PORTUGAL Law and Practice Contributed by: Francisco Cabral Matos, Rita Pereira de Abreu and Margarida Campelo, VdA
• the company had tax losses in the previous three years, unless the PC has owned it for at least two years; • the company is subject to a CIT rate below the standard and has not waived this reduced rate; • the controlled companies do not have the same financial year as the PC; or • the company does not have a legal form such as limited liability company ( sociedade por quotas ) or stock company ( sociedade anónima ). The regime is valid indefinitely, unless termination is opted for or the conditions for its application cease to be met. The regime ceases to be applicable if any of the following circumstances occur: • any of the requirements mentioned above for a company to be included in the Tax Group Regime ceases to be met regarding the PC; • any of the situations mentioned above where an entity shall be excluded from the Tax Group Regime is applicable regarding the PC; or • the taxable income of any of the entities that con - stitute the tax group is determined ex officio by the tax authorities, through indirect methods. In the event that one of the above-mentioned situa - tions occurs, the regime ceases to be applicable with effect from the year prior to the occurrence of the situ - ation. The taxable profit of the group is calculated by the PC and comprises the algebraic sum of the individual taxable profits and tax losses included in the annual tax returns of each of the entities within the group. In this sense, all entities within the group are required to file an individual annual tax return but only the con - solidated annual tax return filed by the PC is used to assess the tax to be paid by the group. Tax losses from before joining the Tax Group Regime can only be used up to an amount equal to the profits generated by the same company within the group. If the company leaves the group, unused pre-group losses can still be carried forward. Group tax losses (incurred during the regime) may only offset group profits and are lost if the group regime ends or if a
company leaves the group; neither the group nor the company can use these losses individually after leav - ing. 2.7 Capital Gains As a general rule, capital gains realised by a Portu - guese company are included in taxable profits and will be subject to CIT at the standard rate (currently 19%). Capital gains correspond to the difference between the sales proceeds (net of related costs) and the acquisition value (net of impairment depreciation, adjusted by the inflation index, if applicable). The posi - tive net difference is included in the annual taxable income. When considering capital gains from the sale of real estate assets or other fixed tangible and intangi - ble assets held for at least one year, a reinvestment regime may apply, providing for a 50% reduction of the capital gain included in taxable income if the sale proceeds are reinvested in qualifying assets within the prescribed period. For capital gains deriving from the sale of shares, the participation exemption regime may apply, allowing a full exemption on such gains provided that certain requirements are met, namely: • a minimum 10% holding was kept for at least one year prior to the sale; • the holding entity is not subject to the transparency regime; • no blacklisted jurisdictions are involved in the transaction; • the entity whose shares are sold is subject to and not exempt from an income tax mentioned under the EU Parent-Subsidiary Directive, CIT or a comparable tax, or an income tax rate not lower than 60% of the Portuguese CIT rate in the case of companies resident in third countries; and • non-resident entities are not part of a tax-driven artificial arrangement. Capital gains and losses falling under Portugal’s par - ticipation exemption regime are excluded from taxable income.
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