PORTUGAL Law and Practice Contributed by: Francisco Cabral Matos, Rita Pereira de Abreu and Margarida Campelo, VdA
2.6 Consolidated Tax Grouping Portuguese-resident groups of companies may opt to be taxed under the Tax Group Regime ( Regime Espe- cial de Tributação dos Grupos de Sociedades ). For the purposes of this regime, a parent company (PC) is an entity that holds directly or indirectly at least 75% of the subsidiaries’ share capital, provided that the holding represents more than 50% of the voting rights. The indirect holding may be achieved through Portuguese eligible companies or via EU/EEA (with a tax co-operation agreement) relevant companies. In order for a group of companies to be able to opt for this regime, several conditions must all be met, as follows: • the PC must hold, directly or indirectly, at least 75% of the subsidiaries’ share capital, provided that the holding represents more than 50% of the voting rights; • all companies belonging to the group must have their headquarters and place of effective manage - ment in Portugal; • the PC must have held for at least one year its par - ticipation in the relevant subsidiary, beginning from the date that the Tax Group Regime starts to be applied, unless the subsidiary has been incorpo - rated by the PC or by another tax group company; • the PC must not be deemed to be controlled by another resident company; • all group entities must be subject to the CIT stand - ard rate (currently 19%); and • the PC must not have opted out of the applica - tion of the Tax Group Regime in the three previous years. If the participation has been acquired as a result of a merger, demerger or asset contribution transaction, for calculation purposes, the above-mentioned hold - ing period is considered the holding period of such participation by the merged, demerged or contributing company. The tax consolidation regime does not apply if: • the company has been inactive for over a year, has been dissolved or is in insolvency proceedings;
• there is a change from direct to indirect owner - ship (or vice versa), or the transfer occurs between companies under common majority control; • the tax neutrality regime is applicable to the trans - action; • the change of ownership occurs upon the death of the previous shareholder; • the acquirer has held, directly or indirectly, 20% of the share capital since at least the beginning of the tax year in which the tax losses were incurred; or • the acquirer is an employee or a board member of the acquired company, provided that such person has held that position since at least the begin - ning of the tax year in which the tax losses were incurred. 2.5 Deduction of Interest As a general rule, all expenses incurred for the con - duct of a company’s business (to obtain or secure income subject to tax) are tax deductible, except where a specific limitation applies pursuant to the CIT Code. Net financing expenses – being the positive difference between financing income and financing costs – are deductible up to the higher of the follow - ing limits: • EUR1 million; or • 30% of the tax EBITDA. Net interest costs exceeding the set limits are not deductible in the year incurred, but can be carried forward for up to five years to offset future taxable income, after deducting that year’s net financing expenses. Unused EBITDA deductibility limits can also be carried forward for five years to offset excess net financing expenses. Financing expenses cover most interest, loan charges and similar costs. For this regime, tax EBITDA means taxable profit (or loss), plus net financing expenses and deductible depreciation/ amortisation. These rules may be applied at the tax group level. If a CIT tax group regime is in place, the parent com - pany may choose to apply the net financing expense limitation across the group. In this case, the deduct - ible limit is the greater of EUR1 million (regardless of group size) or the combined tax EBITDA of all group companies.
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