Changes to fiscal representation
On 5 May 2011, the European Court of Justice ( ECJ) handed down its decision in Case C-267/09, brought before the court by the European Commission against Portugal regarding the Portuguese rules which require non-resident taxpayers to appoint a tax representative in Portugal.
The Portuguese Personal Income Tax Code establishes that non-residents in receipt of income subject to tax and residents who leave the national territory for more than six months are required, for the purposes of taxation, to appoint a natural or legal person, resident or established in Portugal, authorised to represent them in dealings with the Portuguese tax authorities and to ensure their compliance with their obligations as regards taxation.
According to the ECJ decision, the provisions in question, in respect of EU resident individuals, are discriminatory and constitute a breach of Articles 21 TFEU and 63 TFEU and the corresponding articles of the EEA Agreement.
The ECJ concluded that, by obliging the taxpayers in question to appoint a tax representative, the Portuguese legislation requires them to take action and to bear the cost of remunerating that representative.
According to the ECJ, such constraints create, for those taxpayers, a difficulty liable to discourage them from investing capital in Portugal and, therefore, they must be regarded as a restriction on the free movement of capital which is generally prohibited by Article 63 TFEU and Article 40 of the EEA Agreement.
Additionally, the ECJ also considered that such restriction could not be regarded as justified in the light of Article 63 TFEU by the overriding requirement of general interest of ensuring the effectiveness of fiscal supervision and the prevention of tax avoidance, since it goes beyond what is necessary to achieve those objectives.
Although the domestic law has not yet been changed to reflect this decision, we were surprised by the speed of the tax department in implementing the ECJ ruling and as of now EU resident individuals are not obliged to appoint a fiscal representative in Portugal. They have the option to do so - but no obligation. All other non residents must still appoint a fiscal representative however.
Despite the ruling many EU citizens non resident of Portugal will prefer to have their tax affairs kept in order by an experienced professional resident representative.