Services sum up to 70 % of EU’s GDP, and just 20 % of cross-border trade of the European Union – partly due to the unjusti! ed regulatory and administrative burdens implied on different levels of member states administration. The existence of those barriers has stimulated the works on the directive freeing the service sector and implementing a number of rules that may potentially become milestones of integration, compared only to such “history making” moments as Single European Act or Maastricht Treaty."The freedom to provide service outside the country of establishment’ principle, previously known as the ‘country of origin’ rule, carries this revolutionary impetus. It will allow a service provider be settled in one EU member state and deliver a service (personally or by delegated employees) in another one with all the legal consequences, especially: some aspects of taxation and social security contributions. Unsurprisingly, it has become one of the most controversial legal acts debated in the last decades Europe-wide. This principle may, to a large extend, undermine the foundations of welfare state, especially in the Western part of continental Europe, as it may force the regulated capitalism oriented countries (like Scandinavian ones) to verify their social policies accordingly to competition pressure coming from lower social standards member states. This may, as it is speculated in this paper, fuel the harmonising of social policies on Community level. Free movement of services was introduced fifty years ago, however it has been usually interpreted from the consumers’ perspective: free access to the service by service consumer relocation or trans-border trading. Service provider relocation was tolerated only when accompanied with establishment in the consumer’s country. The Service Directive, following the logic of previous European Court of Justice verdicts, introduces – on the secondary law level – the freedom to be established in another country than the country where the service is provided. This practical challenge is examined theoretically on the grounds of neofuncionalist rationale, as the discussed directive, by its supporters called: the greatest improvement of the internal market since its creation, can act as an empirical proof of neofunctionalism theory applicability. Implementing this approach, especially the revitalised spillover mechanism, is an efficient theoretical vehicle showing satisfactory exploratory power, as well as allowing speculations about the future development on the edge of politics and economy within European integration process. It also highlights the behaviour of supranational actors creating ‘stress among the states’ to progress the integration into the desirable direction (cultivated spillover). The deliberations in this paper are rooted in exempli! cations of so far practices infringing the free movement of services rule, as well as enriched with some argumentation for and against this form of directive (transformative decisions and legitimacy / democracy de! cit). The arguments used are deeply rooted in ! nal version text of the directive accompanied by interpretation of major principles. In the conclusive part author summarises that theoretical legacy of neofunctionalism – in the case of the Service Directive – seems to be adequate and the deductive argumentation based on it positively veri! es the potential of the theory.