Portugal Tax Disputes: Two Landmark 2026 Rulings on Foreign Income, Trust Distributions and Double Taxation Relief

How recent Portuguese tax arbitration decisions clarify the taxation of foreign trusts, the evidence required for foreign tax credits, and taxpayers’ rights when challenging the Portuguese Tax Authority.

For expatriates, international investors and individuals receiving income from abroad, complying with Portuguese tax obligations often involves more than calculating the correct amount of tax.

A recurring challenge is demonstrating the nature of foreign financial transactions and proving that taxes have already been withheld or paid in another country.

Two recent decisions issued by Portugal’s tax arbitration tribunal, the Centro de Arbitragem Administrativa (CAAD), provide important clarification on these issues.

On 28 and 29 September 2026, the CAAD published decisions addressing two distinct but closely related aspects of international taxation:

• Case 348/2026-T: Whether foreign withholding taxes can be substantiated through bank statements and financial institution reports without official certificates issued by foreign tax authorities.

• Case 92/2026-T: Whether repayments of loans previously granted to foreign trusts constitute taxable investment income under Portuguese personal income tax rules.

Although these disputes concerned different financial arrangements, they share an important legal principle: the Portuguese tax treatment of international transactions must be based on their actual legal and economic nature, supported by credible evidence, rather than solely on administrative classifications or rigid documentary requirements.

For taxpayers living in Portugal with foreign investments, overseas bank accounts or trust arrangements, these decisions offer valuable guidance on both tax compliance and the defence of their rights.

1. Foreign Tax Credits in Portugal: Official Tax Certificates Are Not Always Required

CAAD Case 348/2026-T — 28 September 2026

Portugal generally taxes its tax residents on their worldwide income, subject to applicable exemptions, special tax regimes and double taxation treaties.

Where foreign-source income is taxable in Portugal and has also been taxed abroad, Article 81 of the Portuguese Personal Income Tax Code (Código do IRS) provides mechanisms for eliminating international juridical double taxation.

Under the ordinary foreign tax credit mechanism, taxpayers may deduct eligible foreign income taxes from their Portuguese tax liability, subject to statutory limitations and the applicable double taxation treaty.

However, disputes frequently arise over the documentation required to demonstrate that foreign taxes have actually been withheld.

The dispute

In Case 348/2026-T, a married couple resident in Portugal reported approximately €67,745 in foreign investment income in their 2017 Portuguese personal income tax return.

Their income included interest and dividends from investments held through a Swiss financial institution, with dividend income originating from Italy, Spain and the United States.

The taxpayers declared approximately €3,941 in foreign withholding taxes and requested the corresponding foreign tax credit.

The Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira, or AT) challenged the supporting documentation.

Although the taxpayers had provided annual investment reports, bank statements and dividend payment confirmations identifying the gross income, withholding taxes and net amounts received, the AT argued that these documents were insufficient.

In its view, the taxpayers should have provided official confirmation issued or authenticated by the tax authorities of the countries where the income originated.

The dispute eventually reached the CAAD, with €3,342.66 at issue.

What did the tribunal decide?

The tribunal ruled in favour of the taxpayers.

It concluded that Portuguese tax legislation does not establish an exclusive or mandatory form of documentary evidence for proving foreign withholding taxes.

In particular, neither Article 81 of the Personal Income Tax Code nor the general rules on tax evidence require taxpayers, in every circumstance, to obtain official certificates from foreign tax administrations.

Instead, the relevant facts may be demonstrated through legally admissible evidence, including documentation issued by financial institutions.

In this case, the bank reports and dividend statements identified the relevant income and withholding amounts, and the AT had not challenged their authenticity.

The tribunal therefore considered the available evidence sufficient.

As a result, the disputed tax adjustment was annulled, and the AT was ordered to reimburse the amount improperly collected, together with compensatory interest.

The legal principle: Freedom of evidence in Portuguese tax proceedings

The decision reinforces the principle that taxpayers are not restricted to one specific type of document when proving foreign taxes withheld.

Under Article 74 of the Portuguese General Tax Law (Lei Geral Tributária), taxpayers generally bear the burden of proving facts that establish their entitlement to a tax benefit or deduction.

However, satisfying this burden does not necessarily require a certificate issued by a foreign tax authority.

The tribunal also recognised an important practical difficulty: taxpayers cannot always compel foreign administrations to issue individual certificates confirming withholding taxes deducted by banks, brokers or other paying institutions.

Consequently, a taxpayer should not automatically lose a legitimate foreign tax credit merely because a document depends on the cooperation of a foreign public authority outside the taxpayer’s control.

The ruling is consistent with earlier judicial and arbitration decisions, including:

• Portuguese Southern Central Administrative Court, Case 1646/10.4BESNT, 14 March 2024.

• Portuguese Southern Central Administrative Court, Case 337/10.0BELRS, 14 March 2024.

• CAAD Case 302/2023-T, 11 April 2024.

Together, these decisions support a broader judicial approach recognising the admissibility of credible alternative documentation in international tax matters.

What does this mean for US investors and other expatriates in Portugal?

This decision is particularly relevant to Portuguese tax residents holding foreign investments through institutions such as US brokers, international banks and investment platforms.

For example, an individual resident in Portugal may receive dividends from US companies subject to withholding tax before the funds reach their investment account.

The financial institution may provide an annual statement or a US tax reporting document, such as Form 1042-S where applicable, but obtaining a separate certificate from the US Internal Revenue Service for each withholding event may be impractical.

The CAAD’s reasoning supports the possibility of substantiating the withholding tax through reliable financial documentation instead.

Nevertheless, an important distinction remains.

Proving that foreign tax was withheld does not automatically mean that the entire amount withheld can be credited against Portuguese income tax.

Article 81 of the Portuguese Personal Income Tax Code limits the credit, broadly, by reference to the foreign tax eligible under the applicable rules and the corresponding Portuguese tax liability. Where a double taxation treaty applies, additional limitations may arise.

For example, if foreign dividends were subject to withholding above the rate permitted by the applicable treaty, the excess may need to be recovered from the foreign jurisdiction rather than credited in full against Portuguese tax.

These rules must be assessed separately from the evidential question addressed by the tribunal.

For US citizens resident in Portugal, the analysis can be more complex because treaty provisions, US citizenship-based taxation, foreign tax credits and relevant treaty re-sourcing provisions may interact.

A coordinated Portugal–US tax analysis is therefore essential.

2. Foreign Trusts in Portugal: Is a Loan Repayment Taxable Income?

CAAD Case 92/2026-T — 29 September 2026

The second ruling addresses a particularly complex issue in Portuguese international taxation: the treatment of payments made by foreign trusts to Portuguese tax residents.

Trusts are widely used in common-law jurisdictions, including the United States, the United Kingdom and Jersey, for estate planning, family wealth management and asset protection.

Although Portuguese domestic law does not provide a general legal framework for establishing trusts, the Portuguese Personal Income Tax Code contains specific provisions governing payments received from foreign fiduciary structures.

Under Article 5(2)(t), amounts paid or made available by fiduciary structures may qualify as Category E investment income where they are not connected with the liquidation, revocation or termination of the structure and have not already been taxed under the relevant transparency rules.

The key question is whether this treatment extends to every payment made by a trust, including the repayment of money previously lent to it.

The dispute

The taxpayer was a Portuguese tax resident benefiting from the former Non-Habitual Resident (NHR) regime.

He was both the settlor and a beneficiary of a discretionary trust established in Jersey.

In 2020, he received approximately €175,979 from the trust.

The Portuguese Tax Authority classified the amount as taxable investment income, while the taxpayer argued that it represented repayment of capital previously lent to the structure.

The taxpayer identified two underlying transactions:

The tribunal examined the relevant contracts, bank transfers, trust accounting records and earlier repayments to determine whether the 2020 payment represented a genuine repayment of loan principal.

The tribunal’s legal interpretation

The CAAD recognised an important distinction between income distributed by a trust and capital repaid by a trust.

Under Article 5(1) of the Portuguese Personal Income Tax Code, investment income generally encompasses income and economic benefits derived from movable assets, rights and financial arrangements.

A repayment of loan principal does not ordinarily generate additional wealth for the lender.

Instead, the lender exchanges an existing receivable for cash.

Accordingly, the tribunal concluded that repayment of capital previously lent to a trust does not, in itself, constitute taxable investment income merely because the payment originates from a fiduciary structure.

This interpretation limits the scope of Article 5(2)(t): the provision cannot be applied indiscriminately to every financial transfer made by a trust without considering the underlying legal and economic transaction.

Why did the taxpayer lose the case?

Despite accepting the principle that genuine loan repayments are not taxable income, the tribunal upheld the tax assessment.

The reason was insufficient evidence connecting the original loan to the payment received in 2020.

The taxpayer successfully demonstrated that he had lent $170,000 to the trust in 2015.

However, he could not establish that this particular debt remained outstanding when the trust made the disputed payment five years later.

The trust had recorded several reductions in its aggregate liabilities to the taxpayer during 2018 and 2019.

Those repayments had not been clearly allocated between the verified $170,000 loan and the separate $500,000 debt, whose underlying origin had not been adequately substantiated.

Consequently, the tribunal could not determine whether the original, documented loan had already been repaid before 2020.

The accounting records demonstrated a reduction in the trust’s overall liability, but did not establish which particular loan was being repaid.

The tribunal therefore concluded that the taxpayer had not discharged the evidential burden necessary to establish that the 2020 payment was a repayment of previously advanced capital.

The tax assessment was maintained.

The practical lesson: Proving the loan is not enough

This decision illustrates why trust documentation must go beyond proving that a loan existed historically.

Where a trust owes money to its settlor or another beneficiary, taxpayers should maintain a complete record showing:

1. The original loan agreement and its financial terms.

2. The transfer of funds from the lender to the trust.

3. The trust’s accounting recognition of the liability.

4. Every subsequent repayment, including dates and amounts.

5. The specific debt and principal or interest component to which each repayment relates.

6. The outstanding balance immediately before the payment being assessed.

Without this reconciliation, even a genuine historical loan may not be sufficient to defend the tax treatment of a subsequent payment.

Another important clarification: CRS reporting does not determine tax liability

The case also involved financial information reported under the Common Reporting Standard (CRS), the international framework for automatic exchange of financial account information.

The trust payment had initially been reported by the relevant Swiss institution using the CRS504 classification, generally associated with other income.

Following clarification from the Swiss authorities, the reporting was corrected to CRS503, associated with gross proceeds from sales or redemptions.

The tribunal recognised that neither classification automatically establishes the nature of the payment for Portuguese income tax purposes.

CRS is an information-reporting mechanism, not an independent charging provision under Portuguese tax law.

The underlying transaction must still be examined under the applicable domestic tax rules.

This distinction is relevant for international taxpayers whose foreign financial accounts generate automated reporting to Portugal, particularly where differences arise between how a financial institution classifies a transaction and how that transaction should legally be taxed.

3. A Common Legal Principle: Substance, Evidence and the Burden of Proof

Although the two decisions reached different outcomes, they establish complementary principles concerning international taxation in Portugal.

In Case 348/2026-T, the taxpayers succeeded because the evidence submitted was considered sufficient to establish foreign withholding taxes.

In Case 92/2026-T, the taxpayer failed because, despite proving the existence of a historical loan, he could not establish the connection between that loan and the payment subsequently received.

The difference is not contradictory.

Both rulings demonstrate that tax outcomes depend on the legal characterisation of transactions and the adequacy of the evidence supporting that characterisation.

These decisions also reinforce three distinctions that international taxpayers should understand.

A. Reporting obligations are different from tax liability

Information reported automatically by foreign financial institutions may trigger a review by the Portuguese Tax Authority.

However, a bank’s reporting classification is not necessarily conclusive evidence of the tax treatment required under Portuguese legislation.

B. The burden of proof does not imply an obligation to produce one specific document

Taxpayers must substantiate the facts on which they rely.

Nevertheless, documentary requirements must have a legal foundation, and relevant facts may be demonstrated through different credible forms of evidence.

C. The documentation must establish the entire transaction

A collection of contracts, accounting entries and financial statements is not necessarily sufficient unless those documents establish a consistent and traceable relationship between the original transaction and the amount subsequently reported or received.

For international investors, this is particularly important where transactions span several tax years, currencies, financial institutions and jurisdictions.

4. How These Decisions Affect Portuguese Tax Residents With International Income

The implications extend beyond the specific cases decided by the CAAD.

Foreign dividends and investment income

Portuguese residents receiving foreign dividends may face difficulties when the AT challenges tax credits declared in Annex J of their personal income tax returns.

Case 348/2026-T provides useful support where credible statements from financial institutions demonstrate the amounts withheld abroad.

The ruling is especially relevant when official certificates are unavailable or impractical to obtain.

US citizens living in Portugal

US citizens resident in Portugal frequently need to reconcile US tax reporting with Portuguese worldwide-income taxation.

Investment income, withholding taxes, retirement distributions and foreign tax credits may require different treatment in each jurisdiction.

This decision strengthens the argument that reliable documentation should be evaluated according to its substantive content rather than rejected solely because it does not originate from a foreign tax authority.

However, the substantive entitlement to a Portuguese foreign tax credit remains dependent on the applicable domestic legislation and Portugal–US Double Tax Treaty.

Trust beneficiaries and settlors

Individuals receiving payments from US, UK or other foreign trusts should carefully distinguish between:

• Distributions of trust income.

• Repayments of genuine loans.

• Payments associated with the termination or liquidation of a trust.

• Other capital transfers or distributions.

These transactions may have materially different consequences under Portuguese income tax legislation.

In particular, the fact that a distribution is described as a return of capital under foreign trust law does not automatically establish that it qualifies for the same treatment in Portugal.

The appropriate Portuguese classification requires a separate analysis.

NHR and IFICI taxpayers

Special Portuguese tax regimes, including the former Non-Habitual Resident regime and the current Tax Incentive for Scientific Research and Innovation (IFICI), can significantly affect the taxation of qualifying foreign-source income.

However, these regimes do not eliminate the need to establish the nature, source and eligibility of each income item.

Where a foreign payment is incorrectly classified, the resulting tax treatment may differ significantly from the treatment that would apply to the underlying transaction.

Careful classification and documentary support are therefore essential, even where an exemption or preferential tax treatment may otherwise be available.

5. What Should Taxpayers Do When the Portuguese Tax Authority Challenges Foreign Income?

A disagreement with the Portuguese Tax Authority does not necessarily mean that the original tax return was incorrect.

In some situations, discrepancies arise from differences between Portuguese reporting requirements and the information automatically transmitted by foreign financial institutions.

In others, the difficulty concerns the evidence available to substantiate a particular tax treatment.

Before accepting an adjustment, taxpayers should consider whether the AT has correctly identified the transaction, applied the relevant Portuguese legislation and evaluated the supporting documents.

Where the disagreement concerns foreign withholding taxes, it may be appropriate to submit bank statements, dividend vouchers and annual tax reports, together with a detailed reconciliation of the amounts declared.

Where a dispute concerns a foreign trust, the evidence should establish the legal origin and subsequent treatment of the payments, including the outstanding balances of any underlying loans.

If an adjustment has already been issued, the taxpayer may have access to administrative and judicial remedies, including administrative complaints (reclamações graciosas), hierarchical appeals (recursos hierárquicos) and, where legally available, tax arbitration before the CAAD.

Applicable deadlines and procedural requirements must be assessed in each case.

These remedies are particularly relevant where the AT has rejected credible evidence, imposed documentary requirements without a sufficient legal basis or incorrectly characterised an international financial transaction.

6. How GoalSeek Can Help With International Tax Compliance and Disputes in Portugal

At GoalSeek, we specialise in Portuguese taxation for expatriates, international professionals, foreign investors and individuals managing income or financial assets across multiple jurisdictions.

Our advisory services cover the interaction between Portuguese domestic tax legislation, double taxation treaties and the practical requirements of international tax reporting.

We assist clients with:

• Foreign income and tax credits: Reviewing overseas dividends, interest, investment income and foreign withholding taxes to determine the correct Portuguese tax treatment and available double taxation relief.

• Foreign trusts and complex financial arrangements: Assessing the Portuguese tax consequences of trust distributions, capital repayments and other cross-border wealth structures.

• NHR and IFICI advisory: Evaluating eligibility, applicable exemptions and the interaction between preferential Portuguese tax regimes and foreign-source income.

• Portuguese personal income tax compliance: Preparing and reviewing Portuguese tax returns, including Annex J reporting and supporting documentation.

• Tax disputes and representation before the AT: Assisting with tax assessments, administrative complaints, hierarchical appeals, tax audits and the preparation of technically supported responses to the Portuguese Tax Authority.

Our approach combines detailed tax analysis with a practical understanding of the financial and reporting challenges faced by internationally mobile individuals.

Whether you are facing a Portuguese tax assessment, seeking to claim foreign tax credits or need to clarify the treatment of foreign trust distributions, appropriate documentation and a legally supported position are essential.

If you are a Portuguese tax resident with foreign investments, US-source income or international trust arrangements, GoalSeek can help you understand your obligations, assess potential tax exposure and defend your position where appropriate.

Contact GoalSeek to arrange a specialist Portuguese tax consultation.

7. Legal References and Further Reading

The following decisions and statutory provisions form the principal legal basis for this analysis.

Portuguese tax arbitration decisions

• CAAD Case 348/2026-T, 28 September 2026 — Foreign tax credits and documentary evidence of withholding taxes.

• CAAD Case 92/2026-T, 29 September 2026 — Taxation of foreign trusts and repayment of loan principal.

Portuguese legislation

• Article 81, Portuguese Personal Income Tax Code — Relief from international juridical double taxation.

• Article 5, Portuguese Personal Income Tax Code — Investment income and payments from fiduciary structures.

• Articles 74 and 75 of the Portuguese General Tax Law — Burden of proof and presumptions relating to taxpayer declarations.

Related jurisprudence

• Southern Central Administrative Court, Case 1646/10.4BESNT, 14 March 2024.

• Southern Central Administrative Court, Case 337/10.0BELRS, 14 March 2024.

• CAAD Case 302/2023-T, 11 April 2024.

Legal disclaimer: This article provides general information based on Portuguese tax legislation and published judicial and arbitral decisions. It does not constitute individual tax or legal advice. Tax treatment depends on the taxpayer’s specific circumstances, applicable legislation, tax treaties and supporting documentation. CAAD decisions are case-specific and do not automatically establish binding precedent for other taxpayers.