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HMRC internal manual

Double Taxation Relief Manual

Double Taxation Relief Manual: Guidance by country: Portugal: Dividends

The agreement provides for reduced rates of Portuguese withholding tax. The withholding tax deducted from dividends paid by a Portuguese company at the agreement rate of 15 per cent qualifies for credit as a direct tax (see INTM164010(c)).

A reduction to the above rate is not given if the dividends are effectively connected with (see INTM153110 fifth sub-paragraph) a permanent establishment which the United Kingdom recipient has in Portugal (Article 10(5)).

The agreement does not provide for credit for underlying tax (see INTM164010 (d)), but, where a United Kingdom company controls, directly or indirectly, at least 10 per cent of the voting power in the Portuguese company paying the dividend, relief may be given unilaterally for such tax.

Although the agreement provides for a reduced rate of 10 per cent withholding tax where the recipient is a United Kingdom company holding, directly, not less than 25 per cent of the capital of the Portuguese company paying the dividend, this provision is ineffective. There should be no withholding tax because of the EC Parent-Subsidiary Directive (see INTM164030). The level of control required to gain exemption is 20 per cent from 1 January 2007 and from 1 January 2009.