Portugal is on board with the OECD’s Action Plan and is expected to adopt most of the OECD’s recommendations in its domestic law. With an election pending in October 2015, current legislative proposals on transfer pricing are on hold. But whatever party wins power, the incoming Portuguese government’s support for the OECD project is not likely to change.
Combatting tax evasion domestically and globally has been high on the Portuguese government’s agenda. In January 2015, the government approved a 3-year plan that includes over 40 measures to tackle tax evasion and address the country’s grey economy. According to Portugal’s Ministry of Finance, its previous 3-year plan to fight tax evasion supported a 6.2 percent increase in tax revenues between January and November 2014.1
Steps are also being taken to increase the country’s tax competitiveness. At the beginning of 2014, Portugal introduced a corporate tax reform package that, among other things, decreased the headline corporate tax rate to 23 percent.
Within this corporate tax reform package, it was also determined that the corporate tax rate should be further decreased, to 21 percent for 2015) and to between 17 and 19 percent for 2016 (subject to analysis by a special commission convened to study the tax reform package).
Other incentives passed as part of this reforms are an extended participation exemption and a new patent box:
Both of these mechanisms were designed with the OECD BEPS discussions in mind, and they are somewhat less aggressive than equivalent regimes in place in other EU countries.
Measures to strengthen Portugal’s transfer pricing regime are being discussed, but they are unlikely to be enacted until after the country’s national elections are held in October 2015 and the OECD’s BEPS recommendations are finalized. In line with the OECD’s proposals, Portugal’s draft transfer pricing rules would aim to provide for (among other things) stronger mandatory documentation requirements.
KPMG in Portugal understands that the CbyC report itself will not result in an increase in tax assessments. However, it is expected that their use as an audit tool may increase as the Portuguese transfer pricing regime evolves.
While current proposals remain on hold, the Portuguese tax authorities have increased their scrutiny of transfer prices under existing rules. In 2012, the tax authorities established a ‘large taxpayers unit’ with the goal of increasing the control and inspection of corporate groups concerning transfer pricing issues. Recently, the tax authorities have been reviewing more complex issues, with special focus on, for example, IP restructurings and on complex financing structures involving entities in Belgium, Luxembourg and the Netherlands.
Although Portugal is generally waiting for the OECD’s work to be completed before proposing related BEPS reforms, the country has enacted several discrete BEPS-related measures over the past few years. For example:
Some multinational companies in Portugal are concerned about the implications of the EU proposal to introduce the automatic exchange of information between member states on their tax rulings. Currently, Portuguese tax rulings and advanced pricing arrangements are confidential and binding. Rulings are only made public on an anonymized basis if the same issue is ruled on more than three times.
Companies that have received unilateral rulings in Portugal could face the exposure of sensitive tax information if the EU proposal proceeds. This development, combined with changes in the transfer pricing rules, highlights the importance of reviewing existing documentation to determine and address any potential exposure tax risk.