The Portuguese regime: exemption in principle, hurdles in practice
Under Portuguese law, EU pension funds can benefit from a withholding tax (WHT) exemption on Portuguese-sourced income, provided the following conditions are met:
The foreign pension fund exclusively provides old-age, disability, and survivors’ pensions; pre-retirement, health, and post-employment benefits; and death benefits;
It is managed by an entity covered by Directive 2003/41/EC of 3 June 2003;
The pension fund is the effective beneficiary of the income;
In the case of dividends, the shares must be held for more than one year; and
The paying entity is provided with a statement from the fund’s supervisory authority confirming that the requirements set out under Portuguese law are fulfilled.
In practice, many non-Portuguese pension funds struggle to obtain the required statement from their respective regulatory authorities. As a result, the Portuguese tax authorities commonly deny exemption applications and tax refunds due to insufficient documentation.
ECJ judgment
On November 27 2025, the Court of Justice of the European Union (ECJ) issued a preliminary ruling in Case C-525/24 (Santander Renta Variable) confirming that imposing additional administrative requirements on non-resident pension funds seeking a WHT exemption constitutes a restriction on the free movement of capital.
VdA filed this case in Portugal for Santander Renta Variable España Pensiones Fondo de Pensiones, a pension fund established in Spain that received investment income (dividends) paid by companies resident in Portugal. Because it could not obtain the required declaration issued by the entity responsible for its supervision in Spain, the fund was subject to Portuguese WHT.
Santander Renta Variable claimed a full WHT refund, arguing that the Portuguese regime was incompatible with EU law. The challenge focused on the fact that foreign pension funds must comply with the requirements above and produce specific documentation to benefit from the WHT exemption, while Portuguese pension funds are exempt from corporate income tax without needing to demonstrate fulfilment of any further condition.
The ECJ decision has two key practical consequences:
For WHT relief at source – while a declaration confirmed by the competent supervisory authority may still be requested, this is acceptable only if:
The supervisory authority has the necessary powers to issue such a statement;
It can be obtained within a reasonable timeframe; and
There is no less restrictive but equally effective means of proof available.
For refund claims – the Portuguese tax authorities cannot insist that the supervisory authority declaration is the sole method of proof, as alternative evidence or documentation must be accepted.
Refunds and timings
This decision creates leeway for non-resident pension funds to reclaim WHT paid in Portugal over the past four years even if they cannot obtain a statement from their supervisory entity attesting to the fulfilment of Portuguese law requirements.
Since the ECJ ruling is based on the free movement of capital, non-EU pension funds can also seek WHT refunds.
Although the ECJ clarified what constitutes an acceptable evidentiary burden, practical implementation will depend on guidance from the Portuguese tax authorities (for upfront exemptions) and the stance of tax arbitration courts regarding alternative proof (for refund claims). In the Santander Renta Variable case, for example, Portugal’s Arbitration Court accepted a declaration issued by the fund’s management company as alternative evidence. In practice, the required documentation will need to be assessed on a case-by-case basis.
