This lesson examines the “beneficial ownership” requirement in tax treaties and the developing anti-abuse doctrine in the European Union, including the significant “Danish cases” and their impact on treaty and directive interpretation.

• The Beneficial Ownership Requirement: Relief from withholding tax on dividends, interest, and royalties under many treaties requires the recipient to be the “beneficial owner” of such payments. The OECD Commentary clarifies that an agent, nominee, or conduit company acting as a fiduciary or administrator is not the beneficial owner because “that recipient’s right to use and enjoy the dividend is constrained by a contractual or legal obligation to pass on the payment received to another person.” Courts have developed an “international fiscal meaning” of beneficial ownership, distinct from domestic law concepts, focusing on whether the recipient has the sole and unfettered right to use, enjoy, or dispose of the income.

• The Danish Cases (CJEU): In the influential Danish cases (Joined Cases C-116/16 and C-117/16 and Joined Cases C-115/16, C-118/16, C-119/16, C-299/16), the Court of Justice of the European Union (CJEU) looked at the application of the Interest and Royalties Directive (IRD), which contains a beneficial ownership requirement, and the Parent Subsidiary Directive (PSD), which does not. The court held that the OECD Commentary is relevant to assessing beneficial ownership under the IRD. More significantly, the court applied similar principles to the PSD, holding that an overarching EU anti-abuse doctrine applies whenever a taxpayer relies on tax relief based on an EU directive, even when the directive has no express anti-abuse provision.

• Application of the EU Anti-Abuse Doctrine: When applying this EU anti-abuse rule, relevant indicators of abuse include the recipient rapidly passing income to someone who would not benefit from the EU directive or being contractually bound to pass on the income. In practice, tax authorities frequently rely on the indicator that the recipient does not have sufficient relevant substance—genuine function or relevant economic activities. The onus is on tax authorities to provide evidence of abuse, and taxpayers must have the opportunity to rebut the arguments. The more recent Nordcurrent decision (C-228/24) confirmed that the anti-abuse provision in the PSD applies to any abusive structures and is not confined to conduit company situations.