New Banco de Portugal rules concerning some offshore companies

With effect from 17th September, 2009, Portuguese financial institutions and branches in Portugal have been prohibited by the Bank of Portugal from extending credit to entities in so-called tax havens considered un-cooperative or whose ultimate beneficiary is unknown.

The Bank of Portugal considers a tax haven as a jurisdiction that “aims to attract a significant volume of business with non-residents, particularly due to the existence of less stringent procedures for obtaining authorization under the banking and supervisory regime in respect of banking secrecy, tax advantages, differentiating in the law between residents and non-residents or enabling the setting up of special purpose vehicles.”

The prohibition applies to credit institutions, broker-dealers and branches in Portugal of credit institutions established abroad.

It is likely that most of the jurisdictions previously considered as tax havens in Portuguese law will still be included in this prohibition, despite the considerable tightening-up of due diligence within, and the greater level of information now being provided by entities in such jurisdictions.

As mainstream EU jurisdictions, neither the UK nor Malta are considered as tax havens by the Portuguese authorities. Neither are the various states of the United States that are also often used for special purpose vehicles.

It does however affect the mood within banking as regards lending to UK special purpose vehicles, and, to the extent that such lending continues, it is likely to involve additional formalities, such as the registration in Portugal of a lien over the property. Spreads, already wider than for “mainstream” lending to non-resident property owners, are also likely to widen for this type of “specialist” lending.

Reported by John Tranmer