On 3 September 2015 the European Court of Justice (ECJ) issued a decision in the Groupe Steria case which concerned the application of the principle of freedom of establishment under EU law.

In the relevant years the parent company of the group was resident in France and subject to the French group taxation rules. Under these rules it was denied a deduction for 5% of the costs and expenses incurred by a French subsidiary in relation to revenue received from holdings in companies established in other EU member states. This deduction was refused by the French tax authorities on the grounds that companies resident in other countries may not be members of a French tax group. However the 5% deduction applies under French tax law in relation to revenue received from holdings in French companies that are part of the tax-integrated group.

Reference was made to the ECJ by the Administrative Court of Appeal of Versailles for a preliminary ruling as to whether the principle of freedom of establishment precludes rules such as those in the French group tax regime that grant this deduction in respect of revenue from a tax-integrated resident company but refuse the deduction in respect of revenue received from subsidiaries established in other EU member states, which would have been eligible if they had been resident in France and had elected for this group treatment.

The ECJ held that Article 49 of the Treaty on the Functioning of the European Union (TFEU) on freedom of establishment precludes group tax rules of a member state that allow the add-back of a proportion of costs and expenses in respect of revenue (dividends) received from a tax-integrated resident company but refuses this deduction in relation to income from subsidiaries located in another EU member state that would have been eligible for the deduction had they been resident in the same member state and elected for the group treatment.