Freedom of establishment for companies and abuse of rights in EU/EEA law - Energy policy

 

Magma Energy Canada/Sweden - Circumvention of the Icelandic national prohibition of foreign investments in the energy sector  - Some thoughts

Main question: can Iceland prohibit under EU/EEA law rules – in combination with Icelandic law - the establishment of a foreign company with a primary place of business in Canada which intends to use EEA law in order to circumvent the national prohibition of foreign investments in the energy sector?

Some thoughts by M. Elvira Méndez-Pinedo, Dósent í Evrópurétti við Háskóla Íslands

 

State of the energy policy in Europe and summary of legal arguments

 As the EU Commissioner has declared (Energy Commissioner. European response to energy challenges. Speech at the EU Energy and Environment Law and Policy Conference, Brussels 22 January 2009. Speech/09/18) the energy sector is a strategic industry requiring protection within the internal market both at national and European level.  

This commissioner declared that, while it is clear that we need a strong internal market wholly integrated and safe in the field of energy, we should produce jobs in Europe rather than exporting wealth to energy producers outside the EU.

1. Investments in energy companies in the EEA territory by EEA companies fall under EEA law. On the basis of the jurisprudence of the Court of Justice of the European Union (from now on ECJ) and EFTA Court and EU/EEA law, it must be said that freedom of establishment is the principle. However, both the EU Treaty and the case-law of the ECJ allow restrictions if they are justified under European law. In fact, the European Court of Justice has ruled that freedom of establishment for companies can be restricted in the following circumstances:

If restrictions are based on a general public interest, such as:

-       the prevention of abuse or fraudulent conduct,

-       the protection of the interests of creditors, minority shareholders, employees or the tax authorities.

This was explained by the Advocate General Maduro in the ECJ case Cartesio ruled in 2008 (Judgment of the Court of Justice in Case C-210/06 Cartesio Oktató és Szolgáltató bt.  Opinion of advocate general Maduro delivered on 22 May 2008 in Cartesio, C-210/06, not yet published (hereinafter,Cartesio.) See especially para. 32. of the opinion of Advocate General).

According to the latest judgment of the Court of Justice of the European Union (ECJ) of 21 January 2010 (Societé Centrale de Gestion) it is also possible to argue that European law does not affect the possibility of national legislation/measures prohibiting companies from invoking EU law when, in reality, there is a misuse of EU legal provisions to circumvent legitimate national law (abuse of the right of establishment by foreign companies through artificial arrangements in order to escape national prohibition).

The jurisprudence of the ECJ has finally given a doctrine on the abuse of rights in the field of free movement of establishment. Abuse of rights is not only limited to tax policy as this concept is already established as a consolidated principle in the field of free movement of persons ( EU Citizens Directive 2004/38/EC).

2. Furthermore, EU/EEA law allows especial derogations from the general regime of European energy law if they are justified for public reasons such as security of supply or the isolation or the size of small markets admitted under EU/EEA law. Iceland could very well derogate from the general regime and, for reasons unknown to the author, it opted not to do so when incorporating the general EU energy package in to the EEA legal order (see Opinion of the European Commission on the application of Iceland to join the EU – 24 February 2010 and analytical Report where it is stated that Iceland did not use the derogations permitted under the current EEA Agreement and the Commission acknowledges that these derogations are still available for Iceland during negotiations).

3. Investments in energy companies in the EEA territory by foreign companies or undertakings established outside the EEA fall under national law. It is up for national legislators to decide upon this issue. EU law is neutral on this point. A precedent has been created by the EU in the case Gazprom (Russia, 2007) where the EU decided that the principle of reciprocity could apply so that the EU could restrict foreign access to European energy assets.

4. Once more, it can be said that the strategic importance of the energy market is essential for Europe and can justify certain restrictions. The EU is currently negotiating energy agreements with third countries in a case by case basis. Access to the EU market is not automatically given to foreign companies outside the EU/EEA. Preference is naturally given to European neighbours and other important energy countries.

As far as this author knows, there are is no energy agreement to foster cooperation and investments with Canadian firms. There is, for the time being, no clear European external energy strategy with Canada.

5. The pre-necessary condition for legal persons to enjoy rights related to the internal market is to be legally established in one Member State of the EU. Without this economic link to the EU, there are no rights to expand activities to other Member States under EU Law. The same is applicable to EEA law. Establishment is defined as “the actual pursuit of an economic activity through a fixed establishment in another Member State for an indefinite period” (ECJ case Factortame C-221/89 ). According to Craig and De Burca (EU Law Oxford University Press, 2007, p. 806), a principal place of business must be conducted somewhere in the EU because otherwise it does not fall under the scope of EU law. It his highly questionable whether a company established and operating in Canada can, through the establishment of a subsidiary deprived of all real activity in Sweden, use EU/EEA law to circumvent an Icelandic national prohibition justified by a public policy legitimate under EU/EEA law.

6. The ECJ has established a clear line of jurisprudence concerning the limits of the freedom of establishment and the abuse of rights in the cases Cartesio (2008) and Société de Gestion (2010) commented below. The idea of an internal market based on neoliberalist approach where Member States have lost almost all regulatory power does not seem to be the standard anymore. The EU has entered a new phase where there is an internal market with a social face as President Barroso promised after the entry into force of the Treaty of Lisbon in 2009.

Conclusion:

The doctrine of abuse of rights has become clear in the jurisprudence of the ECJ from 2008. It is possible to argue that EU rights are first of all for companies having a real economic link to Europe, not for box-lettter companies created through artificial arrangements in order to circumvent national law. If a primary establishment is not located and connected to the economy of Europe, one could very well argue that there might be no rights under the internal market. 

There are derogations possible for Iceland under EU energy law that could be requested de lege ferenda. This is dynamic area law where the situation could change in the next year during accession negotiations with the EU.

 

 1. Freedom of establishment of companies under EU law. Latest jurisprudence of the European Court of Justice. EU Member States may prohibit abuse of EU law which tries to circumvent national rules through artificial arrangements.

According to the latest judgment of the Court of Justice of the European Union (ECJ) in the case Societé de Gestion of 21 January 2010 it is possible to argue that European law does not affect the possibility of national legislation/measures prohibiting companies from invoking EU law when, in reality, there is a misuse of EU legal provisions to circumvent legitimate national law (abuse of the right of establishment by foreign companies through artificial arrangements in order to escape national prohibition).

As the ECJ has declared in a case following a reference for a preliminary ruling requested by Tribunal de première instance de Mons – Belgium (Freedom of establishment -Combating tax avoidance - Prevention of abuse – Proportionality), according to established jurisprudence, a national measure restricting freedom of establishment may be justified where it specifically targets wholly artificial arrangements designed to circumvent the legislation of the Member State concerned. An EU Member State may adopt a legal measure which is liable to hinder the freedom of establishment and this is justifiable under European Law. However, the ECJ requests this restriction to pass a double test: the measure must pursue a legitimate objective compatible with the EU Treaty and if must is justified by overriding reasons in the public interest. If the measure passes this test, it is also necessary that its application be appropriate to ensuring the attainment of the objective thus pursued and does not go beyond what is necessary to attain it.

It is possible for national authorities to stop purely artificial arrangements – devoid of economic reality, created with the aim of escaping or avoiding current national prohibitions (tax law, energy law, etc). In other words, as some authors had requested, finally the ECJ has recognised that the misuse of EU law cannot be regarded as promoting the internal market and that national authorities can prevent this abuse of freedom of establishment.

The Court would require a previous analysis based on facts and evidence, not subjective intentions. The company invoking the right of establishment under EU law must also be given an opportunity to prove that there is a genuine establishment and integration into the economy of the economy of the guest State (A tax report proving taxes paid in that country, for instance, would prove genuine economic integration). EU law should not help companies to elude national legitimate legislation. The ECJ is shifting towards dealing with abuse at the level of justification by both the State and the companies. A national prohibition is not excluded but it requires a test of proportionality.

According to the ECJ in the case judged on 21 January 2010 on tax avoidance and prevention of abuse, national legislation which provides for a consideration of objective and verifiable elements in order to determine whether a transaction represents an artificial arrangement, entered into for tax reasons, is to be regarded as not going beyond what is necessary to attain the objectives relating to the need to maintain the balanced allocation of the power to tax between the Member States and to prevent tax avoidance where, first, on each occasion on which there is a suspicion that a transaction goes beyond what the companies concerned would have agreed under fully competitive conditions, the taxpayer is given an opportunity, without being subject to undue administrative constraints, to provide evidence of any commercial justification that there may have been for that transaction.

The Court states that:

“55. It follows that legislation of a Member State such as that at issue in the main proceedings constitutes a restriction on freedom of establishment within the meaning of Article 43 EC, read in conjunction with Article 48 EC.

Whether the legislation at issue in the main proceedings can be justified

56. According to established case‑law, a measure which is liable to hinder the freedom of establishment enshrined in Article 43 EC is permissible only if it pursues a legitimate objective compatible with the Treaty and is justified by overriding reasons in the public interest. It is also necessary, in such a case, that its application be appropriate to ensuring the attainment of the objective thus pursued and not go beyond what is necessary to attain it (see, inter alia, Case C‑250/95 Futura Participations and Singer [1997] ECR I‑2471, paragraph 26; Case C‑9/02 de Lasteyrie du Saillant [2004] ECR I‑2409, paragraph 49; Marks & Spencer , paragraph 35; and Lammers & Van Cleeff , paragraph 25).

60. First, as regards the balanced allocation between Member States of the power to tax, it should be recalled that such a justification may be accepted, in particular, where the system in question is designed to prevent conduct capable of jeopardising the right of a Member State to exercise its tax jurisdiction in relation to activities carried out in its territory (see, inter alia, Marks & Spencer , paragraph 46; Case C‑347/04 Rewe Zentralfinanz [2007] ECR I‑2647, paragraph 42; Oy AA , paragraph 54; and Aberdeen Property Fininvest Alpha , paragraph 66).

65. Second, as regards the prevention of tax avoidance, it should be recalled that a national measure restricting freedom of establishment may be justified where it specifically targets wholly artificial arrangements designed to circumvent the legislation of the Member State concerned (see, to that effect, ICI , paragraph 26; Marks & Spencer , paragraph 57; Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 51; and Test Claimants in the Thin Cap Group Litigation , paragraph 72).

66. In that context, national legislation which is not specifically designed to exclude from the tax advantage it confers such purely artificial arrangements – devoid of economic reality, created with the aim of escaping the tax normally due on the profits generated by activities carried out on national territory – may nevertheless be regarded as justified by the objective of preventing tax avoidance, taken together with that of preserving the balanced allocation of the power to impose taxes between the Member States (see, to that effect, Oy AA , paragraph 63).

71. National legislation which provides for a consideration of objective and verifiable elements in order to determine whether a transaction represents an artificial arrangement, entered into for tax reasons, is to be regarded as not going beyond what is necessary to attain the objectives relating to the need to maintain the balanced allocation of the power to tax between the Member States and to prevent tax avoidance where, first, on each occasion on which there is a suspicion that a transaction goes beyond what the companies concerned would have agreed under fully competitive conditions, the taxpayer is given an opportunity, without being subject to undue administrative constraints, to provide evidence of any commercial justification that there may have been for that transaction (see, to that effect, Test Claimants in the Thin Cap Group Litigation , paragraph 82, and order in Case C‑201/05 Test Claimants in the CFC and Dividend Group Litigation [2008] ECR I‑2875, paragraph 84).

75. In those circumstances, subject to verification to be carried out by the referring court as regards the last two points, which concern the interpretation and application of Belgian law, it must be concluded that, in the light of the foregoing, national legislation such as that at issue in the main proceedings is proportionate to the set of objectives pursued by it.

76. Accordingly, the answer to the questions referred is that Article 43 EC, read in conjunction with Article 48 EC, must be interpreted as not precluding, in principle, legislation of a Member State, such as that at issue in the main proceedings, under which a resident company is taxed in respect of an unusual or gratuitous advantage where the advantage has been granted to a company established in another Member State with which it has, directly or indirectly, a relationship of interdependence, whereas a resident company cannot be taxed on such an advantage where the advantage has been granted to another resident company with which it has such a relationship. However, it is for the national court to verify whether the legislation at issue in the main proceedings goes beyond what is necessary to attain the objectives pursued by the legislation, taken together. “

 

The case Cartesio is also extremely relevant as it defines the scope of the free establishment for companies in EU/EEA law and the regulatory powers of the States concerning the benefits of the EU rules (Judgment of the Court of Justice of the European Union in Case C-210/06 Cartesio Oktató és Szolgáltató bt. And Opinion of advocate general Maduro delivered on 22 May 2008 in Cartesio, C-210/06, nyr, (hereinafter,Cartesio.) See especially  para. 32.of the opinion of Advocate General).

 
As long as a national measure is considered a restriction incompatible with EU law, it can only be justified on limited grounds. But the ECJ offers case-law based justifications in order to allow derogations to the free movement of establishment in certain circumstances.

Restrictions to the free movement may be those based on a general public interest, such as the prevention of abuse or fraudulent conduct, or protection of the interests of creditors, minority shareholders, employees or the tax authorities as the Advocate General Maduro explains in the case Cartesio.

This ruling of the ECJ in the case Cartesio indicates furthermore the limits of the freedom of establishment in relation to companies. The ECJ held that under EU law, the Member State has the power to define two important elements, namely:

1) the connecting factor required of a company if it is to be regarded as incorporated under the law of that Member State (and, as such, capable of enjoying the right of establishment) and

2) the connecting factor required of a company if it is to be able subsequently to maintain that status.

Member States can decide the criteria under which they recognise the freedom of establishment for national companies. A company cannot rely on the EU freedom of establishment in order to have national law set aside.

By analogy, it can said that a company cannot rely on the freedom of establishment under EU/EEA law to circumvent national rules. The freedom of establishment has a natural limit because the concept of abuse of right has therefore finally developed in ECJ´s case law. EU law prohibits “wholly artificial agreements which do not reflect economic reality and which are aimed at circumventing national legislation”.

Advocate General Maduro explains the latest jurisprudence of the ECJ in his opinion on the case Cartesio:

“29. The problem, in my opinion, is that the statements cited above from Daily Mail and General Trust and Inspire Art do not represent the case‑law and its underlying logic accurately. On the one hand, despite what the rulings in Inspire Art and Centros suggest, it may not always be possible to rely successfully on the right of establishment in order to establish a company nominally in another Member State for the sole purpose of circumventing one’s own national company law. In its recent judgment in Cadbury Schweppes , the Court reiterated that ‘the fact that [a] company was established in a Member State for the purpose of benefiting from more favourable legislation does not in itself suffice to constitute abuse of [the freedom of establishment]’. However, it also emphasised that Member States may take measures to prevent ‘wholly artificial arrangements, which do not reflect economic reality’ and which are aimed at circumventing national legislation.  In particular, the right of establishment does not preclude Member States from being wary of ‘letter box’ or ‘front’ companies.  In my view, this represents a significant qualification of the rulings in Centros and Inspire Art , as well as a reaffirmation of established case‑law on the principle of abuse of Community law,  even though the Court continues to use the notion of abuse with considerable restraint – and rightly so.

30. On the other hand, despite what the ruling in Daily Mail and General Trust seems to suggest, the Court does not, a priori , exclude particular segments of the laws of the Member States from the scope of the right of establishment. Rather, the Court concentrates on the effects that national rules or practices may have on the freedom of establishment and assesses the conformity of those effects with the right of establishment as guaranteed by the Treaty. As regards national rules relating to the incorporation of companies, the Court’s approach is inspired by two concerns. First, in the present state of Community law, Member States are free to choose whether they want to have a system of rules grounded in the real seat theory or in the incorporation theory, and indeed, various Member States have opted for profoundly different rules of incorporation. Second, the effective exercise of the freedom of establishment requires at least some degree of mutual recognition and coordination of these various systems of rules. The result of this approach is that the case‑law typically respects national rules relating to companies regardless of whether they are based on the real seat theory or on the incorporation theory. However, at the same time, the effective exercise of the right of establishment implies that neither theory can be applied to its fullest logical extension – the best example to date perhaps being the case of Überseering .

31. In sum, it is impossible, in my view, to argue on the basis of the current state of Community law that Member States enjoy an absolute freedom to determine the ‘life and death’ of companies constituted under their domestic law, irrespective of the consequences for the freedom of establishment. Otherwise, Member States would have carte blanche to impose a ‘death sentence’ on a company constituted under its laws just because it had decided to exercise the freedom of establishment. Especially for small and medium‑sized companies, an intra‑Community transfer of operational headquarters may be a simple and effective form of taking up genuine economic activities in another Member State without having to face the costs and the administrative burdens inherent in first having to wind up the company in its country of origin and then having to resurrect it completely in the Member State of destination. Moreover, as the Commission rightly emphasised, the process of winding up a company in one Member State and then reconstituting it under the law of another Member State can take considerable time, during which the company at issue may be prevented from operating altogether.

32. Consequently, even though the restriction on the right to freedom of establishment at issue in the present case arises directly from national rules on the incorporation and functioning of companies, the question has to be asked whether they can be justified on grounds of general public interest, such as the prevention of abuse or fraudulent conduct,  or the protection of the interests of, for instance, creditors, minority shareholders, employees or the tax authorities. ”

 

The Court of Justice of the European Union follows the Opinion of Advocate General Maduro and states in the Cartesio ruling:

“104. In that regard, the Court observed in paragraph 19 of Daily Mail and General Trust that companies are creatures of national law and exist only by virtue of the national legislation which determines its incorporation and functioning.

105. In paragraph 20 of Daily Mail and General Trust , the Court stated that the legislation of the Member States varies widely in regard to both the factor providing a connection to the national territory required for the incorporation of a company and the question whether a company incorporated under the legislation of a Member State may subsequently modify that connecting factor. Certain States require that not merely the registered office but also the real seat ( siège réel ) – that is to say, the central administration of the company – should be situated in their territory, and the removal of the central administration from that territory thus presupposes the winding-up of the company with all the consequences that winding-up entails under company law. The legislation of other States permits companies to transfer their central administration to a foreign country but certain of them make that right subject to certain restrictions, and the legal consequences of a transfer vary from one Member State to another.

106. The Court added, in paragraph 21 of Daily Mail and General Trust , that the EEC Treaty had taken account of that variety in national legislation. In defining, in Article 58 of that Treaty (later Article 58 of the EC Treaty, now Article 48 EC), the companies which enjoy the right of establishment, the EEC Treaty placed on the same footing, as connecting factors, the registered office, central administration and principal place of business of a company.

108. It should be pointed out, moreover, that the Court also reached that conclusion on the basis of the wording of Article 58 of the EEC Treaty. In defining, in that article, the companies which enjoy the right of establishment, the EEC Treaty regarded the differences in the legislation of the various Member States both as regards the required connecting factor for companies subject to that legislation and as regards the question whether ─ and, if so, how ─ the registered office ( siège statutaire ) or real seat ( siège réel ) of a company incorporated under national law may be transferred from one Member State to another as problems which are not resolved by the rules concerning the right of establishment, but which must be dealt with by future legislation or conventions (see, to that effect, Daily Mail and General Trust , paragraphs 21 to 23, and Überseering , paragraph 69).

109. Consequently, in accordance with Article 48 EC, in the absence of a uniform Community law definition of the companies which may enjoy the right of establishment on the basis of a single connecting factor determining the national law applicable to a compan y, the question whether Article 43 EC applies to a company which seeks to rely on the fundamental freedom enshrined in that article – like the question whether a natural person is a national of a Member State, hence entitled to enjoy that freedom – is a preliminary matter which, as Community law now stands, can only be resolved by the applicable national law. In consequence, the question whether the company is faced with a restriction on the freedom of establishment, within the meaning of Article 43 EC, can arise only if it has been established, in the light of the conditions laid down in Article 48 EC, that the company actually has a right to that freedom.

110. Thus a Member State has the power to define both the connecting factor required of a company if it is to be regarded as incorporated under the law of that Member State and, as such, capable of enjoying the right of establishment, and that required if the company is to be able subsequently to maintain that status. That power includes the possibility for that Member State not to permit a company governed by its law to retain that status if the company intends to reorganise itself in another Member State by moving its seat to the territory of the latter, thereby breaking the connecting factor required under the national law of the Member State of incorporation.

114. It should also be noted that, following the judgments in Daily Mail and General Trust and Überseering , the developments in the field of company law envisaged in Articles 44(2)(g) EC and 293 EC, respectively, as pursued by means of legislation and agreements, have not as yet addressed the differences, referred to in those judgments, between the legislation of the various Member States and, accordingly, have not yet eradicated those differences.”

As a conclusion:

On the basis of the jurisprudence of the Court of Justice of the European Union and EFTA Court and EU/EEA law, it must be said that freedom of establishment is the principle in the internal market. However, both the EU Treaty and the case-law of the ECJ allow restrictions if they are justified under European law. In fact, the European Court of Justice has ruled that freedom of establishment for companies can be restricted in the following circumstances:

If restrictions are based on a general public interest, such as established in the case Cartesio:

-       the prevention of abuse or fraudulent conduct,

-       the protection of the interests of creditors, minority shareholders, employees or the tax authorities.

According to the latest judgment of the Court of Justice of the European Union (ECJ) of 21 January 2010 it is also possible to argue that European law does not affect the possibility of national legislation/measures prohibiting companies from invoking EU law when, in reality, there is a misuse of EU legal provisions to circumvent legitimate national law (abuse of the right of establishment by foreign companies through artificial arrangements in order to escape national prohibition).

The jurisprudence of the ECJ has finally given a doctrine on the abuse of rights in the field of free movement of establishment. Abuse of rights is not only limited to tax policy as this concept is already established as a consolidated principle in the field of free movement of persons (see for instance EU Citizens Directive 2004/38/EC).

2. Neutrality European law – Public/private ownership of natural resources – Energy as a strategic sector which justifies restrictions on the free establishments of foreign and even EEA companies.

Similar arguments would apply mutatis mutandis (by analogy) to EU and EEA internal market of energy law.

EU/EEA Member States have national sovereignty over natural resources and are free to decide the system of public/private property ownership and exploitation. Public/private ownership is a matter for each State to decide in respect of current international and European law in force.

In general, European law (EU and EEA law) requires the respect of non-discrimination principle between nationals/undertakings and other EEA citizens/companies. This is essential for the correct functioning of the European internal market of energy. But two precisions must be made that are essential in this regard:

1) Energy is a strategic industry that is related to national sovereignty and public order. Ensuring security and independence of energy supply for a country may constitute a public security concern and is therefore a legitimate aim capable of justifying a restriction on the free movement within the EU/EEA (EU energy policy allows for derogations in case of isolated markets or situation where a company has less than 100.000 connected users (ie. households) such as is the case in Iceland).

2) The principle of non-discrimination does not obligatory extend to foreign companies, as EU/EEA law stands today. EU/EEA countries can adopt different policies regarding foreign companies outside the EU/EEA.

According to the EFTA Court Judgment in the case E-2/06 Norwegian waterfalls (EFTA Court Judgment of 26 June 2007), the EFTA Court declared:

“72 The Court holds that Article 125 EEA is to be interpreted to the effect that an EEA State’s right to decide whether hydropower resources and related installations are in private or public ownership is, as such, not affected by the EEA Agreement. The corollary of this is that Norway may legitimately pursue the objective of establishing a system of public ownership over these properties, provided that the objective is pursued in a non-discriminatory and proportionate manner. [...]

77 For the reasons set out above, the contested rules [different conditions for concession for acquisition of hydropower resources different for EEA than Norwegian companies], as they exist today, cannot be said to aim at establishing a “system of property ownership” within the meaning of Article 125 EEA. Rather, the contested rules are aimed at achieving a certain level of public control of the relevant sector of the economy.

78 Acquiring public control does not, as such, qualify as a mandatory requirement. However, acquiring public control may be a means of attaining other goals which may qualify as legitimate aims, potentially justifying restrictions on free movement. The documents of the case show that environmental protection and security of energy supply, as well as effective collection of economic rent, are concerns which through the years have gained importance in relation to management and control of hydropower resources.

79 The Court notes first that environmental concerns are legitimate public interests under the EEA Agreement and therefore can serve as a justificatory ground in the case at hand (see for comparison Case C-2/90 Commission v Belgium [1992] ECR I-4431, at paragraphs 30-32). Moreover, ensuring security of energy supply may constitute a public security concern and therefore a legitimate aim capable of justifying a restriction on free movement (see for comparison Case 72/83 Campus Oil [1984] ECR 2727, at paragraphs 34 and 35 and Case C-503/99 Commission v Belgium [2002] ECR I-4809, at paragraph 46).

80 The aim of the collection of economic rent is of an economic nature and therefore cannot in itself serve as justificatory ground (see Case E-1/04 Fokus Bank [2004] EFTA Ct. Rep. 11, at paragraph 33). However, as stated above, the legislation at issue genuinely pursues several different objectives. Therefore, the presence of such an economic aim does not in itself invalidate other legitimate justificatory grounds.

81 In light of the above, the Court concludes that the contested rules are based on legitimate aims under EEA law in so far as the aims of ensuring security of energy supply and protection of the environment are concerned. It thus needs to be examined whether the rules satisfy the requirements of suitability and necessity under the principle of proportionality.

82 In order to be justified, the contested rules must be suitable for achieving the intended objectives, and they must not go beyond what is necessary in order to attain the legitimate objectives which they pursue (see Case E-10/04 Piazza v Schurte [2005] EFTA Ct. Rep. 76, at paragraph 39).“

 

It can be concluded that EEA law also allows derogations based on legitimate aims if they are suitable and proportional to achieve a public policy aim. Under EEA law there is the possibility to restrict free movement and free establishment for public policy reasons such as the security of supply, environmental concerns or any other public policy such as prevention of abuse or fraud. The EFTA Court has to follow the case-law of the ECJ in order to secure homogeneity between EU and EEA law.

Furthermore, EU/EEA law allows especial derogations from the general regime of European energy law if they are justified for public reasons such as security of supply or the isolation or the size of small markets admitted under EU/EEA law. Iceland could very well derogate from the general regime and, for reasons unknown to the author, it opted not to do so when incorporating the general EU energy package in to the EEA legal order (see Opinion of the European Commission on the application of Iceland to join the EU – 24 February 2010 and analytical Report where it is stated that Iceland did not use the derogations permitted under the current EEA Agreement and the Commission acknowledges that these derogations are still available for Iceland during negotiations).

 

Conclusions

The doctrine of abuse of rights has become clear in the jurisprudence of the ECJ from 2008. It is possible to argue that EU rights are first of all for companies having a real economic link to Europe, not for box-lettter companies created through artificial arrangements in order to circumvent national law. If a primary establishment is not located and connected to the economy of Europe, one could very well argue that there might be no rights under the internal market. 

There are derogations possible for Iceland under EU energy law that could be requested de lege ferenda. This is dynamic area law where the situation could change in the next year during accession negotiations with the EU.

 

  Most important references

Opinion of the European Commission on the application of Iceland to join the EU – 24 February 2010 and analytical Report.

V. Edwards and P. Farmer, „“The Concept of Abuse in the Freedom of Establishment of Companies: A Case of Double Standards?“ in A. Arnull and others (eds), Continuity and Change in EU Law, Essays in Honour of Sir Francis Jacobs, Oxford University Press, 2008, pp. 205-227 and especially conclusions on page 206-207.

M. Roggenkamp and others (eds), Energy Law in Europe. National, EU and International Regulation, 2nd. ed, Oxford University Press, 2007, pp. 40-51.

 EFTA Court Judgment of 26 June 2007 available at 
 http://www.eftacourt.int/images/uploads/E-2-06_Judgment.pdf

Judgment of the Court of Justice of the European Union in Case C-210/06 Cartesio Oktató és Szolgáltató bt. And Opinion of advocate general Maduro delivered on 22 May 2008 in Cartesio, C-210/06, nyr, (hereinafter,Cartesio.) See especially  para. 32.of the opinion of Advocate General.

Judgment of the Court of Justice of the European Union in the case Cadbury Schweppes plc and Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue, C- 196/04, [2006] ECR I-7995, especially in para. 55.

ECJ, Judgment of the Court (Third Chamber) of 21 January 2010. Case C-311/08.  Société de Gestion Industrielle (SGI) v Belgian State. European Court Reports [2010]  not yet published.

Commissioner Andris Piebalgs, Energy Commissioner. European Response to energy challenges. Speech at the EU Energy and Environment Law and Policy Conference, Brussels 22 January 2009. Speech/09/18. Available at  http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/09/18&format=HTML&aged=0&language=EN&guiLanguage=en"