The new doctrine of the Court of Justice of the European Union (CJEU) about the application of unfair clauses.

According to the new sentence ruled by the CJEU, a doctrine has been established to prevent the application of unfair terms at national and European level.


 The past 26th of February 2019, the Court of Justice of the European Union ruled sentences regarding “Danish cases”. These sentences could be considered as a new doctrine about the interpretation of some terms and anti-abuse principles, which can be found on the Parent-Subsidiary Directive 2003/103 and the Disclosure Requirements European Directive 2009/49.

In rough outlines, these sentences discuss three specific points: the concept of “beneficial owner” on the European Directive 2003/49, the “Abuse of rights” and, finally, they argue about European’s Union right to prohibit abusive practices.

As far as the concept of “beneficial owner” is concerned, the CJEU declares that this is not referred to a beneficiary formally identified, but refers to the company that finally enjoys the perceived income. This way the company can freely decide how to use the rent, so this organization cannot be an intermediary. 

About the principle that abusive practices are prohibited, the CJEU notes that both directives are not opposed to using internal tools of the countries against the tax fraud. However, if a country has not developed these measures it is irrelevant. The authorities are obligated to deny the protection of the rights established in the aforementioned Directives when they are fraudulently proclaimed. This means that the argument which defends that the advantages contemplated on the Directives can only be denied when the national legislation provides a clear and specific legal basis, in this sense is not applicable. 

Regarding the concept of “abuse of rights”, what constitutes an abuse of right and how to demonstrate it has been delimited. The elements that form the abuse of right are distinguished now by “objective element” and “subjective element”. The latter is an allusion to the willingness to obtain benefits from a Directive by simulating the necessary requirements to acquire them. 

The CJEU wanted to emphasize that the existence of the double taxation agreement does not dismiss an abuse of right if it is proved that the company has been making “purely formal or artificial transactions devoid of any economic and commercial justification, with the essential aim of benefiting improperly from the exemption from any taxes that is provided for in Article 1(1) of Directive 2003/4”. 

The denial of benefits, that the Directives provide for having done abusive practices, demands that the country of origin proves these improper practices, once all the related elements have been considered.


B Law & Tax
International Tax & Legal Advisors

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Tags: European Union, Directive, doctrine, Anti-abuse clauses