On 3 May 2019, Portugal introduced amendments to Portuguese Taw Law, in accordance with the European Union (EU) Anti-Tax Avoidance Directive (ATAD). ATAD provides a set of anti-tax avoidance provisions across EU Member States. Provisions include:
Controlled Foreign Company (CFC) rules - to deter profit shifting to a low, or zero tax country Exit Taxation - to prevent companies avoiding tax when transferring assets General Anti-abuse rule - to counteract aggressive tax planning when other rules do not apply Hybrid Mismatch rule - to prevent double non-taxation of defined income between jurisdictions Interest Limitation - to discourage artificial debt arrangements, designed to minimise taxes With the exception of the Hybrid Mismatch rule, Portugal has introduced new rules to implement the above measures into Portuguese Tax Law.
Controlled Foreign Company Rules (CFC Rules)
To be subject to the Portuguese CFC rules, the following criteria apply:
The territory is included in the Portuguese tax haven list, OR The corporate tax rate, relevant to the subsidiary, is less than 50% of the tax rate due under Portuguese corporate tax rules (less than 10.5%, as the Portuguese corporate tax rate is 21%). CFC rules do not apply if the passive income does not exceed 25% of the total income of the entity - i.e. royalties, dividends, income from financial leasing, sale of shares, operations exclusive of the banking system, interest, and defined commercial income obtained from related parties, that add little or no economic value.
The minimum participation threshold has been reduced from 25% to 10% of the share capital or voting rights, for taxpayers resident in Portugal. This applies when at least 50% of the shares and rights are held, directly or indirectly by taxpayers (corporate or individuals), resident in Portugal. Share capital and rights, held by related parties to the CFC, are also taken into account.
If certain conditions are met, it may be possible to deduct tax losses.
Depending on the specific circumstances, a number of additional rules may apply, relating to the taxation of CFCs.
Key changes relate to the transfer of assets from Portugal to another country.
The exit tax provision has been amended; the taxpayer of a Portuguese resident...