On X Holding and the ECJ's Ambiguous Approach Towards the Proportionality Test

On February 25, 2010, the Court of Justice rendered its decision in the X Holding case.2 The Court ruled that the Dutch tax consolidation regime is compatible with the freedom of establishment. The territoriality principle justifies the limitations on the regime’s scope of application in an intra-EU context. With its ruling, the Court basically followed the opinion of Advocate General (hereinafter: ‘AG’) Kokott, she delivered on November 19, 2009. Kokott advocated the position that the Dutch tax consolidation regime may generally be regarded as being compatible with the freedom of establishment (at least to the extent that it entails that an aggregation of current business profits and losses realized by resident and non-resident group companies is impossible). Accordingly, today, it seems clear that the Dutch tax consolidation regime in its current design may be kept in place. However, the Court of Justice did not provide a clear answer to the underlying question of how the proportionality test should be interpreted under primary EU law where EU Member States (hereinafter: ‘EU MSs’) raise the territoriality principle as a justification for an obstacle imposed. In this article, I address the question of how the proportionality test should be interpreted in this respect.