Withholding tax on dividends: violation of eu law
Abreu Advogados’ Tax Law team provided pioneering legal support to three major multinational companies – two in the energy sector and one in the financial sector – all non-resident in Portugal. The disputes concerned the legality of withholding corporate income tax on cross-border dividends imposed by the Portuguese Tax Authorities.
The core issue was the imposition of discriminatory requirements for applying the participation exemption regime to inbound dividend compared with outbound dividends.
Strategically, Abreu Advogados supported these companies in challenging the tax assessments, first administratively and then judicially. In one case, this culminated in a landmark ruling by the Supreme Administrative Court, which upheld a Lisbon Tax Court decision and accepted the company’s position and the arguments advanced by Abreu Advogados.
Called upon to rule on this matter, the Supreme Administrative Court confirmed the reasoning set out in the appealed ruling, concluding that the legal provision created a difference in treatment based exclusively on residence or permanent establishment in Portugal. This amounted to discriminatory treatment and a restriction on the free movement of capital, prohibited by Article 63 of the Treaty on the Functioning of the European Union.
This ruling marked the culmination of a process that consolidated, at the highest level of Portuguese jurisdiction, the incompatibility of the domestic dividend taxation regime with the fundamental principles of EU law. It set a strong precedent for annulling definitive withholdings where no full credit mechanism exists in the State of residence, paving the way for tax recovery and compensatory interest claims.
This outcome represents a milestone in Portuguese tax litigation, reinforcing legal certainty for investors and multinational groups and establishing a precedent for reclaiming withholding tax and eliminating systemic discriminatory practices in cross-border taxation.
