Enterprises Services. Portugal
Descripción
Published as Calçada Pires, Rita. Portugal Branch Reporter. IFA, Cahiers de Droit Fiscal International, vol 97a – Enterprises Services, 2012, p. 565-‐578
Suggested Citation: PIRES, Rita Calçada (2012). Portugal Branch Reporter. IFA, Cahiers de Droit Fiscal International, vol 97a – Enterprises Services, 2012, p. 565-578
ENTERPRISE SERVICES PORTUGAL National Reporter Rita Calçada Pires Abstract The taxation of income from providing services – that are not defined in Portuguese tax law, which also does not specifically regulate technical services – is integrated in Portugal in general taxes on income: IRS on individuals and IRC on collective entities, in particular legal entities. The IRS taxation, in case of residents – in general, on overall income with progressive rates – and non-residents with attributable income to a permanent establishment (henceforth only p.e. or with p.e.) – on that income – is levied by assessment on the net income, but preceded – not in case of business activity by withholding on gross base on account of the final tax and other prepayments. As for non-resident individuals without attributable income to a permanent establishment (henceforth only without p.e.) the taxation is levied on Portuguese source income with a final withholding at source on gross income. The non-resident individuals with and without p.e. are liable to taxation with special rates – but there is an option, for residents of other State of EU or EEA, in this case, if there is administrative cooperation, to avoid discrimination vis-à-vis residents in Portuguese territory. In case of IRS, some incomes from providing services (v.g., from technical assistance) are considered capital income, as long as they are not integrated in the category of business and professional income, i.e., earned under their scope. This capital income is taxed on a gross base, for residents – liable to overall income and with assessment – and non-residents without p.e. and with a withholding on the same base on account of the final tax in the first case and as a final tax, in the second case. The Portuguese source of income is determined based on the practice of business or professional activity (economical criterion), or on the
∗
PhD, Professor, Legal Adviser and Researcher at CEJEA – Universidade Lusíada, Lisboa
1
∗
Published as Calçada Pires, Rita. Portugal Branch Reporter. IFA, Cahiers de Droit Fiscal International, vol 97a – Enterprises Services, 2012, p. 565-‐578
residence of the debtor or on the location of the payer’s p.e. in the Portuguese territory, in case of other providing services (financial criterion). Concerning legal entities, as to residents – liable on overall income – and nonresidents with p.e. - on the attributable income – the taxation is by assessment, preceded by withholding at source on account of final tax and other prepayments, differently from non-residents without p.e., in which the taxation is made through final withholding on net base of the separate types of income (gross base, in case of capital income), with special rates, but with the option of the taxation mentioned above. The source is defined as for individuals. The allocation in case of providing services and sources of royalties may create difficulties, and can even lead to the application of anti-abuse and anti-sham clauses. Still in the field of embedded intangibles, the application of the exit tax can occur, as for non-resident corporations with p.e.. There are several ancillary obligations for the payers and the beneficiaries of the income: some of them aim the provision of information that allows the assessment of the tax and others aim to control it. The conventions celebrated by Portugal have clauses that enlarge the taxation power in source country, by using ample definitions of p.e. and royalties, and also maintaining the old article 14 of the OECD Model, with broader connecting factors. Key words: Enterprise services; Direct Taxation; Income Source; Resident; Non-Resident; Portuguese Territory; Conventions for preventing the double taxation
I. Introduction The tertiary sector assumes an eminent position in the development of a market economy. Services are an activity sector that dominates the functioning of economies and Portugal is not an exception to the rule. One of the factors that influence their development and internationalization is the way they are taxed. For such, it is of central importance to explain the legal structure of direct taxation of services in Portugal. That is the purpose of the present report: to identify the rules of the Portuguese legal system regarding the taxation of income from services. II. Taxation of income from services under domestic law. 1. Basic rules 2
Published as Calçada Pires, Rita. Portugal Branch Reporter. IFA, Cahiers de Droit Fiscal International, vol 97a – Enterprises Services, 2012, p. 565-‐578
Taking account that the Portuguese tax system includes, concerning the taxation of income, two taxes depending on the type of taxpayer involved – individuals (IRS) and collective, in particular legal entities (IRC) –, in order to determine how services are taxed in Portugal, the analysis will have to differentiate the taxation of services provided by individuals and collective entities. This is our starting point. 1.1. In case of individuals, the income arising from the carrying on of any commercial, industrial, agricultural, forestry or animal-rearing activity and the income arising, from the carrying on by self-employed taxpayers of any activity of providing services, including scientific, artistic or technical services, whatever their nature even related to the afore-said activities» is included in category B of the IRS. In that category, it is also included
«Income from intellectual or industrial property or the provision of
information relating to experience gained in the industrial, commercial or scientific sectors, received by the author or original holder of that property», income that is generally included under the designation of royalties. Respecting the technical assistance, the income that derives from it is included in another category, i.e., E, capital income that also comprises «Income from contracts relating to the sale or temporary use of rights of intellectual or industrial property or the provision of information relating to experience gained in the industrial, commercial or scientific sectors, if not earned by the author or original holder», as well as that derived «from the use or the granting of the use of agricultural, industrial, commercial or scientific equipment, where it does not constitute income from immovable property, as well as income derived from the granting, whether sporadically or continuously, the use of computer equipment and networks, including data transmission or provision of computing capacity in all its possible forms». However, this income is no longer considered capital income – category E –, but it will be included in category B when attributable to business or professional activities. There are some differences in the taxation on income from providing services, depending on its categories and also on whether the beneficiaries are residents(1) or
(1)
In the context, liable on the overall income with progressive rates (11,5% - 46,5%) and taking into account their personal and family situation.
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not(2). In case of residents with income included on category B – item of the overall income – they are assessed by the simplified regime (presumed costs) if their gross amount does not exceed 150.000 €, or, if the gross amount is higher than that, the taxation is based on the accounting result. Prepayments are due computed under a formula laid down in the Code and, when the debtors have or should have proper accounting, income arising from the carrying on by self – employed taxpayers of any activity of providing services – not business activities – and even from isolated act, is liable to a withholding at source on a gross base (21,5% - income from professional activities and 11,5% - income from other services). The withholding has the nature of a payment on account of the final net global tax. In case of non-residents, it has to be considered if they have income attributable to a permanent establishment (henceforth only p.e. or with p.e.) or not (henceforth only without p.e.)
(3) (4)
. In both cases, it is relevant the distinction made to the residents
regarding the calculation of taxable income (simplified regime or not). However, in the absence of p.e., the law is inconsistent, because it determines the application of the withholding as final tax on gross base (21,5%), when in the assessment rules it establishes the net base. Nevertheless, the non-residents without p.e. but residents «in another Member State of the European Union or the European Economic Area
(5)
may
request a refund of all or part of tax withheld and paid to the extent that it is greater than that obtained by applying the rate table for residents in Portuguese territory taking into account all income, including that obtained outside the Portuguese territory, under the same conditions that apply to residents».
(2)
Liable to the income derived from Portuguese sources and not taking into account their personal and family situation. In case of income attributable to a p.e., on this income; without income attributable to a p.e., liable to a separate taxation on different types of income, in both cases, with flat rates. (3) Terminology used by CIRS, without the expression fixed base concerning professional activities, as in the conventions celebrated by Portugal to avoid double taxation of the income. (4) Distinction made according to a corrective interpretation of the law, in view of the fact that it does not distinguish, in one of the relevant legal provisions, between the existence or non-existence of attributable income to a p.e. which is absurd; the consequence would be, in case of p.e., two taxations with the same tax on the same income (on a gross and a net base) in the same period of time. The distinction seems the advisable global solution, notwithstanding a very limited solution given by a provision not included in the Code. (5) In the later case, where there is exchange of information in tax matters.
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In case of a p.e. a special rate (25%) is applicable on net income, with the possibility of option similar to the one indicated above, and the withholding on account and prepayments as for residents (6). The income from providing services classified as capital income and not attributable to a business or professional activity, is liable to a withholding – 16,5% - on a gross base, on account of the final net global tax in case of residents. Concerning the non-residents without p.e., a withholding on gross base – 21, 5% - is applicable with the nature of a final tax. In this case, there is also the first mentioned option for residents in the EU and EEA (7). 1.2. When the taxpayer is a legal entity (8), the income from providing services and the capital income classified as such by CIRS, are liable to IRC. The residents and nonresidents with p.e. are liable to tax on the (global) profit (12,5% or 25%, with surcharges) and, with the same rates of IRS, to a withholding on account of the final tax. Prepayments computed under a formula laid down in the Code are also levied. The non-residents without p.e. are taxed separately by income category and liable to a withholding with the nature of final tax on net base (gross base in case of capital income) with rate of 15%. The option first mentioned above to avoid discrimination, in case of non-residents individuals without p.e. liable to a final tax but residents in another Member State the European Union or the European Economic Area may be requested, mutatis mutandis. 1.3. In general, there are no provisions excluding payments for services from taxation by labelling them as costs, except when the rules regarding prevention of the avoidance in case of payments to non-residents entities liable to a privileged tax regime, although this is a iuris tantum presumption. 1.4. Unlike the rules that have been mentioned above, the provision of services of transport is only liable to taxation for the non-residents, when attributable to a p.e. located in Portuguese territory, and the income derived from exercise of the activity of
(6)
See footnote 4. See footnote 5. (8) However, comprising some non legal, even collective entities, v.g., not registered companies. (7)
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professionals in entertainments or sports, even if attributed to a different person
(9)
, is
liable to taxation if the exercise is in Portuguese territory. 2. Income classification issues 2.1. Definition of services The Portuguese tax law does not have a definition of services; it only uses the expression “provision services”. Perhaps the legislator thought that some definitions may create more problems than their absence, due to the complicated details they imply, which can preclude flexibility in some particular cases. Nevertheless, there are clues in the legislation that can lead us to some observations. According to CIRC: «For the purpose of this Code, all activities involving the carrying out of economic transactions of an entrepreneurial character, including the provision of services, are considered commercial, industrial or agricultural in nature». Furthermore, even being excluded from the application of certain general rules, the provision of services as those related to the transport, communications and financial activities are explicitly considered. For individuals considered to be non habitual residents, the law also uses the terminology «activities with high added value of a scientific, artistic or a technical character» (10). With these references we intend to demonstrate there are provisions that indicate what the legislator perceives as providing services, despite the absence of a definition. 2.2. Services vs. Royalties In Portugal, the law does not qualify or define what constitutes a source of income, resorting instead to a list of the sources of income. Therefore, despite the notorious influence of the definition given by the OECD Model, the legislator has chosen to enumerate, without a previous general concept, the «Income from intellectual or industrial property or the provision of information relating to experience gained in the industrial, commercial or scientific sectors», adding the income «derived from the provision of technical assistance» or also «income arising from the use or the granting of the use of agricultural, industrial, commercial or scientific equipment, where does not constitute income from immovable property» and also, for CIRS, «income derived (9)
This extension applies only for the taxation of individuals. Subsequently implemented, by exhaustive enumeration, to benefit from a special regime – application of flat rate and exemption method to the taxation of income from abroad.
(10)
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from the granting, whether sporadically or continuously, the use of computer equipment and networks, including data transmission or provision of computing capacity in all its possible
forms». In these provisions the implicit enlarged notion of royalties in
Portuguese law is clear in the context of the universe of providing services, without incurring in the danger of using a qualification or definition. One problem that may emerge in the distinction between royalties and income from providing services is the allocation of the tax base between incomes covered by the implicit notion of royalties and those of providing services in case of a single taxable act. The question arises regarding the withholding at source, because, although both types of income are liable to a withholding, under the conditions that we have described, there is a difference concerning each type in case of residents and nonresidents with p.e.
(11)
. In order to distinguish, we believe that the criteria shown on
paragraphs 11.3 to 11.6 of the comments to article 12 of the OECD Model are, at least, in principle, acceptable. In what concerns the problematic of transfer prices, and not the tax base allocated to each type of income, the issue may lead to difficulties. The Portuguese law has explicitly foreseen, in dealing with transfer prices, situations in which the analysis can be performed on an aggregated base, or by series of operations, since such operations are so closely linked or continued that their disintegration would lead to loss of functionality or value or when it is impractical to determine the price for each operation, whether because of the high costs associated or the inexistent/insufficient information concerning comparable operations. The transfer of the right to explore intangibles accompanied by other services is comprised in the specific cases considered by law. 2.3. Embedded intangibles In case of transfer of intangible assets embedded in services arrangements, the application of the rules of the so-called exit tax may occur in case of the p.e. of nonresident legal entities, unlike what happens with residents, because here the Portuguese law does not foresee the isolated transfer of assets, only the transfer of residence and, even in this case, there are requirements concerning the existence of the p.e. in (11)
16,5% - income usually defined as royalties and income considered capital income, and 21,5% and 11,5% - income from provision of services, whether they are part of the income of a professional activity or not.
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Portuguese territory. In case of the p.e. of non-resident, «the transfer outside Portuguese territory, by an act or legal instrument, of assets allocated to the establishment» implies the liability to the mentioned exit tax, because «in determining the taxable income attributable to a permanent establishment», «the positive or negative differences between the market value and the book value of the assets relevant for tax purposes at the date of termination shall be included in taxable income». In any case, the rules concerning sham and tax abuse could be applied to the various taxable acts or situations, since Portugal has such provisions written into law which may give cause to the additional taxation on the transfer of goods, alongside the taxation of income of provision of services. 3. Source and nexus The liability to taxation concerning the income from business and professional activity, as well as from another provision of services, derived by non-residents, depends, as all types of income, on whether that income is considered to have been obtained in Portuguese territory (12). To determine the source and the resulting inclusion in the so-called limited tax liability, there are at least two criteria: the economic – the place where the activity occurs or the location of the good which is the source of income – and the financial, generally based on the residence of the debtor or the location of the p.e. to which the payment of the income should be attributed. The Portuguese legislation in what concerns the taxation of individuals, regarding business and professional income, considers the location of the p.e. in Portuguese territory as determinant of the source of the attributable income. But the financial criterion has been followed in what concerns the income not referred above arising «from professional and other provision of services, including scientific, artistic, and technical services as well as intermediation in the conclusion of any contracts, concluded or exercised in Portuguese territory, except those concerning transport, telecommunications and financial activities». The same criterion has been adopted in case of income derived from the technical assistance and included in the provision about those generally designated – but not by Portuguese law – as royalties, and also in case (12)
See footnote 2.
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of «the income from the use or the granting of the use of agricultural, commercial or scientific equipment, when the related income is not regarded as from immovable property». And the same for «the income derived from the granting, whether sporadically or continuously, the use of computer equipment and networks, including data transmission or provision of computing capacity in all its possible forms». Regarding the taxation of legal entities, the criteria adopted were the same (13). However, it is laid down for individuals and legal entities: The income derived from the provision of services, those ordinary called royalties, or derived from the use or granting of use of agricultural, industrial or commercial or scientific equipment as well as income from technical assistance and those related to computing activity is not considered as arising in Portuguese territory where it constitutes an expense of a permanent establishment situated outside that territory connected with the activity carried out through it. Where these conditions are not met, the income from the provision of services performed or used in Portuguese territory, except those relating to transport, communications or financial activities, shall also not be regarded as arising in Portuguese territory when the services to which they related, being provided entirely outside Portuguese territory, do not relate neither to property situated in that territory nor to studies, projects, technical assistance or management services, accounting or auditing and consulting services, organisation, research and development in any field. Therefore, it is assumed, at the end of the provision, a contrario, that non-residents may be taxed in that territory for the income of certain services provided entirely outside of it, but brought into use there: they are still considered as having their source on Portuguese territory because they are used there. Concerning the income from activity of professionals in entertainment or sports – also for individuals or legal entities – the economic criterion has been followed regardless the existence of p.e.: exercise in Portuguese territory of the activity and the same criterion was followed for the income of transport, communications and financial activities, but now demanding the existence of p.e.
However, to prevent the tax
avoidance within IRS, the income derived from the exercise in Portuguese territory of the activity of professionals in entertainment or sports even if attributed to a different (13)
The Code does not mention professional activities, but capital income and provision of services.
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person (emphasis added) is considered, as referred before, to have been produced in Portugal. Regarding the income taxed abroad, the double taxation is unilaterally prevented by the per country credit method. 4. Gross vs. net income In case of individuals, the taxation on the gross or net base of income from business activity or from the carrying on by self-employed taxpayer of any activity of providing services depends on the distinctions made on 1.1.1. with details about the taxation. In case of residents, the final taxation on global net income takes place with progressive rates and the income from providing services on a net base is a part of the overall income. Also, a withholding on gross amount with a nature of a payment for account of final tax occurs regarding the professional income (not business one) as well as from the provision of the different services. Concerning the income from provision of services classified as capital income not attributable to business or professional activities, there is no assessment deduction, while withholding for account on a gross base occurs. In case of non-residents with p.e., the applicable regime will be the one of income of business and professional activities of the residents (net base), but with a special rate 25%, preceded by the referred first withholding
(14)
. However, the non-residents but
residents in another Member State of the European Union or the European Economic Area (15) may request a refund of all or part of tax withheld and paid to the extent that it is greater than that obtained by applying the rate table for residents in Portuguese territory. Without p.e., it will be applicable to the non-residents, final withholdings on a gross base, admitting, however, the option for avoidance the discrimination vis-à-vis the residents. In case of legal entities, the residents and the non-residents with p.e. located in Portuguese territory are taxed on the profit base and a withholding on a gross base has the nature of a payment for account. The non-residents without p.e. are liable to a withholding, with the nature of final tax, on the net income or, in case of income from services classified as capital income, on gross one. The option laid down for the non (14) (15)
See footnote 4. See footnote 5.
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resident individuals without p.e. is allowed with adjustments for the entities of other Member State of European Union or of the EEA. 4.1. Fees for technical services According to the Portuguese legislation, the fees for technical or other services provided by non-resident enterprises are not treated as a special category of income and are liable to the final taxation and withholding as the provision of services in general. As the Portuguese law does not use the expression «technical services», its definition is not necessary. However, the law refers management and consultancy in order to tax the income from those activities as the income of other services if the financial criterion is verified and as long as they do not constitute a cost of the p.e. located outside Portuguese territory connected with the activity carried out through it or, when this condition is not met and even provided entirely outside that territory, the services are used in that territory. Notwithstanding, the law does not define them. 5. Compliance and administration Referring the requirements imposed to the payer of the income, beyond the duty of demanding to the beneficiaries of the income a receipt, invoice or equivalent document and keep them, there is also the obligation, in some cases, of proceeding to the withholding, as it was mentioned before. If this obligation exists, it then creates the duty to keep an updated register of the beneficiaries of income, even not liable to withholding, to deliver to the beneficiaries a document confirming the amounts due, the tax withheld and the deductions, if any, and to deliver to Tax Administration a declaration of the income paid and tax withheld, of obligatory contributions to social protection schemes and legal health systems, as well trade unions due. Income liable to taxation obtained in Portuguese territory by non-resident taxpayers must not be transferred abroad without showing that the tax due in paid or guaranteed. Regarding the beneficiaries of income from business and professional activities, they will have to present an annual declaration of income and several other declarations; these obligations are not applied to non-residents without p.e. who are liable to a final withheld tax. The non-residents with p.e. must issue receipts or invoices (also without p.e., the recipients are obliged to issue receipts), maintain books and records and they also have to centralize, archive and compile tax documents. The non-residents must or, 11
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in case of residents of another Member State of the EU and EEA
(16)
may, appoint a
representative residing in Portugal to represent them before the Directorate – General of Taxation and ensure that they meet their tax obligations. Finally, the recipient of the services other than the payer has no obligation to perform under Portuguese tax law. III. Treaty issues The taxation of income from the provision of services, whether traditional or derived from new techniques, is governed by articles 7 (business profits), 12 (royalties) and 14 (independent personal)
(17)
double taxation on income
of the conventions signed by Portugal for the avoidance of (18)
.
The relevant aspects that result from these conventions will be analyzed forthwith. 1. Income from services under article 7 The application of the article 7 of the OECD Model means that the income from provision of services is taxed on a net base. The definition of p.e. in some conventions celebrated by Portugal includes in its paragraph (2) places of extraction of natural resources (USA and Malta, including in this case an offshore drilling site
(19)
),
sometimes using the expressions exploitation for or the exploration of natural resources (Chile). In many conventions the inclusion of a provision that lays down the furnishing of services to constitute a PE of an enterprise, in certain circumstances, even in the absence of a fixed place of business, does not occur. However, one can find exceptions in some conventions, v.g., Cuba, after referring to the services in general, are mentioned consultancy services trough employer or other individuals engaged by the enterprise for such purpose where such activities continue (for the same or a connected project) within the country for a period or periods aggregating more than twelve month period (but more than 9 months, in any 12 months period - Malta, more than 183 days, in any 12 months period with Indonesia and Chile, without reference to project). Other times, the definition includes a project, a construction assembly or installation project or supervisory activity but only if they continue for a period of more than 6 (16)
See footnote 5. Article maintained in the Portuguese conventions despite its abolition on the 2000 OECD Model. (18) Even though the article 7, in general matters, is derogated by special articles: articles 8 (shipping, inland waterways transport and transportation) and 17 (artists and sportsmen). (19) The mention of the conventions in this report does not represent an exhaustive list. (17)
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months (Chile, Indonesia, Tunisia, also Pakistan - 12 months, but not including supervision, and Turkey, including supervision and 9 months). In case of Chile, something analogous to the principle of attractive force is included, for the computing the time limits: activities carried on by an enterprise associated with another enterprise within the meaning of article on associated enterprises shall be aggregated with the period during which activities are carried on by the enterprises if the activities of the associated enterprises are identical or substantially the same. In the treaty with the USA, it is considered to exist p.e. if an enterprise of a Contracting State that carries on business of a permanent nature in the other Contracting State through its own employees or any other personnel engaged for such purpose for a period or periods amounting to or exceeding in the aggregate 9 months in any 12 months period commencing or ending in the taxable year concerned. In the reviewed treaty with Norway (not yet entered into force), a similar provision to the one mentioned as a possibility on the paragraph 42.23 of the OECD Model Commentary has been included. The exceptional nature of the inclusion leads to the assumption that this will not be the general guideline. In the provisions, there is no explicit limitation regarding the «income from services performed outside the jurisdiction» or that «the provision applies only to services provided by the enterprise to third parties», although this one seems to be a reasonable interpretation. On the other hand, as a result of what was described, there is no minimum threshold based on the percentage of revenue derived from the activities. As for any exception for preparatory and auxiliary activities, it is believed to be accepted, even with provisions non-complying with the OECD Model, because the provision on such activities establishes «Notwithstanding the preceding provisions …» and appears after the clauses about Services PE. Regarding p.e., the applicable taxation rules are the ones established in article 7. The inserted clause concerning services is not taken as a general rule and therefore did not rule out the inclusion of the other one cited regarding building site, etc., although concepts may not be entirely coincidental: more than six months vs. more than 183 days within any 12 months period (v.g., Chile).
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Although the attractive force, even limited, of the p.e. is adopted in the domestic legislation – CIRC –, that is not common practice of the treaties. However, it was included a clause in the treaty with India allowing the taxation «of profits attributable to sales (…) of goods or merchandise of the same or similar kind as those sold through that permanent establishment and other business activities carried on in that other State of the same or similar kind as those effected through that permanent establishment». The same occurs in the Portuguese-Venezuelan treaty, although only regarding sales of goods or merchandise. 1.1. Other activities In the definition of PE in the convention with the United Arab Emirates, ships used for the exploration and exploitation of natural resources or activities of drilling rigs are included, if they last more than 6 months. In the treaty with Malta, as written before, it was also included as p.e. an offshore drilling site. Moreover, in the treaty with Panama, it was included «the use of a structure, installation, drilling rig, ship or other like substantial equipment for the exploration for, or exploitation of, natural resources; or in activities connected with that exploration or exploitation for a period or periods exceeding more than nine months within any twelve-month period». 2. Income from services treated as royalties In several treaties, the income derived from technical assistance is included in the definition of royalties, with the implication that such income may be taxed at source, although with limitation in case of beneficial owner, whether the owner has his/her p.e. in the territory or not, but the provision applies only where such assistance is related to the application of any such right or property or similar wording: in connection with the use or the right to use any copyright, goods or information to which [royalties] (USA, Korea, Netherlands, Russia, Sweden and Venezuela). The same may be said for payments of any kind received as a consideration for the use or for the right to use, industrial, commercial or scientific equipment (conventions with the same countries). As a matter of fact, this is consistent with the more enlarged reservation made by Portugal within the OECD framework (43.1 of the Comments on article 12). In the convention with Colombia, something else was included in the definition: in addition to
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technical assistance – without restriction –, also the technical services and consulting services. It is also relevant the inclusion, in the provision concerning royalties, although with expanded epigraph and not included in the definition, of the fees for “technical services” (Pakistan) or the “included services” (India), carefully defined and delimited in both cases. 2.1. Supply of know-how Obviously the supply of know-how is not included either in the concept of new information nor of usual knowledge and, even regarding another kind of information, the know-how implies the confidentiality of what is transferred for others by the holder of knowledge and without further action by him. As Portugal has not made any remark to the comments on the 11.6 of the OECD Model, they shall be adoptable, at least in principle. If there is taxation on the royalties, the financial criterion (resident debtor or location of the p.e. to which the payment is attributable) will be followed, in accordance with the provisions of the conventions and of the domestic legislation, for the determination of the source of income, in fact, according to the provisions of the article concerning interest of OECD Model. 2.2. Secondment of Employees The secondment of employees for the purpose of bringing expert skills or knowledge to other enterprises may involve the abuse in the application of the conventions, since it may avoid the application of the competency rule relating to royalties or technical services, if these are autonomous (India and Pakistan), which would imply taxation on source on the gross income without the necessity of an existing p.e. As a way to prevent the difficulty, many treaties include the p.e. service, as indicated under 2.1., although this does not avoid it completely since, in case of royalties, the taxation would be on a gross base and, in case of p.e., the taxation would be on a net base. 3. Fees for technical and other services
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Two conventions celebrated by Portugal include provisions concerning technical or consultancy services (India and Pakistan)
(20)
. The applicable rate is the one from the
taxation of royalties: 10% on gross income. In these conventions the definition of services is the following: «4 — For the purposes of this article «fees for included services» means payments of any kind, other than those mentioned in articles 14 [independent personal services] and 15 [dependent personal services] of this Convention, to any person in consideration of the rendering of any technical or consultancy services (including through the provisions of services of technical or other personnel) if such services: a) Are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 [royalties] is received; or b) Make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein. 5 — Notwithstanding paragraph 4, «fees for included services» does not include payments: a) For services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property; b) For services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international craft; c) For teaching in or by educational institutions; d) For services for the personal use of the individual or individuals making the payment; e) To an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in article 14 [independent personal services]; f) For services rendered in connection with an installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2, f) of article 5 [a sales outlet]; g) For services referred to in paragraph 3 of article 5 [v.g., supervisory activities in certain circumstances]» (article 12). The provisions have adopted, without restrictions, as a source of income, the residence of the debtor or the location of the p.e. or fixed base to which the payment of income is attributable. The taxation is subject to the application of articles 7 (business profits) and 14 (independent personal services) of the conventions, where the fees are effectively connected with a p.e. or a fixed base. The taxation will be applied, according to the (20)
Both in the article that regulates royalties; also managerial services in the convention with Pakistan. They are included in the definition of royalties in the convention with Colombia.
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Portuguese law, through the final withholding on a gross (IRS) or net (IRC) amount in case of the non-resident without p.e., with the option, for residents of the EU and EEA (21)
of taxation under a rate applicable to residents in Portuguese territory. In case of p.e.,
the taxation will be applied on the profit, with a withholding with a nature of a payment on account of the final tax, as previously indicated (22) , and similar option. There is also article 14 of the Convention with Panama under the title “Services” which is outside the normal scope of that provision in the other conventions as well as in the OECD Model, when this model included such a provision. According to it, it is possible the taxation in the State of the provision «where the services were rendered, to the extent that such services qualify as professional services [include independent scientific, literary, artistic and educational activities, as well as medical, legal, engineering, architectural, dental and accounting activities], consulting services, industrial or commercial advice, technical or management services or similar services», with the taxation limit of 10% of the gross amount of the income in case of beneficial owner resident of another Contracting State (paragraph 1). However, it is established that: «The provisions of paragraph 1 shall not apply if the service provider, being a resident of a Contracting State: a) has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State; or b) such person either directly, in case of individuals, or through employees or other personnel, in case of companies, stay in the other Contracting State for a period or periods amounting to or exceeding in the aggregate nine months in any twelve-month period commencing or ending in the fiscal year concerned; in that case, only so much of the income as is derived from the activities performed in that other State may be taxed in that other State». Relating to technical assistance and equipment, it has already been mentioned that, in many treaties, the respective payments are included in the definition of royalties, in the first case where such assistance is related to the application of any such right or property. The taxation in Portugal is applied as referred above (23). (21)
See footnote 5.
(22)
See II 1. and II 4. See footnote 22.
(23)
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4. Independent personal services Portugal has made a reservation, within the OECD Model, to maintain article 14. In several concluded conventions, it is added, under variable wording, as other connecting factor, the stay for a period or periods amounting to or exceeding in the aggregate 183 days in the calendar year (Algeria, Germany, Italy and Tunisia) and, in some, within a period of 12 months commencing or ending of in calendar year concerned (Canada) or tax year (Chile). However, there is a substantial difference in another aspect: in some cases, that criterion is added without mention of the taxable income (Canada, Germany, Italy and Tunisia), whereas in other cases the taxation is established on only so much of the income as is derived from his activities performed in the State of the stay (Algeria, Barbados, Chile e China). Still in the convention with South Africa, the presence for more 183 days in only twelve – month period commencing or ending in the fiscal year concerned is considered a fixed base regularly available. In other cases, it is connecting factor, with the fixed base, the remuneration for the activities in a Contracting State paid by or on behalf of a resident of the other Contracting State or borne by a PE or a fixed base situated in that Contracting State and exceeding a fixed gross amount in the fiscal year concerned (24) . Moreover, in another convention – Panama – the criteria of taxation are integrated in an article on services, in general, although, as indicated before, there is an exception that leads to the taxation according to the usual criterion, concerning the income attributable to a fixed base and the income derived in the country of the activity when the stay is a for a period or periods amounting to or exceeding in the aggregate nine months in any twelve – month period commencing or ending in the fiscal year concerned. Although I believe there is no official policy, I think that article 14, in what concerns fixed base, is also applicable to companies. However, it could be then more difficult to apply the requirement of stay for more than 183 days, but it would be possible if one refers to the stay of personnel exercising the activity on behalf of the company in question. The difference between «fixed place business» and «fixed base» seems, at least, in principle, irrelevant. In this case, as well as in the connecting factor of 183 days, the (24)
18.000 € - Cape Verde and 20.000 $US dollars – Venezuela
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exclusion established in some conventions to income from services performed outside the jurisdiction in which the fixed base is situated does not necessarily apply to the conventions not including that restriction. The Portuguese domestic taxation is on a net base – preceded by a withholding for account -, except in cases of non-resident individuals without p.e. (25), a solution that, as mentioned before, does not derive directly from the law on the taxation of individuals, but rather is achieved through the interpretation which sought to find a reasonable solution (26). There is also the possibility to avoid discrimination of residents of another State of the EU and residents of the EEA (27). Lisbon, 11 October 2011
Suggested Citation: PIRES, Rita Calçada (2012). Portugal Branch Reporter. IFA, Cahiers de Droit Fiscal International, vol 97a – Enterprises Services, 2012, p. 565-578
(25)
See footnote 22. See footnote 4. (27) See footnote 5. (26)
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