Finland has torn up its tax treaty with Portugal, stripping expatriate Finnish pensioners of their tax free status.The tax agreement prevented a Finnish citizen from being taxed twice on the same income but ran into trouble when Finland realised its pensioners living in Portugal were not being taxed at all.
“Finland has had it up to here with this issue,” said MP Olavi Ala-Nissilä in parliament on Wednesday.
“The main objective of both the government and the legislative proposal is that Finland will terminate the tax agreement, putting an end to the tax exemptions of certain well-off pensioners (living in Portugal).”
Finland's Finance Committee previously had expressed its unanimous support for the exceptional proposal and MPs voted to scrap the tax treaty that was signed in 1970 and has been in force since 1971.
The treaty sought to avoid situations where a Finn can be taxed twice on the same income but the problem arose when this agreement conflicted with the launch in Portugal, almost ten years ago, of a scheme which allows pensioners from other countries not to pay IRS in Portugal.
Finnish pressure on the Portuguese government begun in April this year when Helsinki insisted that a new bilateral agreement be signed, to prevent those Finnish citizens living in Portugal from paying local income tax – at a zero tax rate.
In 2017, there were precisely 500 Finnish pensioners living in Portugal, attracted by the zero tax rate on their pensions.
