The Enlargement of the European Union

The Enlargement of the European Union A Guide for the Entrepreneur Ine Lejeune and Walter Van Denberghe PricewaterhouseCoopers

The Enlargement of the European Union

The Enlargement of the European Union A Guide for the Entrepreneur Ine Lejeune and Walter Van Denberghe PricewaterhouseCoopers

Copyright C 2004 John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone (+44) 1243 779777 Email (for orders and customer service enquiries): cs-books@wiley.co.uk Visit our Home Page on www.wileyeurope.com or www.wiley.com All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher. Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England, or emailed to permreq@wiley.co.uk, or faxed to (+44) 1243 770620. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold on the understanding that the Publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. Other Wiley Editorial Offices John Wiley & Sons Inc., 111 River Street, Hoboken, NJ 07030, USA Jossey-Bass, 989 Market Street, San Francisco, CA 94103-1741, USA Wiley-VCH Verlag GmbH, Boschstr. 12, D-69469 Weinheim, Germany John Wiley & Sons Australia Ltd, 33 Park Road, Milton, Queensland 4064, Australia John Wiley & Sons (Asia) Pte Ltd, 2 Clementi Loop #02-01, Jin Xing Distripark, Singapore 129809 John Wiley & Sons Canada Ltd, 22 Worcester Road, Etobicoke, Ontario, Canada M9W 1L1 Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Cataloging-in-Publication Data Lejeune, Ine. The enlargement of the European Union : a guide for the entrepreneur / Ine Lejeune and Walter van Denberghe. p. cm. Includes bibliographical references and index. ISBN 0-470-02253-1 (cloth : alk. paper) 1. European Union Europe, Eastern. 2. European Union countries Commercial policy. 3. Europe, Eastern Commercial policy. 4. Industrial policy European Union countries. 5. Industrial policy Europe, Eastern. 6. Labor policy European Union countries. 7. Labor policy Europe, Eastern. 8. Corporations Taxation European Union countries. 9. Corporations Taxation Europe, Eastern. 10. Entrepreneurship Europe, Eastern. 11. Infrastructure (Economics) Europe, Eastern. 12. Telecommunication Europe, Eastern. 13. Information technology Europe, Eastern. 14. Environmental policy Europe, Eastern. 15. Europe Economic integration. 16. European federation. I. Denberghe, Walter van. II. Title. HC240.25.E852L45 2004 337.1 42 dc22 2004007052 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 0-470-02253-1 Typeset in 10/12pt. Stone Sans by TechBooks, New Delhi, India Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall This book is printed on acid-free paper responsibly manufactured from sustainable forestry in which at least two trees are planted for each one used for paper production.

Contents Foreword Preface Acknowledgements xiii xv xviii 1 Enlargement of the European Union: Facts and Figures 1 1.1 Enlargement an historic opportunity 1 1.2 How did the European Union come about? An historical overview 2 1.3 How has the enlargement process gone since the fall of the Wall? 3 1.4 What were the criteria for accession? The council meeting in Copenhagen on 21 22 june 1993 4 1.5 What was the enlargement strategy? 5 1.6 What are the 31 chapters of the acquis communautaire? 5 1.7 Were transitional measures granted prior to accession? 6 1.8 Are the candidate member states prepared? 6 1.9 What economic changes will there be in the accession countries? 7 1.10 Through which programmes is the European Union investing in the candidate member states? 8 1.11 What is the European Union s budget after accession? 11 1.12 The European Union of 25 in figures 12 1.13 Are entrepreneurs investing in the new member states? 13 Source references for Chapter 1 14 2 Frequently Asked Questions on the Impact of Enlargement of the European Union for Businesses 17 2.1 What is the impact on the migration of labour? 17 2.2 What is the impact on the organisation of production and distribution? 18 2.3 Can I use the service of carriers from the new member states? 19 2.4 What about border controls? 21 2.5 Are these 10 countries joining the eurozone? 21

vi Contents 2.6 What will the impact of accession by the 10 member states be on major sectors within the European Union? 22 2.6.1 The steel industry 22 2.6.2 The automotive industry 22 2.6.3 The pharmaceutical industry 23 2.6.4 Telecommunications 24 2.6.5 The financial sector 24 2.6.6 The chemical industry 24 2.6.7 The textile and clothing industry 24 2.7 Does Europe stimulate entrepreneurship? 25 2.8 What are the most important features of the European legislation on industrial production? 25 2.9 Will diplomas from the new member states automatically be recognised? 26 2.10 Can I directly invoke European law if a (candidate) member state has failed to implement a provision? 27 2.11 How do I prepare my business for enlargement? 28 2.12 ICT: status, opportunities and points to note? 30 2.12.1 What are the most important changes in the realm of ICT in the 10 new EU member states? 30 2.12.2 What opportunities does this situation offer for western European businesses? 30 2.12.3 What pitfalls do you have to watch out for when choosing your trading partners? 30 2.13 Are businesses ready for enlargement? 31 2.14 Where do you find the required information on enlargement of the European Union? 31 Source references for Chapter 2 32 3 Enlargement of the European Union from a Legal Perspective 35 3.1 What is the acquis communautaire? 35 3.2 The current status of implementation 35 3.3 What can you as a business do where the acquis communautaire has not been or has only partially been implemented? 36 3.4 What is the importance of regulations and directives? 37 3.5 What does the acquis communautaire specifically contain? 38 3.6 What is the free movement of goods? 39 3.7 What is the prohibition against quantitative import and export restrictions and measures of equivalent effect? 39 3.8 What is the importance of product standards? 41 3.9 How can you know whether a member state has passed domestic measures that limit the free movement of goods? 42

Contents vii 3.10 Are there transitional measures in respect of the free movement of goods? 42 3.11 What is the second freedom: the free movement of persons? 43 3.12 What is the free movement of workers? 43 3.13 What is freedom of establishment? 45 3.14 What is the importance of the freedom of establishment? 46 3.15 What does this mean for companies? 46 3.16 Will the European Company or Societas Europaea be introduced in the accession countries? 46 3.17 Is there also free movement for persons other than businesses or workers? 48 3.18 What about public policy and public safety? 48 3.19 Are there any transitional measures regarding the free movement of persons? 48 3.19.1 Movement from the accession countries to the present member states 49 3.19.2 Movement from current member states to the accession countries 49 3.20 What is the third freedom: the free movement of services? 49 3.21 What about financial services? 50 3.22 Is adoption of the acquis communautaire in respect of financial services by the accession countries only of interest to financial service providers? 61 3.23 What about public contracts? 61 3.24 What other legislation is relevant for the free movement of services? 64 3.25 What is the fourth freedom: free movement of capital and payments? 65 3.26 Are there transitional measures for the free movement of capital and payments? 66 3.27 What is free competition? 66 3.28 What forms of cooperation between undertakings are permissible? 67 3.29 Are there exceptions to free competition? 67 3.29.1 Old rules 68 3.29.2 New rules 68 3.30 What is abuse of a dominant position? 69 3.31 Will there be checks on concentrations of undertakings in the accession countries? 70 3.32 What about public corporations? 70 3.33 Will state aids still be permitted in the accession countries? 71

viii Contents 3.34 Are there transitional measures that temporarily permit certain forms of state aid after accession? 72 Source references for Chapter 3 75 4 Frequently Asked Questions about the Legal Impact of the Enlargement of the European Union 79 4.1 Company law: I have a company in an accession country. Will there be any changes in my reporting or other company law obligations? 79 4.2 What about intellectual property rights in the enlarged European Union? 87 4.2.1 The impact of enlargement for holders of intellectual property rights 87 4.2.2 The Community trade mark and the Community design 88 4.2.3 The acquis communautaire in the field of intellectual property rights 89 4.3 What is the impact of enlargement of the EU on the transport sector? 95 4.4 Will the transport market be liberalised as from 1 May 2004? 96 4.4.1 Intra-Community transport of goods 96 4.4.2 Domestic transport or cabotage 96 4.5 What rules on taxes and technical specifications in the transport sector fall within the acquis communautaire? 96 4.6 What social law rules from the transport sector form part of the acquis communautaire? 97 4.7 What transitional measures are there in the transport sector? 98 4.8 What is the impact of enlargement of the EU on the energy sector? 99 4.9 What is the acquis communautaire in the energy sector? 100 4.10 Do the European rules for the protection of consumers and public health apply in the accession countries as from 1 May 2004? 101 4.11 Are transitional measures applicable to the European rules on consumer protection and public health? 106 4.12 Is the European environmental legislation becoming a (r)evolution in durability? 106 4.13 Is a new environmental market being created for goods and services in the new member states? 108 4.14 What risks and opportunities are there in the environmental field if I invest in the candidate member states? 108

Contents ix 5 What is the Impact of the Enlargement of the European Union in the Field of Social and Employment Law? 111 5.1 Is there an acquis communautaire in the field of social law? 111 5.2 What changes are there in the field of social security law? 111 5.3 What social security legislation is a worker subject to? 112 5.3.1 What about nationals of third countries? 113 5.4 What about employment law? 114 5.4.1 Do employees from the new member states need a work permit? 114 5.4.2 Are there restrictions for the employment of EU workers in one of the new member states? 114 5.4.3 The secondment Directive 115 5.4.4 Are other employment law Directives applicable? 115 5.4.5 General Directives 115 5.4.6 Particular Directives 117 Source references for Chapter 5 125 6 What is the Impact of the Enlargement of the European Union in the Field of Indirect Taxation? 127 6.1 What changes will there be in the field of indirect taxation when goods are shipped from a current EU member state to one of the new member states? 127 6.2 What changes are there in the field of VAT in the accession countries? 129 6.2.1 Overview of the acquis communautaire : VAT (selected titles) 129 6.3 Does this mean that the VAT rules are identical in all the member states? 139 6.4 What changes are there for sales of goods? 139 6.5 What changes are there for the provision of services? 142 6.6 Is the case law from the Court of Justice also applicable in the new member states? 143 6.7 Are the VAT rates being harmonised? 145 6.8 Will there be a greater or lesser right to deduct VAT in the accession countries? 146 6.9 How far on are the new member states with the implementation of the Sixth VAT Directive? a stock-take. 147 6.10 What checklist can you use in order to prepare your business? 153 6.11 What changes are there in the field of VAT obligations? 156

x Contents 6.12 What about the issuance of invoices? 157 6.13 Can I invoice electronically? 158 6.14 Will I be able to store my records electronically? 159 6.15 What impact does the altered legislation in the field of VAT have on my bookkeeping system and/or my ERP system? 160 6.16 What changes are there in the field of customs? 163 6.17 What regulations are applicable in the field of customs? 164 6.18 Are there transitional measures in the field of customs? 164 6.19 Will the new transit system (NCTS) also be applicable for shipments to the new member states? 168 6.20 What changes are there in the field of excise duties? 168 6.21 Are there transitional measures for excise duties? 171 Source references for Chapter 6 176 7 What is the Impact of the Enlargement of the European Union in the Field of Direct Taxes? 179 7.1 What is the impact of accession? 179 7.2 What can a taxpayer do if an EU directive has not been transposed into the national laws of one of the new member states? 180 7.3 Is the Parent Subsidiary Directive applicable? 180 7.4 Is the Merger Directive applicable as from 1 May 2004? 181 7.5 Is the Directive concerning mutual assistance by the competent authorities of the member states in the field of direct and indirect taxation applicable as of 1 May 2004? 182 7.6 Is the Interest and Royalties Directive applicable as from 1 May 2004? 182 7.7 What EU case law on direct taxation is also applicable to the new EU countries on 1 May 2004? 183 7.8 Is the EU Code of Conduct and the EU position regarding harmful tax competition also applicable in the new EU countries on 1 May 2004? 188 7.9 Can the European Union take action against state aids in the new member states as from 1 May 2004? 189 7.10 Will the European Company exist in all member states as from 8 October 2004? 189 7.11 Will there be a fiscal unity regime as from 1 May 2004? 190 7.12 Can you plan intra-group financing activities in a tax-friendly manner? 191

Contents xi 7.12.1 Self-financing by forming reserves of profits 191 7.12.2 External debt financing 192 7.12.3 Internal debt financing 192 7.13 Is tax-friendly planning possible for intellectual property? 193 7.14 List of comparisons for corporate income tax in the new member states 194 Source references for Chapter 7 198 Appendix 201 Standard complaint form 201 PricewaterhouseCoopers EU enlargement contact details 205 Index 209

Foreword 1 May 2004 is set to be a historic date. With the accession of 10 new member states the European Union will become the largest historical, social-political realisation achieved without a clash of arms. What Europe is about to undertake is to extend the stability and prosperity we have achieved in the current EU into the future and over to our neighbours. Enlargement will bring not only political stability but also economic benefits for the EU as a whole. Of course, the impact at first will not be dramatic. The 10 central European economies account for only 5% of EU GDP. But they do represent significant long-term business opportunities and with a prospect of 4.5% yearly growth over the next decade, the 10 acceding countries provide one of the soundest investment climates in emerging markets. Moreover an impressive integration of the candidate countries into the EU economy has already taken place. Nearly two-thirds of the candidate countries trade is with the EU. Today, Foreign Direct Investment (FDI) from the EU constitutes over 20% of total investment in the candidate countries. Business plays an important role in the European Union. The European Union as a market is characterised by the freedom of movement of goods, services, workers and capital, where businesses can compete on fair terms. Economic barriers between the various national member states are still being broken down. Nearly every day, the European institutions launch initiatives promoting the internal market and measures to enhance the competitiveness of European enterprises. It is essential that business people know these rules, which shape today s economic reality in the 15 old member states and will be shaping tomorrow s reality in a Europe of 25 member states. Beyond any doubt, those who have thoroughly acquainted themselves with Europe s rules and their application in the accession member states will gain a head start. This applies equally to companies in the current and the new member states. The enlargement process does not end with accession. It is the task of Europe, national governments, professional associations and providers of corporate