CJEU on WHT exemption for dividends – key judgment in the Neo Group case

In its judgment of 15 October 2026 in Case C-203/25 Neo Group, the Court of Justice of the European Union addressed the application of the anti-abuse rule in relation to withholding tax (WHT) exemptions for dividend payments.

The judgment may be particularly relevant for corporate groups applying WHT exemptions under national provisions implementing the Parent-Subsidiary Directive.

Genuine economic activity does not exclude abuse

The CJEU held that the fact that the dividend recipient carries out genuine economic activity does not in itself mean that application of the WHT exemption cannot constitute an abuse.

This may be the case, in particular, where the dividend payment forms part of a broader arrangement involving several artificial transactions.

At the same time, similar or identical amounts transferred at successive stages of a payment chain, as well as the rapid onward transfer of funds, may constitute indicators of abuse. However, they cannot serve as a basis for a general presumption of abuse.

Tax authorities must assess all the circumstances of each individual case.

The entire payment flow matters

An important aspect of the judgment is the CJEU’s indication that the analysis should not end with the immediate recipient of the dividend.

It should also take into account what happens to the funds after the dividend is paid, including:

• the subsequent flow of funds,
• the timing of further payments,
• the amounts transferred at individual stages,
• the links between subsequent transactions,
• the point at which a potential tax advantage arises.

A tax advantage potentially indicating abuse may therefore arise at a different stage of the payment chain.

Importantly, the subsidiary paying the dividend does not necessarily have to be aware of that tax advantage. The CJEU did not, however, determine how the payer should verify such circumstances in practice.

What does the judgment mean for WHT settlements?

Several practical conclusions can be drawn from the judgment.

First, significant business substance at the level of the payment recipient does not automatically protect a structure against the WHT exemption being challenged.

Conversely, deficiencies in business substance do not necessarily mean that the entire structure is artificial. They may, however, be relevant when assessing beneficial owner status.

The assessment of potential abuse should therefore be comprehensive and should cover not only the activities of the dividend recipient, but also the entire payment structure and any tax advantages arising at its various stages.

It also remains unclear how extensive the payer’s knowledge of subsequent stages of the structure should be. In transactions between related parties, tax authorities may seek to impose a broader scope of verification on the payer.

At the same time, the burden of establishing the artificial nature of the structure generally rests with the tax authority.

A broader analysis before applying a WHT exemption

Until now, analyses concerning WHT exemptions have largely focused on beneficial owner status, particularly the recipient’s business substance and whether it acts merely as an intermediary.

The Neo Group judgment indicates that this analysis may need to be broader.

Before applying a WHT exemption, companies should additionally consider:

• cash flow and payment timing,
• the amounts of successive transfers within the payment chain,
• the economic links between individual transactions,
• tax advantages arising at individual stages of the structure,
• whether such advantages are consistent with the purpose of the exemption.

The judgment may have a significant impact on the approach adopted by tax authorities in WHT cases, particularly with respect to complex holding structures and payments between related entities.