Those who have been following us know that for a long time, we have taken the position that since the U.S. has the right to tax capital gains from securities in Portugal under the saving clause of the double tax treaty, NHR holders in Portugal who are also American citizens are exempt from tax on capital gains from securities that are not Portuguese securities.
In 2022, a taxpayer won an arbitration case against the tax authorities making this same argument.
Following that, the tax authorities have been mostly applying the exemption without issues, when tax returns have been filed correctly.
However, until now, there has been no admission by the tax authorities that they now accept that the exemption applies. Although the tax authorities have been applying the exemption in most (but not all) cases, they could change their position at any time.
The industry have not caught up and many accountants have been filing incorrectly and failing to correctly claim the exemption. At FRESH, we had multiple refilings and in most cases, simply refiling the tax return has been sufficient. However, in the case of one client, the authorities have not applied the exemption and we had to go to arbitration court.
Following our client's claim, the authorities have now responded accepting that the exemption applies. The detailed reply is reserved at our office for the benefit of other applicants but we cannot share it since it includes personally identifiable information.
Below is the summary of the position of the tax authorities (that has now led to the conclusion of the procedures):
ContextandLegalBasis:
ThedocumentdiscussesataxdisputeinvolvingtwotaxpayerswhoareU.S.citizenswithNon-HabitualResident (NHR)statusinPortugal.
Thedisputeconcernsataxassessmentfortheyear2023relatedtocapitalgains (CategoryG)earnedabroad,specificallyintheUnitedStates.
ThetaxpayersrequestedarbitrationattheCAAD (CentreforAdministrativeArbitration),challengingthetaxassessment.
Taxpayer'sArgument:
Theyclaimthattheincomeshouldbeexemptundertheexemptionmethod (Article81oftheCIRS -PortugueseIncomeTaxCode)becausetheyareU.S.citizens,andthePortugal-U.S.taxtreatyallowstheU.S.totaxitscitizens.
TheyarguethattheU.S.taxtreatyallowstheU.S.totaxitscitizens'worldwideincome,makingthemeligiblefortheexemptionmethodinPortugal.
Authority’sReviewandAnalysis:
ThePortuguesetaxauthoritiesconfirmedtheNHRstatusofthetaxpayersfor2023to2032.
TheanalysisaffirmedthatunderArticle81oftheCIRS,U.S. citizenswithNHRstatuscanbenefitfromtheexemptionmethodforforeignincomeifitcanbetaxedinthesourcecountry (U.S.inthiscase).
Areferencewasmadetoasimilarcase (CAADdecision377/2022-T),supportingthetaxpayers'argument.
Decision:
ThetaxauthorityconcludedthatthetaxpayersareentitledtotheexemptionunderArticle81oftheCIRS.
Theoriginaltaxassessmentwasrevoked.
Thetaxpayersareentitledtocompensatoryinterestduetotheimpropertaxassessment.
