International double taxation in Portugal

As we enter a new era of globalization and digitalization, tax issues relating to international double taxation are becoming increasingly important for investors and companies operating on a global scale. In Portugal, these issues are at the heart of tax policy, with measures designed to facilitate cross-border investment while ensuring fair competition and avoiding tax abuse.

This update provides a comprehensive overview of double taxation relief schemes in France. effective in 2024It also looks at recent international developments, including the application of the Multilateral Instrument (MLI) and developments in tax transparency. It also includes a look at recent international developments, notably the application of the Multilateral Instrument (MLI) and developments in tax transparency.

International double taxation in Portugal

Measures to reduce double taxation are designed to eliminate obstacles to cross-border investment and international trade. They are crucial in today's economic environment, marked by digitization, technological advances, increasing globalization and the free movement of people and goods within the European Union (EU). These measures not only help prevent tax evasion and capital flight, but also attract investment and strengthen economic and other ties between countries.

Countries such as France have introduced unilateral measures to mitigate international double taxation. In addition, conventional measures resulting from international conventions, as well as measures harmonized under European law, reinforce this framework. The country is thus positioned as an international platform for strategic investment.

Double taxation agreements

As a founding member of the Organisation for Economic Co-operation and Development (OECD), has extensive experience in concluding bilateral tax treaties (DTAs), mainly based on the OECD Model Convention. This network of tax treaties is extensive and covers many countries.

An updated summary table of tax treaties signed by Portugal, with an overview of their key points, is available as an attachment.

Multilateral convention on the erosion of tax bases and the transfer of profits (MLI)

The MLI (Multilateral Instrument), a major outcome of the Base Erosion and Profit Shifting Project (BEPS), provides a mechanism for reacting against abusive tax practices. This unprecedented multilateral treaty offers signatory states considerable flexibility in adapting the application of tax measures to their own context.

In particular, the MLI has introduced a general anti-abuse rule (the "main purpose test") into almost all DTAs concluded by Portugal. Details of its impact on each agreement are given in the attached practical table.

European Union Directives

Several aspects of direct taxation are harmonized within the EU through directives such as :

The Parent-Subsidiary Directive, aimed at eliminating double taxation on non-portfolio investments.

The Interest and Royalty Directive, which eliminates the double taxation of payments between affiliated companies.

Anti-abuse directives (ATAD 1 and ATAD 2), harmonizing tax avoidance rules.

The "FASTER" Directive, currently under consultation, which will introduce a digital tax residence certificate (eTRC) at EU level to accelerate the reduction of withholding taxes.

Fundamental freedoms of the European Union

The fundamental freedoms enshrined in the EU Treaties are essential to the European internal market. In the absence of full harmonization of direct taxation, these freedoms, confirmed by the case law of the European Court of Justice, provide an essential framework for defending taxpayers in international tax matters.

Unilateral mechanisms for eliminating double taxation

In the absence of special agreements such as a DTA, Portugal unilaterally reduces or eliminates international double taxation for its residents. Resident taxpayers, whether individuals or legal entities, can benefit from a tax credit to mitigate double taxation. This credit corresponds to the lower of the tax due in Portugal or the tax paid abroad.

Non-residents can also benefit from tax exemptions, notably on certain capital gains and bond interest, subject to certain conditions. Specific rules also apply in Madeira's tax-free zone.

Transparency, information exchange and tax havens

The framework for transparency and exchange of tax information has evolved considerably, both at European and international level. Portugal also applies a list of privileged tax jurisdictions, defined by ministerial decree, which takes into account criteria such as the absence of a tax similar to the IRC or a tax rate of less than 60 % of the standard IRC rate.