January 7, 2022
Following the latest changes of the Portuguese Transfer Pricing Regime, recently introduced in the Corporate Income Tax (CIT) Code, further to the substantial improvements occurred over the last 20 years, resulting from the work developed by the Organisation for Economic Cooperation and Development (OECD), the Joint Forum on Transfer Pricing (TP) of the European Union (EU) and the experience acquired with its continuous application, the Portuguese Government recently issued the publication of the Decree-Ruling 268/2021.
2. Brief description of the main changes introduced
In general, we believe that the recent changes aimed, essentially, a simplification of the documentation obligations, the increase of the legal certainty (by consolidating some important concepts) and the combat of the tax evasion, mitigating the risk of abuse.
Therefore, these changes covered mainly:
- The delineation of the controlled transactions;
- The scope of the terms and conditions’ concept;
- The comparability analysis;
- The selection and application of the TP methods;
- The provision of rules for specific transactions;
- The organization of the documentation process (in case the exemptions are not applicable);
- The correlative adjustments.
For more details, please see the annex attached.
3. Entry into force and production of effects
This Decree-Ruling shall enter into force on the day following its publication (November 27), except for Chapter IV – The Ancillary Obligations of Passive Persons (Articles 17 to 19), which takes effect during tax periods starting on or after 1 January 2021.
4. Critical analysis of the changes introduced
The review of the Portuguese TP Regime was not only expected, but also necessary, considering recent and relevant developments at international level, specially following the Base Erosion and Profit Shifting (BEPS) Plan.
However, although it may seem that the obligations of taxpayers may have generally decreased – if we look strictly at the global and individual turnover limit for their preparation, the truth is that:
- The exemptions provided for do not waive the demonstration by the taxpayer that the terms and conditions in the related-party transactions comply with the arm’s length principle in case the taxpayer is notified by the Portuguese Tax Authorities. As such, it is recommended that the taxpayer takes a proactive action in this context if he wishes to mitigate the correspondent tax risk, penalties or the associated litigation.
- We will most probably not be able to comply with the declarative obligation under Annex H to the Annual Declaration/IES if we do not prepare any sort of documentation before its submission (in case the taxpayer does not wish to do make false statements).
- In materially relevant or non-recurring transactions, such as: a) related-party transactions of any kind carried out with natural or legal persons residing outside the Portuguese territory and subject to a clearly more favorable tax regime there, b) business transfers, carried out in any way, c) transfers of securities, holdings or other values representing capital shares of any type of entities, not traded on regulated securities markets, or traded on regulated markets located in countries or territories classified as tax havens; d) business reorganization or restructuring transactions; e) transactions in immovable property; f) transactions with intangibles, it is clearly recommended to proactively prepare their documentation as a way of transferring the burden of proof to the Tax Authority.
From the above, and similarly as occurred from an international perspective, as well as in the current pandemic conjuncture, with diversified and very different impacts in various industries, it is expected in short term a strengthening of the TP audits in companies with higher turnover and/or intragroup transactions, using as risk measure the information that will be provided by the taxpayer by Annex H to the Annual Declaration/IES.
How can we help?
As transfer pricing service providers, Nexia will be able to support your Company or Group, not only in the preparation of your documentation and fulfillment of your declarative tax obligations, but also in the negotiation of Advanced Pricing Agreements with the Competent Authorities, on a local or global basis, benefiting for this purpose from Nexia International network, to which we belong.
Given the importance of the above-described changes, we recommend that companies act proactively in the management of its TP risks and opportunities, not only from a Portuguese perspective, but also from a global perspective, benefiting for this purpose from the Nexia International network.
If you have any questions about the application of these changes, or if you wish to review your internal procedures, ensuring compliance with the regulatory tax obligations, please do not hesitate to contact our tax experts.
The information presented above is not intended to be an exhaustive analysis of all the changes to the current legal regime, but rather a selection of those that we believe to be the most relevant, and does not preclude consultation of our Company and / or legislation to which it refers.
For more information contact: Catarina Breia (+351 91 7575 832 or email@example.com) from our Tax Department.