PORTUGAL Law and Practice Contributed by: Francisco Cabral Matos, Rita Pereira de Abreu and Margarida Campelo, VdA
rate of 25%. However, they may be exempt provided that (i) the non-resident entity is not directly or indi - rectly held in more than 25% by a Portuguese entity, (ii) the non-resident entity is not resident in a black - listed jurisdiction, and (iii) the Portuguese entity is not deemed a land-rich company. Currently, the wording of the capital gains exemption applicable to non-residents is more restrictive than the corresponding provision applicable to resident corpo - rate entities. For domestic corporate shareholders, the disposal of shares in a land-rich company may still be exempt provided that the real estate assets are allocated to an industrial, agricultural or commercial activity, other than property trading – the same exclu - sion is not extended to non-resident shareholders. Such distinction is likely in breach of EU freedoms and should be challenged in court. The disposal of an indirect shareholding over Portu - guese companies may also be subject to tax provided that more than 50% of the value of the shares derives from immovable property located in Portugal during the 365 days preceding the sale. As this was a recent - ly enacted provision, the disposal of indirect share - holdings may still be fully exempt from tax should the immovable property be allocated to an industrial, agricultural or commercial activity. Nevertheless, it is important to consider the provisions set out in the applicable double tax treaty (if any) as it may provide for the right of the non-resident entity to claim a full exemption on capital gains realised upon the sale of Portuguese shares. Contrastingly, the dis - posal of an SIC’s shares (please refer to 1.1 Corporate Forms and Their Tax Treatment ) will be subject to a final WHT at a rate of 10%, as capital gains from the disposal of SIC shares are assimilated to immovable property income. 5.4 Tax Implications of Change of Control A change of control may imply a limitation on the com - pany’s ability to carry losses forward, as referred to in 2.4 Loss Relief , namely when there is a change of ownership of at least 50% of the company’s share capital.
Portuguese tax legislation also establishes change of control provisions regarding unused deductions under the interest barrier rule upon a change of ownership of 50% of the share capital (refer to 2.5 Deduction of Interest ). Apart from these provisions, changes in corporate control do not typically give rise to adverse tax con - sequences. 5.5 Formula-Based Income Attribution There is no distinction, from a tax calculation stand - point, between Portuguese-owned and foreign-owned local affiliates. 5.6 Deductibility of Intra-Group Management and Administrative Charges As mentioned in 4. Taxation of Inbound Investments , commercial and financial transactions between asso - ciated enterprises must comply with the arm’s length principle, which in Portugal follows the OECD guide - lines. If that is ensured, payments made by affiliates to non-resident shareholders or other related parties relating to management services and administrative expenses would generally be deductible from the tax - able profits of those affiliates. In specific cases where the receiving entity is resident in a blacklisted jurisdiction, the affiliate will have to duly prove that the transaction has effective economic and business substance in order to be able to deduct such payments. 5.7 Restraints on Related-Party Borrowing Borrowings between related parties must take into consideration (i) the transfer pricing rules with which they are required to comply and (ii) the beneficial own - ership requirements set out in the respective direc - tives. As mentioned above, these borrowings may also be subject to an aggravated WHT rate if the interest receiving entity is resident in a blacklisted jurisdiction.
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