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VAT in Portugal: Updates from the 2020 state budget and EU 'quick fixes'

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The changes have evoked a mixed response from tax experts

Diogo Ortigão Ramos and Mário Silva Costa of Cuatrecasas analyse the key takeaways from the Portuguese state budget for 2020 and from the transposition into Portuguese VAT law of the EU’s 'quick fixes' package.

The Portuguese state budget for 2020 (the Budget Law) has been approved. In contrast to the previous years, the Budget Law has been widely described as innovative, as it brings a budgetary surplus instead of a historical deficit. However, other critics have labelled it as too conservative, especially in regard to amendments of the existing Portuguese tax law, notably in concern of VAT. 

This briefing highlights some amendments which were made to the VAT law that could potentially affect taxable persons in a significant matter.

Taxable persons subject to VAT may now deduct the VAT borne on expenses relating to the acquisition of electricity for the use of electric or hybrid plug-in vehicles. This amendment is particularly relevant, since the Portuguese tax authorities (PTA) had previously denied the right of deduction on these expenses, even if they were related to electric or hybrid plug-in professional vehicles (VAT ruling No. P15054 of August 30 2019). 

The Budget Law also establishes new rules relating to the bad or irrecoverable debts regime. Debts that have not been paid after 12 months from the payment due date (currently 24 months) will be considered bad debts. Evidence of impairment and collection efforts is required. The PTA will have to analyse requests to recover VAT within four months (currently eight months). If the PTA do not respond to the request, it will be considered denied, except for invoices amounting to less than €150,000 (VAT included). 

In the authorisation request, the taxable person will have to identify the invoice relating to each bad debt, the acquirer, the invoice amount and the VAT assessed, the collection efforts made by the creditor and the (partial or total) failure of such efforts, as well as any other documentation proving the transactions. These elements will have to be documented and certified by:

a) An independent chartered or certified accountant, if the VAT adjustment does not exceed €10,000 per VAT return; or

b) A chartered accountant in all other cases.

If an independent chartered or certified accountant does not certify each document and period to which the VAT adjustment concerns and up to the submission of the request, the request would not be considered submitted. For adjustments that do not require requests for VAT recovery (irrecoverable debts), certification is required up to the deadline for submitting the VAT return, or up to its submission date if it is made after the legal deadline.

Regarding amendments to VAT tax rates, following last year’s decision to consider bullfights subject to the reduced VAT rate of 6%, the Budget Law for 2020 revokes this provision. Entrance fees for bullfights are now taxed at the standard VAT rate of 23%. This decision was highly discussed throughout the past year, especially during the campaign for the Portuguese government elections.

In contrast, the reduced VAT rate of 6% will now be applicable to entries in zoos, botanical gardens and public aquariums, as well as to the supply of telecare services to the elderly and chronically ill people.

Portuguese sign language interpreters and psychologists’ services will be VAT-exempt.

The Portuguese government was authorised to create electricity consumption brackets based on the power structure hired and existing in the market. 

Purpose and object of the legislative authorisation:

a) Amend List I and II of the VAT Code to create consumption brackets, allowing taxation at the reduced or intermediate rates of electricity supplies related to a low consumption of power hired.

b) Narrow the scope of the above rates mentioned to reduce the costs associated with energy consumption, protecting final consumption and minimising the adverse environmental impacts of excessive electricity consumption.

Under article 102 of the VAT Directive, the VAT Committee must approve this measure.

VAT 'quick fixes'

In February 2020, the Portuguese parliament approved, in general terms, Draft Law 7/XIV, of December 5 (the Draft Law), which transposes into Portuguese law Directive (EU) 2018/1910 of December 4, amending both the VAT Code and Portuguese VAT regime for intra-Community transactions (RITI). However, there is no expected date for the final approval of this law.   

Although these amendments were intended to apply from January 1 2020, it is not yet clear whether (i) the Draft Law will apply retroactively to January 1 2020, or (ii) Portugal’s delay in transposing the directive will mean that a transitional period for the new rules to apply will be determined. The PTA understand that scenario (ii) will be the case, recommending that Parliament adopt a transitional period up to June 30 2020 for economic operators to comply with the new rules.

Regarding the substantive aspects of the Draft Law, the Portuguese legislator opted for an almost literal reproduction of the Directive (EU) 2018/1910 of December 4, which enables the economic operators involved in intra-community trade to reasonably predict how its final version will look like. These operators should start reviewing their procedures accordingly. 

Regarding the rules established in the Implementing Regulation (EU) 2018/1912, of December 4, amending VAT Implementing Regulation (EU) 282/2011 of March 15, on proof of shipment of goods (new Article 45-A) and the formal requirements related to call-off stock simplifications (new Article 54-A), as they apply directly without Member States having to transpose them, they have been in force since January 1 2020. However, on February 3 2020, the PTA issued the Circular-Letter 30218, which adapts the new regulation to the Portuguese VAT system. 

The concept of ‘two different parties that are independent of each other’ is worth nothing. According to the PTA’s guidelines, it must be read in line with the concept of ”related parties” for transfer pricing set in Article 63(4) of the Portuguese Corporate Income Tax Code.

Attention must also be paid to the express revocation of Circular Letter 30009, of December 10 1999, which listed the documents that economic operators may provide to prove the key element of the VAT exemption for intra-Community supplies of goods; i.e., the shipment of the goods outside Portugal. In our view, this revocation cannot be read as meaning that in all cases proof of transport of the goods will have to be provided under the conditions of Article 45-A of the VAT Implementing Regulation. 

The new proof regulation established in Article 45-A should only be required in cases where economic operators want to avail themselves of the legal presumptions of transport of the goods. In situations where this legal presumption cannot apply (e.g., where the majority of the transport documentation is issued by related parties), it will continue to be the economic operator who will have to show, through all the means established in the law, that the conditions for the VAT exemption to apply are met, particularly that the goods were transported from the member state.

Diogo Ortigão Ramos

T: +351 21 355 38 00


Mário Silva Costa

T: +351 21 355 38 00


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