Agricola Torcrescenza S.r.l., initially an Italian company, transferred its registered office to Luxembourg in 2004, becoming STE S.à r.l. (STE), while continuing to operate its main asset, a property near Rome.

In 2010, the sole director of STE appointed F.F. who was neither a shareholder nor a manager of STE, as general agent, granting him powers to perform all necessary acts and operations, without exception or exclusion, but in all cases within the scope of the company’s object.

In 2012, F.F., on behalf of STE, transferred ownership of such property from STE to S.T., which subsequently transferred it to Edil Work 2. In 2013, STE sued both companies (ie, S.T. and Edil Work 2) before the Rome Court, seeking to annul the transfers, claiming that the power granted to F.F. was illegitimate under Italian law. Italian authorities questioned whether Italian law should govern the Luxembourg company's management activities due to its significant operations in Italy.

• Freedom of establishment: Articles 49 and 54 of the Treaty on the Functioning of the European Union (TFEU) protect the right of companies to establish and manage businesses across EU Member States and to be governed by the legislation of the Member State of establishment.
• National legislation conflict: Article 25 of the Italian law No. 281 of 31 May 1995 mandates that companies primarily operating in Italy, even if registered elsewhere, must comply with Italian management laws. Such requirements may make the management of such companies more cumbersome as they may have to comply with the rules of two Member States, therefore, restricting the EU freedom of establishment principle.

• Restriction on freedom of establishment: Requiring companies to comply with Italian law based on their operational focus in Italy creates an undue burden, effectively hindering the freedom to establish and manage businesses under the laws of their registered Member State.
• Lack of justification: While protecting creditors, shareholders, and employees is a valid public interest, the automatic application of Italian law exceeds what is necessary to achieve these protections. Additionally, presuming fraudulent activity based on the location of business operations alone is unjustifiable.

The CJEU concluded that Articles 49 and 54 TFEU prevents Italian legislation from automatically applying Italian law to the management of companies primarily operating in Italy but registered in another Member State. This ruling reinforces the principle that companies have the right to establish and manage their operations under the laws of the Member State where they are registered, ensuring a unified approach to freedom of establishment within the EU.

This decision emphasises the importance of adhering to EU principles of free movement and establishment, offering clarity and consistency for cross-border business operations within the EU and strengthening the position of EU holding-companies-jurisdictions such as Luxembourg.

The Judgement can be found here.