2024-10-23

The European Union's Pay Transparency Directive marks a monumental shift in the ongoing effort to address the gender pay gap, a persistent issue that has plagued industries across the continent despite decades of regulatory attempts. At its core, the directive seeks to dismantle the hidden structures that perpetuate pay inequality by mandating transparency in compensation, thereby empowering workers, employers, and social partners to identify and address unfair pay practices. The directive’s focus is not only on rectifying the gender pay gap but also on promoting a fairer, more inclusive workplace where compensation reflects the true value of work, regardless of gender.

A NEW LEGAL LANDSCAPE FOR PAY TRANSPARENCY

The introduction of this directive is timely and reflects growing societal, economic, and political pressure to ensure fair compensation practices. Despite some progress over the last 20 years, the gender pay gap in the EU remains at approximately 13%, highlighting the urgent need for action. The directive addresses the shortcomings of past regulations, including the 2006/54/EC Directive, by specifically targeting the lack of transparency in pay systems—a major barrier identified in the 2020 assessment report on equal opportunities and treatment in employment.

With the directive set to be implemented by 2026, companies in Portugal, as in other EU member states, are on the clock to prepare. This new legal landscape will require businesses to adopt transparent pay policies and practices, fundamentally reshaping how salaries are determined and communicated. As organizations grapple with these changes, they face significant challenges, particularly in understanding and complying with the directive's complex requirements.

NAVIGATING THE TRANSITION TO PAY TRANSPARENCY

To assist businesses in navigating these challenges, Pihr, a leading software provider specializing in pay equity, has partnered with the prominent law firm Macedo Vitorino. Together, they offer a comprehensive solution that addresses both the technological and legal aspects of compliance, ensuring companies can meet the directive's demands effectively. This partnership underscores the growing recognition that achieving pay equity is not just a legal or technical issue but a multifaceted challenge requiring integrated solutions.

In this article, we explore insights from representatives of Pihr - Pay Equity Software and MACEDO VITORINO on the implications of the directive, the hurdles companies will face, and how their collaboration can help businesses transition smoothly to a more transparent and equitable pay system.

Is the EU Pay Transparency Directive seen as crucial to tackling the gender pay gap, and if so, why did it arise only now?

Pihr: Since equal pay for equal work is one of the founding principles of the European Union, it is somewhat surprising that it has taken this long to initiate the directive. Although the gender pay gap has decreased in the union over the past 20 years, it is still around 13%, which led the commission to finally take action to close the gender pay gap.

Macedo Vitorino: As identified in the Directive itself, its transposition is crucial to enable workers, employers, and social partners to take appropriate action to ensure the application of the right to equal pay for equal work and work of equal value between women and men. Without the increased transparency imposed by the Directive to reveal gender bias and discrimination in pay structures, such actions can be thwarted. The Directive emerged as a solution to the shortcomings of the previous Directive 2006/54/EC, focused on equal opportunities and treatment in employment and occupation, identified in the 2020 assessment report.

As 2026 is the deadline for the implementation of the Directive, what can companies and other entities operating in Portugal expect in the coming year and a half?

Macedo Vitorino: Portugal has not yet implemented the Directive or provided full guidelines regarding its transposition. However, it can be expected that several measures will need to be adopted by companies from both a legal and practical standpoint. HR departments will play a key role in scrutinizing pay systems, identifying pay gaps, and complying with new duties, such as creating pay transparency measures prior to employment. Even before the Directive’s transposition, companies may adopt its rules voluntarily.

Will it be a smooth transition for companies in Portugal to adopt the Directive's specifics even before its implementation?

Pihr: Based on our experience from other countries, the directive will have significant implications for companies. We believe that companies should act sooner rather than later to prepare for the directive, even though it is not entirely clear how Portugal will adopt it into local legislation.

Macedo Vitorino: The transition will require a thorough assessment and adjustment of pay systems and compliance with additional legal duties such as reporting. Small and medium-sized companies may face more challenges due to their limited access to day-to-day legal and technological support and fewer resources.

What are the main factors impacting the Portuguese gender pay gap?

Macedo Vitorino: The gender pay gap in Portugal is influenced by several factors, some highlighted during the Covid-19 pandemic. These include unequal sharing of care responsibilities, overrepresentation of women in lower-paid jobs, and unjustified disparities in promotions favoring men. Lack of transparency also obstructs efforts to close the pay gap.

What specific challenges will companies face regarding compliance policies?

Pihr: Companies will need to move away from current pay practices and ensure they can confidently communicate about pay gaps and salary ranges.

Macedo Vitorino: The Directive’s requirement for equal pay, covering wages, salaries, and other considerations, will challenge companies to examine every payment and clearly define remuneration and evaluation policies grounded in performance and competence.

Which legal considerations do companies need to be aware of upon the Directive's implementation?

Macedo Vitorino: Companies will need to understand various legal issues that impact pay transparency, such as reporting duties, cooperation with workers’ representatives, and compliance with collective bargaining rules. Clear identification of remuneration policies and employment relationships is also crucial.

What inspired Pihr and Macedo Vitorino to form a partnership, and how does it address both the legal and technological aspects?

Pihr: Pihr sought thought leaders in employee law in Portugal, and our meeting with Macedo Vitorino felt like a great fit. Our partnership connects Pihr’s leading software with Macedo Vitorino’s legal expertise, providing a comprehensive solution for our clients.

Macedo Vitorino: The Directive poses both legal and practical challenges, so combining legal and technological expertise offers the best solution, tailoring support to each client’s unique needs rather than providing a one-size-fits-all approach.

What benefits do you see in combining legal advisory services with technology solutions to promote salary transparency and equality?

Pihr:Our software analyzes vast amounts of data to highlight pay equity issues, providing actionable insights. Clients can then leverage legal counsel to interpret results and navigate compliance challenges.

Macedo Vitorino: Legal advisory services and technology solutions together empower companies to comply with the Directive. Legal advice ensures implementation aligns with the law, while technology provides tools to identify, and address pay gaps.

How does pay equity software streamline key processes, and what features make it effective during the transition?

Pihr: Pihr’s application is highly efficient, saving up to 90% of the time spent on gender pay equity analysis. It identifies unjust pay gaps and offers actionable insights, allowing users to focus on strategic decisions rather than data crunching.

Macedo Vitorino: Innovative software like Pihr’s helps pinpoint equal pay risks, identify non-equal pay situations, and track adjustments. It also allows for phased implementation of equal pay measures until 2026 and facilitates collaboration with legal advisors.

CONCLUSION

The EU Pay Transparency Directive is a landmark initiative aimed at closing the gender pay gap by enforcing greater transparency in pay structures. The directive's requirement for companies to disclose pay information will shine a light on existing inequalities, compelling businesses to address unjustified disparities in compensation. While this regulation promises considerable progress in achieving pay equity, the path to compliance will not be without challenges. Companies in Portugal, especially smaller ones, will need to invest in adjusting pay systems, complying with new legal obligations, and effectively communicating changes to employees and stakeholders.

Pihr and Macedo Vitorino’s partnership highlights the critical need for an integrated approach that combines legal advisory services with advanced technological tools. By merging Pihr’s cutting-edge pay equity software with Macedo Vitorino’s legal expertise, the partnership offers a robust solution to help companies navigate the complexities of the directive. The software’s ability to quickly analyze vast amounts of data and identify pay disparities, combined with legal guidance on interpreting and acting on these findings, ensures that companies can transition smoothly and confidently into this new era of transparency.

Ultimately, the directive represents a pivotal moment for pay equity in Europe. By embracing the tools and support available, companies can not only achieve compliance but also set a new standard for fairness in the workplace. The efforts undertaken today will lay the foundation for a more equitable future, where pay reflects the true value of work and all employees, regardless of gender, can thrive.

João de Macedo Vitorino, Lawyer and Partner at MACEDO VITORINO, shares his viewpoint in the digital magazine ADVOCATUS from ECO on May 10th, regarding "Freedom and Slander," to the recent entry into force of Directive (EU) 2024/1069.

"As much as accusations are beneficial to the Republic, so too are calumnies pernicious. Continuing on this path will increase the Republic's exposure to slander and the risks of losing our freedom."

The recent entry into force of Directive (EU) 2024/1069 of the European Parliament and of the Council of 11 April 2024 on "strategic legal actions against public participation", reminded me of the wise words of Niccolò Machiavelli on the safeguarding of liberty in the Republic. He said that "to those who are proposed in a city for the guard of their liberty, no more useful and necessary authority can be given than that of being able to indict the citizens before the people, any magistrate or council, whenever they sin anything against the free state." At the same time, he warned that "slander is used more where accusation is used less and where cities are less ordered to receive it." Machiavelli understood that to repress slander, one cannot repress the possibility of accusing, but the opposite: the power to accuse is fundamental to freedom and must not be restricted. Rather, the powers of the magistrates should be ordered so that they could distinguish accusation from calumny and punish the latter. 

The Directive says it aims to "remove obstacles to the proper conduct of civil actions while ensuring protection for natural and legal persons involved in public participation in matters of public interest". Among those targeted by the need for protection are entities with "public participation", namely, journalists and academics, but also political office holders. Among the instigators against whom they deserve special protection are the somewhat mysterious "powerful entities, such as individuals, lobbying groups, large commercial corporations, politicians, and organs of the state." 

The Directive states that "it is important to protect natural and legal persons from abusive court proceedings against public participation". It emphasizes that these proceedings "are not initiated for the purpose of access to justice, but to silence public debate and prevent the investigation and reporting of breaches of Union and national law, usually resorting to harassment and intimidation."

And so, it obliges member states to create special safeguards to make it more difficult to bring proceedings against entities with public participation, namely, that the courts may require the provision of security and the so-called "corrective measures against abusive judicial proceedings against public participation", such as increased court costs and fines.

Confronting Machiavelli with the purposes of this Directive (EU) 2024/1069, the clash between Machiavelli's warning and what the Directive imposes on the Member States of the European Union becomes clear. It is therefore necessary to ask, politically, whether we are not encouraging slander by making it more difficult to prosecute entities with public participation; whether the European institutions are not reacting hotly in the face of recent circumstances; and whether it is legitimate for politicians to include themselves as beneficiaries of these measures.

From a legal point of view, we must ask whether there are not already sufficient means, at least in our legal system, to react against so-called abusive actions. In Portuguese civil procedure, in addition to the possibility of preliminary dismissal, naturally limited by the adversarial principle, there is the institution of bad faith litigation, which allows the court to impose fines of its motion on those who make improper use of the right of action. In criminal proceedings, it is up to the Public Prosecutor's Office, even in crimes that depend on private prosecution, to accuse or not to accuse; Which, things being done well, can only happen when there is enough evidence to bring the defendant to trial.

It is also left to the constitutionalists to ask whether, by making it difficult for some and not others, to access the courts for reasons that are difficult to objectify, we are not calling into question Article 20 of the Constitution of the Portuguese Republic, which establishes for everyone the right to access the law and to effective judicial protection, which means that everyone is granted the right to access the courts. 

Above all, since freedom and equality are at stake, it is up to all of us to reflect on whether we want to pursue this path of restricting access to the courts to present our claims. And if, since the means already exist, we should not rather be more demanding of our judicial magistrates in sanctioning abusive actions, in "punishing slander" as Machiavelli would say, instead of creating restrictions on access to the courts for a few and only for the benefit of a few. For my part, I can only intuit that continuing this path will increase the Republic's exposure to slander and the risks of losing our freedom.

The announcement that ChatGPT had successfully passed the US bar exam with flying colours and the multiple examples of AI-generated contracts and legal documents spread fear among lawyers that a "killer application" had arrived and that robots would wipe out their jobs.

Some countries prohibited the use of ChatGPT, and Google delayed the launch of its generative AI solution, Bard, due to regulatory concerns.

Since November 2022, I have been testing ChatGPT and, for a few days, Bard, now available in Europe. Both ChatGPT and Bard have extraordinary capabilities, though we might say that they have different "personalities" and respond differently to the same question. One cannot say that either response is fundamentally better than the other.

Testing ChatGPT

In one of my tests, I asked ChatGPT to "improve the clarity" of a "force majeure" clause. For laymen, a force majeure clause is a contract provision that releases a party from liability (breach or delay in the performance of a contract) caused by an unforeseen, abnormal and uncontrollable event, such as war, earthquakes, etc.

The original clause submitted to ChatGPT stated:

"No party shall be considered to have breached its obligations under this Agreement or be held accountable for any delay if such party's failure to perform or delay is caused, in whole or in part, directly or indirectly, by war (whether war be declared or not), emergency, strike, industrial dispute, accident, fire, earthquake, flood, storm, tempest, any act of God or any other similar cause beyond its reasonable control."

ChatGPT presented the following text:

"Neither party will be deemed to have violated their obligations or held responsible for any delays if the failure to perform or delay is directly or indirectly caused, in whole or in part, by circumstances beyond their control. These circumstances may include war (whether declared or not), emergencies, strikes, labour disputes, accidents, fires, earthquakes, floods, storms, acts of God, or any other similar causes that are considered beyond their reasonable control."

Some of the changes are irrelevant and do not improve the clarity of the text: "neither party" instead of "no party", "be deemed" instead of "be considered," and other changes, some of which are highlighted in the text above, seem innocuous.

Other changes, however, significantly change the text and the scope of what can be considered "force majeure". In its response, ChatGPT divided the sentence into two sentences to simplify readership. The first sentence defines "force majeure" as "circumstances beyond" the parties' control. The second sentence gives examples of the circumstances beyond the parties' control, broadly reproducing the list in the original text with small changes that do not seem to change the text materially.

To a non-lawyer, the meaning of the two texts would seem identical, but that is wrong. ChatGPT's text considerably expanded the definition of force majeure and the situations in which the defaulting party would not be liable for the breach of contract. In ChatGPT's text, any circumstances beyond a party's control would release it from liability. The examples of the second sentence serve as examples to clarify the meaning but would not restrict the meaning of "circumstances beyond their control".  

In the original sentence, "force majeure" only includes the events listed and other "similar" events. This means that the defaulting party would have to prove that the event causing the default was beyond its control and similar to the events listed in the clause. For instance, a delay caused by a supplier's default would be considered a force majeure event in ChatGPT's text but not in the original text because a supplier's default is not similar to an earthquake or a war.

The limitations (and dangers) of ChatGPT

This case is a good example of the limitations (and dangers) of ChatGPT. ChatGPT is a language model. The model identifies statistical patterns and relationships within its data set. ChatGPT "learns to predict the probability of the next word in a sentence given the context of the preceding words" (quote from ChatGPT).

In simpler words, ChatGPT generates text based on the information provided to it. This allows it to interpret a sentence and a request and give back an output based on the information that the model has digested from other texts. ChatGPT does not operate logically in the sense that we usually use the word "logic"; that is, ChatGPT does not "deduct" or "infer" on its own. ChatGPT compares and relates things in a different way than humans do.

Because ChatGPT feeds on information that is provided to it, if that information is wrong, incorrect or incomplete, ChatGPT's answers will be flawed. ChatGPT and other generative AI models are trained with large data sets to correct imperfections and further finetuned in specific subjects to eliminate errors.

Using our example above, ChatGPT can be taught that the general concept of "force majeure" is not, in principle, equivalent to any event outside the control of one party but to exceptional circumstances, thus avoiding misconstructions like the one cited above. However, this does not hide the fundamental fact: ChatGPT can generalize, can provide assertive answers, spot patterns and highlight differences, but (at least for now) ChatGPT cannot go to the deepest level of thought and identify a slight nuance that changes meaning in a fundamental manner. ChatGPT does not think. ChatGPT does not create.

This limitation can fundamentally impact how ChatGPT can be used to provide legal advice or draft a contract clause. If, in some cases, a change in a definition to include an element that is generally not within its usual meaning, although still acceptable, can be intentional, intent is not part of ChatGPT's construct.

ChatGPT may make suggestions that, while not being outright errors, can impact the ultimate result. A human must take the decision and bear the responsibility for accepting, rejecting or correcting ChatGPT's suggestion.

ChatGPT raises the bar for lawyers using it because they need to approve or correct ChatGPT's outputs. ChatGPT's suggested wordings are different from contract templates bought from a legal book of precedents. Lawyers have an extra duty of care when using ChatGPT. Lawyers have to decide if ChatGPT's suggestion is acceptable or not. Lawyers must turn ChatGPT's outputs into legal advice. So, while ChatGPT can massively improve the productivity of lawyers, when used without care it can lead to professional liability claims.

Lawyers must think and apply their knowledge and experience in providing legal advice based on ChatGPT's outputs.

Basic rules for using ChatGPT

The limitations and dangers of ChatGPT raise many issues beyond the general ethical and policy considerations that have appeared in the media.

The limitations and dangers of ChatGPT require a different approach and mindset when using ChatGPT and generative AI.

ChatGPT is a powerful tool. ChatGPT can lift heavy weights. ChatGPT can flatten the terrain like a bulldozer. ChatGPT can turn a stone into a perfect sphere or a perfect pyramid, but it cannot create La Pietà of Michelangelo. ChatGPT is a tool that can be like the chisel in Michelangelo's hands. We need to learn how to use it without harming ourselves and others.

For lawyers, ChatGPT can do a lot of the heavy lifting, ease work and help to achieve better results for clients. To do so, here are a few rules on how to use ChatGPT:

  1. Ask ChatGPT for information. Do not ask ChatGPT for advice.
  2. While ChatGPT's answer may appear valid and sound, check the sources of ChatGPT's results. Do a basic Google search and look for information from authoritative sources before using ChatGPT's outputs.
  3. Start small. Do not ask ChatGPT to draft a contract or provide advice. Ask ChatGPT to make minor changes to a piece of text. Ask to draft a paragraph with specific information. Given suitable prompts and using the right models, ChatGPT can help you achieve impressive results.
  4. Use ChatGPT to put you in the right direction. Do not ask for more than you can chew. If you do not know anything about a subject matter, learn about it before using ChatGPT's outputs.
  5. Build on ChatGPTs outputs. ChatGPT is a formidable tool. It can provide you with information almost instantly that will spark your intelligence and show different solutions (sometimes wrong) that make you think better about what you want to achieve.

To end, I asked ChatGPT to review these rules. Here is ChatGPT's answer:

Overall, the text is correct in providing guidelines on how to use ChatGPT effectively and responsibly for lawyers. It emphasizes using ChatGPT as a valuable tool to aid legal work and achieve better results for clients. Let's analyze each point:

"Ask ChatGPT for information. Do not ask ChatGPT for advice." This advice is sound. ChatGPT can provide factual information based on its training data, but it is not a substitute for professional legal advice.

"While ChatGPT's answer may appear valid and sound, check the sources of ChatGPT's results. Do a basic Google search and look for information from authoritative sources before using ChatGPT's outputs." This is a crucial point. Since ChatGPT generates responses based on patterns in its training data, cross-referencing its answers with reliable external sources helps verify accuracy and avoid potential misinformation.

"Start small. Do not ask ChatGPT to draft a contract or provide advice. Ask ChatGPT to make minor changes to a piece of text. Ask to draft a paragraph with specific information. Given suitable prompts and using the right models, ChatGPT can help you achieve impressive results." This is good advice to limit the scope of tasks assigned to ChatGPT. Starting with small, well-defined tasks can enhance the quality of the results and make better use of the AI's capabilities.

"Use ChatGPT to put you in the right direction. Do not ask for more than you can chew. If you do not know anything about a subject matter, learn about it before using ChatGPT's outputs." This is another important reminder. ChatGPT can provide useful insights, but users should have some foundational knowledge of the subject matter to evaluate and interpret the outputs properly.

"Build on ChatGPT's outputs. ChatGPT is a formidable tool. It can provide you with information almost instantly that will spark your intelligence, show different solutions (sometimes wrong) that make you think better about what you want to achieve." This point acknowledges the potential of ChatGPT as a valuable resource for generating ideas and exploring various perspectives. However, it also highlights that the generated responses should be critically evaluated before implementation, as they might not always be entirely accurate.

In conclusion, the text provides appropriate guidance for lawyers or any users using ChatGPT, promoting responsible and effective use of the tool to enhance their legal work and decision-making process.

 

 

2023-05-17
Frederico Vidigal

Frederico Vidigal, Senior Associate Lawyer and Coordinator of the Energy department at MACEDO VITORINO, shares his perspective in the digital magazine ADVOCATUS by ECO on "CESE, Through the Labyrinth of Unconstitutionality," published on May 17, 2024.

As far as CESE is concerned, it is difficult to understand its classification as a contribution, given that there is no tangible service that benefits entities as diverse as those that operate.

On April 23, 2024, the Constitutional Court, in Ruling No. 338/2024, declared that the Extraordinary Contribution to the Energy Sector (CESE), insofar as it applies to renewable electricity generating centers, is unconstitutional for violating the principle of equality.

At the root of this decision is an assessment for 2019 that was unsuccessfully challenged by the Tax Authority and the Braga Administrative and Fiscal Court, after which the company appealed to the Supreme Administrative Court, where it also lost. In the end, the Constitutional Court reversed the decision and ruled in favor of the company, marking the first time the Constitutional Court has ruled on the application of the CESE to renewable energy producers.

The CESE was created in 2014 as part of the implementation of the Economic and Financial Assistance Program agreed with the European Union and the International Monetary Fund (the Troika) with the aim of financing mechanisms that would promote the systemic sustainability of the energy sector and the creation of a fund that would contribute to reducing tariff debt and financing social and environmental policies in the energy sector.

The CESE was thus created in the 2014 State Budget as an exceptional contribution (a real crisis tax!) on tangible fixed assets, applicable to companies that hold an operating license for power stations or a license to produce electricity, concessionaires for electricity transmission, or distribution activities, concessionaires for natural gas transmission, distribution, and storage activities, and holders of local distribution licenses, operators of crude oil refining and the treatment or distribution of petroleum products, and wholesale traders in crude oil, electricity, or petroleum products.

However, the reality of things and the passage of time have shown that the CESE is anything but an extraordinary tax. In fact, not only has the duration of the CESE been successively extended, turning it into an annual tax, to reduce the costs associated with the tariff debt of the National Electricity System (SEN); it has also extended its scope of application, first in 2015 to natural gas suppliers and then, in 2019, to renewable energy power plants covered by guaranteed remuneration schemes (except hydroelectric plants with an installed capacity of 20 MW or more).

One of the most famous stories in Greek mythology is that of the struggle between the Athenian hero Theseus and the Minotaur, a dark monster with the head of a bull and the body of a man, hiding in the labyrinth that the king of Crete had built to imprison him. When you try to find out what the CESE is, whether it's a tax, a contribution, or a fee, you find yourself in a labyrinth just like the one in which the Minotaur was hidden, where it's hard to see where you are, and with a sinister outcome for those who face it.

Traditionally, public taxes are distinguished between taxes and fees. Taxes are defined as a coercive and unilateral provision, dissociated from any provision by the public entity, while fees are characterized as a consideration for services provided or enjoyed by the taxpayer. Contributions, on the other hand, appear as an intermediate category of public taxes, halfway between a fee and a tax, in that they do not result from an exchange between the private individual and the public entity, but from an exchange between the public entity and a group of private individuals.

Among the contributions, the General Tax Law, in Article 4(3), defines "special" taxes as those that "are based on the taxpayer obtaining benefits or increases in the value of his property as a result of public works or the creation and expansion of public services or the special wear and tear of public property caused by the exercise of an activity...".

As far as the CESE is concerned, it is difficult to understand its classification as a contribution, given that there is no tangible provision that benefits entities as diverse as those operating, in particular, in the natural gas or renewable energy sectors. If it is not a contribution, it can only be a tax in the strict sense, and therefore subject to a more demanding regime in constitutional terms.

The interpretation of the CESE system has already been the subject of several decisions by the Constitutional Court, which, like Theseus navigating the labyrinth of the Minotaur, has ruled either that it is constitutional or that it is unconstitutional. On March 16, 2023, the Constitutional Court admitted the unconstitutionality of the regime for the first time, considering that the rule that obliges natural gas transmission, distribution, or underground storage concessionaires to pay this tax is invalid due to a violation of the principle of equality since it is no longer possible to affirm that these companies are presumed to be the cause or beneficiary of the public benefits that the Fund for the Systemic Sustainability of the Energy Sector (FSSES) is responsible for providing.

However, a few months later, in May 2023, the Constitutional Court took a different view, noting that "the charge to which the applicant is subject through the CESE cannot be understood to be out of context or disproportionate to the benefits it receives." The Constitutional Court also said that if natural gas companies were excluded from the CESE, this would represent unequal and unjustified tax treatment between operators.

As early as March 2024, the Constitutional Court was asked to rule on the application of the CESE to wholesale traders in crude oil and oil products and ruled that it was unconstitutional, considering that the levy had ended up becoming a tax and that the electricity tariff debt was not caused by the oil sector. The most recent episode was Ruling No. 338/2024, of April 23, 2024, which declared the unconstitutionality of the CESE when applied to renewable electricity generating centers for violating the principle of equality. The Constitutional Court held, in the same vein as the ruling of March 16, 2023, that, in particular, since the law was amended in 2018 and the majority of CESE revenue is now earmarked for reducing the electricity sector's tariff debt, it is no longer possible to say that companies owning renewable electricity generating stations can be held responsible for achieving the objectives of the CESE, let alone causing or benefiting from the public benefits of the FSSES.

The Constitutional Court noted that the CESE is not characterized as a financial contribution because, since there is no correlation between the taxable persons and the objectives of the collection of the tax, it translates into a real tax, and since there is no presumption that the taxable person causes or takes advantage of certain administrative services, the collection ends up violating the principle of legal equivalence (a corollary of the principle of equality).

Of course, all this can have its consequences.

The Constitutional Court's unconstitutionality rulings on the application of the CESE have the following consequences: they allow companies that challenged the collection of the contribution (tax!) to recover a few tens of millions of euros that they had to pay, as well as annulling the contested CESE assessments that the companies will not have to pay. On the other hand, the Constitutional Court's rulings open the door for other companies affected by the CESE to now challenge its collection (past and future), either by asking the Tax Authority to review the assessments paid or by filing a legal claim against its payment with the Administrative Courts.

In this respect, two situations should be distinguished: (i) companies that have paid the CESE and still have time to claim or challenge it can do so within the respective deadline, and (ii) companies that have paid the CESE but can no longer claim or challenge it because the respective deadline has passed can ask the AT to review the assessments.

In any case, and although the Constitutional Court's rulings are only effective in the specific cases that gave rise to them, and do not oblige the AT to return the CESE to other companies, nor the Administrative Courts to follow the Constitutional Court's understanding, it is expected that companies will use the arguments invoked by the Constitutional Court to refuse to pay the CESE because it is unconstitutional, with strong litigation expected between the companies affected and the AT.

It should be noted that any court decision that contradicts the Constitutional Court's rulings requires an appeal to the Constitutional Court itself, promoted by the Public Prosecutor's Office, with the third declaration of unconstitutionality in three cases involving the same interpretation of the rule having general binding force - i.e. applicable to all situations. This could therefore be the basis for challenging or complaining about acts of assessment of the CESE or, for those who are no longer within the time limit, for reviewing the assessment with the AT, using the arguments set out in the judgments to defend the illegality of the respective collection.

However, the story of the CESE could be different if, truly inspired by the hero Theseus, the new government has the courage and, without the help of Ariadne, kills the Minotaur, which is to say the CESE, putting an end to this extraordinary contribution once and for all.

According to local economic press, Novo Banco has started the process for selling BEST - Banco Eletrónico de Serviço Total, S.A. (“Banco Best”).

Banco Best is a digital platform operating in Portugal that provides a comprehensive range of banking products and services.

Banco Best was founded on 9 May 2001, as a result of a joint venture between Saxo Bank and the Espírito Santo Group. On 3 August 2014 and following the resolution procedure adopted by the Bank of Portugal on Banco Espírito Santo, its majority shareholder, Banco Best was included in the Novobanco’s group.

Banco Best operates as an online bank relying on its technological nature, based on national and international partnerships in the areas of Savings, Asset Management, and Trading. Overall, it operates as a universal bank focused on innovation and collaboration.

Banco Best serves clients from all private sectors with a diverse range of services such as banking, investment and savings solutions, financing, as well as day-to-day financial management. Its core business is related to investment and wealth management.

The bank offers a range of investment products, including mutual funds, exchange-traded funds (ETFs), and structured products. It also provides portfolio management services to high-net-worth individuals and institutional investors.

Banco Best is based in Lisbon and does not have physical branches. It provides its financial products and services via other channels, such as:

  • The Internet, through its website and mobile banking;
  • Investment Centres based in Lisbon, Porto, Braga, Aveiro, Leiria, and Faro, that rely on a network of Personal Managers;
  • A network of Digital Managers, a permanent management team providing services, normally at a distance, to Customers requiring specialized once-off assistance; and
  • The Call Centre, in addition to telephonic attendance, also intervenes in the opening of accounts via video call in a 100% digital process.

The bank has a network of business introducers and external advisors registered with the Bank of Portugal (Banco de Portugal) and the Securities Market Commission (Comissão do Mercado de Valores Mobiliários) that work as service providers.

Focusing on technology and innovation, BEST has implemented several initiatives to improve its digital offerings. For example, it has launched a robot-advisory service that uses artificial intelligence and machine learning to provide personalized investment advice to customers.

Banco Best, which is reported to have between 75,000 and 95,000 clients has had a significant growth in recent years. In 2021 the bank recorded a 41% growth in client acquisition and recorded a net profit of EUR 3.3 million, a growth of 83% compared to the previous year.

According to the latest available financial statements, on 31 December 2021, Banco Best recorded total assets of €860 million, of which €584 million of investments in credits institutions, €148 million in loans to clients, €67 million of cash and deposits and €43 million of financial assets.

Based on the 2021 financial statements, the bank presented the following ratios:

  • Core Tier 1: 44,1%.
  • Liquidity Coverage Ratio (LCR): 124%;Cost to income: 78,6%.
  • Leverage ratio: 8,9%.
  • Loan-to-deposit: 20.3%.

In 2021, Banco Best had an equity position of EUR 82 million. If we consider a price-to-book ratio of 0.70, the bank’s approximate valuation would be less than EUR 60 million.

According to the media, Novobanco has retained the services of Arcano and KPMG to organise the sale of Banco Best and a teaser has already been disclosed to potential investors.  

Banco Best offers an interesting opportunity for players looking to acquire a digital bank fully licensed in the EU with a team and a client base that operate in a digital environment. As a setback, Banco Best may come with a legacy of technological choices that may not go in the direction of emerging digital banking technologies.

O Secretário de Estado da Energia português anunciou recentemente um aumento da tarifa paga aos produtores pela eletricidade (FiT) resultante dos leilões de 2019 e 2020. Este aumento corresponderá à taxa de inflação de 2022 e 2023. A lógica desta medida consiste em salvar até 700MW de projetos de PV adjudicados nos leilões que, devido ao seu FiT muito baixo, não são financiáveis e, por conseguinte, correm o risco de não serem concluídos. O governo português argumenta que as atuais circunstâncias inflacionistas excecionais justificam esta medida, mas apenas para os projetos com tarifas muito baixas (começando no histórico mínimo de 11,14Eur /MWh!). Esta situação mostra que, em certa medida, o modelo de leilão 2019-2022 teve as suas falhas, uma vez que privilegiou a fixação de preços arrojados, aceitando o risco de ter projetos não financiáveis. Entendemos que o aumento dos benefícios para as energias renováveis não é politicamente fácil de vender quando as energias renováveis estão no centro das atenções e a receber "benefícios de excecionais" do mercado da eletricidade. Mas, ao resgatar alguns desses projetos que não cumprem as suas obrigações de leilão devido aos preços anormalmente baixos oferecidos pelos seus promotores, o governo português está a absorver o risco de inflação para alguns, mas não para todos os projetos fotovoltaicos adjudicados nesses leilões.

Por isso, a primeira questão que se põe é a seguinte: "Onde é que vamos traçar a linha para este resgate?". Parece que a linha será traçada abaixo de um determinado preço para permitir poupar 700MWh em projetos. Qual é o preço e quais são os critérios para defini-lo? Sabemos que a viabilidade não depende apenas do preço, mas também, entre outros, dos custos de desenvolvimento que são diferentes de um projeto para o outro. Se a ideia é resgatar todos os projetos, independentemente de outros aspetos (incluindo a própria “bancabilidade” do promotor), estamos a distorcer o mercado e, mais do que isso, estamos a distorcer as condições do leilão, bem como as regras de contratação pública. Nestes casos, os termos e condições de um leilão só podem ser alterados se essas alterações não afetarem a concorrência entre todos os proponentes.

Pela mesmo motivo, podemos questionar por que razão excluímos qualquer ajustamento àqueles que optaram por pagar uma indemnização ao sistema elétrico e pagaram um montante elevado para corresponder às ofertas equivalentes da FiT. Em regra, especialmente depois de terem sido adjudicados os projetos, não deve ser permitido à entidade adjudicante favorecer os proponentes que fizeram ofertas mais baixas contra aqueles que prudentemente ofereceram preços mais elevados ou escolheram o mecanismo de compensação (que supostamente tem um peso financeiro idêntico ao correspondente das ofertas de preços fixos). Outros licitadores, se pudessem ter antecipado esta correção da inflação, poderiam ter feito ofertas FiT mais baixas.

Parece, portanto, claro que, a menos que as bases para esta medida sejam explicadas muito claramente, aqueles que ficarão de fora podem sentir-se tentados a contestar a legalidade do aumento da tarifa que o governo português está a oferecer uns excluindo outros.

Mas, pondo de lado as questões jurídicas, perguntamo-nos até que ponto esta medida será bem-sucedida. Será que um ajustamento à inflação de 2022 e 2023 (algo como 9% e 5% respetivamente) será suficiente para salvar projetos com o compromisso de vender cada MWh a 11 euros ou outro valor similar? Para alguns, provavelmente não. E para a maioria provavelmente não será um impulso tão significativo. Perguntamo-nos porque é que o governo português apenas considerou a atualização inflacionista da FIT e não teve em conta outras medidas como a redução dos 15 anos de compromisso com sistema para 12 ou mesmo para 10 anos. Isto seria mais eficaz a facilitar o financiamento dos projetos, sem custos imediatos para os consumidores. Naturalmente, esta redução da duração do compromisso deveria aplicar-se a todos do mesmo modo, incluindo os proponentes que optaram por pagar uma compensação ao sistema.

This article was published by Expresso, a Portuguese newspaper, on April 1

There is no doubt that the world is at a turning point, in History, in the Economy, and in the lives of us all. In History, the veil is now falling away that for so long prevented us from recognizing one of the greatest tyrannies on Earth (and don't think that Russia is the only one that we have yet to admit as such, as we still have China and countries like Saudi Arabia, which we continue to treat as equals in values when they are not). In the Economy, we have entered an inflationary cycle, which was already inevitable as a consequence of the monetary policies followed in the fight against the effects of the Covid-19 pandemic. And which, with the Russian invasion of Ukraine, nobody can tell where it will lead us. In the lives of us Westerners, fortunate enough to live far from war and poverty, we feel squeezed by the rising prices of everything we consume and perplexed in our lack of understanding of the price-setting mechanisms. Some call for the taxation of capital gains that they adjectivize as unjustified, immoral, and the cause of the famine that affects the majority. Others, more moderate, question the universality of market rules and wonder whether it is not time for a new chapter in Economics too.

In this dire context, the European Commission recently proposed a plan called REPowerEU to erase dependence on Russian fossil fuels before 2030, to rebuild European gas reserves and to address rising energy prices in Europe. This initiative might, besides shaking the gas market, have a significant impact on the renewables sector, as it aims at allowing member States to take price regulation measures, to impose temporary windfall taxes, and to use of revenues from emission trading and state aid mechanisms. In the Iberian electricity market we have also seen discussions about electricity pricing mechanisms. The electricity wholesale prices in OMIE (where the daily price and the intra-daily price of electricity in the Iberian Peninsula are negotiated) are calculated through on a marginal prices mechanism that tries to mirror the meeting of forces between the supply and demand for electricity. There is an algorithm for these calculations called EUPHEMIA (who knows if named after the Greek saint tortured to death for not agreeing to participate in pagan sacrifices in the Roman Constantinople of the 3rd century) and we can say in this regard things are very complex; but, trying to simplify them, the setting of electricity wholesale price at OMIE works as follows:

OMIE puts the demand indicated by the operators of the Spanish (REE) and Portuguese (REN) grids together with the offers made by all different types of Iberian producers. The price established for the purchase of the electricity will be the price of the last offer to be entered into the system (normally, that of those who has less incentive to sell, i.e., those who obtain a lower profit margin). If this last offer comes from a combined cycle gas power plant producer it will reflect the costs of this producer and not, for example, the average of the production costs of all the offers made that day. A photovoltaic plant producer will sell its electricity in OMIE at the selling offer price of the producer of the combined cycle gas plant. This, in the current context, means having a significantly higher margin than it would be willing to accept if all the offers to the market were from photovoltaic production.

Here one may ask whether if, by aggregating different types of offers and choosing a price-setting criterion that seems incapable of reflecting the different production costs, we are not preventing the market from functioning properly as it would if the direct confrontation between comparable offers and demand was possible. Of course, the choice of the marginal prices’ principle has a technical explanation, a rationale that may seem more appropriate in a context of abundant supply and homogeneous costs (where the pressure to sell is similar for all producers) but it is apparently necessary because the system needs the energy produced by gas and other fossil fuels burning producers.

The creation of a special tax on renewable generation sources to match the so-called windfall profits (in the style of the infamous claw-back tax created by the Portuguese Government to eliminate the “unjustified” profits of Portuguese producers in MIBEL compared to the Spanish, victims of a special tax of 7%) implies a disincentive to what we are all saying we want to encourage. A disincentive with not only immediate impact, but also for the future of investment in renewable energy marketplace, which needs fiscal predictability. It is important to remember that the market operates based on a perception of risk, which includes factors within the market itself, such as technological developments or, conversely, negative developments in the cost of production factors. If we add non-market risks, such as administrative pricing or the imposition of taxes, the market will be disrupted, affecting, without discrimination, the supply (with high costs producers having to close doors) and the demand (which may have to endure either higher prices or shortages of electricity).

Therefore, ideas like the setting of a price ceiling at 180 euros per MWh, as has been suggested to the EU Commission by the Spanish and Portuguese Governments, will result production at a deficit in gas-fired plants. Certainly, producers with higher costs will withdraw their supply from the market generating supply shortages, unless they are subsidized (making the measure useless). We would risk not having electricity for everyone, because, at the present moment, the energy supply is not elastic (much has been said in this regard about the Portuguese Government's haste in anticipating the closure of the coal-fired plants).

Because all the above results of prices following natural laws and having no ideology, any electricity prices’ regulation is to be avoided. And taxation on the so-called windfall profits will naturally cause prices to rise or electricity to be in short supply for everyone. The least harmful way of State interference will be the direct support to those consumers who are least able to bear the increases in electricity market prices: the individuals and small companies with the fewest resources and the electro-intensive consumer companies whose activity is indispensable to the country's economic fabric. And the most efficient way of providing such support will always be paying individuals and companies in cash (and never by granting them new credit lines, the equivalent to offering water to a drowning person); or, better yet in the case of companies, offering them direct tax rebates.

Consequently, the EU Commission and the EU member States should, first of all, give priority to a consensual reassessment of the electricity pricing models and, if possible, adjust them so that they allow the market to function better, because it is not the market that is failing, but possibly the rules to which trading platforms like OMIE are subject to.

Many companies still limit the scope of their corporate accountability and ethics to merely complying with the relevant legal obligations. Profitability remains the main, if not the only, criterion (in many cases) governing business decisions.

Social, legal, and regulatory changes, however, are forcing companies into adopting a different approach. Companies must now provide clear disclosure of their financial position and corporate governance practices and carry out transactions transparently while ensuring to safeguard competition. They must also respect all human rights, prohibit any employment discrimination, and act in a socially and environmentally responsible way, with sustainability and ESG (Environment, Social and Governance) appearing as an aggregating "slogan" of this current trend, which is (rightly) here to stay and with due visibility.

Corporate governance, corporate social responsibility, and compliance must work in unison in today's world. Traditional views on competitiveness and profitability are changing. The change will be vertiginous.

Of course, many of these issues have long been regulated, but control of corporate practices by other stakeholders has been growing. Clients, suppliers, employees, and society are paying far greater attention to the way companies behave socially and requiring them to meet specific criteria, which place them at a different level of competitiveness. The competitiveness of a business and its marketplace vis-à-vis other competitors will also depend on this.

Companies must review their governance practices not only to comply with their statutory obligations but to ensure accountability, fairness, and transparency towards their stakeholders.

Compliance challenges and changes

Companies are also facing new challenges in diversity management and equal opportunities to increase the proportion of minorities and women in senior roles.

Diversity management focuses on valuing ‘difference’ and on non-discrimination and respecting every individual in the workplace regardless of their race, gender, or sexual orientation. Antiharassment, which recently gained strength with the “#MeToo” movement, is another concern driving the introduction of new workplace policies and procedures.

We have also seen a surge of new laws and regulations about business ethics, social responsibility, and personal data, among others.

Social responsibility and sustainability — recognising a company’s role in society through, for example, charitable support and environmental responsibility — should not be seen as a marketing tool to maximise future profits but as contributing to the welfare of all stakeholders: employees, shareholders, suppliers, customers, and society.

Ethics are an essential and complementary part of compliance

Investors are changing how they review a company’s performance and make decisions based on criteria, including ethical considerations. There is evidence that a company’s ethical corporate behaviour is increasingly impacting stakeholders’ market perceptions and the decisions of investors and customers regarding their choice of companies to deal with.

In companies with poor culture and ethics, employees tend to behave in a way that can lead to unethical, harmful behaviour, increasing the risk of breaches and subsequent damages.

Companies will be obliged to assume responsibility for their management and employees’ actions unless they can prove that they have performed all endeavours to deter or advise against illegal and fraudulent behaviour.

Therefore, all employees must be given the relevant training, and controls are developed across the company involving all departments, primarily legal and compliance. Policies, procedures, or rules will not be effective unless they are prepared, implemented, and enforced in a much more inclusive manner within the company.

The key is not only to follow the law but to teach those within the company that doing so is not a choice. The company must understand why it must be followed and why it must be a business priority.

Compliance is not a passing trend

Compliance cannot be reduced to a set of checklists. There is no one-size-fits-all compliance solution.

Legal and compliance departments must develop a framework for promoting corporate ethics and legal compliance within the company. These steps include:

  • Implementing internal legal audits;
  • Making information regularly available within the company regarding corporate social responsibility and legal compliance;
  • Internally relaying relevant information about local and other legislation that relates to the business;
  • Providing training courses/workshops on corporate ethics and legal compliance for every single employee and discussing misconduct prevention across the company; and
  • Creating corporate ethics and legal compliance helpline, i.e., an internal whistle-blowing system.

Companies must understand that corporate governance, social responsibility, and compliance affect the entire company, including the board, management, shareholders, employees, and other stakeholders. It is becoming a day-to-day exercise for which they must be fully prepared.

It is time for companies to rethink legal compliance beyond traditional risk management and see it as a strategic business asset. Accountability, transparency, and dialogue can help make a company more reliable and boost the standards of other companies at the same level. Everyone benefits, but not necessarily in the traditional sense of profit!

In 1996, Nick Szabo coined the term “smart contract” in a revolutionary article on the introduction of digital technology in the realm of contracts. In that article, Nick Szabo stated: “[n]ew institutions, and new ways to formalize the relationships that make up these institutions, are now made possible by the digital revolution. I call these new contracts "smart" because they are far more functional than their inanimate paper-based ancestors. No use of artificial intelligence is implied. A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.”[1]

Since 1996, the emergence of blockchain technology has allowed the creation of a new form of legal ledgers which are run in a decentralised manner.

There are various classifications of smart contracts and smart legal contracts depending on whether they are fully or partially automated and recorded in a blockchain system or not.[2]  In this article, we will use the expression “smart contract” in its simplest and widest form.

We define smart contracts as computer instructions that represent the intention of the parties to create an obligation, make a payment, purchase an asset or service or trigger an event that has a legal consequence.

The primordial example of a smart contract is a vending machine. By inserting a coin in a vending machine, the person who inserted the coin purchases a snack or a beverage from the vending machine owner or operator. Automated ticketing machines are also old automated or self-executing contracts, whereby a person acquires the right to use a transport service, enter a movie theatre etc.

More recently, online contracts with Amazon and the like are also forms of automated purchase agreements that fall into the concept of “smart contract” because they allow clients to purchase goods and services by giving automated instructions through a machine.

In any of the above examples, there is an underlying “natural language” contract, that is, a language used by people and not coded instructions given to a computer. When we enter an online contract, we are often required to accept a standard contract, sometimes in a foreign language that we may not fully understand. This raises issues of the validity of those rules concerning general and standard clauses. We will not be concerned with these implications in this article; we will focus on the issue raised by “software coded contracts”, which is the widest possible definition of smart contracts.

“Software coded clauses” or “smart clauses” are computer instructions using software language that may constitute the performance of an obligation or trigger the verification of contract conditions. Software coded obligations are self-executing because, in most cases, they do not need human intervention. Software coded contract provisions are now used in all online contracts because every service or product purchased online triggers legal consequences, such as the obligation to pay and the obligation to deliver a service or good.

The entry and performance of online contracts have occurred without disrupting legal systems. Generally, around the world, legislations accept the validity of online contracts. Disputes have been resolved in a fairly satisfactory manner because suppliers that value their clients are ready to solve complaints in a friendly way. Customers dissatisfied with suppliers simply cease to purchase from those suppliers. The rules of supply and demand that govern mature and fair markets take the stress out of the system. However, some terms and conditions and the conduct of many online suppliers may not be legal on many occasions.

The buzz about smart contracts goes much deeper than simple online B2C online agreements, where software coded information is translated into service and purchase orders and money transfer instructions.

Smart clauses coded in self-executing software language can include complex payment terms and formulas, trigger conditions, default clauses and security enforcement provisions. Smart contracts can be used in all types of contracts, including very complex B2B contracts such as credit agreements, mergers and acquisitions, issuance, acquisition and disposal of securities, IPOs, financial derivatives, futures markets, restructuring agreements, construction contracts etc.

Also, matters of technical nature can be linked to the contract clauses through smart clauses, that is, technical parameters stated in legal contracts involving the operation of telecommunication networks, power grids, power production, software requirements etc. can be linked to the legal language of contracts and trigger contract consequences. Presently, many of those technical issues are left in the contract’s fringes and put into more vague and elusive contract terms, such as “best efforts” and reasonableness judgements, or left to mediation or litigation when they become unsolvable by the people dealing with the day-to-day operation of the contract.

There are five basic practical rules for ensuring that smart clauses are enforceable and do not raise even worse issues than natural language clauses.

First, smart clauses should be translated into a natural language. This means that every smart clause should have an equivalent natural language clause. The natural language clause should be as objective as the smart clause and not include open concepts that cannot be translated into the coded clause.

The need for this rule does not result from the Law but serves a practical need: clauses should be understandable by people without very deep knowledge of the law and the technical aspects of the contract. Judges and business decision-makers should be able to understand the key points of the contract.

Suppose the main clauses of the contract, like the performance of the contract, are dependent on a coded clause (with no natural language equivalent). In that case, it won’t be easy to understand why the parties chose that particular solution instead of another. Sure, there are contracts with heavy and complex technical issues, be that the legal formulation of the clause or the commercial and technical aspects. But, in most cases, the economic, commercial and technical terms have a “natural language” formulation inscribed in the agreements and understood by the persons present at the negotiation table, even when they include complex technical schedules.

Second, the content of smart clauses should be open and auditable. This means that the acceptance of the code should be made by experts of each of the parties. This requirement aims to give an equal footing to the parties. Smart clauses must be understood and controlled by the parties.

There should not be one party controlling the code and the consequences of the instruction generated by it. In present natural language contracts where the legal and commercial technicalities can be generally understood by the parties, each party should have its own legal advisors. In coded language contracts, an asymmetry in knowledge can be more damaging than not having legal counsel. Expert advice and verification procedures are necessary.

Third, smart clauses should be protected. Integrity is a key element of any contract. In natural language contracts, one of the parties cannot change the wording of clauses. This is ensured by putting the contract in writing and other formal requirements imposed by law or agreed by the parties. Tampering with the words of a contract means falsifying the contract content. The same rules apply to smart clauses and smart contracts.

However, because smart clauses are generally self-executing, the consequences of possible tampering with the contract software code are more direct and can unlock a chain of events that may be impossible to stop. For this reason, the integrity of smart clauses should be ensured.

Blockchain systems are an acceptable form of ensuring the integrity of contracts because the blocks of a blockchain cannot be changed without the agreement of the nodes of the system (all or a significant number of participants in the system depending on the type of consensus algorithm that is used). This ensures the integrity of the contract in a manner that is as efficient, if not more, than current government-sponsored or other centralised ledger systems. However, blockchain is not the only way to ensure integrity. The parties may appoint an independent third party to store and protect the code or even monitor its application.

Four, smart clauses triggering events that require human intervention should not be left to the parties. While many smart clauses rely on machine self-execution mechanisms, there are cases where human intervention is necessary to fill gaps or interpret the data. The parties should not take this decision.

For instance, if the contract stipulates that one of the parties must make a payment to the other if the temperature reaches 45 degrees and two official computer records state different temperatures, one 44.9 degrees and another 45 degrees, a decision will have to be made as to whether the payment condition was met or not.

This example underpins the fact that minor discrepancies in digital records or the non-existence of an independent digital record may require human intervention to verify or certify smart contracts trigger conditions. When that is the case, the person making that decision should be independent of either party.

In Ethereum, the contract parties may appoint persons, named “oracles”, to take decisions that will trigger or not trigger smart contract events. This is an adequate solution for smart contracts based on Ethereum. For smart contracts outside a blockchain, the parties may use independent entities and grant them the power to fill in the missing data or resolve digital records inconsistencies.

Five, contracts with embedded smart clauses should include effective and fast dispute resolution mechanisms. Smart contracts should contain dispute resolution mechanisms because smart clauses can add a layer of complexity for which courts are unprepared.

In existing b2c online contracts, few disputes are resolved in courts because their value is low. The consumer often simply refrains from purchasing from the vendor that failed to deliver. This is not the ideal way of resolving a dispute, and a more effective transnational redress system must be created.

In more valuable contracts, disputes can be taken to courts, but the time for resolution may be too long to remedy the harm suffered by one of the parties. Parties will trust more in contracts that contain safe and expedient means of resolution. These may include mediation and arbitration mechanisms that allow for taking over control over the code, stopping wrongful use of the code, correcting an improper use of the code and repairing or correcting the code that proved not to attain the parties’ goals.

Smart contracts are one of the greatest inventions of the turn of the century. They improve efficiency increase speed and quality of delivery.

Embedding smart clauses in natural language contracts and creating adequate dispute resolution systems backed by robust control and verification mechanisms are the first steps to make your contracts smart.

With the development of the digital economy, new economic and financial assets, like tokens and cryptocurrencies, were created. Because of their high (potential) returns, they have become a refuge for investors, leading more and more people to invest in them.
This type of asset is not subject to the limits of monetary and exchange rate policies defined and controlled by central banks, and this lack of regulatory control encourages volatility and speculation. The innovation of these instruments involves significant legislative challenges, particularly regarding their legal nature, the regulation of the respective market and the taxation of their holders’ profits.
Concerns such as money laundering and terrorist financing led to the publication of the report "Taxing Virtual Currencies", by OECD, in October 2020, which addresses the existing legislative gaps for the main types of taxes and gives countries that want to strengthen their tax policy in this area some recommendations. Among OECD's recommendations there was the need to provide guides on tax treatment of virtual currencies that are clear, regularly updated, and consistent with the treatment of other assets. In Portugal, unlike many other European countries, such regulation was not yet implemented.

But is there a tax regime in Portugal?

In Portugal, the law is silent as to how this type of asset is taxed.
Between March and May 2020, the purchase and sale of cryptocurrencies in Portugal increased by 60% compared to the same period in the previous year. However, against what would be expected, neither the Government nor the Parliament have been following this growth through a clear and adequate legislative framework.
More recently and following the announcement that the Bank of Portugal has taken over the supervision of entities managing cryptocurrencies and the approval of anti-money laundering rules specifically addressed to transactions on these assets, there have been rumors of a change in the position of the Portuguese Tax Authorities to consider that this income should be taxed as capital income (at a rate of 28% or 35% if from a "tax haven"). But no amendments have been approved (yet).

… so how are they currently taxed?

In the absence of an express taxation, and after being questioned by several taxpayers, Tax Authorities took the only position that would be acceptable under the law.
In what concerns Personal Income Tax (“PIT”), the Tax Authorities confirmed that the income from this type of assets is presumably not taxable, unless the income arises from the performance of constant, regular professional activity. However, it has not been clarified when there is a regular performance of a professional activity for this purpose, which creates uncertainty.
Tax Authorities have not yet disclosed any kind of understanding regarding Corporate Income Tax (“CIT”). But, as the taxable profit of legal persons is based on the net profit recorded in the company’s financial statements for the period and any income earned by a company must be registered in its accounts, the income arising from transactions on bitcoins should be subject to CIT.
Regarding VAT treatment of the transactions on bitcoins, Tax Authorities considered, following the understanding of CJEU in the Hedqvist case (C-264/14), that bitcoins are comparable to fiduciary currency and their exchange for fiduciary currency, or vice versa, carried out for consideration, although characterized as a supply of services for VAT purposes, will be exempt from Portuguese VAT.

What's next?

At the income tax level, very few countries have considered cryptocurrencies as fiduciary currency because they have limited acceptance, lack intrinsic value (they are not linked to the value of any commodity or foreign currency), are volatile, are not issued by a public authority and are not regulated.
The current tax framework for cryptocurrencies leaves Portugal on the (increasingly short) list of countries that still do not tax income from this type of asset, which makes Portugal an attractive destination for investors of this kind.
But it is difficult to imagine that these gains will escape the tax net in the future. The 2022 State Budget to be presented in the next two months could be a turning point and new tax rules could be approved starting January 1, 2022.