Ministerial Order no. 268/2021, approved on 26 November 2021, introduced relevant changes to Portuguese regulations on TP matters by revising the formerly applicable Ministerial Order no. 1446-C/2001 which had been in force for 20 years.
The new Ministerial order has been effective since its publication (27 November 2021) and, in connection with TP documentation, is applicable for tax periods beginning 1 January 2021 or after.
In general, the new legislative options reflect the international TP policy changes of the last few decades as per the revised OECD Guidelines on TP matters, as well as the EU Joint Transfer Pricing Forum, which translates into additional proximity between the Portuguese TP legal framework and the regulations in place in most of the OECD jurisdictions.
The most impactful changes approved in the new Ministerial Order that should be considered are the following:
- Declarative obligation: the obligation to prepare TP documentation regarding a certain tax period is now only applicable to Portuguese companies that have achieved a total annual income of EUR 10 million or more (as opposed to the previous limit of EUR 3 million in turnover and other profits), in the year to be reported. In any case, controlled transactions do not have to be reported if they do not exceed EUR 100 thousand per counterparty or EUR 500 thousand in total, in the respective year.
- Documentation structure: although the new structure was already accepted by Portuguese Tax Authorities, TP documentation is now expected to be submitted in a dual structure composed by a Master File and a Local File, as established in the OECD Guidelines. Additionally, taxpayers that are considered small or medium-sized companies may prepare a simplified file, in order to ease the compliance burdens of such companies.
- TP methods: although the admissible TP methods have remained the same, more relevance has been given to the “other methods” that were already mentioned in the previous legislation, with the express acceptance of asset valuation methods in connection with certain controlled transactions (i.e. real estate, shares in unlisted companies, credit rights, etc.).
- TP adjustments: in case the Portuguese Tax Authorities perform a TP adjustment in the context of an audit, the new legislation establishes that corrections should be aimed at the median of the arm’s length interval.
- Specific regulations for certain situations: the new Ministerial Order includes specific TP regulations for the correct application of the arm’s length principle with regard to transactions involving intangibles and business restructuring, that had no specific regulation under the previous legislation.
Moreover, Ministerial Order no. 267/2021 was also published on 26 November 2021 and revises and updates the previous regulations applicable to the conclusion of APAs between companies and the Portuguese Tax Authorities. The new legislation updates the validity of APAs to four years, as was already established in the Portuguese CIT Code, and provides other clarifications based on the experience of the last years.
In a nutshell, we take the view that the aim of the changes introduced was to simplify the Portuguese reporting TP obligations imposed on companies and to provide greater legal certainty to the regimes under analysis.
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