EU: CJEU judgment on compatibility with EU law of evidentiary requirements for nonresident pension funds seeking withholding tax exemption (Portugal)
Requirements held incompatible with EU law to the extent taxpayers cannot prove exemption qualification by alternate means.
The Court of Justice of the European Union (CJEU) on November 27, 2025, issued a judgment (Case C-525/24) that Portuguese evidentiary requirements for nonresident pension funds seeking a withholding tax exemption were incompatible with the principle of the free movement of capital under Article 63 of the Treaty on the Functioning of the European Union (TFEU) to the extent that such requirements provided that the exclusive means of proof of qualification for exemption was a declaration certified by the home-state supervisory authority.
Background
Under the Portuguese tax code, domestic pension funds benefit from a corporate income tax exemption, and nonresident pension funds can benefit from a withholding tax exemption on Portuguese-source dividends if they meet certain criteria and provide specific proof before income is paid. This proof is not required from resident funds and must take the form of a declaration certified by the home-state supervisory authority confirming satisfaction with these conditions. If proof is not provided in time, a refund may be requested, subject to the same documentary requirements.
Summary
The taxpayer, a Spanish occupational pension fund, received dividends from Portuguese companies in 2020 and 2021 that were subject to a final withholding tax of 25% in Portugal. The taxpayer sought a full refund of tax withheld at source on the dividends, arguing that it met all substantive conditions for the exemption but was unable to obtain such a declaration from the Spanish supervisory authority. The Portuguese tax authority rejected the refund request, and the case was brought before the Portuguese tax arbitration tribunal. The tribunal expressed doubts about the compatibility of the evidentiary requirements (applicable only to nonresident funds) with EU law and referred two questions to the CJEU:
- Whether the evidentiary requirements imposed on nonresident pension funds constitute a restriction on the free movement of capital
- Whether, in cases when the taxpayer claims that obtaining such proof is impossible, the tax authority is required instead to obtain information directly from other member states using EU administrative cooperation tools
The CJEU held that Article 63 TFEU does not preclude a member state from requiring a nonresident pension fund to provide a declaration certified by its home state supervisory authority in order to obtain an exemption at source, provided that the authority has the power to issue such a declaration, that it can be obtained within a reasonable timeframe, and that no equally effective but less restrictive alternative exists. However, the court found that Article 63 TFEU does preclude a member state from requiring such a declaration as the exclusive means of proof when the fund seeks a refund of withholding that that has already been levied. The court did not answer the second question as its answer to the first question made that unnecessary.
Read a December 2025 report prepared by KPMG’s EU Tax Centre