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ECJ Decision On The Requirement For Non - Residents To Appoint A Tax Representative


The Court of Justice of the European Union on Commission vs Portugal has ruled that the Portuguese rule requiring non-resident individuals to appoint a tax representative in Portugal constitutes an unjustified restriction to the free movement of capital. Taxand Portugal focuses on this decision and its implications.

Under Portuguese Personal Income Tax rules, non-resident taxpayers must appoint a tax representative in Portugal, to represent them before the Portuguese tax authorities when fulfilling ancillary obligations such as submitting tax returns or forms of a declarative nature. Such requirement is only waived when the non-resident taxpayer is receiving Portuguese-sourced income subject to final withholding tax (e.g. passive income).

The Court deemed the requirement to appoint a tax representative discourages non-residents from investing capital in Portugal, specifically in Portuguese capital and real estate. It follows that such an obligation must be regarded as a restriction on free movement of capital, which is generally prohibited by Article 56(1) of the EC Treaty.

It was concluded the obligation to appoint a tax representative is not appropriate or necessary to deal with the 'practical problem' identified by Portugal, i.e., physical distance between tax authorities and non-resident taxpayers. With modern communication methods, it is possible to force non-resident taxpayers to give an address in another Member State for all notifications from the Portuguese tax authorities.

Taxand's Take

A revamp of the legal provisions on tax representatives in Portugal is expected in the near future.

It is believed the same arguments (since the wording of these provisions is very similar to Article 130 of the PIT Code) may also be extended for purposes of other taxes (property taxes and stamp tax) and, more importantly, when companies cease their activities in Portugal. The latter case has been a major difficulty for non-resident companies that, upon closing their activities in Portugal, are "surprised" by an additional cost of appointing a local tax representative (for an undetermined period which the Portuguese tax authorities have never clarified if it is 4 or 10 years).

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Your Taxand contact for further queries is:
Fernando Castro Silva
T. + 351 21 382 12 00

Taxand's Take Author