The benefit of tax transparency in Portugal

Tax transparency is a concept that has gained relevance in the Portuguese tax landscape, especially with regard to the management and taxation of companies. This regime, which is mandatory for certain entities, promotes greater clarity and tax fairness by allowing profits to be taxed directly to the shareholders, rather than to the collective entity.

• Definition and Objectives

Tax transparency, as regulated by Article 6 of the Corporate Income Tax Code (CIRC), implies the partial disregard of the legal personality of entities for taxation purposes. This means that the taxable profit is calculated in the legal sphere of the entities, but the taxation occurs directly on the partners, either in terms of Personal Income Tax (IRS) or IRC, as applicable.

This regime was introduced in Portugal in 1989 with the aim of achieving three main objectives: to promote fiscal neutrality, to combat tax evasion and to eliminate economic double taxation of distributed profits.

• How the Benefit Works

In the tax transparency regime, the companies covered are not taxed under IRC, except with regard to autonomous taxation. The taxable amount calculated is imputed to the partners, who will be taxed under IRS or IRC, depending on whether they are natural or legal persons.

This regime applies to civil companies not incorporated in a commercial form, professional partnerships, among others, and has as one of its main effects the elimination of economic double taxation, since profits are taxed only once, in the sphere of the partners.

• Advantages and Disadvantages

The advantages of this regime include its ability to create a fairer and more transparent tax system, where profits are taxed directly and personally. In addition, it contributes to the prevention of tax evasion by ensuring that all profits are properly reported and taxed.

On the other hand, tax transparency can bring additional complexity when it comes to administering and complying with tax obligations, requiring organized accounting and the submission of multiple tax returns.

• Conclusion

Tax transparency is a regime that reflects the search for a more equitable and clear tax system in Portugal. By imputing the taxation of profits directly to the partners, double taxation is avoided and tax neutrality is promoted. This regime is an example of how legislation can adapt to offer a fairer and more competitive business environment.

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