CJEU - Recent Developments in Direct Taxation 2025

1. Factual Background

The case arises from cross-border royalty payments between associated companies in the EU. Erdrich Umformtechnik (Erdrich), a company resident in Germany, granted a licence for use of intellectual property to a related company in Czechia. In the relevant years 2014-2018, the Czech licensee paid royalties to Erdrich which, under Czech law, were subject to withholding tax at source (15% by default) absent an exemption. Erdrich and its Czech affiliate were in a qualifying relationship to potentially benefit from the EU Interest and Royalties Directive, which aims to eliminate source taxation on interest and royalty payments between associated EU companies. The Czech Income Taxes Act implements the Directive by exempting qualifying royalties and interests from Czech tax, provided certain substantive conditions are met - including a minimum 25% capital holding for 24 months and beneficial ownership - and a special administrative procedure is followed.

S. 48Unlike most of the Member States, Czechia chose to exercise the option under Article 1(12) of the Directive to condition the exemption on an advance decision by the tax authority, confirming that the Directive’s require...