By by Ulrika Lomas, Tax-News.com, Brussels 13 April, 2018
The Finnish Government has proposed that parliament terminate the 1970 double tax agreement between Finland and Portugal so that Finland can tax the pensions of retired Finnish expats.
Portugal currently grants 10-year tax holidays to foreign pensioners who meet certain criteria – an incentive that has lured retired expats from all over Europe, including Finland.
However, this issue is a particularly sensitive one in Finland because a number of wealthy Finns have allegedly taken up residence in Portugal to substantially reduce their exposure to tax on their pensions.
As things stand, the tax agreement restricts Finland to taxing the pension income of Finnish expats in Portugal to only those who were formerly employed in the public sector.
A revision to the 1970 tax treaty was signed in November 2016, and this, according to the Finnish Government, will provide Finland with “more opportunities” to tax the income of Finns residing in Portugal. The revised treaty is set to apply from 2019 provided that both countries notify their ratification of the treaty no later than 30 days before the end of 2018. However, while the revised treaty was approved in Finland in December 2016, the Portuguese Government has yet to put the revised text before parliament.
The Finnish Government has proposed that the 1970 agreement be terminated effective from the beginning of 2019. However, parliament must approve the request before June 30, 2018, for this measure to apply.
A treaty void would remove the restrictions preventing Finland from taxing the pensions of overseas Finns.
Finance Minister Petteri Orpo commented that: “The Finnish-Portuguese tax treaty does not currently reflect the idea of fair taxation of pensions, which is why the Council of Ministers proposes termination of the agreement from the beginning of 2019.”