In tax law, the beneficial owner is the entity that truly enjoys income and can freely decide its use — not the one that merely channels it onward. A valid residence certificate does not save a recipient that is only a conduit: withholding relief can be denied for every year audited, as one client discovered.
A Romanian company had been paying, for three years, dividends to its parent in a Member State, without withholding tax at source. At the audit, ANAF — the Romanian tax administration — asked for something other than the documents: the parent company's bank statements.
From them it emerged that, three or four days after each receipt, almost the entire sum moved on, to a shareholder in a jurisdiction with no treaty with Romania. The parent kept a minimal margin. It had no employees. It had no asset other than the shareholding. The rest was arithmetic.
This is the test we are discussing. It is probably the most effective instrument European tax administrations have against structures built solely on paper — and the least understood by those who use them.
In everyday language — and, unfortunately, sometimes in professional language too — "beneficial owner" is used for two different things that English does not always keep apart, but that Romanian law does: the tax concept of beneficiar efectiv and the AML concept of beneficiar real. They have different bases, different purposes and different consequences.
It is a condition for granting a benefit: the withholding exemption or the reduced rate provided by a double-taxation treaty or an EU directive. The question: who has the right to dispose of the income — to use it and enjoy it — and who merely transits it? It is not necessarily an individual. It may perfectly well be a company — provided it is the one that decides what happens to the money, not the one that receives it under an obligation to pass it on.
It is a transparency obligation, regulated in Romania by Law no. 129/2019. The beneficial owner (UBO) is the individual who ultimately owns or controls an entity — the usual threshold being over 25% of shares, voting rights or holdings, directly or indirectly, or control by other means. It is declared to the Register of Beneficial Owners kept by the National Trade Register Office. Treated separately, in the analysis on the AML beneficial owner and the UBO register.
The operational difference: the AML beneficial owner is always an individual and is declared in a register. The tax beneficial owner may be a company and is declared nowhere — it is proved, when you claim a tax benefit. You can be perfectly compliant with Law no. 129/2019 and, at the same time, lose the withholding exemption because the recipient of the payment is not the beneficial owner. The two analyses do not talk to each other. The rest of this article deals with the first concept.
On 26 February 2019, the Grand Chamber of the Court of Justice of the European Union delivered two judgments that reset the whole field: C-115/16, N Luxembourg 1 and the joined cases C-118/16, C-119/16 and C-299/16 — on interest and royalties; and C-116/16, T Danmark, with the joined case C-117/16, Y Denmark — on dividends. They are known as the "Danish cases" because they arose from disputes between the Danish tax administration and companies in groups that received income through Luxembourg or Cypriot entities, from where the funds mostly left the Union.
National authorities and courts must refuse the benefits provided by directives when they are invoked fraudulently or abusively — even absent an express domestic provision requiring that refusal. This is the most far-reaching conclusion: you cannot defend yourself by saying that national law contained, at the relevant time, no applicable anti-abuse clause.
The notion does not designate a formally identified beneficiary, but the entity that benefits in reality, economically, from the income and therefore has the power to determine freely its use.
Near-total onward transfer of the income, shortly after receipt, to entities that would not have benefited from the exemption; the minimal margin kept by the intermediary — a negligible taxable profit; the absence of genuine economic activity: no staff, no premises, no equipment; the contractual or de facto obligation to pass the income on, even if not written into a contract but flowing from the group's architecture; the entity's inability to dispose, economically, of the income; the temporal coincidence between the entry into force of certain tax rules and the building of the structure.
The authority need not identify the real beneficial owner in order to refuse the benefit; it is enough to show that the recipient of the payment is not the beneficial owner. This is a considerable asymmetry: the administration can say "not this one", without being obliged to say "but that one".
The direct consequence: for payments of dividends, interest and royalties to an intermediary in another state, ANAF may refuse the withholding exemption or reduced rate and set the tax at the domestic rate, retroactively, within the limitation period, with interest and penalties. And the basis is not a special domestic rule — it is the general principle against abuse, directly applicable, coupled with the national instruments: art. 11 of the Fiscal Code and the general anti-abuse rule of art. 40⁴. The structure may separately trigger the DAC6 hallmarks.
Audit practice has followed, in recent years, a predictable pattern. The documents are not challenged — the recipient's bank statements, financial statements and staffing structure are requested. These are exactly the elements that show whether the income stayed or left, whether it produced a margin or merely passed through, whether the entity has anyone to decide anything. The taxpayer who turns up at the audit with the residence certificate and the holding declaration, but without these elements, has, in practice, no defence — because they did not understand what the question was.
The 2026 context raises the stakes. Through Law no. 141/2025, the dividend-tax rate rose to 16% for dividends distributed after 1 January 2026. The difference between an exemption granted and one refused has become substantially more expensive than in earlier years — and a structure that "worked" until now may suddenly become the object of a check that would not have been worth the effort at the old rates.
Who actually pays. The withholding obligation falls on the Romanian payer. Not on the foreign parent. If the exemption is refused, the assessment is issued in the name of the company in Romania, which will have to pay the tax, interest and penalties — on sums it has already paid, in full, to the shareholder. Recovery from the foreign beneficiary is strictly your problem, contractual, often illusory when the beneficiary is an entity with no assets. In practice, the risk of this structure is borne not by whoever built it, but by the operating subsidiary in Romania.
Each calls for distinct evidence. The absence of any one of them turns the analysis into a discussion about conduits.
It must appear that the recipient can freely decide what to do with the income. Evidence: decisions of the statutory bodies determining the use of funds, proof that different decisions were taken in different years (reinvestment one year, distribution another), an investment policy of its own, the absence of any external approval for disposing of funds.
Staff, premises, equipment, competences proportionate to the declared activity. Here the test overlaps with the general analysis on what substance actually proves — and often with that on the place of effective management.
Neither contractual nor de facto. Negative proof is difficult, but is built through the flows: whether the money stays in the entity for variable periods, whether it is used for the entity's own investments, whether there is no pattern of rapid and total transit.
Does the entity bear credit risk, currency risk, market risk? Does it have enough own capital to cover them? An intermediary that bears no risk deserves no income.
The tax-residence certificate is not enough. It is worth stating explicitly, because it is the most widespread misunderstanding in practice. The certificate attests that the issuing state considers you resident under its domestic law. It is necessary to claim the benefits of double-taxation treaties — the Fiscal Code requires it to be presented to the payer at the time of payment. But it is not sufficient. It says nothing about beneficial ownership of a particular item of income, about substance, or about the destination of the funds. That was exactly the lesson of the Danish cases: the entities in question all had perfectly valid certificates.
For each year: what came in, what went out, at what interval, to whom, in what proportion. If this analysis reveals a pattern of transit, be the first to know it.
On the use of funds: minutes, supporting materials, reinvestment decisions.
Leases, payroll, job descriptions, equipment.
Documented contemporaneously: why the intermediary entity exists, what function it performs, what would have been different without it. If the only honest answer is "the exemption", you have no file.
When the structure was created, relative to which commercial or tax events. Temporal coincidence is an indicium expressly noted by the Court.
Which show whether the margin is minimal or substantial — and whether the entity has anything other than the shareholding.
Necessary, but treated as a starting point, not as a defence.
From experience, here is the pattern that does not hold: operating subsidiary in Romania → intermediary holding in a Member State with a favourable directive or treaty → final shareholder in a jurisdiction with no treaty, or a non-cooperative one. The intermediary holding has no staff, no office of its own, no asset other than the shareholding, no other income, and the dividend received leaves within days, with a symbolic margin. The structure is, in practice, a point-by-point description of the indicia in the Danish cases — and one of those analysed in what still works lawfully in 2026.
What does work, by contrast: a real holding, Romanian or foreign, that actively manages shareholdings, with people who take investment decisions, with its own capital, which retains and reinvests profit, which has a commercial rationale identifiable independently of taxation — group governance, access to finance, structuring of co-investments, preparation of an exit. Such holdings exist. They are not cheap, and whoever builds them properly does so not for the exemption but for the function. The difference shows immediately in the file.
No. The holding conditions in a directive or treaty are necessary, but over them lies the beneficial-owner test and the general principle prohibiting abuse — which the CJEU declared applicable even absent an express domestic rule. A company that perfectly meets the formal conditions can lose the exemption if it merely channels the income. Formalism is no longer a defence.
No. Under CJEU case law, it is enough to show that the recipient of the payment is not the beneficial owner. Identifying the real beneficial owner is not a condition of refusal. This is, for the taxpayer, the most difficult asymmetry of this test.
There is no legal threshold, and anyone who gives you one is improvising. "Minimal" is a relative criterion: it is measured against the income channelled, the functions claimed and the risks assumed. An intermediary that keeps a few basis points of a flow of millions, with no staff and no risk, is a conduit. The right question is not "how much do I keep" but "for what" — what function I perform, what risk I bear, what assets I use.
Do not wait. The limitation period works against you with each year the structure operates, and the amounts accumulate. Honestly assess, with an adviser, the flows of each year and the real exposure. Then choose between three solutions: give the intermediary real substance — if it has a function that can be economically sustained; remove it from the chain, paying directly and accepting the correct rate; or regularise the situation on your own initiative. What does not work is building retroactive documents — that moves the discussion from tax to criminal, and from there one does not return.
Informational material, updated 18 July 2026. It does not constitute legal or tax advice; individual situations must be analysed case by case.
An initial review of the flows establishes whether the recipient is truly the beneficial owner, where the exposure lies, and what can be corrected — before an audit denies the relief and issues the assessment against your Romanian company.