On August 24, 2017, Portugal published Law No. 98/2017 in the official gazette, which implements EU Directives 2015/2376 and 2016/881 on the automatic exchange of tax ruling and CbC reporting information among EU member states, respectively. The measures apply retroactively from January 1, 2017.
Tax Rulings (BEPS Action 5)
Building on the OECD work on the automatic exchange of tax ruling information in BEPS Action 5, the EU reached a unanimous agreement in late 2015 to implement similar exchange of information requirements across EU member states in Directive 2015/2376. However, Directive 2015/2376 is broader than BEPS Action 5 in that it applies to additional types of tax rulings.
The EU Commission will maintain a central repository of all EU member state covered tax rulings that are to be exchanged under Directive 2015/2376, which will be accessible by all EU member states. However, the repository will not contain information on tax rulings issued by a non-EU member state, even if it is exchanged with an EU member state under the OECD BEPS Action 5 framework.
EU Directive 2015/2376 amends EU Directive 2011/16 by including definitions of an advance cross-border ruling and advance pricing agreements (APAs). These definitions should be broad enough to cover a wide range of situations, including but not limited to, the following:
- Unilateral APAs.
- Bilateral or multilateral APAs.
- Arrangements or decisions determining the existence or absence of a permanent establishment (PE).
- Arrangements or decisions determining the existence or absence of facts with a potential impact on the tax base of a PE.
- Arrangements or decisions determining the tax status of a hybrid entity in one EU member state which relates to a resident of another jurisdiction.
- Arrangements or decisions on an assessment basis for depreciation of an asset in one EU member state that is acquired from a group company in another jurisdiction.
According to EU Directive 2015/2376, new rulings (issued on or after January 1, 2017) must be exchanged within three months following the end of the half of the calendar year during which the advance cross-border rulings or APAs have been issued, amended or renewed.
Any existing rulings issued between January 1, 2012 and December 31, 2016 (with the provision that any rulings issued between January 1, 2012 and December 31, 2013 were valid on January 1, 2014) must be exchanged before January 1, 2018.
CbC Reports (BEPS Action 13)
EU Directive 2016/881 requires EU member states to automatically exchange CbC reports with any other EU member state in which one or more constituent entities of the multinational group are either tax resident or subject to tax with respect to a business carried out through a PE.
Portugal introduced CbC reporting requirements on March 30, 2016 via Article 134 of Law No. 7-A/2016. The foregoing amended Portugal’s Corporate Income Tax Code (CIT) by adding a new Article 121-A to introduce CbC reporting for resident entities with annual global consolidated income equal to or greater than €750 million in the year preceding the reporting year for tax years beginning on or after January 1, 2016.
According to Law No. 98/2017, Portugal will provide the CbC report within 15 months after the last day of the group’s reportable year (18 months for the first reporting period commencing on or after January 1, 2016). The legal basis for the automatic exchange of CbC reports will be the OECD Convention on Mutual Administrative Assistance in Tax Matters, a bilateral Portuguese tax treaty, or a Portuguese tax information exchange agreement (TIEA).
Law No. 98/2017 amends the CIT by allowing a surrogate parent entity to submit the CbC report to the tax authorities in the member state where it is a tax resident. The legislation also includes a notification requirement (in addition to the existing obligation under the CIT) for a Portuguese tax resident group entity if the ultimate parent company does not provide that entity with the information necessary to complete the report.
Law No. 98/2017 also says that the secondary CbC reporting local filing requirements for non-parent entities will apply for fiscal years that begin on or after January 1, 2017. For ultimate and surrogate parents residing in Portugal, the requirements will apply from January 1, 2016, which is the same as under the current Portuguese CbC reporting requirements.