Transfer Pricing Litigation: How Could the Portuguese Tax Authority Improve its Success Rate?

Daniel Taborda, António Martins


Purpose: Between 2011 and 2019, 52 transfer pricing cases were decided in tax arbitration courts in Portugal. The Portuguese tax authority prevailed in only seven. The research question that this paper seeks to address is: “What strategic and operational measures can the tax authority implement in order to improve its success rate in transfer pricing litigation?”.

Approach: This paper is based on a blend of the case study method and legal research approach. Six decisions made during 2011 to 2019 are analyzed in detail in order to find similarities in court reasoning that can be used as a basis for the proposed changes to tax audits.

Findings: The main conclusions drawn from the research relate to the need for changes to performance metrics, careful planning for transfer pricing audits, solid analysis of comparability issues in auditing work, more intervention by senior staff acting as filters in respect of unsubstantiated audit reports, and the dissemination of best practices in audit and litigation procedures.

Implications: By considering the arbitration court case outcomes, strategic and operational procedures can be applied in the planning, execution, and follow up of transfer pricing tax auditing.

Originality: The tax authority’s performance in transfer pricing arbitration court cases between 2011 and 2019 is discussed and forms the basis for recommendations to enhance the tax authority’s litigation success rate. Transfer pricing is a globally litigated matter, with modest success rates for tax authorities. Thus, the conclusions presented in this paper are useful for policymakers worldwide.

Keywords: Portuguese Tax Authority, Transfer Pricing, Litigation.

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