Law no. 32/2019 of 3 May 2019, implements in the Portuguese legal order the Directive (EU) 2016/1164 of 12 July 2016, as amended by the Directive (EU) 2017/952, known as Anti Tax Avoidance Directives.
These Directives arose in the context of a redefinition of policy priorities in the field of international taxation, as a result of an initiative by the OECD aimed at combating tax base erosion and profit shifting (BEPS).
As a result of the recommendations issued in 2013 by the OECD in this context, the Council defined an action plan for the EU consistent with those recommendations. The aim was to consolidate common and coordinated solutions across the EU to combat tax base erosion and tax avoidance practices by exploiting the disparities between tax systems in different countries, and to ensure a fair and effective taxation.
Thus, the transposition of these measures into the internal legal systems of the various Member States aims to improve the functioning of the internal market, to combat its fragmentation and to put an end to asymmetries and distortions. At the same time the objective is to increase taxpayers’ legal certainty as to the existence of compatible rules throughout the EU.
Therefore, in the Portuguese legal system changes to the Corporate Income Tax Code (CIRC), General Tax Law (LGT) and Tax Procedure Code (CPPT) are introduced, regarding:
Limits to the deductibility of interests
Changes are made to article 67 of the CIRC in terms of the concept of “financing costs” and EBITDA.
Exit taxes regime
Regarding this regime, provided in articles 83 and 84 of the CIRC, the following changes that we stand out are related to the:
- Modalities of payment of tax as a result of the transfer of residence of a company outside the Portuguese territory and rules in force in the case of deferral of payment of the tax ascertained as a result of this transfer;
- Situations that lead to the termination of the deferred payment of the tax;
- Applicability of the rules set out in article 83 of the CIRC to the determination of the taxable profit attributable to a permanent establishment of a non-resident entity in Portugal when there is a cessation of activity in the Portuguese territory or the transfer outside this territory of elements of the assets assigned to a permanent establishment.
Controlled foreign company (CFC) rules
In terms of Controlled Foreign Corporations rules, we highlight the changes registered in relation to the:
- Extension of the scope of Article 66 and the concept of CFCs;
- Regime for the allocation of income of non-resident entities subject to a privileged tax regime;
- Repeal of the rule of no. 10 applicable to entities subject to a special taxation regime (applicable to entities operating in the Madeira Free Trade Zone).
General anti-abuse rule to tackle aggressive tax planning
In this context, Articles 38 of the LGT and Article 63 of the CPPT are amended jointly.
With regard to article 38 of the LGT, it is important to highlight the change regarding the extension of the scope of application of this rule to any constructions or series of constructions that are carried out with abuse of legal forms or that are not considered genuine.
In addition, it is no longer a condition for the applicability of the rule that the main purpose of the construction is to obtain a tax advantage, it being sufficient to identify among the main purposes of this construction the obtaining of a tax advantage.
With regard to Article 63 of the CPPT, there are changes in the procedure for applying this rule.
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