## Facts

- Centrosteel Ltd, a company incorporated under English law, sought to register a branch in Denmark.
- Danish authorities refused registration, contending that the company’s main business activities were in the UK and the Danish branch was a "front" to circumvent Danish requirements for minimum share capital.
- The Danish position was based on the belief that the sole reason for the branch’s establishment was avoidance of Danish compulsory capital rules governing company formation.

## Issues

1. Whether a member state may refuse to register a branch of a company incorporated in another member state on the grounds that its main activities are not conducted in the state of incorporation.
2. Whether national measures restricting the registration of branches are compatible with the freedom of establishment under Article 49 TFEU.
3. Whether the mere suspicion of avoidance of national law justifies restricting freedom of establishment.

## Decision

- The ECJ ruled that Denmark’s refusal to register the branch contravened Article 49 TFEU.
- The Court affirmed that companies lawfully formed in one member state may establish branches in another member state, regardless of where core activity is conducted.
- Restrictions cannot be imposed unless justified by imperative reasons of general interest and are proportionate to such aims.
- The suspicion that a company seeks to avoid national company law, without substantive evidence, is not sufficient justification for restricting the freedom of establishment.

## Legal Principles

- The freedom of establishment under Article 49 TFEU ensures companies may conduct business throughout the EU without unjustified restrictions.
- Member states may only restrict this freedom if the restriction is justified by an overriding reason in the general interest and is suitable and necessary.
- Differing interpretation or application of EU provisions by member states undermines the coherence and effectiveness of the internal market.
- Measures intended to restrict establishment on mere suspicion of avoidance, particularly where EU directives apply, are not justified.
- Member states retain the right to counteract wholly artificial arrangements intended solely to circumvent national law, provided there is concrete evidence of abuse.

## Conclusion

The ECJ confirmed that freedom of establishment under Article 49 TFEU prohibits member states from refusing branch registration solely based on suspected avoidance of national law. Genuine restrictions must be justified and proportionate, thus ensuring legal certainty for cross-border business operations within the internal market.


Centrosteel v Adipol (Case C-456/98) [2000] ECR I-6007