The introduction of a mass of new tax laws in Portugal means clients are increasingly calling on the assistance of legal advisers to avoid trouble with the tax authorities
Portuguese tax lawyers need to become more agile to keep up with the rush of legislative changes that are threatening to cause headaches for clients, according to Adelaide Moura, partner at A.M.Moura Advogados in Lisbon.
Moura says the Portuguese authorities have introduced a swathe of new laws that has led to legislative evolution so rapid and widespread that lawyers face the challenge of ensuring they are continuously up-to-date with the impact of the changes. She adds: “The notorious adoption of international tax principles in Portugal and its increasingly close connection with accounting, an area where lawyers don’t feel particularly comfortable, requires considerable expertise from the legal and tax consultants.”
The new regulations affect both the corporate and individual tax regimes. The corporate reforms are seen as the most important as they aim to boost competitiveness and attract investment into the country. To this end, the government is cutting the corporate tax rate. Previously set at 25 per cent, it has now been dropped to 23 per cent, with a pledge that it could fall as low as 17 to 19 per cent, depending on the size of a business’ income.
Other developments highlighted by Moura include: an extension of the reporting period for tax losses; changes related to tax amortisation and depreciation of intangible assets, investment property and non-consumable biological assets; a reduction in the deductibility limit of net financing expenses; a review of the transfer pricing regime; the establishment of a participation exemption regime replacing the previous concept of holding for tax purposes; and the creation of a ´patent box´ regime. With regard to the ´patent box´ system, Moura remarks: “Proceeds from the sale or temporary use of certain industrial property rights subject to registration, patents and industrial designs, compete for the determination of taxable income for half of their gross amount provided that certain requirements being met.”
The volume of changes means that law firms are starting to pick up an increasing number of instructions related to planning, permanent assistance, tax litigation and arbitration matters. Indeed, Moura claims that clients are more frequently requesting help to identify procedures to avoid problems with the tax authorities.
“Basically, clients are looking today for more preventive legal and tax advice in order to feel more prepared to respond when there are inspections from the tax authority or when there are additional tax charges,” she says. This is resulting in a shift in demand for services as the issue becomes less about ´back-end´ tax matters and more about ´front-end´ measures that are more preventive in nature.
Litigation set to increase
Moura continues: “When there is a reaction from the tax authority that gives rise to the additional taxation of some operations, the taxpayer wants to react if they are not satisfied when they consider that the tax authority has ruled improperly due to special interpretations of the law.” She adds: “Also, there are always clients looking for ways of saving on taxes especially at the level of regulated tax benefits and exemptions within the scope of investments and reinvestments.”
There are also challenges ahead for individual tax clients too, including the changes to individual income tax and a new ´green tax´ system, as well as the government´s warning that it is poised to make tax avoidance enforcement a priority.
“The government plans significant strengthening of the fight against tax and customs fraud,” Moura remarks. “This will require an improvement in lawyers´ ability to provide clients with a full range of services as I anticipate that the amount of litigation will increase.”
All this means Moura is expecting a busy year for her firm’s tax practice. “The client is now more worried about the fulfilment of their tax obligations because failure is very expensive in terms of fines and interest,” she concludes. “The boundary between mere negligence and wilful misconduct is increasingly blurred.”