Op-Ed: “Have customers from other Member States? Better keep the receipts! Bonver Win and the proof of the cross-border element in the context of the ‘consumption abroad’ of services” by Amedeo Arena
On 3 December 2020, the Fourth Chamber of the Court of Justice delivered its judgment in Bonver Win, which provides some insights on the application of the ‘purely internal rule’ when a company established in a Member States supplies services to customers from other Member States (the so-called ‘consumption abroad’ of services, to borrow GATS terminology).
The reference for a preliminary ruling stemmed from a dispute between Bonver Win, a company operating betting games in the Czech town of Děčín, located approximately 25 km from the German border, and the Czech Ministry of Finance, over the lawfulness of a decision withdrawing that company’s licence, following a decree by the Děčín Town Council prohibiting betting games in the municipal territory.
In the course of proceedings before the Czech Supreme Administrative Court, the issue arose whether Bonver Win could rely on the freedom to provide services to challenge the above decision. That court thus resolved to ask the Court of Justice whether Article 56 TFEU applies to national legislation prohibiting a certain service in part of one municipality ‘simply because some of the customers of a service provider affected by that legislation may come or do come from another Member State’ and whether ‘a mere assertion of the possible presence of customers from another Member State [is] sufficient to trigger the applicability of Article 56 TFEU’ or ‘the service provider [is] obliged to prove the actual provision of services to customers who come from other Member States’.
Advocate General Szpunar, at the beginning of his Opinion of 3 September 2020, recalled the ‘purely internal rule’ introduced in Saunders in 1979, where the Court of Justice ruled that ‘the provisions of the Treaty on freedom to provide services cannot apply to activities whose relevant elements are confined within a single Member State’ (the so-called ‘purely internal situations’). The ‘procedural consequence’ of that rule, the AG added, is that the Court of Justice has no jurisdiction to interpret the fundamental freedoms in cases involving no cross-border elements and that the preliminary references stemming from those cases should be deemed inadmissible.
The AG then reminded that, over the years, the Court of Justice has carved a number of exceptions into the purely internal rule, summarized in the Ullens de Schooten judgment of 2016. In particular, under the so-called ‘certain cross-border interest’ exception, the EU judges have been willing to provide preliminary rulings in cases involving purely internal situations where ‘it was not inconceivable that nationals established in other Member States had been or were interested in making use of [the fundamental] freedoms for carrying on activities in the territory of the Member State that had enacted the national legislation in question and, consequently, that the legislation, applicable without distinction to nationals of that Member State and those of other Member States, was capable of producing effects which were not confined to that Member State’.
The AG, however, relied upon a particular version of the certain cross-border interest exception, adumbrated by the EU judges in Trijber in 2015. On that occasion, the Court of Justice ruled that it was enough for the preliminary reference to be admissible that the service at issue, i.e. the organization of boat trips in Amsterdam, ‘may also be enjoyed by nationals of other Member States’, so that the requirement to obtain a prior authorization from the Netherlands authorities ‘could impede access to the market for all service providers’.
Whilst the general version of certain cross-border interest exception, which emerged in the context of public procurement with cases such as Coname and Parking Brixen in 2005, focuses on what antitrust lawyers would call ‘supply-side substitutability’, i.e. whether, in addition to companies established in the same Member State as the contracting authority, companies from other Member States may have an interest in providing the services concerned, the Trijber variant of that exception focuses on ‘demand-side substitutability’, i.e. whether, in addition to customers from the Member State adopting the contested measure, customers from other Member States may have an interest in receiving those services.
In view of the similarity between the facts in Trijber and those in Bonver Win, the AG concluded the Court of Justice should not apply the purely internal rule as codified in Ullens de Schooten, as the preliminary reference from the Czech Supreme Administrative Court was ‘clearly admissible’.
In the part of the Bonver Win judgment devoted to the application of the purely internal rule, instead, the EU judges did not rely on Trijber. Rather, they pointed out that ‘a mere assertion by a service provider that some of its customers come from a Member State other than that in which it is established is not sufficient to establish the existence of a cross-border situation capable of falling within the scope of Article 56 TFEU’ and that it was for the referring court to ‘demonstrate in the order for reference that that assertion is well founded’.
In casu, the Court of Justice noted that ‘the town of Děčín’ was ‘a place that is enjoyed by German nationals’ and that, in the context of the national proceedings, Bonver Win had ‘provided evidence which seeks to demonstrate that some of its customers were persons from other Member States’. Being it apparent that ‘the existence of foreign customers’ was not ‘purely hypothetical’, the Court of Justice ruled that, ‘subject to verification by the referring court of the evidence provided by Bonver Win’, Article 56 TFEU applied in a situation such as the one at issue in the main proceedings.
The Court of Justice’s insistence on the need for concrete evidence of consumption abroad of services is particularly appropriate. The AG’s Trijber-based reasoning, indeed, could give the impression that the ‘purely hypothetical’ prospect of a cross-border demand for a given service is enough to warrant the admissibility of preliminary questions.
Had the Court of Justice endorsed that understanding, it would have extended to the field of services the purely internal rule as applied in the context of the free movement of goods. In cases such as Jersey Produceand Kakavetsos, indeed, the Court of Justice was willing to provide a preliminary ruling on the grounds that the goods affected by the contested domestic measure ‘might then be re-exported to other Member States’ and could thus ‘at the very least potentially’ affect the volume of trade with other Member States.
It is clear to see that such a ‘potential cross-borderness’ exception to the purely internal rule is so broad as to deprive that rule of most of its heuristic value in the context of the free movement of goods. If the Court of Justice had embraced the Trijber version of certain cross-border interest exception in the field of services, that would have come close to abolishing the purely internal rule altogether.
Indeed, in a single market where the free movement of service recipients is ensured, it is almost always possible to assume a potential cross-border demand for certain services. That is clearly the case of services related to tourism, such as museums, restaurants, and hotels, but that could also be the case of healthcare, education, transportation, and all other services that are generally enjoyed by individuals from a Member State other than the one where the provider is established.
As argued elsewhere, the abolition of the purely internal rule would entail a sweeping application of the fundamental freedoms, which could be invoked not only to liberalize trade between Member States, but also to promote the ‘unhindered pursuit of commerce [within] individual Member States’, as Advocate General Tesauro famously put it in his Opinion in Hünermund. The abolition the purely internal rule would also significantly extend the scope of Member States’ measures subject to fundamental rights as general principles of EU law and as codified in the Charter of fundamental rights, which could exponentially increase the number of preliminary references and the opportunities for conflict between the Court of Justice and Member States’ supreme and constitutional courts.
However, with its judgment in Bonver Win, the Court of Justice clearly signalled that it does not intend to go down that path and that the purely internal rule in the field of services is alive and kicking. Indeed, not only the EU judges made no reference to Trijber, but they deemed appropriate to remind that ‘a cross-border situation cannot be presumed to exist on the sole ground that EU citizens from other Member States may avail themselves of such service opportunities’ and that national courts must verify the evidence presented by the parties as to the existence of service recipients from other Member States.
WhiIst those clarifications are certainly welcome, one cannot help pointing out that the Court of Justice has not always been receptive to claims of consumption abroad in the past. For instance, in Ullens de Schooten, the ‘decalogue judgment’ on the purely internal rule, the eponymous entrepreneur had argued that the services provided by his clinical biology laboratory in Belgium were offered also to ‘nationals from other Member States’, but that argument, duly reported in footnote of the Advocate General Bot’s Opinion, does not appear in the Court of Justice’s judgment in that case.
In a similar vein, in Sbarigia, another landmark ruling on purely internal situations, the Court of Justice did not examine the issue, highlighted in the text of Advocate General Jääskinen’s Opinion, that the periods of mandatory closure imposed by the Municipality of Rome ‘restrict[ed] the possibility for tourists to use the services of Ms Sbarigia’s pharmacy’, which was located ‘in the heart of the capital’s tourist area’, namely six minutes away from the world-famous Trevi Fountain.
Hopefully, in the wake of Bonver Win, the Court of Justice will pay greater attention to the cross-border elements put forward by the referring courts and by the parties. Service providers throughout the EU are thus warmly advised to keep the receipts of their transactions with customers from other Member States: should they wish to invoke Article 56 TFEU to challenge domestic measures, those receipts may come in handy.
Dr Amedeo Arena is an Associate Professor of EU Law at the University of Naples “Federico II” and author of the “Le ‘situazioni puramente interne’ nel diritto dell’Unione europea” (Editoriale Scientifica, 2019).