Economics, Taxation

The optimistics and the pessimistics

The optimistics and the pessimistics

The optimistics and the pessimistics

A friend of mine often says that the World is divided into two types of people: the optimistics and the pessimistics. According to him, the optimistics are who make humanity advance, but the pessimistics are who prevent this advance from leading to the precipice.

This is related to the recent news about the positive performance of the portuguese economy. Indeed, there’s no way to deny it. Official indicators confirm this. But, let’s see…

According to data recently released by INE (NSI), the economy grew by 2.8% in the first quarter of 2017, compared to the same period in the previous year, being the highest value in the last 10 years. This was mainly due to increased exports and investment, which underlines the sustainable potential of this growth.

Meanwhile, recent data on Unemployment point to a rate of 10.1%, the lowest figure since 2009. Also, insolvencies fell by 20% in the first quarter of this year. The sale of real estate has been increasing, having obtained the highest value last March (the highest growth of the last seven years). The Consumer Confidence Index is the highest since 2000. Ports have hit records in the first quarter. Tourism revenues increased 13%. The public accounts deficit stands at 2.1%, the lowest figure in the 43 years of democracy.

Does this show that everything is okay? That all the problems of the country are solved? Of course not. The data for the first quarter of 2017 are positive (surprisingly positive, even), they represent a good sign, but they do not invalidate some caution. The challenges of our economy are many, and the dangers are lurking.

Therefore, the debt. Portugal remains in the forefront of the most indebted economies, with debt weighing 130% of the GDP. This level of indebtedness places Portugal in a very sensitive position, as it underlines our dependence on the outside world, in particular on the possible fluctuations of interest rates.

We know well that without investment there is no sustained growth, and the value of it is still far below of what would be recommended. Based on the year 2000, we are currently around 34% below that year, while the Euro Zone recorded a growth of 11%, and in the U.S. we saw a rise of 22%.

The Portuguese banking system still faces difficult days, with natural reflexes in the (in)capacity of financing the economy. The poor credit of Portuguese banks is among the highest in the European Union (19.5% against 5.1% of the average in the E.U. – percentage of bad credit over total credit).

The challenges are not obvious here. Structural reforms remain to be implemented. The weight of the state in the economy is still excessive, and the high tax burden is one of the most visible and most damaging consequences of our growth. Tax unpredictability and inefficiency of justice are also two structural problems that are slow to resolve and which clearly threaten our competitiveness.

As in everything in life, virtue is in balance. This does not mean that this balance should be exactly between the two extremes (optimistic and pessimistic). I believe that, and being tendentiously optimistic, the perfect cook should contain a greater portion of optimism, with a hint of pessimism in the mix, which would certainly give the ideal realism to the final result.

Till next post!

Marco Libório

UWU Solutions CEO / Consultant / Lecturer

blog@marciliborio.me

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Actuality, Taxation

Germany and Us

Germany and Us

Germany and Us

This November I visited Germany for the first time. More specifically, I was in Berlin, having also had the opportunity to visit the Potsdam area (capital of the federal state of Brandenburg).

Travel is, from my point of view, one of the best investments that can be made. It opens us horizons, allows us to contact with other realities and other ways of being, which can only contribute to our growth as human beings, as from a personal point of view as from a professional perspective. This time the trip had a professional motivation (participation in an international congress in the field of accounting, auditing and taxation), having obviously been exploited to know a little of the great metropolis that is now Berlin.

Berlin is a city full of history, where very important events of the 20th century took place in Europe (and in the World). The Berlin Wall is certainly the biggest landmark in this city’s recent history and has had a huge impact on the lives of millions of Berliners. For those of us who, like me, did not have the opportunity to see Berlin as a divided city, it is difficult to imagine how those two different realities lived together in the same city, separated by a highly guarded wall.

I was particularly struck by the way the Germans deal with the memory of the wall. They do not try to erase it, but rather to remember at any moment that the wall existed, seeking that the present and future generations do not forget, so that they do not make the same mistakes again. For example, on the floor throughout the city, in the form of stones of the sidewalk of different color, there is the mark of where the wall was.

I highly recommend a visit to this city. But my journey was not only limited to revisiting historical events, but also to short stories that I can not resist sharing with you (I will obviously spare you the technicities discussed at the congress, because I do not want you to stop reading my articles).

Upon arrival at Tegel Airport, we drove to the hotel to take a taxi. We provide the driver with the identification of the hotel, and its address. The same informs us that the price will be approximately 45 euros, but that he can leave it for 40 euros in case he doesn’t issue the invoice. In his words, “You know how it is, that’s better for me, I have a big family, and the taxes here are very high…”.

I had the chance to take a bus tour through the city of Berlin. Among other points of interest, we visited the Museumsinsel area (Museum Island). It is an island in the middle of the River Spree, and it is so called because there are five museums (Pergamon Museum, Altes Museum, Neues Museum, Alte Nationalgalerie, Bode Museum). Some of these museums are currently under rehabilitation and expansion works. When we went through these works, the tour guide (of German nationality, therefore, at start, unsuspected) referred to them as a “disaster in terms of deadlines and budget; in addition to already having a very significant delay compared to the initially programmed, the expected cost has already been largely exceeded, being currently unknown the real total cost at the end.”

At one of the congress lunches, I had the opportunity to exchange some ideas with a German colleague, also a tax consultant. He told me that, in the context of anti-tax evasion policies, the German tax authorities had decided to go ahead with a pilot project in the city of Hamburg. This project focused on the passenger land transport sector, and consisted in the assembly of control devices of the kilometers travelled by vehicle, with the objective of crossing this information with the billing issued. In the first six months that the project was implemented, the billing declared by the economic agents targeted by this control, rose “only” 50%. At the end of this period, through a political decision of our well-known German finance minister, Wolfgang Schäuble, the project was suspended and the control equipment removed from the vehicles.

These three stories only show that, after all, Germans and us are not that different.

Till next post!

Marco Libório

UWU Solutions CEO / Consultant / Lecturer

blog@marciliborio.me

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Taxation

At sixes and sevens… in Panama

At sixes and sevens... in Panama

At sixes and sevens… in Panama

It is the theme of the moment. The ‘Panama Papers’ files represent the largest leak of information ever recorded on tax havens. The data now released have its origin in Mossack Fonseca, one of the largest law firms specialised in tax havens, which manages offshore companies and manages fortunes.

The relevance of the information now known, results from the fact that there are several important personalities whose name is involved in tax optimization schemes across Panama. At the time of this article writing, the involvement of prominent figures such as Sigmundur Davíd Gunnlaugsson, Iceland’s Prime Minister, Mauricio Macri, newly elected President of Argentina, Vladimir Putin, Russian President, Xi Jinping, President of China, King Mohammed VI (Morocco) and Salman (Saudi Arabia), Infanta Pilar de Borbón, the aunt of the King of Spain Filipe VI, Michel Platini, Lionel Messi and his father, the actor Jackie Chan, and the Spanish filmmaker Pedro Almodovar. And it seems that, more information about others involved will be released in the next few days…

Regarding Portugal, 244 companies, 255 shareholders, 23 clients and 34 beneficiaries with a portuguese mailing address are listed in the documents. So far, the name of the Portuguese businessman Idalécio de Castro Rodrigues de Oliveira, who allegedly controls 14 offshore companies, has also been announced.

At this stage of tremendous “noise”, it is important for me to separate two types of involvement, with different degrees of severity. On one hand, we will certainly have those who use these offshore companies for money laundering from unclear activity, often illegal and criminal. On the other hand, we have a broad set of stakeholders that uses these tax havens to “simply” pay less taxes. The esteemed reader of this article will tell me that both behaviours are serious, which I share. But you will certainly agree with me that the use of “offshores” for cover-up and/or financing of criminal activities will have a greater degree of seriousness.

I am particularly interested in analysing the situation of those who are looking for tax havens to objectively pay less tax on their (usually high) incomes. Are we dealing with a legal issue, or a moral problem?

So, what is a “tax haven”? This concept is usually attributed to territories and/or countries that have a very favourable tax environment in terms of taxation, which makes them naturally attractive to those who earn high incomes. The Portuguese tax legislation provides for a list (commonly referred to as “blacklist”) of tax havens, including Andorra, Bahamas, Costa Rica, the United Arab Emirates, Fiji Islands, Hong Kong, Jamaica, Maldives, Panama, Puerto Rico, Gibraltar, and the British Virgin Islands.

According to the international law, tax havens are legal. In addition, it is well known how they work, and it is also relatively easy to “set up” a business structure based in one of these territories. Obviously, these structures only become rewarding for those who have a high level

of income, for the costs normally involved in “assembling” and managing these business structures, essentially related to the associated consulting services.

In legal terms, we are generically conversant. As long as the law permits, it is effectively possible to use tax havens to pay less taxes. In moral terms, at least from my point of view, there is a specific problem. I believe that it is not morally acceptable for the “ordinary citizen” (including citizens and small and medium-sized enterprises) to be obliged to pay all their taxes, often bearing an almost suffocating tax burden (just look at the Portuguese case…), and at the same time, to have some companies and individuals enjoying the privilege of a much lower, sometimes outrageously low level of taxation, which is allowed to them in these territories which, quite often, have their main source of income in these schemes.

The ‘Panama Papers’ scandal makes it easy to see why the status quo does not change. Just see the importance of the names involved. Especially at the level of the western policymakers involved, what consequences will this involvement have for their respective democracies? Take the case of Iceland, in which the prime minister was forced to resign. What will happen in other countries?

Let’s keep an eye on the next developments, because surely many people will be at sixes and sevens to justify their involvement.

Till next post!

Marco Libório

UWU Solutions CEO / Consultant / Lecturer

blog@marciliborio.me

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Taxation

Right-Minded Person

Right-Minded Person

Right-Minded Person

Since I was little, I got used to hearing the expression “Right-Minded Person”. A “Right-Minded Person”, according to common sense and popular wisdom, is a just and proper person with those around him/her, being well regarded by the community precisely because he/she maintains an appropriate conduct to the common good of the society in which he/she is placed.

This is due to the eternal discussion about whether the State is (or isn’t) a “Right-Minded Person”. Does the State, as a fundamental “actor” in our society, act as a “Right-Minded Person” in the performance of its various functions? That is, does the State establish a fair, proper and balanced relationship with the citizens it seeks to serve?

Well, in the attempt to answer these questions, let’s focus on the main one. Effectively the state exists to serve the citizens. At least, this is what lies in the foundations of a “Constitutional State”, way in which our society is organized. In order to serve the citizens properly, it is necessary for the State to obtain revenue, which is intended to cover the expenses incurred in carrying out its activities (wages, pensions, rents, materials, fuels, installations, etc.).

In recent years, we have seen a clear improvement in the State’s ability to raise revenue. Indeed, for reasons mainly linked to the need to balance the public accounts, and resulting from the incapability to reduce public expenditure (too strict and mainly based on wages and pensions, where it is socially more sensitive to “tinkering”), it has been on the revenue side that some positive results have been achieved with regard to public accounts.

All of us have felt in recent years the various measures of “fiscal tightening”, either by raising tax rates or by a greater capacity of the Tax Authority to monitor the activity of companies, fomenting the so-called “fight against tax fraud and evasion”.

I obviously consider very important that this fight should be made, because we will have a fairer and more balanced society if we all pay the taxes we have to pay. However, I have watched some disturbing signs.

Just a few days ago I read a report about the State’s repeated non-compliance in paying (or giving back improperly paid) amounts that derive from court decisions to its detriment. In other words, in this newspaper there were several cases of companies that had won disputes against the State in court, but that this was delayed to pay, that it did not meet the deadlines provided by law, and that it often “forgot” to liquidate the interest to which it was legally obliged.

I confess, dear reader, that these stories do not astonish me. I have witnessed several of this kind over the years in which I am a business financial and tax advisor. The latter is related to the SPA (Special Payment on Account). Not wanting to bother my dear reader with tax technicalities, I will tell you quickly that the SPA consists of a CIT (Corporate Income Tax) advance that all companies in general are obliged to do annually (in two installments – March and October), from

the third calendar year of the activity, and whose amount is calculated based on the previous year’s turnover, with a minimum of 1.000 euros.

In recent months, several companies have received notifications about errors in the calculation of the 2011 and 2012 SPAs, which have resulted in less paid tax. Not being in question that these errors actually existed (in the situations I have followed, so it was), the penalty applied is completely disproportionate. I am going to share with you only one of the cases that I have been exposed to: a company made a mistake in calculating the SPA, which resulted in a value of 27.57 euros of less paid tax to the State; This error cost the company 68.25 euros of fine. By my accounts, we are talking about a penalty that represents about 248% (!!!) of the amount originally missing.

This is a representative example of what has been happening with several companies. As far as I’m concerned, I’ve seen a dozen of cases similar to this one. I would point out that the SPA is a CIT advance that companies make during the year in question, and that the amount goes into the final accounts of the CIT to be paid, made by the end of May of the following year.

Whether in the case of delays in returning or paying a certain amount as a result of a decision by a court in favour of the taxpayer, or in the situation of the SPA in which a completely disproportionate penalty is imposed, the State does not act as a “Right-Minded Person”. At least in my interpretation of this concept, which I shared with you previously.

I am not against a demanding and rigorous state. On the contrary, I consider that it will have to be, in all aspects, if we want to evolve as a society. However, it seems that we currently have a State that is too demanding with the citizen, but little or no demanding with itself.

Just as I learned early in life the concept of “Right-Minded Person”, I was also taught at a young age that “The example comes from above.” If we want to demand from others, we will first have to demand from ourselves, setting the example for others. The motto for reflection is given for the decision makers, but also for the citizens who do not conform to the current state of the State.

 

Till next post!

Marco Libório

UWU Solutions CEO / Consultant / Lecturer

blog@marcoliborio.me

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