New EU Court of Justice decision clarifies dividend taxation rules

On April 3, 2025, the Court of Justice of the European Union delivered a decision in case C-228/24 clarifying the anti-abuse rules within the Parent-Subsidiary Directive (hereinafter referred to as "the Directive"). This decision is crucial for companies operating within the European Union and dealing with dividend taxation issues.

What was the subject of the dispute?

The case involved a Lithuanian company that received dividends from its UK subsidiary in 2018 and 2019. The UK subsidiary acted as an intermediary between the Lithuanian company and various platforms until it was liquidated in 2021. Lithuanian tax authorities refused to recognize the dividend tax exemption, claiming the UK subsidiary was non-genuine.

How did the Court of Justice of the EU decide?

The Court of Justice of the European Union ruled that countries may deny tax exemptions on dividends from subsidiaries deemed non-genuine, even if they are not merely intermediaries. It is important that the assessment of a subsidiary's genuineness considers not only the situation on dividend payment dates but also its prior legitimate business activities.

The Court also clarified that labeling a subsidiary as non-genuine does not automatically mean the parent company has gained a tax advantage. Even if the parent company receives a dividend exemption, it does not necessarily conflict with the Directive's objectives.

This decision helps companies better understand dividend taxation rules within the European Union and emphasizes the importance of genuine business activities.