It is more than six months since the ECJ’s decisions in the Danish beneficial ownership cases, but taxpayers and tax practitioners are still trying to get to grips with what the decisions will mean in practice. 

There are those who think the consequences will not be that serious: "After all, the ECJ has only confirmed what we already knew: that you cannot invoke the benefits of EU law in abusive situations", is what they say. 

There are others, and we are among them, who think that there is more serious trouble on the horizon: the ECJ has labelled a practice that has been going on for many years and that has been seen by very few users as abusive as an abuse of EU law that Member States have to stop. This makes the decision a powerful weapon for Member States who feel their withholding taxes have become largely ineffective, to stop granting benefits under the EU Parent Subsidiary Directive and/ or the Interest and Royalties Directive. And there is no reason to believe they will not use this weapon! 

Unfortunately, the ECJ has provided this weapon with a very poor user manual. For instance, the decision does not tell Member States how to deal with tax treaty claims in the case of an abuse of EU law; can a reduced treaty rate still be granted in a situation that is an abuse of EU law? Neither does the decision contain a "do not use this for" warning – which would be customary in a user manual. So, Member States may be inclined to apply it also in the corporate income tax area, e.g. to deny the participation exemption for dividends received by conduit companies - or maybe that is exactly what the ECJ had in mind? One positive thing to say about the decision is that, unlike most user manuals for consumer products, it is impeccably translated into all the official languages of the EU. So, at least, we have a common starting point. 

It is likely that the weapon which the ECJ has provided to tax authorities will do more than it is supposed to do; it is likely that it will have unintended consequences. Everyone agrees that abuse must be challenged. An overly broad application of the ECJ decisions in the Danish beneficial ownership cases can, however, damage the functioning of the internal market (even if taxpayers later prevail in court), because they disapply rules that were intended to foster the functioning of the internal market. It must be hoped that the ECJ (or the European Commission) will provide taxpayers (and tax authorities) with a more comprehensive user manual sooner rather than later.