CAAD 123/2018-T: Stamp Tax on Interest and Commissions Charged to Real Estate Investment Funds

ARBITRAL DECISION

The Arbitrator Professor Doctor Jónatas Machado, appointed by the Ethics Council of the Centre for Administrative Arbitration to form the present Arbitral Tribunal, constituted on 10.05.2018, decides as follows:

REPORT

1. A..., Real Estate Investment Fund Management Company S.A (hereinafter A...), holder of Collective Person Identification Number ..., with registered office at ... no. ..., ..., Lisbon, in its capacity as manager and representative of B... (Closed Real Estate Investment Fund) and C... S.A., following the tacit dismissal of the administrative complaint filed on 10.10.2017 against the tax acts for the assessment of stamp duty levied on credit, interest and commissions charged to B... between January 2015 and July 2017, hereby, in accordance with the provisions of subparagraph a) of paragraph 1 of Article 2 and Article 10, both of Decree-Law No. 10/2011 of 20 January, requests the constitution of a tribunal for annulment of the act of tacit dismissal of the administrative complaint and the corresponding assessment acts and consequent reimbursement of the amount wrongfully assessed, in the sum of € 48,959.09.

2. The application for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 19-03-2018.

3. In accordance with Articles 5, paragraph 2, subparagraph a), 6, paragraph 1 and 11, paragraph 1 of RJAT, the Ethics Council of this Centre for Administrative Arbitration (CAAD) appointed as sole arbitrator Professor Doctor Jónatas Machado, on 10-05-2018.

4. The parties were duly notified of this appointment, to which they did not object in accordance with the combined terms of Articles 11, paragraph 1, subparagraphs b) and c) and 8 of RJAT and 6 and 7 of the Ethics Code of CAAD.

5. By virtue of the provisions of subparagraph c) of paragraph 1 and paragraph 8 of Article 11 of RJAT, as communicated by the President of the Ethics Council of CAAD, the Arbitral Tribunal was constituted on 30.05.2018.

Description of Facts

1. In the application for arbitral pronouncement, A... submitted an appeal against the act of tacit dismissal of the administrative complaint filed on 10.10.2017 against the tax acts for the assessment of stamp duty levied on credit, interest and commissions charged to B... between January 2015 and July 2017, namely the stamp duty slips No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., relating to the months of January to December 2015, the stamp duty slips No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., relating to the months of January to December 2016 and the stamp duty slips No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., relating to the months of January to July 2017, together with the annulment of these assessment acts.

2. A... is a real estate investment fund management company, established on 28 January 1993, which has been active in the real estate market, in the area of real estate asset management and real estate fund management, through the management of B..., a fund whose participation units were admitted to listing on a regulated market and which presents a total value of approximately € 130 million.

3. In the course of its activity, B... entered into bank financing agreements with Bank D..., S.A. (hereinafter "D..."), having for this purpose entered into loan agreements on 15.07.2009 and 12.10.2012 in the amounts of € 20,407,800.00 and € 7,500,000.00, respectively.

4. Throughout the period between January 2015 and July 2017, Bank D... has charged interest and commissions to B..., arising from the conclusion of the financing agreements set out above, in the following amounts:

1. As a result of the charging of such interest and management commissions, Stamp Duty has been assessed to fund B... at the rate of 4%, under the current entries 17.3.1 – "Interest on, namely, (...) loans" and 17.3.4 – "Other commissions and consideration for financial services".

2. During the period from January 2015 to July 2017, B... was assessed and charged Stamp Duty on such interest and commissions, in the total amount of € 48,959.09.

3. Nevertheless, the Claimant considers that, given that B... has the legal nature of a financial institution, the subjection to Stamp Duty of the capital, interest and commissions charged by Bank D... entirely lacks legal foundation, by virtue of the exemption enshrined in Article 7, paragraph 1, subparagraph e) of the Stamp Duty Code (CIS).

4. The Tax Authority, under the provisions of Article 17 of RJAT, filed on 04.07.2018 the administrative file and its Reply to the Claimant's application for arbitral pronouncement, where it submits that the same should be judged to lack merit, as unproven, the present matter, with the tax acts appealed remaining valid in the legal order and the Respondent being absolved, accordingly, of all claims, with the appropriate legal consequences.

Arguments of the Parties

1. The arguments and counter-arguments put forward by the parties concern fundamentally the relevance and scope of the stamp duty exemption contained in Article 7, paragraph 1, subparagraph e) of CIS, which provides as follows:

"1. The following are also exempt from tax:

e) Interest and commissions charged, guarantees provided and, as well, the use of credit extended by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and purpose fulfil the types of credit institutions, financial companies and financial institutions provided for in Community legislation, all of them domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in territories with privileged tax regimes, to be defined by Ministerial Order of the Minister of Finance;"

1. To support its position, the Claimant bases its argument on the connotation and denotation of the concept of financial institution, arguing the illegality of the act of tacit dismissal and the corresponding contested assessment acts, with the following arguments:

• Article 11, paragraph 2, of the General Tax Law provides that, in the absence of indication in the Stamp Duty Code regarding the meaning of "financial institutions", the interpreter must resort to non-fiscal disciplines in an attempt to find the defining element.

• Subparagraph d) of paragraph 1 of Article 30 (under the heading "Qualified Investor") of the Securities Code expressly includes in the exemplary enumeration of "qualified investors" "Collective investment institutions and their respective management companies", as is the case with B... and A....

• Subparagraph f) of paragraph 1 of Article 30 of the Securities Code includes, in the qualification of "qualified investors", "other financial institutions authorized or regulated", which means that the entities mentioned in the preceding subparagraphs of that provision are also seen by the legislature as "financial institutions", which would otherwise be difficult to understand, except thus, the reference to the adverb "other" used in the wording of this subparagraph.

• The use of the adverb "namely" in subparagraph f) of paragraph 1 of Article 30 of the Securities Code reveals the non-exhaustive nature of the list provided there and, by even greater reason, the broad scope of the concept of "financial institution".

• Article 4-A, paragraphs 1, subparagraph a), sub-subparagraph iii), and paragraph 2, subparagraph c), and paragraph 8, subparagraph b), sub-subparagraph iii), of Decree-Law No. 61/2013 of 10 May (which transposed into the national legal order Directive 2014/107/EU of the Council of 9 December 2014, which amends Directive 2011/16/EU regarding the automatic exchange of mandatory information in the tax field) expressly qualifies real estate collective investment bodies (e.g., fund B...) and entities responsible for their management authorized to exercise this activity in Portugal (e.g., A...) as reporting "financial institutions" (within the typology of "investment entities").

• Articles 2, paragraph 1, subparagraph e) and 3, paragraph 1, of Annex I of Decree-Law No. 64/2016 of 11 October (which regulates the Financial Information Reporting Regime, approved by Article 239 of Law No. 82-B/2014 of 31 December, hereinafter "RCIF"), considers "financial institution" reporter whoever is qualified as "investment entity", in accordance with Article 2, paragraph 2, subparagraph c), paragraph 3, subparagraph c) and paragraph 4 of RCIF.

• In accordance with Article 2, paragraph 2, subparagraph c), paragraph 3, subparagraph c) and paragraph 4 of RCIF, an "investment entity", as one of the admissible categories to be designated as "financial institution", encompasses, namely, "Real estate investment funds established in accordance with national legislation, and respective entities responsible for their management".

• This interpretation is in line with Community legislation, in particular with Directive 2015/849/EU of the European Parliament and of the Council of 20 May 2015, on the prevention of the use of the financial system for the purposes of money laundering or financing of terrorism, given that it provides a broader list of entities qualified as financial institutions, and subparagraph d) of paragraph 2 of Article 3 thereof provides that a "financial institution" includes a "collective investment body that markets its shares or participation units".

• Opinion No. 25/2013, issued by the Centre for Fiscal and Customs Studies (hereinafter "CEF") on 28.05.2013, (document No. 8) whose subject of analysis focused on the subjection (or not) to Stamp Duty of management commissions charged by a venture capital company for the administration of a venture capital fund, analyzed the scope of application of the exemption currently enshrined in Article 7, paragraph 1, subparagraph e), of CIS, concluded that both funds and venture capital companies are financial institutions in accordance with Community law and national law, an argument which, by parity of reasoning, holds for B....

• B... should be qualified as a financial institution and, as such, like A..., the interest and commissions in question charged by Bank D... to B... should be covered by the provisions of Article 7, paragraph 1, subparagraph e), of CIS.

1. In divergent sense, the argumentation developed by the Respondent is based on the following topics:

• Paragraph 1 of Article 1 of CIS provides that "Stamp duty is levied on all acts, contracts, documents, titles, papers and other legal facts or situations provided for in the General Table, including gratuitous transfers of goods." and paragraph 2 of the same Article 1 of CIS determines that operations subject to value added tax and not exempted from it are not subject to stamp duty.

• Entry 17.3.4 of the General Stamp Duty Table, for what is relevant here, provides for the subjection to Stamp Duty, at the rate of 4%, of "Other commissions and consideration for financial services".

• Pursuant to subparagraph e), of paragraph 1, and paragraph 7, both of Article 7 of CIS, the following operations are exempt from tax, when the subjects identified there are involved: use of credit extended; guarantee provided in credit granting; interest charged for credit granting; commissions charged "directly intended for" credit granting, which will include commissions for processing the service provision.

• Subparagraph e), of paragraph 1, of Article 7 of CIS can be divided into two parts, with a subdivision of one of them: a) a first, of objective nature, where the following are enumerated exhaustively "[I]nterest and commissions charged, guarantees provided and, as well, the use of credit extended". b) the second, of subjective nature, which is subdivided into two sections: Credit institutions, financial companies and financial institutions; "Venture capital companies, as well as companies or entities whose form and purpose fulfil the types of credit institutions, financial companies and financial institutions provided for in Community legislation, all of them domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in territories with privileged tax regimes, to be defined by Ministerial Order of the Minister of Finance;"

• There are doubts as to the qualification of company B... as a financial institution;

• Taking into account the nature of the consideration received by the Respondent, using the concept of financial services provided for in the VAT Code, and given that CIS does not establish its own concept, the commissions charged by Bank D... have the nature of financial services and are subject to Stamp Duty in accordance with Entry 17.3.4 of the TGIS;

• The current wording of subparagraph e) of paragraph 1 of Article 7 of CIS, as given by Law No. 107-B/2003 of 31.12, suffered successive amendments since the revision of the stamp duty code and respective table by Law No. 150/99 of 11.09;

• Following the initial absence of exemption of interest and commissions (Decree-Law No. 16732 of 1929.04.13; Article 120-A, paragraph 2 of the 1979 Regulation), the exemption of interest was introduced (Decree-Law No. 154/84 of 16.05), although still without the exemption of commissions, a situation which Decree-Law No. 223/91, despite providing some exemptions, still maintained;

• Law No. 150/99 of 11.09 introduced the following wording:

"e) Interest charged and the use of credit extended by credit institutions and financial companies to institutions, companies or entities whose form and purpose fulfil the types of credit institutions and financial companies provided for in Community legislation, all of them domiciled in the Member States of the European Union, or in any State complying with the principles arising from the Code of Conduct approved by the Resolution of the Council of the European Union of 1 December 1997. […]

f) Commissions charged by credit institutions to other institutions of the same nature to entities whose form and purpose fulfil the types of credit institutions provided for in Community legislation, domiciled in the Member States of the European Union, or in any State complying with the principles arising from the Code of Conduct approved by the Resolution of the Council of the European Union of 1 December 1997".

• Paragraph 2 of Article 6 established the direct link between the exemptions in subparagraphs e) and f) and credit extension operations;

• Article 37/2 of Law 30-C/2000 (State Budget Law for 2001) replaced the reference to the Code of Conduct with domiciliation in territories with privileged tax regimes to be defined by Ministerial Order of the Minister of Finance, with interest and financial operations being exempt from stamp duty only when directly related to credit extension operations, in the context of the activity exercised by the institutions and entities referred to in subparagraphs e) and f);

• Article 30 of Law No. 32-B/2002 of 30.12 merged subparagraphs e) and f) of Article 6 of CIS and deleted paragraph 2 which established the direct link with credit extension and renumbering paragraph 3 to 2;

• The aforementioned legislative amendments do not contend with the permanence of the restriction of the scope of application of the exemption, which derives from an integrated reading of the entries contained in No. 17 of the TGIS and the principle of interpretation of the unity of the legal system, which would make redundant the former paragraph 2 of Article 6 of CIS;

• No expansion of the material scope of the exemption occurred through the "repeal" of the provisions of paragraph 2 of Article 6 of CIS; as the legislature did not intend to provide in a sense different from the previous one;

• It is not rational to establish autonomy between interest, commissions charged and guarantees provided, on one hand, and the use of credit extended on the other;

• Only in relation to credit extension is it possible to connect with the extending credit institutions and companies or financial institutions and the observing companies or entities, in form and substance, of the types of credit institutions and financial companies or institutions, beneficiaries of the exemption rule;

• Interest, commissions and guarantees provided are not realities in themselves, with autonomous and distinct existence from the use of credit for stamp duty purposes, under pain of expanding the scope of the exemption of interest, commissions and guarantees and making even more incomprehensible the tax treatment given to the use of credit, which remaining exemption restricted to financial operations concluded between those institutions;

• The historical, systematic, rational and literal elements impose that the exemption rule of Article 7, paragraph 1, subparagraph e) applies to interest, commissions charged, guarantees provided or mere use, in all cases, by reference to credit extended, this link being ensured by the formulation "interest and commissions charged and, as well, the use of credit extended";

• Only interest, commissions and guarantees that result from the prior existence of credit extended which is directly and intrinsically related to them fall within the legal provision;

• The intention of the legislature has always been, and thus remains, to limit the application of the exemption rule to credit extension and the interest and commissions associated with it;

• The exemption provided for in the current subparagraph e), paragraph 1, of Article 7 of CIS only applies to commissions provided for in entry 17 when they are directly linked to credit extension operations, in the context of the activity exercised by the institutions and entities referred to in that provision, as understood by the Judgment of the Central Administrative Court of the South rendered in case No. 02754/08.

• Article 2 of the Tax Benefits Statute (EBF) enshrines a broad notion of tax benefit and qualifies tax benefits as fiscal expenditure, requiring that an estimate be made of the fiscal expenditure associated with its expansion (cf. paragraph 3 of Article 2 of EBF);

• The doubts that might have existed regarding the objective situations provided for in the exemption rule of Article 7, paragraph 1, subparagraph e) were clarified following the entry into force of the 2016 State Budget Law.

• Article 152 of Law No. 7-A/2016 of 30 March amended Articles 2, 4 and 7 of CIS, approved by Law No. 150/99 of 11 September, with Article 7 of the Stamp Duty Code which is analyzed here now having the following wording: "Article 7 [...] 7 - The provision in subparagraph e) of paragraph 1 applies only to guarantees and financial operations directly intended for credit extension, in the context of the activity exercised by the institutions and entities referred to in that subparagraph";

• Article 154 prescribes that the wording given to paragraph 7 of Article 7 of CIS is interpretative in nature, integrating itself into the interpreted rule, in accordance with Article 13 of the Civil Code), forming both an inseparable whole;

• Being the Tax Authority subject to the principle of tax legality, by virtue of Article 266, paragraph 2 of the Constitution, Article 8 of the General Tax Law and Article 3, paragraph 1 of the Administrative Procedure Code, then the position of the Respondent, in light of what is now legally determined in the State Budget Law for 2016, cannot be different from that adopted, the Tax Authority being unable to disregard rules based on unconstitutionality.

Arbitral Meeting Pursuant to Article 18 of RJAT

1. Under the principles of autonomy of the Arbitral Tribunal in the conduct of proceedings, of speed, and of procedural simplification and informality (Articles 19, paragraph 2, and 29, paragraph 2, of RJAT), and having in mind that no exceptions were raised nor did the parties request the production of witness evidence, the Tribunal decided, on 26.07.2018, to dispense with the meeting provided for in Article 18 of RJAT.

Final Submissions

1. In its submissions, the Claimant reiterated the reasons of law presented in the initial petition, emphasizing that the issue concerns the assessment of stamp duty on operations directly related to credit extension – namely, loan agreements – and not on management commissions. The same further adduced the existence of a doctrine sheet resulting from Binding Information concerning a case similar to that which appears in the present file.[1]

2. The Respondent limited itself to referring to the reasons articulated in its Reply.

CASE MANAGEMENT

1. No exceptions were raised.

2. The Arbitral Tribunal is regularly constituted (Articles 5, paragraphs 1 and 3, subparagraph a), 6, paragraph 2, subparagraph a) and 11 of RJAT), and is substantively competent (Articles 2, paragraph 1, subparagraph a) of RJAT).

3. The parties have legal personality and capacity and are duly represented.

4. The proceedings are not affected by nullities nor were exceptions raised, allowing proceedings to continue to a decision on the merits of the case.

REASONING

Facts Established as Proven

1. A... is a real estate investment fund management company, established on 28 January 1993 (document No. 3).

2. A... operates in the real estate market, in the area of Real Estate Asset Management and Real Estate Fund Management, through the management of B..., a fund whose participation units were admitted to listing on a regulated market and which presents a total value of approximately € 130 million (document No. 3).

3. B... entered into bank financing agreements with Bank D..., having entered into loan agreements on 15.07.2009 and 12.10.2012 in the amounts of € 20,407,800.00 and € 7,500,000.00 (documents Nos. 4 and 5).

4. Between January 2015 and July 2017, Bank D... has charged interest and commissions to B..., arising from the conclusion of the financing agreements set out above (document No. 6).

5. As a result of the charging of such interest and management commissions, Stamp Duty has been assessed to fund B... at the rate of 4%, under the current entries 17.3.1 – "Interest on, namely, (...) loans" and 17.3.4 – "Other commissions and consideration for financial services" (document No. 7).

6. During the period from January 2015 to July 2017, Stamp Duty was assessed and charged to B... on such interest and commissions, in the total amount of € 48,959.09 (documents Nos. 6 and 7).

7. The Stamp Duty assessed by Bank D... to B... was duly remitted to the State coffers (document No. 7).

Facts Not Established as Proven

1. With relevance to the decision on the merits, there are no facts alleged that should be considered as not proven.

Motivation

1. With regard to the factual matter, the Tribunal does not need to pronounce upon everything that was alleged by the parties, as it is incumbent upon it to select the facts that matter for the decision and to distinguish the proven matter from the unproven (cfr. Article 123, paragraph 2, of CPPT and Article 607, paragraph 3 of CPC, applicable by virtue of Article 29, paragraph 1, subparagraphs a) and e), of RJAT).

2. The facts pertinent to the trial of the case are chosen and determined according to their legal relevance, which is established in attention to the various plausible solutions of the questions that are the object of the dispute (v. Article 596, paragraph 1, of CPC, by virtue of Article 29, paragraph 1, subparagraph e), of RJAT).

3. Thus, having regard to the positions assumed by the parties and the documentary evidence filed with the case, combined with the testimonial evidence produced, the following facts were considered proven, with relevance to the decision.

Question to Be Decided

1. The question sub judice consists in determining whether B... is a financial institution to be able to benefit from the exemption of Article 7, paragraph 1, subparagraph e) of CIS – a question regarding which the Tax Authority limited itself to alleging some doubts, without further articulating or substantiating – a cognitive operation which requires the prior determination of the scope of the expression financial institution. In other words, the fundamental question under discussion in the concrete case concerns the determination of the connotation and denotation of the concept of financial institution enshrined in CIS.

2. Contrary to what the Tax Authority argues in its reply, in the case at hand, there is at issue the assessment of stamp duty relative to interest and commissions charged with respect to financial operations directly intended for credit extension, namely the loan agreements through which Bank D..., a financial institution, extended credit to B..., another financial institution.

3. The answer to be given to the question at issue refers to Article 11, paragraph 2 of the General Tax Law where it is provided that "Whenever, in tax rules, terms proper to other branches of law are employed, they should be interpreted in the same sense as they have there, unless otherwise results directly from law." This provision performs an important guiding function in the activity of interpretation of tax rules, preventing the generation of legal uncertainty and unpredictability at the time of concretization of the legal concepts employed by the tax legislature. It establishes a rule of interpretation by default and determines the conditions under which its displacement is admissible.

4. The incorporation, by tax law, of technical-legal concepts with the sense corresponding to them in the branches of law from which they originate, implements the requirements of legal certainty and protection of confidence, inherent to the rule of law principle, which the constitutional text ascribes to tax law. It prevents, in principle, the autonomous derivation of interpretative criteria from tax law itself for direct application to the legal terms employed therein and to the facts ascribed to them.[2] While constituting the starting point for the interpretation of tax rules, it does not necessarily correspond to the point of arrival. Nevertheless, any deviation from its application must result directly from law, as reads at the end of the provision in question.

5. Thus, at a first moment, the legal operator is required to determine the sense and scope of the concept of financial institution, based on the meaning it assumes in financial law. It is this that provides the normative framework which determines the rules and conditions for the exercise of financial activity, namely credit extension or investment. It is from it and within it that financial institutions are defined and created.

6. At a second moment, it is necessary to inquire whether, with that concept, with the connotation thus obtained, the investment fund B... can be subsumed. This is a complex hermeneutic and methodical task, considering the openness of the concept of financial institution. It is frequently densified, based on scattered statutory texts, by reference to the economic activity of financial intermediation duly authorized and regulated, oriented towards reducing transaction and information costs in the relationship between investors and financial service markets (e.g., investment; financing).[3] For the concretization of the concept of financial institution in the concrete case different normative and argumentative data should be brought to bear.

7. First, it is important to note that Article 30, paragraph 1, subparagraphs a) to f) of the Securities Code (CMVM)[4] adopts a broad concept of qualified investor, which in turn encompasses a broad concept of financial institution. As appears immediately from the literal content of the provision, the legislature recasts into the category of qualified investors a large number of financial institutions. Indeed, the category of qualified investors encompasses credit institutions, investment firms; insurance companies, collective investment institutions and their respective management companies, pension funds and their respective management companies and other financial institutions authorized or regulated, namely credit securitization funds, their respective management companies and other financial companies provided for by law, credit securitization companies, venture capital companies, venture capital funds and their respective management companies.

8. Pursuant to Articles 1, paragraph 1 and 2, paragraph 1, subparagraph aa) of RGOIC, collective investment institutions are designated as "collective investment bodies" and defined as "institutions, with or without legal personality, that have as their purpose the collective investment of capital obtained from investors, whose operation is subject to a principle of risk distribution and the pursuit of the exclusive interest of participants".

9. By virtue of subparagraph f) of paragraph 1 of Article 30 of CMVM, collective investment institutions and their respective management companies are placed alongside "other financial institutions", a reference that appears immediately after the enumeration of institutions referred to in subparagraphs a) to e) of the same provision. This legislative drafting technique only makes real sense if it is clear, in the mind of the interpreter, that collective investment institutions and their respective management companies are also financial institutions. In other words, it is on the basis of this understanding that to the mention of collective investment institutions are added "other financial institutions". Article 30, paragraph 1 of CMVM repeatedly considers as financial institutions not only management companies but also funds (e.g., pensions; credit securitization; venture capital) or the collective investment institutions managed by them.

10. Specialized doctrine has referred to real estate investment funds in this context. An academic study by Patrícia Andreia de Oliveira Jordão[5] characterizes the figure of the collective investment body as an institution that "has as its purpose the collective investment of capital obtained from the public, whose operation is subject to a principle of risk distribution and the pursuit of the exclusive interest of participants, such as Real Estate Investment Funds", clarifying immediately thereafter that "a real estate investment fund is one that makes its investments fundamentally in real estate, representing an alternative financial product to the usual forms of investment of investor savings, namely in bank deposits and in direct investment in the capital market".

11. Secondly – with the backdrop of the global financial crisis and the fight against tax evasion and fraud – it is important to mention Decree-Law No. 61/2013 of 10 May, which transposed Directive 2011/16/EU (Information Exchange Directive), governing the mandatory exchange of information in the tax field and introducing a mechanism for automatic and reciprocal exchange of financial information, with regard to residents of other Member States of the European Union (EU) or other participating jurisdictions, in compliance with the Common Reporting Standard, developed by the OECD.[6]

12. In this line, and shortening reasons, mention should be made of Decree-Law No. 64/2016 of 11 October – which transposes Council Directive 2014/107/EU of 9 December (DAC2), which amends Directive 2011/16/EU. Article 2, paragraph 1 of the aforementioned Decree-Law No. 64/2016 defines financial institution as "a deposit-taking institution, a custodian institution, an investment entity or a specified insurance company, with the definitions provided in paragraphs 2 to 4 of Article 2 of RCIF applying".

13. Pursuant to the diploma in question, the reporting financial institution entities encompass investment entities, which in turn integrate real estate collective investment bodies. Indeed, Article 4-A, paragraph 1 of Decree-Law No. 64/2016 of 11 October, when referring to reporting financial institutions, provides that, for the purposes of the mandatory and automatic exchange of information, the concept of "Reporting financial institution" encompasses any financial institution that is not considered a "Non-reporting financial institution", with head office or effective management in Portuguese territory, with the exception of any branch of that financial institution located outside this territory, as well as any branch located in Portuguese territory of a financial institution with head office outside this territory. The point is that, in any case, they should integrate one of the following categories of financial institutions: i) "Custodian institution"; ii) "Deposit-taking institution"; iii) "Investment entity"; iv) "Specified insurance company".

14. Paragraph 2, subparagraph c) of Article 4-A densifies the concept of "Investment entity", defining it as any entity that exercises as main activity one or more of the following activities or operations, in name or on behalf of a customer: i) Transactions in money market instruments, namely cheques, bills and promissory notes, certificates of deposit and derivatives, as well as foreign exchange market instruments, in currency, interest rate and index instruments, securities or forward operations on commodities; ii) Individual and collective portfolio management; or iii) Other types of investment, administration or management of financial assets or currency on behalf of others;"

15. Further, in paragraph 8 of the same Article 4-A can be read: "Are considered encompassed in the concept of investment entity referred to in subparagraph c) of paragraph 2, namely: b) Collective investment institutions and entities responsible for their respective management authorized to exercise this activity in Portugal, namely: iii) Real estate investment bodies". In these terms, B..., as a real estate investment body encompassed by the concept of collective investment institution, falls within the concept of investment entity that integrates the concept of reporting financial institution.

16. Thirdly, reference can be made, in this context, to the taxonomy of financial institutions long adopted by the Bank of Portugal, namely for purposes of collection of statistical data. It distinguishes different types of financial institutions, namely monetary financial institutions (MFIs) and non-monetary financial institutions (NFIs). The MFIs include, in addition to the Bank of Portugal, banks, savings banks, mutual agricultural credit banks and money market funds. The category of NFIs, which leaves out insurance companies and pension funds, includes, in the subcategory of financial intermediaries, among others, investment funds (with the exception of money market funds), together with venture capital companies, factoring companies, financial companies, financial companies for credit acquisitions, managing companies of financial sector shareholdings or financial leasing companies. As auxiliary financial institutions, the category of NFIs further includes, namely, investment fund management companies.[7]

17. This classification corresponds to that adopted by the European Central Bank, which also considers investment funds (IF), excluding pension funds and money market funds, as non-monetary financial institutions[8], including them in the list of financial institutions[9].

18. According to the typologies generally adopted, B... is a real estate investment fund, inserted in the category of collective investment institutions, designated as "collective investment bodies"[10], and should be considered a financial institution. Moreover, the Centre for Fiscal and Customs Studies (CEF), in Opinion No. 25/2013 of 28.5 – on the possible subjection to stamp duty of management commissions charged by a venture capital company for the administration of a venture capital fund – analyzed Article 7, paragraph 1, subparagraph e) of the Stamp Duty Code. In that Opinion, the CEF sustained that both funds and venture capital companies are considered financial institutions in light of Community and national legislation.

19. In this same sense spoke a doctrine sheet resulting from Binding Information concerning a case identical to the one here considered[11], where the Tax Authority declares that real estate investment funds are qualified as a financial institution in accordance with European Union legislation, and as such should be considered exempt from stamp duty under subparagraph e) of Article 7, paragraph 1 of CIS as regards commissions charged when directly intended for credit extension in the context of the activity exercised by the institutions and entities referred to therein.

20. The normative and interpretative data just set out point to the consideration of B... as a financial institution under the norms of European Union financial law, so that, pursuant to Article 1, paragraph 7, subparagraph e) of CIS and Article 11, paragraph 2 of the General Tax Law, credit, interest and commissions charged to it by Bank D..., relating to financing extended through the loan agreements entered into on 15.07.2009 and 12.10.2012, should be considered exempt from stamp duty. For that reason, the illegality of the respective assessments should be declared, and the full reimbursement of the amount of € 48,959.09 assessed and wrongfully remitted to the State is due.

DECISION

The following is decided in this Arbitral Tribunal:

1. To judge the arbitral application filed to be well-founded and, in consequence, declare the illegality of the act of tacit dismissal of the administrative complaint filed on 10.10.2017 against the tax acts for the assessment of stamp duty levied on credit, interest and commissions charged to B... between January 2015 and July 2017, namely the stamp duty slips No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., relating to the months of January to December 2015, the stamp duty slips No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., relating to the months of January to December 2016 and the stamp duty slips No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., No. ..., relating to the months of January to July 2017, and declare their respective illegality.

2. To condemn the Tax Authority to the full reimbursement of the amount of € 48,959.09 assessed and wrongfully remitted to the State.

3. To condemn the Tax Authority to payment of the costs of the proceedings, in accordance with Article 22, paragraph 4 and 29, paragraph e) of RJAT and Article 527, paragraph 1 of the Code of Civil Procedure.

VALUE OF PROCEEDINGS

The value of the proceedings is fixed at € 48,959.09, in accordance with Article 306, paragraph 1 of CPC and Article 97-A, paragraph 1, subparagraph a), of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of paragraph 1 of Article 29 of RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

COSTS

The arbitration fee to be borne by the Respondent is fixed at € 2,142.00, in accordance with Articles 12, paragraph 2, and 22, paragraph 4, both of RJAT, and Article 4, paragraph 4, of the Regulation of Costs of Tax Arbitration Proceedings and Table I annexed thereto.

Notify.

Lisbon, 24 September 2018

The Arbitrator

Professor Doctor Jónatas Machado

[1] Doctrine sheet of case 2017... – IVE No. ..., with agreeing dispatch of 07.07.2017, from the Director-General of the Tax and Customs Authority.

[2] The same hermeneutic orientation is adopted in other contexts. See, for example, William B. Barker, "The Disconnect Between Tax Concepts and the World of Fact: State Law as the Gatekeeper", 57, Washburn Law Journal, 2018, 129 et seq., where it states: "where the words of the statute are common private law terms, tax rules, concepts, and standards are not independently derived and directly applied to the raw facts, but are instead viewed as private law categories."

[3] Cfr., namely, Fernando Lima Gurgel do Amaral, The Legal Concept of Financial Institution, São Paulo, 2016, 32 et seq.; Laura Cristina Gastão Ferreira, Financial Institutions in the Economy: An Empirical Analysis of the Portuguese Case, ISEG, Lisbon, 2012, 1 et seq.

[4] Decree-Law No. 486/99 of 13-11; Law No. 104/2017 of 30/08

[5] Patrícia Andreia Oliveira Jordão, Real Estate Investment Funds, ISCAL, Lisbon, 2010, 1.

[6] Tracy A. Kaye, "Innovations in the War on Tax Evasion", Brigham Young University Law Review, 2014, 363 et seq.

[7] Reconducting investment funds to the category of non-monetary financial institutions, see, for example, Statistics of Non-Monetary Financial Institutions, (excluding Insurance Companies and Pension Funds), Methodological Document, December 2009, https://www.bportugal.pt/sites/default/files/dm-ifnm-pt.pdf; National Accounts, Supplement to the Statistical Bulletin, October 2016, Bank of Portugal Eurosystem, 3, Lisbon 2016, p12, table 2, https://www.bportugal.pt/sites/default/files/anexos/pdf-boletim/suplemento_3_2016_0.pdf; Financial System, Financial Institutions, Portuguese Banking Association, http://www.apb.pt/sistema_financeiro/instituicoes_financeiras

[8] For example, Article 7, paragraph 1 of Regulation (EU) No. 1073/2013 of the European Central Bank of 18 October 2013 on statistics of assets and liabilities of investment funds (recast) (ECB/2013/38), provides that "The accounting rules to be adopted by IFs for the purposes of the statistical reporting provided for in this Regulation shall be those established in the relevant provisions for application of Council Directive 86/635/EEC of 8 December 1986, on the annual accounts and consolidated accounts of banks and other financial institutions or, failing that, any other applicable national or international accounting standards applicable to IFs." (emphasis ours).

[9] European Central Bank, Eurosystem, Lists of financial institutions, Investment Funds. https://www.ecb.europa.eu/stats/financial_corporations/list_of_financial_institutions/html/index.en.html, on 29-06-2018.

[10] Article 1, paragraph 1 of RGOIC.

[11] Doctrine sheet of case 2017... – IVE No. ..., with agreeing dispatch of 07.07.2017, from the Director-General of the Tax and Customs Authority.