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On 27 February, the Court of Justice of the European Union (CJEU) delivered the an important judgement in the joint cases of T 116/16 -T Danmark & 117/16 – Y Danmark, concerning the Parent-Subsidiary Directive, and joined cases C 115/16 – N Luxembourg 1, Case C 118/16 – X Denmark, Case C 119/16, C Danmark I and Case C 299/16, Z Denmark, concerning the Interest and Royalty Directive.


The Danish companies were owned by parent companies in other Member States, who were themselves owned by companies in third countries. The EU parent companies received dividends or interest from the Danish companies, and, as argued, were either free of withholding tax according to the Parent-Subsidiary Directive or Interest and Royalty Directive. The Danish tax administration claimed that the exemption should not be applied due to the fact that the recipients of the dividends/interest were not the beneficial owners of the payments.


Regarding the Interest Directive, the CJEU was accordingly asked to indicate whether the recipient of the interest payment was indeed the beneficial owner and could avail itself of the withholding tax exemption in the directive. The CJEU held that in accordance with the definition of beneficial ownership, provided by the OECD Model Tax Convention, if a company would be deemed to be a beneficial owner (i.e. benefited economically), it would be likely that it would be a beneficial owner of interest under the Interest and Royalty Directive.

In terms of the Parent-Subsidiary Directive, the beneficial ownership test was not relevant. However, a Member State must apply either the credit method or exemption method to a dividend paid to another Member State, except in the case of fraud or abuse. The CJEU was accordingly asked whether the anti-abuse provision needs to be enacted in domestic legislation in order for a Member State to invoke this argument. THE CJEU HELD THAT A GENERAL ANTI-ABUSE PROVISION CAN BE RELIED ON BY A MEMBER STATE, BASED ON THE EU PRINCIPLE OF ABUSE OF LAW, EVEN IF THERE ARE NO DOMESTIC OR AGREEMENT-BASED PROVISIONS PROVIDING FOR SUCH A REFUSAL OF THE EXEMPTIONS. Additionally, the CJEU noted that the Cadbury Schweppes test concerning abuse (i.e. when the transaction is purely artificial and was designed to circumvent the proper application of legislation of the member state) must continue to be met.

The full text on this important case can be found on this link: Joined Cases C‑116/16 and C‑117/16

For more information on these joint cases, please contact:

Franco Falzon C.P.A., LL.M
(Managing Partner)

Olga Ivanova LL.M
(Legal Associate)

T: +356 2010 7771


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