PORTUGAL Trends and Developments Contributed by: João Riscado Rapoula and Hugo Leonardo, VdA
securities are exempt from Portuguese income tax when obtained by non-resident investors without a permanent establishment in Portugal, provided that some predefined conditions and formalities are met. The main conditions and formalities for the Portu - guese Debt Securities Exemption Regime to be appli - cable are: • Bonds must be integrated in: (a) a centralised system for securities managed by an entity resident for tax purposes in Portugal (which is the case for the CSD managed by Interbolsa); (b) an international clearing system operated by a managing entity established in an EU member state other than Portugal (such as Euroclear or Clearstream, Luxembourg) or in an EEA state provided, in this case, that such state is bound to co-operate with Portugal under an adminis - trative co-operation arrangement in tax matters similar to the exchange of information schemes in relation to tax matters existing within the EU member states; or (c) other centralised systems not covered above in relation to which the Portuguese government expressly authorises the application of this regime. • Beneficiaries must be central banks or governmen - tal agencies, international bodies recognised by the Portuguese state, or any other entities without headquarters, effective management or a perma - nent establishment in the Portuguese territory to which the relevant income is attributable. In the last case, the special regime will not apply if these entities are domiciled in a blacklisted jurisdiction, unless such jurisdictions have a double tax treaty or a tax information exchange agreement in force with Portugal. • Beneficiaries must evidence non-residence status. Market players have coped well with the requirements above over the past years, with a high number of new issues coming into the market every year. Although the regime has been in force for more than 15 years, it has been raising increased attention as it might miti - gate the risk a withholding tax (WHT) waiver is chal -
lenged based on EU law, given recent developments in the international tax outlook. The concept of beneficial owner has been subject to increased scrutiny within the EU (including Portugal) following the recent case law of the European Court of Justice (ECJ) – habitually referred to as the “Danish Cases” (C-116/16 and C-117/16) – which developed a conservative approach to the concept of beneficial owner under the terms of the EU Interest and Royal - ties Directive. This case law challenges the concept of beneficial ownership in lending structures relying on back-to-back structures, where interest payments flow to an entity that would not be able to claim this benefit (namely a non-EU resident company). Addi - tionally, according to the proposed Anti-Tax Avoid - ance Directive 3 (so-called ATAD 3 or Unshell Direc - tive), “shell companies” will not be eligible for tax residence certificates. Funding structures falling under the Portuguese Spe - cial Debt Securities Regime should fall out of said dis - cussions given that the WHT exemption results from a domestic tax regime that clearly encompasses non- resident (and non-EU) lenders. Thus, to the extent the conditions and formalities identified above are com - plied with, no WHT should apply in Portugal. In this regard, it is interesting to note that the Por - tuguese Special Debt Securities Regime allows for other forms of non-residence certification beyond the traditional certificate of residence, depending on the nature of the investor. By way of example, if the investor is an investment fund or other type of collec - tive investment undertaking domiciled in any OECD country or any country with which Portugal has signed a double tax treaty or tax information exchange agree - ment, certificationmust be provided by means of a declaration issued by the entity which is responsible for its registration or supervision or by the tax authori - ties, confirming its legal existence and the law of its incorporation. Stamp tax on commissions charged in the context of the issuance of bonds Apart from the above Portuguese income tax, bond loans should not be subject to stamp tax in line with a restriction provided by the Council Directive 2008/7/
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