The amendment to the Portuguese GAAR from ATAD I has a strong practical impact on the Portuguese tax system and will certainly require changes in the approach of the Portuguese tax authorities.
Comparison between the two wordings of the Portuguese GAAR
1 – (…)
2 – Any legal documentation or formalities, aimed by artificial or fraudulent means and by abuse of the legal forms, wholly or mainly at reducing, eliminating or postponing taxes that would be payable as a result of facts, legal documentation or formalities with the same economic purpose, or to obtain tax advantages that would not be achieved in whole or in part without the use of these means, shall be ineffective for tax purposes, and taxation shall proceed in accordance with the rules that would have applied in their absence and the tax advantages referred to shall not arise.
1 – (…)
2 – Constructions or series of constructions which, having been carried out for the main purpose or one of the main purposes of obtaining a tax advantage that frustrates the object or purpose of the applicable tax law, are carried out with abuse of legal forms or are not considered genuine, taking into account all relevant facts and circumstances, they are disregarded for tax purposes, so taxation will be carried out in accordance with the rules applicable to business or acts that correspond to the substance or economic reality and the desired tax advantages will not be produced.
The new wording of Portuguese GAAR presents a terminology inspired by several normative tests from the common law and currently present in most tax systems (“substance over form”, “economic substance”, “step transaction”, etc.) especially from OECD members.
The steps of the new GAAR and it impacts
Like the previous GAAR, the new set of rules is structured by a set of cumulative steps that must be followed by the tax authorities.
- First, the existence of a construction or series of constructions;
- Second, a main purpose (or one of the main purposes) of obtaining a tax advantage that frustrates the applicable given tax law;
- Third, the abuse of legal forms or the absence of genuine character;
- Fourth, considering all relevant facts and circumstances.
In relation to step (iv) – one of the main innovations of the new Portuguese GAAR is that Portugal preferred not to densify the concept of "all relevant facts and circumstances".
This could indicate that it will be up to the Portuguese tax authorities to densify this concept, however, in line with the concept of "valid economic reasons" already used in the corporate income tax code, in the tax neutrality regime applicable to mergers vis-à-vis the Mergers Directive.
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