{"id":2126,"date":"2025-09-05T10:27:22","date_gmt":"2025-09-05T10:27:22","guid":{"rendered":"https:\/\/uhy.pt\/precos-de-transferencia-o-que-e\/"},"modified":"2025-09-22T10:27:27","modified_gmt":"2025-09-22T10:27:27","slug":"transfer-pricing-what-is-it","status":"publish","type":"post","link":"https:\/\/uhy.pt\/en\/transfer-pricing-what-is-it\/","title":{"rendered":"Transfer Pricing: What is it?"},"content":{"rendered":"<p class=\"p1\"><span class=\"s1\"><b>How the Transfer Pricing Regime Works<\/b><\/span><\/p>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\">The transfer pricing (TP) regime is a set of tax rules that aim to ensure that transactions between related companies, especially multinationals, are carried out at market prices \u2014 the so-called &#8220;arm&#8217;s length&#8221; principle. In other words, the prices charged between companies within the same group must be equivalent to those charged between independent companies under comparable conditions.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The objective is to prevent price manipulation in international or domestic transactions to artificially shift profits, reducing the tax base in one country and increasing it in another, where the tax burden is lower.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">In Portugal, the regime is primarily regulated by the IRC Code (Articles 63-A to 63-G) and the OECD guidelines on transfer pricing, which are internationally recognized.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Main components of the regime:<\/b><\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Reporting Obligation:<\/b> Companies must declare transactions with related entities, stating the amounts and nature of the transactions.<\/span><\/li>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Supporting Documentation:<\/b> Companies must maintain documentation proving that the prices charged are in compliance with the arm&#8217;s length principle.<\/span><\/li>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Valuation Methods:<\/b> Portuguese law allows the application of various methods to determine transfer prices, such as the uncontrolled comparable price method, the cost-plus method, the resale price method, among others.<\/span><\/li>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Adjustment of Results:<\/b> If the Federal Revenue Service deems it necessary If the prices charged do not correspond to market value, the Company may make adjustments and charge the corresponding tax, plus compensatory interest.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\"><b>To Whom the Transfer Pricing Regime Applies<\/b><\/span><\/p>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\">The regime applies to companies and entities subject to IRC (Corporate Income Tax) that carry out transactions with related parties, whether domestic or foreign. Typical examples of taxable transactions are:<\/p>\n<ul>\n<li class=\"li1\"><span class=\"s1\">Transactions involving goods and merchandise;<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">Provision of services;<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">Financial transactions, such as loans or guarantees;<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">Transfer of intellectual property;<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">Other businesses or transactions that may influence taxable income.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Companies required to comply with the regime:<\/b><\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Multinational companies:<\/b> Groups with entities in different jurisdictions, where there is a risk of profit shifting.<\/span><\/li>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Companies with relevant business relationships:<\/b> Regardless of whether they are groups, companies that hold relationships of control or significant influence (more than 25% stake or decision-making power) with other entities.<\/span><\/li>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Companies with relevant operations:<\/b> Even small companies may be subject to the tax if they conduct significant transactions with related parties.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Tax Risks of Improperly Operating in the Transfer Pricing Regime<\/b><\/span><\/p>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\">Non-compliance with the transfer pricing regime can lead to several risks for the company, namely:<\/span><\/p>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\"><b>1. Tax Adjustments and Additional Tax Payments<\/b><\/span><\/p>\n<ul>\n<li class=\"li1\"><span class=\"s1\">The Federal Revenue Service may adjust the reported prices, increasing the company&#8217;s tax base and requiring payment of the additional tax due.<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">This adjustment may also incur compensatory interest from the date of the original payment.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\"><b>2. Penalties and Fines<\/b><\/span><\/p>\n<ul>\n<li class=\"li1\"><span class=\"s1\">Failure to submit documentation or incomplete submission may result in significant fines.<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">Non-compliance may be interpreted as an attempt at tax evasion, increasing the penalties.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\"><b>3. Reputational Risk and Audit Difficulties<\/p>\n<ul>\n<li class=\"li1\"><span class=\"s1\">Transfer pricing issues can trigger complex, costly, and time-consuming tax audits.<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">The company&#8217;s reputation among investors, customers, and partners can be affected.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\"><b>4. Increased Administrative Costs<\/b><\/span><\/p>\n<ul>\n<li class=\"li1\"><span class=\"s1\">Specialized resources are required to prepare and maintain the required documentation.<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">Incorrect tax treatment can lead to tax disputes, increasing legal costs.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\"><b>What is a Transfer Pricing Dossier?<\/b><\/span><\/p>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\">The <b>transfer pricing dossier<\/b> is the documentation that companies must prepare to justify that transactions with related parties are carried out at arm&#8217;s length. This dossier is essential for demonstrating compliance to the Federal Revenue Service in the event of an inspection.<\/span><\/p>\n<p>&nbsp; <\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Typical binder contents:<\/b><\/span><\/p>\n<ul>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Description of the group and organizational structure:<\/b> Information about the company and related entities;<\/span><\/li>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Description of relevant transactions:<\/b> Details of transactions subject to the regime, including amounts and conditions;<\/span><\/li>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Comparative analysis:<\/b> Methods used to determine prices and comparability analysis with independent transactions;<\/span><\/li>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Supporting documentation:<\/b> Contracts, invoices, economic studies, and other supporting evidence the prices charged;<\/span><\/li>\n<li class=\"li1\"><b><\/b><span class=\"s1\"><b>Declaration by the person responsible for preparation:<\/b> Confirmation of the veracity and integrity of the information.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Importance of the dossier:<\/b><\/span><\/p>\n<ul>\n<li class=\"li1\"><span class=\"s1\">Serves to mitigate the risk of tax adjustments;<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">Facilitates the company&#8217;s defense in inspections and litigation;<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">Demonstrates transparency and good tax governance.<\/span><\/li>\n<\/ul>\n<p>&nbsp; <\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Deadline and obligation:<\/b><\/span><\/p>\n<ul>\n<li class=\"li1\"><span class=\"s1\">The file must be available by the deadline for filing the annual IRC return;<\/span><\/li>\n<li class=\"li1\"><span class=\"s1\">The non-existence or insufficiency of the file may lead to penalties and presumptions against the company.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>How the Transfer Pricing Regime Works &nbsp; The transfer pricing (TP) regime is a set of tax rules that aim to ensure that transactions between related companies, especially multinationals, are carried out at market prices \u2014 the so-called &#8220;arm&#8217;s length&#8221; principle. In other words, the prices charged between companies within the same group must be [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1201,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[52],"tags":[],"class_list":["post-2126","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-transfer-pricing"],"acf":[],"_links":{"self":[{"href":"https:\/\/uhy.pt\/en\/wp-json\/wp\/v2\/posts\/2126","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/uhy.pt\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/uhy.pt\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/uhy.pt\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/uhy.pt\/en\/wp-json\/wp\/v2\/comments?post=2126"}],"version-history":[{"count":0,"href":"https:\/\/uhy.pt\/en\/wp-json\/wp\/v2\/posts\/2126\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/uhy.pt\/en\/wp-json\/wp\/v2\/media\/1201"}],"wp:attachment":[{"href":"https:\/\/uhy.pt\/en\/wp-json\/wp\/v2\/media?parent=2126"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/uhy.pt\/en\/wp-json\/wp\/v2\/categories?post=2126"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/uhy.pt\/en\/wp-json\/wp\/v2\/tags?post=2126"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}