EU: CJEU referral on computation of interest on refunds under EU law (Portugal)
Whether Portuguese rules providing that interest accrues from date taxpayer’s claim rejected (rather than when collected), at a fixed rate, and using simple rather than compound interest, violates EU law
The Portuguese Tax Arbitration Tribunal (CAAD) on April 8, 2026, referred to the Court of Justice of the European Union (CJEU) (case C-314) a preliminary ruling request regarding whether Portuguese rules governing compensatory interest on refunds of taxes levied in breach of EU law are compatible with EU law principles.
Summary
A German investment fund received dividends from Portuguese companies in 2022 and 2023 and was subject to Portuguese withholding tax. The fund challenged the withholding taxes, arguing that they were contrary to the free movement of capital under Article 63 TFEU, relying on the CJEU's case law in case C‑545/19. In addition to a tax refund, the fund claimed compensatory interest.
Under Portuguese law, compensatory interest is generally available where an error attributable to the tax authorities results in the payment of tax exceeding the amount legally due. However, Portuguese case law provides that, in withholding tax cases, interest does not accrue from the date the tax was collected. Instead, it begins only when the tax authorities reject, expressly or tacitly, a prior administrative challenge filed by the taxpayer. Portuguese law also currently provides for a fixed interest rate of 4% per annum and calculates the compensation using simple rather than compound interest.
The referring tribunal expressed doubts as to whether these rules comply with EU law principles, particularly the principles of effectiveness and neutrality. It noted that CJEU case law generally requires taxpayers to receive adequate compensation for the loss resulting from the unavailability of amounts collected in breach of EU law and suggests that interest should cover the entire period from payment of unlawful tax until its repayment.
The tribunal therefore asked the CJEU to decide whether:
- The principle of effectiveness, or any other relevant principle of EU law, precludes a national procedural provision which is interpreted as meaning that the interest on a tax in respect of which a deduction at source has been made in breach of EU law (for example, Article 63 TFEU) begins to accrue only from the date on which the prior administrative challenge lodged against the deductions at source in question is rejected, whether expressly or tacitly.
- The principles of effectiveness and neutrality preclude the application of a fixed statutory interest rate of 4% per annum that is not linked to inflation, central bank rates, or commercial lending rates, particularly where those market indicators exceed the statutory rate.
- The principles of EU law preclude the payment of “simple interest” (instead of “compound interest”) on a tax in respect of which a deduction at source has been made in breach of EU law (for example, Article 63 TFEU), and whether it is relevant that commercial banks generally apply compound interest to deposits.
Read a July 2026 report prepared by KPMG’s EU Tax Centre