As part of the legislative measures aimed at boosting recourse to the capital markets and attracting funding from new investors, Law No. 83/2013, of 9 December, amended the current Special Taxation Scheme for Income from Debt Securities.
This Special Regime establishes an exemption for IRS and IRC taxation regarding income from public and non-public tradable debt, including bonds convertible into shares. By exempting such income from any withholding tax, the exemption covers gains obtained in Portuguese territory, whether at the time of coupon payment or repo operations, mutual or equivalent (capital income) or the transfer of securities (income classified as capital gains).
The recent legislative amendment, together with the revision and systematisation of the above-mentioned regime, has broadened its scope of application to include not only debt securities but also securities of a monetary nature, specifically Treasury Bills and Commercial Paper.
The intention of this equalisation measure is to facilitate the expansion of recourse to short-term debt securities, commonly known as “Commercial Paper”, the income from which will also be eligible for exemption from IRS or IRC.
To this end, the law requires all traded securities to be included in a centralised system managed (i) by an entity resident in Portugal, (ii) by the operator of an international settlement system established in another member state of the European Union or in a member state of the European Economic Area provided that, in the latter case, the latter is bound by an obligation of administrative cooperation in the taxation area equivalent to that established within the European Union.
In terms of procedures, with the aim of simplifying access to this tax regime and simultaneously safeguarding against undue benefits from tax exemption, some aspects of the functioning of the system have been subject to change. Thus:
- With regard, in particular, to the rules for reimbursement of tax unduly withheld at source on the date the coupon or reimbursement is due, the beneficiary of the personal or corporate income tax exemption (who has not been included as such, due to error or insufficient information and has been subject to withholding tax) may file a quick refund request with the direct registering entity, within six months (as from the date on which the undue retention took place), or with the Tax and Customs Authority, within two years (as from the end of the year in which the retention was held).
- As regards the specific mechanisms for proving the assumptions for tax exemption or remission of withholding tax, the following were reviewed
(i) the procedures for proving the quality of non-resident – this is done only once and does not need to be renewed periodically, although the beneficial owner must immediately inform the registering entity of any changes to the assumptions of the exemption (the same applies in the case of collective investment undertakings);
(ii) the issuer duties towards the Tax and Customs Authority and the settlement system managing entity’s responsibilities towards the direct registrar – particularly when the securities are traded and registered in an international settlement system, the former entity must transmit to the latter, in respect of the universe of accounts under its management, on each maturity date of the income: the identification and quantity of securities, as well as the amount of income and, when applicable, the amount of tax withheld, broken down by the different categories of beneficiaries;
(iii) the procedures for identifying the beneficial owners concerned by the exemption.
- As for the production of effects, the new tax regime introduced by Law no. 83/2013 applies to securities issued as from 1 January 2014 and to securities issued until 31 December 2013 only to income obtained subsequent to the date of the first maturity occurring after 31 December 2013.
In sum, in terms of the results of the amendments now enshrined, they are expected to achieve their purpose by stimulating recourse to issuing Commercial Paper as an alternative and efficient source of financing, and demonstrate that a more favourable tax regime can, in fact, be a factor that attracts investors and contributes to boosting the domestic capital market.
in FundsPeople
13th December 2013