Stephen Hammond, the Secretary of State for Transport in David Cameron’s coalition government, bought a holiday home in Vale de Lobo through an offshore company based in Gibraltar back in 2002.
The UK press has pounced on the 'story' and, sensing blood, has demanded that the minister explain himself and his comment that this type of purchase through an offshore company is "usual in this part of Portugal."
The explanation has not been enough to convince the Portuguese tax authorities either and the country’s Tax Administration is to analyse this particular situation with regard to tax compliance.
At issue is the purchase of Hammond's home in the Algarve through an offshore company. The house was already owned by the offshore company when Hammond bought it, he merely bought the shares in the company and thus gained full use of the property which was still owned by the same company.
The Portuguese tax authorities are said to be 'unconvinced by the excuse' - not that an excuse is needed - not only because the house was owned by an offshore company, but also the strategy of the minister who in 2005 moved the headquarters of the company to Delaware in the United States, as did thousands of investors in Portugal's real estate sector.
This change of location of the company to the United States was as a result of Portugal’s ever changing tax rules which in 2005 forced many offshore company owners either to move to a white-listed country or start paying higher property taxes, peaking at the current 7.5%.
If the tax authorities are investigating the behaviour of this high profile minister then thousands of other companies that own properties in Portugal should be treated in a similar manner. This is unlikely unless a change in law makes the ownership of real estate by companies illegal.
Portugal encouraged the entirely legitimate ownership by offshore companies of property in Portugal and then, when enough were in the net, it changed the rules with owners faced with taking their companies private - thus triggering a bonanza for the government coffers as stamp duty and capital gains taxes were collected - with others paying to re-domicile their offshore companies to a white-listed location such as Delaware.
Stephen Hammond lets his Algarve property when not in use for holidays. The better avenue to explore is whether his company has been accounting for the rental income, its existence is entirely legitimate but its finances may not be.
