Portugal: Proposal for a Supplementary Budget for 2020

Proposal for a Supplementary Budget for 2020 as a result of the COVID-19 pandemic

The proposal for a Supplementary Budget for 2020, resulting from the COVID-19 pandemic, with the implementation of extraordinary and urgent measures, was presented to Parliament.

We thus intend to make known some of the most relevant tax proposals.

Deduction of tax losses

Tax losses determined in the tax periods of 2020 and 2021 by taxpayers who carry out, directly and principally, an economic activity of a commercial or industrial agricultural nature, may be deducted from taxable profits in the 10 subsequent tax periods (instead of 5) for large companies, maintaining the 12-year period for small and medium-sized companies (SMEs).

The limit on the deduction of 70% of taxable profit is raised by 10 percentage points when the difference results from the deduction of tax losses determined in the tax periods 2020 and 2021.

When counting the period for carrying forward tax losses (in force on the first day of the 2020 tax period), the 2020 and 2021 tax periods are not considered.

Extraordinary limit on payments on account (PPS) 2020

Limitation to the first and second PPC of 2020 up to 50% of the respective quantity, provided that the monthly average of invoicing communicated through the E Invoice for the first six months of 2020 shows a drop of at least 20% in relation to the average verified in the same period of the previous year.

Limitation to the first and second PPC of 2020 to the total of the respective quantitative provided that the monthly average of invoicing communicated through the E Invoice for the first six months of the year 2020 shows a drop of at least 40% in relation to the average verified in the same period of the previous year, or when the taxpayer's main activity falls under the classification of economic activity of accommodation, restaurants and similar (when the turnover relating to such activities corresponds to more than 50% of the total turnover obtained in the previous tax period).

The classification of economic activity or breakdown of turnover must be certified by a certified accountant on the Finance Portal.

If the taxpayer verifies, based on the information at his disposal that, as a result of the total or partial reduction of the first and second PPC, an amount higher than 20% of that which under normal conditions would have been delivered may no longer be paid, he may regularize the amount in question until the last day of the deadline for payment of the third PPC, without any burden or charge, through certification by a certified accountant in the Finance Portal.

Promoting corporate restructuring

For merger transactions carried out during the year 2020, the limit generally applicable to the transferability of tax losses is not applicable during the first three tax periods, provided that the following cumulative conditions are met:

• The taxable persons involved are qualified as micro, small or medium enterprises;
• None of the taxable persons results from a spin-off carried out in the three years preceding the date of the merger;
• The taxable persons' main activity is substantially the same;
• The taxable persons have started their activity more than 12 months ago;
• No profits are distributed for three years;
• There are no special relations between the companies involved;
• The taxable persons have their tax situation regularized on the date of the merger.

Companies resulting from merger operations will not be subject to State Surtax for the first three tax periods.

Special regime for the transferability of tax losses applicable to purchasers of entities considered to be companies in difficulty

Creation of a scheme that allows the transfer of tax losses generated by SMEs and the respective deduction in the sphere of the acquiring company, if the SME is acquired by 31 December 2020. The company whose participation is acquired must demonstrate that it became a company in difficulty during the 2020 tax period compared to the situation in the 2019 tax period.

Complying with the proposed conditions and requirements, the deduction of the tax losses of the acquired company is carried out by the acquiring company in proportion to the interest in the share capital of the acquired company that generated the tax losses, up to 50% of its taxable income.

Extraordinary Investment Tax Credit II (CFEI II)

Creation of an Extraordinary Investment Tax Credit that allows IRC taxpayers to deduct from the collection an amount of 20% of the investment expenses in assets related to exploitation that are made between July 1, 2020 and June 30, 2021, with a maximum cumulative amount of 5 million Euros and with a limitation to 70% of the collection.

Any amount that cannot be deducted may be deducted, under the same conditions, in the five subsequent tax periods.

One of the conditions that must be met is that taxpayers do not terminate employment contracts for three years, under the terms of collective dismissal or dismissal for termination of employment.

Eligible investment expenses are those related to tangible fixed assets and biological assets that are not consumable, acquired in a new state and that start operating or use until the end of the tax period that begins on or after January 1, 2021. Also eligible are expenses with development projects and also expenses with industrial property elements, such as patents, trademarks, permits, production processes, models or other similar rights, acquired for consideration and whose exclusive use is recognized for a limited period of time.

Investment expenditure on assets that may be used in the personal sphere, such as vehicles, boats, furniture and construction, acquisition, repair and extension of buildings are excluded, except when related to the productive and normal activity of the taxpayer.   

Expenses relating to intangible assets are not considered eligible, when they are acquired from entities with which it is in a situation of special relations.

Exceptional regime for payment in instalments for tax debts and social security debts

Debtors who are complying with an instalment plan authorized by the Tax and Customs Authority or the Social Security under the terms of a recovery plan approved under insolvency proceedings, special revitalization proceedings, special proceedings for payment agreements or agreements subject to the out-of-court reorganization regime, and have constituted or will constitute tax debts relating to tax events occurring between 9 March and 30 June 2020 and to tax debts and debts of monthly Social Security contributions due in the same period, may request payment in instalments of those debts, subject to the same conditions approved for the current plan and the number of instalments missing from it.