PIT: Capital gains on transfer of real estate from the taxpayer's property to the taxpayer's business and vice-versa
It is proposed that capital gains arising from the transfer of a taxpayer’s property (personal sphere) to the taxpayer’s business sphere (and vice-versa) will no longer trigger capital gains taxation. Taxation will only occur when the real estate is transferred to a third-party.
This new regime is aimed at neutralizing the transfer of real estate between the personal sphere and the business and professional sphere of the entrepreneur. In this context, the new proposal also foresees a refund system of the tax deductions that were granted whilst the property is assigned to the taxpayer’s business sphere and, at the same time, when the property is assigned to the personal sphere of the taxpayer, relevance is only given to the original purchase price.
A transitory regime applies in relation to capital gains that have been assessed in accordance with the regime that is now in force and whose taxation has been deferred. As pursuant to the transitory regime, such capital gains will enjoy from the new rules as from 1 January 2021.
PIT: The transfer pricing on capital gains' computation
It is proposed the introduction of a transfer pricing regime applicable to the calculation of capital gains and losses under Category G of the Portuguese Personal Income Taxation (“PIT”) Code, to which the current regime provided in the PIT Code is applicable mutatis mutandis.
Considering this amendment, in transactions where the taxpayer and the entity(ies) involved are related, the arm’s length principle applies, thus, the parties must contract, accept and practice terms and conditions substantially identical to the ones they would usually contract, accept and practice with, had the parties not been related.
CIT: Broadening of the concept of PE and the principle of attraction
It is proposed widening the concept of the Permanent Establishment (“PE”), in order to include, inter alia, the following:
- Services offered by the non-resident entity, including consultancy services, provided by the company’s employees or by other service providers in the Portuguese territory, for more than 183 days in a 12-month period;
- Facilities, platforms or ships of the non-resident entity, used for the prospecting or exploitation of natural resources;
- Dependent agents acting in the Portuguese territory on behalf of the non-resident company – besides those with powers of intermediation and the conclusion of contracts, on a habitual basis – who:
- On a habitual basis have the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the company; or
- Keep in the Portuguese territory a deposit of goods or commodities to be delivered in the name of the company, regardless of concluding or intervening, or not, in the execution of such contracts.
- Activities which are currently considered to be of a preparatory or ancillary nature, such as (a) facilities and/or warehouses intended solely for the delivery of goods, and (b) fixed installations or warehouses of goods or commodities used or maintained by an entity (or other related entity) to carry out an activity forming a coherent set of activities of a business nature, when certain conditions are met.
In addition, it is also proposed broadening the PE’s principle of attraction for the purposes of determining its taxable profit in order to include the income obtained by the head office derived from the sale of goods and services identical or similar to those sold through the PE to persons or entities resident in Portuguese territory.
CIT: Non-application of the 10% increase in autonomous taxation (transitional provision)
The current wording of the CIT Code foresees a 10% increase in the autonomous tax rates for entities that assess tax losses.
The Portuguese State Budget Law Proposal for 2021 intends to implement a transitional provision, only applicable with reference to the tax periods of 2020 and 2021, aiming at unburdening micro, small and medium-sized companies of such increase in autonomous taxation, as long as those entities:
- Have begun their activities in 2019, 2020 or 2021; or
- Having initiated their activities prior to 2019, (a) have had taxable profits in one of the three preceding tax periods, and (b) have fulfilled their reporting obligations in the two tax periods prior to the application of the above mentioned regime [i.e. Model 22 Declaration and Simplified Business Information ("IES")].
Several amendments are proposed to the current System of Tax Incentives in Business Research and Development (“SIFIDE”), which operates through deductions to the corporate income tax due, in particular concerning investments in investment funds which, in turn, make investments in R&D companies.
On the one hand, it is proposed that investments made by investment funds in R&D companies are only eligible when they materialise as equity or quasi-equity (rather than any form of financing, as is currently the case).
On the other hand, it is proposed that some anti-abuse rules are introduced, according to which:
- The investments to be made by the investment funds in R&D companies are concluded in full within 5 years, without prejudice to the period provided for in the management regulation;
- The investments to be made by the companies in R&D activities are concluded within 5 years from the date of acquisition of the equity and quasi-equity instruments.
In addition, as a way of ensuring the verification of these conditions, a set of ancillary obligations will be introduced – via issuance of declarations – applicable to investment funds and R&D companies, being required that such declarations form part of the tax documentation process referred to in article 130 of the Portuguese CIT Code.
Maintenance of the employment level as a condition for access to certain incentives (2021)
It is proposed that, in 2021, the access to public aid and certain tax incentives, by large companies with a positive net outcome in 2020, is subject to maintaining the current level of employment. For that purpose, the maintenance of the level of employment is considered to be verified when, in 2021, the entity has at its disposal an average number of employees equal to or above the level observed on October 1, 2020.
This measure covers, in particular, the following tax benefits:
- Conventional remuneration of share capital;
- RFAI – Investment Support Tax Scheme;
- SIFIDE II – System of Tax Incentives in Business Research and Development II;
- CFEI II – Extraordinary Tax Credit for Investment II.
IMT: Acquisition of shares in Sociedades Anónimas
It is proposed that the acquisition of 75%, or more, of the registered share capital of a Portuguese Public Limited Company (sociedade anónima), should the company’s asset value be composed by more than 50% by Portuguese real estate, should be liable to the Portuguese Real Estate Transfer Tax - the so-called “IMT” – , except if the assets are allocated to an industrial, commercial or agricultural activity which does not consist on the purchase and sale of real estate.
Unlike the regime applicable to the Private Limited Companies (sociedades por quotas), which are subject to a similar regime, for the Public Limited Companies three safe harbour rules apply, according which there will be no IMT liability if:
- The real estate assets held by the company represent less than 50% of its assets; or
- The real estate assets are allocated to an industrial, commercial or agricultural activity, other than the purchase and sale of real estate; or
- The company’ shares are admitted to trading on a regulated market.
VAT: Implementation of the IVAucher
A programme to support and stimulate consumption in sectors strongly affected by the pandemic, specifically housing, culture and restaurants, will be in place during 2021.
This programme will enable consumers to accumulate, on a quarterly basis, the full amount of VAT borne on consumption in these sectors. This amount can then be used in the following quarter for new consumption in these sectors. These tax amounts will be established on the basis of the invoice details communicated to the tax authorities under the e-fatura programme.
The use of the accumulated tax amount will be made by immediate discount on such consumption, through interbank compensation to be made by the entities responsible for processing electronic payments.
The "IVAucher" programme shall only be applicable to consumers who give their prior consent to it.
The amount of VAT used under this programme will not be taken into account for the purposes of deduction (Articles 78b and 78f of the IRS Code) from the IRS taxable basis.
Excise Duties and Vehicle Tax
- Tax on Alcohol, Alcoholic Beverages and Added Sugar and Other Sweeteners (TAAB)
For the third consecutive year, the Tax on Alcohol, Alcoholic Beverages and Added Sugar and Other Sweeteners (TAAB) rates have not changed.
Rum produced in the Autonomous Region of the Azores from regional sugar cane is now eligible for the reduced rate provided for in Article 77 of the CIEC (25% of the rate applicable in the mainland to spirits - EUR 1.386.93/hl).
Rum bearing the designation of origin "Rum da Madeira" will benefit from the same rate.
All drinks benefiting from the reduced rate provided for in articles 77 and 78 of the Excise Duties Code (EDC) may now be released for consumption in the continent, in which case they will be taxed at 50% of the rate applicable on the continent to spirits beverages.
The total minimum reference tax on cigarettes, which was based on the price of the category most in demand, is now based on the weighted average price of cigarettes released for consumption between 1 December of year n-2 and 30 November of year n-1.
The weighted average price results from the value of all cigarettes released for consumption, based on their retail selling price, divided by the total quantity of cigarettes released for consumption during the period referred to in the previous paragraph.
- Tax on Oil and Energy Products (TO)
With regard to Tax on Petroleum and Energy Products (TO), advanced biofuels, within the meaning of Article 2(1)(c) of Decree-Law No 117/2010 of 25 October, as currently worded, provided that they are certified as Biofuel (TdB), as well as gases of renewable origin, within the meaning of Article 3(bb) of Decree-Law No 62/2020 of 28 August, provided that they are certified as Guarantee of Origin (GO), will, according to the State Budget Proposal, benefit from total exemption from the tax.
As regards tax benefits related to electricity production, cogeneration, European Emissions Trading Scheme (EETS) and Agreements to Rationalize the Energy Consumption (AREC), it is noted that in 2021 the government remains strongly committed to deepening the energy transition and the progressive decarbonisation of the economy, initiated in the 2019 State law budget.
Therefore, the State Budget Proposal plans increasing to a rate corresponding to 75% of the TP rate and with a rate corresponding to 75% of the addition on CO2 emissions, the taxation of coal and coke used in the production of electricity in the so-called thermal plants as well as in the production of electricity and heat (cogeneration), by entities that carry out these activities as their main activity.
Simultaneously, fuel oil, which is also consumed in the production of electricity or electricity and heat, is now taxed at a rate corresponding to 50% of the TO rate and at a rate corresponding to 50% of the addition on CO2 emissions by entities carrying out these activities as their main activity.
Natural gas, also consumed in the production of electricity or electricity and heat, will now be taxed at a rate corresponding to 20% of the TO rate and at a rate corresponding to 20% of the addition on CO2 emissions by entities carrying out these activities as their main activity.
In 2021, the State Budget Proposal also provides that coal, coke, fuel oil and LPG, consumed in AREC facilities, will now be taxed at a rate corresponding to 5% of the addition on CO2 emissions.
For the Autonomous Regions of Madeira and the Azores, the State Budget Proposal provides that fuel oil consumed in the Autonomous Regions of the Azores and Madeira and used in the production of electricity or electricity and heat or city gas will now be taxed at a rate corresponding to 25% of the rate of ISP and a rate corresponding to 25% of the rate of addition on CO2 emissions.
It should also be noted that, according to the State Budget Proposal, biofuels, biomethane and green hydrogen and other renewable gases are excluded from these increases of ISP.
Regarding to VT, Article 11 of the VT Code on the taxation of used cars imported from another EU Member State is amended. The reduction of the VT, proportional to the average devaluation of the vehicle, which applied only to the engine capacity, will now apply to the engine capacity and environmental component, including the increase provided for in Article 7(3), which penalises particulate emissions from diesel vehicles emitting more than 0,002g/km.
This amendment is intended to respond to the Commission's case before the CJEU concerning the taxation of used cars imported from another Member State.