In accordance with Portuguese tax law (Article 63 of the Corporate Income Tax Code), transactions between related companies - if at least one is a resident in Portugal - should be valued as if they had been carried out between unrelated parties, each acting in his own interest: this is known as arm’s length principle.
For example, if a loan is taken out with a group entity, an appropriate remuneration (i.e. a market interest rate) must be set. Similarly, if services or goods are bought or sold to a group entity, an appropriate margin should be applied on the same conditions as would be set if those operations were carried out with entities outside the group.
Companies that carry out commercial or financial operations with related entities (related party transactions) must be able to prove to the Portuguese Tax Authorities that the terms and conditions established in these bundled transactions, in each tax period, comply with the arm’s length principle.
In addition, there is also the obligation to prepare and have a file with documentation on transfer prices for entities that record net sales and other income of 3,000,000 euros or more with reference to the previous year.
Thus, both entities that carry out related party transactions and those that exceed the aforementioned limit of 3,000,000 euros, are required to maintain an organized transfer pricing file, which they must present to the Portuguese Tax Authorities when requested.
Companies are obliged to have this file available before July 15 of the year following the operations (for entities whose tax year corresponds with the calendar year).
According to the experience of Belzuz Law Firm, this issue has been controlled by the Portuguese Tax Authority which - very often - requests companies to justify their pricing policy in intra-group transactions.
Belzuz Law Firm has a team of specialists who advise companies on transfer pricing matters, reviewing transactions, and confirming the obligation to organise the file.
Regarding taxable persons that are obliged to comply with transfer pricing file, Belzuz's team of tax experts shall support the companies in selecting and justifying the most appropriate transfer pricing method or methods for related party transactions, carrying out the research and documentation of prices, transactions or comparable entities.
Belzuz Abogados SLP
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