At the Roots of Regulatory Competition in the EU: Cross-border Movement of Companies as a Way to Exercise a Genuine Economic Activity or just Law Shopping?

Printer-friendly version

Table of Contents: I. Free movement of companies and regulatory competition in the EU: Some introductory remarks. – II. Lack of genuine economic activity in the host State and the application of Treaty rules on freedom of establishment to the transfers of companies. – II.1. An economic activity-based definition of establishment: AG Kokott in Polbud. – II.2. Applying freedom of establishment rules when there is no genuine economic activity: the approach of the Court. – III. Law shopping as an abuse of the rules on freedom of establishment? – III.1. The restrictive reading of the doctrine of abuse in cases concerning cross-border transfer of companies. – III.2. Cross-border-transfers of companies and wholly artificial arrangements: the rise and fall of a partial exception to the restrictive reading of the doctrine of abuse. – IV. Cross-border transfer of companies and regulatory competition: the legislative response. Some conclusive remarks.

Abstract: The Article critically engages with the case law of the Court of Justice on the application of Treaty provisions on freedom of establishment to cross-border transfers of companies. In particular, it demonstrates that the Court has come to consider the possibility for companies to use freedom of establishment as a tool to choose the law applicable to them as an objective of the relevant Treaty provisions, rather than as an abuse. The recently adopted Polbud judgment (Court of Justice, judgment of 25 October 2017, case C-106/16, Polbud [GC]) represents a fitting example in this regard. Here the Court held that Treaty provisions on freedom of establishment apply even in cases where the converting company has no intention to pursue any economic activity in the host State. Moreover, it posited that trying to relocate in another Member State with the sole purpose of paying lower taxes does not constitute an abuse and, thus, does not justify the adoption of restrictive measures by the departure Member State. The Article critically engages with this line of cases, showing its impact on recent attempts to harmonize the rules on cross-border transfers of companies. In particular, the analysis focuses on the 2018 Commission Proposal for a Directive regarding cross-border conversions, demonstrating that it tends to prioritize the promotion of freedom of establishment over competing interest and values, such as the respect for the integrity of national tax systems or the protection of workers’ rights.

Keywords: freedom of establishment – regulatory competition – abuse of law – cross-border transfers – taxation – workers’ rights.

European Papers, Vol. 4, 2019, No 1, pp. 185-205
2499-8249 - doi: 10.15166/2499-8249/305

* Associate Professor of EU Law, University of Turin, Affiliate at the Collegio Carlo Alberto, The Article has been written in the context of the REScEU project (Reconcil-ing Economic and Social Europe,, funded by the European Research Council (grant no. 340534).


European Forum


Forum Européen


Forum europeo


Foro Europeo