The long path to a broad reading of the Freedom of Establishment and its impact on the Brexit era

Abstract: The freedom of establishment is an expression of the Internal Market. On the one hand, the EU tries to strengthen the Internal Market, but on the other hand, Member States have a fear to lose their national control, making them eager to restrict the free movements granted by the Internal Market doctrine. The contradiction becomes visible in regard to the cross-border movement of companies in the EU. Due to the lack of harmonization in the area of cross-border movement of companies, the CJEU had to take over the role of interpreting and harmonizing the law. The cross-border movement of companies was subject to several cases in front of the CJEU where the Court distinguished between emigration and immigration cases, which were not comparable. While immigration cases were covered by the freedom of establishment, cases of emigration were governed by the national law of the home Member State. The Court’s judgements were not stringent in regard to the interpretation of the freedom of establishment. A liberal interpretation of the freedom of establishment was only applicable in immigration cases, while the Court applied a narrow definition in emigration cases. The differentiation lacks a convincing argumentation. Until Polbud, it was questionable whether companies were allowed and if yes, under which conditions, to transfer their registered seat to another Member State without changing their main place of business. Polbud put an end to the discussion and allowed the sole transfer of the registered seat even without any economic link to the host Member State. The freedom of establishment also includes a freedom of choice of the applicable law, allowing companies to re-incorporate in their Member State of choice even after they were initially incorporated in a different Member State. The freedom of choice of the applicable law can be used by British companies who are affected by Brexit if the UK leaves the Internal Market. Companies, that are only incorporated in the UK, but have their real seat elsewhere in the EU, are after Brexit not per se accepted as a valid company. They can neither refer to the freedom of establishment nor to the principle of mutual recognition. After the UK will leave the Internal Market, these companies will be governed by the national laws of each Member State. The new freedom gained by the Polbud judgment helps companies to exit the UK before Brexit to still be a part of the Internal Market and be able to be subject to the freedom of establishment. A new Directive on cross-border conversions of companies proposed by the European Commission in Spring 2018 could give companies, if implemented on time, a legal certainty for their cross-border movement that Polbud is not able to provide.