Parent-Subsidiary Directive: the CJEU clarifies the anti-abuse analysis in the Nordcurrent Group case (C-228/24)

On 3 April 2025, the Court of Justice of the European Union (CJEU) delivered a judgment providing important clarifications on the analytical methodology applicable to abusive practices in the field of cross-border intra-group dividend taxation. Referred by the Mokestinių ginčų komisija (Lithuanian Tax Disputes Commission), the Court was asked to interpret the anti-abuse clause laid down in Article 1(2) and (3) of Directive 2011/96/EU on the common tax regime applicable to parent companies and subsidiaries of different Member States, as amended by Directive 2015/121.

According to this clause, “Member States shall not grant the benefits of this Directive to an arrangement or a series of arrangements which, having been put in place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of this Directive, is not genuine having regard to all relevant facts and circumstances.” The text further provides: “An arrangement or a series of arrangements shall be regarded as not genuine to the extent that it is not put in place for valid commercial reasons which reflect economic reality.”

The dispute opposes Nordcurrent, a Lithuanian tax resident, to the tax authority of its State of residence, which denied it the exemption from corporate income tax on dividends received from its UK subsidiary, arguing that the latter constituted a non-genuine arrangement.

Following a tax audit conducted in 2023, the tax authority concluded that the subsidiary lacked sufficient substance: at that time, it had only one employee—who held management functions in several companies—no dedicated premises, and a registered office shared with tens of thousands of entities through a domiciliation service provider. Furthermore, according to the tax authority, the distribution platforms used by the subsidiary were in fact operated by Nordcurrent's own employees. This body of evidence led to a tax reassessment covering the 2018 and 2019 fiscal years, along with tax arrears, interest, and penalties.

Nordcurrent challenged this assessment, arguing that the subsidiary had been set up in 2009 to address market constraints and to facilitate contractual access to distribution platforms based in the United Kingdom. The company maintained that the subsidiary had gradually ceased operational activities starting in 2017, with a transfer of functions to the parent company, and was ultimately wound up in 2021. Crucially, Nordcurrent highlighted that the subsidiary was subject to UK corporate income tax at a rate higher than that applicable in Lithuania (24% versus 15%), a circumstance which, in its view, ruled out the existence of an unjustified tax advantage.

The judgment thus raises three successive issues: (1) the applicability of the anti-abuse clause to a subsidiary conducting its own business activity; (2) the temporal scope of the abuse assessment; and (3) the need to demonstrate the effective obtaining of a tax advantage. These questions require a careful reading of the interpretative approach adopted by the CJEU.

I. A broad but structured interpretation of the anti-abuse clause

A. A clause applicable regardless of the role of an intermediary company

The CJEU recalls that the anti-abuse clause set out in Article 1(2) and (3) of Directive 2011/96 is not limited to cases in which an entity acts as a passive intermediary within a group. It applies more broadly to any structure lacking sufficient economic justification. Nordcurrent’s subsidiary was not, strictly speaking, an intermediary company inserted into a dividend chain; it directly received income from the distribution of digital games through contracts concluded with platforms such as Google Play.

However, the Lithuanian tax authority noted that this activity, although legally attributed to the UK subsidiary, was not materially carried out by it. The lack of dedicated personnel, the absence of tangible infrastructure, and the operational overlap with the parent company led, in its view, to a requalification as a non-genuine arrangement.

In response, the CJEU confirms that the concept of a non-genuine arrangement is not confined to formal typologies. National courts must determine whether a structure—despite lacking formal interposition—conceals a lack of real economic substance. The mere existence of a contract, legal registration, or apparent activity is not sufficient to preclude the application of the clause if the actual functions are performed elsewhere or without appropriate means.

B. An assessment of genuineness based on a chronological and functional approach

According to the Court, the assessment of whether an arrangement is genuine cannot be limited to the moment when dividends are paid. In the present case, the tax authority based its analysis exclusively on the situation of the subsidiary in 2018 and 2019. However, the referring court noted that the creation of the subsidiary was initially based on valid commercial reasons, related to the impossibility of contracting directly from Lithuania with certain advertising or distribution platforms.

The CJEU recalls that the anti-abuse clause can target an arrangement or a series of arrangements, either in their entirety or in distinct stages. This language, combined with Recital 8 of Directive 2015/121, implies that an arrangement can evolve over time: a structure that was genuine at the outset may become artificial if it is maintained without justification after losing its economic functions. Conversely, the mere factual situation at the time of the distribution is not, on its own, sufficient to establish abuse if it fails to take into account the chronological development of the activity and the reasons that led to the structure’s initial creation.

In Nordcurrent’s case, this approach requires analysing not only the subsidiary’s situation in 2018 and 2019, but also how it was actually used beforehand. Examining the original motives, their relevance at the time of incorporation, and their possible progressive disappearance thus becomes central to the demonstration of a non-genuine arrangement.

II. A cumulative and contextual requirement to establish tax abuse

A. The need for a double demonstration: lack of genuineness and a tax-driven purpose

One of the key clarifications provided by the Court is the requirement to demonstrate two cumulative conditions in order to deny the application of the benefits under Directive 2011/96. As the Court expressly states, the mere finding of a non-genuine arrangement is not sufficient: it must also be established that the arrangement was put in place primarily for tax purposes that run counter to the purpose or objective of the directive.

This dual requirement is consistent with the Court’s prior case law, particularly T Danmark, where the CJEU had already laid the foundations for a rigorous approach combining an objective element (lack of valid commercial reasons) and a subjective element (intention to obtain a tax advantage incompatible with EU law). In the present case, the referring court asked precisely whether the requalification of the subsidiary as a non-genuine arrangement was, on its own, sufficient to justify denying the exemption of dividends.

The Court answers in the negative. It recalls that a deliberate intention to obtain a tax advantage must be demonstrated by the tax authorities in light of all relevant facts and circumstances. This burden of proof, which lies with the State, requires a structured and substantiated line of reasoning, as opposed to an automatic or presumptive approach.

B. A broad and integrated assessment of the tax advantage

The CJEU also adopts a nuanced view of the concept of tax advantage. It refuses to limit this notion to the formal exemption provided for by the directive. The analysis cannot stop at the mere existence of an exempted benefit: it must take into account, in a global perspective, the economic effect of the arrangement.

In this respect, the Court acknowledges the relevance of the argument put forward by Nordcurrent, namely that its UK subsidiary was subject to a corporate tax rate of 24%, which was higher than the applicable Lithuanian rate of 15%. While such a factor does not automatically rule out the existence of abuse, it does constitute an objectively relevant element that may undermine the presumption of an abusive tax motive.

The Court thus adopts a teleological reading of the directive: the notion of “tax advantage” cannot be dissociated from the overall tax burden actually borne. The objective is not to mechanically identify a favourable regime, but to assess whether the taxpayer has artificially reduced or avoided taxation in a manner incompatible with the directive’s purpose. This approach prevents the anti-abuse clause from being misapplied to penalise non-abusive arrangements.

The judgment therefore establishes a requirement for coherence and proportionality in the application of the anti-abuse clause, requiring tax authorities to engage in a contextual, substantiated, and balanced analysis.

This requirement for a comprehensive and reasoned demonstration naturally leads to a final reflection on the real implications of the decision. More than a shift in case law, Nordcurrent serves as a methodological reminder, clarifying how national courts should articulate facts, intent, and tax effects to justify the denial of an exemption under EU law.

Our Concluding Remarks

The Nordcurrent judgment does not overturn the structure of Directive 2011/96, but it refines its application by reaffirming that the anti-abuse clause can only be invoked on the basis of a complete, coherent, and chronologically grounded demonstration. It is for the tax authorities to establish not only that the structure in question is non-genuine, but also that it was implemented with the intention of obtaining a tax advantage contrary to the purpose and objective of the EU exemption regime.

In this respect, the judgment highlights three key elements:

– first, the need to consider all relevant facts and circumstances, not only at the time of the dividend distribution, but also during earlier periods, in order to assess the evolution of the subsidiary’s economic substance and functional role;

– second, the requirement for a line of reasoning demonstrating that the main purpose, or one of the main purposes, of the arrangement was of a fiscal nature, in light of the overall framework of the directive;

– and third, the recognition that the notion of tax advantage is not limited to the exemption itself, but must be assessed in light of the overall fiscal effect of the structure, including the actual corporate income tax rate applied to the subsidiary. In this case, a higher tax burden borne in the United Kingdom, if confirmed, is an objectively relevant element that may exclude the presence of an abuse.

With this decision, the CJEU confirms that combating tax abuse must not come at the expense of legal rigor or taxpayer security. Member States are required to carry out a careful, contextualised analysis, based on solid factual and teleological reasoning. The judgment thus aligns with a balanced line of case law, in which economic reality plays a central role in the interpretation of EU tax law.

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Sandro Assogna, Attorney at the Paris Bar and Founder of Taxlhab

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