Finland is in urgent discussions with Portuguese officials to change the countries' bilateral tax treaty, or it will be torn up.
Finland’s Finance Minister Alexander Stubb is aiming to end a scheme that allows Finnish retirees living in Portugal to avoid paying income tax.
Alexander Stubb says he wants to put an end to tax dodge and if he can not renegotiate the current treaty, he will simply tear it up.
"We have two alternatives over the next few weeks; either we sign a tax agreement that is similar to the agreement we have with Spain, or we give up the old agreement we have with Portugal," the minister stated.
According to the terms of the current treaty, Finland cannot apply taxes on private sector pensions paid to Finns in Portugal.
Portugal generously allows foreign retirees resident in the country to apply for a ten-year tax holiday, which an estimated 100% do.
Finland tackled this same problem in Spain where thousands of its retirees had opted to while away their retirements. Finnish tax collectors soon will be collecting taxes on all pensions paid to Finns living in Spain.
The Spanish government has made things tighter for everyone as the government levies a 2.5% tax on worldwide assets meaning those who still have a home and assets in high asset value countries such as the UK can be hit hard.
There are two forms the Spanish authorities make expats fill in, one on which you declare your Spanish assets worth over €50,000 and another on which worldwide assets must be declared.
Finns in Portugal can expect the same occupational pension treatment as their colleagues in Spain if Stubb is able to carry through his threatened rewriting of the tax agreement.
Other EC countries’ will be watching events closely to see if they too can bring an end to the tax-free lifestyles of their retired citizens who choose to move to south to tax friendly countries.
These tax deals have encouraged people to move to places such as Spain and Portugal, to the delight of traders, estate agents and property vendors, but the inequality created by relatively well-off foreigners paying zero tax on their occupational pensions, while locals suffer high austerity rate tax levels, is causing comment.
Finland is unlikely to be the only northern country to reign in its emigrants' spending power and Stubb's successful campaign to reverse the deal with Spain may be the first of many.
