Transfer pricing documentation requirements in Portugal

1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

Pursuant to article 63 / 6 of the Portuguese Corporate Income Tax Code, Portuguese taxpayers are required to maintain transfer documentation regarding their transfer pricing policy, including guidance and instructions for its implementation, contracts and other relevant legal documents executed between the taxpayer and associated enterprises, documentation and information regarding such enterprises, and documentation and information regarding the entities, services and goods used as comparables (including a detailed analysis of business functions performed, assets used and risks assumed, as well as selection and application of the most appropriate transfer pricing methodology).

This obligation is not imposed on all taxpayers, but only those who have disclosed an annual net sales volume of EUR 3,000,000 or more in their previous annual return. Taxpayers who have disclosed an annual net sales volume under EUR 3,000,000 in the previous year are not required to comply with the transfer pricing documentation requirements.

2. What is the content of the documentation that must be prepared?

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?

Portuguese taxpayers who are subject to the transfer pricing documentation rules must document all transactions with associated enterprises, including both resident and non-resident entities.

b) What is the definition of “associated enterprises” for the purposes of this requirement?

Under article 63 / 4 of the Portuguese Corporate Income Tax Code, for the purposes of the transfer pricing rules two entities are considered to be associated enterprises whenever one has significant direct or indirect influence over the management of the other. This is deemed to occur in the case of:

  • An entity and shareholders of that entity (or their spouses or relatives) who have a direct or indirect shareholding representing at least 10% of the share capital or voting rights;
  • Two entities in which the same (third) entity has a direct or indirect shareholding of at least 10%;
  • An entity and the members of its corporate organs, or any board of administration, direction, management or supervision;
  • Entities in which the majority of the board of directors is constituted by the same persons;
  • Entities related by virtue of a subordination agreement or any other agreement of a similar nature;
  • Entities in a dominant shareholding relationship as defined by the relevant legislation;
  • Entities with a relationship of economic, commercial, financial, professional or legal dependence;
  • Transactions between a resident entity and entities resident in a clearly more favourable tax regime (as listed in Ministerial Order 150 / 2004).

c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?

Portuguese transfer pricing regulations as to the content of the documentation are compliant with the EU TPD.

d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?

No. The Portuguese tax authorities may only request information from Portuguese resident entities. As to information relating to non-resident entities or other jurisdictions, the Portuguese tax authorities may only request such information through the mechanisms provided under the exchange of information provisions in Tax Treaties entered by Portugal.

e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?

The Portuguese tax authorities tend to prefer local comparables, but regional comparables may be allowed, particularly in situations where local comparables are limited.

f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?

The transfer pricing documentation should be organized and filed in Portuguese. Reports in English tend to be accepted, but the Portuguese tax authorities may accept, refuse or require a translation into Portuguese.

3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?

The transfer pricing information should be prepared and organized within the framework of the corporate income tax compliance obligations imposed on Portuguese taxpayers. On this basis, it must be prepared by the 15th of the 7th month following the tax year-end, which is the date for filling the Annual Return of Simplified Corporate Information (IES / DA).

Filing is only required upon specific request by the Portuguese tax authorities. Notwithstanding this, transfer pricing documentation has recently been specifically included in the list of documents that form part of the company’s annual tax file.

Yes. Failing to comply with the transfer pricing compliance regulations, by refusing to submit information or submitting information which is not accurate, will result in penalties of up to EUR 100,000.

Additionally, penalties of up to EUR 10,000 may be imposed by reference to the general tax compliance obligations.

Recent transfer pricing audits show that the Portuguese tax authorities are looking more deeply into controlled transactions involving low tax jurisdictions and intra-group services.

5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?

Yes. Portuguese taxpayers which comply with the transfer pricing documentation obligations are protected against penalties, and compliance simultaneously shifts the burden of proof to the tax authority. The risk of unexpected adjustments to the taxpayer’s taxable income is also mitigated.

In the event of transfer pricing adjustments to transactions between a Portuguese tax payer and a non-resident entity, the mechanisms provided for in the relevant double taxation treaty should be applied, and corresponding adjustments may be made by means of a competent authority procedure.

If the non-resident entity is located in a different EU Member State, then the taxpayer may also invoke the provisions of the Arbitration Convention on the elimination of double taxation (EC Convention 90 / 436 / CEE).

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Patrick Dewerbe