CJEU Clarifies Abuse And Beneficial Ownership Concepts Under The Parent Subsidiary And Interest/Royalty Directive

On 26 February 2019 the Grand Chamber of the Court of Justice of the European Union ("CJEU") rendered 2 judgments regarding the non-application of the Parent Subsidiary Directive (Council Directive 90/435/EEC - "PSD") and the Interest and Royalties Directive (Council Directive 2003/49/EC - "IRD") in case of fraud or abuse, even in the absence of any domestic anti-abuse legislation

In this context, the judgements provide useful guidance on the concepts of abuse and beneficial ownership.

Abuse concept

According to the CJEU, it is settled case-law that there is, in EU law, a general legal principle that EU law cannot be relied on for abusive or fraudulent ends. Accordingly, a taxpayer cannot enjoy a right or advantage arising from EU law where the transaction at issue is purely artificial economically and is designed to circumvent the application of the legislation of the Member State concerned. The proof of an abusive practice requires, first, a combination of objective circumstances in which, despite formal observance of the conditions laid down by the EU rules, the purpose of such rules has not been achieved and, second, a subjective element consisting in the intention to obtain an advantage from the EU rules by artificially creating the conditions laid down for obtaining it.

Beneficial owner concept

The CJEU pointed out that the concept of "beneficial owner of the interest" in the IRD cannot refer to concepts of national law that vary in scope. The concept must be interpreted as designating an entity which actually...