|Garrigues, Taxand Portugal|
|Uría Menéndez – Proença de Carvalho|
|Ricardo da Palma Borges & Associados (RPBA)|
Corporations in Portugal are under significant scrutiny from tax officials and at high risk of audits.
"We anticipate that transfer pricing issues will continue to increase in relevance," said Filipe Romão, partner and head of Uría Menéndez – Proença de Carvalho. "The tax authorities are much more interested in TP issues and have been quite active in TP audits. We also believe that transfer pricing methods will be increasingly used for testing potentially abusive transactions."
Entities in Portugal with revenue equal to or exceeding €3 million ($3.5 million) in the last fiscal year are required to prepare TP documentation.
Officials extended the deadline for filing country-by-country reports (CbCR) to the end of October 2017. The postponement was announced in May and is the second time the Portuguese government has extended the deadline. It was previously extended in December 2016 to May 2017.
"The implementation of cross-border exchange of information rules should lead to increased litigation with the tax authorities," said Romão.
The European Union's code of conduct on the master file has not been adopted in Portuguese law, however, the country's local documentation policies address the same matters and require more disclosure from taxpayers.
Portuguese officials demand that corporations apply the 'best method' rule to each transaction, in order for it to comply with the arm's-length principle. However, entities can use any method as long as it can be justified, as officials recognise both traditional and profit-based methods in OECD guidelines.
There is an emphasis in Portuguese TP regulations on business restructuring, which is based on the arm's-length principle. This approach within audits is likely to be influenced by OECD rules in the future.
Many tax professionals highlighted the impact of Portugal's 'golden visa' policy on business activities. The policy was simplified in 2013 to attract more foreign investors. A key change was the lengthening of permanent residency to five years.
"In the recent years there has been an influx on foreign individuals," said partner Francisco de Sousa da Câmara of Morais Leitão, Galvão Teles, Soares da Silva (MLGTS). "A big proportion of these are multinationals who require assistance and within these areas we have been more involved."
(As of July 2017)
|Corporate income tax||21% (a)|
|Municipal surcharge||1.5% (b)|
|Corporate income tax – state surcharge||3/5/7% (c)|
|Capital gains||0/21/25% (d)|
|Branch tax||21% (a) (b) (c)|
|Royalties from patents and licences||25/35% (g)|
|Branch remittance tax||n.a.|
Net operating losses (years)
Source: EY and Deloitte