CJEU hands down verdict in NEO Group UAB

CJEU hands down verdict in NEO Group UAB (C-203/25) regarding the anti-abuse rule in the parent subsidiary directive

On 15 October 2026, the Court of Justice of the European Union (CJEU) handed down its verdict in the NEO Group UAB case (C-203/25) in which it provided answers regarding the anti-abuse rule of the EU parent subsidiary directive (Council Directive 2011/96/EU). In this tax alert, we summarize this judgement and the takeaways.

Facts

An individual (PG), tax resident in Cyprus, owns all shares a company tax resident in Belize (Clendon Holdings, Inc.) and in a company tax resident in Cyprus (Polymer Products Holdings Ltd; PPH). PPH owns all shares in another company tax resident in Cyprus (Retal). Retal owns all shares in two companies tax resident in Lithuania, Retal Lithuania UAB and NEO Group UAB. PPH had purchased the shares in Retal from Clendon Holdings, Inc., for the price of c. EUR 310 million. The purchase price remained indebted and the resulting receivable was subsequently assigned by Clendon Holdings, Inc. to the individual, PG.

In 2016 and 2017, the Lithuanian companies distributed dividends of c. EUR 28 million to Retal and, Retal in turn distributed these dividends to PPH. Concurrently, PPH provided loans of c. EUR 28 million to PG. The receivables between PG and PPH where then offset. PPH did not distribute profits in that period. In the years in question, PPH and Retal’s income consisted (almost) exclusively of the dividend income (respectively c. 80% and 99%). PPH did not have employees.

The Lithuanian tax authorities considered that the assignment and subsequent set off of the receivable was an chain of transactions which was an arrangement with a view to obtaining a tax advantage, namely the avoidance of corporate income tax on dividends received by Retal. Therefore it levied EUR 2,250,000 of tax (and late interest and a penalty) from NEO Group UAB. The Lithuanian court referred a number of questions to the CJEU, because it considers that this case has features different from earlier related cases (referring to the judgement of 26 February 2019, T Danmark and Y Danmark (C-116/16 and C-117/16)).

CJEU verdict

The CJEU provided the following answers regarding the interpretation EU law in its verdict:

1. A member state may levy a withholding tax on dividends that a subsidiary resident in that member state distributes to its parent company resident in another member state on the ground that the parent company participates in a chain of transactions – all or some of which are not genuine – as a result of the creation of which those dividends are transferred to the natural or legal person who controls, directly or indirectly, all of the companies involved even though that parent company actually carries on an economic activity and is therefore not a conduit company.
2. The following facts may constitute indications of abuse of law: amounts transferred in chain transactions – all or some of which are not genuine – are similar or identical to the amounts of dividends distributed by a subsidiary resident in that member state to its parent resident in another member state and that such transfers took place not in a short period of time after distribution of those dividends, but on a continuous basis over a certain period. The need remains that the tax authorities carry out an objective analysis of all the relevant facts and circumstance in order to ascertain whether the constituent elements of an abusive practice are present.
3. A Member State may levy a withholding tax on dividends that a subsidiary resident in that Member State distributes to its parent company resident in another Member State, where the transactions regarded as not genuine have not taken place in the first Member State, but were carried out by natural or legal persons not resident in that Member State, including the person who benefits from a tax advantage through the exemption of those dividends as a result of the creation of all the transactions concerned, and irrespective of the stage in the chain of transactions at which the tax advantage is obtained.
4. A Member State may levy a withholding tax on dividends that a subsidiary resident in that Member State distributes to its parent company resident in another Member State, without establishing that that subsidiary was or could have been aware that that distribution was part of a chain of transactions, all or some of which were not genuine, put into place with the main purpose or one of its main purposes being that of obtaining a tax advantage that defeats the object or purpose of that directive, provided that it is demonstrated that at least one of the companies in the group participating in that chain of transactions or the natural person who, as a result of the creation of that chain of transactions, benefits from that advantage, was or could have been aware of the existence of that chain of transactions.

Londen & Van Holland comments

The Lithuanian court referred the case to the CJEU because it considered that the specific facts of the case at hand involved a direct parent company that carried on an economic activity and therefore could not be considered non-genuine which is a distinctly different fact pattern than earlier cases on this topic. The transactions challenged by the Lithuanian tax authorities occurred further up the chain. Due to the indebtedness and the set off of the loans created, sums of money could be transferred to the individual owning the group of companies without any Lithuanian corporate income tax or source tax, which the Lithuanian tax authorities tried to combat by denying the application of the parent subsidiary directive in relation to dividends distributed by the Lithuanian resident companies to a parent that carried on an economic activity.

The CJEU reiterated that all the facts and circumstances of the arrangement should be taken into account to determine whether an arrangement was put into place with the main purpose or one of its main purposes to obtain a tax advantage that defeats the object or purpose of the parent subsidiary directive. In the case at hand, this means that the fact that the direct parent and recipient of dividends carries on an economic activities was not sufficient to assume that the arrangement was not non-genuine and that all transactions in the chain must be examined to determine whether abuse of law took place.

Furthermore, the CJEU held that in a chain of transactions, only one company or individual controlling these companies, needs to be aware of the abusive nature of the transaction for the subjective requirement (the purpose of the arrangement) of the anti-abuse clause to be met.

The CJEU did not provide further guidance regarding the scope and the object and purpose of the parent subsidiary directive, other than that its purpose is to prevent double taxation of the profits distributed by subsidiaries to their parent companies in order to facilitate the grouping together of companies at the EU level. Therefore, many of the suggestions raised by the AG were ignored.

The outcome of this case is therefore that Member States are not limited as to the scope of the examination of the potential abuse of EU law when examining international holding structures and transactions and the scope remains broad. National courts and tax authorities therefore retain the freedom to set the policy on what is considered abusive or not and no further harmonization is achieved.

The Dutch tax authorities (DTA) very recently issued a tax knowledge group opinion on how they deal with personal holding companies resident in another EU member state that own shares in Dutch companies. If this holding company meets the minimum level of substance as set out in that opinion, and is actively involved in managing the Dutch company, the DTA consider this personal holding company not abusive. We note that even if these criteria are met, the DTA is still obliged by EU law to examine whether this company is part of a chain of transactions part of which can be considered to be abuse of law.

In practice, this means that a review and thorough documentation of the business rationale of proposed but also historical transactions is paramount to defend application of the exemptions of the parent subsidiary directive and the national implementations thereof.

If you have any questions, please contact Roland Meuwissen at r.meuwissen@londenholland.nl or +31 6 27 53 32 89.