Chapter 2 (PART 1) Flashcards
(20 cards)
Tax planning
looking at the tax law and choosing the best option (if you are married, you can choose to pay taxes separately or jointly)
Tax evasion
forging documents and committing fraud in order to avoid paying taxes
Tax avoidance
choosing a country with better taxation conditions in order to establish the company’s branches
Taxes to be paid/Reimbursed = …
Taxable amounts x Tax rates = Assessed Taxes - Deductions to the Assessed Tax
Can a non-resident Portuguese person make a trade of bigger than 10k EUROS?
No, unless they are a businessperson or trader
Principles of Taxation
Ability to pay
Purposes of Taxation
Family situation
Principle of Legality
Interpretation of tax laws
- tax laws should be based on their economic substance, meaning if someone tries to manipulate the law to avoid taxes, tax authorities can look at the economic reality of the situation
- non-retroactivity: tax laws cannot be applied retroactively, meaning they only apply to events that occur after the law is enacted
Territoriality Principle
- apply to events that occur within Portugal
- Portuguese residents are taxed on their worldwide income (must pay taxes on income earned in Portugal and abroad)
Tax Legal Relationship
Active subject: the tax authority (government entity that collects taxes)
Passive subject: the taxpayer
Tax substitution: a third party (employer) responsible for withholding taxes from income
Tax liability: in some cases, accountants or company directors can be held responsible for unpaid taxes if they fail to fulfill their obligations
Tax obligations
Main obligation: paying taxes
Ancillary obligations: submitting tax returns, providing documents, giving info to tax authorities
Payment methods
Payment on Account: taxpayers can make advance payments during the year, which are deducted from their final tax bill
Withholding tax: employers or other entities deduct taxes from income and pay them directly to the government
Formation of the tax legal relationship
- created when a taxable event occurs
- tax authorities can disregard legal formalities if they believe main purpose of a transaction is to avoid taxes
Anti-Abuse Rules
General Anti-Abuse Clause: if someone tries to manipulate the law to avoid taxes, the tax authorities can ignore the legal form and tax the actual economic reality of the situation
Substance over form: if a transaction is simulated to avoid taxes, the tax authorities will tax the real transaction
Extinction of Tax Obligations
- tax debts can be extinguished through payment, expiry, or time-barring (if debt is too old)
Tax Expiry
the tax authority has 4 years to assess taxes, or the right to do so expires
Time-Barring
tax debts are time-barred after 8 years, meaning they can no longer be collected
Tax Debt Security
- the tax authority has the right to secure tax debts by placing liens on property or other assets
- tax debts have priority over other debts, meaning the tax authority gets paid first
Bank accounts and cash payments
- businesses must have a dedicated bank account for transactions
- cash payments over 3k euros (or 10k euros for non-residents) are illegal
Displays of Wealth
- if a taxpayer shows signs of wealth (owning expensive property or vehicles) but declares low income, tax authorities can estimate based on their indicators
- the taxpayer must prove that their declared income is accurate, or the tax authorities will use the standard income table
Indirect Measurement of Taxable Income
- if tax authorities cannot determine a taxpayer’s income, they can estimate it based on evidence and assumptions
- indirect measurements is used in: simple tax regimes, when declared income is significantly lower than expected, when there are unexplained increases in wealth or expenses
