As of 2017, The “Autoridade Tributária e Aduaneira” (the Portuguese tax authorities) will get access to every bank information concerning bank balance and annual interests (but only to bank balance, not to any movements done on it) of the savings residents have in Portugal and abroad. In fact, the Portuguese government approved a few days ago the final version of the diploma, which extends the range of information to be disclosed to the tax authorities by the financial institutions.

The diploma recently approved transposes international rules (to which the Portuguese government joined) to the national legislation, and its main purpose is to decrease tax evasion and fiscal fraud.

Therefore, the document is based in three essential aspects:

  • It transposes the European Directive on automatic exchange of information (CRS). According to this rule, a non-resident with a bank account in Portugal will see his/her bank balances and interests (balances above €1,000)disclosed by the Portuguese tax authorities to its counterparts from the country where the non-resident lives.
  • This rules are also applied to savings that any resident in Portugal has. Therefore, every person living in Portugal, who naturally has bank accounts in national banks, will have their balances and interests disclosed to the Portuguese tax authorities as well, as long as it surpasses the €50.000 (on the same bank).
  • The diploma regulates the conditions under which banks have to follow the FATCA (an agreement of exchange of information established with the USA), the federal law that forces financial institutions to report every account owned by people related to the USA (US persons), whose balances surpasses the €50.000 in any given bank.

Logically, the international agreements that the Portuguese government signed expect reciprocity in the exchange of information, i.e., foreign tax authorities will collect the same type of information from financial institutions and will send it to Portugal.

Concerning the option to expand the report to the savings of residents in Portugal (and this is not included in international agreements), the government says that this data is internationally regarded as important to detect “risk of evasion by taxpayers with higher revenues or greater wealth”. In contrast, this expansion makes sense for consistency reasons, since the information that the tax authorities will get access to, is the same information it must disclose to its foreign counterparts, according to the government.

Let’s go back in time and see the road we traveled until we got here.

How everything started…

Europe has a financial information exchange mechanism since 2005 (called “Savings Tax Directive”), however, it ended up not being very effective, first due to countries like Switzerland not being covered by it, and then because the data supposed to be disclosed was very limited.

With the financial crises (and the economic crisis) at the end of the last decade, the United States lead a reinforcement process to stop fiscal fraud and evasion, creating a mechanism that allows them to access every citizen’s financial information from every financial institution in the world. That’s when FATCA was created, the agreement that forces every bank in the world that joins it to send to the United States information about accounts owned by the “US persons”. In Portugal’s case, there is a bilateral agreement with the USA for the exchange of information similar to other countries.

Prompted by the USA, the OECD followed the same path, but in a global level, i.e., making every country in the world exchange that information with one another. The process had a quick development in Europe, leading the exchange of information directive to be approved in 2014.

How will it work for the “common citizen”, living in Portugal with bank accounts and investments in Portuguese banks?

All banks must send to the tax authorities every information concerning balances and interests owned by singular persons, whose annual bank balance surpasses the €50.000.

If the account belongs to a company, already created on 31 December 2015, then the bank can send only data related to accounts with a balance superior to €250.000.

And what about residents in Portugal with accounts abroad?

Every resident in Portugal who owns bank accounts abroad will see their data being disclosed to the Portuguese tax authorities by its counterparts in the countries that have joined the agreement of automatic exchange of information. This exchange of information will begin:

  • In September 2017 for every country that joined the agreement in the first phase and will include every account opened from 1st January 2016 onwards;
  • Or in September 2018 for every country that just joined the agreement on the second phase, and this time will include every account opened from 1st January 2017 onwards.
And for citizens living abroad with bank accounts in Portugal?

Every person who does not live in Portugal but has accounts or savings in Portuguese banks, will see their bank data disclosed to the tax authorities of the country where they are living. The Portuguese banks will send this information to the authority, which in turn, will send that information to the respective country.

The dates for the first disclosure will be September 2017 or September 2018.

Why it is so important to know the accounts balances?

If the tax authorities is aware of the balance on your accounts, then it will have an additional mechanism to confirm a potential income that is not being disclosed. Every taxpayer who discloses all his/her income for tax purposes won’t be affected by this new law, at least in practice. However, if someone has received a certain amount of money, has put it in a bank account but hasn’t disclosed it to the authorities, then that person may be confronted and asked to clarify the situation.

Will taxes and customs authorities have access to any movements on the accounts?

No. The tax authorities will have access only to two kinds of data: bank balance and interests on investments. The tax authorities won’t have access to the movements done on the accounts, only to the balance registered at the end of the year and respective income (interests).

But the taxes and customs authorities already had access to income from investments. What will change?

At the moment, entities that pay revenues subjected to withholding taxes (like interests and dividends) already have to send information about the revenues their clients get to the tax authorities annually. However, these entities didn’t have to say anything about the balances that their clients had on their accounts, something that has changed now. On the other hand, there’s a substantial expanding of the information made available, in which almost every account with investment characteristics, “unit-links” or safe custody accounts are included. Balances and incomes coming from trust accounts and foundations will likewise be subjected to disclosure.

Can Portugal choose not to join?

Considering the international agreements (FATCA and DAC 2) it seems like Portugal does not have much choice. In fact, if Portugal has chosen not to join the agreement, the country would be included on the “black list” where tax havens and offshore territories are.

These measures are regarded internationally as good practices to stop tax evasion and fiscal frauds, and are expected to reduce significantly the number of income concealment cases.

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