Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Portugal

Portugal has met all of the terms of reference (ToR) for the calendar year 2017 (year in review) other than the timely exchange of information on future rulings (ToR II.5.6). Portugal is recommended to ensure that all information on future rulings is exchanged as soon as possible. This recommendation was also included in the prior year peer review report.

Portugal can legally issue two types of rulings within the scope of the transparency framework.

In practice, Portugal issued 24 past rulings; for the period 1 April 2016 - 31 December 2016, Portugal issued two future rulings; and for the year in review, Portugal issued 11 future rulings within the scope of the transparency framework.

Peer input was received from three jurisdictions in respect of the exchanges of information on rulings received from Portugal. This input was largely positive, noting that information was complete, in the correct format, and mostly received in a timely manner. One jurisdiction noted exchange delays in relation to future rulings.

Introduction

1074.  This peer review covers Portugal’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

1075.  Portugal can legally issue the following two types of rulings within the scope of the transparency framework: (i) cross-border unilateral APAs and any other cross-border unilateral tax ruling (such as an ATR) covering transfer pricing or the application of transfer pricing principles; and (ii) permanent establishment rulings. In Portugal, the Large Taxpayers Office is responsible for issuing APAs and the Corporate Income Tax Office (IRC Directorate) is responsible for issuing the other categories of rulings.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

1076.  For Portugal, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

1077.  In the prior year peer review report, it was determined that the Portuguese tax administration’s undertakings to identify past rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. The Portuguese tax administration’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

1078.  For Portugal, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

1079.  In the prior year peer review report, it was determined that the Portuguese tax administration’s implementation of a new system to identify future rulings and all potential exchange jurisdictions was sufficient to meet the minimum standard. The Portuguese tax administration’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Review and supervision mechanism (ToR I.4.3)

1080.  In the prior year peer review report, it was determined that the Portuguese tax administration’s review and supervision mechanism was sufficient to meet the minimum standard. The Portuguese tax administration’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Conclusion on section A

1081.  Portugal has met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

1082.  Portugal has the necessary domestic legal basis to exchange information spontaneously. Portugal notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

1083.  Portugal is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (the Convention), (ii) the Directive 2011/16/EU with all other European Union Member States and (iii) double tax agreements in force with 76 jurisdictions.1

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

1084.  In the prior year peer review report, it was determined that the Portuguese tax administration’s completion and exchange of templates was sufficient to meet the minimum standard, except for the timely exchange of information on past and future rulings (ToR II.5.6). Portugal received a recommendation to ensure the speedy exchange of all past and future rulings. Portugal has now completed the exchange of all past rulings that were delayed from the prior year peer review report, and most of the future rulings delayed from the prior year peer review report.

1085.  Portugal uses both Annex C of the Action 5 Report (OECD, 2015) and the OECD XML Schema. Before sending the information to the competent authority, its accuracy and completeness is guaranteed by the Director of the Corporate Income Tax Directorate or of the Large Taxpayers Office who does the final review.

1086.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	17	0	N/A	These relate to the delayed exchanges reported in the prior year peer review report and were exchanged in 2017
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	6	6	N/A
Total	23	6

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	0	N/A	N/A

1087.  Portugal explains that the exchange delays on future rulings occurred for multiple reasons. The delay in exchanges for two rulings related to exchange with other EU Member States, and Portugal’s uncertainty regarding the appropriate alignment with EU Directive timelines. A minor delay for one APA was due to issues in completing the template, and this issue was resolved quickly. Portugal reports that all delayed exchanges were completed in the same year of the ruling’s issuance. Portugal has remedied the issues that were the cause of delays during the year in review, and therefore does not believe such delays will be a recurring issue. Furthermore, Portugal notes that an IT application with an automatic signalling and alert mechanism will be introduced in 2018. Portugal anticipates that this new system will resolve any remaining issues, and allow the immediate identification of rulings in scope for exchange. The information on the application will be shared with the Competent Authority, and facilitate an automated and speedier process for the identification and exchange of relevant rulings. However, as there were delays encountered in the year in review, the recommendation is retained for Portugal to ensure that all information on future rulings is exchanged as soon as possible.

Conclusion on section B

1088.  Portugal has the necessary legal framework and administrative processes in place for exchanging information on rulings. Portugal encountered some delays in the exchange of future rulings, but anticipates that these delays will be remedied with the introduction of a new IT application in 2018. Portugal has met all of the ToR for the exchange of information process except for the timely exchange of information on future rulings (ToR II.5.6) and Portugal is recommended to ensure that all information on future rulings is exchanged as soon as possible.

C. Statistics (ToR IV)

1089.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	N/A	N/A
Cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	10	Brazil, China (People’s Republic of), France, Germany, Hong Kong (China), Mauritius, United Kingdom, United States
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	N/A	N/A
Permanent establishment rulings	18	France, Germany, Ireland, Italy, Luxembourg, Spain, Sweden, Switzerland, United States
Related party conduit rulings	N/A	N/A
De minimis rule	N/A	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	0	N/A
Total	29

D. Matters related to intellectual property regimes (ToR I.4.1.3)

1090.  Portugal offers an intellectual property regime that is subject to transparency requirements under the Action 5 Report (OECD, 2015) (Partial exemption for income from patents and other industrial property rights). It states that the identification of the benefitting taxpayers will occur as follows:

• New entrants benefitting from the grandfathered IP regime: Portugal did not identify any new entrants benefitting from the grandfathered IP regime that should be subject to spontaneous exchange of information with other jurisdictions.

• Third category of assets: not applicable, as this option has not been incorporated in the Portuguese IP regime.

• Taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption: not applicable, as this option has not been incorporated in the Portuguese IP regime.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
Portugal encountered some minor delays in the exchange of information on rulings within scope of the transparency framework. This is a continuing recommendation from the prior year peer review.	Portugal is recommended to ensure that all information on future rulings is exchanged as soon as possible.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Note

← 1.  Algeria, Andorra, Austria, Bahrain, Belgium, Brazil, Bulgaria, Cabo Verde, Canada, Chile, China (People’s Republic of), Colombia, Côte d’Ivoire, Croatia, Cuba, Cyprus, Czech Republic, Denmark, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Guinea-Bissau, Hong Kong (China), Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Kuwait, Latvia, Lithuania, Luxembourg, Macau (China), Malta, Mexico, Moldova, Morocco, Mozambique, Netherlands, Norway, Oman, Pakistan, Panama, Peru, Poland, Qatar, Romania, Russia, San Marino, Sao Tome and Principe, Saudi Arabia, Senegal, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Venezuela and Viet Nam.

Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union. The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.