CMS Expert Guide to Transfer Pricing Documentation in Portugal

Pursuant to Article 63 (6) of the Portuguese Corporate Income Tax (CIT) Code, Portuguese taxpayers are required to maintain transfer documentation regarding their transfer pricing policy, including guidance and instructions for its implementation, contracts and other relevant legal documents executed between the taxpayer and associated enterprises, documentation and information regarding such enterprises, and documentation and information regarding the entities, services and goods used as comparables (including a detailed analysis of business functions performed, assets used and risks assumed, as well as selection and application of the most appropriate transfer pricing methodology). 

Taxpayers who have disclosed total revenues under EUR 10M in the period to which the obligation relates are not required to comply with the transfer pricing documentation requirements. 

Even if the above-mentioned threshold is surpassed, related party transactions with a market value of less than EUR 100,000 (per counterparty) and EUR 500,000 (in aggregate) are also excluded from the transfer pricing documentation obligation. 

Small and medium companies (i.e. employing fewer than 250 employees and with an annual turnover under EUR 50M or balance sheet under EUR 43M) that are not exempt from the obligation of preparing the transfer pricing file as per above, may prepare a simplified transfer pricing file.  

This transfer pricing documentation exemption does not cover related party transactions carried out with individuals or entities resident outside Portuguese territory and subject to a clearly more favourable tax regime (i.e. listed Tax Haven jurisdictions). 

Finally, entities that are exempt from complying with transfer pricing documentation requirements should in any case be able to prove (when notified for this purpose by the Portuguese Tax Authorities) that the terms and conditions practiced in the related party transactions are compliant with the arm´s length principle. 

2.1 Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)? 

Portuguese taxpayers who are subject to the transfer pricing documentation rules as per above must document all transactions with associated enterprises, including both resident and non-resident entities. 

Transfer pricing reporting now specifically considers a double structure split between a Master File including information regarding the group in which the taxpayer is inserted and a Local File regarding the taxpayer’s activity. 

2.2 What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)? 

Under article 63 (4) of the CIT Code for the purposes of transfer pricing rules, two entities are deemed as associated enterprises whenever one has a significant direct or indirect influence over the management of the other. This is deemed to occur in the case of: 

1. An entity and its shareholders (or their spouses, ascendants or descendants) who have a direct or indirect participation representing at least 20% of the share capital or voting rights; 
2. Two entities in which the same shareholders (or their spouses, ascendants or descendants) hold, directly or indirectly, a participation of at least 20% of the capital or voting rights; 
3. An entity and the members of its governing bodies, agencies or any management, direction, management or supervision body, and their spouses, ascendants and descendants; 
4. Entities in which the majority of board members, or members of any board of directors, management, management or supervision, are the same people or, if different people, are linked by marriage, registered partnership or affinity in a direct line; 
5. Entities linked in application of a subordination agreement, group parity agreement or any other agreement of a similar nature; 
6. Entities in a control relationship, as defined by the relevant legislation; 
7. Entities under a legal relationship, which allows one entity to condition the management decisions of the other entity in light of facts and circumstances not related with their business or professional relation; 
8. A resident entity or a non-resident entity with a permanent establishment situated in Portuguese territory and an entity subject to a clearly more favourable tax regime located in a listed Tax Haven. 

2.3  For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?  

Portuguese transfer pricing documentation regulations are in line with the EU TPD.  

2.4 For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach? 

Portuguese taxpayers must follow domestic legislation on the content of transfer pricing documentation, which is generally in line with OECD transfer pricing guidelines. 

2.5 Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?  

No. As a general rule, Portuguese tax authorities are only entitled to request information from Portuguese resident entities, including permanent establishments of non-resident entities located in Portuguese territory and permanent establishments of Portuguese resident entities located abroad. 

As for information related to non-resident entities or other tax jurisdictions, the Portuguese tax authorities may only request such information through the mechanisms set out in the tax treaties entered into by Portugal, namely the exchange of information provisions.  

2.6  If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?  

There is no legal or administrative restriction on the use of regional benchmark studies. However, Portuguese tax authorities tend to accept regional comparables only in situations in which local comparables are limited or not available. 

2.7 If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intragroup services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?  

With the sole exception of taxpayers with annual revenue under EUR 10M in the previous year, all taxpayers are obliged to prepare and maintain transfer-pricing documentation. Domestic legislation does not contain any specific provision exempting taxpayers to maintain benchmark studies or other information. 

However, as per Ministerial Order no.268/2021, of 26 November 2021, the list of information which is expected to be included in the transfer pricing file, such as benchmark studies, is merely illustrative and not exhaustive. The OECD and EU guidelines on low-value-adding intra-group services are applicable. 

2.8 What language(s) are to be used by taxpayers in submitting the transfer pricing documentation? 

Transfer pricing documentation must be organised and submitted in Portuguese. Documentation in a foreign language must be translated into Portuguese when requested by the tax authorities unless Portuguese Tax Authorities are able to understand the contents and waive its translation.  

Transfer pricing documentation is included in the list of documents that form part of the company’s annual tax file, which must be maintained in good order by the taxpayer for a period of ten years.  

A transfer pricing file should be submitted before the Portuguese Tax Authorities by the taxpayers that are subject to permanent monitoring by the Portuguese Tax Authorities’ Large Taxpayers Unit (i.e. regulated entities, entities with a turnover exceeding EUR 1,200M, or EUR 2,100 if holding company of a multinational group, with tax payable exceeding EUR 20M, inter alia) and companies that are part of a consolidated tax group under the Portuguese Special Tax Consolidation Framework. The deadline for such filing elapses on 15 July, and for taxpayers who adopt a tax period other than the calendar year, on the 15^th of the seventh month following the end of the tax period. 

Other taxpayers are not subject to filing and should only provide the Portuguese tax authorities with the transfer pricing file upon request.  

Notwithstanding the above, all taxpayers are bound to include some transfer pricing information in the Annual Simplified Corporate Information (IES) – to be submitted on the same deadlines mentioned above – such as (i) the list of related parties, (ii) if there are related party transactions, (iii) the values and types of related party transactions, (iv) the methods used to establish arm’s length pricing, and (v) information on the existence of a transfer pricing file or not, inter alia.  

Failing to provide transfer-pricing documentation requested by the Portuguese tax authorities within a specific timeframe (as a general rule, ten days) is subject to a penalty from EUR 1,000 to EUR 20,000 with the addition of 5% for each day of delay. Refusing to submit transfer-pricing documentation is subject to a penalty from EUR 750 to EUR 150,000. These penalties are not applied cumulatively. 

Complying with transfer-pricing documentation obligations shifts the burden of proof to the tax authority. 

When an adjustment affects transactions between a Portuguese entity and a non-resident entity, domestic legislation refers to international conventions, which means that the elimination of double taxation depends on the procedures laid down in the Double Tax Treaties entered into between Portugal and other States (which follow the OECD model), the EU Arbitration Convention and domestic legislation (Law no. 120/2019, dated 19 September, which implemented the EU Council Directive 2017/1852, dated 10 October 2017), applicable for proceedings between EU countries.  

Pursuant to the European Arbitration Convention, “serious penalties” disable the taxpayer from benefiting from the European Arbitration Convention. 

Pursuant to domestic legislation, access to the mechanisms for eliminating double taxation is impaired when penalties are applied for tax fraud, intentional non-compliance or gross negligence in connection with the income subject to the transfer-pricing adjustment.  

Serious penalties for this purpose are deemed to include serious crimes and penalties, which quantum exceeds EUR 15,000 (in abstract), and ones that, regardless of the quantum of the penalty, the law expressly qualifies as such.  

Failing to submit transfer-pricing documentation should not deprive the taxpayer of the right to initiate a procedure to eliminate double taxation, considering the maximum applicable penalty corresponds to EUR 10,000 in abstract and is therefore qualified as a simple offence (EUR 20,000 is the penalty applicable to companies/entities for wilful conduct).  

Conversely, refusing to submit such documentation would be assimilated to intentional non-compliance (subject to a heavier maximum penalty), and hence deprive the taxpayer from triggering the mutual agreement proceeding.  

Benchmark studies are valid for a period of three years, provided that the de facto situation and the circumstances of the transaction remain unchanged without prejudice to the annual update of the relevant financial information.  

The obligation for multinational enterprises to submit a specific return with financial and tax related information – country-by-country reporting or CbCR – has already been implemented. 

The obligation to file a CbCR has applied for tax periods starting from 1 January 2016 onward. 

CbCR must be submitted via electronic data transmission to the Portuguese tax authority within 12 months after the term of the tax period to which the data refers (Form 55). 

Entities are exempted from filing the CbCR when the multinational group of companies has filed within the above-mentioned deadline a CbCR per jurisdiction through an appointed substitute of the ultimate holding company in the country of its tax residence (some further criteria are required for this exemption to apply when such appointed substitute has its tax residence in a country outside the EU). 

In addition to the CbCR filing obligation, entities are also bound to identify beforehand the reporting entity to the Portuguese Tax Authorities (Form 54).  

In fact, Portuguese tax residents or non-residents operating through a permanent establishment in Portugal, that are part of a group in which at least one of the entities is subject to the submission of a CbCR, are required to inform Portuguese tax authorities, via electronic data transmission, until the last day of May (or, for taxpayers who adopt a tax period other than the calendar year, until the last day of the fifth month following the end of that period), if they are the reporting entity or, if not, the identification of the reporting entity and respective tax residence. 

Where there is more than one entity of the same multinational group that is resident for tax purposes in the EU and the reporting criteria are complied with (refer to next Section), the multinational group may designate one of these entities to submit the CbCR for any reporting period by the same deadline mentioned above and must notify Portuguese Tax Authorities (within the above-mentioned deadline) that such submission is intended to satisfy the submission requirement of all the entities of the multinational group, which are resident for tax purposes in the EU. 

As per Article 121-A of the CIT Code, the following entities are required to submit a CbCR: 

1. Ultimate parent company (or its substitute) of a multinational group with a total consolidated turnover equal to or exceeding EUR 750M in the tax period prior to the one the CbCR refers to (for the Portuguese entities of the group in Portugal); 
2. Portuguese tax resident subsidiaries of multinational groups, if at least one of the following conditions is met: 
   1.  Entities are held or controlled, directly or indirectly, by non-resident entities, which are not obliged to submit a CbCR or equivalent return; 
   2. The jurisdiction where the ultimate holding company is a tax resident that has an international agreement with Portugal but, in the last day of May (or, for taxpayers who adopt a tax period other than the calendar year, the last day of the fifth month following the end of that period), no qualified agreement between the Tax Authorities is in place, which includes an automatic exchange of information agreement; 
   3. There is a systemic failure in the jurisdiction of tax residence of the ultimate holding company appointed as the reporting entity to Portuguese Tax Authorities. 

For purposes of the CbCR, the following entities are deemed as being part of a multinational group: 

1. Any entity included in the consolidated financial reporting statements or that would have been included in them if the shares of such entity were traded on a regulated market; or 
2. Any entity excluded from the consolidated financial reporting statements for reasons of size or materiality; or 
3. Any permanent establishment of an entity compliant with subparagraphs 1. and 2. above, if the permanent establishment prepares separate reporting for accounting, tax and management purposes. 

Article 121-A of the CIT Code lists the data (presented on an aggregate basis by country or tax jurisdiction) that must be included in the CbCR, which is globally in line with the OECD’s  final report on Action 13 of the BEPS project: 

1. Gross income (revenue), differentiating income obtained with related parties and income obtained with independent parties; 
2. Earnings before CIT or other income tax due of a similar or analogue nature; 
3. CIT amount due or other income tax due of a similar or analogue nature, including withholding tax; 
4. Amount of CIT paid or amount of other income tax paid of a similar or analogue nature, including withholding tax; 
5. Share capital, retained earnings and other equity items at the end of the tax period; 
6. Number of full-time employees (or equivalent) at the end of the tax period; 
7. Net value of tangible assets (except cash and equivalents); 
8. List of all entities part of the multinational group, including permanent establishments, resident and non-resident entities, indication of tax residency of each of the entities and the core activity carried out by each entity separated by country or tax jurisdiction; 
9. Other information considered relevant and an explanation of the data included (if required). 

According to the provisions of Article 117 (6) of the General Regime of Tax Infractions, failing to comply with the CbCR requirements – including the failure to file the CbCR and the failure to communicate the reporting entity – results in a penalty from EUR 1,000 to EUR 20,000 with the addition of 5% for each day of delay in compliance. 

The list of jurisdictions where there is an automatic exchange of information on the CbCR are published (Ministerial Order no. 383-B/2017, dated 21 December) and include all Member States of the EU, the US and all jurisdictions that are signatories or have later joined the Multilateral Competent Authority Agreement on the Exchange of CbCR. 

No. 

Not applicable to Portugal. 

Not applicable to Portugal. 

Not applicable to Portugal. 

Not applicable to Portugal. 

Not applicable to Portugal. 

Not applicable to Portugal.