Summary
Full Decision
ADMINISTRATIVE TAX ARBITRATION
(Decree-Law No. 10/2011, of 20/01)
Case No. 137/2012-T
Claimant: A…, S.A.,
Respondent: Tax and Customs Authority
ARBITRAL DECISION
The arbitrators, Counsellor Judge Dr. Jorge Lopes de Sousa (presiding arbitrator), Dr. Lino França and Dr. José Coutinho Pires (co-arbitrators), appointed by the Ethics Council of the Administrative Arbitration Centre (CAAD) to form the Arbitral Tribunal, constituted on 6 February 2013, hereby agree as follows:
1. REPORT
1.1
On 03.12.2012, the company A…, S.A., Legal Entity No. …, with registered office at …, … (hereinafter referred to as "Claimant"), requested the establishment and arbitral decision, pursuant to Articles 10 No. 1 a) of Decree-Law No. 10/2011, of 20/1, and 95 No. 2 d) of the General Tax Law (LGT).
1.2
This request was submitted following a decision, of 06.08.2012, from the Esteemed Deputy Director-General for Taxation, which dismissed the Claimant's request for reimbursement of Stamp Duty (IS) levied pursuant to item 26.3 of the General Stamp Duty Table (TGIS) – a reimbursement request that was presented by the Claimant on 28.03.2008, under Article 50 of the Stamp Duty Code (CIS) then in force.
1.3
The request for establishment and arbitral decision concerns the annulment of the said decision dismissing the request for reimbursement of IS, as well as the reimbursement, together with compensatory interest, of the total IS paid, Euro 203,796.00, on the basis of illegality of such tax act of dismissal and of the respective IS assessments.
1.4
That amount relates to IS borne in four capital increases that occurred between 15.12.2004 and 29.11.2006, effected by means of conversion into share capital of credits resulting from ancillary contributions.
1.5
To substantiate this request, the Claimant alleged that the Judgment of the CJEU, of 21.06.2007, Case C-366/05 (Judgment "Optimus – Telecomunicações, SA"), decided that item 26.3 of the TGIS violated Community Law, in particular the provisions of Articles 7 and 10 of Council Directive No. 69/335/CEE, of 17.07.1969, as amended by Council Directive No. 85/303/CEE, of 10.06.1985.
1.6
The Claimant further alleged that those ancillary contributions had the "nature of supplementary contributions, which had been made in cash by its Shareholders", and therefore, among other reasons, the said capital increases should be considered as having been effected in cash.
1.7
The Claimant also invoked the supremacy of Community law in relation to domestic law, enshrined in Article 8 of the CRP and in Community Jurisprudence from the CJEU, which it enumerated.
1.8
The Claimant alleged that capital increase operations in Portugal had been exempt from IS since 1991, pursuant to Decree-Law No. 223/91, of 18/6, and that, in the specific case of capital increases in cash, IS exemption dated back to May 1984 (pursuant to Decree-Law No. 154/84, of 16/5).
1.9
The Claimant alleged that, with the entry into force of Decree-Law No. 322-B/2001, of 14/12, "a rule providing for the incidence of IS on capital increase operations" came to be provided, which would be violative of the aforementioned Article 7 of Council Directive No. 69/335/CEE, of 17.07.1969, as understood in the aforementioned CJEU Judgment of 21.06.2007, Case C-366/05 – since, if capital increase operations had been exempt from taxation on 01.07.1984, in light of the national law then in force, Portugal could not "subsequently introduce a tax on the said operations".
1.10
Finally, the Claimant considered that, even if it were to be considered that the capital increases in question were effected in kind, the illegality of the IS assessments in question would nonetheless subsist – given that capital increase operations had been exempt from IS since 1991, by virtue of the approval of the aforementioned Decree-Law 223/91, of 18/6, and the spirit of the aforementioned Council Directive No. 69/335/CEE, of 17.07.1969, as explained in the referred CJEU Judgment of 21.06.2007, Case C-366/05, aims at "(…) since its initial version (…) the elimination of all other indirect taxes with the same characteristics as the tax on capital contributions or stamp duty".
1.11
The Respondent filed a Reply on 12.03.2013, the contents of which, for brevity of presentation, are hereby deemed to be fully reproduced for all legal purposes.
1.12
In that Reply, the Respondent, in addition to raising the exception of lack of passive procedural standing of the Respondent and consequent absolute incompetence of the Arbitral Tribunal, invoked that the said capital increases were effected in kind, and not in cash – further questioning the classification of "supplementary contributions" conferred by the Claimant on the ancillary contributions in question, the Respondent arguing that ancillary contributions and supplementary contributions are distinct legal figures.
1.13
Moreover, the Respondent invoked that, at the date of the facts, capital increases were subject to IS by virtue of item 26.3 of the TGIS, as worded by Decree-Law No. 322-B/2001, of 14/12, which stipulated "26.3 – Increase of the share capital of a capital company through the contribution of goods of any kind; on the real value of goods of any nature delivered or to be delivered by the partners after deduction of the obligations assumed and charges borne by the company as a consequence of each contribution – 0.4%".
1.14
The Respondent further invoked that, subsequently, with the entry into force of Law No. 67-A/2007, of 31/12, that item was amended "as a result of the then recent CJEU jurisprudence", taking on the following wording: "26.3 – Increase of the share capital of a capital company through the contribution of goods of any kind, except cash, on the real value of goods of any nature delivered or to be delivered by the partners, after deduction of the obligations assumed and charges borne by the company as a consequence of each contribution – 0.4%" – thereby removing from IS taxation capital increases when effected in cash.
1.15
According to the Respondent, the CJEU, in the aforementioned Judgment, concluded that the exemption provided for in Article 7, No. 1, of Council Directive No. 69/335/CEE, as amended by Directive No. 85/303/CEE, applies to all situations, falling within that Directive, which, on 01.07.1984, were exempt or subject to reduced taxation by virtue of the national rules of the Portuguese State.
1.16
With capital increases effected through cash contributions, in the Portuguese legal system, on the date of 01.07.1984, being exempt from IS, the CJEU concluded, according to the Respondent, that the reintroduction, after 01.01.1986, of a tax with those characteristics would be contrary to the said Directives.
1.17
From this the Respondent derives that the capital increase operations in the present case, because not effected through cash contributions, but rather through contributions in kind, are covered by the incidence of item 26.3 of the TGIS, not being covered by the understanding advocated in the aforementioned CJEU Judgment.
1.18
On 15.03.2013, the Respondent filed the administrative file underlying the tax acts in question.
1.19
On 20.03.2013, the Claimant exercised its right of response regarding the aforementioned exception of lack of passive procedural standing and consequent absolute incompetence raised by the Respondent.
1.20
In the relevant part, the aforementioned CJEU Judgment of 21.06.2007, Case C-366/05 (Judgment "Optimus – Telecomunicações, SA"), relating to "Indirect taxes affecting capital pooling – Directive 69/335/CEE, as amended by Directive 85/303/CEE – Article 7, No. 1 – Tax on capital contributions – Exemption – Conditions – Situation on 1 July 1984", stipulated that "1) In the case of a State, such as the Portuguese Republic, which acceded to the European Communities with effect from 1 January 1986, in the absence of derogatory provisions in the act of accession of that State or in another Community act, Article 7, No. 1, of Council Directive 69/335/CEE of 17 July 1969, relating to indirect taxes affecting capital pooling, as amended by Council Directive 85/303/CEE of 10 June 1985, must be interpreted to mean that the mandatory exemption provided for in this provision applies to all operations covered by the scope of this directive which, on 1 July 1984, were exempt from the tax on capital contributions in the State in question or were subject to that tax at a reduced rate equal to or lower than 0.50%. 2) In the case of a State, such as the Portuguese Republic, which acceded to the European Communities with effect from 1 January 1986, Articles 7, No. 1, and 10 of Directive 69/335, as amended by Directive 85/303, prohibit the introduction, after 1 January 1986, of a stamp duty on a capital increase operation covered by the scope of this directive which, on 1 July 1984, was exempt from the said tax under national law.".
1.21
On 11.04.2013, the first meeting of the Arbitral Tribunal took place, at the headquarters of CAAD, pursuant to Article 18 of Decree-Law No. 10/2011, of 20/1, in the context of which, under the terms of subparagraph a) of No. 1 of that provision, the following Order was issued: "It appears to the Tribunal that there is drawn in this case a question of incompatibility in the tax incidence rule applied with Community law, namely Articles 4, No. 1, subparagraph c) of Council Directive No. 69/335/CEE and 7, No. 1, of the same directive, but as amended by Council Directive No. 85/303/CEE, and the interpretation given by the judgment of the Court of the Communities of 22 June 2007, in case C-366-05, Optimus Telecomunicações, S.A. case, regarding those Community provisions, is not directly transposable to the specific situation in the present case, since while in the case analyzed the capital increase was effected in cash, in this case we are faced with a simple conversion of credits of the shareholders over the company into share capital. Thus, and giving expression to the principle of cooperation applicable to arbitrators, parties and representatives, set out in subparagraph f) of Article 16 of the RJAT, the parties are notified to submit, within 15 days, a request for referral to the Court of Justice of the Communities, pursuant to Article 267 of the Treaty on the Functioning of the European Union. As it may be relevant to the assessment of the compatibility issue, the determination of the charges corresponding to fees due for commercial registration or notarial intervention in acts relating to capital increase to the Court of Justice of the Communities, the Claimant is notified to submit, within 10 days, a request to the file in which it identifies and quantifies those charges with notarial and registration fees, attaching the respective documents".
1.22
Following this Order, the Claimant, on 26.04.2013, filed the "documents evidencing the expenses incurred with the capital increases and their respective quantification", which were notified to the Respondent.
1.23
On 31.05.2013, a preliminary reference judgment was issued to the CJEU, under the terms of Article 267 of the TFEU, and the following question was submitted to the CJEU: "Do Articles 4 No. 1 c) and No. 2 a), 7 No. 1 and 10 a) of Directive No. 69/335/CEE, of the Council, of 17.07.1969 (as amended by Directive No. 85/303/CEE, of the Council, of 10.06.1985), preclude national legislation, such as that of Decree-Law No. 322-B/2001, of 14 December, which subjected IS to capital increases of capital companies effected through the conversion, into share capital, of credits held by shareholders through ancillary contributions previously made to the company, even if those ancillary contributions were made in cash, taking into account that, as of 01.07.1984, the national legislation subjected those capital increases, effected in that manner, to IS at a rate of 2%, and that, on that same date, it exempted from IS capital increases effected in cash?".
1.24
In the same Judgment of 31.05.2013, it was decided to suspend the present proceedings.
1.25
Anticipating any doubts that might arise regarding the legal admissibility and competence of the CJEU to decide the preliminary reference request formulated by the Arbitral Tribunal, by Judgment of 17.06.2013, the aforementioned Judgment of 31.05.2013 was clarified to reinforce the legal admissibility of the submission of a preliminary reference request to the CJEU, under Article 267 of the CJEU, by the Tax Arbitral Tribunal.
1.26
Following the respective proceedings in the sphere of the CJEU, by Judgment of the CJEU of 12.06.2014, Case C-377/13, that Court, in addition to declaring itself competent to decide on the preliminary reference request, declared that "Articles 4, No. 1, subparagraph c), and 7, Nos. 1 and 2, of Council Directive 69/335/CEE of 17 July 1969, relating to indirect taxes affecting capital pooling, as amended by Council Directive 85/303/CEE of 10 June 1985, must be interpreted to mean that they preclude a Member State from reintroducing a tax on capital contributions in relation to capital increase operations covered by the first of these provisions, which were subject to that tax on 1 July 1984, but which were subsequently exempted from it."
1.27
Owing to the supervening impossibility of the Esteemed Counsellor Dr. Benjamim Silva Rodrigues in maintaining himself as presiding arbitrator in the present case, on 11.07.2014 he was replaced by the Esteemed Counsellor Dr. Jorge Lopes de Sousa.
1.28
By order of 28.07.2014, the suspension of the present proceedings was declared terminated, under Article 276 No. 1 c) of the Code of Civil Procedure (CPC), as the reason justifying it had ceased to exist.
2. PROCEDURAL CURE (SANEAMENTO)
As stated, the Respondent raised the exception of lack of passive procedural standing and consequent absolute incompetence of the Arbitral Tribunal.
To that end, the Respondent contended that it was not the Tax Authority who made the IS assessments, but rather the Notary, who is a passive subject of IS pursuant to subparagraph a) of No. 1 of Article 2 of the CIS and has competence for the respective assessment, pursuant to Article 23 of the same CIS. The Respondent further invoked that IS constitutes own revenue assigned to the Institute of Financial and Patrimonial Management of Justice (IGFPJ), to which falls the management of the financial resources of the Ministry of Justice. Considering itself to be the legitimate passive party subject to an entity not bound to the present Arbitral Tribunal, the Respondent understood that there is absolute incompetence of the Arbitral Tribunal to decide on the requests formulated in this case, emphasizing that, in the event that this Arbitral Tribunal considered itself competent, Article 20 No. 1 of the CRP would be violated (in view of the restrictive regime of appeals provided in the RJAT).
Now, these exceptions have already been raised and addressed in identical situations and cases decided by CAAD, such as the decision rendered in Case No. 2/2011-T, on 10.11.2011, according to which "The competence of arbitral tribunals is defined in art. 2 of the RJAT, whose subparagraph a) of No. 1 provides that the competence of arbitral tribunals comprises the assessment of the declaration of illegality of acts of tax assessment. For its part, art. 4, 1, of the RJAT provides that the binding of the tax administration to the jurisdiction of arbitral tribunals depends on a joint order of the Ministers of Finance and Justice. Such binding took place with the publication of order No. 112-A/2011, of 22/03. Indeed, by virtue of art. 1 of this order, the services – DGCI and DGAIEC – that administer and control taxes in Portugal are bound to arbitral jurisdiction, it being certain that the subject matter in dispute is not encompassed in any of the situations provided for in its art. 2. Thus, one must conclude immediately and in light of what has been set forth above, that the disputed subject matter is included in the competence of this arbitral tribunal; subsequently, in light of the manner in which the claimant (…) structures the controversial substantive legal relationship against the tax administration, the DGCI is bound to the present arbitration. Knowing whether the DGCI is the true and real subject of the legal relationship is a matter to be determined next, but only after having established the material competence of this tribunal. In conclusion, the arbitral tribunal is competent to assess the dispute in question. (…). There is no doubt that stamp duty is a state tax. (…). "There are laws that establish and regulate state taxes - in which it is, then, the State that is the active subject - that allocate the revenue to other entities, such as, in particular, municipal councils. It is clear that, in such cases, it is to the State that all the presuppositions, elements and effects relating to the same tax belong; the entity to which the revenue is allocated is not holder of any right to the object of the respective legal relationship until the tax is collected by the State." - Fundamental Notions of Portuguese Tax Law, Vítor Faveiro, I Volume, p. 366, Coimbra Editor, 1984. Art. 18, No. 1 of the LGT provides that "The active subject of the tax relationship is the entity of public law holding the right to demand the fulfillment of tax obligations, either directly or through a representative." (…) With respect to the DGCI, it is found that, pursuant to its organic law (Decree-Law No. 81/2007, of 29/03, art. 2), it has as its mission and attributions, among others, the administration of taxes (on income, property and consumption), as well as other taxes assigned to it by law, to exercise the action of tax inspection and to exercise the action of tax justice, ensuring the representation of the Public Treasury before the judicial bodies (see art. 2). Notably, as the claimant rightly emphasizes, the authority that has the power to control the assessment, to appraise complaints, official revisions, hierarchical appeals, to intervene in contentious proceedings and in judicial challenges is the DGCI (and the DGAIEC) and, in court, the representatives of the Public Treasury, appointed by these (see, also, art. 7 of order No. 348/2007, of 30/03), and the DGCI is also the one that proceeds with the refund of tax improperly assessed and collected. It results from the picture drawn above that the notary public is merely the passive subject of the tax. And that the holder of the economic interest, who bore the financial burden, is the …. With respect to the active subject, it is necessary to conclude that it can only be the DGCI, because neither the Ministry of Justice nor the IFFPJ have competences and attributions in the domains of tax administration and control. And in the field of tax justice action it continues to be the DGCI that nominates the representatives of the Public Treasury to represent the tax administration before the tax tribunals (see art. 15 of the CPPT). Now, it would not make sense that in judicial tax justice, as happened in case No. …, the State (the Public Treasury) would be represented by elements nominated by the DGCI and in arbitral tax justice it would not be. In conclusion, the respondent DGCI is a legitimate party.".
In the same sense, the decision rendered in Case No. 12/2011-T, on 27.02.2012, according to which "The status of the tax-legal relationship, similar to other rules of personal or subjective incidence, is subject to the principle of tax legality in its dimension as a material reservation of law (pursuant to Article 103, No. 2 of the Constitution of the Portuguese Republic), and it is the law that expressly regulates these matters. On this matter, referring to Stamp Duty, the SAC considers: The principle of administrative legality, in the form of a reservation of formal law (law or decree-law), enshrined by the Constitution, regarding the assessment of taxes, does not require that it be the Administration that must proceed with the assessment, it can well be the individual and result, not in an administrative act, but in a simple act of calculating the tax. (Judgment of the S.T.A. of 28/02/96, Rec. No. 17124, in Doctrinal Judgments of the Supreme Administrative Court, No. 414, p. 724). In accordance, the legislator reaffirmed in Article 8 of the General Tax Law that the "incidence, rate, tax benefits, taxpayer guarantees, tax crimes and the general regime of tax breaches" are subject to the principle of tax legality. In this way, the definition of the subjects of the tax-legal relationship must, by constitutional imperative, result expressly from the law. (…) "The case of stamp duty is even more singular (…), stresses FREITAS PEREIRA, Fiscal Law, 2011, 4th Ed., p. 270, " (…) because the law defines that the passive subjects are those to whom the law assigns the obligation to assess and pay the tax to the State (Article 2 of the CIS) but imposes legal shifting by stating that the burden of the tax is of the entity with economic interest in the tax reality (Article 3) which normally does not coincide with the passive subject.". That is, just as in the specific case under analysis, the passive subject (the notary) assesses and collects the stamp duty but shifting it to the entity with economic interest in the tax reality (now Claimant), pursuant to Article 3 of the CIS. It is, however, important to emphasize that the person upon whom the tax is shifted (now Claimant) is not a passive subject of the tax (subparagraph a) of No. 4 of Article 18 of the LGT). The exclusion of the third party upon whom the tax is shifted from the scope of the notion of passive subject has broad recognition in doctrine (see, DIOGO LEITE DE CAMPOS and MÔNICA HORTA NEVESLEITE DE CAMPOS, op. cit., 2nd ed., Coimbra, 2000, Part II, The tax obligation). Between him and the active subject there is no legal link, in the sense that the person upon whom the tax is shifted is not a debtor of the active subject. His obligation does not arise from the realization of the tax fact, but rather from the realization of a fact to which the law links the right of the passive subject to shift the tax and the correlative obligation of the person upon whom the tax is shifted to reimburse the passive subject when the latter exercises his right (DIOGO LEITE CAMPOS/ BENJAMIM SILVA RODRIGUES/JORGE LOPES DE SOUSA, General Tax Law Commented and Annotated, 2003, p. 117). While the entity upon whom the tax is shifted, and even though it is not party to the tax-legal relationship, the now Claimant may, to defend its interests, present "complaint, appeal or challenge, pursuant to tax law" (as expressly results from the final part of subparagraph a) of No. 4 of Article 18 of the LGT). In conclusion, the passive subject of the tax is, pursuant to No. 1 of Article 2 of the CIS, the notary who, in this capacity, assesses and collects the tax. Defined and framed the passive subject of the tax-legal relationship, it is necessary to define the corresponding active subject. Active ownership of the legal relationship comprises, according to doctrine, various situations: the tax authority, tax competence, tax capacity (active) and ownership of tax revenue (CASALTA NABAIS, Idem, pp. 250-252), namely: (i) tax authority is embodied in the power conferred constitutionally on the legislator for the creation, institution, establishment or "invention" of taxes (…); (ii) tax competence concerns the administration or management of taxes, translated in the levying, assessment and collection of taxes, a competence that traditionally belonged to the tax administration but which, nowadays, is divided between the tax administration and individuals (…); (iii) active tax capacity translates the quality of active subject of the legal relationship of credit in which the tax relationship is embodied. It consists, therefore, in the ownership of the tax credit and other tax rights, a quality that is inherent in the personality of active tax standing or susceptibility to be an active subject of the tax-legal relationship and that falls to tax creditors, among which stands out, by its significance and importance, the tax creditor (Article 15 of the LGT). (iv) Ownership of tax revenue, a situation that occurs in those cases in which, by constitutional or legal imposition, the revenue provided by certain taxes is subjectively allocated to certain public entities that do not have all or some of the other active tax ownerships. It becomes evident that the definition of active subject of the tax relationship provided for in Article 18 No. 1 of the LGT is restrictive and corresponds only to the definition described above of "holder of active tax capacity": The active subject of the tax relationship is the entity of public law holding the right to demand the fulfillment of tax obligations, either directly or through a representative. The Stamp Duty Code – similarly, in fact, to the main tax codes (CIRC, CIRS, CIVA, etc.) – does not expressly define the active subject of the tax relationships embodied in Article 1 of the CIS. Even so, and taking into account the various doctrinal meanings of the concept of active subject, we can assert, from the outset, that the legislator did not assign to the DGRN – in the CIS, organic law of the Ministry of Justice, or separate statute - the competence for the creation, assessment and collection of the tax or ownership of the credit (tax capacity). On the contrary, by way of example, the procedural norms and guarantees provided for in the CIS assign the power to refund improperly collected tax at the request of interested parties to the Minister of Finance (Article 50 of the CIS) or the fulfillment of accessory obligations and provision of information before the DGCI (Article 52). It remains, finally, to determine whether the allocation of tax revenue constitutes a basis for qualifying the DGRN as the active subject of the tax relationship. (…). As it is a rule of budgetary nature, the allocation of revenue does not qualify or integrate the underlying tax relationship to the assessment and collection of the tax. As a rule, allocation is prior to the collection of the tax and depends on its actual collection. As CASALTA NABAIS notes, Idem, p. 252, "Strictly speaking, ownership of tax revenue is not integrated in the tax-legal relationship, but rather constitutes a relationship of credit of financial law, constituted downstream of that between the public entity charged with the administration of taxes and the constitutional or legal owner of that revenue.". Thus, also, by virtue of ownership of revenue, the DGRN cannot be qualified as the active subject of the tax relationship. Taking into account the concept of active subject, namely, in its meanings of tax competence and tax capacity, we are forced to conclude that the DGCI is, by express legal consecration, the active subject of the tax relationship. Indeed, it is incumbent upon the DGCI, pursuant to No. 1 of Article 2 of Decree-Law No. 81/2007, of 29 March, to administer taxes on income, property and consumption, as well as to administer other taxes assigned to it by law, in accordance with the policies defined by the Government in tax matters. For this purpose, No. 2 of Article 2 defines its attributions: a) Ensure the assessment and collection of taxes and other taxes that are incumbent upon it to administer; b) Exercise the action of tax inspection, preventing and combating tax fraud and evasion; c) Exercise the action of tax justice and ensure the representation of the Public Treasury before the judicial bodies; d) Implement international agreements and conventions on tax matters, in particular those aimed at avoiding double taxation, as well as cooperate with the tax administrations of other States and participate in the work of international bodies specialized in the field of taxation; e) Inform individuals about their respective tax obligations and support them in fulfilling the same; f) Promote the correct application of legislation and administrative decisions related to the attributions it pursues and contribute to the improvement of the effectiveness of the tax system, proposing measures of normative, technical and organizational character that prove adequate; g) Collect and collect other revenues of the State or other public legal entities assigned to it by law. Fixed the legal relationship and its subjects, we are in a position to pronounce ourselves on the alleged incompetence of the arbitral tribunal. Pursuant to Article 2 of the RJAT, the competence of arbitral tribunals comprises the assessment of the declaration of illegality of tax assessment acts, self-assessment, withholding at source and payment on account. In compliance with the provisions of No. 1 of Article 4 of the RJAT – which determines that the binding of the tax administration to the jurisdiction of arbitral tribunals depends on a joint order of the ministers of finance and justice – the DGCI and DGAIEC, with the publication of Order No. 112-A/2011, of 22 March, became bound to arbitral jurisdiction. Thus, since the request concerns the declaration of illegality of the act of assessment of a tax in which the DGCI is the active subject of the tax relationship, it is concluded that the arbitral tribunal is competent. On the illegitimacy of the procedural standing of the DGCI. As regards the exception of lack of procedural standing of the DGCI, we refer to the above regarding the ownership of the controversial tax relationship, from which it clearly results that, in the scope of the tax-legal relationship in question, the active subject is the DGCI, the passive subject is the notary and the Claimant is the holder of the economic interest. Pursuant to No. 1 of Article 10 (9) of the CPPT, have legitimacy in the tax procedure, in addition to the tax administration, taxpayers, including substitutes and responsible parties, other tax-obligated parties, parties to tax contracts and any other persons who prove legally protected interests. In tax judicial proceedings or tax enforcement proceedings, the representative of the Public Treasury represents the tax administration (Article 15 of the CPPT). Now, the tax administration includes the Directorate-General for Taxation, the Directorate-General for Customs and Special Consumption Taxes, the Directorate-General for Informatics and Support to Tax and Customs Services, other public entities legally responsible for the assessment and collection of taxes, the Minister of Finance or other member of Government competent when they exercise administrative competences in the tax domain, and the equally competent bodies of Regional Governments and local authorities (Article 1 of the LGT). From what has been said, the DGCI is a legitimate party in the proceedings, therefore the exception invoked is also unfounded.".
We see no reason to depart from this Jurisprudence, which we hereby reproduce.
In the specific case of the IS in question, the passive subject was indeed the notary (at the date of the facts an external service integral to the DGRN, pursuant to Decree-Law 87/2001, of 17/3, itself integrated into the Ministry of Justice), to whom therefore it was incumbent to proceed with the assessment of the tax (Articles 2 No. 1 a) and 23 No. 1 of the CIS), it being incumbent, however, upon the grantor of the capital increases, by economic shifting, the burden of the respective tax (Article 3 of the CIS). Moreover, the respective revenue would then be allocated to the IGFPJ (also an integral part of the Ministry of Justice).
That is, the notary is the passive subject or taxpayer by law; the grantor of the capital increases the taxpayer in fact.
However, in no way did the Tax Authority cease to be the active subject of the tax relationship, positioned at the opposite end of the tax relationship. Indeed, pursuant to Article 18 No. 1 of the LGT, "The active subject of the tax relationship is the entity of public law holding the right to demand the fulfillment of tax obligations, either directly or through a representative.".
Now, there is no doubt that the holder of the right to demand the IS is precisely the Tax Authority, despite it not having been the Tax Authority that assessed that same tax and regardless of who is or will be the actual/final beneficiary of the respective revenue – and therefore, in light of the provisions of Article 18 No. 1 of the LGT, the Tax Authority is the holder of the right to demand payment of the tax.
Indeed, it suffices to consider the cases of self-assessment of tax, as is the case of Corporate Income Tax (IRC), where, despite the taxpayer himself (self) assessing the tax, the Tax Authority nonetheless has the right to demand it from the taxpayer, and is therefore the true "active subject of the tax relationship". The same may be said, mutatis mutandis, in the cases of VAT and withholding at source (tax substitution): although the respective passive subjects are distinct from the taxpayers in fact, no one can question that the active subject of the tax-legal relationship is always and in any circumstance the Tax Authority.
It being certain that the question of the allocation of the revenue obtained from this or that tax is a strictly financial question, which does not concern the ownership of the right to demand payment of the tax, pursuant to Article 18 No. 1 of the LGT. Otherwise, since the revenues of taxes are subject to the most varied budgetary allocations to thousands of state organisms and entities, we would have as many active subjects of the tax relationship as those organisms and state entities annually contemplated with tax revenues. Indeed, in light of Article 18 No. 1 of the LGT, the active subject of the tax relationship is the holder of the right to demand the fulfillment of tax obligations – and not the holder of the tax revenue.
It being also certain that the Tax Authority is responsible for the administration of taxes in Portugal (see Decree-Law 118/2011, of 15/11, and Decree-Law 81/2007, of 29/3).
Indeed, having regard to the principle of the unity of the legal order (Article 9 No. 1 of the Civil Code), it would not make sense for the Tax Authority (Minister of Finance) to have legitimacy to decide requests for reimbursement of IS (see Article 50 of the CIS, wording at the date of the facts), but not to have it while as counterparty in the jurisdictional or arbitral proceedings.
It being certain that, pursuant to Article 9 No. 1 and No. 4 of the CPPT, the Tax Authority has legitimacy in the tax procedure and in tax proceedings.
Consequently, not only does the Tax Authority have procedural legitimacy in the present arbitration proceedings, but the Arbitral Tribunal is competent to assess the present proceedings, given that the Tax Authority, pursuant to Order No. 112-A/2011, of 22 March, bound itself to the jurisdiction of arbitral tribunals constituted pursuant to Decree-Law No. 10/2011, of 20/1.
Therefore, the exceptions raised by the Respondent are unfounded.
In such a way that the Arbitral Tribunal is competent (Article 2 No. 1 a), 5 and 6 No. 1 of the RJAT) and is regularly constituted.
The proceedings contain no nullities or procedural incidents.
The parties have legal personality and capacity, are legitimate and are legally represented (Articles 3, 6 and 15 of the CPPT, "ex vi" of Article 29 No. 1 a) of Decree-Law No. 10/2011, of 20/1).
It is therefore necessary to address the merits of the requests formulated herein by the Claimant.
3. PROVEN FACTS
Because relevant to the merit decision according to the different plausible legal solutions, the following facts are deemed proven:
3.1
On 15.12.2004, the Claimant increased its share capital by the amount of Euro 15,300,000.00, effected by means of conversion into share capital of credits held by shareholders through ancillary contributions previously effected;
3.2
For that capital increase, the Claimant bore the amount of Euro 61,200.00, as IS, and registration and notarial charges of Euro 285.82;
3.3
On 22.06.2005, the Claimant increased its share capital by the amount of Euro 17,289,000.00, effected by means of conversion into share capital of credits held by shareholders through ancillary contributions previously effected in cash;
3.4
For that capital increase, the Claimant bore the amount of Euro 69,156.00, as IS, and registration and notarial charges of Euro 483.16;
3.5
On 17.05.2006, the Claimant increased its share capital by the amount of Euro 12,393,000.00, effected by means of conversion into share capital of credits held by shareholders through ancillary contributions previously effected in cash;
3.6
For that capital increase, the Claimant bore the amount of Euro 49,572.00, as IS, and registration and notarial charges of Euro 400.44;
3.7
On 29.11.2006, the Claimant increased its share capital by the amount of Euro 5,967,000.00, effected by means of conversion into share capital of credits held by shareholders through ancillary contributions previously effected in cash;
3.8
For that capital increase, the Claimant bore the amount of Euro 23,868.00, as IS, and registration and notarial charges of Euro 416.53;
3.9
With the said capital increases, the Claimant bore, therefore, a total of Euro 205,381.95, in IS and registration and notarial charges;
3.10
On 28.03.2008, the Claimant presented a request for reimbursement of Stamp Duty (IS), assessed pursuant to item 26.3 of the General Stamp Duty Table (TGIS), under Article 50 of the Stamp Duty Code (CIS) then in force;
3.11
By order of 06.08.2012, from the Esteemed Deputy Director-General for Taxation, the reimbursement request mentioned in the preceding subparagraph was dismissed.
The proven facts result from the contents of documents 1 to 6, inclusive, filed with the case record, from documents 1, 2, 3, 4 and 5 filed on 26.04.2013 and from the administrative file equally filed, beyond the fact that it is factual matter not challenged or contested between the parties.
4. UNPROVEN FACTS
No unproven facts were ascertained with relevance to the merit decision according to the different plausible legal solutions.
5. FINAL DECISION
5.1
As is apparent from the above, what is at issue is the interpretation and application of norms of secondary Community law, namely the interpretation and application of Articles 7 and 10 of Council Directive No. 69/335/CEE, of 17.07.1969 (as amended by Council Directive No. 85/303/CEE, of 10.06.1985), relating to indirect taxes affecting capital pooling.
5.2
Pursuant to Article 4 of Council Directive No. 69/335/CEE, of 17.07.1969 (as amended by Council Directive No. 85/303/CEE, of 10.06.1985), "1. The following operations are subject to tax on capital contributions: (…) c) The increase of the share capital of a capital company through the contribution of goods of any kind; (…) 2. The following operations may continue to be subject to tax on capital contributions, provided they were taxed at the rate of 1 % on 1 July 1984: a) The increase of the share capital of a capital company through the incorporation of profits, reserves or provisions; b) The increase of the assets of a capital company through contributions made by a shareholder, which do not involve an increase in share capital, but which have their counterpart in an alteration of the rights or which are capable of increasing the value of the shares; (…)".
5.3
Pursuant to Article 7 No. 1 of Council Directive No. 69/335/CEE, of 17.07.1969 (as amended by Council Directive No. 85/303/CEE, of 10.06.1985), "1. Member States shall exempt from tax on capital contributions the operations, with the exception of those referred to in Article 9, which, on 1 July 1984, were exempt or were taxed at a rate equal to or lower than 0.50%. The exemption shall be subject to the conditions required on that date for the grant of the exemption or, as the case may be, for taxation at a rate equal to or lower than 0.50%. The Hellenic Republic shall determine which operations are exempted from tax on capital contributions. (…)".
5.4
Pursuant to Article 10 of Council Directive No. 69/335/CEE, of 17.07.1969 (as amended by Council Directive No. 85/303/CEE, of 10.06.1985), "a) In addition to tax on capital contributions, Member States shall not collect, with respect to companies, associations or legal entities with profit-making purposes, any tax, in any form whatsoever: a) With respect to the operations referred to in Article 4; b) With respect to capital contributions, loans or contributions made in the context of the operations referred to in Article 4; c) With respect to registration or any other formality prior to the exercise of an activity to which a company, association or legal entity with profit-making purposes is subject as a consequence of its legal form.".
5.5
Pursuant to Article 8 of the CRP (International Law), "1. The norms and principles of general or common international law form an integral part of Portuguese law. 2. The norms contained in international conventions duly ratified or approved take effect in the domestic order after their official publication and while they bind internationally the Portuguese State. 3. The norms emanating from the competent organs of international organizations of which Portugal is a member take direct effect in the domestic order, provided that such is established in the respective constituent treaties. 4. The provisions of the treaties governing the European Union and the norms emanating from its institutions, in the exercise of their respective competences, are applicable in the domestic order, in accordance with the terms defined by European Union law, with respect for the fundamental principles of the democratic rule of law.".
5.6
Thus, the legal regime of the aforementioned Directives is directly applicable in the domestic order, the CJEU having repeatedly emphasized the "supremacy of Community law" (see, among others, the Judgment "Costa v. Enel", of 15 July 1964, Case 6/84, in http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:61964CJ0006:PT:PDF).
5.7
For its part, and in accordance with the learned Judgment of the Supreme Administrative Court, 2nd Section, of 04.04.2001, Rec. No. 25,469. "The jurisprudence of the CJEC has binding character for national courts, in matters of Community law, as has been peacefully accepted and is a corollary of the obligation of referral imposed by Article 234 of the Treaty of Rome (Article 177 in the original wording)".
5.8
Pursuant to the learned Judgment of the Full Bench of the Tax Contentious Section of the Supreme Administrative Court, of 11.11.1998, Rec. No. 13,893, "This Full Bench of the SAC is bound by the interpretation made by the CJEC, because pursuant to Article 5 of the Treaty of the European Community, the Member States – including the courts of the Member States (…) – shall take all general or special measures capable of ensuring the fulfillment of the obligations resulting from the Treaty of the European Community or resulting from acts of the institutions of the Community, and must facilitate to the Community the fulfillment of its mission".
5.9
As of 01.07.1984, Article 145 of the TGIS approved by Decree No. 21196, of 28.11.1932, was in force in the Portuguese legal order, presenting, on 01.07.1984, the following wording: "Article 145 (Increase or capital boost of companies) Increase or capital boost of companies, on the amount of the increase: a) Companies in civil form – 5 per thousand (duty stamp); b) Capital companies referred to in Article 145 of the Regulation – 2 % (duty stamp); c) Other companies – 7 per thousand (duty stamp). 1 - Plus, as regards the companies covered in subparagraphs a) and c), the stamp of Article 93. 2 – The increase or capital boost is exempt from the tax when effected in cash" (wording of Decree-Law 257/81, of 1/9, and Decree-Law 154/84, of 16/5, with the percentage and per thousand updates of Article 2 of Law No. 32/83, of 21/10).
5.10
Pursuant to Article 145, sole paragraph, of the Regulations on Stamp Duty (approved by Decree-Law 12700, of 20/11/1926), "For purposes of this provision, the following are considered capital companies: a) Joint-stock companies; b) Limited liability companies; c) Limited partnerships by shares" (wording of Decree-Law No. 257/81, of 1/9, in force as of 01.07.1984).
5.11
It is beyond question that we are dealing with capital increases of a "capital company" (joint-stock company).
5.12
Subsequently, Decree-Law No. 223/91, of 18/6, by conferring new wording to Article 145 No. 2 a) of said TGIS, came to exempt from IS "The increase or capital boost of capital companies referred to in Article 145 of the Regulation" – thus exempting from IS any capital increases of capital companies, regardless of the manner of effecting that increase.
5.13
With the entry into force of Decree-Law No. 322-B/2001, of 14 December, item 26.3 was added to the TGIS annexed to the Stamp Duty Code, approved by Law No. 150/99, of 11/9, beginning to be subject to IS, at the rate of 0.4%, the "Increase of the share capital of a capital company through the contribution of goods of any kind; on the real value of goods of any nature delivered or to be delivered by the partners after deduction of the obligations assumed and charges borne by the company as a consequence of each contribution".
5.14
That is, with Decree-Law No. 322-B/2001, of 14 December, instead of what occurred at that date, all and any capital increases of capital companies, regardless of the manner of effecting that increase, came to be subject to IS (at the rate of 0.4% on the value of the increase).
5.15
As results from the records of the file, it was precisely in accordance with this latest legal regime that the IS assessments in question here were effected.
5.16
When questioned, the CJEU, in the specific case here in question (by means of a preliminary reference), it being a matter of Community law, that Court, as mentioned above, pronounced itself in the following terms: "Articles 4, No. 1, subparagraph c), and 7, Nos. 1 and 2, of Council Directive 69/335/CEE of 17 July 1969, relating to indirect taxes affecting capital pooling, as amended by Council Directive 85/303/CEE of 10 June 1985, must be interpreted to mean that they preclude a Member State from reintroducing a tax on capital contributions in relation to capital increase operations covered by the first of these provisions, which were subject to that tax on 1 July 1984, but which were subsequently exempted from it."
5.17
As mentioned above, the interpretative decision of the CJEU on matters of Community law is legally binding on national judicial bodies (see Article 8 of the CRP).
5.18
Consequently, the order dismissing the request for reimbursement of IS and the IS assessments here challenged are vitiated by a violation of the aforementioned Community norms, making it necessary to proceed with their annulment.
5.19
For its part, given that the assessments are vitiated by an error of law, the right to compensatory interest must be recognized, pursuant to Article 43 No. 1 of the LGT, to be assessed in accordance with Nos. 2 of that same legal provision and Article 61 of the CPPT.
It is therefore decided:
The Arbitral Tribunal agrees to (i) dismiss the exceptions of lack of passive procedural standing and absolute incompetence of the Arbitral Tribunal; (ii) entirely uphold the requests formulated in this case, with the annulment of the order dismissing the request for reimbursement of IS and the annulment of the IS assessments here challenged; (iii) recognize the Claimant's right to compensatory interest, pursuant to legal terms.
The value of the case is set at Euro 203,796.00, in accordance with the provisions of Articles 3 No. 2 of the "RCPAT" and 97-A, No. 1, a) of the CPPT and 306 of the CPC.
The amount of costs is set at Euro 4,284.00, under Article 22 No. 4 of the RJAT and Table I annexed to the RCPAT, to be borne by the Respondent (Tax and Customs Authority), in accordance with the provisions of Articles 12, No. 2, of the RJAT, and 4, No. 4 of the RCPAT.
Register and Notify.
Lisbon, 6 October 2014.
The Arbitrators,
(Dr. Jorge Lopes de Sousa)
(Dr. Lino França) (Rapporteur)
(Dr. José Coutinho Pires)
Document prepared by computer, pursuant to Article 138 No. 5 of the CPC, applicable by remission of Article 29 No. 1 e) of Decree-Law No. 10/2011, of 20/1, with blank lines and reviewed.
The drafting of this decision is governed by the old spelling.
ADMINISTRATIVE TAX ARBITRATION
CAAD: Administrative Tax Arbitration
Case No.: 137/2012-T
Subject: IS - Item 26.3 of the TGIS - Request for preliminary ruling to the Court of Justice
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