D. H. M. Segers v. Bestuur Van de Bedrijfsvereniging voor Bank- en Verzekeringswezen, Groothandel en Vrije Beroepen (Case 79/85)

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1 D. H. M. Segers v. Bestuur Van de Bedrijfsvereniging voor Bank- en Verzekeringswezen, Groothandel en Vrije Beroepen (Case 79/85) Before the Court of Justice of the European Communities (2nd Chamber) ECJ (2nd Chamber) (Presiding, Bahlmann P.C.; Due and O'Higgins JJ.) M. Marco Darmon, Advocate General. 10 July 1986 Reference from the Netherlands by the Centrale Raad Van Beroep under Article 177 EEC. Establishment. Companies. A company formed under the laws of one member-state and having its registered office there but which conducts its business through a branch or subsidiary in another member-state is entitled to national treatment in the latter. [14] Establishment. Companies. Employees. Social security. The national treatment which, under the freedom of establishment guaranteed by Article 52 EEC, companies formed in one member-state must enjoy in another member-state where they conduct business through a branch or subsidiary includes the social security treatment of their employees. [15]-[16] Establishment. Companies. Public policy. Fraud. Social security. Although Article 56 EEC allows non-national treatment of foreign companies by the member-state of establishment on grounds of public policy, security or health, and public policy may include the need to combat fraud, that would not justify refusal to grant social security benefits to a local national who is the director of a one-man private company which he has formed in another member- State but which trades in his home country. [17]

2 The Court interpreted Articles 52 and 58 EEC in the context of a Dutch national who formed an English private company in order to trade in the Netherlands but was refused Dutch sickness benefit even though he would have been entitled to it if his company had been formed in the Netherlands, to the effect that the right of establishment of a company formed in another member-state included the right to national treatment, that such national treatment *248 included the treatment of the employees of such a company, who must not be discriminated against on the basis of the foreign nationality of the company, that this included eligibility to social security benefits and that therefore the plaintiff was entitled to his sickness benefit. Representation I. G. F. Cath, of the Amsterdam Bar, for the plaintiff. W. W. Wijnbeek and, in the written procedure, W. M. Levelt-Overmars, Head of the Legal Affairs/Social Security Division of the Gemeenschappelijk Administratiekantoor Association, Amsterdam, for the defendant Fund. A. Haagsma, of the E.C. Commission's Legal Department, for the Commission as amicus curiae. The following cases were referred to in the judgment: 1. Re Tax Credits: E.C. Commission v. France (270/83), 28 January 1986: [1987] 1 C.M.L.R Gaz:270/83 2. Thieffry v. Conseil de L'Ordre des Avocats A la Cour de Paris (71/76), 28 April 1977: [1977] E.C.R. 765, [1977] 2 C.M.L.R Gaz:71/76 3. Steinhauser v. City of Biarritz (197/84), 18 June 1985: [1986] 1 C.M.L.R. 53. Gaz:197/84 The following further cases were referred to by the Advocate General: 4. Seco SA v. Etablissement D'Assurance contre la Vieillesse et L'Invalidite (62/81), 3 February 1982: [1982] E.C.R Gaz:62/81 5. Reyners v. Belgian State (2/74), 21 June 1974: [1974] E.C.R. 631, [1974] 2 C.M.L.R Gaz:2/74 The following additional cases were referred to in argument: 6. Knoors v. Secretary of State for Economic Affairs (115/78), 7 February 1979: [1979] E.C.R. 399, [1979] 2 C.M.L.R Gaz:115/78 7. Rutili v. Ministre de L'Interieur (36/75), 28 October 1975: [1975] E.C.R. 1219, [1976] 1 C.M.L.R Gaz:36/ Brack v. Insurance Officer (17/76), 29 September 1976: [1976] E.C.R. 1429, [1976] 2 C.M.L.R Gaz:17/76 9. Luisi and Carbone v. Ministero del Tesoro (286/82 & 26/83), 31 January 1984: [1984] E.C.R. 377, [1985] 3 C.M.L.R. 52. Gaz: 286/ Webb (279/80), 17 December 1981: [1981] E.C.R. 3305, [1982] 1 C.M.L.R.

3 719. Gaz:279/ Van Binsbergen v. Bestuur Van de Bedrijfsvereniging voor de Metaalnijverheid (33/74), 3 December 1974: [1974] E.C.R. 1299, [1975] 1 C.M.L.R Gaz:33/ Coonan v. Insurance Officer (110/79), 24 April 1980: [1980] E.C.R Gaz:110/79 *249 TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE Opinion of the Advocate General (M. Marco Darmon) 1 From 1980 Mr. Segers, a Dutch national, ran a commercial undertaking known as "Free Promotion International" which had its registered office in the Netherlands. Being anxious to extend his activities, inter alia, to brokerage on the financial market, he decided to transform his business into a limited liability company. Since he considered that the time required under Dutch law for completing such an operation was too long and that designation "Ltd." was more attractive than its Dutch equivalent, "BV," he took the following steps: He set up in the United Kingdom a private company limited by shares, known as "Slenderose Ltd,;" and He converted the Dutch undertaking into a subsidiary of the British company under the name of "Free Promotion International Company Ltd.," which in fact conducts all of Slenderose's business. Following that operation and in order to obtain sickness benefits provided for by the Ziektewet (the Dutch Act establishing a general sickness insurance scheme) Mr. Segers applied to the competent institution, the Bestuur van de Bedrijfsvereniging voor Bank- en Verzekeringswezen, Groothandel en Vrije Beroepen (Banking, Insurance, Wholesale Trade and Professions' Association, hereinafter referred to as "the Association"). The Association rejected his application on the ground that Mr. Segers could not be regarded as an employed person in his business since his employment did not entail a subordinate relationship with an employer. He was equally unsuccessful before the court of first instance. He then appealed to the Centrale Raad van Berope (court of last instance in social security matters), which made an order requesting a preliminary ruling from the Court of Justice on the problem of interpretation. The Ziektewet applies to persons with the status of employees and that status is defined in terms of the existence of a subordinate relationship with an employer. As the Dutch court points out, in principle such status cannot be attributed to the director of a company who holds 50 per cent. of the shares of his undertaking *250 whilst his wife owns the other 50 per cent. Nevertheless, in view of the 2

4 legislature's desire to co-ordinate social security law and tax law in that matter, the Centrale Raad van Beroep departed from its previous case law. By two judgments of 10 December 1968, it held that the director of a company holding 50 per cent. or more of the shares of a company was to be regarded as an employee. It is the Association's contention that the effect of that ruling should be limited solely to directors who are majority shareholders of companies whose registered office is the Netherlands. That is why it considers that although Mr. Segers is a Dutch national he cannot rely on that decision because he is the director of a company whose registered office is in London. The Centrale Raad van Beroep therefore decided to refer to the Court for a preliminary ruling the following two questions: 1. Do the principles of freedom of establishment within the EEC and freedom to provide services within the EEC--in particular the last sentence of Article 52 read with Article 58 of the EEC Treaty and the last sentence of Article 60 read with Article 66 of that Treaty--mean that, when deciding whether there is an insurance obligation under Dutch social security legislation, Dutch courts may not make any distinction between the director/major shareholder of a private company incorporated under Dutch law and a director/major shareholder of a private company incorporated under the laws of another member-state, even if the foreign company clearly does not carry on any actual business in the other member-state concerned but carries on business only in the Netherlands? 2. If that question is answered in the negative, does Community social security law (in particular Article 3(1) of Regulation 1408/71) or any other provision of Community law prohibit such a distinction? 3 In order to define the scope of the problem of interpretation before the Court and to provide the Dutch court with a useful reply, it is necessary to make the following two preliminary observations. In the first place, it must be stressed that the difference in treatment in question is not based on the nationality of the person concerned. The factor which determines entitlement to benefits under the social security scheme is the location--in the Netherlands and not in another member-state--of the registered office of the parent company. Secondly it must be noted that Mr. Segers, the director of Slenderose Ltd., is established in the Netherlands where he also runs that company's subsidiary, through which, it may be recalled, all the parent company's business is conducted. He does not therefore come within the scope of the provisions of Article 59 EEC, which guarantee the freedom to provide services. Indeed, as the Court has consistently held, those provisions *251 "entail the abolition of all discrimination against a person providing a service on the grounds of his nationality or the fact that he is established in a member-state other than that in which the service must be provided " (Cases 62-63/81, Seco v. Evi). [FN1]

5 FN1 [1982] E.C.R. 223 At Para. [8]. Ultimately the different treatment which, in the Association's view, should be accorded to Mr. Segers is not based either on the nationality or place of residence of the person concerned but on the establishment in another member- State of the registered office of the parent company of which he is the director. It follows that it is necessary to consider Articles 52 to 58 of the Treaty concerning freedom of establishment in order to determine whether a national of a member- State may be deprived, solely for that reason, of his entitlement under national social security legislation. Beyond that question, in the order requesting the preliminary ruling and the observations which have been submitted to the Court it is suggested that, in view of the finding that the Dutch subsidiary of Slenderose Ltd. in fact conducts all of that company's business, it may also be necessary to consider whether such a difference of treatment may be justified in order to prevent any attempt at fraud. I propose to consider those two aspects of the problem of interpretation in turn. 4 Article 52(2) EEC provides that: Freedom of establishment shall include the right to... set up and manage undertakings, in particular companies or firms within the meaning of Article 58(2), under the conditions laid down for its own nationals by the law of the country where such establishment is effected... Article 52(1) extends the removal of restrictions on the freedom of establishment of nationals of one member-state in the territory of any member-state. to restrictions on the setting up of agencies, branches or subsidiaries by nationals of any member-state established in the territory of any member- State. That provision must be read in conjunction with Article 58 of the Treaty, according to which: companies or firms formed in accordance with the law of a member-state and having their registered office, central administration or principal place of business within the Community shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of member-states. The fundamental principle of equal treatment of nationals of the member-states, which is thus guaranteed by Article 52 after the *252 expiry of the transitional period and independently of the directives provided for in Articles 54 and 57 for its implementation (see Case 2/74 Reyners, [FN2]), therefore applies not only to natural persons but also to companies, provided that they fulfil the two cumulative conditions laid down in Article 58(1), namely that they must be formed in accordance with the law and that they must have the requisite connection with one of the member-states. FN2 [1974] E.C.R. 631, [1974] 2 C.M.L.R. 305 At Paras. [24]-[30]. Freedom of establishment therefore consists of the right for any national of a member-state to establish, even on an ancilliary basis, a company in another

6 member-state under the conditions which its law imposes on its nationals Article 52(2) and the right for a company to conduct its business in another member- State through an agency, branch or a subsidiary (Article 52(1).) On that last point the Court, in its judgment in Case 270/83 (E.C. Commission v. France [FN3]) concerning the refusal of France to grant tax exemption to French branches and agencies of insurance companies whose registered office is in another member-state, stated in the following terms the extent to which companies are treated as natural persons for the purposes of Article 58 of the Treaty: With regard to companies, it should be noted in this context that it is their registered office in the... sense [of Article 58] that serves as the connecting factor with the legal system of a particular State, like nationality in the case of natural persons. FN3 [1987] 1 C.M.L.R. 401 (Re Tax Credits). The Court concluded that: Acceptance of the proposition that the member-state in which a company seeks to establish itself may freely apply to it a different treatment solely by reason of the fact that its registered office is situtated in another member-state would... deprive that provision of all meaning. [FN4] FN4 Para. [18]. As I have just stated, the fact that the registered office of Mr. Seger's company is in London is the sole basis for the rejection of his application. From that point of view the rejection must therefore be regarded as discriminatory. But that is not all. In addition to that first finding of principle, another conclusion is to be drawn from the facts of the case. There is no danger that such a difference of treatment in the application of social security provisions may have the effect of dissuading a national already established in the Netherlands, irrespective of his nationality, from setting up a company abroad or from becoming a majority shareholder in such a company. Seen in that light, it is the right of natural persons guaranteed by Article 52(2) EEC to set up and manage companies in another member-state which would ultimately be deprived of any meaning. *253 From that point of view again, the difference in the application of social security provisions which the Association seeks to establish appears to constitute an obstacle to the exercise of the right of establishment of Community nationals residing in the Netherlands inasmuch as it withdraws from the companies run by such persons the entitlement to equal treatment with national companies accorded to companies whose directors have maintained their registered office in the territory of that State. I consider that none of the arguments put forward by the Association in order to establish that Articles 52 and 58 do not apply is tenable. 5

7 In the first place, although it is true that Article 58 EEC does not expressly provide that companies of foreign origin are to be treated as national companies, that does not mean that the provision does not apply in this instance. By bringing companies within the scope of Article 52 EEC, Article 58 accords them the same freedoms as individuals, and requires member-states to accord companies whose registered office is in another member-state of the Community equality of treatment with national companies. Secondly, I cannot accept the Association's view that the fact that this case concerns a Dutch national residing in the Netherlands where he in practice conducts all his business means that it is a purely internal matter. As I have repeatedly stressed, the different treatment which the Association seeks to apply to Mr. Segers is based exclusively on the fact that the parent company's registered office is established in the United Kingdom. The circumstances of this case therefore come within the scope of the Community rules laid down in Articles 52 and 58 of the EEC Treaty. Moreover, it makes no difference that the subsidiary in fact conducts all the business of the United Kingdom company provided that company was formed in accordance with United Kingdom law and is linked to that State by one of the three alternative connecting factors listed in Article 58, in this case the establishment in London of the registered office. Finally, in reply to the complaint relating to discrimination, the Association contends that nationals of the member-states may, in full knowledge of the circumstances, choose to set up a company either in the Netherlands or in another member-state. In reality that argument amounts to depriving the freedom of establishment of companies of any meaning: although it implies, misleadingly, that the parties concerned are given freedom of choice, foreign companies are dissuaded from establishing themselves in the Netherlands by the refusal to accord them protection under social security provisions. Such an effect is to be regarded as a restriction *254 contrary to Article 52 in conjunction with Article 58. As the Commission stated, the rule of equal treatment for foreign nationals applied to companies whose registered office is in another member-state entails for the members of their staff, whether they are directors or not, the application of the social security provisions which apply to their opposite numbers in companies whose registered office is in the member-state in which they are established. In that connection, as the Court has stated (see, for example, its judgment in Case 197/84, Steinhauser, [FN5] "useful guidance" may be found in the General Programme for the abolition of restrictions on freedom of establishment of 18 December 1961, [FN6] according to which restrictions on the freedom of establishment include those which "deny or restrict the right to participate in social security schemes... " (Title III Section A point (i)). FN5 [1986] 1 C.M.L.R. 53 At Para. [15]. FN6 [1961] O.J. Spec.Ed. 2nd Series IX, p.87. It follows that the refusal to accord the directors of a company the advantages

8 provided for by the national legislation on sickness insurance, which advantages are however accorded to the directors of companies whose registered office is in the Netherlands, solely because the registered office of the company in question is in another member-state, must be regarded as a restriction on the freedom of establishment prohibited since the end of the transitional period by Article 52 of the EEC Treaty in conjunction with Article 58, not only because it has the effect of restricting the right of companies established in another member-state to carry out their business in the Netherlands through the intermediary of a branch, agency or a subsidiary set up for that purpose, but also because it may dissuade nationals established in the Netherlands from setting up such a company or from becoming majority shareholders therein. 6 It remains to consider the possibility of fraud. In the Association's view, the conversion of an undertaking of one member-state into a subsidiary of a company established in another member-state could make it possible for the nationals of the first State to circumvent their national rules. It is therefore in the public interest to limit the right of establishment in order to prevent abuses of that nature. That argument calls for the following observations. The operation described above is made possible by the combination of the right which is accorded to natural persons of setting up a company in another member-state and that, for legal persons, including companies created in that way, of conducting *255 their business through the intermediary of a subsidiary in the country of origin of the natural person. However paradoxical that situation may appear, it is the logical consequence of the rights guaranteed under the Treaty. Moreover, it is consistent with the objective behind the inclusion of the freedom of establishment in the EEC Treaty, namely the need to promote the free movement of persons and, by the same token, the achievement of a common market. In that respect, the fact that a national of a member-state may take advantage of the flexibility of United Kingdom company law and may exploit the effect of the attraction, which in his view, an Anglo-Saxon designation has for his customers must be viewed in that context. Consequently, and although the Association acknowledged at the sitting that its refusal was not based on any attempt at fraud on the part of the plaintiff in the main proceedings, the possibility cannot be excluded that an operation of the same type as that carried out by him could have a fraudulent purpose. Nevertheless, the mere possibility of that happening cannot justify a general restriction on the right of establishment of natural and legal persons. On the other hand, the national authorities must be permitted to verify in individual cases that the companies thus formed have been, as is expressly provided in Article 58 of the EEC Treaty, formed in accordance with the legal provisions laid down to that effect. Similarly, they may control the activities of such companies with regard to the requirements of public policy. In that respect Article 56 EEC provides that the rules of the Treaty

9 shall not prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment for foreign nationals on grounds of public policy, public security or public health. Subject to those reservations and notwithstanding the legality of its supervisory power, a member-state must ensure that companies from other member-states may be set up and may conduct their business under the same conditions as those laid down for "national" companies. It is therefore not necessary to consider the second question submitted by the Centrale Raad van Beroep and I propose that the Court should rule as follows: The refusal to accord the advantages of a social security scheme to the director of a company solely because the registered office of that company is in another member-state constitutes a restriction on the freedom of establishment contrary to Articles 52 and 58 of the EEC Treaty. JUDGMENT [1] By an order of 29 January 1985 which was received at the Court on 1 April 1985, the Centrale Raad van Beroep referred to *256 the Court for a preliminary ruling under Article 177 EEC two questions, the first concerning the interpretation of Articles 52, 58, 60 and 66 EEC, and the second that of Article 3 of Council Regulation 1408/71, with a view to determining whether it is compatible with those provisions to apply the Ziektewet (Dutch Act establishing a general sickness insurance scheme) in a way which results in a difference of treatment, as far as admission to the scheme is concerned, for a director of a company according to whether or not the company is incorporated under Dutch law. [2] The questions were raised in connection with an action brought by Mr. Segers, a Dutch national and the director of a company incorporated under English law, against the refusal of the Dutch authorities, specifically the Bedrijfsvereniging voor Bank--en Verzekeringswezen, Groothandel en Vrije Beroepen (Banking, Insurance, Wholesale Trade and Professions' Association, hereinafter referred to as "the Association") to accord him sickness insurance benefits under the Ziektewet. [3] In April 1981 the private limited liability company Slenderose Ltd., whose registered office is in London, was formed in accordance with English law. In June 1981 Mr. Segers and his wife took over that company, each holding an equal number of shares. In July 1981 Mr. Segers incorporated into Slenderose Ltd. as a subsidiary of that company his one-man business, Free Promotion International, whose registered office is in the Netherlands. At the same time, he became a director of Slenderose. In practice all of Slenderose's business is conducted by its subsidiary and solely in the Netherlands. [4] In July 1981, in order to obtain sickness insurance benefits, Mr. Segers registered as sick with the Association. That body refused to grant him such benefits on the grounds that he had no employment contract with Slenderose and that consequently he was not subordinate to an employer. The Ziektewet provides, inter alia, that any person who is in a subordinate position in relation to another person, an employer, is insured.

10 [5] Following the rejection by the court of first instance of his action against that decision, Mr. Segers appealed to the Centrale Raad van Beroep. That court referred to its own decisions according to which the director of a company who himself holds 50 per cent. or more of the shares of that company must be deemed to work for that company in a position subordinate to it. The Association, however, contended before the national court that that case law should apply only to directors of companies whose registered office was in the Netherlands and not to a company incorporated under foreign law. [6] The Centrale Raad van Beroep took the view that the Association's argument had some force and that an interpretation of Community law was required. It therefore stayed the proceedings *257 and referred the following questions to the Court of Justice for a preliminary ruling: 1. Do the principles of freedom of establishment within the EEC and freedom to provide services within the EEC--in particular the last sentence of Article 52 read with Article 58 of the EEC Treaty and the last sentence of Article 60 read with Article 66 of that Treaty--mean that, when deciding whether there is an insurance obligation under social security legislation, Dutch courts may not make any distinction between the director/major shareholder of a private company incorporated under Dutch law and a director/major shareholder of a private company incorporated under the laws of another member-state, even if the foreign company clearly does not carry out any actual business in the other member-state concerned but carries on business only in the Netherlands? 2. If that question must be answered in the negative, does Community social security law (in particular, Article 3(1) of Regulation 1408/71) or any other provision of Community law prohibit such a distinction? The first question [7] The first question seeks essentially to establish whether Articles 52 and 58 EEC and Articles 60 and 66 must be interpreted as meaning that the competent authorities of a member-state may not exclude the director of a foreign company from a national sickness insurance benefit scheme solely on the ground that the company in question was formed in accordance with the law of another member- State, where it also has its registered office, even though it does not conduct any business there. [8] Mr. Segers considers that in view of the direct effect of the provisions of the EEC Treaty concerning freedom of establishment and in the light of the General Programmes of the Council for the abolition of restrictions on freedom of establishment and the freedom to provide services the competent national authorities must abolish national provisions restricting the right of directors of companies incorporated under foreign law to be admitted to sickness insurance schemes. He notes in addition that in this case the provisions of the Treaty concerning the freedom to provide services do not apply. [9] The Association considers that the provisions of the EEC Treaty concerning freedom of establishment and the freedom to provide services do not apply in this instance. In its views, those provisions do not require that companies formed

11 in accordance with the laws of other member-states be treated in the same way as those formed in accordance with Dutch law. As far as admission to sickness insurance benefits is concerned, a difference of treatment as between the directors of a company incorporated under Dutch law and those of a company incorporated under the law of another member-state cannot be regarded as unlawful discrimination since the two types of companies are not comparable. Any person who forms a company under Dutch law is subject to the same conditions *258 regarding insurance, irrespective of his nationality or his place of establishment. Similarly, persons who form a company under foreign law do so under identical conditions. Any person may form a company under Dutch law or under foreign law, irrespective of his nationality or place of establishment. It is always open to the persons concerned to consider the advantages and disadvantages from the point of view of social security and tax, or any other advantages or disadvantages, of those two forms of company. [10] It also maintains that the difference in treatment in question is justified by the need to combat abuse and to ensure that the Dutch social security legislation is properly implemented. It is necessary to ensure that directors do not elect to form a company under foreign law solely in order to circumvent the restrictions provided for in the Dutch legislation concerning the formation of private limited companies. In addition, the Association draws attention to the difficulty of collecting social security contributions in other member-states. [11] The Commission takes the view that, by virtue of Article 52 EEC, a company formed in accordance with the law of another member-state is entitled to conduct its business in the Netherlands under the same conditions as those applying to companies formed under Dutch law. Those conditions include inter alia the right to be affiliated to a specific social security scheme. The legal conditions for affiliation to such a scheme must be the same for employees of a foreign company as for employees of companies formed under the law of the Member-State concerned. To refuse to apply to the director of a company formed in accordance with the law of another member-state social security legislation applying to the directors of companies formed in accordance with the law of the member-state concerned must therefore be regarded as contrary to the principle of freedom of establishment. [12] In order to reply to the question submitted it is necessary to consider in the first place Article 52 et seq. of the Treaty. In that respect it should be noted that Article 52 is one of the fundamental provisions of the Community and has been directly applicable in the member-states since the expiry of the transitional period. By virtue of that provision, freedom of establishment for nationals of a member-state in the territory of another member-state includes inter alia the right to set up and manage undertakings, in particular companies within the meaning of Article 58(2), under the same conditions as those laid down for its own nationals by the law of the country where such establishment is effected. [13] The question submitted to the Court concerns a case in which the refusal to grant benefits is based not on the nationality of the director but on the location of the registered office of the company which he directs. However, as far as companies are concerned, it should be recalled that according to the judgment of

12 *259 the Court in Case 270/83, E.C. Commission v. France, [FN7] the right of establishment includes, pursuant to Article 58 EEC, the right of companies or firms formed in accordance with the law of a member-state and having their registered office, central administration or principal place of business within the Community to pursue their activities in another member-state through an agency, branch or subsidiary. With regard to companies, it should be noted that it is their registered office in the abovementioned sense that serves as the connecting factor with the legal system of a particular State, as does nationality in the case of natural persons. FN7 [1987] 1 C.M.L.R. 401 (Re Tax Credits). [14] In that respect the Court would observe that a company which has been formed in accordance with the law of another member-state and which conducts its business through an agency, branch or subsidiary in the member-state in which it seeks to establish itself cannot be deprived of the benefit of the rule set out above. As the Court has already stated, in E.C. Commission v. France, acceptance of the proposition that the member-state in which a company seeks to establish itself may freely apply to it a different treatment solely by reason of the fact that its registered office is situated in another member-state would deprive Article 58 of all meaning. [15] It is established that entitlements to reimbursement of sickness costs pertains to a person and not to a company. However, the requirement that a company formed in accordance with the law of another member-state must be accorded the same treatment as national companies means that the employees of that company must have the right to be affiliated to a specific social security scheme. Discrimination against employees in connection with social security protection indirectly restricts the freedom of companies to another member-state to establish themselves through an agency, branch or subsidiary in the member- State concerned. That proposition is supported by the fact that according to the Council's General Programme for the abolition of restrictions on freedom of establishment of 18 December 1961, [FN8] which provides useful guidance for the implementation of the relevant provisions of the Treaty (see Case 71/76, Thieffry [FN9] and Case 197/84, Steinhauser), [FN10] all provisions and administrative practices which "deny or restrict the right to participate in social security schemes, in particular sickness... insurance schemes" are to be regarded as restrictions on the freedom of establishment. FN8 O.J. Spec.Ed. Second Series IX, p.7. FN9 [1977] E.C.R. 765, [1977] 2 C.M.L.R FN10 [1986] 1 C.M.L.R. 53. [16] As regards the doubt expressed by the national court concerning the significance of the fact that the English company clearly does not conduct

13 business in the United Kingdom, it should *260 be noted that for the application of the provisions on the right of establishment, Article 58 requires only that the companies be formed in accordance with the law of a member-state and have their registered office, central administration or principal place of business within the Community. Provided that those requirements are satisfied, the fact that the company conducts its business through an agency, branch or subsidiary solely in another member-state is immaterial. [17] As regards the grounds put forward by the Association to justify its refusal, namely the need to combat possible abuse and to ensure the proper implementation of the national social security legislation, it should be noted that Article 56 EEC allows within certain limits special treatment for companies formed in accordance with the law of another member-state provided that that treatment is justified on grounds of public policy, public security or public health. Although the need to combat fraud may therefore justify a difference of treatment in certain circumstances, the refusal to accord a sickness benefit to a director of a company formed in accordance with the law of another member-state cannot constitute an appropriate measure in that respect. [18] The reply given to the first question is based on the provisions of the Treaty concerning the freedom of establishment. It is therefore not necessary to consider the provisions concerning the freedom to provide services. [19] In the light of all the foregoing considerations, the reply to the first question referred to the Court by the Centrale Raad van Beroep should be that the provisions of Articles 52 and 58 of the EEC Treaty must be interpreted as prohibiting the competent authorities of a member-state from excluding the director of a company from a national sickness insurance scheme solely on the ground that the company in question was formed in accordance with the law of another member-state, where it also has its registered office, even though it does not conduct any business there. The second question [20] Since a reply to the second question was required only in the event of a negative reply to the first question, the second question has become devoid of purpose. Costs [21] The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. Since these proceedings are, in so far as the parties in the main proceedings are concerned, in the nature of a step in the proceedings pending before the national court, the decision on costs is a matter for that court. Order *261 On those grounds THE COURT (Second Chamber), in reply to the

14 questions referred to it by the Centrale Raad van Beroep by order of 29 January 1985, HEREBY RULES: The provisions of Articles 52 and 58 of the EEC Treaty must be interpreted as prohibiting the competent authorities of a member-state from excluding a director of a company from a national sickness insurance benefit scheme solely on the ground that the company in question was formed in accordance with the law of another member-state, where it also has its registered office, even though it does not conduct any business there. (c) Sweet & Maxwell Limited [1987] 2 C.M.L.R. 247 END OF DOCUMENT