This report briefly describes the main tax issues that resident and non-resident entities may face in mergers and acquisitions (M&A) involving Portugal, from both inbound and outbound perspectives.
This report briefly describes the main tax issues that resident and non-resident entities may face in mergers and acquisitions (M&A) involving Portugal, from both inbound and outbound perspectives.
The information in this report is based on the tax legislation in force as at 31 January 2018.
The State Budget Law for 2018 was published on 29 December 2017 and clarifies the government’s intention to introduce some of the Organization for Economic Co-operation and Development’s (OECD) recommendations on base erosion and profit shifting (BEPS).
The Portuguese State Budget Law for 2018 foresees the possible withdrawal some temporary tax benefits, as of 1 July 2018.
Whether the benefits will be withdrawn depends on the conclusions of a special commission analyzing the economic reasons for maintaining certain tax benefits currently in force. If the commission does not reach a conclusion by the end of June 2018, the tax benefits will automatically be revoked.
The State Budget Law for 2018 also introduced a new rule in the Portuguese Corporate Income Tax (CIT) Law taxing capital gains from the transfer of the share capital or similar rights in non-resident entities, where, at any time in the previous 365 days, the value of those shares or rights, is derived directly or indirectly, in more than 50 percent of real estate assets located in Portuguese territory.
Additionally, during 2017, Portugal signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS.
An acquisition in Portugal is usually conducted through the acquisition of shares in a company, rather than its assets, because an acquisition of assets often triggers real estate transfer tax and stamp duty for the buyer.
A share sale is also usually more efficient for the seller. Capital gains on the sale of shares may benefit from a full exemption in certain cases, whereas capital gains on a sale of assets are generally fully taxable or only partly exempt at the level of the seller.
Purchase of assets
An asset deal can be more attractive for the buyer than a share deal because of the non-transfer of tax contingencies faced by the target company, greater flexibility in funding options and the ability of the buyer to acquire only specific assets.
However, some features of an asset deal make it less tax- efficient, such as real estate transfer tax, stamp duty and the inability of transferring to the buyer eventual tax losses carried forward by the target company.
For tax purposes, the purchase price corresponds to the acquisition value agreed in the respective contract or the property tax value (for real estate assets), whichever is higher.
Transfer pricing rules must be complied with where the deal is undertaken between related entities. Under these rules, the acquisition value agreed between the parties must correspond to the value that would be agreed between non- related entities, in compliance with the arm’s length principle.
The acquisition cost of certain intangible assets with no defined useful life period, namely, goodwill on the acquisition of a business unit (but not shares), can be amortized for tax purposes over a 20-year period.
According to the CIT Code, depreciation costs are allowed for tax purposes based on the rates set out in Regulatory Decree no. 25/2009, of 14 September 2009.
Land is not depreciable for tax purposes.
No tax attributes, such as tax losses carried forward and tax incentives, are transferred to the buyer as part of an asset deal.
The limitation on transferring tax losses may be reduced by offsetting them against an eventual capital gain obtained by the seller and the corresponding step-up in the acquisition value of the assets for the buyer.
Value added tax
According to the Portuguese Value Added Tax (VAT) Code, a sale of assets (or services) is considered a supply of goods (or services) subject to VAT.
However, the transfer of assets as a going concern, whether for consideration or not, or as a contribution to a company, is not subject to VAT, provided certain requirements are met.
This no-supply rule serves the purpose of simplicity and is aimed at preventing the successor from being overburdened with a large VAT payment, which can normally be recovered through the input VAT deduction.
Where the assets being transferred do not constitute a business unit, the transferred assets (or services) have their own VAT treatment because the seller is normally obliged to charge VAT on the goods (or services) that are being sold, such as stocks and movable goods.
For example, stocks that are sold or contracts that are assigned are normally subject to VAT at the standard rate, whereas the sale of, for example, real estate is VAT-exempt.
Where the recipient is not wholly liable to tax, the tax authorities may take measures to prevent distortion of competition and require VAT adjustments to prevent tax evasion or avoidance through the abuse of this rule.
Therefore, according to the VAT law, a seller that executes a VAT-exempt sale of real estate may be obliged to perform VAT adjustments in the VAT previously recovered.
To avoid these adjustments, the seller and buyer can jointly opt to waive this exemption and charge VAT on the transaction, provided certain requirements are met.
Where VAT is not charged, the operation is subject to stamp duty. Where the VAT exemption is waived, no stamp duty is applicable. Either way, any applicable real estate transfer tax is still due, unless a specific exemption applies (as mentioned below).
The purchase of assets comprising real estate located in Portuguese territory triggers real estate transfer tax and stamp duty on the acquisition value or the property tax value, whichever is higher. Rates vary from 5 to 6.5 percent1 for real estate transfer tax. The stamp duty rate is 0.8 percent. Both taxes are borne by the buyer.
Some real estate transfer tax exemptions (total or partial) may be available for acquisitions of:
Additionally, under certain circumstances, the transfer of assets as a going concern (Trespasse) may trigger stamp duty at the rate of 5 percent.
Purchase of shares
The purchase of shares is usually more attractive from a tax perspective for both the buyer (since it generally does not trigger real estate transfer tax or stamp duty) and the seller (since it facilitates access to a capital gains exemption).
However, a purchase of shares can give rise to significant disadvantages for eventual tax contingencies within the target company.
Therefore, a thorough investigation of the target is essential to identify any possible tax contingencies based on a review of tax returns, documents and procedures. Such a review should cover all taxes, including CIT, VAT, personal tax, stamp duty and social security contributions.
Tax indemnities and warranties
Under a purchase of shares, tax liabilities and claims are transferred with the target companies, although protection may be sought in the sale-purchase agreement or any formal letter signed by both parties.
Any future assessment by the tax authorities will continue to be claimed from the target company, so usually the buyer requests and the seller provides indemnities or warranties regarding any undisclosed tax liabilities of the target company.
The Portuguese tax law operates a system of self-assessment under which companies are subject to periodic tax audits by the tax authorities for most taxes, after which tax assessments can be raised in respect of the preceding 4 fiscal years. Until this period has expired, tax returns are not closed but remain open for review and inspection.
Where companies have tax losses, the period open to fiscal audits may be extended to the period during which the tax losses can be carried forward.
For social security purposes, a tax audit and assessment may be carried out for the preceding 5 fiscal years. Real estate transfer tax and stamp duty on the acquisition of real estate are open for tax audit and assessment for 8 years.
In Portugal, tax losses may be offset against taxable profits assessed for 5 subsequent years (the carry forward period is 5 fiscal years for tax losses assessed in 2013 fiscal year; and 12 fiscal years for tax losses assessed in 2014 to 2016).
The deduction of tax losses is limited to 70 percent of the taxable profit annually.
The deductibility of tax losses is restricted where there is a change of ownership of more than 50 percent of the share capital of a company or of most of its voting rights, although several exceptions may apply.
In this case, the utilization of tax losses carried forward requires pre-authorization from the tax authorities in response to a request filed by the company in advance, explaining its economic reasons. The Portuguese tax authorities do not automatically approve such requests; they are analyzed case-by-case.
Portuguese tax law has no specific rules for the distribution of a pre-sale dividend.
Under Portuguese tax law, dividends paid by a Portuguese subsidiary to a non-resident entity are subject to withholding tax (WHT) at a flat rate of 25 percent, which may be reduced by a tax treaty (for entities resident in tax havens, the rate is increased to 35 percent). The Portuguese CIT Code foresees a CIT exemption (and thus no WHT obligation) for dividends distributed by Portuguese-resident companies to entities resident in a country:
The exemption also depends on the following:
A global participation exemption regime has been adopted for dividends obtained by Portuguese entities, excluding those obtained from tax havens, provided the following requirements are met:
Participation exemption regime for capital gains
Under the participation exemption regime for capital gains, and subject to the same conditions as the participation exemption regime for dividends, capital gains and losses assessed by a Portuguese company from the sale of shares are not taxable or deductible unless more than 50 percent of the assets of the company whose shares are being sold is composed of real estate assets located in Portugal and held for resale.
Although real estate transfer tax is generally not due on a share deal, the Portuguese Real Estate Transfer Tax Code states that the acquisition of a private limited liability company (Lda.) holding real estate that implies a single shareholder owning a participation of at least 75 percent is subject to real estate transfer tax.
In this case, the Real Estate Transfer Tax Code establishes that the tax base is the higher of:
The real estate transfer tax is due by the buyer of the share capital and must be paid before registering the public deed of acquisition.
The tax rate varies from 5 to 6.5 percent (normally 6.5 percent).
This tax is not due on transactions of public limited liability companies (S.A. companies).
No stamp duty is due on a purchase of shares.
Real estate transfer tax is due on the acquisition of participation units from private subscription closed-ended real estate investment funds and on operations (e.g. increase or reduction of capital), provided the outcome of the operations is that one holder, or two holders who are married or unmarried partners, will dispose of at least 75 percent of the participation units representing the fund’s assets.
Where the fund is dissolved and all or some of its immovable assets become property of one or more unit holders whose assets have already been taxed, the tax will be payable on the difference between the value of the assets acquired and the amount of tax previously paid. Additionally, the real estate transfer tax base is the property tax value corresponding to the majority unit holding, or the total value of those assets, according to each case. In both cases, however, the value of the managing company’s asset report will be considered if that value is if the higher.
Similarly, real estate transfer tax is payable on:
In these cases, the real estate transfer tax base is the higher of the property tax value and the value at which the property became one of the fund’s assets.
The choice of the acquisition vehicle largely depends on the nature of the transaction (asset or share deal), the nature of the assets involved, the financing structure and the nature of the income to be extracted from the target company.
The following vehicles may be used in an acquisition of shares or assets:
Local holding company
Under Portuguese law, a Portuguese pure holding company (Sociedade Gestora de Participações Sociais — SGPS) is incorporated as a regular company (S.A. or Lda.) but has a specific social purpose in its articles of incorporation restricted to the holding and management of share capital participations.
As such, an SGPS company is subject to the same tax obligations and the same tax regime as a regular company.
Foreign parent company
Where the Portuguese subsidiaries are held by a foreign parent company, the corresponding tax implications vary significantly, depending on the country in which the parent company is resident.
Apart from differences among Portugal’s tax treaties with other countries, there are significant differences in the tax treatment depending on whether the parent company is located in or outside the EU, EEA or treaty country where the treaty foresees the same administrative cooperation (see ‘Pre-sale dividend’ earlier in this report).
Where the parent company is located in the EU (or the other mentioned territories), in addition to the possibility of reduced WHT rates under tax treaties, the parent company may also benefit from a WHT exemption on dividends (see ‘Pre-sale dividend’).
The parent company only benefits from reduced WHT rates where the corresponding country has signed a tax treaty with Portugal.
Portugal’s tax treaties generally do not entitle Portugal to tax capital gains on the sale of shares in a Portuguese company. Even where a treaty allows Portugal to tax the capital gain, a foreign parent company (EU-resident or not) may benefit from an exemption on capital gains on the sale of share capital participations in Portuguese-resident companies unless:
A branch of a foreign company is subject to Portuguese CIT on its attributable income at the rate of 21 percent. In addition, a state surcharge applies to the part of the taxable profit exceeding 1.5 million euros (EUR) as follows:
This taxation may be increased by a municipal surcharge of up to 1.5 percent levied over the taxable income, giving rise to a maximum standard CIT rate of 31.5 percent. There is no WHT on distributions to the foreign head office.
A commercial disadvantage of a branch may be that the branch is not a separate legal entity, leaving the head office fully exposed to the liabilities of the branch. Additionally, the tax authorities may deny the deduction of interest charged or allocated to the branch by the head office, depending on the circumstances.
Under Portuguese tax law, profit distributions have the same treatment as in a Portuguese company when made to and received by a Portuguese permanent establishment of a parent company located in the EU, EEA or treaty country where the treaty foresees the same administrative cooperation, as discussed in this report’s earlier section on pre-sale dividends.
Generally, joint ventures are set up as regular Portuguese companies held by the joint venture partners.
Funding is critical to the success of a transaction. The mix of debt and equity and the type of debt may have a significant tax impact under Portuguese law, as summarized below.
Apart from WHT on interest, financing operations undertaken within a group with Portuguese-resident companies may also trigger significant tax charges under stamp duty.
Although exemptions may apply, the costs of setting up stamp duty-efficient debt structures may exceed the related tax savings.
Generally, interest costs are deductible for tax purposes, provided they are considered necessary for generating taxable income or undertaking the company’s activity.
According to the earnings-stripping rules, the deductibility of net financing expenses (interest and other) is limited to EUR1 million or 30 percent of earnings before net interest, taxes, depreciation and amortization (EBITDA), whichever is higher.
Any amounts of net interest and other financing expenses that exceed the applicable limit (and are not tax deductible) may be carried forward and offset against the taxable profit of the following 5 years, together with the net interest and other financing expenses of that year, to the extent they do not exceed both limits.
In addition, where the net interest and other financing expenses deducted for tax purposes do not exceed 30 percent of the EBITDA, the part of the limit that was not exceeded can be considered for the purposes of increasing the limits applicable in the following 5 years.The limits foreseen in the transitional period are not relevant for this purpose.
Where the group relief regime applies, this limitation could be applied to the group’s EBITDA, provided certain requirements are fulfilled.
For companies taxed under the group taxation relief that have opted to calculate the earnings-stripping limit on a consolidated basis, such limits must be calculated based on the sum of the EBITDA of all the companies that are a part of the tax group.
Under transfer pricing rules, interest charged between related entities must be agreed under the same conditions as those agreed between entities that do not have a special relationship.
See ‘Transfer pricing’ under ‘Other considerations’ later in this report.
Stamp duty is levied on the use of credit, in any form, at rates that vary according to the maturity of the loan, as follows:
|Less than 1 year month||0.04 percent (per month or part)|
|1 or more years||0.5 percent|
|5 or more years||0.6 percent|
Source: KPMG in Portugal, 2018
Credit in the form of a current account, bank overdraft or any other form in which the maturity is not determined or determinable is subject to stamp duty at a rate of 0.04 percent on the average monthly balance, calculated by dividing the sum of the daily debt balance by 30.
Stamp duty also applies at the rate of 4 percent on interest charged by credit institutions, financial companies or other financial entities.
Some exemptions from stamp duty may be available, for example, on shareholder loans where the parties establish an initial period of no less than 1 year during which no reimbursement occurs.
Bonds and commercial paper
Bonds and commercial paper are not subject to stamp duty, in compliance with the Council Directive 69/335/EEC of 17 July 1969 on indirect taxes on the raising of capital.
Deductibility of interest
Interest charged to Portuguese-resident companies is generally deductible for tax purposes, provided the loan is related to the company’s activity, the earnings-stripping rules are observed, and, where granted by related entities, the interest complies with limitations under the transfer pricing rules.
Withholding tax on trust and methods to reduce or eliminate it WHT on interest applies at a rate of 25 percent, which may be reduced under a tax treaty or by applying the provisions of the EU Interest and Royalties Directive. No WHT applies to interest on loans granted by a non-resident financial institution to a Portuguese-resident credit institution.
WHT exemptions may apply to interest charged on bonds, provided certain requirements are met.
Checklist for debt funding
Portuguese resident companies are entitled to a deduction of 7 percent of the share capital corresponding to cash contributions of the shareholders for incorporating the company or increasing its share capital.
As of 2018, contributions in kind resulting from the conversion of shareholder loans are also eligible for this tax benefit, provided certain requirements are met.
Dividends paid by a Portuguese subsidiary to a non-resident entity are subject to WHT at a flat rate of 25 percent, which may be reduced under a tax treaty signed by Portugal.
In addition, no WHT applies if, among other conditions, the parent company has held a minimum of 10 percent of the share capital of the Portuguese affiliate for at least 12 months.
Where the minimum holding period is not met at the time the dividends are distributed, the parent company can file a reimbursement claim with the Portuguese tax authorities within 1 year from the end of the minimum holding period.
As a result of the transposition of the EU Merger Directive, the Portuguese tax law foresees a special tax neutral regime for certain operations performed as part of group reorganizations. Among other conditions, this regime only applies to operations performed for sound economic reasons (i.e. that do not have tax avoidance as their sole or main purpose).
The operations discussed in the following sections may qualify for the special tax neutrality regime.
A merger qualifying for tax neutrality occurs in the following circumstances:
A demerger qualifying for tax neutrality may take one of the following forms:
Other demergers may be carried out under the tax neutrality regime whereby:
Contribution in kind (entrada de activos)
A contribution in kind is an operation whereby a company transfers, without being dissolved, all or one or more business units to another company in exchange for shares representing the share capital of the company receiving the business unit(s).
Exchange of shares (permuta de partes sociais)
An exchange of shares is an operation whereby a company acquires a share capital participation in another company, which grants it the majority of the voting rights in that company, or whereby a company already owning the majority of the voting rights acquires a new participation in the same company in exchange for the issue to the shareholders of the latter company, in exchange for their shares, of shares representing the share capital of the former company and where applicable, a cash payment not exceeding 10 percent of the nominal value of those shares or, in the absence of a nominal value, the accounting par value of the shares issued in exchange.
For the purposes of the special tax neutrality regime, a ‘business unit’ is defined as all the assets and liabilities of a division of a company that, from an organizational point of view, constitute an independent unit; that is, an entity capable of functioning by its own means.
The above-noted operations involving non-Portuguese EU-resident companies may also benefit from the special tax neutrality regime, subject to the fulfillment of certain conditions.
The current Portuguese tax law does not include rules for hybrids. The law was amended to disregard, for tax purposes, reclassifications made for accounting purposes. However, the amended law does not stipulate how the income arising from such financing instruments should be treated for tax purposes.
Under Portuguese tax law, expenses associated with the issue of discounted securities, such as bonds, are tax- deductible, provided they are incurred in order to obtain taxable income.
Under Portuguese tax law, expenses associated with the issue of discounted securities, such as bonds, are tax- deductible, provided they are essential for realizing profits and gains subject to CIT or for maintaining the production source.
Because discounted securities correspond to non-interest- bearing money market instruments issued at a discount and redeemed at maturity for full face value, a company’s income on the securities’ maturity is subject to CIT at a rate of up to 31.5 percent.
Where settlement of the consideration is deferred, the buyer should address the following issues:
Concerns of the seller
The possibility of achieving capital gains exemption leads most sellers to prefer a share deal over an asset deal.
Company law and accounting
The Portuguese Commercial Companies Code sets out the conditions under which a merger, demerger and contribution in kind can take place.
The code creates a simplified merger regime for situations involving a company wholly owned by the merging company. This regime has been extended to include situations involving minority shareholders (holding a maximum of 10 percent of the shares of the company being merged). Several legal procedures are waived for the intervening entities, thereby simplifying the bureaucratic process.
In this regard, the new Portuguese generally accepted accounting principles (GAAP) establish that, where the cost of a merger for the merging company at fair market value is higher than the net assets of the merged company, the difference must be allocated to the assets and liabilities transferred that can be identified.
However, this type of imputation is not accepted for tax purposes.
Currently, Portuguese GAAP requires that any difference between the net assets being merged and the value of the share capital participation held by the merging company in the company being merged should be accounted for as a merger reserve and included in an equity account.
The adoption of International Financial Reporting Standards (IFRS) for Portuguese tax purposes has not changed the tax treatment of mergers, demergers, contributions in kind or exchanges of shares.
A qualifying group for the group relief regime consists of a parent company holding, directly or indirectly, a share capital participation of at least 75 percent in one or more subsidiaries, provided that the participation represents more than 50 percent of the voting rights.
The following main conditions must also be met:
Companies indirectly held by the parent company through companies resident in the EU or EEA also qualify for the 75 percent shareholding requirement.
For the regime to apply, the parent company must notify the tax authorities of its adoption. The regime remains valid indefinitely where there are no changes in the group that trigger its cessation.
The tax group cannot include companies that:
The group’s taxable profit is determined by adding together each company’s tax result, thereby obtaining an aggregated taxable profit or loss.
The above-noted waiver of a lower CIT rate in order to apply the higher standard rate must be kept for a minimum period of 3 years.
Intragroup dividends, interest and royalties paid among the companies of the group are not subject to WHT, provided this income relates to periods during which the group relief regime is in force.
The regime ceases to apply whenever any of the necessary requirements are not met or the tax authorities assess the taxable income of any company of the group companies through indirect methods (applied in exceptional cases when the accounting records of the company are not considered as reliable).
Where the parent company ends up being held by another company that qualifies as the parent company of the group, the latter may opt for the continuation of the regime, provided the tax authorities are informed by the end of third month of the fiscal year following the inclusion of the new parent company.
The application of the group taxation relief is also possible if the parent company is resident for tax purposes in an EU or EEA member state.
On termination of the regime, all unused tax losses generated while the regime was in force are lost.
Arm´s length principle
The Portuguese transfer pricing rules follow the OECD guidelines.
The arm´s length principle applies both to domestic and cross- border commercial and financial transactions established with related entities.
The term ‘related entity’ is defined widely for this purpose. According to number 4 of article 63 of the CIT Code, special relationships are deemed to exist between two entities when one entity has or may have, directly or indirectly, a significant influence over the management of another entity, including:
The transfer pricing rules apply also to transactions between a permanent establishment located in the Portuguese territory and its foreign headquarters or other foreign permanent establishments, and to transactions between resident entities in Portugal and all its permanent foreign establishments and among its permanent establishments.
Taxpayers must evaluate and prepare their transfer pricing documentation on a contemporaneous basis.
Year-end adjustments and adjustments to the taxable income by taxpayers are limited to certain situations related to positive transfer pricing adjustments in cross-border transactions.
Pre- and post-restructuring value contribution analysis, procedures review and market profitability tests are crucial to evaluate the impact of the business model reorganization and assess, define and implement a consistent and robust group pricing policy. An analysis of the economic benefit, the non-duplication of activities and the pricing model is usually conducted during a tax audit.
Documentation and other declarative obligations Corporate taxpayers that have recorded an annual total net sales and other income equal to or greater than EUR3 million, in the previous fiscal year, are required to prepare and maintain contemporaneous transfer pricing documentation supporting the arm’s length nature of their transactions (commercial, financial or others) with related parties.
Documentation should comprise the following information:
— description of the group’s business strategy, identifying aspects susceptible to influencing the conduct of the taxpayer´s activity
— description of the macroeconomic environment and its impact on the taxpayer’s activity
— description of the group’s value chain contribution, as well as a functional and risk analysis of the taxpayer and its related entities for the controlled transactions
— identification, description and quantification of the controlled transactions, for the last 3 years, including the description of the pricing methodology associated with those transactions
— the selection of the most appropriate transfer pricing method for the controlled transactions, the respective economic analysis, its results and supporting information.
Portugal has not yet adopted the Action 13 documentation structure (master file, local file and exchange of certain data), although Portugal follows the Code of Conduct on Transfer Pricing Documentation.
Under the Portuguese transfer pricing regime, taxpayers must also disclose the following information on their Annual Tax and Accounting Return (IES):
— amounts of related-party transactions, per transaction category, for both domestic and cross-border transactions
— the transfer pricing methods applied to their cross-border transactions
— whether documentation was compiled when filing the income tax return.
The IES is due by the 15th day of the 7-month period following the tax year-end.
Advance pricing agreements
Unilateral, bilateral and multilateral advance pricing agreements (APA) are available.
The submission of the request at the preliminary phase is free of charge. The submission of the proposal entails a fee that may vary from approximately EUR3,150 to EUR35,000, depending on the taxpayer’s revenue.
Renewals or reviews of APAs require a filing fee, calculated in a similar way, but with a discount of 50 percent of the initial fee.
Mandatory automatic exchange of information
Portugal has signed the Multilateral Competent Authority Agreement for the exchange of tax information, which follows Action 13 of the OECD BEPS project. Portugal has signed several qualifying competent authority agreements with other jurisdictions that enable the exchange of country-by-country (CbyC) reports.
This obligation applies to multinational enterprises with annual consolidated group revenue equal to or exceeding EUR750 million in the previous year. The regulations extend to subsidiary entities.
The CbyC report is a requirement for the ultimate parent entity of a multinational group, as well as for an entity resident in Portugal, owned or controlled by one or more non-resident entities not covered by a similar obligation or if a qualified agreement between the competent authorities is not in force at the date of submission, or if a systemic failure occurs in the tax residence of the ultimate parent entity. When more than one constituent entity exists, the multinational group may appoint any of them as the reporting entity.
The CbyC reporting requirement applies for fiscal years beginning on or after 1 January 2016.The secondary local filing requirement for non-parent constituent entities in Portugal applies for fiscal years beginning on or after 1 January 2017.The surrogate parent entity option is not applicable in Portugal.
Taxpayers need to notify the tax authorities by the last day of the 5th month following the fiscal year of the identification and the country or tax jurisdiction of the reporting entity (Form 54).
The CbyC report must be filed electronically no later than 12 months after the last day of the entity’s accounting period. The Ministerial Order 383-A/2017 of 21 December 2017 approved the form and instructions for meeting the CbyC reporting requirement (Form 55).
CbyC reports must be filed in Portuguese language. The OECD's XML Schema standardized electronic formatis mandatory for fiscal year 2016. Alternatively, for the following years, the CbyC report (Form 55) can be submitted electronically.
Mandatory automatic exchange of information is also required for cross-border tax rulings and APAs issued, amended or renewed in the national territory. The information to be reported to the competent authorities of all the member states and to the European Commission, includes (among other things) the identification of the company, a summary of the tax rulings and/or the APAs, the expiration date of the tax rulings or APAs and the amount(s) of the cross-border transaction(s).
Transfer pricing audit and penalties
Recent audits have focused more on adjusting operating losses (disregarding the effect of the recent global economic crisis), payment for intragroup services, financial transactions, intangible property transactions and business restructuring processes.
The latest strategic plans against fraud and tax evasion foresee the reinforcement of transfer pricing audits, the increase of the number of technicians assigned to the transfer pricing department, as well as the application of anti-abuse rules.
Penalties of up to EUR10,000 apply for not complying with the reporting requirements of the transfer pricing documentation, failing to provide the CbyC report, or filing to file a notification, plus a 5 percent increase per day of delay. Failing to submit the transfer pricing documentation is subject to a penalty of up to EUR150,000
Transfer pricing adjustments are regulated by the general tax penalty regime. If an adjustment is sustained, general penalties may be assessed from EUR375 to EUR45,000. Compensatory interest for late payment is accrued at 4 percent monthly.
Under Portuguese tax law, a company qualifies as tax-resident where its headquarters or place of effective management is located in the Portuguese territory.
Portugal’s tax treaties include rules to avoid situations of dual residency. In the experience of KPMG in Portugal, no issues have been raised by the Portuguese tax authorities with regard to dual residency.
Foreign investments of a local target company
The Portuguese tax law attributes profits obtained by foreign companies resident in tax haven jurisdictions to a Portuguese- resident entity where it holds, directly or indirectly (even where through an agent, trustee or intermediary), at least 25 percent of the share capital of the foreign companies.This percentage is reduced to 10 percent where the company located in a tax haven is held, directly or indirectly (even where through an agent, trustee or intermediary), more than 50 percent by Portuguese-resident entities.
This anti-avoidance rule is not applicable (among other situations) where:
Advantages of asset purchase
Disadvantages of asset purchase
Advantages of share purchase
Disadvantages of share purchase
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