Portugal: Interest on refunds for withheld taxes on dividends (Supreme Administrative Court decision)
A decision concerning the start date of interest due on wrongly withheld taxes.
The Portuguese Supreme Administrative Court on July 9, 2025, issued a decision concerning the start date of interest due on wrongly withheld taxes.
Summary
The taxpayer is a Luxembourgish Undertaking for Collective Investment in Transferable Securities (UCITS), which is resident in Luxembourg for tax purposes and has no permanent establishment in Portugal. In 2018, the UCITS received dividends from Portugal, which were subject to a 15% withholding tax. The taxpayer did not obtain a tax credit in its state of residence for the withholding taxes, neither under the Portugal-Luxembourg double tax treaty, nor under the internal law of the Grand Duchy of Luxembourg.
The taxpayer on December 30, 2019, filed an administrative appeal against the definitive withholding tax levied in 2017 and 2018, requesting reimbursement. The taxpayer based its plea on EU law grounds—specifically on the free movement of capital and on the fact that comparable funds that were tax resident in Portugal were not subject to any withholding tax in relation to dividends distributed to them. Although the appeal was unsuccessful, on October 19, 2020, a request for a declaration of the illegality of these withholdings was upheld by an underlying arbitration ruling. Under the ruling, interest was awarded from the date of the final and unappealable court decision until the unduly withheld amounts were refunded. The taxpayer challenged the initial judgment, arguing that it was incorrect for the Portuguese tax authorities to start paying interest only after the court's final decision.
The Portuguese Supreme Administrative Court agreed with the previous ruling that taxes wrongly withheld should be reimbursed to the taxpayer. Additionally, when taxes are withheld and the taxpayer disputes the tax decision, the error becomes attributable to the tax authority once the administrative appeal is rejected. This rejection date marks the beginning of the period for calculating the interest owed to the taxpayer. Consequently, the tax authority must refund the wrongly withheld taxes and pay interest starting from the rejection date of the appeal.
Read an August 2025 report prepared by KPMG’s EU Tax Centre