Portugal: Amendments to the transfer pricing regime

Regarding the Ministerial Order no. 268/2021, the review ensues the amendments made on the article 63 of the Corporate Income Tax Code (“CIT Code”) and, on the other hand, transposes some of the work developed by OCDE, recommending and endorsing the use of the Guidelines published by OECD on transfer pricing matters.

We highlight, considering their relevance, the following amendments.

Advance Pricing Agreements (APA)

Main new features of the ministerial order no. 267/2021, of 26 November, regarding the procedures to conclude Advance Pricing Agreements (“APA”):

• Clarification and description of the phases of the APA procedure (two phases: preliminary phase and proposal phase);
• Standardization of  the maximum term of APA to four years (already included in article 138 of the CIT Code);
• Inclusion of the possibility of the APA to apply to previous fiscal years, as far as the relevant facts and circumstances of those fiscal years are identical or similar and if, at the closing of the agreement, no more than two years have elapsed after the deadline for delivery;
• Setting, for the preliminary evaluation request, of a deadline of three months before the end of the deadline for delivery the agreement proposal, which should be made six months before the beginning of the first fiscal year included in the agreement;
• Introduction of the possibility of extinction of the evaluation proposal procedure of the APA in the cases properly identified in the text of the Ministerial Order. In some cases, Portuguese Tax Authorities (“PTA”) may be obliged to reimburse the taxpayer in 25% of the fee paid to conclude the agreement;
• Reduction of 25% of the fee due to conclude the agreement by micro, small and medium companies.

This ministerial order entered into force on 27 November of 2021.

New rules for transfer pricing

Main new features of the ministerial order no. 268/2021, of 26 November regarding the regulation of transfer pricing in transactions established between a taxpayer subject to Personal Income Tax or Corporate Income Tax and any other entity:

• Detailed definition of the application of transfer pricing methods and comparability analysis processes, in line with the OECD Guidelines (published in July 2017);
• Determination of the median as the reference value in case of any potential adjustment by the PTA;
• Amendment of the threshold that grants exemption from preparing transfer pricing documentation, adopting a double criterion: (i) taxpayers with annual revenues lower than EUR 10,000,000 are exempt from preparing the documentation (EUR 3,000,000 in the previous version) during the fiscal year to which the obligation refers (instead of the previous fiscal year); and (ii) exemption of reporting the controlled transactions in an amount of less than EUR 100,000 (per transaction, per counterparty) and, as a whole, of EUR 500,000;
• Introduction of the two-tier documentation model – Master File  and Local File – and considering the documentation obligation fulfilled when the process includes all relevant elements stated in Appendix I of the ministerial order;
• Introduction of the concept of “Simplified File” to be adopted by micro, small and medium companies (as so qualified under Decree-Law no. 372/2007, of 6 November), obliged to prepare the transfer pricing documentation;
• Transposition from the OECD Guidelines of the three-year validity rule for benchmark analysis, without prejudice of the annual update of the financial data of the final set companies;
• Provision, for service providers, of the obligation to issue a statement of responsibility for the information and techniques used in technical studies prepared at request of the taxpayer to the preparation of transfer pricing documentation;
• Confirmation of the need of translation into Portuguese of documents to be presented to PTA, that are written in foreign language, without prejudice of exemption;
• Expansion of the documentation requirements related to intragroup cost-sharing and service agreements; and
• Introduction of certain requirements and procedures to be adopted to open Mutual Agreement Procedures, in line with Law no. 120/2019, of 19 September and with the best international practices on the matter.

This ministerial order entered into force on 27 November, with exception of Chapter IV, regarding documentation obligations, which applies to fiscal years beginning on or after 1 January 2021.