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    Saturday 17 August 2019

    Portugal - Update of the transfer pricing regime

    Managing director as representative


    After almost 20 years since the enactment of the Portuguese transfer pricing regime, an update for this regime was recently approved by the Portuguese parliament (included in the Corporate Income Tax (CIT) Code), but also of the General Taxation Infringement Regime (associated with the penalties for non-compliance).

    These new amendments become necessary following the recent international developments, mainly associated with the implementation of base erosion and profit shifting (BEPS) actions.  

    Brief overview of the main changes to be introduced

    The changes introduced in articles 63.º transfer pricing, 130.º tax dossier and 138.º advanced pricing agreements(APAs) of the CIT Code had, as main objective, the clarification of a number of areas. These include:

    • Scope of application of the regime. As it applies to transactions (or series of transactions) involving commercial transactions, namely those involving tangible or intangible goods, rights or services, whether (or not) under any agreement, including cost sharing agreements, intra-group services, as well as financial, restructuring and reorganization transactions, which may involve the changes in business structures, termination or substantial renegotiation of existing contracts, especially when they involve the transference of tangible, intangible, intangible rights or compensations for emerging damages or lost profits.
    • No hierarchy will apply for selecting a transfer pricing method.
      This means that taxpayers may adopt any transfer pricing method, depending of the specific circumstances surrounding the case.  For example, in cases of transactions with unique characteristics or where there is a lack of information about comparable transactions between unrelated parties (which may happen, namely, in case of transactions involving rights in respect of immovable property, shares of capital of unlisted companies, credit rights and intangibles), taxpayers may use an unspecified transfer pricing method.
    • The transfer pricing obligations will be aligned with the new reporting obligations, specified in Ministerial Order N.º 35/2019 (i.e. the new annual tax and accounting return, and specifically appendix H that requires transfer pricing information). For this purpose, please see our last tax alert.
    • “Large taxpayers” will also be required to submit its transfer pricing documentation to the Portuguese Tax Authorities (PTA), until the 15th day of the seventh month after the tax year-end ( by 15 July of the following year for taxpayers with a 31 December year-end). Currently, these are periodically listed and identified by the PTA, based on certain predefined criteria. Please note that previously, companies taxed as a fiscal unit already had that obligation, as well as the other taxpayers, further, to receiving PTA’s request for its submission.
    • Advance pricing agreements (APAs) (unilateral or bilateral) will be valid for up to four years (three years previously). Additionally, the terms and conditions of an APA will be exchanged with other countries under Portugal’s tax cooperation agreements.

    Finally, the changes introduced in article 117.º (lack or delay in the presentation of documents, statements or communications) of the General Taxation Infringement Regime had, as main objective, to expand the scope of application of penalties for non-compliance associated with transfer pricing obligations. Therefore, besides applying penalties in case of failures to timely submit transfer pricing documentation and the country-by-country (CbC) report (i.e. EUR1,000 to EUR20,000 for companies) plus 5% for each day that the failure continues), its scope of application will be extended to failures to timely submit the CbC notification form.

    Next steps of the process

    The above-mentioned amendments are detailed in Law 180/2019, firstly approved last 19 July and currently in the process of being promulgated by the Portuguese president.

    The new rules will be in force as from 1 October 2019.

    In addition, it is foreseen that a new ministerial order is also issued soon, to provide additional details in respect of the:

    1. Application of the transfer pricing methods.

    2. Analysis of the degree of comparability.

    3. Application of the arm’s length principle in case of cost sharing agreements, intragroup           services and restructuring transactions.

    4. Procedures to observe in cases of introducing transfer pricing adjustments (namely                   primary and correlative).

    5. Type, nature and content of the transfer pricing documentation, as well as the situations        where taxpayers are exempt from its preparation.

    Our comments and recommendations

    Historically, as we know, the approach multinational groups give to transfer pricing risk management is normally motivated and dependent on external requirements (particularly correlated with accounting, tax regulations and the probability of scrutiny by local tax authorities).

    However, these global entities, given the recent tax scandals, are also facing not only important and unprecedent pressures when it comes to the reduction of its tax risk, but also increased levels of transparency and communication.

    As transfer pricing regulations evolve in more and more jurisdictions over time, either  in scope or complexity, transfer pricing risk management needs also to continuously adapt to mitigate the risks that occur further to the changes of the (local and global) transfer pricing requirements, as business grows. 

    Given the importance of the amendments of the Portuguese transfer pricing regime, recently described, we strongly recommend that multinational groups act proactively in managing its transfer pricing risk, not only from a Portuguese, but also from a global perspective.

    For additional information or clarification, please do not hesitate to contact our tax/transfer pricing specialists.

    For more information, contact:

    Catarina Breia
    Nexia Santos Carvalho, Portugal
    T: +351 91 75 75 832
    E: cbreia@pt-nexia.com
    W: www.pt-nexia.com

    After almost 20 years since the enactment of the Portuguese transfer pricing regime, an update for this regime was recently approved by the Portuguese parliament (included in the Corporate Income Tax (CIT) Code), but also of the General Taxation Infringement Regime (associated with the penalties for non-compliance).
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