Tax and Customs Authority

Corporate Income Tax Services

Circular Letter No. 7/2013 of 19 August

Following the amendments to article 67 of the Corporate Income Tax Code introduced by Law No. 66-B/2012, of 31 December (2013 State Budget Law), which laid down a new limitation regime to the deductibility of financing costs, a number of instructions were published on the application of this regime, among which we highlight the following:

  • The limitation regime to the deductibility of financing costs applies to all corporate income tax taxpayers, residents or non residents with a permanent establishment in the Portuguese territory, with the exception of credit institutions and financial companies, insurance and reinsurance companies, pension funds and their managing companies and to insurance mediation companies;
  • In the case of companies within a group relation, the limitation to deductible "net financing costs" applies to each company taken individually;
  • The restriction to the tax deductibility established in article 67 of the Corporate Income Tax Code does not preclude the previous application of other conditions or limitations to the tax deductibility of financing costs;
  • The concept of accessory costs, provided for in article 67 no. 8 of the Corporate Income Tax Code, includes, in particular, transaction costs defined in paragraph 5 of NCRF 27. Provided they are incurred in connection with the obtaining of loans, accessory costs take on the nature of financing costs for the purposes of the application of article 67 of the Corporate Income Tax Code, the date on which the cost is recognised in accordance with the applicable accounting standard being relevant for tax purposes;
  • The calculation of "net financing costs":
    • Aggregates financial charges borne by lessees under financial leases con-sidered as such for the purposes of the applicable accounting standard;
    • Does not include capitalised interest and other financing costs which are included in the acquisition cost of an asset in accordance with the appli-cable accounting standard;
    • Aggregates costs relating to a hedge instrument of the taxpayer’s debt, to be taken into account in the tax period in which they contribute to form the taxable result;
    • Includes exchange rate differences from foreign currency loans;
    • Does not include financial costs arising from the increase of a provision recognised for its present value to account for the passage of time.
  • "Net financing costs" that cannot be deducted in the taxation period in which they contribute to the taxable profit may be taken into consideration in determining the taxable profit of one or several of the five subsequent tax periods, provide that their sum does not exceed the legal limit;
  • "Net financing costs" that cannot be deducted in the tax period in which they contribute to the taxable profit may only be used by the company which paid or incurred them, there being no possibility to transfer them in case of corporate restructuring (even if such restructuring is undertaken within the tax neutrality regime applicable to mergers, demergers and transfer of assets).
  • "Earnings before interest taxes depreciation and amortization" shall be considered for the purposes of this regime the value recorded in the income statement by nature before (i) the costs/write back of depreciation and amortization, the costs/write back of impairments of depreciable/amortizable investments, (ii) net financial expenses and (iii) period tax.

Tax and Customs Authority

Value Added Tax Services

Circular Letter No. 7/2013 of 19 August

Following the publication of the Decree-law no. 71/2013 of 30 of May, that approved the cash accounting scheme for VAT purposes ("VAT Cash Accounting Scheme"), a number of instructions were published on the application of this regime, among which we highlight the taxpayer’s communication to the tax authorities of the option for the VAT Cash Accounting Scheme by electronic means through the website of the Portuguese tax authorities.

For further information concerning the VAT Cash Accounting Scheme please see our Tax Flash 2/2013 of 16 July 2013.