- Socialist government plans to introduce new inheritance tax
- Portuguese family businesses account for 50 percent of GDP
Portugal’s business owners are running scared of a government plan to introduce an inheritance levy, more ominously dubbed the death tax.
Peter Villax, head of the Portuguese Family Business Association in Lisbon, says several family-owned companies have transferred ownership to their children since the new Socialist government submitted a program to parliament on Nov. 27 saying it may create a tax for any “inheritance of high value” to contribute to a “fairer society.” Before the Oct. 4 election, the Socialists had proposed taxing any inheritance of more than 1 million euros ($1.1 million).
“The Portuguese Family Business Association is firmly opposed to the re-introduction of inheritance tax,” Villax, whose association has 270 members, said in an interview on Dec. 17. “Instead of nurturing businesses and driving them towards investment and job creation, the government is doing the opposite and depriving companies of badly-needed investment funds.”
Portugal’s politics took a turn to the left in November, when the Socialists joined the Left Bloc, the Communists and the Greens to oust the newly elected center-right coalition. Since then, some wealthy families have donated money to their siblings or signed up for life insurance policies to avoid a tax that was abolished more than a decade ago, according to Tiago Caiado Guerreiro, a lawyer at Caiado Guerreiro & Associados, which specializes in corporate law and taxes.
“It’s been a busy couple of weeks for me,” said Guerreiro, who’s been traveling between Lisbon and Geneva to meet with clients about the possible tax. “Some of my clients are transferring money abroad, donating their money or subscribing to life insurance plans in which the final beneficiaries are their children or grandchildren.”
Family businesses account for 50 percent of Portugal’s gross domestic product, about 60 percent of jobs, and 70 percent to 80 percent of all companies, according to the Family Business Association’s website. Some of the biggest listed companies in Portugal’s benchmark PSI 20 Index are family-controlled, including food retailers Jeronimo Martins SGPS SA and Sonae SGPS SA.
“The inheritance tax is quite common in the European Union, with only seven member states without the tax,” said Daniel Leithold, an analyst at the Ifo Center for International Institutional Comparisons and Migration Research in Munich. “But what we have seen in recent years is that countries are increasingly only applying the tax to big inheritances as opposed to inheritances of smaller values.”
U.S. vs Greece
The U.S., for example, only charges the so-called federal estate tax on property worth more than $5.43 million transferred from deceased persons to their heirs, according to the 2015 Worldwide Estate and Inheritance Tax Guide by Ernst & Young LLP. In contrast, Greece, which like Portugal and Ireland, had to request aid from the EU and the International Monetary Fund, taxes any inheritance or donation of more than 150,000 euros that’s received by an adult child following the death of a parent.
In 2014 Portugal exited its three-year bailout program, with the government of then-Prime Minister Pedro Passos Coelho having to sell assets and raise taxes on everything from wages to diesel cars. Prime Minister Antonio Costa was sworn in late last month and his minority Socialist government now plans to reverse state salary cuts and gradually increase the minimum wage. The Socialists say taxation on wage income is high.
Portugal will present its 2016 draft budget plan to the European Commission by the end of December, Finance Minister Mario Centeno said on Dec. 10. His government has set a target for a budget deficit equivalent to 3 percent of gross domestic product in 2015 and 2.8 percent in 2016.
The so-called death tax will result in job losses and drive away foreign homebuyers attracted by a series of tax exemptions in the southern European nation, said Joao Marmelo, Portugal country manager for Basel, Switzerland-based insurance and pension solutions provider Baloise Group.
“The fact is that people with money can always find a solution to avoid the inheritance tax,” Marmelo said in an interview on Dec. 12. “At the end of the day, the inheritance tax will only result in the destruction of jobs.”
While the Socialist government hasn’t provided details about the timing and possible size of the new inheritance tax, Villax estimates that as many as 150,000 jobs could be lost as a result of the levy. Villax is a vice president of pharmaceutical company Hovione Farmaciencia SA, which is based near Lisbon and is controlled by his family.
“Companies are already taxed on profits, taxed on dividends and now there’s talk of an inheritance tax,” said Villax. “It’s excessive.”