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Exemption from withholding tax on dividends

Abusive construction - Denial (EU Court of Justice 26.2.2019 n.C-116/16 and C-117/16)

According to the ruling, the verification of the status of effective beneficiary in the case of intra-EU dividend payments and the prohibition of abusive practices are concepts that risk.

According to the Commentary on the OECD model, the direct dividend recipient is considered an effective beneficiary under two conditions:

  • the proceeds must be fiscally imputable to him in his State of residence;
  • the recipient must have the right to use and enjoy the dividends themselves, thus excluding companies that have such reduced powers as to be mere trustees or administrators on behalf of others.

In this regard, the Commentary clarifies that the exercise of these powers is reduced where it is bound by legal or contractual obligations to return the related economic value to another subject or even from obligations deriving from factual circumstances.

The status of "beneficial owner", however, does not automatically guarantee the conventional benefits as they must be denied in the presence of abusive practices.

As for the "mother-daughter" directive, the same does not expressly provide for the clause of the effective beneficiary, but makes the application of the exemption regime from withholdings to the absence of abusive practices.

Consistently, in the domestic order, the art. 27-bis of Presidential Decree 600/73 does not contain any express reference to the actual beneficiary, but refers to the general anti-avoidance rule referred to in art. 10-bis of Law 212/2000 which, if interpreted in the sense of the directive, refers to the condition of genuineness of the "interposed" corporate vehicle.

The tax payer cannot benefit from a right or an advantage recognized by the right of the Union when the transaction is purely artificial on an economic level. It follows that national courts are required to deny the benefits provided by the mother-daughter directive if they are relied upon abusively.

The sentence also states that it is an indication of the existence of such artificial construction that the dividends are transferred back, entirely or nearly, and within a very short period of time following their receipt.

It seems, therefore, that the retrocession of a dividend in a short period of time, even if it does not in itself entail the denial of the benefits of the mother-daughter directive, represents an indication of abuse which, together with other indications, can lead to ignoring its advantages .

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