The Interplay between Beneficial Ownership and Abuse in the Danish Cases on Dividends

Written by Antonio Barba de Alba and Diego Arribas.

Groundbreaking decision, landmark case, a milestone in EU case law, disappointing surprise: there are different ways to refer to the European Court of Justice (ECJ) judgments issued on February 26, 2019, on the withholding tax exemption provided by the Interest and Royalties Directive (joined cases C-115/16, C-118/16, C-119/16 and C-299/16, available here – the ‘IRD judgment’) and the Parent-Subsidiary Directive (joined cases C-116/16 and C-117/16 available here – ‘the PSD judgment’). However, one thing is certain: these decisions have caused upheaval in the international tax arena.

Although these cases affect EU law, it would be a mistake to confine their implications to the EU: in the majority of the cases, mainly non-EU investors will suffer indirectly the effects of these judgments, as their business structure incorporated in the EU could be denied application of the withholding exemptions.

We do not aim to analyze these judgments comprehensively. We only aim to contribute to the early stages of the debate by analyzing the ECJ’s reasoning in the cases concerning the withholding exemption for dividends in the PSD judgment, referring also to example K of the Commentaries on article 29 of the OECD Model Convention. The purpose is to review the interplay between beneficial ownership and abuse, the main concepts the ECJ addressed, as applied to dividends, and to share some disappointing aspects of the judgment.

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