An Italian company was the owner of a castle located in Italy. The business purpose of the company was the management of this property. The company moved its registered office from Italy to Luxembourg and was consequently transformed and reincorporated as a Luxembourg company while continuing to manage the castle in Italy. The company transferred ownership of the castle to a third party, but subsequently brought an action seeking a declaration that the transfer of ownership of the castle was null and void on the grounds that it was unlawful under Italian corporate law. The action was dismissed at first instance. The Court of Appeal upheld the claim and referred to the application of Italian law to companies that have their registered office in another country but carry out their main business purpose in Italy. This applied to the company at issue because the main business purpose was the management of the castle located in Italy. The Italian Court of Cassation finally referred the case to the ECJ due to doubts about the compatibility of this national regulation with the freedom of establishment.

The ECJ reached its decision taking into account Art. 49 TFEU in conjunction with Art. 54 TFEU, which extend the freedom of establishment to companies that are established under the law of a Member State and have their registered office, central administration or principal place of business within the European Union. This was the case here. The company was incorporated as a Luxembourg company, had its registered office in Luxembourg and carried out the majority of its activities in another Member State, namely Italy.

According to the ECJ, all measures that prevent, hinder or make the exercise of the freedom of establishment less attractive are to be regarded as restrictions on this freedom within the meaning of Art. 49 TFEU. This is the case if a company would have to be subject to two legal systems because, on the one hand, the law of a Member State would be applicable due to the freedom of establishment (in this case Luxembourg law) and, on the other hand, an additional jurisdiction because the other Member State in question requires this on the basis of national law (in this case Italian law). Such a cumulative application of law may be justified. However, the Court was not convinced by the objections of the Italian government, which invoked Italian law to protect creditors, minority shareholders and employees, because the rule at issue was not suitable for achieving the protection claimed due to its general nature. In particular, it was possible that the law of the other member state would also guarantee the corresponding protection.

The Court was also not convinced by the Italian government's objection to the prevention of tax evasion. According to its established case law, the mere fact that a company established in one Member State carries out the majority of its activities in another Member State cannot give rise to a general presumption of tax evasion. The interference with the freedom of establishment is convincingly justified only if the establishment is purely artificial and only for the purpose of tax evasion. If a company founded under Italian law establishes itself in another member state (and also founds a new company) and continues to operate mainly in Italy, this is not per se abusive in the opinion of the court. If the regulation at issue only exists in Italy because it assumes that this behavior is abusive, it would also be disproportionate.