By PEDRO SIMÕES
Pedro Simões is licensed in fiscal law and management, and is the Managing Director of ACOQ Consultancy Lda, based in Lisbon.
RECENTLY, THE Portuguese Government Tax Affairs Secretary, Dr. Carlos Lobo, expressed his opinion about the future of transactions with offshore companies. He believes there will be a general pursuit of Offshore Markets by many other countries, and only with the full cooperation between all tax systems in Europe, and around the world, will we assist a real struggle against tax evasion, in order to keep the financial market trustworthy.
The current financial crisis, and the BPN case with involvement with offshore companies, should make us think about all these issues. Other governments throughout Europe have already taken note of the danger and concerns regarding companies that are operating offshore. Naturally, the problem of tax evasion doesn’t end with the closure of the Offshore Market, as there are other processes running that have other configurations.
Portuguese corporate tax specifies special obligations when a Portuguese company contracts a non resident company or person to perform a service. There are a few non abusive laws in the Portuguese tax system. Here, we will focus on payments made to non residents who, in their countries of origin will have to pay less tax in comparison to the eventual tax they will have to pay in Portugal if they were resident.
There is a specific law that rules these payments. First of all, the payments will not be deductible on corporate tax of the Portuguese company unless they can prove that the expense was actually made and that it was not unusual or the amount was not exaggerated. This means that generally the expense is not deductible, as the proof is accepted at the complete discretion of the Portuguese tax authorities. This is very complex, as this brings to light another problem – knowing if the expense is indispensable to the normal activity of the company. In these situations, the Portuguese companies must be very careful with this kind of expense. Simultaneously, what is considered to be an unusual expense? And what is an exaggerated amount for that expense? Either way, it is very important to have a documental process for all expenses.
Criteria
There are three criteria to consider when looking at individuals who are paying less tax in their countries of origin than in Portugal. Generally, individuals or companies that are resident in the EU will not be affected by this specific law. The first criterion goes back to 2004, when the Portuguese tax authorities approved a list of more than 80 territories where the individuals and/or companies located in those territories would be affected by this law.
The second criterion is to know if the corporate in case of companies or individual tax in case of individuals is lower than in Portugal. This is a huge problem, as the complexity of the comparison on the tax systems, including the different regimes of taxation, naturally generates many problems in proving that the company or individual are not paying less tax on their country of origin.
The third criterion involves the calculation of tax that the company or individual will eventual pay in Portugal, as a resident it is 60 per cent lower than in its country of origin. This criterion has the same problem as the second. The law says that all companies that pay to a non resident, either individual or corporate, should have documentation with all the calculations mentioned on the second and third criteria, even if they aren’t located in the territories included on the approved list.
The Portuguese Government wants to take a maximum of two years to inspect companies and individuals. At the moment the tax inspection takes between three and four years. This will reduce fiscal evasion considerably.
In conclusion, it is important to take special care in all payments made to individuals or companies, as the non acceptance of the expense by the authorities, will bring higher corporate taxes to the Portuguese companies.
For more information, please email [email protected] call 219 205 225 or fax 212 468 352
