Andorra removed from Portugal’s tax haven list

Andorra was removed from the list of countries and territories that Portugal classifies as tax havens at the beginning of this year, according to an order published in the country’s state journal on the last day of 2020.

The Portuguese government’s decision came after it received a formal request from the Principality to revise its place on the list and was the subject of a positive opinion from the Tax and Customs Authority (TA) – an entity that has had to be heard in such changes since 2017.

The fact that Portugal and the Principality of Andorra have entered into an Agreement on the Exchange of Information on Tax Matters (ATI) since December 2016, and a Convention to Avoid Double Taxation and Prevent Tax Evasion (CDT), in force since April 2017, contributed to this outcome.

In responding to Lusa on the reasons for removing Andorra from the list, an official source from the Ministry of Finance also mentioned the full accession of the Principality of Andorra to the Multilateral Agreement of the Competent Authorities for the Automatic Exchange of Information on Financial Accounts, concluded under the OECD Convention on Mutual Assistance in Tax Matters, which allows for control of the movement of assets or income that constitutes an erosion of the Portuguese tax base.

The source added that Andorra is a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes and that, according to the evaluation carried out by that OECD body, it was considered largely compliant, and is also not on the European Union’s list of non-cooperative tax jurisdictions adopted by the Council, in its most recent version on 6 October 2020.

In this context, and according to the opinion issued by the Taxation and Customs Authority, in response to the formal request made by the government of the Principality of Andorra under Article 63d(3) of the LGT to review its place on that list, the criteria set out in points (b), (c) and (d) of Article 63d(3) of the LGT are no longer met. The verification of the criterion of paragraph a) [the existence of a tax equivalent to corporate income tax or, if it exists, a rate 60% lower than that practised in Portugal] of paragraph 2 of the same article is not sufficient to justify the maintenance of the Principality of Andorra in that list.

The rate of corporate income tax in Andorra is 10%, and the criterion of 60% provided for in the General Tax Law points to a rate of 12.6% taking into account the rate of 21% in force in Portugal.

With the departure of Andorra, 80 countries, territories and regions are classified by Portugal as having privileged tax regimes, clearly more favourable, and for which increased tax rates are applied in various financial movements.

According to the General Tax Law (LGT) it is up to the member of the government responsible for the finance area to approve the list of countries, territories or regions with clearly more favourable regimes, taking into account the criteria to be considered when drawing up the list.

The ministerial order published on 31 December 2020, in which Andorra is removed from the list, states that the same LGT also provides that the countries, territories or regions on the list may request the member of the government responsible for the area of finance to revise their framework in the list, on the basis, inter alia, of non-compliance with the criteria listed in the law.

In addition to the corporate income tax, the LGT indicates that the existence of special schemes or tax benefits, such as exemptions, deductions or tax credits, which are more favourable than those established in national legislation, which result in a substantial reduction in taxation, or when the rules for determining the tax base on which the income tax is levied diverge significantly from internationally accepted or practised standards, namely those of the Organisation for Economic Cooperation and Development (OECD) countries, are considered criteria for classification as a tax haven.

The existence in the country, territory or region of legislation or administrative practice that does not allow access to and effective exchange of information relevant for tax purposes, namely information of a tax, accounting, corporate, banking or other nature that identifies the respective partners or other relevant persons, the holders of income, assets or rights and the carrying out of economic operations is another of the criteria observed by Portugal when drawing up the list of tax havens.

The legislation provides for a set of anti-abuse rules and several aggravated tax rates (in IMI, IMT or IRS, for example) for operations involving entities based in tax havens.