Illegal Withholding Tax on Interest Paid to Foreign Banks

The judgment of the European Court of Justice ("ECJ"), of 13 July 2016, held that levying withholding tax on interest paid to non-resident financial institutions constitutes an infringement of the principle of freedom to provide services.

The ECJ believes that Portuguese law discriminates between residents and non-residents, since with regard to the latter it does not offer the possibility of deducting business expenses directly related to the financial activity carried out (in other words, withholding tax is levied on the gross and not on the net income).