With judgment issued on December 22, 2008 in Les Vergers du Vieux Tauves (C-48/07) the European Court of Justice (ECJ) held that Directive 90/435/EEC of July 23, 1990 (the EU parent-subsidiary directive), which exempts dividends paid by a EU subsidiary to its EU parent from withholding tax, does not apply to dividends paid to the holder of a right of usufruct on the shares for which the dividends are paid.
In the case decided by the Court, a Belgian company held a usufruct in the shares of another Belgian company, while a different Belgian company held legal title to the shares.
The usufruct conferred to the holder the right to receive the dividends paid on the shares, but it did not confer full legal title on the shares or the status of shareholder.
Article 3, paragraph 1 of the EU parent-subsidiary directive requires that, for the benefits of the directive to apply (exemption from withholding), the dividend recipient have a minimum holding of 25 per cent of the capital of the dividen payer (reduced to 15 per cent for dividends distributed from 1.1.07 and to 10 per cent for dividends distributed from 1.1.09).
The usufruct does not represent a participation to the capital of the company, and does not confer the status and rights of shareholder. As a result, the parent-subsidiary directive does apply to dividends paid to the holder of the usufruct on the shares.