The Court of Justice of the European Union (CJEU) in the judgment explained that the tax rules on taxation of dividends could limit the EU’s freedom of establishment.
It is apparent from the documents submitted to the CJEU that it is solely where a resident subsidiary distributes profits to a non-resident parent company, which is directly or indirectly controlled by one or more residents of third States, that the exemption from withholding tax is subject to the condition that that parent company establish that the principal purpose or one of the principal purposes of the chain of interests is not to take advantage of that exemption. In other words, the company receiving the dividend (in this particular configuration) has the burden of proving that it is not its main purpose to take advantage of the exemption.
By contrast, where such a subsidiary distributes profits to a resident parent company, also directly or indirectly controlled by one or more residents of third States, that resident parent company may benefit from that exemption without being subject to such a condition.
Such a difference in treatment is likely to dissuade a non-resident parent company from exercising an activity in France through a subsidiary established in that Member State and constitutes, therefore, an impediment to the freedom of establishment.
Source: judgment of the CJEU in case C‑6/16.