In judgement no. 16173 of June 8, 2023, the Supreme Court of Cassation returned to a case concerning dividend payments to EU-resident parent companies exempt from withholding under the Mother-Daughter Directive.
Beyond the Supreme Court’s decision in the present case, the decision under review deserves to be noted for the important clarifications made with respect to the contentions made with respect to the application of the Mother-Daughter Directive exemption through the use of the beneficial owner clause. In more detail, according to the Supreme Court, it should be pointed out that:
- “in EU jurisprudence, where the legitimate enjoyment of the benefits of the Mother-Daughter Directive is in dispute, once it is affirmed that the prohibition of abuse of rights is an immanent general principle, it is not necessary to import from the conventions or the Interest-Royalties Directive the beneficial owner clause as an anti-avoidance function.”
- “[Article 10-bis of the Statute] is to be understood, at present, as an unambiguous normative reference to disallow the exemption of withholding tax on dividends distributed to EU subsidiaries.”
As can be gleaned from the passages quoted, the Supreme Court has for the first time made it crystal clear that, on the one hand, the beneficial owner clause has no citizenship in the context of the Mother-Daughter Directive and, on the other hand, the only way to disallow the legitimacy of the application of the Mother-Daughter Directive exemption passes through a challenge based on abuse of rights (with respect to which the absence of the proper requirements of beneficial owner can, at most, constitute circumstantial evidence). This last aspect brings with it two additional considerations:
- procedurally, when the tax authorities intend to challenge the application of the exemption in question, they must proceed – under penalty of nullity of the assessment act – according to the principals prepared by Article 10-bis of the Statute;
- on the substantive level, if – by adopting a look-through approach – it can be ascertained that the person above the direct recipient of the dividends is, in turn, entitled to receive the exempt dividend stream (should he or she invest directly in the distributing company), it would not be possible to proceed to challenge the existence of an abusive practice, given the non-existence of an undue tax advantage.