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Tax in Focus Jaime Esteves Partner of PwC Portugal Corporate Tax Reform in Portugal
The Portuguese Parliament recently approved a corporation tax reform in Portugal to be effective as of 2014. The proposed tax reform aims to place Portugal among the most competitive countries in the European Union. PwC’s Jaime Esteves spoke to Finance Monthly to detail the likely impact of such a reform.
Jaime Esteves is a Partner of PwC Portugal and leader of its Tax Department, with responsibility also for Cape Verde and the relation with the remaining Portuguese Speaking African countries, and for the Government and Public Services Sector.
Jaime’s career as a Tax Consultant started in 1988 at Coopers & Lybrand. He is a specialist in National and International Tax Planning (Individual and Corporate), Transfer Pricing, Mergers and Acquisitions Corporate Reorganizations, Ultra and High Net Worth Individuals and Family Business, including Family Offices.
Jaime has assisted several national and international clients in different areas, such as automotive, civil construction and public works,
hospitality and
leisure, industrial and consumer products, retail, real estate, services and telecommunications.
Q
What more can you tell us about your specific
practice?
PwC Portugal’s aim is to assist clients in achieving an adequate tax management of their business decisions. The main purpose is to prevent the negative impact of such decisions, and, at the same time, enhancing the respective advantages.
We provide a complete range of tax advisory services, in the areas of Corporate and International Tax Structuring, Global Compliance Services, Tax Management and Accounting Services,
Indirect
Taxation, Individuals Taxation, Mergers & Acquisitions, Tax Dispute Support Services and Transfer Pricing.
We work in close collaboration with over 33,000 tax specialists of the PwC global network firms, established in more than 150 countries.
Q
What has characterized Portugal’s tax landscape in
recent years?
Since 2011, Portugal is under an economic adjustment program, supervised by the European Commission, European Central Bank and International Monetary Fund, which is planned to be concluded in June 2014. Under this program,
pre-defined deficits targets were established,
and therefore some
pressure exists in achieving the budgeted tax revenues as well as the expected reduction of public expenditure.
Therefore, in the last years we have assisted to the widening of tax bases, rationalization of tax benefits, accompanied with the increase of tax rates.
Nevertheless, the Government has understood that a reform of the corporate income tax is essential to support the growth of the Portuguese economy and also to attract Foreign Direct Investment (FDI) and has committed the work to reform it to a Commission, whose work was released during the Summer and was approved by the Parliament in December.
Q
What key changes come under Portugal’s planned corporate tax reform?
The main objectives of the reform are to allow the capitalization of Portuguese companies and their consolidation, to promote the internationalization of the Portuguese economy and to attract FDI to Portugal.
It is planned to gradually reduce the corporate tax rate to a level between 17% and 19% in 2016, and to abolish
the state and municipal surcharges in 2018. This is already underway and in 2014 the corporate tax rate will decrease from 25% to 23%.
The period to carry forward tax losses will be extended to 12 years, although such tax losses may only be used up to 70% of the taxable profit of the year.
Moreover, the reform establishes a new participation exemption regime, which allows for full exemption of capital gains and dividends in relation to participations of, at least, 5%, held for two years. This regime applies regardless of the tax residence of the subsidiary, being only excluded subsidiaries located in tax havens.
Symmetrically, no withholding tax will apply on dividends paid to shareholders with a 5% shareholding, held for two years, that are residents in the EU, EEA or in a country with which Portugal signed a Double Tax Treaty (currently, over 60 DTT were signed).
Also, in order to mitigate double taxation,
companies may adopt
an optional regime of exclusion of profits/losses assessed by permanent establishments located abroad.
Moreover, companies may benefit from a tax credit regarding income taxed abroad, which may be carried