The main rules governing transfer pricing are:

• the Corporate Income Tax (CIT) Code (in particular, articles 63 and 138);
• Ministerial Order number 267/2021 of 26 November, on Advance Pricing Agreements;
• Ministerial Order number 268/2021 of 26 November regarding the regulation of transfer pricing rule;
• the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS);
• the European Council Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (arbitration convention); and
• Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union.

Transfer pricing rules were first introduced into Portuguese written legislation through Law 30-G/2000, 29 December, and Ministerial Order number 1446-C/2001, 21 December, and entered into force in the beginning of 2002. In 2008, the advanced transfer pricing agreements framework was introduced. In 2019, Law 119/2019 of 18 September and Ministerial Orders number 267/2021 of 26 November and 268/2021 of 26 November aligned the domestic transfer pricing regime with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2017) and BEPS Actions 8, 9, 10 and 13.

Article 63 of the Portuguese CIT Code defines a controlled transaction as any transaction between related parties.

Controlled Transactions

Controlled transactions comprise:

• any commercial transaction, including transactions regarding tangible or intangible assets, rights or services, even if concluded under a cost-sharing agreement or intragroup services agreement;
• financial transactions; and
• restructuring and reorganisation transactions involving business restructuring, termination or relevant renegotiation of existing contracts, especially if they involve the transfer of tangible and intangible assets, rights over intangibles or compensation for damages or loss of earnings. 

Related Parties

Related parties are entities where one of the parties has, directly or indirectly, a significant influence on the other party’s management. Such influence exists notably in regard to:

• an entity and its shareholders, their spouses, ascendents or descendants who, directly or indirectly, hold at least 20% of the share capital or voting rights;
• entities in which the same shareholders, their spouses, ascendents or descendants, directly or indirectly, hold at least 20% of the share capital or voting rights;
• an entity and the members of its corporate body, or any managing, directing, governing or supervisory boards, as well as their respective spouses, ascendents or descendants;
• entities in which most corporate body members or any administrative, directing, governing or supervisory boards members are the same or, being different, are linked by marriage or a legally recognised non-marital partnership, or are kindred in a direct line;
• entities linked by subordination agreements, joint group agreements and others with equivalent effect;
• companies in a controlling relationship pursuant to Article 486 of the Portuguese Companies code;
• entities whose relationship enables, under its terms and conditions, an influence of one of the parties on the other’s management decisions, based on facts or circumstances alien to the commercial or professional relationship itself; and
• a Portuguese resident entity or a non-resident entity with a permanent establishment in Portugal and an entity subject to the laws of a territory or region listed as a tax haven as per the list approved by Ministerial Order.

The Portuguese legislation lists five specific methods which can be used by taxpayers: (i) the comparable uncontrolled price method; (ii) the resale price method; (iii) the cost-plus method; (iv) the transactional profit split method; and (v) the transactional net margin method.

Unspecified methods are allowed every time the methods listed in 3.1 Transfer Pricing Methods cannot be used due to the unique or singular character of the transaction, or the lack of reliable comparable information or data on similar transactions between independent parties, in particular for transactions regarding real estate rights, share capital of non-listed companies, credit rights and intangibles.

Portugal has a flexible approach concerning transfer pricing methods. Taxpayers are allowed to select any method providing that the elected method is capable of providing the most reliable estimate of an arm’s length transaction, taking into consideration, notably, the nature of the transaction, the existence of reliable information and the degree of compatibility between identical transactions performed at arm’s length.

The selection of comparable transactions must be well grounded with selection and rejection criteria followed (including sensitivity), statistical and functional analysis to identify the proper comparable transactions and the adequate value or range of values obtained. 

Following the selection of the comparable transaction and corresponding values or range of values, additional adjustments may be taken to correct the impact (of a residual nature) on transaction values caused by differences between the comparable transactions chosen and the independent transaction under analysis.

Transactions involving intangibles are subject to a specific regime which comprises of the following.

• Identification of all the intangible assets used or transferred in controlled transactions and all the economically relevant risks related to the development, maintenance, protection and exploitation of such assets.
• Identification of the contractual terms and conditions – including ownership, all relevant rights and obligations – and risks taken by each party.

• Functional analysis including the identification of all the entities that undertake, use or manage the risks concerning the development, maintenance, protection and exploitation of the intangible assets, in particular, the identification of all the entities that control the relevant risks.
• Assessment of the coherence between the terms agreed and the conduct of the entities involved, in particular if the entity that undertakes all economic risks has effective control and financial capacity to undertake risks related to the development, improvement, maintenance, protection and exploitation of the intangible assets.
• Clear identification of all the controlled transactions effectively performed.
• If possible, identification of the terms and conditions that would apply if the controlled transactions were agreed upon between independent parties.

No special rules regarding hard-to-value intangibles apply. OECD guidelines on the matter are expected to be of particular relevance.

Cost sharing/cost contribution arrangements are recognised as arrangements in which two or more entities agree to allocate between each other the costs and risks of producing, developing or acquiring any assets, rights or services, according to the proportion of advantages or benefits that each party expects to obtain from its participation in the arrangement.

In such arrangements entered into between related parties, and according to the arm’s length principle, the value of the contribution to each of the parties should be in line with the value of the contribution that would be required by an independent party under comparable conditions.

The share of the contribution each party is liable for should correspond to the share of its contribution to the expected benefits to be received under the agreement. An appropriate allocation key may apply – considering the nature of the activity, the business turnover, personnel costs, added value or the invested capital – whenever a direct and individual assessment of such benefits is not possible.

There are no specific rules on affirmative transfer pricing adjustments after filing tax returns. Thus, subsequent material adjustments with impact on the tax return information should, in principle, require the submission of a corrective tax return.

From a functional perspective, exchange of information with other jurisdictions’ tax authorities may be automatic, spontaneous or upon request. Such exchange may occur under multiple international instruments, including:

• the OECD’s Common Reporting Standard (CRS);
• the US Foreign Account Tax Compliance Act (FATCA); and
• Double Tax Treaties to which Portugal is a party (almost 80), as well as bilateral agreements for the exchange of information (of which there are 14).

APAs are recognised by Portuguese law. Such agreements can be either unilateral – if the agreement is entered into between the Portuguese Tax Authorities and one or more taxpayers – or bilateral/multilateral – if the agreement includes also one or more tax authorities of another jurisdiction with whom Portugal has signed a double tax treaty.

The APAs are directly negotiated with the Portuguese tax authorities. The programme is initiated with a request filed by the taxpayer directed to the general tax director.

Portuguese domestic law recognises bilateral or multilateral APAs if the other jurisdictions involved are parties in a treaty that establishes a mutual agreement procedure (MAP) in accordance with Article 25(3) of the OECD Model Convention or Article 16 of the Multilateral Instrument (MLI). Thus, in these procedures, APAs involve foreign tax authorities and proper co-ordination with the applicable MAP.

There are no objective limits on which taxpayers or transactions are eligible for an APA.

The preliminary request for an APA application must be filed up to nine months before the beginning of the tax year to be covered in the agreement.

A taxpayer is subject to a fee of between EUR2,618.96 and EUR34,915.85, depending on their turnover.

An APA can cover up to four years, renewable as per a taxpayer request made six months prior to its termination.

An APA can have retroactive effect concerning tax returns submitted in the preceding two years before the entry into force of the APA. This possibility depends on the similarity of the past facts and circumstances to the underlying facts and circumstances of the APA. 

Penalties between EUR500 and EUR20,000 may be applied, plus 5% per day of delay, if the following conditions are not complied with:

• submission of the documentation on transfer pricing policy within the established deadline;
• submission the declaration identifying the reporting entity; and
• submission of the county-by-country (CbC) report for each entity of the group.

Portuguese legislation requires a taxpayer to prepare and keep organised all tax documentation on transfer pricing policy contemplated by the OECD Transfer Pricing Guidelines, including a master file, a local file and a CbC report.

Taxpayers whose annual turnover is below EUR10 million, or, if above, when their controlled transactions income is less than EUR100,000 for each counterpart and EUR500,000 globally, are exempted.

Master File

Taxpayers must include in their transfer pricing documentation a master file containing detailed information on the following elements: (i) organisational, legal and operational group structure; (ii) group activity; (iii) intangibles; (iv) financing; (v) group policies adopted on transfer pricing matters; and (vi) other relevant group information, such as financial demonstrations and advance pricing agreements listing.

Local File

A local file must also be prepared, which shall include, with regard to each of the controlled transactions carried out, (i) a description of the taxpayer business activity; (ii) an identification and description of the related parties’ entities; (iii) characterisation of the controlled transactions; (iv) the description of the methodologies used for determining the (transfer) price for each relevant transaction; and (v) the financial information of the taxpayer.

Taxpayers that qualify as “small” (ie, those that employ fewer than 500 people) or “medium-sized” (ie, those that employ fewer than 3,000 people) are allowed to prepare only a simplified file.

CbC Report

A Portuguese resident entity parent company of a multinational group whose consolidated revenue is equal to or higher than EUR750,000 is required to file a CbC report including the financial and tax information regarding all entities of such group.

The Portuguese transfer pricing rules are closely aligned with the OECD Transfer Pricing Guidelines (2022).

The Portuguese transfer pricing rules do not depart from the arm’s length principle. Transactions involving real estate assets are subject to special rules concerning the relevant value for CIT purposes (in particular, when the tax value is higher than the transaction value).

Portugal follows closely the OECD’s BEPS project. BEPS Actions 8,9, 10 and 13 were the major source of and reason for the recent amendments to domestic legislation.

Portugal is part of the preliminary agreement regarding the OECD’s BEPS 2.0, which addresses the tax challenges arising from the digitalisation of the economy. If adopted, proposed changes are expected to imply structural changes in the worldwide tax system.

Portuguese legislation allows one entity to bear the risk of another entity’s operations by guaranteeing the other entity in return. No special limitations apply.

The United Nations Practical Manual on Transfer Pricing does not have any relevant impact on transfer pricing rules in Portuguese legislation, which mainly follows the OECD Guidelines. Notwithstanding this, the UN model is of practical relevance from a Portuguese practitioner’s standpoint due to the significant economic ties of Portugal to jurisdictions influenced by the UN model (in particular, Brazil and some Lusophone African countries).

In general, the material rules concerning compliance with the arm’s length principle apply. Domestic legislation on reporting obligations is relaxed for smaller enterprises. See 8.2 Taxpayer Obligations Under the OECD Transfer Pricing Guidelines.

Portugal does not have specific rules governing savings that arise from operating in the country.

Portuguese law does not include unique rules or practices applicable in the transfer pricing context that depart from the OECD Model.

Portugal does not require co-ordination between transfer pricing and customs valuation. However, the customs valuation may be of relevance to evaluate the arm’s length character of the controlled transaction.

There is no specific transfer pricing controversy process; therefore, general tax controversy rules apply.

A taxpayer can challenge a tax assessment resulting from a transfer pricing audit in an administrative claim, as a general rule, within 120 days from the term of the voluntary tax assessment payment. A negative decision may also be challenged through a hierarchical appeal before the Minister of Finance.

Taxpayers may also submit a claim before a state tax court or a tax arbitration tribunal. There is no need to have already filed a previous administrative claim or appeal.

In general, taxpayers may appeal from the state court decision to the second-tier courts (Tribunais Centrais Administrativos). In exceptional situations, an appeal to the Administrative Supreme Court may be admissible.

The decision of an arbitration tribunal may not, as a general rule, be challenged before the state tax courts.

Portuguese transfer pricing case law has mainly focused on the requirements for the application of the transfer pricing rules and the accuracy of the elected method for the adjustments made by the Tax Authorities, especially in regard to intra-group services and financial transactions. Although the Portuguese legal system is not precedent-based, there is a consistent body of jurisprudence on transfer pricing, which is of the utmost importance from a practitioner’s standpoint.

In case 02142/11.8BELRS (2022), the Supreme Administrative Court recently ruled that it is for the Portuguese Tax Authorities to prove that a controlled transaction was not carried out at arm’s length. In this case, where the taxpayer was exempt from organising a transfer pricing file, the Supreme Court decided that the Portuguese Tax Authorities should have proven why a bail provision and a bank guarantee hold sufficiently similar relevant economic and financial characteristics to be considered comparable. Having failed to demonstrate this, the Court decided that the transfer pricing comparability requirements were not met and deemed the assessment illegal.

In case 1882/14.4BESNT (2022), the South Administrative Court of Appeal stated that, in situations where the taxpayer had not complied with its ancillary obligations regarding the preparation of a transfer pricing file, it was fully responsible for providing the elements and information necessary to prove errors or inaccuracies in the adjustments made by Tax Authorities. In this case, the Portuguese Tax Authorities only had to prove (i) the existence of controlled transactions between related parties and (ii) that the arm’s length principle had not been observed. The Court of Appeal ruled that this requirement was sufficiently met when Tax Authorities proved that the taxpayer had purchased real estate from third parties at a considerably lower price than the one later established in the controlled transaction. Such price difference should have been covered in a transfer pricing file stating the reasons why, in such conditions, that price was indeed an arm’s length one.

The Supreme Administrative Court has decided (Process number 01240/08.0BEPRT (2021)), that the Tax Authorities are not permitted to restructure the nature of a controlled transaction in order to find a comparable; as such, a requalification of a given transaction may only be admissible under anti-avoidance provisions. The Court considered that transfer pricing rules are only to be used for the purpose of readjusting the terms and conditions of transactions entered into between related parties, and not to requalify such transactions. In particular, the Supreme Court concluded that a shareholder of with a capital nature cannot be compared, for transfer pricing adjustment purposes, with a common loan agreement and, therefore, should not be subject to transfer pricing rules.

Furthermore, the Supreme Administrative Court (Process number 01402/17 (2018)), together with other tax courts and arbitration tribunals, has reiterated a lex specialis relation between transfer pricing provisions and provisions on deductible expenses, with significant methodological consequences and practical implications for tax audits.

Portuguese law does not have any restrictions on outbound payments relating to uncontrolled transactions.

Portuguese law does not have any restrictions on outbound payments relating to controlled transactions.

Portugal does not have rules regarding the effects of other countries’ legal restrictions.

APAs and transfer pricing audit outcomes are not made public.

Portuguese Law does not allow the use of “secret comparables” by the Tax Authorities in setting an arm’s length price.

The transfer pricing landscape in Portugal does not seem to have been drastically changed by the COVID-19 pandemic. In specific sectors particularly impacted by the pandemic, controlled-transaction terms had to be adjusted to account for the abrupt changes in comparable uncontrolled transactions.

A considerable number of temporary legislative tax measures were implemented during the COVID-19 pandemic. The most relevant ones are:

• deferred payment options for several taxes;
• temporary suspension of tax enforcement proceedings; and
• temporary suspension of corporate income tax payments due for micro, small and medium-sized companies.

These measures no longer apply.

Deadlines in tax audits were suspended for a period of almost three months at the beginning of 2021 due to the COVID-19 restrictive measures imposed by the Portuguese government. In addition, statutes of limitation deadlines were postponed globally for approximately six months. However, tax procedures resumed their proper functioning some time ago.