Tax Refund Claims on Interest and Royalty Payments Following European Court Decision
Companies should act now to lodge refund claims for tax withheld on interest or royalty payments from other EU Member States.
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.