The CJEU found, however, that in a cross-border reincorporation, the “host” EU Member State is entitled to determine what national law is to apply to such transactions, provided that the principles of equivalence and effectiveness are followed.
The case is: VALE Építési, C-378/10 (12 July 2012)
A company was formerly a limited liability company governed under Italian law. The Italian company was removed from the commercial registry in Rome on 13 November 2006, on the grounds that it intended to transfer its “seat” and business to Hungary.
The next day, 14 November 2006, the directors of the Italian company adopted the articles of association with a view to registering the company in the Hungarian commercial register. However, the registration application was rejected because, under Hungarian corporate law, a company incorporated and registered in Italy cannot transfer its seat to Hungary and cannot be registered in Hungary. Rather, under Hungarian law, a company that is not Hungarian cannot be listed as a “predecessor in law.”
The matter ended up before the Hungarian Supreme Court, which referred the case to the CJEU.
The CJEU concluded that the freedom of establishment precludes Hungarian law that allows companies established under Hungarian law to convert, but does not allow companies established under the law of another EU Member State to incorporate in Hungary, i.e., to convert to a company governed by Hungarian law. However, the CJEU noted that in a cross-border reincorporation, the host EU Member State is entitled to determine the national law applicable to such operations provided the principles of equivalence and effectiveness are upheld.
The CJEU emphasized that this judgment is not to be understood as excluding the law of the host EU Member State from the scope of the freedom of establishment. Rather, it is meant to underscore the fact that, in a cross-border conversion, consideration is to be given to the national law of the host EU Member State whose rules govern the company’s reincorporation.
Read a July 2012 report [PDF 51 KB] prepared by KPMG’s EU Tax Centre: Cross-border reincorporation of a company