Portugal: The Meaning of Royalties and Payments for Software

Abstract

This article provides an analysis of a Portuguese decision on the taxation of payments for software.

The main questions addressed by the Court and assessed in this article are: Is the amount taxable? Who should be taxed? When and where should taxation take place? The case of the Portuguese Supreme Administrative Court under consideration here deals precisely with these issues.

Despite of its narrow object, and in contrast with other court cases, this decision ultimately reveals the position of the Supreme Administrative Court on key issues concerning the interpretation of tax treaties, such as the relation between tax treaties and domestic law; the legal value of the OECD Model, the Commentaries, its reservations and its observations; the concept of royalties in international taxation; and the specific value of a reservation included in a treaty. Even before any assessment, the author notes the gallantry of the decision: the Court avoids seeking shelter in any procedural issue, and assesses - directly and boldly - all the issues involved in the appeal, in some cases even going far beyond what would be strictly required to resolve the case.

Keywords: Taxation, Tax law, European taxation

JEL Classification: K33, K34, F13, E62, D78, E62, F02, F23, F42, H20, H22, H23, H25, H26, H87, O19, O23, O24