On 7 September 2017, the Superior Court of Justice of the European Union (hereinafter, "CJEU") rendered its ruling in the case of C-6/16, Eqiom SAS and Enka SA vs. the French Minister of Finance and Public Accounts. In this ruling, the CJEU confirms the exemption of withholding taxes on dividend distributions in cases where one or more partners resident in a non-EU country direct or indirectly control the parent company established in another EU Member State.

Normative background:
In this respect, the Parent – Subsidiary Directive states the exemption of withholding taxes by the country in which the dividends were distributed, where the subsidiary that distributes them and the parent company are established in different Member States. The Directive itself though, contains a general authorization for local governments, where it establishes that should it be necessary for the avoidance fraud and abuse, these dividends could be withheld.

Precisely to avoid such abuse, many Member States have implemented the respective anti-abuse clauses in their local legislations where a company in the chain is domiciled in a non–EU country. This is indeed the French legislation case, namely article 119 of the Code général des impôts.

CJEU doctrine:
Of the several key points mentioned in the CJEU doctrine, one stands out. This is where CJEU states that subjection to a dividend withholding tax, in the country where the profit distribution is made, merely because the parent company receiving the dividends is controlled by a company located in a third Country, goes against freedom of establishment and is discriminatory towards nationality. Thus, based on higher public interest, a concrete and specific arrangement must be adopted to subject dividends to a withholding tax in the country of the distribution company. Such measure must be considered proportionate and appropriate to achieve the aforementioned higher interest.

Potential consequences of the CJEU doctrine established in the Eqiom case:
In conclusion, it is worth noting that the ruling in the Eqiom case is not contrary to the establishment of the referred anti–abuse clauses, but rather, submits them to special evidentiary requirements for the local administrations.

In the particular case of Spain, the main consequence is that the anti–abuse clause provided for in article 14.1 h) of the Non Resident Income Tax Law must be interpreted in the light of the CJEU ruling.

This alert is not exhaustive and does not cover every single aspect of referred laws. The information provided in this alert should not be construed as legal advice or legal opinion regarding any specific facts or circumstances.

This alert was provided by Anaford Attorneys, who have taken all reasonable care to ensure that the information contained in this alert is accurate at the time of publication.