PORTUGAL Law and Practice Contributed by: Marta Pontes, Hélder Frias and José António Reymão Nogueira, Uría Menéndez
Notwithstanding the above, it should be noted that, as a general rule, under Portuguese law, fees due by resident entities for the rendering of financial services by non-resident entities are not subject to Portuguese withholding tax. 8.3 Thin-Capitalisation Rules According to the CIT Code, there are no rules on thin capitalisation. However, interest-stripping rules apply, and transfer-pricing rules may affect the deductibility of financing expenses whenever arm’s length conditions are not duly observed. As a general rule, the CIT Code specifically pro- vides that only interest on loans incurred to gen- erate or guarantee income subject to CIT are tax deductible. This means, for example, that the interest paid on the financing obtained to refund equity or proceed with dividend distribu- tions is generally considered unrelated to the activity of the company (ie, not incurred to gen- erate or guarantee income) and, therefore, as not deductible for tax purposes. Furthermore, net financing expenses are only deductible for CIT purposes up to the highest of the following amounts: • EUR1 million; or • 30% of the EBITDA (the tax concept of EBIT- DA used to calculate this limit corresponds to a company’s taxable income or tax losses subject to and not exempt from CIT, with the addition of net financing expenses, deprecia- tion and amortisation that are tax deductible). For the purposes of the above-mentioned limits, net financing expenses are defined as the dif- ference between the financial expenses and the income derived from financing in a given tax year that is subject to taxation.
This limitation to the deductibility of financial expenses applies to all companies subject to CIT, except: • companies subject to the Bank of Portugal and Portuguese Insurance Institute supervi- sion; • Portuguese branches of credit institutions, other financial institutions or insurance under- taking; and • securitisation companies formed pursuant to the Decree-Law No 453/99, of 5 November 1999. The amount of net financing expenses which is not deductible, as it exceeds the maximum limit for the relevant tax year, can be carried forward and deducted in the following five years (after the deduction of the net financing expenses incurred in the respective year and always sub- ject to the limit applicable in each year). If, during a given year, the amount of the net financing expenses is lower than the lim- it of 30% of the tax-EBITDA of that year, the excess amount within this limit (ie, the differ- ence between 30% of the tax-EBITDA and the net financing expenses) may be offset against the net financing expenses of the following five years.
9. Takeover Finance 9.1 Regulated Targets Regulated Industries
The acquisition of a target does not usually require any regulatory consent or licences under Portuguese law. However, there are special supervision rules and licensing requirements if the target operates in certain regulated sectors, such as:
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