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Portugal

3 December 2007

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Budget for 2008 – corporate income tax (details)

The most significant amendments included in the proposal for the State Budget 2008, which will generally apply from 1 January 2008 onwards, regarding corporate income tax are summarized below.

(a). Parent-Subsidiary Directive 2003/123/EC. In response to the EU Commission's infringement proceedings against Portugal for discriminatory taxation of outbound dividends, the proposal would cure any existing discrimination by reducing the holding period from 2 consecutive years to 1 year, and the ownership percentage from 15% to 10%; and by introducing an alternative requirement concerning ownership, i.e. the acquisition value of a shareholding should not be less than EUR 20 million.

(b) Costs incurred with respect to social benefits for employees, retired personnel and respective family members. Upon request, and in case of companies in the process of restructuring, the tax authorities may allow the deduction of these costs without the need to establish that the social benefits are based on identical and objective criteria for all employees even if occupying different positions in the company.

(c) Capital losses on liquidation. Disallowed as tax-deductible expenses when the liquidated company is domiciled in a black listed jurisdiction. In case of group taxation, such deduction is allowed only on the part that exceeds the amount of the tax losses which were used by the tax group.

(d) Formalities concerning the application of tax treaties. More simplicity is proposed, by introducing standard forms, namely extended deadlines for obtaining the standard forms and for requesting a refund; proof of compliance with requirements is allowed upon the lapse of the deadlines foreseen in the tax law (although subject to a small penalty also introduced by the State Budget 2008 law proposal, ranging from EUR 250 to EUR 2,500).

(e) Advance Pricing Agreements (APA). Possibility of conclusion of APAs between taxpayers and the Portuguese tax authorities concerning transfer pricing policies. Following the enactment of this legislation, further regulations or circulars are expected to be published.

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