The European Union's highest court last year struck down a 48-year old German law that shields Volkswagen from takeover, forcing Berlin to come up with alternative legislation.
On Thursday, Germany's Bundestag lower house of parliament approved a revised law which addresses some of the EU's concerns but not all of them.
For example, the new legislation keeps a rule that gives the state of Lower Saxony, which holds just over 20 percent of Volkswagen shares, an effective blocking minority in the firm. The EU has said explicitly that Germany must scrap the rule. The highly profitable Porsche holding company says it currently controls 42.6 per cent of voting shares at the bigger Volkswagen. The new legislation, an amendment of the long-standing "Volkswagen Law," gives Lower Saxony veto rights at shareholder meetings. Porsche will own just under 75 per cent of the giant car manufacturer when options fall due next year.
"We will move ahead with the case in the next few weeks. The Commission certainly hopes to reach a decision on the next stage before Christmas," a Commission spokesman said.
The law allows Lower Saxony, the region where Volkswagen is based, to block strategic decisions taken by the company's largest shareholder, Stuttgart-based sports carmaker Porsche.
Porsche has lobbied vigorously for the law to be overturned but encountered robust opposition from the German government and Volkswagen workers. Porsche chief executive Wendelin Wiedeking wrote to legislators, predicting that law would cause future problems for Berlin.
German Chancellor Angela Merkel said in a speech in September at Volkswagen headquarters in Wolfsburg that she believed the new legislation met EU demands and vowed to defend the blocking minority clause in Brussels.
A solid majority of legislators in Berlin backed the bill, which is popular because the state is seen as a guarantor of jobs at the company, the biggest industrial enterprise in Lower Saxony.
Thousands of VW workers have demonstrated in support of the law, which is also backed by Lower Saxony premier Christian Wulff, an influential member of Merkel's Christian Democrats (CDU). But the labour leader at Volkswagen, Bernd Osterloh, applauded the law as a "grand signal" and said it fully met provisions of European Union law.
The European Union is expected to challenge the legislation in court, arguing that it distorts European corporate law.
