Portugal updates transfer pricing guidance on documentation, APAs

By Cabrini McCarrick, Transfer Pricing Partner, Regan van Rooy, Africa/Portugal

Portugal issued detailed additional guidance on 26 November on two key transfer pricing areas – transfer pricing documentation and advanced pricing agreements (APAs).

Transfer pricing remains a point of focus in Portugal, and the new guidance provides for additional tax certainty and clarity regarding transfer pricing matters. Portuguese multinationals and foreign multinationals with a Portuguese presence should carefully review the new transfer pricing rules and ensure they are up to speed with the new compliance requirements.

Documentation requirements

Ministerial order no. 268/2021 (26 November) reviews the regulatory framework of the transfer pricing regime and revokes ministerial order no. 1446-C/2001 (21 December 2001).

The key features of the ministerial order are to align the documentation process and content with the 2017 OECD guidelines and Action 13 of the base erosion and profit shifting (BEPS) project by introducing the two-tier documentation model of the master file and local file.

Portugal has been practical in its approach, by endeavouring to minimise the compliance burden by increasing the exemption threshold to taxpayers with annual revenues less than EUR 10 million (previously EUR 3 million) and an exemption from reporting for controlled transactions in an amount less than EUR 100,000 (per transaction, per counterparty) and, in aggregate, less than EUR 500,000. The concept of a “simplified file” has also been introduced for small and medium companies, meeting certain requirements.

The transfer pricing documentation changes are effective for tax periods beginning on or after 1 January 2021.

APA guidance

Ministerial Order no. 267/2021 (26 November) updates the rules for the process and procedures applicable for APAs. In light of the global focus on transfer pricing, and the ongoing tug-of-war between tax authorities and taxpayers on the correct quantum and jurisdiction to which taxable profits should fall, it is not surprising that Portugal has provided further clarity on the APA process.

The ministerial order entered into force on 27 November and clarifies the key stages in the APA process and procedures to conclude APAs. The order confirms that the maximum term of an APA is four years. However, it includes the possibility of retrospectively applying the APA to previous fiscal years.

 —Cabrini McCarrick is Transfer Pricing Partner at Regan van Rooy, Africa/Portugal.