Transfer pricing documentation in Portugal

  1. A. Transfer pricing documentation requirement
    1. 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)?
    2. 2. What is the content of the documentation that must be prepared?
    3. 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)?
    4. 4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
    5. 5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
    6. 6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
    7. 7. Any other relevant aspect not addressed above?
  2. B. Country-by-Country reporting (“CbCR”)
    1. 1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
    2. 2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
    3. 3. Which taxpayers have to file a CbCR in your jurisdiction?
    4. 4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
    5. 5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
    6. 6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
    7. 7. Any other relevant aspect not addressed above?
  3. C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
    1. 1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
    2. 2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
    3. 3. What is the deadline for meeting this documentation/filing requirement?
    4. 4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
    5. 5. What is the penalty for failing to meet this requirement on time?
    6. 6. Any other relevant aspect not addressed above?

A. Transfer pricing documentation requirement

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 (hereinafter “CIT”) 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).

Taxpayers who have disclosed an annual net sales volume under EUR 3m 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 (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?

Under article 63 (4) of the CIT Code, for the purposes of transfer pricing rules two entities are deemed as associated enterprises whenever one has a significant direct or indirect influence over the management of the other. This is deemed to occur in the case of:

  1. (i.) An entity and its shareholders (or their spouses, ascendants or descendants) who have a direct or indirect participation representing at least 20% of the share capital or voting rights;
  2. (ii.) Two entities in which the same shareholders (or their spouses, ascendants or descendants) hold, directly or indirectly, a participation of at least 20% of the capital or voting rights;
  3. (iii.) An entity and the members of its governing bodies, agencies or any management, direction, management or supervision body, and their spouses, ascendants and descendants;
  4. (iv.) Entities in which the majority of board members, or members of any board of directors, management, management or supervision, are the same people or, if different people, are linked by marriage, registered partnership or affinity in a direct line;
  5. (v.) Entities linked in application of a subordination agreement, group parity agreement or any other agreement of a similar nature;
  6. (vi.) Entities in a control relationship, as defined by the relevant legislation;
  7. (vii.) Entities under a legal relationship which allows one entity to condition the management decisions of the other entity in light of facts and circumstances not related with their business or professional relation;
  8. (viii.) A resident entity or a non-resident entity with a permanent establishment situated in Portuguese territory and an entity subject to a clearly more favourable tax regime located in a country, territory or region included on the list approved by Ministerial Order 150/2004 of 13 February 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 documentation regulations are in line with the EU TPD.

d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?

Portuguese taxpayers must follow domestic legislation on the content of the transfer pricing documentation, which is generally in line with the OECD transfer pricing guidelines.

e) 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. As a general rule, Portuguese tax authorities are only entitled to request information from Portuguese resident entities, including permanent establishments of non-resident entities located in Portuguese territory.

As to information related to non-resident entities or other tax jurisdictions, the Portuguese tax authorities may only request such information through the mechanisms set out in the tax treaties entered into by Portugal, namely the exchange of information provisions.

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

There is no legal or administrative restriction on the use of regional benchmark studies. However, Portuguese tax authorities tend to accept regional comparables only in situations in which local comparables are limited or not available.

g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services 1 Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010. or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?

With the sole exception of taxpayers with an annual net sales volume under EUR 3m in the previous year, all taxpayers are obliged to prepare and maintain transfer pricing documentation. Domestic legislation does not contain any specific provision exempting taxpayers to maintain benchmark studies or other information. However, as per Ministerial Order no. 1446-C/2001, of 21 December 2001, the list of information which is expected to be included in the transfer pricing file, such as benchmark studies, is merely illustrative and not exhaustive. The OECD and EU guidelines on low-value-adding intra-group services are applicable.

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

Transfer pricing documentation must be organized and submitted in Portuguese. Documentation in a foreign language must be translated into Portuguese when requested by the tax authorities. Exceptionally, translation may not be required for documentation prepared in English.

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)?

Transfer pricing documentation is included in the list of documents that form part of the company’s annual tax file, which must be maintained in good order by the taxpayer for a period of 10 years. Therefore, it must be prepared by the 15th of the 7th month following the end of the tax period, which is the deadline for filing the Annual Return of Simplified Corporate Information (“IES”).

The documentation is only provided upon specific request by the Portuguese tax authorities.

Failing to provide the transfer pricing documentation requested by the Portuguese tax authorities within a specific timeframe (as a general rule, 10 days) is subject to a penalty from EUR 1,000 up to EUR 20,000. Refusing to submit transfer pricing documentation is subject to a penalty up to EUR 150,000, whereas submitting inaccurate information is subject to penalties from EUR 750 up to EUR 45,000. These penalties are not applied cumulatively.

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

Complying with the transfer pricing documentation obligations shifts the burden of proof to the tax authority.

When an adjustment affects transactions between a Portuguese entity and a nonresident entity, domestic legislation refers to international conventions, which means that the elimination of double taxation depends on the procedures laid down in the Double Tax Treaties entered into between Portugal and other States – which follow the OECD model – and the EU Arbitration Convention.

Notwithstanding the domestic rules under which the Portuguese tax authorities are not obliged to start a unilateral procedure to avoid double taxation deriving from transfer pricing adjustments, the taxpayer can trigger this procedure by submitting a request to the Director-General of the Portuguese tax authority.

In that framework, documentation related penalties do not deprive from the right to initiate a procedure to eliminate double taxation.

7. Any other relevant aspect not addressed above?

No.

B. Country-by-Country reporting (“CbCR”)

1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?

Law no. 7-A/2016, of 30 March, which entered into force as from 31 March 2016 (State Budget Law for 2016), amended the CIT Code by adding Article 121-A and implementing an obligation for multinational enterprises to submit a specific return with financial and tax related information – country-by-country reporting or CbCR.

2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?

The obligation to file a CbCR applies for tax periods starting from 1 January 2016 onward.

CbCR must be submitted via electronic data transmission to the Portuguese tax authority within 12th months after the term of the tax period to which the data refers.

3. Which taxpayers have to file a CbCR in your jurisdiction?

As per Article 121-A of the CIT Code, Portuguese tax residents are required to submit a CbCR for each tax period starting from 1 January 2016 if all the following criteria are met (Portuguese parent companies of multinational groups):

  1. (i.) They are required to prepare consolidated financial reporting statements as defined in the accounting standards and laws;
  2. (ii.) They participate in or control, directly or indirectly, one or more entities with tax residence or permanent establishments located in other countries or tax jurisdictions, as well as entities with permanent establishments in other countries or tax jurisdictions;
  3. (iii.) They have a consolidated turnover equal to or exceeding EUR 750m in the tax period prior to the one the CbCR refers to;
  4. (iv.) They are not held by one or more Portuguese entities required to submit a CbCR, or by a non-resident entity that submits, directly or through a designated entity, a CbCR in a country or tax jurisdiction with which Portugal has an automatic exchange of information agreement in force.

Additionally, Portuguese tax residents are also required to submit a CbCR as long as all the following criteria are met (Portuguese subsidiaries of multinational groups):

  1. (i.) Entities are held or controlled, directly or indirectly, by non-resident entities which are not obliged to submit a CbCR or equivalent return, or by non-resident entities in relation to there is no automatic exchange of information agreement regarding CbCR in force.
  2. (ii.) When entities that hold or control the Portuguese subsidiaries would be subject to the submission of a CbCR if they were deemed as Portuguese tax residents;
  3. (iii.) Entities do not demonstrate that any other entity of the group that is a Portuguese tax resident, or a resident of a country tax jurisdiction with which Portugal has an automatic exchange of information agreement in force, is designated to submit a CbCR in Portugal.

Any entity, either a Portuguese tax resident or a non-resident operating through a permanent establishment in Portugal, that is part of a group in which at least one of the entities is subject to the submission of a CbCR, is required to submit to the Portuguese tax authorities, via electronic data transmission, the identification of the reporting entity and correspondent tax residence within 31 December of the fiscal year to which it refers (for 2016, the deadline was extended until 31 May 2017).

For purposes of the CbCR, the following entities are deemed as being part of a multinational group:

  1. (i.) Any entity included in the consolidated financial reporting statements or that would have been included in it if the shares of such entity were traded on a regulated market; or,
  2. (ii.) Any entity excluded from the consolidated financial reporting statements for reasons of size or materiality; or,
  3. (iii.) Any permanent establishment of an entity compliant with subparagraphs a) and b) above, if the permanent establishment prepares separate reporting for accounting, tax and management purposes.

4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?

Article 121-A of the CIT Code lists the data (presented on an aggregate basis by country or tax jurisdiction) that shall be included in the CbCR, which is globally in line with the OECD’s final report on Action 13 of the BEPS project:

  1. (i.) Gross income (revenue), differentiating that obtained with associated enterprises and that obtained with independent parties;
  2. (ii.) Earnings before CIT or other income tax due of a similar or analogue nature;
  3. (iii.) CIT amount due or other income tax due of a similar or analogue nature, including withholding tax;
  4. (iv.) Amount of CIT paid or amount of other income tax paid of a similar or analogue nature, including withholding tax;
  5. (v.) Share capital and other equity items as of the end of the tax period;
  6. (vi.) Number of full-time employees (or equivalent) as of the end of the tax period;
  7. (vii.) Net value of tangible assets (except cash and equivalents);
  8. (viii.) List of resident entities, including permanent establishments, and the core activity carried out by each entity separated by country or tax jurisdiction;
  9. (ix.) Other information considered relevant and an explanation of the data included (if required).

5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?

According to the provisions of Article 117 (6) of the General Regime of Tax Infractions, failing to comply with the CbCR requirements results in a penalty from EUR 1,000 up to EUR 20,000.

6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?

No.

7. Any other relevant aspect not addressed above?

No.

C. As the case may be, other documentation/filing requirement in relation to transfer pricing?

Not applicable to Portugal.

1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?

Not applicable.

2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?

Not applicable.

3. What is the deadline for meeting this documentation/filing requirement?

Not applicable.

4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

Not applicable.

5. What is the penalty for failing to meet this requirement on time?

Not applicable.

6. Any other relevant aspect not addressed above?

Not applicable.