CJEU – Recent Developments in Direct Taxation 2015

I. S. 170Brisal – Auto Estradas do Litoral S.A., KBC Finance Ireland v Fazenda Pública, Case C-18/15

A. Facts

At the time when the facts occurred in Brisal, interest payments received by non-resident financial institutions were submitted to a final withholding tax of 20 % or lower under a double taxation convention, on gross income, with no possibility of deducting business expenses directly related to the financial activity carried out. In contrast, resident financial institutions were submitted to a corporate income tax rate of 25 %, on net income: the interest received by resident financial institutions is incorporated in the total taxable income, with deduction of any expenses related to the activity pursued when determining the profit for the purposes of corporation tax, so that the basic rate of 25 % was applied to the net interest income.

Although the following aspects have not been mentioned in the referral, it is worth adding, that Portuguese banks also benefit from no withholding tax on payments of interest to a permanent establishment of a Portuguese bank established outside Portugal; that interest on loans granted to resident credit institutions by non-resident financial institu...