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Portugal-Sweden

17 May 2019

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Protocol to Tax Treaty between Portugal and Sweden Signed

Sweden's Ministry of Finance has announced the signing of an amending protocol to the 2002 income tax treaty with Portugal on 16 May 2019. Changes made by the protocol include:

  • The update of the preamble in line with BEPS Standards;
  • The amendment of Article 2 (Taxes Covered) with respect to Portuguese taxes, which includes individual income tax, corporate income tax, the additional tax on corporate income;
  • The amendment of Article 3 (General Definitions) with respect to the competent authority for Portugal;
  • The replacement of Article 5 (Permanent Establishment) in line with BEPS standards;
  • The replacement of the reference to EU Council Directive 90/435/EEC contained in Article 10 Dividends with a reference to EU Council Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States;
  • The amendment of Article 11 (Interest) with respect to the withholding tax exemption for interest paid on loans granted by specified banks/institutions;
  • The amendment of Article 13 (Capital Gains) to provide that gains from the alienation of shares or similar rights deriving more than 50% of their value directly or indirectly from immovable property situated in a Contracting State at any time in the 365 days preceding the alienation may be taxed in that State;
  • The replacement of Article 16 (Directors' Fees) with updated provisions;
  • The amendment of Article 18 (Pensions) to provide that pensions earned in Sweden will be taxable in Sweden if not taxed in Portugal;
  • The amendment of Article 22 (Elimination of Double Taxation) with respect to Portugal, to include that Portugal still generally applies the credit method, except to the extent that these provisions allow taxation in Sweden solely because the income is also income derived by a resident of Sweden (BEPS provision);
  • The replacement of Article 25 (Exchange of Information) in line with OECD standards on information exchange; and
  • The amendment of Article 27 (Limitations of Benefits) with the addition of the provision that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

The protocol will enter into force 30 days after the ratification instruments are exchanged and will generally apply from 1 January of the year following its entry into force.

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