Process: 157/2016-T

Date: October 19, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

In CAAD Arbitral Decision 157/2016-T, a company challenged a Stamp Tax assessment of €8,683.31 on loans to third parties under Verba 17.1.4 of the General Stamp Tax Table (TGIS) for December 2010. The Tax Authority applied the general anti-abuse clause under Article 38(2) of the LGT to disregard certain loan structures and assessed additional stamp duty. The administrative complaint was partially granted, with assessments for January-November 2010 annulled due to expiry (caducidade) of the assessment right, but December 2010 remained contested. The key legal issues examined were: (1) whether the 4-year limitation period under Article 45 LGT had expired, considering that the tax inspection began as limited-scope for Corporate Income Tax in December 2014 but was only expanded to Stamp Tax on February 15, 2015; (2) whether the anti-abuse clause prerequisites were properly applied to reclassify intercompany loans; and (3) whether the loan exemption under Article 7(1)(g) of the Stamp Duty Code applied to loans between related companies within a tax consolidation group. The tribunal analyzed the suspension of the expiry period under Article 46 LGT, determining that suspension only operates for taxes within the original inspection scope, and expansion to additional taxes suspends expiry only from the expansion notification date. The assessment comprised €2,749.34 from anti-abuse rule application and €5,933.37 from corrections to a loan granted to shareholder. This decision clarifies important principles regarding stamp tax obligations on intercompany financing, procedural limitations on tax assessments, and the scope of inspection-based suspension of expiry periods.

Full Decision

Arbitral Decision

I – REPORT

1. A... SA, CF..., with registered office at Street ... no. ... ..., floor ... in the city of ..., filed a request for arbitral pronouncement, under the provisions of paragraph a) of no. 1 of article 2º, of no. 1 of article 3º and of paragraph a) of no. 1 of article 10º, all of the RJAT[1], with the Tax and Customs Authority (AT)[2] being requested, with a view to examining the legality of the act of partial dismissal of the administrative complaint no. ...2015... brought against the tax assessment acts for stamp duty, with no. 2015..., relating to the month of December of 2010, ascertained by the tax inspection, which under no. 2 of article 38º of the LGT[3], disregarded the legal transaction and determined corrections within the scope of Stamp Duty (IS)[4], levied on loans to third parties in the amount of € 8,683.31.

2. Which was done without exercising the option of appointing an arbitrator, and came to be accepted by the Honorable President of the CAAD[5] and automatically notified to the Tax Authority on 17/03/2016.

3. Pursuant to and for the purposes of the provisions in no. 2 of article 6º of the RJAT, by decision of the Honorable President of the Deontological Council, duly communicated to the parties, within the legally applicable deadlines, on 10/05/2016, arbitrator Arlindo José Francisco was appointed, who communicated acceptance of the assignment within the legally stipulated deadline.

4. The tribunal was constituted on 25/05/2016 in accordance with the provisions contained in paragraph c) of no. 1 of article 11º of the RJAT, in the wording introduced by article 228º of Law no. 66-B/2012, of 31 December.

5. With its request, the claimant seeks the declaration of illegality of the act of dismissal of the administrative complaint already mentioned as well as of the tax assessment act for Stamp Duty, also already identified.

6. It supports its point of view, in summary, on the expiry of the Stamp Duty assessment, on the absence of legal prerequisites for the application of the general anti-abuse clause and further on the exemption provided for in paragraph g) of no. 1 of article 7º of the Stamp Duty Code[6], relating to the loan from A... to B...

7. In its response, the Tax Authority, also in summary, argues for the maintenance in the legal order of the acts in question, considering that there has been no expiry of the right to assess, that the conditions for the application of the anti-abuse clause are met and that the claimant does not benefit, as it claims, from the exemption provided for in paragraph g) of no. 1 of article 7º of the Stamp Duty Code.

II - CASE MANAGEMENT

The tribunal was regularly constituted, the parties have legal personality and capacity, prove themselves legitimate and are regularly represented in accordance with articles 4º and 10º, no. 2 of the RJAT and article 1º of Order no. 112-A/2011, of 22 March.

After the Tax Authority's reply was presented, the tribunal, taking only into account the procedure provided for in the RJAT, scheduled the meeting provided for in article 18º, for 22/09/2016, and by order of 13/09/2016, after examination of the case file, considered the said meeting unnecessary as well as the production of oral or written submissions, granting a period of 10 days for the parties to make their submissions. Once the period elapsed without anything being said to the tribunal, by order of 30/09/2016, it scheduled the pronouncement of the decision for 19/10/2016.

In this manner, the process not being affected by nullities, it is necessary to decide.

III - REASONING

1 – The issues to be determined, with interest for the case, are the following:

a) To determine whether or not there was expiry of the right to assess Stamp Duty in question.

b) To determine whether or not there was verification of the legal prerequisites for the application of the anti-abuse clause.

c) To determine whether or not there is grounds for the exemption provided for in paragraph g) of no. 1 of article 7º of the Stamp Duty Code.

d) Finally, in light of the conclusions reached in response to the preceding paragraphs, to declare or not the illegality of the act of dismissal of the administrative complaint and of the tax assessment act for Stamp Duty already identified.

2 – Factual Matters

a) In compliance with service order no. 012014..., a tax inspection was opened in the name of A..., dated 27 May 2014, of limited scope, more precisely directed to Corporate Income Tax (IRC)[7] of the fiscal year 2010.

b) On 15/02/2015 the claimant was notified that the said inspection was expanded to general scope, as a failure to assess Stamp Duty in the said fiscal year 2010 had been ascertained.

c) The inspection action resulted in the ascertainment of Stamp Duty and default interest, in the amount of 121,140.34, as per assessment ... of 12/05/2015, notified on 19/05/2015 with payment deadline of 13/07/2015.

d) Considering the said assessment illegal, due to error regarding the legal and factual prerequisites, the claimant filed an administrative complaint against it.

e) The said complaint was partially granted, with the annulment of Stamp Duty for the months of January to November 2010, because the right to assess had expired, with only the Stamp Duty relating to December 2010 remaining in the amount of € 8,683.31 plus default interest.

f) The Stamp Duty in question amounts to € 2,749.34, resulting from the application of the anti-abuse rule and € 5,933.37 of correction relating to a loan from A... to its shareholder B...

g) The claimant is part of a group of companies, with the dominant company Group C... SGPS SA NIPC[8]..., having opted for the application of the special tax regime for groups of companies provided for in article 69º of the Corporate Income Tax Code[9].

There is no factuality held as not proven that is relevant to the decision.

3 – Legal Matters

In light of the factual matters proven, we shall, in the first place, examine whether or not there was expiry of the right to assess Stamp Duty in question.

The matter of expiry of the right to assess and its suspension is set out in articles 45º and 46º of the LGT, to which article 39º of the Stamp Duty Code refers in no. 1, with the reservation of assets taxed by item 1.1 of the General Stamp Duty Table[10] or of gratuitous transfers which is not the case.

Thus, pursuant to no. 1 of article 45º of the LGT, the period applicable to the present case is 4 years and is calculated from the date of occurrence of the taxable event which, pursuant to paragraph g) of article 5º of the Stamp Duty Code, occurred on 31 December 2010. Expiry occurs whenever the assessment is not validly notified within the four-year period, counted, in the situation of single obligation taxes, as Stamp Duty is, from the date of occurrence of the taxable event, in the present case from 31 December 2010. Now, with the Stamp Duty assessment of 12/05/2015, notified on 19/05/2015 and with payment deadline of 13/07/2015, it is established that it occurred beyond the period provided for in no. 1 of article 45º of the LGT. However, the Tax Authority issued a service order with a view to a limited inspection action regarding Corporate Income Tax of the fiscal year 2010, an action that began on 1 December 2014 and ended on 19 March 2015.

In this way, pursuant to no. 1 of article 46º of the LGT, the expiry period is suspended by notification to the taxpayer, in accordance with the legal terms of the service order or order at the beginning of the external action, except that, as already stated, the inspection action was limited in scope and directed to Corporate Income Tax of 2010, therefore the suspension operates only for purposes of Corporate Income Tax. But as for Stamp Duty, the expansion of the scope of the inspection only occurred on 15 February 2015, the date on which the legal representatives of the claimant were notified thereof. It is true that article 15º of the Complementary Regime of Tax and Customs Inspection Procedures[11] provides in its no. 1 the possibility of "The purposes, scope and extent of the inspection procedure may be altered during its execution...". Now, in the present case, the scope of the inspection initiated on 1 December 2014 was only directed to Corporate Income Tax, being a limited or univalent inspection provided for in paragraph b) of no. 1 of article 14º of the Complementary Regime of Tax and Customs Inspection Procedures.

When on 15 February 2015 its scope was expanded, changing from limited inspection to general or multivalent inspection, as classified in paragraph a) of no. 1 of article 14º of the Complementary Regime of Tax and Customs Inspection Procedures, the right to assess Stamp Duty relating to December 2010 had already expired, since the period provided for in no. 1 of article 45º of the LGT had already been exceeded and the suspension provided for in no. 1 of article 46º of the same legal instrument can only operate with respect to Corporate Income Tax, as already seen, being inapplicable to Stamp Duty for that same reason.

What is not in question is the legal possibility of expanding the scope of the inspection, except that this expansion must occur within the period provided for in article 45º of the LGT in its no. 1, which did not occur with respect to Stamp Duty here in question, therefore the suspension provided for in article 46º no. 1 of the LGT does not apply to the present case.

As already stated, the inspection initiated on 1 December 2014 was limited in scope and directed exclusively to Corporate Income Tax, its transformation into a general inspection directed to Stamp Duty occurred already after the expiry period had been exceeded, which the Complementary Regime of Tax and Customs Inspection Procedures itself, in its article 36º no. 1, prohibits.

To say that the expansion carried out on 15 February 2015 retroactively applies, in the present case, to 31 December 2014, would be violative of no. 1 of article 45º of the LGT, of no. 1 of article 36º of the Complementary Regime of Tax and Customs Inspection Procedures, and would distort article 14º of the Complementary Regime of Tax and Customs Inspection Procedures, regarding the scope and extent of the inspection procedure, would be to consider that a limited inspection would have the same effects as a general inspection which the legislator did not intend at all.

Thus there is no doubt that the right to assess Stamp Duty here in question had expired when the expansion of the inspection action occurred and, consequently, the assessment to which it gave rise must be removed from the legal order as being illegal.

In this perspective, the tribunal dispenses itself from analyzing and from pronouncing itself regarding the absence of legal prerequisites for the application of the anti-abuse clause and exemption of paragraph g) of no. 1 of article 7º of the Stamp Duty Code.

IV DECISION

In light of the foregoing, the tribunal decides as follows:

a) To declare the arbitral request well-founded, with the consequent annulment of the order of partial dismissal of the respective administrative complaint, which should be considered granted in full with the consequent annulment of Stamp Duty relating to December 2010, in the amount of € 8,683.31.

b) To fix the value of the case at € 8,683.31 in accordance with the provisions contained in article 299º, no. 1, of the Civil Procedure Code[12], article 97º-A of the Tax Procedure and Process Code[13], and article 3º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings[14].

c) To fix the costs, under no. 4 of article 22º of the RJAT, in the amount of € 918.00 in accordance with the provisions in Table I referred to in article 4º of the Regulation of Costs in Tax Arbitration Proceedings, which are borne by the respondent.

Notify.

Lisbon, 19 October 2016

Text drawn up by computer, in accordance with article 131º, no. 5 of the Civil Procedure Code, applicable by referral of article 29º, no. 1, paragraph e) of the RJAT, with blank verses and revised by the tribunal.

The Arbitrator

Arlindo José Francisco

[1] Acronym for the Legal Regime of Arbitration in Tax Matters
[2] Acronym for the Tax and Customs Authority
[3] Acronym for the General Tax Law
[4] Acronym for Stamp Duty
[5] Acronym for Administrative Arbitration Centre
[6] Acronym for Stamp Duty Code
[7] Acronym for Corporate Income Tax
[8] Acronym for Tax Identification Number
[9] Acronym for Corporate Income Tax Code
[10] Acronym for General Stamp Duty Table
[11] Acronym for the Complementary Regime of Tax and Customs Inspection Procedures
[12] Acronym for the Civil Procedure Code
[13] Acronym for the Tax Procedure and Process Code
[14] Acronym for the Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto do Selo) obligation under Verba 17.1.4 of the TGIS for loans to third parties?
Under Verba 17.1.4 of the TGIS, Stamp Tax is levied on loans granted to third parties, with the taxable event occurring annually on December 31st based on the outstanding loan principal. Companies must calculate and pay stamp tax on both related-party and third-party loans, subject to specific rates and exemptions. The obligation applies regardless of whether interest is charged, making it crucial for corporate groups to assess stamp tax implications of intercompany financing arrangements.
When can the Portuguese tax authority apply the general anti-abuse clause under Article 38(2) of the LGT to reclassify intercompany loans for Stamp Tax purposes?
The Portuguese Tax Authority can apply the general anti-abuse clause under Article 38(2) of the LGT to reclassify intercompany loans when three conditions are met: (1) the transaction is artificial or lacks valid economic substance; (2) obtaining tax benefits is the main purpose; and (3) the arrangement contradicts the spirit and purpose of tax law. The burden of proof rests with the Tax Authority to demonstrate all prerequisites. Simply being an intercompany loan is insufficient; the authority must prove the structure was designed primarily for tax avoidance without legitimate business rationale.
Does the exemption under Article 7(1)(g) of the Código do Imposto do Selo apply to loans between related companies?
The exemption under Article 7(1)(g) of the Código do Imposto do Selo may apply to loans between related companies, but application depends on specific circumstances. Key factors include whether companies are part of a tax consolidation regime under Article 69 of the Corporate Income Tax Code and whether the loan serves genuine commercial purposes. The CAAD examines whether the lending arrangement qualifies for exemption based on the corporate structure, group relationships, and the nature of the financing. Related-party status alone does not automatically trigger exemption; the specific conditions of Article 7(1)(g) must be satisfied.
What are the time limits for the tax authority to issue a Stamp Tax assessment and when does the right to liquidation expire (caducidade)?
Under Article 45 of the LGT, the Tax Authority has 4 years from the taxable event to validly notify a Stamp Tax assessment before the right expires (caducidade). For loans taxed under Verba 17.1.4, the taxable event occurs on December 31st. The expiry period can be suspended by inspection notification under Article 46 LGT, but suspension only applies to taxes within the original inspection scope. If an inspection is initially limited to one tax type (e.g., Corporate Income Tax) and later expanded to Stamp Tax, the suspension for Stamp Tax only begins from the expansion notification date, not the original inspection start date. This principle proved decisive in this case, where assessments for January-November 2010 were annulled for exceeding the limitation period.
How does the CAAD arbitral tribunal review the legality of a partial rejection of a tax complaint (reclamação graciosa) regarding Stamp Tax on loans?
The CAAD arbitral tribunal conducts a full legality review of both the original tax assessment and the decision on the administrative complaint (reclamação graciosa). When reviewing a partial rejection, the tribunal examines: (1) compliance with procedural requirements including notification deadlines and suspension of expiry periods; (2) correct application of substantive tax law including assessment basis and applicable rates; (3) proper verification of anti-abuse clause prerequisites with adequate burden of proof; and (4) whether exemptions were correctly applied or denied. The tribunal has jurisdiction to annul both the assessment act and the complaint decision if legal defects are found. In this case, the tribunal analyzed whether the Tax Authority correctly maintained December 2010 assessments while annulling prior months, focusing on the temporal scope of inspection-based suspension of expiry rights.