Fund Taxation Alert 2025-10

On 9 July 2025, the Portuguese Official Gazette published Supreme Administrative Court (“Court”) Judgment 8/2025, which ruled in favor of a Luxembourgish undertaking for collective investment in transferable securities (UCITS) (“Claimant”).

The Court established that whenever national tax provisions are set aside due to incompatibility with European Union law, taxpayers are entitled not only to a refund of the unduly withheld tax but also to indemnity interest at a yearly rate of 4%. This interest accrues from the date of the express or tacit rejection of the administrative claim filed against the undue withholding of taxes at source.

This Judgment was issued following an appeal lodged by the Claimant against an arbitration ruling. While the Arbitration Court acknowledged that the Portuguese tax framework on dividends paid to non-resident investment funds breaches the free movement of capital, it only sentenced the Portuguese tax authorities to interest from the date on which the arbitration ruling became final and unappealable.

The Judgment further clarifies previous inconsistencies in arbitral and judicial decisions regarding the starting point for the calculation of indemnity interest. This Judgment aligns Portuguese procedures with EU law requirements, ensuring effective restitution and non-discriminatory treatment for non-resident taxpayers.

Despite this being a positive development, we believe that there is still room for improvement in the future, as the Portuguese Tax Courts are still abiding by the principle of equivalence rather than applying the principle of effectiveness, under which interest should accrue from the withholding date.

In light of this judgment, we recommend that all asset managers:

1. Continue or initiate WHT reclaim filings in Portugal, given the increased likelihood of success.
2. Seek recourse through the Arbitration Court if a reclaim is rejected at the administrative level.
3. Ensure that, upon receiving a favorable decision from the Arbitration Court, indemnity interests are accurately calculated:

• If the taxpayer initially challenged the WHT through an ordinary administrative claim («reclamação Graciosa» - 2-year limitation), indemnity interest is levied as of the date that the claim was either tacitly or expressly rejected by the Tax Authorities (whichever comes first);
• If the taxpayer initially challenged the WHT through an extraordinary administrative claim («pedido de revisão oficiosa» - 4-year limitation), it is entitled to indemnity interest if the refund is not processed within one year from the date the claim was filed. The interest is calculated from that date onwards.

As mentioned in our previous Tax Alerts on Portugal, there are two situations regarding the time limitation period for filing WHT reclaims, meaning that:

• for an administrative reclaim the deadline is 2 years from the date that the withholding tax is legally due to be surrendered before the Tax Authorities (e.g. to challenge withholding tax levied on March 25, 2025, which is legally due to be surrendered before the Tax Authorities on April 20, 2025, ends on April 20, 2027)
• for an extraordinary administrative reclaim, the time limitation period is 4 years, counted from date of payment (e.g., the 4 years deadline for challenging withholding tax levied on March 25, 2025, ends on March 25, 2029).

In practice, this means that if the 2 year time limit period to file an ordinary administrative reclaim has expired, it is possible to directly file an extraordinary administrative reclaim. However, if the ordinary reclaim was filed out of the 2 year time limit but within the 4 years, it is possible to request the PTA to convert it to an extraordinary reclaim, thus avoiding the need to file a new separate reclaim.

A team of tax specialists and project managers can assist you with filing these WHT reclaims.

Should you have any questions/comments, please do not hesitate to contact us.