Like many EU countries, Portugal faces a rapidly evolving global economic and environmental landscape, yet the country’s current taxation system stands at a crucial crossroads. Therefore, from green tax policies to the role of artificial intelligence in the Portuguese Tax and Customs Authority and the modernization of tax courts, the road ahead is paved with both complexity and potential. In this article, our team highlights some aspects surrounding the future of taxation in Portugal.
Green Taxation: Aspirations vs. Application
In line with European Union policies, Portugal’s commitment to environmental sustainability is translated into gradually intensifying the so-called green taxes. These include increased levies on fossil fuel consumption, carbon emissions, and fiscal incentives for environmentally friendly alternatives such as EVs.
But implementation doesn’t always match intent. Some environmental taxes have faced legal challenges for lacking clear, environmentally driven purposes — a notable example being the now-defunct Road Service Contribution, invalidated by the ECJ for violating European Union law; for this type of taxation to be credible and legally sound, the policy must align with purpose, ensuring that environmental objectives are not merely rhetorical but genuinely embedded in tax design.
Bridging Inequality
Perhaps the most persistent issue within Portugal’s tax system is the disparity in how large corporations and individual taxpayers are treated. Equal access to tax justice requires legal clarity and a cultural shift within the Portuguese Tax and Customs Authority. Such a cultural shift means: a more transparent, cooperative approach — providing clear and consistent information to all taxpayers — reducing unnecessary litigation and promoting a more equitable fiscal environment.
Implementing pre-litigation dispute resolution mechanisms and offering incentives to AT officials based on conflict resolution rather than revenue collection (for which they receive bonuses) could help pivot the tax authority away from a combative stance and toward a more service-oriented model.
The Role of Litigation in Taxpayer-State Relations
Tax litigation is pivotal in defining the legal relationship between the Government and taxpayers. However, litigation is not without its costs, and legal fees, interest accrual, and prolonged proceedings create barriers to justice — particularly for individuals and SMEs.
Moreover, even when the justice system consistently favours taxpayers, the Portuguese Tax and Customs Authority often continues litigating the same issues. This culture of litigation against the taxpayer undermines legal certainty. It overburdens the Portuguese judicial system, which suffers decade-long backlogs in tax courts. Institutionalizing the obligation of the Portuguese Tax and Customs Authority to comply with established case law would go a long way in reducing redundant disputes.
AI and Automation in Tax Administration
The digitization of tax processes — from automated invoice reporting to online submissions via the Finance Portal — has streamlined taxpayer compliance. Yet, while these tools reduce human error, they may also introduce new risks.
The Portuguese Tax and Customs Authority is increasing the use of artificial intelligence for case analysis, which can be a double-edged sword. While AI can enhance oversight and efficiency, its implementation must be guided by fairness and accountability, of which stakeholders have not yet been fully informed. A taxpayer-centric approach must remain the benchmark, with technology used to uncover the material truth and not simply to maximize collections converted into bonuses paid to tax officials.
The Case for Continued Reform
Tax law reform is not so much about changing laws — it’s about reconsidering governance. With Portugal gearing up for elections shortly (May 18, 2025) and policy overhauls, fiscal reform must be fact-based, answerable, and objective-driven. It also means testing the outcome of tax law reforms and correct implementation is imperative to regaining trust in the system.
Therefore, stakeholders are drawn to the conclusion that investing in the autonomy and specialization of its existing specialist courts, aided by technical specialists and adequate staff to address the growing complexity of tax litigation, is the best course for the future of taxation in Portugal.
Conclusion: Road to an Equitable, Open, and Transparent Tax System
Portugal’s tax system stands at a turning point. It has advanced along digitalization, green tax, and judiciary reform fronts — but it has much further to go. A balanced and open system requires changes in legislation and cultural transition in tax authorities’ engagement with taxpayers. By investing in the clarity of the rule of law, Portugal can build a future-proof taxation system that truly facilitates economic growth, social justice, and environmental protection.
And while Portugal transitions to the future of taxation, our team at MCS – Madeira Corporate Services is ready to assist you each step of the way of the way.
The founding of Madeira Corporate Services dates back to 1996. MCS started as a corporate service provider in the Madeira International Business Center and rapidly became a leading management company… Read more
