Skip to main content
SpringerLink
Log in

Exit restrictions on Freedom of Establishment after Marks & Spencer

  • Articles
  • Published:
European Business Organization Law Review Aims and scope Submit manuscript

Abstract

Article 43 EC prohibits not only restrictions on freedom of establishment on the part of the host State but also those restrictions that are attributable to the State of origin. This article focuses on the latter aspect, the prohibition on ‘exit restrictions’, which was at the centre in the European Court of Justice’s recent judgment in Marks & Spencer.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. Cf., the Opinion of AG Léger in Case C-196/04 Cadbury Schweppes (2 May 2006) point 62.

  2. For the term ‘exit restrictions’, see the Opinion of AG Léger, supra n. 1, at point 62. The phrase is also used in the Opinion of AG Poiares Maduro in Case C-446/03 Marks & Spencer (7 April 2005) point 53.

  3. Case C-446/03 Marks & Spencer [2005] ECR I-10837.

  4. See section 3.4.2 infra.

  5. See, among others, K. Aarnio, ‘Treatment of permanent establishments and subsidiaries under EC law: towards a uniform concept of secondary establishment in European tax law?’, 15 EC Tax Review (2006) pp. 18–26; F. Balmes, M.J.J. Brück and M. Ribbrock, ‘Das EuGH-Urteil Marks & Spencer: Grenzüberschreitende Verlustnutzung kommt voran!’, 61 BB (2006) pp. 186–189; A. Cordewener and I. Dörr, ‘Case C-446/03, Marks & Spencer plc v. David Halsey (HM Inspector of Taxes)’, 43 CMLRev. (2006) pp. 855–884; F.C. de Hosson, ‘On the controversial role of the European Court in corporate tax cases’, 34 Intertax (2006) pp. 294–304; M. Isenbaert and C. Valjemark, ‘M&S judgment: the ECJ caught between a rock and a hard place’, 15 EC Tax Review (2006) pp. 10–17; E.C.C.M. Kemmeren, ‘Marks & Spencer: balanceren op grenzeloze verliesverrekening’, 135 WFR (2006) pp. 211–225; M. Lang, ‘The Marks & Spencer Case — The Open Issues Following the ECJ’s Final Word’, IBFD (2006) pp. 54–67; B. Larking, ‘Buy British’, 162 Forfaitair (2006) pp. 29–31; T. O’Shea, ‘Marks and Spencer v. Halsey (HM Inspector of Taxes): restriction, justification and proportionality’, 15 EC Tax Review (2006) pp. 66–82; M.P. Scheunemann, ‘Decision in the Marks & Spencer Case: A Step Forward, but No Victory for Cross-Border Group Taxation in Europe’, 34 Intertax (2006) pp. 54–57; R. Seer, ‘The ECJ on the Verge of a Member State Friendly Judicature?, 3 ECFR (2006) pp. 237–247; A. Wells, ‘Rebate Battle A Score Draw?’, 27 BL Rev. (2006) p. 49; J.W. Zwemmer, ‘Marks & Spencer. Internationale verliesverrekening’, 55 AA (2006) pp. 208–212. On the issue of how the developing case law of the Court of Justice (including Marks & Spencer) ‘threatens’ the ability of Member States to use tax incentives to stimulate their domestic economies and resolve problems of international double taxation, see M.J. Graetz and A.C. Warren, ‘Income tax discrimination and the political and economic integration of Europe’, 115 Yale L.J. (2006) pp. 1186–1255.

    Google Scholar 

  6. This means, restriction within the meaning of Art. 43(1) EC.

  7. See, e. g., Case C-208/00 Überseering BV v. Nordic Construction Company Baumanagement GmbH (NCC) [2002] ECR I-9919; Case C-411/03 Sevic Systems AG [2005] ECR I-10805. In Marks & Spencer, however, the specific headings (‘applicability’, ‘restriction’ and ‘justification’) are lacking.

  8. This summary of Marks & Spencer is partly based on European Court of Justice, Press Release No. 107/05 of 13 December 2005, available at: http//curia.eu.int.

  9. See section 1 supra.

  10. The settled case law the Court refers to in Marks & Spencer is Joined Cases C-397/98 and C-410/98 Metallgesellschaft and Others [2001] ECR I-1727, para. 37 (and the case law cited there). The case law cited in Metallgesellschaft includes: Case C-80/94 Wielockx [1995] ECR I-2493, para. 16; Case C-107/94 Asscher [1996] ECR I-3089, para. 36; Case C-311/97 Royal Bank of Scotland [1999] ECR I-2651, para. 19; and Case C-251/98 Baars [2000] ECR I-2787, para. 17.

  11. Cf., the Opinion of AG Poiares Maduro in Marks & Spencer, supra n. 2, at point 22. This may also be inferred from the Court’s judgment itself, supra n. 3, at paras. 30–34.

  12. In Metallgesellschaft, the Court observed that: ‘It should be remembered that, according to settled case-law, although direct taxation falls within their competence, Member States must none the less exercise that competence consistently with Community law and avoid any discrimination on grounds of nationality…’.

  13. Marks & Spencer, supra n. 3, at para. 30. See also Case 81/87 Daily Mail [1988] ECR 5483, para. 17, quoted in n. 17 infra.

  14. See section 4 infra.

  15. See, e. g., Case C-307/97 Saint Gobain [1999] ECR I-6161, para. 35.

  16. See, in this connection, Sevic, supra n. 7, at para. 17: ‘[i]n accordance with the second paragraph of Article 43 EC, read in conjunction with Article 48 EC, the freedom of establishment for companies referred to in that latter article includes in particular the formation and management of those companies under the conditions defined by the legislation of the State of establishment for its own companies [emphasis added].’

  17. See Daily Mail, supra n. 13, at para. 17: ‘[i]n the case of a company, the right of establishment is generally exercised by the setting-up of agencies, branches or subsidiaries, as is expressly provided for in the second sentence of the first paragraph of Article 52 [now, after amendment, Art. 43 EC]. … A company may also exercise its right of establishment by taking part in the incorporation of a company in another Member State, and in that regard Article 221 of the Treaty [now, after amendment, Art. 294 EC] ensures that it will receive the same treatment as nationals of that Member State as regards participation in the capital of the new company [emphasis added].’ Art. 294 EC reads as follows: ‘Member States shall accord nationals of the other Member States the same treatment as their own nationals as regards participation in the capital of companies or firms within the meaning of Article 48, without prejudice to the application of the other provisions of this Treaty.’

  18. See Baars, supra n. 10, at paras. 20–22, in which the Court stated: ‘It is clear from the second paragraph of Article 52 of the Treaty [now, after amendment, Art. 43 EC] that freedom of establishment includes the right to set up and manage undertakings, in particular companies or firms, in a Member State by a national of another Member State. So, a national of a Member State who has a holding in the capital of a company established in another Member State which gives him definite influence over the company’s decisions and allows him to determine its activities is exercising his right of establishment [emphasis added].’ In this connection, it is possible to refer to AG Alber, who remarked in point 33 of his Opinion in Baars: ‘In my view, the border between the simple investment of capital in shares in an undertaking established in another Member State, and actual establishment in that Member State, should probably be set at the point where a shareholder ceases to confine himself to the mere provision of capital in support of a particular business activity carried on by another person, and begins to become involved himself in conducting the business. Such involvement requires the shareholder to go beyond simply exercising his voting rights, and to participate in a way which will enable him to exercise real influence over the company’s business decisions. In determining whether such is the case, regard should be had to the rules of company law in the State in which the undertaking is established [emphasis added].’ In this connection, the Advocate-General referred to Annex I of Council Directive 88/361/EEC of 24 June 1988 on the implementation of Art. 67 of the Treaty, OJ 1988 L 178/5, which distinguishes between direct investments (Point I) and portfolio or financial investments (Point III et seq.). This Annex, of course, is given particular importance by the Court in its socalled golden shares judgments.

  19. Baars, supra n. 10, at paras. 20–22; Überseering, supra n. 7, at para. 77.

  20. Sevic, supra n. 7, at para. 19, quoted in n. 21 infra.

  21. See Sevic, supra n. 7, at para 19: ‘Cross-border merger operations, like other company transformation operations, respond to the needs for cooperation and consolidation between companies established in different Member States. They constitute particular methods of exercise of the freedom of establishment… [emphasis added].’

  22. See further G.-J. Vossestein, ‘Companies’ Freedom of Establishment after Sevic’, ECL (2006) pp. 177–182.

  23. See n. 1 supra.

  24. Marks & Spencer, supra n. 3, at para. 31.

  25. In Case C-264/96 ICI [1998] ECR I-4695, para. 21, the Court observes that: ‘It should also be pointed out that, even though, according to their wording, the provisions concerning freedom of establishment are directed mainly to ensuring that foreign nationals and companies are treated in the host Member State in the same way as nationals of that State, they also prohibit the Member State of origin from hindering the establishment in another Member State of one of its nationals or of a company incorporated under its legislation which comes within the definition contained in Article 58 [now Art. 48 EC] (Case 81/87 Daily Mail and General Trust [1988] ECR 5483, paragraph 16) [emphasis added].’ See further the Opinion of AG Léger in Cadbury, supra n. 1, at point 62, who remarks that: ‘The prohibition on exit restrictions through a tax measure was first applied in ICI… Since that judgment, it has been illustrated on several occasions (see, in particular, Case C-200/98 X and Y [1999] ECR I-8261, [Case C-9/02] De Lasteyrie du Saillant [[2004] ECR I-2409], and, for a recent application, Case C-471/04 Keller Holding [2006] ECR I-0000).’

  26. See the Opinion of AG Poiares Maduro in Marks & Spencer, supra n. 2, point 53, who refers in this connection to: Joined Cases 286/82 and 26/83 Luisi and Carbone [1984] ECR 377; Case 143/87 Stanton [1988] ECR 3877; Case C-370/90 Singh [1992] ECR I-4265; Case C-18/95 Terhoeve [1999] ECR I-345; and Case C-224/98 D’Hoop [2002] ECR I-6191.

  27. For a discussion of the free choice of connecting factors, see C.W.A. Timmermans, Neue Rechtsprechung des Gerichtshofs der EG zum Europäischen Gesellschaftsrecht (Bonn, Zentrum für Europäisches Wirtschaftsrecht 2003) p. 17.

    Google Scholar 

  28. See further Daily Mail, supra n. 13, at paras. 20–21.

  29. Überseering, supra n. 7, at para. 70.

  30. See Daily Mail, supra n. 13, at para. 23, in connection with Überseering, supra n. 7, at para. 70.

  31. See Timmermans, op. cit. n. 27, at p. 17.

  32. See, to that effect, Daily Mail, supra n. 13, at paras. 22–23.

  33. About this directive, see Directorate General for Internal Market and Services, Consultation and hearing on future priorities for the Action Plan on modernising company law and enhancing corporate governance in the European Union (summary report) of July 2006, pp. 16–18, available at: http://www.europa.eu.int/comm/internal_market/index_en.htm.

  34. Sevic, supra n. 7.

  35. See the Opinion of AG Tizzano in Sevic, supra n. 7, at point 23.

  36. See also Überseering, supra n. 7, at para. 62.

  37. See Opinion of AG Tizzano in Sevic, supra n. 7, at n. 22.

  38. Marks & Spencer, supra n. 3, at paras. 32–33.

  39. Marks & Spencer, supra n. 3, at para. 34.

  40. Cf., the Opinion of AG Poiares Maduro in Marks & Spencer, supra n. 2, at point 32. The UK tax legislation under consideration in Marks & Spencer could perhaps also be called into question, because it does not accord the same advantages in the case of parent companies with foreign subsidiaries and parent companies with foreign branches. For this issue, see ibid., at points 41–50.

  41. Cf., the Opinion of AG Poiares Maduro in Marks & Spencer, supra n. 2, at point 37.

  42. Sevic, supra n. 7, at para. 20.

  43. Sevic, supra n. 7, at paras. 22–23.

  44. For, inter alia, such an analysis, see Vossestein, loc. cit. n. 22.

  45. Cf., the Opinion of AG Poiares Maduro in Marks & Spencer, supra n. 2, at point 53. This issue does play a role, however, in the context of justification for restrictions. See section 5 infra.

  46. Marks & Spencer, supra n. 3, at paras. 35–59.

  47. Marks & Spencer, supra n. 3, at para. 35.

  48. See, in particular, Case C-55/94 Gebhard [1995] ECR I-4165, para. 37; and Case C-167/01 Inspire Art [2003] ECR I-10155, para. 133.

  49. See section 4 supra.

  50. Point 31 of the Opinion, Case C-80/94 Wielockx [1995] ECR I-2493. AG Poiares Maduro has countered this in point 33 of his Opinion in Marks & Spencer, where he remarked that: ‘those judgments [AG Léger appeals to] contradict a more general approach taken by the Court which applies also in tax matters whereby it affirms that a discriminatory measure can be justified only on the basis of derogating provisions expressly provided for in the Treaty [footnotes omitted].’ AG Poiares Maduro then concluded that: ‘It would be useful for the Court to put an end to these uncertainties [footnotes omitted].’

  51. Section 2 supra.

  52. Section 4 supra.

  53. Cf., the Opinion of AG Poiares Maduro in Marks & Spencer, supra n. 2, at point 32, who refers to ‘a restriction imposed by a Member State on one of its nationals making use or wishing to make use of rights derived from the fundamental freedoms.’

  54. See the Opinion of AG Poiares Maduro in Marks &Spencer, supra n. 2, at point 32.

Download references

Author information

Authors and Affiliations

  1. Leiden University, the Netherlands

    Gert-Jan Vossestein (Lecturer on company law)

Authors
  1. Gert-Jan Vossestein
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Vossestein, GJ. Exit restrictions on Freedom of Establishment after Marks & Spencer . Eur Bus Org Law Rev 7, 863–878 (2006). https://doi.org/10.1017/S1566752906008639

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1017/S1566752906008639

Keywords

Search

Navigation