Member Article

2. Due to its excessively wide nature, however, the new antiabuse measure raises some very serious doubts. The concept of “abusive tax planning” set down in the decree-law is wideranging, and in theory at least, is capable of encompassing any scheme or activity which brings about or which it is hoped will bring about, solely or principally, a tax advantage. Similarly to the concept of “tax  advantage”, this new concept includes the reduction, elimination or deferral of a tax or the obtaining of a tax benefit which would not be obtained, in whole or in part, without recourse to such a scheme.

3. Nevertheless, distancing itself somewhat from the definitions contained in the draft of the decree-law, the decree-law approved has tried to set limits to the schemes or activities caught within the broad concept of tax planning by setting out typical characteristics and activities. Thus, the law-makers have restricted the number of tax planning situations covered by the duty of communication to those which would lead back to one of the following situations:

· entailing the participation of an entity governed by a privileged tax regime -defined as an entity whose country of residence is included on the list approved by order of the Minister of Finance - or when an entity is not liable in such a country for a tax which is identical or similar to personal or corporate income tax, or when the actual tax paid is less than or equal to 60% of the tax which would be due if this entity were resident in Portugal;

· entailing the participation of a fully or partially exempt entity;

· involving financial or insurance-related transactions which may be capable of bringing about a requalification of income or a change in beneficiary, namely financial leasing, hybrid financial instruments, derivatives or financial instrument contracts;

· entailing the use of tax losses.  On the other hand, regardless of whether one of the above situations applies, any proposed tax  lanning schemes which include an exclusion or limitation of liability clause to the benefit of the respective promoter will always be subject to the duty of communication.

4. Despite the law attempting to delimit the schemes or activities covered by the duty of communication to the tax authorities, few of the (so-called) tax planning schemes are likely to fall outside the limits set. Therefore, in practice, the duty will tend to cover any type of tax planning that promoters might consider implementing.

5. The duty of communication falls on the promoters of the abusive tax planning or, alternatively, on the taxpayers themselves when they carry out such transactions without the help of the former (for individuals, it is limited to transactions involving companies in tax havens or exempt entities).  The former includes, namely, credit and other financial institutions, accountants, lawyers and auditors, the latter two only when they are acting in the capacity as promoters and not simply as legal consultants, or within the scope of their public interest duties.  The duties of communication set out in the above-mentioned decree-law and the activity of promoter do not,  however, extend to “counselling about a tax planning scheme or activity by a lawyer or legal executive or by a firm of lawyers or legal executives in the course of assessing the legal position of the client, within the boundaries of legal consultation, while defending or representing the client in legal proceedings, or in respect of legal proceedings, including counselling on resorting to or avoiding legal action, whether this information has been obtained before, during or after the proceedings, as well as within the scope of other acts carried out by lawyers and legal executives”.

6. The scheme or activity must be communicated within twenty days of the end of the month in which it was first proposed.

7. The scope of the duty is wide and detailed, although no provision is made for communicating the identity of the client in cases where the duty falls on the promoters. The penalties for failing to comply with the new duty are also high (€100,000 when conduct is deemed more serious) and scaled according to the gravity of the infringement and the nature of the infringer.  In the case of an  mission to communicate and even when the fine or the additional sanction has been paid, the duty will subsist if compliance is still possible. The practical reach of this subsistence, however, has yet to be determined (will the taxpayer be liable for new fines?).

The aim is to follow the trend in these matters in some other legal systems. However, as we previously stated in Tax Bulletin no. 14 of 18 October 2007 - a brief analysis of the Bill which has now been enacted – the legislation fails to address the costs generated by the creation of exaggerated and ill-defined additional penalties, nor does it define abusive operations with the due precision and thoroughness, and further it superimposes the purposes of the new law on values protected by other legal duties, such as the duty of professional secrecy, thus apparently striking at the very heart of the appropriacy and necessity intrinsic to the constitutional principle of proportionality.