On 21 May 2026, Advocate General Kokott (AG) delivered her opinion in case C-203/25, NEO GROUP UAB (NEO). The case concerns the anti-abuse rule under the Parent-Subsidiary Directive (PSD) in a holding structure involving distributions up the chain to an interposed EU shareholder.

Facts:

·  PG, an individual, is the ultimate shareholder of the group.

·  Retal Industries Ltd (Retal) is a Cypriot company holding all shares in NEO Group UAB(NEO), a Lithuanian company.

·  Initially, PG held the shares in Retal via Clendon Holdings Inc (Clendon), a company established in Belize.

·  Subsequently, the newly incorporated Cypriot entity Polymer Products Holding Ltd (PPH) was interposed between PG and Retal, as PPH acquired the shares in Retal from Clendon against debt. The corresponding receivable was transferred from Clendon to PG.

·  In 2016 and 2017, NEO distributed dividends to Retal and claimed the withholding tax exemption (WHT), which derives from the EU Parent-Subsidiary Directive.

·  In 2017 and 2018, Retal distributed dividends to PPH.

·  The debt of PPH to PH resulting from the acquisition of the Retal shares was offset with a new loan issued from PPH to PH. Hence, PG ultimately received the proceeds from the distribution by NEO to Retal.

The Lithuanian tax authorities challenged the WHT exemption based on the anti-abuse rule of the PSD. Their position was that dividends were artificially transferred through a wider chain of transactions to the ultimate shareholder (PG). The tax authorities did not dispute that Retal Industries Ltd was a genuine company and the beneficial owner of the dividends.

Questions

Against that background, amongst others, the case raised key questions regarding the anti-abuse rule in the PSD:

1. Whether anti-abuse rule may exist where the recipient of the dividends is recognized as the beneficial owner of the dividends (question 1).

2. Whether a Member State (Lithuania) may apply the anti-abuse rule if the underlying non-genuine transactions took place further up the chain in another Member State (Cyprus) (questions 3 and 4).

3. Whether the distribution of dividends up the chain constitutes abuse if the distributions are in the same amounts or performed at a close point in time (questions 2 and 5).

4. Whether the subsidiary must be aware of the tax abuse (question 6).

AG considerations

Ad A) Abuse in case of beneficial ownership

The AG considers that where the recipient of the dividend qualifies as the beneficial owner of the dividends, there is, as a rule, no abuse of the PSD. The AG recognizes that the distribution of profits up the chain within a group of companies is consistent with a properly operating corporation. Nonetheless, abuse may still exist in exceptional cases where the dividend distribution is part of an overall abusive plan (tax evasion). This could be the case where the final taxation up to the ultimate shareholder is frustrated, e.g. due to the impossibility to obtain information for taxation if a tax haven is interposed.

The AG placed this analysis in the broader system of the PSD. The purpose of the PSD is that intra-group distributions should be tax neutral. This means that, in principle, only the final distribution up to the individual shareholder should be taxed. The PSD does not harmonize the taxation of that final distribution, but the PSD cannot be used to make such taxation unlawfully impossible.

Ad B) Abuse takes place in another state

For assuming tax abuse under the PSD, there must be a purposive link between the artificial arrangement and the tax advantage, i.e. the WHT exemption. An artificial arrangement within a Member State cannot give rise to abuse under the PSD. In the case of NEO, the beneficial ownership of PPH was not challenged by the Lithuanian tax authority. On this basis, the existence of an abusive overall plan entailing tax evasion by PG in Cyprus should be tested. No such tax evasion seems evident for the distribution by Neo to PPH. The Lithuanian tax authority regards the payment from PPH to PG as a hidden dividend distribution. However, the AG notes that there could be valid commercial reasons for interposing PPH and the financing of the acquisition by the shareholder. Only in cases of tax evasion, Lithuania may deny the WHT exemption.

The AG considers that possible abuse of Cypriot domestic tax law does not normally constitute abuse of the PSD. In principle, it is for Cyprus to address abuse of its own tax rules. However, there is no requirement for Cyprus to address situations of abuse according to the AG.

Ad C) Distributions up to the same amount close intime

The AG concludes that similar dividend amounts and close timing between receipt and onward distribution are neither sufficient nor necessary elements to establish abuse.

Ad D) Awareness of participants

According to the AG, the awareness of the tax abusive structure should primarily be tested at the level of the person who decided to implement the arrangement. In a group structure in which dividends are distributed, the awareness of the ultimate shareholder should be decisive and not that of all participants (such as NEO).

Our view

The NEO case is notable because, unlike classic conduit company cases, the tax authorities did not attack the beneficial ownership position of the recipient, but instead asserted tax abuse further up the chain, at the level of the Cypriot holding company. In practice, beneficial ownership of the recipient forms an important hurdle to take.

Several elements in AG Conclusion are helpful in discussions with tax authorities on tax abuse, including:

-  The recognition that commercial groups naturally distribute profits up the chain. Such distributions do not constitute abuse as such, even if distributions up to the same amount are performed within a short time frame, according to the AG. This is something that tax authorities regularly assert since the Danish cases.

-  The acknowledgement that there may be valid commercial reasons for interposing a holding company into an existing structure, for example by replacing an offshore holding company with an EU company. Oftentimes, this forms a red flag for a tax inspector, but the AG conclusion shows that further evidence of abuse is required.

-  The conclusion that a WHT benefit obtained further up in the chain as such does not deny the WHT exemption for a distribution, even if there is a tax abusive situation within a Member State further up the chain. Situations in which the WHT exemption may be denied are limited to the existence of an overall abusive plan frustrating taxation further up the chain (tax evasion). This forms a welcome clarification, focusing the discussions on where allegedly tax abuse occurs.

We will follow the NEO case closely to see to which extent the European Court of Justice will adopt AG Kokott’s reasoning and conclusions.

Comparison with Dutch Belgian holding cases

If we compare the AG’s Conclusion with the Dutch Supreme Court’s judgments of 18 July 2025 in the Belgian holding company cases, the following remarks apply. In those cases, Belgian individuals held a Dutch BV through a Belgian company, which, in one case, carried on genuine business activities.

·  The Supreme Court’s focus on the functional attribution of the Dutch shares to the Belgian business may be relevant for the assessment of whether the holding of those shares forms part of a genuine arrangement.

·  However, the question remains whether the allegedly non-genuine arrangement is purposively linked to the PSD WHT exemption.

·  In the Belgian cases, the alleged abuse seems to relate to Belgian taxation on a later distribution by the Belgian company to its ultimate Belgian shareholders. Based on the AG Conclusion, that should not in itself amount to abuse of the PSD andit should be up to Belgium to target such abuse (or not).

·  Hence, the Dutch WHT exemption should not be denied (unless the structure entailed tax evasion, quod non).

Impact of Taxation Omnibus

The EU Commission published its Taxation Omnibus which entails several plans to broaden the scope of the PSD and simplify procedures. The EU case law on abuse under the PSD (including the underlying Neo case) would remain relevant. Given that several elements of the proposals would have a significant budgetary impact, it is not clear whether the proposals will be implemented in this form.

‍