PORTUGAL Law and Practice Contributed by: Francisco Cabral Matos, Rita Pereira de Abreu and Margarida Campelo, VdA
Portuguese tax authorities’ invocation of the general anti-abuse clause has become more frequent. The Portuguese tax authorities also resort to informa - tion exchange with other competent authorities in and outside the EU to challenge double tax treaty benefits as well as special domestic regimes. 4.4 Transfer Pricing Issues for Inbound Investors Portuguese transfer pricing legislation generally fol - lows the OECD Transfer Pricing Guidelines regard - ing best-method selection, with an increasing focus on higher-complexity transactions involving business restructuring, intangibles and other transactions. Transfer pricing discussions are typically oriented on payment of intra-group fees (eg, management fees), licensing agreements and IP rights use concessions. The authorities are also closely examining intercom - pany financing structures, agreements for shared costs, and ensuring profits are properly distributed among affiliated companies. Taxpayers are required to maintain transfer pric - ing documentation (master file and local file) and to declare related-party transactions in their annual tax returns. 4.5 Challenges to Related-Party Limited Risk Distribution Arrangements The Portuguese tax authorities have not typically tar - geted related-party limited risk distribution arrange - ments as a specific area of focus. However, such arrangements remain subject to general transfer pric - ing scrutiny to ensure arm’s length compliance. 4.6 Local Transfer Pricing Rules and OECD Standards Portugal generally follows the OECD Transfer Pricing Guidelines, in respect of the methodology accepted by the Portuguese tax authorities. 4.7 Transfer Pricing Disputes and Mutual Agreement Procedures While direct transfer pricing tax audits are not con - ducted often, the Portuguese tax authorities routinely request and closely review transfer pricing documen -
tation. According to OECD information, which remains consistent with the 2023 statistics, the majority of mutual agreement procedures resulted in complete elimination of double taxation. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments When a transfer pricing adjustment to the taxable profit of an entity takes place, correlative adjustments are mandatory under Portuguese legislation. Howev - er, in practice, the Portuguese tax authorities do not always implement these adjustments. 5.2 Local Branches and Local Subsidiaries Local branches and subsidiaries of non-resident enti - ties are subject to a similar tax treatment. Regard - ing the subsidiary, the key characteristic is that, as a Portuguese-resident company, it is taxed under the worldwide income principle, meaning that all sources of income are subject to tax irrespective of its income source. In order to reduce the impact of a potential double taxation situation, it is important to consider the application of double tax treaties between Portu - gal (as a state of residence) and each of the income- source states. Apart from that, all general administra - tive, regulatory and compliance tax obligations are no different from those of a non-subsidiary Portuguese company. With regard to the branch, the key legal difference is that it is not a Portuguese company. For tax purposes, as in several other jurisdictions, a branch is consid - ered a permanent establishment of a non-resident company in Portugal; therefore, all income that could be realised in Portuguese territory by the branch will be subject to CIT in Portugal. The main difference, for CIT purposes, is that the branch will only be taxable based on the source principle – which means that only the Portuguese-sourced income will be subject to tax in Portugal, from the perspective of the non-resident company. 5.3 Capital Gains of Non-Residents Capital gains accrued by non-resident entities from the sale of shares held in Portuguese companies are subject to CIT in Portugal under general terms at a
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