Updating of the Portuguese Tax Haven Blacklist 

November, 2011 -

Order in Council no. 292/2011, published on 8 November, updated the list of countries, territories and regions with clearly more favourable privileged tax regimes ( known as ‘tax havens’) appearing in the earlier Order in Council no. 150/2004 of 13 February. It also excluded from the list two countries that are members of the European Union (EU): Cyprus and Luxembourg.

 


In relation to Luxembourg, it should be noted that, up to now, only holding companies set up under the Law of 31 July 1929 and by the Grand Ducal Decree of 17 December 1938, were considered included on the tax haven blacklist. These companies known as “Holding 1929” companies were exempt from income tax under the above legislation.


 


As the regime in question had been abolished in Luxembourg following the European Commission Decision no. 2006/940/EC, which held that the regime amounted to a state aid incompatible with the common market, it no longer made sense for the country to be included on the list of tax havens for the purposes of Portuguese tax legislation and the result is this change to the law.


 


The removal of Cyprus from the list of tax havens arises from recognition that, as an EU Member State, it is also subject to the EU system for exchange of information between tax authorities laid down in Directive 77/799/EEC and later repealed and substituted by Directive 2011/16/EU (on administrative cooperation in the area of taxes and not yet been transposed into Portuguese law), and in Directive 2008/55/EC (on assistance in collecting taxes).



The removal of Cyprus and Luxembourg from the list of tax havens means that the special anti-abuse measures laid down in Portuguese law no longer apply to these two countries. These measures include the following requirements and restrictions:



(i)                       A requirement to maintain a residence for tax purposes in Portugal imposed on persons with Portuguese nationality who move their residence for tax purposes to a country, territory or region appearing on the said list, either in the year in which the change of residence is confirmed or in the four subsequent years. There is an exception to this rule when the person in question can prove that the move is for justifiable reasons such as the carrying on of temporary activity in that territory for an employer domiciled in Portugal.



(ii)                     A ban on applying the exemption method in the elimination of international double taxation on category B (business and professional) income earned from the provision of high added value services of a scientific, artistic or technical character, from intellectual or industrial property, or from the provision of information relating to experience acquired in the industrial, commercial or scientific sectors, as well as income from categories E (income from capital), F (income from buildings) and G (increases in wealth) earned by non-habitual residents, in cases in which there is no convention to eliminate double taxation. 



(iii)                    A ban on using the IRS (personal income tax) allowance of 30% of the interest and charges of repayment of debts contracted for the acquisition, construction or improvement of buildings for the taxpayer’s own and permanent dwelling or for rental which is duly proved to be for the permanent dwelling of the tenant, up to the limit of EUR 591. This allowance applies to property situated in Portugal or in another Member State of the European Union or in the European Economic Area as long as, in the latter case, there is exchange of information, when the said charges are due to an entity resident in a country, territory or region that appears on the list of tax havens that does not have a permanent establishment in Portugal to which such income is imputable.



(iv)                   A ban on using the IRS (personal income tax) allowance of 30% of the rent paid the tenant of an urban building for the purposes of their permanent dwelling, up to a limit of  
EUR 591, in relation to property situated in Portugal or in another Member State of the European Union or in the European Economic Area as long as, in the latter case, there is exchange of information, when the said charges are due to an entity resident in a country, territory or region that appears on the list of tax havens that does not have a permanent establishment in Portugal to which such income is imputable, except when the annual value of the rent is equal to or greater than the amount corresponding to 1/15 of the value for taxation purpose of the of the rented property.



(v)                     The non-application of the reinvestment system for IRC (corporate income tax) for the values involved, in cases in which the transfers and acquisitions for value of holdings in companies are made with entities resident in a country, territory or region appearing on the list of tax havens;



(vi)                   The non-application of the IRS and IRC exemption system that benefits capital gains made from the transfer for value of corporate holdings, other securities, autonomous warrants issued by entities resident in Portugal and traded on regulated stock markets and derivative financial instruments made in regulated stock markets, by entities or individuals that are not domiciled in Portugal and do not have a permanent establishment there to which the said income is imputable.



(vii)                  The presumption, in the area of transfer pricing, that there are special relations between an entity resident in Portugal or non-resident with a permanent establishment here and entities resident in one of the territories appearing on the said list of tax havens.  



(viii)                The non-deductibility, for the purpose of determining taxable profit for IRC, of amounts paid or due to individuals or companies resident in one of the territories appearing on the tax haven blacklist, except when it is proved that such charges correspond to operations that have, in fact, taken place and are not of an unusual nature or for an excessive amount. These expenses are subject to rates of aggravated autonomous taxation.



(ix)                   The imputation of profits earned by companies resident in one of the territories included on the said list to their shareholders resident in Portugal, in proportion to their respective holding in the company and regardless of the actual distribution of those profits, as long as the legal requirements for the purpose are met.



(x)                     A ban, in respect of the rules on thin capitalisation in IRC (corporate income tax), on demonstrating that the same level of indebtedness would have arisen in analogous conditions in an independent entity, when what is at issue is excessive indebtedness as against entities resident in countries, regions or territories appearing on the list of tax havens.



(xi)                   Real estate held by entities resident in countries, regions or territories appearing on the list of tax havens are subject to increased rates of municipal property tax (Imposto Municipal sobre Imóveis - IMI) (currently 5% and 7.5% in the 2012 State Budget Bill) and municipal property transfer tax (Imposto Municipal sobre as Transmissões Onerosas de Imóveis – IMT) (currently 8%, and 10% in the 2012 State Budget Bill).



The list of tax havens currently includes the following countries, regions or territories:



1. Andorra


42. The Northern Mariana Islands


2. Anguilla


43. The Marshall Islands


3. Antigua and Barbuda


44. Mauritius


4. Netherlands Antilles


45. Monaco


5. Aruba


46. Montserrat


6. Ascension


47. Nauru


7. Bahamas


48. Christmas Island


8. Bahrain


49. Niue Island


9. Barbados


50. Norfolk Island


10. Belize


51. Sultanate of Oman


11. The Bermudas


52. Pacific islands not mentioned specifically


12. Bolivia


53. Republic of Palau


13. Brunei


54. Panama


14. Channel Islands (Alderney, Guernsey, Jersey, Great Stark, Herm, Little Sark, Brechou, Jethou and Lihou)


55. The Pitcairn Islands


 


15. Cayman Islands


56. French Polynesia


16. Territory of the Cocos (Keeling) Islands


57. Porto Rico


17. Cook Islands


58. Qatar


18. Costa Rica


59. Solomon Islands


19. Djibouti


60. American Samoa


20. Dominica


61. Independent State of Samoa


21. United Arab Emirates


62. Saint Helena


22. Falkland Islands


63. Saint Lucia


23. Republic of Fiji


64. Saint Kitts and Nevis


24. Gambia


65. San Marino


25. Grenada


66. Saint Pierre and Miquelon


26. Gibraltar


67. Saint Vincent and the Grenadines


27. Guam


68. Seychelles


28. Guiana


69. Swaziland


29. Honduras


70. Svalbard (Spitsbergen archipelago and Bear Island)


30. Hong Kong


71. Tokelau


31. Jamaica


72. Tonga


32. Jordan


73. Trinidad and Tobago


33. Qeshm Islands


74. Tristan da Cunha


34. Kiribati Island


75. Turks and Caicos Islands


35. Kuwait


76. Tuvalu


36. Labuan


77. Uruguay


37. Lebanon


78. Republic of Vanuatu


38. Liberia


79. British Virgin Islands


39. Liechtenstein


80. American Virgin Islands


40. The Maldives


81. Republic of Yemen


41. Isle of Man


 


 



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