Catolica Portuguese Faculdade de Ciencias Economicas e Empresariais, Lisbon, Portugal; and has post graduate studies in Advanced Tax Law. His publications include “Doing Business in Portugal-A Tax Overview” (April 2008), “Permanent Establishment-Foreign Companies Operating in Portugal (May 2008), “General Anti-Avoidance Rules (GAAR)” (July 2008), “Double Tax Treaties” (2009), and “Global Tax Guide-Portuguese Chapter” (2009/2010) which have all been published by BNA International.

KJ - What are your responsibilities at CCA-Advogados in Lisbon, Portugal?

AA - My primary responsibilities are in the areas of domestic and international taxation including corporate, transfer pricing and intellectual property. We do a significant amount of work in the area of double tax treaties which is an agreement concluded under public international law to eliminate double tax situations between contracting countries. They may be multilateral involving more than two countries or more often bilateral between two jurisdictions or contracting states. We have an extensive network of double taxation treaties in force with 51 countries. The agreements generally cover income tax, corporation tax and capital gains tax. We have double tax treaties with the following countries: Germany, Algerian, Republic of Austria, Belgium, Brazil, Bulgaria, Cape Green, Canada, Chile, China, Korea, Cuba, Denmark, Spain, Unite States of America, Slovakia, Slovenia, Estonia, Finland, France, Greece, Netherlands, Hungary, India, Indonesia, Ireland, Israel, Island, Italy, Latvia, Lithuania, Luxemburg, Macau, Malta, Morocco, Mexico, Mozambique, Norway, Pakistan, Poland, United Kingdom, Check Republic, Romania, Russia, Singapore, Sweden, Switzerland, Tunisia, Turkey, Ukraine and Venezuela.

KJ - Can you describe the Portuguese Tax System to those who may be unfamiliar with it?

AA - The Portuguese Tax System is divided into four main areas: Corporate (IRC) and Personal Income (IRS) Taxes; Consumption Taxes (VAT), Property Tax (IMT and IMI) and Stamp Duty.
IRC - Resident companies pay tax on their worldwide income. Taxable income is defined as the profits of companies. Tax profit is calculated on the basis of its accounting profit adjusted for tax proposes. Branches and other forms of permanent establishment of non- resident companies pay tax on income derived in Portugal – income attributable to the permanent establishment.
IRS is levied on the yearly amount of incomes in six different categories, after the appropriate deductions. The Categories are A – Dependent employment income, B – Business activities and supply services, E – Investment income/capital income, F – Property income, G – “Patrimonial increment” and H – Pensions.
VAT - the supply of goods and rendering services carried out in Portugal, import of goods and intra- community acquisitions of goods in Portugal are subject to VAT. In Portugal there are three VAT rates. Reduced – 5% (basic food products, medical services and pharmaceutical products, some agricultural production, electricity, transport and natural gas), intermediate – 12% (“catering”, some oil products and some equipment for the exploitation of alternate energy sources) and normal – 20% (applied to all goods and services not subject to reduced and intermediate rates).
Property Tax – IMT is due on the onerous transfer of ownership rights or limited rights, in real estate located in Portugal and IMI is a municipal tax that is levied on the TPV (Taxable Patrimonial Value) of urban and non-urban property located in Portugal.
Stamp duty is levied on any documents, books, papers, acts, contracts and facts, comprised in the Stamp Duty General Chart, which also determines the tax base and rates applicable to the transactions and events.

KJ-What can you tell me about transfer pricing in Portugal?

AA - Transfer pricing is very important in Portugal and follows the OECD (Organizsation for Economic Co-operation and Development) guidelines. Goods, services and property (intellectual or immovable) may be transferred (sold or bought) between associated enterprises at prices that do not reflect the true market value. These transactions may be done in order to minimize the effective tax rate once that the income or expenses was manipulated. The term transfer pricing refers to the valuation process for transactions between related entities. Portugal has established detailed regulations to ensure that transfer pricing on domestic transactions between related entities is acceptable. The arm’s length principle requires that the prices for goods and services exchanged by related parties should be the same as if the parties were acting independently in the same or similar circumstances. Corrections or adjustments to taxable profits are based on: 1. The potential special relationship between the taxpayers; 2. The establishment of different conditions from those usually agreed upon between independent entities; and 3. Ascertainment of accounting records, namely, profits and losses (P&L). Portuguese transfer pricing rules allow the use of the following methods: 1. Comparable uncontrolled price method; 2. Resale price method; 3. Cost plus method; 4. Transactional net margin method; 5. Profit split method and residual method; and 6. The most appropriate method for the operation.
It is already possible to have Advanced Pricing Agreements (APA) between taxpayers and the Portuguese Tax Administration.
Alexandre, thank you for taking the time to answer our questions. Your perspective is valuable to the Tax Intelligence Report readers around the world and we genuinely appreciate the time you gave to share your experience.


Kathleen Jennings (KJ)
Editor, The Tax Intelligence Report
Kathleen@etsearch.com

Alexandre Andrade
International Tax Lawyer
Lisbon, Portugal
aa@cca-advogados.com