World news
15 March 2018

EU Court of Justice rules in Deister Holding and Juhler Holding cases

At the end of 2017, the Court of Justice of the European Union (CJEU) issued a long-awaited judgment in the joined cases Deister Holding and Juhler Holding, concerning the application of the EU Parent-Subsidiary Directive and involving a dispute over one of the fundamental EU freedoms, the freedom of establishment. In the cases in question, both the EU Directive and the freedom of establishment were infringed by German anti-treaty-shopping rules.

Luděk Vacík
Klára Nesvadbová

In both cases, the German tax authorities denied a tax exemption of dividend paid by German subsidiaries to their parent holding companies domiciled in other EU member states. The tax exemption was not possible under German anti-treaty-shopping rules valid at the time, as the owners of the holding companies would not have personally qualified for the exemption under the directive had the dividend been paid to them directly rather than through the holding companies. The companies challenged these conclusions, claiming compliance with the tax exemption rules under the directive and the freedom of establishment.

The court held that the German rules that generally exclude a certain group of taxpayers from the entitlement to the relief under the directive were in breach of the directive and contrary to the freedom of establishment. The Court argued inter alia that special shareholding structures and the existence of holding companies did not in themselves indicate treaty shopping. Consequently, the rules prohibiting the relief under the directive should be very specific and aimed at concrete cases. The existence of the German provisions was also found contrary to the freedom of establishment, as it may deter taxpayers from carrying out economic activities in Germany.

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