CJEU on the Interest and Royalties Directive
The Court of Justice of the European Union (CJEU) ruled in Case C-828/24, Erdrich Umformtechnik, on the interpretation of Directive 2003/49/EC. The proceedings concerned the common system of taxation applicable to payments of interest and royalties between associated companies of different Member States. The central issue was whether a tax exemption can also be taken into account for periods preceding the submission of the required certificate and supplementary information, as well as preceding the decision of the tax authority.
The decision concerns the scope of Art. 1(12) of Directive 2003/49/EC. The CJEU made clear that the tax exemption under that provision may also be granted for prior periods. According to the judgment, the Directive contains neither a deadline for submitting the certificate and supplementary information nor any temporal limitation as to how far back an exemption may be taken into account retroactively.
Main Proceedings in the Czech Republic
Parties and Procedural History
The case bears the name Erdrich Umformtechnik. The parties to the main proceedings were Erdrich Umformtechnik GmbH and the Czech Odvolací finanční ředitelství, the Appellate Financial Directorate. Erdrich Umformtechnik GmbH is based in Renchen in Baden-Württemberg and manufactures formed and chassis components for the automotive industry.
The referring court was the Czech Nejvyšší správní soud (Supreme Administrative Court). The language of the proceedings before the CJEU was Czech. The order of the Czech court was dated 26 November 2024 and was conducted under the national case reference 2 Afs 140/2022-43.
The request was received by the Court on 4 December 2024. The notice in the Official Journal was issued on 14 February 2025; it was published as C/2025/1218 in Official Journal C of 3 March 2025. The CJEU gave its decision on 5 March 2026; the proceedings have been concluded. The notice of the judgment in the Official Journal is dated 11 May 2026.
Written Observations in the Proceedings
Written observations were submitted in the proceedings before the Court. They came from:
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the Appellate Financial Directorate on 1 April 2025,
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the Czech Republic on 31 March 2025,
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the European Commission.
No Opinion of an Advocate General was indicated in the procedural overview.
Royalties and Withholding Tax in the Dispute
Rights to Use Intellectual Property
In the main proceedings, Erdrich Umformtechnik, which is resident in Germany, had granted an associated Czech company rights to use intellectual property. Royalties were paid for this use. The payments concerned the years 2014 to 2018.
The royalties were subject in the Czech Republic to withholding tax of 15 percent. A dispute arose as to whether, and for what period, an exemption from this withholding tax had to be granted.
Application for Exemption and Refusal for Earlier Years
The application for exemption was made in June 2019 for the assessment periods 2014 to 2018. The Czech tax administration granted the exemption only for the years 2017 and 2018. For the years 2014 to 2016, it refused the exemption on the ground that an assumed two-year time limit had expired.
The subject matter of the dispute was the Czech transposition in § 38nb of the Czech Income Tax Act. Under that provision, exemption from withholding tax requires a prior decision by the tax authority.
Legal Background to Directive 2003/49/EC
Common System for Associated Companies
Directive 2003/49/EC concerns payments of interest and royalties between associated companies of different Member States. Its purpose is to establish a common tax treatment for such cross-border payments within the European Union. Case C-828/24 concerned the conditions and the temporal scope of the exemption.
The CJEU had in particular to interpret Art. 1(12) of Directive 2003/49/EC. This provision is connected with the possibility of requiring certain evidence and information before a tax exemption is applied.
No Deadline in the Directive
According to the CJEU’s decision, the Directive does not provide for any deadline for submitting the certificate and supplementary information. Nor does it contain any independent temporal limit as to how far back tax exemption may be taken into account.
Accordingly, the exemption under Art. 1(12) of Directive 2003/49/EC could also be granted for periods that preceded the submission of the certificate and supplementary information as well as the adoption of the exemption decision.
Assessment of the Czech Administrative Practice
Previous Two-Year Approach
Before the matter was referred to the CJEU, a practice applied in the Czech Republic that was based on the decision of the Nejvyšší správní soud (Supreme Administrative Court) with case reference 3 Afs 250/2016-40. Under that practice, a retroactive exemption was in principle possible only for a period of two years.
The Municipal Court in Prague had derived a corresponding two-year period from the direct effect of Art. 1(15) of the Directive because Czech law did not contain its own time limit. The company’s appeal on points of law was directed against that view.
Guidance D-59 and Tax Assessment Limitation Period
In Guidance D-59, the Czech tax administration allowed retroactive exemption for periods for which the tax assessment limitation period had not yet expired. This period is regularly three years. The proceedings before the CJEU therefore also concerned the relationship between tax exemption under EU law, national procedural law and administrative practice.
Decision of the CJEU
Exemption Also Possible for Earlier Periods
The CJEU held that the tax exemption under Art. 1(12) of Directive 2003/49/EC may also be granted for periods preceding the submission of the certificate and supplementary information as well as the adoption of the exemption decision. According to the decision, no contrary temporal limitation can be inferred from the Directive.
The decision therefore does not concern the question whether all substantive requirements for the exemption are met in the individual case. Rather, it clarifies the EU-law framework for determining whether the exemption may be excluded for earlier periods solely because of the timing of the submission or the later administrative decision.
No Preclusive Time Limit under EU Law
It follows from the decision that Directive 2003/49/EC itself contains no preclusive time limit for submitting the relevant certificate and supplementary information. Nor does it expressly limit the prior periods for which the tax exemption may be considered.
The Court thus distinguishes between the substantive requirements for the tax exemption and temporal requirements that do not follow from the wording of the Directive. For national rules and administrative practice, this distinction may be significant insofar as it concerns the exemption mechanism provided for under EU law.
Consequences for the Main Proceedings
Response of the Czech Supreme Administrative Court
As a consequence of the CJEU judgment, the Czech Supreme Administrative Court abandoned its previous interpretation. It held that the application for an exemption decision is not subject to any time limit. According to the procedural sequence described, this applies both to royalties and to interest.
The decision therefore concerns not only the specific royalty case, but also the classification of comparable payments under Directive 2003/49/EC. It remains decisive that the respective requirements of the applicable provision must be satisfied.
Significance for Associated Companies
For associated companies with cross-border interest or royalty payments within the European Union, the decision is significant above all because of the temporal component. The CJEU rejects a deadline arising from the Directive itself for submitting the certificate and supplementary information, as well as any EU-law limit for prior exemption periods.
However, the decision does not replace the examination of the respectively applicable national tax procedural law and the specific requirements for the tax exemption. It interprets the EU-law framework within which national authorities and courts must apply the Directive.
Frequently Asked Questions
CJEU C-828/24 Erdrich Umformtechnik: What was the dispute about in relation to withholding tax on royalties?
The proceedings concerned royalties paid by an associated Czech company to Erdrich Umformtechnik, which is resident in Germany. These payments for the years 2014 to 2018 were subject in the Czech Republic to withholding tax of 15 percent.
Directive 2003/49/EC: Is there a deadline for the certificate for tax exemption?
According to the CJEU’s decision, the Directive contains neither a deadline for submitting the certificate and supplementary information nor a temporal limitation for prior periods. The tax exemption may therefore, under Art. 1(12) of the Directive, also cover earlier periods.
CJEU judgment on exemption from withholding tax: What practical consequences does the decision have for companies?
For companies with cross-border interest or royalty payments between associated companies, the decision may be relevant when determining the temporal scope of a tax exemption. The CJEU made clear that the Directive itself does not provide for any corresponding preclusive time limit.
Tax Classification of Cross-Border Payments
Decision C-828/24 shows how significant the precise distinction between EU-law exemption requirements and national procedural rules in tax law can be. Particularly in the case of interest and royalty payments between associated companies, careful consideration must be given not only to Directive 2003/49/EC, but also to the national transposition provisions and the respective tax procedural law. MTR Legal Rechtsanwälte advises companies, investors and high-net-worth private individuals on cross-border tax matters and on the classification of EU tax-law requirements. Further information can be found under Legal advice in tax law.
