Tax Treaty Case Law around the Globe 2024

16.1. Introduction

On 21 July 2023, the Portuguese Arbitration Court (CAAD or Court) delivered a ruling on the interpretation of the concept of “beneficial owner” under the Interest & Royalties Directive (IRD) and the CDTs entered into by Portugal with the UK and Hong Kong (HK).

In this ruling, the Court substantiated the relevant criteria to assess beneficial ownership and established a link with conduit companies, in line with the case law of the CJEU. As discussed further below, this decision was particularly relevant since it clarified certain aspects of a prior CAAD ruling which dealt with the concept of “beneficial owner” for the first time in Portugal.

Ultimately, the Court ruled in favour of the PTA, having considered that the recipient of the interest income was not the beneficial owner and thus could not benefit from the IRD’s withholding tax exemption. Furthermore, CAAD set aside the application of the reduced withholding tax rates provided for in the CDTs entered into by Portugal with the UK and HK.

16.2. Facts of the case

16.2.1. Applicable tax framework

Payments of interest by Portuguese resident entities to non-resident entities without a permanent establishment in Portuga...