CJEU Advocate General opines that pass-through dividends are not necessarily abuse of PSD withholding tax exemption

On 21 May 2026, Advocate General (AG) Kokott of the Court of Justice of the European Union (CJEU) delivered a notable opinion on the interpretation of the anti-abuse rule in the EU parent-subsidiary directive (PSD) in Neo Group UAB (case C-203/25). While this opinion is not a final judgment from the CJEU, it carries substantial legal authority and provides important guidance on how tax authorities within the EU may approach dividend distribution structures across member states, and on how national tax courts are likely to handle tax disputes.

Facts of the case

A Lithuanian company distributed dividends to its Cypriot parent (CyprusCo 1), which was the undisputed beneficial owner of the dividends. Subsequently, CyprusCo 1 distributed the dividends to a newly incorporated Cypriot holding company (CyprusCo 2).

CyprusCo 2 had previously acquired the shares in CyprusCo 1 from an offshore entity based in Belize. The related share acquisition debt was subsequently transferred by the Belizean company to the group’s ultimate shareholder, who was an individual residing in the EU. CyprusCo 2 then used the dividend income from CyprusCo 1 (sourced from the dividend income received from the Lithuanian company) to repay part of the debt to the ultimate shareholder.Unlike the receipt of a dividend from CyprusCo 2, the debt repayment was not subject to withholding tax in Cyprus.

The Lithuanian tax authorities disallowed the withholding tax exemption under the PSD on the (initial) dividend by the Lithuanian company to CyprusCo 1, alleging an abuse of rights under the PSD. The Lithuanian court stayed the proceedings and referred the matter to the CJEU.

The AG’s opinion addresses several different questions regarding the role of the beneficial ownership requirement in tax abuse discussions and the relevance of the existence of a “conduit company” to determine tax abuse.

Opinion of the AG

Fulfilment of beneficial ownership requirement would not in principle constitute tax abuse

The fundamental principle set out by the AG is clear—if a(n EU) parent company is the beneficial owner of dividends received from its (EU) subsidiary, there is generally no abuse of the PSD, even if those dividends are immediately redistributed to underlying shareholders.

However, the AG opined abuse may still arise if the dividends are redistributed to the final beneficiary through an artificial arrangement as part of an overall plan designed to contravene the tax law of the parent company’s member state.

On that basis, the AG further clarified that the anti-abuse rule does not grant the subsidiary’s member state (Lithuania in the current case) carte blanche to curb the abuse of tax provisions within the parent company’s jurisdiction. The subsidiary’s member state would only be able to invoke the PSD’s anti-abuse rule to deny the withholding tax exemption under exceptional circumstances, and this is conditional on a two-pronged test, in which there must be tax evasion in the parent company’s member state (i.e., Cyprus), and that jurisdiction must be unable to tax the final distribution itself.

Conduit company is only an indicator

In this context, the AG clarified that this is a high threshold, and the simple fact that dividends flow through multiple entities is not in itself sufficient to constitute abuse.

Accordingly, although the existence of a “conduit company” (one whose sole activity is receiving and passing on dividends) is one potential indicator of abuse, it alone is neither a mandatory nor a sufficient condition to qualify an artificial arrangement as abuse. This would require a holistic assessment of whether the broader arrangement reflects the economic reality. For example, the AG acknowledged that using dividend income to finance a share purchase may be economically justified as a means to transfer corporate activities from offshore jurisdictions to the EU.

Deloitte Belgium comments

This opinion expands on the CJEU’s decision in Nordcurrent (case C-228/24) by confirming that the artificiality of arrangements cannot be assessed in isolation. Instead, the entire chain of events—extending beyond the intermediate beneficial owner through to the final individual beneficiary—and the related tax benefits, must be evaluated. To this end, a conduit setup alone is not a self-determining or conclusive indicator of abuse.

Crucially, the AG’s opinion would appear to bring to an end any overzealous invocation of abuse by a subsidiary’s member state. If the recipient of the dividends is the beneficial owner, a member state may only deny an exemption in exceptional scenarios involving actual tax evasion in the parent company’s member state, where that state is unable to intervene. As such, the AG has dismissed the ability of the tax authorities in the subsidiary member state to broadly police tax compliance in another member state. In principle, the PSD’s anti-abuse rule can only be applied to tackle abuse of the PSD itself, rather than to address abuse of national laws in other member states.

The AG’s opinion solely addresses the economic reality as part of the PSD anti-abuse subjective test and therefore does not elaborate on the main benefit test (the main or one of the main reasons being a PSD benefit) and the objective test (whether the PSD benefit is contrary to the legislators’ intent). Following a consistent application of historic CJEU case law on the subject, all tests need to be fulfilled for the PSD anti-abuse rule to apply. 

This opinion may also be indirectly relevant in Belgium relating to the Belgian implementation of the PSD anti-abuse rules (included in article 203, §1, 7° and 266, 3rd alinea of the Income Tax Code) and capturing PSD benefits in other member states. On that basis it would potentially materially limit the ability of the Belgian tax authorities to factor in such benefits when denying a Belgian dividends received deduction and/or withholding tax exemption.

Given the apparent widespread focus of national tax authorities on PSD anti-abuse (as also evidenced by the numerous CJEU cases), it remains crucial for multinational enterprise (MNE) groups to (proactively) and thoroughly document the business rationale of using intermediate holding companies, the latter’s substance and governance, and the economic context as to the deployment (including the redistribution) of dividend income to withstand tax scrutiny. Realignment of a group’s ownership structure may also minimise tax scrutiny and related risks.

Deloitte Belgium will follow the CJEU judgment and related developments closely and provide updates as they are available.

How we can further assist

Deloitte Belgium and Deloitte Legal can assist MNE groups in several ways:

• Structural assessment: Evaluate dividend distribution arrangements against the principles outlined in the opinions of the AG, CJEU case law, and Belgian case law.

• Documentation review: Ensure adequate evidence of legitimate commercial purposes for, and substance of, the existing structure.

• Engagement with tax authorities: Provide guidance during discussions with tax authorities and support during tax audits or disputes before courts.

• Proactive structuring: Help (re-)structure and document holding arrangements to reduce risk exposure.