CJEU Decides In Danish Cases Relating To Beneficial Ownership

On 26 February 2019, the Court of Justice of the European Union ("CJEU") issued its decisions in six cases which deal with the interpretation of the Parent-Subsidiary Directive ("PSD") and the Interest & Royalties Directive ("IRD", together the "Directives").

For the purposes of the judgments, the cases T Danmark (C-116/16) and Y Denmark Aps (C-117/16) regarding the interpretation of the PSD, and the cases N Luxembourg 1 (C-115/16), X Denmark A/S (C-118/16), C Danmark I (C-119/16) and Z Denmark ApS (C-299/16) regarding the interpretation of the IRD, have been joined.

Background

In the cases, the Danish companies were all owned by a parent company resident in another EU Member State (i.e. Luxembourg, Cyprus or Sweden). The EU parent companies were all directly or indirectly owned by companies resident in third countries or by private equity funds with unknown residency of the investors.

The Danish companies paid out either dividends or interest to their EU parent companies and claimed that such payments of dividend or interest should be exempt from withholding tax in accordance with the PSD or the IRD. Here, the Danish tax authorities claimed that the withholding tax exemptions following from the PSD and IRD should not be granted since the recipients (i.e. the EU parent companies) were not the beneficial owners of the payments. The cases were appealed to the Danish High Court which referred questions to the CJEU.

The referred questions in the dividend and interest cases are generally the same. The question on beneficial ownership was only asked in the interest cases, as it is a requirement in the IRD that the recipient of interest payments is the beneficial owner thereof, whereas this is not a requirement in the PSD.

Questions referred to the CJEU

The questions referred by the Danish Court to the CJEU mainly concern three topics:

(i) The first topic relates to the existence of a legal basis enabling a Member State to refuse to grant withholding tax exemptions on dividend and interest payments made to EU parent companies as provided in the PSD and the IRD. The question of the Danish Court further relates to the "beneficial ownership" concept in the IRD.

(ii) In so far as such legal basis exists, the second topic addressed by the questions of the Danish Court concerns the constituent elements of any abuse of rights and the conditions for proving it.

(iii) The third topic of the questions, likewise in the event that it is possible for a Member...