Luxembourg: CJEU Decides In Danish Cases Relating To Beneficial Ownership

Last Updated: 12 March 2019
Article by Oliver R. Hoor

 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.


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 State to deny the benefits of the PSD and the IRD to an EU parent company, concerns the interpretation of the provisions of the Treaty on the Functioning of the European Union ("FEU Treaty") relating to the freedom of establishment and the free movement of capital, in order to enable the referring court to establish whether the Danish legislation infringes those freedoms.

Is there a need for domestic or agreement-based anti-abuse provisions?

Until the adoption of Law No. 540 of 29 April 2015, Danish tax law did not provide for any anti-abuse legislation. Therefore, the question has been raised by the Danish Court whether, absent a specific domestic or agreement-based anti-abuse provision, it was possible to deny the withholding tax exemptions provided in the PSD and IRD.

In this regard, the CJEU states the general principle of EU Law that 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.

Thus, where there is a fraudulent or abusive practice, the national authorities and courts should refuse a taxpayer the withholding tax exemptions provided under the PSD and the IRD even if there are no domestic or agreement-based provisions provided for such a refusal. In addition, the withholding tax exemption on interest payments provided in the IRD is restricted to the beneficial owners of such interest.

The answer to this question is important to the Danish cases that go back as far as 2005 when the Danish tax law did not provide for any general anti-abuse rule. It is not surprising that the CJEU held that EU Law cannot be relied on for abusive or fraudulent ends and benefits may be denied absent specific anti-abuse provisions.

However, this clarification has only a very limited impact for other cases since as of today all EU Member States have implemented a general anti-abuse rule, at the latest since 1 January 2019 when the Anti-Tax Avoidance Directive ("ATAD") had to be implemented.

How to prove the existence of an abusive practice?

With regard to the question as to how to prove an abusive practice, the CJEU states two requirements:

  • First, a combination of objective circumstances in which, despite formal observance of the conditions laid down by the EU rules, the purpose of those 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.

According to the CJEU, the examination of a set of facts is needed to establish whether the constituent elements of an abusive practice are present and, in particular, whether economic operators have carried out purely formal or artificial transactions devoid of any economic or commercial justification, with the essential aim of benefiting from an improper advantage.

A group of companies may be regarded as being an artificial arrangement where it is not set up for reasons that reflect economic reality, its structure is purely one of form and its principal objective or one of its principal objectives is to obtain a tax advantage running counter to the aim or purpose of applicable tax law.

The presence of a certain number of indications may demonstrate that there is an abuse of rights, in so far as those indications are objective and consistent. Such indications can include, in particular, the existence of conduit companies which are without economic justification and the purely formal nature of the structure of the group of companies, the financial arrangements and the loans.

Can a SICAR benefit from the IRD?

In its decision, the CJEU also clarified that a SICAR established in corporate form (S.A., S.C.A., S.à r.l.) may not benefit from the withholding tax exemption on interest provided under the IRD since a SICAR benefits from a tax exemption on all its income (including interest) from investments in risk capital.

Do the fundamental freedoms protect fraud or abuse?

The CJEU further states the obvious that when a withholding tax exemption provided under the PSD or IRD is not applicable because there is found to be fraud or abuse, the application of the freedoms enshrined in the FEU Treaty (freedom of establishment, free movement of capital) cannot be relied on in order to call into question the legislation of the Member State governing the taxation of the dividend or interest payments.


In the present judgements, the CJEU had to answer to questions raised by the Danish Court in relation to six cases where the Danish tax authorities refused to apply the withholding tax exemption as provided in the PSD and IRD.

While it was not for the CJEU to assess the facts in the cases, the Court specified indicia of abusive or fraudulent acts and when an EU parent company may not be the beneficial owner of interest income with a view to guide the national court in the assessment of the cases. In contrast, the advocate general Kokott analysed in her opinion rather in which cases anti-abuse legislation should not apply and when EU parent companies should be considered as beneficial owner. The approach taken by the CJEU in its decisions, describing situations where abuse might be present rather than detailing when the benefits of the PSD and the IRD should be granted, somehow creates the perception of a broad interpretation of abuse and fraudulent acts. In addition, some of the criteria mentioned by the CJEU seem to lower the threshold of abuse when compared to previous decisions (e.g. dividends are very soon after their receipt passed on by the EU parent company to entities which do not fulfil the conditions of the PSD) which is not helpful when it comes to legal certainty.

However, it can be assumed that the CJEU examined the very same elements in previous cases when analysing the existence of abusive or fraudulent acts and the compatibility of anti-abuse legislation in an EU context. In several judgements in 2017 and 2018, the CJEU reiterated its "wholly artificial arrangement" doctrine that the court systematically followed since the Cadbury Schweppes case in 2006 (see the cases Eqiom SAS (C-6/16), Deister Holding AG (Case C-504/16), Juhler Holding A/S (Case C-613/16), GS v. Bundeszentralamt für Steuern (Case C-440/17). Thus, national anti-abuse legislation must be targeted to prevent conduct involving the creation of "wholly artificial arrangements" which do not reflect economic reality and the purpose of which is to unduly obtain a tax advantage.

It is now for the Danish courts to finally decide the cases in accordance with the guidance provided by the CJEU and the court's previous case law. It might still take years until these cases will be finally solved given that appeals might be filed with the Danish Supreme Court. Unfortunately, the present case law of the CJEU did not contribute much to legal certainty in times that are characterized by chronic legal uncertainty.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions