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16 July 2020

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Portugal Publishes Law to Implement ATAD Hybrid Mismatch Measures

Portugal published Law 24/2020 in the Official Gazette on 6 July 2020, which provides for the implementation of the hybrid mismatch rules of the EU Anti-Tax Avoidance Directive and the Directive as amended (ATAD1 and ATAD2). This includes measures to counter hybrid mismatches resulting in double deduction and deduction without inclusion outcomes, which are generally dealt with by denying a deduction in determining taxable profit or requiring the inclusion of income. Specific measures are also provided to address reverse hybrid mismatches and residence mismatches.

The hybrid mismatch measures are generally effective from 1 January 2020, although the measures for reverse hybrid mismatches will be effective from 1 January 2022. Grandfathering provisions are also provided until 31 December 2022 in relation to hybrid mismatches arising from interest payments made under financial instruments to associated companies, subject to certain conditions.

Further to the hybrid mismatch measures, an amendment to the interest deduction limitation rules is also provided in the law, which removes credit securitization companies from the scope of entities that are exempt from the deduction limitation. The exemption continues to apply for supervised banking entities, insurance entities, and pension funds, as well as for branches in Portugal of credit institutions and other financial institutions and insurance companies.

The Law entered into force on 7 July 2020.

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