Please note, your browser is out of date.
For a good browsing experience we recommend using the latest version of Chrome, Firefox, Safari, Opera or Internet Explorer.

ATAD Express # 1: changes to interest deductibility for Corporate Income Tax purposes


On May 4th, entered into force Law no. 32/2019, which transposed the ATAD Directives (Anti-
-Avoidance Directives), namely Council Directive (EU) 2016/1164 of 12 July 2016), as amended by Council Directive (EU) 2017/952 of 29 May 2017. 

As the preamble to the first directive states, the political priorities "in international taxation highlight the need for ensuring that tax is paid where profits and value are generated"

With this objective in mind, the Organization for Economic Co-operation and Development (“OECD”) has developed a successful initiative against tax base erosion and profit sharing (the “BEPS” project) which received a strong welcome by the players in the market. 

Further to the same, the European Union (“EU”) adopted the ATAD Directives with the aim of finding common, yet flexible, solutions at the EU level consistent with BEPS conclusions. 

Thus, in this update, SÉRVULO presents the main changes introduced to article 67.º of the CIT Code, which provides for limitations on the deductibility, for purposes of this tax, of net funding costs up to € 1,000,000 or, if higher, at 30% of the EBITDA (as adjusted for the application of this rule). 

The changes introduced were surgical, as the regime in force until now was already in line with European requirements at this level. 

In fact, the Portuguese regime was and is even more demanding than the European one. For example, while the annual cap for deductibility of financing costs is € 3,000,000 under the Directive, the internal regime restricts it to only € 1,000,000 and, while the Directive allows for an unlimited reporting period for the future of such expenditures (and, in time-limited terms, their reporting to prior tax periods), the CIT Code does not allow reporting for past years and limits future reporting to the subsequent five periods. 

Among the amendments now introduced, the concept of “funding costs” is amended to make it closer to that provided for in the Directive in order to include, inter alia, the amounts paid resulting from the subscription of zero-coupon bonds, convertible or subordinated, financing costs incurred with the acquisition of assets and capitalized (for accounting purposes) on the same acquisition value, as well as any payments arising from hybrid financial instruments, such as the yield on a participating loan or Islamic financial instruments. 

Thus, the concept is broadened to cover expenses incurred with mechanisms similar to financing instruments, whose remuneration does not fall within the strict concept of “interest”, but which generate expenses of a similar nature from a practical point of view. 

Also, the concept of EBITDA is approximated to that contained in the Directive, according to which it corresponds to the taxable profit or tax loss subject to and not exempt from CIT, accrued of net funding expenses, as well as depreciations and amortizations deductible for CIT purposes.


Teresa Pala Schwalbach

Expertise Relacionadas
Related Lawyers
Teresa Pala Schwalbach