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Rebate regarding retained and reinvested earnings

The SB Proposal foresees that the rebate of up to 10% for the retained profits that are reinvested in relevant applications under the law will be made within four years (instead of the current three years) from the end of the tax period to which the retained profits pertain.

This change will apply to periods running on 1 January 2020.

It is also proposed to increase the maximum amount of the annual benefit corresponding to the tax rebate of retained and reinvested profits ("DLRR") from EUR 10,000,000 to EUR 12,000,000.

 

Rebate for retained and reinvested profits – Relevant applications

The SB Proposal foresees an extension of the relevant applications for the purposes of the DLRR regime. It is proposed that intangible assets, consisting of expenditure on technology transfer, namely through the acquisition of patent rights, know-how licenses or unprotected technical knowledge, should also be considered, provided that two requirements are met cumulatively:

  • They are subject to amortization or depreciation for tax purposes;
  • They are not purchased from related entities for transfer pricing purposes.

In addition, it is proposed that the investment made in relevant applications be considered as that corresponding to the additions, verified in each tax period, of intangible fixed assets.

With regard to assets acquired under financial leases, it is proposed to extend to seven the current period of five years for the exercise of the purchase option by the taxable person in order to benefit from the rebate.

 

Rebate for retained and reinvested profits – Enabling act

The SB Proposal includes an enabling act, which is subject to the European Union’s prior approval in the context of state aids, to extend the list of beneficiaries and the relevant applications of the DLRR framework.

The SB Proposal foresees that the content and extent of the changes be as follows:

  • acquisitions of shareholdings in companies whose main purpose is materially the same as that of the acquiring company will be considered as relevant applications, to the extent that a majority of the capital with voting rights is obtained upon these acquisitions and provided that a business concentration takes place within a maximum period of three years;
  • application of the DLRR framework to small-medium capitalization companies, according to the classification in Article 2.3 of Decree-Law 372/2007, of 6 November 2007.

 

SIFIDE II – Deadline

The SB Proposal extends the deadline for application of the SIFIDE II until 2025 (before it was until 2020).

 

SIFIDE II – Contribution to investment funds

The SB Proposal provides for some changes to the IRC benefit arising from contributions to investment funds whose purpose is to finance companies mainly engaging in R&D.

First, the acknowledgement by the Agência Nacional de Inovação S.A. (“ANI”) requirement is eliminated, for projects developed by companies mainly engaging in R&D, although the Agency must recognize the standing of those companies. This change seeks to rectify the amendments made by the last State Budget Law on this matter, which created doubts and issues regarding ANI’s intervention.

Secondly, the possibility of investment funds funding the “valuation of results” of the R&D carried on by companies mainly engaging in this activity is reintroduced. This funding of the "valuation of results" arising from R&D had also been inexplicably eliminated in the last State Budget Law.

In addition, the SB Proposal provides that if the units in the above investment funds are sold before the end of the five-year period, the amount of the tax rebate will be added to the IRC of the period of sale, in the proportion corresponding to the missing period, plus compensatory interest.

For the purpose of verifying the investment made, the investment fund’s managing entities must send, by June 30th of every year, the last audited annual report as well as a document (e.g. portfolio) showing the investments made by the fund in the previous period in entities whose standing in terms of R&D was recognized by ANI.

In this context, the SB Proposal also provides that the investment funds’ managing entities may request ANI to issue a statement of compliance of the investment policy provided for in the fund's management regulations relative to the requirement of destination of the investment, but this statement shall not be binding as to the future eligibility of the expenditure.