 | | | | | Thin capitalization rules |
According to Portuguese Tax Legislation, when the debt of a taxable entity to a non-resident in Portuguese territory or in a EU member state entity whom there are special relations, is excessive, the interest costs on the part considered in excess is not deductible for purposes of determining the taxable income. Debt is considered excessive when the value of debt, with reference to any date of the financial year, is equal to more than twice the corresponding value of the equity capital of the taxpayer.
However, so long as the debt is not toward an entity resident in a tax haven, the taxpayer may demonstrate, taking into account the type of activity, the sector in which it operates, the size and other relevant criteria, and considering the nature of the risk involved in the operation which is not covered by the entity with which there are special relations, that it would have obtained the same level of debt and in the same conditions of an independent entity. In such a case, the entity may exceed the above stated sum.
For calculation of debt, all forms of credit, in cash or kind, no matter what the payment agreed upon was, granted by the entity with which there is a special relationship, including criteria resulting from commercial operations when more than six months have passed since the date of payment.
Equity is calculated by adding capital shares subscribed to and settled, to other applicable items, qualified as such by the accounting standards, with the exception of those that reflect potential or latent capital gains or losses. | | |  | |
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