The Contents of Highlights & Insights on European Taxation

Highlights & Insights on European Taxation

Please find below a selection of articles published this month (July 2025) in Highlights & Insights on European Taxation, plus one freely accessible article.

Highlights & Insights on European Taxation (H&I) is a publication by Wolters Kluwer Nederland BV.

The journal offers extensive information on all recent developments in European Taxation in the area of direct taxation and state aid, VAT, customs and excises, and environmental taxes.

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Year 2025, no. 7      

TABLE OF CONTENTS 

DIRECT TAXATION, LEGISLATION

– Tax incentives to support the Clean Industrial Deal. Recommendation European Commission

(comments by the Editorial Board) (H&I 2025/209)

DIRECT TAXATION, CASE LAW

– Nordcurrent group (C-228/24). Scope of antiabuse measure in the Parent Subsidiary Directive. Court of Justice

(comments by Claudio Cipollini) (H&I 2025/231)

INDIRECT TAXATION, CASE LAW

– L (Petits envois non commerciaux) (C-405/24). VAT exemption for small non-commercial consignments from third country private persons. Court of Justice

(comments by Madeleine Merkx) (H&I 2025/212)

 CUSTOMS AND EXCISE

– Gotek (T-534/24). EU law precludes Croatian legislation on excise duty. General Court

(comments by Giorgio Emanuele Degani) (H&I 2025/235)

– Hera Comm (C-645/23). Tax additional to excise duty on electricity. Specific purpose. Court of Justice

(comments by Giorgio Emanuele Degani) (H&I 2025/234)

– Celni jednatelstvi Zelinka (C-330/24). Reinstatement after repayment or remission in error also in case of an incorrect tariff classification. Court of Justice

(comments by Piet Jan de Jonge) (H&I 2025/233)

– European Commission modernises Tobacco Taxation Directive. New minimum taxes on e-cigarettes

(comments by Piet Jan de Jonge) (H&I 2025/232)

MUTUAL AID

– Implementing Regulation to Facilitate Automatic Exchange of Tax Information under DAC9

(comments by the Editorial Board) (H&I 2025/203)

MISCELLANEOUS

– Proposal for a Council Decision on the system of own resources 2028-2034

(comments by the Editorial board) (H&I 2025/228)

– Modernisation of EU-Switzerland relations. Questions and Answers

(comments by Edwin Thomas) (H&I 2025/211)

– Modernisation of EU-Switzerland relations. European Commission

(comments by Edwin Thomas) (H&I 2025/210)

ECHR

– Jewish Community of Thessaloniki v. Greece (13959/20). Lawfulness of deprivation. ECHR

(comments by Edwin Thomas) (H&I 2025/202)

– Radobuljac v Croatia (38785/18). Lawful refusal to extinguish the applicant’s tax debt by offsetting it with his enforceable claims. ECHR

(comments by Edwin Thomas) (H&I 2025/198)

FREE ARTICLE

– Nordcurrent group (C-228/24). Scope of antiabuse measure in the Parent Subsidiary Directive. Court of Justice

(comments by Claudio Cipollini) (H&I 2025/231)

Introduction

The Nordcurrent case (C-228/24) represents a significant step forward in interpreting the general anti-abuse rule under Council Directive 2011/96/EU of 30 November 2011 (hereinafter: the Parent-Subsidiary Directive) as amended by Council Directive (EU) 2015/121 of 27 January 2015.

The judgment enhances the definition of abuse while establishing clear criteria for tax authorities to identify non-genuine arrangements. In particular, it provides clarity about how tax authorities should assess the genuineness of EU-based group entities and eventually, deny certain tax benefits.

This case note examines the Court of Justice of the European Union’s (CJ) reasoning in Nordcurrent before analysing its implications for Article 1(2) and (3) of the Parent-Subsidiary Directive and assessing its consistency with previous judicial decisions and tax law doctrine.

Factual Background

The case presents a dispute between Nordcurrent, a Lithuanian electronic game developer and distributor, and the Lithuanian tax authorities about the application of the dividend exemption under Article 4 of the Parent-Subsidiary Directive. At the core of the dispute is the classification of Nordcurrent’s UK-based subsidiary as a ‘non-genuine arrangement’ for the general anti-abuse provision under the Parent-Subsidiary Directive.

Following a tax audit conducted in 2023, the Lithuanian tax authorities concluded that Nordcurrent had unduly benefited from the dividend exemption in relation to distributions received from its subsidiary during 2018 and 2019. The tax authorities argued that the subsidiary lacks the necessary economic substance and has not been established for valid commercial reasons. This assessment is based on several factors: the subsidiary has minimal physical and human resources, operates from a shared address used by numerous other entities, and employs only a single director who concurrently manages several other companies. Moreover, the Lithuanian tax authorities concluded that the operational activities carried out by the subsidiary – namely the distribution of games and management of advertising – have, in reality, been performed by Nordcurrent’s staff, who maintain access to the digital platforms and infrastructure through which these activities are executed.

Nordcurrent challenged the tax authority’s decision before the Mokestinių ginčų komisija (Tax Disputes Commission) under the Lithuanian government. In its defence, the company emphasised that the subsidiary was incorporated in 2009, in response to commercial constraints, specifically, the need to interface with advertising and distribution platforms which, at the time, did not contract directly with Lithuanian entities. According to Nordcurrent, the subsidiary has historically played a legitimate intermediary role, which diminished over time as the parent company secured direct access to those platforms and restructured its operations. From 2018 onward, Nordcurrent assumed all creative and financial risks associated with the development and marketing of its games, while the subsidiary continued to operate only in a limited distribution capacity before being wound up entirely in 2021.

Faced with these competing narratives, the Tax Disputes Commission found itself uncertain as to the proper interpretation of Article 1(2) and (3) of the Parent-Subsidiary Directive. Of particular concern was whether the anti-abuse rule can be invoked in a situation where the subsidiary, although limited in substance, has received the income in its own name and is not acting as a conduit entity. In light of this uncertainty, the national court decided to stay proceedings and refer three questions to the CJ for a preliminary ruling, seeking guidance on the interpretation and application of the Parent-Subsidiary Directive’s anti-abuse provisions in cross-border structures involving low-substance entities.

Anti-Abuse Rule Beyond Conduit Company Scenarios

The first question referred by the Lithuanian court focuses on a fundamental issue in the interpretation of the anti-abuse rule under Article 1(2) and (3) of the Parent-Subsidiary Directive. At the core of the question is whether the related provisions prevent national tax authorities from denying a parent company the exemption from corporation tax on dividends received from a subsidiary company based in another EU Member State. This denial would be based on the argument that the subsidiary company constitutes a non-genuine arrangement.

Significantly, the case assumes that the subsidiary is not merely a pass-through or conduit entity; rather, the dividends at issue derive from business activities carried out in the subsidiary’s own name. This question involves the delicate balance between preventing tax abuse and respecting the economic substance of genuine commercial activities in the context of the internal market.

The CJ’s analysis starts with an overview of the legal framework concerning the taxation of dividends within groups of companies in the EU. Article 4(1) of the Parent-Subsidiary Directive provides that the Member State of the parent company either exempts dividends received from subsidiaries from corporation tax or allows a corresponding tax credit to prevent double taxation. Lithuania, being the Member State involved in this dispute, adopts the exemption method. However, the entitlement to the exemption is not absolute, as it is explicitly limited by the anti-abuse clause in Article 1(2) and (3) of the Parent-Subsidiary Directive, which denies benefits to arrangements without valid commercial reasons and primarily aimed at obtaining a tax advantage, defeating the Parent-Subsidiary Directive’s objectives.

While interpreting this provision, the Court underlined the need to consider the wording, recitals, and objectives of the Parent-Subsidiary Directive. The anti-abuse rule is designed in broad terms, focusing on the genuine substance of the arrangement ‘having regard to all relevant facts and circumstances.’ This factual approach allows Member States to determine whether a subsidiary’s activity and operations reflect economic reality rather than serving as an artificial arrangement essentially aimed at gaining fiscal benefits. The CJ also highlighted the cross-cutting nature of the anti-abuse provision, which is designed to harmonise the implementation of the Parent-Subsidiary Directive’s objectives and avoid diverse national practices with potential misuse.

The CJ further elucidated its position by making reference to its prior case law. In the landmark judgment T Danmark and Y Denmark (CJ 26 February 2019, joined cases C-116/16 and C-117/16, Skatteministeriet v T Danmark (C-116/16), Y Denmark Aps (C-117/16), ECLI:EU:C:2019:135, paragraphs 100-104), the CJ recognised that the concept of artificial arrangement may cover conduit entities whose main purpose is to channel income and avoid taxation. Yet, it rejected any restrictive interpretation limiting the anti-abuse rule exclusively to such conduit entity. The use of ‘inter alia’ in the judgment underscores that the presence of a conduit company is merely one example among various potential abusive situations.

Furthermore, the CJ recalled that entities commonly identified as ‘letterbox’ or ‘front’ subsidiaries – with no substantial economic activities but mainly used for tax advantages – may also fall within the scope of the general anti-abuse provision (see CJ 12 September 2006, C-196/04 Cadbury Schweppes and Cadbury Schweppes Overseas, ECLI:EU:C:2006:544, paragraph 68; see also CJ 2 May 2006, C-341/04 Eurofood, ECLI:EU:C:2006:281, paragraphs 34 and 35). This confirms the principle that the substance of the company’s economic activity, rather than its mere formal existence, is decisive. Therefore, the assessment of abuse must be comprehensive and contextual.

Therefore, according to the CJ, the anti-abuse provision does not preclude national tax authorities from denying tax exemption on dividends where a subsidiary is considered as a non-genuine arrangement, even if it cannot be qualified as a conduit company and has carried out some activities in its own name. The key point is that the fundamental elements of abusive practice, namely the absence of valid commercial reasons and the pursuit of tax advantage defeating the Parent-Subsidiary Directive’s objectives, are established on the ground of a thorough assessment of the facts, which is not limited to the mere identification of a conduit company.

This interpretation gives Member States a broader discretion in combating tax avoidance schemes that negatively affect the Parent-Subsidiary Directive’s objectives, while simultaneously preserving genuine cross-border economic activities within the EU. The judgment thus clarifies that the anti-abuse provision targets the substance over form and underlines the importance of economic reality and substance in determining the application of the exemption provided under the Parent-Subsidiary Directive.

The Temporal Boundaries of Anti-Abuse Assessment

The second question referred by the national court deals with the temporal scope of the anti-abuse provision under Article 1(2) and (3) of the Parent-Subsidiary Directive, specifically whether it precludes national tax authorities from limiting their assessment of a subsidiary’s non-genuine character exclusively to the facts existing at the time of the dividend payment. The referring court asked whether, as long as a subsidiary established in another Member State has initially been set up for valid commercial reasons and conducts genuine business activity before the dividend payment, the tax authorities can nonetheless qualify the subsidiary as a non-genuine arrangement by focusing exclusively on the subsidiary’s factual situation at the date of the dividend payment.

The CJ pointed out that, while the wording of the anti-abuse provision focuses on the initial ‘putting into place’ of an arrangement, it explicitly recognises that an arrangement often consists of several steps or parts. This interpretation finds support in recital 8 of Council Directive (EU) 2015/121 of 27 January 2015 amending Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, OJ L 21, 28.1.2015 (hereinafter: Council Directive (EU) 2015/121), according to which the single steps in the context of an arrangement, although individually considered, might lack substance and genuineness, thus falling within the scope of the anti-abuse clause.

Furthermore, the CJ underlined that an arrangement originally put in place for valid commercial reasons reflecting economic reality may cease to be genuine at a later stage, particularly if the factual circumstances change during the life of the same arrangement. This means that national tax authorities are required to take into consideration post-formation developments when determining the genuine substance of a step of a broader arrangement, such as a dividend payment. However, the CJ also recognised the need to balance this broader temporal perspective with fairness by not disregarding the situation existing at the initial stage of an arrangement or before putting in place the relevant step under evaluation. Consequently, while later circumstances may impact the assessment of abuse, the initial commercial rationale and activities are always relevant for that evaluation.

The Court further highlights recital 7 of Council Directive 2015/121, which provides that tax authorities carry out an objective and comprehensive analysis of all relevant facts and circumstances to determine the genuineness of an arrangement or series of arrangements. This requirement is confirmed in Article 1(2) of the Parent-Subsidiary Directive, under which the benefits of the directive should not be granted to arrangements lacking economic substance when assessed in their entirety.

Based on these principles, the CJ concluded that, in multi-step arrangements, all relevant facts and circumstances must be considered to determine whether a particular step is non-genuine. The exclusive focus on the situation of the subsidiary at the date of the dividend payment is not sufficient and, therefore, incompatible with the scope of the anti-abuse provision. While national tax authorities may focus their analysis on the situation existing at the payment date, that moment alone cannot justify the qualification of a subsidiary as a non-genuine arrangement if its establishment and genuine activity before that moment are unchallenged. Therefore, the anti-abuse provision at issue does not allow any national practice that limits the assessment to the dividend payment date without extending the assessment to the subsidiary’s broader commercial situation, including its historical track record.

No Abuse Without Benefit: Tax Advantage as an Autonomous Element of Abuse

The third question referred by the national court concerned whether the mere qualification of a subsidiary as a non-genuine arrangement under Article 1(2) and (3) of the Parent-Subsidiary Directive is sufficient to conclude that the parent company, by receiving exempted dividends, has obtained a tax advantage defeating the object and purpose of the directive.

According to the CJ, two cumulative conditions must be fulfilled to deny the benefits of the directive: first, the existence of a non-genuine arrangement as defined under Article 1(3) of the Parent-Subsidiary Directive; and second, the main purpose or one of the main purposes of such arrangement must be the acquisition of a tax advantage that defeats the directive’s objectives. Therefore, the finding that an arrangement lacks valid commercial reasons or economic substance is not sufficient to conclude for the existence of abuse. Rather, this first condition must be coupled with the second condition, namely the evidence of intent to obtain a tax advantage, in line with the previous Court’s case law on abuse of rights (see CJ 29 February 2019, C-116/16 and C-117/16 T Danmark and Y Denmark, ECLI:EU:C:2019:135, paragraph 114). The Court rejected a rigid approach whereby the classification of a subsidiary as a non-genuine arrangement automatically results in denial of the dividend exemption for the parent company, underlying the need for a broader assessment (for further analysis, see Terra/Wattel European Tax Law – Volume 1: General Topics and Direct Taxation, 8th ed. Alphen aan den Rijn: Wolters Kluwer, pp. 179-187). This interpretative approach preserves the proportionality and effectiveness of the anti-abuse clause by requiring a comprehensive examination of all relevant facts and circumstances, including those related to the arrangement’s formation and its economic motivation.

In this context, the concept of ‘tax advantage’ is particularly significant and should be understood in a broader fiscal context. In particular, the CJ provided arguments that the relevant tax advantage should not be limited to the mere exemption but extend to the overall position of the taxpayer and the related tax outcome, including any potential tax savings generated from disparities in corporate tax rates between all the Member States involved.

Based on these findings, the CJ held that the classification of a subsidiary as a non-genuine arrangement, using objective criteria such as lack of human resources and real economic activity, does not in itself determine that the parent company has obtained a tax advantage, which defeats the directive’s objectives. Rather, a comprehensive analysis is required to determine whether the main purpose or one of the main purposes of the arrangement is to obtain such a tax advantage, taking into consideration all the relevant facts, circumstances, and the wider fiscal impact on the taxpayer. This position suggests the need for a comprehensive approach based on factual evidence in applying anti-abuse rules to cross-border dividend exemption, ensuring both the achievement of the directive’s objectives and the protection of legitimate arrangements with economic substance.

Conclusion

The Nordcurrent judgment involves a pivotal development in the interpretation of the general anti-abuse rule under the Parent-Subsidiary Directive. By clarifying the conditions under which Member States may deny the related tax benefits due to abusive arrangements, the CJ further strengthens its consistent position favouring a substance-over-form approach. The findings on the three questions referred by the national court contribute to making one more step in structuring the doctrine on abuse in the tax law field. The CJ offers a well-defined methodology to investigate on the existence of abuse by framing it in two separate tests, each one characterized by a certain level of autonomy: the first objective test aimed at identifying a non-genuine arrangement lacking valid economic reasons, the second, which is subjective, focusing on determining whether the main purpose or one of the main purpose of the arrangement is to obtain a tax advantage which defeats the objectives of the Parent-Subsidiary Directive. This way, the judgment offers a fundamental tool for practitioners and defines a clear method to assess the factual circumstances of the case. Furthermore, it preserves the integrity of the objectives of the Parent-Subsidiary Directive while maintaining its essential role in preventing double taxation and facilitating free movement across the EU.

Notably, the CJ underlined that the mere existence of an intermediary company or conduit cannot constitute a requirement for applying the anti-abuse clause. Rather, the key factor is to determine whether the structure as a whole involves genuine economic substance and valid commercial reasons. The focus on substance-over-form preserves legitimate business activities while focusing on artificial arrangements which are created mainly to obtain tax advantages not in line with the Parent-Subsidiary Directive’s objective.

The Nordcurrent case also highlights the importance of a comprehensive and dynamic assessment of abuse that goes beyond the moment of dividend distribution. Tax authorities must evaluate the entire factual and temporal context covering the relationship between the parent company and its subsidiary, considering the track record and economic substance of the entities involved.

However, this overall approach also involves significant difficulties for tax authorities in providing evidence of abuse. The comprehensive assessment required by the CJ requires a detailed and often complex investigation into the facts of the case, covering the companies’ history, purpose, economic activities, and the taxpayer’s objective. Presenting such multifaceted evidence implies significant challenges, especially where the relevant information is spread across different countries or hidden by complex corporate structures.

Besides, the dual requirement established by the CJ – that an arrangement must be non-genuine lacking valid economic substance (first condition) and have the main purpose (or one of the main purposes) of obtaining a tax advantage defeating the Parent-Subsidiary Directive’s objectives (second condition) –increases the burden of proof on the tax authorities’ side. Giving evidence of the taxpayer’s purpose often involves a subjective judgment. This subjectivity represents a risk for legal certainty and for increased disputes, as taxpayers can contest and claim for the economic substance of their operations based on a certain interpretation of the facts of the case.

In conclusion, the Nordcurrent judgment enhances the Parent-Subsidiary Directive’s anti-abuse provisions by clarifying their scope and contributing to the doctrine of abuse in the tax law field. Nonetheless, the comprehensive factual assessment significantly complicates the task of giving evidence of abuse for tax authorities. This tension between effectiveness and enforceability highlights the continuing challenges in the issue of cross-border tax avoidance within the EU.

Future developments, including practical guidance or enhanced cooperation among Member States, may be necessary to address these difficulties and ensure a balanced application of the anti-abuse clause.

Dr Claudio Cipollini