In its decision in the DMC case, the European Union Court of Justice ("EUCJ") held that an immediate taxation of unrealized gains upon exit of a Member State is an infringement of free movement of capital but is justified by the objective of preserving the balanced allocation of the taxing power between Member States, given that the Member State imposing such taxation, Germany, was no longer entitled to tax the relevant gains once they would be realized.

The EUCJ further ruled that the ability to spread the collection of the relevant taxation over five years and the requirement to provide a bank guarantee as security of the payment of the relevant taxation were proportionate to the objective of preserving the balanced allocation of the taxing power between Member States.

On the basis of the DMC case, one should analyze the implications for the French exit tax regime applicable to transfers of residence of French companies to another Member State, as its operation is very similar to the German regime. Would the EUCJ decision in the DMC case effectively validate the French exit tax regime? Could not it be then that only the spread of the collection of the relevant taxation over several years or the provision of a bank guarantee should be required?

Incidentally, the EUCJ decision could also cast some doubt with respect to the French tax regime applicable to contributions of assets made by non-French companies to French companies. In practice, the FTA only grants the favorable regime for corporate reorganizations, which inter alia allows for a deferral of capital gains taxation, if the contributing company remains taxable in France (e.g., by interposing a French-based holding company). The EUCJ seems to consider that when analyzing whether a given restriction is justified by the objective of preserving the balanced allocation of the taxing power between Member States, it is not necessary that the taxpayer toward which the taxing power would be preserved remain the same. Thus, one could argue that France does not need that the contributing company remains taxable in France (but simply that the assets contributed so remain at the level of the beneficiary of the contribution).