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Corporate tax reform 2014 - key measures


The Parliament has approved the Portuguese Corporate Income Tax Reform. Taxand Portugal discusses the key tax measures likely to affect corporate investors. 

Gradual lowering of the CIT rate

Portuguese CIT rate is reduced from 25% to 23%. A reduced 17% rate will apply to the first €15,000 of taxable income for small-medium enterprises, based on the legal definition provided by EU Commission Recommendation 2003/361/EC. It is agreed that a further reduction of the CIT rate to 21% in 2015 will be subject to approval by a special committee designed to monitor the effects of the CIT Reform. 

Extension of loss carry-forward period

The CIT Reform proposes to extend to 12 years the carry-forward period for losses originated as from 1 January 2014. On the other hand, the offsettable losses will be limited now to 70% of the taxable profit of the year. The CIT Reform also lowers/relaxes the thresholds where an “ownership change” is deemed to occur for purposes of the anti-loss trafficking rules.

Group taxation regime

The changes to the group taxation regime include:

  • Reduction to 75% shareholding the threshold to apply for group taxation
  • Extension of the regime to “sandwich” groups (where lower tier Portuguese entities held by a foreign entity held by a Portuguese entity)
  • Streamline of the compliance obligations of beginning, termination and modifications to the tax group

Transfer pricing rules

The CIT Reform increases the related party threshold from 10% to 20% and substitutes the wide “economic dependence test” for a more limited legal dependence test. Following the proposals on the exemption of foreign permanent establishment profits, the Law also extends the transfer pricing rules to include transactions between foreign permanent establishments and their Portuguese head office or other permanent establishments.

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Your Taxand contacts for further queries are:
Fernando Castro Silva
T. + 351 21 891 32 32

Miguel C. Reis
T. +351 22 615 88 62

Tiago Cassiano Neves
T. +351 218 913 232

Also published in Thomson Reuters' Taxnet Pro, 9 January 2014


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Taxand's Take

This Reform, which follow largely the recommendations of the Reform Commission, is intended to modernise further the Portuguese corporate tax system and reflect and adjust the corporate tax system to changes in the global landscape. The Law is now pending publication on the Official Journal (which is set to occur early January) and its measures will apply as from 1 January 2014.

Taxand's Take Author