Annual International Bar Association Conference Tokyo, Japan. Recent Developments in International Taxation. Portugal. Guilherme Figueiredo

Transcription

1 Annual International Bar Association Conference 2014 Tokyo, Japan Recent Developments in International Taxation Portugal Guilherme Figueiredo Eurofin Capital S.A.

2 1. RECENT HIGHLIGHTS 1.1 New Rules and Regulations Although officially terminated on May 17 th, 2014, the effects from the financial assistance program will be felt for months and years to come. New tax rules and regulations were introduced not only by the 2014 State Budget but also, and primarily, by the Corporate Income Tax ( CIT ) reform, which was brought in to foster inbound and outbound investment and is effective as of January 1 st, Corporate Income Tax rate For 2014, the standard nominal CIT rate has been reduced from 25% to 23%. This rate is to be further reduced in 2015 to 21% and to between 17% and 19% in 2016, subject however to a positive future assessment of the Portuguese economic and financial situation. A reduced special CIT rate of 17% was introduced for SMEs and applies to taxable income up to EUR 15,000. A new State Surcharge rate of 7% was introduced and applies to taxable profits in excess of EUR 35,000, Tax losses Tax losses generated from January 1 st, 2014 may be carried-forward for 12 years (the previous limit was 5 years) and may be deducted (using FIFO) against up to 70% of the annual taxable profits (the previous threshold was 75%). Situations which may prevent the utilization of carried-forward tax losses have been clarified. The statute of limitations for tax losses is now 4 years (previously 5 years) Exemption for profits of foreign permanent establishments Portuguese resident companies may now choose to exclude the profits and losses attributable to a foreign PE when computing their own taxable profits, provided that (i) the relevant PE is subject to, and not exempt from, a tax similar to Portuguese CIT at a rate higher than 13,8% for 2014, and (ii) the relevant PE is not located in a tax haven. The election shall apply to all PE located in the same jurisdiction and shall be valid for at least 3 years. Certain exclusions apply when the profits or losses of the foreign PE were in the previous 12 years used to compute the taxable profits of the resident company Double taxation agreements ( DTA ) and EU directives Non-residents deriving Portuguese-sourced income may now waive the application of Portuguese withholding tax (or claim the reimbursement of tax excessively withheld) under a DTA or EU directive by submitting non-certified forms 21-RFI or 24-RFI to the Portuguese authorities together with a tax residence certificate issued by the competent authorities of their country of residence (previous rules required non-residents to provide the Portuguese paying entity or the Portuguese authorities with forms 21-RFI or 24-RFI duly certified by the competent authorities of the relevant country of residence). This

3 regime is also available when no DTA has been signed between Portugal and the relevant country of residence, provided that this possibility arises from other international treaties or from domestic legislation Group taxation rules The direct or indirect shareholding required to apply for a tax group has been reduced from 90% to 75% (provided it represents more than 50% of voting rights). It has been clarified that indirect ownership through an EU or EEA resident company is eligible for this regime Transactions on a tax-neutral basis The scope of restructuring transactions that can be done on a tax-neutral basis has been redefined to include mergers and demergers of companies with the same shareholder, as well as reverse mergers. A clarification was made regarding the qualification and tax treatment of capital gains and losses resulting from the write-off of shareholdings in the merged company, as well as the transfer of tax benefits, carried-forward tax losses and excessive net financial costs to the beneficiary company New participation exemption regime A new participation exemption regime has been introduced according to which inbound and outbound dividends, as well as capital gains derived by Portuguese-resident companies, may be exempt from CIT. Inbound dividends and inbound capital gains (from the sale of shares or other equity instruments) may be tax-exempt if the recipient continuously holds a 5% shareholding for 24 months (completed prior or after the dividend payment) and the distributing entity is subject to (and not exempt from) CIT or other similar tax at a rate of at least 13,8% (for 2014) and is not resident in a tax haven. Outbound dividends may be exempt if the recipient is resident in the EU, the EEA or in a country that has a DTA in force with Portugal and where the recipient holds continuously for 24 months prior to the dividend payment a shareholding of at least 5% of the resident company, while being subject to (and not exempt from) CIT or other similar tax at a rate of at least 13,8% (for 2014) and not being resident in a tax haven. A new international tax credit for the elimination of international economic double taxation is available when the recipient holds a qualified participation for 24 months but fails to comply with the remaining requirements of the participation exemption regime. This tax credit may be carried-forward for 5 years New patent box regime A new patent box regime has been introduced, according to which 50% of the gross income derived from the assignment, licensing, sale or temporary use of patents and industrial designs or models (registered as of January 1 st, 2014) is eligible for a CIT exemption provided that some requirements are met. Expenses incurred with the development of the patents and industrial designs or models are fully deductible. For foreign-source income, only the 50% of income subject to CIT will be eligible for double tax relief.

4 1.1.9 Transfer pricing The concept of related parties has been revisited and narrowed, with the relevant participation threshold in the share capital or voting rights being increased from 10% to 20%. The scope of the regime has also be broadened and is now applicable to a nonresident entity and its Portuguese PE or to the latter and other foreign PE of the nonresident entity, as well as to a resident entity and its foreign PE or to several foreign PE of a resident entity. Taxpayers may now require unilateral, bilateral or multilateral advance pricing agreements. The turnover threshold to compulsory prepare transfer pricing documentation has been increased from EUR 3,000,000 to EUR 5,000,000. The economic dependence test to assess whether two entities are related parties has been replaced by a legal dependence test, regardless of their business transactions or deals Depreciation of intangible assets Costs incurred on or after January 1 st, 2014 with the acquisition of certain intangible assets can be deducted over a 20-year period (5% per year) using the straight-line method, provided that some requirements are met Deductibility of net financial costs A new threshold of EUR 1,000,000 has been introduced regarding the deductibility of net financial costs by highly indebted companies (the previous threshold was of EUR 3,000,000). Alternatively, an annual limit corresponding to 30% of EBITDA applies. In addition, the concept of EBITDA has been revisited for tax purposes and special rules apply to companies that are members of a tax group Tax havens New general criteria have been introduced to identify the jurisdictions to be blacklisted. According to the new criteria, a jurisdiction will be deemed to have a more favorable tax regime if (i) there is no tax similar to Portuguese CIT or the relevant tax rate is lower than 13,8% (for 2014), (ii) the determination of taxable income departs significantly from the OECD standards, (iii) special rules are available that lead to a significant reduction in taxation and (iv) there is a lack of exchange of information. Blacklisted jurisdictions may apply to be delisted based on the newly-set criteria Exit taxes Exit taxes apply when a company transfers its residence abroad. However, and following the recent ECJ decision in Case C-38/10, companies transferring their residence to another EU or EEA member state may now elect to have the applicable taxation deferred for five years (five annual installments) or until the relevant assets are transmitted or detached from the company s activity to a territory outside the EU/EEA. The election is not available if the relevant assets and liabilities are linked to a Portuguese PE of the redomiciled company.

5 1.2 Treaty Developments Income tax treaties that have entered into force Income tax treaties signed with Japan, Peru, Cyprus, Kuwait, Guinea-Bissau and Qatar have now entered into force. New Protocols and Additional Protocols to the existing income tax treaties have been signed with Singapore and Switzerland. In respect of the new Protocols signed, a major goal was to agree upon new exchange of information rules Income tax treaties still pending Income tax treaties were negotiated and signed with Barbados, Colombia and East Timor. However, these treaties still await further formalities to be completed before they can enter into force. 2. FUTURE DEVELOPMENTS 2.1. Financial Transactions Tax The legislative authorization granted to the Government in the 2013 State Budget has been maintained under the same terms in the 2014 State Budget. The goal is to introduce a financial transactions tax, under the form of stamp duty, on the acquisition or sale of financial instruments. According to the authorization granted, applicable tax rates may be of (up to) 0,3% for general transactions, (up to) 0,1% for highly frequent transactions and (up to) 0,3% on transactions involving derivatives.