Portugal publishes MDR guidance and reporting form

Local contact

EY Global

26 Feb 2021
Subject Tax Alert
Jurisdictions Portugal European Union

Executive summary

The Portuguese Tax Authority (the PTA), on 20 January 2021, issued guidance (the Guidance) on the application of Law nr. 26/2020 (the Law), of 21 July 2020, as further amended by Decree-Law nr. 53/2020, of 11 August 2020, which implemented the European Union (EU) Directive 2018/822 on the mandatory disclosure and exchange of cross-border arrangements (DAC 6 or the Directive). The Guidance clarifies certain areas of the Law.

Separately, the Portuguese Government enacted Ministerial Order nr. 304/2020, of 29 December 2020, approving the official form (Modelo 58) so that intermediaries and relevant taxpayers may comply with Mandatory Disclosure Regime (the MDR) reporting obligations.

Detailed discussion


On 21 July 2020, the Law was published, transposing DAC6 into the Portuguese domestic legislation and introducing the MDR. The Law extends the MDR to reportable domestic arrangements whose relevant triggering event occurred after 1 July 2020 and to Value-Added Tax (VAT), as a covered tax, for the latter. For a detailed discussion on the Law, see EY Global Tax Alert, Portugal publishes final legislation to implement Mandatory Disclosure Rules, dated 24 July 2020.

Furthermore, Decree-Law nr. 53/2020, of 11 August 2020, postponed the MDR reporting deadlines.1 As such, disclosures of reportable (domestic or cross-border) arrangements whose relevant triggering event occurs/has occurred on or after 1 July 2020 must be/have been made within 30 days following: (i) the provision of the arrangement for implementation; (ii) the arrangement being ready to be implemented or (iii) the first step of the arrangement being implemented, whichever occurs first; or (iv) the provision of aid, assistance or advice concerning a reportable arrangement. Regarding arrangements whose relevant triggering event took place between 1 July 2020 and 31 December 2020, the 30-day period started on 1 January 2021. The cross-border arrangements whose first step of implementation occurred between 25 June 2018 and 30 June 2020 must be reported by 28 February 2021.

On 29 December 2020, Ministerial Order nr. 304/2020 was enacted, approving the official form (Modelo 58) for compliance with the MDR reporting obligations.

Finally, on 20 January 2021, the PTA published the first version of the Guidance, clarifying certain concepts and provisions under the Law.

This Tax Alert summarizes where the Guidance deviates from interpretations as outlined in earlier Tax Alerts on the Portuguese MDR legislation or where it provides new clarifications. It also addresses how the reporting to the PTA should be made.

Scope and purpose of the Guidance

The Guidance does not have the binding nature of a law and is intended to provide a better understanding of the legal framework and harmonizing application of the Portuguese MDR. Thus, it only binds the PTA’s practice and does not prevent intermediaries and relevant taxpayers from adopting different interpretations.

Intermediaries, relevant taxpayers and waiver of multiple reporting

According to the Law, intermediaries and relevant taxpayers must report any reportable domestic or cross-border arrangement. However, the Guidance clarifies that an individual who is linked to an intermediary or to a relevant taxpayer under an employment relationship is not deemed himself to be an intermediary or a relevant taxpayer. Instead, any person providing advice to a relevant taxpayer or another intermediary such that he/she falls within the concept of an “intermediary” under a service agreement should be considered as an intermediary.

In the event that more than one intermediary is involved with a reportable arrangement, the Guidance sets out that the obligation to report falls on each intermediary, without prejudice to a waiver of multiple reportings, by allowing intermediaries with nexus in Portugal to rely on reporting made to the PTA by another intermediary with nexus in Portugal.

Furthermore, the primary reporting obligation is only shifted to the relevant taxpayer with a nexus in Portugal, if one of the following situations occurs:

  1. In the absence of an intermediary in the reportable arrangement (e.g., a service provider does not fall within the concept of an “intermediary;” or the arrangement is designed and implemented internally by the relevant taxpayer).
  2. There is an intermediary in the reportable arrangement but without a nexus in Portugal.
  3. There is an intermediary in the reportable arrangement with a territorial link to Portugal but invoking a legal or a contractual professional privilege (LPP or CPP) in relation to a relevant taxpayer with a nexus in Portugal.

The Guidance also clarifies that an intermediary is not a "participant" to the reportable arrangement.

Additionally, for a service provider to be regarded as an intermediary, its services should support a reportable arrangement in a way that requires the service provider to know that its services are actively affecting a reportable arrangement under the Law. Any person (other than a promoter) has the right to prove to the PTA that he/she did not know, or could not reasonably be expected to know, that he/she was involved in a reportable arrangement, referring to all relevant facts and circumstances, as well as to the information available and relevant knowledge.

The obligation to disclose a cross-border arrangement to the PTA is not dependent upon the arrangement having itself a territorial link to Portugal, but rather upon the intermediary or the relevant taxpayer.

Moreover, the reporting obligation always lies with the intermediary (or the relevant taxpayer, whichever applicable) as a natural or a legal person, rather than with its permanent establishment (PE), being the latter only considered for determining the EU Member State where the reporting should first occur.

Under the Law, a waiver of multiple reporting is only possible in Portugal, where:

  1. Another intermediary/relevant taxpayer has already reported the arrangement to the PTA; or
  2. The same intermediary/relevant taxpayer has disclosed the arrangement to the tax authorities of another EU Member State.

In both cases proof is required to be submitted to the PTA.

For this purpose, with regards to: (i), this evidence consists of indicating the Disclosure ID of the Modelo 58 declaration submitted by the other intermediary/relevant taxpayer, while (ii) the proof should be a document or a copy of the submission of the respective declaration to the tax authorities of the other EU Member State.

The relevant taxpayer, the associated enterprises and other (natural or legal) persons or entities without legal personality fall under the concept of “participants" in the arrangement, to the extent that they are covered by the arrangement, affecting or being affected by it. The disclosure of associated enterprises and other covered persons in Modelo 58 declaration must occur where the arrangement triggers a hallmark which involves the existence of associated enterprises or where there are other entities that may be covered by the arrangement.

Legal or contractual professional privilege

The Law sets forth that the obligation to communicate a reportable arrangement is transferred to the relevant taxpayer with a territorial link to Portugal, should the intermediary (with a nexus in Portugal, as well) invoke an LPP or a CPP. For this purpose, the intermediary must notify the relevant taxpayer, within five days after the triggering event, so that the latter has to comply with the obligation to the PTA. Otherwise, the primary reporting obligation remains with the intermediary.

Subsequently, if the aforesaid notification has been made in time, the relevant taxpayer should prove to the intermediary with the LPP or CPP within 30 days from the receipt of the notification that it has disclosed the reportable arrangement to the PTA or has applied a waiver of multiple reporting (where applicable). The intermediary must verify that such declaration was actually filed with the PTA and it refers to the reportable arrangement at stake, without having to verify the correctness of the information communicated by the relevant taxpayer.

If the relevant taxpayer has not (timely) evidenced to the intermediary, the reporting obligation is shifted back to the intermediary with LPP/CPP, with the latter having 10 additional days to report the arrangement to the PTA. The relevant taxpayer in this case will be subject to a penalty in the amount varying from €6,000 to €80,000.

The LPP/CPP may not be invoked for a relevant taxpayer without a nexus in Portugal, meaning that, in such a case, the reporting obligation remains with the intermediary with LPP/CPP.

Cross-border and domestic arrangements

When the concepts of “cross-border arrangement” and “domestic arrangement” overlap one another, to the extent that a cross-border arrangement is able to be applied or to produce effects, totally or partially, within the Portuguese territory, the cross-border nature prevails. It is necessary to determine the covered taxes, as VAT is only relevant for domestic arrangements, and the applicable hallmarks, as A1, A2 and A3 only apply to cross-border arrangements.

Hallmarks A-E of the Directive

The Law adopts a different nomenclature for the hallmarks from DAC6. However, this Tax Alert references the terminology of the Directive.

In principle, the hallmarks of categories B to E of the Directive apply to domestic arrangements (in addition to cross-border arrangements). However, the Guidance does not clarify in which circumstances those of category C and D as well as the hallmark E3 – that expressly refer to cross-border / multiple jurisdiction situations – may be triggered by domestic arrangements.

The Guidance makes the following clarifications in relation to the DAC6 hallmarks:

Hallmark A3 (standardized documentation and structures)

  • The Guidance clarifies that this hallmark relates to marketable arrangements.

Hallmark B2 (conversion of income)

  • The Guidance clarifies that the expression “other categories of income” refers to any other type of income that provides for more favorable taxation, a tax exemption or non-taxation.

Hallmark C1 (cross-border payments between associated enterprises)

  • The Guidance clarifies that hallmark C1 (b)(ii) should be triggered, if a particular jurisdiction was listed as non-cooperative by the EU or the Organisation for Economic Co-operation and Development (OECD) when the relevant triggering event took place.

  • For the hallmarks C1 (c) and C1 (d), a payment is “taxed more favorably”, if: (i) it actually benefits from more favorable taxation in the jurisdiction where the recipient is resident for tax purposes; and (ii) that jurisdiction is “blacklisted” under the Portuguese tax legislation, and/or (iii) such a payment is considered, at the time it is received, as a harmful tax practice by the Forum on Harmful Tax Practices, under OECD BEPS Action 5.

Hallmark C2 (double depreciation)

  • Situations in which the same asset is subject to depreciation at the level of both a PE, under the legislation of the jurisdiction in which it is located, and the entity owning that PE do not trigger the hallmark C2, if the income derived by the PE is subject to, and not exempt from, taxation at the level of the head office.

Hallmark D

  • D1 and D2: The Guidance refers to the OECD (2018), Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures report.

Hallmark E2 (unilateral safe harbor rules)

  • The concept of “unilateral safe-harbor” is provided by the OECD Transfer Pricing Guidelines. The hallmark E1 is only triggered where a unilateral safe harbor is used outside the OECD consensus. Such conformity can also be considered to exist in relation to the conclusions by the EU Joint Transfer Pricing Forum.

Hallmark E2 (hard-to-value-intangibles) and Hallmark E3 (intragroup transfer of functions/risks/assets with significant earnings before interest and tax (EBIT) impact)

  • Transfers between a headquarter and its PE do not trigger the hallmarks E2 and E3.

  • Only an estimated reduction of the EBITs (determined in accordance with the accounting standards) compared to a positive EBIT is relevant for the hallmark E3.

Main benefit test

According to the Guidance, the obtainment of a tax advantage (e.g., a tax benefit) does not by itself satisfy the main benefit test (the MBT). In fact, the MBT is not considered satisfied when the tax advantage is fully obtained as a result of the mere fulfilment of the legal requirements which it depends upon, i.e., when the that tax advantage is obtained due to applying the wording and the purpose of the underlying tax provision, and not being, in whole or in part, the result of a “construction” or “series of constructions” that forms the arrangement.


The communication of reportable cross-border or domestic arrangements should be made by filling and submitting electronically Modelo 58 declaration (approved by Ministerial Order nr. 304/2020, of 29 December 2020) to the reserved area of the intermediary or the relevant taxpayer (whichever the case) in the PTA’s website, requiring a Portuguese tax identification number (TIN) and an associated password to access the referred website. A third-party service provider may make disclosures to the PTA in the name of the declaring entity, by being granted with a sub-user account limited to Modelo 58 declarations.

For each reportable arrangement a separate declaration should be submitted. Modelo 58 may also be used for the annual updates required to the relevant taxpayer, as well as the quarterly report on marketable arrangements. Modelo 58 generally should be filed in Portuguese, however, there is an option to include the description of an arrangement and relevant applicable legislation in English when it comes to cross-border arrangements.

If there is a reportable arrangement, the information related to that arrangement should always be communicated to the PTA, regardless of whether the PTA might have such details due to any other type of procedure or declaration.

Next steps

Determining whether there is a reportable arrangement raises complex technical and procedural issues for both taxpayers and intermediaries. Due to the scale and significance of the regime enacted in the final legislation, taxpayers and intermediaries who have operations in or involving Portugal should review their policies and strategies for logging and reporting tax arrangements, so that they are fully prepared for timely meeting their obligations.

For additional information with respect to this Alert, please contact the following:

Ernst & Young, S.A., Lisbon
  • António Neves
  • João Sousa
  • Luís Marques
Ernst & Young LLP (United States), Portuguese Tax Desk, New York
  • Francisco Silva

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.