New tax rules complicate family wealth management

Earlier this month, Portugal followed the European footprints and adopted new rules against aggressive tax planning. The range of changes is being digested, but it is already one that is leaving the financial and advisory industry on alert: the way family fortunes have been managed may be in check.
Among those who have great financial assets, it is common to take the portfolios of holdings and to stop them in a foreign company, in a jurisdiction that offers a lower IRC, in the face of the IRS that would pay in Portugal on the income of the applications. Malta, the Netherlands and Belgium are some of the countries that offer attractive taxation rates, or that even give tax exemption to those who redress income.
One of the rules of the new anti-avoidance directive (ATAD in the English acronym) is to say that, whenever "the tax actually paid" abroad is less than 50% of the tax that would be paid here in Portugal, then these incomes have to be taxed here. This formulation tightens the mesh (up to here it was required that the nominal rate would not be less than 60% of the IRC rate) and, coupled with stricter rules on the requirement that companies have an economic substance, could affect many of the companies managing Heritage.
"The implications are enormous because there are many people who have equity societies that may be called into question," admits João Magalhães Ramalho, a partner at PLMJ, and is not alone. For Carlos Loureiro and Luís Filipe Bernardo, from Deloitte, the associated risk "is considerable", because they believe that it will slow down "the Constitution of corporate vehicles dedicated to stopping and managing family assets" and even, arise, "a reorganization" of Current reality. Lawyer Ricardo da Palma Borges agrees — "in the holdings does not change much, but for the asset management vehicles the thing can be thinner"-and gives the example of Malta, with a nominal rate of IRC of 35, 5% but that, in practice, ends up having an effective tax of five%. "They previously escaped the CFC rule [Controlled Foreign Corporations, which regulates the way foreign incomes are declared] but, in the future, it may oblige the imputation of income to Portugal."

"The reorganization of the heritage is currently being discussed throughout Europe," says Magalhães Ramalho and "Behind these standards may come a small revolution in the banking and financial industry". The lawyer anticipates that smaller assets may change their investment profile, namely "Migrating to wholesale structures", such as investment funds or unit-links (insurance contracts linked to investment funds), to the That the richest can choose to pay to adapt to the new requirements.
WHO also has to adapt are the non habitual residents (RNH), warns Palma Borges. In addition to not paying IRS (the retired) or having a reduced rate of IRS (workers), the RNH are also exempt from IRS on capital gains that are earned abroad. Only that "the exemption on foreign-source income does not exempt them from the CFC rule". This means that "if the proceeds are distributed abroad, they are not taxed." But if they are not "they can already be taxed in Portugal". In short, "I have to make sure that the dividend arrives right here" so he can keep the IRS exemption.
The look of the Fisco
The new rules are part of an international strategy of tightening the siege of aggressive tax planning and erosion of taxable bases, but, being recent, one must wait to see what its practical application is. And there are fears that can be confirmed or removed according to the interpretation of the national tax authorities and the performance in terms of supervision. "As the implications of the new rules will focus mainly on the reinforcement of substance requirements, there may be greater action on the part of tax administrations in demanding proof of these requirements", anticipates Rogério Fernandes Ferreira, Former Secretary of state tax affairs.
"It is necessary to densify what is meant by economic substance" and what are "valid economic reasons", under penalty of continuing to feed a huge litigation, Magalhães Ramalho points out. ' Cause nobody's riding this kind of business to lose money. "One of the points to be analysed will be whether the structuring of the activity is based on valid economic reasons, i.e. that they do not have a predominantly fiscal nature," clarify the experts in international taxation of EY, Luís Marques and Miguel Puim, who argue that the existence of a certain beneficial fiscal aspect "does not in itself imply that the operation has been driven by tax reasons".
It is that "the resources used by a society will depend largely on the activity pursued by the company. It can even happen that an entity will fully subcontract the management of its assets, revealing a structure without labor bonds, equipment or even facilities ", they support Carlos Loureiro and Luís Filipe Bernardo. "Discussing the substance of a holding company can be a challenge," he stressed.
Another example: The new rules oblige taxpayers to compare the IRC they pay out there with the tax that would be paid inside. "But all this exercise is difficult, it is far from immediate," adds Palma Borges.
Fernandes Ferreira warns that the fight against tax evasion and avoidance should take into account "the fundamental freedoms of the European Union, in particular, with the free movement of capital, we cannot make cross-border transactions so onerous and Complex that their achievement is put into question. "
"Distrust of cross-border operations has come to stay. Neither operations conducted with entities from other Member States are safe from scrutiny, "they conclude from Deloitte's fiscalists.
In addition to the CFC rules and the tightening of the general anti-abuse standard, the new directive has also been added to the national legislation changes in the level of deduction of financing costs and anticipates that there may be an increase in non-deductible interest, with the consequent increased Corporate tax on IRC. In addition, it changes the tax regime to the exit when there is the transfer of the seat abroad.
In "Expresso ", 18.05.2019