Exempt income is no double taxation, AG tells Court

The term 'double taxation' in Article 2(1)(c) of the DRM Directive does not cover a situation where the same income falls within the tax systems of two Member States but is exempt from tax in one of themEuropa. That is the answer Advocate General Laulhé Shaelou proposes to the Court of Justice in her Opinion of 22 October 2026 in Case C-497/25 (Maxima LT), on a reference from the Administratīvā rajona tiesa (District Administrative Court, Latvia). Where a Member State has implemented the Article 16(7) derogation, as Latvia hasEuropa, it may therefore deny access to an Advisory Commission for lack of double taxationEuropa. At the Court's request the Opinion addresses only the second of the three referred questions; the duty to set up the commission and the scope of the Article 16(7) discretion remain for the Court.

The dispute concerns a Netherlands seller, now succeeded by the Lithuanian applicant UAB Maxima LT, which on 20 May 2020 sold shares in 13 Latvian companies to SIA MAXIMA Latvija. Latvia taxed the gain as immovable property: over 50% of the assets of 12 of the companies sat in Latvian real estate, engaging Article 13(1) of the 1994 Latvia–Netherlands convention. The Netherlands claimed residence-state taxation of the same gain as other property under Article 13(4). The mutual agreement procedure opened on 8 March 2021 and failed, with no agreement notified on 11 March 2024. Though the gain sat in the seller's 2020 accounts, the Netherlands exempted it under its participation-exemption conditionsEuropa, and the 22 April 2024 request for an Advisory Commission was refused on 31 July 2024 by reference to that exemption.

The Advocate General sides with every government that submitted observations and with the Commission. On wording, Article 2(1)(c) requires 'imposition' by two or more Member States of treaty-covered taxes on the same income 'when it gives rise to' an additional charge, higher liabilities, or cancelled or reduced usable lossesEuropa. 'Imposition' means taxes actually levied, not hypothetically dueEuropa, and the three consequences name the economic harm the overlap must trigger. The 2017 OECD Model commentary and its new preamble against non-taxation point the same way. On context, Article 16(7) is the only other standalone use of the term, and its function is to let Member States confine the commission stage to double-taxation cases while the mutual agreement stage stays open to any treaty-interpretation question. Dropping the proposal's carve-out for exempt income broadened the mechanism's scope without redefining double taxation. On objectives, a broad reading would aid legal certainty, but the legislature's designed balance — broad agreement stage, restrictable commission, sustainable within deadlines — governs.

If followed, the Opinion closes the Advisory Commission door wherever the income escapes tax in one state through an exemption such as a participation exemption, at least where the Member State applies Article 16(7)Europa — Latvia did so through Article 132(5) of its Law on Taxes and Duties. The mutual agreement procedure remains available for the treaty-interpretation dispute itself, so advisers should plead to win at that stage rather than assume a commission follows. Track the Court's judgment, which will also settle the open first and third questions.

Legal basis is Articles 2(1)(c) and 16(7) of Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union, as interpreted in the proposed reply in Case C-497/25.