EU Beneficial Ownership Further Developed: A View from a Different Angle

Abstract

In this contribution, the author tries to further develop the EU beneficial ownership concept for the exemption from withholding tax for EU intragroup interest and royalties and to distinguish this concept from the principle of EU law on the prohibition of abuse. The issue is examined from several different angles than available in the literature at present. Among other things, inspiration is drawn from VAT case law in which several comparable issues regarding the concept of beneficial ownership were discussed. The author comes to the conclusion that the beneficial ownership concept is a conditional, dynamic EU concept inspired by the Commentary on the OECD Model and that for EU intragroup dividends, there is no explicit and implicit beneficial owner requirement for the application of the exemption from withholding tax. The EU concept of “beneficial owner” concerns not a formally identified recipient but rather the entity that benefits economically from the payment received and accordingly has the power freely to determine the use to which it is put. This economic interpretation is independent of the question whether, in a certain case, there is abuse of law. Under this economic interpretation, the Court of Justice of the European Union (ECJ or the Court) takes into account formal contractual or legal obligations to pass on received payments. This is confirmed in the VAT case law, in which similar issues arose. It can also be concluded from VAT case law that the ECJ will, in all likelihood, take into account (implied) contractual pass-on obligations. In addition, there must be a current and direct obligation to pass on the payment on the basis of a formal or implicit legal or contractual obligation.