A pandemic budget

Following the publication of the 2021 State Budget law, the tax amendments proposed are short. despite an historical record number of proposals presented for the discussions on details.

Contrary to other Member States, there are no specific measures aiming at relaunching the economy despite it being said that it may still happen in 2021. A relaunching would focus on temporary support measures to reinforce tax benefits related to investment and job creation. As I have stated a number of times, it is now that the European Union would be more than willing to allow extraordinary state aid. Even more surprisingly, the proposal concerning the limitation to the use of tax benefits was neither rejected or amended. Is there a lack of care in the analysis of the proposals presented at the Parliament? That must be the conclusion, which is still objectionable.

Following the discussion in details, there was a relief on the additional requirements to R&D benefits (SIFIDE II), in case of investments in R&D companies made by investment funds. The effective use of the underlying tax credit depends on the actual investment being done by the investment fund, and the respective allocation to R&D activities to be made by the relevant companies, however lack of compliance does not imply late assessment interest.

At european scale alongside tax benefits to investment and job creation, there is great concern about protecting a minimum income for the population in general. Portugal introduced measures at this level. Namely: increase of pensions, increase of the unemployment allowance, a new extraordinary employment allowance, an extraordinary risk allowance to combat the pandemic, among others. These measures aim at materialising the State’s social responsibility and increasing domestic consumption.

The announced decrease of the monthly withholding tax rates will only redistribute the income available. An increase of the available income resulting from lower withholding tax rates will lead to a lower tax refund or a higher tax bill in 2022, with a false sense of liquidity.

As for the focus point of this budget – the VAT voucher (“IVAoucher”) –, in a scenario of new mutations of the virus and the vaccination plan far from over, although announced as a way to subsidize the three most affected business sectors – lodging, catering and culture - it may end up with no practical effects.

In what the real estate sector concerns, a highlight for the new provision concerning the levy of Real Estate Transfer Tax (IMT) on the transfer of shareholdings and the uniformization of tax rules for different legal types of companies. Taxation arises in case of companies which asset comprise more than 50% of real estate that is not allocated to a commercial, industrial or agricultural activity, resale excluded. This was not expected as one would expect measures to foster transactions. Another new provision concerns the aggravated IMT and Real Estate Tax (IMI) rates, as well as the end of certain exemptions (namely IMT exemptions on resale) in case of real estate held by a company directly or indirectly under domain or control of an entity resident in an offshore.

_{Rosa Branca Areias}
^{PwC Tax Lead Partner}