CIT – Hybrid mismatches: Transposition of Anti-Tax Avoidance Directives

03/02/20

In brief

On 30 January 2020, Law Proposal 10/XIV was presented by the Government to the Parliament. It partially transposes Anti-Tax Avoidance Directives 1 and 2, respectively Council Directives EU 2016/1164, of 12 July 2016, and 2017/952, of 29 May 2017. The remainder provisions of ATAD 1 have been transposed following the publication of Law 32/2019, of 3 May 2019.


In detail

On 30 January 2020, Law Proposal 10/XIV was presented by the Government to the Parliament. It partially transposes Anti-Tax Avoidance Directives 1 and 2, respectively Council Directives EU 2016/1164, of 12 July 2016, and 2017/952, of 29 May 2017. The remainder provisions of ATAD 1 have been transposed following the publication of Law 32/2019, of 3 May 2019.

Article 68-A – Definitions

The proposal introduces Article 68-A that reflects the recitals as well as Articles 4 and 9 of ATAD 1 and 2. It includes definitions that are in line with ATAD 2. Among others, the definition of hybrid mismatches (situations giving raise to deduction without inclusion or double deduction), double deduction, deduction without inclusion, associated enterprise and hybrid entity.

This provision applies to tax years starting on or after 1 January 2020.

Article 68-B – Hybrid mismatches

The proposal also introduces Article 68-B, again reflecting the recitals as well as Articles 4 and 9 of ATAD 1 and 2. This provision details the disallowed tax deductions resulting from hybrid mismatches, related with payments, or deemed payments, or that indirectly fund deductible expenditure. As foreseen in ATAD 2, Portugal opted to allow the deduction to be carried forward to a subsequent tax period, deferring any adjustment until the deduction is set off against non-dual-inclusion income in the other jurisdiction. This provision also determines the income that should be considered for the purpose of assessing the taxable profit resulting from hybrid mismatches.

This provision applies to tax year starting on or after 1 January 2020. As foreseen in ATAD 2, the provisions of Article 68-B shall only apply to tax years starting after 31 December 2022 in case of hybrid mismatches resulting from a payment of interest under a financial instrument to an associated enterprise, under certain conditions.

Article 68-C – Reverse hybrid mismatches

The proposal reflects Article 9-A of ATAD 1 and 2 by introducing Article 68-C on reverse hybrid mismatches. It concerns nonresident hybrid entities that are regarded as Portuguese tax residents and taxed herein.

This provision applies to tax years starting on or after 1 January 2022.

Article 68-D – Tax residency mismatches

New Article 68-D, concerning to tax residency mismatches, corresponds to Article 9B of ATAD 1 and 2. It foresees the cases where Portugal is allowed to deny the deduction of costs incurred by a taxpayer having its registered office or place of effective management in the Portuguese territory, who is also resident in another jurisdiction, and those costs are deductible in both jurisdictions.

This provision applies to tax years starting on or after 1 January 2020.




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2020 PwC. This communication is of an informative nature and intended for general purposes only. It does not address any particular person or entity nor does it relate to any specific situation or circumstance. PricewaterhouseCoopers Tax Services TLS, Lda. We will not accept any responsibility arising from reliance on information hereby transmitted, which is not intended to be a substitute for specific professional business advice.
 

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