The Papillon Case: A First Step Toward a New Era in European Tax Treatment of Groups?

Abstract: In a decision rendered on 27 November 2008 (C-418/07, Sté Papillon v. Ministère du Budget), the European Court of Justice ruled that the impossibility – resulting from the rules set forth in the French Tax Code – for a French parent company to include within a French tax consolidation group a French sub-subsidiary held through a subsidiary located in another Member State constitutes a restriction on the freedom of establishment. This decision raises several questions as to the application of domestic tax consolidation rules (as currently applicable in France and in other Member States) in cross-border situations and might be a first step toward a new era in European tax treatment of groups.