. Competitiveness of business 54 (out of 79) of the respondents of the business community to the public consultation are of the opinion that a reform of the notification procedure would lead to better functioning of the services markets overall. In contrast to option 2, the various elements of this option would prevent the introduction of unjustified measures thereby improving competitiveness of business over the coming years. Raising awareness of the regulatory activities within the respective services sectors of Member States would also contribute to improve competitiveness. Impacts on SMEs and microenterprises Preventing the introduction of barriers and increasing transparency would also positively impact on SMEs and microenterprises and reduce their compliance costs. Due to transparency, more information is available in terms of the requirements applicable in the notifying Member States and SMEs and microenterprises would also benefit from the improved competitiveness as referred to above. The option does not place any obligation on SMEs or microenterprises. Impact on Member States Public Authorities This option does not introduce any new obligations for Member States' authorities. It is nevertheless expected to lead to a limited increase in administrative costs for Member States. This option introduces an obligation to notify measures at draft stage. This would result in additional administrative costs where draft measures have to be re-notified in case substantial changes have been made to the notified draft act. However, the administrative costs associated to this are expected to be limited. The notification obligation under SMTD also places upon Member State authorities the obligation to notify again in case of substantial changes. But in only approximately 10 of 700 measures notified per year was a new notification necessary. Based on information received from Member States, the average time spent to comply with the notification procedure is 12 hours per notification. This leads to administrative costs of €385.20 per notification assuming the EU average of hourly earnings for civil servants holding a university degree of €32.10. The administrative costs of re-notifications would therefore be limited. The public consultation did not show a clear view by public authorities directly concerned on whether the obligation to notify draft measures and subjecting them to a consultation period would result in an increase of their administrative burden / cost. Almost 40% of responding public authorities thought it would lead to a cost increase, while almost 50% thought this would not be the case. Transparency of the notification system could lead to stakeholders detecting cases of non-notification, upping the pressure on Member States to notify. This could lead to an increase in notifications and a corresponding increase in administrative burden for Member States currently not meeting their notification obligation. The average number of notifications by the top 10 notifying Member States is 13 notifications per year, with an average administrative cost associated to the sum of these 13 notifications of €5007.60 per Member State. Member States currently notifying fewer than 13 measures per year would thus see an increase in administrative cost to this average (see Annex 4 for the calculations). Furthermore, transparency will most likely result in comments from stakeholders, which Member States may need to respond to, somewhat further increasing their administrative cost. As a proxy, Member States have indicated that they spend on average 10 hours to reply to comments from the Commission (for more details in respect of overview of Member States' feedback is in Annex 4). Although the obligation to carry out a proportionality assessment of new requirements in the field of services already exists under the current provisions of the Services Directive, the new notification procedure will require the Member State to communicate such an assessment in a more systematic and structured way. This might result in a slight increase of time spent per notification by Member States. A positive effect in terms of administrative costs could stem from the fact that Member States are likely to be faced with less EU-Pilot requests or infringement proceedings as a result of an improved notification procedure contributing to the compliance of new national measures with the Services Directive. Impact on the Commission On average, the assessment of a notification by a Commission staff member will take 2-3 hours. In case comments or questions addressed to the Member State concerned are to be prepared, it is estimated that this will lead to an additional 5 hours of work. This option will impact the Commission in that it will lead to additional work stemming from the comments received from stakeholders who will be granted access to the notifications to be considered. Another element could be the possible increase of notifications from those Member States currently not completely fulfilling the obligation under the Services Directive. Further to this increase in workload, there is likely to be an impact on the translation costs. Currently a notification from a Member State is translated into English. The current translation cost is on average €26 per page. Notifications are on average between 2 and 3 pages long. This leads to an average translation cost per notification of €65. Enhancing transparency of and more detailed information about the proportionality of notified regulations would make the assessment of notified measures easier and more concrete to assess a notification. It will be also easier for the Commission to compare the proportionality assessments from different Member States and to elaborate a common approach in similar situations. On the other hand, the ability for the Commission to adopt Decisions also in respect of measures affecting temporary cross-border provision of services could have a positive impact as it could lead to a reduction in resource-intensive enforcement action. Stakeholders views The results of the public consultation shows a wide support (69% of public authorities and 60% of the business community) for improvements of the current system through EU action and more specifically for the introduction of an obligation to notify draft legislation (more than half of the public authorities handling notifications), for increased transparency (supported by 80% of the business community and more than 60% of the public authorities) and for the introduction of a clear timeframe to ensure that all stakeholders can react to a notified measure (support from 65% of public authorities). Furthermore, in its Conclusions on Single Market Policy, the Council of the European Union called upon the Commission and Member States to make notifications public and transparent for all the stakeholders as is the case for goods. Option 4: Measure to expand the scope and improve coherence of the current notification system Impact on the specific policy objectives This option, building upon option 3, would in addition address the specific policy objective of aligning the notification obligation closer to the scope of the Services Directive. It would improve the efficiency and coherence of the notification procedure beyond the improvements under option 3, by covering key regulatory requirements falling under the Services Directive but not under the present notification procedure (notably to cover establishment requirements related to prior authorisations, requirements affecting multidisciplinary activities, and requirements to hold professional indemnity insurance). On the other hand, this option would not improve the compliance of Member States with the notification obligation. Economic Impacts Operating costs and conduct of business This option does not entail any obligation for businesses and would not entail any costs for them. The extension of the scope of the notification procedure would lead to a reduction in the number of unjustified regulatory barriers being introduced by Member States in violation of the Services Directive, thereby further reducing regulatory barriers for businesses. With a larger range of measures to be notified by the Member States, costs borne by businesses to find out the applicable rules in a particular Member State will further be reduced. Impact on the Single Market This option would positively impact the Single Market by extending the scope of the notification obligation and applying its procedure to additional types of important regulatory requirements affecting services providers in the single market. Competitiveness of business A better functioning Single Market due to barriers prevented from being introduced has a positive effect on the competitiveness of business. This effect will be stronger than under option 3 as this option will cover a wider range of requirements potentially impeding the proper functioning of the internal market. Impacts on SMEs and microenterprises Expanding the scope of the notification procedure to more requirements of the Services Directive, will lead to the prevention of more potential barriers. This will positively impact SMEs and microenterprises. Compliance costs for SME's will be further reduced. Impact on Member States Public Authorities The extended scope of the notification obligation will result in a higher number of notifications thereby increasing the administrative costs for public authorities. According to the public consultation, extending the scope of the notification obligation to align it with the scope of the Services Directive will have a cost impact according to 54% of public authorities' respondents while 15% of the responding public authorities do not expect an impact. Based on the mutual evaluation exercise over the years 2010-2011, around 4400 authorisation schemes and 225 multi-disciplinary requirements were detected in Member States. Although the obligation to notify only applies when changes are made or new requirements are introduced, which depends very much on developments within the respective Member State, it is likely that the number of notifications to be made will increase. As previously stated, the average cost of an individual notification for a national administration in the EU amounts to €385.20, with important variations between Member States. The increase in notifications would, however, also lead to Member States being subject to less legal enforcement action from the Commission, reducing resources required for this. Impact on the Commission In addition to the effects of option 3, this option will lead to additional administrative costs for the Commission. This will be the consequence of an increased number of notifications of national regulatory measures. In addition, the translation costs will increase. However, the increase in the administrative cost for the Commission would be partly compensated by an expected decrease in enforcement action against unjustified national measures already adopted at national level but in violation of the Services Directive. Stakeholders views Concerning the scope of the notification obligation, most respondents stressed the need to expand it to other types of services and requirements in order to improve consistency and effectiveness of EU action. 42% of public authorities supported extending the scope also covering authorisations, 50% said the same in terms of multidisciplinary activities and 53% are in favour of also covering professional liability insurance requirements with the notification obligation. Option 5: Additional instruments to guarantee compliance by Member States Impact on the specific policy objectives In addition to the impacts realised under option 3 and 4, option 5 (5a and 5b) would in particular pursue the specific policy objective to enhance compliance of Member States with their notification obligation. This option would, in the view of the Commission, result in legal consequences of non-notification and non-compliance with the notification procedure, thereby further increasing the effectiveness