Portugal: Important proposed changes for 2014 Portuguese corporate tax system

We have been informed by our Portuguese depository, Banco Santander Totta (“BST”) that the following important documents have been presented by the Portuguese Government to the Portuguese Parliament:

• The State Budget Law Proposal for 2014; and
• The Draft Law reforming the Portuguese Corporate Income Tax (CIT).

State Budget Law Proposal for 2014

Some of the most important tax amendments proposed by the Portuguese Government may impact, for 2014, taxation in Portugal of non-resident investors.

Note: These proposals are from the Portuguese Government to be discussed in the Portuguese Parliament and, as such, they are still subject to changes. If approved, changes to taxtion will generally apply as from 1 January 2014.

1. Decree-Law 193/2005

The proposal establishes a legislative authorisation that will allow the Portuguese Government to review and systematise the current Special Tax Regime for Debt Securities (Decree-Law 193/2005), as follows:

• Extend the scope of the regime to income from securities representative of the public debt and private, including securities of monetary nature known as commercial paper, integrated and registered exclusively with international central securities depositories (ICSDs);
• Define the entities to whom the securities mentioned in the above paragraph, have the fiscal obligations, namely, to retain the tax, to pay and the declaratives obligations;
• Review with the goal of simplifying:
  • The duties of information to be provided by entities involved;
  • The procedures concerning the identification of beneficial owners; and
  • The mechanisms of reimbursement of tax unduly retained.
• Define the entities responsible for the payment of tax not withheld at source or improperly reimbursed;
• Establish consequences, including sanctions, of non-compliance with the obligations defined under this regime.

2. Form Mod. 21-RFI

Exemption/refund of withholding tax (total or partial) arising from a Double TAxation Treaty (DTT) would be performed upon presentation, by the beneficiary, of the Form Mod. 21-RFI together with a document, issued by the competent authorities of said beneficiary's country of residence, that certifies its residence for tax purposes in the related period and its liability to income tax in that country.

3. Financial Transactions Tax

The proposal includes a legislative authorisation for the Government, under the Stamp Duty, to legislate on the taxation of financial transactions in securities, in similar terms to the legislative authorisation already established in the previous Law of the State Budget for 2013. The direction and extension of changes to the Stamp Duty Code, pursuant to legislative authorisation, would apply to the establishment of rules and procedures relating to the taxation of the acquisition of securities at a rate that could rise to a maximum of 0.3%.

4. Tax-haven countries

The proposal includes new general criteria for listing countries, territories or regions qualifying as a more favourable tax regime. The criteria set out are as follows:

• No tax on income, comparable to the Portuguese CIT, or a tax rate lower than 60% of the Portuguese corporate tax rate (that is, 13.8% based on the proposal's reduction of the CIT standard rate);
• Determination of taxable income by standards substantially different from those generally applied by OECD member countries;
• Special taxation regimes or tax benefits that lead to a substantial reduction of taxation;
• Lack of exchange of information (based on law or existing practice).

Any listed jurisdictions would be able to request Portugal to review and remove them from the list on the basis of the criteria set out above. Any delisting would only have effects for the future.

5. Binding rule

The proposal introduces the possibility of submitting an appeal against the decisions of autonomous Portuguese Tax Authorities regarding:

• The absence of assumptions to respond to binding rules or the refusal to respond to urgent binding rules;
• The existence of a special technical complexity making it impossible to respond to the binding rule; and
• The legal and tax framework of facts contained in the response to the binding rule.

Corporate Income Tax reform

The proposal includes:

• New requirements to qualify for an exemption on outbound dividends, currently limited to EU/EEA and Swiss shareholders. To qualify for the WHT exemption for dividend payments, the main criteria will be:
  • 5% minimum shareholding on the Portuguese company distributing the dividends.
  • One-year holding period (may be satisfied after the income is paid).
  • Geographical limitation of shareholders to residents in an EU Member State, EEA (excluding those that do not exchange tax information with Portugal) or jurisdictions with which Portugal has signed a DTT with an exchange of information mechanism.
  • Company receiving the dividends should be subject and not exempt to a tax comparable to the Portuguese IRC at a nominal rate corresponding to at least 60% of the Portuguese CIT rate.
• Several measures designed to simplify and harmonise several compliance obligations, including simplification measures and changes to the formalities for application of tax treaty benefits whereby, as an alternative for the current obligation to obtain specific RFI forms (treaty forms) duly certified by the tax authorities of the country of residence of the beneficiary of the income, a certificate of residence of the payer issued by the tax authorities of the other Contracting State would be sufficient for tax treaty entitlement.

We continue to closely monitor the market and will keep customers informed of developments that might occur in these particular issues.

Further information

For further information, customers may contact the Clearstream Banking¹ Tax Help Desk on:

or Clearstream Banking Customer Service or their Relationship Officer.

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