On 26 November 2021, the Portuguese Tax Administration (PTA) published Order No. 268/2021, which replaces Regulation No. 1446-C / 2001 of December 21, 2001. The new regulation revises the rules for implementing the arm’s length principle under Article 63 of the Portuguese Corporate Income Tax Act. The revisions introduced by the ordinance incorporate guidance contained in the 2017 version of the OECD transfer pricing guidelines on the accurate delineation of transactions, the process for identifying comparables, the selection of method, and the considerations applicable to specific types of transactions.
Documentation requirements
The ordinance changes the transfer pricing documentation rules, which require the master file and local file obligations endorsed by the OECD’s BEPS report on action 13. Accordingly, two new distinct documentation models have been created: the standard and the simplified. The standard model is composed of a master file and a local file, which must be delivered together, each containing a set of elements specified in detail in the annexes to the TP Decree-Ruling. The simplified model will apply by small or medium-sized enterprises, following the terms set out in the annex to Decree-Law No. 372/2007 of 6 November 2007.
Documentation threshold
Accordingly, taxpayers are exempt from the documentation requirements if, in the period to which the obligation relates, total annual income is less than EUR 10 million. Even if this limit is exceeded, that exemption shall apply to controlled transactions whose value in the period has not exceeded €100,000 and, in total, €500,000, considering their market value.
Documentation deadline
The taxpayers required to prepare the standard or the simplified model should prepare the TP documentation within the deadline for submission of the Annual Accounting and Tax Information return (IES/DA) by the 15th day of the seventh month after the end of the fiscal year or on 15 July, if the fiscal year coincides with the calendar year, and only submit it if requested by the PTA.
Language
The new regulation clearly stipulates that documents containing foreign language information must be translated into Portuguese at the time of submission to the PTA and that confirmation from the PTA is also required.
TP Methods
The TP methods hierarchy was also removed from the new ordinance, aligning it with article no. 63 of the Corporate Income Tax Code. Taxpayers are allowed to use any of the accepted TP methods.
The ordinance also provides general guidance on MAP and correlative relief, which focuses on time limits and the required elements of an application requesting MAP assistance or correlative relief in cases of double taxation. The ordinance specifies that a taxpayer’s acceptance of a correlative adjustment must be accompanied by a waiver of any other means of appeal through judicial or administrative proceedings.
Other changes
The ordinance also includes a chapter that provides guidance for different categories of transactions, with separate sections on cost-contribution arrangements, intergroup services, intangible transfers, and restructurings.
