Tax debts don’t last forever. Therefore, if a notification is received to pay a tax debt, it’s important to have the knowledge to evaluate if it is really due.
First, it is necessary to distinguish between “forfeiture period” and “prescription”, because though we are talking about two types of deadlines that, once exceeded, prevent the Tax Authority from demanding the payment of a tax, they have different natures and limitation periods.
The forfeiture deadline, briefly, is a deadline within which a right can be exercised. The Tax Authority has the right to liquidate taxes, having verified certain facts – the taxable event – within a certain period.
The prescription relates to the right to demand from the taxpayer the payment of the tax.
In short, the forfeiture period defines the deadline for the liquidation of a tax, while the prescription defines the period to recover a tax already liquidated but which hasn’t been paid yet.
The forfeiture is a final deadline for the exercise of the right to liquidate taxes – it’s a deadline directed to the Tax Authority. When it comes to the prescription, once exceeded, the debtor may oppose to the payment of the debt – it’s a deadline directed to the debtor.
Thus, while the prescribed right continues to exist, the expired right has lost its existence.
According to article 45, paragraph 1 of the General Tax Law the right to liquidate taxes expires 4 years counted from:
a) the end of the year in which the tax event occurred, if we are talking about periodic taxes (IRC, IRS, IMI);
b) the date on which the tax event occurred, if we are talking about single obligation taxes (IMT, STAMP), except,
– if we are talking about VAT (IVA), in which the deadline is counted from the first day of the year following that in which the tax became due;
– if we are talking about IRS/IRC, when the income is subject to definitive retention at source – it is the case of income earned by non-residents – in which the period is counted from the beginning of year following that in which the tax event occurred.
Whenever the tax event is related with facts which are being criminally investigated, the forfeiture deadline shall be extended until the definitive decision is ruled, plus one year.
The forfeiture deadline can also be extended to 12 years if the events are related to countries where the taxation is more favorable or with deposit accounts or open securities in financial institutions not resident in the European Union, whose existence and identification is not mentioned by the taxpayer on the IRS declaration.
The right to demand the payment of tax elapses 8 years counted from:
a) the end of the year in which the tax event occurred, in relation to periodic taxes (IRS, IRC, IMI);
b) the date when the tax event occurred, in relation to single obligation taxes (IMT, STAMP), except,
– if we are talking about VAT (IVA), in which the deadline is counted from the first day of the year following that in which the tax became due;
– if we are talking about IRS/IRC, when the income is subject to definitive retention at source – it is the case of income earned by non-residents – in which the period is counted from the beginning of year following that in which the tax event occurred.
The deadline prescription related with contributions due to Social Security elapses in 5 years.
By Dr Eduardo Serra Jorge
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Dr Eduardo Serra Jorge is founding member, senior partner and CEO of lawyers firm Eduardo Serra Jorge & Maria José Garcia – Sociedade de Advogados, R.L., created in 1987.
In his column, he addresses legal issues affecting foreign residents in Portugal.
Faro office at Gaveto das Ruas Pedro Nunes e José de Matos, 5 R/C
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www.esjmjgadvogados.com
