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Writer's pictureTiago Oliveira Fernandes

Double Taxation Conventions (especially for individuals)

In general terms, when comparable taxes are levied in two or more states on the same taxpayer, the same income and the same period of time, we are faced with a situation of double taxation.


To avoid this situation in different states, there are two ways of (re)acting:


a) through internal rules and through unilateral measures, under internal law (cf. art. 81 of the CIRS); and


b) through bilateral measures - international double taxation treaties or conventions.


The superiority of international treaties or conventions is proclaimed both in the Vienna Convention on the Law of Treaties, specifically in Articles 26 and 27 thereof, and in Article 8(2) of the Constitution of the Portuguese Republic.


Thus, in order to determine an applicable regime, by common agreement between the various States, which would avoid the double taxation of income, various Conventions have been signed to avoid double taxation between the various States.


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Consistent with the text of the “OECD Model Convention” - which contains all the articles mentioned here without further reference - from which the conventions actually concluded are adapted and which serves as the basis for them, the Conventions shall apply to taxes on income, on assets (art. 22), and of a similar nature (art. 2).


Therefore, and noting that the case of natural persons is highlighted here,


Considering that, according to the rules of domestic law of the various states, the same person may be considered resident in several states, Article 4 states that when the natural person is resident in both states, the following tie-breaker rules apply:


"

a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);

b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;

c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;

d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

"


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With regard to the income of natural persons, the Convention applies, as a rule, to the following income:


1. Income from immovable property (Art. 6);

2. Dividends (Art. 10);

2. Interest (art. 11);

3. Royalties (art. 12);

4. Capital gains (art. 13);

5. Independent professions (art. 14)

6. Income from employment (Art. 15);

7. Director's Fee (Art. 16);

8. Entertainers and sportspersons (Art. 17);

9. Pensions (Art. 18);

10. Government Services (Art. 19);

11. Students (art. 20);

12. Other income (art. 21);


In order to eliminate double taxation, the exemption method (Art. 23-A) or the credit method (Art. 23-B) may be applied.

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Finally, for the purposes of interpreting the conventions, the rules laid down in Articles 31, 32 and 33 of the Vienna Convention on the Law of Treaties on the interpretation of treaties must also be taken into account.


As for the text of the Convention, the Model Convention, on which the respective Conventions in force are generally based, can be consulted in Portuguese at the following link: https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/convencoes_evitar_dupla_tributacao/convencoes_tabelas_doclib/Documents/CDT_Modelo_OCDE.pdf


The Double Taxation Conventions concluded by Portugal and in force can be consulted on the Finance Portal / Tax and Customs Authority at the following link:



To obtain the Portuguese tax residency certificate issued by the Tax and Customs Authority, in order to send it to the foreign authorities for the purposes of applying the Convention, simply access your reserved area of the Finance Portal and request the electronic certificate.

 

 

 

 

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