An interesting piece of news in the sphere of tax law has
recently been provided by the Court of Justice of the European
Union (CJEU) decision that found Portuguese withholding tax rules
to be breaching EU law.
The case concerns a loan given to Auto Estradas do Litoral SA
("Brisal"), a Portuguese company by the Irish bank
– KBC Finance Limited. The question before the CJEU was
whether, under the EU law, withholding tax can be imposed on the
gross amount of interest or must the taxpayer be allowed to
decrease taxable income by costs associated with such income.
The CJEU found that applying Portuguese withholding tax on the
gross amount of interest was discriminating and restricting the
freedom in providing services, because resident financial
institutions in Portugal were granted the right to deduct business
expenses from their taxable income. Furthermore, the CJEU
emphasised that Portuguese tax authorities should allow deduction
of lender's business expenses which directly relate to interest
income, including travel and accommodation, legal, and other
Putting this development into context of the overall EU business
framework, this ruling may have implications for the Union's
Member States that impose withholding taxes on interest and other
types of income. At the same time, such an aftermath could open the
door for EU businesses to question the validity of withholding tax
payments historically, which may cause a disruption in the economic
equality of EU member states.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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