On 27 February 2020, the European Court of Justice (ECJ) issued a decision in the case of Aures Holdings a.s.

In 2007 the place of effective management of Aures was the Netherlands, and it was therefore treated at that time as Dutch tax resident. Losses were incurred by the company in the Netherlands in 2007, and subsequently on 1 January 2009, the company’s place of effective management was transferred to the Czech Republic. The company was then treated as tax resident in the Czech Republic, although it still had its registered seat in the Netherlands. As by this time the company did not have any economic activity in the Netherlands, it could not use the losses in the Netherlands.

Under the Czech tax legislation a company can carry forward losses to future tax periods but this only applies to losses arising when the company is under Czech fiscal sovereignty, so Aures could not bring forward the Netherlands losses to offset against its Czech tax liability. he issue referred to the ECJ was whether principle of freedom of establishment under articles 49, 52 and 54 of the Treaty on the Functioning of the EU (TFEU) covers a situation where the place of management changes from one member state to another; and if this is the case is national legislation consistent with EU law if it prohibits an entity established in another Member State to claim losses that arose in the other member state after relocating its place of business or place of management.

The ECJ ruled that under Article 49 TFEU a company transferring its place of effective management from one EU Member State to another, while still incorporated under the law of the first Member State, may rely on that article in objecting to a refusal by the second Member State to offset losses incurred in the first Member State.

However the ECJ also found that Article 49 TFEU does not prohibit legislation of a Member State in relation a company transferring its place of effective management and its tax residency to that Member State, where it does not allow the company to offset a tax loss that arose in that other Member State while the company was tax resident there.