Income Tax and financial trusts - Limitation on profit deduction benefit

Decree No 1207/2008 -published in the Official Gazette on August 1, 2008- amended Section 70.2 (the “Section 70.2”) of Income Tax Regulatory Decree No 1344/1998 which established that if certain requirements were met, the accrued profits from the financial trusts were deductible from their Income Tax basis.

Decree No 1207/2008 limited the profit deduction benefit only to those financial trusts related with the construction of infrastructure works for the provision of public services, provided that similar requirements to those provided in Section 70.2, Subsections a) to d), before its amendment are fulfilled.

As stated in Section 2, Decree No 1207/2008 entered into force the day of publication in the Official Gazette. Consequently, financial trusts will have to pay Income Tax for the fiscal year 2008, including with respect to the income accrued until the date of publication of the Decree.

On the other hand, Section 10, subsection c) of the Tax on Credits and Debits Regulatory Decree No 380/2001 establishes that the accounts used exclusively for their specific activity by financial trusts, while fulfilling all the requirements under Article 70.2., are exempted.

It has been argued that, together with requirements a) and b) provided in Section 70.2, the Trust should be related to the performance of infrastructure works affected to the provision of public services in order for the exemption provided in subsection c) of Decree No 380/2001 to be applicable.