Case Law - Free Movement of Establishment

Question 1

Daily Mail
- DM wanted to transfer central management and control from UK to NL for tax purposes.
- UK law prohibits companies from ceasing to be resident without prior consent
- Does EU Treaty preclude a MS from prohibiting a company to move its central management and. control without prior consent

Answer 1

• Treaty ensures that companies don’t get hindered from: setting up of agencies, branches or subsidiaries. (52)
• DM wants to set up investment management office, which is the described above)
• UK law doesn’t restrict such a transaction. It only requires consent if DM wants to transfer its central management and decision making while maintaining its legal personality and status in UK.
• Companies are creatures of national law.
• Legislation varies widely regarding the factor providing connection to the national territory required for the incorporation of a company and the question weather a company may modify that factor.
• DM can transfer, if necessary, after winding-up and settling its tax position in the UK and establish in a new MS.

Question 2

Centros
- Danish authorities refused to register the branch, claiming that Centros tries to avoid stricter rules on min. capital
- can authorities block a company from setting up a branch if it is trying to benefit from more lenient rules?

Answer 2

• If MS prevents company from registering a branch, it goes against EU-Treaty (Freedom of Establishment)
• Choosing a country with more lenient rules is not an abuse
• No proof of fraud, if company doesn’t conduct business in MS with registered office

Question 3

Cartesio
- establised in Hungary, wants to move its seat to Italy, while being governed by Hungarian law.
- Hungarian law requires a winding-up of company and reincorporation in new MS
- Can Hungary restrict Cartesio from moving seat by requiring a winding-up?

Answer 3

• freedom of establishment enables company to move seat to different country by converting itself to new company or open branches
• EU Treaty confers no right to move seat into MS while maintaining legal status in original MS
• A MS has power to define connecting factor and how that is maintained

Question 4

National Grid
- dutch national Grid Indus has claim against country in MS and wants to move place of effective management to UK, to avoid high exchange rate cost.
- the company moved the place of effective management but did not want to change the applicable law
- can NL tax the unrealized capital gains at the point of transfer?

Answer 4

• legislation to ensure right allocation of powers is appropriate
• Art 49 does not preclude legislation that fixes profits taxable at the time of transfer.
• only amount of tax is determined, not collected

Question 5

Überseering
Ü bought land in D and got defective work done
- tried to get compensation via the German court
- German court dismisses, claiming that Ü has to reincorporate in Germany, since all stock is now German owned
- Can Germany dismiss Ü’s sue?

Answer 5

• requiring reincorporation goes against freedom of establishment
• denying legal rights to a properly registered company in another MS is not justifiable
• requirement like protection of the interests of creditors, minority shareholders, employees and even the taxation authorities may justify freedom of establishment, but can not justify denying legal capacity

Question 6

Inspire Art
- NL wants to add conditions (min. capital, …)
- Can NL demand higher conditions, effectively forcing companies to comply with national law?

Answer 6

• this obstructs freedom of establishment
  impediment of freedom can not be justified by Art 52 (protecting creditors, ensuring fairness and tax inspection efficiency)

Question 7

Vale
- Vale wants to move seat to Hungary and discontinue operations in Italy
- Can Hungarian court reject the application of registration?

Answer 7

• Arts 49, 54 do not prevent Member states from requiring a cross border conversion to comply with national law
• national legislation shall not treat domestic / foreign conversion differently
  . Principles to apply are Equivalence and Effectiveness (authorities must accept documents of host member state)