Midterm Content Flashcards
Can a charity pursue a lucrative purpose as long as it is not its main purpose?
It can, as it first must be able to cover its expenses, and then the leftover goes to charitable purposes.
Taxes are based on the ability to pay, revealed under the terms of the law through what?
income or its use and properties
What is the principle that applies to criminal law and more importantly, tax law?
Criminal law and tax law can’t have retroactive effects (the law can only be applied to the facts after the law has been published, not before).
All changes in the tax code are contained in the
State budget implemented typically on the 31st december
IRC Code states that for IRC purposes, the relevant facts that generates the obligation to pay only occurs on
the 31st of december, when the state budget is implemented
What is the problem with laws passed in a point after the state budget, but they state to be applied afterwards?
They are not retroactive laws, and its generally unconstitutional.
However, its not unconstitutional via the IRC Code, as it depends on the proportionality (how close to the date and how high the rate changes)
What is the application of territorial tax law in terms of country of source?
Tax rules apply to facts that occur in the national territory, unless there is a legal provision to the country, or without prejudice to international conventions
If you are not a resident in portugal and you make an income (concert sales), what is the law regarding tax?
you are subject to taxation in that country in relation to the income obtained in that country
What is the application of territorial tax law in terms of country of residence (resident of country)?
Personal taxes covers all income obtained in said country during it’s venture.
if you are a resident in portugal and you make an income, what is the law regarding tax?
Income obtained anywhere (globally) is taxed under portuguese law, if you are a person with domicile, headquarters or effective management.
A resident in portugal is legally classified as a person who… (generally)
resides for 183 days in the country, they have a house in portugal with intention of making it it’s primary residence, or if they are working for the portuguese state/airlines or maritime ships.
A resident in portugal is legally classified as a person who… (in terms of relocation to other tax residences)
portuguese persons who relocate their tax residence to a country with clearly more favorable tax regime in the year it takes place and in the 4 subsequent years, unless person proves that relocation is due to compelling reasons (temporary work from someone who is a resident)
What is economic double taxation?
the same income is subject to taxation twice in the same fiscal year but by different taxpayers (typically IRC and either IRC again after its been distributed or IRS if the partner is an individual)
what is the problem in relation to tax law for a double resident (someone who often travels between countries and still meets the legal requirement to be a resident in both countries)
You are subject to taxes from both countries
what is the more serious problem in relation to tax law for a double resident (someone who often travels between countries and still meets the legal requirement to be a resident in both countries)
You are taxed 100% based on your worldwide income, and taxed 100% on the income obtained in country of visit. This would mean a significant, if not all income being taxed (200% taxes on one income)
Note: this is called the worldwide taxation principle
To solve double taxation issues you need
double taxation agreements, which are bilateral
You cant be a resident in both countries in terms of taxation because…
The country you settle in will subject you to worldwide taxation principle
A resident in portugal working at company A is playing on dividends to company in the UK, who
The country of source taxes a very low limit, and the other country
For the IFC, who is the taxpayer?
Corporations
For the IRS, who is the taxpayer?
Individuals
When it comes to income tax, what is the law regarding the taxpayer in terms of the [individual], substitute and responsible?
The individual is the taxpayer
When it comes to income tax, what is the law regarding the taxpayer in terms of the individual, [substitute] and responsible?
the company who holds the tax of the individual to pay authorities (when they pay salary, and withhold part of the salary to pay the state) or any other entity that has organised accounting or is under the obligation to have organised accounting.
When it comes to income tax, what is the law regarding the taxpayer in terms of the individual, substitute and [responsible]?
The responsible person is dependent on wether its withholding or payments on account.
What is withholding? (article 34)
Withholding is an advanced payment in relation to the tax due after assessments or final (a tax return wont be submitted) for non-residents
What is payment on accounts? (article 33)
Payments on account is a payment made by the self employed or self employment companies, in which their income isn’t withheld by companies, so they must do it themselves
The passive subject in a tax legal relationship is…
the individual, substitute and the responsible
Why is withholding not final for residents?
If the person that is under the obligation to withhold (the substitute) executed the withholding but did not deliver to the state….
such person is responsible for the amounts withheld and not delivered and the substitute is released from any responsibility for their payment
If the withholding is final
As a punishment for not withholding taxes (art. 28), if the individual tax payer
If the with holding has the nature of a payment on account
Directors, managers and other persons exercising functions of admin or legal entities are secondarily liable in relation to entities and jointly and severally liable with each other for…
- Tax debts occurred in the exercise of its function or whose legal deadline for payment ended after this date, and it was their fault that the assets of the legal person or fiscally equivalent entity has become insufficient for its fulfillments (the state has to prove in this case)
- Tax debts whose legal deadline for payment has ended during the period on which they exercised their functions, when they do not prove that the lack of payment was not their fault.
Difference between withholding and payments
withholding is what employees do in relation to their taxes (paid typically by companies), payments on account is done by the self employed
Who can withhold taxes?
Only individuals or companies under the obligation to have organised accounting are liable for withholding.
How is the tax legal relationship created?
The occurrence of a taxable event (i.e., taxpayer buying a house, getting income under a company)
What is tax evasion?
An ilegal action of not paying taxes you are liable to pay (by typically forging documents and making up costs or facts)
What is tax avoidance?
You shift or place subsidiaries on different countries with different tax rates, and lend money to said countries at high interest rates to reduce profits (thus reduce amount taxed)
What is tax planning?
Shifting costs as low as legally possible using efficient tax laws (choosing joint or separate tax, tax benefits in certain areas)
What are transfer pricing rules
Companies need to enter deals with any business in the same group respecting the arms length principle
What is the arms length principle?
A price agreed in a transaction between two related parties must be the same as the price agreed in a comparable transaction between two unrelated parties.
Constructions executed with the main purpose of obtaining a tax advantage that frustrates the purpose of applicable laws are…
Not considered genuine, taking account all relevant facts, and tax is carried according to the substance or economic reality and the intended tax advantages aren’t achieved.
What are ways of extinguishing a tax legal relationship?
- Payment of taxes
- Tax debts being barred after 8 years if not collected after it
Non habitual residents are individuals that have…
- Just become tax residents in portugual (and weren’t considered one the last 5 years)
How are non-habitual residents taxed?
- Special rate of 20%, on the net income of categories A and B resulting from activities considered to be high added value
When was the regime for non-habitual residents and how are its effects achieved?
It was revoked from Jan 1 2024 onwards, however, it still apply to non-habitual individuals who were already registered by stated date or by dec 31, 2023, met the conditions to register as non-habitual residents
This framework also applies to people who become tax residents in portrtugal by december 31 2024, if they meet certain conditions.
What are other exemptions non-habitual residents can receive?
They can also obtain exemption in relation to employment income and business and professional income obtained abroad
There are reductions on the tax base in relation to what persons?
people younger than 35 years of age and ex-residents.
What is employment income (Category A)?
All remuneration paid or made available to the taxpayer.
What qualifies as employment income? (7)
- Labour contracts (or equivalent)
- Contract for provision of services, executed under authority of an active subject (acquirer of services)
- Function, service or public office
- Early retirement
- Pre-retirement
- Reserve (military)
- Remuneration of the member of statutory bodies (board members)
Why is a contract for provision of services, executed under authority of an active subject (acquirer of services) considered a false green receipt? (recibos verdes falsos)?
What is the legal concept of remunerations?
Wages, salaries, gratuities, percentages, commissions, stakes, subsidies, bonus, attendance fees, notary fees, percentage of fines and other forms of incidental renumeration
What are incidental remunerations?
What are examples of an incidental renumeration?
If the company gives you a car for personal use (a good job position), what is the law regarding remunerations and taxation on it?
It is considered remunerations and you will pay taxes for it, the company will give you how much it is and you have to include it in your tax returns.
How to calculate the amount of income related to the personal use of the vehicle
Annual income = -.75% of the market value* of the vehicle (on Jan 1st of the year in question)
Is the acquisition of a vehicle by the employee or member of a corporate body for a price below market value a renumeration?
Only if its below market price
What is the formula for Taxable income?
market value (annual amount of income taxed in connection with its use + the amount paid by the employee as the acquisition price)
If you never use the vehicle, what component of the equation do you disregard?
The annual amount of income taxed in connection to its use
What is the formula for market value?
Price of acquisition - (price of acquisition x depreciation coefficient/factor)
What is the formula for the annual income?
Meal allowance is only considered taxable income (and thus remuneration)
only for the amount or part that exceeds the legal limits established for civil servants (6 euros per workday, or meal vouchers up to 10,2 per workday)
