Following public notification in December 2010, in the announcement of the State Budget Law 2011, an order has finally been published on the terms of the supplementary bank levy. Government Order 121/2011, which was issued on March 30 2011, confirms that the levy will be imposed on all credit institutions with a head office and effective place of management in Portugal, as well as Portuguese subsidiaries of foreign credit institutions and Portuguese branches of credit institutions with a head office outside the European Union. These entities are subject to a contribution that is assessed on a taxable base of:

  • their liabilities, less their own Tier 1 and 2 funds and any funds that must be allocated to the warranty deposit fund; and
  • the notional amount of off-balance-sheet derivative financial instruments, excluding hedging derivatives and back-to-back derivatives.

The rates applicable to the two elements of the taxable base are 0.05% and 0.00015%, respectively.

For this purpose, 'liabilities' are defined as the elements accounted for in the balance sheet that represent obligations to third parties, irrespective of their form or nature. However, the taxable base excludes:

  • items accounted for as equity;
  • liabilities attached to defined-benefit retirement plans;
  • provisions;
  • liabilities relating to the revaluation of financial derivatives; and
  • liabilities for assets not disqualified in securitisation operations.

The taxable base is calculated by reference to the annual average of the monthly balance of the items identified as taxable, as shown in the approved accounts for the year to which the levy relates. Responsibility for assessment resides with the taxpayer. The levy is due on June 30 and payment must be made on the same date. Payment is not deductible for corporate tax purposes.

The government has advanced two arguments to justify the additional charge: an increase in the tax burden for banking and financial activities and, following similar measures enacted in other EU countries, the need to cover the costs of such activities and their effect on society as a whole during the financial crisis.

However, it is unclear whether the order is legal, as it defines the specific items that constitute the taxable base. In legal terms, a mere government order may be insufficient to guarantee a taxpayer's legal rights against the interests of the public administration - for this purpose, a formal law is required. However, in this case and in others, Portugal's economic state of emergency has changed attitudes to these issues, and considerations surrounding the formal legality of taxation, its limits and the safeguards available to taxpayers are regarded as obstacles to be cleared.

For further information on this topic please contact Ricardo Peão or João Espanha at Espanha e Associados sociedade de advogados RL by telephone (+351 21 353 8705), fax (+351 21 314 3704) or email ([email protected] or [email protected]).