EU cranks up pressure on Madeira’s tax-free zone

Rumblings of discontent have been audible for some time, but now Brussels has initiated the “infraction process against Portugal” regarding Madeira’s tax-free status.

In place since 1980, and only recently extended through to 2027, Madeira’s so-called “special economic zone” replete with tax perks could “violate the EU directive of 2014/23/UE”, dealing with the adjudication of concession contracts.

Lisbon now has two months to send “complementary information”, and if this does not satisfy Brussels, it will trigger the second stage of the so-called infraction process, sending Portugal are formal request to comply with EU legislation.

How seriously Portugal will be taking these developments is unclear, particularly as it only introduced new laws extending Madeira’s tax perks in 2015.

But it is clearly a subject that can’t easily be swept under the carpet.

Visiting MEPs trying to get to the bottom of Portuguese involvement in the Panama Papers told reporters last month that one of the many issues on their agenda was Madeira’s “zona franca”, the Portuguese name for the Madeira International Business Centre.

Insight on the history of this arrangement has been set out by the European Green Party, which opens its research with the words: “For 30 years, the European Commission has been approving very low tax rates on the Portuguese island of Madeira. The goal was to attract companies that create jobs for Madeira’s citizens and boost the local economy. But in fact, mainly multinationals and rich individuals have been benefitting from the low taxes, while other countries have been losing billions of tax revenues. And, as our analysis shows, there are hardly any new jobs for the people of Madeira”.

Portugal’s own MEP Ana Gomes explains: “You cannot accept (tax evasion) in your own territory and condemn it outside. We actually need to tackle it at the European level, and then, by tackling it at the European level, we will tackle it at the global level”.

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