Provisional text
OPINION OF ADVOCATE GENERAL
KOKOTT
delivered on 21 May 2026 (1)
Case C‑203/25
NEO GROUP UAB
v
Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos
(Request for a preliminary ruling from the Mokestinių ginčų komisija prie Lietuvos Respublikos Vyriausybės (Tax Disputes Commission under the Government of the Republic of Lithuania))
( Reference for a preliminary ruling – Taxation – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Exemption of dividends distributed by a resident subsidiary to a non-resident parent company – General rule of exemption from withholding tax – Exception to those rules in cases of abuse or fraud – Conditions for abuse of the Parent-Subsidiary Directive )
I.      Introduction
1.        The present request for a preliminary ruling from the Mokestinių ginčų komisija prie Lietuvos Respublikos Vyriausybės (Tax Disputes Commission under the Government of the Republic of Lithuania; ‘the Tax Disputes Commission’) offers the Court an opportunity to clarify the conditions for abuse under Article 1(2) and (3) of the Parent-Subsidiary Directive. (2)
2.        In the main proceedings, Neo Group UAB (‘Neo’) is challenging a decision of the Lithuanian Tax Inspectorate (‘the national tax authority’), which refused to grant Neo exemption from withholding tax in Lithuania on the ground that Neo had obtained it abusively. Although Neo had distributed its profits to its economically active Cypriot parent company, that parent company had subsequently distributed the profits onward, by way of a chain of transactions which had to be characterised as a non-genuine arrangement, through a further Cypriot ‘grandparent’ company to the natural person behind the group of companies.
3.        The request raises two questions in particular. First, it must be clarified whether there can also be abuse of the exemption from withholding tax where the parent company is the recipient of profit distributions not only formally, but also from an economic perspective, that is to say, it can actually have use of them. Second, it must be examined whether abuse of the tax law of another Member State in connection with the distribution of dividends to a natural person can, at the same time, constitute abuse of the Parent-Subsidiary Directive.
II.    Legal framework
A.      European Union law
4.        The framework for this case in EU law is formed by the Parent-Subsidiary Directive.
5.        Recitals 3, 4 and 6 clarify the objectives of the Parent-Subsidiary Directive:
‘(3) The objective of this Directive is to exempt dividends and other profit distributions paid by subsidiary companies to their parent companies from withholding taxes and to eliminate double taxation of such income at the level of the parent company.
(4) The grouping together of companies of different Member States may be necessary in order to create within the Union conditions analogous to those of an internal market and in order thus to ensure the effective functioning of such an internal market. Such operations should not to be hampered by restrictions, disadvantages or distortions arising in particular from the tax provisions of the Member States. It is therefore necessary, with respect to such grouping together of companies of different Member States, to provide for tax rules which are neutral from the point of view of competition, in order to allow enterprises to adapt to the requirements of the internal market, to increase their productivity and to improve their competitive strength at the international level.
…
(6) Before the entry into force of Directive 90/435/EEC, the tax provisions governing the relations between parent companies and subsidiaries of different Member States varied appreciably from one Member State to another and were generally less advantageous than those applicable to parent companies and subsidiaries of the same Member State. Cooperation between companies of different Member States was thereby disadvantaged in comparison with cooperation between companies of the same Member State. It was necessary to eliminate that disadvantage by the introduction of a common system in order to facilitate the grouping together of companies at Union level.’
6.        Recital 8 of Directive 2015/121 (3) states:
‘(8) While Member States should use the anti-abuse clause to tackle arrangements which are, in their entirety, not genuine, there may also be cases where single steps or parts of an arrangement are, on a stand-alone basis, not genuine. Member States should be able to use the anti-abuse clause also to tackle those specific steps or parts, without prejudice to the remaining genuine steps or parts of the arrangement. …’
7.        Article 1(1) of the Parent-Subsidiary Directive defines the scope of the directive:
‘Each Member State shall apply this Directive:
…
(b) to distributions of profits by companies of that Member State to companies of other Member States of which they are subsidiaries’.
8.        Article 1(2) and (3) of the Parent-Subsidiary Directive contains a general anti-abuse clause, which provides:
‘2. Member States shall not grant the benefits of this Directive to an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of this Directive, are not genuine having regard to all relevant facts and circumstances.
An arrangement may comprise more than one step or part.
3. For the purposes of paragraph 2, an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.’
9.        Article 3(1) of the Parent-Subsidiary Directive defines the terms ‘parent company’ and ‘subsidiary’:
‘For the purposes of applying this Directive:
(a) the status of parent company shall be attributed:
(i)      at least to a company of a Member State which fulfils the conditions set out in Article 2 and has a minimum holding of 10% in the capital of a company of another Member State fulfilling the same conditions;
…
(b)      “subsidiary” means that company the capital of which includes the holding referred to in point
(a).’
10.      Article 5 of the Parent-Subsidiary Directive governs exemption from withholding tax:
‘Profits which a subsidiary distributes to its parent company shall be exempt from withholding tax.’
B.      Lithuanian law
11.      The Lietuvos Respublikos pelno mokesčio įstatymas (Law of the Republic of Lithuania on corporate income tax) No
IX-675 of 20 December 2001, as amended by Law No
XII-2262 of 22 March 2016 (‘the Lithuanian Law on corporate income tax’), provides as follows:
12.      Under Article 3(1) of the Lithuanian Law on corporate income tax, corporate income tax is payable by Lithuanian and foreign entities.
13.      Under Article 4(3)(2) of the Lithuanian Law on corporate income tax, the tax base of a foreign entity is to be ‘income sourced in the Republic of Lithuania and received by a foreign entity otherwise than through permanent establishments in the territory of the Republic of Lithuania’.
14.      Article 4(4)(2) of the Lithuanian Law on corporate income tax provides that ‘income sourced in the Republic of Lithuania and received by a foreign entity otherwise than through permanent establishments in the territory of the Republic of Lithuania shall include income from distributed profits’.
15.      Article 34(1) of the Lithuanian Law on corporate income tax provides that ‘dividends received by foreign entities for the shares, portion of capital or other rights held in a Lithuanian entity shall be subject to a corporate income tax rate of 15%. The tax shall be calculated, withheld and paid to the budget by the Lithuanian entity paying the dividends not later than by the [tenth] day of the month following the month during which the dividends were paid.’
16.      Article 34(2) of the Lithuanian Law on corporate income tax transposes Article 5 of the Parent-Subsidiary Directive:
‘Dividends paid by a Lithuanian entity to a foreign entity which holds for an uninterrupted period of at least 12 months, including the moment of distribution of dividends, at least 10% of voting shares (interests, member shares) in the Lithuanian entity shall not be subject to taxation, except for the cases where the foreign entity receiving the dividends is registered or otherwise organised in target territories.’
17.      Article 32(6) of the Lithuanian Law on corporate income tax transposes Article 1(2) and (3) of the Parent-Subsidiary Directive (‘the national anti-abuse rule’). It provides that ‘the provisions of Article 34(2) … of this Chapter relating to non-taxation of dividends shall not apply to an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of [Directive 2011/96], are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part. An arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality’.
III. Facts and request for a preliminary ruling
18.      Neo is a legal person incorporated in the Republic of Lithuania, 100% of whose shares have been held by Retal Industries Ltd, a Cypriot company, from 10 August 2005 to the present date.
19.      In 2016 and 2017, Neo distributed EUR 15 000 000 as dividends to Retal Industries. Furthermore, in that period, another Lithuanian company, Retal Lithuania UAB, in which Retal Industries also has a 100% shareholding, distributed EUR 13 485 032 as dividends to Retal Industries.
20.      Pursuant to Article 34(2) of the Lithuanian Law on corporate income tax, Neo considered this to be an exempt distribution of profits to Retal Industries and did not therefore withhold any tax in Lithuania.
21.      According to the findings of the national tax authority, the majority (more than 90% in each year) of the operating income of Retal Industries in 2016 and 2017 consisted of dividend income, the majority of which (88% in 2016 and 74% in 2017) itself consisted of dividends which Retal Industries received from Neo and Retal Lithuania.
22.      In a tax inspection for the years 2016 and 2017, the national tax authority found that the dividends which Neo had distributed to Retal Industries in 2016 and 2017 (in total EUR 15 000 000) should have been taxed in Lithuania at the applicable corporate income tax rate of 15%, as they fulfilled the factual preconditions under the national anti-abuse rule.
23.      The national tax authority applied the national anti-abuse rule on the ground that, from an economic perspective, the dividends were distributed by Neo, by way of a chain of transactions, ultimately to PG, a natural person not resident in Lithuania. It based that conclusion on the establishment of the following factors.
24.      The total amount of dividends paid by Neo and Retal Lithuania to Retal Industries in 2016 and 2017 (EUR 28 485 032) was, in essence, the same as the amount of dividends paid by Retal Industries in 2017 and 2018 to its sole shareholder, the Cypriot company Polymer Products Holding Ltd (‘PPH’) (EUR 28 880 865).
25.      A few months previously, the newly incorporated company PPH had acquired the shares in Retal Industries from the Belizean company Clendon Holdings Inc (‘Clendon’). PG is the sole shareholder in both companies (Clendon and PPH). That transfer of the company did not therefore result in any change in the controlling natural person.
26.      PPH had no employees. From its incorporation at the end of 2016 to 31 December 2018, more than 99% of its income had consisted of dividends.
27.      As at 31 December 2017, PPH had liabilities to PG equivalent to the purchase price (EUR 310 400 000) for the acquisition of the shares in Retal Industries. The national tax authority concluded from this that Clendon had transferred its claim to the purchase price to PG. In 2017 and 2018, PPH granted loans to PG and assigned rights to debts (with a total amount of EUR 28 915 328), which were then offset against PG’s claim for payment against PPH. PPH did not distribute any profits in that period.
28.      In view of those circumstances, the national tax authority concluded that those transactions had been carried out artificially. PPH had created the acquisition of the shares in Retal Industries and the indebtedness to PG merely formally. The aim was to give the impression that the dividends paid by the Lithuanian companies, Neo and Retal Lithuania, had been used to cover those debts.
29.      In reality, by the transactions, Neo had intended to avoid the tax to be paid on the dividends. Accordingly, by taking advantage of the exemption from withholding tax provided by in Article 34(2) of the Lithuanian Law on corporate income tax (applying a corporate income tax rate of 0%), Neo had avoided corporate income tax.
30.      Neo is challenging the classification of the transactions as a non-genuine arrangement. It claims, in particular, that the national tax authority did not find that Retal Industries is a non-genuine entity. Furthermore, the other transactions also reflect economic reality. Their underlying objective was to exclude from the group’s corporate structure any companies located in offshore territories and to transfer the management of the group’s parent company to the European Union.
31.      The Tax Disputes Commission, which made the reference, has doubts whether the interpretation of the national anti-abuse rule by the national tax authority is compatible with the objectives of the Parent-Subsidiary Directive and therefore asks the Court for clarification of the application of the anti-abuse rule of the Parent-Subsidiary Directive relevant to the dispute.
32.      The Mokestinių ginčų komisija prie Lietuvos Respublikos Vyriausybės (Tax Disputes Commission under the Government of the Republic of Lithuania) refers the following questions to the Court for a preliminary ruling:
‘(1)      In circumstances such as those in the case in the main proceedings, is it compatible with the objectives of the anti-abuse rule of Directive [2011/96] for a national practice to exclude, in the State of the dividend payer, the possibility of exemption from withholding tax on dividends, where the dividends are paid to a genuine parent company operating in a different EU Member State, which, as such, is not an entity which is not genuine in so far as it carries on business, and the dividends are paid to it as the beneficial owner of the dividends, but which is recognised by the tax authorities as a participant in a chain of non-genuine transactions by reason of the payment/transfer of the dividends through it to the beneficial owner of the entire group of companies?
(2)      If the answer to the first question is in the affirmative, could the transfer of dividends in a chain be based on the correspondence of the amounts of dividends (similar and identical) transferred in a chain of transactions?
(3)      In circumstances such as those in the case in the main proceedings, are the objectives of the anti-abuse rule of Directive [2011/96], including the principle of proportionality referred to in [the recitals of] Directive [2015/121], compatible with a national practice in which the tax authorities apply the anti-abuse rule in the State in which the dividends are paid, even though the transactions, which have led to a chain of transactions being recognised as an arrangement (which the tax authorities regard as not genuine), were carried out in another EU Member State by tax residents in that another EU Member State?
(4)      Does the anti-abuse rule in the State of the dividend payer give rise to a right to withholding tax on dividends where the tax benefit arises at any stage of the chain of transactions? Can the applicant be considered to have received a tax benefit contrary to the subject or purpose of Directive [2011/96] if, as a result of the creation of such a chain of transactions, a tax benefit is obtained by the ultimate beneficiary who uses the dividends paid by the applicant to earn such benefit?
(5)      In circumstances such as those in the case in the main proceedings, can the provisions of Article 1(2) of Directive [2011/96] be interpreted as meaning that the application of the “participation exemption” rule, which implements the provisions of Article 5 of Directive [2011/96] in national law, can be excluded on the grounds of the abuse of the right due to the use of dividends received, where the receipt and use of the dividends (the subsequent distribution of the profits) took place over a continuous period?
(6)      In circumstances such as those in the case in the main proceedings, is a national practice in which the effect of the tax authority is applied to a dividend payer, without assessing whether the dividend payer was and/or could have been aware of the existence of a chain of non-genuine transactions, compatible with the objectives of the anti-abuse rule laid down in Directive [2011/96]?’
33.      Written observations were submitted by Neo, the Governments of Lithuania, Spain and the Netherlands and the European Commission. Neo, the Governments of Lithuania and Spain and the European Commission took part in the hearing on 25 February 2026.
IV.    Legal assessment
34.      The questions asked by the Tax Disputes Commission (4), which made the reference, are intended to establish whether the circumstances of the main proceedings fulfil the factual preconditions of Article 1(2) of the Parent-Subsidiary Directive. The request for a preliminary ruling organises the circumstances around several questions.
35.      Taking those questions as a basis, I will explain, first of all, that there can also be abuse of the exemption from withholding tax exceptionally where the parent company which receives the dividends is the beneficial owner of the dividends but, by way of a non-genuine arrangement, passes on the dividends to the final beneficiary (meaning the natural person behind the group of companies) (first question, see A.). That can also be the case where the transaction to be characterised as a non-genuine arrangement takes place within a single Member State, provided there is an abusive overall plan aimed at the unlawful non-taxation of the final beneficiary (third and fourth questions, see B.).
36.      A mere correspondence of the amounts of the dividends distributed, like the occurrence of receipt and onward distribution at a close point in time, is neither an indication of, nor a condition for, such abuse (second and fifth questions, see C.). In so far as subjective circumstances must be taken into account in determining the ‘purpose’ of a tax arrangement, the main factor is the awareness of the person who makes the decision to implement the arrangement (sixth question, see D.).
A.      First question: abuse despite beneficial ownership
37.      By its first question, the Tax Disputes Commission wishes to know, in essence, whether there can also be abuse within the meaning of Article 1(2) of the Parent-Subsidiary Directive where the parent company which receives the dividends is the beneficial owner of the dividends but, by way of a non-genuine arrangement, passes on the dividends to the final beneficiary.
38.      Under Article 1(2) of the Parent-Subsidiary Directive, Member States must not grant the benefits of that directive to an arrangement which, having been put into place for the main purpose of obtaining a tax advantage that defeats the object or purpose of the directive, is not genuine.
39.      The legislature has thus adopted a principle which is also recognised in case-law: the application of EU legislation cannot be extended to cover transactions carried out for the purpose of wrongfully obtaining advantages provided for by EU law. (5)
40.      Accordingly, Article 1(2) of the Parent-Subsidiary Directive lays down two conditions under which exemption is refused: first, the arrangement must not be genuine;sSecond, its purpose must be to obtain a tax advantage that defeats the object of the directive. (6) Article 1(3) of the Parent-Subsidiary Directive governs the circumstances under which an arrangement is not genuine for the purposes of the first condition. Under that provision, an arrangement is not genuine to the extent that it was not put in place for ‘valid commercial reasons’ which reflect economic reality.
41.      The aim is taxation based on actual economic transactions, that is to say, tax treatment of the transaction in accordance with the purpose of the provisions.
42.      The factual preconditions for abuse under Article 1(2) of the Parent-Subsidiary Directive are therefore shaped decisively by the second condition, namely whether the purpose of the non-genuine arrangement is to obtain a tax advantage that defeats the object or purpose of the directive. That is the benchmark for the non-genuine arrangement. The anti-abuse rule in the Parent-Subsidiary Directive is not intended to prevent every conceivable, potentially non-genuine tax arrangement, but only those whose purpose is to obtain a tax advantage that defeats the object or purpose of the directive.
43.      The object and purpose of the Parent-Subsidiary Directive are thus crucial in clarifying that anti-abuse rule.
44.      In answering the first question, I will therefore begin by considering below the object and purpose of the Parent-Subsidiary Directive (see 1.). I will then explain that there is abuse of the exemption from withholding tax whenever its constituent elements are circumvented (see 2.). Conversely, non-taxation should, as a rule, be considered to be in accordance with the purpose of the provisions where the constituent elements are present (see 3. and 4.). Exceptionally, however, there can also be abuse in such cases (see 5.).
1.      Object and purpose of the Parent-Subsidiary Directive
45.      As is apparent from the recitals, the Parent-Subsidiary Directive seeks to facilitate the grouping together of companies at EU level by eliminating existing disadvantages of cross-border cooperation between companies in comparison with domestic cooperation between companies. (7) In essence, the Parent-Subsidiary Directive thus serves to promote cross-border economic activity and the internal market. (8)
46.      To that end, the directive seeks to ensure the neutrality, from the tax point of view, of the distribution of profits by a subsidiary established in one Member State to its parent company established in another Member State. (9) To that effect, the directive, first, requires the State of establishment of the parent company to grant relief from corporation tax for the profit distributions received (Article 4) and, second, prohibits the State of establishment of the subsidiary from levying withholding tax on the profit distributions made (Article 5).
47.      Accordingly, on the one hand, the Parent-Subsidiary Directive prevents corporation tax being levied twice on profits distributed by the subsidiary to a parent company, namely, first at the level of the subsidiary in its State of establishment and then at the level of the parent company in its State of establishment (Article 4).
48.      On the other hand, through the prohibition on withholding tax, the Parent-Subsidiary Directive prevents the State of establishment of the subsidiary taxing the distributed profits at the level of the parent company by means of withholding tax. The idea behind withholding tax is the interest of the State of establishment of the subsidiary in taxing profits generated within its territory and distributed to the parent company. (10) Article 5 of the Parent-Subsidiary Directive makes that interest secondary to the completion of the internal market.
49.      In the scheme of the Parent-Subsidiary Directive, corporation tax is therefore levied on the profits of a group of companies, in principle, only at the point where they are generated at the level of the subsidiary, and income tax is levied only on the ‘final’ distribution by the group’s parent company to its shareholder, in the form of a natural person, as his or her capital gains.
50.      The intended tax neutrality of distributions within a group of companies is therefore the
basis for the assumption that the State (or States) in which the ‘final’ distribution by the group’s parent company to its shareholder takes place will tax that distribution in the exercise of its fiscal autonomy. The Parent-Subsidiary Directive does not, however, prescribe whether and how that ‘final’ distribution of profits is taxed.
2.      Abuse through circumvention of the constituent elements
51.      On the basis of the rationale of an anti-abuse rule, which is to ensure taxation in accordance with the purpose of the provisions (see above, point 41), there is abuse of the Parent-Subsidiary Directive whenever its constituent elements are fulfilled only formally in order to obtain the tax advantage granted by the directive. (11)
52.      In such cases, a person who is not entitled under the directive obtains the benefits granted by the directive through a purely formal arrangement. (12) Taxation is not then in accordance with the purpose of the provisions, as it does not reflect the actual economic transactions.
53.      The primary point of reference for abuse is therefore the factual preconditions under the rule prescribing the intended legal consequence. For the exemption from withholding tax at issue in this case, Article 5 of the Parent-Subsidiary Directive requires a distribution of profits by a subsidiary to a parent company. (13) Accordingly, there is abuse where a subsidiary or a parent company is established or a distribution of profits is made only formally.
54.      Consequently, the Court found a non-genuine arrangement for the purposes of the Parent-Subsidiary Directive where a ‘conduit company’ is interposed between the company that pays dividends and the company in the group which is their beneficial owner. (14) Such a conduit company must be taken to exist, according to the Court’s case-law, in any event where the sole activity of the company in question is the receipt of dividends and their transmission to other legal entities. (15) The same would appear to hold where a company is unable to have economic use of the dividends received, for example because it is contractually obliged to pass them on to a third party. (16) From an economic perspective, that company is not therefore the actual recipient of the distribution (‘the beneficial owner’), but the person to whom the assets are ultimately passed on.
55.      However, the existence of such a conduit company is not a mandatory condition for a non-genuine arrangement. (17)
56.      It should be pointed out, by way of clarification, that in examining whether the constituent elements of the relevant exemption are present from an economic perspective, regard must, of course, be had to all relevant circumstances. (18) That includes circumstances occurring before or after the distribution of profits relevant to the factual preconditions, possibly in another Member State. Otherwise, it is not possible to determine whether a company is the beneficial owner of the dividends received or merely passes them on. The reference point for that examination is, however, the constituent elements of the exemption under the Parent-Subsidiary Directive.
3.      Presumption of taxation in accordance with the purpose of the provisions where the constituent elements are present
57.      Conversely, it can, as a rule, be inferred from the fact that the constituent elements are present from an economic perspective that there is no abuse within the meaning of Article 1(2) of the Parent-Subsidiary Directive.
58.      Such a presumption is required by legal certainty and the principle of protection of legitimate expectations. The taxable person has a legitimate expectation to take advantage of the arrangement possibilities granted to him or her by law and to organise his or her economic activity in such a way as to achieve the lowest possible tax burden for him or her. (19)
59.      Accordingly, with regard to the anti-abuse clause in the Merger Directive, (20) the Court has held that the benefits of that directive may be refused only ‘by way of exception and in specific cases’. (21) As a provision setting out an exception, it must be subject to strict interpretation, regard being had to its wording, purpose and context. (22) The same holds for Article 1(2) of the Parent-Subsidiary Directive. The purely tautological reference to the fact that it seeks to prevent abuse (23) cannot affect the need for it be applied cautiously.
4.      No abuse, as a rule, by a parent company which is the beneficial owner
60.      Consequently, in the case of a distribution of profits by a subsidiary to its parent company which is the beneficial owner of the dividends, there is not, as a rule, a non-genuine arrangement.
61.      In particular, it is not possible to infer any such non-genuine arrangement solely from the fact that the parent company which is the beneficial owner distributes its profits (which include the dividends received) onward. Article 5 of the Parent-Subsidiary Directive does not, for example, make exemption from withholding tax conditional on those profits not being distributed onward but, rather, seeks precisely to avoid multiple taxation of distributions within a group of companies.
62.      Transmission of dividends within a group of companies to the controlling parent company, which ultimately distributes its profits to one or more natural persons, is in fact consistent with a properly operating corporation. It is specifically the purpose of a corporation to generate profits and to distribute them to its shareholders.
63.      It is not possible to infer a different conclusion from the statements made by the Court in the T Danmark and Y Denmark cases, according to which the transmission of dividends to a non-entitled person is an indication of a non-genuine arrangement. (24) As is clear from the context in which those statements were made, the crucial factor for the Court in that case was whether a conduit company existed. (25) It considered the transmission of dividends (almost) in their entirety shortly after their receipt to be an indication of such a conduit company.
64.      However, if it is established, as in this case, that the parent company which receives the dividends is not a conduit company, the transmission of dividends cannot in itself constitute a non-genuine arrangement.
5.      Abuse despite beneficial ownership in the case of an abusive overall plan
65.      Nevertheless, even where the constituent elements of the exemption are present from an economic perspective, there may exceptionally be arrangements which frustrate taxation in accordance with the purpose of the provisions and must therefore be regarded as abusive.
66.      In that regard, the argument put forward by Neo, which is correct in principle but goes too far in its absoluteness, that there can never be abuse where the parent company is the beneficial owner of the dividends must be rejected.
67.      My considerations are is based on the wording of Article 1(2) of the Parent-Subsidiary Directive, according to which regard must be had to all relevant facts and circumstances in establishing abuse (see above, point 56) and an arrangement may also comprise more than one step or part. According to Article 1(3) of the Parent-Subsidiary Directive, an arrangement may also be not genuine only in part (‘to the extent that’).
68.      As is also clear from the wording of Article 1(2) of the Parent-Subsidiary Directive, however, one of the main purposes of the arrangement must be to obtain a tax advantage. There must therefore be a purposive connection between the arrangement and the tax advantage.
69.      Accordingly, while only certain steps or parts of an arrangement might not be genuine, (26) there must also be a purposive connection between the non-genuine part of the arrangement and the tax advantage in that regard.
70.      The relevant tax advantage is, in essence, that granted by the directive. In accordance with the general principle in EU law that abusive practices are prohibited, Article 1(2) of the Parent-Subsidiary Directive can only be concerned with transactions carried out for the purpose of wrongfully obtaining advantages provided for by EU law
not being protected (see above, point 39). (27)
71.      A non-genuine arrangement which occurs after or before the distribution by the subsidiary to the parent company which is relevant to the factual preconditions may give rise to a tax advantage under national law. However, it cannot – in isolation – give rise to a tax advantage granted by the directive under the factual preconditions.
72.      It is therefore a condition for an abuse that the distribution by the subsidiary to the parent company – the distribution to which the Parent-Subsidiary Directive links the grant of the tax advantage – is made in order to obtain a tax advantage contrary to the directive. In other words, there can be abuse of the Parent-Subsidiary Directive where the distribution by the subsidiary to the parent company – which, in isolation, reflects economic reality – is part of an abusive overall plan.
73.      Such an abusive overall plan can be considered to exist, for example, where the Parent-Subsidiary Directive is exploited to generate income for the final beneficiary (meaning the natural person behind the group of companies) which cannot be taxed in respect of him or her. That is the case, for example, where a subsidiary distributes dividends to its parent company which is the beneficial owner in order to conceal them by means of further transactions through ‘non-cooperative offshore jurisdictions’, (28) with the result that the State of residence of the final beneficiary does not receive any information about the ‘final’ distribution and is therefore unable to tax it. (29)
74.      Such an arrangement undermines the assumption underlying the Parent-Subsidiary Directive. As has already been stated, the Parent-Subsidiary Directive assumes that the State in which the ‘final’ distribution takes place can tax that distribution in the exercise of its fiscal autonomy (see above, point 50). If it is deprived of that possibility and taxation of the ‘final’ distribution, which is otherwise provided for, is frustrated, it would therefore be inappropriate to grant the tax advantage under the Parent-Subsidiary Directive.
6.      Interim conclusion
75.      In the light of all of the foregoing, I take the view that there can also be abuse within the meaning of Article 1(2) of the Parent-Subsidiary Directive exceptionally where the parent company which receives the dividends is the beneficial owner of the dividends but, by way of a non-genuine arrangement, passes on the dividends to the final beneficiary. That is the case, for example, where the Parent-Subsidiary Directive is exploited to generate income for the final beneficiary, which, in contravention of the law, cannot be taxed in respect of him or her.
B.      Third and fourth questions: abuse of national tax law
76.      By its third and fourth questions, the Tax Disputes Commission would like to know whether there can also be abuse of the Parent-Subsidiary Directive where, by way of a non-genuine arrangement in its State of establishment, the parent company passes on the dividends to the final beneficiary.
77.      As has already been stated, abuse under Article 1(2) of the Parent-Subsidiary Directive requires a purposive connection between the non-genuine arrangement and the tax advantage (see above, point 68 et seq.). A non-genuine arrangement within a Member State cannot therefore – in isolation – give rise to a tax advantage granted by the directive. It is necessary to establish an abusive overall plan and therefore to demonstrate that the distribution by the subsidiary to the parent company was made in order to obtain a tax advantage contrary to the directive.
78.      In my view, that is not normally the case with (alleged) abuse of tax law within a Member State (see 1.). Exceptionally, there may be such an abusive overall plan where the distribution by the subsidiary to the parent company is made for the purpose of evading taxes in the Member State of the final beneficiary (see 2.).
1.      No abuse of the Parent-Subsidiary Directive in the case of abuse of national tax law
79.      Abuse of the system of tax law of a Member State in connection with the distribution to the final beneficiary does not, as a rule, constitute abuse of the Parent-Subsidiary Directive.
80.      In such a case, it is for the Member State concerned to combat the abuse of its own tax law. There is no need for recourse to EU law. If a State combats the abuse of its tax law only moderately or not at all, that does not give rise to any subsidiary jurisdiction for other Member States in terms of either interpretation of foreign tax law or taxation, in this case refusal of exemptions granted by EU law.
81.      If, by contrast, Article 1(2) of the Parent-Subsidiary Directive is interpreted to the effect that a national tax authority may refuse tax advantages granted by the Parent-Subsidiary Directive on grounds of an alleged abuse in the system of tax law of another Member State, that entails significant economic risks for cross-border groups of companies. In that case, any Member State in the chain of transactions could refuse the envisaged tax advantages on grounds of alleged abuse in the Member State of the ‘final’ distribution. It must be assumed that Member States would utilise that possibility to generate tax revenue. The associated uncertainty would have a deterrent effect. That would counteract the promotion of the cross-border grouping together of companies intended by the directive and, in particular, the exercise of the freedom of establishment.
2.      No obligation to enable tax evasion
82.      However, the limit of an abusive overall plan appears to be exceeded where the distribution of profits by the subsidiary to its parent company which is the beneficial owner is clearly made for the purpose of evading taxes in the Member State of the final beneficiary.
83.      Like the example presented above of the exploitation of cross-border information gaps (see above, point 73), a characteristic of tax evasion is that the taxable person acts unlawfully through deceit in respect of facts which are relevant for tax purposes.
84.      It would not be reasonable to oblige Member States to refrain from levying withholding tax on profits generated in their territory even where the purpose of the chosen arrangement is to unlawfully avoid taxation in another Member State of the profits generated.
85.      It cannot be assumed that the Parent-Subsidiary Directive is intended to enable unlawful non-taxation of profit distributions and to exempt from withholding tax a distribution made for that purpose. Such a transaction does not constitute a legitimate exercise of cross-border economic activity with a view to the completion of the internal market (see above, point 45), but rather the exploitation of the opportunities created for that purpose in order to enable unlawful conduct. Therefore, the grant of the tax advantages provided for by the directive defeat the object and purpose of the directive.
3.      Guidance on the circumstances of the main proceedings
86.      It is for the referring Tax Disputes Commission to assess whether there is such an abusive overall plan having regard to all the circumstances of the case. For that to be so, the distribution by Neo to Retal Industries must have been made for the purpose of enabling tax evasion by PG in Cyprus.
87.      Subject to verification by the referring Tax Disputes Commission, the established facts do not appear to permit a finding of tax evasion.
88.      In the alternative, in the event that the Court were to consider an abusive overall plan to exist even where there is abuse of the tax law of another Member State, the following points should be noted.
89.      The national tax authority seems to assume that the payment from PPH to PG is a form of hidden profit distribution. It considers that, under the pretext of settling a liability, PPH actually distributed dividends to PG. The liability allegedly settled is the claim to the purchase price for the shares in Retal Industries which Clendon had assigned to PG. The national tax authority thus seems to assume that the liability was created only formally by transferring the shares in Retal Industries to PPH without ‘valid commercial reasons’ within the meaning of Article 1(2) of the Parent-Subsidiary Directive. It must be taken into account in that regard that there may be perfectly ‘valid commercial reasons’ for the transfer of the company from Clendon to PPH (and the associated transfer of the registered office from Belize to Cyprus). It cannot be ruled out that credit institutions and other business partners may refrain from entering into a business relationship or grant ‘worse’ contractual terms to a group’s parent company in offshore jurisdictions. (30) Distributions in such jurisdictions may also give rise to tax disadvantages.
90.      If that business decision is recognised, the fact that the shareholder PG financed the acquisition of the company also cannot give rise to a tax advantage. Otherwise, PPH would have been required to take out a loan from a credit institution to finance the acquisition of the company. If PPH had used the distributions by Retal Industries to repay that loan, no associated taxes would have accrued either, since repayment of a loan does not constitute taxable income, but only the return of the capital originally transferred.
C.      Second and fifth questions: transmission of dividends
91.      By the second question, the Tax Disputes Commission would like to know whether an onward distribution of dividends can be considered to exist in the case of a (substantive) correspondence of the amounts of the dividends transferred in a chain of transactions. By the fifth question, it would like to know additionally whether abuse requires the occurrence of receipt and onward distribution of the dividends at a close point in time.
92.      Both questions can be explained by the statements made by the Court in the T Danmark and Y Denmark cases, according to which it is an indication of abuse that (almost) all the dividends are, very soon after their receipt, passed on by the parent company to entities which do not fulfil the conditions for the application of Parent-Subsidiary Directive. (31)
93.      As has already been explained, the mere transmission of dividends does not in itself constitute a non-genuine arrangement (see point 61 et seq.). That holds irrespective of whether onward distributions by the parent company correspond to the amounts of the distributions by the subsidiary and at what point in time they occur.
94.      The fact of the receipt and distribution of dividends by the parent company occurring
close together in time is neither a sufficient nor a mandatory condition for establishing abuse.
D.      Sixth question: awareness of the subsidiary
95.      Lastly, the Tax Disputes Commission asks whether, for abuse in the case of a chain of transactions, it must be demonstrated that the subsidiary which distributes the dividends was aware or negligently unaware of the non-genuine arrangement.
96.      In my view, that is not the case. In the case of an arrangement comprising multiple parts, the material factor is not whether each individual actor in the chain of transactions is aware or negligently unaware. Article 1(2) of the Parent-Subsidiary Directive does require that the arrangement has the purpose of obtaining a tax advantage contrary to the directive. The purpose must be assessed objectively, but having regard to all the circumstances, including subjective elements such as awareness or even intent. In that regard, the awareness of the person who makes the decision to implement the arrangement would seem to be of primary importance. Otherwise, a ‘bad faith’ decision-maker could hide behind a ‘good-faith’ intermediary in order to exclude abuse.
97.      The decision on a distribution of dividends is made by the controlling shareholders and, accordingly, their awareness is the relevant factor. If, in a multi-tier group of companies, the final beneficiary is (indirectly) the sole shareholder of all the relevant companies, the relevant factor is whether that person was aware. In such a case, it is immaterial whether the subsidiary was or should have been aware of the existence of the chain of transactions.
V.      Conclusion
98.      I therefore propose that the Mokestinių ginčų komisija prie Lietuvos Respublikos Vyriausybės (Tax Disputes Commission under the Government of the Republic of Lithuania) be given the following answers:
1.      There can also be abuse within the meaning of Article 1(2) of the Parent-Subsidiary Directive exceptionally where the parent company which receives the dividends is the beneficial owner of the dividends but, by way of a non-genuine arrangement, passes on the dividends to the final beneficiary.
2.      Abuse of the national tax law of a Member State does not normally constitute abuse within the meaning of Article 1(2) of the Parent-Subsidiary Directive. If, however, the distribution of profits by the subsidiary to its parent company which is the beneficial owner is made for the purpose of evading taxes by the final beneficiary in his or her Member State, there may be abuse within the meaning of Article 1(2) of the Parent-Subsidiary Directive.
3.      The fact that a parent company which is the beneficial owner distributes an amount to its shareholders which is (almost) identical to the amount which it previously received from its subsidiary is no more a sufficient or a mandatory condition for establishing a non-genuine arrangement
than the fact of the receipt and distribution of dividends by the parent company occurring close together in time.
4.      In so far as subjective circumstances must be taken into account in determining the ‘purpose’ of a tax arrangement, the main factor is the awareness of the person who makes the decision to implement the arrangement. That is generally the controlling shareholders.
1      Original language: German.
2      Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 2011 L 345, p. 8).
3      Council Directive of 27 January 2015 amending Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 2015 L 21, p. 1).
4      With regard to my reservations as to whether the Tax Disputes Commission can (still) be regarded as a court or tribunal within the meaning of Article 267 TFEU, see my Opinions in ‘ARVI’ ir ko (C‑56/21, EU:C:2022:223, points 24 to 26) and in Žaidimų valiuta (C‑472/24, EU:C:2025:699, points 27 and 28).
5      Judgments of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 71); of 5 July 2007, Kofoed (C‑321/05, EU:C:2007:408, paragraph 38); and of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 69); see, with regard to the general concept of abuse in EU law, in essence, the judgment of 14 December 2000, Emsland-Stärke (C‑110/99, EU:C:2000:695, paragraphs 52 and 53).
6      See also judgment of 3 April 2025, Nordcurrent group (C‑228/24, EU:C:2025:239, paragraph 45).
7      Recital 6 of the Parent-Subsidiary Directive; see also Proposal for a Council Directive amending Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, COM(2013) 814 final, p. 7, according to which the ‘fundamental purpose … is to create a level playing field’. See judgment of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 112).
8      Recital 4 of the Parent-Subsidiary Directive.
9      Recitals 3 and 4 of the Parent-Subsidiary Directive. See judgments of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraphs 112 and 78), and of 8 March 2017, Wereldhave Belgium and Others (C‑448/15, EU:C:2017:180, paragraph 25).
10      The 2025 update to the OECD Model Tax Convention, for the elimination of double taxation with respect to taxes on income and on capital and the prevention of tax evasion and avoidance thus accords it, under Article 10(2), a possibility to levy a limited amount of tax.
11      See judgment of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 100).
12      See judgment of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 101).
13      Article 3(1)(a) lays down various criteria governing status as a parent company within the meaning of the Parent-Subsidiary Directive. In particular, the parent company must have a minimum holding of 10% in the capital of a company in another Member State.
14      Judgment of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 100).
15      Judgment of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 104).
16      See judgment of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 105).
17      Judgment of 3 April 2025, Nordcurrent group (C‑228/24, EU:C:2025:239, paragraph 28). Another conceivable scenario is, for example, where two companies which each hold ‘only’ 5% of the shares in a company in another Member State merge formally in order to reach the 10% threshold under Article 2(1)(a). That could be done, for instance, by concluding a trust agreement in which one company receives the shares of the other company, but is contractually obliged to pass on the pro rata dividends.
18      Article 1(2) of the Parent-Subsidiary Directive; judgments of 3 April 2025, Nordcurrent group (C‑228/24, EU:C:2025:239, paragraph 30), and of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 98).
19      With regard to the freedom to make more tax-efficient arrangements in VAT law, see judgments of 30 June 2022, ‘ARVI’ ir ko (C‑56/21, EU:C:2022:509, paragraph 39), and of 17 December 2015, WebMindLicenses (C‑419/14, EU:C:2015:832, paragraph 42).
20      Article 15 of Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States (OJ 2009 L 310, p. 34).
21      Judgments of 20 May 2010, Zwijnenburg (C‑352/08, EU:C:2010:282, paragraph 45), and of 5 July 2007, Kofoed (C‑321/05, EU:C:2007:408, paragraph 37).
22      Judgment of 20 May 2010, Zwijnenburg (C‑352/08, EU:C:2010:282, paragraph 46).
23      Judgment of 3 April 2025, Nordcurrent group (C‑228/24, EU:C:2025:239, paragraph 26).
24      Judgment of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 101).
25      Judgment of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraphs 100 to 104).
26      Recital 8 of Directive 2015/121; judgment of 3 April 2025, Nordcurrent group (C‑228/24, EU:C:2025:239, paragraphs 34 and 35).
27      As the Court correctly stated, the question whether there is such a tax advantage must also be answered taking account of all relevant facts and circumstances, that is to say, in the light of the overall tax effect. See judgment of 3 April 2025, Nordcurrent group (C‑228/24, EU:C:2025:239, paragraph 52).
28      See the EU list of non-cooperative jurisdictions for tax purposes, last updated by the Council conclusions of 17 February 2026, Council document No 5869/26.
29      See my Opinion in T Danmark (C‑116/16, EU:C:2018:144, point 75). The taxable person can refute the allegation of an abusive overall plan by supplying the relevant information; see ibid., point 76.
30      See also the Council conclusions of 25 May 2016 on the Commission Communication on an External Strategy for Effective Taxation, Council document No 9452/16, which originates from a close point in time, and the Council conclusions of 5 December 2017 on the list of non-cooperative jurisdictions for tax purposes, Council document No 15429/17, which included Belize (p. 15).
31      Judgment of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 101).