Tuesday , October 26 2021

Treasury will "analyze" what? Revolut is not a deposit account. By law, it does not have to be filed with the IRS – Observer


Tax Authority issued the alarm. Experts have cautioned. Then the Secretary of State said he would analyze. After all, does Revolut have to be on the IRS? What about N26 or Paypal?

Chronology of great confusion (which still has no end in sight). The Tax Authority issued the alarm, on Wednesday night, telling the Diário de Notícias that "the existence of an account in Revolut should be declared" in the IRS. Some experts recommended that the warning be taken seriously, including several, heard by the Observer and other newspapers, who On thursday that the best way was to communicate the IBAN to the tax authorities – even if it meant correcting declarations already sent. Already on Friday morning, in statements to Eco (and, later, in a statement to the newsrooms), the State Department of Tax Affairs requested time to "analyze" the matter. After all, Revolut and N26 have to be reported in an IRS attachment? The law says that, at least in the case of Revolut, it definitely does not.

According to the note sent by the Tax Authority on Friday, the agency "is analyzing the specific issue of Revolut and other similar platforms in order to clarify taxpayers whether the amounts they have transferred should be declared or not." That same day, the Secretary of State for Tax Affairs, António Mendonça Mendes, told the newspaper Eco that taxpayers with accounts at Revolut or other digital services, such as the N26, should wait a few more days until a "clear explanation" – thus moving away from the clarity with which the position forwarded by the Finances to Diário de Notícias had been transmitted.

But what, then, does the Tax Authority have to "analyze"? The Observer spoke with a few other experts on this subject and, in Bernardo Correia Barradas, counsel and consultant to the World Bank (in the Payment Systems Development Group), this "clarification" is perfectly "unnecessary" for one simple reason: the said accounts in Revolut are not deposit accounts (or securities) in a credit institution but rather payment accounts or electronic money – and for those the law does not provide for any statement to Finance.

"There is no legal or regulatory void in relation to Revolut or the accounts that the Portuguese have with this institution, or similar institutions," says the lawyer, adding that "this matter has been duly dealt with in Portuguese legislation since October 2009 , that is, for almost a decade …".

Contacted by the Observer, official source of the Ministry of Finance did not comment.

Article 63-A, paragraph 8, of the General Tax Law, provides that "the taxpayers of the IRS are obliged to mention in the corresponding income tax return existence and identification of deposit or securities accounts opened in a financial institution not resident in Portuguese territory or in a branch located outside the Portuguese territory of a resident financial institution of which they are holders, beneficiaries or who are authorized to move. "

However, the Revolut is not a bank or credit institution that collects deposits (nor is it a repository of securities, such as stocks or bonds). As Bernardo Correia Barradas says, Revolut and similar are regulated in Portugal since 2009, by the legal regime of the Payment Services and Electronic Currency. This scheme has recently been revised by the well-known new Payment Services Directive, known by the Anglo-Saxon acronym PSD2.

Revolut is, under this scheme, (not a bank, but rather) an electronic money institution, in which case an institution established in another Member State of the European Union and authorized to engage in payment services in Portugal. Both Revolut Ltd. (UK) and Revolut Payments UAB (Lithuania) are registered with the Bank of Portugal as electronic currency entities.

What is Revolut?

Revolut is a financial technology company founded four years ago and is seen as the "Amazon of banks," because it wants to revolutionize the financial system in the same way Amazon has revolutionized retail, has already reached four million users worldwide , just three months after reaching three million. In Portugal, there are already more than 130,000 people using the "app" that started to gain popularity among people who travel a lot, since it is possible to convert currencies free of charge and to make withdrawals in ATMs abroad, also without costs (until a limit, in the free version).

How it strengthens Rodrigo Rabeca Domingues, director of the department of Financial Services Tax in the consultancy PwC, "from a legal point of view, electronic money institutions can not receive deposits or other repayable funds. When I transfer to the account Revolut, what I'm doing is transferring scriptural money. What these entities do is receive scriptural money[The[The[a[acoin that we have in our bank accounts]and then 'exchange it' for electronic money. "

"The entire legal regime of electronic money accounts, such as those of Revolut, speaks of payment accounts, never deposit accounts or securities," adds the expert, noting that "receive deposits or other funds repayable from the public in order to to apply them on their own account through the granting of credit is an activity exclusively of credit institutions (Article 8 of the Legal Regime of Credit Institutions and Financial Companies), and only these entities (banks) can receive deposits.

If, as stated in the legislation governing payment services, "payment institutions can not receive deposits or other repayable funds from the public within the meaning of the RGICSF", what is the point in compelling taxpayers to declare them accounts in the IRS statement? In the opinion of these two experts, it makes no sense. When we put money into the account Revolut, "we're not making a deposit, at all. Even because it is not guaranteed by the Deposit Guarantee Fund or equivalent (in the case of the United Kingdom, the Financial Services Compensation Scheme), "He recalls. We are only putting money into the hands of others, and then, in the case of Revolut, we can convert between several currencies and also make withdrawals abroad.

And, being the subject under consideration the annual declaration of income (and not heritage, for example), there is one crucial factor: "The fact that this account is not susceptible to income subject to IRS should not be negligible – thus, at the very least, the interest of a tax authority to be informed of an account that is not likely to generate income subject to IRS, "as would be interest on deposits, stock dividends or bond coupons interest (debt securities) of companies or states.

"The legislature, when it legislated to oblige deposit accounts or bonds to be communicated, did so with the purpose of knowing the financial institutions located outside Portugal where income could be generated that would have to be taxed," adds Rodrigo Rabeca Domingues. And the fact that an IBAN number, an important element of the Tax Authority's reflection? For Bernardo Correia Barradas, this is an "absolutely irrelevant" question.

"What is important is that taxpayers are not harmed by something they were not expecting and that the tax administration itself at this stage will have to check. Those who have already delivered must also wait without any concern. Those who have not yet delivered, it is justified to expect a thorough clarification of the Tax Authority, "Secretary of State António Mendonça Mendes told Eco on Friday.

The expert emphasizes that his conclusions are only his interpretation of the legislation in force and not his "opinion on the usefulness, or even necessity, of amending the law and extending the declarative obligation provided for therein". And the legislator could do this easily – with a surgical change to Article 63a (8) of the LGT, it would suffice to add the words 'payment accounts' to legislation where, it is recalled, only accounts deposits or securities.

Sebastião Lancastre, CEO of Easypay, has an exactly the same opinion: "to me, this is either black or white – it's not gray – Revolut is neither a deposit account nor a deposit account, nor is it Easypay accounts. " "We are inventing an obligation" that the taxpayer does not have, because "in practice, I can not buy bonds, I can not make a deposit on time – I do not have the income of the account. This is a payment account – it is an account where you only charge and then you spend, "the entrepreneur jokes in the area of fintech, Remembering that "the money that goes out to Revolut is already out of my normal bank account, because the tax authorities also want me to declare [o Revolut]? "

"We have to separate the wheat from the chaff. The tax office here could have two possible interests – to evaluate if the person has incomes that he is not declaring and, on the other hand, in case of a fiscal execution, to know what accounts exist to go get something ", explains Sebastião Lancastre. "But you're not going to get me a payroll account either, so this IRS statement is no good – it's not going to fetch funds in the event of an execution, nor does it serve to tax income because it does not yield any income," he adds. .

"If I do not declare my coin holder, why do I have to declare my Revolut account?" Asks Sebastião Lancastre.

"If I do not declare my coin door, why do I have to declare my Revolut account?"

Sebastião Lancastre, CEO of Easypay

Diogo Mafra, a lawyer for CMS Rui Pena & Arnaut (who had already told the Observer about the article written on Thursday), agrees with this analysis but, in an effort to understand what will be the understanding of the Tax Authority, reiterates that what can to be concerned is a possible "understanding" that the accounts Revolut approach, "in practical terms", from a deposit account.

Because? "First of all, because, as the Bank of Portugal indicates, the characteristics of a base account (standardized deposit account) are to gather the following services: (i) opening and maintaining a current deposit account; (ii) provision of a debit card for account movement; (iii) access to the account movement through ATMs, the homebanking and branches of the credit institution; and (iv) deposits, withdrawals, payments of goods and services, direct debits and domestic intra-bank transfers. "

However, "with the exception of the differentiation (relevant from a legal and regulatory point of view) that the account is not a deposit, but a prepayment account, and that there are no branches of Revolut (which, again, is not a credit institution), from a point of view of the practical use of the service, any of the services listed are provided by Revolut and are currently accessible to 130 thousand Portuguese customers, "adds Diogo Mafra.

That is to say, knowing that the "reasoning behind the reporting obligation abroad is to ensure the transparency of the flow of funds, the prevention of money laundering and the financing of terrorism and the fight against tax evasion, from the perspective of the Tax Authority, the regulatory distinction of the type of account will not have a relevant impact being, for the purposes of the tax authority, perfectly comparable. "

In contrast to Revolut, which is registered as an electronic currency institution, the N26 has a different status: is registered with Banco de Portugal as a credit institution with its head office in an EU country (Germany). Consequently, as CCA Law Firm's lawyers say, 'when it comes to a credit institution, it should be considered from the outset that the accounts opened with the N26 are real deposits' within the meaning of the scheme – of the CCA, it is "necessary to mention [da conta N26] in the IRS statement, by the account holder ".

In the case of Paypal, another service (much older than the N26 or Revolut) that many Portuguese use, the same reasoning of the Revolut applies, albeit with some differences. The terms and conditions of Paypal make it clear that this is a "service limited to electronic money, not qualifying as a deposit or an investment." There is therefore no protection by any savings protection scheme. The legal documentation is clear when it says that "PayPal allows you to make payments to third parties and accept payments from third parties." Just this.

Pedro Simões de Oliveira, of the CCA Law Firm, says that "the Paypal case is interesting because it has a banking license in Europe (registered in Luxembourg). However, at least if we refer to the Portuguese reality, this banking license is not used, that is, the services that are provided are only payments, although it is registered with Banco de Portugal as a credit institution (in contrast to Revolut, which is electronic currency). " In other words, "For now, it does not make sense" to say that you have to declare Paypal on the IRS.

Returning to Revolut, however, being sure that the account does not give any income, may create capital gains that make sense to tax? That is, since currency trading (instant and free) is the main asset of Revolut, what happens if I use euros to buy pounds and the next day the pound shoots 20% and I go back to euro? Should this surplus value be taxed?

"Of course not," says Sebastião Lancastre, of Easypay – "this is the same as going to the bank to get pounds notes for a trip, to pay there their commissions, and then the pound goes up 20% and I go back to fetch euros , earning anything from it. Do the tax authorities understand that this is something that should be taxed? "He asks. It should be noted that Revolut has made the negotiation available in crypto-coins, such as Bitcoin, where large value fluctuations can generate high capital gains (or capital gains), but the account where crypto-coins are traded is, in Revolut, a totally separate account with different services.

It is in this context of heterogeneity in the world of financial technology (fintech), however, that there is a reflection on the part of the public authorities, in particular as regards a possible change of legislation – as the Secretary of State for Tax Affairs has admitted, moreover, for the "future". In the present, however, Bernardo Correia Barradas's understanding is that "what the State can not, or should not do, is to come to interpret norms that the State itself has produced in a way that has no correspondence in the legal text." And, says the World Bank's attorney and consultant for payments, much less "imposing on the taxpayer obligations that the law does not provide".

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