The Brisal and KBC Finance Decision: Once Again the CJEU Assesses the Compatibility with EU Law of Gross Withholding Taxation of Non-residents (26 EC Tax Review 4, 2017)

To read the full-text of this research, you can request a copy directly from the author.


The levying of withholding taxes on non-residents by the source state is a long-standing topic in EU tax law. The recent case Brisal and KBC Finance, concerning a withholding tax levied on an outbound interest payment, constitutes just the last addition to the line of judgments on this issue rendered over years by the Court of Justice of the European Union. In Brisal the Court first confirmed that Member States are permitted to use different techniques for charging a tax on residents and non-residents for the same item of income, i.e. through a final-year assessment and an immediate retention upon the payment. However, the judiciary of Luxembourg found that residents and non-residents are in a comparable situation with respect to the deductibility of operational costs and thus both categories shall be treated equally in this regard. Although this conclusion could most likely have been anticipated in light of precedent decisions of the Court, the judgment in Brisal is equally remarkable since it disrupts a fundamental tenet of taxation of income earned by non-residents without a permanent establishment, i.e. that the source state can levy a withholding tax on the gross amount of such income and that the expenses of the underlying activity have to be considered by the residence state. Besides and more generally, the decision confirmed that the CJEU is increasingly willing to scrutinize the methods for calculating the tax base adopted by Member States in cross-border scenarios.

No full-text available

Request Full-text Paper PDF

To read the full-text of this research,
you can request a copy directly from the author.

Taxation at source on a gross basis is not just a form of double taxation but a tax obstacle to cross-border income flows in its own, and with even more detrimental consequences. Unlike double taxation, gross taxation can by itself render profitable transactions loss-making and remains unrelieved domestically. Paradoxically, and while residence countries unilaterally relieve double taxation but increasingly limit their foreign tax credit by reference to the net income, the international tax framework remains focused on double taxation. Where taxpayers most require protection is where the international tax framework has less to offer, prompting taxpayers to adopt ‘defensive tax planning’ and gross-up clauses as their sole protection against what may be the main tax obstacle to international flows today.
See Opinion Advocate General Kokott
See Opinion Advocate General Kokott 17 Mar. 2016, C-18/15, Brisal, point 3.