The Portuguese Government has adopted Law no. 24-B/2022, of 30th December, which aims to regulate the Temporary Solidarity Contribution, following and in accordance with the EU Regulation no. 2022/1854.
It so happens that the Portuguese Law took one step too far from the EU command, by foreseeing that the so called Solidarity Contribution applies not only to the energy sector, but also the food distribution one.
All the EU Member States are adopting legislation following the EU Regulation and to our knowledge, so far Portugal and Hungary are the only Member States to innovate beyond the Regulation, at least in what regards the food distribution sector. This uncoordinated action may lead to unwanted market distortions and for the detriment of Portugal.
The over taxation of the food distribution sector in these terms arises many other questions.
The reason behind the creation of a new contribution on the energy sector, while controversial since the sector is already under a heavy tax burden, is more or less adequately explained in the EU Regulation and is part of an array of other actions dully contextualized and adapted to the different types of operators within the sector. Diversely, the contribution on the food distribution sector is not. The Portuguese diploma only states that it is to “address the inflationary phenomenon”. And apart from a small mention to the Fund for the Modernisation of Commerce and to the Consumer Fund, the allocation of revenue from said contribution is vaguely explained.
This contribution aimed at the food distribution sector sets the direct message that this sector is to blame for the rise in food prices, with no data that allows for such conclusion. On 9th of March, in a press conference, the Ministry of Economy has recognized the need to dully assess where the distortion to food prices lies, whether in the production, industry, or distribution sectors. Still, the contribution on this sector was already set to go. So, the question is: was this taking advantage of the momentum to overtax a specific sector already on the radar? One thing has become evident, at the time the contribution on the distribution sector entered into force the Portuguese Government had no data on the influence that the sector had on the raise of inflation. Do we stand before the burden of prejudice?
The micro and small enterprises are in principle excluded from paying the contribution unless they belong to a group of companies for tax purposes with a turnover over € 100M, even when the taxable base for the tax assessment is individually considered. Again, there seems to be an underlying presumption that large corporations in the food industry may somehow be responsible for the inflation. And even though this could eventually be true, the casual link has not been established and substantiated anywhere. Which leads to concerns around the principle of equality. And why the distribution sector only, and not the production of raw materials or industry sectors as the distributor is at the end of the economic chain?
The contribution is levied on the excess profits earned in 2022 and 2023. There is excess profits whenever there is an increase of more than 20% in relation to the profit average of years 2018-2021. Although approved in 2023, the legislation is being applied to the FY of 2022, which may raise constitutional questions around retroactivity and protection of legitimate expectations. Questions around the ability-to-pay principle may also arise, most specially when the increase of profits may not only be explained by a pure and simple increase in pricing.
Although Portugal is known for being a country with little economic power, it is one of the most heavily taxed in the EU. Companies in Portugal pay taxes for their profits, and additional taxes, such as state surcharge, municipal surcharge, and some specifics sectors pay special contributions (energy, banking, pharmaceutical, transport and even distribution etc.). It is inevitable that investors think twice before investing in Portugal, which impacts the growth of our economy.
Such special contributions, also initially intended to last temporarily and to tackle specific purposes, have now become part of the taxation system, permanently. Thus, it’s with a special concern that entrepreneurs in Portugal are facing this new contribution.
At the very end of 2022, ExxonMobil Producing Netherlands and Mobil Erdgas-Erdöl have appealed to the General Court of the European Union (Case T-802/22) against the creation of the Temporary Solidarity Contribution on the Energy Sector on the basis, namely, of the violation of the principles of legal certainty, no retroactivity, proportionality and also on the grounds of violation of articles 16 and 17 of the Charter of Fundamental Rights of the European Union, related with the right to private property and commercial freedom.
This case is surely going to set the tone from here for all EU Member States.
Catarina Gomes Correia
March 2023