Portugal

  1. In your jurisdiction, what are the legal bases for eliminating double taxation further to a transfer pricing reassessment (European Arbitration Convention, mutual agreement procedures provided for by tax treaties)? In addition to the procedures set forth by such tax treaties, is there any other (formal or informal) domestic procedure in your jurisdiction?
  2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?
  3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?
  4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?
  5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 1 The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)
  6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?
  7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?
  8. Is tax collection suspended during the procedure?
  9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?
  10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

In Portugal, in the framework of intragroup flows between related parties both established in Portugal, the Corporate Income Tax Code (hereinafter “CIT Code”) and Ministerial Order (hereinafter “Portaria”) 1446-C/2001, of 21 December 2001, determine that between related parties that are both liable to Portuguese CIT any adjustment to the taxable income of one must be reflected by a corresponding adjustment to the taxable income of the other. Between two Portuguese domiciled entities, the Portuguese Tax Authorities (hereinafter “PTA”) officiously promotes the correlative adjustments.

When the adjustment affects transactions between a Portuguese entity and a nonresident entity, rather than establishing a specific and mandatory mechanism to avoid double taxation, 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 (hereinafter “DTT”) entered into between Portugal and other States – which follow the OECD model – and the European Arbitration Convention.

Pursuant to Articles 63 (12) of the CIT Code and 17 (2) of Ministerial Order 1446-C/2001, the PTA is not obliged to start a unilateral procedure to avoid double taxation deriving from transfer pricing adjustments. However, the Portuguese taxpayer can trigger this procedure by submitting a request to the Director-General of the PTA. Once the taxpayer’s request is received, the PTA must contact the foreign authorities and exchange information in accordance with Article 25 of the DTT. Following the exchange of information, should the PTA and the foreign authorities reach an agreement on the adjustments, within 120 days the PTA implements the appropriate adjustments to the Portuguese taxpayer’s income, refunding tax in excess.

2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?

To the present day Portugal has only incorporated the arbitration clause in the DTT entered into with Japan.

Consequently, when the European Arbitration Convention is not applicable the decision whether to perform a correlative adjustment lies within the sole discretion of the tax authorities involved in the Mutual Agreement Procedure provided for by a DTT.

3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?

It is difficult to estimate the time a Mutual Agreement Procedure (hereinafter “MAP”) may take, as it depends on different factors such as the complexity of the case, the documentation requested by the tax inspector and the pace of the authorities involved in the procedure. Under normal conditions the procedure is likely to be concluded within 1.5 to 2 years timeframe.

4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?

In both procedures – i.e. a MAP under the European Arbitration Convention or under the DTT – the starting point for the calculation of the time limit to initiate a procedure is the notification of the action which results or is likely to result in double taxation, which corresponds to the first tax assessment notice or equivalent.

The time limit varies depending on the provisions set out on the DTT (when applicable) or the European Arbitration Convention (three years).

5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 1 The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)

As per Article 18 (1) of Ministerial Order 1446-C/2001, a Portuguese resident is entitled to apply for a MAP before the PTA when a reassessment is issued by the PTA, as well as when a foreign authority officially proposes to perform adjustments to a nonresident related party and this will lead or is likely to lead to a breach of international conventions (DTT’s) signed by Portugal.

6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?

The written application to start an international procedure is not subject to specific formal requirements. The Portuguese taxpayer should provide the information specified in the Code of Conduct on European Arbitration Convention and in Article 18 (2) of Ministerial Order 1446-C/2001, namely:

  • Full identification of the applicant and the nonresident related party;
  • Identification of the competent foreign authority;
  • Description of the relevant facts and circumstances of the case;
  • Identification of the tax period(s) concerned;
  • Statement why the principles set out in the European Arbitration Convention or DTT have not been observed;
  • Proposal concerning one or more solutions for the purpose of solving the case.

The competent authority is “DSRI – Direção de Serviços de Relações Internacionais”, a department of the PTA located at Avenida Engenheiro Duarte Pacheco, 28 – 4, 1099-013 Lisbon, Portugal.

7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?

Prior to the commencement of any procedure, the PTA analyzes the information and documentation presented by the taxpayer in order to determine whether the material requirements are fulfilled. In accordance with Article 19 (1) of Ministerial Order 1446-C/2001, the PTA may refuse to review the case and start a procedure in certain conditions, such as:

  • Non-existence of a current or potential double taxation in breach of international conventions;
  • When the application was not presented within the time limit;
  • Lack of sufficient documentation to determine the exact amount of the adjustments.

Furthermore, in the framework of the European Arbitration Convention, “serious penalties” disable the tax payer from benefiting of the European Arbitration Convention. “Serious penalties” for the purposes of the European Arbitration Convention means criminal and administrative penalties applicable to tax infringements defined by law as serious or committed with the intent to defraud, subject to the Portuguese General Taxation Infringements Law.

8. Is tax collection suspended during the procedure?

There are no specific provisions in respect of additional assessments based on transfer pricing rules, especially in the framework of MAP.

Generally speaking, pursuant to domestic legislation, challenging an assessment does not prevent from the collection of tax. Suspension of collection measures is granted only upon the provision of a guarantee (e.g. bank guarantee, mortgage) by the taxpayer. In addition, late payment interest is due, currently at a 5.476% annual rate.

9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?

Correlative adjustments in Portugal are performed over the tax periods affected by the transaction, i.e. over the years reassessed. Should the international procedure result in a reduction of the tax burden, the taxpayer is entitled to claim the payment of interest at a 4.00% annual rate on the amount paid in excess.

Due to the non-existence of specific provisions in the Portuguese law regarding secondary adjustments, such adjustments are not authorized.

10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

The taxpayer is entitled to initiate a MAP and simultaneously challenge the assessment performed by the PTA through an administrative/court procedure. However, it is advisable to request the suspension of the national administrative/court procedure until the MPA is decided.

Authors

Picture of Patrick Dewerbe
Patrick Dewerbe
Lawyer