DADV was a company incorporated in Luxembourg which subsequently transferred its seat to Italy. DIVI absorbed DADV by merger and in respect of the period during which DADV was a taxpayer in Luxembourg, applied for a reduction of the capital tax due. The claim was refused because under Luxembourg law the grant of a reduction in capital tax is conditional upon remaining liable to Luxembourg capital tax for the next five years.

The Court concluded that the freedom of establishment has been engaged because a company incorporated under Luxembourg law that transfers its seat outside Luxembourg during the five-year period following the tax year during which a capital reduction was granted to it, is treated less favourably than a similar company that continues to have its seat in Luxembourg. The transfer of the seat entailed the immediate withdrawal of the benefit of the tax reduction, whereas there is no such withdrawal if the company continues to have its seat in Luxembourg. The difference in treatment cannot be explained by an objectively different situation, nor it could be justified by the balance allocation of taxing powers between Member States, nor by the need to ensure the coherence of the national tax systems, nor by overriding reasons in public interest.