This case involved a Dutch company (National Grid Indus) which transferred its place of effective management to the United Kingdom. After the transfer, it was deemed to be resident in the United Kingdom, under the UK/Dutch Double Tax Agreement. The Dutch tax authorities demanded immediate payment of tax on unrealised capital gains which existed at the time of the transfer of the place of management. National Grid Indus contested the imposition of the exit tax, claiming that it was contrary to the principle of freedom of establishment.

The primary issue brought to the ECJ for a preliminary ruling was if a Member State imposes on a company incorporated under the law of that Member State, which transfers its place of effective management from that Member State to another Member State, a final settlement tax in respect of that transfer, can that company rely on the principal of freedom of establishment against that Member State?

The ECJ acknowledged that Member States retain the power to impose an exit tax on the transfer of the place of effective management of a company of one Member State to another Member State but concluded that the tax must be proportionate.

The judgement stated that national legislation which offers a choice between immediate payment of an exit tax or a deferred payment of an exit tax, possibly together with interest, would constitute a measure which would be less harmful to freedom of establishment and would be acceptable as a proportionate tax consequence on transfers of tax residency of companies between Member States.

The full judgment is available at http://curia.europa.eu