Recent tax law changes continue to reflect the Portuguese government’s commitment to implementing the OECD BEPS Action Plan and associated recommendations. In line withother European countries, the Portuguese government’s commitment to fighting tax evasion puts special focus on international cooperation, the tax treatment of hybrids and levels of substance in holding structures.

In addition to its focus on tackling tax evasion and increasing tax revenues, the Portuguese government is taking steps to increase the country’s tax competitiveness, by adopting a worldwide participation exemption regime and by reducing the statutory corporate income tax rate to 21 percent (from 25 percent in 2013).

Portuguese tax law requires mandatory CbyC reporting in line with BEPS Action 13 for multinational groups that meet specific requirements.

CbyC reporting applies for resident companies that:

• are required to prepare consolidated financial statements
• hold or control, directly or indirectly, one or more entities whose tax residence or PE is located in another jurisdiction
• have recorded in the consolidated financial statements of the last annual accounting period an amount of combined income of at least EUR750 million (where income includes sales, provision of services, government subsidies and other income), and are not held by:
  • one or more resident entities that are required to submit this financial and tax information return, or
  • one or more non-resident entities that are resident in a country with which an agreement for the automatic exchange of fiscal information is in force and are required to submit the same or a similar return, directly or through a designated entity.
• Portugal’s CbyC reporting requirements may be extended to foreign companies, namely, resident entities participated in by non-resident entities that are not obliged to submit a similar form in their country and would be subject to a similar obligation if resident in Portugal. CbyC reporting is also required where the non-resident participating entity is resident in a jurisdiction that has not entered into an agreement for the automatic exchange of fiscal information with Portugal. 

The information to be reported includes, among others, the allocation of income between related and unrelated entities, taxes due and paid, as well as specific economic indicators and a list of the main activities carried out by companies of the multinational group. Penalties apply for failure to prepare the CbyC report. The filing deadline for the first CbyC reports for 2016 tax periods has been extended to 31 October following the end of the period.

The domestic rules do not set any requirements or recommendations on, for example, the sources of information to be used for CbyC reporting or the approach to follow to reconcile differences in accounting policies.

As part of its continuing efforts to boost transparency by international companies, Portugal has signed the Multilateral Competent Authority Agreement for the automatic exchange of CbyC reports. The agreement enables the consistent and swift implementation of new transfer pricing reporting standards developed under OECD BEPS Action 13. It ensures that tax administrations can understand how multinational enterprises structure their operations while safeguarding the information’s confidentiality.

Portugal has already enacted several unilateral anti-BEPS measures, namely:

• CFC rules
• earnings-stripping rules to limit interest deductibility based on EBITDA levels
• denial of the participation exemption regime where the dividends received give rise to a deduction for the subsidiary
• denial of the participation exemption regime on structures that lack economic substance
• obligation to disclose aggressive tax planning schemes
• revised patent box regime incorporating the nexus approach
• adoption of the 2014 EU directive on automatic exchange of tax information and exchange of information procedures under the Common Reporting Standard.

Portugal has signed the Multilateral Instrument regardingall of its tax treaties.

Portuguese tax rulings and APAs are confidential and binding. Rulings are only made public on an anonymous basis where the same issue has been ruled on more than three times. The fact this information may now be shared with other EU tax authorities, combined with changes in the transfer pricing guidelines, may bring additional complexity for multinational groups operating in Portugal.