• PORTUGAL

    Transfer Pricing News Issue 38 - March 2022

New transfer pricing rules and documentation requirements enter into effect

Portugal recently updated its transfer pricing regulations to incorporate guidance introduced by the OECD´s 2017 Transfer Pricing Guidelines for Multinational Entities and Tax Administrations. The new regulations, introduced by Decree-Ruling 268/2021 of 26 November 2021, entered into force on 27 November 2021, with the exception of Chapter IV on transfer pricing documentation requirements, which takes effect for tax periods beginning on or after 1 January 2021.

The principal changes include amendments regarding the application of the arm's length principle, and the introduction of guidance on intragroup services, intangibles, restructuring operations, the comparability analysis process and transfer pricing documentation obligations.

The new regulations provide a dual structure for transfer pricing documentation obligations. The standard documentation model calls for a two-tiered structure that requires the preparation and maintenance of a master file and a local file.

The master file must contain information relating to the taxpayer’s multinational group, specifically, a description of the group’s organisational, legal, and operational structure, as well as a description of its activities, intangibles owned, financing, transfer pricing policy adopted and other relevant information.

The local file focuses on the Portuguese taxpayer’s activities, and must include a description of the business, identification and characterisation of related entities, characterisation of controlled transactions, application of the transfer pricing method for each transaction, and the taxpayer’s financial information.

The decree-ruling also introduces a “Simplified Documentation Dossier” for small or medium-sized enterprises that are required to prepare a documentation file and which are not subject to monitoring by the Large Taxpayers Unit.

The threshold for exemption from the documentation process has also been revised, and now taxpayers with a total annual income of less than EUR 10 million during the period to which the obligation relates are exempt from the documentation requirements. Taxpayers who exceed this threshold may also be exempt if the value of their related-party transactions during the period does not exceed EUR 100,000 (per transaction, per counterparty) and EUR 500,000 in total, considering their market value.

The exemption from the documentation requirement does not apply to entities engaged in controlled transactions with natural or legal persons residing outside the territory of Portugal that are subject to a more favourable tax regime. However, exempt taxpayers may be asked to prove that the terms and conditions in the controlled transactions are in accordance with the arm’s length principle.

Arnaldo João Graça
[email protected]