As you have seen, the CJEU decided in the Brisal case that gross withholding tax regimes infringe the EU’s fundamental freedom to provide services. So the UK’s withholding rules currently breach EU law. EU-based lenders and IP licensors may be able to claim reduced UK withholding to reflect (broadly speaking) their net profit positions and refunds for withholding already suffered. Similarly, UK lenders and licensors may have claims in other EU jurisdictions for tax withheld there.

The CJEU was sympathetic to the practical difficulties for borrowers in administering a net withholding regime. This indicates that your group’s UK withholding obligations are unlikely to change right away. If your group companies are not required to gross up payments, their financial position should not be affected by the case.

If a group company does have to gross up counterparties, however, you should check the terms of your contracts. Loan agreements may include an obligation on a recipient of a payment to reimburse the payer for windfall tax reliefs following withholding but there is no “market” approach for IP licences.

If you do not have tax credit clauses, there are two things you may want to consider doing. The first is discussing the position with your existing lenders and/or licensors; they may agree to claim the relief and pass it on. The second is negotiating such clauses in future transactions.

Once the UK leaves the EU, the position may change. The key questions are first, whether the UK will change its withholding rules and secondly, how other EU jurisdictions will change their laws following Brisal.

The first question is primarily one of how competitive the UK Government wishes its tax system to be. The UK is already in a minority of key EU jurisdictions that impose withholding tax on interest and the new IP withholding regime is very broad. If the UK abolished withholding on interest and royalties, for example, your group’s compliance obligations would reduce and the cost of grossing up such payments would fall away.

The second question is really whether other EU countries would impose two-tier withholding rules, benefiting only other EU persons. If so, when the UK leaves the EU your UK licensors could be subjected to gross withholding with no right to claim relief. If you do not have gross up clauses in your licences already, you should consider including them going forward.