PORTUGAL Law and Practice Contributed by: Francisco Cabral Matos, Rita Pereira de Abreu and Margarida Campelo, VdA
8. Audit Cycles 8.1 Regular Routine Audit Cycle
The Portuguese CFC rules are harmonised with ATAD and will not apply if the CFC is resident in another EU/ EEA member state, provided that it conducts genuine business or commercial activities for valid economic reasons, using its own staff, equipment, assets and premises. Additionally, any income tax paid in the CFC’s country of residence can be credited against Portuguese tax due, but any excess tax credit that is not utilised cannot be carried forward to future tax years. 6.6 The Substance of Non-Local Affiliates No specific rules addressing substance requirements of non-local affiliates are set out under Portuguese legislation, apart from CFC and effective place of management rules. 6.7 The Sale of Shares in Non-Local Affiliates Please refer to 2.7 Capital Gains , which sets out the requirements for the participation exemption to apply to capital gains, which will also apply to gains obtained by resident companies on the sale of non- resident affiliates. Without prejudice to other anti-abuse provisions applicable to transactions with entities located in blacklisted jurisdictions – such as aggravated WHT rates, restrictions on the use of tax losses, rejection of tax neutrality regimes, CFC rules, or denial of expense deductions – the main anti-avoidance provision under Portuguese law remains the General Anti-Avoidance Rule (GAAR). Under the GAAR, an arrangement or series of arrange - ments is not considered genuine if it is not carried out for valid economic reasons that reflect economic substance. In cases where the tax authorities deter - mine that the GAAR applies, such arrangements are deemed artificial or fraudulent and are disregarded for tax purposes. As a result, the income from these arrangements will be taxed according to the rules applicable to the equivalent taxable events that would have occurred if the tax advantage had not been sought. 7. Anti-Avoidance Provisions 7.1 Overarching Provisions
The Portuguese tax authorities annually draft a National Plan of Activities of the Tax Inspectorate (unpublished since 2021) that sets out the priorities that tax inspectors must consider in their inspections. As concerns the statute of limitations, tax inspections can only analyse and correct within four years (ie, inspections conducted in 2026 can only cover periods starting from 2022). Tax inspection procedures typically follow these phas - es: • Notification of inspection: Taxpayers receive a writ - ten notice at least five days before an external tax inspection begins, detailing the scope and extent of the inspection. • Start of inspection: The inspection officially begins with an inspection order, which identifies the responsible tax office and officials, and outlines the scope and extent of the inspection. • Inspection process and rights: The inspection is considered complete when the taxpayer is notified of the official record of findings. The taxpayer will be notified of the draft report and given the oppor - tunity to respond before the final decision. The tax - payer can regularise their tax position if necessary. • Closure of inspection: The inspection ends with the notification of the final report. Inspections should generally be completed within six months, although they can be extended for two additional periods of three months each. 9. BEPS 9.1 Adoption of BEPS Recommendations Portugal has implemented the following BEPS recom - mendations: • Action 1: Implementation of VAT on B2C digital services. • Action 2 (hybrids) and Action 4 (interest limitation): Anti-hybrid and earnings-stripping rules (ATAD/ ATAD2 transposition).
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