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Corporate taxation in Portugal: a study on the perception of the impact of autonomous taxation [A tributação das sociedades em Portugal: Um estudo sobre a perceção do impacto da tributação autónoma]
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This paper analyses the profiles of tax professionals with the greatest propensity for tax noncompliant behaviour. Data were
collected in 2013 using a questionnaire applied to Portuguese tax professionals. From the profiles we argue that the
propensity for noncompliance is greater among professionals responsible for medium-sized enterprises in contexts of high tax
complexity. In particular, in terms of voluntary tax noncompliance, we noted greater vulnerability to the pressures exerted by
employers/clients for participation in aggressive tax planning schemes among young women, as well as professionals
working in in-house departments of accounting and taxation.
Notwithstanding its political dimension, international tax avoidance is also the result of a regulatory process that makes reference to overarching concepts and representations. The current debate is featured by two overarching principles of ‘negative’ and ‘positive’ taxation under the law: the one arguing for the right to minimise the tax payment, the other one for the duty to pay a fair tax amount. This debate is further featured by two distinctive approaches to tax base determination: the market basis coupled with the legal person basis, and the economic substance basis. The economic substance approach argues that the received approach grapples with economic reality featured by integrated transnational corporate groups. These groups operate across jurisdictions and have the capacity to reshape their legal-economic structuring to obtain specific tax results. An adequate response urges then to consider these groups through consolidated report (unitary approach), allocating their consolidated result to involved jurisdictions through formulary apportionment. This unitary approach is upheld by recent advances by the theory of the firm as enterprise entity, which combines law and economics with accounting. The business firm is then understood as a specific economic coordination backed by its institutional structure of production, including its accounting system. This theoretical consistency is appealing and deserves further investigation, including to foster cross-fertilisation and harmonisation of financial and tax accounting systems. But it does not imply a straightforward claim to adopt current international accounting standards for tax purposes. International accounting standards-making has been formally disconnected by national jurisdictions, it currently excludes public policy concerns, and it may be substantially unable to avoid the very same ‘specifications’ on the letter of the law that have been already paving the way to loopholes and structuring opportunities in tax regulation.
The purpose of this paper is to analyse preferential features for a simplified tax regime (STR) in the view of two important players in its application: chartered accountants and tax auditors. Portuguese Chartered Accountants (PCA) have a key role in recommending the STR to small firms and in its accounting and fiscal monitoring. Tax auditors, working for the Portuguese Tax Authority, control the regime´s application, and are also important agents in the STR´s functioning. A questionnaire was used as primary data collection method. Out of the 435 questionnaires considered valid, 315 were answered by PCA and 120 by tax auditors. Preferences for the STR´s design are the use of presumptive or indirect methods, specifically when the computation of tax to be paid is made on the basis of turnover and activity sector. Respondents also venture that it should not be coordinated with the value added tax (VAT) cash accounting; it must be optional and keep in place mandatory certification by PCA.
This article undertakes an extensive comparison of the domestic law of the Netherlands and the United Kingdom in respect of the attribution of income to a person for tax purposes. After a general introduction to both countries, the article looks at a series of specific situations in which the attribution of income may be an issue. It goes on to consider the factors that play a role in that determination and the relative weight of those factors.Although the very broad principles in the two countries are similar, this study finds some basic disparities between them and a myriad of differences in the detail. More importantly, the study demonstrates that, even as between these two countries, the attribution issue is too complex to be captured in a general statement of the relevant factors. The final conclusion is that it is not useful to attempt to define a substantive attribution rule for tax treaties.
This paper offers estimations for the Portuguese path of the Non‐Observed Economy (NOE), in the period 1970–2015, through two seminal approaches: monetary method and the Multiple Indicators Multiple Causes (MIMIC) model. It is observed that the tax burden and social benefits are its main causes. Then, to get a more in‐depth understanding of the phenomenon, it provides a study of the Granger causality between the NOE and the official Gross Domestic Product (GDP), emphasizing the implications of the NOE on the Portuguese economy. Evidence has been found for the existence of bidirectional causality between the NOE and the GDP, suggesting that the formal economy affects the NOE, and conversely that the NOE affects the economic growth.
Purpose
Autonomous taxation of expenses (ATE) is a special and contentious feature of corporate income taxation in Portugal. By taxing of an expanding set of corporate expenses, it has caused many conflicts between the Portuguese tax authority and corporate taxpayers. Many of these conflicts emerged from the legal interpretation of ATE’s clauses, while others derived from frequent, and difficult to apply, legislative changes. The purpose of this paper is to focus on the following research question: does the recent evolution of the rules on ATE show an efficient process of making and interpreting tax law in Portugal? The authors intend to analyze the process of making and changing ATE’s rules, as well as to study how interpretative complexity increases conflicts between tax authorities (TA) and taxpayers.
Design/methodology/approach
The methodology used is a mix of the legal research method, namely, doctrinal methodology, with an analysis of jurisprudential and arbitration trends in litigation rulings, blended with the case study analysis of ATE in Portugal. Arbitration rulings will have a particular relevance to the analysis.
Findings
The main conclusion is that, urged by the need of revenues, and sensitive to the TA’ argument of ATE’s loopholes, the government hastened to close them. However, given the procedure adopted, new legal questions aroused, creating additional layers of complexity for companies, courts and tax auditors. Constitutional issues were highlighted by companies based on the prohibition of retroactive application of tax laws.
Research limitations/implications
The paper has a conceptual nature and its conclusions cannot be automatically extended to other tax controversies or processes of amending tax laws. However, for the legal and accounting professions it offers valuable lessons in law interpretation and political lobbying to change tax laws. Also, in the international tax scene, some countries also introduced ATE, with potential for similar problems.
Practical implications
Regarding ATE’s streamlining, the process recently observed in Portugal was not, in authors’ view, managed in the best way, leaving a significant number of difficulties to be solved by courts. The change in ATE’s legal framework could have been more carefully managed, avoiding costly and time consuming disputes, in order to minimize compliance costs.
Originality/value
The paper contributes to the literature because this Portuguese experience, while highlighting the difficulties in making tax law, can be seen as a lesson on how to improve these processes, avoiding time and costs for business, TA and courts. Moreover, arbitration is a way of solving tax disputes that has been gaining ground in Portugal. In this respect, the paper also contributes to a better perception of the tax arbitration scenario in anEuropean Union country. It is also important for the accounting profession, whose members have often to deal with tax topics and the interpretative complexities they originate.
The recent Chevron case1 raised the issue of retrospectivity of legislation. While this issue is not new, it has been argued in the past that there are limits on when governments can resort to enacting retrospective laws. These limits centre on the ability of government to protect the revenue in the public interest. This paper explores the history of retrospective taxation legislation in Australia, and analyses whether such legislation was justified in the circumstances to achieve this goal. The authors argue that the Chevron case not only entrenches the right of governments to enact retrospectively with respect to taxation laws, but unjustifiably extends that right in the name of 'protecting the revenue'. This will have serious implications for taxation practitioners and their clients. The authors contend that retrospective legislation should only be considered in the most egregious circumstances, and that it is incumbent upon governments to acknowledge deficiencies in legislation promptly, and amend such legislation quickly, in order to provide certainty and maintain public confidence in the taxation system. © School of Taxation and Business Law (Atax), UNSW Business School UNSW Australia.
Purpose
The purpose of this paper is to discuss the following research questions: Is the Portuguese corporate income tax (CIT) losing its internal consistency by extending the autonomous taxation of expenses (ATE)? Are receipts derived from autonomous taxes so relevant that what began as an exception is gradually becoming a permanent feature of the income tax? Given the constitutional principle that corporate taxation should be fundamentally based on income, is the taxation of expenses unconstitutional? Is Portugal an international outlier, in applying this type of taxation to corporate expenses?
Design/methodology/approach
The methodology used in the paper is a blend of legal research method and case study analysis. The interpretation of legal texts and the ratio legis discussion (hermeneutical side), the evaluation of advantages and disadvantages of autonomous taxes (argumentative approach) and the use of aggregate data to gauge an impression of autonomous taxes’ impact on global tax receipts (empirical side) will, jointly, be used to analyse the topic. Autonomous taxation is a case study on how a (albeit distortive) solution is being applied in an European Union (EU) country to significantly enhance corporate-related tax revenue.
Findings
The authors conclude that autonomous taxation is a relevant source of revenue and its elimination is not foreseeable, at least in the medium term. Moreover, the extension of the tax base is gradually transforming CIT in a kind of dual tax, by charging profits and some expenses. The Constitutional Court, stressing the equity principle, has not ruled autonomous taxation unconstitutional, invoking usefulness against tax evasion. Finally, with the exception of some Portuguese-speaking countries, no other comparable international experience is observed.
Practical implications
The autonomous taxes (ATE) and its progressive enlargement imply, on the one hand, that the CIT has been slowly, but inexorably, losing its sole purpose of taxing profits, and imposing a tax penalty on an increasing set of accounting expenses. On the other hand, the growing number of expenses subjected to taxation leads some authors to ponder if the Portuguese tax regime is losing attractiveness. By increasing ATE’s scope, the effective rate tends to move upwards, countering reductions in the statutory rate. Finally, tax law will increasingly influence managers’ daily decisions, given the set of expenses targeted by autonomous taxes.
Originality/value
Taking into account the aim of this study, the discussion of a Portuguese particular feature of corporate taxation can highlight useful policy points to a broader audience. Many Organization for Economic Cooperation and Development (OECD) countries face a dire situation in public finances. Therefore, given the pressure to increase tax receipts, the ATE can be a case study on how a (albeit distortive) solution is being applied in an EU country to significantly enhance corporate-related tax revenue.