Finland plans to terminate tax agreement with Portugal

Finland plans to terminate its taxation agreement with Portugal as an effort to stop tax exemption for Finnish pensioners living in Portugal has not made progress, the government said on Thursday.

Under the taxation agreement made in 1970, Portugal has the right to tax them or grant them tax exemption. The exemption in Portugal requires an application by the new resident. Finland had the right to tax pensions paid to government employee living in Portugal.

In 2016, Finland negotiated a new taxation agreement with Portugal, which would give Finland the right to tax all pensions paid from Finland to Finns living in Portugal. The new agreement would have affected some 200 to 300 Finnish retirees in Portugal, and with it Finland would have obtained tax revenue amounting to several millions annually.

However, the new agreement has not made progress in the Portuguese parliament.

On Thursday, the Finnish government submitted the plan to terminate the taxation agreement with Portugal to the Finnish parliament. If approved, the termination will take effect from the start of 2019.

In 2015, Finnish media revealed that several Finnish industrial executives had moved to Portugal for retirement. Their annual pensions range from 400,000 to 700,000 euros, which they are able to receive tax free.

Antero Toivainen, a governmental counsellor at the Ministry of Finance, told a Finnish language daily Helsingin Sanomat on Thursday that Finland has never before disengaged from a taxation agreement with another country. But Toivainen noted that Denmark has terminated tax agreements with both Spain and France as talks to enable Danish taxation rights failed.