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Budget Bill for 2012 - Looking Beyond the Words
On 17 October 2011 the Portuguese Government presented the 2012 Budget Bill to the Portuguese Parliament. The Budget Bill was disclosed in a context of strong austerity and includes several revenue raising measures designed to meet tough fiscal goals under the international bailout agreements. Taxand Portugal looks into the most relevant tax measures, which if the Bill is approved, will generally apply from 1 January 2012.
Carry Forward of Losses
The budget proposes an extension of the current loss carry-forward period from 4 to 5 years. The proposal, however, limits the yearly amount deductible to 75% of taxable profits. Remaining losses remain available for deduction, within the 5 year carry-forward period.
Revamp of CFC Rules
The system remains structurally similar although several issues are clarified: (i) whatever type of earnings and gains obtained by the CFC (and not merely profits) are subject to imputation under the amended regime; (ii) the related parties formulation is extended to cover other types of direct and indirect rights on earnings and assets of a CFC; (iii) amended rule establishes an exception for entities resident in the EU/EEA if the taxpayer is able to demonstrate that valid economic reasons motivated its incorporation and that such entity is engaged in economic activities of an agricultural or industrial nature, or of supply of services.
Capital Gains Derived by Non-Residents
Elimination of the requirement for a tax treaty or exchange of information agreement to apply capital gains exemption, reinstating the regime in force prior to 1 January 2011. Only residents in black listed jurisdictions are therefore not entitled to the domestic capital gains exemption on the disposal of shares/securities.
Payments to and from Black-Listed Jurisdictions
A 30% final withholding tax rate applicable on investment income paid to black listed jurisdictions is proposed. It is expected that a new black list will be prepared in the near future to exclude from its scope jurisdictions with which Portugal has recently concluded a tax treaty or an exchange of information agreement.
State Surtax and Group Taxation Regime
The Budget Bill introduces a new rule to the Local Finance Law, which foresees that Municipal Surtax of up to 1.5% of the taxable profits, shall be computed at the level of each company part of tax group.
State Surtax Increase
Increase of the Corporate State Surtax to 3% of taxable profits exceeding Euro 1.5 million, and to 5% on profits exceeding Euro 10 million.
Tax Amnesty Regime
2010 regime revamped with minor adaptations: (i) increase of the penalty tax payable upon submission of the confidential statement from 5% to 7.5% of the value of the relevant investments; (ii) no repatriation of assets held abroad is required; (iii) clarification that 31 December 2010 is the relevant date to determine acquisition cost and date for purposes of future capital taxation; (iv) increase from 50% to 60% of applicable penalties in case of lack, omission or inaccuracy of the information provided on the confidential statement.
Other changes were made to:
- Tax Benefits and Sunset Clause
- Changes to the Madeira Regime
- Tax Representative for non-Residents
- CIT Exemption to EU/EEA Pension Funds - discover more
If the proposed bill is approved, the changes will take effect on 1 January 2012. Multinationals should therefore start preparing and consider the impact these measures will have on your operations as you plan for 2012. The budget bill only makes minor changes to the tax amnesty of 2010 but multinationals should familiarise themselves with the changes as they plan their 2012 tax budgets. The elimination of the requirement for a tax treaty or exchange of information agreement to apply capital gains exemption, will mean that only residents in black listed jurisdictions are not entitled to the domestic capital gains exemption.
As far as CFC Rules go, the system remains structurally similar although several issues which had been pointed out in literature and by practitioners are now clarified making it easier for multinationals to navigate the system.