PortugalPortugal

Legal ReferenceArticle 63 of the Corporate Income Tax Code

Legal ReferenceMinisterial Order n.º 268/2021, of the 26th of November

The Portuguese Corporate Income Tax Code incorporates the arm’s length principle, whose application is duly regulated in Ministerial Order n.º 268/2021, of the 26th of November. The preamble of the Ministerial Order n.º 268/2021, of the 26th of November, emphasizes the role of the OECD Transfer Pricing Guidelines (TPG) as a source of guidance in the application of the arm’s length principle, noting that the TPG should be taken in consideration in the application of the transfer pricing legal framework and of the arm’s length principle, given the complexity of the issue, and the need to avoid double taxation and litigation.

Legal ReferenceArticle 63 paragraph 4, of the Corporate Income Tax Code

There shall be deemed to be a special relationship between two entities where one of them has the power to exert, directly or indirectly, a significant impact on the management decisions of the other; this shall be deemed to occur, namely, between: a) An entity and the owners of its equity, or the spouses, ascendants or descendants thereof, holding, directly or indirectly, a participation not lower than 20 per cent of the equity or voting rights; b) Entities in which the same equity owners, respective spouses, ascendants or descendants hold, directly or indirectly, a participation not lower than 20 per cent of the equity or voting rights; c) An entity and the members of its corporate bodies, or any administration, direction, management or supervising boards, as well as their spouses, ascendants or descendants; d) Entities the majority of whose members of the corporate boards or of the administration, direction, management or supervising boards are the same persons or, in case of different persons, are related with each other by marriage, common law marriage or direct parentage; e) Entities related under a subordination agreement, a parity group or any other agreement of a similar nature; f) Enterprises with a control or group relationship, as defined in Article 486.º of the Commercial companies Code; g) Entities which legal relation allows, by its terms and conditions, that one entity conditions the management decisions of the other, due to facts or circumstances beyond or outside the commercial or professional relation; h) A resident entity or a non-resident entity with a permanent establishment situated in the Portuguese territory and an entity subject to a more favourable tax regime, resident in a country, territory or region listed in the Ministerial Order approved by the Minister of State and Finance. The arm’s length principle is also applicable to any transaction between: a) a Portuguese company and its permanent establishments abroad, or between these permanent establishments; b) A non-resident entity and its permanent establishment in Portugal, or between these and other permanent establishments of that non-resident entity.

Legal ReferenceArticle 63 paragraph 3 of the Corporate Income Tax Code

Paragraph 3 of Article 63 of Corporate Income Tax Code states that the methods to be used, in the context of the application of the arm’s length principle, are as follows: a) The Comparable Uncontrolled Price (CUP) method, the Resale Price method, the Cost Plus method, the Profit Split method or the Transactional Net Margin method; b) Any other method, technique or asset valuation model generally accepted, whenever the methods mentioned in the previous sub-paragraph cannot be applied, due to the uniqueness of the transactions under evaluation or the lack of information and comparable data regarding similar transactions between independent entities, namely when those transactions refer to rights on immovable property, share capital participations, credit claims and intangibles.

• CUP (provided)
• Resale Price (provided)
• Cost Plus (provided)
• TNMM (provided)
• Profit Split (provided)
• Other (provided)

Legal ReferenceArticle 63 paragraph 3 of the Corporate Income Tax Code; Article 6 of the Ministerial Order n.º 268/2021, of the 26th of November

According to Article 6 of Ministerial Order n. º 268/2021, of the 26th of November, the taxpayer shall adopt the most appropriate method, defined as the method that is likely to provide the highest degree of estimation of the terms and conditions that independent entities would agree upon, accept or use at arm’s length.

• Hierarchy of methods (not selected)
• Most appropriate method (selected)
• Other (if so, please explain) (not selected)

As the domestic legislation does not contain specific guidance on commodity transactions, paragraphs 2.18-2.22 of the TPG would be a source of guidance in the application of the arm’s length principle in these cases.

Legal ReferenceArticles 5 and 7 of the Ministerial Order n.º 268/2021, of the 26th of November

Article 5 of the Ministerial Order n.º 268/2021 identifies the relevant steps to perform a comparability analysis, in alignment with Chapter III of the TPG, and Article 7 of the Ministerial Order n.º 268/2021 identifies the comparability factors to consider in the analysis of controlled transactions under the arm’s length principle. The OECD TPG are a supplementary source of guidance in the application of the arm’s length principle in any comparability aspects not specifically covered by the domestic legislation.

There would be a preference for domestic comparables only in those cases where the controlled transactions under evaluation would involve terms and conditions significantly connected with specific/exclusive characteristics of the domestic market.

Legal ReferenceArticles 5 and 19 and Annex I of the Ministerial Order n.º 268/2021, of the 26th of November

The Portuguese legal framework demands the identification of the comparable set of enterprises/contracts selected in the comparability analysis performed by the taxpayer and does not mention the possibility of using secret comparables.

Legal ReferenceArticle 6 of the Ministerial Order n.º 268/2021, of the 26th of November

The domestic legislation allows the use of an arm’s length range and of statistical measures for determining an arm’s length remuneration, provided that the analytical process underlying the determination of the range or the statistical measure is in alignment with the arm’s length principle.

Legal ReferenceArticle 6 of the Ministerial Order n.º 268/2021, of the 26th of November

When applying a transfer pricing method, and if the terms and conditions of the tested transactions or companies are not fully comparable in any of the relevant aspects required for an arm’s length test, comparability adjustments must be performed in order to eliminate the effect of the existing differences.

Legal ReferenceArticle 15 of the Ministerial Order n.º 268/2021, of the 26th of November

Controlled transactions involving intangibles follow the general transfer pricing rules prescribed in the Portuguese legislation, and Article 15 of the Ministerial Order n.º 268/2021 describes the framework for analysing transactions involving intangibles between associated enterprises, and its underlying steps, in alignment with Chapter IV of the TPG. The OECD TPG are a supplementary source of guidance in the application of the arm’s length principle to controlled transactions involving intangibles aspects, in aspects not specifically covered by the domestic legislation.

Legal ReferenceHTVI Implementation Questionnaire

Portugal has not yet expressly adopted the HTVI approach as defined in Chapter VI of the TPG. The TPG are referred to in the Portuguese legislation as a source of supplementary guidance in the application of the arm’s length principle, particularly in what concerns complex technical issues or in those cases where the national law does not prescribe specific guidance. In consequence, and although it is not expressly adopted in the national legislation, there is also no impediment to the application of the HTVI approach, as defined in Chapter VI of the TPG, within the statute of limitations period (four years).

Legal ReferenceArticle 14 of the Ministerial Order n.º 268/2021, of the 26th of November

Article 14 of the Ministerial Order n.º 268/2021, provides generic guidance on the application of the Arm’s Length Principle to intra-group services transactions, in alignment with the guidance of OECD TPG.

Legal ReferenceMinisterial Order n.º 268/2021, of the 26th of November

Portugal has not expressly adopted the LVAIGS approach as defined in Chapter VII of the TPG. As the TPG are referred to in the Portuguese legislation as a source of supplementary guidance in the application of the arm’s length principle, there is no impediment to the application of the LVAIGS approach, based on the evaluation of the specific facts and circumstances of each case.

Legal ReferenceArticle 63 paragraph 2, of the Corporate Income Tax Code; Article 1 of the Ministerial Order n.º 268/2021, of the 26th of November

Although domestic legislation does not contain specific guidance on financial transactions between related parties, both Article 63 of the CITC and Article 1 of the Ministerial Order n.º 268/2021, make clear that the arm’s length principle is applicable to those transactions. Additionally, the OECD TPG are a supplementary source of guidance in the application of the arm’s length principle to controlled transactions in aspects not specifically covered by the domestic legislation.

Legal ReferenceArticles 67, 68A, 68B, 68C and 68D of the Corporate Income Tax Code

Article 67 of the Corporate Income Tax Code limits interest deductions for the purposes of the determination of a company’s taxable income, following the transposal of Directive 2011/96/UE. Articles 68-A to D apply to the treatment of hybrid mismatch arrangements, in which financial transactions may be included, following the transposal of the Directive 2016/1164/UE.

Legal ReferenceArticle 13 of the Ministerial Order n.º 268/2021, of the 26th of November

Article 13 of the Ministerial Order n.º 268/2021 gives generic guidance on the application of the Arm’s Length Principle to cost contribution agreements, in alignment with the guidance of the OECD TPG.

Legal ReferenceCbCR: Articles 121-A and 121-B of the Corporate Income Tax Code; TPD (MF and LF): Articles 17 to 18 of Ministerial Order n.º 268/2021, of the 26th of November

• Master file consistent with Annex I to Chapter V of the TPG (selected)
• Local file consistent with Annex II to Chapter V of the TPG (selected)
• Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
• Specific transfer pricing returns (separate or annexed to the tax return) (selected)
• Other (specify) (not selected)

Legal ReferenceTP Documentation: article 63 paragraph 6 and article 130 of the Corporate Income Tax Code; TP Return: article 121 of the of the Corporate Income Tax Code; CbCR: article 121-A, paragraphs 3 and 4

Transfer pricing documentation (Master file and Local file) must be prepared until the 15th day of the 7th month after the end of the fiscal year. The documentation should be prepared in Portuguese, but other working languages may be accepted upon request. The same deadline applies to the filing of the TP return (included in the Annual Return of Simplified Corporate Information). CbCR must be submitted until the end of the 12th month after the end of the fiscal year it refers to. Each constituent entity of a MNE group must identify, by filing the adequate form, the reporting entity of the MNE group, until the end of the 5th month after the end of the fiscal year the inherent CbCR refers to.

Legal ReferenceArticle 116 and article 117 of the Portuguese Taxation Infringements General Law; Article 119 of the Portuguese Taxation Infringements General Law

The failure to present the transfer pricing documentation or CbCR is punished with a penalty of EUR 500 to EUR 10 000, with an additional of 5% of the fine for each day of delay. The failure to present the transfer pricing return is punished with a penalty of EUR 500 to EUR 10 000. Any inaccuracies in the information provided in the TP documentation, in the TP returns or in CbCR are punished with a penalty of EUR 375 to EUR 22 500.

Legal ReferenceArticle 17 of Ministerial Order n.º 268/2021, of the 26th of November; TP Return (included in the Annual Return of Simplified Corporate Information)

The obligation to prepare the transfer pricing documentation file does not comprise any taxable person with total net sales and other income, in the fiscal year to which the documentation refers to, bellow EUR 10 million. This threshold is not applicable to CbCR which replicates the guidance of BEPS Action 13. The Transfer Pricing Return, included in the Annual Return of Simplified Corporate Information, must include information regarding all controlled transactions that exceed, by nature/code and entity the amount of EUR 100 000, provided that the total amount of excluded transactions does not exceed EUR 500 000.

Legal ReferenceArticle 138.º of the Corporate Income Tax Code and Ministerial Order n.º 267/2021, of the 26th of November, regulate the process for entering into an Advance Pricing Agreement, including the rules to access MAP (articles 20 to 25); Other MAP guidance; Portugal’s MAP Profile

The possibility to request an APA was established in 2008 and is currently governed by Article 138.º of the Corporate Income Tax Code and Ministerial Order n.º 267/2021. An APA may cover a maximum period of four fiscal years that may include fiscal years regarding which tax returns were already submitted, if no more than two years have passed since the deadline defined for the submission for those tax returns. There are domestic rules and procedures for MAP that are addressed in Portugal’s MAP Profile.

• Rulings (not selected)
• Enhanced engagement or cooperative compliance programmes (not selected)
• Advance Pricing Agreements (APA) (selected)
• International Compliance Assurance Programme (ICAP) (selected)
• Mutual Agreement Procedures (selected)
• Other (please specify) (not selected)

The adoption of the simplified and streamlined approach is under assessment, regarding each of its concrete relevant features.

• N/A (selected)

• N/A (selected)

As long as there is a signed agreement between the competent authority of Portugal and another country regarding application of the simplified and streamlined approach that has entered into force.

(please see the explanation in question 34)

Taxpayers are not allowed to perform corresponding adjustments. Corresponding adjustments can only be performed when, under a MAP, the Portuguese competent authority agrees to the primary adjustment.

Year-end accounting adjustments are allowed in those circumstances where the companies use an arm’s length range and, at the end of the year, need to adjust a profit level indicator in order to comply with that arm’s length range.

Article 7 as it read before 2010.

• Article 7 as it read before 2010. (selected)
• Article 7 as it reads after 2010. (not selected)
• Other (please provide additional details) (not selected)

The preamble of the Ministerial Order 268/2021, of the 26th of November 2021, prescribes that the application of the Arm’s Length Principle to controlled transactions involving Permanent Establishments should consider the OECD Guidance included in the Reports on the Attribution of Profits to Permanent Establishments (RAPPE), published in 2008 and 2010, as well as Portugal’s comments and observations to the OECD Model Tax Convention, applicable to the specific facts and circumstances under analysis. Where the wording of Article 7 of the relevant tax treaty corresponds to the wording of Article 7 in OECD’s 2008 MTC, the guidance on the 2008 RAPPE will be applied. Where the wording of Article 7 of the relevant tax treaty may correspond to the wording of Article 7 in OECD’s 2010 MTC, the guidance on the 2010 RAPPE will be applied.

Legal ReferenceMinisterial Order n.º 268/2021, of the 26th of November

Although domestic legislation does not contain specific guidance on the attribution of profits to permanent establishments, both RAPPE are referred in the preamble of Ministerial Order n.º 268/2021, as a source of guidance in the application of the arm’s length principle. (Please see the explanation in Question 44)