Tax Treaty Case Law around the Globe 2023

1. Introduction

On 28 March 2022, the Portuguese Arbitration Court (Arbitration Court) delivered a ruling on the interpretation of the article corresponding to Articles 1 (3) and 13 (5) of the 2017 OECD’s Model Tax Convention on Income and on Capital (OECD Model Convention) in the double tax convention (DTC) entered into between Portugal and the United States.

The ruling addresses whether the United States has taxing rights over capital gains realized by a US citizen who is a tax resident of Portugal arising from the sale of shares of companies incorporated in France and the United States.

The decision focuses on whether such capital gains may be taxed in the United States according to the provisions of the Portugal-US DTC and the Protocol to the DTC as well on its impact on the application of the domestic Non-Habitual Resident (NHR) regime.

S. 296The Arbitration Court ruled in favour of the taxpayer, ultimately concluding that the tax assessments issued by the Portuguese Tax Authorities (PTA) are illegal on the grounds that the United States had taxing rights over the capital gains realized, thus entitling the taxpayer to a personal income tax (PIT) exemption under the NHR regime.

2. Facts o...