Tax Treaty Case Law around the Globe 2017

S. 63Portugal: Domestic Losses and Worldwide Gross Income

Ana Paula Dourado

1. S. 64Introduction

On 5 November 2016, the Tax Chamber of the Portuguese Supreme Administrative Court issued a decision on whether in the case of losses incurred by a company resident in Portugal, the taxpayer is bound to declare its worldwide gross income and formally claim a tax credit.

At the core of the litigation was the fact that in the case of losses, the resident taxpayer was not able to recover the tax paid by its permanent establishments abroad, on profits accrued in the jurisdictions in which they were exercising their activities.

2. Facts of the Case

On the facts of the case, as described in the Supreme Court decision, in 1994, the taxpayer had its head office in Portuguese territory. It also had three permanent establishments: one of these exercised its activity in London, another in Zhuhai (China) and the third one in Macau.

At the time when the facts took place, a tax treaty with the United Kingdom was in force, there was no tax treaty with China, and Macau was under Portuguese administration which meant an intra-territorial situation.

The head office in Portugal had incurred tax losses, but the permanent es...