Portugal: Tax litigation associated with WHT on dividends obtained by EU pension funds

Background information

On 6 October 2011, the CJEU concluded that the taxation of dividends distributed by companies established in Portugal on shares held by EU-based pension funds for more than one year constitutes a restriction on the principle of free movement of capital. As a result of the CJEU decision, the Portuguese tax law was amended on 1 January 2012.

Following these amendments, income obtained in Portugal by resident EU/EEA pension funds (subject to administrative cooperation on tax matters) is exempt from corporate income tax, provided that certain conditions are met. It is inter alia required that the recipient is an institution for occupational retirement provisions within the meaning of Directive 2003/41/EC. Furthermore, a minimum holding period of one year applies. Based on the above, it is recommended meeting the requirements summarized above so that an exemption can be applied immediately. In case the exemption has not been applied, we recommend filing a request for a refund. The statute of limitation of filing a claim in Portugal is two years after the date of the dividend payment.

Requirements

For purposes of application of the Corporate Income Tax WHT exemption in Portugal on dividends, the following requirements should be met:

• The foreign pension fund exclusively assures the payment of retirement pensions granted from elderly, handicapped, surviving, pre-retired, health, post-employment benefits and death benefits;
• The pension fund is managed by an entity covered by the Directive 2003/41/EC, of 3 June 2003;
• The pension fund qualifies as the effective beneficiary of the income; and
• The share participation is held for more than one year.

Documents / Information

For purposes of benefiting from the exemption or claiming a tax refund, and as a general rule, the following information should be obtained:

• Dividend vouchers containing the information of the dividends payments and the amounts of tax withheld;
• Overview of all dividend distributions including: total number of relevant shares; beneficial owner; gross amount of the dividend; WHT levied; any prior refund of the WHT through a bilateral tax treaty / convention;
• Detailed information about the fund and its features;
• Tax residency certificate;
• Statement of the entity responsible for the supervision of the fund attesting the fulfilment of the requirements set forth in Portuguese law.

Deadline

For purposes of claiming WHT refunds on these grounds, taxpayers should file an administrative claim (this first step is mandatory) within a two-year deadline counting from the legal deadline to deliver the WHT to the Portuguese tax authorities.

If you wish to discuss this topic, please contact: Vieira de Almeida, Portugal, Lisbon

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