ATAD Express # 4: Exit Tax - transfer of residence of a Portuguese company abroad

SÉRVULO PUBLICATIONS 09 Oct 2019

The last of the amendments introduced by Law no. 32/2019 of 3 May, which entered into force on 4 May, concerns the commonly called exit tax regime, i.e. it refers to the transfer of an entity’s registered office or effective management from Portugal to another State. 

This amendment also arises from the transposition of the Anti-Avoidance Directive (ATAD) (Council Directive (EU) 2016/1164 of 12 July 2016), as amended by Directive (EU)) 2017/952 of the Council of May 29, 2017).

Considering the Portuguese regime was already in line with the European guidelines, the amendments now introduced concern the following aspects: 

     a) Deferral of the exit tax and the methods of payment of tax due

So far, there were three mechanisms of payment of the exit tax:

      i. Immediately and in in full.

      ii. In the year following that in which each of the assets considered for tax purposes was extinguished or transferred from the entity's activity or the entity itself was transferred to a territory or country other than a Member-State of the European Union (“EU”) or the European Economic Area (“EEA”), in the latter case, provided that there is an obligation for administrative cooperation in the field of information exchange and recovery assistance equivalent to that established in the EU), and by the part of the tax corresponding to the tax result for each item individually identified

      iii. Payment in instalments over five years, starting in the year in which the transfer of residence occurs.

The category provided for in paragraph ii. now ceased to exist. 

Simultaneously, in situations where taxpayers opted for the category of paragraph iii., it is now foreseen that the same will no longer apply when one of the following circumstances occurs: 

• The assets are extinguished, transferred or are no longer allocated to the activity of the entity, in the part of the tax that corresponds to these elements as defined by ordinance (“Portaria”) of the Ministry of Finance;
• The assets are subsequently transferred to a territory or country that is neither an EU Member State nor a third country that is a party to the EEA Agreement with which an agreement on mutual recovery assistance in the recovery of tax credits is in force, in the part of the tax that corresponds to these elements in the terms defined by ordinance (“Portaria”) of the Ministry of Finance;
• The entity's tax residence is transferred to a third country that is not party to the EEA Agreement or with which no agreement on mutual assistance in the recovery of tax credits is in force; or
• The entity enters into insolvency or liquidation proceedings.

     b) Introduction of asset valuation rules when the transfer is made to the national territory from another EU Member-State or third countries and also when the assets of a permanent establishment located outside Portuguese territory cease to be allocated to the same 

In the case of (i) entities transferring their registered office or effective management to Portuguese territory or of (ii) asset disposal of a permanent establishment located outside Portuguese territory, as a rule, the respective acquisition cost for tax purposes of such assets held by the entity on the date of such transfer, and which were not on that date allocated to a permanent establishment situated in Portuguese territory, corresponds to the respective net book value, provided that it does not exceed the respective market value at the date of transfer.

Where the assets or entities come from another EU Member-State, the taxpayer may choose to apply, for tax purposes, the cost considered in that other Member-State for determining the taxable profit therein subject to Corporate Income Tax, provided that this value reflects the market value at the date of the transfer. 

Teresa Pala Schwalbach

tps@servulo.com

Rita Botelho Moniz

rbm@servulo.com