Transfer prices correspond to the values applied in transactions between related entities, namely between companies belonging to the same group. In Portugal, this regime aims to ensure that such transactions comply with the arm’s length principle, preventing the erosion of the tax base.
1. Legal Framework
The transfer pricing regime is set out in the Corporate Income Tax Code and is strongly influenced by OECD guidelines. The fundamental principle is that transactions between related parties must take place under conditions equivalent to those that would apply between independent entities.
1.1 Related Parties
Related parties are considered to be, among others:
- Companies with controlling interests or group relationships;
- Entities with significant direct or indirect holdings;
- Relationships between companies and directors, managers or partners.
1.2 Accepted Methods
The legislation provides for several methods for determining appropriate transfer prices, including:
- Comparable market price method;
- Cost plus method;
- Resale price method;
- Profit-based methods (TNMM, profit split).
The choice of method should reflect the economic reality of the transaction.
1.3 Documentary Obligations
Companies subject to the regime must prepare transfer pricing documentation, namely:
- Master File, containing global information about the group;
- Local File, containing details of the Portuguese entity’s operations.
Incomplete or inadequate documentation may result in tax adjustments and penalties.
1.4 Risks and Consequences
Failure to comply with the scheme may result in:
- Adjustments to taxable income;
- Significant fines;
- Compensatory interest;
- Greater exposure to tax inspections.
Final Notes
Transfer pricing is not only a tax obligation, but also a management and risk control tool. A well-defined and documented policy is essential for the fiscal sustainability of business groups.