The Portuguese Supreme Administrative Court recently ruled on the concept of tax residence when applied to taxable persons whose activity, employment and income are not connected to the Portuguese territory, in Case no. 3/2020 of 6 October 2020.
Until now, Portuguese Tax Authorities and some Courts considered that it would be sufficient that one of the members responsible for the household had his/her residence in Portugal for all the other members to be considered tax residents in Portugal, even if they did not have any other link with this territory.
The criteria for the definition of residence was discussed based on two theories: the prevalence of the principle of “residence by dependency”, implying the residence of the taxable person when the family members resided in Portugal or the prevalence of the criteria defined by the international treaties entered into by Portugal.
The Supreme Administrative Court has ruled that conventional rules of international law should prevail over domestic law, by virtue of the supremacy of international law, in accordance with the Portuguese Constitution and the Portuguese General Tax Law.
The Court also considered that the meaning conferred to the concept of "residence by dependence" in the Portuguese Personal Income Tax could not override the concept of residence resulting from conventional provisions which follow Article 4 of the OECD Model Convention, given the supremacy of international law over domestic law.
Although article 4 refers the definition of the concept of residence to the internal legislation of the contracting States, the Supreme Administrative Court considers that this should not be done unconditionally, since it assumes that the question of residence is examined individually, on a person by person basis, without reference to the family situation of the taxable person.
Thus, the concept of residence for the purpose of applying domestic law will only apply in situations where there are only elements of connection with the Portuguese legal system or in situations where, if there are connections with other legal systems, there is no convention entered into between Portugal and the State with which that connection occurs.
Now that this dispute has been resolved, there is no doubt that the conventional concept of residence in the Conventions for the Avoidance of Double Taxation entered into by Portugal takes precedence over the rules of domestic law, with the result that tax residence cannot be determined exclusively by the taxpayer's family situation.
The Portuguese Government approved Decree-Law 78-A/2020, which extends the public moratorium from 31 March 2021 to 30 September 2021 and amends Decree-Law 10-J/2020 for the fourth time.
The new extension has different rules regarding principal and interest payments.
From 1 April 2021, as a rule, only the principal payments will be suspended, which means the beneficiaries will have to pay interest accrued from that day onwards.
However, the following credits may continue to benefit from the suspension of both principal and interest payments:
- Mortgage credit, as well as residential property leasing;
- Consumer credit granted under Decree-Law 133/2009, as currently drafted, for education, including for academic and professional education; and
- Credits granted to companies in sectors that were most affected by the pandemic and whose main activity is covered by the CAE code listed in the Annex to Decree-Law 78-A/2020.
Companies whose main activity is included in the CAE code list also benefit from a 12-month maturity extension, in addition to the extension already contemplated in the moratorium regime.
However, this maturity extension will cease immediately in the case of (i) default by the beneficiary entity of any payment obligation towards any institution or (ii) in the event of judicial enforcement requested by a third party of any payment obligation of the beneficiary entity or in the event of seizure or any act of judicial apprehension of the assets of said entity. In these cases, the original reimbursement profile plus the extension originally granted shall be resumed.
As of 1 October 2021, the moratorium will cease to apply and from that date the principal and interest must be repaid.
Although the additional extension will automatically apply to persons or entities already covered by the moratorium, those who do not wish to benefit from the moratorium must notify their intention to the banking institution at least 30 days before the date on which they intend to end the moratorium effects.
If the beneficiary entity distributes profits, reimburses credits to its shareholders or acquires its own shares or quotas it will cease to be eligible to the moratorium.
Notwithstanding the extension of the moratorium, the deadline for the application (30 September 2020) remained unchanged.
Following the measures adopted in the first months of the COVID-19 pandemic, the new "Simplified Lay-Off" was approved by the Portuguese Council of Ministers, now dubbed as "support to employment in the resume of activity".
The new bill creates an extraordinary support for the gradual resume of business activity for companies, in a business crisis situation, through a temporary reduction of the normal working period.
The new measure applies to private employers, including employers in the social sector who see themselves in business crisis.
The requirements to access are the following:
(i) Business crisis situation:
(a) drop in turnover of 40% or more in the full calendar month immediately preceding the initial application for support or extension, when compared to the same month of the previous year or compared to the monthly average of the two months preceding that period; or
(b) for those who started the activity less than 12 months ago, when compared to the average monthly billing between the start of the activity and the penultimate complete month before the calendar month to which the initial request for support or extension refers.
(ii) Documents:
The employer will have to submit an electronic form, on the website of the Portuguese Social Security (Segurança Social Direta), as the business crisis situation is certified by statement of the employer, alongside with the certificate of the certified accountant of the company. The form will also be accompanied by a nominative list of workers to be covered.
(iii) Tax and social security situation up to date:
The employer must have, verifiably, their tax and contributory situation up to date before the Social Security and the Tax and Customs Authority, authorizing the online consultation of their tax situation with the Tax and Customs Authority.
(iv) Maximum limits and reduction of the normal daily work period:
Between August and September, the new support will be assigned in a differentiated way according to the invoicing breakdown: (a) a reduction of up to 50% in the working hours may take place in the event of a drop in revenue of 40% or more; (b) a reduction of up to 70% in the working hours may take place in the event of a drop in invoicing of 60% or more.
Between October and December: (a) a reduction of up to 40% in the working hours may take place in the event of an invoicing break of 40% or more billings; (b) a reduction of up to 60% in the working hours may take place in the event of a drop in invoicing of 60% or more billings.
(v) Amount:
The amount of this support matches the salary of the worker covered by the reduction, calculated proportionally to the hours of work provided.
The worker is also entitled to a monthly compensation payment, with a maximum limit of 3 Minimum Monthly Salary, that is, up to €1950,00, paid by the employer, in the amount of (a) 2/3 of his normal illiquid remuneration corresponding to hours not worked, in the months of August and September 2020; and (b) 4/5 of his normal gross remuneration corresponding to hours not worked, in the months of October to December 2020.
In the case of companies with a turnover shortfall of between 40% and 70%, employers are responsible for paying in full for the hours worked and 30% for a variable part of the hours not worked (66% between August and September and 80% between October and December), with “Segurança Social” also paying a portion of the latter (70% of the 66% and 80% respectively).
In the case of companies with a loss of income above 75%, an additional support is given for the payment of hours worked, corresponding to 35% of normal gross remuneration.
(vi) Duration:
The initial lenght of this incentive is one month. It may, however, be extended exceptionally, monthly, until 31 December, 2020. The interruption of the temporary reduction, with the respective suspension of the support, does not affect the possibility of its extension, which may be requested in non-consecutive months.
(vii) Notice to workers:
The employer has to communicate in writing to the workers covered about the decision to access the new support, the percentage of reduction in working hours and the expected duration of the implementation of the measure. In case of there being trade union representatives and/or workers' committees, the communication must be preceded by their hearing.
(viii) Total and partial exemption from payment of social security contributions:
The employer benefiting from the new aid is entitled to total exemption or partial waiver of the payment of the employer's contributions in respect to the remuneration and compensation due to the employees covered, as well as regarding the remuneration of managers and directors or members of equivalent statutory bodies. When this aid comes to an end, companies may resort to other measures to reduce or suspend work, in agreement with the "normal" lay-off regime provided for in Article 298 of the Portuguese Labor Code. On the other hand, companies that benefit from the extraordinary incentive to normalize business activity can not access the new support, as well as companies that are simultaneously benefiting from the "Simplified Lay-off" scheme.
In a landmark preliminary ruling on data transfers between the European Union (EU) and the United States of America (US), the Court of Justice of the European Union (CJEU) the EU-US Privacy Shield decision (Privacy Shield) void.
This decision of 16 July 2020 (Schrems II case) is the sequel to a previous ruling, where the CJEU the EU-US Safe Harbour (Schrems I case). The EU-US Safe Harbour was the predecessor of the Privacy Shield, now considered inadequate to ensure the level of protection required by the General Data Protection Regulation (GDPR). In turn, the CJEU considered the Commission Decision 2010/87/EU of 5 February 2010 on standard contractual clauses for the transfer of personal data to processors established in third countries (SCC) to be valid.
This CJEU ruling follows a complaint lodged by M. Schrems. The Austrian citizen and Facebook’s user, lodged his complaint with the Irish data supervisory authority seeking to prohibit Facebook Ireland from transferring his personal data to the US. Personal data of Facebook users, who are residents in the EU, is transferred to servers of Facebook Inc. located in the US where they are processed under SCC. M. Schrems claimed that SCC would not offer sufficient protection against access by US public authorities to the data transferred to the US.
Following the Advocate General’s Opinion (non-binding opinion published on 19 December 2019), the CJEU considered SCC as adequate. The Court points out, in particular, that SCC decision imposes an obligation on the data exporter and on the recipient of the data to verify, prior to any transfer, whether that level of protection is respected in the receiving country and that the decision requires the recipient to inform the data exporter of any inability to comply with SCC, the latter then being, in turn, obliged to suspend the transfer of data and/or to terminate the contract with the former.
On the other hand, the CJEU challenged the level of protection afforded by the Privacy Shield on the grounds that it does not include satisfactory limitations to ensure the protection of EU personal data from access and use by US public authorities on the basis of US domestic law.
Although SCC remain as valid for international data transfers, organisations currently relying on SCC will have to consider whether considering the type of personal data, the purposes and context of the data processing, and the importer country, an "adequate level of protection" exists as required by EU law. Otherwise, they should consider adopting additional safeguards. Organisations relying on the Privacy Shield will have to urgently seek alternative solutions, in particular the derogations provided for in the GDPR (e.g. data subject’s consent, where the transfer is necessary for the conclusion or performance of a contract). SCC, binding corporate rules, approved codes of conduct or certification mechanisms may be also alternative solutions.
Following the set of measures adopted within the scope of the COVID-19 pandemic, the Portuguese Government approved a new law that regulates the procedures, conditions and terms of access of the extraordinary financial incentive to normalize business activity.
The extraordinary financial incentive to normalize the activity applies to companies that are in a position to resume theirs, provided that they have benefited from the simplified lay-off regime or the extraordinary training plan provided for in Decree-Law nr. 10-G/2020 of 26 March.
The new incentive is provided after the application of the simplified lay-off or extraordinary training plan has ceased.
The employer may opt for one of two modalities:
a) Support in the amount of a national minimum wage (€635.00), paid at once, for each employee who has been covered by the simplified lay-off; or
b) Support in the amount of two minimum wages (€1,270), paid in two instalments over six months, for each employee who has been covered by the simplified lay-off.
Opting for the measure in point b) (€1,270), the employer also has direct exemption from payment of 50% of the Social Security contribution, for employees who were covered by the lay-off in the last month of the support. However, when the last month of application of the simplified lay-off is July, the number of employees to be taken into consideration for the purpose of the said exemption will be that of the lay-off application for the month of June.
In this case, the employer may also benefit from the right of total exemption from the payment of Social Security contributions in the three months following the end of the support. For this to be possible he has to have at his service, on average, more employees on open ended contract, than he did in the three homologous months. The exemption refers only to new employees hired, and the employer is subject to the duty to maintain the employment level for a period of 180 days.
For the purposes of determining the amount provided for in paragraphs a) and b), the employer, depending on the situation applicable to it, will have to consider one of the following criteria:
(i) When the period of application of the simplified lay-off or extraordinary training plan is longer than one month, the amount of support shall be determined according to the average number of employees covered for each month of its application;
(ii) When the period of application of the simplified lay-off or extraordinary training plan is less than one month, the amount of support as revised in point a) (€635.00) shall be reduced proportionally; or
(iii) Since the simplified lay-off scheme or the extraordinary training plan has been implemented for a period of less than three months, the amount of support provided for in point b) (€1 270,00) shall be reduced proportionally.
The proportionality rule set out in the previous points shall be applied according to the number of days of the simplified lay-off or extraordinary training plan.
The new aid must be requested by an application on the IEFP website, and accompanied by certain documentation, namely a declaration by the employer in which he certifies, on his honor, that he has not submitted an application for access to the phase-in support (“New Simplified Lay-Off”, to start on August 1st).
The IEFP will issue a decision within 10 working days from the date of submission of the application. This period can be suspended when clarification or additional information is requested.
Once the application is approved, this decision will be communicated to the employer. The payment of the modality referred to in point a) (635,00 euros) will be executed within 10 working days from the date of the said communication. For the support referred to in point b) (€1270,00), being the payment made in two instalments, the first will be paid within 30 working days from the date of communication of the approval of the application, and the second within 180 days from the same fact.
In the scope of the new law, some rules regarding the possibility/impossibility of accumulation of supports are also clarified, namely the impossibility to access the support for the progressive resumption of the activity, if the employer has previously resorted to the extraordinary incentive to normalize the activity.
Furthermore, the possibility of the extraordinary financial incentive for the normalization of the activity being granted only once by each employer, and only in one of the modalities referred to (€635.00 or € 1270,00), is also established.
In conclusion: through the new measures, the Portuguese Government hopes that the companies can resume their activity gradually, giving them the possibility of adopting the modality that best suits their situation. The date of opening and closing of the application for the new incentive will be defined by IEFP, IP.
Direção Geral da Energia e Geologia ( “DGEG”) informed all promoters planning to obtain a grid capacity title by negotiating an extension of the grid capacity with the grid operator - in accordance with Decree-law 172/2006, of 23 August and the Reference Terms approved by DGEG, in 17 February 2020 - of the new deadlines to complete their requests with project documentation.
DGEG announced that it will reopen (and the deadlines’ suspension will end) on 27 July. Accordingly and following the Reference Terms,
- promoters have until 28 July to provide the project documents mentioned in Annex I so that their projects may be granted full priority over other requests filed at DGEG;
- promoters unable to meet deadline above may submit the documents mentioned in Annex I until 6 October 2020. In this case, they may only be granted priority over requests submitted without such documentation and over project filed in the future.
With the second Portuguese solar auction also under way (promoters having to submit their applications from 8 June to 31 July via the online platform, and the bidding phase shall take place by end of August) we can say that the race for Portuguese PV is on.
Following a nearly three months suspension due to the Covid-19 pandemic, ANACOM resumed on 1 June the Portuguese 5G auction. The public consultation phase ended on 3 July with about 500 submissions. The calendar has now been updated as follows:
- By September 2020, ANACOM will approve the definitive auction rules (which are expected to follow the bulk of the draft version).
- The auction will start in October and is to be concluded in December.
- In January or February 2021, the allocation of rights of use of frequencies will be completed.
Click here to know more about the upcoming Portuguese 5G auction!
The Portuguese Government approved today the Portuguese Climate and Energy National Plan (Plano Nacional de Energia e Clima or “PNEC”) for the decade 2020-2030. This plan set an agenda to reach the goal of the decarbonization of the Portuguese economy by reaching a reduction of 30% of the greenhouse gases emissions until 2030.
To reach that target, the Portuguese Government sets several goals (to be reached until the end of the decade) such as:
- Raising the weight of renewables in the power generation (from 31% to 47%);
- Reaching a percentage of 20% of electric vehicles in the total traffic; and
- Reducing the consumption of primary energy.
The development of the industries connected with the growing concerns with environmental sustainability may provide opportunities for several investors. The agenda set on PNEC, ambitious as it is, will certainly provide many chances for that, as the photovoltaic auctions and the approval of the National Hydrogen Plan illustrate.
The Portuguese Government passed Decree-Law 26/2020, which extends the legal moratorium on bank credits and expands the scope of its application.
In March 2020, a legal moratorium on credits was approved for a period until 30 September 2020, through Decree-Law 10-J/2020. Since then more than 514 thousand families and companies have benefited from this regime, a measure that has mitigated the impacts of the temporary lack of liquidity arising from the COVID-19 pandemic.
Considering the urgent need to support the economy recovery and relieve the financial effort that bank credits entail for companies and families, the Government decided to extend the legal moratorium until 31 March 2021.
In addition to this extension, the situations eligible to the moratorium were also widened and will now cover the proven loss of income of at least 20% - to protect borrowers who do not fall in the previous eligible situations -and also to citizens not-resident in Portugal.
It was further established that the moratorium will apply to the following situations, irrespectively of whether they affect the borrower or other household members, namely:
- Preventive isolation or sickness;
- Assistance to children or grandchildren;
- Reduction of the normal working period or suspension of the employment contract, due to a business crisis;
- Unemployment;
- Employees entitled to the extraordinary support for the reduction of a self-employed person economic activity;
- Employees from entities which has been closed during the state of emergency or during a public calamity situation due to legal or administrative statutory requirements;
- Proven reduction of the overall income of the household of at least 20%.
In relation to natural persons, the moratorium will now apply to all mortgage credit contracts (and not just housing credit), residential property leasing, consumer credit for education purposes and any form of subsidized credit, without any penalty.
The applications for the moratorium should be submitted no later than 30 June 2020. Entities already covered by the moratorium will automatically benefit from the new rules, unless they notify their opposition by 20 June 2020.
You may find more information on the legal moratorium here.
Following the measures adopted in the context of the COVID-19 pandemic, the Portuguese Government approved new rules (Decree-Law nr. 27-B/2020, of 19 June):
Fast Track Lay-off
- Extension of the simplified lay off regime, provided for in Decree-Law n.º 10 G/2020, of 26 March for companies that have used the simplified lay off and reached the 3 month renewal limit, until July 31;
- Application of the same regime of the simplified lay-off, as of August 1, only for companies and establishments whose activity is suspended by legal or administrative imposition of a governmental source; and
- Application of the current simplified lay-off regime to companies that have not yet applied to this regime, and may only submit the initial application until June 30, with the possibility of a monthly extension up to a maximum of 3 months, that is, until September 30.
Benefiting from the simplified lay off regime, companies that are in one of the above-mentioned situations benefit from Social Security payment exemption, under the terms established in Decree-Law 10 G/2020, of 26 March.
Stabilization subsidy
- Support is given to employees with an income of up to two minimum wages in February and who have suffered a loss of basic wage, i.e. who have a basic wage higher than one minimum wage, and who have been lay off in one of the months between April and June;
- Payment of support in a lump sum in July, considering the constant amounts of wages delivered up to July 15, 2020; and
- Payment is made by Social Security automatically and unofficially, being variable between the minimum amounts of €100.00 and the maximum amount of €351.00.
Extraordinary financial incentive to normalize the activity
- Creation of an extraordinary financial incentive for the normalization of activity for companies that are in a position to resume their activity, provided that they have benefited from the simplified lay-off regime or the extraordinary training plan provided for in Decree-Law nr. 10-G/2020 of 26 March;
- Possibility for the employer to opt for one of two modalities to which this support corresponds:
a) Support in the amount of a national minimum wage (635.00), paid in one lump sum, for each employee who has been covered by the simplified lay-off; and
b) Support in the amount of two minimum wages (€1,270), paid in two instalments over six months, for each employee who has been covered by the simplified lay-off.
Opting for the measure enshrined in point b) (€1,270), the employer also has direct exemption from payment, at 50%, of the Social Security contribution, for employees who were covered by the lay-off in the last month of the support. However, when the last month of application of the simplified lay off is July, the number of employees to be taken into consideration for the purpose of the said exemption will be that of the lay-off application for the month of June.
The employer who opts for the support referred to in paragraph b) (€1,270), also benefits from the right of total exemption from the payment of Social Security contributions in the three months following the end of the support, when he has at his service employees, on open ended contract, in a higher number than that observed, on average, in the three homologous months. The exemption refers only to those new employees hired, and the employer is subject to the duty to maintain the employment level for a period of 180 days.
The new law also clarifies some rules regarding the possibility/impossibility of accumulation of support, namely:
- Impossibility of cumulation of the regime of simplified lay-off and support for the gradual resumption of activity;
- Possibility of using the support for the gradual resumption of activity after the end of the simplified lay-off regime;
- Possibility of using the reduction or suspension measures provided for in the Labor Code ("traditional" lay-off) after the end of the simplified lay-off regime;
- Impossibility of accessing support for the gradual resumption of the activity, the employer having previously resorted to the extraordinary incentive to normalize the activity.
The Portuguese Government will also enact a new law, to create the rules for the new fast track lay-off regime to be applied from 1st August, which will only allow the reduction of the normal working period, without the possibility of suspension of the employment agreements.