Portugal

Market overview

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."


Tax authorities

Directorate General for Taxation
Rua da Prata, n. 10 - 2º, 1149-027 Lisbon
Tel: +351 21 882 3093
Fax: +351 21 881 2938
Email: dsirs@at.gov.pt
Website: www.portaldasfinancas.gov.pt


Tax rates at a glance

(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)
 
Withholding tax
Dividends 0/25/35% (e)
Interest 25/35% (f)
Royalties from patents and licences 25/35% (g)
Branch remittance tax n.a.
 
Net operating losses (years)
Carryback 0
Carryforwards 12 (h)

  1. Corporate income tax (CIT) applies to resident companies and non-resident companies with permanent establishments in Portugal. Small and medium-sized companies can benefit from a 17% reduced rate for the first €15,000 ($20,000) of taxable profit.
  2. A municipal surcharge of up to 1.5% is generally imposed on the taxable profit determined for CIT purposes. Certain municipalities do not levy the surcharge.
  3. A state surcharge of 3% is imposed on the taxable profit determined for CIT purposes between €1.5 million and €7.5 million. If the taxable profit for CIT purposes is more than €7.5 million, the state surcharge is levied at a rate of 5% on the excess up to €35 million. If the taxable profit for CIT purposes is more than €35 million, the state surcharge is levied at a rate of 7% on the excess.
  4. Gains on the disposal of shares may be exempt from tax, provided certain requirements are met. Non-resident companies that do not have a head office, effective management control or a permanent establishment in Portugal are taxed at a 25% rate on taxable capital gains derived from disposals of real estate, shares and other securities. For this purpose, a tax return must be filed. A tax treaty and/or a domestic exemption may override this taxation.
  5. Dividends paid to non-resident companies are taxed at 25%. The rate of 35% applies if dividends are paid to a resident of a listed tax haven, or in cases where the beneficial owner of the income is not properly disclosed. The rate may be reduced under a tax treaty or exempt under the participation exemption regime (if the beneficiary is resident in EU/EEA, a tax treaty country and if certain other conditions are met).
  6. The rate for interest paid by companies is 25%. The rate of 35% applies if interest is paid to a listed tax haven or in cases where the beneficial owner of the income is not properly disclosed. The rate may be reduced under a tax treaty or exempt under the EU Interest & Royalties Directive.
  7. Royalties paid to a non-resident are taxed at 25%. The rate of 35% applies if royalties are paid to a listed tax haven or in cases where the beneficial owner of the income is not properly disclosed. The rate may be reduced under a tax treaty or exempt under the EU Interest & Royalties Directive.
  8. For tax losses computed before 2010, the prior six-year carry-forward period applies. For tax losses computed in 2010, a four-year carry – forward period applies. For tax losses computed in 2012 or 2013, a five-year carry-forward period applies. For tax losses used from January 1 2014, the amount deductible each year is capped by 70% of the taxable profit for the year.

Source: EY and Deloitte