Free Movement in the EU and the Abuse of Companies

Abstract

This contribution examines how the Court of Justice of the European Union has allowed Member States to tackle abuse of companies. The Court has done this by using two different approaches. First, by allowing that certain forms of free movement are not covered by the freedom of establishment and, second, by allowing Member States to deny the companies to rely on the freedom of establishment (or other EU rights) when abuse exists. Originally, the first method seemed to give the Member State ample room for not allowing different forms of mobility that were not accompanied by either the movement of the real seat or an economic activity. However, over time, the former ample room has shrunk and, as a result, the only element left is that Member States may require a connecting factor from companies incorporated in the specific Member State. This may still be a way of ensuring that companies are not abused, but the fact is that many Member States do not enforce such a requirement. Consequently, this approach to tackling abuse of companies seems to play a less important role. The second approach is still feasible, but the general principle prohibiting abuse is difficult to apply. So far, in company law cases it has been a very narrow exception and difficult for the Member States to apply. However, as the chapter illustrates, there has been some indication of when the principle can be used, and even though the CJEU has not been helpful in suggesting what constitutes abuse of EU law in this area, there is no doubt that it is possible to encounter some kind of abuse of corporate mobility in the EU. The amendment of the CCLD will partly operationalise how to tackle abuse in the context of cross-border conversions, mergers, and divisions and this will make it more likely that abuse of companies in these types of transactions will be tackled.

Keywords: free movement, abuse of companies

JEL Classification: K22