Beware of automatic information transfer
In accordance with Directive 2011/16/EU regarding the mandatory automatic exchange of information in tax matters, the exchange of information between the Portuguese and French authorities may take place at the request of either authority.
What is information exchange?
To strengthen cooperation among tax authorities, approximately 100 countries, including France, have committed to automatically exchanging information on financial accounts held by nonresidents.
This provision has been incorporated into French national law and took effect in France as of January 1, 2016.
Under what circumstances does the automatic exchange of information not take place?
Automatic information exchange between tax authorities will not take place as long as you do not receive any income in Portugal. Please note, however, that if you purchase real estate in Portugal, this information will be automatically reported to the French tax authorities.
To avoid incurring bank transfer fees, real estate in Portugal must be purchased through a company incorporated under Portuguese law; in that case, no bank transfer will take place.
Please note, however, that the tax authorities Portuguese may voluntarily provide information they deem useful to the French tax authorities under certain conditions. Furthermore, with regard to the exchange of information resulting from the amendments introduced by COUNCIL DIRECTIVE 2014/107/EU of December 9, 2014 («DAC2»), which amends Directive 2011/16/EU: If you hold a bank account in Portugal that you have never reported to the French tax authorities and you wish to close it during the year. Please be aware that the bank is required to notify the Portuguese tax authorities of the closure of your account; the Portuguese tax authorities will then forward this information to the tax authorities in your country.
Under what conditions can the automatic exchange of information take place for a company?
Portuguese authorities may share information about a company with the tax authorities in your country under certain conditions.
- If the company is a passive company
- Whether the executive is a tax resident of France or Belgium
What is a passive company?
Passive companies are defined as those that are not active. However, the active companies are those that meet at least one of these criteria:
– Less than 50 % of the entity’s gross revenue for the preceding calendar year or another relevant accounting period consists of passive income, and less than 50 % of the assets held by theentity during the preceding calendar year or another relevant accounting period are assets that generate or are held to generate passive income;
– the company’s shares are regularly traded on a regulated stock exchange;
– the entity is a public enterprise, an international organization, a central bank, or an entity wholly owned % by one or more of the aforementioned entities;
– the company’s activities consist primarily of holding (in whole or in part) the shares issued by one or more subsidiaries whose activities are not those of a financial institution, or of providing financing or services to those subsidiaries; ;
– the entity is not yet engaged in any business activities and has never been engaged in any such activities in the past, but is investing capital in assets with a view to engaging in a business other than that of a financial institution;
As you can see, since the implementation of automatic information exchange, it is no longer possible to conceal income from the tax authorities in your country of tax residence. Such concealment is considered tax fraud and is punishable by criminal penalties.
