Source: https://www.lexology.com/library/detail.aspx?g=0a09b1c8-899e-405c-98cf-b264059818e4
Timestamp: 2019-04-20 22:51:42+00:00

Document:
On February 26, 2019 the Court of Justice of the European Union (CJEU) issued the long-awaited judgments on the cases concerning the Danish government withholding tax on dividends and interest paid by Danish companies to companies in other EU Member States. More specifically, the cases dealt with the interpretation of the anti-abuse clauses laid down under Art. 1, para. 2 of the Parent-Subsidiary Directive (2011/96/EU, PSD) and Art. 5 of the Interest and Royalties Directive (2003/49/EC, IRD).
An in-depth analysis of the judgments will be published in the coming weeks, setting out the implications of the CJEU judgments in a number of EU jurisdictions. This case-based note will be published from the perspective of all main European jurisdictions.
We are dealing with groundbreaking judgments and some time is required to outline all their implications and to consolidate the interpretation of all the principles affirmed therein. As of today, it is only possible to provide some initial commentary.
The CJEU judgments largely support the arguments of the tax authorities, whereas the Opinion of the Advocate General Kokott delivered on March 1, 2018 was in favor of taxpayers; On one hand the CJEU attributes no relevance to the beneficial ownership clause in the context of the PSD, whilst on the other the CJEU makes reference to the requisite of beneficial owner in the context of the indications of existence of abusive practices, without clarifying the relevant concept and scope. Furthermore, where a non-EU beneficial owner is involved, it seems that the application of the beneficial owner concept prevents any relevance of the general anti-abuse principle affirmed at EU level, thus almost looking as a prerequisite.
It is our understanding that where a holding company has not a merely passive role and is involved in comprehensive activities aimed at the coordination and support of subsidiaries, at the management of the relationships among unrelated shareholders or investment protection the mere fact that the dividends it receives are passed on to other entities in a short timeframe should not result in the qualification as an abusive practice based on the overall assessment of the holding company’s role within the group. In this sense, it cannot be ignored that one of the natural purposes of a company – including a holding company – is the distribution of dividends to its shareholders.
A careful and balanced interpretation of all the principles affirmed in the judgments will be required by both taxpayers and tax authorities in order not to contradict the purposes of the PSD and IRD. In particular, the goal of the PSD to eliminate double taxation should be considered. A withholding tax on dividends must be very carefully considered as it ultimately frustrates the objective of eliminating double taxation, whilst a withholding tax on interest or royalties may not result in an additional charge, as the Member State where the recipient is resident would generally eliminate double taxation through exemption or, more commonly, credit method.

References: Art. 1
 Art. 5
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