Portugal: PTA has decided that Advance Pricing Agreements are the suitable mechanism to determine the transfer pricing method and the arm's lengh pricing, under intragroup service agreements

Portugal - 09 / 02 / 2024

The Portuguese Tax Authorities (PTA) decided, in the context of a Binding Information Request (PIV) –Case no. 22442–, that this is not the appropriated approach for determining the transfer pricing method nor the arm’s length pricing between related parties under an intragroup service agreement. Instead, PTA considered that entering into an Advance Pricing Agreement (APA) is the suitable mechanism for these cases.

According to this information, the issues raised by the taxpayer regarding the best transfer pricing method and the price to be practiced under an intragroup service agreement should be decided by negotiating an APA.

Also according to this understanding, PTA concluded that the implementation of an APA is the adequate mechanism to ensure the adoption of an appropriate transfer pricing policy, providing taxpayers “with a basis of legal certainty and security, through the prior establishment of the method to be used in determining the applicable pricing of the controlled transactions, in compliance with the arm’s length principle, while avoiding double taxation when the APA has a bilateral or multilateral nature”.

An APA cannot exceed a four-year period and could be negotiated between one or more taxpayers and one or more tax administrations (which means that APAs may have unilateral, bilateral or multilateral nature).

The rules on the procedures related with the conclusion of APAs are foreseen in Ministerial Order no. 267/2021, of 26 November, and in Article 138 of the Corporate Income Tax Code.

Garrigues' tax department has a service line exclusively dedicated to Transfer Pricing with extensive experience in providing all the services related to this matter, both on a conceptual level (defining and reviewing transfer pricing policies, analyzing specific operations, analyzing supply chains, preparation of all types of transfer pricing benchmarks) and in terms of documentation, negotiation of APAs and Mutual Agreement Procedures (“MAPs”), valuations and litigation in this area.