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ATAD Express # 3: changes to the general anti-avoidance clause

SÉRVULO PUBLICATIONS 02 Oct 2019

One of the major changes introduced by Law no. 32/2019, of 3 May, which came into force on 4 May, concerns the amendment to the general anti-avoidance clause (“CGAA”) provided for in article 38 (2) of the General Tax Law and whose enforcement procedure is governed by article 63 of the Tax Procedure and Procedure Code. 

Transposition of the Anti-Avoidance Directive (ATAD) (Council Directive (EU) 2016/1164 of 12 July 2016), as amended by Directive (EU) 2017/952, of the Council, of May 29, 2017, does, not only change this regime, but also the respective procedure for its application. 

The objectives of the amendments now introduced aim at facilitating the application of the CGAA, as well as to provide greater protection against unfair planning “schemes” and tax avoidance.

 

Concept change

In this context, the new CGAA is applicable to (i) “constructions or series of constructions” carried out, (ii) having as one of its main purposes to obtain a tax advantage, (iii) with abuse of legal forms or not considered genuine.

Firstly, while the previous wording of the rule referred to “legal acts or transaction”, the CGAA becomes applicable to “constructions or series of constructions”.

This new concept is not defined in the legislation, which only refers that a construction can consist of more than one stage or part.

Simultaneously, it is no longer necessary to identify, as the main purpose of that “construction or series of constructions”, the intention to obtain a tax advantage, which can now only consist of one of the purposes of the construction in question.

In addition, it is considered that a “construction or series of constructions” is not genuine if it is not carried out for “valid economic reasons”.

The CGAA, thus, uses a concept of European Tax Law – that of “valid economic reasons” – already used in other rules of Portuguese Tax Law, such as the specific anti-avoidance clause of the tax neutrality regime provided for in article 73 (10) of the Corporate Income Tax Code.

However, the amendments now introduced do not detail this concept and it is, therefore, anticipated that the same shall continue to be interpreted, in the future, in accordance with the directives that the European Court of Justice has been outlining, in its case-law, over the years.

 

Definitive withholding tax situations

Another new feature of this rule is in the cases where the “construction or series of constructions” resulted in the non-application of a definitive withholding tax or a reduction in the amount of definitive withholding tax which should be made.

In such cases, the tax advantage at stake is considered to have an effect on the recipient of the income, instead of the tax substitute, notwithstanding the liability rules applicable in the situations whereas the tax substitute is or should have been aware of that “construction or series of constructions”.

It should be noted that the legislation does not clarify the conditions / situations under which the tax substitute should be considered to know or have been aware of the “construction or series of constructions” that gave rise to the application of the CGAA.

 

Tax procedure news

In procedural terms, there is now a mandatory administrative claim arising from the application of the CGAA. This means that a taxpayer cannot challenge a tax assessment made as a result of the application of the CGAA directly in court; it is necessary to, first, file an administrative claim, before the Portuguese Tax Authorities.

In addition, in situations of tax substitution, it is now mandatory to carry out an inspection procedure directed to both the income beneficiary and the tax substitute.

 

Teresa Pala Schwalbach

tps@servulo.com 

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Teresa Pala Schwalbach