European Union Directives

Council Directive nr. 2011/96/EU, of 30 November, on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (Parent-Subsidiary Directive)

Profits distributed by Portuguese resident companies.

According to the transposition made to the Corporate Income Tax Code (Article 14), the distribution of profits made by a Portuguese resident company is exempt from withholding tax in Portugal in the following conditions:

(i) To companies resident in the European Union (EU), provided:

• both the Portuguese subsidiary and the EU parent company are incorporated under a legal form foreseen in the Annex to the Directive;
• both are subject to tax on income, without the possibility of being exempt;
• the EU parent owns at least 10% of the share capital of the Portuguese subsidiary, for at least one year;
• a certified statement is issued by the competent tax authorities of the EU country of residence of the parent company, proving the above conditions, among other, the compliance with the conditions set forth in Article 2 of Directive 2011/96/EU; this document should be made available to the Portuguese subsidiary before the income is paid or made available to the EU parent company.

(ii) To a permanent establishment (PE) of an entity resident in a EU country, located in another EU country or in a country member of the Economic European Area (EEA); the EU entity that has such PE must comply with the conditions set forth in (i) above, and must own wholly or partially, through that PE, at least 10%, for a consecutive one year period, of the share capital of the Portuguese subsidiary.

(iii) To a PE located in a EU or EEA country, of an entity resident in a EEA country, provided such EEA country is bounded by an agreement for tax cooperation within the scope agreed within the EU.

(iv) To a company resident in Switzerland, within the scope and terms of Article 15 of the Agreement between the EU and the Swiss Confederation providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments, provided that:

• the parent company owns at least 25%, for at least two years, of the share capital of the Portuguese subsidiary;
• within the terms of double taxation treaties signed by Portugal and by Switzerland with third party countries, neither the Swiss parent or the Portuguese subsidiary are resident for tax purposes in one of those third party countries;
• both entities are subject to income tax, without the possibility of being exempt, and they both are incorporated as limited liability companies.;
• a certified statement is issued by the competent Swiss tax authorities, proving the above conditions; this document should be made available to the Portuguese subsidiary before the income is paid or made available to the Swiss parent company.

(v) To a company resident in a EEA country, bounded by an agreement for tax cooperation within the scope agreed within the EU, provided both companies meet comparable conditions (with the proper adjustments) to those set forth in Article 2 of Directive nr. 2011/69/EU, and present such proof.

Profits received by a Portuguese resident company

According the transposition made to the Corporate Income Tax Code (Article 14), no taxation arises on profits received by Portuguese resident companies, as well as on profits distributed and allocated to Portuguese PE's of EU or EEA companies (in the latter case bounded by an agreement for tax cooperation within the scope agreed within the EU), provided that:

• the profits are distributed by EU subsidiaries, provided both the Portuguese parent company and the EU subsidiary are compliant with the conditions foreseen in Article 2 of Directive nr. 2011/96/EU;
• the profits are distributed by EEA subsidiaries (provided they are bounded by an agreement for tax cooperation within the scope agreed within the EU) provided both companies meet comparable conditions (with the proper adjustments) to the ones set forth in Article 2 of Directive nr. 2011/69/EU.

Proof of compliance with the conditions set forth in Article 2 of Directive 2011/96/EU is required (a certificate duly certified by the competent tax authorities).

Council Directive nr. 2009/133/EC, of 19 October, on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office, of an SE or SCE, between Member States (Merger Directive)

Mergers, divisions, partial divisions, transfers of assets and exchanges of shares involving EU resident companies, as well as a transfer of the registered office within the EU, are tax neutral, provided that (among other conditions) the companies involved:

• are incorporated under a legal form foreseen in the Annex to the Directive;
• are subject to tax as foreseen in Article 3 of the Directive, without the possibility or an option of being exempt.

It is possible, under certain conditions, to transfer tax losses of the companies involved.

Council Directive nr. 2003/49/EC, of 3 June, on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (Interest and Royalties Directive)

The payment of interest and royalties made by Portuguese companies to EU and Swiss resident companies should be exempted from withholding tax, provided that:

• both the debtor and the beneficiary are incorporated under a legal form foreseen in the Annex to the Directive;
• both companies are subject to tax on income, without the possibility of being exempt;
• there is a direct participation of 25% or more between those companies, or they are both owned in 25% or more by a third company, which complies with the above conditions, as long as in all three situations a minimum two year holding period is met.

Council Directive nr. 2014/107/EU, of 9 December, on automatic exchange of information in the field of taxation

Interest, dividends and other kind of payments received by EU residents individuals and derived from an EU member state, can be taxed in the individual’s residence EU state.

This Directive extends the scope of the regime regarding mandatory exchange of information between EU member state (created by Council Directive n.º 2003/48/EC, revoked by Council Directive 2015/20160/EU, of November 10).

Due to the existence of transitional measures, some obligations from Council Directive nr. 2003/48/EC will remain in force in 2017.