Anti-Treaty Shopping rules breach EU law

31 January 2018
Author: JHA

C-504/16 and C-613/16 Deister Holding and Juhler Holding

The cases concerned the German Anti-Treaty shopping provision. Both cases concern non-resident holding companies receiving dividends from a German subsidiary and in both cases the holding company received a profit distribution from the German subsidiary, on which dividend WHT was levied. The companies sought a refund of the tax withheld. The German tax authorities denied the request on the basis of the German Anti-Treaty Shopping rules. The holding companies challenged the assessments.

The CJEU firstly concluded that both cases fall within the scope of the Parent-Subsidiary Directive (PSD), which in principle prohibits the levying of WHTs on profit distributions paid to foreign parent companies. According to Article 1(2) of the PSD, Member States are only allowed to deviate from that rule to prevent tax evasion and abuse. The Court stated that only provisions whose specific objective is to prevent artificial structures deviating from economic reality and targeting unjustified tax advantages fall within the scope of the exception in the Directive. The Court concluded that the German rules in question, which generally exclude a special group of taxpayers from the application of the PSD, create a general and irrefutable presumption of abuse and therefore go beyond what is necessary to prevent tax evasion and abuse. In this respect, the Court emphasized that a group’s special shareholding structure does not in itself indicate the existence
of a wholly artificial arrangement. Consequently, the Court ruled that the disputed German provisions are not in line with the PSD.

The CJEU further observed that it is only where a resident subsidiary distributes profits to a non-resident parent company that the WHT exemption is subject to certain conditions and concluded that this difference in treatment is liable to deter a non-resident parent company from exercising an economic activity in Germany and therefore constitutes a restriction to the freedom of establishment, which cannot be justified. 

This article appears in the JHA January 2018 Tax Newsletter, which also features:

  1. Brexit Negotiation Directives on the EU-UK Transition Period
  2. AG Opinion in Bevola case C-650/16 – Marks & Spencer applied to cross border definitive losses
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