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European Law shall always prevail over conflicting domestic law provisions

A recent debate in Italy has arisen on whether a new bill should be passed by the Parliament providing for the levying of fines to those foreign companies which resolve to shut down production plants in Italy and transfer the relevant production to some other member-country of the EU-European Union.

Such fines should be levied in particular to foreign enterprises with a significant amount of employees in the involved Italian plants which would be shut down, provided that such enterprises, after having in the past installed production plants in Italy, later on decide, based on their own business reasons, to dismiss the activities of such Italian plants and transfer same to some other EU member-countries which may eventually offer new or better opportunities, inclusive of tax, bureaucracy, labour or any other benefits which are not, obviously, contrary to law.

Such fines or similar sanctions - should cited law bill proposal eventually pass in the Italian Parliament - appear to be prima facie contrary to certain key provisions of European Law, among which the freedom of establishment provided for under article 49, and of article 26, second paragraph as it relates to the freedom of circulation of products, people, services and capitals, of the Treaty on the Function of the European Union.

A question arises, therefore, on whether Italian law can so openly conflict with those key provisions of the mentioned European treaty, or there are any prohibitions or limitations to such regard.

The prevalence of EU Laws over conflicting national law provisions has been stated and confirmed in various occasions both by Italian Courts in several jurisprudence precedents (as an example, the historic judgment no. 170 of 1984 issued by the Italian Constitutional Court; similarly, other judgments issued by the same Court have reiterated that if there is any conflict as between an EU Law provision and an Italian Law provision, the latter shall disapply and all relevant involved subjects – inclusive of the Public Administration and Judges – shall comply with such disapplication; ref. judgments no. 168/91, 389/89, 113/85; 391/92; 115/93), and by the ECG-European Court of Justice.

The ECG, indeed, in the well-known “Centros” case (judgment of 9 March 1999 on case no. C-212/97) has stated that the fact that a citizen of an EU member-country, wishing to create a company, decides to incorporate it in another EU member-country whose corporate provisions seem to be less restrictive, and later that citizen opens some branches in other EU member-countries, cannot per se result into an abuse of the right of establishment. This, because the right to incorporate a company in compliance with the rules of an EU member-State and to establish branches in other EU member-countries is compliant with the enjoyment – in the European unified market – of the freedom of establishment provided for under the relevant EU Laws. According to the ECG jurisprudence, national law provisions which hinder or discourage the enjoyment of the fundamental freedoms protected by the Treaty, shall be subject to satisfying all following four conditions: they shall apply in a non-discriminatory way, be justified by mandatory reasons of public interest, be fit to guarantee that the relevant purported scope can be achieved and do not exceed what is necessary to actually achieve it.

The obligation to disapply Italian Law provisions when they openly conflict with EU Law provisions, has been strongly enounced in other judgments issued by the ECG, which has in fact reiterated that the prevalence principle obligates all EU member-States’ Governments and public entities to fully and actually apply all EU provisions, since national law provisions cannot affect the validity and enforceability of EU laws all over the territory of such EU member-States (ECG’s judgment of 24 June 2019, in the “Poplawski” case no. C-573/17, point no. 54. Same, ECG’s judgment of 26 February 2013, in the “Melloni” case no. C-399/11, point 59).

On top of the foregoing, various judgments issued by Italian TAR-Regional Administrative Courts have also held that EU Laws should prevail over any differing and conflicting Italian law provisions, and to such regard, we can mention the recent TAR Lazio’s judgment published on 11 August 2021 (judgment no. 09364/2021 issued by the Third Section, on case protocol no. 7605/2020, pursuant to the petition filed by “Transnational Limousines Prevozi D.O.O” versus “Ministero delle Infrastrutture e dei Trasporti, Ufficio Provinciale Motorizzazione Civile Roma”).

TAR Lazio has in such case reiterated - after having cited the above mentioned judgment issued by the ECG in the “Centros” case - that the guideline which can be taken from such case is that the principle of the freedom of establishment as set forth by article 49 of the Treaty on the Function of the European Union shall be fully safeguarded, and such principle prohibits that a company, which has been validly incorporated in an EU member-State and has opened a branch in another member-State, be denied the right to carry out the business activity for which said company has been created. The guest State can only adopt those measures fit for the sole purpose to prevent any frauds or elusions, provided that such measures are non-discriminatory, aimed at complying with relevant mandatory requirements, and proportional with regard to the final scope to be achieved; the foregoing, by taking always into consideration that, if the guest State applies a different treatment to such foreign company only because the registered site of that company is in a different EU member-State, that can be contrary to article 49 of the Treaty on the Function of the European Union (the ECG’s judgment of 14 May 2020, Second Section, case no. 749, has been cited to said purpose).

Other TAR judgments have issued similar judgments, and we can mention in particular TAR Campania (Neaples, Third Section, judgment of 6 July 2016, case no.3394), and TAR Toscana (First Section, judgment of 19 March 2013, case no. 422).

Finally, TAR Lazio has referred to one of its precedents, reiterating that not only actual EU Law provisions, but also ECG’s judgments shall be deemed as immediately and directly applying in every member-State, same as all EU regulations, directives and EU Commission’s decisions, consequently domestic Courts shall disapply any national provisions conflicting therewith. Domestic Courts are in fact obligated to interpret national laws in full compliance and adherence with EU Law, without need of any prior decision on such contrariety to be issued by the Constitutional Court. This de facto implies that EU Law provisions always prevail over any conflicting national law provisions, which shall consequently not apply in case of conflict, unrelated from the fact that they were passed as a law before or after the relevant conflicting EU provision. The relevant disapplication shall be carried our both by domestic Courts and by any relevant Government entity (TAR Lazio – Rome, Second Section, judgment of 5 April 2012, case no. 3142).

From all the above Court precedents, we can presume that, if a company decides to shut down its production activity in Italy in order to move and transfer it to another EU member-country, and even if such abandonment may cause strong traumatic effects and affect any involved employees, such transfer cannot be in principle hindered or challenged by levying fines against the foreign company which purports to transfer such activity abroad, only based on its own business decision and entrepreneurial appraisal.

This, provided that only foreign companies with a significant number of employees to be dismissed in Italy should be targeted by any such fines, while in turn same kind of fines would not apply to Italian entrepreneurs willing to similarly transfer abroad their production activity.

Same conflict with EU Law may arise if the levying of such Italian fines is not supported by any justified reason of public interest, nor is it proportional having regard to the final scope to be achieved.

If such mandatory EU Law requirements are not met, national rules conflicting with EU Laws shall be held as null and void and be disapplied.

Prof. Avv. Salvatore Vitale

This article is not a legal advice, but it has an informative function only. For personalized legal advice, contact us by e-mail or by phone +39 06 916505710. © Dong & Partners International Law Firm, All rights reserved

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