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01-12-2016 - The Brisal case – withholding tax on interest held to be contrary to EU law if imposed on gross income

The Court of Justice of the European Union (CJEU), decision C-18/15 of 13th July 2016, ruled that the EU fundamental freedoms preclude Member States from imposing withholding tax on interest paid to EU financial institutions, unless the financial institutions can claim a deduction for their financing costs and other expenses. 

The decision has important consequences with regards to Italy. 
In fact, Italy generally imposes withholding taxes on gross income paid to non residents (when, of course, the country of source of the income paid is Italy), with limited treaty relief. For example withholding taxes on interest, dividends and royalties are levied on the gross amounts paid to a non resident recipient, while an Italian business recipient would have been allowed to deduct the related costs.
In the light of the Brisal Decision, businesses that are currently suffering withholding tax on interests or royalties paid within the EU may wish to obtain legal advice as to whether they should continue to suffer withholding tax on the gross income received. In some cases, it will be advisable to apply the withholding tax on the gross amount paid and after to file a refund of part of the tax withheld.
Any business which has in the past suffered material withholding tax on interest or royalties paid within the EU may also wish to obtain legal advice as to whether it can obtain a refund of part of the tax withholding suffered. 

For any clarification you may need, please contact:

Paolo Dragone

 

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