Ebba Perman Borg
Partner
Stockholm
Newsletter
The anti-abuse provision of the parent-subsidiary directive
by Ebba Perman Borg
Published:
On 3 April 2025, the Court of Justice of the European Union ("CJEU") delivered a judgment in Case C‑228/24, involving 'Nordcurrent group' UAB, a Lithuanian company, and the Lithuanian State Tax Inspectorate. The case centered on the interpretation of the anti-abuse provisions in Article 1(2) and (3) of Council Directive 2011/96/EU, concerning tax exemptions for dividends distributed between parent companies and their subsidiaries in different Member States.
However, the Court emphasised that such determinations must consider all relevant facts, including the subsidiary's activities before and after the relevant dividend distributions.
The Lithuanian tax authority had denied Nordcurrent an exemption from corporation tax on dividends received from its UK-based subsidiary, Nordcurrent Ltd, arguing that the subsidiary constituted a non-genuine arrangement aimed at tax avoidance. Nordcurrent contested this assessment, leading to a request for a preliminary ruling from the Lithuanian authorities.
The CJEU ruled that Member States may deny tax exemptions under Directive 2011/96/EU if a subsidiary is deemed a non-genuine arrangement lacking economic substance, valid commercial reason and established primarily to obtain tax advantages.
However, the Court emphasised that such determinations must consider all relevant facts, including the subsidiary's activities before and after dividend distributions. A subsidiary formed for legitimate commercial reasons, engaging in genuine economic activities, should not be automatically classified as abusive solely based on its status at the time of dividend payments.
This judgment underscores the necessity for tax authorities to conduct comprehensive assessments when evaluating the authenticity of cross-border corporate structures and highlights the importance of legitimate commercial purposes in maintaining tax exemptions under EU law.
