COVID-19 – Economic and Social Stabilization Program: main tax measures

In brief

Council of Ministers’ decision no. 41/2020, of 4 June, published in the Official Gazette of 6 June 2020, approves the Economic and Social Stabilization Program (“Programa de Estabilização Económica e Social” or “PEES”). PEES aims to respond to the consequences of the COVID-19 pandemic. The main tax measures proposed are highlighted below.

In detail

Council of Ministers’ decision 41/2020, of 4 June, published in the Official Gazette of 6 June 2020, approves the Economic and Social Stabilization Program (“Programa de Estabilização Económica e Social” or “PEES”). PEES aims to respond to the consequences of the COVID-19 pandemic. The main tax measures proposed are highlighted below.

I – CIT

a) 2020 Payment on Account (“Pagamento por conta” or “PPC”)

The rules and payment methods of the 2020 payment on account are adjusted as follows:

• Decrease in billings of over 20% in the 1st semester of 2020 – PPC is capped up to 50%;
• Decrease in billings of over 40% in the 1st semester of 2020, along with the  tourism and food sectors - PPC is capped at 100%.

b) Autonomous taxation

Aggravated autonomous taxation rates are waived for companies that show taxable losses in 2020, having assessed taxable profits in previous tax years.

c) Taxable losses generated in 2020 and 2021

• The years of 2020 and 2021 will not be relevant for the purposes of the computation of the time limit to offset existing taxable losses at 1 January 2020;
• Extension to 10 years (as opposed to the 5 years established in the existing rule, except in case of small and medium sized companies) of the time limit to carry forward taxable losses generated in 2020 and 2021;
• The cap on taxable profit to offset taxable losses generated in 2020 and 2021 is increased to 80% (as opposed to the 70% cap established in the existing rule).

d) Restructuring of Small and Medium-sized Companies (SME’s) taking place in 2020

i. Business restructuring

It is foreseen:

• Waive on the cap concerning the use by the acquiring company of the taxable losses of the acquired companies (with reference to the assets of the companies involved in the restructuring); this measure prohibits profits distributions throughout a 3-year period;
• Waive of the State Surtax, for the same 3-year period.

ii. Acquisitions of an SME

It is foreseen the transfer of taxable losses is allowed  upon the acquisition of SME’s that are considered ‘companies in difficulty’ in 2020, ”, and respective use at the level of the acquiring entity; this measure prohibits profits distributions and requires the maintenance of jobs for a 3-year period.

e) Special investment tax credit (“Crédito Fiscal Extraordinário de Investimento” or “CFEI”)

Investment expenses made in the 2nd semester of 2020 and in the 1st semester of 2021 allow:

• A CIT credit of 20% of the total expenses incurred (capped at EUR 5 million):
• The CIT credit can be carried forward for a maximum of 5 tax years;
• The measure requires the maintenance of jobs throughout the period of the tax credit, and for a minimum of 3 years.

II – VAT – Refund to event organizers operating in the tourism sector

It is foreseen the refund of VAT deducted and included in expenses incurred in by organizers of congresses, fairs, exhibitions , seminars and similar events. The expenses concerned should relate to direct needs of the organizers related to the referred events.

III – Social Security

Further exemptions and reductions of the employer’s Social Security contributions are established. The measure implies prohibition of collective termination of jobs and profits distributions throughout the period of its effectiveness.

a) Micro and SME’s

• July 2020 – closed down  companies and companies with a decrease in billings of over 40% - exemption;
• August and September 2020 – companies with a decrease in billings equal to or higher than 40% - exemption;
• October and December 2020 – companies with a decrease in billings equal to or higher than 40% - reduction by 50%;

b) Large companies

• July 2020 – closed down companies and companies with a decrease in billings of over 40% - exemption;
• August and September 2020 – companies with a decrease in billings equal to or higher than 40% - reduction by 50%;
• October and December 2020 – companies with decrease in billings equal to or higher than 40% - no reduction available.

IV – Additional solidarity tax for the banking sector

An additional solidarity tax for the banking sector will be created, amounting to 0.02 pp.

It shall be owed by:

• Credit institutions with head office and place of effective management in the Portuguese territory;
• Subsidiaries in Portugal of credit institutions whose head office and place of effective management are not located in the Portuguese territory;
• Branches in Portugal of credit institutions whose head office and place of effective management are located outside the Portuguese territory.

V – Simplification measures

Several measures are foreseen, such as:

a) SIMPLEX SOS – simplifications of public administration procedures,  such as the simplification of notifications, of the calculation of deadlines, of the issuance of opinions, as well as the facilitating of the use of digital means for notifications and establishing contact;

b) Transitional regime for the reduction of court fees, aiming at increasing the number of concluded proceedings by means of settlement, agreement or withdrawal;

c) Increasing the efficiency of the administrative and tax courts by means of specialisation; expediting and allowing for greater transparency in court cases through the increased use of electronic means.

VI – Payment in instalments of tax and Social Security debts

Insolvent companies or those either with an approved business recovery plan (“Processo Especial de Revitalização” or “PER”) or under the extra judicial procedure for companies’ recovery (“Regime Extrajudicial de Recuperação de Empresas” or “RERE”), that are effectively compliant with those plans, are granted the following benefits:

• Existing recovery plans may include tax and Social Security debts which relative taxable event occurred from 9 March to 30 June 2020; these debts are subject to the same requirements as the existing plans, no additional guarantees and required, and the respective payment can me made in up to the maximum number of instalments agreed upon in the existing recovery plan;
• In case the existing instalment plan ceases before 30 December 2020, the number of instalments applicable to the new debts can be extended until the end of the referred date.

^{© 2020 PwC. This communication is of an informative nature and intended for general purposes only. It does not address any particular person or entity nor does it relate to any specific situation or circumstance. PricewaterhouseCoopers Tax Services TLS, Lda. We will not accept any responsibility arising from reliance on information hereby transmitted, which is not intended to be a substitute for specific professional business advice.}