The Portuguese transfer pricing laws are aligned with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD Guidelines), and incorporated within the Corporate Income Tax Code (CITC) and Ministerial Order No. 268/2021.
Arm’s Length Principle
The arm’s length principle, as stipulated in Article 9 of the OECD Model Treaty, is transposed in Portuguese law by the means of Article 63 of the CIT Code. This article requires that subjects that share a special relationship—for example common ownership, control, or influence—have to carry out their transactions under terms and conditions similar to those that would have been used by independent entities in comparable situations. This applies to all types of transactions, including goods, services, intangibles, financial arrangements, and business restructurings.
Related Party Definition
Under Article 63 of the CITC, related parties are defined as entities that have a special relationship allowing one to influence the management or decisions of the other, directly or indirectly. This includes situations where a person or group holds at least 20% of the voting rights or capital in a company, or where family members (such as spouses, parents, or children) have such stakes. It also covers companies where the same people serve as directors or managers, or where one company can control another through contracts or legal arrangements. The definition also includes permanent establishments and entities based in low-tax jurisdictions with ties to Portuguese entities. This broad definition ensures that transfer pricing rules apply to any relationship where influence or control could affect how transactions are priced.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Portugal are:
- Comparable Uncontrolled Price Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method
- Profit Split Method
The transfer pricing rules in Portugal do not differentiate between the methods nor provide a hierarchy; instead, the selection of the method is based on the most appropriate principle. In addition, the legislator allows for the selection of another method if the standard transfer pricing methods can’t be applied—either because of the unique nature of a transaction or the lack of comparable data—taxpayers are allowed to use other generally accepted economic valuation methods.
Comparability Analysis
An important part of the transfer pricing compliance is the comparability analysis. Below is a summary of the main points regarding comparability analysis in Portugal:
In practice, Portugal follows the OECD Guidelines and applies the comparability analysis outlined in Chapter III, as regulated in the Ministerial Order, articles 5 and 7. This means Portugal’s tax authorities focus on determining the fair market value in related-party transactions, these transactions are compared to similar ones between independent parties.
Portugal’s legislator does not allow for the usage of secret comparables; neither does it state a preference between internal and external comparables, except when a transaction is closely tied to the specific characteristics of the local market.
The law allows the use of an arm’s length range and statistical tools to determine fair pricing, as long as these are applied in line with the arm’s length principle. If the companies or transactions being compared aren’t fully similar, adjustments must be made to account for the differences, ensuring that the comparison reflects what would be expected between independent parties.
Documentation Requirements
Documentation requirements for transfer prices in Portugal are based on the three-layer method of OECD. That means multinationals have to report the following to the French tax authorities:
- Master file;
- Local file; and
- Country-by-Country (CbC) report.
Master and Local Files
As of 2021, Portuguese taxpayers with a total annual income of €10 million or more must prepare a Master File and Local File, based on the OECD BEPS Action 13. These files must be submitted upon request—except for taxpayers under the Large Taxpayers Unit, who must submit the files with the Informação Empresarial Simplificada (annual filing). Simplified documentation is available for SMEs, and includes the identification of entities involved, a description of transactions, applied methods, and comparables. Transactions below €100,000 each or €500,000 total are exempt unless they involve entities in low-tax jurisdictions, in which case the thresholds do not apply.
Country-by-Country Reporting
As of 2016, CbC reporting is mandatory in Portugal for multinational groups with consolidated revenue of €750 million or more, where the ultimate parent entity is a Portuguese tax resident. If the parent entity is based abroad and does not file a CbC report or lacks an exchange agreement with Portugal, a Portuguese group entity must file the report locally. The report, which is needed to be submitted within 12 months of the fiscal year-end, must include revenues, profits, taxes, employee count, capital, retained earnings, and tangible assets, broken down by country, along with details on each group entity and its business activities.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Portugal uses both APA and MAP to manage and resolve international tax disputes, in compliance with OECD guidelines and EU directives.
The Portugal law provides three types of APAs: Unilateral, Bilateral, and Multilateral. An APA can cover up to four fiscal years, and this may include years for which tax returns have already been filed, as long as no more than two years have passed since the filing deadline for those returns.
Portugal has many international tax treaties, and businesses can use the Mutual Agreement Procedure (MAP) to resolve disputes; the average time to resolve Mutual Agreement Procedure (MAP) cases in Portugal is approximately 24 months.
Approach to Transfer Pricing Audits
In Portugal, transfer pricing audits are approached with in-depth analysis work ethic. While most businesses continue to consider transfer pricing as a more formal compliance procedure, the Tax and Customs Authority (AT) is becoming more proactive in its auditing practices. Specifically, now the AT has access to a large set of data sources ranging from accounting records and contracts to public data like LinkedIn profiles and internal chat messages. This is to note that in the event of an audit if a company’s transfer pricing documentation is incomplete, outdated, or inconsistent, there are high chances of tax adjustments and penalties. Well-prepared and current documentation is essential—not just for legal compliance, but also to avoid disputes and ensure tax stability in the group.
Penalties
Companies can face penalties if they don’t meet transfer pricing or CbC reporting obligations. For instance, if a subject will not file the CbC report on a timely manner can lead to fines between €500 to €10,000, in addition to an extra 5% per day of delay. If there are errors or missing information in transfer pricing documentation, returns, or CbC reports, the penalty then will range in between €375 and €22,500.
Taxation at a Glance
Portugal is a member of the EU, Eurozone, Organization for Economic Cooperation and Development (OECD) and World Trade Organization (WTO). It is located in the south-western tip of the European continent, and part of the Iberian Peninsula. Its official currency is Euro (EUR), and the official name of the tax authority is Autoridade Tributária e Aduaneira.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 20% |
VAT | 23% |
Withholding tax on dividends to non-residents | 25% |
Withholding tax on interest to non-residents | 0/25% |
Withholding tax on royalties to non-residents | 0/25% |
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