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ENHANCING PORTUGUESE CORPORATE TAX REGIME - Draft report of the corporate Tax reform panel

Tax Updates Portugal Nº 2 - July 2013

07/30/2013
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The Corporate Tax (CIT) Reform Panel released its Draft Report on 30 July 2013.

The Panel was appointed by the Minister of Finance to consider options for reform, namely: (1) Promote simplification of the tax system by minimizing compliance costs for businesses. (2) Reevaluate nominal corporate tax rates. (3) Review certain tax incentives to promote investment, employment and competitiveness, with a particular emphasis on how these rules affect both Portuguese businesses investing abroad and foreign businesses investing in Portugal. (4) Develop practical and readily applicable changes, taking into account existing rules and tax treaties.

The Panel makes twenty-one (21) recommendations to improve several aspects of corporate tax system. The most relevant areas of potential legislative change for investors include:

  • Gradual lowering over 5 years of the CIT rate.
  • Changes to participation exemption regime, further enhancing portfolio investments held through Portuguese companies for both dividends and capital gains.
  • Review of rules on the deductibility of financial expenses (interest barrier rule).
  • Exemption method for foreign branch profits.
  • Patent Box for qualified IP rights.
  • Extension of loss carry-forward period and review of anti-loss trafficking rules.
  • Review group taxation regime and rules applicable to reorganizations.

1. GRADUAL LOWERING OVER 5 YEARS OF THE CIT RATE

2. ENHANCING THE PARTICIPATION EXEMPTION REGIME

3. REVIEW OF THE INTEREST BARRIER RULE

4. EXEMPTION METHOD FOR FOREIGN BRANCH PROFITS

5. PATENT BOX FOR QUALIFYING IP RIGHTS

6. EXTENSION OF LOSS CARRY-FORWARD PERIOD

7. GROUP TAXATION REGIME AND REORGANIZATIONS

8. OTHER RECOMMENDED MEASURES

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