João de Macedo Vitorino

MV Conversations with João de Macedo Vitorino

With Lisbon touted as one of Europe’s Top 5 Start-Up Hubs, MV Conversations looks at the realities of Portugal’s Start-Up ecosystem and its true potential going forwards.

‘Start-up’ is a recent buzzword in Portugal. For the past few years, from the Government to the co-working spaces, people are embracing entrepreneurism and working towards living up to the hype of being one of the most promising innovation ecosystems in the world.

With Lisbon having recently hosted the Web Summit for the 4th consecutive year, bringing together investors and start-ups from around the world, the buzzword is again on the tips of everyone’s tongues.

One cannot forget, however, that the Portuguese start-up scene is still in its own incubation period, and for all the noise and attention we are yet to catch up to other hubs such as London, Berlin or Amsterdam, says João de Macedo Vitorino. Having got through the ‘seed stage’ and embracing its position in the ‘early stage’, Portugal’s ‘growth stage’ is yet to be conquered. “For this, one needs to look beyond a reliance on public funds and incentives, and follow the lead of other markets, as well as promoting and capitalising on the country’s traits that make it unique and conducive to a start-up ecosystem.”


Subsidies and Summits

In a bid to put Portugal on the start-up map, recent years have seen the Government drive through numerous initiatives and incentives to boost the start-up ecosystem and promote sustainable economic growth, innovation and opportunities. From a €200m venture capital fund aimed at boosting foreign investment in start-ups, StartUp Portugal (with over 20 initiatives for attracting new investment, talent and innovation) to a StartUp Visa for foreign entrepreneurs and tax incentives for non or new residents.

With over 70,000 attendees, the Web Summit has been a boost to various aspects of this country’s economy, such as tourism, and also created a demand for supporting facilities including incubators and accelerators.

Drawing investor attention to Portugal in any format is welcome, says João de Macedo Vitorino, whether via attractive initiatives, monetary benefits or events. But one needs to take these subsidies and summits with a pinch of salt, he adds. Many subsidies have a limited lifetime and an array of conditions that are very difficult to fulfil, while the Summit itself lasts four days and what we need is to ensure that our eco-system continues to attract ideas and investment for the rest of the year. “For that we need to promote the infrastructure we have in place to support it and the traits of our country and people – why Portugal is the right place to start up and invest.”


Market lessons

Looking to other markets that have started using similar public structures and subsidies to fund their start-up ecosystems, explains João de Macedo Vitorino, in the end you are attracting all kinds of ideas and paying for ideas which are not, or may not be successful when viewed from a market perspective. “If you look at the figures of the investments that were made in France this way, there were some tax companies founded and jobs created, but those jobs and those companies might have found better ways of existing and in a less costly way than by using public funds.”

If we look to the US, Germany or UK, these are of course far more dynamic markets, he says. “And their eco-systems have adapted. Big corporations have their own ideas and take their ideas to market, and they have started attracting entrepreneurs because they realize that it's much less expensive to invest in potentially good ideas than to have to buy them afterwards for a great deal of money. So the market itself created this thirst for new ideas and an environment that is favourable to seek and grow ideas from people who would not otherwise have the means to do it.”

These markets create solutions to cover gaps, such as corporations making their own labs, venture capital increasing and investing in diverse risks so they can invest more. “It's one thing trying to put ideas in people's minds or incentivising people to do things that they otherwise would not do,” explains João de Macedo Vitorino. “It is quite another to have a market where everyone is trying to succeed, sell their own ideas and invest in others.”

That is what the goal should be for Portugal, he adds. Ensuring the environment here is such that the market goes from publicly funded to a more self-sustaining one.


The Portuguese advantages

As the digital world tends to be focused on universal products, these days there are no frontiers for the digital economy. So you can really start anywhere, says João de Macedo Vitorino. “The key is to find an environment that supports your start-up, both the place and the people.”

He highlights the fact that the digital economy requires people that are open- and internationally-minded, free thinkers and flexible, who can move from idea to idea and adapt quickly and painlessly. “These are all Portuguese qualities that I believe make us more naturally capable to succeed in the digital world as we have in traditional commerce. It’s our natural way of being as a country and as a people, and if you do things against your own nature it becomes much harder. Working with a people who already possess these traits in their DNA is a distinct advantage.”

Portugal also benefits from having a very qualified and skilled work force of multi-lingual talent, and we are seeing this focus on our talent with big business establishing bases in Lisbon for their European operations, says João de Macedo Vitorino. Mercedes for example –  and others who are especially taking advantage of Portugal’s young tech talent.

The country is also investing in infrastructure to support the start-up ecosystem with hubs opening across the country, such as the Beato Creative Hub, a large-scale incubator in the north of Lisbon for start-ups and other tech businesses, including the Daimler-Mercedes research centre. “And it is precisely this type of infrastructure, coupled with the people behind it, that will strengthen the foundations of our start-up ecosystem,” he says.

Additionally, with political uncertainty prevailing around Europe - Brexit being a case in point, this is a definite concern for any potential investors or entrepreneurs. Portugal’s stable political climate without a doubt plays a part in amplifying its attractiveness, says João de Macedo Vitorino.


“We have made great strides in getting Portugal on the start-up map, and while subsidies and summits are a good first step for Portugal’s start-up ecosystem, we now need to take this a step further,” he says. “We must look past exclusively publicly-supported environment and ensure that the Portuguese eco-system is an attractive marketplace of ideas and investment with the necessary infrastructure to support it for years to come.”

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Cláudia Fernandes Martins

Quick and simple registration systems can save your IP from falling into the wrong hands and ensure your business and your brand are protected in Portugal.

In today's world a business’s brand is as important as its product or services. And the intellectual creations behind it are what gives a business its unique competitive edge. The importance of protecting your Intellectual Property (IP) assets cannot be undervalued. Neglecting to do so can put your business at risk, affecting essential core services and your long-term viability.

Are my IP rights covered in Portugal?

Yes, it has never been quicker or easier to ensure your IP rights are protected on par with other EU Member States and in line with EU directives. Portugal is also member of the World Intellectual Property Organization (WIPO) and party to numerous international agreements, including the Berne Convention, the Universal Copyright Convention, the European Patent Convention and the Patent Cooperation Treaty.

The law covers your industrial property rights – trademarks, patents and designs – and your copyright, which protects literary, artistic and musical works, multimedia creations, videograms and phonograms, computer programs and databases.

To note, while IP rights are territorial, many can be registered at the Portuguese Institute of Industrial Property (INPI) for both national and EU protection, while other EU rights must be arranged direct with the relevant EU European Patent or IP Office. International rights must be handled with the WIPO.

What falls within the category of ‘trademarks’?

From non-generic words, logos, slogans, sounds, etc., your trademarks are your brand – think McDonald’s golden arches or Nike’s “Just do it”. These important business assets distinguish a business, its products and services within the relevant market. We cannot emphasis enough the importance of securing your right to trademark your products, etc., as yours and yours alone.

Registration protects your rights for 10-year periods, without limits on renewal, but to be eligible, signs have to be unique or distinctive, such that they could be easily identified by a third party. ‘Signs’ can be represented graphically, by words, people’s names, drawings, letters, numbers and sounds, for example, as well as the form of the product or respective packaging and even your advertising slogans. What ‘signs’ cannot be is descriptive or just the name of your product or service.

To note, well-known or prestigious trademarks are given a special degree of protection, even if they have not been registered.

How are trademarks registered and where will they be protected?

Any person or legal entity from any country in the world can apply for the registration in Portugal, and you can do it online at https://inpi.justica.gov.pt/, but for entities, all stakeholders must take part. Trademarks registered at the INPI are only protected within Portugal, so if you are looking for EU-wide protection you must register at the EU IP Office.

For international protection in over 100 countries, you have to register with the WIPO. You must have a business, be a national or domiciled in a member country of the Madrid System (International Trademark Registration Treaty), but be aware that each country’s national law governs the registration so your application could be accepted in some and rejected in others.

Trademark applications in Portugal will be denied if they are a reproduction or imitation of a well-known Portuguese trademark, or if they apply to identical or similar products or services that could cause confusion with that well-known trademark. Applications will also be refused if the trademark is identical or similar to a prestigious Portuguese or EU trademark, even if related to different products or services, in a way that takes unfair advantage of the prestigious trademark or causes it injury.

To watch out for at both national and EU levels is the fact that trademarks need to be actively used for five consecutive years, otherwise the registration expires, and once your trademark products are in the EU market, your rights are considered exhausted and you cannot disallow the use of the trademark on the product.

What rights are protected by a ‘patent’?

If you have got a new invention, way of solving a technical issue or even a new way of doing something, protecting it with a patent is paramount. This ensures your right to exclusive use and that others cannot use your ‘invention’ without your express permission for 20 years from the date of application in Portugal. You can also apply for a supplementary protection certificate that extends protection for a further if you are dealing in pharmaceutical and plant protection products.

Portuguese patents protect others from manufacturing, offering or storing an invention with an industrial use without your consent. This includes anything biological in nature or process that produces, treats or uses biological material but does not extend to: discoveries; scientific theories and mathematical methods; materials or substances already in existence; nuclear materials; aesthetic creations; schemes, rules and methods for performing mental acts, playing games or doing business, computer programs and informative presentations. If the commercial exploitation of an invention would be contrary to Portuguese law, public policy, public health and good practice then it is also excluded.

To be covered, your invention has to be novel, capable of industrial application, and it cannot be something that would be obvious to someone with average knowledge in the relevant technical field. Once you have the patent you must exploit the invention within four years from the application date or three years from the date it was granted, whichever is longer, and you have to commercialise the results.

To note, a patent can be used by a third party if you enter into a license agreement or through its sale to a third party.

How and where are patents registered?

As with trademarks, registration is territorial. For protection valid in Portugal you must register at INPI, in person or online at https://inpi.justica.gov.pt/ and for an EU-wide patent (not including Spain and Croatia) you can either do so at INPI or direct with the EU Patent Office but the application must be in either English, French or German. The patent will be automatically validated in all EU Member States and only subject to maintenance fees in one country, but be aware that national laws govern registration in each country. Relevant fees apply and the protection period for both is 20 years.

Once the patented products are placed on the EU market, your rights as the patent-holder are considered exhausted and you cannot disallow acts related with the patented products.

International patents are dealt with by the WIPO, ensuring your patent is protected in over 150 countries with a single application and set of fees. The applicant must be a national or resident of a member country of the Patent Cooperation Treaty. However, it is the national laws that govern the registration in each country.

When does a ‘utility model’ apply?

If you don’t meet the patent criteria, you can always try for a utility model with the INPI with applications in person or online at https://inpi.justica.gov.pt/. With less stringent requirements, a simplified approval process and lower fees, this applies to minor inventions – products or procedures with industrial application – that still require a level of protection.

Utility models, however, don’t cover anything biological in nature and last only six years from the date of application. This can be extended, but only up to a maximum of 10 years.

What protection can secure ‘design’ rights?

Your business’s designs need to be safeguarded, granting you exclusive rights and ensuring third parties can’t copy or commercialise them. Design rights protect visual appearance, shape or configuration for unique two- or three-dimensional forms, and while they don’t have to be 100% ‘new’ they have to include novel combinations or layouts of known elements with a distinctive character.

Once registered in Portugal, designs are protected for five years periods from the application date, renewable for up to a maximum of 25 years. Registered designs also benefit from automatic copyright protection applicable from the date of creation.

You can register for national protection at INPI and EU-wide at the EU IP Office with just a single set of fees to cover all Member States. WIPO registration grants protection in 65 countries, and to qualified you must be a business or be a national or domiciled in a country that is part of the Madrid System. Once again, it is national laws that govern registration in each country and your rights are considered exhausted once the products where the design was incorporated or applied are placed on the EU market.

To note, unregistered Community designs have an automatic three-year protection as from the date of their public disclosure within the EU. This prevents commercial use from any copy of the design by third parties.

How can works be copyrighted?

Once an idea has been physically expressed, then copyright comes into play, protecting literary and artistic works, music, software, architectural works and even databases and computer programs, among others.

Copyright does not have to be officially registered to be protected – its automatic upon the creation of the work. It is highly advisable, however, to register with the relevant authorities worldwide to ensure that you control whether, or under what circumstances, the work can be used by third parties, and gain recourse if used without permission

In Portugal, you may register with the General Inspection of Cultural Activities (IGAC), part of the Ministry of Culture, and you can even delegate the administration of your copyright to a collecting society, like the Portuguese Society of Authors (SPA) or ASSOFT - Portuguese Association of Software. Portugal also is party to international treaties and conventions (such as the Berne Convention) that allows for protection in numerous countries.

Authors or copyright owners of any works covered by copyright have the right to assign or licence their economic exploitation. Protection generally runs for 70 years following the death of the author or from posthumous publication, after which the works enter the public domain and can be used freely. This does not, however, apply to what is known as the ‘moral’ rights to the work. As an author this means you have the right to be recognised as the author of the work and to protect it. ‘Moral’ rights are not assignable, cannot be sold, allocated or waived – even if the author authorises its exploitation – and they continue indefinitely.

What protection is afforded to databases and computer programs?

Databases are covered by copyright if considered an ‘intellectual creation’ under the Portuguese Protection of Databases Law. This lasts 15 years from the end of the calendar year in which the database was created. And there is even implied protection for unregistered databases where substantial investment is involved in obtaining, verifying or presenting its contents.

Computer programs can get the same level of protection as literary works if they fall within the legal criteria of being ‘creative’, as defined in the Portuguese Computer Program Rights Law and you can register the program on the IGAC or ASSOFT. Any unauthorised economic exploitation is considered a violation of the Portuguese Computer Program Rights Law and deemed a criminal offence under the Portuguese Cybercrime Law.

As the program author, you have ‘personal’ rights, meaning you have the right to be recognised as the author of the work and can mention the program’s name. As owner of a program, you have the right to economic exploitation including permanent or temporary reproduction by any means and in any form, make changes and any other modifications as well as reproducing the results and distribution to the public. In addition, you can put originals or copies into circulation and to rent out those copies. Also, a program created by an employee in the execution of their duties or following instructions given by their employer, is considered a ‘collective work’ owned by the company.

To note, anyone with the right to use a copy of the program can, without the authorisation, make a back-up or observe, study or test its functioning, and a licensee or anyone with the right to use it (or on behalf of someone authorized to do so) can perform a decompilation of the parts necessary for interoperability with other programs. This is only legal if obtaining the information is intrinsic to achieving interoperability and if the information is not easily accessible.

Can ‘trade secrets’ be protected and what circumstances do that cover?

Any confidential business information giving competitive advantage to others can be considered a trade secret, and it is your business’s most valuable asset. This includes information obtained from business plans, customer data, recipes and manufacturing processes through to know-how and technical knowledge (potentially patentable). Trade secrets don’t require registration to be protected, it is automatic, but there are certain conditions that need to be met.

The disclosure, acquisition or use of your trade secrets without your consent is illegal if the information is secret, has commercial value due to being secret and has been subject to considerable diligence by the person responsible for the information in order to keep it in secret. It is also illegal if someone, at the time of obtaining, using or disclosing a trade secret, had or should have known that the secret had been obtained directly or indirectly from another person who was using or disclosing it illegally.

It is not illegal however if someone gets your trade secrets through independent discovery or creation, due to the employee’s (or their representative’s) right to the information, through consultation in accordance with national practice or the law or in other circumstances that are considered to be in line with honest commercial practices.

If there has been a breach or well-founded fear that others could cause serious and irreparable damage to your trade secret, the court may, at your request, order the appropriate precautionary measures. The court can also order the prohibition of the use or disclosure of the trade secret, the production, offering, placing on the market or use of the infringing goods, as well as the import, export or storing of the infringing goods for those purposes.

We also advise that whenever you are dealing with the exchange of confidential and sensitive information to business partners, shareholders, employees, suppliers and customers, you enter into a non-disclosure agreement in case unfair competition, abuse of right and other legal rules protecting business secrets do not apply or offer sufficient protection.


For help with this and all your IP rights, as well as how we can help ease the process, read our Guide ‘Why Portugal?’.

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The first edition of the Web Summit in Dublin in 2010 had 400 attendees. In eight years, the last two in Lisbon, the number of attendees increased to over 60,000. It is expected to reach 100,000 soon.

One of the reasons for the growth of the Web Summit is its location. Lisbon is a secure, eye-catching, open to new experiences and socially vibrant place. These qualities contributed to make Lisbon one of the best locations in Europe to host the largest web event in the World. But to host the Web Summit the Portuguese Government and the City of Lisbon made a significant financial investment.

The Web Summit promotes Portugal and Lisbon and contributes to the frenzy about Lisbon that is attracting not only tourists and retirees but also foreign students and young people from all corners of the World wishing to experience living, studying and working in Lisbon.

Portugal is more than a low-cost lifestyle country with sun, surf, nice food and friendly people.

Of course, lifestyle opportunities help to attract tech talent, but Portuguese tech ambitions go far beyond: Portugal wants to attract young entrepreneurs and start-ups.

In 2006, the Portuguese government partnered with the Massachusetts Institute of Technology (MIT) to create the «MIT Portugal Program» which was renewed in 2013. With the help of the MIT, Portuguese Universities and Research Centres and the Instituto Politécnico in Bragança, UpTec in Oporto, Lisbon Instituto Superior Técnico and Instituto Politécnico and Nova School of Business and Economics, are investing in new fields of knowledge such as biomedical engineering, sustainable energy, and advanced manufacturing.

In 2018, Nova School of Business and Economics inaugurated an ultramodern campus in Carcavelos, near Lisbon, mostly financed by private funds, something rare in most European countries, where States are still the main funders of academic institutions. Portuguese academies are now working together with businesses to create innovative products in several fields, including in traditional sectors like clothing and shoes.

Several tech companies have offices at «UpTec» in the University of Oporto’s campus, sharing knowledge and best practices and strengthening a culture of networking and mutual co-operation.

It is easy to start-up a business in Portugal. Start-ups also benefit from incentives schemes, such as «Start-up Voucher», the «Seed Program» (Programa Semente), «Start-up Portugal Momentum» and «200M Program».

Tech incubators and newly refurbished coworking spaces are appearing all over Lisbon. Hub Creativo Beato, is a 35,000-square-meter project developed by the City of Lisbon in a former army food factory complex located, which is being converted into a large site for start-ups and other tech businesses like Daimler-Mercedes’ research centre.

Other tech giants, like Uber, Zalando, Euronext, Huawei, Amazon and Google set up facilities in Portugal, taking advantage from our lower cost of living and existence of the local talent pool.

Meanwhile, there are two Portuguese start-ups that take part of the universe of 260 unicorns (valued at over US$ 1 billion) worldwide: Farfetch and OutSystems.

This means that hosting the Web Summit is more than a good advertising coop for Lisbon: Portugal is becoming serious contender for start-ups competing head-to-head with London, Dublin, Paris, Barcelona, Rome and other places in Europe.


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António de Macedo Vitorino

As we approach 29 March 2019 the race is on for banks and financial investors to prepare for a fundamental change in the way they have been doing business in Europe in the last 25 years.

The European Union (EU) gave London more than a base for expansion in the European common markets, it also gave London the conditions to establish itself as a leader in modern global financial markets. The EU unified set of rules gave London the platform to dominate Europe’s unified financial markets, cementing its position among the World’s top financial centres.

It is true that London has been, along with New York, one of the main financial centres in the World since the XIX century. However, XXI century global capital markets are very different from financial markets in the XIX and XX centuries.

Globalization of the financial markets requires size and Europe gave London the grandeur it had lost after the World War I. As the hub for European financial markets operations, London became an unique place in the World, a bridge between East and West.

Will all of this be lost on 29 March 2019? The answer is inevitably “no”. But since Brexit was announced we have seen an erosion of London’s position in the global markets. Global players are planning for Brexit. In any context, a hard or soft Brexit, financial institutions and investors are no longer considering London as the centre of European finance. Other locations emerge wanting to take that role: Paris, Frankfurt, Amsterdam and Dublin. All have an eye for a lucrative market until now dominated by London.

The tendency seems to be for banks and other financial investors to keep a significant presence in London and open other important operation centre or centres in mainland Europe and sometimes in Ireland. Internet-based systems allow for a virtual presence anywhere in Europe, so the choice will be driven by convenience, cost, tax and the incentives local governments will give to attract these investors.

The end of London’s dominance seems to anticipate the loss of English law and English courts’ pre-eminence in financial law matters. Unsurprisingly, it is more difficult to change from English law and English courts to French, German or Portuguese law than moving offices from London to Paris, Frankfurt or Lisbon.

The arguments for choosing English law and English courts are clear: a sound, business friendly, reliable and trusted system of law applied by courts that are commercially aware, fast and predictable. All of these arguments lauded by London based law firms play in favour of English law and English courts.

However, banks are concerned that when they move to Europe there will be no reason to choose English law, which will be a foreign legal system after Brexit and that will not be related to them or their clients. Also the laws of EU countries will continue aligned by EU directives and regulations while English will start to deviate from EU law. This means that while contractual terms can be governed by English law, the regulatory aspects of financial instruments will be governed by EU law and local laws harmonized by EU legislation. English law will add unnecessary complexity that will only be justifiable if the advantages of the English legal system, law and courts, significantly outweigh the advantages of keeping the entire transaction under the umbrella of a single legal system.

Another point to consider is the origin of clients and investors. While the UK was part of the EU, there was no issue for a client or investor to question the choice of English law and English courts because of the advantages of the English legal system which we highlighted above and the fact that as part of a unified and integrated market, the UK offered the best of the two worlds. After Brexit, investors will question the choice of English law and English courts in favour of their own legal system. Why should a French, Spanish, German or Portuguese client or investor prefer English law, which many times will be totally foreign to the transaction, in relation to the laws of an EU country?

In the US financial markets, NY law and NY courts is the obvious choice. US investors and those gravitating around the US, such as Asian, Latin American and Middle East investors, trust the choice of NY law and NY courts. In Europe, English law and English courts will cease to preform that role in a post-Brexit world. In the last 25 years, English law imposed itself due to the business minded approach of city of London and the weight of the European markets to which investors from other latitudes adhered.

After Brexit, English law and English courts will not be as attractive to investors, who will mistrust the added complexity and the risk of local courts having to confirm English courts judgements. English law and English courts will retain an important role in international, maybe larger than the role of City of London banks and financiers, but not the same dominant role they had until today.

Paris courts and French law are emerging as the strongest challenger, but the importance of Paris in Europe’s next financial hub will depend on the ability of the country to present to the finance world a well-established, predictable, creditor and business friendly set of rules, faster court decisions and no political or ideological bias. In essence, continental European countries have a system of rules that is predictable and fair, but court decisions are less predictable, less business friendly, sometimes contaminated by ideological considerations and many times slow. Recent events in France show that it will be difficult for Paris to give the same assurances as London.

If the flaws of Europe’s legal and court systems remain unchanged, English law and English courts will keep a pre-eminent role in Europe’s financial markets once the short-term effects of Brexit fade away and people get used to border controls and other idiosyncrasies of a divided Europe. As a Portuguese wishing financial investors choose Lisbon to set up their European headquarters, I propose:

  • First: create a business friendly and creditor friendly legal environment, with no bias against banks and financial investors;
  • Second: put together a clear set of rules, predictable, less open to variations in interpretation and not dependent on general well-intended considerations that impair the application of the law in its full force; and
  • Third: set up specialised finance courts that are quick in deciding, commercially aware and practical in their decision making process.

We doubt that Portugal or any other EU country will be able to do all three things, but Europe could lead the way and issue directives and regulations to create a Pan-European unified body of rules concerning commercial borrowing and lending and other financial matters and propose that countries create specialised courts dealing with finance matters to solve matters more quickly and by way of a specialised court system gain the experience needed to better decide these issues.

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André Vasques Dias

The Portuguese Parliament discussions on the draft 2017 budget presented by the Government are on the way.

The draft forecasts a budget deficit of 1.6% of the GDP which, if achieved, would be the lowest Portuguese budget deficit in 40 years.  A 0.8% deficit cut should make EU Commission happy and the Government expects to reach it despite of the €10 increase in all lower pensions imposed by the far-left parties to approve the budget, the entire removal of all cuts in public officers' salaries and pension made from 2010 to 2015 and the phase-out of the 3.5% personal income tax surcharge.

Considering the increase in public spending and the reduction in income tax revenues, it does not come as a surprise that, despite the “treats” offered by the Government, fiscal policy will have to do its “tricks” and taxes overall will have to increase further.

The Government had already announced in November 2015 that it would stop the corporate income tax reform, which contemplated a reduction of the general rate from 21% to 20% in 2016 and from 20% to 19% in 2017. The draft 2017 budget confirms that the general rate will remain unchanged.

The removal in 2017 of the personal income tax 3.5% surcharge, approved by the Government in December 2015, will now only apply in full to those earning less than €20,261 euros a year. Taxpayers earning up to €80,640 will only benefit from a gradual phase-out in 2017 and those earning more than €80,640 will have to wait until December.

In addition, the Government decided to resort to an increase of indirect taxation. Not only to the recurrent increase of taxes over vehicles, alcohol, oil products and tobacco, but also to a new tax on sugary and low alcoholic drinks (“fat tax”), an extra 0.3% tax on real estate above €600,000 (which will be levied on top of the current real estate tax) and even a special tax on gun shells.

Notwithstanding the 2016 figures on the budget implementation disclosed last week showing that indirect tax revenues, including VAT, are expected to fall below the forecasts made in the 2016 budget, the Government seems convinced that there is still room to increase indirect taxation. And the fact is it may well be right.

As an example, the new fat tax on sugary and low alcoholic drinks should raise a mere €80 million in 2017. But what prevents the Government from increasing it in the next years, as it was done in respect of all other excite taxes in the last years? And why leaving other sugary products out of this tax? After all, aren't these products associated with weight and obesity problems?

The room to increase indirect taxes seems endless and new taxes are very likely to appear in the next years, such as the inheritance tax over high-net-worth estates - which was included in the Government’s programme and is waiting for the right moment - and the financial transactions tax - which is waiting for EU approval.

The 2017 budget shows a clear trend to give preference to indirect taxes, which already represent more than 50% of the whole tax revenues. One of the arguments used by the Government is that this is the only way to reduce personal income tax.

A more pragmatic perspective would argue that indirect taxes are efficient, raise less controversy and could even be more popular, if you have the right arguments - in reality, many times the end consumer will not even notice them, especially if they have a marginal impact on prices.

The downsides are known: unlike direct taxes, indirect taxes are regressive and will treat taxpayers equally irrespectively of their income, which may increase inequality and affect those with low income; on the other hand, some indirect taxes may harm competitiveness of the economy as a whole and/or of some products produced locally, especially if they entail an increase of production costs (e.g. taxes on oil products/power).

For now, the Government seems to have accomplished what some considered the impossible mission of squaring the circle: increase taxes and keep everyone happy! However, if inflation, interest rates or oil prices increase in the near future, the Government and taxpayers may be faced with a new dilemma: trick-or-trick?

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António de Macedo Vitorino

The end of 2015 was difficult for the battered Portuguese banking sector. The Bank of Portugal and the European Central Bank wanted to clean up the house before the entry into force, on 1 January 2016, of the unified European bank resolution mechanism.

On 20 December, the Portuguese Government was forced to intervene in BANIF which was about to lose access to the ECB’s emergency liquidity funding. Although BANIF was a small bank it may end up costing Portuguese taxpayers over €3,000 million.

On 29 December, the Bank of Portugal adopted a second resolution in respect of BES ordering the "re-transfer" of certain Novo Banco senior notes worth approximately €2,000 million to BES, the bad bank that resulted from the collapse of the Espírito Santo Group.

As announced by the Bank of Portugal, this measure increased Novo Banco’s capital ratio to 13% making it more attractive to potential buyers.

In anticipation of the litigation that will certainly follow, the Bank of Portugal stated in its press release that its decision was due to the additional “losses arising from facts with their origin at Banco Espírito Santo, S.A. and prior to the date of the resolution [3 august 2014]"; in other words, the Bank of Portugal is arguing that the measure aims to solve a problem created before the incorporation of Novo Banco. The Bank of Portugal also states that the resolution was "necessary to ensure that, as set out in the resolution legal framework, the losses of Banco Espírito Santo, S.A. are absorbed, firstly, by the shareholders and creditors of this institution and not by the banking system or the taxpayers", which would justify the less favourable treatment given to the holders of the notes “re-transferred” to BES. Lastly, the Bank of Portugal concludes that this last decision "is the final and definitive change in the perimeter of assets, liabilities, off-balance sheet and assets under management transferred to Novo Banco" that was left open in the original resolution measure isnow “definitively closed" by this decision.

In contrast with the Bank of Portugal’s original resolution measure of 3 August 2014, which, we have always believed, would be hard to challenge in court, in this particular case investors have strong reasons to question the timing and the proportionality of the measure adopted.

As regards the timing, this last measure was taken one year and four months after the Bank of Portugal’s first intervention in BES, which took place on 3 August 2014. It is difficult to understand which facts occurred before August 2014 could justify such a serious measure. As is publicly known, since the adoption of the original resolution, Novo Banco approved its 2014 financial statements, which have been audited by its statutory auditors and reviewed by the Bank of Portugal in the exercise of their supervisory functions. Novo Banco also approved quarterly and semi-annual financial statements concerning the year 2015 and was subject to stress tests by the European Central Bank, which were announced by the Bank of Portugal on 14 November 2014.

The Bank of Portugal’s decision also breaches the principle of equal treatment of creditors within their respective rankings, as Novo Banco has repaid other notes with the same ranking in 2015 and assumed responsibility for other senior bonds issued by BES and/or vehicles of BES. Therefore, the decision favours other unsecured creditors of Novo Banco whose rights are not affected by the resolution now adopted in relation to the senior notes that were “re-transferred” to BES.

The banking resolution legal framework does not allow a differentiated treatment of creditors of the same ranking, with the exception of depositors that benefit from legal preference over other unsecured creditors and creditors essential to the continuation of the bank’s activities. It is therefore difficult to understand why this measure does not apply to the holders of other senior notes.

It is more than likely that harmed investors will take the matter to the courts and that they will have a strong case against the Bank of Portugal.

Significantly, the Bank of Portugal states in its press release that "it is the responsibility of the Resolution Fund to neutralize, by way of compensation to Novo Banco, the possible negative effects of future decisions, arising from the resolution procedure, which result in liabilities or contingencies"; in other words, the Bank of Portugal is impliedly accepting that some claimants may be successful in court and by this statement wants to assure potential buyers’ of Novo Banco that the bank will not be affected by litigation.

It is generally known that the ultimate responsibility that may arise from claims concerning the resolution of BES will have to be satisfied by the Resolution Fund. By stating it in its press release, the Bank of Portugal seems to indicate that the creditors affected by this latest measure have stronger chances of success when compared with the claims of subordinated creditors now in court.

The Bank of Portugal’s main goal with this measure was to improve Novo Banco’s financial ratios to facilitate its sale.

However, with this decision legal certainty is lost and investors may distrust the word given by the Bank of Portugal and the European Central Bank, which breach the laws that they should protect.

The question remains as to whether Novo Banco’s prospective buyers of should not be aware of a regulator that allowed (and required) a capital increase of a bank with serious internal problems that the same regulator would put into resolution only a few weeks after investors put their money into the bank and a regulator which reverted its own decision more than one year and four months later. Only time will tell.


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António de Macedo Vitorino

The announcement by the European Central Bank (ECB) of its quantitative easing programme met the applause, more or less enthusiastic, of those who have been advocating the end of the austerity programs across Europe and in Portugal.

It is expected that the ECB's quantitative easing programme will create a monetary stimulus by allowing banks and other investors to sell certain debt securities to the ECB, which will release funds to finance the economy.

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