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Companies should act now to lodge refund claims for tax withheld on interest or royalty payments from other EU Member States.

Facts

In the recent case of Brisal (C-18/15), a Portuguese-resident company paid interest to a finance company resident in Ireland. The normal rate of withholding tax on interest paid to non-residents, under Portuguese domestic law, is 20% (in cases where the Interest and Royalties Directive doesn't apply). The rate under the Portugal-Ireland double tax treaty is 15%. Portuguese-resident lenders would be taxed on interest received at the rate of 25%, but on the net amount after deducting relevant expenses. In contrast, withholding tax is applied to the gross amount of payments to non-Portuguese resident lenders, with no opportunity to deduct expenses.

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