Territorial Scope of Article 3 GDPR
Guidelines 03/2018 on Territorial Scope of Article 3 GDPR
SECTION 1 APPLICATION OF THE ESTABLISHMENT CRITERION – ART 3(1)
Article 3(1) of the GDPR provides that the “Regulation applies to the processing of personal data in the context of the activities of an establishment of a controller or a processor in the Union, regardless of whether the processing takes place in the Union or not.”
Article 3(1) GDPR makes reference not only to an establishment of a controller, but also to an establishment of a processor. As a result, the processing of personal data by a processor may also be subject to EU law by virtue of the processor having an establishment located within the EU.
Article 3(1) ensures that the GDPR applies to the processing by a controller or processor carried out in the context of the activities of an establishment of that controller or processor in the Union, regardless of the actual place of the processing. The EDPB therefore recommends a threefold approach in determining whether or not the processing of personal data falls within the scope of the GDPR pursuant to Article 3(1).
The following sections clarify the application of the establishment criterion, first by considering the definition of an ‘establishment’ in the EU within the meaning of EU data protection law, second by looking at what is meant by ‘processing in the context of the activities of an establishment inthe Union’, and lastly by confirming that the GDPR will apply regardless of whether the processing carried out in the context of the activities of this establishment takes place in the Union or not.
-
a) “An establishment in the Union”
Before considering what is meant by “an establishment in the Union” it is first necessary to identify who is the controller or processor for a given processing activity. According to the definition in Article 4(7) of the GDPR, controller means “the natural or legal person, public authority, agency or other body which, alone or jointly with others, determines the purposes and means of the processing of personal data”. A processor, according to Article 4(8) of the GDPR, is “a natural or legal person, public authority, agency or other body which processes personal data on behalf of the controller”. As established by relevant CJEU case law and previous WP29 opinion, the determination of whether an entity is a controller or processor for the purposes of EU data protection law is a key element in the assessment of the application of the GDPR to the personal data processing in question.
While the notion of “main establishment” is defined in Article 4(16), the GDPR does not provide a definition of “establishment” for the purpose of Article 34. However, Recital 225 clarifies that an “[e]stablishment implies the effective and real exercise of activities through stable arrangements. The legal form of such arrangements, whether through a branch or a subsidiary with a legal personality, is not the determining factor in that respect.”
This wording is identical to that found in Recital 19 of Directive 95/46/EC, to which reference has been made in several CJEU rulings broadening the interpretation of the term “establishment”, departing from a formalistic approach whereby undertakings are established solely in the place where they are registered. Indeed, the CJEU ruled that the notion of establishment extends to any real and effective activity — even a minimal one — exercised through stable arrangements. In order to determine whether an entity based outside the Union has an establishment in a Member State, both the degree of stability of the arrangements and the effective exercise of activities in that Member State must be considered in the light of the specific nature of the economic activities and the provision of services concerned. This is particularly true for undertakings offering services exclusively over the Internet.
The threshold for “stable arrangement” can actually be quite low when the centre of activities of a controller concerns the provision of services online. As a result, in some circumstances, the presence of one single employee or agent of a non-EU entity in the Union may be sufficient to constitute a stable arrangement (amounting to an ‘establishment’ for the purposes of Art 3(1)) if that employee or agent acts with a sufficient degree of stability. Conversely, when an employee is based in the EU but the processing is not being carried out in the context of the activities of the EU-based employee in the Union (i.e. the processing relates to activities of the controller outside the EU), the mere presence of an employee in the EU will not result in that processing falling within the scope of the GDPR. In other words, the mere presence of an employee in the EU is not as such sufficient to trigger the application of the GDPR, since for the processing in question to fall within the scope of the GDPR, it must also be carried out in the context of the activities of the EU-based employee.
The fact that the non-EU entity responsible for the data processing does not have a branch or subsidiary in a Member State does not preclude it from having an establishment there within the meaning of EU data protection law. Although the notion of establishment is broad, it is not without limits. It is not possible to conclude that the non-EU entity has an establishment in the Union merely because the undertaking’s website is accessible in the Union.
-
Example 1: A car manufacturing company with headquarters in the US has a fully-owned branch office located in Brussels overseeing all its operations in Europe, including marketing and advertisement.
-
The Belgian branch can be considered to be a stable arrangement, which exercises real and effective activities in light of the nature of the economic activity carried out by the car manufacturing company. As such, the Belgian branch could therefore be considered as an establishment in the Union, within the meaning of the GDPR.
Once it is concluded that a controller or processor is established in the EU, an in concreto analysis should then follow to determine whether the processing in question is carried out in the context of the activities of this establishment, in order to determine whether Article 3(1) applies. If a controller or processor established outside the Union exercises “a real and effective activity – even a minimal one” – through “stable arrangements”, regardless of its legal form (e.g. subsidiary, branch, office…), in the territory of a Member State, this controller or processor can be considered to have an establishment in that Member State. It is therefore important to consider whether the processing of personal data takes place “in the context of the activities of” such an establishment as highlighted in Recital 22.
-
b) Processing of personal data carried out “in the context of the activities of” an establishment
Article 3(1) confirms that it is not necessary that the processing in question is carried out “by” the relevant EU establishment itself; the controller or processor will be subject to obligations under the GDPR whenever the processing is carried out ”in the context of the activities” of its relevant establishment in the Union. The EDPB recommends that determining whether processing is being carried out in the context of an establishment of the controller or processorin the Union for the purposes of Article 3(1) should be carried outon a case-by-case basis and based on an analysis in concreto. Each scenario must be assessed on its own merits, taking into account the specific facts of the case.
The EDPB considers that, for the purpose of Article 3(1), the meaning of “processing in the context of the activities of an establishment of a controller oraprocessor” is to be understood in light of the relevant case law. On the one hand, with a view to fulfilling the objective of ensuring effective and complete protection, the meaning of “in the context of the activities of an establishment” cannot be interpreted restrictively. On the other hand, the existence of an establishment within the meaning of the GDPR should not be interpreted too broadly to conclude that the existence of any presence in the EU with even the remotest links to the data processing activities of a non-EU entity will be sufficient to bring this processing within the scope of EU data protection law. Some commercial activity carried outby a non-EU entity within a Member State may indeed be so far removed from the processing of personal data by this entity that the existence of the commercial activity in the EU would not be sufficient to bring the data processing by the non-EU entity within the scope of EU data protection law.
Consideration of the following two factors may help to determine whether the processing is being carried out by a controller or processor in the context of its establishment in the Union
-
i) Relationship between a data controller or processor outside the Union and its local establishment in the Union
-
The data processing activities of a data controller or processor established outside the EU may be inextricably linked to the activities of a local establishment in a Member State, and thereby may trigger the applicability of EU law, even if that local establishmentis not actually taking any role in the data processing itself. If a case by case analysis on the facts shows that there is an inextricable link between the processing of personal data carried out by a non-EU controller or processor and the activities of an EU establishment, EU law will apply to that processing by the non-EU entity, whether or not the EU establishment plays a role in that processing of data
-
ii) Revenue raising in the Union
-
Revenue-raising in the EU by a local establishment, to the extent that such activities can be considered as “inextricably linked” to the processing of personal data taking place outside the EU and individuals in the EU, may be indicative of processing by anon-EU controller or processor being carried out “in the context of the activities of the EU establishment”, and may be sufficient to result in the application of EU law to such processing.
The EDPB recommends that non-EU organisations undertake an assessment of their processing activities, first by determining whether personal data are being processed, and secondly by identifying potential links between the activity for which the data is being processed and the activities of any presence of the organisation in the Union. If such a link is identified, the nature of this link will be key in determining whether the GDPR applies to the processing in question, and must be assessed inter alia against the two elements listed above.
-
Example 2: An e-commerce website is operated by a company based in China. The personaldata processing activities ofthe companyare exclusively carried out in China. The Chinese companyhas established a European office in Berlin in order to lead and implement commercial prospectionand marketing campaigns towards EU markets.
-
In this case, it can be considered that the activities of the European office in Berlin are inextricably linked to the processing of personal data carried out by the Chinese e-commerce website, insofar as the commercial prospection and marketing campaign towards EU markets notably serve to make the service offered by the e-commerce website profitable. The processing of personal data by the Chinese company in relation to EU sales is indeed inextricably linked to the activities of the European office in Berlin relating to commercial prospection and marketing campaign towards EU market. The processing of personal data by the Chinese company in connection with EU sales can therefore be considered as carried out in the context of the activities of the European office, as an establishment in the Union.This processing activity by the Chinese company will therefore be subject to the provisions of the GDPR as per its Article 3(1)”.
-
Example 3: A hotel and resort chain in South Africa offers package deals through its website, available in English, German, French and Spanish. The company does not have any office, representation or stable arrangement in the EU.
-
In this case, in the absence of any representation or stable arrangement of the hotel and resort chain within the territory of the Union, it appears that no entity linked to this data controller in South Africa can qualify as an establishment in the EU within the meaning of the GDPR. Therefore the processing at stake cannot be subject to the provisions of the GDPR, as per Article 3(1).
-
However, it must be analysed in concreto whether the processing carried out by this data controller established outside the EU can be subject to the GDPR, as per Article 3(2).
-
c) Application of the GDPR to the establishment of a controller or a processor in the Union, regardless of whether the processing takes place in the Union or not
As per Article 3(1), the processing of personal data in the context of the activities of an establishment of a controller or a processor in the Union triggers the application of the GDPR and the related obligations for the data controller or processor concerned.
The text of the GDPR specifies that the Regulation applies to processing in the context of the activities of an establishment in the EU “regardless of whether the processing takes place in the Union or not”. It is the presence, through an establishment, of a data controller or processor in the EU and the fact that a processing takes place in the context of the activities of this establishment that trigger the application of the GDPR to its processing activities. The place of processing is therefore not relevant in determining whether or not the processing, carried out in the context of the activities of an EU establishment, falls within the scope of the GDPR.
-
Example 4: A French company has developed a car-sharing application exclusively addressed to customers in Morocco, Algeria and Tunisia. The service is only available in those three countries but all personal data processing activities are carried out by the data controller in France.
-
While the collection of personal data takes place in non-EU countries, the subsequent processing of personal data in this case is carried out in the context of the activities of an establishment of a data controller in the Union. Therefore, even though processing relates to personal data of data subjects who are not in the Union, the provisions of the GDPR will apply to the processing carried out by the French company, as per Article 3(1).
-
Example 5: A pharmaceutical company with headquarters in Stockholm has located all its personal data processing activities with regards to its clinical trial data in its branch based in Singapore.
-
In this case, while the processing activities are taking place in Singapore, that processing is carried out in the context of the activities of the pharmaceutical company in Stockholm i.e. of a data controller established in the Union. The provisions of the GDPR therefore apply to such processing, as per Article 3(1).
In determining the territorial scope of the GDPR, geographical location will be important under Article 3(1) with regard to the place of establishment of:
– the controller or processor itself (is it established inside or outside the Union?);
– any business presence of a non-EU controller or processor (does it have an establishment in the Union?)
However, geographical location is not important for the purposes of Article 3(1) with regard to the place in which processing is carried out, or with regard to the location of the data subjects in question.
The text of Article 3(1) does not restrict the application of the GDPR to the processing of personal data of individuals who are in the Union. The EDPB therefore considers that any personal data processing in the context of the activities of an establishment of a controller or processor in the Union would fall under the scope of the GDPR, regardless of the location or the nationality of the data subject whose personal data are being processed. This approach is supported by Recital 14 of the GDPR which states that “[t]he protection afforded by this Regulation should apply to natural persons, whatever their nationality or place of residence, in relation tothe processing of their personal data.”
-
d) Application of the establishment criterion to controller and processor
As far as processing activities falling under the scope of Article 3(1) are concerned, the EDPB considers that such provisions apply to controllers and processors whose processing activities are carried out in the context of the activities of their respective establishment in the EU. While acknowledging that the requirements for establishing the relationship between a controller and a processor does not vary depending on the geographical location of the establishment of a controller or processor, the EDPB takes the view that when it comes to the identification of the different obligations triggered by the applicability of the GDPR as per Article 3(1), the processing by each entity must be considered separately.
The GDPR envisages different and dedicated provisions or obligations applying to data controllers and processors, and as such, should a data controller or processor be subject to the GDPR as per Article 3(1), the related obligations would apply to them respectively and separately. In this context, the EDPB notably deems that a processor in the EU should not be considered to be an establishment of a data controller within the meaning of Article 3(1) merely by virtue of its status as processoron behalf of a controller.
The existence of a relationship between a controller and a processor does not necessarily trigger the application of the GDPR to both, should one of these two entities not be established in the Union.
An organisation processing personal data on behalf of, and on instructions from, another organisation (the client company) will be acting as processor for the client company (the controller). Where a processor is established in the Union, it will be required to comply with the obligations imposed on processors by the GDPR (the ‘GDPR processor obligations’). If the controller instructing the processor is also located in the Union, that controller will be required to comply withthe obligations imposed on controllers by the GDPR (the ‘GDPR controller obligations’). Processing activity which, when carried out by a controller, falls within the scope of the GDPR by virtue of Art 3(1) will not fall outside the scope of the Regulationsimply because the controller instructs a processor not established in the Union to carry out that processing on its behalf.
-
i) Processing by a controller established in the EU instructing a processor not established in the Union
Where a controller subject to GDPR chooses to use a processor located outside the Union for a given processing activity, it willstillbe necessary for the controller to ensure by contract or other legal act that the processor processes the data in accordance with the GDPR. Article 28(3) provides that the processing by a processor shall be governed by a contract or other legal act. The controller will therefore need to ensure that it puts in place a contract with the processor addressing all the requirements set out in Article 28(3). In addition, it is likely that, in order to ensure that it has complied with its obligations under Article 28(1) – to use only a processor providing sufficient guarantees to implement measures in such a manner that processing will meet the requirements of the Regulation and protect the rights of data subjects – the controller may need to consider imposing, by contract, the obligations placed by the GDPR on processors subject to it. That is to say, the controller would have to ensure that the processor not subject to the GDPR complies with the obligations, governed by a contract or other legal act under Union or Member State law, referred to Article 28(3).
The processor located outside the Union will therefore become indirectly subject to some obligations imposed by controllers subject to the GDPR by virtue of contractual arrangements under Article 28. Moreover, provisions of Chapter V of the GDPR may apply.
-
Example 6: A Finnish research institute conducts research regarding the Sami people. The institute launches a project that only concerns Sami people in Russia. For this project the institute uses a processor based in Canada.
-
The The Finnish controller has a duty to only use processors that provide sufficient guarantees to implement appropriate measures in such manner that processing will meet the requirement of the GDPR and ensure the protection of data subjects’ rights. The Finnish controller needs to enter into a data processing agreement with the Canadian processor, and the processor’s duties will be stipulated in that legal act.
-
ii) Processing in the context of the activities of an establishment of a processor in the Union
Whilst case law provides us with a clear understanding of the effect of processing being carried out in the context of the activities of an EU establishment of the controller, the effect of processing being carried out in the context of the activities of an EU establishment of a processor is less clear.
The EDPB emphasises that it is important to consider theestablishment of the controller and processor separatelywhen determining whether each party is of itself ‘established in the Union’.
The first question is whether the controller itself has an establishment in the Union, and is processing in the context of the activities of that establishment. Assuming the controller is not considered to be processing in the context of its own establishment in the Union, that controller will not be subject to GDPR controller obligations by virtue of Article 3(1) (although it may still be caught by Article 3(2)). Unless other factors are at play, the processor’s EU establishment will not be considered to be an establishment in respect of the controller.
The separate question then arises of whether the processor is processing in the context of its establishment in the Union. If so, the processor will be subject to GDPR processor obligations under Article 3(1). However, this does not cause the non-EU controller to become subject to the GDPR controller obligations. That is to say, a “non-EU” controller (as described above) will not become subject to the GDPR simply because it chooses to use a processor in the Union.
By instructing a processor in the Union, the controller not subject to GDPR is not carrying out processing “in the context of the activities of the processor in the Union”. The processing is carried out in the context of the controller’s own activities; the processor is merely providing a processing service which is not “inextricably linked” to the activities of the controller. As stated above, in the case of a data processor established in the Union and carrying out processing on behalf of a data controller established outside the Union and not subject to the GDPR as per Article 3(2), the EDPB considers that the processing activities of the data controller would not be deemed as falling under the territorial scope of the GDPR merely because it is processed on its behalf by a processor established in the Union. However, even though the data controller is not established in the Union and is not subject to the provisions of the GDPR as per Article 3(2), the data processor, as it is established in the Union, will be subject to the relevant provisions of the GDPR as per Article 3(1).
-
Example 7: A Mexican retail company enters into a contract with a processor established in Spain for the processing of personal data relating to the Mexican company’s clients. The Mexican company offers and directs its services exclusively to the Mexican market and its processing concerns exclusively data subjects located outside the Union.
-
In this case, the Mexican retail company does not target persons on the territory of the Union through the offering of goods or services, nor it does monitor the behaviour of person on the territory of the Union. The processing by the data controller, established outside the Union, is therefore not subject to the GDPR as per Article 3(2).
-
The provisions of the GDPR do not apply to the data controllerby virtue of Art 3(1) as it is not processing personal data in the context of the activities of an establishment in the Union. The data processor is established in Spain and therefore its processing will fall within the scope of the GDPR by virtue of Art 3(1). The processor will be required to comply with the processor obligations imposed by the regulation for any processing carried out in the context of its activities.