Corporate Tax Law Reform 2014 – Simplified procedure for change of tax year, Portugal

On 16th January, Law 2/2014 was published containing an extensive review of the Portuguese Corporate Tax Code (CIRC), which is applicable to all taxable acts as of 1st January 2014.

This Newsletter highlights one of the various changes to the CIRC: the simplification of the procedure to change the annual tax period, i.e. the period covering the financial year in terms of tax payments (henceforth “tax year”).

The general rule regarding the tax year in the CIRC (article 8, nr 1 CIRC) determines that tax is due for each tax period, i.e. the calendar year (1st January to 31st December). However, currently in Portugal there are several subsidiaries of international corporate groups whose tax period does not coincide with the calendar year. Their accounting year and tax year end-dates are usually at the end of the first (31st March) or third (30th September) quarters. Furthermore in most cases these Portuguese companies consolidate accounts with their parent company thus causing two separate closings of accounts.

Up until the end of last year, if Portuguese companies wanted, or needed, to have the same tax years as their consolidating parent company (and therefore per definition a non-calendar financial year), they had to apply for dispensation to the Portuguese tax authorities and provide evidence that the relevant parent company was required, under relevant mandatory law, to consolidate accounts as well as that the Portuguese company was within the consolidation perimeter (Art. 8, nr 2 CIRC, as per the text in force up to 31st December 2013). That application was analyzed by the Portuguese tax authorities within an unpredictable deadline and it could be subject to further requests for information or additional documents and, ultimately, the application could be refused.

The changes to article 8, nr 2 CIRC have done away with all of these requirements. Portuguese companies may now freely choose their tax year and now only have to file a form- “declaration of modifications” (“declaração de alterações”) – to the Portuguese tax authorities. It should be noted that, the new tax year period must be maintained for a minimum of five years.

When considering changing your current tax year, the following should be taken into consideration:

  • No tax year period can have duration of over one year. This means that the transition period to the new tax year will be a “shorter” tax period – e.g. if the company chooses the 1st April thorough 31st March period it will have to close and approve accounts as of 31st December 2013 and again as of 31st March 2014.
  • To avoid discrepancies, changes to the accounting year should also be reflected in the relevant company(ies) articles of association;
  • The new tax year may be modified before the minimum five years’ period ends if the Portuguese company becomes part of a corporate group with mandatory consolidated accounts and where the consolidating parent company has a different tax year;
  • For further information on this matter, as well as on the other modifications of the Portuguese Corporate Tax Code, please contact:

Nuno Brito Lopes – [email protected]
João Marques Pinto – [email protected]


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