The French fiscal integration provisions give French groups of companies the right to an election which allows the ultimate parent to take into account all of the profits and losses of the group companies and thus become the only corporation tax paying entity in the group.

The Claimant, Société Papillon (“Papillon”), made an election but its group structure meant that some French sub-subsidiaries were held through a Dutch subsidiary. The French rules required all companies in the chain to be French taxpayers and for that reason the election was rejected.

On reference to the ECJ the Advocate General has proposed that the Court should hold that the restriction inhibits the freedom of establishment.

The Advocate General recognised that the aim of avoiding doublecounting of losses can, in principle, justify a restriction to the freedom of establishment. However, such a restriction would need to be proportionate and the Advocate General had considerable doubt that the total unavailability of the fiscal integration election was the least restrictive means of achieving that aim. She left it to the national Court to decide whether this aim could be achieved by other, less restrictive means.