Decision No. 366/2026: A Significant Decision on Tax Legality and the Limits of Administrative Regulation

By Tiago de Oliveira Monteiro

Decision No. 366/2026 of the Constitutional Court warrants close reading — not only for the outcome it reaches, but also for the scope of its reasoning.

In very brief terms, the case brought before the Court concerned the former Non-Habitual Residents (NHR) regime, specifically the application of the special 20% personal income tax (IRS) rate to Category A and B income earned through high value-added activities of a scientific, artistic, or technical nature.

The relevant provision of the Personal Income Tax Code delegated to a Ministerial Order (Portaria) the definition of those activities. It was precisely this delegation that the Constitutional Court found unconstitutional, on the grounds that the statutory provision lacked sufficiently developed criteria and granted the Administration an excessive margin of discretion in determining who could benefit from the regime.

Background to the Decision

The decision rests on a constitutionally sound premise: the essential elements of taxes — including tax benefits — must derive from statute.

In a rule-of-law state, fiscal matters demand predictability. Taxpayers must be able to determine from the law itself whether a given tax regime applies to them. Equally, the Government should not be free to define, by Ministerial Order, who qualifies for a special income tax rate.

In this regard, the decision reaffirms that the principle of tax legality is not a procedural formality. It is a guarantee for taxpayers and a constraint on administrative action.

The Statutory Reserve in Tax Matters

The most debatable aspect from a doctrinal perspective of the decision lies in its conclusion that the phrase "high value-added activities of a scientific, artistic, or technical nature" constitutes a concept that is not merely indeterminate, but indeterminable.

This characterisation appears particularly demanding and likely to give rise to scholarly debate.

It is true that the expression is broad. It is equally true that the legislature could have defined the criteria for the regime's application more precisely. However, it does not necessarily follow that the concept was incapable of legal interpretation.

Tax law frequently employs open-textured concepts. The Court itself acknowledges that the use of indeterminate concepts is not, in itself, incompatible with the Constitution.

The central question should have been whether the statute contained sufficient minimum criteria to guide regulatory action and to limit the Administration's discretion.

The Definition of High Value-Added Activity

This is one of the most significant points in the debate.

The statutory provision identified several elements of the regime:

• the eligible persons: non-habitual residents;

• the relevant categories of income: Categories A and B;

• the nature of the activities: high value-added;

• the substantive domains: scientific, artistic, or technical;

• the tax consequence: application of the special 20% rate.

Whether this level of elaboration was sufficient is open to debate, and there are sound arguments for concluding that it was not.

Nevertheless, to hold that the concept was legally indeterminable appears to carry the reasoning further than was necessary to resolve the case.

Technical Regulation or Legislative Substitution?

Another sensitive issue concerns the Court's characterisation of the Ministerial Order's function.

In the Court's view, the Order defined, in a primary and innovative manner, who could benefit from the regime — meaning it did not merely implement the statute, but substituted itself for the legislature in defining an essential element of the tax benefit.

This conclusion is defensible, but not inevitable.

One could equally argue that the primary policy choice had already been made by the legislature: to create a special rate for non-habitual residents engaged in qualified activities, characterised by high added value and falling within scientific, artistic, or technical domains.

Under this reading, the Ministerial Order did not create the benefit, set the rate, or independently choose the regime's purpose. Its role was limited to giving technical expression to a legislative choice already taken.

The boundary between technical elaboration and normative innovation is, in this instance, particularly difficult to draw. For that reason, the decision might have benefited from more refined reasoning as to the precise point at which the Ministerial Order ceased to implement the statute and began to supplant it.

The Practical Scope of the Decision

It is important to note that the Constitutional Court did not declare the NHR regime unconstitutional in its entirety.

Nor did it declare, with general binding force, the invalidity of the activity schedule as a whole.

The decision is confined to the specific case before the Court — in particular, to Category B income and to the segment of the Ministerial Order concerning directors of administrative and commercial services.

That said, the reasoning adopted is broad enough to generate uncertainty and capable to give rise to uncertainty as to the future application of analogous concepts and cross-references

By holding that the statutory concept was indeterminate and indeterminable, and that the Ministerial Order ultimately performed a primary normative function, the Court opens the door to similar arguments being invoked in other fiscal contexts.

The Underlying Problem

The decision upholds the statutory reserve and reinforces the requirement of legislative elaboration in tax matters. That reinforcement is a positive development.

At the same time, the decision appears to undervalue and fail to place adequate emphasis on the technical function that administrative regulation performs in complex tax regimes. The tax system operates, in many instances, through an interplay between statute and regulation. The question is not whether that interplay may exist — it clearly can. The question is how far it may extend.

This is where the decision becomes most significant.

The question it leaves open is not simply whether the former NHR regime was poorly designed. The question is broader: to what extent may the fiscal legislator rely on Ministerial Orders to make operational a regime that statute defines only in general terms?

Decision No. 366/2026 answers with considerable rigour — perhaps with excessive rigour

The considerations set out herein are strictly general in nature and do not obviate the need for a case-by-case analysis of individual circumstances.

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