The ECJ has ruled (16 December 2008) that national provisions which prevent a company from transferring its seat to another Member State whilst maintaining its status as a company governed by its state of incorporation are not a breach of Article 43 EC (freedom of establishment).

The ECJ has accordingly backed away from the AG’s Opinion (on which we reported in the 6 June 2008 edition of this update) which had proposed confining the doctrine in Daily Mail to history.

The ECJ went on to state, however, that in circumstances where a company chooses to move to another member state where there is an attendant change in the national law applicable to that company, it would be unlawful for the incorporating state to impose any barrier to that conversion, for example by requiring the prior liquidation or windingup of the company.

To what extent does this affect the lawfulness of exit taxes? In a “Real Seat” state such as Hungary, in which Cartesio was incorporated, it now seems unlikely that taxes on the winding up of the company prior to migration represent a restriction on the freedom of establishment. In an “Incorporation” state (such as the UK) the situation may be different. In such circumstances the imposition of an immediate tax assessment triggered by the movement from one Member State to another would still seem to offend the freedom of establishment following C9/ 02 de Lasteyrie and C470/ 04 N cases.