CFE Tax Advisers Europe has published an Opinion Statement prepared by its ECJ Task Force on the Nordcurrent Group UAB case, Case C-228/24 (the “Nordcurrent Case”), in which the Court of Justice of the EU (Sixth Chamber) delivered its decision on 03 April 2025. The case concerned a Lithuanian parent company, Nordcurrent, which had established a UK subsidiary for distributing video games. When Nordcurrent sought to apply the participation exemption to dividends received from its UK subsidiary, the Lithuanian tax authority denied the participation exemption on dividends from the UK subsidiary, arguing that the structure was a non-genuine arrangement with no valid commercial reason. Nordcurrent challenged the decision of the tax administration before the Tax Disputes Commission (a court in Lithuania).
The Lithuanian court referred several questions to the CJEU concerning the interpretation of Articles 1(2) and (3) of the Parent Subsidiary Directive (PSD), seeking clarification on the scope of the anti-abuse provision in the Directive. Key issues included whether the exemption could be denied when the subsidiary was not a mere conduit, whether only the circumstances at the time of dividend distribution were relevant in assessing whether an arrangement was abusive under Article 1(2), and whether identifying a non-genuine arrangement alone was sufficient to apply the anti-abuse provision, or whether it was also necessary to establish that the taxpayer intended to obtain a tax advantage that undermines the object or purpose of the Directive.
The CJEU ruled that the anti-abuse provision is not confined to scenarios involving conduit companies but emphasised that a denial of the exemption requires both an objective element — the existence of a non-genuine arrangement — and a subjective element — the intention to obtain a tax advantage that defeats the object or purpose of the Directive. The Court’s judgment offers an important clarification: that all facts and circumstances — including changes over time — must be considered when assessing whether an arrangement is non-genuine. The judgment makes clear that it is not sufficient to examine the situation only at the point when dividends are distributed; rather, the entire economic and functional history of the arrangement must be taken into account. Furthermore, the CJEU stated that the overall tax burden of the structure must be assessed holistically, rather than focusing only on the relief granted under the PSD.
In its analysis, the Court also opens the door to a proportional approach for application of the anti-abuse rule: if part of the profits are generated by genuine activity, then the participation exemption should also only be granted in part. Unlike an all-or-nothing approach, such a compartmentalisation approach is also implied by the wording of Art. 1(3) PSD (“to the extent that”) and the required proportionality under the preamble of the PSD.
The findings in this judgment will also be relevant for the interpretation of other anti-abuse provisions in EU tax law, in particular Art. 6 Anti-Tax Avoidance Directive, Art. 5(1) Interest and Royalties Directive and Art. 15(1) lit a Merger Directive. It might also have relevance for the interpretation of the discretion to counter abuse under Art. 1(4) PSD and Art. 5(2) Interest and Royalties Directive. It remains to be seen what impact the judgment will have on the interpretation of domestic anti-abuse provisions and on the interpretation of the principal purpose test in Art. 29(9) OECD Model Convention. However, here the courts will have to take the different legal context into account.
We invite you to read the Statement and remain available for any queries you may have.