This will be the European Services e-card, and it is designed to boost the internal EU economy by providing service providers with a means of establishing their skills, capabilities and qualifications to do work in their area of expertise in any country across the EU.
While service provision is reckoned to account for some 70% of EU GDP and employment, the Union still sees plenty of scope for growth across the sector, particularly in terms of cross-border trade and investment in services. For this reason, the European Council has decided it is time to act to create actions to make the single market without borders for services a reality. In its own words:
…..delivering a deeper and fairer Single Market will be instrumental in creating new jobs, promoting productivity and ensuring an attractive climate for investment and innovation.
Here comes the Heffalump
There is, of course, a rather large elephant in the same room as this development, particularly for UK service providers. According to the UK Office of National Statistics, the approximate gross value added at basic prices (aGVA) of the UK non-financial business economy was estimated to be £1,147.2 billion in 2015. This non-financial sector accounts for 56.1% of all aGVA, and the largest contribution to the sector’s overall 5.7% growth that year came from the professional, scientific and technical activities group with 5.2% growth. Overall it accounts for some 80% of the UK’s total GDP.
UK service providers may, however, find themselves standing on the wrong side of the door once Brexit becomes a reality. One of the driving forces behind the e-card proposal is Belgian MEP, Anneleen Van Bossuyt, and according to her the new legislation will almost certainly have a negative impact on non-EU companies doing business:
A company can apply for an e-card and with the e-card a company can provide cross-border services in another EU-country. The e-card merely facilitates the cross-border provision of services by the company. It does not touch upon the employees of the company. Existing rules regarding employees such as in the field of professional qualifications or posting of workers will not be touched upon. Yes, the e-card is aimed for EU-companies.
When asked how this might affect the status and position of UK national businesses in a post-Brexit world, and then whether, once the UK is Post-Brexit and out of the EU, UK businesses will no longer be accredited in the EU and therefore no longer able to trade, she offered the same response:
This is a question I can’t provide an answer for, because it obviously depends on the outcome of Brexit negotiations.
This answer also applied to questions as to whether UK status might be dependent on whether the UK opts for the 'Norway Solution' of being part of the Single Market but outside the EU?
And the options are…….
The performance of the services sector is seen by the EU to be significant importance to the economy at large due to its interlinkages with other sectors in the economy. This is particularly the case for business services, which provide key inputs to the manufacturing sector. The e-card is therefore being aimed at reducing the administrative complexities for service providers that want to expand their activities to other Member States. It will at the same time ensure that Member States can apply their own justified regulations.
The plan is that it will be offered to service providers on a voluntary basis. It will offer an alternative route to show compliance with the applicable national rules, and will allow service providers to use a fully-electronic, EU-level procedure to complete formalities when expanding abroad. This should give them increased legal certainty and significantly reduced administrative complexity.
There are four options currently on the table for how the e-card should operate:
- A European services e-card attesting legal establishment. Under this option, Member States would create a system of standardised electronic certificates (European services e-cards) for service providers with the objective of attesting their Member State of legal establishment.
- A European services e-card for a more ambitious administrative simplification. This should not only attest, throughout the Union, to the legal establishment of its holder in the home Member State, but also provide a tool to support service providers who intend to expand operations in their relations with host Member States. This also has an additional option that would introduce rules on how the host Member State should apply the principle of proportionality for the set-up of branches or agencies when assessing requirements in the context of the European services e-card procedure for secondary establishment. This has already raised stakeholder concerns regarding unequal treatment and risk of circumvention.
- Actions to facilitate access to insurance in a cross-border context. This is also sub-divided into two categories. The first concerns cases where the service provider already has an insurance policy in the home Member State and where the insurer could provide a certificate indicating the main aspects of the mandatory or voluntary coverage and/or a right for policy holders could be introduced. The second concerns cases where the service provider needs a new insurance policy in the host Member State.
- Harmonisation of requirements for certain business services. This policy would introduce a harmonisation instrument. More than a third of the Member States would be obliged to amend one or more regulations on legal form, shareholding/voting rights requirements, management restrictions and multidisciplinary activities for domestic service providers, as well as foreign service providers setting up a subsidiary (a separate legal entity to be incorporated) in their territory.
According to the EU Impact Analysis of these options, the EU Commission’s favoured one is Option 2:
Package 2 envisages a one-stop shop for providers in the business services and construction sectors, reducing costs for companies while increasing legal certainty about the requirements applicable to them, thus enhancing cross-border trade and investment. Over time, it is expected that Member States will gain a better knowledge of their respective regulatory frameworks in the sectors covered by the European services e-card that should lead to enhanced mutual trust.
For package 2, it is estimated that the reduction of administrative costs for companies going cross-border would be 50-75%. Under this package, more companies could be expected to go cross-border, which could increase market dynamics and competition levels, and lower prices.
The Impact Analysis goes on to point out that the current situation in cross-border business services is often characterised by insufficient common trust. So Member States will normally then impose their own domestic requirements on service providers without any real regard for any regulatory frameworks that are already in place in the service provider’s own home country within the EU.
There is already a degree of backlash against the e-card proposals. The Association of Mutual Insurers and Insurance Cooperatives in Europe, the European Federation of Insurance Intermediaries, and Insurance Europe have all come out as opposing the proposals, saying they could generate red tape and encourage fraud. They recently issued a joint statement, which was also signed by four unions representing builders and cleaners:
Host member states would not have sufficient power and resources to properly oversee and administer the services e-card system. There is real danger that this e-card would not lead to a fairer and more social internal market for services and, conversely, it could worsen the status quo for workers.
The European Construction Industry Federation (FIEC) has already requested that the construction industry be left out of European legislators’ plans as it sees the e-card being counterproductive to the EU’s goal of promoting fair competition, labour protection and a well-functioning Single Market.
Indeed they see it facilitating both current and new fraud mechanisms, leading to bogus self-employment, undeclared work, fake posting of workers, increased administrative burden, additional cost, and non-compliance with social and labour regulations.
It does seem as though IT services businesses may be a bit slow on considering the implications of the EU proposals. Spokespeople for both Accenture and Capgemini indicated they were not in a position to comment on the e-card proposals at the moment.
As for when the e-card proposals might make it to the point of implementation, Aneleen Van Bossuyt offered the following outline of the process it now faces:
It is not yet possible to concretely predict when exactly the e-card will become operational. It depends first of all from the date of vote in the plenary session of the European Parliament. That date is not yet set, but I suppose if there are no delays of the file it will be in the beginning of 2018. Then it takes approximately 2 months before it becomes legislation and it is published in the Official Journal of the European Union. The entry into force is set for 20 days after the publication in the Official Journal.
Anything that impacts those devilish twins – competition and costs – will always be a curate’s egg. The good parts will certainly be the potential to reduce operating and administrative costs for the customers of service providers. It could also prove more than beneficial for those service providers with the skills and expertise that overseas customers are desperate to exploit without too much hassle.
But there will always be the downside of foreign `adventurers’ coming in and taking the business of the local specialists, and that will certainly ruffle some feathers, especially in the early days of e-card use.
It also does look as though any UK-based services providers with aspirations of trading in Europe might be well advised to establish a European base or two if they want to continue on that route, otherwise they may find themselves facing a locked door post-Brexit.