Tax Treaty Case Law around the Globe 2023

1. Introduction

On 21 March 2022, the Portuguese Arbitration Court (Arbitration Court) delivered a ruling on the interpretation of the article corresponding to Article 4 of the OECD’s Model Tax Convention on Income and on Capital (OECD Model Convention) in the double taxation convention (DTC) concluded between Portugal and Spain (Portugal-Spain DTC).

The ruling addresses whether a Portuguese citizen living and working in Spain met the legal criteria to be deemed a tax resident in Portugal in 2016 and, therefore, whether he could be subject to tax in Portugal on all income earned in that year.

While the Arbitration Court initially focuses its assessment on the collision between the concepts of tax residence and tax domicile and whether they are independent from one another, once that issue is settled, its analysis moves on to the S. 90tax residence tie breaker rule in Article 4 of the Portugal-Spain DTC. However, the verdict ends up relying mostly on domestic provisions on tax procedures.

The Arbitration Court ruled in favour of the taxpayer, concluding he was not a resident of Portugal during the year 2016 and, therefore, the tax assessment that was issued is illegal insofar as Portuguese T...