Answer ... The Portuguese law foresees several specific anti-avoidance rules and a general anti-avoidance rule (GAAR) that was implemented in the General Tax Law in 1999 and has already generated substantial case law. There are no anti-avoidance rules created by case law.
Apart from the statutory GAAR, the tax authorities often try to bypass the demanding requirements of the GAAR by framing their case under the general provision that governs the tax deductibility of costs.
Answer ... In theory, the GAAR aims to prevent the structuring of operations in an unusual or awkward way (there is much to be said on what is considered ‘unusual’; the language of the law speaks in terms of artificiality and abuse of juridical forms) primarily in order to achieve a tax advantage. This latter criterion is decisive: if the operation has economic substance - if it changed something in substance apart from the tax advantage it produced - it can be argued that the main aim was not to achieve a tax advantage; that the transaction was merely a way of achieving a different goal while also making use of tax planning. Whether a specific transaction has enough substance to defeat the GAAR provision is the million-dollar question.
In case law, however, the GAAR is not always treated under these lines of reasoning and more weight than should be is sometimes ascribed to the perceived unusualness versus normality of the transaction or operation as a whole.
As regards specific anti-abuse rules, these are as diverse as their specific goals. An important rule concerning capital losses was eliminated with the enactment of the participation exemption regime in 2014.
Answer ... Portuguese law foresees several anti-avoidance tax rules, including the following:
- Under the controlled foreign corporation rules, profits or income obtained by non-resident entities that are clearly subject to a more favourable tax regime are imputed to Portuguese tax resident taxpayers which hold, directly or indirectly (including through a representative, fiduciary or intermediary), at least 25% of the share capital, voting rights or rights over the income or assets of such non-resident entities. This percentage is reduced to 10% if at least 50% of the share capital, voting rights or rights over the income or assets of such non-resident entity are held, directly or indirectly, by Portuguese tax resident taxpayers. An exception arises if the non-resident entity is resident or established in another EU or (where there is administrative cooperation for tax purposes) EEA member state if the Portuguese taxpayer can prove that the non-resident entity was incorporated for valid economic reasons and carries out business activities.
The deductibility of financing expenses is limited to the higher of the following:
- € 1 million; or
- 30% of earnings before interest, tax, depreciation and amortisation.
Financing expenses over this amount incurred in a certain tax year may be deducted over the following five tax years, after deducting the financing expenses of the relevant year, to the extent that the limits are not exceeded.
- The deductibility of losses that have been carried forward is limited to 70% of taxable profits (it is doubtful whether this may qualify as an anti-abuse provision).
- If ownership of shares (or voting rights) changes by more than 50%, tax losses of the company that have been carried forward cease to be deductible (there are several exemptions from this provision, mainly related to reorganisations).
- The participation exemption regime does not apply if more than 50% of the company’s assets comprises real estate in Portugal that serves no business purpose other than the trading of real estate.
- Capital losses on shares are not deductible to the extent that there was elimination of double taxation of dividends distributed in the relevant year or the preceding four years, and to the extent that in the same period there were capital gains benefiting from the participation exemption with respect to shares of the same company.
- The tax neutrality regimes foreseen for reorganisations will not apply if the tax authorities conclude that the reorganisation was primarily aimed at tax evasion, which may be the case if the intervening companies are not subject to the same corporate income tax regime or if the operations were not carried out for valid economic reasons.
- The relevant price for tax purposes in real estate transactions cannot be lower than the tax value of the asset for real estate transfer tax purposes. The taxpayer may trigger a specific procedure aimed at proving that the price agreed upon was effectively lower than that.
- Transfer pricing rules apply in alignment with Organisation for Economic Co-operation and Development (OECD) guidelines.
- Payments to low tax jurisdictions are not tax deductible and are subject to autonomous/separate taxation, unless the taxpayer can prove that the expense corresponds to a real transaction or service, that the latter was not unusual and that the price has not been exaggerated.
- A disclosure obligation applies to certain tax planning schemes (eg, use of hybrid instruments or entities; abusive use of tax losses) by the promoting entity or the user under certain conditions.
Answer ... Portuguese law does not foresee a ruling process for specific corporate tax issues or desired domestic or cross-border tax treatments, although a taxpayer can request a binding ruling from the tax authorities regarding the application of any tax rule or regime to a certain operation to be performed. The binding ruling must be issued within 150 days, unless the taxpayer requests an urgent ruling, in which case it must present a ruling proposal which will be analysed by the tax authorities within 75 days and pay a fee set by Portuguese tax authorities according to the complexity of the subject. If the taxpayer requests the issuance of an urgent binding ruling and the Portuguese tax authorities do not comply within the 75-day timeframe, the taxpayer’s ruling proposal will be deemed to have been accepted by the Portuguese tax authorities.
Upon issuing a binding ruling, the tax authorities cannot act differently with respect to the subject matter of the ruling, unless otherwise required by a judicial decision. The ruling ceases to be binding after four years (unless a renewal is requested), and after the first year it can be revoked without retroactive effects.
Answer ... There is a transfer pricing regime and it is in line with the OECD guidelines, under which the tax authorities can make adjustments to taxable profits in respect of transactions between related parties in order to ensure compliance with the arm’s-length principle.
Transactions between related parties must be fully documented in the transfer pricing file, which must be kept by a Portuguese resident taxpayer with net sales and other income amounting to or exceeding €3 million in the previous tax period.
In addition, the Portuguese transfer pricing regime foresees the possibility of entering into unilateral, bilateral or multilateral advance pricing agreements with the tax authorities, which remain valid for up to three years and may be renewed. Among other obligations, the taxpayer must prepare an annual report on the application of the advance pricing agreement; otherwise, the agreement will be deemed to have expired. The execution of an advance pricing agreement is subject to payment of a fee to the tax authorities based on the taxpayer’s turnover.
Answer ... The statutory limitation periods are as follows:
- four years as a general rule;
- three years where an error is evidenced in the taxpayer’s tax return;
- eight years for real estate transfer tax;
12 years where the taxable event relates to:
- a country, territory or region benefiting from a clearly more favourable tax regime which should have been reported to the Portuguese tax authorities; or
- deposit or securities accounts held in financial institutions outside the European Union, or in branches of resident financial institutions located outside the European Union, which were not reported to the Portuguese tax authorities by the taxpayer in its annual tax return; and
- in case of the deduction of tax or a tax credit, the period foreseen for the exercise of such right.
The statutory limitation period may be suspended in case of inspections, criminal proceedings and other instances foreseen in the law.
For periodic taxes, the statutory limitation period begins to run from the end of the year in which the taxable event took place. For other taxes, it begins to run from the date on which the taxable event occurred, except for value added tax and definitive withholding taxes, in which case the statutory limitation period begins to run from the start of the civil year following that in which the chargeability arose or the taxable event occurred.