Autoridade Tributária e Aduaneira
BINDING INFORMATION
DOCTRINAL SHEET
Convention: Double Taxation Convention – United States of America
Article: 22
Subject: Income from post-doctoral research work paid by an American university.
Case No.: 6762/2021, ruling dated 06/10/2021, by the Deputy Director-General of the Personal Income Tax area.
Background
The applicant requested binding information regarding the tax treatment of income from research work carried out in the United States of America, within the scope of Article 22 of the Convention between Portugal and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income.
According to the information provided, the applicant is a Portuguese citizen, resident in Portugal until 2019, when she moved to the United States with a J1 visa to carry out a post-doctoral program at University of California San Francisco.
The post-doctoral program began on 12 November 2019 and ran until the end of 2021.
During 2019, 2020 and 2021, she declared income in Portugal and the United States, the only income being that received from post-doctoral research work paid by the University of California San Francisco.
According to Article 22 of the Convention, that income would be exempt from tax in both Portugal and the United States during the two-year period following entry into the United States (until 10 November 2021).
Questions raised by the applicant
The applicant asked for clarification on:
- Confirmation that the income is exempt in Portugal for the two-year period from arrival (November 2019 to November 2021).
- Whether she must remain in the United States for the full two-year period.
- Whether she must reimburse any tax benefits if she does not stay the full period.
- Whether she must file tax returns for the years relating to U.S. research income, even if she had not yet changed her tax residence from Portugal to the U.S.
Tax assessment
The questions concern the classification of income earned in the United States and a possible determination of taxing rights under the Convention between Portugal and the United States.
It is assumed that the applicant is a Portuguese tax resident, according to the tax authority records.
Under Article 22 of the Convention, professors and researchers who are residents of one Contracting State immediately before travelling to the other State, and who go there at the invitation of a university or other recognized institution to teach or carry out research, are exempt from tax in both States on remuneration for those activities for a period not exceeding two years from arrival.
However, the exemption does not apply if the research is not in the public interest but primarily for private benefit.
To benefit from the exemption, the following conditions must be met simultaneously:
- Residence in Portugal immediately before travelling to the U.S.;
- Travel at the invitation of the U.S. government or a recognized university/research institution;
- Travel primarily to teach or carry out research;
- First-time use of the benefit;
- The benefit has not been previously used under Article 23 (students and trainees);
- The research must be in the public interest.
If these conditions are met, the income is exempt in both States.
If conditions are not met
If the applicant does not meet those conditions or remains in the United States beyond the permitted period, she will be taxed according to the general rules of the Convention.
Income from employment exercised in the other State may be taxed in that State.
Conclusion on exemption
Income earned from the activities carried out in the United States at the invitation of the University of California San Francisco is exempt under Article 22 of the Convention.
However, although exempt, the income must be declared in Portugal for purposes of determining the applicable tax rate on other income (progression rule), as required by Portuguese tax law.
This rule allows aggregation only for determining the applicable rate, unless the Convention expressly provides otherwise (which it does not).
Therefore:
- Income earned from activities in the United States is exempt from taxation in Portugal but must be considered for determining the tax rate on other income.
- If the applicant has no other income, the U.S. research income does not need to be declared in Portugal.