Portugal: New tax procedure for domestic bonds : further clarified

Note: The information in this Announcement, originally published on 31 December 2013 and clarified on 2 January 2014, has been further clarified. Changes are highlighted and cumulative.

As of:

• The 2nd income payment in 2014 of each security issued before 1 January 2014 and
• The 1st interest payment after 1 January 2014 for securities issued as of 1 January 2014,

and on zero-coupon bonds issued as of 1 January 2014, the amendments to DL 193/2005 stipulated by Law 83/2013 will become effective.

This is further to our Announcement A13184, dated 11 December 2013, and supersedes our Announcement A13199, dated 24 December 2013 (rendering this last obsolete).

Important note:

The procedure explained below has been agreed with our local custodian Banco Santander Totta (BST) and will remain in place as long as no further details and/or official forms are provided by the Portuguese Tax Authorities.

Waiving of holding restriction

The current holding restriction applicable to:

• Residents for tax purposes in a country or territory considered as a tax haven by Portuguese legislation, except central banks and government agencies resident in those countries; or
• Residents of Portugal subject to Portuguese withholding tax; or
• Non-resident institutions more than 20% owned by entities resident in Portugal;

will no longer be applicable to domestic Portuguese bonds, as indicated above, subject to this new tax procedure.

Important note:

Customers must ensure that the holding restriction currently in place is respected for all future payments still governed by the existing DL 193/2005 . Furthermore, customers shall be fully liable for and indemnify Clearstream Banking¹ in respect of any claims, damages, costs, expenses, penalties, taxes and interest thereon, levied by the Portuguese Tax Authorities or any other authority in connection with the securities, or in respect of any other costs, claims, damages and expenses incurred in connection with the non-compliance with the holding restriction imposed by the current applicable Art. 17 of DL 193/2005 .

Applicable withholding tax rates

A tax exemption is available, after submission of the requested information by the prescribed deadlines, to the following entities:

• All non-resident entities, with the exception of those that are resident in a tax-haven country that has neither a Double Taxation Treaty (DTT) nor a Tax Information Exchange Agreement (TIEA) in place with Portugal;
• Central banks;
• Government entities;
• Supranational/international entities recognised by Portugal;
• Portuguese residents eligible for tax exemption.

Please use the following links to view lists as indicated:

• Double Taxation Treaties (DTTs) signed by Portugal;
• Tax Information Exchange Agreements (TIEAs) signed by Portugal.

The codes for Portuguese tax-exempt entities are as follows:

The following reduced tax rates are available after submission of the requested information by the prescribed deadlines:

• 25% for disclosed legal entities;
• 28% for disclosed individuals.

The maximum tax rate of 35% is applicable to:

• Residents of countries considered as tax havens by Portuguese legislation and that have no DTT or TIEA with Portugal;
• Non-disclosed beneficial owners.

Applicable withholding tax procedures

According to Law 83/2013, relief from withholding tax is available to eligible beneficial owners through CBL by means of relief at source and quick refund procedures (for interest and redemption only), as described in the following sections.

Relief at source

In order to benefit from relief at source on income/redemption from Portuguese securities, customers of CBL will need to ensure that we receive the following documents one business day before Payment Date, by 10:00 CET. One-Time Certificate for Portuguese Debt Securities – DL 193/2005 amended by Law 83/2013

The One-Time Certificate (see version attached below) must be submitted by all customers, regardless of the residency and status of the beneficial owners, before the first applicable interest payment date and must state that the customer holds the securities, either:

• BOX 1 - Standing instruction: Exclusively for one single beneficial owner (which may be the customer or his underlying client) eligible for tax exemption. By ticking the first box, tax exemption or reduced tax rate (applicable only for disclosed beneficial owners not eligible for tax exemption) is applied by default at source on all further interest payments and no further certificates are required. If the beneficial owner is a Portuguese resident, the customer must, in order to comply with the reporting obligations, complete the beneficial owner’s data (full name, address, Tax Identification Number (TIN), type and, if applicable, legal code number) and authorise CBL to forward these details and the total holdings to the Portuguese authorities for each interest payment made to the customer’s account.

Or

• BOX 2 - Standing instruction: Exclusively on behalf of several beneficial owners (including the customer, when applicable), being non-residents of Portugal for tax purposes and eligible for tax exemption. By ticking the second box, tax exemption is applied by default at source on all further interest payments and no further certificates are required.

Or

• BOX 3 - Instruction per payment: Exclusively on behalf of several beneficial owners (including the customer, when applicable), being non-residents of Portugal, eligible or not for tax exemption, or undisclosed beneficial owners. In addition to the One-Time Certificate, a Breakdown of Holdings must be provided, as explained below.

Or

• BOX 4 - Instruction per payment: On behalf of several beneficial owners being eligible or not for tax exemption as above but also on behalf of beneficial owners that are Portuguese residents. In addition to the One-Time Certificate, the customer is required to submit, before each interest payment, a Breakdown of Holdings and, for the beneficial owners that are Portuguese residents, a List of Beneficial Owners, as explained below.

A One-Time Certificate that has more than one BOX ticked is not valid and will be rejected.

A Breakdown of Holdings

Customers that ticked BOX 3 or 4 in the One-Time Certificate must provide a Breakdown of Holdings, via SWIFT MT599 or CreationOnline free-format message, at the latest one business day before Payment Date by 10:00 CET, indicating:

• The customer’s total holding;
• The total position held on behalf of beneficial owners that are non-residents of Portugal and eligible for tax exemption;
• The total holding held on behalf of non-residents of Portugal not eligible for tax exemption and/or are undisclosed;

And, if the customer ticked BOX 4 in the One-Time Certificate:

• The total holding held on behalf of residents of Portugal eligible for tax exemption / reduced tax rate.

All these declared positions must be accurate on the relevant record date (that is, one business day before Payment Date) at 19:00 CET. If there is a discrepancy between the declared positions and the customer’s total holding visible in Clearstream Banking’s books, the application for tax exemption will be rejected and, consequently, the maximum standard tax rate will be applied.

Furthermore, if BOX 3 or 4 of the One-Time Certificate is ticked and we receive no Breakdown of Holdings by the prescribed deadline, the customer’s total holding will be considered as being undisclosed and, as a consequence, the maximum standard tax rate will be applied. List of Beneficial Owners (BO List)

Customers that ticked BOX 4 in the One-Time Certificate must provide a List of Beneficial Owners (see version attached below) at the latest one business day before each interest payment, by 10:00.

The BO List must be completed as follows:

• “General Information”.
• “Breakdown of Total Holding per category of BO”.
• “List to be completed with Portuguese beneficial Owners details”: all columns of this list are to be filled in with the details of Portuguese BOs. Among these, the following columns:
  • Column E (“type of investor”): the status of the beneficial owner (individual or legal entity) is mandatory.
  • Column F (“legal basis of the exemption from withholding tax”): to be filled in with the relevant tax code. All tax codes from 1 to 8 are detailed in the box named “For Exempt Portuguese Beneficial Owners”.
  • Column G (“for code 8, complete the legal basis of the exemption from withholding tax”): to be filled in when tax code in column F is 8.
  • Column J (“tax rate to apply”): the applicable tax rate according to the status of the Portuguese beneficial owner (28% for disclosed individuals, 25% for disclosed legal entities, 0% for tax-exempt entities that completed Column F and, if applicable, Column G).

All declared positions must be accurate on the relevant record date (that is, one business day before Payment Date) at 19:00 CET. If there is a discrepancy between the positions declared in the BO List and those included in the Breakdown of Holdings submitted separately for the same event, the application for tax relief will be rejected and, consequently, the maximum standard tax rate will be applied.

Furthermore, if BOX 4 of the One-Time Certificate is ticked and we receive no BO List but only the Breakdown of Holdings by the prescribed deadline, the customer must clearly define, in the SWIFT MT599 or CreationOnline free-format message, that no Portuguese beneficial owners are holding the securities. If we receive no BO List and no Breakdown of Holdings by the prescribed deadline, the customer’s total holding will be considered as being undisclosed and, as a consequence, the maximum standard tax rate will be applied.

Important note:

Due to the implementation date of this new law, there will be a transitional period for the use of the BO Lists. The new BO List (attached below) will only be accessible in its Excel version until the old BO List, currently accessible on our website, will be considered as no longer valid. Once the old BO List is invalid, the new BO List will be accessible for upload through our website. Until then, the Excel version is to be used for the purpose of this new tax procedure.

Quick refund

A quick refund of withholding tax, for interest and redemption only, is available for beneficial owners eligible for tax relief if the required certification has not been provided within the relief at source deadline.

If a One-Time Certificate with BOX 1 or 2 ticked is submitted for a quick refund application, customers are obliged to send in addition a SWIFT MT599 or CreationOnline free-format message indicating the ISIN and payment date for which the standing instruction must be applied.

The eligibility criteria and certification requirements are the same as for relief at source (see above). Deadline for quick refund

In order to benefit from quick refund on income/redemption from Portuguese securities, customers must ensure that we receive the above-explained documents at the latest five business days before the sixth month after the relevant Payment Date.

We continue to closely monitor the market and will provde more information when it is available.

Further information

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

or Clearstream Banking Customer Service or their Relationship Officer.

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1. Clearstream Banking refers to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).