ECJ widens Parent-Subsidiary anti-abuse net in NEO GROUP

The Court of Justice has closed the main escape routes from the Parent-Subsidiary Directive's anti-abuse rule: a genuinely active parent can still lose the dividend withholding-tax exemption as a link in a non-genuine chainEuropa, matching amounts and drawn-out transfers count as indicia, foreign steps and foreign beneficiaries do not shield the structureEuropa, and the payer need not have known. In its judgment of 15 October 2026Europa in Case C-203/25Europa (NEO GROUPEuropa), the Fourth ChamberEuropa answered six questions from the Mokestinių ginčų komisija prie Lietuvos Respublikos Vyriausybės (Tax Disputes Commission under the Government of Lithuania).

The Lithuanian company NEO GROUP paid EUR 15 million in dividends in 2016-2017 to its 100% Cypriot parent Retal Industries, which also received EUR 13.5 million from another Lithuanian subsidiary; no withholding tax was applied under the 10%-holding exemption. The Inspectorate found a wider chain: Clendon Holdings of Belize sold Retal to the newly formed Cypriot PPH Polymer Products for EUR 310.4 million on deferred payment to 2027, the debt was assigned to PG — the natural person ultimately behind Clendon and PPH — and PG drew large sums from PPH, funded by the Lithuanian dividends, as loans and assignments extinguishing PPH's debt to him. It assessed NEO EUR 2.25 million plus interest and a penalty under the Lithuanian anti-abuse provision transposing Article 1(2) and (3) of Directive 2011/96/EU.

First, the exemption can be denied even though Retal carries on real economic activityEuropa and is not a conduitEuropaEuropa. Following the Nordcurrent judgment (C-228/24), the anti-abuse rule applies across the board to any non-genuine arrangement assessed on all relevant factsEuropa — a conduit is only one exampleEuropa (T Danmark, C-116/16 and C-117/16) — so looking only at the parent's activity without the share sale, loans and debt assignments would defeat the required overall examinationEuropa. Beneficial-owner status under the Lithuania-Cyprus treaty does not change thisEuropa: treaties cannot produce results contrary to EU law, and the treaty itself withholds its zero rate in abusive cases.

Second, two factual patterns are relevant indicia without creating presumptionsEuropa: amounts passed along the chain that are similar or identical to the dividendsEuropa, and transfers spread continuously over time rather than immediately after receiptEuropa. A drawn-out arrangement is no less contrary to the directive's purpose than a one-off, and the authorities must examine the whole period, including group restructurings and loan transactions.

Third, the analysis is cross-border by nature: transactions outside the subsidiary's State, before or after distribution, must be includedEuropa, and the tax advantage may arise at any stage — here in the hands of PG in CyprusEuropa — since Lithuania could otherwise never counter arrangements that route its dividends abroad. This is proportionate: it targets only abusive arrangements and does not restrict establishment or capital freedoms relied on for abusive endsEuropa.

Fourth, no knowledge on the payer's part is requiredEuropa. Abuse needs an objective circumvention plus a subjective intent to obtain the advantage artificiallyEuropa, but that intent need only be shown for at least one group participant in the chain or the benefiting natural personEuropa — here PG — not for the distributing subsidiary, which may simply execute its parent's decisionsEuropa; requiring otherwise would gut the rule.

Legal basis: Directive 2011/96/EU, Articles 1(2)-(4), 3(1) and 5; judgment of the Court (Fourth Chamber) of 15 October 2026 in Case C-203/25; judgments of 26 February 2019 in Cases C-116/16 and C-117/16 and of 3 April 2025 in Case C-228/24.