In its recent judgement in the Nordcurrent Group case (C-228/24), the CJEU has ruled that application of domestic participation exemption regimes can be denied on the basis of the General Anti-Abuse Rule of the Parent Subsidiary Directive (PSD).
Takeaways
- The judgement could have effect on the applicability of domestic participation exemption regimes, like the Netherlands.
- Once again, the CJEU ruled that for an arrangement to qualify as abusive, this requires an assessment of all facts and circumstances.
- With the judgement, it has become clear that EU tax abuse has a broader scope than solely conduit companies.
- Given the potential high financial impact of the loss of the Dutch participation exemption regime, we strongly recommend to review existing holding structures and consider the potential impact.
Case
A Lithuanian company (Nordcurrent UAB) received dividends from its UK subsidiary in 2018 and 2019. The local tax authorities in Lithuania refused application of the participation exemption based on the position that there was an abusive situation, as the UK subsidiary qualified as an artificial arrangement, due to lack of substance. Nordcurrent UAB appealed to this position with the Lithuanian court and the case has led to questions from the Lithuanian court towards the CJEU on how to interpret anti-abuse rules in relation to the Parent-Subsidiary Directive.
The answers from the CJEU to these question provide some new insights and some confirmations, as it ruled that:
(i) The benefits of a domestic participation exemption can be denied if all of the elements of an abusive situation are met.
(ii) All facts and circumstances should be taken into regard when assessing whether an arrangement can be qualifies as abusive, not only the facts and circumstances at the date of the distribution
(iii) For an artificial arrangement to be considered, both a non-genuine arrangement (objective test) AND a tax advantage (subjective test) are required.
Contact
If you have any questions about how these changes may affect your business, consulting with a tax professional is highly recommended. Please contact Karel Pellemans or Evert-Jan Spoelder if you would like to receive further information.