ECJ Ruling Opens Door To Withholding Tax Refunds

July 21, 2016

The European Court of Justice (ECJ), in the case of Brisal, has determined on 13 July 2016 that national law which prohibits a non-resident taxpayer from deducting financing/operating costs from interest withholding tax infringes the EU fundamental freedom to provide services where resident taxpayers are able to deduct such costs.

As such, there may now be opportunities for taxpayers to reclaim withholding taxes already paid, and to argue that the manner in which certain withholding taxes apply within EU member states are in breach of EU law. Although Brisal concerned withholding tax on interest paid to a financial institution, the scope of the reasoning of the ECJ applies more broadly than interest withholding taxes and could extend to other lending vehicles (such as debt funds) and to other withholding taxes (such as withholding under royalty payments).

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