On 29th February 2016 was published in the Portuguese Official Gazette the Law 5/2016 related to the implementation of the Council Directive 2015/121/EU (Parent-Subsidiary Directive), which amends the previous Directive on the common system applicable in the case of parent companies and subsidiaries of different Member States.

The purpose of the Parent-Subsidiary Directive is to exempt dividends and other profit distributions paid by subsidiaries to their parent companies. Nevertheless, it was deemed as necessary to ensure that such Directive is not abused by taxpayers.

According to the Law 5/2016, benefits shall not be granted to an arrangement or a series of arrangements which, having been put in place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the Parent-Subsidiary Directive, are not genuine having regard to all relevant facts and circumstances. An arrangement or a series of arrangements shall be considered to be not genuine to the extent that it is not put in place for valid commercial reasons which reflect economic reality and do not have economic substance.

Investment structures and shareholding chains should be analyzed bearing in mind this new tax law change.