Under Portuguese tax law, certain pension funds and similar entities that are operating in accordance with Portuguese law are exempt from corporate income tax. In contrast, dividends paid to a non-resident pension fund in an otherwise comparable situation are subject to corporate taxation levied by a definitive dividend withholding tax of 10% - 20%, depending on whether a bilateral agreement between Portugal and the country of residence of the non-resident fund has been concluded and the terms thereof.
In May 2007, the European Commission commenced infringement proceedings against Portugal alleging that the particular tax provisions which allow the disadvantageous tax treatment of dividends to non- Portuguese pension funds, are contrary to the EU Treaty and the EEA Agreement.
