CJEU provides further guidance on the anti-abuse rules under the EU Parent-Subsidiary Directive

On 15 October 2026, the Court of Justice of the European Union (CJEU) delivered its judgment in Neo Group (Case C-203/25), concerning the interpretation of the anti-abuse provisions governing dividend distributions and receipts under the Parent-Subsidiary Directive (PSD). The Court’s interpretation is relevant to the application of the anti-abuse concept in the context of, inter alia, the withholding tax exemption applicable to dividend payments made to corporate shareholders.

The Court held that a Member State may deny the dividend withholding tax exemption under the PSD, even where the receiving EU parent company is genuinely active and not a conduit. It is sufficient that the parent participates in a chain of transactions, all or some of which are non-genuine, through which the dividend ultimately reaches the person controlling the group.

Background 
Neo (Lithuania) distributed dividends to its Cypriot parent, Retal, which passed on similar amounts to PPH, a newly incorporated Cypriot company, to repay debt owed to the group’s controlling individual. The Lithuanian tax authorities considered the arrangement artificial and assessed withholding tax on Neo.

CJEU judgment
The CJEU provided guidance on several elements relevant to determining whether an arrangement constitutes an abuse.

The CJEU first held that the PSD anti-abuse rule is not limited to situations involving conduit companies. The rule can apply to any arrangement, or series of arrangements, that is artificial and has as its main purpose, or one of its main purposes, obtaining a tax advantage that undermines the objective of the PSD. The fact that the Cypriot parent company carried on a genuine economic activity and was regarded as the beneficial owner of the dividends did not, in itself, prevent the Lithuanian tax authorities from denying the exemption. The referring court must assess all relevant facts and circumstances, including the wider share transfer and the subsequent dividend distributions.

The CJEU further held that the similarity between the amounts of dividends flowing through the chain is an indicator of an abusive situation, even where the payments are spread over a longer period. This does not give rise to an automatic presumption. The tax authorities must still carry out an objective assessment of all relevant facts and circumstances, meaning the burden of proof remains with the tax authorities.

The source state may deny the exemption regardless of where and when in the chain the advantage arises, including where the artificial transactions took place outside the EU and even where the tax advantage arises at a later stage of the chain, including an advantage obtained by the ultimate beneficiary.

Finally, the CJEU held that it is not necessary to show that the dividend-distributing subsidiary itself knew, or could have known, that the distribution formed part of an artificial chain of transactions. While abuse requires both an objective and a subjective element, it is sufficient that at least one group company in the chain, or the person who ultimately benefits from the tax advantage, knew or could have known this.

Key takeaways
The Neo case law materially narrows the protection that an operating holding company could previously derive from genuine substance at the level of the immediate parent.

Tax authorities can now examine the entire ownership and transaction chain, including steps outside the source state and before or after the distribution, to determine whether an abusive tax advantage ultimately accrues to the controlling shareholder. Matching dividend amounts flowing through the chain and dividend-funded intra-group debt are relevant, though not conclusive, indicators of abuse.