EU Tax Enforcement Wave: PSD Infractions, DAC9 Escalations and a French Share-Buyback Referral

Three separate enforcement actions dropped from Brussels in the space of a few days in July 2026, and together they signal a sharp tightening of EU tax discipline. The European Commission served infringement letters on France, Germany and Italy over dividend taxation that it says breaches the Parent Subsidiary Directive. It simultaneously escalated proceedings against Belgium, Bulgaria and Cyprus for failing to implement the DAC9 Pillar Two exchange framework. And France's Supreme Administrative Court referred its contested share-buyback tax to the Court of Justice of the EU. For accounting firms, auditors, and CFOs managing cross-border EU structures, the combined picture is one of compressed timelines and rising legal risk.

Parent Subsidiary Directive Infringement Letters: France, Germany and Italy

What the Commission has alleged

On 8 July 2026, the European Commission opened formal infringement proceedings against France (INFR(2026)2087), Germany (INFR(2026)2089) and Italy (INFR(2026)2088) under the Parent Subsidiary Directive (Council Directive 2011/96/EU). The Commission's position is that each country's domestic tax rules impose layers of taxation on dividends that a parent company receives from subsidiaries based in other EU Member States, going beyond what the PSD permits.

The specific domestic provisions under scrutiny have not been named in the Commission's announcement. What is clear is that the core objection is the same in each case: tax treatment of inbound cross-border dividends is more burdensome than the Directive allows.

The CJEU precedent underpinning the action

The Commission's move is grounded in existing case law. In August 2025, the Court of Justice of the EU ruled in joined cases C-92/24 to C-94/24 that Article 4 of the PSD prohibits a Member State from taxing more than five percent of dividends received from subsidiaries in other Member States, even where the charge arises through a levy that is not formally a corporate income tax, provided that levy brings those dividends (or a fraction of them) into its assessment base. Those cases centred on Italy's regional tax on productive activities, IRAP, and its interaction with the PSD's prohibition on taxing distributed profits in the hands of the recipient parent. The July 2026 infringement letters build directly on that ruling.

A separate infringement procedure against France, announced earlier this year, targets a different aspect of the PSD: French legislation that confines the withholding tax exemption to parent entities whose effective place of management is in an EU Member State. The Commission regards that condition as incompatible with the PSD, which links eligibility to tax residence under domestic law rather than to the location of management.

Procedure and timelines

A letter of formal notice is the first stage of infringement proceedings under Article 258 TFEU. France, Germany and Italy each have two months to respond and, where necessary, to propose corrective legislative action. If the Commission finds their responses unsatisfactory, the next step is a reasoned opinion. After that, the Commission can refer the cases to the CJEU and seek financial penalties. For multinationals with holding structures that route dividends through any of these three jurisdictions, the clock is running.

DAC9 Escalation: Belgium, Bulgaria and Cyprus Face Reasoned Opinions

Where the DAC9 timeline stands

Directive (EU) 2025/872, known as DAC9, creates the EU framework for exchanging top-up tax information returns filed by groups within scope of Pillar Two with the tax administration of whichever EU Member State received the filing. All Member States were required to transpose DAC9 into domestic law by 31 December 2025. In January 2026, the Commission launched infringement proceedings against eleven Member States for failing to notify it of full transposition.

Since then, Romania's case was closed, and Sweden's was closed following the entry into force of its domestic DAC9 legislation on 1 May 2026. The July 2026 update escalated Belgium, Bulgaria and Cyprus from the first stage (letter of formal notice) to the second stage (reasoned opinion), after those three countries had still not adopted or notified all required measures.

What a reasoned opinion means in practice

A reasoned opinion sets out the Commission's legal position in detail and gives the Member State a final two-month window to comply before the Commission can refer the case to the CJEU with a request for financial sanctions. For Belgium, Bulgaria and Cyprus, that clock started ticking in July 2026. Infringement procedures remain open at the earlier stage for six other countries: Czechia, Greece, Malta, the Netherlands, Poland and Portugal.

Implications for Pillar Two compliance teams

DAC9 is the information-sharing backbone of Pillar Two inside the EU. Without full domestic implementation, the automatic exchange of top-up tax data between Member States cannot function as designed. For groups with entities in Belgium, Bulgaria or Cyprus, there is now genuine uncertainty about when and how those jurisdictions will operationalise their Pillar Two exchange obligations. CFOs and tax directors should flag this in their Pillar Two readiness assessments and document any reliance on transitional safe harbours carefully.

Groups that use crypto accounting software or digital asset accounting software to maintain subsidiary-level records will also need to ensure their Pillar Two data capture covers entities in these three jurisdictions, since late or partial transposition does not remove the underlying liability; it only delays the exchange mechanism.

French Share-Buyback Tax Referred to the CJEU

Background to the levy

On 6 July 2026, France's Conseil d'État, its Supreme Administrative Court, referred questions to the CJEU in joined cases 508944 and 508946 concerning the French tax on capital reductions carried out through share buyback and cancellation transactions. The charge was introduced by Article 95 of the 2025 Finance Act, codified as Article 235 ter XB of the French Tax Code. It applies to large companies with annual revenue above EUR 1 billion and imposes an eight-percent levy on capital reductions executed via share buybacks followed by the cancellation of the repurchased shares. The tax base is calculated by reference to the amount of the capital reduction and a proportional share of share premium reserves. A separate one-off transitional charge applied to transactions carried out between 1 March 2024 and 28 February 2025.

The EU law challenge

The plaintiffs challenged administrative guidance issued by French tax authorities and argued that the measure conflicts with Council Directive 2008/7/EC, the Capital Duty Directive, which prohibits Member States from levying indirect taxes on certain capital-raising and capital restructuring operations. Their argument is that, to the extent the buyback price reflects capital contributions and share premium previously paid by shareholders, taxing that amount amounts to a prohibited indirect charge on a capital transaction.

The Conseil d'État dismissed several of the plaintiffs' other arguments, including those invoking the EU Parent-Subsidiary Directive, alleged discrimination under the European Convention on Human Rights, and the principles of legal certainty and legitimate expectations. However, the Court found that serious uncertainty persists about the scope of Article 5 of the Capital Duty Directive and decided to refer two clusters of questions to the CJEU: first, whether the French taxes fall within the transactions covered by Article 5(1); and if so, whether Article 5(1)(a) bars those charges because they reach amounts representing prior capital contributions and share premium; and whether Article 5(1)(d) bars them where the buyback and capital reduction amend the company's constitutional documents.

Why this matters beyond France

The CJEU's eventual ruling will affect any EU Member State considering similar levies on capital reduction transactions. Several jurisdictions have watched the French approach with interest. A finding that the tax breaches the Capital Duty Directive would constrain legislative options across the bloc. For groups with significant French entities, the uncertainty itself creates a balance-sheet question: how to treat the tax liability in financial statements pending the CJEU's answer.

A Portuguese Withholding Tax Case Added to the Mix

German fund challenges compensatory interest rules

The July 2026 edition also flagged a CJEU referral published in the Official Journal on 20 July 2026, originating from the Portuguese Tax Arbitration Tribunal (CAAD) on 8 April 2026. A German investment fund that received dividends from Portuguese companies in 2022 and 2023 had been subject to Portuguese withholding tax. The fund argued that the withholding was contrary to the free movement of capital under Article 63 TFEU, relying on existing CJEU case law, and claimed both a tax refund and compensatory interest. The referral asks the CJEU to assess whether Portuguese rules governing compensatory interest on refunds of taxes levied in breach of EU law are compatible with EU law principles.

For accounting firms advising non-resident funds with Portuguese dividend income, the outcome could determine whether clients are entitled to interest on historical withholding tax refunds and at what rate.

Practical Priorities for Accounting Firms and CFOs

Immediate review actions

The July 2026 enforcement wave does not require firms to wait for final CJEU rulings before acting. Several steps are appropriate now.

First, audit the dividend flows within EU holding structures touching France, Germany and Italy. Where inbound cross-border dividends from other EU subsidiaries are subject to any charge beyond the five-percent tolerance confirmed by the CJEU last August, there is an exposure that the Commission's action makes more visible. Consider whether protective refund claims should be filed before domestic limitation periods run.

Second, update Pillar Two readiness matrices to reflect the DAC9 transposition gaps in Belgium, Bulgaria and Cyprus. The underlying Pillar Two liability exists regardless of whether the exchange mechanism is live in those jurisdictions. Groups should not assume that a country's failure to implement DAC9 offers any relief from the top-up tax itself.

Third, assess exposure to the French share-buyback tax for any large French subsidiary that has executed or plans to execute share buyback programs. Pending the CJEU's answer, provisioning for the eight-percent charge while disclosing the contingent nature of that liability in notes to the financial statements is the prudent accounting position under IAS 37. A referred question does not stay the domestic tax obligation.

Fourth, non-resident fund managers with Portuguese dividend income should review whether they have protective interest claims and whether the CAAD referral creates any grounds for reopening earlier settled positions.

Record-keeping and system readiness

Each of these enforcement threads creates a data need: which entities receive cross-border dividends, at what effective tax rates, under which domestic provisions. For groups that operate crypto bookkeeping software or broader digital asset accounting software alongside conventional ERP systems, the principle is the same as for any asset class: the ledger must capture the exact nature of the charge and the relevant EU law basis for any exemption or refund claim. Gaps in entity-level data are the most common reason protective claims fail or are filed too late.

Staying across the evolving EU enforcement landscape is increasingly a systems and process question, not just a legal one. Our global crypto regulation compliance and enforcement outlook covers how accounting firms are structuring their compliance monitoring across jurisdictions, and the ESMA MiCA register update and what it means for CASPs illustrates how EU regulatory action can accelerate rapidly once formal procedures begin.

Key Dates and Procedural Milestones

Source: KPMG EU Tax Centre, E-News 233