Help Print this page 

Summaries of EU Legislation

Title and reference
The legal aspects of intra-EU investment

Summaries of EU legislation: direct access to the main summaries page.

This summary is archived.
Languages and formats available
HTML html ES html DE html EN html FR
Multilingual display
Miscellaneous information
  • Archived: true

The legal aspects of intra-EU investment

The free movement of capital is one of the fundamental principles of the Union. The Commission monitors the measures taken at national level by the Member States in this context. It considered it necessary to publish this communication in order to elucidate the Community provisions and thus help avoid any restrictions on the free movement of capital.


Commission communication on certain legal aspects concerning intra-EU investment [Official Journal C 220 of 19.07.1997].


The purpose of the communication, which was adopted in 1997, is to inform national authorities and economic operators about the provisions of Community law on the free movement of capital and the right of establishment as it affects this issue, notably Article 73b of the EC Treaty, as amended by the Treaty on European Union (the Maastricht Treaty), which stipulates that all restrictions on the movement of capital and all restrictions on payments between Member States and between Member States and third countries are prohibited. The right of establishment and the free movement of capital are now enshrined in Articles 43 and 56 of the EC Treaty, as amended by the Treaty of Nice in 2001 [PDF]. The Commission would stress that the communication is without prejudice to the interpretations which the Court of Justice of the European Communities might give in this area. It wishes to help reduce the risks of divergent interpretations and, in so doing, to enable, firstly, Member States to draw up policies that take account of Community law and, secondly, economic operators to be aware of their rights.

Clarification of the concept of "capital movements"

The current Article 56 (former Article 73b) prohibits all restrictions on capital movements between Member States save in exceptional circumstances. It covers both discriminatory and non-discriminatory restrictions. Discriminatory restrictions are measures which apply only to nationals of another Member State. Non-discriminatory restrictions apply both to nationals of a Member State and to those of other Member States.

The Court of Justice of the European Communities has interpreted the meaning of the concept of "capital movements" in a long line of cases *. In order to clarify the provisions of Article 56, the Commission refers to Directive 88/361/EEC, which implements the former Article 67 of the Treaty. In an annex to the Directive, there is a list of operations that may constitute capital movements. Two types of operation are of interest here:

  • operations falling under the heading of "acquisition of domestic securities": The Commission is of the opinion that the acquisition by nationals of another Member State of shares and bonds issued by a domestic company on pure financial investment grounds, that is, without the aim of exerting any influence on the management of the company, may be considered a capital movement. Moreover, the acquisition of a controlling stake in a company is governed not only by the provisions on the free movement of capital but also by those on the right of establishment. Thus, nationals of other Member States should be free to acquire controlling stakes and to exercise the resulting voting rights under the same conditions as are laid down by the Member State for its own nationals (non-discrimination on grounds of nationality).
  • operations falling under the heading of "direct investments": The concept of "direct investment" must be understood in the widest sense, that is to say, as "investments of all kinds".

Possible discriminatory restrictions

In exceptional circumstances, Member States may impose restrictions on the free movement of capital. On the basis of the EC Treaty provisions allowing for exceptions, discriminatory restrictions may be accepted:

  • vis-à-vis investors from other Member States if they apply to activities that are connected, even occasionally, with the exercise of official authority;
  • on grounds of public policy, public security or public health, provided these exceptions are interpreted restrictively and exclude any interpretation based on economic considerations;
  • to prevent infringements of Member States' national laws and regulations, in particular in the field of taxation and in relation to financial institutions (former Article 73d, current Article 58);
  • within the field of application of the current Article 58(2), which permits the application of restrictions on the freedom of establishment. The restrictions must be compatible with all the provisions of the Treaty. It should be noted that the question of the relationship between these two fundamental freedoms still has to be decided.

The Court of Justice of the European Communities interprets the exceptions strictly: it rules out any interpretation based on economic considerations. Moreover, Article 58(3) confirms that the exceptions must not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital.

In its communication, the Commission analyses some existing restrictions in the Member States. In its view, discriminatory measures (such as a ban on investors acquiring more than a limited number of voting shares in domestic companies and/or the requirement that investors seek authorisation for the acquisition of shares beyond a certain threshold) may constitute restrictions on direct investment operations and on portfolio investment operations.

Non-discriminatory measures

As far as non-discriminatory measures are concerned, the Commission would stress the importance of the case law of the Court of Justice of the European Communities (CJEC). The Court has confirmed in a number of judgments, such as that in Bosman (Case C-415/93) or in Gebhard (Case C-55/94), that restrictions liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must fulfil four conditions:

  • they must be applied in a non-discriminatory manner;
  • they must be justified by imperative requirements in the general interest;
  • they must be suitable for securing the attainment of the objective which they pursue;
  • they must not go beyond what is necessary in order to attain it.

With regard to national authorities' rights of veto, the Commission would recall that the concept of "investment" within the meaning of Directive 88/361/EEC refers to "investments of all kinds" and must be interpreted in the widest sense. According to the case law of the CJEC, the right of veto may hinder the free movement of capital if the four conditions mentioned above are not met. The Commission considers that the "national interest" is not a sufficiently transparent criterion to justify the introduction of certain measures as it is liable to introduce an element of discrimination towards foreign investors and thus to lead to legal uncertainty.

After scrutinising the non-discriminatory measures embodied in Member States' laws, the Commission has found that the authorisation procedures and the right conferred on national authorities to veto certain important corporate decisions (appointment of directors, etc.) may constitute restrictions on the free movement of capital. Nevertheless, authorisations can be justified by imperative requirements in the general interest provided that they are based on a set of objective, stable and published criteria.


The Commission concludes that measures restricting intra-EU investment and discriminatory measures are incompatible with the Treaty provisions on the free movement of capital and the right of establishment unless they are covered by one of the exceptions provided for by the Treaty itself. Non-discriminatory measures, on the other hand, are admissible if they are based on objective, stable and published criteria and if they are justified by imperative requirements in the general interest. At all events, the principle of proportionality must be observed. The Commission wishes to establish a permanent dialogue with the Member States with a view to identifying in advance any difficulties that are likely to impede the free movement of capital and the freedom of establishment. It would stress, however, that the transfer of a company from the public to the private sector is an economic policy choice which falls within the exclusive competence of the Member States.

Case law of the Court of Justice of the European Communities

Judgment of 04.06.2002 in Case C-367/98 Commission v Portugal, paragraph 37;Judgment of 04.06.2002 in Case C-483/99 Commission v France, paragraph 36;Judgment of 04.06.2002 in Case C-503/99 Commission v Belgium, paragraph 37;Judgment of 13.05.2003 in Case C-463/00 Commission v Spain, paragraph 52;Judgment of 13.05.2003 in Case C-98/01 Commission v United Kingdom, paragraph 39;Judgment of 16.03.1999 in Case C-222/97 Trummer and Mayer, paragraphs 20 and 21.

See also

A search form allowing the user to search for the text of the judgments is available on the Court of Justice's website.

Last updated: 19.05.2005