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Approves The Law Of Local Finances, Revoking Law No 42/98 Of August 6

Original Language Title: Aprova a Lei das Finanças Locais, revogando a Lei n.º 42/98, de 6 de Agosto

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PROPOSED LAW NO. 92 /X

Exhibition of Motives

Law No. 42/98 of August 6 proceeded to the fourth review of the funding system

autarditic. However, such a system has essentially maintained the financing structure

beholdant since 1977, based on the annual transfers of the State Budget,

maintaining stable the criteria for the distribution of financial funds for the

funding for municipalities and freguesias.

The present law comes at a time when the Country lives a difficult financial situation, the

which complains about the adoption of measures of rigour and fiscal consolidation. But live-if,

also, a moment of reform of the public administration and strong pendor

decentralizer, which complains about a financial framework for local authorities

dynamic and appropriate to your tasks, current and to transfer.

The revision of the Local Finance Act, provided for in the XVII Government Programme

Constitutional, inserts itself into the framework of fiscal consolidation and solidarity

financial among the various subsectors of the administrative public sector, in articulation

with the deepening of decentralization and local autonomy. The process of

transfer of competences to municipalities and freguesias, concretizing the

principle of decentralization, is an important instrument of reducing expenditure

public, with important implications in the financial plan arising from the

operationality of the principle of subsidiarity.

Thus, the reform of the municipal finance system focuses especially on the

model for the allocation of public resources between the state and local authorities, on the

criteria for apportionment of the annual transfer of the State Budget, on the framework

of own revenue and on the scheme for recourse to credit on the part of the authorities.

It is also seeking to make municipalities less dependent on revenue from the

civil construction. It has, however, ensured the maintenance of the current global levels of

funding or public revenue, enshrining the principle of financial neutrality

for 2007, then associating the revenues of the authorities to the economic cycle, in full

consonant with the principle of reciprocating solidarity.

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In the area of the allocation of resources between the State and the municipalities, the system of

transfers from the State Budget know important changes. Opt for the

decrease in the weight of the Financial Equilibrium Fund (FEF) in the overall amount of the

municipal revenues and a significant weight is ascribe to the promotion of territorial cohesion

through the reinforcement of the monies to be distributed through the Municipal Cohesion Fund

(FCM). In this way, the new law assigns 50% of the ETF to the FCM.

The distribution of the remaining 50% of the ETF, carried out through the Municipal General Fund

(FGM), to the extent that the distribution criteria of this fund are changed:

positively discriminate against municipalities in which a parcel of the territory is

ranked classified as Natura 2000 Network or non-integrated protected area

in that network; the significant weight of the distribution rests on the population, to the detriment

of the criterion on the number of freguesias, reducing to 5% the share of FGM a

be distributed equally by all municipalities. Such changes in the criteria of

distribution of FGM fosters territorial rationalization, penalizing fragmentation

autarquica.

These changes, alongside a scheme of maximum variations and trade-offs-what

leads to municipalities with 1.25 percent capping of the national average tax revenue

contribute 22% of the difference to those with below the national average-

translates a significant reinforcement of the component of territorial cohesion into the system of

transfers.

To the allocation of resources through financial transfers now joins the

direct participation of municipalities in revenue from the Income Tax of the

Natural Persons (IRS) generated in the concelho.

The municipal participation in the IRS is composed of a fixed plot of 2% and by a

variable parcel that can reach the 3%, by the end of the municipalities to define which

percentage of IRS revenue that they want to make impend on their municipes.

Existing a difference between the defined percentage and the 3% maximum ceiling of this

variable repayment, such an amount will be considered as a "deduction to the manifold" of the

taxpayer. This IRS sharing mechanism is an essential tool for the

promotion of local financial autonomy by promoting tax competition

intermunicipal, increasing the range of own revenue of municipalities and

holding the local elected officials accountable for their financial decisions.

Alongside these changes in the level of the reinforcements of the municipalities ' tax powers, it is

devoted to the possibility of collection of municipal taxes by Areas

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Metropolitan of Lisbon and the Port and by the associations of municipalities whose territory

match that of NUTS III.

Proceeds from the creation of a Municipal Social Fund (FSM) to finance the

needs for specific expenditure in the sectors of education, health and social action,

promoting positive discrimination with a view to ensuring effective

equality of opportunity.

It is an instrument of dynamic decentralization and transfer of

skills, which finances eligible, legally defined expenditure in the fields

social-education, health and social action. It is opposed, here, by the consecration of the principle

of the consignment of revenue, to the extent that these expenses associated with this fund

relate intimately to equality of opportunity and relatively to which

must invigorate the principle of universality: all citizens must have access to those

services, at any point in the national territory and regardless of preferences

and political programmes of the municipalities.

In the matter of recourse to credit, the concept of net borrowing is devotes

municipal compatible with the European System of Regional and National Accounts of 1995

(SEC 95), considering, henceforth, municipal indebtedness while stock for

which limits are established. It is then abandoned, the definition of limits to the

indebtedness in terms of flows (interest and amortizations).

In this way, two limits on municipal indebtedness are set: a limit to the

net borrowing, corresponding to a stock of 125% of own resources more

important (transfers from the State Budget, fixed participation in the IRS and revenues

of municipal taxes); a limit to the borrowing of loans, corresponding to

100% of those resources. In accordance with the principle of promoting sustainability

place, the loans and depreciation earmarked for the financing of programmes of

urban rehabilitation are excepted from the limit to indebtedness through

loans.

Assuming the need to provide this law with flexibility, so that

this legal framework adapts to distinct conjunctures of the one we live in, is consecrated to

possibility of, in the seat of State Budget Law being defined limits

maximum municipal indebtedness of those who are found

established in this diploma. As a counterpart, and in accordance with the principle of

reciprocal solidarity and participation, the participation of municipalities in the

Council for Financial Coordination of the Administrative Public Sector.

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In the matter of borrowing, the reduction of financial transfers to the

municipalities that violate the limits of the debt, in equal amount, and that revert to the

Municipal Regularization Fund, the operation of which will be regulated by act

legislative, associated with the new rules of sanitation and financial rebalancing.

Finally, and in the matter of provision and legal review of accounts, this Law establishes the

mandatory consolidation of accounts of municipalities that hold services

municipalized or the totality of the capital city of municipal companies, as well as the

subjection of the accounts of municipalities and associations of municipalities with participation of

capital the external audit and, still, advertising and reporting duties, in accordance with the

principle of transparency.

As for the freguesies, the distribution criteria of the Financing Fund of the

Freguesias are changed, discouraging territorial fragmentation and benefiting the

freguesias integrated in rural areas, using as a classifier criterion to Typology

of Urban Areas, established by the Superior Council of Statistics, through the

Deliberation n. 158/98 of September 11.

Thus:

Under the terms of the paragraph d) of Article 197 (1) of the Constitution, the Government presents to the

Assembly of the Republic the following proposal for a law:

Title I

Subject matter and fundamental principles

Article 1.

Subject

1-A This Law establishes the financial regime of municipalities and freguesias.

2-The principles set out in this Title shall apply to the Metropolitan Areas of

Lisbon and Porto, to the extent that they show compatible with the nature of these,

being its specific financial regime established in a diploma of its own.

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Article 2.

Principle of coherence

The financial regime of municipalities and freguesias respects the principle of coherence

with the framework of assignments and competences that are legally committed to them,

in particular when providing for rules that aim to ensure the appropriate financing of

new assignments and competences.

Article 3.

Principle of financial autonomy of municipalities and freguesias

1-The municipalities and freguesias have heritage and own finances, the management of which

compete for the respective bodies.

2-A The financial autonomy of municipalities and freguesias is based, inter alia,

in the following powers of their bodies:

a) Elaborate, approve, and modify plan options, budgets, and others

predictive documents;

b) Elaborate and approve the accountability documents;

c) To exercise the tax powers that are legally committed to you;

d) Raise and dispose of recipes that by law are intended for them;

e) Order and process the legally authorized expenses;

f) To manage their own heritage, as well as the one that is affection to them.

3-Are void the deliberations of any organ of the municipalities and freguesies that

involve the exercise of tax powers or determine the launch of fees

not provided for in the law.

4-It is also void the deliberations of any organ of the municipalities and freguesies

that they determine or authorize the realization of expenses not permitted by law.

Article 4.

Principles and budgetary rules

1-The municipalities and freguesias are subject to the norms enshrined in the Law of

Budgetary framework and the principles and budgetary rules and rules

budget.

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2-The principle of non-consignment does not apply to revenue from funds

Community and the municipal social fund, provided for in Articles 24 and 28, to revenue

of the prices referred to in Article 16 (4), as well as those from the

technical and financial cooperation and others provided for by law.

3-The principle of intergenerational equity, pertaining to the distribution of benefits and

costs between generations, implies the appreciation in that plan of the budget incidence:

a) Of the measures and actions included in the multiannual investment plan;

b) From investment in human empowerment co-financed by the local municipality;

c) Of the charges with the financial liabilities of the local municipality;

d) From the financing needs of the local business sector, as well as from the

associations of municipalities or intermunicipal;

e) Of the overdue and unsettled charges to suppliers;

f) Of the explicit and implicit charges in public-private partnerships,

concessions and too many financial commitments of a multiannual character.

4-The municipalities and the freguesias are also subject, in the approval and execution of the

their budgets, the principles of budgetary stability, solidarity

reciprocating between levels of administration and budgetary transparency.

5-The principle of budgetary transparency translates into the existence of a duty of

mutual information between the state and local authorities, as a guarantee of the

budgetary stability and reciprocal solidarity, as well as in the duty of these

to provide citizens, in an accessible and rigorous manner, information about their

financial situation.

6-The principle of transparency in the approval and implementation of the budgets of the

municipalities and freguesias also applies to the financial information concerning

to the associations of municipalities or freguesias, as well as to the entities that integrate

the local business sector, municipal concessions and public-private partnerships.

Article 5.

Coordination of local finances with state finances

1-A The coordination of the finances of the municipalities and the freguesias with the finances of the

State takes particular account of the balanced development of the entire Country and

the need to achieve the objectives and budgetary targets outlined in the framework of

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convergence policies to which Portugal has obliged within the Union

European.

2-A The coordination referred to in the preceding paragraph shall be carried out through the Council of

Financial Coordination of the Administrative Public Sector, being the authorities

places heard prior to the preparation of the Stability and Growth Programme and the

State Budget Law, specifically as to the participation of the authorities

in the public resources and the global amount of municipal borrowing.

3-In view of ensuring the effective coordination between the State's finances and the

finance of local authorities, the State Budget Law may set limits

maximum municipal indebtedness of those who are found

set out in this Law.

4-A violation of the expected net borrowing limit for each municipality in paragraph 1

of Article 37 originates a reduction in the same amount of transfers

budget due in the subsequent year by the subsector State, which is affection for the

Municipal Regularization Fund, pursuant to Article 42 of this Law.

Article 6.

Promotion of local sustainability

1-The financial regime of municipalities and freguesias shall contribute to the

promotion of economic development, for the preservation of the environment, for the

spatial planning and for social welfare.

2-A The promotion of local sustainability is ensured, specifically:

a) By the positive discrimination of municipalities with area affects the Natura Network

2000 and protected area, within the framework of the Municipal General Fund;

b) By the exclusion of debts incurred for the development of activities of

urban rehabilitation of the limits to municipal indebtedness;

c) For the granting of tax exemptions and benefits, relating to taxes to whose

revenue the municipalities are entitled to, to taxpayers who pursue their

activities in accordance with environmental and urban quality standards;

d) By the use of tax-oriented instruments for the promotion of

social and quality urbanistic, territorial and environmental purposes,

particularly fees.

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Article 7.

Participation of authorities in public resources

1-A The participation of each local municipality in the public resources is determined in the

terms and in accordance with the criteria laid down in this Law, aiming at the balance

vertical and horizontal financial.

2-The vertical financial balance aims to appropriate the resources of each level of

administration to their respective assignments and competences.

3-The horizontal financial balance aims to promote the correction of inequalities

between authorities of the same degree resulting from, specifically, different

capacities in the revenue collection or different spending needs.

Article 8.

Technical and financial cooperation

1-No forms of subsidies or financial comholdings are permitted

to municipalities and freguesias by the State, public institutes or the

autonomous funds.

2-Can, exceptionally, be entered in the State Budget Act an endowment

global affects the various ministries, for financing projects of interest

national to be developed by local authorities, of great relevance to the

regional and local development, corresponding to policies identified as

priority in that Act, in accordance with the principles of equality, impartiality and

justice.

3-The Government and regional governments may still make budgetary arrangements

necessary for the granting of financial aid to local authorities, in the following

situations:

a) Public calamity;

b) Municipalities negatively affected by investments of the responsibility of the

central administration;

c) Serious circumstances that drastically affect the operationality of the infra-

structures and municipal civil protection services;

d) Reconversion of urban areas of illegal genesis or rehabilitation programmes

urban when its relative weight transcends capacity and

municipal responsibility in the terms of the law.

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4-A grant of financial aid to local authorities in situations of calamity

public is regulated in a diploma of its own.

5-A grant of any financial aid and the conclusion of contract or protocol

with local authorities has to be authorized in advance by dispatch of the

Ministers of tutelage and finance, published in the 2 th Series of the Journal of the Republic .

6-Are void the instruments of technical and financial cooperation and financial aid

concluded or performed without the provisions of the preceding paragraph being observed.

7-The Government publishes quarterly in the 2 th Series of the Journal of the Republic a

listing of which are the tools for technical and financial cooperation and

financial aid, concluded by each ministry, as well as the respective

amounts and deadlines.

8-The scheme for technical and financial cooperation, as well as the granting scheme of

financial aid to local authorities, they are regulated by their own diploma.

Article 9.

Tutela inspective

The tutelage on the heritage and financial management of local authorities covers its

direct and indirect administration and the entities of the local business sector, is

merely inspected and may be exercised only in the manner and in the cases provided for in the

law, always safeguarding the democratization and autonomy of local power.

Title II

Revenue of local authorities

Chapter I

Revenue of municipalities

Article 10.

Municipal revenue

They constitute revenue of the municipalities:

a) The proceeds from the collection of municipal taxes to whose revenue they are entitled to,

specifically the municipal real estate tax (IMI), the tax

municipal on the onerous real estate transmissions (IMT) and tax

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municipal on vehicles (IMV), without prejudice to the provisions of ( a) from the

article 17 of this Law;

b) The proceeds from the collection of spills laid down pursuant to Art. 14;

c) The proceeds from the collection of fees and prices resulting from the granting of licences

and the provision of services by the municipality, in accordance with the provisions of the

articles 15 and 16;

d) The product of participation in the public resources determined pursuant to the

provisions of Article 19 and following;

e) The proceeds from the collection of charges for more-valuable purposes intended by law to

municipality;

f) The product of fines and fines set by law, regulation or posture that

fall to the municipality;

g) The yield of own goods, furniture or real estate, by them administered,

data in concession or yielded for exploitation;

h) The participation in the profits of companies and the results of other entities

in which the municipality takes part;

i) The product of heritages, legacies, donations and other liberalities in favour of the

municipality;

j) The product of the disposal of own goods, furniture or real estate;

l) The proceeds of loans, including those resulting from the issuance of bonds

municipal;

m) Other revenue established by law or regulation in favour of municipalities.

Article 11.

Tax powers

Municipalities dispose of tax powers with respect to taxes and others

tributes to whose revenue they are entitled to, specifically:

a) Access to the up-to-date information of municipal taxes and spill,

settled and charged, when settlement and collection is secured by the

services of the State, in accordance with Article 13 (4);

b) Possibility of settlement and collection of taxes and other tributes to whose

revenue are entitled, in the terms to be defined by their own diploma;

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c) Possibility of coercive collection of taxes and other tributes to whose

revenue are entitled, in the terms to be defined by their own diploma;

d) Provision of tax exemptions and benefits, pursuant to Article 12 (2);

e) Compensation for the granting of tax benefits for taxes and

other tributes to whose revenue they are entitled, on the part of the Government, in the

terms of Article 12 (4);

f) Other powers provided for in tax legislation.

Article 12.

Tax exemptions and benefits

1-The State, Autonomous Regions and any of its services, establishments and

organisms, yet personalised, comprising public institutes, which

do not have a business character, as well as municipalities and freguesias and their

associations are exempt from paying all taxes due on the terms

of this Law with the exception of the exemption from the municipal property tax to the

buildings not allocated to activities of public interest.

2-A Municipal assembly may, by proposal of the city hall, through

reasoned deliberation, grant total or partial exemptions in respect of the

taxes and other own tributes.

3-The tax benefits referred to in the preceding paragraph may not be granted by

more than five years, being possible to renew it for once with equal limit

temporal.

4-In cases of tax benefits pertaining to municipal taxes that constitute

contractual counterpart of the fixation of major investment projects of

interest for the national economy, recognition of the same is incumbent on the

Government, ears the municipality or municipalities involved, which must pronounce-

if within a maximum of 45 days, pursuant to the law, the compensation taking place

in the event of express disagreement of the respective municipality communicated within

of that deadline, through money to be enrolled in the State Budget.

5-For the purposes of the preceding paragraph, major investment projects are considered to be

those that are set out in the terms and in the limits of Article 39 (1) of the

Status of Tax Benefits.

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6-The municipalities must be heard before the concession, by the State, of

subjective tax exemptions relating to municipal taxes, with respect to the

statement of reasons for the decision to grant the said exemption, and are informed as to

to the tax expense involved, there is place the compensation in case of dissent

express from the respective municipality.

7-Excludes from the provisions of the previous number the automatic exemptions and those which

are due to obligations under International Law to which the Portuguese state is

linked.

8-The municipalities must have access to aggregated information concerning the tax expense

advenient of the granting of tax benefits for municipal taxes

constants of point a) of Article 10 of this Law.

Article 13.

Settlement and collection of taxes

1-Municipal taxes referred to in para. a) of Article 10, are liquidated and

collected in the terms provided for in the respective legislation.

2-Municipal chambers may deliberate on collection of taxes

municipal, by their own services or by the services of the association of

municipality that integrate, as long as corresponding to the territory of NUTS III, in the

terms to be defined by own diploma.

3-The municipalities that integrate the Metropolitan Areas of Lisbon and Porto can

transfer the collection competence of municipal taxes to the service

competent of those metropolitan entities, in the terms to be defined by diploma

own.

4-When the liquidation and or collection of municipal taxes is ensured by the

services of the State, the respective charges may not exceed 1.5% or 2.5% of the

amounts settled or charged, respectively.

5-A Net income from the charges referred to in the preceding paragraph is transferred by the

state services for the municipality-holder of the revenue up to the last working day of the month

next to the payment.

6-A Directorate-General for Taxes provides to the National Association of Municipalities

Portuguese (ANMP) aggregated information on financial relations between the

State and the pool of municipalities and provides each municipality with information

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on the settlement and collection of municipal taxes and revenue transfers

for the municipality.

7-A information referred to in the preceding paragraph is made available through the Internet and

updated on a monthly basis, having each municipality access to information only

on its financial situation.

8-Are due interest of late payment by the central administration, in cases of delays

in the transfers to the municipalities of tax revenue that are to them

own.

Article 14.

Spill

1-The municipalities may deliberate to launch a stroke annually, up to the limit

maximum of 1.5% on taxable profit subject and non-exempt from tax on the

income of legal persons (IRC), which corresponds to the proportion of the

income generated in your geographic area by taxable persons residing in

portuguese territory that exercise, by main title, an activity of a nature

commercial, industrial or agricultural and non-residents with stable establishment

in that territory.

2-For the purposes of applying the provisions of the preceding paragraph, where the subjects

liabilities have stable establishments or local representations in more than

a municipality and taxable amount in excess of EUR 50,000, taxable profit

attributable to the circumscription of each municipality is determined by the proportion between the

wage mass corresponding to the establishments that the taxable person in it

posits and the corresponding to the totality of its establishments situated in

national territory.

3-In cases not covered by the preceding paragraph, the income is deemed to be

generated in the municipality in which the seat or the actual direction of the subject is located

passive or, dealing with non-resident taxable persons, in the municipality in which

it situates the stable establishment where, pursuant to Article 117 of the Code of

IRC, be centralized to accounting.

4-Understand by salary mass the value of the expenses incurred with the staff and

clerks in the exercise for the title of remunerations, wages or salaries.

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5-The taxable persons covered by paragraph 2 indicate in the periodic statement of

income the wage mass corresponding to each municipality and carry out the

clearance of the spill that is due.

6-A The deliberation referred to in paragraph 1 shall be communicated by electronic means by the

municipal chamber to the Directorate General of Taxes by December 31 of the year

previous to that of collection by the competent departments of the State.

7-In case the communication referred to in the preceding paragraph is received in addition to the

deadline in it, there is no place for the settlement and collection of the spill.

8-The product of the paid spill is transferred to the municipalities until the last working day of the

month following that of the respective clearance by the Directorate General of Taxes.

Article 15.

Fees of municipalities

1-The municipalities can create fees under the general scheme of the rates of the

local authorities.

2-A The creation of fees by the municipalities is subordinated to the principles of equivalence

legal, from the fair distribution of public charges and advertising, focusing on

utilities provided to private individuals, generated by the activity of municipalities or

resulting from the realization of municipal investments.

Article 16.

Prices

1-Prices and too much remuneration instruments to be set by the relative municipalities

to the services provided and the goods provided in direct management by the units

municipal organic or by the municipalized services should not be lower

costs directly and indirectly supported with the provision of such services and

with the supply of these goods.

2-For the purposes of the preceding paragraph, the costs borne are measured in situation of

productive efficiency and, where applicable, in accordance with the standards of the regulation

tariff in force.

3-The prices and too much pay instruments to be charged by municipalities

respect, in particular, the activities of the operation of municipal systems or

intermunicipal from:

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a) Public water supply;

b) Sanitation of waste water;

c) Solid waste management;

d) Collective transport of persons and goods;

e) Distribution of electrical energy in low voltage.

4-Regarding the activities mentioned in the points a) and b) of the previous number, the

municipalities must charge prices in the terms of tariff regulation to be approved.

5-Unless otherwise contractual provisions, in cases where there are prescriptions

municipal or municipal utilities coming from prices and too much

contractual instruments associated with any of the activities referred to in the

previous number to be held through dealership companies, must

such revenue to be transferred to those companies by the 30 th of the month following the

registration of the respective revenue, and the information companies must be provided

quarterly updated and discriminated against the amounts collected.

6-It is up to the regulator of the public water supply sectors, of

sanitation of wastewater and solid waste management the verification of the

provisions of paragraphs 1, 4 and 5, and shall, in the case of municipal direct management, be involved

municipalized service, municipal or intermunicipal corporation, inform the

municipal assembly and the competent authority of the inspective tutelage if it occurs

violation of some of these precepts, without prejudice to the sanctionatory powers of which

possess.

Chapter II

Revenue from freguesies

Article 17.

Revenue from freguesies

They constitute revenue of the freguesias:

a) 50% of the product of IMI's revenue on rustic buildings;

b) The proceeds of collection of fees, in particular arising from the provision of

services by the freguestics;

c) The yield of markets and cemeteries of the freguesias;

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d) The product of fines and fines set by law, regulation or posture that

caibam to freguesias;

e) The yield of own goods, furniture or real estate, by them administered,

data in concession or yielded for exploitation;

f) The product of heritages, legacies, donations and other liberalities in favour of the

freguesias;

g) The product of the disposal of own goods, furniture or real estate;

h) The product of short-term loans;

i) Other revenue established by law or regulation in favour of freguesias.

Article 18.

Rates of freguesias

1-Freguesias can create fees under the general scheme of the rates of the

local authorities.

2-A The creation of fees by the freguesias is subordinated to the principles of equivalence

legal, from the fair distribution of public charges and advertising, focusing on

utilities paid to private individuals or generated by the activity of the freguesias.

Title III

Apportionment of public resources between the state and local authorities

Article 19.

Distribution of public resources between the state and municipalities

1-A apportionment of public resources between the state and municipalities, taking in view

achieve the horizontal and vertical financial balance objectives, is achieved through

of the following forms of participation:

a) A general grant determined from the Financial Equilibrium Fund

(FEF) whose value is equal to 25.3% of the simple arithmetic mean of the recipe

coming from the income taxes of natural persons (IRS),

on the income of legal persons (IRC) and on the value added

(VAT);

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b) A specific grant determined from the Municipal Social Fund

(FSM) the value of which corresponds to the expenditure on assignments and

competencies transferred from the central administration to municipalities;

c) A 2% percent stake in the IRS of taxable persons with a tax domicile in the

respective territorial circumscription, calculated on the respective liquid collection

of the deductions provided for in Article 78 (1) of the IRS Code, ascertained in the

penultimate year in respect of which the State Budget Act refers;

d) A variable participation up to 3% in the IRS, defined in the terms of Article 20 para.

2-A revenue from the taxes referred to in points a) and b) of the previous number is the one that

corresponds to the net income from these taxes in the penultimate year relatively to that

the one that the State Budget refers to, excluding:

a) The participation referred to in paragraph c) of the previous number;

b) With respect to VAT, the consignothing revenue, of an exceptional character or

temporary, to other subsectors of public administrations.

3-For the purpose of the preceding paragraph, it is understood by net revenue the value

enrolled in the budget implementation map, according to the economic classification,

concerning the integrated services.

4-For the purposes of the provisions of the c) of paragraph 1, considers itself as a tax domicile o

of the taxable person identified in the first place in the respective statement of

income.

Article 20.

Variable participation in the IRS

1-The municipalities are entitled, in each year, to variable participation up to 3% in the

IRS of taxable persons with tax domicile in the respective circumscription

territorial, relative to the income of the year immediately preceding, calculated on

the respective net collection of the deductions provided for in Article 78 (1) of the

IRS Code.

2-A participation referred to in the preceding paragraph depends on deliberation on the

percentage of IRS intended by the municipality, to which it must be communicated by

by electronic means by the respective municipal chamber to the Directorate-General for Taxes,

by December 31 of the year before that to which they respect income.

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3-A the absence of the communication referred to in the preceding paragraph or the receipt of the

communication beyond the deadline there is equivalent to the lack of deliberation.

4-Should the deliberate percentage by the municipality be lower than the maximum rate

defined in paragraph 1, the product of the difference in fees and the net collection is considered

as a deduction to the IRS collection, in favour of the taxable person, concerning the

income from the year immediately preceding that with respect to participation

variable referred to in paragraph 1, provided that the respective settlement has been made with

basis in a statement presented within the legal period and with the elements in it

constants.

5-A The inexistence of the deduction to the collection referred to in the previous number does not

determines, under no circumstances, an addition to the amount of variable participation

ascertained on the basis of the percentage deliberated by the municipality.

6-For the purposes of the provisions of this Article, it shall be deemed to be a tax domicile o

taxable person identified in the first place in the respective statement of

income.

7-The product of variable participation in the IRS is transferred to the municipalities by the

last working day of the month following that of the respective clearance by the Directorate General

of the Taxes.

Article 21.

Financial Balance Fund

1-The Financial Equilibrium Fund (FEF) is rebroken as follows:

a) 50% as Municipal General Fund (FGM);

b) 50% as a Municipal Cohesion Fund (FCM).

2-A general participation of each municipality in the FEF results from the sum of the plots

referring to FGM and FCM.

3-The municipalities with greater municipal revenue caption under the terms of the n. 1, 2

And 3 of Article 28, are net contributors to FCM.

19

Article 22.

Municipal General Fund

The FGM corresponds to a financial transfer from the State which aims to provide the

municipalities of financial conditions appropriate to the performance of their assignments,

depending on the respective levels of operation and investment.

Article 23.

Municipal Cohesion Fund

1-The FCM aims to strengthen municipal cohesion by fostering the correction of asymmetries,

for the benefit of the least developed municipalities, where there are situations of

inequality with respect to national average correspondents , and corresponds to the

sum of the tax compensation (CF) and the compensation of the inequality of

opportunities (CDO) based on the index of inequality of opportunity (IDO).

2-A compensation for inequality of opportunity aims to compensate, for certain

municipalities, the difference in opportunities arising from the inequality of access to

conditions necessary to be able to have a longer life, with better levels

of health, comfort, sanitation and acquisition of knowledge.

Article 24.

Municipal Social Fund

1-The FSM constitutes a financial transfer of the State Budget consignothing

to the financing of determined expenses, relating to assignments and competences

of the municipalities associated with social functions, particularly in education, health

or in social action.

2-The eligible expenses for funding through the FSM are, in particular:

a) The current operating expenses of the public preschool,

particularly the remunerations of non-teaching staff, the services of

food, expenses with extension of time and school transport;

b) The current operating expenses with the three basic education cycles

public, particularly the remunerations of non-teaching staff, the services

of food, curricular enrichment activities and transport

20

school, excluding only those of the teaching staff assigned to the curriculum plan

required;

c) The expenses with teachers, monitors and other technicians with duties

curriculum enrichment educations, particularly in the areas of

initiation to sport and the arts, as well as school guidance, support for

school health and partner-educational follow-up of basic education

public;

d) The current operating expenses with the health centres,

particularly pay of personnel, maintenance of the facilities and

equipment and compositions in the costs of transporting patients;

e) The operating expenses of municipal care programs

continued health and support for the domicile, namely the remunerations of the

auxiliary and administrative staff affection for these programmes, transport and

interface with other municipal health and social action services;

f) The operating expenses of health promotion programmes

developed in health centres and schools;

g) The operating expenses of crèches, kindergartens and nursing homes or

day centres for the elderly, particularly the remuneration of staff, the

food services and cultural, scientific and sports activities

carried out in the framework of assistance to the users of those services;

h) The operating expenses of social action programmes of scope

municipal in the field of combating drug dependence and social inclusion.

3-The operating expenses provided for in the preceding paragraph may, in the part

applicable, integrate the application of municipal equality promotion programs

of gender, particularly in the integrated perspective of the promotion of conciliation of the

professional and family life, social inclusion and the protection of victims of

violence.

Article 25.

Financial transfers to municipalities

1-Are annually enrolled in the State Budget the amounts of the transfers

financial corresponding to the municipal revenue provided for in points a) , b) and c)

of Article 19 (1)

21

2-The amounts corresponding to the participation of the municipalities in the said revenue

in the preceding paragraph, with the exception of the ETF, are enrolled in the

municipal budgets as current revenue and transferred by twelfth to

day 15 of the corresponding month.

3-Each municipality may decide from the apportionment of the amounts referred to in the a) from the

n Article 19 (1) between current and capital revenue, not the current revenue

exceed 65% of the ETF.

4-The municipalities shall inform each other annually, by June 30 of the year before the year

with respect to the budget, what percentage of the ETF should be considered

as a current transfer, in the absence of which is considered the percentage of

60%.

5-Exceptionally, if the degree of implementation of the State Budget allows it,

may be authorised by the Minister of Finance the anticipation of the transfer of the

duodécims referred to in paragraph 2 of this Article.

6-The indices to be used in the calculation of the ETF (FGM and FCM) and the FSM should be

previously known, so that you can, in good time, request your

possible correction.

7-Are due interest of late payment by the central administration, in cases of delays

in financial transfers to municipalities.

Article 26.

Distribution of FGM

1-A The distribution of FGM by the municipalities complies with the following criteria:

a) 5% equally by all municipalities;

b) 65% in the direct reason of the population (weighted) resident and the daily average of

overnight stays in hotel establishments and campsites, being the

resident population of the Autonomous Regions weighted by factor 1.3;

c) 25% in the direct reason of the weighted area by a factor relative to the amplitude

altimetric of the municipality;

d) 5% in the direct reason of the area affects the Natura 2000 Network and the protected area.

2-For the purposes of the provisions of the b) of the previous number the population of each

municipality is weighted according to the following marginal weighers:

a) The first 5,000 inhabitants-3

22

b) From 5,001 a to 10,000 inhabitants-1

c) From 10,001 a to 20,000 inhabitants-0.25

d) From 20,001 a to 40,000 inhabitants-0.5

e) From 40,001 a to 80,000 inhabitants-0.75

f) More than 80,000 inhabitants-1

3-The elements and indicators for application of the criteria referred to in the figures

previous shall be communicated, in a discriminated manner, to the Assembly of

Republic, together with the proposed State Budget Act.

Article 27.

Compensation associated with the Municipal Cohesion Fund

1-A tax compensation (CF) of each municipality is different depending on whether it is above or

below 1.25 times the national average caption (CMN) of the sum of the collections of the

municipal taxes referred to in para. a) of Article 10 and participation in the IRS

referred to in paragraph a) of Article 19 (2)

2-Understand by national average caption (CMN) the ratio of the sum of taxes

municipal referred to in para. a) of Article 10 by the resident population plus

daily average of the overnight stays in hotel establishments and campsites.

3-When the average caption of the municipality (CMM i ) be less than 0.75 times a

national average caption, tax compensation assumes a positive value equal to the

difference between both multiplied by the resident population in accordance with the

following formula:

CF i = (1 ,25 *CMN-CMM i ) *N i

where CMN is the national average caption; CMM i is the average caption of the

municipality; and N i is the resident population in the municipality i .

4-When the municipal average caption (CMM i ) be more than 1.25 times a

national average caption, tax compensation assumes a negative value equal to

22% of the difference between both multiplied by the resident population of agreement

with the following formula:

CF i = 0.22 (1, 25 CMN-CMM i ) *N i

5-The overall value of the FCM minus the tax compensation to be allocated to municipalities,

more the tax compensations of the net contributing municipalities to the FCM is

intended for CDO.

23

6-The amount set out in the preceding paragraph is distributed by each municipality on the reason

direct from the result of the following formula:

ii IDON * with ii IDSIDSIDO Despite the

where: Ni is the resident population in the municipality i ; IDOi is the municipal index of

inequality of opportunity of the municipality; IDS is the national index of

social development; and IDSi is the social development index of the municipality

i .

7-A The application of the criteria referred to in the preceding paragraphs always guarantees every

50% of the financial transfers, amount of which corresponds to FGM.

8-The transfers referred to in the preceding paragraph correspond to the sum of the

equities provided for in points a) , b) and c) of Article 19 (1)

9-Compliance with the provisions of paragraph 7 shall be ensured by the manner provided for in paragraph 3 of the

article 29 para.

10 -A methodology for construction of the national social development index and of

each municipality is listed in the Annex to this Law, which of it is an integral part of it.

11-The values of the national social development index and of each municipality have

centerary nature and appear from the minister's porterie that guardianship the authorities

locations.

12-For the purposes of calculating the Fiscal Capitation Index (ICF), the IMI collection a

consider is the one that would result if the settlement had been on the basis of equal rates

to the average values of the ranges set out in the IMI code.

Article 28.

Distribution of the Municipal Social Fund

1-A FSM apportionment is fixed annually in the State Budget Act, being

distributed proportionally by each municipality, in accordance with the following

indicators:

a) 35% according to the following indicators on the inscriptions of

children and young people in preschool education and education institutions

basic of each municipality:

i) 4% in the direct reason for the number of children who attend pre-

public school;

24

ii) 12% in the direct reason for the number of young people to attend the 1 th cycle of the

public basic education;

iii) 19% in the direct reason for the number of young people to attend 2. and 3.

of public basic education.

b) 32.5% according to the following indicators on the number of users

enrolled in the municipal health network:

i) 10.5% in the direct reason for the number of beneficiaries of the programmes

municipal health care continual;

ii) 22% in the direct reason for the number of users enrolled in the health centres

concelhios.

c) 32.5% according to the following indicators on the number of users

and beneficiaries of the municipal networks of crèches, kindergartens, homes,

day centres and social action programmes of each municipality:

i) 5% in the direct reason for the number of enrolled in support programmes à

drug dependence and social inclusion;

ii) 12.5% in the direct reason of the number of children up to the age of three,

who attend the nurseries and kindergartens;

iii) 15% in the direct reason of the number of adults over 65 years

residents in homes or enrolled in daycare centres and support programs

to the household.

2-Dealing with a financial transfer consignothing to a specific purpose, should the

municipality do not undertake eligible amount of amount at least equal to the amount that

it affects you, in the subsequent year it is deducted from the sum to which you would be entitled under the

FSM the difference between FSM revenue and the corresponding expense.

3-For the purposes of the provisions of the preceding paragraph, analytical accounting by centre of

costs should allow to identify the costs regarding the education function.

Article 29.

Maximum variations

1-A participation of each municipality in the state's taxes, including the amounts

of the ETF, FSM and the fixed participation in the IRS referred to in the c) of the Article 1 (1)

19., shall not suffer a decrease in excess of 5% of the participation in the

financial transfers from the previous year to the municipalities with capitation of

25

local taxes higher than 1.25 of the national average, nor a decrease in excess of

2.5% of the said participation, for municipalities with capping less than 1.25

times that average.

2-A participation of each municipality in the state's taxes, including the amounts

of the ETF, FSM and the fixed participation in the IRS referred to in the c) of the Article 1 (1)

19., shall not suffer an extra addition to 5% of the participation for the

financial transfers from the previous year.

3-A compensation required to ensure the minimum amounts provided for in paragraph 1

takes place by the surpluses that aday from the application of the preceding paragraph, well

as, if necessary, upon deduction proportional to the difference between the

anticipated transfers and the minimum guaranteed amounts for municipalities that

have transfers in excess of the minimum amounts to which they would be entitled.

Article 30.

Financing Fund of Freguesies

Freguesias are entitled to a share in the state's taxes equivalent to

2.5% of the simple arithmetic average of IRS revenue, IRC and VAT, on the terms

referred to in Article 19 (2), which constitutes the Funding Fund of the

Freguesias (FFF).

Article 31.

Financial transfers to the freguesias

1-Are annually enrolled in the State Budget Act the amounts of the

financial transfers corresponding to the revenue of the freighters provided for in the

previous article.

2-FFF amounts are transferred quarterly up to day 15 of the first month

of the corresponding quarter.

3-The indices to be used in the calculation of the FFF are to be previously known,

in such a way that you can, in good time, request your correction.

26

Article 32.

Distribution of the FFF

1-A distribution by the freighters of the amounts ascertained in the terms of the number

previous one obeys the following criteria:

a) 50% to be distributed in accordance with your typology:

i) 14% to be distributed equally by all freguesias integrated in Areas

Predominantly Urban;

ii) 11% to be distributed equally by all freguesias integrated in Areas

Medially Urban;

iii) 25% to be distributed equally by all freguesias integrated in Areas

Predominantly Rural.

b) 5% equally by all freguesters;

c) 30% in the direct reason of the number of inhabitants;

d) 15% in the direct reason of the area.

2-The types of freguesias are defined according to the Tipology of Urban Areas,

defined by Deliberation n. 158/98 of September 11, of the Council Superior de

Statistic.

3-The elements and indicators for application of the criteria referred to in the figures

previous shall be communicated, in a discriminated manner, to the Assembly of

Republic, together with the proposed State Budget Act.

4-Of the distribution resulting from n. ºs 1 and 2 may not result in a decrease in excess of

5% of the transfers from the previous year to the municipalities ' freguesies with

caption of local taxes higher than 1.25 of the national average, nor a

decrease in excess of 2.5% of transfers to the municipalities ' freguesias

with capitation less than 1.25 times that average.

5-A The resulting distribution of the previous figures shall ensure the transfer of the

monies necessary for the payment of the expenses relating to the compensation for

charges of the members of the executive body of the freguesia, as well as the passwords of

presence of the members of the deliberative body for the realization of the number of

mandatory meetings, in the terms of the law.

6-A participation of each freguesia in the FFF may not suffer a higher addition to

5% per cent of the share on financial transfers from the previous year.

27

7-A compensation required to ensure the minimum amount provided for in paragraph 4

takes place upon deduction proportional to the difference between the transfers

provided for and the minimum guaranteed amounts for freguesias that have

transfers in excess of the minimum amounts to which they would be entitled.

Article 33.

FFF Majoration for the merger of freguesias

1-When you check the merger of freguesias, the respective participation in the FFF is

increased by 10%, in endowment entered in the State Budget, by the end of the

mandate following the merger, pursuant to the legal regime of creation, extinction and

modification of local authorities.

2-A appropriation for the merged freguesias, provided for in the preceding paragraph is entered

annually in the State Budget Act.

Article 34.

Deduction for transfers

When the authorities have debts defined by judicial sentence carried forward in

judged or by them not contested from the creditors within the maximum period of 60 days after

the respective due date, a parcel to the transfers may be deducted

resulting from the application of this Law, up to the limit of 20% of the respective amount

global.

Title IV

Autarctic indebtedness

Article 35.

Guiding principles

Without prejudice to the principles of budgetary stability, reciprocating solidarity and

intergenerational equity, the municipal indebtedness should orient itself by principles of

rigor and efficiency, pursuing the following objectives:

a) Minimization of direct and indirect costs in a long-term perspective;

28

b) Guarantee of a balanced distribution of costs by the various budgets

annual;

c) Prevention of excessive temporal concentration of amortization;

d) Not exposure to excessive risks.

Article 36.

Concept of municipal net borrowing

1-The amount of municipal net borrowing, compatible with the concept of

need for funding from the European System of National and Regional Accounts

(SEC95), is equivalent to the difference between the sum of the liabilities, whatever the

its form, including in particular the borrowings, the contracts of

financial leasing and the debts to suppliers, and the sum of the assets, namely

the cash balance, the deposits in financial institutions, the treasury applications

and the credits on third parties.

2-For the purpose of calculating the net borrowing limit and the limit of

borrowings, the concept of total net borrowing of each

municipality includes:

a) Net borrowing and loans from the associations of municipalities,

proportional to the participation of the municipality in its social capital;

b) The net borrowing and lending of the entities that integrate the

local business sector, proportional to the participation of the municipality in its

social capital, in the event of non-compliance with the balance of accounts rules

provided for in the legal regime of the local business sector.

3-For the purposes of the provisions of paragraph 1, no claims on third parties are considered

credits that are not recognized by both parties and the credits on

municipalized services and entities integrating the local business sector.

4-The amount of loans from the freguesy associations also releases to the

limits set out in this Act for the loans of the respective freguesters.

Article 37.

Limit of municipal net borrowing

1-The amount of total net indebtedness of each municipality, on December 31

each year, it may not exceed 125% of the amount of revenue from the

29

municipal taxes, from the holdings of the municipality in the ETF, of the fixed share of

participation in the IRS, stroke, and participation in the results of the entities of the

local business sector, relative to the previous year.

2-When a municipality does not comply with the provisions of the preceding paragraph, it shall reduce in

each subsequent year, at least 10% of the amount that exceeds its limit of

net borrowing, until that limit is met.

Article 38.

Credit scheme of municipalities

1-The municipalities can borrow and use credit openings along with

any institutions authorized by law to be granted credit, as well as issue

obligations and to conclude financial leasing contracts under the law.

2-Loans and the use of credit openings which, for the purposes of this

law is designated by loans, are mandatorily denominated in euros and

may be in the short term, with maturity up to one year, in the medium term, with

maturity between one and 10 years and in the long term with maturity of more than 10 years.

3-Short term loans are contracted only to occur the difficulties of

treasury, owing to be amortized within the maximum term of one year after its

contraction.

4-Medium and long term loans can be contracted for application in

investments, which must be properly identified in the respective

contract, or yet to proceed to sanitation or financial rebalancing of the

municipalities.

5-Medium or long term loans have an appropriate maturity to the

nature of the operations they aim to finance, and in no case may it exceed the

useful life of the respective investment.

6-The application for a permit to the municipal assembly for borrowing

of medium and long deadlines is mandatorily accompanied by information on the

conditions practiced in at least three credit institutions, as well as of

demonstrative map of the borrowing capacity of the municipality.

7-A approval of short-term loans may be deliberated by the assembly

municipal, at its annual budget approval session, for all the

30

loans that the municipality comes to contract for during the term of the

budget.

8-Whenever the effects of the celebration of a loan contract remain

over the course of two terms, must that be the subject of approval by a majority

absolute of the members of the municipal assembly in effectivity of duties.

9-In the case of debits to third parties that surpass, by creditor or supplier, in 31 of

December each year, one-third of the overall amount of the identical credits

nature and has existed for more than six months, it shall be due to the city hall to present to the

municipal assembly, together with the annual accounts, an information

substantiated and a resolution plan of the said credit, in the period of one year,

never surpassing the end of the tenure of the said municipal bodies.

10-It is vetted to municipalities whether the accepted wants the loot of bills of exchange, the concession

of changeable avales, the subscription of bookies, the granting of personal guarantees and

real, save in the cases expressly provided for in the law.

11-It is vetted to municipalities, associations of municipalities and sector entities

local business the granting of loans to public or private entities,

saved in the cases expressly permitted by law.

12-It is vetted to municipalities the conclusion of contracts with financial entities with the

purpose of consolidating short-term debt, as well as ceding credits not

vanquished.

Article 39.

General limit of loans from municipalities

1-The amount of short-term loan contracts and credit openings

may not exceed, at any time of the year, 10% of the sum of the amount of the

revenue from municipal taxes, from the holdings of the municipality in the

FEF and that of the fixed participation in the IRS referred to in para. c) of Article 19 (1) of the

stroke and participation in the results of local business sector entities,

relative to the previous year.

2-The amount of debt of each municipality regarding loans to medium and long

deadline may not exceed, on December 31 of each year, the sum of the amount of the

revenue from municipal taxes, from the holdings of the municipality in the

FEF, of the fixed participation in the IRS referred to in para. c) of Article 19 (1) of the

31

participation in the results of the local business sector entities and the spill,

relative to the previous year.

3-When a municipality does not comply with the provisions of the preceding paragraph, it shall reduce, in

each subsequent year, at least 10% of the amount that exceeds its limit of

loans, until that limit is met.

4-For the purpose of calculating the limits of medium and long term loans,

consider to be the bond loans, as well as the short loans

deadline and credit openings in the unamortized amount until December 31 of the

year in question.

5-Except for the limit provided for in paragraph 2 the loans and depreciation

intended for the funding of urban rehabilitation programs, which they must

be previously authorized by joint dispatch of the Minister who guardiens the

local authorities, the Minister of Finance and the Minister who tutoring the planning

of the territory.

6-Can be excepted from the provisions of paragraph 2 the loans and depreciation

intended solely for the financing of projects with the comparticipation of

community funds, provided that the maximum amount of the credit does not exceed 75% of the

amount of national public participation required for the implementation of the projects

co-financed by the European Regional Development Fund (ERDF) or

by the Cohesion Fund, which must be authorized in advance by dispatch

set of the Minister who guardiits the local authorities, the Minister of Finance and the

Minister to twee regional development, and should be taken into consideration the

existing level of global indebtedness of the authorities.

Article 40.

Municipal financial sanitation

1-The municipalities that find themselves in a situation of conjunctural financial imbalance

must borrow for financial sanitation, with a view to

reprogramming of debt and the consolidation of financial liabilities, provided that the

result of the operation does not increase the net borrowing of the municipalities.

2-The applications for loans for financial sanitation of municipalities are

instructed with a reasoned study of the financial situation of the municipality and

a financial sanitation plan for the period to which it respects the loan.

32

3-The study and the financial sanitation plan referred to in the preceding paragraph are

drawn up by the city hall and proposed to the respective municipal assembly

for approval.

4-The executive bodies, during the period of the loan, are required to:

a) Comply with the financial sanitation plan mentioned in the preceding paragraph;

b) Not to celebrate new financial sanitation loans;

c) Draw up half-yearly reports on the implementation of the financial plan

mentioned in the previous number and refer them, for appreciation, to the organs

deliberative;

d) Refer to the Minister of Finance and the Minister who tutores local authorities

copy of the loan agreement, within 15 days from the date of its

celebration.

5-The failure to comply with the financial sanitation plan, referred to in paragraph 2, is

communicated, by the municipal assembly, to the Minister of Finance and to the Minister who

tucture the local authorities and, until the correction of the causes that gave it origin,

determines:

a) The impossibility of contraction of new loans during a period of

five years;

b) The impossibility of access to technical and financial cooperation with the

central administration.

6-The loans for financial sanitation may not have a maturity of more than 12

years and a maximum period of deferment of three years.

7-During the term of the contract, the annual presentation of accounts to the

municipal assembly includes, in annex to the balance sheet, the demonstration of compliance

of the financial sanitation plan.

Article 41.

Municipal financial rebalancing

1-The municipalities that find themselves in a situation of structural financial imbalance

or financial rupture are subject to a financial restructuring plan.

2-A The situation of structural financial imbalance or financial rupture is declared

by the municipal assembly, on a proposal from the city hall.

33

3-A The situation of structural financial imbalance or financial rupture may be,

subsidiary, as stated by joint order of the Minister of Finance and the

Minister to tutelage local authorities, after communication from the Directorate General of the

Local Authorities, whenever one of the following situations occurs:

a) The existence of debts to upstream suppliers exceeds 50% of revenue

totals of the previous year;

b) The default, in the last three months, of debts of some of the following

types, without the availabilities being sufficient for the satisfaction of these

debts within two months:

i) Contributions and contributions to social security;

ii) Debts to the system of Social Protection to Employees and Agents of the

Public Administration (ADSE);

iii) Emerging contract credits of employment;

iv) Rends of any kind of leasing.

4-Declared the situation of financial imbalance, the municipality submits to the approval

of the Minister of Finance and the Minister who tutores local authorities a plan of

financial rebalancing, in which it is defined:

a) The specific measures required to achieve a financial situation

balanced, in particular with respect to the release of funds and the

containment of expenses;

b) The measures for the recovery of the financial and sustainability situation of the

municipal indebtedness, during the term of the said contract,

in particular the amount of the loan to be contracted;

c) The objectives to be achieved in the period of rebalancing and its annual impact on the

first quadriennium.

5-A approval of the financial rebalancing plan, by joint order of the Minister

of the Finance and the Minister that tutorates local authorities, authorises the celebration of the

contract for financial rebalancing between the municipality and a credit institution,

provided that it is indispensable for the objectives set out in the preceding paragraph.

6-Loans for financial rebalancing may not have a maturity of more than 20

years, including a maximum deferment period of five years.

7-In the duration of the rebalancing contract, the implementation of the rebalancing plan is

accompanied quarterly by the Minister who tutorates local authorities, owing

the municipalities communicate in advance:

34

a) The hiring of staff;

b) The acquisition of goods and services or award of a value endeavor

superior to the legally required for holding a public tender.

8-Failure to comply with the communication obligations provided for in this article, as well as

deviations from the objectives set out in the rebalancing plan,

determines the retention of 20% of the twelfth of the FEF transfers to the

regularization of the situation.

9-The joint order referred to in paragraph 4 and the financial rebalancing plan are

published in the 2 th Series of the Journal of the Republic .

Article 42.

Municipal Regularization Fund

The Municipal Regularization Fund (FRM) aims to cope with situations of imbalance

structural financial or financial rupture of the municipalities, being constituted by the

amounts of the budgetary transfers deducted from the municipalities in accordance with the

provisions of Article 5 (4), being prorated in the terms to be defined by a diploma of their own.

Article 43.

Prohibition of the assumption of commitments by municipalities and freguesias by the

State

Without prejudice to the legally foreseen situations, the State shall not assume

liability for the obligations of municipalities and freguesies, nor to assume the

commitments that are due to these obligations.

Article 44.

Credit regime of freguestics

1-Freguesias can borrow short-term loans and use openings of

credit, together with any institutions authorized by law to be granted credit, since

that are amortized in their entirety within the maximum period of one year after their

contraction.

2-Freguesias may enter into financial leasing contracts for acquisition of

viatures, for a maximum term of five years.

35

3-A contracting of loans and the conclusion of financial leasing contracts

compete for the freguish board, upon prior authorization of the assembly of

freguesia or from the plenary of citizen voters.

4-Loans are contracted to occur to cash difficulties, not

may your amount exceed, at any time, 10% of the respective FFF.

5-Constituting guarantee of the borrowings of the proceeds from the FFF.

6-It is vedated to the freguesias want the accepted want of the loot of bills of exchange, the concession

of changeable avales, as well as the underwriting of bookies, the granting of guarantees

personal and real and the contraction of medium and long-term loans, except the

provisions of paragraph 3 of this Article.

7-The amount of the debts of the freguesias to suppliers may not exceed 50% of the

its total revenues raised in the previous year.

8-When indebtedness to suppliers does not comply with the provisions of the preceding paragraph

the amount of debt is to be reduced, in each subsequent year, by 10%, until

the limit if it finds fulfilled.

9-In the case provided for in the preceding paragraph, it is incumbent upon the executive body to draw up plan

debt reduction up to the borrowing limit set out in paragraph 6 and present it to the

freguish assembly for the approval.

Title VI

Accounting, provision and external audit of accounts

Article 45.

Accounting

1-The regime relating to the accounting of local authorities aims at its uniformity,

standardization and simplification, so as to constitute an instrument of management

economic-financial, allow the complete knowledge of the book value of the

respective heritage, as well as the appreciation and judgment of the respective accounts

annual.

2-A accounting for local authorities respects the Official Accounting Plan of the

Local Authorities (POCAL), and may still have other instruments

necessary for the good management and control of the monies and other public assets, in the

terms set out in the law.

36

Article 46.

Consolidation of accounts

1-Without prejudice to the reporting documents provided for in the Act, the accounts of the

municipalities that hold municipalized services or the totality of the capital of

entities of the local business sector should include the consolidated accounts,

presenting the consolidation of the balance sheet and the demonstration of results with the

respective explanatory attachments, including, inter alia, the balances and flows

financial among the target entities of consolidation and the borrowing map

medium-and long-term consolidated.

2-The accounting procedures for the consolidation of the balance sheets of municipalities and

of the municipal or intermunicipal companies are those defined in POCAL.

Article 47.

Assessment of accounts

1-The accounts of municipalities and freguesias, as well as the respective associations,

are appreciated by the respective deliberative body, meeting in ordinary session, until

to 15 th day of the month of April of the year following that to which they respect.

2-The accounts of municipalities and associations of municipalities that detain

participations in the capital of entities of the local business sector are remitted to the

deliberative body for consideration together with the legal certificate of the accounts and the

opinion on the accounts presented by the official reviewer of accounts or society of

official reviewers of accounts.

Article 48.

External audit of the accounts of municipalities and associations of municipalities with

capital holdings

1-The annual accounts of municipalities and associations of municipalities that detain

capital in foundations or in entities of the local business sector must be

verified by external auditor.

37

2-The external auditor is appointed by deliberation of the municipal assembly, under proposal

of the chamber, from among official reviewers of accounts or official reviewer societies

of accounts.

3-Compete to the external auditor who proceeds annually to the legal review of the accounts:

a) Check the regularity of books, accounting records and documents that

serve them support;

b) To participate in the competent municipal bodies the irregularities as well as the

facts that consider revelers of serious hardship in the pursuit of the

multi-annual investment plan of the municipality;

c) Proceed to the verification of the patrimonial values of the municipality, or by it

received in warranty, deposit or other title;

d) Refer semester to the deliberative body of the municipality or the entity

municipal associative, as the case may be, information on the respective

economic and financial situation;

e) Issue opinion on the accounts of the financial year, in particular on the implementation

budget, the balance sheet and the demonstration of consolidated results and annexes

to the financial statements required by law or determined by the assembly

municipal.

Article 49.

Advertising

1-The municipalities must make available, either in a paper form in visible place in the

buildings of the city hall and of the municipal assembly, either on the respective site in the

Internet :

a) The summary maps of expenditure under the economic classifications and

functional and revenue according to economic classification;

b) The figures in force regarding the IMI and stroke rates on the IRC;

c) The percentage of the variable participation in the IRS, pursuant to Article 20;

d) Water, sanitation and waste charges want the service provider to be the

municipality, a municipalized service, a municipal corporation,

intercity, dealership or a private partner in the framework of a

public-private partnership;

e) The municipal fee regulations.

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2-The local authorities, the respective associations and the entities of the business sector

site shall make available on the respective site at the Internet the documents

predictions and the provision of accounts referred to in this Law, namely:

a) The activities plans and the activity reports of the last two years;

b) The multiannual plans for investments and budgets, as well as the

management reports, the balance sheets and the demonstration of results,

even the consolidated, budget implementation maps and annexes

to the financial statements, of the last two years;

c) The data for the annual implementation of the multiannual plans.

Article 50.

Duties of information

1-For the purposes of the provision of information in respect of the accounts of administrations

public, municipalities should refer to the Minister of Finance and the Minister that

tutelage local authorities their budgets and quarterly accounts in the 30 days

subsequent respectively to their approval and to the period to which they respect, well

like your annual account after you approved.

2-The municipalities with more than 100,000 voters are still required to remit,

Monthly, to the Minister of Finance the respective bills in the 30 days

subsequent to the period to which they respect.

3-For the purposes of the provision of information on public debt data, the

municipalities should also refer to the Finance Ministers and the Minister that

tutelage local authorities information on the loans by them contracted and

on the assets expressed in debt securities issued in the 30 days subsequent to the

end of each quarter and after the appreciation of the accounts of the municipality.

4-Freguesias are required to refer to the Minister who guardians local authorities,

the respective accounts in the 30 days subsequent to the date of the organ's session

deliberative in which those accounts were subject to appreciation.

5-For the purposes of monitoring the evolution of personnel expendities, the

local authorities refer quarterly to the Directorate General of Local Authorities

the following elements:

39

a) Expenses with personnel, including avickness, task and acquisition contracts

of services with natural persons, comparing with those carried out in the same

period of the previous year;

b) Number of admissions of personnel, to any type, and from retirees, rescisions

and other forms of cessation of labour linkage;

c) Statement of reasons for possible increases in expenditure on staff, which do not

result from wage updates, compliance with legal obligations or

transfer of competences from the Central Administration.

6-A information to be provided in the terms of the preceding paragraphs shall be remitted by

constant file of the computer application defined and provided by the Directorate General

of the Budget and the Directorate-General for Local Authorities.

7-In case of non-compliance, by municipalities, of the duties of information

provided for in this Article, as well as of the respective deadlines, are retained 10% of the

twelfth of the current transfers of FGM.

Article 51.

Judgment of the accounts

1-The accounts of the municipalities, the freguesias and the respective associations are

referred by the executive body, pursuant to the law, to the Court of Auditors, up to 30 of

April, regardless of your appreciation for the deliberative body.

2-The Court of Auditors refers its decision to the respective municipal bodies, with

copy to the Minister of Finance and to the Minister with the tutelage of local authorities.

Title VI

Transfer of assignments and competences

Article 52.

Transfer of assignments and competences

1-A The transfer of assignments and competences to local authorities ensures

concretization of the principles of decentralization and subsidiarity, having by

purpose to ensure the strengthening of national cohesion and interregional solidarity and

the promotion of the efficiency of public management.

40

2-A The transfer of assignments and competences takes place to the local municipality which,

in accordance with its nature, show itself more appropriate to the exercise of competence

in cause.

3-A The transfer of assignments and competences is accompanied by the resources

financial and of the heritage appropriate to the performance of the transferred function.

Article 53.

Financing of new skills

1-A transfer of competences, the identification of the respective nature and the form of

allocation of the respective resources are defined in multiannual programmes, in the

terms of the law.

2-The funding of new municipal skills associated with social functions

takes place through the FSM by proceeding with the State Budget Act to the

adjustment of the amount and criteria of FSM allocation to the nature and value of the

expenses of the competences transferred to the municipalities.

3-The funding of municipal competences in other areas takes place upon

an increase in participation in the ETF, accompanied by an increase in character

redistributive of FCM.

4-The financing of new skills of the freguesias takes place upon a

increased participation in the FFF.

5-Within the framework of the multiannual management of the transfer process, the schedule

defined may be the subject of an interim review, under the law.

6-A interim review of the multiannual programme of transfer of competences no

may determine an increase in the overall public expenditure planned in the schedule

initial for the year of the review.

7-Without prejudice to the provisions of the preceding paragraphs, they may be transferred

skills by an avuled diploma, with a transitional character, as long as they are

accompanied by the appropriate financial resources and integrated into the programme

multiannual of the transfer of competences in the following interim review.

41

Article 54.

Public partnership programs

1-A The central administration and the local administration act in a coordinated manner in the

pursuit of the public interest, without prejudice to its own competences,

establishing among themselves public partnership programs.

2-Public partnership programmes may have as the object the coordinated exercise

of competences of local authorities or the central administration.

3-Public partnership programmes necessarily define the skills to be

to exercise in partnership, the obligations of the parties, the duration and the distribution regime

of costs and the allocation of financial resources.

4-The revenue generated by the management of equipment or provision of public services

pursued in public partnership regime are applied in the partnership programme

public, being possible surpluses distributed by the public partners in the reason

of your participation in the program.

Title VIII

Final and transitional provisions

Article 55.

Fines

1-A violation of postures and regulations of a generic nature and execution

permanent of local authorities constitutes sanctioned counterordinance with

cofine.

2-The fines to be predicted in the postures and municipal regulations may not be

higher than 10 times guaranteed monthly minimum consideration for people

singular and 100 times that value for legal persons, nor exceeds the

amount of those imposed by the state for counter-ordinance of the same

type.

3-The fines to be provided for in the postures and regulations of the freguesias may not be

higher than the highest national minimum wage, nor exceed the amount of the

that are imposed by the State or the municipality for counterordinance of the

same type.

42

4-The postures and regulations referred to in the preceding paragraphs may not enter into

vigour before decorating 15 days on its publication, in the legal terms.

5-A competency to determine the instruction of counterordinance processes and

for the application of the fines belongs to the chairman of the executive bodies of the

municipalities and freguesias, and may be delegated to any of the remaining

members.

Article 56.

Tax guarantees

1-To the gracious claim or judicial challenge of the settlement of fees, charges of

more-valuable and too much revenue of a tax nature apply the norms of the Code

of Procedure and of the Tributary Process, with the necessary adaptations.

2-To the infringements of the regulatory standards of fees, charges for more-valuable and too much

income from a tax nature that constitute counter-ordinations apply to them

standards of the General Regime of Tax Offences, with the necessary adaptations.

3-Compete to executive bodies the coercive collection of debts to local authorities

coming from fees, charges of more-worth and other revenue of nature

tributary that those should charge, applying the Code of Procedure and of

Tax Process, with the necessary adaptations.

Article 57.

Transitional arrangements for the allocation of resources between the State and municipalities

1-In 2007, the overall amount of the participation of municipalities in the ETF, the FSM and the

IRS, as set out in Article 19 of this Law, corresponds to that provided for in the

n Article 22 (1) of the Law No 60-A/2005 of December 30.

2-Up to 2009, of the application of the EGF allocation criteria provided for in Article 21.

may not result in a reduction in the overall amount of the transfers to the

municipalities with a tax caption lower than 0.75 times the average capping

national of municipal taxes referred to in para. a) of Article 10 and of the

participation in the IRS referred to in para. a) of Article 19 (2)

3-Up to 2009, of the application of the EGF allocation criteria provided for in Article 21.

may not result in a reduction in the overall amount of the transfers to the

43

municipalities with more than 50% of area affects the Natura 2000 Network and the area

protected.

Article 58.

Transitional arrangements for distribution of the FSM

1-In 2007, the amount of the FSM to be distributed proportionally by each municipality

corresponds to 2% of the simple arithmetic mean of the revenue coming from the IRS, from the

IRC and VAT, which is equivalent to the skills currently being exercised by the

municipalities in the field of education, to be distributed in accordance with the criteria

enshrined in the paragraph a) of Article 28 (1) of this Law.

2-Stay excluded from the provisions of the preceding paragraph the amounts relating to

funding for skills with specific funding through the

Budget of the State or exercised under protocols and other forms of

contractualized cooperation between the central administration and the municipalities.

3-A as of 2008, is set annually in the State Budget Law the value

corresponding to the expenditure relating to the competences transferred from the administration

central to the municipalities, within the framework of the FSM.

Article 59.

Participation in the IRS in 2007 and 2008

In 2007 and 2008, the participation referred to in point (s) c) of Article 19 (1) is 5%.

Article 60.

Transitional arrangements for distribution of the FFF

1-In 2007, the amount of global participation of freguesias in the FFF is

corresponding to that provided for in Article 22 (2) of the Law No 60-A/2005 of 30 of

December.

2-Up to 2009, of the application of the FFF apportionment criteria provided for in Article 32.

may not result in a reduction in the overall amount of the transfers to the

freguesias of the municipalities with a tax caption less than 0.75 times a

44

national average caption of municipal taxes referred to in para. a) of the article

10. and of the participation in the IRS referred to in para. a) of Article 19 (2)

Article 61.

Transitional arrangements for borrowing

1-A The reduction of financial transfers provided for in Article 5 (4) shall apply in

2007 to municipalities whose management account demonstrates to have been breached the limit to

net borrowing provided for in Article 33 of Law No 60-A/2005 of 30 of

December.

2-Stay excluded from the limits of indebtedness provided for in Article 39 (2)

loans and the charges with loans previously contracted under the

legal provisions that excepted them from the limits of municipal indebtedness.

Article 62.

Expenses with personnel

By 2009, the State Budget Act may set annual limits for expenditure on

personnel, including those relating to contracts for the avickness, task and acquisition of services to

natural persons.

Article 63.

Adaptation to Autonomous Regions

1-A This Law is directly applicable to municipalities and freguesies of the Regions

Autonomas, with the adaptations provided for in the following numbers.

2-A transfer of competences to the municipalities of the Autonomous regions well

as their financing, specifically by adjusting the amount and

apportionment criteria of the FSM, they carry out in the terms to be provided for in decree

legislative of the respective regional legislative assemblies.

3-Taking into account the specificities of the Autonomous Regions, the assemblies

regional legislative ones can define the forms of technical and financial cooperation

between the Regions and their municipalities.

45

Article 64.

Abrogation standard

1-It is repealed Law No 42/98 of August 6.

2-Maintain in force, up to the respective replacement, the current legal diplomas

published in implementation of previous local finance laws, in the part no

contravenred by this Law.

Article 65.

Entry into force

This Law shall come into force on January 1, 2007.

Seen and approved in Council of Ministers of July 27, 2006.

The Prime Minister

The Minister of the Presidency

The Minister of Parliamentary Affairs

46

ANNEX

(referred to in Article 27 (10))

Index of Social Development (IDS)

Methodology for construction

1-Are components of IDS the following indexes:

The ) Hope of life at birth;

B ) Educational level;

C ) Comfort and sanitation.

With an identical weight, according to the following formula:

IDS = ( and (0) + I ( and ) + I ( cs )) /3

being:

and (0) = index of life expectancy at birth;

I ( and ) = index of the educational level;

I ( cs ) = index of comfort and sanitation.

2-Formula of the index of life expectancy at birth ( and ):

and (0) =0,5 + [2.511, + 4.515, + 5 (110 + 115 + 120 +.. + 1 x )] /10

being:

1 x = number of survivors of the mortality plank.

3-Formula of index of the educational level ( I ( and )):

I ( and ) = P and (15 and + years) / P t (15 and + years) × 100

being:

P and (15 and + years) = population of 15 and more years of age, knowing to read and write;

P t (15 and + years) = total population of 15 and more years of age.

4-Formula of the comfort and sanitation index ( I ( cs )):

I ( cs ) = ( I And + I OH2 + I AS )/3 × 100

where:

I And = index of existence of electricity in the housing units (UA), obtained from

agreement with the following formula:

I And = P E / P t × 100

47

being:

P E = resident population in households that have electrical energy at the AU;

P t = resident population of both sexes;

I OH2 = index of the existence of water channelled at the AU, obtained according to the

next

formula:

I OH2 = P OH2 / P t × 100

being:

P OH2 = resident population with piped water in the AU, coming from a system

of public or particular plumbing;

I SA = index of basic sanitation existence at the AU, obtained according to the

following formula:

I SA = P SA / P t × 100

being:

P SA = resident population with sanitary facilities with retrete (deprivative or not

deprivation) linked to a any type of public wastewater drainage system,

particular or other type of sanitation.