At a glance
EU anti-abuse rules have moved, over the last decade, from policing only “wholly artificial” arrangements to assessing the real economic substance and business purpose behind a structure. For investors using a Madeira holding company or an MIBC entity, the practical consequence is direct: a licence, a registered office and a clean set of minutes are no longer enough. Tax authorities and the courts now look at whether people, functions and decisions are genuinely present, and at why the structure exists. This article explains how EU anti-abuse rules reached this point, what it means for a Madeira structure, and how to make one defensible.
The most important development in EU tax law over the last decade is not a new tax. It is a change in how tax authorities decide whether an existing benefit applies. The direction of travel is clear: away from formal criteria that a taxpayer could read off in advance, and towards a case-by-case examination of economic reality. For anyone holding cross-border investments through a Portuguese or Madeira structure, that shift is the backdrop against which every planning decision is now made.
State the conclusion first. EU anti-abuse rules reward substance and punish form-without-substance. A structure that has a genuine commercial rationale and real activity behind it is more defensible than ever, because the law now asks precisely those questions. A structure that exists only on paper is more exposed than ever, for the same reason. The task, for investors in Madeira, is to be firmly in the first category. The sections below set out how the rules got here and what to do about it.
The shift from legal form to economic substance
For most of the post-war period, access to a tax benefit, a directive exemption, a treaty rate, a domestic regime, turned mainly on meeting formal conditions. If you ticked the boxes, you qualified. Over the last ten years, EU law has layered a second question on top of the first: even if you meet the conditions, is the arrangement genuine, and does granting the benefit serve the purpose the rule was written for? This is the shift at the heart of today’s EU anti-abuse rules. It does not replace the formal conditions; it sits behind them as a substance test that can override a benefit a taxpayer formally qualifies for.
The driver was the OECD and G20 base erosion and profit shifting (BEPS) project, which the EU implemented through binding legislation and which the Court of Justice of the European Union (CJEU) has reinforced through its case law. The result is that substance-over-form reasoning, once an exception, is now the default lens.
How EU anti-abuse rules expanded: ATAD, the directives and the courts
Three layers built the current framework.
The directives came first. The Parent-Subsidiary Directive, which removes withholding tax on qualifying intra-group dividends, was amended in 2015 (Article 1(2)) to let Member States deny the benefit to arrangements that are not genuine and do not reflect economic reality. Comparable anti-abuse reasoning developed around the Interest and Royalties Directive.
The Anti-Tax Avoidance Directive (ATAD) then made anti-abuse mandatory. Its Article 6 obliges every Member State to apply a general anti-abuse rule (GAAR), disregarding arrangements put in place mainly to obtain a tax advantage that defeats the object or purpose of the applicable law, where those arrangements are not genuine. Every EU state, Portugal included, has had a GAAR in force since 2019. The strength of the GAAR is also its difficulty: it is open-ended, so its application depends on facts and on administrative judgement, which is harder to predict in advance.
The courts supplied the interpretation, and that is where the direction is clearest.
From Cadbury Schweppes to Nordcurrent: substance over form
The trajectory of the case law is the single most useful thing for an investor to understand, because it shows how the threshold has moved.
In Cadbury Schweppes (C-196/04, 2006), the CJEU set a relatively protective standard: a benefit could be refused only where the arrangement was wholly artificial, lacking economic reality. That was a high bar, and a fairly predictable one.
The Danish cases (the dividend and interest judgments of 26 February 2019, including T Danmark and N Luxembourg 1) moved the bar. The Court refused directive relief where the recipient lacked genuine economic substance or was not the beneficial owner of the income, relying on indicators such as conduit companies, rapid pass-through of funds, and the absence of real activity. Substance and beneficial ownership became central, and the analysis became more contextual.
Nordcurrent (C-228/24, 3 April 2025) consolidated the trend. The Court confirmed that abuse is not limited to conduit or letterbox companies, and that a finding of abuse needs two elements: an objective one (a non-genuine arrangement) and a subjective one (the intention to obtain a tax advantage that defeats the directive’s purpose). Importantly, it held that the assessment cannot be frozen at the moment income is paid: the whole economic and functional history of the structure, including how it changed over time, must be weighed. A company that was genuine when set up can become non-genuine if its activity is later stripped out, and vice versa.
The thread running through all three is consistent. The benefit follows the substance, and substance is assessed on the facts as they actually are, not on the labels the structure carries.
What EU anti-abuse rules mean for your Madeira structure
Madeira structures are squarely within this framework, because the framework is EU-wide and the MIBC is an EU-approved regime operating inside it. Two points follow for investors.
First, the MIBC 5% corporate tax regime is not an anti-abuse problem in itself. It is a lawful, European Commission-approved State aid regime, and using it is legitimate tax planning, not avoidance. What can be a problem is using an MIBC company, or any Portuguese holding company, without the substance the rules now expect. An entity that holds participations or receives cross-border dividends, interest or royalties, but has no people, no decision-making and no genuine function in Madeira, is exactly the profile the Danish and Nordcurrent line targets.
Second, the analysis is dynamic. Because the courts now look at a structure’s whole history, substance is not a one-off box ticked at incorporation. It has to be real and maintained for as long as the structure claims its benefits. A Madeira company that meets its substance conditions on day one but is later hollowed out invites exactly the retrospective challenge Nordcurrent endorses.
The tests authorities now apply
In practice, three overlapping questions decide whether a structure holds up.
Is the arrangement genuine? This is the substance question: real premises, real people performing real functions, genuine decision-making taking place where the company is established, and assets and risks that actually sit with the entity.
Who is the beneficial owner? For cross-border dividend, interest and royalty flows, the question is whether the receiving company genuinely enjoys and controls the income, or merely passes it through to someone else. Conduit features (immediate onward payment, back-to-back arrangements, no capacity to use the funds) point to the latter.
What is the business purpose? Even a company with some substance can be challenged if its main purpose is a tax advantage that defeats the rule being relied on. A genuine, non-tax commercial rationale is the best protection.
Economic substance in the MIBC: the practical answer
The good news for Madeira is that the MIBC regime already requires substance, which aligns the commercial regime with what the anti-abuse rules demand. To access and keep the 5% rate, an MIBC company must meet substance conditions in the Region (broadly, the creation of one to five jobs plus a minimum EUR 75,000 investment, or six or more jobs), and must carry on genuine activity there. Meeting those conditions properly, rather than nominally, is also the answer to the EU anti-abuse question, because it produces the people, functions and activity the GAAR and the case law look for.
The practical work is therefore to treat substance as an operating reality, not a compliance formality: staff who actually work in Madeira, management that actually meets and decides there, premises that are actually used, and documentation (a substance file) that records all of it. We have written separately on what the MIBC substance rules require in detail, and the same evidence base answers both the regime and the anti-abuse question.
The legal-certainty problem, and the EU’s simplification response
There is a genuine downside to all of this, and it is fair to name it. Because anti-abuse assessments now depend on facts and on administrative judgement rather than on bright-line rules, taxpayers face less predictability. It can be genuinely difficult, in a complex international structure, to know in advance where legitimate planning ends and a challengeable arrangement begins. That uncertainty has a cost: it can deter legitimate cross-border activity and push businesses into over-cautious positions.
EU institutions have started to acknowledge this. The “decluttering” or simplification agenda, including the forthcoming direct-tax simplification package, reflects a recognition that successive layers of anti-abuse and reporting rules have produced complexity that can itself undermine legal certainty and the internal market. Whether simplification meaningfully restores predictability remains to be seen. For now, the prudent course is not to wait for clearer rules but to build structures that would satisfy the substance test as it stands.
How to build a structure that withstands EU anti-abuse rules
The defensive playbook is straightforward in principle, if demanding in execution.
Start from a real commercial rationale. A structure that exists for genuine business reasons, with tax efficiency as a consequence rather than the sole purpose, is the strongest position.
Put genuine substance where the benefit is claimed. For a Madeira company, that means real people, functions, premises and decision-making in Madeira, meeting the MIBC conditions in substance and not just on paper.
Make sure income recipients are genuine beneficial owners. Avoid conduit features on cross-border flows; the receiving entity should have the capacity to use and control the income.
Maintain it over time. Because the assessment is dynamic, substance has to be kept current for as long as the benefits are claimed, and changes (a function moving, staff leaving) should be reviewed for their effect on the structure.
Document everything. A contemporaneous substance file, board minutes, employment records, premises and activity evidence, is what turns a defensible position into a provable one.
Practical takeaways
- EU anti-abuse rules now turn on economic substance and business purpose, not on formal conditions alone.
- The case law has hardened from Cadbury Schweppes (wholly artificial) through the Danish cases (substance and beneficial ownership) to Nordcurrent (whole-history analysis, not just conduits).
- The MIBC regime is legitimate; the risk is using a Madeira company without real substance.
- Substance is dynamic: it must be genuine at the outset and maintained for as long as benefits are claimed.
- On cross-border dividend, interest and royalty flows, confirm the receiving company is the genuine beneficial owner.
- A genuine commercial rationale is the best protection against a main-purpose challenge.
- Document substance contemporaneously; a substance file is what makes a position provable.
Frequently asked questions
What are the EU anti-abuse rules?
EU anti-abuse rules are the body of legislation and case law that lets tax authorities deny a tax benefit, even where the formal conditions are met, if the arrangement is not genuine and its main purpose is a tax advantage that defeats the rule relied on. The central instruments are the general anti-abuse rule in Article 6 of the ATAD, the anti-abuse provisions in the Parent-Subsidiary and Interest and Royalties Directives, and the CJEU’s abuse-of-law case law.
Does the MIBC 5% regime fall foul of EU anti-abuse rules?
No. The Madeira International Business Centre is a European Commission-approved State aid regime, and using it is legitimate tax planning. EU anti-abuse rules bite only where a company lacks genuine substance or exists mainly to obtain a tax advantage, so the risk lies in how a structure is run, not in the regime itself.
What is the ATAD GAAR?
The GAAR is the general anti-abuse rule in Article 6 of the Anti-Tax Avoidance Directive. It requires every EU Member State to disregard non-genuine arrangements put in place mainly to obtain a tax advantage that defeats the object or purpose of the applicable tax law. It has been in force across the EU since 2019.
What did the Nordcurrent case decide?
In Nordcurrent (C-228/24, 3 April 2025) the CJEU held that abuse under the Parent-Subsidiary Directive is not limited to conduit companies, that it requires both a non-genuine arrangement and an intention to obtain a tax advantage defeating the directive, and that the whole economic history of a structure must be assessed, not only the moment income is paid.
How much substance does a Madeira holding company need?
Enough to be genuine. For the MIBC 5% rate the formal conditions are broadly one to five jobs plus a minimum EUR 75,000 investment, or six or more jobs, carried on in the Region. The anti-abuse rules add that the substance must be real and proportionate to the activity: actual people, functions, premises and decision-making in Madeira.
Do EU anti-abuse rules apply to dividends paid through Portugal?
Yes. Cross-border dividend, interest and royalty flows through a Portuguese or Madeira company are exactly where beneficial-ownership and anti-abuse scrutiny is most likely, following the Danish cases. The receiving company should genuinely own and control the income rather than pass it through.
The information in this article is provided for general guidance only and reflects the legal framework and case law in force at the date of preparation (June 2026). It does not constitute legal or tax advice and should not be relied upon as such. The application of EU anti-abuse rules is highly fact-specific, depends on the particular structure and its history, and turns on the interaction of EU directives, the CJEU’s case law and national implementing law. The Madeira International Business Centre regime and its substance conditions may change. Madeira Corporate Services accepts no liability for action taken on the basis of this article. Professional advice should be obtained before any decision. We can assist, subject to a review of your circumstances.
Miguel Pinto-Correia holds a Master Degree in International Economics and European Studies from ISEG – Lisbon School of Economics & Management and a Bachelor Degree in Economics from Nova School of Business and Economics. He is a permanent member of the Order of the Economists (Ordem dos Economistas)… Read more
