PORTUGAL Law and Practice Contributed by: Francisco Cabral Matos, Rita Pereira de Abreu and Margarida Campelo, VdA
9.9 Anti-Avoidance Rules From a Portuguese perspective, limitations on ben - efits and anti-avoidance rules embedded in double tax treaties can affect both inbound and outbound investors. Several Portuguese double tax treaties include provisions that restrict treaty relief where arrangements are not at arm’s length, lack genuine substance or are primarily designed to obtain treaty benefits. They also permit source states to tax cer - tain gains, interest or royalties beyond standard limits when special relationships inflate payments. These provisions operate alongside domestic anti- avoidance measures, influencing eligibility for reduced WHT rates and the attribution of profits, and may result in the denial or limitation of treaty benefits. For inbound investors, this may mean higher effective tax - ation or the denial of relief if structures fail substance or beneficial ownership tests. For outbound investors, foreign jurisdictions may apply corresponding adjust - ments or WHT under similar tests, and Portugal’s relief for double taxation is conditioned on the treaty’s allo - cation rules and anti-abuse standards. For further details on tax authority scrutiny of “treaty shopping” practices, please refer to 4.3 Tax Authority Scrutiny of “Treaty Shopping” Practices . 9.10 Transfer Pricing and IP Taxation BEPS has strengthened Portugal’s transfer pricing framework, with arm’s length enforcement, master/ local file documentation, and EU exchange of country- by-country reports heightening scrutiny of financing, services and intangibles. The transfer pricing provi - sions were actually amended in 2021 to accommo - date the 2017 OECD Transfer Pricing Guidelines. Transfer pricing disputes in Portugal relating to IP rights are not yet very common. 9.11 Country-by-Country Reporting and Transparency Provisions Country-by-country reporting (CbCR) for multination - als was implemented in the 2016 State Budget, follow - ing the Action 13 final report, and aligns fully with the OECD recommendations. According to the relevant regulations, Portuguese-resident entities that are part of multinational groups with annual consolidated rev -
ards. Double tax treaties may deny benefits where regimes are ring-fenced or considered harmful, rein - forcing this constraint. EU state aid rules also apply to tax incentives and have been actively enforced: the Madeira Free Trade Zone, for example, has faced repeated scrutiny by the European Commission to determine whether its benefits constitute selective aid, with assessments under regional aid guidelines (including substance, proportionality, and limits on operating aid), as well as instances demonstrating the Commission’s powers to require compliance or recovery. In parallel, Portugal underscores its alignment with the OECD BEPS agenda and EU anti-avoidance direc - tives, which require substance, anti-abuse testing and automatic information exchange. These frameworks constrain aggressive features and demand transpar - ency and genuine economic activity as preconditions for tax advantages. 9.6 Hybrid Instruments and BEPS Implementation Anti-hybrid mismatch rules were introduced in Portu - guese legislations through Law 24/2020, which trans - posed the EU Anti-Tax Avoidance Directive (ATAD I), as amended by ATAD II. These provisions were incor - porated into the CIT Code and entered into force in January 2022. 9.7 Interest Deductibility and Territorial Tax Regime There is no territorial tax regime in force in Portugal, since resident companies and individuals are gener - ally taxed on their worldwide income (with the interest deductibility restrictions mentioned in 2.5 Deduction of Interest ), and non-resident companies and individ - uals on income sourced in the Portuguese territory. This, however, coexists with special tax regimes like the participation exemption regime and the provisions of the double tax treaties. 9.8 Controlled Foreign Corporation Reform There is no territorial tax regime in force in Portugal, but CFC rules are in force as mentioned in 6.5 Con- trolled Foreign Corporation-Type Rules .
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