CFE Opinion Statement on the anti-abuse provision in the Parent Subsidiary Directive
Case C-228/24, Nordcurrent
The CJEU ruled that the anti-abuse provision is not confined to scenarios involving conduit companies but emphasised that a denial of the exemption requires both an objective element — the existence of a non-genuine arrangement — and a subjective element — the intention to obtain a tax advantage that defeats the object or purpose of the Directive. The Court’s judgment offers an important clarification: that all facts and circumstances — including changes over time — must be considered when assessing whether an arrangement is non-genuine.
The judgment makes clear that it is not sufficient to examine the situation only at the point when dividends are distributed; rather, the entire economic and functional history of the arrangement must be taken into account. Furthermore, the CJEU stated that the overall tax burden of the structure must be assessed holistically, rather than focusing only on the relief granted under the PSD.
In its analysis, the Court also opens the door to a proportional approach for application of the anti-abuse rule: if part of the profits are generated by genuine activity, then the participation exemption should also only be granted in part. Unlike an all-or-nothing approach, such a compartmentalisation approach is also implied by the wording of Art. 1(3) PSD (“to the extent that”) and the required proportionality under the preamble of the PSD.
The findings in this judgment will also be relevant for the interpretation of other anti-abuse provisions in EU tax law, in particular Art. 6 Anti-Tax Avoidance Directive, Art. 5(1) Interest and Royalties Directive and Art. 15(1) lit a Merger Directive. It might also have relevance for the interpretation of the discretion to counter abuse under Art. 1(4) PSD and Art. 5(2) Interest and Royalties Directive. It remains to be seen what impact the judgment will have on the interpretation of domestic anti-abuse provisions and on the interpretation of the principal purpose test in Art. 29(9) OECD Model Convention. However, here the courts will have to take the different legal context into account.
