In recent months, the Spanish Tax Authority has notified former directors and executives of companies listed on the IBEX 35, currently residing in Portugal, demanding payment of substantial amounts relating to tax on the amounts received from their pension plans after retirement.
These cases involve taxpayers who transferred their residence to Portugal in order to take advantage of the Tax Regime for Non-Habitual Residents (RNH), which until 2020 granted total exemption from taxation on foreign pensions, subsequently applying a fixed rate of 10%.
The Spanish Tax Authority considers that in several cases, the requirements for losing tax residence in Spain were not properly met, or that the transfer of residence was only formal and for tax reasons. For this reason, it has been requesting the taxation of the amounts received by these taxpayers, applying rates of up to 40%, plus interest on arrears and fines.
On the other hand, the Portuguese Tax Authority recognizes as tax residents those taxpayers who meet the criteria established in the IRS Code, i.e., who either spend more than 183 consecutive or interpolated days in a given year in Portuguese territory, or who spend less time but have a permanent residence in this territory. Consequently, it considers that, as provided for in the Double Taxation Agreement (DTA) between Portugal and Spain, the taxation of pensions should be exclusive to the State of residence – i.e., Portugal.
This divergence of interpretations has led to potential situations of double taxation, prompting taxpayers to resort to the amicable resolution mechanisms provided for in the DTA or, as a last resort, to the tax courts.
To mitigate the risks of double taxation and ensure tax compliance, it is essential to carry out a rigorous assessment of the actual tax residence situation, both in Portugal and in Spain. The nature of the income received must be carefully analyzed, distinguishing between pensions and pension plan capitalizations, as well as verifying whether the Double Taxation Agreement between Portugal and Spain is being correctly applied, particularly with regard to Article 18 on pensions and Article 4 on residence.
This issue reflects the growing attention of European tax authorities to transfers of residence by retired taxpayers and reinforces the need for careful and well-documented international tax planning.
Belzuz Advogados, S.L.P., Branch in Portugal, is available to assist its clients in this type of procedure, ensuring compliance with tax obligations in both countries and mitigating the risks of double taxation.