GG Thinks: The Tax Reform Fintechs Cannot Afford To Ignore

Leaders of fintechs — digital banks, payment companies, and financial services platforms — may currently struggle to understand the tax framework that applies to them. This is by no fault of their own. It is because the tax rules governing financial activity were designed in the 1970s, long before fintechs existed, at a time when no one was attempting to do anything like what fintechs do today. The consequences of this misalignment can be expensive and disruptive: unexpected tax inspections, additional tax assessments and protracted litigation.

Two developments in 2026 show that reform is imminent. In February, the European Parliament issued report 2024/2117(INI) to acknowledge what many operators had long been experiencing: the tax system applicable to the financial sector no longer reflects economic and business reality. This was a sign of political direction, but not yet of legislative commitment. Then, in July, the European Commission published its long-awaited final study, Taxation of the financial sector, confirming those pressure points and defining policy options that ranged from targeted simplification to fundamental reform of the VAT exemption regime.

The European debate on financial sector tax reform starts from a clear diagnosis: the current architecture no longer works. The VAT exemption, conceived in the technical logic of the 1970s, generates distortions, hidden costs, and economically inefficient decisions. At the same time, the proliferation of national taxes and levies tends to fragment the single market and erode its competitiveness.

Reform is urgent, and it now appears imminent, but the decisive question is whether there be a seat at the table for fintechs. The answer will have direct consequences for this new sector's business strategy, and the window to influence the outcome is now open. Any reform that does not integrate fintechs would be squandering a historic opportunity. It would likely set the stage for a new cycle of uncertainty and litigation.

A pattern we already know

The experience of taxing card-based payment transactions under Portugal's Stamp Duty regime is instructive, and it serves as a warning.

For years, legislators have ignored innovation. Faced with a regulatory vacuum, the Tax Authority adopted broad interpretations of the law, which the courts frequently rejected. Legislative intervention came late, after a prolonged period of uncertainty and litigation that could have been avoided, and at significant cost to businesses and the State alike.

The cycle was clear:

First, there was a legislative gap.

Next, the Tax Authority attempts to fill it.

Additional assessments without sufficient legal basis follow.

And then systematic litigation.

Reactive, piecemeal legislative interventions come next.

Followed by belated clarification, with no strategic vision.

Fintechs now find themselves at a similar juncture, but in a faster-moving and more dynamic ecosystem. Their business models do not simply replicate traditional financial services: they combine technology, intermediation, data, and digital infrastructure, challenging the application of classical tax concepts and reinforcing the case for structural reform.

Questions the reform cannot ignore

If the goal is to replace a fragmented, outdated system with a coherent, modern, and harmonized tax framework, certain questions cannot be deferred: how should the concept of financial service be defined in the digital economy? When should the VAT exemption apply — and when should it not? How should hybrid models that do not fit traditional categories be classified?

Ignoring these questions now would mean repeating the cycle seen in the past. This time, however, it would be even less justifiable and have an even greater impact.

What is at stake for fintechs

For policymakers, the risk is obvious: reforming the system without accounting for digitalization, artificial intelligence, and the automation of financial services could perpetuate the gaps that have historically led to years of litigation, costs for taxpayers and the State, and purely reactive legislative corrections.

For financial institutions and fintechs, this is a critical moment. This reform could redefine the perimeter of VAT-exempt services, alter Stamp Duty incidence rules, promote greater harmonization, and, ultimately, transform the effective tax burden on their business models.

A new cycle of tax litigation will come, and it will be followed by legislative adjustment. This seems unavoidable. How these issues are discussed and resolved in the short term will have profound implications for the competitiveness of the digital financial sector, in Portugal and across the European Union.

In this context, the ability to anticipate will be decisive. For fintechs and financial institutions, this means reviewing their current tax framework to identify exposure to potential Tax Authority corrections, monitoring legislative developments in this area, and engaging actively in public consultations. It also means being prepared to challenge the Tax Authority when its additional assessments lack sufficient legal basis. As the Stamp Duty on card-based payment transactions experience demonstrated, it is possible to successfully challenge the Tax Authority while an amendment to the law that frames the new realities is not concluded.

Preparing now means avoiding litigation later.

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