PORTUGAL IN BREACH OF THE FREE MOVEMENT OF CAPITAL PROVIDED FOR IN THE TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION
The European Court of Justice (ECJ) ruled, in the case AllianzGI-Fonds AEVN (C-545/19), following a request for preliminary ruling from the Tax Arbitration Court in Portugal, that article 22 of the Tax Benefits Statute (“Estatuto dos Benefícios Fiscais”) is in breach of the free movement of capital.
According to article 22 of the Tax Benefits Statute, certain types of income (capital income, capital gains and income from immovable property) received by collective investment undertakings, constituted in accordance with Portuguese legislation, are excluded from Corporate Income Tax.
It also foresees the exemption of income distributed to those entities from withholding tax.
However, this regime is not applicable to non-resident collective investment undertakings that operate or receive income in Portugal.
Believing the withholding tax on dividends received in Portugal to be unlawful, AllianzGi-Fonds AEVN challenged its legality, obtaining a favourable decision from the ECJ.
In effect, the ECJ ruled that the exemption from withholding tax foreseen for collective investment undertakings established in Portugal should be extended to non-resident undertakings, failing which it would be in breach of the free movement of capital. Although we consider this reasoning to be applicable to all types of income, we note that this decision only concerns dividends.
his decision is a strong incentive for other collective investment undertakings (established in the EU or in third countries) that have obtained income in Portugal to challenge the withholding tax applied (being able to recover tax withheld in the past 4 years). The
19 April 2022
means and deadline to do so must be analysed on a case-by-case basis