Group Transactions, Transfer Pricing and Litigation: Evidence from Portugal

Abstract

In Portugal, in the wake of the introduction of tax arbitration in 2011, courts have ruled in several cases involving transfer pricing (TP) judicial conflicts. The research questions that this article addresses are: What are the core issues in TP litigation in Portugal? Do they follow international trends? What is the predominant outcome of arbitration rulings, and why do tax authorities experience defeat so many TP cases? Based on the total (thirty-two) TP arbitration cases decided in Portugal from 2012 to 2017, the authors find that tax administrations (TA) were successful in only three cases. Courts also found that tax audit reports often misused the comparability concept, and the methods that were used were also often disallowed by arbitrators. Therefore, TAs should proceed with caution in audits and seek robust foundations to TP adjustments. Multinational groups must also carefully substantiate their related party transactions in order to minimize audit risk and compliance costs of taxation. Group transactions, transfer pricing, tax arbitration, Portugal.