The Portuguese government is stepping up its fight against tax evasion again, doubling the number of tax inspectors and investing in new technology. It is important to ensure that all your tax planning is fully legitimate.
The proposed state budget for 2014 does not include any increases to the income tax rates or fixed rates applied to investment income. However the government is looking to increase tax revenue anyway through its crackdown on tax fraud and evasion.
Its approach has been paying off. Tax revenue increased 15% in September compared to the same month last year. Secretary of State of Tax Affairs, Paulo Núncio, commented: “Portugal’s tax revenue would not be rising this way without the efficiency gains from the fight against tax evasion and the parallel economy.”
The tax office currently employs 1,700 tax inspectors, and this will be expanded to 3,000 by the end of this year.
Although the government is cutting state spending, hiring new tax inspectors is a “special case” and the government obviously expects it to be a worthwhile investment.
This follows on from the appointment of 1,000 new tax inspectors at the end of last year. They are all highly qualified university graduates specialising in economics, accounting, statistics and management, as well as IT experts. At the time Sr. Núncio said the appointments would significantly renew the fight against tax evasion and fraud.
The programme started when 350 inspectors were hired at the beginning of 2012, but the authorities soon realised this was not enough. By the end of this year, Portugal will have around 750% more tax inspectors than it did in 2011.
According to the National Plan of Customs and Tax Inspections in May, tax inspectors hand-pick through accounts of both private individuals and companies who they believe have not declared some or all of their income.
They keep an eye out for evidence that people have bought assets or live a lifestyle that does not match their declared income.
A special unit, the Tax Compliance Committee, came into force this year to monitor high-income earners and self-employed individuals. As reported in the Algarve Resident in December, the Ministry of Finance confirmed that its compliance teams can cross-check data and tax records, develop statistical data, analyse behaviour patterns and macroeconomic factors. They work closely with tax inspectors to quickly utilise evidence that a taxpayer intends to evade tax.
Harsher penalties for tax fraud and evasion come into force next year. Individuals who commit a crime of tax fraud will face trial and the court will determine the outcome. In advance of this, the Council of Ministers has approved an exceptional and temporary regime for individuals and companies to settle tax and social security debt, to be paid before 20th December 2013.
Last year, Portugal signed a double tax treaty with Switzerland which specifically stipulates access to bank accounts held by Portuguese taxpayers.
According to Sr. Núncio at the time, it enables the Portuguese authorities to simply request information on bank accounts owned by Portuguese residents, without the need to provide evidence of malpractice. The Swiss authorities cannot invoke banking secrecy clauses to prevent requests.
On a more international scale, Portugal joined with 16 other EU Member States in May in signing a statement calling for the development of a new global standard for automatic exchange of information to tackle tax evasion, based on the US Foreign Account Tax Compliance Act (FATCA). As well as information about individual’s accounts, accounts held by entities such as trusts would also be exchanged.
Since then, the G20 announced plans also to introduce automatic exchange of information as the global standard.
2014 budget
The state budget is being debated by parliament, but includes no plans to change general tax rates, income tax brackets, deductions or benefits. The top rate of income tax is currently 48% on income over €80,000. Investment income is taxed at 28% (unless the assets are held in a tax haven, including Isle of Man and Channel Islands, in which case tax is 35%).
The extra taxes on personal income will be extended for another year, to cover 2014 income.
The surtax is 3.5% on net taxable income, including capital gains, over €6,790 per person. There is also an extra solidarity tax of 2.5% for income over €80,000 and 5% on income exceeding €250,000.
Tax efficient investment structures are available in Portugal which provide attractive tax benefits and are fully compliant with the tax regulations. Seek specialist advice on what is the most effective way to hold your investments, pensions and assets.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
Written by Gavin Scott, Senior Partner, Blevins Franks
W: www.blevinsfranks.com
E: gavin.scott@blevinsfranks.com
T: 289 350 150
