CFE Tax Advisers Europe’s ECJ Task Force has issued an Opinion Statement on the judgment delivered on 1 August 2025 in Banca Mediolanum (Joined Cases C-92/24 to C-94/24), in which the CJEU examined whether the exemption for inbound dividends under Article 4(1)(a) of the Parent-Subsidiary Directive (PSD) applies to a non-corporation tax, in this case the Italian regional tax on production activities (IRAP). The Statement provides analysis of the Court’s reasoning and considers its wider implications for EU tax law and Member State tax design.
Background
The Banca Mediolanum case concerned an Italian-resident parent company receiving qualifying dividends from EU subsidiaries. While Italy applied the PSD exemption through a 95% relief from corporate income tax (reflecting the option in Article 4(3) PSD), Italian law also required 50% of all dividends, including those covered by the PSD, to be included in the IRAP tax base. The taxpayer sought reimbursement of the IRAP attributable to those dividends, arguing that the PSD precludes such taxation.
Justification & Legal Principles
In its decision, the CJEU reaffirmed that taxation of more than 5% of qualifying dividends is incompatible with Article 4(1)(a) and (3) PSD once a Member State has opted for the exemption system. Importantly, the Court interpreted the prohibition as applying to the inclusion of dividends in any tax base, not merely to additional corporate taxes or distribution-related charges.
The judgment also implicitly clarified the operation of Article 4(3) PSD. The Court’s reasoning suggests that Member States must choose between denying deduction of actual expenses related to the holding or applying the flat-rate 5% restriction; they cannot impose further charges on qualified dividends via other taxes once the 5% threshold is reached.
Implications & Open Questions
CFE Tax Advisers Europe welcomes the clarity provided by the judgment and notes that it strengthens the PSD’s function as a minimum harmonisation instrument to prevent economic double taxation of cross-border dividends. The Statement highlights that the ruling has significant practical implications for Member States whose tax systems include non-corporate taxes that directly incorporate dividends into their bases. Member States operating under the exemption system must ensure that no more than 5% of qualifying dividends is subject to any corporate or non-corporate taxation, an interpretation with broad relevance for EU corporate tax frameworks.
The ruling may influence the design of multi-layered tax systems. One question that arises is whether Member States may “spread” the 5% taxable portion across several taxes, or whether the corporate-tax charge exhausts the permissible PSD margin. The Italian legislature’s response, extending the 95% exemption to IRAP, illustrates one approach to ensuring compliance.
The Court additionally addressed arguments concerning potential reverse discrimination, noting that such issues fall outside EU law where they arise from purely domestic situations. Wider questions about the treatment of reverse discrimination remain a matter for national constitutional frameworks, as recently discussed in ECtHR case law concerning the Merger Directive.
We invite you the read the Statement and remain available for any queries you may have.