Answer ... The starting point is that corporate income tax (CIT) follows the accounts. However, many specific tax rules apply to the treatment of capital assets.
As a rule, depreciation must be calculated through the straight-line method or the declining balance method, although the latter cannot be applied to buildings, passenger vehicles, furniture, social welfare equipment or second-hand assets.
The maximum rates of depreciation are set by law. Tax deductions above such rates are not allowed and the minimum tax deduction is 50% of the maximum rate (otherwise the deduction is lost).
Assets with an acquisition value of less than €1,000 can be depreciated in the acquisition year, unless the assets are part of a set of elements that should be depreciated as a whole.
Accounting write-offs are not automatically accepted for tax purposes. The reason for the write-off is subject to specific control/inspection for tax purposes, and the tax law has a numerus clausus of circumstances in which a write-off is considered relevant for CIT purposes. If the write-off is not accepted for tax purposes, the cost base not yet deducted for tax purposes may be deducted throughout the theoretical useful lifecycle of the capital asset.
In some circumstances quoted shares may be subject to fair value adjustments relevant for tax purposes.
Answer ... Portuguese law foresees several tax regimes aimed at promoting investment in innovation, including the following:
The System of Tax Incentives for Business Research and Development grants a tax credit computed as a percentage of the relevant investment as follows:
- 32.5% of the expenses incurred; and
- the possibility of an incremental rate corresponding to 50% of the increase in expenditure incurred in a given tax period as compared to the average of the two preceding years, up to a maximum of €1.5 million.
A 15% increase on the base rate applies for micro, small and medium-sized companies that have not yet completed two taxation periods (and have not benefited from the incremental rate).
- The Tax Regime for Investment Promotion generates a tax credit corresponding to 25% of the relevant investment for the first €10 million of the investment and 10% thereafter. The relevant municipality may grant a municipal property tax exemption for 10 years for property used under the relevant investment, as well as a real estate transfer tax exemption for the acquisition of property under the relevant investment. A stamp duty exemption is also available for the acquisition of property within the relevant investment.
- The reinvestment of retained earnings regime allows micro, small and medium-sized companies to benefit from a tax credit corresponding to 10% of retained and reinvested earnings used for relevant investments as defined by law, up to a limit of €7.5 million of retained and reinvested earnings. Earnings should be reinvested within three years.
- Contractual tax credit incentives (corresponding to between 10% and 25% of the relevant investment) may be negotiated for investments amounting to or exceeding €3 million.
Answer ... For the purposes of determining taxable profits, gains and losses derived from inventories result from the application of valuation criteria defined for accounting purposes using:
- acquisition and production costs;
- standard costs determined according to adequate accounting techniques;
- sale prices deducted from the regular profit margin (the latter authorised only in certain circumstances); and
- sale prices of products collected from biological assets at the moment of harvest, deducted from the estimated costs at the sale point, excluding transportation costs and other costs required to place such products on the market.
The relevant acquisition or production costs are determined as follows:
- specific cost of the item;
- weighted average cost; and
- first in, first out.
The use of different valuation criteria is subject to authorisation by the tax authorities, which must be requested before the end of the relevant tax period.
Answer ... Derivatives are subject to specific tax rules. As a rule, gains or losses arising from the application of the fair value model of valuation are relevant for the assessment of taxable profits. For hedging situations (as defined in the CIT Code), there are further specific rules aimed essentially at matching the recognition of losses and gains in the derivative instrument and the hedged position or asset. An anti-abuse provision is also provided for, allowing for recharacterisation of the operations by the tax authorities.
Exemptions for certain repo operations are also available.