Application of beneficial ownership and anti-abuse principles in the EU 

Courts across the EU have been inspired by the so-called Danish judgements of the Court of Justice of the EU, and so some national courts’ decisions on the taxation of dividends and interest payments received by holdings have followed the beneficial ownership principle (the Spanish case) and the anti-abuse principle for artificial arrangements (the Dutch case) applied by the CJEU.

We previously wrote about the decisions of the Court of Justice of the EU (CJEU) in the so-called Danish cases, providing guidance on the application of the beneficial ownership and anti-abuse principles. Regarding beneficial ownership, the principle can be interpreted using the Commentary to the OECD Model Convention. Further, the general anti-abuse principle can be relied on by a member state even if the anti-abuse clause has not been implemented into the member state’s legislation.

 The CJEU’s decisions have been followed within the decision making of national courts across the EU. The decision made by the Spanish Central Tax Court in October 2019 involves both principles and uses the Danish cases as one of the main pillars behind the decision. The background of the case involves a Spanish debtor receiving financing from its Dutch shareholder. The interest received by the Dutch company was instantly transferred to a tax resident in Andorra. The most interesting point in this case is that the decision of the court goes against the prior approach of the Spanish National High Court. At the time of the judgment, the requirement of beneficial ownership had not been implemented into Spanish legislation. The Spanish company used this to challenge the argument of the Spanish tax administrator. The court nonetheless decided that to benefit from the exemption from withholding tax, the recipient must be the beneficial owner of the interest (i.e. must have control over the further use of the received income). According to the court, this approach is in accordance with the overall aim of the Interest and Royalties Directive.  

Another decision, mostly dealing with the anti-abuse principle, is that of the Dutch Supreme Court from January 2020. The Dutch court ruled in favour of the tax authority and stated that dividends derived from a substantial shareholding in a Dutch company by a Luxembourg holding are taxable in the Netherlands, evaluating the whole structure as artificial and primarily aimed at avoiding tax. To arrive at its conclusion, the court used two tests. After applying the tax avoidance test, the court concluded that interposing a company tax resident in Luxembourg between a shareholder tax resident in a third country (Switzerland) and a Dutch company was an artificial structure, since the interposed company had no real substance. Under the business test, the court concluded that the shareholding in the Dutch company was not a business asset of the taxpayer but just a pure investment, i.e. the company did not ensure any functions or services and had solely a holding function.   

We recommend closely evaluating any flows of dividends, interest or royalties in your company/group, and if you come across any questions, please do not hesitate to contact us. 


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