Tax Controversy 2023 Comparisons

The number of tax disputes in Macau has historically been low. This has changed significantly since 2014, due to the tax authority’s increase of audits which ultimately led to an increase in tax controversies and litigation. Most tax controversies arise as a result of tax reassessments and tax assessments following tax audits.

Recent disputes relating to tax matters mostly relate to stamp duty, complementary income tax (“profits tax”), tourism tax and motor vehicle import tax. The most relevant stamp duty disputes relate to whether certain documents and transactions should be subject to stamp duty, including transactions involving real estate property, lease agreements, grant of use agreements relating to the use of retail spaces in shopping centres and the adjudication on auctions. The range in value of these disputes is very wide, in accordance with the tax base. For example, each stamp duty dispute involving grant of use contracts and real estate property transfers can reach tens of millions of patacas, whereas tourism tax and complementary income tax disputes may involve, each, a few million per year.

There are few legal mechanisms currently available to prevent tax controversies. For example, it is not currently possible to seek tax agreements or binding opinions from the tax authority in relation to tax issues. One of the possibilities available to prevent tax disputes is to consult with the tax authority on their views, both in relation to specific transactions and with the interpretation of tax laws.

Although there is currently no specific tax procedure to request the tax authority’s opinion on tax issues, the tax authority is, under the principles of co-operation, good faith and decisions applicable to administration in general, obliged to provide information, namely on tax matters, to private individuals and corporations. As such, taxpayers may always seek, both verbally and in writing, the tax authority’s opinion on specific tax queries they may have. The Macau tax authority is usually responsive and co-operative in replying to such queries, although, in more complex issues, such replies may take time (usually two to three months).

The legislative process for approval of a tax code is currently ongoing (the “new tax code”). Under the initial draft of the new tax code, the above principles are densified in several legal provisions to establish the tax authority’s duty to provide written, clear, detailed and complete information in relation to any tax issues, including the interpretation of tax laws and the status of their tax affairs, as well as legal recourse mechanisms in case the latter fails to comply with such duties.

Although the information obtained from the tax authority will not be binding, if provided in writing it will exempt taxpayers from any liability resulting from non-compliance with their ancillary tax obligations (but not exempt them from payment of any tax due). Under the draft bill to the new tax code, transfer pricing agreements may also be previously requested and agreed with the tax authority, in which case they will be binding and limit the ability to make corrections to the taxable income.

In 2019, the Macau Legislative Assembly amended the Complementary Income Tax Law (CTL) to implement OECD’s Action 13 on Base Erosion and Profit Shifting (BEPS Action 13) to define and impose on large multinational enterprises (MNEs) based in the Macau SAR to prepare a country-by-country (CbC) report with aggregate data on the global allocation of income, profit, taxes paid and economic activity among tax jurisdictions in which it operates. Only final mother entities of MNEs with a total income exceeding MOP7 billion (approximately USD866 million), according to their consolidated financial statements, are required to comply with such disclosure obligations.

Consistently, in 2020, new accounting standards were approved, which included IFRS 10, establishing, for the first time, the obligation for certain entities to prepare consolidated accounts. The new accounting standards became mandatory from the financial year of 2022 onwards, except for final mother entities, in relation to which the standards became applicable to their 2019 accounts onwards. As only a few entities based in Macau qualify under these requirements, no increase to tax controversies associated with these changes is yet recorded.

In 2017 Law 5/2017 was approved, establishing the general legal framework for the exchange of tax information with other regional and international tax jurisdictions. Together with the amendments to the CTL, they form the legal framework for cross-border exchange of information and co-operation between tax jurisdictions. This system provides for:

• the exchange of information on request of a foreign tax authority;
• spontaneous exchange of information; and
• automatic exchange of information for certain entities, which include foreign tax residents, multinationals based in Macau and other individuals and entities defined in international treaties.

As a result, since 2019 the use of cross-border information exchange and mutual assistance among tax authorities has risen, which had an impact on tax audits and exchange of information. Such an impact is expected to translate into an increase of disputes in the short term.

Additional tax assessments may be disputed by administrative and judicial claims. The legal recourse mechanisms to dispute the tax assessments are not uniformised and are scattered throughout the tax laws applicable to each type of tax. As a matter of principle, taxpayers will have to use two routes to dispute additional tax assessments:

• administrative review, which includes a review application to the same body that has issued the decision and a hierarchical appeal; and
• judicial review.

Also, as a matter of principle, taxpayers will have to follow the administrative review process before they can submit the case to court. The administrative review process usually suspends the enforcement of the decision, whereas the judicial review does not. As such, in case the taxpayer does not pay the additional tax due during the judicial process stage, the tax debt may be enforced directly by the tax authority under tax enforcement proceedings. Should the taxpayer wish to avoid any foreclosure of its assets, it will have to pay the tax (which shall be refunded if the assessment is annulled by the court) or provide a bond during the tax enforcement proceedings.

For those taxes which require taxpayers to submit tax statements declaring the taxable events, both administrative and criminal penalties may be applicable if taxpayers do not declare their taxable income in a timely and accurate manner. Such penalties, however, vary significantly depending on the type of statement, the tax involved and the fault of the taxpayer. Failing to pay the tax due following a tax assessment may imply penalties and interests, which, again, depend on the type of tax involved. For example, failure to pay stamp duty tax following an additional tax assessment may imply the payment of a fine that can reach three times the amount of tax due, whereas for other stamp duty tax obligations, the fine can go up as much as ten times the amount of the tax due.

The Macau tax system is fundamentally based on the taxpayer’s self-assessment or, in certain cases, on its assessment and withholding by other tax subjects. As such, the tax authority’s audits are mostly focused on the taxpayer’s tax statements (or lack thereof).

Tax audits are commonly triggered due to inconsistencies in the taxpayers’ statements, either intrinsic or when cross-examined with other taxpayers’ statements. Although the tax administration is subject to a duty of legality and, as such, to pursue all indications of tax evasion or irregularities, tax audits may also be randomly determined based on a predetermined policy. Most tax audits are focused on specific issues or transactions which are previously detected or queried by the tax authority, as opposed to a full inspection.

Despite the plethora of statutes resulting from each tax law applicable to each type of tax including their own rules regarding tax audits, such rules are quite standardised. The tax authority’s audit rights include the right to request any information and documents from taxpayers and from other government departments, as well as the right to inspect taxpayers and other tax subject’s books.

The 2020 reform to the stamp duty law has significantly expanded the tax authority’s audit powers regarding stamp duty. Under the revised stamp duty law, the tax authority may have access to any commercial and industrial establishments, shops, warehouses, financial institutions, auction houses, clubs and government premises to conduct audit inspections, including, if necessary, by requesting police authorities’ assistance in case of refusal or resistance. In relation to stamp duty, the tax authority may also request information from any third parties, and certain entities traditionally subject to professional privilege duties (such as lawyers, accountants, insurers and financial institutions) are excluded from such duty and required to provide any information relating to payment of stamp duty.

Depending on the type of tax involved, certain government departments and other public officials (such as notaries, registrars, and the land and public works department) have the duty to regularly report to the tax authority certain events which may be relevant to verify the tax statements and inspect compliance with the taxpayers’ obligations.

Tax audits should be concluded within a maximum period of 90 days. Such a deadline may be extended for an additional period of 90 days based on the complexity of the issues or the need to involve other public or private entities in the audit. Failure to comply with such time limits, however, does not have any implications on the audit itself. Tax audits that are focused on specific issues or transactions are normally concluded within 60 days, but the duration may vary depending on the complexity of the issues involved and on the taxpayer’s co-operation and ability to provide relevant information.

Tax audits, however, do not suspend the statute of limitation period. There are statutes of limitation applicable to the right of the tax authority to assess any tax due (five years) and to the right to demand payment of the tax after its assessment (which may range from five to twenty years, depending on the type of tax involved). The commencement of such periods varies for each type of tax. As such, taxpayers and other tax subjects who are required to assess and collect taxes are normally required to keep the relevant books and information available for a period of five years.

The lapse of the statute of limitation period applicable to the tax assessment may allow the taxpayer to refuse to provide the information requested by the tax authority, provided such information is not relevant to assess the taxes relating to other financial years which have not yet fallen within the statute of limitation period. However, since 2022, if the information requested by the tax authority is based on a cross-border information request, the five-year statute of limitation period may not be used to prevent any audit or information request. 

Under the draft bill for the new tax code, it is anticipated that a report on the tax audit will be prepared within 30 days from when the audit is concluded, but there is currently no special provision setting out a different duration of the tax audit.

Tax audits may be conducted by (i) requesting information and documents to be provided and submitted by the taxpayer, or (ii) inspection of books and documents, normally at the taxpayers’ offices.

Inspection of books and documents is normally based on printed documents. As a matter of principle, the tax authority should notify the taxpayer prior to any inspection to inform them an inspection will take place. Such notification should include the date and time of the inspection and, in most cases, an indication of the documents and/or transactions to be inspected. The draft bill for the new tax code expressly provides that inspections may include testing of the software systems used in the bookkeeping of the taxpayer, which may result in a shift towards electronic data inspections.

Tax audits are, in most cases, addressed to specific issues or transactions in relation to which the tax authority has found some inconsistency or indication of irregularity. The range of matters normally involved is, therefore, wide. Taxpayers who are required to have audited accounting need to have their books organised and available at their head office. Failure to provide books and documents may result in fines and allow the tax authority to assess taxes based on presumptive methods.

Typical issues raised during tax audits are the tax deductibles, in particular costs with consultants, costs resulting from businesses carried overseas, provisions for bad debt and related parties’ transactions.

Macau is continuously improving its legal framework regarding cross-border exchange of information. In addition to the increasing number of treaties and regional agreements on the matter, Macau has enacted the general legal framework on cross-border exchange of information in 2017 (Law 5/2017), which was recently amended by Law 1/2022. The recent changes mainly concern:

• the inclusion of the non-mandatory central providence funds and private pensions under the scope of cross-border exchange of information;
• the elimination of the five-year restriction to the time period in relation to which the information could be requested; and
• the inclusion of additional penalties relating to the breach of duties relating to the automatic exchange of information.

Although it is not clear whether the topics are related, an increasing scrutiny on related party transactions, particularly transfer pricing methods, has been noted in recent years. Taxpayers have experienced some information requests based on cross-border exchange requests, but the total number of cases is likely still relatively low.

The fundamental considerations to observe in the context of a tax audit are mostly of a preventative nature: (i) proper bookkeeping, and (ii) its form and substantial consistency. During a tax audit, taxpayers are advised to clearly understand the scope and focus of the audit and to provide co-operation based on this. 

The Macau legal system provides a general right for individuals and private corporations to seek the judicial review of all decisions taken by the administration which may affect them. Naturally, this includes the taxpayer’s right to dispute the tax authority’s decisions relating to tax matters.

There is, however, no unified regime for tax disputes. The rules and procedures for taxpayers to contest and challenge the tax authorities’ decisions relating to tax matters are provided in the laws that set and regulate each tax. This makes the system quite complex and, in certain cases, inconsistent, creating a prolonged phase of administrative litigation and a de facto division in the judicial system, where both the Administrative Court (which is a court of first instance) and the Court of Second Instance serve as courts of first instance, depending on the tax and type of decision involved.

With virtually all taxes, an administrative litigation phase mandatorily precedes the judicial review. The government administration is fundamentally organised under a hierarchical structure and, as a matter of principle, an administrative decision can only be judicially challenged after the administrative process becomes definitive – ie, once the decision can no longer be further reviewed within the administration’s structure. This means that taxpayers are required to exhaust the administrative review procedures before they can finally be submitted to the courts. The administrative recourse path, however, is different depending on the type of decision taken by the tax authority.

The administrative recourse means generally available are (i) tax reviews, which are normally performed by the same entity that has issued the decision or, exceptionally, by another body which is not in a hierarchical position, and (ii) hierarchical appeals. These mechanisms may be necessary, when the law requires the taxpayer to use them prior to submitting the case to a judicial review, or optional, when the law allows taxpayers to submit any decision immediately to court.

Administrative reviews are to be submitted within 15 days from the decision being notified to the taxpayer. Hierarchical appeals may be optional or mandatory. Mandatory hierarchical appeals are to be submitted within 30 days and optional hierarchical appeals to the Chief Executive are to be submitted within two months, whereas other optional hierarchical appeals are to be submitted within 45 days.

The mandatory administrative reviews and hierarchical appeals suspend the effects of the decisions challenged, which means the tax authority will be prevented from proceeding to collect the debt before the matter is decided.

Complementary Income Tax

The review of the taxable profit assessment made by the tax department needs to first be submitted to a Review Committee (“the Complementary Tax Review Committee”). The administrative review needs to be submitted within 15 days from the decision being notified to the taxpayer and suspends the liquidation and computation of the amount of the tax due. The decision of the Complementary Tax Review Committee may then be submitted to judicial appeal to the Administrative Court. The deadline to submit the judicial appeal to the Administrative Court is 45 days.

Any other decisions relating to the assessment, liquidation, notification and penalties applicable in connection with tax matters are required to be submitted to the administrative review by the Director of the Macau Finance Department, and also to be filed within 15 days from the notification. The Director of the Macau Finance Department’s decision is then subject to an administrative hierarchical appeal to the Macau Chief Executive, whose authority is delegated to the Secretary for Economy and Finance. This hierarchical appeal needs to be submitted within two months. The decisions issued by the Chief Executive or by the Secretary for Economy and Finance may then be submitted to a judicial appeal, to be lodged with the Court of Second Instance, which, in this case, will serve as a first-instance court. The deadline for the judicial appeal is two months.

Professional Tax

Similar to the complementary tax, the review of the assessment of the taxable income subject to professional tax needs to first be submitted to a Professional Tax Review Committee. The decision of this Review Committee is subject to judicial appeal to the Administrative Court.

Also, any other decisions relating to the assessment, liquidation, notification and penalties applicable in connection with tax matters are required to be submitted to administrative review by the Director of the Macau Finance Department.

The latter’s decision is then subject to a mandatory hierarchical appeal to the Chief Executive or to the Secretary for Economy and Finance prior to being submitted to judicial review. The judicial review of the hierarchical decision issued by the Chief Executive or the Secretary for Economy and Finance belongs to the Court of Second Instance, which serves as court of first instance for such matters.

Stamp Duty Tax

The review of the officious or additional liquidation of stamp duty payable for the transfer of real estate property which is based on the dispute of the value attributed to the property is necessarily subject to administrative review by a Review Committee (the “Stamp Duty Review Committee”). The decision of the Stamp Duty Review Committee may then be subject to judicial review by the Administrative Court.

Similar to professional and complementary tax, any other decisions relating to the assessment, liquidation, notification and penalties applicable relating to stamp duty are required to be submitted to administrative review by the Director of the Macau Finance Department.

The latter’s decision is then subject to a mandatory hierarchical appeal to the Chief Executive or to the Secretary for Economy and Finance prior to being submitted to judicial review. The judicial review of the hierarchical decision issued by the Chief Executive or the Secretary for Economy and Finance belongs to the Court of Second Instance, which serves as court of first instance for such matters.

Please refer to 3.1 Administrative Claim Phase.

The Macau judicial system is composed of a three-tiered hierarchical court system, which includes the Courts of First Instance, comprehending the Judicial Based Court and the Administrative Court, the Court of Second Instance and the Court of Final Appeal. Despite the Macau judicial system Basic Law stipulating the general competence of the Administrative Court to rule on administrative, fiscal and customs matters, the Court of Second Instance serves, in many tax disputes, as a court of first instance. This is the result of a forum privilege granted to certain judicial disputes involving the decisions issued by the members of the highest bodies of the administration, which include decisions on tax matters.

Whether a decision is submitted for judicial review to the Administrative Court or to the Court of Second Instance depends on the administrative procedure, in particular, the government body that issues the final administrative decision. If such a decision is issued by the Macau Chief Executive or one of the Secretaries, the competent court to review the case as court of first instance is the Court of Second Instance. If such a final decision is issued by a lower rank court, the competent court is the Administrative Court. For example, under the Complementary Income Tax Law, the administrative decision determining the taxable income is subject to review by a Review Committee. The decision issued by the Review Committee is final and may be judicially appealed to the Administrative Court.

On the other hand, the decision issued by the Tax Bureau’s Director regarding stamp duty assessment is subject to (i) administrative review by the Director and, subsequently, (ii) mandatory hierarchical appeal to the Macau Chief Executive. From the Macau Chief Executive’s decision, the taxpayer may seek its judicial review from the Court of Second Instance.

However, if the Tax Bureau Director’s decision consists of an additional assessment or ex officio assessment relating to stamp duty applicable to the transfer of real estate property and the reason for the dispute is the valuation of the assets made by the tax administration, the assessment is subject to (i) administrative review by a Review Committee and, subsequently, (ii) judicial appeal to the Administrative Court.

The decisions issued by the tax administration may be judicially challenged once they become administratively definitive – ie, they are issued by the body that, in the administrative chain, has the final word. This entity varies depending on the type of decision involved. The legal recourse available is the judicial review (also designated as judicial appeal). Generally, taxpayers have 45 days to submit the tax authorities’ decisions to judicial review. However, when the appeal is submitted from a decision issued by the Chief Executive or by the Secretaries, the deadline is two months.

The proceedings are initiated with a statement of claim, where the taxpayer will outline the facts, legal arguments and evidence supporting its claim. This statement of claim is addressed and delivered to the competent court (either the Administrative Court or the Court of Second Instance) and should identify the decision under appeal and the government body that issued it. The taxpayer needs to be represented by a lawyer and submit and/or request all the evidence necessary to establish its claim, including documents, witnesses, and expert evidence.   

The first-instance process (which may take place at the Administrative Court or at the Court of Second Instance) is fundamentally divided into three stages, as follows.

• Pleadings – where the taxpayer submits its claim to the relevant government body and, eventually, any opposed interested parties are summoned to submit their defence.
• Evidence/trial stage – where the parties may be allowed to produce evidence which the court finds relevant to decide the case.
• Final arguments and court’s decision – in the final arguments, the taxpayer may claim additional causes for invalidation of the decision under review provided the taxpayer could only know or be aware of such causes after the decision had been issued. The taxpayer may also reduce its claim. The administrative body under appeal may also raise new objections and strike out causes in its final arguments.

When the Court of Second Instance acts as a first-instance court, the interim procedural decisions shall be taken by the judge rapporteur, whereas the judgment on the merits shall be issued by majority of a panel of three judges.   

In judicial litigation, the Public Prosecutor also participates in the proceedings as an impartial party to defend legality and may issue its opinion as to the decision to be issued by the court. After the final arguments and the Public Prosecutor’s opinion, the case is submitted to the court for a decision.

The decision issued by the court in the first instance may be appealed (please see 5.1 System for Appealing Judicial Tax Litigation). 

Most tax litigation fundamentally relies on documentary evidence. Witnesses may also be called, and expert evidence may also be requested. All evidence should be submitted to or requested by the court with the statement of claim. Although the courts are often lenient regarding the amendment of the witness roll, any subsequent changes to the evidence offered or requested may only be accepted by the court if the parties demonstrate they only became aware of relevant facts or evidence which may justify such change.

The burden of proof in civil tax litigation lies with the party that argues a fact in its favour. As such, the tax administration has the burden to prove the facts which support its decision, in particular the facts which support their tax assessment. The taxpayer has the burden to prove the facts which he/she claims to be relevant to dispute such a decision.

In criminal litigation, the burden of proof lies with the Public Prosecutor’s office, given the defendant’s presumed innocence (unless proved otherwise).

As previously discussed, all the evidence and arguments supporting the claim must be submitted with the statement of claim. Parties should choose carefully if they need witness and expert evidence and, if so, to apply for such evidence to be produced from the statement of claim.

When the administrative body that issued the decision files its defence, it is required to submit, at the same time, the administrative file which documents the administrative proceedings supporting the decision. A careful examination of such proceedings often provides additional documentary evidence or arguments to support the judicial review process.

Macau’s tax system (written and unwritten) principles are inspired by the Portuguese tax system and, as such, both scholars’ opinions and court decisions issued by the Portuguese courts are considered as reference by the Macau courts. The draft bill of the new tax code is fundamentally inspired by Portugal’s General Tax Law, which will likely increase the references to the Portuguese courts’ decisions and scholars’ opinions.

As the Macau legal system begins implementing international recommendations on matters such as exchange of information, BEPS, double taxation and taxation of profits, international guidelines and interpretations provided by OECD and any relevant jurisprudence that may be issued in comparable jurisdictions are expected to become more relevant.

The decisions issued by the courts may be appealed under ordinary or extraordinary appeals.

Ordinary appeals are allowed for all decisions, subject only to general requirements, including standing and value. The court’s decision can only be appealed if the claim value is over MOP15,000, irrespective of the decision being issued by the Administrative Court or by the Court of Second Instance as a first-instance court. The awards issued as first-instance decisions by the Court of Second Instance may be appealed to the Court of Final Appeal. However, whereas the appeal from the Administrative Court to the Court of Second Instance may dispute both factual judgement and matters of law, the appeal of the Court of Second Instance’s decision to the Court of Final Appeal can only dispute matters of law (both substantive and procedural law) or be based on the nullity of the decision under appeal.

Tax decisions can only be subject to a double judicial review. As such, the decisions issued by the Administrative Court may only be reviewed by the Court of Second Instance, whereas the decisions issued by the Court of Second Instance as first-instance decisions will only be reviewed by the Court of Final Appeal.

Extraordinary appeals are based on specific (extraordinary) circumstances and only operate if the decision cannot be subject to ordinary appeal. The extraordinary appeal mechanisms include:

• the appeal based on contradictory decisions; and
• the revision appeal.

Parties may use the appeal based on contradictory decisions in the following circumstances:

• when a decision issued by the Court of Final Appeal contradicts another decision from the same court;
• when a decision issued by the Court of Second Instance as a second-instance court contradicts another decision issued by the same court or by the Court of Final Appeal; and
• decisions issued by the Administrative Court or by the Court of Second Instance, as first-instance decisions, that cannot be appealed due to their value or that relate to conflicts of jurisdiction and competence of the court, which are contradictory to a decision issued by the Court of Second Instance or by the Court of Final Appeal.

Decisions are considered to be contradictory when they fundamentally decide the same legal issue within the same substantial legal framework. 

The revision appeal is based on very specific circumstances relating to external facts of the decision, including:

• malfeasance, concussion or corruption of the judge or any of the judges who intervened in the decision, demonstrated by a final judgment;
• falsification of a document or judicial act, of a testimony or of an expert statement, which may have determined the decision to be reviewed, which is demonstrated by a final decision issued by the court, unless the matter of falsity has been discussed in the proceeding in which the decision was rendered;
• the discovery of a document that, by itself, would be sufficient to modify the decision in a direction more favourable to the party;
• when it is shown that the summons was missing, or the summons effected is void; or
• when the decision is contrary to another that constitutes a res judicata decision for the parties, formed previously.

The tax appeal procedure is initiated with a leave for appeal submitted by the losing party. Such a submission is addressed to the same court that has issued the decision. If the leave is not granted, the appellant may submit the issue to the justice president of the court of appeal or, if the rejection is issued by the Court of Second Instance, to the collective panel.

If the leave is granted, the appellant shall have 30 days to submit the arguments of appeal. The appellees shall have 30 days to submit their arguments to counter the appeal, counted from the expiry of the appellant’s deadline. Following all the parties having submitted their arguments of appeal or expiry of their respective deadlines, the case will be submitted to the court of appeal.

In the court of appeal, the case will be distributed to a panel of three judges, with one of them being appointed the rapporteur and in charge of the procedural decisions necessary for the regular course of the proceedings, as well deciding any matters that would prevent the appeal from being trialled. If any of the parties intends to dispute any interim decision issued by the rapporteur, it shall be required to request the review of such a decision by the collective panel. The Public Prosecutor also intervenes in the appeal stage, except when the Prosecutor is the appellant or is representing the appellee.

Following the Public Prosecutor’s opinion, the case is submitted to the rapporteur, who shall prepare a proposal for decision, which shall be discussed and voted on by the panel. If the decision of the majority is different from that proposed by the rapporteur, another justice will be appointed to prepare the draft decision accordingly.

After the vote, the decision will be issued and notified to the parties. Although the decision issued by the court of appeal may not be subject to further ordinary appeal, the parties may still claim to the same court against any irregularities, obscurities or the nullity of the decision based on, for example, contradictions or omission to decide matters which formed part of the appeal.

The decision issued by the Administrative Court is issued by a single judge, whereas the decisions issued by the Court of Second Instance and by the Court of Final Appeal are collective decisions, issued by three justices. Neither court has any specialised section or justice for tax matters, which obviously has an impact on the judicial system’s efficiency.

Arbitration is not available for tax disputes under Macau law.

Due to the administration’s duty to act strictly according to law, the tax authorities are not allowed to enter any settlements or contractual arrangements regarding tax matters. However, as noted before, under the draft bill for the new tax code, the tax authority may be allowed to enter into transfer pricing agreements, subject to certain requirements and conditions which will be set by a Macau Chief Executive order (which has not yet been announced). 

Tax controversies may not be settled by ADR mechanisms and no agreements can be reached to reduce tax assessments, interests or penalties.

Please refer to the answer provided under 1.3 Avoidance of Tax Controversies.

This is not applicable for this jurisdiction.

This is not applicable for this jurisdiction.

Macau’s tax system fundamentally relies on the taxpayer’s obligations to self-assess and declare the relevant taxable events. Failure to comply or defective compliance with such obligations may result in administrative infringements and in additional tax assessments.

Tax infringements are typically administrative infringements which are subject to the payment of an administrative fine. The law usually defines a range which includes a maximum and minimum amount payable as a fine. Such penalties, however, can only be applied based on the taxpayer’s fault. Additional tax assessments may result from events which are attributable to the taxpayer’s fault or not.

Whenever the additional assessment results from irregularities caused by the taxpayer, such as failure to declare any taxable event or any misrepresentations in tax statements, a fine may apply. Such a fine may be higher if such actions are intentional and will be lower if the failure is due to negligence.

There are, however, circumstances where additional tax assessments may take place without any fault being attributable to the taxpayer, such as when the additional tax assessment results from a re-evaluation of the property being transferred, errors and mistakes by the tax authority, or when the taxpayer’s failure is based on information provided by the tax administration.

Practically all tax laws provide that any administrative liability that may be established does not prejudice any criminal liability that may apply to the case. Although such provisions may be construed to the effect that both administrative and criminal penalties may be applied to the same case, the matter needs further determination by the courts; in particular, whether such result would be permitted under the ne bis in idem principle.

An administrative infringement process may be initiated whenever the tax authority finds any indication that the taxpayer has committed an administrative infringement. Where the tax authority finds any indication that a criminal offence may have been committed, it may report any evidence it may have in that respect to the Public Prosecutor for investigation.

There are few specific criminal tax offences and, as such, in most cases, the potential criminal implications relating to tax offences relate to document fraud, which is an intentional offence – ie, it can only be punished if committed intentionally. It is not common for tax infringement investigations to evolve into criminal cases, unless there is strong evidence of an intentional misrepresentation in a tax statement or a documents fraud.

The administrative infringement process is entirely processed by the tax authority. The tax authority will investigate, charge and apply any fines resulting from the taxpayers’ infringements. The decisions issued by the tax authority in that respect may be challenged to the Administrative Court.

Criminal proceedings are divided into three stages (i) the investigation stage; (ii) the pre-trial stage; and (iii) the trial stage.

The investigation stage is directed by the Public Prosecutor, which will investigate the relevant facts. Upon concluding the investigation, the Public Prosecutor may produce an indictment, if it finds sufficient evidence to do so, or archive the investigation. In case the Prosecutor decides to produce an indictment, the defendant may request such a decision to be reviewed by a pre-trial court, or simply let the matter go for trial.

During the pre-trial stage, the pre-trial court will review the Public Prosecutor’s decision and decide on whether the case should be submitted to trial.

If the case is submitted to trial, a criminal court (which may be composed of one or three judges, depending on the type of crime and the penalties applicable), will issue a judgment on whether any criminal offence may have been committed. Both the judge(s) and the Public Prosecutor that participate in the case cannot have had any prior contact with the case.

Generally, the voluntary submission of the taxable events determines a special reduction of the fines applicable.

The possibility for the Public Prosecutor to enter into any agreements in relation to criminal offences is very limited. In the event the criminal offence is punishable with imprisonment up to three years or only with a fine, the Public Prosecutor may agree to suspend the criminal proceedings for a period up to two years, subject to certain requirements, and to the defendant complying with certain injunctive measures, which may include payment of the taxes and other amounts due. In case the defendant complies with the obligations imposed, the case shall be archived and cannot be reopened. Although this mechanism is widely available, the Public Prosecutor is usually very reluctant to use it.

The decisions of the criminal court are subject to appeal to the Court of Second Instance. The appeal may be filed by the defendant if they are convicted, or by the Public Prosecutor if the defendant is acquitted.

The possibility to appeal from the Court of Second Instance’s decision to the Court of Final Appeal is limited to criminal offences punishable with imprisonment over eight years.

Corrections made by the tax authority to the taxable base and disputes in that respect are frequent. As previously discussed, transfer pricing awareness is developing, and new rules will be enacted soon. We are not aware, however, of any disputes having evolved into tax infringements or criminal investigations.

Although Macau Law 2/2003 provides the Macau Chief Executive the authority to adopt any necessary measures to avoid double taxation situations, in practical terms the mechanisms available are international and regional tax treaties. Macau has currently entered into seven double taxation agreements with other jurisdictions, including Mainland China, Hong Kong and Portugal.

Disputes are usually resolved under the mutual agreement procedures provided under the treaties or, in certain cases, through administrative litigation. We are not aware of any situations involving judicial litigation.

There are currently no relevant court decisions that may be used as reference in this respect.

No information is currently available on challenges to international transfer adjustments of Macau courts or any other mechanisms.

Please refer to 1.3 Avoidance of Tax Controversies and 7.8 Rules Challenging Transactions and Operations in This Jurisdiction.

Although the awareness and inspection activity by the tax authority relating to cross-border transactions is noticeably increasing, there is no current record of litigation in this regard.

This is not applicable in this jurisdiction as Macau SAR is not an EU member state.

This is not applicable in this jurisdiction as Macau SAR is not an EU member state.

This is not applicable in this jurisdiction as Macau SAR is not an EU member state.

This is not applicable in this jurisdiction as Macau SAR is not an EU member state.

Macau is currently not a party to the MLI. In any event, the DTTs entered into by Macau do not include arbitration clauses. The reason for this is the view that taxation is a matter of strict legality which does not allow any room for discretion by the administration and, as such, does not qualify for arbitration.

Please refer to 10.1 Application of Part VI of the Multilateral Instrument (MLI) to Covered Tax Agreements (CTAs).

Please refer to 10.1 Application of Part VI of the Multilateral Instrument (MLI) to Covered Tax Agreements (CTAs).

Please refer to 10.1 Application of Part VI of the Multilateral Instrument (MLI) to Covered Tax Agreements (CTAs).

Please refer to 10.1 Application of Part VI of the Multilateral Instrument (MLI) to Covered Tax Agreements (CTAs).

The Macau tax authorities have publicly mentioned further consideration is required regarding the implications and impact of Pillars One and Two in the Macau economy, as well as its consistency with the low taxation principle on income taxes currently enshrined in the Macau Basic Law. In any event, it is unclear whether such implementation would have any relevant practical impact on any multinational enterprises with activity in Macau.

Please refer to 10.1 Application of Part VI of the Multilateral Instrument (MLI) to Covered Tax Agreements (CTAs).

Please refer to 10.1 Application of Part VI of the Multilateral Instrument (MLI) to Covered Tax Agreements (CTAs).

Please refer to 10.1 Application of Part VI of the Multilateral Instrument (MLI) to Covered Tax Agreements (CTAs).

The administrative ligation process does not involve, as a matter of principle, any fees. Exceptions include the request for review of the taxable income to the Complementary Income Tax Review Committee – in case of rejection, the Review Committee may apply fees up to 5% of the tax due, and the request for review of the evaluation of real estate property to the Stamp Duty Review Committee, which may apply administrative fees of 5% of the tax due where the difference between the final evaluation and the initial valuation is less than 5%.

Court fees are due both in the first instance and in the appeal instance. The court fees in the first instance may range from MOP910 to MOP27,300 for the Administrative Court. If the case is submitted to the Court of Second Instance as a first-instance court, the fees may range from MOP1,365 to MOP36,400. Fees may be added for procedural incidents and costs for expenses incurred with witnesses, experts and mail.

Advance fee payments are required upon commencement of the proceedings, in the amount of MOP910 for the Administrative Court and MOP1,365 when the case is submitted to the Court of Second Instance as a first-instance court. Advances on account of expenses may be requested if the court is to incur costs relating to witnesses and experts. The final amount of fees will be determined by the judge, upon issuing their decision, based on the complexity of the matter and activity of the court.

Taxpayers may request payment of interest for any taxes paid in excess of the amount of tax due.

This is not applicable for this jurisdiction.

Complete statistics are not available. As previously discussed, the judicial competence to resolve tax cases as a first-instance court is, in practical terms, divided between the Administrative Court and the Court of Second Instance. The Court of Second Instance does not provide individual statistics on tax disputes. As of May 2022, the number of pending tax cases in the Administrative Court is nine (including five judicial reviews and four tax enforcement proceedings).

Statistics relating to the different types of taxes are not available.

Statistics relating to the different types of taxes are not available.

The best approach to tax controversies is always to prevent any disputes with the tax authority (please refer to the answer provided in 1.3 Avoidance of Tax Controversies). Taxpayers should always seek tax advice and have organised and well-kept bookkeeping. Taxpayers should also be precise and clear when providing any information to the tax authority, focusing on the substance of the relevant issues and avoiding unnecessary queries or misunderstandings which may increase the complexity of the matters involved.