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Portugal: Watch out for transfer pricing in Portugal


Inês Frutuoso de Melo

Portuguese tax authorities' scrutiny of related transactions and restructuring arrangements has been increasing significantly over the last few years and is expected to escalate during 2013. In the current economic context, the Portuguese tax administration is eager to obtain increasing tax revenues, transfer pricing being a major potential source. The "strategic plan against tax fraud and evasion", published by the Portuguese government, emphasises that transfer pricing is one of the hot topics for the 2013-2014 financial year. As such, the tax authorities have increased their pace with regard to identifying the corporate structure of multinational enterprises (MNEs) operating in Portugal and assessing inter-company transactions (in particular cross-border). Meanwhile, new and better equipped transfer pricing audit teams are already in the field. In this scenario, particular care should be given to intra-group transactions involving Portuguese taxpayers and reviewing current transfer pricing policies is highly recommended. On the one hand, financial operations and management fees are expected to be deeply scrutinised, as recent court decisions on these subjects show that the tax authorities have been mainly focusing on this type of transaction. In particular, in 2012, a Portuguese arbitration court issued a decision regarding the application of a comparable uncontrolled price method for benchmarking the interest rate applied in cash-pooling transactions. Moreover, the mark-up applied on the sales and general management costs allocated to a Portuguese branch has been recently touched upon in another court case. It is therefore patent that both the Portuguese tax authorities and the courts are taking considerable steps towards a deeper knowledge and analysis of inter-company transactions.

On the other hand, recent changes to fundamental OECD texts recommend a closer look on transactions involving intangibles. The recent amendments to chapter VI (intangibles) of the OECD transfer pricing guidelines encourage tax authorities to go further in this area. An increasing substance over form approach within the transfer pricing field may be seen as a window of opportunity, leading to discuss not only how much each group company should receive but, especially, which entities should be entitled to intangible related returns. The revised OECD text, which is expected in 2014, focuses on key functions. Thus, legal or economic ownership is only the starting line. Determining which entity/person effectively undertakes the most significant functions regarding the development, enhancement, maintenance and protection of the intangible and has the control over its related risks is crucial to properly allocate the related profits.

With the tax authorities focusing their attention on transfer pricing and intangibles being highlighted as a major area of concern internationally, MNEs are highly recommended to prepare defensive transfer pricing documentation to keep their head above water. Also, seeking advance pricing arrangements may be a way forward to manage transfer pricing risk.

Inês Frutuoso de Melo (

Garrigues – Taxand

Tel: +351 231 821 200

Fax: +351 231 821 290


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