WRITTEN QUESTION E-0169/97 by Dietrich Elchlepp (PSE) to the Commission (3 February 1997)

Subject: Problems encountered by German and French firms in the craft trades sector operating on both sides of the border

1. How can the freedom of establishment enshrined in the EU Treaty be reconciled with the fact that German firms in the craft trades sector carrying out work in France cannot pay any turnover tax due to the local tax authorities directly, but only by engaging the - costly - services of a French tax representative?

2. Is the Commission aware that many firms in the craft trades sector that would like to take on work in France opt not to do so in view of the formalities involved, particularly the requirement to engage the services of a tax representative? (That, at least, has been the experience of firms in the area covered by the Freiburg-in-Breisgau Chamber of Craft Trades).

3. By the same token, what action could be taken to remove the obstacles placed by German legislation on crafts trades and industry in the path of French firms of the same kind which must be entered on the register of artisans if they wish to operate in Germany, even if they operate there only 'occasionally'?

4. Given the freedom to provide services that exists in the European Union, should there be a requirement for craftsmen from other EU Member States to be entered on the register of artisans, so long as they do not become established in Germany?

Answer given by Mr Monti on behalf of the Commission (5 May 1997)

1. and 2. The Commission is aware that the current VAT rules, which are based mainly on the physical monitoring of goods, raises difficulties for businesses, and in particular for small and medium-sized enterprises (SMEs), operating in Member States in which they are not established. This situation constitutes a major barrier to achieving a genuine single market, as the Commission stated in its report on the operation of the transitional arrangements for charging VAT ((COM(94) 515 final. )). Indeed, it is the reason why the Commission in 1994 sent a communication to the Council and Parliament in which it recommended certain measures for resolving the main problems facing taxable persons ((COM(94) 471 final. )).

On 10 July 1996 the Commission adopted a work programme for the establishment of a new common system of VAT that meets the criteria of a genuine single market ((COM(96) 328. )). One of the key elements of this new system is the principle that businesses should tax all operations and exercise their right to deduct input tax in one place for the entire Community, without differentiating according to the Member State in which operations are effected. This would effectively remove the need to appoint a tax representative.

3. and 4. The Court of Justice has consistently held that Article 59 of the EC Treaty requires all restrictions on freedom to provide services (such as the obligation to be entered on a trade register) to be abolished, even if they apply equally to domestic providers and to providers from other Member States, where they are likely to prohibit or otherwise impede the activities of service providers established in another Member State in which they lawfully provide similar services.

Nevertheless, in view of the special nature of certain services, specific requirements imposed on service providers by virtue of the rules governing the activities in question cannot be regarded as being incompatible with the Treaty. These requirements must be objectively necessary in order to ensure compliance with the rules governing the relevant business activity and to ensure that recipients of services are protected. They must also be proportionate, i.e. they must not go beyond what is necessary to achieve the above objectives.

An assessment as to whether such requirements are proportionate must be carried out on a case-by-case basis, having due regard to the Court of Justice case-law on failure to comply with Article 59. The Court stated that 'a Member State cannot be denied the right to take measures to prevent the exercise by a person providing services whose activity is entirely or principally directed towards its territory of the freedom guaranteed by Article 59 for the purpose of avoiding the professional rules of conduct which would be applicable to him if he were established within that State. Such a situation may be subject to judicial control under the provisions of the chapter relating to the right of establishment and not of that on the provision of services' (Case C-205/84 Commission v Germany [1986] ECR I-3755).

The Commission is prepared to examine any specific instances that the Honourable Member brings to its attention.