Legal alert no. 102
Amendment to the Portuguese Corporate Income Tax Code and the General Regime of Tax Infractions – Law no. 98/2019
As it was already established under the Regulatory Decree no. 13/2018 of December 28th, a definitive tax regime that concerns impairment losses for credit risks entered in force for the taxable periods that starts from or after January 1st 2019.
Thus Law no. 98/2019, of September 4th, which was published on the Official Gazette on September 4th 2019 and will enter into force today, amended the Corporate Income Tax Code in relation to the impairment losses regime by credit institutions and other financial entities. In addition, the law that now enters into force amended the special regime applicable to deferred income tax assets, creating a new reporting obligation and establishing a new tax infraction, set out and punished under the General Regime of Tax Infractions (RGIT).
I. Impairments of credit institutions and other financial entities
The amendments made to the CIRC focus on articles 28.º-A and 28.º-C, establishing a generic reference to the existing accounting and regulatory standards, contrarily to what happened before.
Thus, for the purpose of determination of taxable profits in relation to the taxable periods that begin in or after January 1st 2019, impairment losses for credit risk, recognized and determined by credit institutions and other financial entities, are deductible according to the applicable accounting and regulatory standards. Deductibility is dependent on those losses being related to exposures, analyzed on an individual or collective basis, resulting from the standard activity of the company, including a broader base than what the previous legal provisions determined – i.e. restricted to credits resulting from the normal activity of the taxable person.
A specific anti-avoidance provision is introduced to prevent the deduction of claims by individuals and legal persons who own, directly or indirectly, more than 10% of the company’s capital or has a seat in its governing bodies. In addition, it also extends to companies which the taxable person owns, directly or indirectly, more than 10% of the capital and on entities with which the taxable person has special relations, against the validation of some conditions.
It is also introduced a new reporting obligation determining that the accounting and tax movements concerning such impairment losses must be detailed on a multiannual map to be included in the taxable persons’ tax documentation process.
Consequently, the amendment to the RGIT results of this new reporting obligation, with a fine between 750€ and 45.000€ for the unduly or lack of presentation of the multiannual map of impairment losses for specific credit risk to be included in the process of tax documentation, as well as the omissions or inaccuracies concerning the drafting of such map.
An adaptation period of a maximum of 5 years will be held, during which taxable persons will be subject to the application of the previous legal, unless they communicate to the Portuguese Tax Authorities their option to adopt the new regime.
II. Deferred income tax assets
In relation to the changes made to this regime, approved in appendix to Law no. 61/2014 of August 26th, which was in turn altered by Law no. 23/2016 of August 16th, a new article – article 15 – was introduced. It is now stated an obligation for the Government to send to the Portuguese Parliament a report with updated information of each and everyone of the requests received in the last ten years for the conversion of deferred income tax assets into tax credits, which is to be published in the Portuguese Tax Authorities’ website.
The special regime applicable to assets for deferred taxes was also amended by this Law, having been determined that in relation to the conversion of assets for deferred taxes into tax credits, the board of directors of the taxable entity is obliged to promote a capital increase, within three years after the confirmation by the Portuguese Tax Authorities regarding the conversion of assets for deferred taxes into tax credits.
September 5th 2019