Midterm Content

Question 1

Can a charity pursue a lucrative purpose as long as it is not its main purpose?

Answer 1

It can, as it first must be able to cover its expenses, and then the leftover goes to charitable purposes.

Question 2

Taxes are based on the ability to pay, revealed under the terms of the law through what?

Answer 2

income or its use and properties

Question 3

What is the principle that applies to criminal law and more importantly, tax law?

Answer 3

Criminal law and tax law can’t have retroactive effects (the law can only be applied to the facts after the law has been published, not before).

Question 4

All changes in the tax code are contained in the

Answer 4

State budget implemented typically on the 31st december

Question 5

IRC Code states that for IRC purposes, the relevant facts that generates the obligation to pay only occurs on

Answer 5

the 31st of december, when the state budget is implemented

Question 6

What is the problem with laws passed in a point after the state budget, but they state to be applied afterwards?

Answer 6

They are not retroactive laws, and its generally unconstitutional.
However, its not unconstitutional via the IRC Code, as it depends on the proportionality (how close to the date and how high the rate changes)

Question 7

What is the application of territorial tax law in terms of country of source?

Answer 7

Tax rules apply to facts that occur in the national territory, unless there is a legal provision to the country, or without prejudice to international conventions

Question 8

If you are not a resident in portugal and you make an income (concert sales), what is the law regarding tax?

Answer 8

you are subject to taxation in that country in relation to the income obtained in that country

Question 9

What is the application of territorial tax law in terms of country of residence (resident of country)?

Answer 9

Personal taxes covers all income obtained in said country during it’s venture.

Question 10

if you are a resident in portugal and you make an income, what is the law regarding tax?

Answer 10

Income obtained anywhere (globally) is taxed under portuguese law, if you are a person with domicile, headquarters or effective management.

Question 11

A resident in portugal is legally classified as a person who… (generally)

Answer 11

resides for 183 days in the country, they have a house in portugal with intention of making it it’s primary residence, or if they are working for the portuguese state/airlines or maritime ships.

Question 12

A resident in portugal is legally classified as a person who… (in terms of relocation to other tax residences)

Answer 12

portuguese persons who relocate their tax residence to a country with clearly more favorable tax regime in the year it takes place and in the 4 subsequent years, unless person proves that relocation is due to compelling reasons (temporary work from someone who is a resident)

Question 14

What is economic double taxation?

Answer 14

the same income is subject to taxation twice in the same fiscal year but by different taxpayers (typically IRC and either IRC again after its been distributed or IRS if the partner is an individual)

Question 15

what is the problem in relation to tax law for a double resident (someone who often travels between countries and still meets the legal requirement to be a resident in both countries)

Answer 15

You are subject to taxes from both countries

Question 16

what is the more serious problem in relation to tax law for a double resident (someone who often travels between countries and still meets the legal requirement to be a resident in both countries)

Answer 16

You are taxed 100% based on your worldwide income, and taxed 100% on the income obtained in country of visit. This would mean a significant, if not all income being taxed (200% taxes on one income)
Note: this is called the worldwide taxation principle

Question 17

To solve double taxation issues you need

Answer 17

double taxation agreements, which are bilateral

Question 18

You cant be a resident in both countries in terms of taxation because…

Answer 18

The country you settle in will subject you to worldwide taxation principle

Question 19

A resident in portugal working at company A is playing on dividends to company in the UK, who

Answer 19

The country of source taxes a very low limit, and the other country

Question 20

For the IFC, who is the taxpayer?

Answer 20

Corporations

Question 21

For the IRS, who is the taxpayer?

Answer 21

Individuals

Question 22

When it comes to income tax, what is the law regarding the taxpayer in terms of the [individual], substitute and responsible?

Answer 22

The individual is the taxpayer

Question 23

When it comes to income tax, what is the law regarding the taxpayer in terms of the individual, [substitute] and responsible?

Answer 23

the company who holds the tax of the individual to pay authorities (when they pay salary, and withhold part of the salary to pay the state) or any other entity that has organised accounting or is under the obligation to have organised accounting.

Question 24

When it comes to income tax, what is the law regarding the taxpayer in terms of the individual, substitute and [responsible]?

Answer 24

The responsible person is dependent on wether its withholding or payments on account.

Question 25

What is withholding? (article 34)

Answer 25

Withholding is an advanced payment in relation to the tax due after assessments or final (a tax return wont be submitted) for non-residents

Question 26

What is payment on accounts? (article 33)

Answer 26

Payments on account is a payment made by the self employed or self employment companies, in which their income isn't withheld by companies, so they must do it themselves

Question 27

The passive subject in a tax legal relationship is...

Answer 27

the individual, substitute and the responsible

Question 28

Why is withholding not final for residents?

Question 29

If the person that is under the obligation to withhold (the substitute) executed the withholding but did not deliver to the state....

Answer 29

such person is responsible for the amounts withheld and not delivered and the substitute is released from any responsibility for their payment

Question 30

If the withholding is final

Question 31

As a punishment for not withholding taxes (art. 28), if the individual tax payer

Question 32

If the with holding has the nature of a payment on account

Question 33

Directors, managers and other persons exercising functions of admin or legal entities are secondarily liable in relation to entities and jointly and severally liable with each other for...

Answer 33

- Tax debts occurred in the exercise of its function or whose legal deadline for payment ended after this date, and it was their fault that the assets of the legal person or fiscally equivalent entity has become insufficient for its fulfillments (the state has to prove in this case) - Tax debts whose legal deadline for payment has ended during the period on which they exercised their functions, when they do not prove that the lack of payment was not their fault.

Question 34

Difference between withholding and payments

Answer 34

withholding is what employees do in relation to their taxes (paid typically by companies), payments on account is done by the self employed

Question 35

Who can withhold taxes?

Answer 35

Only individuals or companies under the obligation to have organised accounting are liable for withholding.

Question 36

How is the tax legal relationship created?

Answer 36

The occurrence of a taxable event (i.e., taxpayer buying a house, getting income under a company)

Question 37

What is tax evasion?

Answer 37

An ilegal action of not paying taxes you are liable to pay (by typically forging documents and making up costs or facts)

Question 38

What is tax avoidance?

Answer 38

You shift or place subsidiaries on different countries with different tax rates, and lend money to said countries at high interest rates to reduce profits (thus reduce amount taxed)

Question 39

What is tax planning?

Answer 39

Shifting costs as low as legally possible using efficient tax laws (choosing joint or separate tax, tax benefits in certain areas)

Question 40

What are transfer pricing rules

Answer 40

Companies need to enter deals with any business in the same group respecting the arms length principle

Question 41

What is the arms length principle?

Answer 41

A price agreed in a transaction between two related parties must be the same as the price agreed in a comparable transaction between two unrelated parties.

Question 42

Constructions executed with the main purpose of obtaining a tax advantage that frustrates the purpose of applicable laws are...

Answer 42

Not considered genuine, taking account all relevant facts, and tax is carried according to the substance or economic reality and the intended tax advantages aren't achieved.

Question 43

What are ways of extinguishing a tax legal relationship?

Answer 43

- Payment of taxes - Tax debts being barred after 8 years if not collected after it

Question 44

Non habitual residents are individuals that have...

Answer 44

- Just become tax residents in portugual (and weren't considered one the last 5 years)

Question 45

How are non-habitual residents taxed?

Answer 45

- Special rate of 20%, on the net income of categories A and B resulting from activities considered to be high added value

Question 46

When was the regime for non-habitual residents and how are its effects achieved?

Answer 46

It was revoked from Jan 1 2024 onwards, however, it still apply to non-habitual individuals who were already registered by stated date or by dec 31, 2023, met the conditions to register as non-habitual residents This framework also applies to people who become tax residents in portrtugal by december 31 2024, if they meet certain conditions.

Question 47

What are other exemptions non-habitual residents can receive?

Answer 47

They can also obtain exemption in relation to employment income and business and professional income obtained abroad

Question 48

There are reductions on the tax base in relation to what persons?

Answer 48

people younger than 35 years of age and ex-residents.

Question 49

What is employment income (Category A)?

Answer 49

All remuneration paid or made available to the taxpayer.

Question 50

What qualifies as employment income? (7)

Answer 50

- Labour contracts (or equivalent) - Contract for provision of services, executed under authority of an active subject (acquirer of services) - Function, service or public office - Early retirement - Pre-retirement - Reserve (military) - Remuneration of the member of statutory bodies (board members)

Question 52

Why is a contract for provision of services, executed under authority of an active subject (acquirer of services) considered a false green receipt? (recibos verdes falsos)?

Question 53

What is the legal concept of remunerations?

Answer 53

Wages, salaries, gratuities, percentages, commissions, stakes, subsidies, bonus, attendance fees, notary fees, percentage of fines and other forms of incidental renumeration

Question 54

What are incidental remunerations?

Question 55

What are examples of an incidental renumeration?

Question 56

If the company gives you a car for personal use (a good job position), what is the law regarding remunerations and taxation on it?

Answer 56

It is considered remunerations and you will pay taxes for it, the company will give you how much it is and you have to include it in your tax returns.

Question 57

How to calculate the amount of income related to the personal use of the vehicle

Answer 57

Annual income = -.75% of the market value* of the vehicle (on Jan 1st of the year in question)

Question 58

Is the acquisition of a vehicle by the employee or member of a corporate body for a price below market value a renumeration?

Answer 58

Only if its below market price

Question 59

What is the formula for Taxable income?

Answer 59

market value (annual amount of income taxed in connection with its use + the amount paid by the employee as the acquisition price)

Question 60

If you never use the vehicle, what component of the equation do you disregard?

Answer 60

The annual amount of income taxed in connection to its use

Question 61

What is the formula for market value?

Answer 61

Price of acquisition - (price of acquisition x depreciation coefficient/factor)

Question 62

What is the formula for the annual income?

Question 63

Meal allowance is only considered taxable income (and thus remuneration)

Answer 63

only for the amount or part that exceeds the legal limits established for civil servants (6 euros per workday, or meal vouchers up to 10,2 per workday)