Government proposes termination of Finland-Portugal tax treaty

The Government is to propose to Parliament that the tax treaty agreed between Finland and Portugal in 1970 be terminated. The treaty’s provisions on the taxation of pensions in particular are not consistent with Finland’s current tax treaty policy. Termination of the tax treaty would make certain that its application ceases from the start of 2019.

The tax treaty for the avoidance of double taxation agreed between Finland and Portugal in 1970 is still in force. Among other things, it restricts Finland’s right to tax certain pensions received from Finland and income received from the rent or sale of residential apartments located in Finland.

Finland had for some time been seeking to revise the bilateral tax treaty, and a new treaty was in fact signed in November 2016. The provisions of this new treaty in regard to pensions and income received from the rent or sale of residential apartments are consistent with Finland’s objectives.

“The tax treaty between Finland and Portugal that is still in force is inconsistent with the notion of fairness regarding taxation of pensions. This is why the Government is proposing that the tax treaty be terminated from the start of 2019. The negotiations over the new treaty took place in a cooperative spirit, and I hope that the agreement can also be adopted by Portugal in time, so that we would have a new tax treaty in force when the old treaty is terminated,” says Minister of Finance Petteri Orpo.

New treaty not yet considered by Portugal’s parliament

The new tax treaty is to apply from the beginning of 2019, but only if it is adopted by both countries’ parliaments and each country notifies the other of the adoption. The notification must arrive no later than 30 days before the end of the 2018 calendar year.

The Portuguese Government has not yet submitted the new treaty for consideration by the country’s parliament. In Finland, the new tax treaty was adopted by both Parliament and the President of the Republic in December 2016, and Portugal has been informed of this. 

Finnish legislation will apply if Portugal does not adopt the new treaty

The aim is that the 1970 tax treaty for the avoidance of double taxation should no longer apply from the start of 2019. Termination of the treaty must be made by the end of June 2018 if the termination is to apply from the start of 2019.

If the 1970 treaty is terminated and the new treaty enters into force, the new tax treaty will apply from the start of 2019. If the 1970 treaty is terminated but the new treaty does not enter into force, Finnish legislation will apply.

In practice, this means that the 1970 tax treaty would no longer restrict Finland’s right to apply its national tax legislation. Finland could therefore tax, in accordance with Finnish national legislation, income received from Portugal by a resident of Finland and income received from Finland by a resident of Portugal.

Finland signs tax treaty with Portugal (Press release 7 November 2016)

Inquiries

Antero Toivainen, Senior Ministerial Adviser, tel. +358 2955 30098, antero.toivainen(at)vm.fi